All right. So the time is 11 o'clock in Finland, in Helsinki and in Oulu. And that means our Q2 Optumet Investor Call is about to start. My name is Saka Technolpi, and we also have on the line and presenting our CEO and Founder, Seppo Posana and CFO, Boris Klinkliski.
Our Q2 release came out this morning,
and it is available on our IR site at offdemand.com. Everyone can unmute themselves by pressing star 6. And
Okay. Pleased to meet everyone here. So my name is Seppo Kopsalov, CEO of the company, and I will present the Q2 results. So I will always say the slide number, and you can follow the presentation that way. So Going to the Slide number 3 of highlights of the quarter.
So we had a strong rebound from the earlier year Q2. So that was significantly affected by COVID. So the revenue increased 55% during the quarter. Both segments were growing strongly. Software was recording 21%, which was Very good number for software segment.
And devices, obviously, it was a comparison period was extremely weak for devices segment. So the growth was significant 124%. During the quarter, we were now able to publish our MILIT China distribution setup. So We have our long term strategy customer, Peoplesmet. It's a chronic disease management company, and we have been working several years with them and selling them a lot of cameras to be used as part of their services and software platform in China.
That has been the driving factor for our long term growth in China for recent years. Now We have started scaling up the distribution operations. So we signed a strategic distribution agreement with Sinopharm. And the business model is arranged so that Optumet sells cameras to people and who packages them together with the software and services. And then the China Farm distributes the whole solution nationwide in China.
And that cooperation started in Q1 and Then it continued strongly in the Q2. Favorable megatrends continue. So COVID has had obvious negative effects in lot of our traditional business. But at the same time, it has Given speed to telemedicine solutions and AI solutions and home care type of screening solutions. So that trend supports our type of products very well globally.
Going to strike number 4. So China has mentioned, Sinopharm Feeders deliveries continued to grow strongly there. Sinopharm is a big organization, obviously, in China. It's one of the largest health care organizations and companies in the world. And In China alone, they have more than 1,000 regional sales organizations.
And now We are in a process for training those regionalization organizations, and the first couple of deliveries have been made to this New Safe Channel during Q1 and Q2. So now the training and support is the main focus. At the moment, the start has been going according to plan. But at the moment, it's very, very hard to yet forecast in the coming quarters and coming years how fast the revenue growth can possibly be. So for this reason, we'd be on data to give any accurate guidance for China in for the second half of the year and for the 2022 yet.
I think sometimes maybe after 6 months or 9 months, we start seeing how effectively this channel can Possibly, we can grow. But the upside potentially is big because, obviously, Sinopharm is such a company that can potentially scale up our business in a total linear level. USA direct sales performing very well. USA has been recovering from COVID. And Even though there are occasional new concerns coming from the delta variant of the COVID, but still so far so good in the U.
S. Market that America has adapted to new normal in a good way. We continue also building our distribution network. We are hiring sales reps, distribution companies and working with our strategic reseller partners there. And as a third task, We started last year late last year a significant clinical trial with the Israeli based AI company called AI Health.
And our goal is to have our Aurora camera FDA approved with their AI system for detection of diabetic retinopathy. And That study is progressing as planned. If everything goes according to plan, Our goal is that by end of this year, we'll be able to submit 510 application. But the time will tell if we can reach that time frame. But as such, so far, so good.
Our business, it especially continues affecting in our traditional distribution channels, meaning like a traditional sales work where We meet our distributors in different conferences, and they then further go to meet doctors in the hospitals. So that type of a traditional sales work is still difficult to do in many countries. Asia continues being affected, and there are lockdowns in many of the key markets still continue. But at the same time, in some other countries, as earlier mentioned, there is also They are becoming back to normal quite fast. So there is a rebound visible.
So that last year, Many clinics didn't buy the cameras, but now they are buying again. And the same time is that of our home care delivery operators And telemedicine service providers, their business has increased quite significantly. So The new customer segment, which favors especially handheld devices. Overall, it seems that last 6 months, the market has been gradually opened up in most parts of the world, and the trend is expected to continue as the vaccinations are progressing. But if there are New lockdowns coming in the key markets.
That may affect mega affiliate, especially in the devices sales. So but so far, we have not seen effect in the software segment sales. So that has been very well performing regardless of COVID. That's because the recurring revenue model from our existing customer base. Going to Slide number 6, 2nd quarter highlights.
So revenue grew this 4.5% gross margin. Gross margin was now exceptionally high because we received Business Finland grant or actually, they paid one of our old R and D loans. And this loan was to support Quite many years ago, our one of our new type of platform experimental development, and it turned out that this platform was not at the end suitable for our types of products. That was, I guess, 5 4 or 5 years ago. So now Business Finland waived the loan towards this development.
So that was written as a onetime item in this quarter. But without that, the gross margin would have been 67.4%, which is in a good level and within our targets. Adjusted EBIT was 177,000 positive. Cash flow was €1,400,000 negative. That was because the delivery volumes Have been now growing quite rapidly in the devices segment, meaning that we have now a lot of work in progress and inventory levels are higher and customer receivables are higher.
1st half, going to Slide 7. The first half of the year, growth 41%, gross profit growing 51% and The adjusted EBITDA, pretty close to breakeven as our markets has been all the time. No big difference. Going to Slide 8 and further to Slide 9, devices segment highlights. So Very fast growth because the comparison period was very weak 1 year ago, €1,900,000 of revenue.
Gross profit was SEK 1,800,000, but that now included this SEK 538,000 grant from this Business Finland Organization, meaning Finnish government. And without that Grant affected, the gross margin would have been 62.6%, which is close to typical what we have. Now we had a little bit bigger amount of OEM deliveries again compared to very little amount of OEM deliveries on the reference quarter. As a second point, we launched disposable ICA product. So this is a very interesting product.
This has been requested from us by the market for quite a long time. Our handheld cameras, when you use the cameras, you they touch the patient's forehead and or surroundings of the eye with that type of eye cup part. And these Earlier, ICAPS, they have been the metal has been that used for a bit with alcohol to clean it between different patients. But Some customers, especially in U. S.
A. And other Western countries, they have been requesting this part to be disposable. And it took quite a long time for us to make it. It's Even it's a tiny part, a silicon part, but the shape and the feel and how it works, It needs to be exactly right. So it has been taking a long time to develop, and now we managed to finally bring it to the market.
And there is a good customer demand for that and real need for that. Our installed base is quite big. It's 1,000 and 1,000 of cameras in many countries. So once we roll out this product, It can also become a significant new revenue stream for Optomed. So we look forward in coming years to see how That means up.
Also, we brought to market 2 traditional desktop Cameras, these are not our own products. So obviously, Optomed is a handheld camera manufacturer, but we have occasionally had Solution sales deliveries, meaning that the customer buys software system from us, possibly AI solution and a bunch of handheld cameras. But in addition, they do need desktop cameras also in their and bigger hospitals and space and other clinics as well as operators are used to using that. So earlier, they have always for those other devices separately. So but that's that is providing a standard desktop camera was so frequent request.
So we decided to Choose a camera, make a private label agreement with the provider of this camera and integrate that camera to our software system. So now we can provide that one as a package to our software customers. It is And they are not expected to make any material revenue this year as such. But in the long term, they are expected to create a lot of solution sales opportunities and The new user base and recurring revenue for the software. So that's the purpose of those 2 devices.
As a third point, we received a medical device registration for Aurora in Brazil, and now we are starting sales in Brazil as well. And Cepita was 600,000 positive in devices segment during the quarter. Going to Slide 10 and further to Slide 11, software segment highlights. Software segment has been all the time performing very stable, gradual growth as long as we just get the new users using our software solutions. And they are very sticky So that once we win a new customer or expand the existing customer systems and the amount of screenings increases, that means that recurring revenue continues increasing.
So this was a little bit bigger sum now during this quarter. So Revenue increased 21%, gross profit 11%. Gross margins remained in a good level. EBITDA went a little bit down from earlier. That was because we have hired now quite many new software people in our company, and we are investing quite much in development of the New Software and AI Systems.
So that is reflected in higher operating costs for the segment. We are in this software segment, we mostly write All our development expenses as an expenses are not capitalizing most of them. Outlook for 2021, Slide 12 and Slide 13. We expect the revenue to grow strongly compared to 2020. Financial Markets in the long term and midterm remain the same, expecting to grow double digit in the midterm.
And in the long term, organic revenue growth is targeted to be about 20%. In near term, the priority is to open the new markets, bring the new products to the market and keep the EBITDA roughly close to the breakeven level in the short term. But then in longer term, as the revenue grows, as the main investments have been done, Then late eventually, the EBITDA target is to reach above 30% levels. For balance sheet and cash flow, I give the floor to our CFO, Lars Lindqvist. Thanks, Stefaan.
For all this left in the most exciting slides, go with me. Okay. Slide number 15, Balance sheet, we it's not any huge variances that happened in the quarter. Equity ratio is still solid. Boring, euros 5,800,000 versus €6,600,000 last year.
And as I said, previous Of course, that is a good balance, we believe, between equity and borrowings. Net working capital has increased 4.8 Working 3.2, explanation being the strong sales that we had in basically post saying that's not made in the prices was in late in the quarter. Interest bearing net debt of minus 2% versus minus 5.2% last year. So over to Slide 16. So cash flow from operating activities amount to minus 1.4, and the increase in working capital is due to higher product delivery volumes, as Sepo mentioned, and increased trade receivables, especially in China.
So for more details, you can go to our website and see and follow the balance sheet and capital details. Okay? Back to Seppo.
Okay. Thank you, Lars. And then yes, finally, as a summary, Slide 17. So Optomed is in a stage of opening to new markets. So we are actively expanding to new geographic markets, Meaning, especially U.
S. A, we are opening now Latin America after Brazil registration. So this is the direction where We look to grow. We also expect and hope that our new sales channel in China will deliver the growth and liter growth in Asia as well. And then another dimension of growth is that we are pushing The retina screenings towards primary care.
And more and more our customers are primary care operators and different type of telemedicine and home care operators. And they are the locations where we believe retina screenings will be done and should be done in the future. And that's a new tool or some type of market. So there are a lot of primary care clinics available who are not yet doing the screenings, and that's where we are looking to grow. And then eventually, the third is bringing AI integrated health screening to the market.
AI is in early stages, but COVID has been speeding up the takeoff area significantly. It is still not a significant part of our revenue, but we hope to build that as a major part in the future. And this is not most of the Market estimates are suggesting that within next 5 years or so, EIA is expected to make a significant breakthrough in the field of ophthalmology and other areas of medicine, and we are looking to be in the forefront of that change. And with these three directions, we expect to reach our growth targets in the long term. Okay.
That was the presentation of Q2. So happy to answer questions.
Remember, you can unmute yourself by pressing star 6.
Yes. Hello. It's Pia Roskris Calling from Carnegie. Can you hear me?
Yes, very well.
Yes, good. Yes, I have a lot of questions. So if we start by discussing the device sales, can you quantify, I mean, in volumes, I mean units or then in sales, how much of the Q2 sales in devices came from the OEM channel.
It's it was a minority. Vast majority came still from OEM channels. If you look at the couple of years back in history, Most of our sales was OEM sales. But then the COVID changed this thing around and the OEMs went very low during the COVID time. They started a little bit recovering on a Q2 this year, and the recovery proceeded on a Q2.
So it started early this year, and the volumes continue to grow on Q2. But Still OEM sales is very far away from our best years. So that channel has is nowhere near recovered to historical levels.
Okay. Okay. And then the strength in software, that surprised In the Q2. Again, I mean, Q1 was strong, and now Q2 continued with a growth of over 20%. So So first of all, where exactly does the software strength come from?
And is it fair now to Expect that the software growth in 2021 for the full year is double digit, above 10%.
I think there was a couple of exceptional, bigger deliveries, bigger than normal deliveries that happened during Q1 and Q2. Maybe there was a little bit order backlog from COVID times. We were not able to make all the deliveries in 2020 as for the software solutions as in a normal year, we could do. So at least last couple of quarters, there has been Couple of bigger deliveries, and they're higher, they're larger than normal. So It may be that maybe not this fast in coming quarters, but Hard to say, yes.
The trend has been positive. And also, all these telemedicine and AI takeoff activities have been speeding up, as mentioned. But maybe this is a little bit Higher than expected growth also for us, what we have seen.
Okay. Then if we continue jumping to a completely different subject, The coronavirus pandemic is challenging now in Asia and particularly in Thailand. How is your production at Fabry Networking? Do you have Any issues with the production or component sourcing, etcetera?
So far, and nothing has affected our production and supply chain. We need to make extra work compared to normal situation to make sure that situation remains good. So we have a couple of more people than normal working, and we are using also external help. That creates more like a little bit extra costs. But so far, It has not limited our production and sales.
Okay. All right. And then your comment regarding ramping up Sales in China, we could be our new partner during the next 12 to 18 months. Can you, in any way, quantify the level of costs of so called extra or nonrecurring costs you expect on a quarterly level from ramping up sales?
Yes. There are obviously staff costs. We need people to train and support. They need to travel quite much inside China to meet these sales organizations. There are marketing costs.
So we are participating in promotional activities. There are doctors, education costs, those type of things. And also, We have needed to make some arrangements for the for our old distributors because now we have an exclusive channel in China with this people Sinopharm cooperation so that we needed to have needed to clear some of the old distribution agreements, and there are certain costs involved for those as well. We are talking about maybe some 100 of 1000 per quarter level costs now which have been now occurring and maybe occurring still some quarters more.
Okay. Very good. Then I had a final question. Yes. It's regarding your net cash position.
You now have a net cash position of €2,000,000 And taking into account your growth investments, I mean, should we expect you to need to turn to the equity market in, say, next year Or 2023 to ensure that you have enough financing to continue to pursue your growth strategy.
We have to now see that what is How actively we want to proceed in certain type of activities. We are, for example, nearing the time when We believe that we can get this AI, FDA approval for the USA. That May, for example, trigger the need to raise more capital, but the decision so far has not been taken yet.
This is Gurgana from Redeye. Can you hear me?
Hello. Yes.
Hello. I have a question about the Aurora IQ camera. How do you see the sales developing?
That continues on track. Yes, we didn't write very much about that product in this quarter report. But I guess we're quite close to the expectations. We are selling it to the distributors, and and new users are signing up using the service. The lounge was made a bit more than half a year ago, and deliveries started in a bigger volume only on Q1.
So too early to comment what the trend is looking like. I think we need to go towards end of the year before we can See really that what's the annual growth.
And which is the main market for the camera for your sales? China or the Western market?
So far, Western markets. Europe is number 1 for our IQ at the moment. But there are Certain countries in Asia are have been now starting up as well, but only the first The unit deliveries have been made here or there. So hard to say based on only these few early customers that what how the main market will find the product.
Thank you. And I have a question about the U. S. Expansion. What is the best way to allocate capital there?
On which exit it?
Sorry, can you repeat, please?
How are you going to use the resources for U. S. Expansion?
Right now, we have 6 people in the U. S, sales team and product managers and customer support altogether, 6. And this is the team we intend to be wrapping in this level at least end of this year. The team has two goals, to build a distribution network. So it means signing agreements with resellers, sales rep companies and distributors.
And then to serve directly certain strategy customers, which are telemedicine operators and AI companies operating in the U. S. Market and Canada. And this team is, We feel right sized for that. Then things will change once we have FDA approval for our AI solution.
So that's the time to decide if we scale up the team. And if we do that way, then we then need to consider further fundraising as well.
Okay. And I have a question about the R and D activities. You said you've hired more IT people. What exactly are you And how many research pipeline?
In the software side, we have this Optomed Avenue solution. It has telemedicine functionalities and AI service and connectivity modules to different hospital systems and so on. So we are investing in development of this avenue platform and all its functions quite heavily now. That's how the main costs are coming. Other costs are just simply customer deliveries and customer support.
Okay. And the question about margins. So what affiliates are you going to undertake to improve the gross margin, if any?
Yes. The gross margin of the sales is very much depending on the product mix in both segments. In software segments, for our certain type of products, especially our Telemedicine platform and AI solutions, they are very profitable, high margin products. So as they grow, then the margins that are favorable for the margins. Then in the software segment, we also have a certain standard 3rd party components, which have a lower margin.
So it depends on the product mix in our deliveries. In devices segment, our OEM business has traditionally had the lowest margins, whereas our own direct sales and China sales has the highest month.
Okay. Thank you very much.
One thing maybe to add. It is too early to see yet, but maybe after 1 year, we will see what's The possible effect of this disposable ICAP, and that can potentially, over the years, improve the devices segment's margins as well.
And Asepa, do you see any other possibilities for disposable recurring revenues?
Yes. The main recurring revenue components today are obviously The software and usage of our software platforms and products. And I think that That's kind of like obvious. But in the devices segment, the main thing is really this disposable ICAP in coming years. If that grows to be significant, then that's a very major and potentially be a major contributor to our recurring revenue.
Some of the customers also in the Western markets have been interested to look at possible rental schemes for our cameras and software products as a package. So that may be also New type of business area that we may explore in the future.
And have you looked at any complementary or synergistic Businesses are changing, sir?
There are obviously Device companies, for example, such a device companies that have been frequently asked from us as a complementary product. So they could be and look at and also some of the key software solutions what helps us to provide our AI service effectively. So there are interesting companies, and we are actively looking at.
It's Pierre Ostritz from Carnegie here again. I still have another question, if I may. Yes. So yes, talking now on recurring revenue elements And the replaceable eye cups. I mean, looking into, say, 2025, Can you I mean, what in the outlook, is it more likely that the replaceable eye cups Represent a higher share of your recurring revenues than artificial intelligence based Returing revenues.
How do you view that one?
Very tough question. Very tough question. Very, very hard to say. I think fundamentally, AI is very hard to predict. If you look at forecast reports, How EIA is expected to take off, there are very bullish estimations in near coming years.
And then whereas some experts are very conservative saying that they take still a further 5 or 10 years. But We must say that we know that very, very high certainty Within 5 years, AI is doing a significant amount of screening workload in Ophthalmology. That's we have a very, very high confidence for that. And it's consistent with most of the industry players. How that translates Into a revenue for Optumet.
That's a big question. We are still experimenting the Optimal business model and the pricing model. For example, is it a transaction based invoicing? Or is it a fixed monthly fee or so? So We are experimenting same way like all the key industry players are experimenting.
So we don't have answer for that yet. But It is expected that AI is will be invoiced and based on the value it delivers. And if it As it seems, it delivers the screening in it provides a lot of value. It makes the work lower on the human doctors and also seems to be making at least the same quality in a diagnosis. So therefore, It's reasonable to expect that there is value coming to the providers.
So We believe that within 5 years, AI should be a significant part of our revenue. And also, it helps us to sell a lot of cameras to primary care. When it comes to disposable eye cups, I think that could be predicted with slightly maybe higher Even though we are very early stage, but if we are looking at disposables from other companies in our industry, Then the disposable revenue is quite a significant part of their overall business. Is it the bigger or smaller in 25 compared to our device sales? That's hard to say.
Probably, it's still smaller, but over the years, it can grow significant.
All right. Thank you very much.
All right. Remember, you can press star 6 to unmute yourself, and we still have some time if there Are any additional questions? Okay. I guess that's it then. Many thanks, everybody, for participating, and we hope to see you again at the later in November when our Q3 report comes out.
Thank you,