All right. Good morning and welcome to Optomed's Q1 investor call. Our Q1 release came out this morning. The investor presentation, Q1 presentation that we will present with Seppo Kopsala, is on our IR site available. My name is Sakari Knuutti. I'm the CFO of Optomed. Obviously we have also Seppo Kopsala, our CEO, on the line. Everyone can unmute themselves by pressing star six. If you have questions after the presentation, you can utilize that. All right, Seppo, please go ahead.
Thank you, Sakari. Let's go through our first quarter results in a presentation going to Slide 2, highlights of the quarter. First of all, it was again another very strong quarter for software segment, 20% growth track, also good profitability on that segment. We are pleased for that development. For the devices segment, that was a very weak quarter. There was no OEM orders this quarter, and also the Chinese business remained in a low level, so that cost about a bit less than EUR 200,000 decline in the revenue.
I think this kind of like represents the transformation that OEM or the device segment is going through, meaning that the business has been, within last couple of years, shifting more towards own branded products and less OEM sales. After the COVID, the business has not recovered in China yet, so it's more about the Western market business at the moment. Regarding the clinical trial, we initially had a slower start than we were expecting for additional data collection. We had meetings with FDA and discussions about the data collection protocol, and then we got started a little bit later, and the sites got ongoing a little bit later.
Right now, it has been moving on as planned since the little bit slower start. It caused a certain delay at the beginning. Anyhow, no hiccups at the moment, and the data collection is proceeding as expected currently. We keep our guidance as is, so Optomed expects revenue to grow this year as earlier forecasted. Going to Slide 3 , Sakari will go through the key figures of the quarter.
Thank you, Seppo. Starting from the top of the P&L, the revenue, we had a revenue increase to EUR 3.5 million from EUR 3.2 million, that is an increase of 8.2%. The growth was driven by our software segment, as mentioned, the growth there was 21%, and that went by our Healthcare Solution sales. Thus sequentially thinking the driver, it was the same as in Q4. The good performance continued. Devices segment declined as Seppo mentioned, we had a disappointing quarter over there. On the bright side, moving on to gross margin, we had a gross margin improvement on both of the segments.
We saw a gross margin of 71.2% as compared to 68% of last year. It's good to note a small detail there that as you can see from the slide, we had a grant of EUR 40K in the comparison period, and that boosted the comparison period's gross margin by approximately 1.1%. If you think about clean numbers, the growth is actually 4% instead of three. Moving down to EBITDA, which was roughly minus half a million EUR, we can see a clear improvement over there as well as the EBITDA was last year EUR 940K. If you think about the capitalizations, first of all, they are pretty much on the same level on both periods, so there is no effect there.
The improvement is actually driven by positive items, like the increased gross profit and decreased OpEx, on actually, on all of our segments. Moving on to segment highlights and Seppo on Slide 5.
Thank you. Okay, going to Slide 5 and the devices segment first quarter. As mentioned earlier, the revenue declined 16.5%, about a bit less than EUR 200,000. That was due to the lack of OEM orders. That has been the trend in recent couple of quarters that we haven't had OEM deliveries as we used to have about one or two years ago. This has been a little bit on a trend that our sales is more on our own branded product sales and more and more the direct sales in certain markets, such as United States to end customers.
This means, higher gross margins, but at the same time, a little bit less revenue, once the transformation is ongoing. China market still remained very weak. However, it may be that now after lockdowns are over in China and also the COVID pandemic seems to be behind in China or effect of that. We do believe that this could be the year that the China market could gradually start recovering. That's an upside opportunity for us this year and next year. We also have a couple of, or actually quite many now, larger tenders ongoing where we are participating.
If those materialize during this calendar year, they have a significant upside effect potentially on the devices segment business and also the software segment businesses. In many cases, we are offering complete solutions including devices and software. U.S. and distribution sales channels on our own branded products, they continued performing well. That's according to our strategy, and we are pleased for that development. Weakness in our OEM business at the moment is affecting negatively on our revenue overall. Going to Slide 6 and software segment on the first quarter. That was again, very strong quarter. Our healthcare system deliveries has recovered very well within last one year, and the trend has been strongly up.
It means more solution deliveries and increased recurring revenue base from the existing customers. That is reflected as increased revenue and higher gross profits and eventually higher EBITDA. That's has been a very positive trend for that segment at the moment. This is kind of like our base and revenue and cash flow-generating machine, what we need when we are investing heavily opening the U.S. market and bringing these new AI solutions and cameras to the market. Going to Slide 7 and cash flow, and Sakari will continue.
Thanks, Seppo. As you can, I guess, as you can guess from the improved revenue and profitability, we obviously had also improvement on the cash flow side. The net cash from operating activities, it improved to EUR 440k from EUR 700k negative last year during the comparison period. A good note there is that, if you think about it on a year-over-year basis, this is now sequentially the fifth improved quarter in terms of net cash from operating activity. The trend is good. The numbers are, there is, let's say, room for improvement there, but the trend that is something that is that we are happy about. In terms of the cash position, the burn was EUR 1.3 million during the quarter.
last quarter, I mean, sequentially last quarter, Q4, the burn was EUR 1 million and during the comparison period. It was EUR 2.2 million. That is also a good strong trend that we can see over there. Moving on to Slide 8 and back to Seppo.
Okay. This is basically, again, a reminder of the big picture what we are building here. Our main goal is to bring our cameras connected to diagnostic AI solutions to the market, and US is the key market. We are very much investing in getting our camera along with the AEYE Health solution, AI algorithm approved by FDA. Once that's done, the whole business is expected to transform quite much, becoming a recurring revenue type of business from the big market. Europe is coming a little bit behind the US. We are starting to see in Europe also the first AI implementations in a level that we haven't seen before.
Now I think, overall it's looking comparing the U.S. and European markets, it seems that Europe is coming maybe three to five years, maybe behind USA in AI takeoff. Approvals are starting to be there in place in Europe, but almost all European countries are still lacking reimbursements. Once the reimbursements start coming to Europe as well, same way as they are today in the U.S. market, then, we do expect European markets to start gradually opening also for AI or diagnostic AI. This is the what we are heavily involved and this is our main ambition. Going to Slide 9. This is several years this has been our main directions where we are pushing the business.
Investing in opening the new geographical markets, especially meaning United States and certain other key countries like in Latin America and Asia. Opening the new customer segments, especially meaning Primary Care. Some other niches are pediatrics and emergency medicine. Bringing this AI integrated health screening to the market, meaning our cameras connected diagnostic AI. These are the key investments where Optomed is investing millions of EUR every year at the moment. This is still keeping our cash flow currently on a negative, but we do believe that these investments will create significant growth and the cash flows in coming years. So that is the case that we are building.
That was the Q1 numbers. I think, as a conclusion, I could say that personally, I am pleased with the results, especially that the software segment continues that strong performance. On a devices segment, it's only a question of one or two OEM orders, and then we would have a different type of numbers, but they didn't happen in this quarter. That's the effect what we see here. Overall, a pretty good quarter, and I do think we will have a quite good year this year. Happy to take questions.
Hello, it's Pia Rosqvist-Heinsalmi calling from Carnegie. Can you hear me?
Yes, I can. Hi, Pia.
Yeah. Hi, Seppo and hi, Sakari. Hey, a few questions. firstly, I think you alluded now to the device sales weakness and saying that you kind of lacked one or two larger device orders from OEMs. Looking at the numbers now in the second quarter, to me, particularly looking back, it seems like it's the lowest level, the second lowest quarterly device sale since the listing. I'm now just trying to grasp if this a sign of that the handheld market continues to be, you know, a very niche market with limited growth opportunities or are you still confident that the OEM market will be a driver in addition to your own strong then development in direct sales?
Starting from the overall handheld devices market, it is still a very early stages niche market, and the niche product category, as it has been. It seems and, not only Optomed, but everybody who is projecting the devices growth volumes in different product categories are still predicting that handheld product category will continue growing faster than the desktop machines. That seems to be the trend. We do believe strongly that once the AI gains popularity, then the growth rate will accelerate significantly because then the Primary Care can really do the examinations effectively, and that drives the handheld market very much. Yes, it's very, very early stage.
Regarding the trend in our OEM business, that's kind of has been last couple of years that the trend has been down on our OEM channel sales, while the sales of our own branded products and distribution channels and direct sales has been growing. OEMs used to be so big chunk of our devices segment revenue along with China. Those 2, when they have been become lower, we are seeing the effect of negatively in our revenue at the moment in the devices segment. You could consider devices segment is in the middle of this type of transformation where business focus has been shifting from, first of all, from China towards US and Western markets, and secondly, from OEM products to own branded products.
Still, this own branded product business through distribution channels and US, they started a couple of years ago from very low numbers. Even if the percentage growth is high, they have not fully covered the drop in these two other sales channels. We will probably see in a couple of coming quarters, how if we can start showing the positive numbers again.
All right. Thank you. Coming back, you talked about the delays regarding additional data collection. Can you give any more color on the reasons what caused those delays and what kind of delays are we talking about in time? Is it weeks or months?
Initially, we had a couple of months slower start what we expected. Mainly the reason is that there are many, many parties involved in the trials. There is us and our CROs and the AEYE Health as a partner, and then the clinics who actually do this additional data collection. FDA also, which we asked for clarifications or confirmations for our data collection plan. All this together and the timing of those things, they created this couple of months delay at the beginning. Now, now all the sites what we wanted to collect this data, they are running now finally as expected.
All right. Can you give some kind of estimation on how long the data collection will continue?
It will Yeah, I have to repeat myself what I said in February that in a couple of months.
Okay. Yeah, FDA needs, well, anything between, what? 10-90 days before we can expect to get an answer or a decision.
Yeah. Once the application and this updated application and the data is submitted, then it's a normal processing time from FDA. We have not speculated that on our communication.
Yes. Okay. All right. Then you talked about the upside opportunities for 2023, saying that a possible recovery in China is in the cards and several significant potential solution deliveries. Can you quantify this upside potential in euro terms? What kind of magnitude are you referring to?
Well, compared to the pre-COVID levels, our China business is about EUR 2 million lower level than currently than what it used to be earlier. The need for this type of product has not gone anywhere in China. There are a lot of large private screening operators and AI companies who provide these solutions. We do believe that there is a fair chance for us to find a large new strategic partners in China to recover the China business towards the earlier volumes. Will it happen this year or sometimes later? This is something I cannot know yet what will be the timeline. The need is there.
We are not going anywhere from China market. The business unit is downsized in a level that it's not too much negative profitability at the moment, so it's not burdening the company. Basically, the revenue is sufficient to cover the current almost the current expenses. We are ready to take the opportunity once it arrives. This larger solution deliveries, they can be many times they are hundreds of thousands, sometimes in a range of half a million to 1 million EUR deals, what may happen. The sales cycles are they vary a lot. The sales cycles can be from half a year to several years of sales cycles, typically in these type of large national tenders in different countries. It remains to be seen when they happen.
Okay. Thank you. Two more questions, please. Your sales guidance for this year, still unchanged. You're looking for growth. My question is, what is your visibility on software solution deliveries in 2023? Are they, you know, standing for the expected growth, implying that software sales could decline in 2023?
I'm not sure if we have given the outlook specifically. We have not given the outlook regarding the segment level. Overall, yes, we do expect the revenue anyway to grow this year. Yeah. How much the devices and how much software segment is driving the growth, yeah, I cannot comment, unfortunately.
Okay. Then finally, your regarding your manufacturing setup, is everything running as expected and planned? No changes in your outsourced.
Yeah.
Manufacturing in Thailand?
No, no changes. It runs smoothly. Maybe within recent few months, the sourcing issues have maybe become even a little bit easier than it used to be some time ago.
Okay. All right. That's all for me. Thank you.
Thank you.
We are happy to take further questions and you can unmute yourself by pressing star six.
Yes. Hi Seppo and Sakari, Anne Brusila from eQ Asset Management.
Hello.
I have a couple of questions on China. First on the accounts receivable. It was stated in the report that you have accounts receivable almost EUR 3.5 million, and you were referring to a Chinese client that has a big account receivable. Could you open up a bit how big portion of that EUR 3.5 million that Chinese customer represents?
Maybe Sakari can comment on the details. Meanwhile, I can give a little bit background in case everybody has not followed in earlier quarters. The history of this receivable dates back to maybe more than one year, maybe one and a half year. It was caused at one of our large customers or safe channel was a Diabetic Retinopathy screening operator that bought cameras from us and resold their that as a part of their services, screening services to healthcare sector in China. Once the COVID and lockdowns hit the China very hard, that caused their business to shut down almost for almost two years during the lockdown periods.
That brought the company in a difficult position, we were left also with a large receivable. That single customer or sales channel represented majority of our China sales in several years. That was an unfortunate event, but the company is alive, and they are expecting to come back, and every month, they have been repaying those receivables to us. We have not supplied them more products in more than one year. Sakari can comment the details about the actual receivables.
Yes. As Seppo mentioned, the background is as it is. As it comes to the amount of the receivable, it's now a bit less. The actual receivable is now a bit less than EUR 2 million. We have made a credit risk accrual there, which is 30%. On our balance sheet, you see, well, less than EUR 1.5 million in our balance sheet. We are expecting or we have been receiving payments every single month. Eventually, our belief is that we receive the whole almost EUR 2 million back eventually. However, there is also a risk, so there is the 30% credit risk accrual on our balance sheet.
Okay, thanks. This clarified the situation. Getting back to the Chinese activity, I mean, many other companies have also stated that the sort of pickup in the Chinese activity after the lockdowns have ended has been a bit more slower than anticipated. Have you noticed any changes between the various months? For instance, has there been more activity in March than, for instance, in February during the Q1?
Yeah. Usually, February is very slow month in China, because the Chinese New Year holidays, et cetera. We haven't seen yet the speedy recovery as some were predicting. We have been conservative regarding our Chinese expectations. Majority of the people in our industry do believe that the China market will start clear recovery trend during this year. It may be that sometimes towards end of the year, we are also starting to hopefully seeing increased revenue. Optomed is not counting on that, and our forecast or outlook is not based on that. Basically, we are conservative regarding our China expectations, but we are ready, and we have a team ready in place once the market starts recovering.
Yeah. Just to build a bit on what Seppo is saying is that in terms of also capital allocation, we are really concentrating in the U.S. at the moment. China is not our, in our focus areas at the moment due to the fact that we had a couple of, let's say, not so nice experiences over there.
Okay, great. That was all for me. Thank you.
Hi, Seppo and Sakari.
Hello.
Hi. It's Gustav Kindahl here from Redeye. Many of my questions have already been taken. I wonder if you could give some update about the preparations in the U.S., if it's anything new there. What about contacts with different clinics? Are there many that will start with your offering directly after a potential approval?
We do believe that there is quite soon there is a demand once we get the FDA approval. How it will probably build up is that this many customers which are large chains or they are organizations with tens or hundreds or even thousands of potential Primary Care clinics, they will take few cameras probably at the beginning, and then they test it for a while, and then the scale-up begins. There are tens of organizations like that who have initially expressed their interest to start doing the screenings.
I must emphasize that we have not done, and we are not allowed to do any commercial discussions with the potential customers, in the U.S. because the regulatory reasons before we have FDA approval. We do not have contracts or commitments from any of the customers. That's not allowed. Of course, we have been selling our cameras to these organizations for several years on our own and through our OEM channels. We do know what are these clinics, and we do know what they expect to have. That's how it's expected to start.
At the moment, we have a team of roughly 10 people in the U.S., selling just our cameras. They're selling every quarter more and more direct sales. The gross margins go higher. The big scale-up will only start after FDA approval. That's what we foresee.
Okay, thank you.
We still have time for more questions, so you can unmute yourself by pressing star six. All right. I suppose that was the final question. That means that this concludes our Q1 investor call. Many thanks for participating, and we hope to see you again in August in our Q2 call. Thank you very much again.
Thank you.