star six.
Welcome to Optomed Q2 investor call. My name is Sakari Knuutti. I'm the CFO of Optomed, and we have also on the line, our CEO, CEO and founder, Seppo Kopsala. Our Q2 release came out this morning, and the presentation is now available on our IR website. Everyone can unmute themselves by pressing star six if you have any, any questions or comments later on. All right, Seppo, please go ahead.
Thank you. Let's go to Q2 2023 numbers. In the presentation, slide two, highlights. We had a good continued developing in software segment, 4% growth this quarter, in addition to all the other growth quarters that we had before. We continue having a positive trend in profitability improvement, both gross profits and also EBIT, EBITDA, and also cash flow continue to improve. Then, third, device sales on our own branded product continues growing, but the OEM sales decreases. Going slide three. Revenue was roughly on last year level, 0.3% growth compared to the reference quarter.
Because this continuing positive profitability trend, gross profit increased again 15% and then causing significant improvement in EBITDA and cash flow as well. Looking at the half year figures on slide number five. Sorry, slide number four . Yeah, slide number four. So revenue is 4% up compared to the last year, and the gross profit 14.4% up. In a half year level, also similar improvement in EBITDA and cash flow. Looking at segments on slide number six, devices segment, second quarter, 6.5% decrease in revenue, but 5% increase in the gross profit and significant improvement in EBITDA.
The change is a reflection of the continuing trend that our own branded product sales continues to grow, and we have less OEM sales than what we had before. Especially the global distribution sales performance of our own branded product pulls up these gross margins what, what we have had earlier. We are foreseeing some large tenders now coming more and more. This activity has increased since COVID going away, and this is expected to lead into the bigger and bigger deals in coming quarters and years. This is some the reason we see the continuing trend, quite positive, for the, for the devices business.
um going to slide number seven, software segment, another stable, good growth quarter, 4% growth, and 20% improvement in our gross profit. The EBITDA continues improve in same way as well. This is, we are very happy with the development, what the software has been now for a long time already. Going to cash flow, Sakari, please.
Thank you, Seppo. On cash flow, I would like to highlight a couple of items. First of all, the net cash from operating activities, it was 468, and EUR - 1,000 , which is a good improvement from the comparison period, when it was almost EUR - 1 million . Secondly, if you think about the cash flow in, in terms of, last twelve months, you can see that the cash burn, if you will, that has been in the last 12 months, approximately EUR 5.3 million. We, we can see an improving trend there as well. It's good to know that if you look at the comparison period, it's good to remember that we actually had a directed share issue in Q2 last year.
That, that's why the, the comparison period number net increase is, is so high. Finally, the cash position at the end of the quarter was EUR 5.7 million.
Thank you, Sakari. Then, two last slides are the standard slides reminding about the new business model, which we are expecting to build, especially in the United States in the coming years, once we receive the FDA approval for our AI product. The same model will be applicable in other markets as well, once the reimbursements and approvals are in place in other key markets as well. FDA status is that the data collection continues, but it has now progressed well during the second quarter, and we are now starting period, which is sensitive towards FDA. For that reason, we will not comment further.
It has now advanced with no hiccups in the process. We expect the worldwide trends to continue so that we can open new geographical markets and sell more and more cameras to new customer segments, especially primary care in several markets, and then bringing these AI solutions to the market. There is now increasing commercial demand for these cameras connected to AI. That's the presentation. I will be very happy to answer your questions.
You can unmute yourself by pressing star six.
Hello, this is Pia Rosqvist calling from Carnegie. I hope you can hear me.
Hello, Pia.
Yeah.
Very well.
Yes. Good. I've got several questions. If we start by the software segment, well in, in the quarter. Now looking forward, do you expect the sales to continue to be volatile between quarters, or would you this level start to be representative of, of the runways, going forward?
Major part of the software segment revenue is recurring revenue, and therefore, it's quite predictable. Trend is expected to continue being positive in the software segment, also in, in the coming quarters.
All right. Good, because my next question was going to be with regards to the recurring revenue in software, you say it's increasing. Can you share kind of how big a share of your software revenues are recurring?
I think that was, that has not been disclosed in details, but, it is a large, large portion. I don't remember. I don't recall if we have published the exact percentage of the recurring type of revenue in our software revenue. Probably not, so unfortunately, I may not be able to comment that in more details.
Okay, you say it's the major part of software sales?
It is a major part of the software sales. It's recurring-
Yeah.
type of revenue.
Okay. All right, to devices, what kind of geographies and what kind or what type of customers are now driving demand? Is it opticians, primary care, hospitals? Can you share any more color on, on the demand?
The demand is still mainly those type of traditional screening who have been doing the screenings earlier. So it means eye care professionals and diabetic retinopathy screening operators. In several big markets, more and more primary care has been buying. These primary care purchases, they are usually. There may be some projects, for example, who buy bigger solutions in and large amount of cameras. We are talking about possibly tens and/or hundreds of cameras over a certain period of time during, through the tender process. These are the key, key projects we, where we are aiming for at the moment. They make a huge difference in growth speed of our devices segment.
They are almost all primary care opportunities. We have already won some of these and delivered cameras to some of these. There are a lot of these large projects in the pipeline as well.
Okay. Thank you. Can you please also specify when you say you're turning to growth in devices? Do you mean already in the second half or more like in, in 2024?
I, I will not give the detailed forecast, unfortunately, for that. The, the key driver for this growth is that when these large deals materialize, we are ready to ship in a very short time frame once we get the order confirmations from from those tenders. There are tenders where we do believe that we have a good possibility to win them.
Okay, thank you. If I still can continue on the OEM channel, I'm trying to understand what, what is happening there. I'm thinking about the agreements you have with your OEM clients. Are the clients now ceasing, I mean, are they stopping to, to order in total, or are they just kind of slow, gradually slowing down?
It has been on gradually slowing down trend recently. There has been kind of like a couple of drivers for that. Some of them have been focusing more on their own branded, own, own, own made products. Because since the COVID, another trend, or reason may be that in some markets, we have started more actively selling our own branded products. It has been our decision to activate in certain key markets, leaving less room for OEM clients, maybe. Then, the third is that with some of our OEM customers, products are already starting to be older models, what we have been making. They are not the latest products, what we offer necessarily.
I think those three things may affect into this trend. We hope to start reversing this OEM trend because we do like our OEM customers, and we, we do want to provide them good products. Hopefully that channel we can make it pick up as well in the future. We are definitely not going to intentionally trade away our OEM business.
Okay, that's clear. Thank you. Then I must ask about the FDA process, although you say that you, you will not comment here. But you say that the data collection process is still ongoing. Can you give any estimate on when you will be ready with the, with the data collection?
Yeah, yeah. The data collection is finished, once the results are analyzed and we are submitting to the FDA.
All right. Okay. All right. Thank you.
Yeah, yeah, yeah, yeah. I, I will, yeah, I, I will not, not have a timeline to comment. Only thing what, what we mentioned in the report is that we have made good progress during second quarter.
Okay. Right. good. thank you. Then if I still can continue with a few questions. On the, on your business in China, can you give an update on the situation now?
We are aiming for finding and signing new strategic partner or partners in China. There has been progress on this effort, but at the moment, there is nothing to report yet. The China business is relatively low volume at the moment. It, it's a country among others. We are talking about, it, it's bigger than average country, where we are still selling, but it, it's, it, it's not in the level what, what, there could be potential.
Mm. All right. Thank you. Hey, I'll step back into the queue. Thank you.
Thank you.
All right. We are happy to take further questions. R6 for unmuting.
Hi, this is Pia Rosqvist-Heinsalmi from Carnegie again. If, if there are, no further questions currently, I, I could still continue, if it's okay.
Please go ahead. Yep.
Yes. Good. So, my question now really turns to the U.S. market. Is there anything specific ongoing in the U.S. market that we should be aware of? I mean, have you seen any encouraging or disencouraging signs that the AI is being now adopted on a more broader scale?
I think the situation remains the same. And also our view regarding the future development of this AI market for the diabetic retinopathy screening in the U.S., it remains the same. I think the market, market potential is massive, it is unmet need, it is just lacking affordable, easy-to-use solutions at the moment. Reimbursement is there, demand is there, clinical need is there, the system is there, everything is there. As, as soon as really easy-to-use, cost-effective solutions are there. They, those products that are currently in that market, they are not easy to use, and they are not affordable yet.
Yeah. All right. Then, looking at your balance sheet and, the liquidity, the cash, cash flow situation. You reported improving, although still negative cash flow. When, or for how long do you expect now your current cash position to, to carry you?
It is expected to carry, the plan is that it can carry, as long as needed to get our products, AI, our AI camera commercialized in the United States.
Okay, implying that, to accelerate growth, then after that, you, you might return to the market for, for, more, equity to speed up the process?
Additional financing, financing raising may be possible in a foreseeable future if the opportunity is good. It may be either equity or loan or combination.
Yeah. All right. Good. Good. I think that's all for me now. No, sorry, I have one further question on the cost level. Yeah, so the cost level, I think you say in the report that you have taken actions to reduce operating costs, especially in support functions in the second quarter. Are these measures with a temporary or a permanent effect?
Permanent effect, and they are not fully visible yet on the Q2 numbers.
All right. Does it imply you have reduced personnel or done some other structural changes?
Yes. Since the large investments and development projects are getting to final stages, we have reduced both personnel and outsourcing services.
All right. Okay, good. That's all for me. Thank you.
Thank you.
Thank you, Pia. We are still very happy to take more questions, so if you have any, star six for on mute.
Hello, gentlemen, this is Joakim from Inderes.
Hello.
There were lots of questions already asked, so I have only one left. Could you comment on the timeline in the new product that is currently in, trying to acquire the CE approval? Is it going to be end of the year or next year?
At the moment, looking at the queues, what these notified bodies are having at the moment, it probably will go towards next year.
All right. Many thanks.
Thank you, Joakim. Any further questions from, from anybody?
Maybe as a final comment from my side, if you have noticed, new coming CEO has been selected to the company, and on. This is probably my last investor call like this. On my behalf, I want to thank everybody, and this has been extremely a good result what, what our board managed to do with the new CEO search. I'm, I'm also very pleased with the person that the company managed to find. In that sense, I'm, I'm, I'm happy and confident to make this transition, and it will be a start of the new era in, in Optomed. Thank you, everybody, and it has been a really good journey.
I will stay available for Optomed, in a role that may be requested from me.
Thank you very much. This concludes the Optomed Q2 investor call.
Thank you.