Hello, and welcome to the Mentice 2021 Q3 interim report. The report will be presented by Mentice CEO Göran Malmberg. My name is Stacy Hammar, and I will be moderating this webcast. After the presentation, you will be given the opportunity to present your questions to Göran Malmberg and CFO Gunilla Andersson in the meeting conversation feed. Until then, all participants are in listen-only mode. This meeting will be recorded and available with the report on mentice.com. I will now leave the word to CEO Göran Malmberg.
Thank you, Stacy. Welcome, everyone. Nice to have the opportunity to present the third quarter. I will start presentation. Disclaimer, we can move over. Today, I have with me Gunilla Andersson, so she can help me with the financial part of the presentation.
Good morning, everybody.
Moving to the first slide, the third quarter of 2021. Nice way to present that. We're gonna go into the financial details in a bit, but on the top line, both with respect to orders and net sales, we're really pleased with the continued strong performance for this year. I will let Gunilla go through the financial details.
Yes. Order intake in the quarter amounted to SEK 51.8 million, compared to SEK 34.6 million last year. This is actually very close to 50% growth for the order intake. This leaves us then for the first nine months at SEK 131.9 million in order intake compared to SEK 95.5 million last year. The order book by the end of the period was SEK 83.6 million , an impressive almost 100% growth. This leaves us with very good confidence for the remainder of the year and start of next year. Net sales amounted to SEK 38.7 million compared to SEK 33.4 million last year.
This is a growth of close to 16% for the third quarter and takes us to SEK 117.4 million for the nine months with a growth of 28.1%. Gross margin for our sales in the quarter was 86.3% compared to 84.2%, and this is a continuous improvement for end of last year. And it's also very close in the nine months to the last year's numbers as well at 84%. Cost levels, operating expense for the first nine months, higher than last year, 22% up. And we will talk a little bit more about what is the impact of that in the quarter. That is SEK 35.1 million compared to SEK 26.4 million.
This then includes as well, both for nine months but also for the third quarter, our vascular simulation business we bought in October last year. For the quarter, that impact is SEK 3.5 million. Cash flow from operating activities totaled - SEK 7.7 million. We also had a negative cash flow third quarter last year, SEK 6.2 million. This leaves us with SEK 12.5 million for the first nine months compared to +SEK 10.5 million last year. Then last but not least, operating income before depreciation. The total close to zero, - SEK 0.6 million for the third quarter, and then taking us to - SEK 9.6 million for the first nine months.
Thank you, Gunilla. Just reflect a bit, reflection for me on what we just heard. Again, I mean, we followed a Q2 that was our strongest ever from sales and order intake with the third quarter. That's typically a slightly more difficult quarter since the summer quarter with kind of vacations in large parts of the world. Despite that, we have a really strong top line in the quarter and historically, the strongest Q3 ever. The medical device is the main driver here, obviously still. Order's up for the first nine months of 70%. We have 60-some percent after the second quarter.
Continue really strong performance from the device industry really across all regions. We can see from device that the large clients with substantial orders are adding up. I think we have four—I know we have four clients that now have generated over SEK 10 million and actually most of them over SEK 15 million so far this year, which is really nice. I mean, if you go back a couple of years, we would typically see we have maybe one client over SEK 10 million , and then we have a couple around SEK 10 million . Already now we can see these four clients go moving up more kind of up over that limit of SEK 10 million.
The product mix, kind of Gunilla talked about the gross margin. Also really nice to see that we have a better product mix overall over the year, and we maintaining that high level. We were slightly below last year, early in the year, mainly due to currency change, but we have worked that up, and we have a higher degree of software components. The one of you that follow the details looking at details for last year would remember that we for the full year last year had a lower gross margin. We were down to 76%, 77%.
That was specifically due to the fourth quarter of 2020, where we introduced the new hardware device, and we had a lot of sales just with hardware, which impacted our gross margin significantly in the fourth quarter, but also that had an effect over the full year. The question here would be, can we maintain this level of gross margin for the full year? We believe we can. The other thing we can see now is that we see that the hospital market is opening up. I would say we still have struggles in Europe and Middle East, but both the Asian and the North American markets are showing signs of activity, and we have some good progress during the quarter.
We're still behind both 2020 and 2019, but we really see that we get access, and we have dialogues and that there is good activities. One nice win for the hospital side, which we noted in the report this morning, is that we won a tender in Tamil Nadu, for the Tamil Nadu Medical Center, where we're delivering the first. We initially intended to deliver that in the third quarter. That's one of the orders that actually moved into the fourth quarter. That's SEK 4 million, SEK 4.1 million, SEK 4.2 million first installment of that contract. It's several phases of that order.
That's a significant first order in India, and really nice since we have invested in India now for a couple of years, and this is really the first payback on that. India obviously being one of the growing market and I believe one of the most important next growth market for Mentice. We talked a little bit about more of the financials. We had a negative cash flow from the operation as we said, and that's really due to the build-up of inventories. We also see in all the year we have we need to secure kind of logistics to the delivery, so we are building a bit of that.
Also we have some orders and deliveries, as I say in the next point here, that moved into the fourth quarter that also impact the cash flow. We think that will be sorted out in Q4. Our EBITDA, same thing. We had hoped to be able to deliver about six or a little bit more, SEK 6 million more in the quarter on net sales, and that's obviously the direct consequence of that is that the EBITDA level is lower. We can see. I just want to make a comment. You could react to say that 22% up on cost, but just break that down a bit.
If you look at the added cost for the Vascular Simulations organization, Q3 -over -Q3, that's SEK 3.5 million. We also obviously are starting to travel again, so that's about SEK 1 million. We had really low, we phased down consultants, we also had furloughs or temporary release of staff last year, so that's about SEK 2.5 million or so. Then we also capitalizing less development for this year. All of that adds up to I believe about SEK 8 million or so. The total delta here between the years between SEK 35 million and SEK 26.9 million. A lot of that delta is really baked into those 22%.
The actual growth in costs due to personnel is much lower than that kind of 22%. Again, I'm sort of repeating that the comparison, obviously that's not unique for Mentice. A lot of companies will have the same, but comparing Q3-over-Q3 is really difficult because last year we were really not sure about what would happen with the pandemic. We had a full effect of furlough and we had a three or four-day week in several months in last year's kind of Q3. The direct comparison that it's not entirely easy to do. But I think it's nice to see that we are now back to normal levels. We are using consultants to normal levels. We are growing the organization.
We have moved, if you compare year-over-year, we go from 91 to 102 in staff. If you look to the FTEs, we have moved from about 100 by the beginning of this year, up to 120 right now. That's obviously to build our organization for the need or the requirements we have for 2022 and onwards. We had a balance. I mean, besides the fact we moved revenue into, or net sales into Q4, we had a closer breakeven in the first nine months. Obviously, that moves into the fourth quarter. Yeah, I said that.
The business generally, I think really, we continue to build on our market position. Our orientation on really being into the daily clinical practice. Our focus on the image-guided interventional therapies, what we used to call the endovascular, is really paying off. I mean, the attitude from our clients, looking at the relevance of using our solutions, to improve performance and to help physicians make better kind of decisions is really paying off. It's a message that we are pretty unique with. There's really no one else that approaches the market in this same way.
We see, as we talked about the last couple of quarters, a large interest for the online, remote, and software-only applications, which will continue to help our product mix and the gross margin. From the acquisition from Vascular Simulations a year ago, we see that makes a lot of sense, and the combination of what we refer to as the physical models combined with the traditional Mentice virtual models or environments, it's really something that no one else can provide. There's no competitor in the market that can really do that, and that plays into our ability to go upstream with our clients, to help them with solutions for conceptual design and earlier stages in the product development process.
It makes a lot of sense. We also see the discussion with the imaging vendors, Siemens and Philips mainly, but also some of the others. The discussion on robotics mainly so far focused on the kind of Corindus side, which is the robotic arm of Siemens. We see a large interest, great interest in building out the relationship there. We see a lot of opportunities to use our technology to help this company get their products out to the market. The last time, I sort of alluded to already, we really see that the pandemic here with still we see in a lot of parts of the world that the elective procedures are still down.
I mean, I heard this week that in Canada the elective procedures are completely stopped now for a couple of weeks. Obviously, all of that changed the attitude of hospitals and doctors, because there's no relevant way to maintain skill set and be ready for activities, and simulation and the solution we have is really the only rational way for them to train their skills and their ability to perform when they need to be on a patient. So really summary here, we are expanding the vertical footprint in the image-guided therapy areas. That's. We're really excited about that avenue, and we seem to get a lot of good feedback from the market on those kind of dialogues.
We also obviously have a clear ambition to, with further acquired businesses in the future here, demonstrate or articulate what is our direction for the future. It's not, as I said before, just training and simulation. It's really moving in a different direction, which would, in my mind, distinguish Mentice from other vendors in this marketplace. Q4. First key drivers for Q4 and 2022 and beyond. It's sort of a summary. I'm not gonna spend a lot of time on this. I sort of already touched on most of these. Again, summary, the combination of the virtual and physical from the Vascular Simulations acquisition is really important for us to provide a broader set of products.
Vascular Twin, which is now a Mentice registered trademark, the digital twin environment for us to really use the Mentice physics and platform to replicate the real patient and to allow that real patient to be used for all kind of activities, again, is really our future and our avenue forward. The large clients, mainly on the medical device side, but also with the kind of imaging side as well. We have a lot more opportunity there. We can see if we can do much more. I think with the growing product portfolio as well, that's clearly where the majority of the growth will come for the next foreseeable future. Strategic alliances, specifically related to the imaging companies with Siemens and Philips.
We spent a lot of time over the year on the further integration, the applications we can provide and their software layer, how we can get under the hood with these companies out to the market makes a lot of sense. That also still is negatively impacted by the hospital market. It's not fully back to the normal levels. I think the engagement and the activities there really talks for the kind of opportunities in the future. The neurovascular piece, we have talked about that over the last year or so, that's our focus. We have almost dominant market position there with the medical device industry. I think all of the major device companies use our products.
In terms of the KOL, the key opinion leaders in that field, we work with the rock stars in that industry from all regions. I think our technology, where we are, really is a good base for what we will do to move forward. We will see new products coming out in that area, both from the perspective of planning and precision medicine related solutions for more experienced doctors, advanced cases and so forth, but also for more products for junior and newcomers into that field. AI and machine learning, everything we talk about here related to robotics, to the integration with imaging, with the software applications we're looking at.
We see AI and machine learning being an important part of that going forward. Robotics, as I sort of talked about already, but it's not about training really, it's about adding functionality, adding ability for this company to use this platform for both their product development, for providing a kind of decision tools, decision environments for physicians, but also for the robot, helping the robot to prepare for a specific case. That's where we see a lot of interesting possibilities for the future. Some more specifics here. We see a possible outlook for Q4.
We see we are continuing at the same pace as we have done for the first couple of quarters this year. As we said on the first slide, Gunilla said, we have almost 100% up on the order book with more than SEK 30 million planned for the fourth quarter. We're building order book for the next couple of years. We have SEK 25 million for 2022 and another SEK 25 million for 2023. I think after Q4, we'll see an even larger order book for the full year 2022, 2023. That's obviously important for us to build revenue for the future. That's something that we haven't really talked about.
I mean, our ARR transition obviously to some extent is impacting our short-term sales. We haven't presented any numbers of that, but I think this is really the avenue. This is the way we are going. The medical device will continue be the main driver clearly. We hope to see a more significant pickup for hospital and imaging. We can't plan for that really. It's a question when that market is clearly opening up. If we look at the confirmed order book we have for Q4, which is SEK 30 + million , and with the net sales at the end of Q3, we are already above last year's full result.
Last year, we had SEK 137 million in net sales, and we're already now at SEK 148 million, SEK 149 million before we started the fourth quarter really. We can see positive indications, as I say, for hospital market, both direct and through Siemens and Philips. But as I said before, still below 2020 as well as 2019. We did announce one order from Abbott a week or so ago for $822,000 , I think it was, eight million-ish. So Abbott totally have generated over a million dollars in orders for the first couple of weeks in October. But if you look at the order intake in October, it's already now SEK 23 million in basically three weeks.
We had a really good start for the fourth quarter, sorry. We're obviously continuing to build an organization for 2022, which is in the plan. What I'm saying is that we obviously, since we are a little bit late in the year with respect to the revenue side, it's unclear if we will be able to catch up for the full year, but that's obviously what we are working with. That's, I hope that gives you a good overview of the quarter. With that, I will. Yeah. The last point here.
In summary, a strong start in the fourth quarter, a positive view of the net sales and the increase in net sales for the full year. Market position, clearly, we're taking market share, but we're also defining new markets. We really see good demand for what we do in all markets. That's really the conclusion of what I wanted to say. With that, I will come back to you, Stacy, and see if we have any questions.
Yes. Thank you, Göran and Gunilla. Okay, we have one question at the moment from Jens Myren. He just asked cash situation.
Yeah.
Yes.
She knows that.
At the end of the quarter, we have just SEK 12 million in our cash. We also have a revolver of SEK 20 million that we haven't used at all at the end of the quarter. Then we have-
The end of the quarter. We have a stronger cash position expected for the end of the year.
For sure.
Okay. Thank you. We have two people with raised hands, so I will unmute so they can present their question.
Sure.
Rikard Engberg, you may ask the question now. You have to unmute yourself first.
Okay. Hello? Can you hear me?
Yes.
Yes.
Hey, hey, Rikard.
Oh, hello. Good morning. I have two small questions. The first one, if you look at your software sales at the moment, and you're talking about that you move towards now, ARR sales.
Yeah.
Approximately how much would you say of your software sales at the moment are recurring?
I don't have the percentage number in my hand, actually. I mean, we have all of the software sales to the hospital side is recurring. We have moved transition completely over to that. In the industry side, we see several of the large clients are moving into a rental or a non-CapEx related acquisition of our products. As a sample, Ambu, all of the orders for Ambu are really related to rentals. I don't have a number in my head, and I realize that we should have that. That's something we will work into the report for next year. That's a decision and discussion we had in the board.
I'm sorry I can't give you an exact number, Rikard, but that's something we clear in the report.
Okay, good. If I were to make an estimate of the recurring revenue, I would have to take the SEK 25 million that you state, and then also add a portion of the software sales.
Yes. Okay. Sorry, Rikard, can you repeat? It's a total of SEK 25 million, which was software you mean?
I knew 0.5 will usually say a rental.
Yeah.
If I were to out of the software sales.
Yeah.
I would say basically it would be a percentage of efforts also recurring.
Yeah. Yeah. Yes. Absolutely. Yes.
Okay, good. Thanks.
You said you had a couple of small questions.
Oh, those were related, so.
All right. Okay. Thanks, Rikard.
Thank you, Rikard. We have another question here from Christian Lee, so I will just allow his microphone.
Yeah.
Christian?
Hey, Christian.
You have to unmute yourself.
Yes. Hello. Can you hear me?
Yes, we can hear now. Hey, Christian.
Excellent. Hi, Göran and Gunilla. I have a couple of questions. The first one is regarding the gross margin. You mentioned that you see that you can maintain the gross margin level. Did you mean the level of 82% that you showed in the first nine months or 86% in Q3?
That's a good question. I would be a little bit too bold to say 86%, 87%. We had a really strong gross margin in the third quarter. When I say maintain, I'm saying we maintain 84%-ish, 84%, 85%, that level. I think to go beyond that in my estimates, it's little bit kind of premature. We will be able to maintain where we are for the first nine months, also for the full year. As I said, comparing to last year, the fourth quarter last year really hurt the overall margin for the year. That went down to 76%, 77%, which we don't see this year. We believe we can maintain the 84-ish kind of percent.
All right. Excellent. My second question is regarding your order book.
Yes.
You wrote in the report that you're planning to deliver approximately SEK 30 million for the remainder of 2021. Does this include the delayed delivery of SEK 6 million?
Yes, it does.
Okay. Can I ask you about this dynamic between the order intake and revenue recognition? You have shown in a couple of quarters a very strong order intake, but the revenue seems to lag a bit. Could you please elaborate on that?
No, I mean, I think what happened here now at the end of Q3 was we had a logistical or delivery-related issue that was one part of it. We couldn't deliver systems as expected. We had components issues that prevented us from delivering the kind of G5 unit in the final quarter. That had some effect. We also had delays from mainly some Asian clients in terms of their acceptance to kind of receive systems. Both of those issues can be resolved going into fourth quarter.
We are building up the production capacity and these specific situations with these clients in Asia we have sorted out as well. It's obviously annoying, if I'm gonna use that word, that we had a similar issue back in Q3 or to some extent Q4 and Q1. Now this impacted us with SEK 6 million or so in this quarter. Yeah. We have seen some issues obviously over those quarters in terms of the customers' ability to receive systems. We have logistics and shipping systems and things like that sort of issues.
That's really the basis of those. Was that an answer, Christian? I'm not sure.
Thanks.
Okay, thanks.
My final question is regarding your comment on the hospital market.
Yeah.
You said that the hospital market in Asia and North America is slowly opening up, but still behind 2019, understandably, also 2020. Could you please explain how come it's behind 2020 as well?
I mean, I think that we had in 2020 we still had purchase decisions that was initiated before the pandemic started. We had in all regions really. When you have obviously purchase process started, some of that effect, we got orders really that had already a momentum to close. Then going into the pandemic in the end of last year, a lot of these processes were stopped. That would be one logic really for why we would still have slightly lower. It's a lag effect really. What we see now is that these acquisitions are opening up.
Knowing that the hospital market doesn't operate that quickly, I mean, in the industry, we can many times turn around and order in a couple of weeks or less than a month. While in the hospital market, any purchase really can take two, three, four, even six months. That's I think why we see this lag or even the comparison with 2020.
Okay, thank you very much.
Thanks, Christian.
Thank you, Christian. There appears to be no more questions.
Okay.
Maybe a couple of seconds, and if not, we can close the meeting.
Okay. Thank you everyone for joining, and looking forward to present the fourth quarter in a couple of months. Thank you.
Thank you.