Earnings Call: Q2 2021

Jul 22, 2021

Quarterly report

Hello and welcome to the Q2 2021 report for Mentis. My name is Martin Harris. I'm the VP of Marketing. And with me, we have Jeroen Malmag, CEO and Group President for Mentis. And we'll be joined by Elizabeth Lund, CFO for the Q and A session at the end as well. So Jeroen, just hand over the sessions to you. Thank you, Martin. So good morning everyone. So and it's nice to be able to present The Q2 of 2021, so I direct in here. Disclaimer, we don't need to spend any time on. That's me seeing that enough. So really going in directly into the details, have Some comments on the side. I mean, obviously, it's really nice to see for me to see that we have been able to execute in the way we have In the Q2 but also for the first half year and we have addressed some of the issues that I've had in the end of last year, but also going into the Q1. So really, really nice to be able to present this. And I think we We are on a good path to where we want to be. So first, a couple of comments on the business status. We see a continued very strong megadevice demand really globally. We have had strong Order intake from all regions, we are up almost 60% for the 1st 6 months compared to last year. It's really, really nice. We also see that the Americas region that had a really, really good year last year and The best ever last year but we're still continuing to grow there which is nice since that's the market we invest the most in. So we are up almost 50% year over year for the first half year on order studies And we see that the America for the full first 6 months carry about 50% of our total business which is where we want to be. We also see that APAC continues to develop in a good way. We had a very strong first Quarter but you're also continuing with a good second quarter. So we are about 2 times The same period for last year for the 1st 6 months. Obviously on lower Compared to Americas, it doesn't affect the total business as much but it's about 25% which is where it should be. We can see that APAC is mostly carried by China and Japan where we have other Parts of APAC that still is very much impacted by the pandemic like kind of India as one Example, so we hope we have some further upside there. In EMEA, we see both in Central Europe Middle East, it's really the market that we that is most affected by the pandemic and that's Still is the case and we have had decent business in Q1 and Q2 but not the level that we have Expected, so that's also an upside we will say for the second part of the year here and going into next year. Generally, we see I mean again we see a delay from the healthcare segment Which also impact the strategic alliances, part of our business related to the pandemic. And even if you see the Americas region is coming back to almost normal in terms of Traveling and possibility to have meetings and things like that, it's still affected from the financial implication from the pandemic. And we see in Europe obviously we still have difficulty in getting meetings especially when we don't have Staffing in the local countries. So that's clearly an upside For the coming quarters. And it's obviously very nice to see that we've been able to carry our growth here with the medical devices. It will also It's further upside when we see a revamp or when the hospital market is coming back. We see very good activities from the vascular simulation unit, the business we acquired end of last year. We have started off the year in a very good way and we really managed to leverage our sales and distribution in a nice way. So we see business coming from all parts of the world really. And, so that's clearly going to be a good addition to what we do, for the full year as well. So on the financials then, order intake for the quarter up to 40 from 28 And change last the second quarter and for the first half year we are 80 0.1% compared to 60.9%, which is the 31% 31.5% increase for the first half year compared to last year. Also represent the highest ever both the quarter and the first half year for Mentis in Mentis That kind of history. Order book as well, significantly higher, 65% higher compared to end of last end of Q2 last year, which also is important for the year since a large part All this is something we will render for the year for 2021. So about half of this amount is revenue already Plan for 2021. Net sales significantly up for the quarter 91%, almost double compared to the Q2 last year and 78.7% compared to 58.1% So 35.5 percent up for the first half year, which is really nice. I mean, I think the obviously the 91% here It's due to some delays we had on deliveries from both Q4 and Q1 but I think if you see the consistency here for the first half year that's really Where I would want to be with the business. So it's a nice execution from the entire organization here And the ability for us to really ship and render revenue is really nice to see. That's been one of the issues that I and we have dealt with during the quarter here. We can also see that the gross margin is back to about 80% and if you look at the currency effect, it will be at same level as last year. This is also something that I commented back in Q4 and beginning of Q1, which we have been working on for the quarter. I mean, some of this is Related to the introduction of our new hardware device, the G7 and G7 plus so we're dealing with that and I'm super Pleased with the ability to get back to the levels where we want to be. We might even have More upside here on the margin but this is really where a good achievement by the group here For Valentin, sorry. Cost levels, we are we have increased operating expenses We're about 17.5% for the first half year. And in that, we have vascular simulation for about SEK 4,200,000, About SEK 2,000,000 for the 2nd quarter, SEK 2,200,000 for the 1st. So that's fully according to our plan. And I would actually talk more about that later on. Cash flow in the quarter was positive 6.7 percent slightly less than last year. But then again, last year, we were extremely lean in the second and third quarter. Given the pandemic we basically stopped all activities and cut down on consultants and stuff. So that's Understandable. So this is in line with what we want to see and the negative for the first half year is only due to the start of the year in the Q1. But we also have some activities here too to where we had payment from Giant that also slipped into the Q3. But yes, operating income, we had almost per kilo on EBITDA for the For the quarter, we're still carrying the loss we had in the Q1, but we are Obviously, much better than for the first half year compared to last year. Key observations, yes, I sort of mentioned it already, but the pandemic last year had Really no effect on cost in Q1, but in Q2 and Q3 we're extremely lean where we cut down on consultants, we had no travel And we did everything to really be we also have some subsidies to help us. So now when we obviously are starting to travel We're ramping up, we're hiring. There will be a larger delta in expenses and that's what you see or in cost levels. So in organization, we have moved from just over 90, 93 by the beginning of January Up to 101 by the end of the quarter. But if you look at full time equivalents, including consultants, we are about 120 people now, where we were just over 100, but of the year. And as I said, we have to turn the expectation to improve the cash level for the quarter, but we've seen some delays Especially in US related to larger clients but that's something that we will deal with and we will Have a special focus on this for the Q3 going forward. So this is something we expect to deal with. Close to breakeven EBITDA is also good. I mean looking at that Historically, I think we are better positioned for the year than we have been in a couple of years back. Yeah, I talked about this already. We're really pleased with the execution on deliveries, both from the order book. So already booked orders but also new orders in the quarter. So that's really nice to see. So what we are saying here really is that we are investing in the future. So we are going to the organization, preparing for what we need to be for 2021 but even more so for 20222023. So that's a Positive sign we're really looking at where we want to be in the next couple of years. So we are increasing costs but We are increasing costs in a controlled way and we need to make sure that the cost level increases already are at a lower level than the increase In top line. Some market observations we've seen over the year, Last year here for the pandemic, increased interest for online and remote services I. E. When clients can Log into cloud server or similar and participate in a training session or simulation session online The distributor where you might have a presenter or a position in one location, you have people Signing in to a meeting just as we do now, but really providing them with relevant Experience even if they are not in the same location as the doctor. That's something that we see a lot of demand for especially from the medical device side. But I think that also will come with hospitals with Needs defined by from the companies like Siemens and Plurix as well. So really interesting development here, which is a direct consequence of the situation we had in the pandemic last year. Vertical Simulation really, really interesting how the combination of physical and virtual makes sense for the market and the And the ability for us to provide both is really unique ability. So I'm really pleased with the acquisition we did in the end of last year And we see a lot of good feedback from the market on the ability to really provide A much broader set of solution and really address more current situations where Some situations where the fiscal modeling is more relevant where VIALA, RESOLVEZY and VOTCEL are the most effective one. So we see our approach with imaging vendors and the robotic solutions, how we integrate our Self integrated solutions is really unique and I really see that as I've talked about that in the past, maybe not recently, But I really see the development and the work we do there day after day is really building something for the kind of future here. We also see a change of attitude generally and I think to some extent this is driven by this pandemic Where we'll see, I mean, complete different interest and a lot of discussions. We see a lot of posts on social media and similar where Getting physicians in Syspro really are allocating use of solutions like Mantis in a different way than before. I mean before it's made a more With unique situations for training and in many cases related to basic Training and so but here we see an attitude, a change of attitude where people see that what we do is relevant in the daily practice And by practicing and experienced the decision in a much different way than machine earlier. So I think that's there as well actually the Situation in the pandemic has made that clear for many people. So I would say as a summary we are expanding our footprint In English guided therapy area, which is really our intention, we don't want to be seen just as a simulation company or just As a trading company we want to do much more and I think what we do here is really expanding that footprint and expanding the A little bit about Q2 and beyond or beyond Q2 rather. Really good o'clock outlook for the year with a strong position we have in the Q2 and we hope we can really provide growth within the frame of the financial targets for growth. Medical Device will continue to be the driver for growth that we obviously hope that we will get support From the hospital market both direct but also to our partners like Siemens and Philips for the remainder of the year and definitely going into next year. As I said, the strategic alliances with Siemens and Philips are still negatively impacted by the hospital market, But we have a lot of activities there. I'll talk a little bit more about that later. Yes. We can see that what we have done in the net sales for the 1st 6 months and combining that with the active order book for the year Really provide a really good base for us to say that we will exceed the 2020 full year's performance on sales. So that's that we can say with confidence. So we really were looking at a decent year. Key drivers, I mean, we're leveraging our new unique technologies, the new G7, G7 plus platform Has gained a lot of interest. We've seen a lot of upgrades both from hospital and industry. The ability to use the haptic realist Functionality on the platform is really relevant. Our ability to structure heart, The hot valve arena combining with ultrasound is really a unique solution for the market. The online solutions, the cloud solutions with remote services, all of this really is expanding our footprint, as I said earlier. Vascular simulation we talked about, a really important addition, gave us a broader footprint as well. A large client and the work with you with the mega medical device clients is really, really important and we are expanding our thoughts footprint there clearly. Neurovascular has been a focus for us for some time. The vascular simulation piece is really neurovascular focus or the and as you all see in the virtual side, The relationship we have there with key physicians in the world and the program we're bringing out there, we really believe that that's going to Pave the way for precision medicine and others. So we'll talk about that in there in the next coming quarters. Strategic alliances, I mean we talked about that before but the integration and embedding and bundling really what we're working on behind the scenes. You haven't seen a lot of From the result in the business yet but that's clearly going to come. AI machine learning is really going to be important for us going forward. Combine that with the use of data It's a focus and the ONTV focus on Mantis and that will be a critical part for our future, clearly. And linking that together with the robotic solutions where we work with Siemens, but also some other players in the market. We believe we have a really strong position there and that's clearly going to be a sweet spot for Mantis going forward. So really strong start, really positive view of the full year. I believe with a very strong market position And we see good demand for our solutions in all marketing segments. So really nicely represent this Maybe I did this too short, but really, really Positive view of where we are and what results have you. Thank you, Jeroen. We actually have a few questions that have come through. So if I could just start those questions and just make sure that Elizabeth is with us as well. The first question, it seems to be a good position after Q2. Do you believe this can continue the growth levels through the entire year? I need to be careful About answering those questions obviously, but that's our ambition. There is no guarantee and we're not providing any Full oil and gas, but that's the ambition to be able to continue that. So we believe we have a strong pipeline for both Q3 and Q4. So that's the ambition clearly. Okay. The next question is, We have not heard much about the development with respect to Phillips and Siemens. How do you think they will impact your business for this year? Well, we don't see that that would be a main driver for this year And obviously we probably lost a year or one and a half year due to the pandemic in the development there on the actual business but we have obviously not been standing still here in this period of time and we have been developing the relationship with both Siemens and Philips and we actually seen Philips has moved Quite a bit over the last 6 or 9 months where we have installed systems in their U. S. Training center, we have installed systems in In the Chinese center and the relationship with Siemens, we are really Expanding into further solutions and more technology to provide more value to their end clients. So and the discussion on bundling has clearly gone on. So we have multiple discussion on in several regions but also on global levels And we hope they will present a tangible result over the next couple of quarters. But that's clearly really linked to the hot market still recopying or Starting up again after the pandemic. So, yeah. Okay. And the final question we have is, You are increasing your cost levels. What is the rationale for that? No, I mean, yes, It's a good question. I mean we are obviously looking at our 5 year plan, 3 5 year And we have ambitious growth plan for the coming year. We obviously have Articulated our financial targets for growth and EBITDA, but the growth level really require us Build the organization for the need we will have in 2022 and 2023 and further. So that's why we are growing Sales, we are I've talked about this before. We are growing the market organization, which Q Marken run obviously, Where we understand if we're going to double or triple our sales organization in the next 5 years, we need to have a different infrastructure for marketing. We have further demand from development to really build a broader set Solutions, we have discussions on AI machine learning. So yes, so we are really investing in where we Believe we need to be in a couple of years and as we know, I mean, if you invest today, you will see the effect of that in 9 or 12 or 15 or even 18 months Based on what resources you are adding. But we are doing that in a controlled way and the Board and owners Understand that we also need to invest to get somewhere. That will have a Short term impact on our profitability but you need to invest to really get where you want. Okay. Thanks a lot. So that's, that's all the questions we received. So I'd like to thank everyone for attending and you'll be able to find the recording of this session on the Mentis website. Thank you, everyone. So thanks again for joining and thanks for being part On the inspiring journey we have here, already interesting journey we have at Mentors. Thank you. Thanks.