Hello, everybody, and welcome to the Mentice 2022 Q3 reports. Reports will be presented by CEO Göran Malmberg and CFO Gunilla Andersson. My name is Stacy Hammar and I will be moderating. After the presentation, you will have the opportunity to ask questions to both Göran and Gunilla in the message 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 lead the way to CEO Göran Malmberg.
Good morning, everyone. Welcome to this webcast. I hope you can hear me well. It was a little bit wobbly with Stacy, so if you have a problem with the sound, please let me know. We're moving to the presentation immediately. First, some high-level highlights from the Q2, Q3, and the first three quarters. We're looking at the Q3 first. We can see that we continue the overall growth for the net sales. It's 32% above at the same period last year. For the order intake, we are on par with last year. As you can see in a bit, we are above for the first three quarters. This is not nothing that I react to.
Stacy, can you mute? There were some people that are unmuted here. Anyway, we can see that the order intake also overall are moving in a good direction. The order book is significantly strong, stronger. That's obviously a link between the orders received earlier. We are at almost SEK 114 million. If you look back a couple of years, you can see this is almost double to what it used to be. This is obviously giving a better stability for our business going forward, which is obviously what's gonna generate net sales in the next coming quarters.
We have for the full year, we talked about that for both the first, second, and the third quarter now. The hospital sales is growing significantly compared to last year, and are now back to levels on or even above the period before the pandemic. Same thing with the strategic alliances or our business with our strategic partners, Siemens and Philips and that all also are significantly up both for the quarter and for the year. Related to strategic alliances, we had another order for ultrasound equipment or echo in the quarter, which really further confirm our leadership and position in this specific market.
We have done a organizational update where we have reformed our executive management team. It's now a more focused smaller group. We also have consolidated our software development to Sweden for the VIST development for our virtual simulation development. We also in beginning of October received a grant from Vinnova, the Swedish innovation agency, for SEK 3 million for the next three years. I will talk more about that. That's the quarter. If we look at the first nine months, 27% growth year-over-year for net sales. Approaching the full year last year, we did SEK 185 million for the full year last year, as you might recall. Already at SEK 150 million, 27% growth.
Order intake as well significantly above last year, 23% above last year. Hospital is 100% up for orders. Same thing with SA. SA obviously starting from a lower level, but significantly up for SA for the year, which is really positive. We have talked about this as one of our largest growth factors. Now in the hospital market getting back to more of a normal, we can also see that that is helping the strategic alliances business also to move back to more of a normal. We did a complete acquisition of Ankyras for precision medicine back in Q2.
As you might recall, the Spanish entity that we acquired, very interesting technology. We can see now we announced the first order for those solutions just yesterday. We'll talk about that a bit later. We launched a new application for online simulation. Really an ability to run simulation without hardware in a distributed environment. Very interesting technology. That was the first project with one company earlier this year. This is really now whole new application area for Mentice, which is really relevant. Gives a lot of ideas for the future. Multiple new clients, we see that the device and the med tech industry is growing both on the imaging side and on the medical device side.
We still have. I mean, we are obviously growing the overall market, but we can see that we still have significant market share ability to take more market share. That's. We had one just before the in the end of Q2, but we're seeing more opportunities there. That's also very promising. We have an EBITDA for the full year on a lower level than, or more negative than, last year. We understand that we need to change that trend. We will talk about a bit later here, the program we implemented in August, September to really focus on profitability and cash flow.
We will come back to that in a little bit. Going over to the more detailed financials here, looking at the first nine months. As I said, I mean, strong growth across the three business areas, mainly so for healthcare systems, but really across all three business areas. For the regions, we can see that the EMEA region is really performing very strong compared to last year. While APAC and Americas is just a bit above last year.
I think for Americas, which really a medical device-oriented. I write about that in the report. We had a really strong end of last year and a strong 2021 generally, and I think we have a bit of reaction to that. That's nothing that really worries me. We have a lot of opportunities there, and we believe we need to recover that in a good way. On APAC, we are just slightly above for the first three quarters. As well there, I mean, we know we had some repeated shutdowns in China and so over the first couple of quarters.
Hopefully that is less of an issue where you see general very strong demand from the APAC region mostly from China but also from other parts of the region. That's overall, I would say, a good view. Looking at the order intake, again, very strong rebound for the healthcare system market both for the first nine months but also for the quarter. Looking overall, as I said before, we have 20%+ growth overall for orders for the first nine months. Really on par or slight decline in the third quarter, but nothing really out of the normal.
I mean, we typically have a bit of a lumpy business between quarters, and we had a really strong third quarter last year. This is nothing that really worries me. I'm really looking at the kind of full year's performance and the performance for the first nine months. We as well with MDI had a slightly slower third quarter, but this is really the same comment. That is really related to specific deals. That's nothing that really jumps out for me here. Yeah.
You can see on the graph to the right that if we look at the levels we generate now, just going back a couple of years or one or two years, we are significantly above, and we really see. I'm really looking at the longer-term trend here. We're moving in the right direction, even if we can see some lumpiness, as I said, between the quarters. We'll come back to talk a little bit more about the market condition later on. I think generally, we are in a good position. All righty then. I will let Gunilla talk about the order book.
Yes. Good morning, everybody. The order book in the end of September was at its highest ever been, SEK 113.9 million or very close to SEK 114 million. This is a growth of 36.2%. We ended last year at SEK 87.1 million. As Göran was saying before, you could see that if we go back a couple of years, the level would have been like in the fifties or the sixties in the order book. Arguably, one of the important levers that we have now in our order book is the subscription recurring, which is now up to SEK 34.5 million . We started our subscription model in 2019, and we've seen this part growing ever since.
We have, of course, then as well, a part of this order book that belongs to the 2022 quarter four, and that is the SEK 39.8 million of sales that we already captured for this part. The observant reader would then see that if I add that to where we are year to date, we would already be over the SEK 185.1 million that we did in sales last year. We also look at our recurring revenue or our ARR, annual recurring revenue. You can see that we are now at SEK 42 million, which is also a record for Mentice. This includes then system, and in that case, it's the rentals of those systems where customer rents the systems from us. It's also software licenses where we then sell the software licenses as a subscription.
This is then the larger piece of the SEK 42 million, SEK 25 million out of that. We also now, since a while ago, measure MRR, which is the monthly recurring revenue, and this is now at SEK 3.5 million at the end of September. If we just continue on next slide, you will see that we also gradually shifting our revenue to sort of from CapEx to operational expenditures with our customers. If we look at the total sales in our products, we have systems, we have software, and we have service. Systems is still the highest of our total, SEK 86 million out of SEK 149 million. Software is SEK 42 million, and service and support is SEK 21 million now at year end of September.
Here you can see that 36% of this is now then the recurring piece. That is growing very strongly, 136% in the quarter, and 105% in the sort of end of the quarter or end of the nine months. We can see that we have a bit of decline on the software licenses, perpetual CapEx, which then is just moving between that line and the subscription line. That's not a real decline in itself.
Okay. Move.
Yes. We already spoke about net sales. We have growth in the quarter. We also grow in year to date. It's a little bit less of a year to date growth than we had a year ago. In September last year, we grew a little bit higher, but very close to the same level. We talked about last year as a really high growth year. We are on par with our 2021 growth. We have with this good order book that we talked about. But what I want to highlight here is also the good gross margin that we've been able to achieve this year. We kept the really high and strong numbers for quarter three, 86.6% compared to 86.3% last year.
We are also more than one percentage point higher year to date than last year. This is of course really important as we continue to sell software and the higher margins on software. A really strong performance. EBITDA, as we talked about, is below, and it's actually worse than last year. It's really high costs in travel. It's of course increasing personnel costs. We have more people this year than last year. We also do less of the capitalization of development costs, which is an accounting feature you could say. Meaning that we are not putting to the balance sheet as much investments as we did a year ago. If we look at cash flow, it's still negative, but it's better than last year.
We are initiating this program that will focus on profitability and cash flow, which includes hiring freeze. We reduce use of consultants and use our own personnel. We also consolidate software development. We had that in Denver in the U.S. before, and we now consolidate it into Gothenburg to get a more focused software development team. On top of that, we have also changed the executive team as such, focused it, and also did some changes to our organization to get a better focus on profitability.
Right. Moving to a little bit more of an overall strategic topic. I think it's important that I come back to this, but let's reiterate where we are from a market position. If you have listened to us for a couple of years, we talked about the virtual sim market being about SEK 40 million. It's not an exact science obviously, but I think it's interesting to see that we are sort of executing on our idea to build our vertical. We added the physical sim application, or say market approach, two years ago. That is, in our mind, the market maybe right now of upwards of SEK 10 million, but it could easily be significantly larger.
With the Ankyras acquisition from this spring, we added the predictive simulation or the precision medicine for neurovascular, which is now probably a smaller market, maybe SEK 5 million or so, but that is a rapidly growing market. With this, we are really expanding what we refer to as our serviceable market. Instead of SEK 40 million, we now are looking at SEK 60 million-SEK 80 million eventually. We're still obviously focusing on the market share we have in each of these areas. We think we can capture market share in the virtual sim area still. Really interesting to see how we are building the broader market for what we do in our vertical.
Obviously, we continue talking about the three main areas, medical device. Our largest business will be slightly less dominant this year. As you recall, last year, we were over 70% for medical device. It probably will be between 60%-65% this year, which is way more healthy. I think that's what it should be. Healthcare systems and strategic alliances obviously coming back and take a larger part of what we do, which is really where we want it to be as well. If we look at the market uncertainties, I mean, we're obviously operating in a completely different market. We really need to be on our toes.
It's nothing unique for Mentice, but just so you know we see a lot of things happening around us, where we have clients with logistics and challenges, material supply issues, regulatory delays, and so forth. We obviously need to maneuver around inflation, increased salaries, significantly increased freights, things like that. All of that we need to deal with, the inventory requirement for us to increase inventories for our products to really remove issues with can deliveries and things like that, is also what we have been forced to do here. It's really a completely different environment which we need to deal with. I think we're dealing with that in a good way.
The pandemic and impact is fading away, I would say. I don't think we have seen the last shutdown in China. It seems like we're getting into a more stable environment where most of the Asian region is now again open. For Ankyras, the acquisition this spring, a Spanish company, where we're now opening a Mentice Spain this autumn here. It's really an interesting technology, really good opportunities where we yesterday announced the first deal there only a couple of months after the acquisition. It's close to $1 million, 9 million SEK-ish, three-year commitment from this German company, Acandis.
Really interesting to see how they have really implemented Ankyras as a strategic part of the go-to-market program and how really they see the use of the Ankyras software as a critical component of their getting physicians used to their products and being able safely to deploy a product. This is again a really good example on how we move vertically into our area, coming closer into the clinical practice and the daily clinical environment where the Ankyras tool, a regulatory-approved product is now specifically helping experienced physicians to assess how they're gonna use a device in a specific patient. Really relevant and interesting. We'll see more about this fantastic opportunity.
We talked about this echo, the ultrasound, order we got in the quarter. I can't, unfortunately, talk about the company, the name of the company. There's another imaging company in this field that have added our or moved to Mentice ultrasound solutions. This really, again, I talked about this before, but this is an application area we initiated some three or four years back. We have completely taken over this market, I would say, from a point with integrated solution for these advanced procedures, where you use both X-ray and ultrasound in the same way.
We don't believe there's any other products on the market that can do what we do, that can have the ability to simulate or emulate a advanced device simultaneously both in echo and X-ray, sorry. That's really encouraging. I think we will see more of these kind of orders coming. I mentioned the Vinnova project. This is Sweden's innovation agency. This is a three-year project, SEK 3 million.
It's really an ability for us to work together with multiple organizations, 17 organizations across these countries to really focusing on enhanced rendering, X-ray, and but also really ability for us to work on our physics engine, which is really the core of one of the core parts of what we do. This is a good opportunity for us to really set aside and focus more on the core research together with multiple of the leading companies in Europe. Really relevant and important. Last comment really, you should go in and check our new website. It's a sort of a promotion here, but we're really proud of this.
We have worked quite a bit over the last year to try to update the website really to focus on the fact that we are a vertical provider into the image-guided therapy area, really focusing on what we can help our clients with in different areas. We believe this site is another step in the direction proving that we are really focusing on a much broader set of application, and we are not just a simulation or just a training company anymore. I would encourage you to check the new website out. That was pretty much it. That's what I had. I guess we're open for questions, Stacy.
Yes.
Is there any more?
Thank you. Thank you, Göran. I hope my sound quality is better this time.
Yeah, it absolutely.
Okay. Like we said, of course, you can add any questions into the message feed. You can also unmute yourself and present any questions to Göran and Gunilla. We will see what comes through.
I guess everything was so clear, so no one have any questions. I think that's pretty good.
I reckon so.
Yeah.
Yeah, there-
Hello.
There's no question.
Hello. Can you hear me?
Yes. Yes.
Yes.
We can.
Great.
Yes.
Yeah, it was very clear, thank you. I still have a few questions. Maybe you mentioned new business areas for cloud and online simulation with Medtronic. Can you maybe give us a bit more details on this new business area?
Yes. I had a little bit of a hard time hearing you, but I believe you asked if I can explain more about the online simulation and the cloud-based simulation. Yeah.
Yes.
No, I mean, it's really. I mean, in the traditional way of running a Mentice simulation session, you need to be in a physical room. You have a Mentice simulation hardware, a Mentice device, and then you have a group of people around you, and then you have maybe a proctor or you run a case together with people in front of that specific simulator.
What the online simulation does, I mean, obviously first we have built over the last, say, three, four years, the basic cloud environment that really allows for our client to log in via the cloud to really prepare their session on a, on an iPhone or an iPad or similar, and, really also to keep track of where you are in your development, keep track of your cases, keep track of your data. What this online simulation piece is really adding is the ability as well for.
If you are a physician or maybe a device company and you want to run a session, you want to go through a specific case or prepare for a specific task, then you can start a simulation session in our cloud environment. You can invite multiple other people. Really no limit there. Say you have a group of 10 people that are distributed over multiple sites. Then you can run a simulation session exactly as you used to do in the physical environment or in the actual physical simulator, sorry. Then you can run this completely in the cloud, and you can also hand over the control of that session.
You obviously don't have the ability then to navigate the actual clinical devices in the hardware. What you do instead is that you have handles on your screen. You can use your mouse pointer to really navigate the tools and rotate the tools and what have you. You can have a really interactive session with, say, six, eight, 10 people or more and any one of the participants in that group could take over the control of the simulation. You can discuss a certain deployment or a complicated anatomy or what it is.
I believe that this is a very good complement and maybe a segue into someone eventually running a full case on an actual simulator, but really gives the ability for physicians and device professionals to really access a case in a much more lightweight environment from your phone or from your laptop or similar. We really believe this was a way to spread the use of our technology in a much larger way and also increase the share of software for our business.
I think today it's the threshold for a hospital to start using our solutions is that they need to have hardware. If we run it this way, you actually don't need the hardware to really experience what we can do, and then when you get excited about what we can do, you can then as a next or second or third step, get the simulator to your hospital to run the actual case. Sorry for the long answer. I hope that answers your question.
No. Okay. Thank you. It's very clear. In terms of revenue, if you compare it with selling simulation systems, I mean, or how big it could be.
Well, it's really hard to say. It's really dependent on how we sell the access. We're looking at, I mean, the first couple of products we run, we actually have a charge per session and a charge per user. That's if we look at the Spanish company that we also charge per case. Typically what we do is that we have a volume or a volume commitment for cases per year or things like that. I would say that the.
I mean, just roughly, if you have an average selling price for a simulator with software to hospital, maybe in the EUR 80,000-EUR 100,000 range.. I mean, if you have a software only, maybe you're talking about EUR 16,000-EUR 30,000 on an annual basis. Then it's, as I said, it's depending on if we charge an annual fee or we charge per usage. That's, we give you a rough understanding. We open up for a significantly larger market by offering this in addition to the traditional hardware and software.
Okay. Very clear. Maybe last question from my side.
Sure.
About the program to focus on profitability and cash flow.
Yeah.
Is it because you see a slowing growth in the market that you want to implement such plan? Or is it more in the long-term perspective of reaching a certain level of profitability that you yeah mentioned in the past maybe?
Yeah. I mean, I would give my view and have Gunilla correct me if I say something she doesn't completely agree with, but jokingly aside. No, I mean, I think it's clear. I mean, we can see that we continue growing. We see we don't see a significant change in the demand of our product. We still see strong demand of our products. We can obviously see, as everyone else, that the condition in the financial market is completely different from what it was a year ago. It's clear from our board and our owners that we regardless of how the market looks, we need to be cash positive.
We need to generate positive cash. We can't afford to continue to burn cash as we have done for the first part of this year and also during the pandemic. That's really the requirement. We don't yet see a slowdown really. We have all said we need to be prepared for that. I mean, it's not my mission to talk about the conditions in the market, but we have decided we need to be prepared for a slightly tougher 2023, even if we don't see that yet.
The main focus is really here to make sure that we are taking care of our cash position in a better way, considering how the financial market looks. Want to add anything to that, Gunilla or?
No, I think it was spot on.
Thank you. Finally, I got it right, so, well, did that answer your question?
Yeah, yeah. Thank you. Perfectly.
All right. Perfect. Thank you so much.
Uh.
We have one other question that's come from the message feed from Katarina. She just asked if we could please elaborate on the newly initiated program to refocus on profitability that we've alluded to.
You want to talk a little bit about our focus on that, Gunilla?
Yeah. Yes. I think it's a short-term focus, but it also lingers on more long-term perspectives because what we are doing at the same time as we're now sort of putting our hiring freeze together and we are pushing some consultants and so forth, we are also running efficiency programs through the company to secure that we sort of make good use of the people we have and that we actually work more efficiently and have better and more streamlined processes. It's a short-term, I would say, push to get us to activate all of those good initiatives we have in the company to become more efficient and more productive.
This is a program that initiates to focus on the short-term cash flow, but it will also have a good and very strong impact on the future, both on profitability, but also on cash.
We can also see that since we added the physical simulation, the vascular simulation business from U.S., Long Island, U.S., is that we also have increased the order amount, not the order, the number of orders, sorry.
Number of orders.
We more than doubled the number of orders over the last two years. That also meant that the average order size is going down. We need to work on eliminating those kind of smaller order items. I think that there we have opportunity to improve our efficiency generally. Also going into the software only, online opportunity to sell our solutions. Obviously, we need to have that automated into a much higher degree. The opportunity here is obviously if we can automate that, which is not a technical issue, we also can see that the product mix will continue to improve.
We can have a higher degree of software, which will also help us to be more profitable, but also our ambition is really to increase the revenue per employee. That's one of the key KPIs that we are working on. Was that not enough, Katarina, or you want some more details?
Okay. Yes, Göran, there is a response from Katarina saying, Perfect, thank you.
Okay, thanks Katarina.
As of now, there are no more questions.
Okay.
In the message feed.
Thank you so much.
Okay.
For that. We will meet you again in about three months. Thanks for that.
Thank you.
Have a good day, everyone.
Thank you. Goodbye.
Thank you.
You know.