Earnings Call: Q2 2020

Aug 13, 2020

Hello, and welcome to this presentation of the Second Quarter Report of Mentis AB. My name is Dominik Stiefel, but this report will be, in a couple of minutes, presented by the CEO, Johan Malmey. The presentation plus questions at the end that we will take will last about forty five minutes. You can ask questions at any time by raising your hands in the GoToWebinar tool on the right hand side, but we will take the questions then after Joran's presentation. And one more thing for your information, this presentation and the whole webinar will be recorded. With this, I give word to the CEO, Joran Malbeck. Good morning. Thank you, Dominik. Good morning, everyone. So, Kasia, we have you here and Kasia to present the second quarter's report. So moving into the disclaimer, picture me, we don't need to spend any time on. So looking at the second quarter, if you can see my face, I would say, I would be pleased and have a have a small smile on my face. I'm I'm I'm really proud of what we have done, especially over the second quarter, considering the difficult situation we have seen in the entire world. And so I'm going go through some highlights. I mean, a lot of this could be read through report, obviously, presented an hour ago. But I would just make some points and highlight. So obviously, extremely difficult market conditions. Q1 was tough, but the entire Q2 was obviously very impacted by the pandemic. The main negative effect we see is the drop in hospital and health care system sales, where we had an impact on the hospital sales across the entire globe and obviously coming in different ways. But for the first half year, we are about one third of orders compared to the same period last year. But with that said, we've been able to counteract that with a very strong medical device industry order intake and sales, where we are up 30% year to year for the first half year, as well as, a very strong, strategic alliance, or intake. Looking at the medical device side, as of July, so into the third quarter, we are at 80% of the full year order received for 02/2019, which obviously gives gives us a pretty good position for the remainder of this year. Same thing with strategic alliances. We are now at the full February order intake for Sothika lines inside the SAGE to Siemens and Philips and Lalo. US, as you might recall, was also one of our issue areas for last year where we, as of July, have an order intake, which is 90% of the full year, 02/2019. So all in all, despite, difficult hospital situation, I think we are at a very good position. Looking at some of the details, on the right side of of this first slide, the order intake is is on par or slightly above the same period last year. Net sales is slightly lower for the first half year, but we're also seeing some delays in can can deliveries based on the difficulty of getting getting shipping, getting people to receive stuff, difficult to have people on-site. So I think with that, we I'm extremely pleased with also the net sales number. Our order book for the remainder of the full order book, sorry, is about SEK 50,000,000, whereof about 60% of that is scheduled for this year. Cost levels, I think we have managed that in an excellent way. We have kept all our staff. We have not been forced to do any restructuring of our staff. But despite that, we have controlled the operating expenses, moved down on average per month from close to SEK 12,000,000 to SEK 10,300,000.0 for the first half year, which obviously is extremely helpful in this kind of difficult situation. The cash flow from operation as well, close to SEK 17,000,000 in positive cash flow for the first six months compared to negative 4.5% the same period last year, which also then directly all of this combined position us at a operating income for the first six months, close to SEK 6,000,000 better compared to the same period last year. So all in all, that's a quick summary of the second quarter. And as I said, second quarter, hopefully, would be the toughest quarter during this pandemic. But clearly, we have had a massive impact all over the world. We have had very few, if any, face to face meetings with clients. We've been forced to conduct all of our sales activities in virtual environments. We have had our staff working from home in most of the cases. And despite that, we've been able to maintain our operation at the same level as last year. So I'm personally extremely pleased with that. I mean, and regardless what people around us say, I mean, I I think that's a very, very strong position, and that's that's, that that I think position us very well for the future. So I want to make a couple of points on what I think is significant in our position and significant in where we are. The ones of you that are following us closely have seen that we have had a significant activity on rollout of new products and so over the last couple of months. And I want to make a couple of points on that. In the second quarter, we launched a new generation of simulation devices called g seven and g seven plus. This is a this is the the result of, close to four year, kind of development cycle. So this is a significant launch, very important for us and for the market. It it's an environment that really, gives us ability to improve our products and the functionality and the realist in in in in in what we do. And it's it's included here a kind of bifurcation support. So the ones you are not in the area, that might be hard to understand. But that allows for for some very difficult anatomical kind of variations for cardiology in specific, but also in in in other areas. That's something that a lot of our clients have been asking for, and we are really the first one to offer that in a structured way to the market. And this this also, and we had experience launching the last revision of our hardware device or simulation device back in 2014 that this drives, upgrades from our clients, and, we we expect the same thing to happen over the next year or so here. With with the new device, we also launched a coronary suite of products with three new products, to to support the new device. But also, this is a major update of our biggest seller. This is a this is a volume product. Cardiology, as you might know, is the biggest, specialty in in in this field, and that is something that the market has been waiting for. Moving on, we we have launched our infrastructure for the for the cloud, something we call Mantis Live Learning Center, Mantis Live Remote Connect, which really offers an environment where our client can link up to the to the cloud, get access to information, share information, and so forth. A very important part of our future, allowing for people to really communicate seamlessly, share result, compare results, and and so forth. So that that that's a significant part of our future as well. We we did launch our first smartphone, mobile phone or tablet based application as well based on a on a lightweight environment that we have. And this specific product, right, heart capitalization, RHC, as you call it, is something that all new, all young doctors have to learn, have to chew. And it's sort of a a first for us test to see how how this will be used and applied, working off an iPhone or an or an tablet. In in the aeronautics cloud environment, we have also launched, together with a set of training cases, our transradial approach module. Radial And access or transcellular radial access is really an important part of of, training for all doctors, also experienced doctors. Many specialties is moving from the traditional, femoral access to the groin or to the arm, which is, faster, safer, and more cost effective. And so this is also something that the market has been asking for. So this is significant releases. I think that you should acknowledge that, despite the situation here where many around us are slowing down on product launches and investment, we are really doing the opposite and being able to do the opposite and really accelerating. And I think this is, compared to previous year, we have never launched this amount of of our new products, and we've used this during this time. That's very significant. On the right side, we've talked about some of the technologies, the the imaging modalities around TE and ICE, which is ultrasound technologies, is really a completely new area for us compared to a couple of years ago. This is something we initiated back in 02/2018, and that was a market where we were not even had a footprint at that time. I would say that what we have today is by far, the the the leading technology in this market and really the only ability technology in the market that allows for full integration of clinical device or or simulation of clinical devices combining ultrasound to the ultrasound with with X-ray. So that that is a that is a very important development and would allow us to move into other areas. But more importantly, maybe short term is that this this position us extremely strong competitive competition. Precision medicine, I'm not gonna talk that much about that, but that's very significant for future. I have one more side on that for Ron, so I'm not gonna spend too much time here. But the patient specific simulation is clearly a very significant part of our future and really integrating what I just talked about with ultrasound, modalities and the ability to very quickly configure a patient specific anatomy for a doctor being able to rehearse and plan a case he might do, the same afternoon or the next day is is significant. And that's really targeting the most advanced cases, the most experienced doctors. So if someone think that a simulation is just for for junior doctors, this is a good example where it's absolutely the opposite. Automated segmentation is something we talked about over over the last period of time. We we continue spending significant time and resources into that area. And we are targeting a first product to launch launch to the market somewhere in the beginning of next year for this area. So that's something also that is exciting and will really link the group to the previous points we talked about. So this is really, again, a significant ramp of the speed to market, an increase in research and investment in new technologies and products. And this is really despite the pandemic. And I would say that our view is that a lot of the competition is really more in a kind of hibernation state or state of hibernation, while we really are are are moving, our position significantly kind of forward. This is just a comment from one of our clinical advisers for the g seven launch that he say that this is this is a critical part of the requirement to to really be able to practice and work on kind of application cases for for for this area. So that's just a side note. This is just, so some of you have, I'm sure, seen this slide before, presented by me, but this is just indicating, where we are heading. And it's important to understand that I don't see yourself we don't see ourselves as a trading company nor a simulation company. It's a simulation company. We are really part we want to be part of the clinical process, and we want to provide solutions that help people improve performance, productivity and so forth and ultimately, obviously, improving patient outcome. So we're moving very rapidly. And to the right on screen, we are at what we call precision, which is patient specific rehearsal, ability for doctors to really try out approaches, evaluate what kind of device to be used and things like that. But what we are aiming for in the next future is to really provide decision support, so feedback to physicians, helping them to make those decisions. That's really where we're heading. And, again, this is where we are in what people would refer to as training. Short comment about, the opportunity. So if you go to the right side of the previous screen, talk about predictive, talk about precision, patient specific activities. I think the robot the robotics area is is a good example of that. This is exactly what what we are focusing on. And, this is not training. This is something else. So, yeah, this is just an example of of things that we're looking at where we see that our our, physics and our our platform and our our set of technologies would would help, the marketing clients really integrated in in in the clinical, process, in in different ways. The first bullet here is is, a marketing use case where where, obviously, we we can use simulation to to demonstrate the capabilities of the other robots, really without the need of a patient. The second use case is for development, conceptual development, r and d, which, again, typically will require a specific hardware or or training on animals, catelovers, or or even patients where where we really provide a virtual patient in a in a in an excellent way. And in this case, it's it's really our software environment. There's there's really not a need for any hardware. The third one is is an interesting one where where where we see an interest for using our environment as an input device. So if you have a doctor in one location that's gonna support procedure on a patient in a completely different location, our system is an in intuitive way to navigate devices, and we can translate that information into movement or control over a robot in another location. This would have a significant impact on the ability to actually perform remote kind of cases, remote procedures. And the last one is probably the most advanced and probably the furthest away here where we see that based on AI and and machine learning to really to to really eventually have a real robot robotic system, I mean, with the analogy of self driving car and similar. But that's obviously not only related to development with Mantis, but this is something that our ambition is to be part of that kind of structure. So that's all exciting opportunities for us for the future. So again, I mean, we are not in any way limiting our view. Our solution just to be training. So this is really not only for robotics, but generally, we aim to be part of the critical process. We are not a training company. So looking at the and this is my last slide, I believe. Looking at the third, fourth quarter, but really beyond this year, we can see that the corrective actions we have implemented, but also continuing on is helping. But we also see that we are slowly getting back to hiring and also going back to the level of use of consultants and third party resources. We but we we really see that a lot of the world is trying to get back to to to some sort of normal, and that obviously will require us to also to scale back to normal. We obviously still have difficulties. It's very hard for us to assess the future here even for the next two quarters, especially with the recent weeks, new outbreaks in many region of the world. It is really hard to see if this gets worse or so it's no one obviously knows. But we generally see that the elective cases is getting back back the volume is going back up. I wouldn't say it's going back to normal. And, slowly, hospitals are are opening up. We can see in in major parts of Asia, China, and Japan, I would say we are close to a normal situation. We still have a long way to go in Europe, but mainly U. S. For the hospital side. But I think in the lower cases, the shock that we were under or the market was under for the second quarter is slowly going away, and we can operate in a fairly normal way. So the looking at the outlook, I would say that it looks more promising for health system for the second half of the year. But still, again, if this goes in the wrong direction, it can happen very fast. This will only have negative a impact. But we can see that our expectation has increased for health systems for the second half. And we are pretty confident that we will have a strong year for medical device and strategic strategic alliances. As as you remember, medical device was our biggest issue last year, but we can see that our our clients in that side is really planning for the future planning for their for for our product launches for for launch of of of new products, and that's really why why we we see our order intake is going up. We we see from procedural areas that the opportunities around the structural heart side, I. E. The areas of heart valves, aortic, mitral, tricuspid, those kind of procedures is gonna be a significant opportunity for us for the next couple of years. And I think with the recent order, we announced the order from Edwards here, Edwards Lifesciences beginning of of July. That that I think is a testament to the quality of the product we have, and we we have invested early. And I think we have a extremely strong market position there, and opportunities there will will will take us through the next couple of years. We we will continue obviously to to to spend a lot of time and effort on on on our core development and moving our platform to next level, really make sure we have infrastructure that support all all of our exciting ideas. But that's that's I think we have been able to manage that in a in a a very good way. So, again, I I want want to re replace or or restate that it's very difficult to to state an outlook even for for this year, and, it's really impossible to determine how how the pandemic will move even weak from from weak. But I I would say that, compared to a couple of months ago, our our our view is is is more positive, and we hope we can manage this this year in a in as as good way as possible. Alright. Hope that was, a decent overview of the report, giving some little more depth, in what we presented, this morning. And with that, I would open up for questions. Thank you, Joran. So now is your time to ask questions, and you can raise your hand by pressing the hand symbol in the GoToWebinar tool. I got one question by Textura. I'll read that to you. A few words on OpEx, which decreased due to cost reducing measures coming down to SEK 10,300,000.0 per month versus 11,700,000.0 in the previous year. And you expect the effect to continue in Q3. Would it be possible to quantify the effects in Q3? We expect to maintain a similar level also for the third quarter. As you say in report, we are forecasting an increase in the fourth quarter if we can get back to traveling. So that's what we are planning for, but that's unclear still. But for the third quarter, we expect to stay at the same level. So if you look at the main components of this, obviously, of travel is minimal, expenses related to travel, expenses related to marketing activities in congresses and meetings is also down to minimal. But then also over the last four months, we have also had reduced work hours for the month of May, July and August in Sweden for the entire company in May, and we also had one week furlough in U. We have also applied for the Paycheck Protection Program in U. S, which so far has helped cash wise. And hopefully, we that will also help OpEx level further on, but that's still not clear. But yes, we expect to maintain the same level for this quarter. Thank you. Give you one, two minutes more if you have any questions, raising your hand or typing in the tool. There is another question. Could you could you disclose the order size received in the strategic alliances division? The total amount of, yeah. Yes. Unclear. Total amount of order or or specific orders? I mean, the total amount of orders, year to date is, 10,300,000.0, which was what we did for the full year full last year, if if that was the question. Let's see. Seems to be. Okay. I don't see any more questions now, Kieran. That's okay. It means that we were crystal clear, I hope. So, anyway, thank you for that. Again, exciting times difficult times, but exciting times. We're very excited about the future. I appreciate all of you participating in this short seminar. Also, it's a short meeting, and thank you so much. And we will connect again in a couple of months. Thank you so much. Thank you. Bye bye.