Earnings Call: Q4 2019

Feb 27, 2020

Good morning, everyone. I hope you can hear me, and welcome to this webinar where our CEO, Joran Malenberg, will present Menti's year end report. My name is Magdalena, and I will moderate this call. You will be able to ask questions to both Johan Malmberg and CFO, Elisabeth Lund, after the presentation. Until then, you will be all set to mute. And for questions, please raise your hand by clicking the hand icon appearing in your upper left menu. This meeting will be recorded and available with the report on mentis.com. I will now leave the word to our CEO, Joran Malbeld. Good morning, everyone, or good afternoon, wherever you are. We will do this call in English since we have international participants on the call. So let's start with the first slide. So I'll move to the next slide, please. So we we we did announce, in early January the the expected outcomes. I don't think what we have presented today would be big surprise to anyone, and it's pretty much aligned or it's perfectly aligned with what we have said before. So I would focus the presentation more on the business and where we're going and for and the 2020 situation. Obviously, the first slide here is just to give you a quick recap of 2019. And then if you have any more financially related questions, I mean, would probably ask you to ask those questions in the session after my presentation here. So talking a little bit about 2019, obviously, in the fourth quarter. As we have said before, the medical device side was not performing to our expectations. So we we had a 10% drop in in the sales compared to to 2018, which which was obviously not what we expected. We have seen and we communicated in the January press release that we have a list of deals from last year that we are tracking. And we can see that the beginning of this quarter is improved compared to last year, both from a sales and orders. And we have a good hope that we will convert a large part of these deals over the next this quarter and also next quarter. So that's for medical advice side. We we also see that a lot of the, discussions we have had was, last year is moving forward in a good way. So, we we have a positive view of the outlook for medical advice for 2020. Moving on to the other segments. The second bullet on the left, we have the we talk about the health care system and the teaching side, so really our sales to hospitals, where we have seen an increase of about 6% year over year, which is, I mean, aligned with our expectations. We we would expect, our growth generally to come from from industry and from the strategic alliances side. So we had we had had a good search of deals in the last part of the year, and we also see the pipeline for this year looking solid for the hospital sales. On the strategic alliances side, we were obviously working a lot to develop the relationship and the underlying structure for that business. And as we communicated early part of the year, we even we expected to push more systems 2019, that didn't really happen due to a couple of specific reasons, one being that Siemens had a delay in delivery of their new, lab, which is a requirement for or it's the system that is integrating with our system. So but all in all, I mean, we had over 60% growth in that business last year. Still have small numbers, but we are getting up to a point where it's going to impact our business overall. We have delivered some 20 systems already across Philips and Siemens. And we have seen with the delivery of of the Siemens catch up to clients now beginning of the year that we are starting to getting orders from from customers, which is really positive. So that that's obviously a big big part of our expectation, as we said before, for the for this year, but also for the next coming years. We also mentioned in the annual report about the agreement with the German Society of Radiology, where we have a five year agreement, congressional agreement, where they're going to use Mentis equipment, the Mentis solutions for trading and certification of their members. This is, I think, it's a significant step. I mean, we also see similar discussions with a lot of other organization, medical organizations around the world. So, yeah, it it it's much more substantial discussion on how to use simulation specifically towards certification of doctors. So that that's supposed to move. The other thing that's interesting is that the German Society of Radiology very explicit or explicitly stated that there's really Mantis. There's really no other solution. If we're gonna use it to this level of utilization, it's the Mantis is really only system or only solution in the market that would be relevant for for this. So that's that's also very positive feedback. So that's pretty much that. I mean, I covered most of the slide, but a little touching a little bit about technology where we also were very consumed last year with delivering industry related customization projects. But during last year, we added a significant amount of resources, which I stated in the report, which also enable us to more strategically focus on standard product development, which we stated in the previous report. But we can see now that the effect of the work we did last year and the other resources and the strategy for standard development are is positioning us for quite a significant amount of new product launches during this year, I would say more than we ever had before. So that's going that's gonna be really relevant to see how how that's gonna be received by the market. And then as we said in the, January report as well, I'm stepping in as, besides my COO role, obviously, as, responsible for global sales. So I have three sales leader reporting to me, but I'm really taking a personal, responsibility for the for the sales side. So yep. So that's a core summary of the fourth quarter. So let's move into the next slide, please. This again, I'm not going to really elaborate on this much. Mean, all of this is in the report. Obviously, order intake is disappointing. But as we said before in previous calls, we are sensitive to the fluctuation in orders, especially by our large clients. And that's this is what it is. On the net sales side, we had a strong quarter compared to 2018, still slightly less, but 2018 was a fantastic year, in Q4 especially. So but overall, we said we're going to be on par with last year, and that's what we see here. Operating results is obviously a direct consequence of the of of the revenue and the fact that we have we have built our organization for for larger numbers. So that's that's that's what it is. And then cash is is is around SEK 50,000,000 by the end of Q4. If you have any more detailed questions, Elizabeth and I would answer them after the slides here. So let's move to the next slide, please. Thank you. So looking at where we are right now, where we started the year, as I said, I'm taking the active responsibility for sales. What we worked on with our sales team over the last couple of months is really looking at what went wrong or what we do to correct that. Obviously, we are still in the hands of our clients' ability to deliver orders for us, but I think we can do a better job on really understanding and driving the decision processes, which is something I personally want to get involved in. Also, we talked about is how do we really more completely relate value with our products with what the customers are using it for or how we create value for our customers, which is an obvious comment, but that's something that we can do a better job on as well. So that's really it. And obviously, getting into the large account is another part that I'm focusing on really focusing on maybe the four or five largest clients we have and make sure we can work on on on longer term relationship that that is is key key focus of mine. And I I think we see already some some promising dialogues in in the first part of the year, so hopefully, that can result in something further on here. The side of these things, we have I mean, I mentioned that on the last slide. We have several discussion with the similar interventional radiology bodies in The U. S, but also other part of Europe, also how the specialties are following very rapidly. So this is clearly a positive trend where I have when I joined Mantis 02/2008, people said the regulation mandates is around the corner, and I basically said I'm not going to wait for that because that could take about five and ten and fifteen years. But I have to confess now what happened in the last year and one and a half years really shows that something is happening. And I've discussed this with other simulation company in the market and I think and also physicians, And people really see that there's clearly something happening now much, much more rapidly than we've seen before. Still, think the focus for me and for us is to prove value with the use of the products, but I think the regulators and the societies is clearly moving in a much faster pace now than they've done years earlier. Had clearly, there were some uncertainties in the later last part of last year. I mean, we some of the things some of the reasons for the delays of deals were also maybe uncertainties on general market conditions. I know we had discussions on the China tariffs and things like that. I think a lot of those has been eliminated, but obviously with the coronavirus popping up in the beginning of the year here, that's obviously had some further confusion or not confusion, but further unsecurity on how that will impact us. And we have looked at that specifically. Obviously, first two months of the year, the China, the Greater China market has been pretty much closed. I mean, our people down there have been forced to work from home and very few clients will take meetings. So that's clearly impacted the interactions early part of the year. We don't really see that impacting at least yet actual business, but it's just a delay for the Asian hospital business. Obviously, with the last couple of days information on outbreak and stuff. I mean, this this is very yeah. This is to know how how this will impact us. What we are doing is looking at supply of of components, things like that. So we would do corrective actions and make sure that we have supply of simulators or components for simulators for the entire year or also going into next year. So that's something we will act on immediately. But in terms of how that would impact us market wise, it's it's still unclear, I guess, unclear for everyone. As I said, on the strategic side, on the left side of the side or right side of side here, Siemens ArtisticoNo sorry for the spelling error there, ArtisticoNo was starting to ship the beginning of the year. And that immediately resulted in orders for us as well. So that is really, really promising. On the technology side, I mentioned that on the last slide. Did some announcement in the Congress in San Diego in January. We will add with a couple of more product launches in the next couple of months. I mean, we will have some major ones in a Congress in Paris in May as the largest cardiology conference in the world where we will launch a couple of new products, which we believe will be exciting for the market. But all along, over the year, we have five or six pretty significant product launches that we think will impact the market. We are working on this list of delayed deals very closely and monitoring. It's probably a list of fifteen, twenty days or so that we are monitoring very, very closely, trying to make sure that we can close them off as soon as possible. And, hopefully, not insignificant part of that will happen in q one. Right. Moving to the next slide, please. So for the full year, we didn't provide any guidance in the January report or January press release. And so we just basing on based on where we are and relating to twenty nineteen's results, are confident going back to the growth phase. And we what we say right now is that we expect to be about 30% for the year. We're not providing any guidance for the EBITDA or the earnings, but we focus on the top line, on the growth side. So overall, I think the position of our Mentis, we are the, said before, the only solely focused vendor in this space. So our our marketing position is very strong in in all segments, also industry and also obviously with with the, imaging vendors. We we have an have an unique position. We're the only one offering that that solution. So all of that together gives us confidence on our ability to going back to growth for this year. We obviously carefully forecast on the device side, but we expect to get back to growth on that side. It's obviously important since that's still 60% of our business 65% of our business. So that needs to happen, but we are carefully optimistic about that. And then obviously, we believe that for this year, the strategic alliances in the business to our channel partners there will have an impact and show an impact on the numbers. While then, as I said in my first slide, the health care hospital sales will continue to grow, but not maybe with percentages that we see from medical device and from security license. Yeah. I mentioned the coronavirus. I will not talk talk about that again. So that's that's pretty much what I was intended to say today. So I think we can open for questions, Marlene. Yes. And then I will ask you again to raise your hand on the upper left menu, and I will unmute you to to let you ask a question. Johan Unros wants to ask a question. So please. Hey, Johan. Johan. Yes. Good morning. Thank you for taking my questions. A few, we can take them one by one perhaps. You clearly referred to a very dynamic market and and that the market continues to be even more dynamic dynamic. But in '19, clearly, that didn't convert into growth as expected, especially not from the device side. Is the pipeline to order to sales is is can you specify some more? Is it mainly due to the period of increased uncertainty, or do you see longer processes from pipeline to order to sales? Could be the first question. No. I no. I don't really see a a a change. I I mean, we we have tried to analyze, as I said in the earnings call, in in November or yes, November. We talked a lot about that in detail. I would no, I think we just run into a series of reasons during the last part of 2019, which I also can see from some other colleagues in the industry, but also from people dealing with medical device industry that there was clearly a slowdown and a more cautious behavior by the end of last year, which we believe it's at least partly removed going into this. So I don't see any changes in trends or behavior generally. So I think that's yeah, if that's answer to your question you want. There are and again, you asked about the pipeline. The pipeline we have, I mean, we are watching the pipeline closely, obviously, and we are looking at how we convert pipeline into orders, which is obviously a key. And we don't see a change in trend or behavior there really. And I think that it's going back to what I said is that we need to pay closer attention to decision processes and things like that with our clients and maybe not trust our clients to be able to generate order in the time they are telling us, but to really make sure we dig into the details of that. So that's sort of my responsibility now with my second hat. So, again, it it was asked to answer your question, Johan? Or Yeah. It's it's a it's a it's a more detailed picture anyway. And and you also referred to that it's my understanding listening from the call that you already expect some visible improvement in q one that some of these orders that were delayed from last year will sort of come mature to become firm orders already in Q1. Does that go for both smaller and larger orders? Yes, yes. As the mix yes, we didn't really in the list, we pointed out, was probably more focused on larger opportunities within at least everything. So but yes, absolutely. And we have seen I'm not going mention any numbers here, but we already have received some, and we expect more for Q1, but also for Q2. So we hope to I think I mentioned a number in the January press release and that still stands and we've seen we we yeah. We we we have we have converted orders in January and February, absolutely, based on that list, which which will give us confidence for you for the first first quarter, absolutely. Thanks. That's useful. And also, perhaps to clarify that you referred to the coronavirus and that it's still early days, but clearly, you expect some impact. Still, you deliver a specific growth target for the year, about thirty percent. Should we understand this reference to the coronavirus that you can you expect to manage about thirty percent still with this effect, or is that something that could go and and blur the picture and perhaps, make it difficult to to reach the about thirty percent? Yeah. In terms of the forecast for coronavirus, if if if I would have an answer with that, I probably wouldn't be the CEO of Mantis. I would probably do something else. I mean, that that's obviously a big question for everyone how how that will develop. I mean, we see so much I'm sure I understand. Oh, sorry. That was my watch. So so yeah. It's it's no. But we really say that our underlying business, we believe that we based on what we know now, yes, we believe that we will be able to manage thirty percent despite what we know right now about the coronavirus. And I think that we have a structure for our Chinese or Greater China business that probably will not be directly affected by the coronavirus. But then again, if the spread outside China into other markets where we have significant businesses, like in Europe or U. S, that's clearly going to impact at least the hospital side of our business. But again, it's what we see right now, yes, we expect 30% despite what we know about the coronavirus. That was a long answer, Johan. Sorry about that. No, Johan. Understand it's a tricky one. But as long as it's broadly restricted to China, should, based on what you see now, be able to reach about thirty percent even Yeah. Considering the corona effect. Yeah. Yeah. And and and you also referred to some 20 systems or simulation system delivered through the strategic alliance state and that both Siemens and Philips are now active. Yeah. I don't know how we should phrase it, but but you you to to reach the above 30% without giving a specific segment guide. You clearly expect the strategic alliance to grow well well about 30% and and the medical device, assumely nearly also and and perhaps the hospital market then substantially or quite significantly below 30%, especially if that could be exposed by the corona. Is that how we should Yes. Look at it? That's that's that's exactly what I say. Yeah. Exactly. Exactly. So yeah. So I I I said that we K. Thank you. I'll I'll Go ahead. Okay. Yuan, are you satisfied with your answers? In that case, I will Yeah. Yes. And if there's yep. I'll I'll Yeah. Might come back. Thank you. Yes. Yes. Okay. Thank you. I will you for now. And if there are any other questions from other participants, then please raise your hand by clicking the icon. No. Doesn't seem that we have any more questions. Okay. So we we will have a have a conference at Pareto on Monday, which I think is announced on our press release. Right? Or or or or on our website. Sorry. No? Okay. Okay. But But this this webinar will be available on mentis.com. Yeah. Yes. And, well, no further questions. So that means that we will end this meeting, and we thank you for your participants. Thank you, everyone. Thank you.