Earnings Call: Q1 2021

Apr 28, 2021

Good morning, everyone. Welcome to this webcast presenting the 1st quarterly report in 2021 for MENTIS. I will be going through the presentation. My name is Jara Manberg. I'm the CEO and President of Memphis. So yeah, let's get going. Welcome everyone. Disclaimer, this is me getting into the quarter. Looking at the left side here. 1st, the continued strong medical device industry order intake. We also see, as I write in the report during last year, we've seen a lot of new interest for online application, remote applications in the pandemic and we see that continuing as a complement to what we do. It's not in any way replacing what we did before, but it's adding on to what we do. So we see a lot of interest for that and I think it makes a lot of sense the combination of our more traditional solutions with these online, remote mobile applications. In the quarter, we had a very strong business in APAC, where obviously last year was the 1st pandemic quarter and really the pandemic as you know hit the Asian region. 1st, China especially, but the entire APAC region was shut down last year. So that's nice to see that region is opening up, mostly opening up. I mean our business is mainly from Japan and China. We had a really strong Japanese quarter but as well as Chinese quarter mainly device industry across Asia and we obviously still see some parts of Asia that is still closed like India for instance. We generally see overall I mean we're extremely pleased with what we have been able to do during the last year going into this quarter. The continued ability to generate orders, but the healthcare market is clearly the big issue and the main impact from the pandemic here. And really if we look at that, I mean, we are obviously down quite significantly in sales from the healthcare sector also impacting equally the strategic alliances business since our Surgical Alliance's partner with Siemens and Philips obviously are selling into the same segment, the same market segment with Hospos. So that's clearly what we still see and we believe it's as I said, looks promising in Asia. Going into the Q2 here, we would really see positive signs on the economy in U. S. And North America, while the European market is probably the region that still shown the largest uncertainty. So that's where we are. We're really pleased with the quick integration or I would say successful integration of the vascular simulation business from the acquisition we did back in October. We have in a very short time completely integrated that business into our go to market structure and we already in Q4 had a good structure. Looking at this quarter, we're adding good level of orders. We are adding good level of net sales with good margins. So I think this is a very good example of our ability to really leverage our size and our kind of go to market structure to incorporate the new business. So that's really nice to see and we clearly see that's going to have a positive impact on our business view this year, but also going forward. So looking at a little bit more details to the right here, the order intake, as we say, is close to SEK40 1,000,000. It could have been even more, but SEK40 1,000,000 is a nice uptake. The main positive side is the industry side. Obviously, considering that we had negative delta both for healthcare hospital sales and strategic alliances, that's even more positive. I would say, which I was right about in the in the report, but I said the most encouraging thing, I think, overall here is to see that we did produce a good Q1 considering the very strong Q4. I mean typically when you have a strong finish of the year like we did in Q4, you might see a little bit slower following quarter. That is not the case here. And I think looking at the order book here where we have over SEK70 1,000,000 in the order book with 60% of that scheduled for 2021 and a large part of that scheduled for the Q2. That's really, I would say, the strongest sign of where we are for the year. If you look at the order book and the fact that 60% of that is scheduled for this quarter, compare that with the same and adding the first quarter's revenues or in the first quarter's net sales. We are considerably above last year, I think we're like 38% to say we report above the same number last year. So that's really, I think, is a positive sign. Looking at the net sales, I'm obviously less pleased with the fact that we were not able to recognize more of the order book in the Q1. Most of that is moved into the Q2. We have, I mean several reasons for that. I mean the main reasons are still the pandemic. We have still issues getting systems into certain parts of the world. Obviously, it's difficult to travel, which prevent us from install the systems and generally, we see delays from that. We also had a fairly rapid increase of requests for our new simulation device, the G7, which also have caused some delays in the Q1 since we are ramping up the production of that device. But we are hopeful we will be able to address most of this in this Q2 and we also believe that we will be able to deliver most of what's been delayed from Q4 into Q1 and now further into Q2. So again, I'm not pleased with the net sales, but I think looking at what we have in the order book and the scheduling of the order book. I hope we can repair that in the Q2 and obviously for the remainder of the year. The effect of the net sales. Obviously, sorry, I'll do the gross margin first. We had as some of you noted, we had a lower margin in the first in the Q4, I think that we have been able to sell at the better margin, high margin here, we have 80% gross margin for the Q1 compared to 84 unchanged in the Q1 last year, but the difference there is really related to the currency effect. So if you remove the currency effect and equal that out, it's pretty much the same margin as we had Q1 last year. So I'm certain that we are on the good path for that and the same thing with the G7 there. Our ramp up of that production will align us again, I think, in better margins. But clearly, also just to say that margin effects we have had has also been impacted by lower hospital sales since hospital sales generally have a larger component of software. So the product mix is clearly a factor as well. But overall, I think the gross margin in Q1 was good and what we expect. Cost levels, even if we have added people, we have maintained cost levels in a good way basically on par with last year, just a small difference. The only added component here is really vascular simulation that for the full quarter have an effect about SEK2.2 million for personnel and for the total OpEx, sorry. The cash flow from operation is negative, but obviously directly linked to the lower net sales or the fact that we couldn't render from the order book. So I would say that, that will be changed in the Q2 and I hope we will get back to the expected levels during the Q2. And obviously, again, the operating income here was lower than last year, also directly an effect of net sales. We also had an other income kind of currency change effect here that's fairly large. It's I think SEK3.8 million or so that's a large component here also. Yes, so on looking forward into Q2 and the rest of the year. I think that we obviously expect the pandemic still to have an effect. We continue seeing a very strong demand for the medical device industry. We're working on multiple projects in the 1st part of the year that we expect to materialize over the year, but generally, the pipeline for both the Q2 and the full year is strong. We hope to see a rebound or a positive way back for the hospital market. And as said, I think this will be starting with Asian region and I think the North American, North Americas region will follow shortly. I mean, we see the effect of the vaccination in U. S. Has really major difference. We're starting to travel and hospitals are starting to opening up even if this will be a little bit touch and go as we say during this quarter, but I see really a positive signs there. We also have a lot of good discussions with the strategic alliances partners. We have as I've said before, we have invested in regional structure generally, but also specifically for strategic alliances. So we have now local people supporting the strategic alliances group both in U. S. And in Asia and we're hiring for people in Europe. So we have a lot of activities in these regions now adding on to the corporate relationship we are managing from our kind of headquarter. So I really believe in we have started slower for the year facility licenses and obviously I said that's impacted by the pandemic, but I still think that we will see positive things happening. Obviously, it's a live season here over the next couple of quarters based on the projects we have going there. We are hiring mostly in the regions, mostly sales and support to really fully build our revenue structure. We're also doing that carefully. We need to look at the I mean, basically every week what is happening, but we have been able to add kind of quite a few people in the Q1 and we'll continue doing that over the Q2. And yes, I've already said that we with the order book and what we are we really see that the year is starting off fine. Looking at the drivers for the year, not a big change from what I've after the Q4, but we really see a big demand for our new simulation device. We have a lot of discussion on the key therapy areas like structural heart. We see a big demand for FLOSAN technology which is really unique and we also see the MENTIS Live application where we have several national societies looking at using Memphis Live. We have discussions with our strategic alliances partner and also projects for them for them to use our kind of cloud based solution for managing their users, the trading programs and such. So that's really positive. I mean, I think overall from a competitive point of view, we really have a good grip of the market and there is very few situation where we face competitor with a technology or a solution that can match ours. Obviously, the we will still have competition and we and obviously, in some areas, we're opening up for completely new kind of players, but I think our position is continuing being stronger, especially in the medical device side. We have a clear focus with our larger clients, our top 5, 6 clients where we see a lot of opportunity to continue to expand. The vascular simulation piece, really pleased with that for 6 months here. And we are at I think we are the on the same level for 6 months here since October as we as vascular simulation did for the full year last year. And I think with the integration of that activity in Mantis, the we really have a good structure that could generate good net gain for that business in Cementis. We are working a lot on the neurovascular side, so the brain related therapies. We are establishing a Scientific Advisory Board in U. S. With key physicians that we're going to talk about more in details shortly, really also promising. And then as we talked about previously, it's been delayed due to the pandemic, but the we have really encouraging discussions on embedding and bounding for our technology on with these partners. So that's really short and concise. I feel good about what we are. Obviously, I would like to have a stronger start with respect to net sales Q1, but I think the underlying business is really there and I think we will be looking forward to a strong year in 2021. With that, I will see if there's any questions from from the group. Thank you. Thank you, Joran. So please you can raise your arm if you want to be unmuted and ask the question Directed verbally to Yaron or you use the question tool on the right hand side to text your question to us. All right. So I don't see any questions. So with that, I think we will closest session, Dominik? Yes. I don't see any questions here, Anita. So thank you. Thank you so much everyone for joining. And if there's any questions on the side, I mean, feel free to contact me directly and I will try to answer your questions. So thanks for your time this morning. Have a good day.