Hi, and welcome everyone. Mentice recently released its Q4 2023 report, and I have the pleasure of introducing the company's CEO, Göran Malmberg, and the CFO, Ulrika Drotz . Thank you so much for being here today.
Thank you so much. Very nice to be here. So, I'm here, Göran Malmberg, I'm the CEO, together with Ulrika. So we'll help you with the presentation. So I'm going to start with some highlights, overview of the quarter and the full year. First, as you might have noticed, we finished the year strong on the order intake. First time in the Mentice history, where we exceeded SEK 100 million in a single quarter. And that's up 15% from the last year's fourth quarter. But as you have seen us commenting during the year, we had a really strong performance during the first part of the year. So the fact that we continue to grow in Q4 is something that I want to point out.
Net sales as well above last year, just slightly above, but still above last year. Again, given the profile we had in the year with less seasonality, I think this is something that we want to point out. Slightly larger delta between net sales and order intake, as you have noticed, which obviously build value for 2024. So that should be noted. We've seen slightly higher costs in Q4. Part of that was the Biomodex acquisition, and also other one-time adjustments. So we want to be clear that this should not be considered as higher running costs. This is a one-time situation for the fourth quarter.
So this then resulted in an EBITDA of SEK 2.3 million, slightly lower than last year, but related to what I just talked about in terms of costs and net sales. As well related to the cost levels, the operational cash flow in the fourth quarter was negative, but again, we're building accounts receivable for next year, as well as a much stronger order book. And again, the cash flow obviously was impacted by the Biomodex acquisition. Net income for the period minus SEK 2.8 million, compared to slightly positive last year, and then consequently, the earnings per share also slightly negative.
So looking at the full year, up 25%, I would consider that a very strong performance from a net sales point of view. We should remember that we passed SEK 200 million in 2021, and we now up close to SEK 300 million, just basically two years after. So that, that's something we are very pleased with. Order intake as well, up over 20%, from SEK 252 million last year. I think that also is something to note. The order book, we have been continuing building the order book, where we now have over SEK 100 million, which is planned for 2024. So the order book has increased with more than 20% as well, compared to last year.
The Americas region has been the driving force for the growth here over the last couple of years. But this year, or 2023, we have a really, really strong performance, both from an order intake and from a net sales point of view, with 55.8% on the order intake and 40.8% on the net sales. So, that, that's clearly something to be noted. EBITDA for the year is SEK 24.2 million, a considerable improvement from last year, 8.8% in margin. And, as we note later, I mean, it's a considerable change in our performance overall, as a company. And, net income slightly negative, but also a significant improvement compared to last year.
Cash flow, as well, improved almost SEK 40 million for the full year compared to about SEK 15 million for last year. And then, earnings per share for the year, slightly negative, but also a significant improvement from last year. So as a summary then from the year, the key points for us is that we have a solid sales growth, 25% year-over-year. But really what we want to point out, we compared to a year ago, or say 15 months ago, where we started the initiative to make sure that we can improve the productivity. We have improved the, which is the main KPI that we're using, the revenue per person. That has improved with over 30% compared to last year.
So we go into the financial summary here. Again, strong overall top-line performance, both order intake and net sales, and a more even distribution this year compared to the typical year. I cannot say that this is a new trend. I mean, we had a couple of really large orders in the first half of the year, and we cannot say that will happen this or next year, but this has clearly impacted the profile for 2023, which you will see later. Again, repeating the productivity improvement, it more than 30% compared to previous years.
And then, overall, I think as resulting really from the productivity improvement, we have improved the operational cash flow and the cash at hand, while we see in Q4 the acquisition of Biomodex, but also some one-time adjustment to that impacted the quarter. Again, it should not be seen as a new base point. This is a unique for the fourth quarter. So, a couple of points on the business side. Again, a growth driven by Americas, as I said, but also by the medical device industry.
We have a very large part of our business, about 80% of our business come from medical device industry, mainly U.S., but we also see from the rest of the world, we have a couple of larger orders from the APAC region in the end of the year, but also Europe is significantly contributing. We've seen the APAC region impacted by the slower business in China, but you also see that we had a good distribution of opportunity from the rest of that region. The medical device opportunities, I mean, you can see, have we reached a limit there? Can we continue to grow?
I mean, I'm confident that we can continue to grow in that space, and we see opportunities are building during last year and continue to build into this year. So we are confident that we can continue to grow based on the medical device side. The Biomodex acquisition was, I think, a very interesting one and adds significant to our IP and the opportunities. I mean, this is really consolidating the physical flow model side, where Biomodex, even if they were small from a revenue point of view, really was seen as one of the technology leaders, and they had significant customer interaction and partnerships. So this is really, I would say, us consolidating that market as well. So that's really positive for us.
The FDA approval for Ankyras is a very important milestone, means that we can start selling that product in the U.S. region, and that's obviously where the larger medical device companies in that space have their headquarters. So we already have multiple meetings and discussions on that in U.S., and it's something that we're really looking forward for this year. And really, our focus is continue to generate a positive operational cash flow and a relevant EBITDA level. I mean, noted that we did not have a positive cash flow in Q4, but that's clearly our intention for the coming quarters.
We see on the healthcare side, Strategic Alliances , I mean, the pandemic situation, also we are past the pandemic, but we've seen that the U.S. health system have struggled significantly. We believe the opportunities are still there, and we believe we can execute, and it's a significant upside on the U.S. side. Looking at the Chinese situation, we know there will be challenges in the Chinese market, but that's still one of the largest opportunities in the world. So we believe we continue working these opportunities across the globe, that this will be a significant upside for us future. So nothing have changed there. All right, going into the financial details a bit.
I will do the order intakes slide, and then, I will ask Ulrika to jump in on the details of, net sales and others. I think we should note, if you look at the graph here to the right, that's showing, the last four years, basically, that we have a very clear, growth trend, obviously for the year, but also going back all the way back to 2020. So I think this is something to be noted, and it's a clear, clear, positive trend for us. I mean, strong overall intake in Q4, obviously, despite really, really good performance for the rest of the year. Medical device up with 50% for the quarter, mainly driven by the US market. As I said, healthcare systems, mainly related to US and, and the situation in China.
The healthcare business from the European market has been fairly steady. I mean, slightly down from last year, but still steady. So the main areas we need to improve on in 2024 is US and part of APAC. Strategic Alliances is really tied to the hospital market, so that's follow the same trend, really. I will let Ulrika do the following slides.
Thank you, Göran. So to start, talking about net sales, I want to emphasize the shift in sales per quarter that we've seen in 2023 compared to previous years. If you look at the graph at the right-hand upper side, you will see this, the different profile that we have for the year. And as Göran has mentioned earlier today, as well as when presenting the Q3 report, we did anticipate this to look like this in Q4 this year. So looking at the different regions, the Americas region is presenting a very strong growth this year. And what might seem like a slowdown in Q4 is mainly related to the very strong growth during Q1 to Q3.
For the EMEA region, we have a stable growth throughout the year and definitely in Q4 as well. And the APAC region is presenting a significant growth in the fourth quarter. And for the full year, it has been affected by the slow start of the year, as Göran also mentioned. Looking at the business segments, I want to highlight the very strong growth we are having in system sales, with an increase of over 63% in the quarter and over 60% in the year, which is really positive for the product mix for us. The order book is strong, as Göran mentioned, and we really see a very strong part of the order book being on software and perpetual licenses.
Of this strong order book, we have SEK 110 million scheduled for 2024. And to comment a bit about the annual recurring revenue, with the graph that you see, you can see a slight decrease in growth. However, I want to highlight the very good growth that we have related to software licenses, with SEK 9 million for the full year of 2023. And the financial summary, with a net sales increase during the year of 25.5%, of which 19.4% is organic growth. The gross margin remains more or less the same as for 2022. And we have, for the fifth quarter in a row, a positive EBITDA result and a positive EBITDA result for the full year of 2023.
To mention the cost levels, Göran mentioned it, and I want to mention it as well. We see during Q4, one-time costs and costs related to the acquisition of Biomodex. So I also want to stress this is not an increased run rate level of other OpEx, which I think is important to understand. The cash flow has been. The operational cash flow for the year has been positive. And looking at the cash flow from the operating activities, amounted to 38... a bit more than 38 million SEK. And we see that we have a part of due unpaid invoices being postponed into 2024, and that is part of the reason why there is a weaker cash flow from operating activities.
Over to you, Göran.
Thank you, Ulrika. So a bit of a summary then. So a bit about the business again and the market situation. So if we look at the business and financial side overall, again, last five quarters profitable growth that has really generated a stronger cash position and an improved productivity. Something I can't focus on enough, I think. And should be noting again, that for 2023, we had a significantly less backloaded seasonal profile, where we typically have 35%-40% of our business in the fourth quarter, which was not the case in 2023. And to say, that's, that is, really not a guarantee for the future, but that's the situation we had in 2023.
Just reflecting that we have more than doubled our top line, both orders and net sales, over the last three to four years, or since 2020, with a significant improvement on profitability, is something that we want to point out. So on the market side, we can see that adding technologies we have added to our portfolio over the last four years or so, with first Vascular Simulations back in 2020, and Ankyras in 2021, and then Biomodex in last year. It's we have a really clear confirmation. We're looking at the clients we have, both in the hospital side and the industry side, in those areas, really confirm that this is a really valuable combination of products.
I mean, we will have a discussion or a presentation in the Capital Markets Day we introduced, we're going to have in March, where we will have a physician from the U.S. presenting exactly how he uses all of our technology in his daily clinical practice. So that's really, really important for us, and that's what we have talked about for many years, how we want to really develop our image-guided therapy solution set, which is really what we are doing. I think it's clear that there's very few direct competitors in this market. It's clear that we, Mentice, is the market leader. But we can also see over the year that the competition is fairly unstructured.
I mean, we see the one of the largest competitors that divested over the years, CAE, the kind of Canadian flight simulation company, they sold their healthcare division over the year. So that we believe is another player that in principle will disappear from the market. So that's also... We can also see that the market is difficult. I mean, I think we, Mentice, have been able to grow significantly over the last 3, 4 years, while we see a lot of smaller player that have trouble. So obviously, I think this makes us even more proud of what we are doing.
So I think overall, for me, I mean, I'm really pleased with the year 2023, and I think we have positioned us very well for 2024 and the future. So with that, I would open for questions.
Thank you so much for the great presentation. Now, before we go to the Q&A, I just want to remind everyone that you can ask questions in the forum under the video player. Now, to start with, talking a little bit more about the order intake, as you, you know, already presented, both for the quarter and the full year, MDI was very strong, healthcare systems a little bit weaker. Can you elaborate a little bit more on when can we, for example, expect a, recovery in healthcare systems, or do you just take the opportunities as they are presented to you, so to speak?
Yeah, it's really hard for me to say exactly when, but I mean, I think we had some specific situation. I mean, the U.S. healthcare market had significant issues in the wake of the pandemic, and a lot of health system that need to focus on repairing what happened during the pandemic. So I think some of that will probably get back to more normal this year. I think we also need to from a sales side have more focus on the U.S. healthcare market. So I think we can see some immediate recovery there for next year. China is another large area where we had a lower level of result during last year. I hope that we can recover for that last year.
It looks probable, but I can't really say yet. It's too early to say.
Got it. We also got a viewer question regarding Americas and the US specifically. Can you elaborate a little bit more on the difference between the industry and the hospital market there in terms of, you know, demand and the developments you're seeing?
Well, I mean, we know that the world's leading medical device companies have headquarters in the U.S. A lot of those companies obviously dominate the rest of the world. I mean, I think it's upwards to 50% of the world's medical device products that are produced or at least owned by U.S. companies. So that's what—whatever we do in the U.S. will have an effect on our business in the rest of the world. We can see that some of the larger clients we had in the U.S., we generate initial contract in the U.S., but then maybe half of our revenue comes from the rest of the world. So that's why import...
It's so important for us to build those relationships in U.S. with the headquarters, because that will have a significant impact on our business in all of all other regions.
Got it. Now, you already mentioned that 2023 was a little bit unusual because you had a lot more even seasonality than initial years. And you also said that you can't really predict whether 2024 is gonna be the same or the same as you know previous years. So can you elaborate a little bit more on you know during 2023 what were the main reasons that you got that many orders in the first half? Was it just random so to speak or were there underlying factors in the industry for example that made orders come in that specific timeframe so to speak?
Yes. No, no, but really, the... We had, as you saw from our press releases in Q2 mainly, but also in Q1, we had a handful, 3, 4 really large orders from device industry coming in in the first half of the year, and one significant one in mid-second quarter for almost $3 million dollars. Those, those, say, handful of orders, 2, 3 orders, are really the main explanation for that change of a profile. If we can get similar orders this year, first half year, great, we will have a similar profile. If we don't, then, then we will probably the underlying business is still seasonal- has still a large degree of seasonality.
Understood.
Also, I wanted to talk about APAC and specific, China. Obviously, the Chinese market has been relatively weak recently. Do you see any signs right now of, China potentially recovering, or do you think it's gonna remain relatively weak during, during the foreseeable future?
No, I think that China will recover. I mean, I was in U.S. last week and talked to many of our device clients, and I asked every one of them of their view of China, and there's, it's a love and hate relationship. I mean, you know you have to be there, but you know you're gonna face issues. I mean, it's the fastest-growing market in the world. I mean, next to U.S., it's the largest single market in the world. In my mind, you have to be there, and that's the same as all of our large medical device companies say. I mean, all of the big ones are there. They know they need to invest in the market.
We know we're gonna, we're gonna run into issues with the, with the government programs, change of price structures, and what have you, requirements for local produced products. All of that will happen. Still, it's the second-largest market in the world, and they're one of the largest growing markets in the world. It's a massive development on medical device. I mean, it's probably upwards of 100 new device company, in startup mode in China who are focusing on the domestic Chinese market. So clearly, we will be there, we want to be there, and we want to compete for that business.
Got it. Another detail regarding, you know, sales mix. It seems like recurring system sales and service sales faced a notable decline. Can you just elaborate a little bit on the underlying reasons for that?
Can I bounce that to you?
You, you can start.
Okay. No, I mean, I think it's seasonal. I mean, obviously, the recurring business is related to largely related to the hospital business. We had slightly lower hospital degree of hospital business during the year, which impact the recurring revenue. I am hopeful that we can get a better balance this and next year, and that will also have a positive impact on the kind of recurring side. While we're also working on step-by-step converting the medical device market to a kind of recurring model, but that will probably take a couple of years.
To build on it, we also see that we have a growth in software recurring revenues and a decline in system sales, but we also see that we have the increase in perpetual system sales, so I think they are kind of offsetting each other a bit.
Got it. And we got a related viewer question, and you may have partly answered it already, but the question was basically about: can you talk more about the size of your leasing portfolio, and who is the typical customer, and from which country is a leasing customer?
Well, I mean, it's not a clear trend, but, I mean, it's mainly on the medical device industry side. There are some of the larger clients, again, I can't mention the names, that prefer OpEx, so a running cost per year, rather than CapEx. For those customers, we have provided solutions where they can rent systems on a 2 or 3-year scheme rather than buying them upfront. So that's it, it's not the general trend, but, as I said, some of the device companies are moving into that direction.
Perfect. Now, you already mentioned that during Q4, you had some notable one-off costs. Can you talk a little bit more about in the coming quarters, do you still expect that there will be some related one-off costs until you recover to, so to speak, normal run rate, OpEx, or what should we expect?
I think the Q4 one-off costs are related mostly to the acquisition of Biomodex, so they are related to Q4. Without making any forecasts, I think we will see a different run rate going forward.
But, I mean, I can also add to that. When you look at the underlying cost, I mean, the personnel cost has increased slightly over the year, and we're looking at the running costs per month. I mean, it's growing, but not as fast as the top line, so the underlying level is in control way. Same thing with other costs. I mean, we now, obviously, going into an investment phase, you would say, in 2024, where we are now starting recruiting again on a slightly larger scale, so we will clearly increase the cost base, but as that's obviously always monitored with the expectation on the top line, and we need to be very careful.
I mean, it's clear, the clear directive to us is to make sure that we are cash flow positive in every quarter, and we manage our costs; we have relevant profitability for the full year. So that is the clear mandate or clear directive from the board. Grow as much as you can, but you need to make sure you have positive cash flow.
Great. Now, you just mentioned the Biomodex acquisition, which is obviously very interesting. In your press release, you stated that the total turnover for 2022 was about EUR 2.2 million, if I remember correctly, but the price you paid was EUR 200,000, so that was obviously pretty cheap. Can you elaborate a little bit on the underlying reasons why you were able to pick up these assets for an optically very cheap price?
Yes. I think that, I mean, this is a situation where, which I sort of alluded to in my presentation, a lot of smaller companies face the same situation. I mean, they have high aspiration for growing into the market, but they also typically have a higher burn rate in the early stages of the company. What happened with Biomodex is that they ran out of cash, and they were not able to secure more cash to support the business. So they had to scale down the business during late 2022 and beginning 2023.
They were still not able to secure more capital, and they come into a situation where the board and owners decided to basically liquidate the company, and we were able to buy the assets based on that liquidation. And, you know, I'm not, I don't have a crystal ball, but I think many companies will face the same situation. That's why it's so important for us to make sure we are cash positive and will not, definitely not end up in the same situation. But, so yeah, that's... We were there. We had a good relationship with them. We've been talking to them together, I mean, obviously, a lot of companies in this industry. But we've been having that dialogue with Biomodex for the last five years or so.
When this happened, we were there, and we listened, and we took the opportunity.
Got it. And, I'm not sure how much you can talk about it, but, you know, what should investors expect in terms of both the top line and profitability? How is the Biomodex acquisition gonna affect your numbers during 2024?
Yeah, I mean, I can't really go into details about that. But, I mean, if you look at the physical simulation marketplace, so we obviously will combine and integrate what we call physical simulation or the Vascular Simulations acquisition from 2020 with Biomodex. And that will, we will make sure that the products doesn't overlap, and we have a complementary solution, which Biomodex is complementary because it's direct printing, it's a faster turnaround, while the vascular simulation products have a probably higher level of realism and a higher durability of the model. So slightly different focus, more on the training side, while Biomodex is more on the planning side.
But I think the combination of those represent a significant opportunity for growth. We just did $2 million in order intake for 2023. I think the combination of that should be able to grow faster than the overall Mentice business in 2024 and 2025.
Got it. And, you know, the M&A market in general, it seemed like we heard, at least from the companies we cover, we heard from a lot of them that, even during 2022 and 2023, valuations for strategic acquisitions, where, for example, wanted to acquire technology, they didn't really come down in line with public market valuations. Is the Biomodex acquisition kind of a sign that, private market valuations for these assets are kind of, adapting to what we've seen in public markets?
I think that the reality catch up with company where they need to inject new capital, you know? And I think all the way up to that point, I think the company trying to maintain their perception of the valuation, at least the valuation that they've been invest or getting capital injected on earlier. So I think we've seen that several times. I mean, people have the... On the private side, they're trying to maintain a view of the valuation from 2021 and 2022.
So, I think still the valuations generally in the private side is very high, and it's very disconnected to the public market, especially if you think, if you then add on AI, for instance, into that, AI and healthcare in the combination, you still have very high valuations. But I think our opportunity, generally, is to have our ear to the ground and be there when there is an opportunity.
Got it. And as you already mentioned during the presentation, you recently got 510(k) clearance for Ankyras. Can you talk a little bit more about, you know, how much visibility do you have on growth from Ankyras? How is it gonna, for example, affect your net sales?
Yeah, I mean, Ankyras or Ankyras, Ankyras, is really isolated still, a fairly small business, and I don't expect this to take a significant part of our business. I think the opportunity is clear. So I was in the U.S. last week in a neurovascular congress and talked to all of the leading manufacturers, and I think we have, I think the combination of our solutions is really the interesting piece. I mean, a lot of these companies want to use all of our tools, including Ankyras, including physical modeling and the vascular simulation. So that combination, I think the combination of that will drive growth, rather than I say that the Ankyras business will generate 10% or 20% of our business.
I don't think that will happen, but clearly, we have significant opportunities, but we should know we have competitors in the market. We have at least two competitors that has been in the market prior to Ankyras, and we still need to have the argument to replace them with our main clients. But I think the main argument, as I said, is the combination of solutions that Mentice has, that no one else has.
Got it. Coming back to cash conversion, which you already commented on during the presentation. What can investors expect going forward? Because obviously, in healthcare, the market is kind of known to be a little bit slow, but are there any active measures that you can take to kind of ensure that payments occur relatively quickly, or is that just an aspect of the industry, so to speak, that that one needs to accept?
As Göran mentioned, we are going to have a focus on creating positive cash flow. So, and we anticipate cash flow increasing during next year. So there are measures we can take, and obviously, there's always a certain element of the market's situation.
Perfect. We also received another listener questions. When it comes to, you know, both market potential and market share, especially in endovascular simulation, you obviously already dominate the market, so to speak. But what do you kind of see as your potential when it comes to both market share and, you know, revenue, so to speak?
I mean, I have said before that I think that the opportunity for image-guided interventional therapies or performance solutions in that space is upward to $500 million. And I mean, if we say that we have 50% or 60% market share today, is related to the virtual simulation training market in that space, which is a very small part of that. And I think that as we demonstrate with Ankyras, but also the, you know, opportunity where we expand in the vascular. We are really creating our own market or the market space. It's a blue ocean market we're trying to build together, so that's what we're doing. So, yeah, I think the market opportunity is upwards to $500 million, or potentially more.
Got it. A follow-up question is regarding the growth of the industry. What should investors kind of see as the underlying growth of your market?
Clearly, the development of the minimally invasive treatment modalities and endovascular in our case, the penetration of those therapies. That's the underlying reason. Looking at many of our specialties, they have in the CAGR of 10, 15, 20%, and the typical penetration in any procedure might be 20%-30%, so the upside potential is enormous. So I mean, we don't really look at the simulation market or talking about what is the expected upside on the academic side. We really look at how are the therapies developing, how are the hospital developing, what is the trend there?
So we've really been following that, and we're really, really close to what is the next big thing. I mean, what's happening in structural heart, what's happening in neuro, what's happening in electrophysiology, and what are the new therapies there? That's where we need to be, and that's where the big, big opportunity is.
Got it. I think that wraps up all the questions that we received. Göran and Ulrika, thank you so much.
Thank you so much.
Thank you.