Mentice AB (publ) (MNTC) Earnings Call Transcript & Summary

Good morning, everyone. I hope you can hear me, and welcome to this webinar, where our CEO, Göran Malmberg, will present Mentice year-end report. My name is Magdalena, and I will moderate this call. [Operator Instructions] This meeting will be recorded and available with the report on mentis.com. I will now leave the word to our CEO, Göran Malmberg.

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 will move to the next slide, please. So we did announce that, obviously, in early January the expected outcomes, I don't think what we have presented today would be a 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, I 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 had a 10% drop in net sales compared to 2018, 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 the medical device side. We also see that a lot of the discussions we have had last year is moving forward in a good way. So we have a positive view of the outlook for medical device for 2020. Moving on to the other segments. On the second bullet on the left, we have -- talk about the health care system and the teaching side. So we are doing 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 would expect our growth generally come from industry and from the strategic alliances side. So we 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 put 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 cath lab, which was -- it's 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 at small numbers, but we are getting up to point where it is 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 the Siemens cath lab to clients now beginning of the year that we are starting to getting orders from customers, which is really positive. So that's obviously a big part of our expectation, as we said before, for this year but also for the next coming years. We also mentioned in the January report about the agreement with the German Society of Radiology, where we have a 5-year agreement, collaboration agreement, where they're going to use Mentice -- the Mentice equipment and Mentice solutions for training 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 yes, it's much more substantial discussion on how to use simulation specifically towards certification of doctors. So that's a positive move. The other thing that is interesting is that the German Society of Radiology very -- explicitly stated that there's really Mentice, there's really no other solution. If we're going to use it to this level of utilization, Mentice is really only system or only solution on the market that would be relevant for this. So that's also a very positive feedback from them. 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 significant amount of resources which are 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 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 to -- then it's going to be really relevant to see how that's going to be received by the market. And then as we said, in the January report as well, I'm stepping in as -- besides my CEO role, obviously, as responsible for global sales. So I have 3 sales leader reporting to me, but I'm really taking a personal responsibility for the sales side. So yes, so that's the core summary of the fourth quarter. So let's move into the next slide, please. So this is, again, I'm not going to really elaborate on this much. I 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 -- 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. The operating results is obviously the consequence of the revenue and the fact that we have built our organization for larger numbers. So that's what it is. And then cash is around SEK 50 million by the end of Q4. If you have any more detailed question, Elisabet and I would ask -- 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 or we start 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 as we looking at what went wrong, what could we do to correct that. Obviously, we are still in the hands of our clients' ability to deliver orders first, but I think we can do a better job on really understanding and driving the decision processes, which is something that I personally want to get involved in. Also, what we talked about is how do we really more concretely 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. Then obviously, getting into the large account is another part that I'm focusing on -- really focusing on maybe the 4 or 5 largest clients we have to make sure we can work on longer-term relationship that is a key focus of mine. And I think we see already some promising dialogues in the first part of the year. So that can result in something further on here. So beside these things we have -- I mean, I mentioned that on the last slide, we have several discussions with a similar interventional radiology bodies in U.S., but also other part of Europe. Also other specialties are following very rapidly. So this is a clearly positive trend where I have -- when I joined Mentice in 2008, people said regulation mandate is around the corner. And I basically said, I'm not going to wait for that because that would take about 5 and 10 and 15 years. But I have to confess now what happened in the last year and 1.5 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, I 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 society is clearly moving in a much faster pace now than they've done years earlier. We had -- clearly there was some uncertainties during the later -- last part -- last year. I mean, we -- some of the things -- some of the reasons for the delays of deals were also maybe uncertainties on some general market conditions. I know we have discussions on the China tariffs and things like that. I think a lot of those have 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 insecurity on how that will impact us. And we have looked at that specifically. Obviously, first 2 months of the year, this China, the Greater China market has been pretty much closed. I mean our people down there have been -- being 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's impacting at least yet the actual business, but it's just a delay for the Asian hospital business. Obviously, with the last couple of days, information on [indiscernible] stuff. I mean, this is very, yes -- it's hard to know how this will impact us. What we are doing is looking at supply of components and 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 immediately. But in terms of how that would impact us market-wise, it's still unclear, I guess, unclear for everyone. As I said, on the strategic side, left side of the slide or right side of the slide here, Siemens' Artis icono -- sorry, for spelling error there, Artis icono was starting to ship in the beginning of the year, and that's 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, we did some announcement in the Congress in San Diego in January, we'll add with a couple of more product launches in the next couple of months. I mean, we will have some major ones in 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 5 or 6 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 15, 20 deals 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, and not a significant part of that will happen in Q1. 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're just basing on -- based on where we are. And relating to 2019's results, we are comfortable in going back to the growth phase. And we -- what we say right now is that we expect to be above 30% for the year. We're not providing any guidance for the EBITDA or the earnings, but today we focus on the top line on the growth side. So overall, I think the position of Mentice, and we are the -- I said before, the only solely focused vendor in this space. So our marketing position is very strong in all segments, also industry. And obviously, with the emerging vendors, we have a unique position. We're only one offering that resolution. So all of that together, it 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 in that's still 60% of our business -- 65% of business. So that's definitely 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 that percentages that we see from medical device and from strategic alliances. Yes, I mentioned the coronavirus. I will not talk about that again. So that's pretty much what I was intended to say today. So I think we can open for questions, Magdalena?

[Operator Instructions] [indiscernible] Johan [Norris] wants to ask a question. So please, Johan?

Yes. On a few, you can take them one by one perhaps. You clearly refer to a very dynamic market, and that market continues to be even more dynamic, but in '19, clearly, that didn't convert into growth as expected, especially not on the device side. Is the pipeline to order to sales 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, no, I don't really see a change -- I mean, we have tried to analyze, as said in the earnings call in November or -- yes, November, as we talked a lot about that in detail. And I would -- no, I think we just run into a series of reasons in -- 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 is at least positive move going into this. So I don't see any changes in trends or behavior generally. So I think that's -- yes, if that's answer to your question, Johan. So -- and again, you asked about the pipeline. The pipeline we have, we are watching the pipeline closely, obviously. And we are looking at how we convert pipeline in the orders, which is obviously a key and we don't see a change in trend or behavior there really. And -- but I think 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 half. So again, was if that's answer to your question, Johan? Or...

Yes, it's a more detailed picture, anyway. And you also referred to that -- it's my understanding, listening from the call that you already expect some visible improvement in Q1 that some of these orders that were delayed from last year will sort of mature to become firm orders already in Q1. Does that go for both smaller and larger orders?

Yes. Yes. As the mix. Yes, we did really -- in the list, we pointed out, was probably more focused on larger opportunities. We did not list everything. So -- but yes, absolutely. And we have seen -- I'm not going to 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 -- yes, we have converted orders in January and February, absolutely. Based on that is -- which will give us the confidence for the first quarter, absolutely.

And also, perhaps to clarify that you refer to the coronavirus and that is still early days, but clearly, you expect some impact still you deliver a specific growth target for the year, about 30%. Should we understand this reference to the coronavirus that you can -- you expect to manage about 30% still with this effect? Or is that something that could go and blur the picture and perhaps make it difficult to reach about 30%?

Yes. In terms of the forecast for coronavirus, if I would have an answer with that, I probably wouldn't be the CEO of Mentice, I will probably do something else. I mean, that's obviously a big question mark for everyone how that will develop. I mean we see so much -- sorry, that was my watch. So yes, 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 30% 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 this 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 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 worry, I understand it's a tricky one. But as long as it's broadly restricted to China, you should -- based on what you see now, we are able to which about 30%, even considering the corona effect. And you also referred to some 20 systems or simulation system delivered through the strategic alliance to date and that both Siemens and Philips are now active. I don't know how we should phrase it. But you -- to reach the about 30% without giving a specific segment guide, you clearly expect the strategic alliance to grow, well, about 30% and the medical device, assumably also and perhaps the hospital market substantially or significantly below 30%, especially if that could be exposed by the corona? Is that how we should look at it?