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

Hello, and welcome to this presentation of the second quarter report of Mentice AB. My name is Dominic Steffel, but this report will be, in a couple of minutes, presented by the CEO, Goran Malmberg. The presentation plus questions at the end that we will take will last about 45 minutes. [Operator Instructions]. But we will take the questions then after Goran's presentation. And one more thing for your information, this presentation and the whole webinar will be recorded. With this, I give a word to the CEO, Goran Malmberg.

Good morning. Thank you, Dominic. Good morning, everyone. So a pleasure to have you here and a pleasure to present the second quarter's report. So moving into the disclaimer, [ actually ], 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 small smile on my face. 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 to go to some highlights. I mean a lot of this could be read through the report, obviously, presented an hour ago. But I would just make some points and highlights. 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 1/3 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 order intake. Looking at the medical device side. As of end of July, so into the third quarter, we are at 80% of the full year order received for 2019, which obviously gives us a pretty good position for the remainder of this year. Same thing with strategic alliances. We are now at the full 2019's order intake for strategic alliances already sales to Siemens and Philips, and [ Laroc ]. U.S., as you might recall, was also one of our issue areas for last year where we, as of end of July, have an order intake, which is 90% of the full year 2019. So all in all, despite a difficult hospital situation, I think we are at a very good position. Looking at some of the details on the right side of this first slide, the order intake is on par or slightly above the same period last year. Net sales is slightly lower for the first half year, but we've also seen some delays in [ kind of ] deliveries based on the difficulty of 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 -- for the order book, sorry, is about SEK 50 million, where 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 are not being forced to give any restructuring of our staff. But despite that, we have controlled the operating expenses, move down on average per month from close to SEK 12 million to SEK 10.3 million 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 million in positive cash flow for the first 6 months compared to negative 4.5% period last year, which also then directly, all of this combined position us at operating income for the first 6 months, close to SEK 6 million 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 regardless of what people [ run ] or save, I mean, I think that's a very, very strong position and that, I think, positions 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 G7 and G7+. This is the result of close to 4-year kind of development cycle. So this is a significant launch, very important for us and for the market. It's an environment that really gives us ability to improve our products, the functionality and [ the real ] is in what we do. It's included here a kind of bifurcation support. So once you are not in the area that might be hard to understand, but that allows for some very difficult anatomical kind of variations for cardiology in specific, but also in other areas. That's something that a lot of our clients have been asking for. And we're really the first one to offer that in a structured way to the market. And this also -- and we have experienced launching the last revision our hardware device or simulation device back in 2014 that this drives upgrades from our clients, and we expect the same thing to happen over the next year or so here. With the new device, we also launched in coronary suite of products, the 3 new products to support a new device, but also this is a major update of our biggest seller. This is more volume product. Cardiology, as you might know, is the biggest specialty in this field, and that is something that the market has been waiting for. Moving on, we have launched our infrastructure for the cloud. Something we call Mentice Live Learning Center and Mentice Live Remote Connect. This really offers an environment where our clients can link up 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 so forth. So that's a significant part of our future as well. We did launch our first smartphone, mobile phone or tablet-based application as well. Based on a lightweight environment that we have and this specific product, right heart catherization, RHC, as we call it, is something that all new or young doctors have to learn how to chew. And this sort of a first for us test to see how this will be used and applied working of an iPhone or a tablet. In the Mentice cloud environment, we have also launched, together with a set of training cases, our transradial approach module and radial access or transradial access is really an important part of training for all doctors, also experienced doctors. Many specialities is moving from the traditional femoral access to the groin, go through 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, have been able to do the opposite and really accelerating. And I think this is -- compared to previous year, we have never launched this amount of our new products, and [indiscernible] during this time. That's very significant. On the right side, I will talk about some of the technologies. The imaging modalities around TEE 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 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 leading technology in this market and really the only technology market that allows for full integration of clinical device or simulation of clinical devices combining ultrasound, 2D and 3D ultrasound, with x-ray. So that is a very important development and would allow us to move into other areas. But more importantly, maybe the short term is that this position us extremely strong comparative competition. Precision medicine. I'm not going to talk that much about that, but that's very significant for future. One more slide on that further on. So I'm not going to 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 significant. And that's really targeting the most advanced cases, the most experienced doctors. So if someone thinks that a simulation is just for junior doctors, this is a good example where it's absolutely the opposite. Automated segmentation is something we talked about over the last period of time. We continue spending significant time and resources into that area. We're targeting at first product that launched to the market somewhere in the beginning of next year for this area. So there's something also that is exciting and will really link the product to the previous points we talked about. So this is really, again, a significant ramp of 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 have a nation-state or state of hibernation, while we really are moving or positioned significantly going forward. This is just a comment from one of our clinical advisers for the G7 launch that he says that this is a critical part of the requirement to really be able to practice and work on coronary bifurcation cases for this area. So that's just a side note. This is just -- some of you have, I'm sure, have 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 ourselves -- we don't see ourself as a training company nor a simulation company, 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 in to the right on the screen. We are at what we call precision, which is a 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 way we are in what people would refer to as training. A 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 a good example of that. This is exactly what we are focusing on. And again, this is not training, this is something else. So yes, this is just an example of things that we're looking at, where we see that our physics and our platform and our set of technologies would help the marketing clients really integrated in the clinical process in different ways. The first bullet here is in marketing use case where, obviously, we can use the simulation to demonstrate the capabilities of a robot really without the need of a patient. The second use case is for development, conceptual development, R&D, which, again, typically will require specific hardware or training on animal, [indiscernible] lovers or even patients where we really provide a virtual patient in an excellent way. In this case, it's really our software environment, there's really not a need for any hardware. The third one is an interesting one where we see an interest for using our environment as an input device. So if you have a doctor in 1 location that's going to support a procedure on a patient in a completely different location, our system is an intuitive way to navigate devices, and we can translate that information into a movement or control of robots in another location. This would have a significant impact on the ability to actually perform [ remarks ] kind of cases, not procedures. And the last one is probably the most advanced and probably the furthest away here, where we see that based on AI and machine learning to really eventually have a real robotic system. I mean with the analogy of self-driving car and similar. But that's obviously not only related to development with Mentice, but this is something that -- our ambition is to be part of that transaction. So that's all exciting opportunities for us for the future. So again, I mean, we are not in any way limiting our view of our solution just to be training. So this is really, not only for robotics, but generally, we aim to be part of the clinical process. We are not a training company. So looking at these -- 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 really see that a lot of the world is trained to get back to some sort of normal, and that obviously will require our stores to scale back to a normal. We obviously still have difficulties and very hard for us to assess the future here even for the next 2 quarters, especially with the recent weeks, new outbreaks in many regions of the world. It is really hard to see. And if this gets worse or so, it's -- no one obviously knows. But we only see that the elective cases is getting back at -- the volume is going back up, I wouldn't say it going back to normal. And slowly hospitals are opening up. We can see 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 a lot of 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 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, very fast. This will only have a negative impact, but we can see that our expectation has increased to health system for the second half. And we are pretty confident that we will have a strong year for medical device and strategic alliances. As you remember, medical device was our biggest issue last year, but we can see that our clients on that side is really planning for the future, planning for product launches for launch on new products, and that's really why we see our order intake is going up. 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 going to 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 Lifesciences beginning of July, that, I think is a testament to the quality of the product we have. And we have invested early. I think we have an extremely strong market position there. And the opportunities there will take us through the next couple of years. We will continue, obviously, to spend a lot of time and effort on our core development and moving our platform to the next level, really make sure we have infrastructure that support all of our exciting ideas. But that's -- I think we have been able to manage that in a very good way. So again, I want to rephrase or restate that it's very difficult to state an outlook even for this year. And it's really impossible to determine how the pandemic will move even week from week. But I would say that compared to a couple of months ago, our view is more positive, and we hope we can manage this year as good way as possible. All right. I hope that was a decent overview of the report giving you a little more depth in what we presented this morning. And with that, I would open up for questions.

Thank you, Goran. [Operator Instructions] I got one question by text, Goran. I read that to you. A few words on OpEx. Which decreased due to cost reducing measures coming down to SEK 10.3 million per month versus SEK 11.7 million in the previous year? And do you expect the effects 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 we 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, cost 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 4 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 1 week furlough in U.S. We have also applied for the Paycheck Protection Program in U.S., which so far has helped cash-wise. And hopefully, that will also help OpEx further on, but that's still not clear. But yes, we expect to maintain the same level for this quarter.

[Operator Instructions] There is another question. Could you disclose the order size received in the strategic alliances division?

The total amount of -- yes, this is unclear. Total amount of order or specific orders? I mean the total amount of orders year-to-date is SEK 10.3 million, which was what we did for the full last year, if that was the question.

Let's see. Seems to be -- okay, I don't see any more questions now, Goran.

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 or this short meeting. Thank you so much. And we will connect again in a couple of months. Thank you so much.

Thank you. Bye-bye.