Modulight Oyj (MODU) Earnings Call Transcript & Summary

My name is Seppo Orsila, Founder and CEO of the company, and I have with me our CFO, Mrs. Anca Guina.

Hello.

We will first cover highlights of the Q1. Anca will discuss the financials, proceed to discussing the progress in the pipeline as well as cover certain points about the progress in the implementation of the strategy. At the end, we'll summarize and take your questions. So just as a reminder, what is Modulight about? We fight cancer with science and technology. We're a biomedical company that designs and manufactures lasers here in Tampere for treatment of cancers and eye diseases. Besides that, our products are being used at other high value-add applications such as flow cytometry, quantum computing and digital press. Q1 in a nutshell. Sales and EBITDA continued to improve both year-on-year and sequentially. Our addressable market grew namely because the indications were expanded and number of customers for the same indications increased. And like before, the macroeconomic trend of population getting older and thus cancer becoming more prevalent. Order intake continued the positive development started a year ago. And one of the notable orders we had was $800,000 order from one of the large quantum computing customers. R&D pipeline is now at 31 projects versus 28 a year ago. And focus has been on more mature projects, but also the progress in the long R&D has been achieved. And I will talk a little bit more about that towards the end of the presentation. Anca will discuss now the numbers for the Q1.

Thank you. The growth of the order backlog combined with a diversified customer base, which we have at the moment, enabled the revenue growth of 52% from Q1 2024 despite some delays we had in customer approach. The revenue development was still affected by the transition to the PPT business model and the delays with the engineering prototypes deliveries. Profitability improved with EBITDA 56% higher than in Q1 2024. Spending on R&D and geographical expansion continued. As we announced before, our investment program has been completed and related commissioning cost decreased, which led to increase of -- a decrease of 15% of cost in Q1 2025 compared to the reference period. PPT is still limiting the revenue development speed. Our goal is to install a record number of devices during the spring and summer time. Improved profitability is reflected in EBITDA as well as in EBIT. The headcount as FTE at the end of March 2025 was 66 versus 70 in the same period last year. We increasingly acquired interesting customers. We have a strong cash position as well as the ability to quickly respond to market opportunities. Hence, we believe that our business will return to strong and profitable growth during our strategy period, which is extended till the end of 2025.

And like I mentioned in our update letter, we were not without difficulties. Some of the more notable ones are included revenue development where due to regulatory/operational issues, the certain customers did not meet our earlier expectations. I would like to, however, bring a little bit more depth to that with the 2 points, that they had third parties they rely on doing certain things, and those got delayed and those delays were kind of imposed on us and thus affected our revenue development. But it should also be shared and noted that these regulatory hurdles were mainly related to kind of expanding the recruitment criteria, basically meaning that while on short term, these delays are unfortunate, on the long term, they actually mean that the same therapy and drugs are used for a wider group of patients for wider indications, thus a significant kind of expansion on the expected market for those therapies. So this is quite important in our opinion because it clearly expands those respective opportunities. So as I said, in the pipeline, we increased the number of projects where we are commercializing our product to 31. We had a growing number of preproduction orders as well as development in the PPT despite the difficulties, which I mentioned. New indication related to the eye cancer was added to the pipeline. The focus has been on the Phase III trials and the installed base of the PPT systems is now above 50 hospitals. And despite the before mentioned delays, we expect to install record number of sites during the spring and summer. Certain customers also made product launches that are based on -- exclusively on our platform products in the category of high value-add products. And our role as a customer partner has been continuing to increase. And several customers even mentioned this geopolitical turmoil, namely tariffs and the favorable position in their view why it's good to work with someone like Modulight having a factory in Finland and not necessarily in Asia, for example, like some of our competitors. I'll discuss a bit later more about the long-term R&D and intellectual property progress. Just the alternative view, what we always shared about the customer base, which are giving us these 31 projects. We continue to strengthen our position with the bigger companies and listed companies and the projects are basically progressing and no other, let's say, notable updates to give you at this time. I think the recent quarter was a good example of first steps in improving the predictability in revenue. I mean, having certain challenges, like I mentioned earlier, yet we were able to grow revenue. And as we have said many times, we expect the predictability of the revenue stream to improve as the projects mature. Now a little bit more on the long-term side of the R&D. As you know, Modulight holds multiple patent families. And here, we are explaining how we are using patents to protect our technology. The example here is about cancer therapy. We expect to receive a new patent soon related to Modulight Cloud. To explain what that means, I'd like to revisit a science study, a Modulight oncology platform we published about 1.5, 2 years ago in Science Advances. This study shows that adding photo immunotherapy to the standard chemo reduced the tumor burden by 22% compared to chemo alone. The study also showed that when light delivery is controlled real time by Modulight Cloud, the tumor burden reduced by an additional 8%. This is a feature where we are expecting to receive a grant patent. And this will join the patent family covering our remote control medical device. Obviously, most of this research is very long term, but we are quite excited about the increased IPR coverage. This shows how cloud both improves the treatment efficacy and how we protect the key features in the cancer therapy with our IPR strategy. Just a recap on the strategy and targets. We have 4 initiatives in the strategy, geographical expansion, extension of the offering to new indications and applications, new business models, commercial and operational excellence and state-of-the-art laser technology expertise. I will briefly mention some of the progress in each of those areas. Investments in geographical expansion continue, and I believe that the best evidence of the progress there are the recent flows of purchase orders, which we have been reporting in Q4 and now. Strengthened presence in U.S. with both local sales and clinical support is now bearing fruit. This is best visible in the quality and quantity of customer orders. Developing business in Europe and Asia in parallel with the U.S. market clearly catalyzed by our U.S. customers' international operations is moving forward. New customers have been received from U.S., Europe and Asia, while we continue to work with our old customers. And perhaps the vertical integration is now appreciated more than ever by our customers, but we would always like to remind people that vertical integration for Modulight is essentially about speed or time to market for the customers as well as supply chain security. And I guess the recent global turmoil in tariffs supports the latter one. About new business models, we have now more than 50 sites using paper treatment devices and expect to install many more this year. Several leading hospitals from both the East Coast and West Coast regularly use Modulight's technology with the paper treatment model. Installed base now includes also other continents all the way to down under. And I believe we have started to see a little bit of stability and improvement in the revenue stream. As said, we also had problems, and they were mainly related to hindered progress in regulatory side and expansion of certain indications, which prevented treatment of the patients during the filing period. And this has hindered somewhat the sales growth. Key focus is still on increasing the number of sites and number of patients obviously treated per each site. I should also like to add that currently, we see most pickup in actually some of the most profitable indications that we have in our portfolio, which is obviously nice. And more customer leads keep coming, both in upper urinary tract all the way to the brain and glioblastoma and ophthalmology. One example on the area of high value-added laser technology. We are extremely pleased to have a second follow-on order from one of the big Quantum company customers that we have basically the second step prototype, which we announced in February. We continue to focus on operational efficiency, and as Anca reported, the costs are down 15% year-on-year. This means less work on kind of taking in -- use new machinery, running up new processes, and that leaves more resources, both human capital as well as monetary resources for R&D and sales and marketing despite the cost going down. We continue to build on the newly formed strategic distribution partnerships and continue with a good track in ESG with the same focus we have had for 25 years on high social responsibility and environmental responsibility at the core of the operations. Last but not least, about the state-of-the-art laser technology. This is really what Modulight is known for in the domain of high value-added applications. Our own production facility is clearly playing a big role here for the before mentioned reasons, time to market and supply chain, but also for creating high value-add components that other people can't make. And for several customers, they clearly see the factory now more than ever as a kind of reason to work with us, but also our platform products seems to be more and more appealing. And I think it's only natural as the number of customers and references continues to grow. As said earlier, most of the customers are still at a relatively early stage and thus, it's not easy to predict the future, and thus, we are not issuing the outlook. But in summary, sales and EBITDA continue to improve. Addressable market grows, namely because of expansion of indications but also same product being sold to other customers and the macro trend that increases the number of cancer patients remains the same as before. R&D pipeline at 31 projects and focus on more mature projects and revenue at EUR 1.6 million, up from EUR 1.1 million a year ago and sequentially 12% from Q4. EBITDA, minus EUR 600,000 versus minus EUR 1.3 million a year ago. And cash flow keeps on improving as we predicted a long time as the operational costs go down as this onetime setup fees for the new equipment have been completed. So that's all. I will be very happy to answer any questions with my colleague that you might have.

If we start with the analyst, Antti, do you want to go first?

Can you hear me alright.

Yes.

Great. I wanted to ask about the system installments and you're expecting those to pick up in spring and summer. So is that mainly because of the Phase III trials gaining traction? Or are there other factors involved?

Yes. I think the short answer is yes. So the Phase III trials, as you probably know, are widely used in pharmaceutical industry to expand the footprint for the expected commercial launch of the product. Obviously, Phase III is formally about acceptance of the product, but I would say that those following the industry more know that it's quite typical to expand significantly the footprint for the preparation, for the marketing of the, let's say, commercial phase.

Okay. That's clear. And I think you've mentioned in the couple of previous reports that you had some delayed prototypes. So does this refer to the kind of the same specific prototypes? And are you kind of expecting some tangible one-off larger income when those prototypes are delivered?

To be -- start with, are they referring to same prototypes? No. There are now actually a plethora of customers to whom we are delivering prototypes, either same products or different products. And most of those, namely in the high value-add laser technology, for example, quantum computing of flow cytometry, we are preparing certain types of prototypes. The customers are testing them and typically, then they proceed to pilot production and then to the full production. And there are many technological steps both by us and our customers, and they are typically complex products, sometimes things that nobody has ever done before. And that is the essence of the delays. And then I think we can only say that that is the typical flow that you have the prototype, then you have all prototypes, then you have pilot production and then you have production.

Got it. That's all for me.

And all of those schemes are aiming at recurring production that may be the relevant data points.

Yes.

Okay. Daniel, are you online? Do you want to go next?

Yes. Daniel Lepisto from Danske Bank. I have a couple of questions. Maybe starting with these regulatory hurdles that you discussed earlier. So how major are these delays if we look into this year? Are we talking quarter or so or longer term? And how material are the revenues that we are talking about here that you missed in the first quarter?

We missed some revenue. And like we said in our release, we still expect to be back on track with the installations during the spring and summer. They have a certain impact, but I guess since not included in the release, it would be not right to give a number here. They are worth mentioning. That's maybe all I can say at this time.

Okay. Clear. Maybe the second question on this. You continue to be quite upbeat on the order intake. There was still positive development. But obviously, can you share any numbers on this one, apart from the $800,000 quantum order you published the release on? Because if I recall correctly, you saw EUR 3 million increase just in Q4. So are we on a sort of similar ballpark still? Or how should we think about this order intake?

We are on a similar ballpark.

Okay. That's very clear. Then maybe on the sort of visibility and sort of seasonality in your business because it appears that, okay, the visibility seems to be improving now, obviously, with this kind of order intake, but also with the PPT model you have been sort of rolling out successfully. But thinking about maybe sort of a more precise question is that if we look, for example, the third quarter, upcoming third quarter, it has been quite a small quarter for you guys over the past few years, but it wasn't the case back in 2021, '22. So can you remind us, is there any sort of a clear seasonality with your business, maybe especially with the Q3? And how is the visibility currently in the big picture? Is the recurring revenues, are they -- how big of an improvement they are at this point?

Yes. Thanks, Daniel. Great questions. I mean, obviously, the fact that you have more solid stream of orders, and I would emphasize not only the kind of amount of orders, but also the distribution and the width of the order book, meaning that the streams are now coming from, let's say, wider group of customers and indications. That hopefully continues to build us more stability. Then regarding your question about the seasonality, pre-COVID era, Modulight had many, many times a very significant part of the revenue generated during the end of the year, even as I think some years more than half during the December. I would, however, say that those were related more to the delivery of prototypes and certain clinical trials and steps as such rather than some kind of annual seasonality. The fact that we have had several times now in the recent history a weak quarter 3, as you pointed out, I would say, should not be interpreted as some kind of seasonality in the business, although this might be something that other people know better. But certainly, we have not identified kind of clear reasons why certain quarters should be lower than the other. If we're looking at the progress, you may have noticed that over the last year, we started reporting the sequential development more because this is what we believe is that the company is at the stage where we should rather look at the progress from the previous quarter to the next one rather than compare to the year-on-year development, but that's obviously due to the requirement by the stock market. So we're doing that. But in my mind, I measure progress if we are improving from the previous quarter. And yes, there is no guarantee that this will always happen. But I think by nature, and conceptually, the projects are such that in certain phases, you will have little work and little revenue, but the number starts to be reasonably large, so that hopefully some of those will cancel more quiet periods of the other ones. But overall, we're kind of looking at sequential growth rather than year-on-year comparison. And at the moment, we don't identify any key reason why there should be annual seasonality. Kimmo, do you want to ask something?

Yes, it's Kimmo here from OP Markets. I dialed in a little bit late, so maybe this topic has been already discussed. But overall, I'm curious about the tariffs and your exposure to that. So I guess you are shipping also equipment to the United States. So are those already in the country that you are planning to install in Q2 and Q3? Or what is the -- how we should think about this situation?

Anca, do you want to take that?

Yes, sure. So our exports to U.S. are mainly services. And as you probably know, services are not under the tariffs, at least at the moment.

Not today in the morning.

Yes, we cannot know what will come, but they were not announced as being taxed for imports. Then our customers have sites also outside U.S. So basically, systems can be shipped there. If we think of other products than medical, they are -- actually, they make exception from tariffs at the moment, obviously. They are semiconductor products which are not taxed now. But I mean we always have to remember that we cannot know now what will happen tomorrow or next week. So as we don't -- regardless this, we do not expect to affect us, but we shall see, of course.

Yes. I mean, please...

I would say that -- I mean from -- if you think of supply chain, in a way, this kind of benefits us from outside EU and U.S. companies moving their business or trying to get more customers from Europe and hence, decreasing the prices. So at the moment, we haven't seen any effect on our business.

Yes. I mean, of course, this can have direct or indirect consequences later and the tariffs seem to be changing by the day. I doubt that U.S. will introduce very heavy tariffs on services. As to my understanding, that's actually their key export product. But like I said, there is unpredictability, no doubt about that. But also somehow, I think the best indication to me is that none of the customers have so far raised this as a major talking point or, I would say, even a concern. Even this week, we have people in 4 different places in U.S., and I constantly get feedback from all of those teams and the tariffs are not even raising to the minutes. Then as Anca pointed out, our customers and namely U.S. customers, they have manufacturing, I could almost say typically overseas, ranging from places to Singapore to Scotland. So those will then play also in this equation. But I think the best and the most important thing for us is that so far, PPT is classified as a service and thus not kind of considered to be under tariffs. Okay. So then we don't seem to have any questions open online. So thank you for all the other people also for joining from wherever you are. And we wish everyone a great week and upcoming summer, and we keep working here. Thank you.

Thank you. Bye.

Bye.