Nexstim Plc (NXTMH) Earnings Call Transcript & Summary

Welcome to Nexstim webinar for investors, analysts and media. Today, in this webinar, Nexstim's CEO, Mikko Karvinen; and CFO, Joonas Juokslahti, will present the financial and operational results followed by a Q&A session. The webinar will take about 40 to 50 minutes. The webinar is recorded, and we will inform you later where you can find the recording. [Operator Instructions] Now before we go to the actual presentations today, I have one information item for those Nexstim shareholders who have registered to the Extraordinary General Meeting that will be held on next Monday, the 1st of March. Due to the worsening situation of COVID-19 and due to the new instructions from the Finnish authorities, we kindly ask all those shareholders who have registered only participate with a proxy. These proxy forms are available on Nexstim website, and we can also send you one via e-mail if necessary. There are instructions in the form how to return it. And now in these exceptional circumstances, these forms can still be returned on Monday morning before the meeting starts. And just to clarify, this information applies only those of you who are Nexstim shareholders and have already registered to Monday's meeting. But now let's go to today's webinar. I will hand over to Nexstim's CEO, Mikko Karvinen. So go ahead.

Thank you, and welcome, everyone. My name is Mikko Karvinen. I'm the CEO of Nexstim Plc. I'm joined also to this webinar by our CFO, Joonas Juokslahti, who will be going through some financials later on in this presentation. So I'm happy to go through, first of all, the first half 2020 business update that we published this morning. And then also, after that, I will focus a bit on our strategic objectives for this year 2021. So now switching to the presentation. And I'll take the video off to save a bit of bandwidth with everyone's Internet connection. So as mentioned, we will be going through the second half of 2020 and the full year 2020 financial results in this webinar, together with our CFO, Joonas Juokslahti. There's some important information. As you know, Nexstim is traded -- we are a publicly listed company and traded in the NASDAQ First North Growth Market, both in Finland and Sweden. So here's some important information to look through before making any possible investments. Moving on to the business update. So now this information I'm presenting on this slide is going to be focused on the time period from 1st of July 2020 to end of the year 2020, end of December. So the second half of 2020. And then Joonas will be going through the full year financials after this. The COVID-19 pandemic, of course, affected quite a bit to -- also to the second half of 2020, but in Nexstim, we focused a lot in minimizing the effect of the pandemic to our business. And I see that we did good progress in this area, and we were able to focus primarily on generating profitable revenue growth. And when we go through the numbers, you will see and you will hear that we succeeded in both growing our revenue to record level during second half of 2020 and also achieving to decrease our operating loss at the same time. So considering the difficult business environment, there was excellent progress with, first of all, in our MBS pre-surgical mapping business, we sold 9 new MBS systems. 3 of them were delivered to the U.S. market and 6 to Europe and the rest of the world. So it was actually a successful year for pre-surgical mapping as a whole. And the second half didn't really get hurt because of the pandemic, I mean, in large manner. So we saw that pre-surgical mapping devices and the hospitals buying these devices continue to operate more or less quite normally under these difficult circumstances. In the therapy business, we installed 3 new therapy NBT systems to clinics in U.S. and Europe, and these were delivered for the treatment of major depressive disorder, MDD. On the therapy side, I have to say that this business was more affected, especially on the new system sales side, from the pandemic because of the reason that some clinics got closed down because of the lockdown measures. And then secondly, because some patients feared moving to the clinics and logistically, because of COVID reasons, stayed away from some treatments. So the utilization levels for some of our systems and the new sales for the NBT was slightly affected by the COVID. But as you will hear from our revenue numbers that Joonas will be going through, we still managed to do very healthy growth also in the therapy business side. So the second half 2020 was the company's best reported second half to date, and we can be proud of that fact. The total net sales increased to EUR 2.5 million and in comparison to last year's second half 2019, when it was EUR 2.9 million. And this was a record level of second half revenue at Nexstim. And the operating result was minus EUR 1.5 million. And here, the loss decreased from minus EUR 3.2 million in the second half of 2019. So a significant drop in the operating loss during this period. And this was due both to the cost-saving program that we executed beginning from spring of 2020 and then lasting during the summer. And then also by taking into use new methods of working, for example, digital marketing and sales that we could achieve in this environment where no travel was possible or almost no travel was possible at certain time points. We've actually adopted these methods to our normal way of working right now, and we can see the efficiencies happen in our business right now during the COVID pandemic, but it's likely to also have a significant effect to our effectiveness in the future also to avoid extra travel or moving of our devices, for example, for demo purposes. The pre-surgical mapping NBS net sales grew by 4% in the second half of 2020, and that was -- that increased to EUR 1.3 million. And the increase in percentage-wise wasn't that high because of a very successful second half in 2019, but also the pre-surgical mapping business grew in the second half of 2020. In the therapy sales, we saw a 35% increase in second half of 2020 in comparison to same period in 2019. And here, we are especially happy that even due to the lockdown measures and the amount of systems that we installed during this pandemic, we have a high portion of recurring revenue. So revenue that is based on monthly invoicing or then also usage of the system. So these disposable sales and service contracts. And with this recurring revenue model, we were able to achieve such high growth numbers, even though we operated in this COVID environment. So very happy to see 35% growth in that business area. And then finally as an important point for our second half of 2020 and our clinical program for the long run is that we started 2 new pilot studies with the accelerated iTBS therapy treatment protocols using our NBT system. And the first one was at Kuopio University Hospital for treating severe depression, and we have this pilot ongoing. It's a 10-patient pilot, where we test having the accelerated treatment. So this is a treatment where we have several treatments of -- TMS treatments of depression done in 1 day for a 5-day period. And that's in comparison to a so-called normal current standard of depression treatment for major depressive disorder, which is 1 treatment a day between 3 minutes to 37 minutes a day for as many as 6 weeks time period. So it's a compressed treatment, but also having more intensified amounts of treatments per day. We are awaiting those results soon, but I can't give the exact timing of the news yet, but it is awaited soon. And then the other pilot that we started was at Helsinki University Hospital, and this is for treating therapy-resistant chronic neuropathic pain patients. And this is a 5- to 10-patient study where we see how the effects of the accelerated iTBS therapy treatment protocol is affecting these very, very chronic pain patients. And we are awaiting the treatment to end during first half of 2021. So this is going to take a bit longer for us to report progress in comparison to the Kuopio pilot that's ongoing. So with that, I now want to give the opportunity for our CFO, Joonas Juokslahti, to go through some of the key figures of our full year 2020. Joonas?

Sure. Thank you, Mikko. So as the year 2020 was globally challenging in all aspects of life, I'm really happy to say that Nexstim had a record year by almost all measures. And despite the pandemic, our net sales grew by 23% to EUR 4.1 million. And as we know, that consists of NBT and NBS businesses and both of those grew in comparison to 2019. Now what I would like to point out is that the recurring revenue grew by 32% to EUR 2.4 million, and this is really good news because as we keep the satisfaction of our customers up and maintain our installed base, this would contribute to future years as well net sales-wise. And we managed to make the growth in a profitable manner as our gross margin ratio increased from 69% to 76% year-on-year. Now as we take a look at the operating expenses, both our personnel expenses as well as other operating expenses decreased. The personnel expenses decreased by 21% to EUR 3.7 million. Now this was partly due to Q2 cost-saving measures, but also organizational restructuring and that was in the foreign subsidiaries as well as in the group management. And all of this contributed to the cost saving. The other operating expenses decreased by 33%, and this was also partly due to the cost-saving measures, but also due to COVID having an effect full year on our, should I say, more traditional travel and marketing activity. And as Mikko already mentioned, we have learned a lot as an organization from this and adapted to new ways of working. And at the Helsinki office, we have actually built this kind of a sales demo studio, where we have multiple cameras and we can broadcast globally, and we can support our customers and do sales presentations. And it's a really good way of working, and we will definitely continue doing that also after the COVID. We also had lower funding run expenses in comparison to 2019. So this all sums up to the operating result level, where we had a minus EUR 3.3 million operating result, and that shows the operating loss decreasing by 49%. And this is the best EBIT in Nexstim's history as a publicly listed company. This also reflects to the cash flow, where we can see the negative operating cash flow decreasing by 59% from EUR 6.7 million to minus EUR 2.7 million year-on-year. And with that, we had a cash balance of about EUR 3.5 million at the end of the year. And as we have sent out the invitation for the Extraordinary General Meeting, which will be held next Monday, we are in the preparations for a funding round. The future outlook is such that the company expects its revenue to continue to grow during the year 2021 and a loss for the period is expected for the financial year. And that was the key figures for the full year. And with that, back to you, Mikko.

Thank you. Thank you, Joonas. And if there are any questions related to the financials, either second half or the full year, then, of course, in the Q&A session at the end, we welcome those questions. So that was happily presented the 2020 numbers of last year. And now, of course, most of the interest and the focus for the management and the personnel of Nexstim is to achieve our objectives for '21. And as Joonas mentioned, one of the key objectives for this year is to continue our growth. And if we look at our key strategic objectives for the year '21, which includes some objectives also that are nonfinancial, these are the objectives that we have selected that on our path with our renewed strategy that we renewed during the spring and summer time of 2020 and published in August of 2020, what are the key objectives and the key things that we should execute and follow-up for the year '21 in order to progress in our strategic path towards year '24. So here are those objectives that we published also this morning as part of the financial statement release. First of them is very similar to year 2020. We continue focusing on achieving profitable revenue growth and strict management of operating expenses is also part of our objectives to make sure that we keep a reasonable level of loss also for this year. So even though we said that this is going to be a year of -- the result will be negative this year, we will, of course, try to achieve as much profitable revenue growth as possible, both in the pre-surgical mapping NBS and then the NBT business. And then by strict management of operating expenses, using those efficiencies that we have learned, we will keep the margin levels and also the results at a good level. So that's a key objective. We have done some early investments now. So even though we had to do some changes to our commercial organization during 2020, we have now started recruiting a few key positions, especially to the U.S. sales force, where we have a few additions in our sales force that are -- one of them has already joined and there's a second one joining pretty soon. And these resources will help us also -- in addition to new distribution partners elsewhere in the world will help us achieve the revenue growth objective for '21. Our second objective that is very important on our clinical path and especially on the long run is the pilots that are ongoing, and we want to report the first results on both the Kuopio University severe depression trial and then also on the Helsinki University chronic pain patient treatment trial. So both of these trials, as I mentioned, are done with accelerated therapy treatment protocols. And once we have had the opportunity of analyzing the results and publishing them, we seek to move forward with further trials with increased number of patients during '21. So the first step is, of course, to understand the results that are generated in both Kuopio and Helsinki, but the second very important step for '21 is to decide on the further trials with increased number of patients. And this accelerated treatment protocol is a key part of our long-term strategy, where we aim to get business out of this at the end of our strategy period ending 2024. So we envision that we can make the trial path and the regulatory process. It's a strict time line, but towards the end of 2024, we would see that there's a possibility to be close for actual commercialization and commercial business in this area. But it, of course, requires quite a bit of trial work and regulatory processes before we're there. But our step for '21 is to get these pilot results out and then move on with further trials. The third point is very similar to '20. We started the good work of reaching out to some key partner clinics, some of them new, some of them old, meaning that existing Nexstim customer clinics. And we're working on a deeper profitable partnership business model where we could have possibly Nexstim exclusive clinics, more of them, in key markets such as the U.S. and EU that we would operate together with these partners and receive as Nexstim more value for the systems that are used for the treatment of the patient. So possibly more revenue and more profits also in the long run by not just being a device provider for the clinics, but also having more value-added partnership roles in this. And I don't want to go into too much detail, unfortunately, at this point, but we have some very interesting discussions and negotiations going on in this area, and we look forward to, of course, reporting progress also publicly once we have some more concrete forms of partnership agreed with these partners. But this is a key element of the future into getting not only Nexstim systems out there, but also having more deeper valued partners, together with Nexstim, treating the patients in the way we can do right now, with our both pre-surgical mapping and the therapy systems, but also in the future, hopefully, with increased amount of patients from the accelerated therapy treatment. So more severely depressed patients also. So that's an important part of our strategy. Then the fourth point is to increase our patient data registry. So we -- during 2020, we increased our patient data registry quite a bit. We had 108 patients when we made the last published from our registry, 108 major depressive disorder patients that had achieved -- 42% of them had achieved remission and 74% had a clinical response after the complete sessions of their MDD treatment. So now we're looking forward to expanding the patient registry data over to 200 completed treatment sessions and to publish this data during '21. And we see that this is a highly possible objective for this year, even though, of course, we live in the COVID environment where the risk is always there that there would be some further lockdowns or possible, let's say, discontinuation in some of these treatments. But we have seen that the customers, our clinics have adopted quite well globally into the COVID environment, and the utilization levels at the end of 2020 and continuing into '21 are more close to normal levels. So we're hopeful that the patient registry will grow to these patients amount mentioned. And then finally, as Joonas mentioned, we have preparations for fundraise. One concrete step is on Monday when we have invited the Extraordinary General Meeting to authorize -- to get -- to seek for new authorizations for share issues. And that is, of course, the first step we need for anything that is related to equity raises. And after the general meeting and, of course, the decisions are made and published, we will hopefully soon progress with the other plans that we have for the fundraise. So that is also something that we look forward to reporting progress very soon. So those -- in the short form, that's our focus. Those are our 5 focused objectives for year '21. And of course, there's a lot of detail and there's a lot of business actions that we need to take care of when we execute this year. But it is also a matter of focus that Nexstim's management and personnel, each and everyone has a role in executing these objectives, and we look forward to, of course, reporting our progress in multiple areas during this year '21. And finally, I would like to end with a few words and a few sentences on something that I've used in every single one of our investor meetings recently. To remind ourselves that Nexstim has a unique proprietary neuro navigated TMS technology, and we already deliver the best-in-class mapping and treatment for patients with brain diseases and disorders. So our device and our technology is valid and in use already, but we are also well positioned to a disruptive shift in depression treatment and therapy delivery. So this is referring to not only the MDD, major depressive disorder, treatments that we're already doing, but also for the possibility of getting the accelerated therapy treatment protocols to use in the future. And with our improving economics, driven by record revenue and increasing operational efficiencies, Nexstim is a unique investment opportunity. And I end with that is, I would say, official presentation part, and then, of course, I welcome any questions to the Q&A channel. Thank you.

Okay. So let's see, there's a question -- first of all, thank you, Fredrik from Redeye. So there's a question about the -- this is going to financials. It might be -- I'll read this, and maybe Joonas can answer. But there's a -- you reduced the negative operating cash flow quite significantly. Some reductions were due to COVID, for example, becoming more digital and reduced personnel. Any guidance on how you will balance growth with cost reductions efficiencies in 2021? Do you want to comment, Joonas, on that question?

Sure. Sure. So as Mikko and myself already mentioned, as we have adapted to these new ways of working remotely, that also means those are effective -- and I should say, cost-effective ways of working are definitely going to be part of our day-to-day business in the future as well. So after the COVID, I think and I hope that we can find more cost-effective ways of doing our day-to-day business.