Nexstim Plc (NXTMH) Earnings Call Transcript & Summary

Welcome to Nexstim's webinar for our investors, analysts and media. Nexstim CEO, Mikko Karvinen; and CFO, Joonas Juokslahti, will be giving a presentation that will take about 0.5 hour. [Operator Instructions] The webinar will be recorded and we will inform you later on where you can find the recording. [Operator Instructions] And now let's move on to the webinar. First presenting is Nexstim's CEO, Mikko Karvinen. Go ahead.

Thank you, Essi, and welcome on behalf of myself. My name is Mikko Karvinen. I'm the CEO of Nexstim. I'll be joined in this webinar also by our CFO, Joonas Juokslahti later on. So I'll begin with sharing a slide deck. So about Nexstim. We are a company that focuses on personalized brain diagnostics and therapy. And in this cover slide, you can also see a glimpse of our latest system, the NBS 6 on the background software and then you have also the treatment coil and the head tracker replaced on the patient's head. I'll begin with a few general slides about Nexstim, there are some new listeners. First about the Nexstim story, we are a Finnish, globally operating growth-oriented medical technology company. We have a very important mission, which is that we enable personalized and effective therapies and diagnostics for challenging brain diseases and disorders. This type of disease and disorders include, for example, mapping the brains and motorized speech functions for tumor patients that will undergo a surgery and then also patients that suffer from major depressive disorder or chronic neuropathic pain, we help these with our therapy system. Our innovations create a possibility for these patients for a better life. We vision that with our technological know-how and superior services, we ensure the best treatment for our patients, deliver the greatest value for our customer hospitals, clinics and business partners and long-term growth in shareholder value for our investors. A bit about our values, which are solidly grounded on science and clinical evidence, which we base, of course, our system and the research done upon the system. We strive for financial success in all that we do. And I can see clearly the passion and commitment from the Nexstim team and also our customers and business partners that our -- in our network. And then finally, but very importantly, the ethics and responsibility. So we take this seriously. Our systems, as an example, are designed in Finland. They are also manufactured in Finland. And as one particular example, we have our one-time news head trackers are already produced in a carbon neutral factory. You can see the picture of the fully integrated Nexstim NBS 6 system on the right. And of course, we deliver, I say fully integrated, everything you see on the right except -- of course, the patient is something that is delivered by Nexstim. So it's the full system. It's a unique proprietary neuronavigated TMS technology for both diagnostic and therapy applications, and TMS is short for transcranial magnetic stimulation, and our uniqueness is in navigating the actual electric field that gets induced into the patient's brain. And we do this using a 3D model of the patient's own MRI. Number one, mega trend that supports our growth is aging population. So population aging and a significant decline in the working-age and able population is happening in the Western countries broadly. And brain diseases increase with aging. So diseases such as brain tumors or certain mental health disorders, they increased in general with aging. Also, technological development, health care is constant, and we are very happy that there is active research using Nexstim systems as an example. And there are new applications in treatment of challenging brain diseases and disorders that we believe that are going to be available in the future on top of what we already have. And then finally, in all health care systems, there is pressure and need to be more effective and faster in rehabilitation of the patients. And as an example, chronic neuropathic pain patients, which typically are still working-age and can be rehabilitated as full members of the society if they get a successful clinical meaningful pain relief and this can be achieved by -- for example, by using Nexstim TMS systems. And then finally, before going into the business update and the numbers, I want to update in general, what kind of businesses and products we have in Nexstim available at the moment. So they're the same system platform that you saw in the previous slide. Can be used for both diagnostics and Therapy Businesses. We call the system a navigated brain stimulation device, a marketing name when we sell for diagnostic purposes and then we call it NBT, Navigated Brain Therapy system, when we use for Therapy Business. The NBS 6 system, the newest system that I'll tell you about is not -- is basically having a therapy in an NBS system, but that's not -- that's an example of something that we are moving forward with. But the NBT systems, the vast majority of the therapy systems, if not all, over 70 of them have been sold with the NBT marketing name. There are over 220 systems sold in the Diagnostic Business, where we started off with pre-surgical mapping of the brain, which is the main application. We map the brains, motor and speech functions and we -- this helps the surgeon in better resecting more tumor as much as possible. But doing this also in a safe manner so that the patient is treated safely during the surgery. And we are the only TMS manufacturer in the world who has both FDA approval and CE marking for pre-surgical mapping of the brains' motor and speech area. So the only TMS system having both FDA and CE marking. On the therapy side, we have over 70 systems that include the therapy software. So some NBS systems have also an NBT software, but there are over 70 in total NBTs, NBS systems having a therapy software. The application area is depression and chronic pain, which are both CE marked in Europe so we can sell and market the device for depression and chronic pain treatments. And in the United States, we have FDA approval for major depressive disorder treatment. And there's also a wide existing insurance coverage reimbursement both reading major depressive disorder with TMS systems. And this benefits, of course, private clinics, in particular, when they treat patients. So the patient flow is larger due to the reimbursement in place. We can see very good efficacy results in both depression and chronic pain. In the depression area, we have a patient registry that we have been operating that has -- that gets input from the private clinics in the United States. After a bit more than 400 patients, we can see that there's a 50%, 5-0 percent remission rate among the depressed patients and also 76% response rate. These are very high numbers for patients that suffer from treatment-resistant depression. So they have undergone pharma treatment. So depression pharma treatment before seeking help with TMS. In the chronic pain side, we are CE marks. We do not have FDA approval. We are looking for additional clinical trials that would be needed, and we are working with key opinion leaders in this area in Europe and also in the U.S. to possibly facilitate approval process further in the future. We have already European centers such as Helsinki University Hospital that use our Nexstim system for chronic neuropathic pain treatments. And we can see that the results are such that about half of the patients between 40% and 50% of the patients that are treated with the Nexstim system get clinically meaningful pain relief. So this is also a very effective therapy for those suffering from serious chronic pain or issues. And these are typically patients that have not got help either fully or partially pain relief from using drugs. So very, very much needed form of pain treatments. Okay. So we published our H1 2023 numbers this morning, Finnish time, 9 AM. And our CFO is going to talk about them in the next slide. But before going into the numbers in detail, I want to share a few highlights of the business and the financial summary of the first half of '23. So first of all, the first half of '23, we had a special focus on projects that are crucial for the company's strategic competitive advantage. And these include improving the cost efficiency through our new global team structures. So we implemented a new global team structure during the winter and spring time. As an example of that, we have a global sales and marketing team, led by our Vice President, Sales and Marketing, Henri Hannula. And then we have also other teams such as the clinical application team and the technical services team are now global. So they are led by one team leader and then the team has knowledge sharing and also discussion and operative excellency throughout the company. So the quality and the procedures we do globally are at the same format and they are shared upon the same team. This will bring cost efficiency in the long run, it's a strategic change for us. It will also help us grow in the future when we have these global teams. We also launched the new NBS 6 system, which I already mentioned in both the EU and U.S. markets. This was also a big strategic initiative for us. So it means that we have a regulatory approval for the NBS 6 system therapy in the EU for both major depressive disorders and chronic neuropathic pain and then in the U.S. market for major depressive disorder. We launched the system in Colorado Springs and part of the Clinical TMS Society meeting held in May. And now we are ready for orders and also deliveries of the NBS 6 in both markets. We await for such orders and deliveries to happen in the second half of this year. And then we also continued the discussions on new strategic partnerships to further scale the use of our technology in care. And here, I want to highlight that we have discussions that are possible in areas such as indications where new indications -- where Nexstim technology could be used that we have not invested time or research into ourselves. This is a path that we want to follow in the future, and we did already license our technology last year to Magnus Medical, Inc., a company in -- located in U.S., California that focus on depression treatments with the same protocol, but we are also looking for other possible partners in the therapy area to use our technology in the future. And then when we look at the diagnostics area of our business, we are in discussion with partners who could help us scale our business in diagnostics, and these are, in particular, companies that already work in the area, larger companies, the next demand we could utilize to begin with the marketing and sales and distribution network together. But there will be more useful about these once we can -- once we are ready to inform the markets. The system sales, if we break down the system sales for the first half was EUR 1.1 million. There was a decrease of 37.4%. I want to highlight that in the system sales side, the comparative period, so last year '22 first half, when we started off the year '22, we had a EUR 1 million order backlog of systems. And we highlighted in the report that this year, '23 beginning, we didn't have an order backlog of systems. So there's a EUR 1 million difference. A lot of the decrease can be explained by not having the backlog in the system sales. So all the systems we sold during the first half of '23, we also got the orders in the same first half, the order delivery process was done fully in this half year period. The recurring net sales accounted for EUR 1.4 million. There's a slight decrease of 6.4% in this area. And this is mainly due to pricing pressure in some of the consumable items we sell, but also certain contracts facing pricing pressure when renewed. So there's a slight decrease in here, but we are -- we are knowledgeable about this, and this was of no surprise, and we are dealing with it. For example, with the new system, we have a modular licensing approach that can help us in increasing the amount of recurring net sales in these type of cases. And then finally, the licensing business accounted for 0 -- or it was 0 for the first half of '23. And last year, '21 first half, we had our first and largest licensing revenue where we had EUR 3.5 million signing fee for the Magnus Medical licensing agreement where we licensed our NBT technology for Magnus for treating depression patients with the same technology. So no one-off revenue such as last year, so that also explains a lot of the decrease in the revenue. So the net sales in total amounted to EUR 2.5 million. And as I explained, there was a decrease partially from the license revenue and then otherwise because of the lesser order backlog. Comparable net sales, we only decreased or subtract the licensing revenue away, we have EUR 2.5 million, and there's a decrease from EUR 3.3 million as a comparable net sales. EBITDA was negative EUR 1.1 million and results of the period was EUR 1.4 million negative. Looking at the Diagnostic Business separately. The net sales were EUR 1.3 million, which comparable -- which was a decrease of 36% from first half of '22. Again, a lot of this is explained through the lesser amount of diagnostic systems sold and this relates a lot into the comparative period larger backlog when beginning the year. In the therapy side, the net sales were EUR 1.2 million which was a decrease of 75.2%, and it's almost exactly the EUR 3.5 million technology license fee that we recognized during the spring of '22 explains the difference between H1 '23 and H1 '22. So this Magnus Medical license was onetime one-off revenue, which we got in spring of '22. And we await the royalty period to begin 2024 second half in our estimates, which is in line with the public knowledge we get from the Magnus Medical press releases and also discussions with the team. And then as a final point, I want to highlight that the company achieved savings of approximately EUR 0.5 million in operating expenses compared to the comparison period. And this is something that we do -- did as a precautionary measure because we knew that the start of the year in system sales is going to be slower than the second half. And then also as a strategic objective, we also want to be cost efficient and in that way, help our profitability when moving forward. So there are also going to be cost savings that will benefit us from the actions we've already taken during the first half of this year. So with this business and financial summary, I would want to have our CFO, Joonas Juokslahti go through some of the details of the numbers. Please, Joonas.

Thank you, Mikko, and good afternoon, everyone. So let's take a look at some of the key financials of the first half. And if we go from the top, the group total net sales were EUR 2.5 million, which means a decrease of 63%. Now it's really important to understand that the comparative period was extraordinary, more than one way. And in the first half of 2022, we recognized the one-off license payment worth USD 4 million. And also, we started the year with an order backlog of EUR 1 million of system sales. . Now this year, we didn't have any of those and all the system sales in the first half were orders received during the review period. Now we generated EUR 2 million of gross margin in H1. And it was great to see that the gross margin ratio has remained on a very good level of 80%, which is the same level of comparative gross margin we saw last year. Now as already stated in the heading of the report, we mainly focused on the cost efficiency in the first half of this year. The personnel expenses were EUR 2.3 million with a decrease of 9% year-on-year. Other operating expense is EUR 1.5 million, and we saw cost savings of 17% in comparison to 2022. So in total, we achieved operating expense savings of over EUR 0.5 million or 12% when comparing to first half 2022. Now we have shifted into this global process organization, and we are looking for added cost efficiency wherever possible. And for example, by utilizing digitalization as wide as possible, we can achieve cost savings in, for example, travel expenses globally. The operating result was minus EUR 1.4 million, whereas last year, it was EUR 2.3 million. And here again, it's important to remember the license payment of USD 4 million in the comparative year, which was mostly a margin for us. The operating cash flow was minus EUR 1.4 million and the cash balance was EUR 2.1 million at the end of the period. We are not planning new funding rounds at the moment. So after the review period, as you might have noticed in the company announcement, we have agreed on a bank loan with Nordea Bank of EUR 1.5 million, and that is to be used for strategic investments. Now with the first half of the year behind us, the future outlook remains the same and it goes as follows: Based on the business forecast, the company expects that its comparable net sales will grow in 2023 and its EBITDA, meaning operating results before depreciations for the financial year will be positive. Now we have still a few more slides before we go into the Q&A session where we would be happy to answer any and all of your questions that you might have. So Mikko will go through a few more slides and then to the Q&A. Thank you.

Thank you, Joonas. So, yes, there's a few more things I want to mention, which I think are relevant before we go to the Q&A session. I want to remind us about the Nexstim key strategic objectives for this year. There are three of them. The first one is profitable comparable net sales growth, leading to a positive EBITDA, operating results before depreciation for the financial period while minimizing future capital needs. So we have a EUR 1.1 million minus an EBITDA for the first half of this year. So there's, of course, work that needs to be done in this area for the second half. . There's a strong pipeline in sales for new systems and majority of the positive EBITDA relates to scaling our sales. So selling more systems in particular and of course, being also cost-conscious. So our expenses are mainly fixed in nature. So by scaling our sales, the profitability also in the EBITDA increases quite fast. And then finally, while minimizing future capital needs means that, as Joonas mentioned, we have a cash balance that is sufficient for running our operational business at the moment, and we also have a loan that we drew from Nordea Bank that we will use for long-term strategic investments. So there is no need that we see right now for future capital or fundraising. And then number two, I'm very happy about the fact that we have launched the new NBS 6 product, enabling easy-to-use systems and the use of future additional models in the same system. So the NBS 6 therapy was launched in spring of this year. So it's out now. We've already fulfilled this strategic objective. But of course, we are awaiting the system orders and then deliveries to happen in the second half. And then we can follow the -- we will follow with the diagnostic modules that we estimate to be added in the next year of '24. But for this year, important milestone to get the R&D work ready to get it regulatory approved in both EU and U.S. markets and begin selling, selling and delivering the three steps. And then number three, finally, but not the least, expanding the network of Nexstim exclusive collaboration clinics, primarily in the U.S.A. and Europe. And of course, this is an area where we have difficulty to tell about all the details because we do most of the negotiations in under strict confidentiality agreements. But I can tell you that there are several discussions now moved into negotiation phase, and we are negotiating with clinics in -- clinic partners in the U.S. and in Europe. And of course, we hope to get news flow out of these partnership clinics out during the second half of '23. So that's the detail I can share now. So -- and then you need to follow the Nexstim news flow to find out more in the future. And as Joonas mentioned, our future outlook holds from February. Based on business forecast, the company expects that its comparable net sales will grow in 2023 and its EBITDA operating results before depreciation for the financial year will be positive. And then finally, a quick dig into the NBS 6 system, the future of Nexstim system. So I want to highlight that developing and launching a new product generation is an essential part of Nexstim's work during this 2020-'24 strategy period. So next year, we are ending this strategy period. And one of the big objectives for us was to get the NBS 6 new product generation launched. We've partially done it now because we have the therapy launched and we are looking forward to getting the diagnostics also as part of the Nexstim system as a combined system next -- during next year '24. So this combined system NBS 6 is a new system that has been built on Nexstim's unique clinically established technology. So most of the changes have been done in the software side. We've taken a look a lot into the usability of the system and also a modular product design that allows for an expansion of system capabilities over time. As a first example, we start off with the therapy modules now, and there's going to be the diagnostic modules added. But even further when we have new features or new indications that are relevant for our customers, we need not necessarily have new hardware, but it's instead our customers can upgrade their -- update their softwares and upgrade their licenses. And through this modular type of structure, this also creates long-term value for Nexstim's customers and investors, customers for ease of upgrading, and then for investors in a sense that we can scale the customer business without necessarily updating the hardware itself. And this is something that we do responding to customer demand. So the NBS 6 software has been developed in close collaboration with Nexstim customers, ensuring the best possible level of usability, usability easy to use, easy to train. That is very important now because there's a lot of staffing pressure in a lot of places, especially with nurses and technicians whether they're in hospitals or in private clinics. We want the customer to be able to treat the patients within the same day that they have received the training for the system. And with our new NBS 6 software, the usability and the threat training capabilities are such that we can give this promise to our customers. The new combined system responds to the great customer demand for system that allows the delivery of both diagnostic and therapeutic applications. And that's the final part that will happen next year, estimated to happen next year, which is that the diagnostic modules are added. And then the NBS 6 has both therapy and diagnostic applications in the same system. So with that happy news about our current and future NBS 6. I thank you, and I welcome you to follow us on the social media, the X, LinkedIn and Facebook and there's the addresses. So I thank you for your interest already for viewing this presentation, and I welcome you to join also the Q&A session. If there are any questions you would want to ask me or Joonas. Thank you. So if there's any questions, you would want to type. There's the live event Q&A where you can start your question, and it should be visible for us participating and then we can try to answer with our best capabilities. . Okay. It seems that there are no questions at the moment. I hope that you follow our news flow. We will be, of course, doing a lot of releases towards the end of -- the end of this year during the second half of '23 and we will be publishing as a financial information package the next full year numbers and the H2 numbers on the 27th of February of the year '24. So thank you for your interest, and I wish you all a very good weekend. Thanks.