Nexstim Plc (NXTMH) Earnings Call Transcript & Summary

Welcome to Nexstim's webinar for investors, analysts and media. Nexstim's CEO, Mikko Karvinen; and CFO, Joonas Juokslahti, will be giving a presentation that we'll take about half an hour. And after that, they are available for answering any questions you might have. [Operator Instructions] And now let's move on to the webinar, first presenting as Nexstim's CEO, Mikko Karvinen. Go ahead, Mikko.

Thank you, Essi, and welcome, everyone, to this H1 2024, Nexstim presentation of the results. My name is Mikko Karvinen. I'm the CEO of Nexstim, and joining this webinar by our CFO, Joonas Juokslahti. I'll be now switching into sharing my presentation. Seems like there is a technical issue. Let's see if you can see the slides I'm now presenting my screen. Okay. So let's go ahead. So we will be presenting our H1 '24 numbers, but also before I start with the, H1 content, I will be briefly presenting a bit about Nexstim in general. Then moving on to talking a bit about the mega trends that support our growth and then moving on into our business and our products and our approvals. And then after that, we will go into the, of course, the most interesting content today, which is the H1 2024 numbers and our progress, and it will be also joined by our CFO, Joonas Juokslahti, will be going more detail into the numbers. And then at the end of this presentation, I will be going through the main strategic objectives that we have and how we're progressing in '24. So first, into the Nexstim story in a bit more general manner. Nexstim is a Finnish globally operating growth-oriented medical technology company. And we have a very important mission to accomplish. We enable personalized and effective therapies and diagnostics for challenging brain diseases and disorders. And these challenging brain diseases and disorders, they include patients that are going to be undergoing into a tumor surgery. They could include patients that are mapped for radiotherapy or epilepsy-related surgeries. So what we can do with our Nexstim diagnostic system is to map the brains, motor and speech areas in the motor and speech area of the brain. And with these results, the patients can undergo a more safer and effective, effective surgery. Our innovations create a possibility for a better life. This can also be seen by the patients that get helped by a Nexstim system that have a major depressive disorder or chronic neuropathic pain. Our vision is that with our technological know-how and superior services, we ensure the best treatments for our patients, deliver the greatest value for our customer hospitals, clinics and business partners. And also, of course, long-term growth in shareholder value for our investors. We have succeeded in operating with our long-term values. This Nexstim started off from a technical university background, being a spin-off. We have a highest, we value, highly science and clinical evidence, even to date, we have more than 100 papers that have been, scientific papers that have Nexstim technology as part of their science. There's clinical evidence, of course, that backs our regulatory approvals to multiple markets, including U.S. FDA approvals and also European CE marking. So that is -- that continues to be an important value for us. Financial success is more and more important for us. Also during this H1 '24, we saw progress, nice progress in both revenue growth, gross margin growth, and result was that our operating results was better than compared to last year's H1. And then we also have positive cash flow from our operations. So financial success is more and more defining our future also as we select our strategic paths. Passion and commitment can be seen from Nexstim to the team members. We have a team of experts here that also value Nexstim as an employer. And we can -- we have long-term relations and people committing their time into what they do best. So this is something that I can be grateful for, and I'm grateful for our team's work in achieving also this half year that we will be reporting. Ethics and responsibility, finally, as a company based in Finland, we do all our R&D. We're also in here in Finland. We manufacture our systems through our subcontractors that located in Finland. We have high visibility into what gets done both in the development of the system and the actual manufacturing. And we take ethics and responsibility in multiple areas very seriously so. So we operate according to our values and move on into talking about the mega trends that support our growth. But before going into these three mega trends that I want to highlight, there's a picture of our integrated navigated TMS system there. It's unique. It's proprietary technology. And the system visible is similar. It looks similar if used for diagnostic or therapy application, but of course, the differences are more in the software that gets used. Aging population is one mega trend that I want to highlight as population ages in general, in the western countries, and more, of course, globally, even in larger Asian countries, there is a decline in the working age population, and at the same time, brain disease is increased with aging in general. For example, brain tumors are more common with aging population. We've also seen on the therapy area, on recent development that we've had when signing a letter of intent with a U.S.-based early-stage company called Sinaptica Therapeutics, they're working on a new way of treating Alzheimer's with a navigated TMS system combined with EEG mapping and also cloud-based personalization for the targeting of the treatment. And this is very interesting. And even though we haven't, signed definitive agreement yet. This is a big opportunity for Nexstim in the beginning to develop our system towards Alzheimer's treatment first in a trial system phase, but then also, hopefully, in the future or also a commercial partnership together with Sinaptica. But there's more news along the way when this year moves forward, and we're working hard to get a definitive agreement signed in long time. Technological development in health care is something that has always been part of why we are here. And as there is -- there are more than 200 systems that have been delivered to customers worldwide. The majority of the customers are a great part use it also for research. So by using these Nexstim systems and the leading hospitals and clinics in the world doing more research, they validate what we've already found in trials, but also at the same time, they provide possible new applications or new data that for treatment of challenging brain diseases and disorders of the future. So it's not only mapping the motor and speech areas or treating depression and chronic pain patients. I believe that in the future, there's a lot more that can be done with the Nexstim system. As it is the most accurate and the repeatable we provide accurate repeatable stimulation of the brain cortex and also with the right dosing. So these are very important factors that we see for future research and applications. And finally, but importantly, health care cost pressures. There is a need, a clear need for more effective and faster rehabilitation, whether it's the public health care system that we operate here in Finland or largely in Europe also or the more private cloud-based health care system in, for example, in the United States for where we operate. There is a need for more effective and faster rehabilitation. And I'll use an example, either a major depressive disorder patient or a chronic neuropathic pain patients. They typically -- if they are a severe condition, this condition can take you away from normal life, whether it's work or study like and these patients need effective and fast rehabilitation so that they can get back to the society and be effective and productive members of the society. And by this way, both the costs are lower, but also the benefits of a more wider society being healthier [ RC ]. So this is a very important point. Okay. A little bit about the business and products in general. We have two businesses that we operate in Nexstim. There's a Diagnostics Business and the Therapy Business. And as you saw in the previous picture, the system itself doesn't look from -- come on a quick view of the system, it doesn't look from the outside, a lot different than whether it's used for Diagnostics or Therapy. But of course, for regulatory reasons and for marketing reasons, we do have to differentiate these systems. If you use -- if we sell a system for the diagnostic use, we currently, the latest version is NBS 5, fifth generation system that we use -- that can be used for mapping the brains, motor and speech areas. This business is where we started off with. So the Diagnostic Business has been around for a longer time. We have over 230 systems sold and the application is pre-surgical mapping of the brains, motor and speech areas, prior to complex surgeries such as a tumor surgery. We are both a CE marked in Europe, and FDA approved for the U.S. markets. We're the only navigated TMS system used for pre-surgical mapping in the world that is -- has both of these approvals, CE marking in Europe and FDA approvals in the United States. So it's a truly unique application for our system. On the Therapy side, we have both NBS 6 systems, which is the latest generation for therapy, and we have some NBT systems, of course, that have been installed during the years. There's over 90 systems that include the therapy software, and we're shifting now towards selling the NBS 6 system, which is the newest generation in markets like in Europe and the United States where it's approved already for depression treatment. So the major application is depression and chronic pain. Depression is CE Mark and also U.S. FDA approved for treating major depressive disorder. And in the United States, there's also existing reimbursement coverage, which is very wide entering the larger, larger insurance groups. We can -- it's a very effective treatment for depressant patients. So for treatment-resistant patients that suffer from depression. This means that they've gone through already usually a few, fewer medications to pharma, pharma drugs that haven't helped. We can see that from our patient registry, which is several hundred patients, we can see 50% remission rates and over 70% response rate. So it is very effective treatment with the Nexstim system or the treating depression. For chronic pain, we are CE mark, so we can -- we can and have sold in NBT systems or using in chronic pain area. We -- this is also effective. So we can see between 40% and 50% of the patients getting a clinically meaningful pain relief after receiving TMS treatment from Nexstim system. So in practice, it is effective, but we would need more clinical trials, trial work or getting an approval in the United States very likely. So we're working on evaluating this, and this has been an area of focus for quite some time. But we do see that we want to besides treating patients in Europe, we would also want to see treating them in the United States in the future. And we have active steps in this area with international key opinion leaders in pain from France, from Finland and the U.S., that will be -- and also in Denmark that are helping us further with these, necessary steps. But of course, it's an investment. It's an investment of time and money. So we have to balance it with our operational profitability needs and such. But it is definitely something worth looking at -- again for the United States in the future. So these are our existing business and products, and I'll tell a bit about more about the future opportunities as part of the following slides. So now into the key, one of the key things, of course, that we want to present today is the Nexstim business and financial summary for the first half of '24. I'll start with a few bullet points and then our CFO, Joonas Juokslahti, will continue with a bit more detail into the numbers. So most importantly, we continue to grow and we improved our profitability. That's very important for us, and that's been our main strategic objective we've been focusing on profitable net sales growth. And as a happy thing to also report is that the sales forecast looks promising also for the full year of '24. And we'll look at the future outlook a bit later in this presentation. We have seen very good support from our distributor partners. So we sell directly currently in Finland, in Germany, and in the U.S., we have team members in those three countries that support our direct sales. Everywhere else, we rely on expert distributor partner network. And this, in particular, benefited us for the first half of the year in European system sales that we saw. So we've had a distribution relationship with a German company called Inomed and we have distribution distributorship for them in some European countries, but we also signed a collaboration -- strategic collaboration agreement, including the U.S. market for a long-term strategic helping each other with marketing and sales efforts. And of course, that will show results hopefully in the long term. But in the short term, we're already seeing a lot of traction with the health there, providing us in the European markets. We also made effective use of our global -- new global team structure to ensure positive development and profitable growth. So we structured our teams to global teams last year, '23. And I think we're now seeing the full benefits of those changes. We are -- we have -- we're sharing the knowledge in a different manner. We're also able to scale operations better because we can help each other, whether it's in Finland or U.S. and or in Germany. We've added some new team members effectively. And as an example of this, our gross margin grew 30% -- more than 30% during H1, but our fixed costs went up, operating costs went up only 3%. So I see this as a signal of the effective use of our global team structure. All the diagnostic systems we delivered during this H1 had both diagnostic and therapeutic applications. This is according to what we've also planned for our future systems. So a lot of our customers in the area of diagnostic, diagnostic mapping of the brain also want to have a therapy -- therapy possibility to provide depression or pain treatments or do research in the area of therapy. On the other side, a lot of our therapy sites here in Europe, in particular, want to also have a possibility of having the brain mapping either in use from the beginning or as an option for the future. We see that the combination platform is a clear competitive advantage. And as our new NBS 6 will get launched by the end of this year. Later this year, we will have both the therapy and the diagnostic applications in one system. In the newest platform. Currently, we sell the NBS 5 so-called NBS 5+, which also has diagnostic and therapy applications in the same system, but it's based on our older software platform. So we look forward very much to getting our latest product generation soft launched by the end of this year and then providing our customers an insight when they can also get their systems delivered. We have done some technology licensing in the past. And one particular licensing deal that we did in '22 was with a U.S.-based company called Magnus Medical that work in the area of treating depression with their same protocol. We -- after -- since there's, of course, been a lot happening in spring of '22. But to keep the story short for this particular reason, we ended having a disagreement about royalties in -- our agreement, our long-term agreement includes. And based on the information we've received from Magnus during the spring and summer time, we don't currently expect to receive royalty income from Magnus Medical during '24. And I'll leave the details of the dispute or the disagreement out from this presentation, of course, this is something that we don't want to publicly comment. But I want to say that Nexstim is working towards, of course, getting both parties into the same agreement again and to have also the royalties royalty portion of the agreement being paid as agreed in '22, and we're working very hard together with our advisers to get this done. So of course, we will be getting back into this topic once there is something that either expense or income-wise is something that is necessary to be reported. So news to follow. We've also continued discussions with new strategic partnerships to further scale the use of our technology and care. And as an example, I used already earlier in this presentation about Sinaptica Therapeutics, the company that is bringing a totally new Alzheimer's treatment form in to a Phase III trial phase. We're excited about this, and the letter of intent is in good progress, and we look forward into getting into this EUR 6 million agreement. So it's EUR 6 million for the 2 first years of the agreement where we would -- as Nexstim, we would get, first of all, a signing fee type of a fee we would get a development project to develop the Nexstim TMS integration with a third-party EEG and the Sinaptica's cloud-based personalization engine to get this together, there's a development project, which is income also for Nexstim. And then we would have also the delivery of the 20-plus trial -- Phase III trial systems. The trial is expected based on Sinaptica's estimates to begin in 2025, so next year. And we're working hard, of course, both parties that we would get a definitive agreement agreed soon so that we can move on with the mentioned milestones. So very exciting and one example of the strategic partnership discussion. As a smaller partnership but an important strategic path for us is also our clinic partnerships. So operating clinics together with leading key opinion leaders in TMS therapy. And we have management services organization that we've established in the United States with Dr. Kuluva, and Dr. Nadkarni, so both the Dr. Kuluva in Piedmont, California and then Dr. Nadkarni in New Jersey. So there's two investments into management services organizations to date, and we're having discussions for further invested in a very, very of course, in a manner that we carefully select the doctors that we do partnerships with, but we're looking to some nice possibilities for the future. And hopefully, we can also get some more disclose on that topic. So a couple of bullet points before I let Joonas go deeper into the numbers. So system sales during the first half was EUR 1.2 million. There was a nice increase of 11.4% in that area. Our recurring net sales grew faster. It was EUR 1.9 million, and there was a 39% increase in our recurring net sales. Our recurring net sales is -- includes typically our service and maintenance agreements, core systems. We also have disposables and spare parts that we sell. And then we also have monthly leasing fees that consists. So we had a lot of positive development in all of these areas that I mentioned, and that's why the increase was such a high number for H1 in the recurring net sale. Net sales in total was EUR 3.2 million, and there was a nice increase of almost 27%. Comparable net sales similar amounts, so no [ uncore ] and variable elements between H1 '24 over Hi '23. EBITDA was EUR 0.5 million negative. That's a nice progress from EUR 1.1 million negative H1 '23. And the operating result was also progressing nicely to a minus EUR 0.9 million from minus EUR 1.4 million last year H1. And profit for the period exactly the same with these EUR 0.9 million and coming up from minus EUR 1.4 million last year H1. If we look at the Diagnostic Business and the Therapy Business, Diagnostic Business net sales was EUR 1.6 million. There's a nice increase of 16% in comparison to H1 '23, and the Therapy Business was EUR 1.6 million, a larger increase of 39% from H1. So the split between Diagnostic and Therapy business was about 50-50 during first half. And that's a nice thing that the Diagnostic and Therapy businesses support each other in this revenue manner, very nicely and balancing our business. So with that, I'll let Joonas go into more detail about some of the key financials before I also wrap up the presentation with our strategic objectives for this year. Joonas, go ahead.

Sure. Thank you, Mikko, and good afternoon, everyone. So this morning, we published our first half results and the report was generally very, very positive and very much in line with our full year future outlook. The total net sales were EUR 3.2 million, with an increase of 27% in comparison to 2023. Now if we break down the net sales to business level, the Diagnostic and Therapy business, we see that it's pretty much an even split, both of them being EUR 1.6 million in revenue. The Diagnostic Business showed a 16% growth and the Therapy are 39%. And now looking even more into the details in both businesses, the system sales as well as recurring revenue showed growth. So all the important net sales elements increased in the first half. The total net sales -- our total system sales for the first half was EUR 1.2 million, growing by 11%. The recurring revenue was EUR 1.9 million with a 39% increase. Now the recurring revenues are strategically very important for us as it provides us with stability and predictability for our business. And the EUR 1.9 million in the first half represents roughly 61% of the total net sales for that period. So it's a very, very important portion for us. Now not only were we showing some healthy growth rates for the net sales elements, but we did that while improving our profitability on the gross margin level. So the gross margin for the period was 82%, whereas it was slightly less than 80% last year, first half. Then looking at the operating expenses. And while we didn't have a cost-cutting project or anything like that going on in the first half, we still continued our focus on cost efficiency and strict cost control in our business, and that can be seen in the operating expenses. The personnel expenses were EUR 2.3 million, which is the same as it was last year. So there is less than 1% of our change in personnel expenses. The other operating expenses increased by 5% to EUR 1.6 million which means that the total OpEx increased by 3% to EUR 3.8 million. Now with the 3% growth in our operating expenses, we generated more than 30% growth in the -- on the gross margin line on the P&L. And due to this kind of profitable growth and our strict cost control, we saw the operating loss is decreasing by 38% to EUR 0.9 million. Also, the results for the review period was minus EUR 0.9 million, showing an improvement of 34%. So the good development on the result level, also reflects to the operating cash flow, where we see a significant improvement from a negative EUR 1.4 million last year to EUR 0.7 million plus this year. And at the end of the period, in end of June, we had EUR 3 million in the bank, which means a 34% increase from June last year. Now as we announced in June, we raised some new debt funding, the most significant being the Finnvera digitalization and innovation loan of EUR 1.5 million. That was backed by a convertible bond of EUR 0.7 million from our existing shareholders. Now based on the business performance in the first half, we will not do any changes to our full year future outlook. So it will remain the same as it was when published in the spring time as a part of the annual report, and it goes as follows. Based on our business forecasts, the company expects its comparable net sales to grow and operating results to improve in 2024. Now at the end of this presentation, we have a Q&A session, where I'd be happy to try and answer any of your questions related to the financial figures. But before that, for a few more slides back to Mikko.

Thank you, Joonas. And as you want reminded, we -- you can post Q&A questions, and we will be answering them at the end. But I think you can already post them if you want to. -- you find something that you want to ask from us already when you're listening to this presentation. Okay. I'd like to start ending up the presentation with a couple of more points, but very importantly. So we've been looking at the past, of course, when we've been looking at H1 of '24 and the numbers, which look good. But I want to look at how the '24 is going to end up as a full year and by presenting also our next and key strategic objectives for this full year. First of all, profitable growth. Profitable growth is and will be a very important area for our strategic objectives. And as stated already early this year, we want to increase comparable net sales and improve operating results for the financial year while minimizing future capital needs. So this is something that I think H1 demonstrated already very well. Increased net sales, improved operating results and minimizing future capital needs, we got some debt financing, convertible loan also. So structuring our finance for helping our development and progress our business. So we're still aligned with this as a goal also for our full-year '24 as Joonas has also mentioned based on our future outlook. The second important point is under -- in the area of technology leadership. So the Nexstim system is a very sophisticated neuronavigated TMS system, and we are making it even better with our NBS-6 new platform and new generation of systems. And launching the new NBS with diagnostics applications included is an important milestone for the end of this year. It will enable easy-to-use systems and future add-on modules in the same hardware. Again, we want to do a soft launch of the system by the end of this year and then providing our customers with knowledge of when they can have NBS-6 is ordered and delivered to them. We're in the final stages of testing and on the -- starting the regulatory path towards approval, not that much of new development is done anymore, but as listeners might know in the medical device area, the quality regulation is very -- the quality needs are very strict and to go undergo a lot of testing and auditing and approvals are needed before they're out to the market. But this is an important milestone for us. And based on our team's knowledge, I feel very comfortable about also this objective reaching its goal by the end of '24. A third one, an important one, strategic partnerships. You've already heard about strategic partnerships in my presentation about Inomed, about Sinaptica Therapeutics, about Magnus Medical, about our clinic partners with Dr. Kuluva, Dr. Nadkarni. We will be working, of course, with the existing partners and also with the new ones want to expand the partners -- Nexstim partnership network, whether they are then doing a partnership with Sinaptica Therapeutics to get more trial work done in the area of Alzheimer's treatments. Selling more systems through the Inomed sales channel or opening new partner clinics and treating patients through our help from the management services organizations together with Dr. Kuluva and Dr. Nadkarni. I see that the strategic partnerships is a great help for Nexstim to grow. And we've seen this already in actual results, but I think this is a very important area also to continue working with in '24, but likely also for the long-term future. So very important thing to take care of our strategic partnerships and negotiations agreements for the end of the year and hopefully, we can get as much news flow out from there as possible. I also end this '24 slide with the future outlook. Based on business forecast, the company expects its comparable net sales to grow and operating results to improve in 2024. We posted this already at the end of February, and our forecast show that this is still very valid at the moment. So looking forward to, of course, posting our progress under this future outlook. And then finally, I'll end this presentation with a bit of a marketing note about the NBS-6, the future of the Nexstim system. And no longer is it only future, of course, it's been future during the whole strategy period, which started in 2020 and is now ending in '24. We're working a lot on the new strategy, the new strategy period beginning in 2025. We'll be posting of course, some updates while the strategy work moves forward. A lot of good ideas, a lot of good scenarios, but we need to -- we have some exciting things also to still think about some selections. But one thing that we are very happy about is that the new NBS-6 system that will get the diagnostic part combined with the therapy by the end of this year, is a new combined system and it's built on our unique clinically established technology. So of course, as the sixth generation system, we already have a lot of things that we can take with us from the past. But at the same time, the new modular design that we have in the Nexstim, NBS-6 system is going to help us expand the capabilities to the future. The last fifth-generation platform has been in use for about 10 years. So these are long life cycle investments into these new platforms. And -- but it will also create long-term value for Nexstim and our customers. So both customers and investors will profit from this a new NBS-6 system of the future. And finally, but very importantly, it's -- we're responding to customer demand. So the NBS-6 software has been developed in collaboration with our customers. It's been tested also with some of our lead key opinion leaders. And the combined system responds to great customer demand or systems that allow delivery of both diagnostic and therapeutic applications. And we see this both, whether it's in our home market, here in Europe or our largest market in the U.S. or the future markets in Asia, there is the same need. Our customers they want to deliver therapy. They want to map the brain, they possibly want to also do research, very many of them. So this is responding to that, and we look forward in providing more marketing knowledge and more marketing around the combined NBS-6 diagnostic and therapy once we're there a bit later this year. So with that note, I thank you for following this presentation until now, and we can take a quick look at the Q&A after this part and see if there's any questions. Thank you. Let's see if there is any questions that have been posted. It seems like there's no questions yet posted. We -- there's a bit of a lag in time I have to tell in real time. If you post a question, it will take a bit of time before I can see it here, but -- of course, there's been a lot of information provided today, both the actual H1 report published this morning, finished time, and now this presentation. So I hope you've enjoyed and what you heard. And if there are no questions, we look forward to formally telling about the financial results Nexstim on the 27th of February 2025 when we post our estimated before that on how we progress. So thank you once again, and have a very good weekend.