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 will take a little over half an hour. And after that, they are available for answering any questions you might have. [Operator Instructions] The webinar will be recorded, and the recording can be accessed on this page after the event. And you will also be able to access the recording through the Events page of the Nexstim website. 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. My name is Mikko Karvinen. I'm the CEO of Nexstim. And I will be presenting today our last year '24 financials, both second half of '24 and full year '24. I'm also going to be assisted by our Chief Financial Officer, Joonas Juokslahti, who will be going through some numbers, mainly the full year '24 figures. I'll start off with a few slides. First, we've been doing some updating of our strategy during last year '24, and our new strategy period is -- has begun this year '25 and will be ongoing until year '28. Here's a picture from -- as a result of our strategy work that shows the main elements of our strategy, and I will briefly go through some of these to assist your understanding of our future. On the top of this picture, we can see the megatrends that affect most companies in our industry, which are aging population, technological development in health care and then also health care cost pressures. Nexstim operates globally to a certain extent, and we need to be, of course, knowledgeable about these trends. And as examples, we have some pinpoints I want to mention. For example, our partnership plans with Sinaptica Therapeutics, a U.S. based company in relationship to Alzheimer's disease treatment and developing that treatment together is something that, of course, benefits from the aging population and the vast number of Alzheimer's patients that suffer and need new treatment forms. As a result of technological development in health care and health care cost pressure, there are more and more needs to technologies such as Nexstims' to assist in having more efficient treatments for the patients and also to assist the staff requirements, which are higher in most health care systems. And of course, as we know, there's a need for more nurses and doctors, and there isn't necessarily such a supply. So the technologies such as Nexstim's technology, which helps treat patients more efficiently, helps also with these types of trends. If we look at the base, the lower end of this picture, we can see that as a basis for anything we do, we have our mission, which is a very important mission that we enable personalized and effective treatments and therapies for challenging brain diseases and disorders. And this has been unchanged for the new strategy period and is very valid. Our vision is that, we ensure the best treatment for our patients, we deliver the greatest value for our customer hospital clinics and business partners and long-term growth and shareholder value for our investors. So our vision is also unchanged in the wording, but of course, we take different measures to fulfill this vision during these upcoming years. If we look at our -- the main elements in the center of the picture, which we describe our businesses. So first of all, we will be having diagnostic business and therapy business also during this strategy period. We have research and neuroscience customers that we want to especially focus on and then also the clinic partnerships that we've evolved during the last strategy period. I'll give a few examples of important notes for each and every of these areas that are strategic importance for us. So beginning from the Diagnostics business. We recently told about the partnership with Brainlab, a German-based company that is in the area -- works in the area of neurosurgery, supplying both software and hardware solutions for neurosurgical hospitals around the world. So we see that, the Brainlab Nexstim partnership, which I will tell more details in the later slides, is a key element for system and service sales volume increase during the strategy period. So as our key partner, both as a distributor and as a future technology developer together with us, we see that, there's a lot that we can do in the area of system and services volume growth. I'll just give a few examples. So the Brainlab as a company is much larger than Nexstim has a larger presence in different markets. They have over 6,700 customers in the neurosurgical field. They also have a representation of their own in almost 30 countries or 30 locations in the world and their staff is -- or full personnel is 2,400 people. So there's a lot of potential in bringing the Nexstim offering and the Nexstim technological solutions to the front of more and more neurosurgeons and their personnel and staffing around the world. So we're very, very -- we look forward very much into this partnership and the first full year of partnership beginning now in '25. If we look at the Therapy business, this is an area where we've grown a lot during '24, and also during the strategy period before that. So we have this as an independent area also in the future for Nexstim. So we will sell therapy systems and solutions, mainly in EU and U.S. as we're approved there in both markets for major depression, but also then for chronic pain in Europe. And these 2 indications mentioned are going to be the ground that we start building our therapy business also in this new strategy period. But we will be looking into expansion of new possible indications and market opportunities within this area. I won't go into the specifics of which indications, but besides major depressive disorder and chronic neuropathic pain, there are a lot of possibilities that we will be exploring and possibly pursuing, and we will be doing this in the both supporting our values so that the indications that we select are science and clinical evidence based, but also that they can provide financial success and growth in a profitable manner for the company. As a third focus area, we've noted our research and neuroscience customers. And you can see a picture there on the right of a TMS-EEG patient -- patient being treated with a TMS-EEG combination. So as an example, TMS-EEG technology is something that we've shown as a company that we're capable of providing huge value for our customers and Nexstim's offering is unique in this area. And as a recent example of this, we signed a letter of intent during the summer of '24 with a company, an early-stage company called Sinaptica Therapeutics that had shown excellent results in the area of Alzheimer's treatment, slowing down the disease by as much as 80% in comparison to the sham group in a 6-month follow-up period. Now these type of partnerships are possible, because of our presence in the research and neuroscience area and our offering to that. And we are looking forward to the negotiations finalizing in a definitive agreement, hopefully, during this year with Sinaptica Therapeutics, but also exploring other parts of -- other possibilities of doing research and neuroscience system sales and possible partnerships for the future. So this is a hugely exciting area. And I do want to emphasize the role of TMS-EEG and Nexstim's unique knowledge and expertise in this area as future growth potentials. And then as a final element, but a very important one. During the last strategy period ending 2024, we established management services organizations with 3 clinics in the United States. So now we have 3 partnership clinics that work one in California, in Oakland. We have a clinic in New Jersey, and then we have a clinic in North Carolina. So these 3 are now in the focus area for us for further expansion and also providing and showing operational excellency through this partnership. And we will be actively monitoring new effective treatment methods, while we also refine the business models. And these expert clinics in these areas will be helping us better understand both the business and the evolution of the possible new treatments for the future. And we look forward to expanding Nexstim's presence in the clinic partnerships and in the area of therapy, especially in the United States. So that as a summary and a quick cap of our future look into the 2025, 2028 strategy. And then one slide, this is not so much content, but very important to logos here. So Brainlab Nexstim, this is a slide from the Brainlab marketing material showing that we've joined forces recently. And this is, of course, because of a collaboration that we started by signing a development and distributorship cooperation agreement. And as we have the world-leading noninvasive brain mapping technology based on navigated transcranial magnetic stimulation, and Brainlab, as I mentioned, in the neurosurgery field has a huge basis of existing customers and also future potential and has a very broad footprint in this area. This gives us access to the market, but it also gives us a possibility to develop the new solutions and improve the workflows together with Brainlab. So I just wanted to emphasize the meaning of this partnership for the year '25, but also for the future years of Nexstim, especially in this strategy period. Here's a quick view into what area of actual operations does this Brainlab partnership effect for -- when we look at Nexstim technology. So this is an example of the steps for a noninvasive brain motor mapping in 20 minutes. So when we do a brain mapping with our Nexstim system, it begins with the step #1, which is preparing. We upload the patient's own MRI image into our system. And then after that, we do the registering. So we register the physical head of the patients into their own MRI that's in our system. So the physical world and the 3D model of the brain meet in this way. Then we stimulate. So we have the navigated transcranial magnetic stimulation that is done with the coil. And you can follow the real-time electric field navigated in the 3D model, and you can do the mapping based on that. Evaluation of the results, so we review the areas of the eliciting responses to avoid during surgery. So of course, the information that we get by mapping motor functions of the brain cortex is valuable for the surgeons, because they can do decisions. They can do decisions related to is this patient operable? Can they operate? If they do operate, what areas should they avoid? Where to take the less risks? And in this way, while they are resecting as much tumor as possible from the brain, they are doing it in the safest possible manner for the patient. And then finally, exporting. So bringing data into the surgical planning and navigation tools, which is the Brainlab partnership, of course, means that we develop the methods of exporting the data, particularly into the Brainlab system. We are also compatible with other surgical planning and navigation tools. But of course, in the area of this Brainlab partnership, we will be developing this part in close collaboration with Brainlab to make the export also as seamless and efficient as possible. And then, if we look at -- moving on from the brain mapping to the business and products, everything that I described about the Brainlab partnership and related to motor mapping relate to the diagnostic business, the diagnostic business and the therapy businesses are the 2 businesses we run at Nexstim or ran also during year '24. We started off with the diagnostic business. We've sold over 240 systems in this area. The application is presurgical mapping, motor and speech mapping. We are the only navigated TMS system in the world that is both CE marked in Europe and FDA approved in the United States for navigated TMS mapping of the motor and speech area. So that's a very unique indication for us and something that we've managed to grow during the past, and we look forward to growing this together with the Brainlab team for the future. In the therapy business, we have a more independent role also in the future as we've done to date. We have 2 products that I want to mention. First one is Navigated Brain Therapy, NVT, and then we have the NBS 6, the most recent version of our system, NBS 6 is in the area -- approved for the area of therapy, especially in the area of depression, where we're approved for both U.S. FDA and CE Mark in Europe for major depressive disorder. There's over 100 systems that include the therapy software. So this installed base has grown also nicely and is roughly half of the business we currently won. Chronic neuropathic pain is something that is already CE marked, and we have systems out there. For example, in the University Hospital in Helsinki, we have a system that treats pain patients, mainly pain patients, and the results are impressive. They get 40% -- between 40% and 50% of the patients get a clinically meaningful pain relief after the -- they're treated with the Nexstim system for the treatment period. We're looking at additional clinical trials to see, if there would be possibilities to expand into this area during the new strategy period, and we will be reviewing both the scientific data needed and then, of course, also the return on the investment that this would return. And if we look at the depression, which is already approved in both markets, it also has a high efficacy. So we can see based on the patient registry that we gathered over 400 patients and published on our website that there is a roughly 50% remission rate and then more than 70% response rate for treatment-resistant depression patients, so suffering from major depressive disorder. This is also a very high efficacy rate for patients that have not -- that suffer from depression and have not get relief from that with medication or other treatment forms. So a very resistant patient group. That is to summarize business and products. And then moving now finally, but also welcoming the review of the numbers that we actually published this morning at 9:00 a.m. local Finland Helsinki time. So if we look at the second half business and financial summary, One of the main takeouts is that Nexstim continued profitable growth and signed significant partnerships. In line with our main strategic objective for '24, we continue to focus on profitable growth and our sales forecast for '25 also looks very promising. I also want to notify that, because of the increase in net sales and our gross margin growing, we achieved first time a positive EBITDA for the full year when we exclude nonrecurring license income. So this is a positive signal of our operational business receiving EBITDA positive results without any one-off income elements. So this is great news, I think, for the financial stability also and profitability of the company. If we look at the partnerships that are mentioned also in this header, we did enter into the collaboration agreement about the development and distribution of our diagnostic field systems with -- together with Brainlab. And we also agreed on an equity investment. So Brainlab invested a little over EUR 1 million into shares, new shares of Nexstim. And then also they have warrants open for an extra EUR 4 million worth of Nexstim shares for the future. So important for business, but also in aligning our future incentives by Brainlab being a very welcomed large investor into Nexstim now and with their future warrants also as an optionality. And then finally, but also something to note is that, we're continuing the negotiations with our partner, Sinaptica, so Sinaptica Therapeutics for a definitive agreement with the aim of enabling them to further explore Alzheimer's treatment in studies and trials that would start up further in this year '25. And as a concrete example of a step forward, we released also a note in mid-January that we've started to build the first integrated test system, which includes Nexstim's navigated TMS technology, Bittium's EEG system and then also Sinaptica's cloud-based engine to show the exact treatment spots. So this combination, Nexstim, Bittium, Sinaptica is producing the first system that hopefully will be used in future trials done by Sinaptica starting later this year or during this year '25. So we look forward to finalizing the work together with the 3 parties mentioned and team is working hard to get this done and the system shipped still within the upcoming months. So that is an exciting area. Let's look at some of the numbers for the second half. System sales were EUR 3.6 million, increased nicely more than 19% recurring net sales where we include service contracts, and also spare parts and consumables such as disposable head trackers. They also increased to EUR 2 million. That's up 13% from H2 '23. Net sales for the company on the second half was EUR 5.6 million, that's an increase of more than 17%. EBITDA was positive EUR 0.8 million, up from positive EUR 0.6 million in H2 of '23. Operating result, positive EUR 0.3 million, up also from last year's comparative period. And the profit for the period was EUR 0.1 million positive and with this almost similar result than the last year's second half '23. And as a very positive note, the cash flow from operating activities was positive EUR 1.2 million in comparison to last year's second half being negative EUR 0.9 million. And I think this is also an important signal for the financial health and the stability and this is a result of the profitable growth that we've operated here in Nexstim for the recent years. Diagnostic business sales was EUR 3 million, a slight increase from second half of '23. And in the therapy area, we saw most of the increase for the second half, where net sales was EUR 2.6 million and a huge increase of more than 43% in this business area. So in the second half, we could say that, the therapy business was -- therapy business growing was the main reason why the -- we saw such nice growth. And of course, this is as a result of the new therapy system, NBS 6 being launched late in '23 and then having a full year '24 to do sales and deliveries, and quite a few deliveries were second half based. So this is a huge reason for explaining the extreme increase in net sales for second half of '24. So that's positive note and positive development. So that's the summary. And then one final slide before I give the opportunity for Joonas, our CFO, to go through some of the -- especially the full year numbers. I wanted to show this graph, which nicely shows the development all the second halves of our previous strategy period that just ended. So if we begin in from second half of 2020, the highest bar being the comparable net sales, and the second one -- second highest is comparable gross margin. And then on the lower part where there's negative to start with in second half 2020, we have EBITDA there. And I think the other one is -- there's a mistake in this slide. But I think that, if we look at the progress of the comparable net sales, comparable gross margin and the EBITDA, we can see that there's a positive progress that continues starting from lower numbers in second half of 2020 with negative EBITDA moving forward to the positive numbers in EBITDA and of course, higher comparable net sales and comparable gross margin. But the trend is clearly visible, and this is a trend we want to, of course, move ahead during the new upcoming strategy period. And I apologize for the error in this slide, we will correct it for the one that we publish on our website. But with these -- and that relates to the EBITDA shown twice, but actually, of course, only one of those is the real EBITDA. Thank you. I will now move on to Joonas and Joonas having the possibility to present you with some in-depth figures for the full year. Please, Joonas.

Thank you, Mikko, and good afternoon, everyone. My name is Joonas Juokslahti. I'm Nexstim's CFO, and Mikko just presented some of the key figures for the second half of the year. So let's take a look at the financial highlights of the full year. The total net sales continued to grow by 21% to EUR 8.7 million. And there were no out of the ordinary one-off items in the review period or the comparative one. So the total net sales in both periods are the same as comparable net sales. And if we take a look at the breakdown of the net sales, system sales were EUR 4.8 million, up 17%, and that is 55% of the total turnover. The recurring revenue increased by 25% to EUR 3.9 million, representing 45% of the total net sales. And this has become a significant item over the years, the recurring revenue. And by business function, the split in 2024 was almost even between Diagnostic and Therapy. Diagnostic business was EUR 4.5 million with a 6% growth, and the Therapy business, EUR 4.2 million with a 42% growth. So we can see that the therapy business was the single largest growth driver in 2024. Gross margin in '24 amounted to EUR 6.9 million with an increase of slightly more than 22%. So it grew faster than net sales, and that means that the profitability on gross margin level improved. And the gross margin ratio improved by more than 1 percentage point to 79% in '24. And on the operating expenses side, both personnel expenses and other operating expenses increased by approximately 8% to the comparison period -- comparing to the comparison period, and that was when we had taken some strict cost-saving measures in 2023. And when we take a look at the expenses by main functions, we spent EUR 2.2 million on R&D, which is same as previous year. And sales and marketing expenses were 11% higher than in 2023 with total sales and marketing expenses of EUR 3.6 million. Admin expenses EUR 2.3 million with an increase of 13%. And the increase in admin expenses is mainly due to these nonrecurring costs related to these partnership negotiations, which amounted to around EUR 240,000. Then the result levels. In 2024, the company's EBITDA was positive for the first time in the comparable business, and that was at EUR 0.3 million. Our operating loss decreased by 56% to minus EUR 0.5 million, and the result for the period improved by just under 33% to minus EUR 0.9 million. And there was a significant improvement in the cash flow from operating activities compared to the previous year when in 2024, the cash flow from operating activities was EUR 1.9 million positive and in 2023, it was minus EUR 2.3 million. And with that, the cash balance at the end of the financial year amounted to EUR 3.9 million with an increase of 166%. In addition to the cash balance, we had pretty high accounts receivables balance of EUR 3.9 million. And that was due to this strong emphasis time-wise of the system sales in December, and those invoices are due in the early year of 2025. So there was a 39% increase in accounts receivables. The group equity improved by some 30% to EUR 3.7 million, and the equity ratio remained relatively unchanged at around 31%. Now looking at the current year 2025, our future outlook for 2025 goes as follows. The company estimates its net sales to grow and operating results to improve. And on the next slide, we have a graph, this one here. So it shows the development of comparable net sales and gross margin for the previous strategy period ended in 2024. And the compound annual growth rate for the comparable net sales was 21%, and that actually matches the 2024 sales growth rate also. And the gross margin has developed slightly faster in relative terms, and that's supporting our strategic objective of profitable growth. And as I said earlier, our operating expenses increased by 8%. So it's a good growth rate for net sales and gross margin in comparison to the operating expenses. So with that, I would now like to hand the floor back to Mikko for a bit before the Q&A. Thank you.

Thank you, Joonas. Yes, there's a couple of things, I still want to note before we move on to the Q&A, if there's any questions rising from the audience. The first one, I want to go through is are the Nexstim's key strategic objectives for this year 2025. This being the first year of our new strategy period. One of the important -- or the most important strategic objective we have is related to profitable growth. So as we presented, profitable growth has been a focus area for us during the recent years. We want to increase net sales and improve operating results for the financial year, also this year '25. we do that while minimizing future capital requirements. The second strategic objective I want to raise awareness to is our strategic partnerships. So the Nexstim Brainlab partnership is the main strategic partnership we focus on this year. So successfully supporting the long-term collaboration between us is important for us and expanding. And besides that, we want to also expand the network of other partners and clinics primarily in the United States. There are other partnerships that we want to progress with. I mentioned Sinaptica Therapeutics, working in the area of Alzheimer's treatments. We also want to grow the clinics that we are partnered with in the area of therapy, the clinics we have a management services organization that we serve with. These are also areas of strategic partnerships. But the Brainlab, Nexstim partnership is the main focus that we start with the first full year of partnership together with Brainlab is important for our diagnostic business and the future in that area. Third one that, I want to raise and the final one that we focus on as a strategic objective is the technology leadership. So launching the new NBS 6 diagnostic system in key markets, enabling ease-of-use and future add-on modules in the same system. So we have successfully launched the NBS 6 for therapy already earlier at the end of '23. And we had the first full year of selling the NBS 6 therapy successfully in '24. And now following the soft launch of the NBS 6 diagnostic system in the Berlin Symposium in the final quarter of '24, we're now in the progress of the regulatory approval processes for both the EU MDR and also the U.S. FDA path. And we want to, of course, fully launch in both of those markets during this year, and that involves not only internal work from our R&D and also documentation and quality, but they also involve regulatory authorities approving approvals. So of course, we don't want to give the exact timing of this. But during year '25, we want to have the diagnostic system launched in the key markets. And that's a very big important objective for us, and it's also an important part of a successful partnership with Brainlab moving on forward with the strategy period. And then finally, I want to just state clearly, as Joonas did also earlier, that our future outlook for the year 2025 is that the company estimates its net sales to grow and operating result to improve. And our management personnel and Board are motivated to fulfill this, of course, and we very much look forward to keeping within this future outlook for this year '25. And then the final slide of this presentation, I want to remind us and also give a bit of a marketing talk on the NBS 6, the future of the Nexstim system. The commercialization is now for this strategy period, when we look at it '25 to '28, we're looking forward to launching the new NBS 6 diagnostics for the key markets this year '25. And of course, this product generation is an essential part of the strategy period's growth. It's a combined system. It combines both the diagnostic and the therapy with our unique technology. The modular design makes it possible to expand the system capabilities over time. So once we have the diagnostic and therapy in the same system, we can add on modules for the future. They might be research-oriented also. They can be either diagnostic supporting the Brainlab partnership or they could be in the area of therapy, for example, supporting new indications. But the main thing is that, this solution creates long-term value also for Nexstim's customers, both customers and investors. So we want to note that, this is responding to the customer demand. Most of our systems are sold with a combination already now with the System 5. But especially, with System 6, they come with a combined system to begin with and also with the best level of usability, ease-of-use system helps with personnel being able to be treated more fast. And also, if there are changes in the clinics or the hospitals, the ease-of-use is something that is always a factor when you have personnel or staffing changes and of course, then training new users and getting the treatments to be more and more efficient is relying to the ease-of-use. This also responds to the customers who've asked for the need to have both therapy and the diagnostic capabilities in the same system. And we have quite a few customers that are awaiting, of course, this possibility to be there and to have the new combined systems as part of our offering. And this is why we want to launch the combined system later on this year. And of course, then that being an essential part of our whole strategy period 2025 and '28. So with that note, and a very positive note, I thank you already for being part of this webinar and the presentation part of it. And I hope that, there are some questions that we can address together with Joonas. I'll see if there's any in the chat.

We can wait for a moment. It seems that there are no questions at the moment. And if there are any, you're, of course -- okay, there's one question here. Do the stakeholders, CEO, CFO and CCO, have plans to invest their own money in Nexstim stock? If not, what are the reasons preventing them from doing so? A personal investment would signal strong confidence in the company's future and align their interest with the shareholders. Okay. That's a good question. Well, I can only answer for my own part. I mean, I think that, I am a shareholder in Nexstim and one of the -- among one of the largest shareholders or, let's say, in the top 20 or so. And I plan, of course, to -- I plan to do investments into Nexstim when it's possible. There are, of course, certain regulations due to insider information and management of that. And unfortunately, during the previous, I think, 2 years, I haven't been able to invest in new investments because of mainly insider projects that have been ongoing at the moment. But I look forward, of course, to trying to invest more into the Nexstim and especially through the option programs that we have. And as the amounts are usually invested are significant in nature, then, of course, once such decisions are done, it's also we need to release public the information. So I cannot answer this right now other than that I've tried always to invest into Nexstim shares also as whenever possible. And I also hold at the moment, more than 30,000 Nexstim shares. And I hold options, also stock options to purchase Nexstim shares in the future, and those are visible publicly on the website. So for other people doing their own investment decisions, I have to rely on the other people giving their own opinion. But I strongly emphasize that it's a good signal, but also a good way of committing into the company is investing into the company's shares, and I've been doing that for since the very beginning of listing Nexstim into the stock exchange. So the limiting factor is the money. So if there would be more capital to invest also personally, then I could invest more. But limiting factor is the capital. Any other questions? That was a good question. Okay, it seems like there's no other questions. The presentation has been clarifying for most audience. I thank you for your attendance. We will be publishing the annual report for -- with the full financial statements on the 6th of March. And then, we look forward to publishing the first half '25 numbers on August 15. So that's quite far away. I'm sure we will have a lot of news flow before that. So stay tuned with our news flow and looking forward to an event-rich 2025 year and wishing you all a nice winter day and upcoming spring. Thank you.