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. After that, they are available for answering any questions you might have. You can send questions through the Q&A chat at any time they will be replied to only after the presentation. [Operator Instructions]. The webinar will be recorded, and the recording can be accessed on this page after the event ends. You will be able to access the recording also through the Events page of the Nexstim website. Now let's move on to the presentation. First presenting as Nexstim's CEO, Mikko Karvinen. Go ahead, Mikko.

Thank you, Essi, and welcome, everyone, to this investor presentation, the H2 '25 and full-year '25 financial results for Nexstim Plc. My name is Mikko Karvinen, and I'm the CEO of Nexstim, and I will be today presenting together with our CFO, Joonas Juokslahti. Here's a bit of a background. My previous experience since joining Nexstim in 2014 was in international growth companies, publicly listed in the Helsinki NASDAQ Stock Exchange, companies such as Innofactor, SSH Communications Security and Vaisala. Now to the topic of today, I will begin with a little bit of background about Nexstim and our business. Then our CFO, Joonas Juokslahti, will be going through some of the financial details of our reports that we published today with some long-term trends, and then I'll come back with some slides on the momentum and, for example, our strategic objectives for '26. To begin with, Nexstim is the leading navigated TMS company. We're the technology leader. We're the most advanced technology and product in navigated transcranial magnetic stimulation, in brief, nTMS. Our technology is clinically proven and FDA, plus CE compliant. This brings us a strong competitive edge as the only diagnostic player holding both FDA and CE approvals in a highly regulated high-entry barrier field. We demonstrated profitable growth with strong share of recurring revenue percent of sales. Sales increased 26% during '25 with operational expense increasing only 1%. The recurring revenue percent was 35% of our sales, and we ended up having a high 77% gross margin during '25. We have a strong pipeline and traction in new partnerships. I will be going through progress from our Brainlab partnership and Sinaptica collaborations. They demonstrate growing clinical interest and advancing towards long-term agreements. Then finally, just to mention, we have a clear strategy period. '25 was the first year of our new strategy period ending '28. We ended up the previous strategy period 2020 to '24 with a compound average growth rate of over 20% during those mentioned years. A bit about Nexstim's navigated TMS solutions and business areas. To begin with, we have 3 business areas that we also report under, diagnostics, therapy, research and neuroscience. The system is a platform system and our latest generation NBS 6, I'm happy to tell, is the system for all these businesses. We've also mentioned the earlier versions of the systems that supported the businesses such as NBS 5 and also NBT Navigated Brain Therapy systems. Currently, we can sell and market our systems for all of these 3 business areas. The application for the diagnostic system is presurgical mapping of the brain, motor and speech areas prior to a complex brain surgery, such as a tumor surgery, epilepsy surgery or radiotherapy. Business model is basically similar -- has similar elements for all of these 3 businesses. In the diagnostics areas, revenue from system sales is the dominator. There's also recurring revenue coming from leasing, maintenance and consumable sales and potential license-related -- sales-related license fees when we go forward, especially in the new System version 6, where we're licensing software modules in the future. The customers, some world-renowned hospitals, Charite, Berlin, MD Anderson Cancer Center in Texas and then King's College Hospital in U.K., London, just to mention a few from the diagnostics areas. As mentioned earlier, we are CE Marked and FDA approved for presurgical mapping of the motor and speech areas, and we're the only navigated TMS provider that has both of these approvals and very, very -- that and also a unique component for our sales. In the therapy area, we support depression and chronic pain to mention the applications. We also have recently received in this month, approval for postoperative motor rehabilitation, which is a new indication. That's the CE marking for that particular. Depression is both CE marked and FDA approved with chronic pain being also CE marked. Then I mentioned postoperative motor rehabilitation also having a very new CE marking. The revenue base is also based on selling systems, but a larger portion of the revenue is typically coming from leasing, maintenance and consumable sales. The portion of recurring revenue is larger in the therapy business. Then finally, research and neuroscience, where we also use NBS 6 as a platform technology, focuses on finding the renowned research institutions of the world to use our technology in their studies. I'll mention Sinaptica Therapeutics as one of our strategic partners that are working -- they're working on a new method in treating Alzheimer's and slowing down the disease with the great results that they've produced in a one center trial. Sinaptica, what we're doing for Sinaptica is that we are integrating our navigated TMS technology with a third-party EEG system and then also the cloud-based engine from Sinaptica that targets the right area in the brain for treatment. We also want to mention a couple of others. University of Milan, which is working on consciousness studies and research in that area. Then, for example, Harvard-related hospital McLean, which is working also on research with the Nexstim navigated TMS system in various therapy areas. Then moving on forward, I'll describe a bit more about the 3 major use cases for nTMS. These are all approved indications. In the diagnostics area, brain surgery risks damaging critical speech and motor areas and our unmatched MRI-guided accuracy for mapping speech and motor cortuses helps patients, and this is -- the market size is about EUR 80 million, more or less. It's growing on a 9% compound average growth rate in the future based on market research analysis. The example competition is functional MRI or anatomical brain scans. What our technology brings is to show the exact spots in the cortex for functionality in the motor and speech areas. That provides important data for surgeons to make better decisions, whether to operate or not or if operating to avoid critical areas. Then on the therapy side, we have depression and chronic pain, and these are large patient populations, both. To begin with the depression, millions of patients do not respond adequately to antidepressant medications, personalized stimulation to the exact mood regulation center, improving treatment of effectiveness. The market size is a broad one. It's $400 million to $800 million. Compound annual growth rate is between 9% and 10%. An example competition is drugs, psychotherapy, TDCS and ECT, for example. Drugs and psychotherapy are, of course, the vast majority of competition. If you happen to have a treatment-resistant depression, such as many that will be ending up with a TMS treatment, then you land somewhere in the midfield before TDCS or ECT with a TMS treatment. It's highly effective. Based on our over 400 patient registry from the United States, we show 50% remission rates and over 70% response rates for treatment-resistant depression patients, so highly effective. On the chronic pain side, many chronic pain patients do not achieve relief with existing medications or therapies, high accuracy simulation for patients who do not respond to standard pain therapies, we estimate that there's about 10 million patients in the addressable market in the U.S. and Europe in total, at least. Example competition is drugs, TDCS and other nerve stimulators such as implants, for example, spinal cord stimulators or other brain implants. Drugs are, of course, the broadest used method. If you have treatment-resistant chronic neuropathic pain, navigated TMS is also a highly effective method. So based on data provided by our customers using a navigated Nexstim System, about 40% to 50% of the patients treated with this TMS therapy receive a clinical meaningful pain relief. Also very effective for treatment-resistant chronic pain patients. University of Helsinki, as an example, uses our system only for treating pain patients right now and with the results that I just mentioned. Then if we move on to the next topics, I want to talk about our partners before I give the possibility for Joonas to go through the financials. Beginning with Brainlab. Brainlab is our strategic partner with leading digital surgery solution provider. They are a global provider of digital navigation solutions founded in 1989 with headquarters in Munich. Brainlab owns about 3.5% ownership in Nexstim and holds also 790,000 warrants that when and if exercise would result into estimated 13% ownership on a fully diluted basis. There are about 7,000 hospital systems installed worldwide with about 4,000 hospitals using the Brainlab software, a sizable organization compared to Nexstim, over 2,000 employees across 25 different locations. We want to build global access to neurosurgery market through the Brainlab collaboration. We focused a lot into marketing -- co-marketing our product, and we were very happy that the first commercial NBS 6 systems were delivered for Brainlab at the end of '25. I'll speak a bit more about the co-marketing events later in this presentation also. Then moving on to the Sinaptica partnership, which is a very different type of partnership, of course. It's a promising Alzheimer's therapy collaboration with leading neurotech company, Sinaptica. About Sinaptica, they are developing a noninvasive brain stimulation therapy for Alzheimer's disease. It's a U.S.-based organization founded in '21. Core technology is an AI-guided TMS therapy targeting memory and cognitive function pathways. This partnership provides Nexstim an early entry into the Alzheimer's therapy market and exposure also to neurodegenerative diseases and indications. Of course, we are early in this business as there has been positive data that has been published by Sinaptica, from a 12-month Phase II study in '25. The year just ended. We can see slowing down of Alzheimer's disease, over 40% slowdown in various measurements or indicators during a 12-month period. Very promising data. What we are doing right now is that we are focusing our efforts into getting the prototype systems that Nexstim has delivered, combining Nexstim navigated TMS with a third-party EEG and Sinaptica's cloud-based engine AI-guided TMS therapy targeting tool into trial use later this year. We're positioning at the forefront of TMS innovation in Alzheimer's disease with this collaboration with Sinaptica and working very hard, of course, to progress from this exclusivity phase going on for the '26 into also a definitive agreement before the end of the year '26. I'll leave it there with the note now to give my speech to our CFO, Joonas Juokslahti, please.

Thank you, Mikko, and good afternoon, everyone. Now let's take a look at the key figures for '25. In this presentation, I will focus on the full-year figures. In the previous strategy period from 2020 to 2024, our compound annual growth rate was 21%, the year ' 25 was the first year of the new strategy period, and we succeeded in accelerating our growth to 26%. The group's total revenue was EUR 11 million, and we saw growth across all 3 of our reported business lines. First, the Diagnostic business grew by 24% to EUR 5.5 million, which is roughly half of total revenue. In the Therapy business, we saw 12% growth, reaching EUR 4.5 million in revenue, and that's about 40% of the total group revenue. The new research and neuroscience business generated EUR 1 million in revenue with an impressive 213% growth rate. The largest growth driver in 2025 was the sales of new systems, which amounted to EUR 6.8 million with 43% growth. Getting new systems into the hands of customers is important for our overall growth as it also supports the company's recurring revenue. We'll take a look at the installed base growth trend in more detail later on, on the next slide. Gross margin reached EUR 8.5 million with a gross margin rate of over 77%. Over the past few years, we have managed to maintain the relative gross margin closer to 80% despite the strong growth. In addition to that, we have continued to exercise strict cost discipline and the operating expenses grew only by 1% to EUR 8.2 million. Of these expenses, the sales and marketing accounted for roughly 44% or EUR 3.6 million. R&D, 29% or EUR 2.4 million and the rest, meaning EUR 2.2 million were general and administrative expenses. We made additional investments into sales and marketing and R&D, while in the administration, we succeeded in reducing costs year-on-year. In 2025, we delivered a positive result on all of the reported profit levels. The EBITDA was EUR 1.7 million increasing by more than 430%. At the EBIT level, we achieved a full-year positive operating profit for the first time without any significant onetime items. The operating profit was around EUR 0.6 million. Also the net profit for the financial year was just under EUR 600,000. The operating cash flow was EUR 1.7 million positive and the cash balance at the year-end totaled about EUR 2.7 million. In addition to that, we had some EUR 3.7 million worth of sales receivables open. With the positive results, also the group's equity ratio improved to approximately 40% level. Now traditionally, we also publish our guidance for the new year at this time. However, this year, we also decided to publish our long-term financial objectives for the first time. The guidance for the year of 2026 goes as follows. The company expects its net sales to grow and operating profit to improve. The company's long-term objectives are to maintain an average annual net sales growth rate of over 20% and to achieve an operating profit margin exceeding 20%. Next, let's take a look at the growth of our system installed base on the next slide. Thank you. Our business growth is strongly tied to the growth of the installed base, and this supports the growth in both system sales and recurring revenue. To-date, we have delivered more than 260 diagnostic systems and over 135 systems with therapy capabilities. The graph on this slide illustrates the cumulative number of systems sold and delivered from the beginning of the previous strategy period, meaning 2020. At the time, the diagnostic business was at a much more mature stage as we had the necessary regulatory approvals for more than 10-plus years, whereas the therapy system was only launched in 2018. Since then, both business lines have seen accelerating sales and deliveries as shown in the graph. In 2025, we delivered a record 37 systems in total. Next slide, please. On this slide, I wanted to show the development of our financial performance over the past few years. For the 2 consecutive strategy periods, our most important strategic objective has been so-called profitable growth. For us, this means, for example, that the net sales and gross margin always grow faster than the operating expenses. On the left side of the slide, you can see the comparable revenue growth from '22 to '25 with a compound annual growth rate of roughly 21%. Now at the same time, we have managed to keep our gross margin rate high at just under 80% through the years. We have also remained highly cost conscious and maintained strict cost control through the group. At the bottom of the slide, you can see that the operating expenses, the development through the same time period with an average annual growth rate of less than 1%. Now, in between years, you can see that there were some cost-saving measures implemented, and you can see the slight dip in the expenses. Now when we combine these elements, the strong revenue growth, the high relative gross margin and the strict cost control, they are clearly reflected in our profit levels, too. At the center of the slide, you can see the development of our EBITDA over the same period, showing significant improvement. We have reached positive EBITDA for the last 2 financial years. In '25, we achieved EUR 1.7 million of positive EBITDA. Now we aim to continue this kind of a trend in the coming years also and the long-term financial objectives given out today are based on these kinds of plans. This was the final slide of the financial section. Next, Mikko will continue with the key events of '25 in more general, and then we'll have the Q&A at the end where we'll try and do our best to address any of your questions. Thanks.

Thank you, Joonas. Yes, I'll wrap up the presentation with a couple of points in a couple of slides still. If we look at '25, update in delivering growth and global impact, first of all, there was a 23% growth year-on-year in the total number of systems delivered. You can see on the left, the spread between diagnostics therapy and research. There was a strong momentum for growing the diagnostic systems with 19 systems delivered with a 46% year-on-year growth. We also launched the NBS 6 system during the end of the year '25. This is a new modular diagnostic generation cleared under EU MDR and FDA, as I mentioned earlier in this presentation. Speaking about strengthening strategic partnerships and advancing in the middle, we were in a lot of events together with our partners, especially during the second half of '25. I want to mention a few events that we joined the first 4 together with Brainlab. The Brain Computer Interface BCI Symposium in New York, Congress of Neurological Surgeons, CNS in Los Angeles, where we were demonstrated as part of the Brainlab booth of technologies. Also the EANS event in Vienna, Austria and then the NSA in Gold Coast, Australia, both also co-marketing events together with Brainlab. Then finally, I was part with the Sinaptica team of the Alzheimer's Association International Conference held in Toronto last July. This is just practical examples of how we are positioning ourselves with co-marketing efforts, both from the Brainlab and also in the Sinaptica partnerships. This provides us, of course, a global reach for our technology and sales pipeline openings and leads from a global perspective. If we look at the number actually of systems post launch in the therapy area on the next slide. We can see that we've reached the peak of 30 systems devices sold cumulative since the launch in '23 for therapy. This is NBS 6 therapy. Of course, this has shown a highly successful device launch for the therapy area. Now the diagnostic launch for our product, the NBS 6 happened post the FDA and EU MDR certificates. This new system, the NBS 6 new system is a combined system that has been built on Nexstim's unique clinically established technology. It has a dual purpose, so you can use it for both diagnostics and therapy in one modular platform. Ease of use is important. It's easy to use. Customers can add modules over time, and this increases utilization of the system. The modular system supports also higher selling prices and higher amount of recurring revenue as some of the new modules can be sold with software licensing approach. Then, of course, the commercial traction through growing international presence and new regulatory approvals. We're working on -- we have the basis now, the very basis is the FDA and EU MDR approvals, but we're expanding. For example, we just got recently an approval for the United Arab Emirates and so on. We will be posting, of course, news flow from the most important market approvals as we move forward. We're working on a very interesting one in Japan, where we're combining our efforts together with the Brainlab team and getting the diagnostic system available for the Japanese market. That's, of course, a long-term regulatory process, but it is an important topic for and a budget item for the '26 that we progress together with also the Brainlab team. Then moving on to some of the momentum items. There's actually a strong momentum with several growth catalysts happening right now in Nexstim. To begin with leveraging the FDA and CE approvals to grow diagnostics business. Of course, Brainlab is our partner that we rely on increasing system sales volume through that Brainlab partnership. An important moment as we now have the Nexstim NBS 6, the latest version, CE Marked FDA approved, launched together with Brainlab to the diagnostics areas of presurgical mapping of the brain motor and speech areas and then also as a more competitive therapy and neuroscience offering through the same platform. Recently, as an example, we got the CE marking for postsurgical motor rehabilitation. On the Sinaptica Therapeutics, of course, gives us a major market opportunity for treatment of Alzheimer's through this partnership, and we will support them with the future trials followed by hopefully a definitive agreement later on this year. Then coming back to the increasing installed base and recurring revenue. Despite we saw a small decrease in the recurring revenue in the 1-year level, I want to remind that the recurring revenue is a base that has -- that grows over each system as they typically have a service agreement. If we compare, for example, the recurring revenue base between '21 and '25, we've seen a significant 43% increase during this time. It is still a very big part of what we do and is important in giving us estimated cash flow and growth for the future. Then finally, to wrap up this presentation today, the key investment highlights and strategic objectives for '26. From the investment highlight point of view, 5 points that are important. First of all, broad and attractive market with multiple clinical use cases. Number two, we're the leading proprietary technology with key regulatory approvals for the latest systems such as CE marking and FDA approvals. Strong competitive entry barriers in a highly regulated market. Plus, the regulatory approvals, we also have an IP patent portfolio that we can defend ourselves in this technology area. Stellar financial profit profile, so double-digit growth, steady and high gross margins, strong operational leverage and high share of recurring revenue. Then finally, several growth catalysts with the new partnerships and new regulatory approved product launches, we have a lot of growth catalysts ongoing right now. Then finally, the strategic objectives. We've traditionally had since, I think, 2020, we've launched the strategic objectives as part of the financial statement release, and we have 3 key objectives for this year '26. Number one, very similar to last year is profitable growth, increased net sales and improved operating result for the financial year while minimizing future capital needs. That guides us as the #1 objective also this year '26. As a very important strategic partnership objective, we support the long-term collaboration between Nexstim and Brainlab as well as expanding the network of other partners and clinics, partners such as Sinaptica and clinics such as our clinic partners that we have in the therapy area, especially in the United States. Then finally, as the technology leader, we want to hold on to our strategic technology leadership by further improving and innovating the neurosurgical workflow of the NBS 6 is benefiting the Brainlab partnership and the sales volumes through that channel and the TMS-EEG research interface, benefiting our partners such as Sinaptica and of course, other TMS-EEG research centers that have or will have a Nexstim navigated TMS system as part of their TMS-EEG research systems. With those bold objectives, this is the end of the formal presentation part. Here's a few important information pieces for you to look into if you later on look at this as a video or you want to look at the presentation slides from our website. Important information to go. Now is the chance to go through some questions, if there has been some posted questions. The presentation part has ended. Thank you for your attention for the presentation part already. Let's see if there's any questions.

Okay. There is one question. Yes, there's about the recurring revenues were rather low in H2, mainly in diagnostics, but also on therapy. Could you elaborate about that? Yes, that is correct. Despite the recurring revenue being typically a growing element of our business, we saw a small change downward actually in H2 and the full-year. There's been a bit of a change, I think, in some of the -- there are a couple of factors. There's not one factor that explains the whole situation. There's a couple of factors. One important thing is that most of our customers actually, especially in the diagnostics side and the hospital side of the business, have had budget pressures and also funding pressures that incentivize to buy capital expense items now rather than have any recurring elements flowing later on. We've drew customer demand and customer needs, we've actually offered our product to -- especially for the hospital customers and the diagnostic part of our business as a capital expense purchase rather than have a portion of the value come as recurring revenue. So that's one element. The other element is, especially on the diagnostics side is that when we sell these NBS 6 systems, so the latest generation and if they are indeed replacing an earlier generation Nexstim system. They're, for example, moving from 5 to 6, then typically, all customers have a service and maintenance agreement, which is annually invoiced and also recognized revenue annually. When you buy a new system, you actually have a 1-year warranty period. The first year is a warranty period, and you don't need to have a service or maintenance contract to cover you because you're under a warranty period. Something fails, you get replacement spare part or system service as part of the warranty. There's a temporary, I would say, loss of some of those maintenance contracts because usually, they will then order for the new System 6, they will order a maintenance and service contract after the first year. We have a very high percentage of customers that do that afterwards. The first one is, the first issue was that customers actually want to buy more onetime payment compared to leasing or paying later on with recurring elements. Second one is this shift from customers that are replacing an existing earlier generation Nexstim system with a new one, having the warranty period and then service contracts come later. Then finally, one thing, the third one is the reusable head tracker. The latest generation 6 system has a reusable head tracker, which is the -- has typically been a onetime use tracker that helps with the navigation and physically connecting the physical head or connecting the physical head to the MRI model. We are, in the long run, going to be having less recurring revenue coming from those onetime used trackers shifting into multi-use trackers. The portion of the recurring revenue related to that onetime use tracker will be diminishing. Then at the same time, the modular structure of NBS 6 makes it possible that we will be getting licensing revenue. Licensing new modules. In the long run, there will be a replacing recurring revenue element, which is the software licensing. Right now, we're seeing that customers shifting from the onetime used tractors to the multiuse is creating also a temporary lower recurring revenue element. Yes, so unfortunately, it's going to be a bit of a shifting now. Now how long does this shift take from customers getting the recurring revenues from the contracts, the head trackers and their purchasing demand is going to -- remains to be seen. We are looking at a growing recurring revenue portion for the long run. Okay. Then there's another question. Is the reduction of recurring revenues is the main reason for the gross margin erosion as there is a shift towards more CapEx rather than recurring? Does it mean that we should expect a continuous impact on gross margin? I think that's a good question. I mean we were amazingly high, 77% gross margin still for the full-year, not saying amazingly because we don't believe in it, but I mean that despite selling systems more than recurring revenue, we had good margins on the systems. I'll have to say that we defended our margins very successfully, for example, with the tariff environment. We were able to get the customers to pay the tariffs more or less. That's one point. The system margins were higher than, of course, one could expect. I mean they were high margins. Then the other thing is that I think in the long run, to be very straight, there are a couple of pressures that will be probably lowering the margin from the 77%. I mean we'll defend the margin going forward also, I'll tell that. Things like when we are having more sales volume through our partners, so when we're selling more diagnostic systems, especially in the future through the Brainlab partnership, and that will lower the gross margin percentage slightly, of course, because there is that portion of margin that goes to the partner, in this case, the distribution partner. We have defending elements such as the recurring revenue, software licensing, also, the service and maintenance contracts are going to be relatively high margin. Then we have the therapy business and the research and neuroscience. It remains to be seen. I see that there are pressure elements to that 77% gross margin level. Part of it during '25 was because of the fact that the recurring revenue portion was lower, but we did defend it quite well with the high gross margins received from the systems because the system sales grew over 40%. Good questions. I, of course, as the management, we share the thoughts on the recurring revenue, and we are working, of course, very hard to proceed with these elements that I mentioned. I see there's a bright future for the recurring revenue also in the future. This is only a slight phase in what we're going through right now. Any other questions or I don't see any other posted right now. Of course, feel free to send me an e-mail or afterwards, if you have something or give a call. We're always open for discussion if we have time between conducting the business, of course, which is our main focus and continues to be so. I thank you for your attention. Thank you for the great questions. We will be publishing news flow, of course, as we go. Q1 business update will probably be coming up next. Then, of course, the H1 2026 report will be coming out -- published in mid-August. Plenty of news flow before that. Stay tuned for, of course, updates even before that. Right now, I thank you for your attention, and have a great remaining day, winter day, wherever you are. Thanks.