Q-linea AB (publ) (QLINEA) Earnings Call Transcript & Summary

Welcome to the Q-linea Q2 Report 2026. [Operator Instructions] Now I will hand the conference over to CEO, Stuart Gander; and CFO, Annika Blondeau Henriksson. Please go ahead.

Hello, and thank you, everyone, for joining during the summer here for Q-linea's second quarter report. You have Stuart Gander, the CEO and President speaking, and I'm joined by our new CFO, Annika Blondeau Henriksson, who will come on later to speak to our financials. The usual disclaimer here, which will take as read and understood going forward. And our agenda tracks to our previous quarterly readouts here. I'll spend a little bit of time talking to the commercial update in the market and how we see things unfolding with a focus on the U.S. market. Then we'll speak to the outlook through the year, some of the big things happening and what our operational priorities are before I turn it over to Annika to talk to our financial performance through the quarter and obviously come back around to questions and answers. All right. So for those who only have a few minutes joining us today, the key messages that I would like you to take home are as follows. We did ship out 5 ASTar instruments during the quarter. I'll talk to the update there on how that translates into activities on the ground, contracting and test pull-through as we go forward. We did, as many of you will know, approval from the FDA for our expanded menu, which now is definitively the leader in the market in terms of the panel of drug and bulk combinations that it offers to our customers and the reception from the pipeline of customers with whom we've been speaking now for some time has been very positive. For those customers in the U.S. who are live with ASTar on our Version 1 menu, we've now gone back around and upgraded their software. So those -- the last of those have now been completed. We expect that to have an impact on those same customers in terms of pull-through as it unlocks more of the menu for their usage. There's a little bit of delay there in terms of the timing as they need to update their clinical protocols to make those combinations available to all the physicians, but that is happening more or less as we speak. The other thing that we're very excited about is the global expansion I've been speaking to for the last couple of updates here is well underway. We did complete 4 new distribution agreements in new markets. I'll speak to those. We have a queue of other partners lined up behind them. As you may recall, we are taking a selective approach to signing up new partners rather than going everywhere and pushing ourselves into a market. We're basically waiting for distributors to come with customers lined up to us. And then it makes for much quicker, certainly, and more, let's say, commercially informed conversation with the customer and the distributor from the get-go. So we do expect that these new markets will generate business in the foreseeable future here. And then finally, and Annika will speak to this. We've had a pretty marked improvement in our year-on-year operating income. That is driven by the impact of the cost reduction programs we've been speaking to regularly. We're pleased to say that we've successfully completed now the last restructuring and the move to a single site in Sweden. So we can now see that impacting the lower burn rate. So those are the key messages. For those who are new to these presentations, just a quick orientation. Q-linea is a developer of a diagnostic instrument for rapid antimicrobial susceptibility testing. We consider it to be the leader in the field, notably very strong clinical performance, as I mentioned before. It also has been designed with the lab in mind. So it's fully random and continuous access, very, very easy to use for the lab and delivers a response for the clinician to act on the patient within 6 hours of starting to test. And as we've talked to before, we see this rapid AST market as effectively an upgrade to current standard of care for patients that is firstly going towards the blood infection patients where there's a high criticality. Blood infection leads to sepsis if it's untreated accurately. There are more critical infections in hospitals that we expect to be able to address in time. And I'll speak to that a little bit later as we actually are launching a product in the back half of this year that will reach out to those nonblood patients as well. So we see this market starting to emerge here. And ultimately, when these patients migrate over to an improved standard of care, we see this as up to $1 billion market segment that we're activating. And where are we in that process? Similar picture as we've shared before. So we look at it basically in phases of the pipeline developing. The upfront of the pipeline, you can say, is relatively stable. It continues to grow. But as I mentioned, we've got a large number of customers in the U.S. who are waiting for our v2 that's now on the market. So we're really focused on curating and cultivating those relationships. And then the growth is being driven here by new markets coming on stream, the distributors and so on that I mentioned. And then obviously, we're keen to move those evaluations and contract discussions forward into contract ASTars. We had a few more in the quarter here that are contracted, and notably those 5 instruments that I mentioned from the contracts have been shipped and set up. So we now have 21 active ASTars in clinical use, and you can see the growth here on a rolling 12-month consumables revenue as they generate test results. I would say that there -- we continue to see a growth in the same instrument usage month-to-month, quarter-to-quarter with a particular focus on Italy, where we have a sizable installed base. We are the leader in that market, and we're pleased to see the customers continue to use it more as they get more comfortable with it. There's lots of work we can still do though to make sure that all Italian patients have access to rapid AST. On the U.S. side, as I mentioned, the new menu should unlock some volume for existing customers, but U.S. growth will be driven primarily from signing on new contracts, which we're pushing forward with now. On the U.S. side, as I mentioned at the start of the call, it's very, I would say, clear to everyone that the menu available for a clinician on ASTar is far superior to anything else that's available. Here, you see a graphic basically showing an overlay of the ASTar menu against the 2 available competitors in the market with all the gray cells being ones that are available on both instruments that are compared, and the orange ones being available only on ASTar. And you can see that the sheer number of orange dots here represents a panel that's provided by ASTar, that's far superior to the alternatives, and this is what we hear from customers, especially when we speak with clinicians. At the end of the day, this is the information that a clinician is looking for, and they're looking for an instrument that can give them options, both for escalation of a patient whose therapy may not be addressing the infection or also valuable deescalating the patient to a less broad spectrum, less aggressive antibiotic, perhaps even getting them on to an oral and discharge from the hospital, and that generates, obviously, improved patient experience, but critically also some significant economic savings for the hospital. So breadth of menu is a key factor, and we're very, very pleased with our expanded menu that's now approved. I would say we made some comments here vis-a-vis competitors. Obviously, they're active in the space. There's lots of room for everyone to grow in this nascent market here. We do see when it comes to competitors that obviously they need to compete on price given the strength of the ASTar offering. We have full respect for that team as a major player in microbiology. So they continue to sell on sort of the breadth of their portfolio and life scale has indicated their intention to develop a fungal panel in the future, but it's not yet available yet. And on -- we're also watching, for those following the market, Accelerate was acquired by Bruker. That platform has not yet been approved by the FDA. So at the moment, this still remains the usual suspects on the field, and we see ourselves as the clear established leader also in the U.S. I talked about the global expansion. Franco Pellegrini is leading our EMEA team that's moving eastwards with some speed now. We quite intentionally started with firstly Southern Europe and Eastern Europe. We expanded to Middle East through our partnership with AMICO that's now well underway. I'll speak to a couple of examples there in a minute. And now we're ready to open up the next layer of the growth path here. Franco has a dozen-plus discussions ongoing across Africa, Asia, some more in the Middle East and so on. And like I said, we've successfully signed on a few of those. We're also seeing some very interesting multisite deployment opportunities that are driven more at the national level, very interesting one in Ukraine. We're hoping for some decisions soon here. That is a country with extremely high need for AST testing, AST testing, as you can imagine, given their context, very excited about a project ongoing in Vietnam that should decide within the year here that could be quite significant. And then the aforementioned Middle East as well also moving ahead. Indian, Sri Lanka have also had promising discussions, and it looks like there might be a multisite opportunity in Sri Lanka, we're evolving with our partner there. So as ever, we can never tell exactly when the timing will be on these, but we do expect to be seeing some new pins in the map some new geographies opening during the back half of this year based on all the conversations we're having. By way of example, we've spoken before about the GCC. During the quarter, we were very pleased that the 2 of the national Ministries of Health have come out with versions of reports, let's say, based on the evaluations they've been conducting on ASTar. So firstly, the National Guard Hospital in Saudi Arabia completed and reported a very successful evaluation. That led to the NOPCU approval, which basically is the National Procurement Authority in Saudi Arabia, giving the green light for ASTar. That does a couple of things. It makes it available now for any of the associated public hospitals to reach out to us or partner, specifically to start a process for procurement. And also, it is very concretely triggered process with the hospital that conducted the evaluation. So we're very pleased with that. We expect to see some activity there during the year. Following that, pretty much immediately, 2 new evaluations have started also in Saudi Arabia there in Riyadh and Jeddah with additional hospitals lined up behind them. There will be probably the first -- few more will still want to try the instrument in their labs before going into a purchase process directly, but we'd expect to see now more and more of them kind of going directly into the purchases as they get comfortable with the major hospitals publishing positive evaluations. Similarly, in Kuwait, the Al Amiri Hospital has published their results, which are very good. Obviously, the geopolitical situation there is fairly intense. So there were some delays in that publication for understandable reasons, but that's now available. It more or less does the same, if you will, as the Saudi in terms of triggering the process there to start formally for procurement and opens the pathway for the other public hospitals to procure directly now based on that evaluation performance. So we're very pleased with that. AMICO team has done tremendous work especially given the ongoing developments in the region. We see further developments in UAE as well as valuations conclude and hospitals look to basically when to deploy these. So we expect several more of these to move forward during the year. So just taking a step back, where and how are we focused? Basically, the usual buckets here on the commercial side, it's really a very strong full court press on that pipeline of customers that told us to give them a ring when we have the v2 approved, which we do now. So we've obviously reached out to all of them. They are, like I said, very pleased with the menu that's started or restarted a number of concrete conversations on the contracting process that's moving forward. We would hope to conclude some of those imminently here. And we're also moving forward with a different contracting program we call the Verify and Adopt. It basically just enables customers to share evaluation data more readily between them. There can sometimes be some hurdles in there. So we're facilitating that process. Obviously, it's fairly burdensome for a customer to run a full formal evaluation and that sometimes can become a hurdle in terms of timing and resource availability. So we hope that this will remove some of those barriers for customers keen to get going with ASTar, especially now that we have a body of customers with both published and unpublished successful evaluation data that can be shared. So that's part of our general push to reduce cycle times. We don't lack for pipeline, as you saw from the data. In fact, we're cautious about growing the pipeline more at this stage. We want to really work on front-end pipeline and get ASTar out and set up. I have no concern about our ability to get more customers interested. So we're really looking to streamline and smooth valuation and evaluation processes. We're working with some major [ GPOs ] on contracting to just simplify the process for customers and getting contracted and a new supplier set up, which can sometimes be burdensome for smaller suppliers like us. And of course, that LIS integration and so on are all part of the program here to reduce cycle times. Then I mentioned previously, of course, working with our existing customers to increase the testing rate. We're pleased that the U.S. customers are using it in line with what was expected and are very likely to increase now with that expanded menu. As I said, in Italy, there's still some budget-driven practices that have kept testing below the level that we see would be needed from the patients, and that presents an opportunity. So we're working with customers to showcase patient examples. Obviously, the clinical benefits and the economic impact from deploying ASTar. Again, the more data we collect, the more we show, the more positive the picture is. And we do see that is influencing physician behavior and test pull-through in sites on a quarter-by-quarter basis. On the clinical development side, we spoke previously about our planned launch this quarter for -- in Q3 for our Isolate nonblood test. So still on track for that one. We're very excited to get that out. That will unlock a significant new pool of patients that we think in the long run will benefit from ASTar and there's some immediate applications from an RUO perspective that we would expect will already impact during the year. So very exciting development there. I would say another great sign of us being established in the market and being seen as a leader in the space is that now conversations with pharma companies on the next generation of drugs are working very smoothly. We're getting a lot of support. We've signed up 6 pharma companies now to work on getting their drugs onto our disk, one of the very unique features of ASTar and the design of our consumable is that it's easy to put on new drugs without compromising the menu that's already available. This is not the case for most of our competitors. So we're very excited about bringing some of these novel therapies to ask our customers in, hopefully, in the very near future here. And then as ever, we continue to work on our cost of goods, both on the consumable side. I've spoken to that before. We're seeing the impact from earlier initiatives. We've got several more queued up here that should impact through the rest of this year. And of course, on the instrument side as well now that we have more volumes coming, we're able to work in a focused way on sets of opportunities to reduce the cost of the instrument as we go forward. So I would say good progress there, and that will start to show up as volumes increase through the back half of this year. And I won't step too much on Annika's points on the financial side of things other than the fruits of our cost discipline are showing here in the reduced run rate that's at the target. We'll keep making sure that we're highly disciplined in where we put our resources. At the same time, we do need to be ready for growth in markets as it comes. So obviously, the back half of the year more or less being offsetting incremental cost savings with some targeted deployment of new resources into the growth areas and on the commercial side of things. The other piece that Annika will speak to is really making sure that we maximize our capital recovery when we put instruments out in the field, it represents, for us, a fairly significant investment of capital. So anything we can cover from a capital sale or rental fees and so on has a meaningful impact on our cash flow. We're very conscious of that, and customers are willing to work with us in a good way on terms there. So Annika will speak to what we're doing there. But I see that will be an area of focus for the back half of this year. So with that, Annika, I will turn it over to you.

Thank you, Stuart. So we're turning to the financial highlights for the second quarter of 2026. At the end of the quarter, we had 24 contracted ASTar instruments compared with 12 instruments a year ago. So this reflects continued expansion of our installed base. While we have no capital sales of instruments recognized during the quarter, we only had rentals, we still generated net sales of SEK 1.5 million, up from SEK 0.5 million in prior year period. Consumable revenue totaled SEK 1.3 million, representing the vast majority of sales in the quarter in Romania roughly at the same level as in Q1. As we continue to grow installed base, consumable utilization remains a key focus area for us. So we are introducing a new KPI in this interim report, annualized consumable sales per average contracted instrument on a rolling 12 months basis. So we measure then the revenue generated by installed instrument base and serves as an indicator for us of the instrument utilization. So for the trailing 12-month period, the KPI amounted to SEK 266,000 compared to SEK 278,000 in the comparable period. We foresee that the KPI may fluctuate a bit over time since consumable sales include sales to evaluate -- evaluation activities, but also new instruments placements as utilization typically ramps up over time following the installation. Operating results improved to a negative SEK 31.3 million compared to a negative SEK 47.4 million in Q2 of last year. This is a significant improvement by SEK 60 million year-over-year and it reflects the impact of the cost reduction initiatives that we have taken and have been implemented over the past year, which we now can see has been completing during this quarter. Cash flow from operating activities amounted to negative SEK 30.1 million compared to a negative SEK 36.4 million in the prior quarter. So here, it's worth noting that the quarter includes a SEK 5 million prepayment for planned instrument inventory replenishment, which impacted our cash flow. We ended the quarter with a net cash position of close to SEK 187 million, which continues to provide us with financial flexibility as we continue to invest selectively in commercial opportunities and keeping a disciplined cost structure. On the next slide, we present our development of the operating expenses for the past years. In Q2, we have included and have a bit of cost, which have been related to the consolidation of the 2 sites in Uppsala that has been done during the quarter. So as a result, our current cost base is significantly lower than historical levels, and we expect operating expenses to remain below SEK 11 million per month during the second half of 2026. And a key point is that, as mentioned, we target investment, we make it that we need to make in the commercial resources and market development activities. We expand the funds through additional internal efficiencies. And this will allow us to support growth initiatives without materially increasing our overall cost base. And also, the slide presents the reduction that we have done with reference to employees going in Q2 of 2023. We were 149 employees. We're now down to 70 employees at the end of Q2 2026, which have created a more focused and efficient organization and align with our strategic priorities. So going on to our 4 key financial priorities. Continued cost discipline is obviously very important at this stage of the company. And that's why we believe that we will be able to do it with a cost structure of SEK 11 million per month. We also have stronger capital recovery as a key focus area. It's supposed to drive improved utilization of the installed base and increase high consumable revenue per instrument and an increasing share of commercial placements in the market with stronger pull-through potential, and we here foresee that to be the case in the U.S. market. Gross margin expansion, we see, as Stuart mentioned, with increasing production volume, but also our continuous efforts and initiatives that we have currently ongoing and also some has been concluded. On the manufacturing efficiency, foresee to continue supply negotiation and sourcing optimization is also on our agenda. And finally, we continue to pursue non-dilutive funding opportunities, also mentioned by Stuart, which include discussions with partner regarding co-funding of future product portfolios and solutions that can help us optimize working capital requirements associated with our future going forward, commercial expansion. Over to you, Stuart.

Thank you, Annika. With that, we will turn to questions. Do we have anyone on the line?