Senzime AB (publ) (SEZI) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Erik Penser Bank and this morning's live presentation of the 9-month interim report of Senzime. And here to present the 9 months report is CEO, Philip Siberg. Philip, welcome.

Good morning.

Go ahead with your presentation, please.

All right. Thank you. Thank you very much. I'm here to kind of give the highlights of the Q3 report that we just published this morning here in Sweden. So Senzime, just a brief recap. We are Swedish-headquartered medical device company. We're in the midst of a technology and clinical shift, where we are providing monitoring solutions to help eliminate complications as a result of anesthesia and also as a result of opioids and other medications as you are in the perioperative mode of the hospital value chain. We have our commercial infrastructure in over 30 countries with main focus on the U.S. and Germany, but also distribution and license partners. We are a NASDAQ Main market company listed with long-term investors backing us up. So a little bit about Q3. I think we had a nice Q3 with strong continued growth rate and most important also, we secured long-term funding in the company. So just the highlights. We reached sales of SEK 9.2 million, a growth rate of 146% in the quarter and year-to-date, above 160%. The growth was driven mainly by strong U.S. business, but also growth in all markets. We had a number of key wins. I'll come back to those. Product gross margin continues to improve over time in the company. We reached just under 70% year-to-date. We also announced that we ramped up our operational capacity and our production capacity, which we're now delivering on. And we did 2 directed share issues during the quarter that I will comment on that raised SEK 173 million. So to give a feel for where we are, we've had a nice, really hockey stick inflection point happening this winter. As a result, I think -- the new clinical guidelines has been a good catalyzer to this. So we are trailing at about SEK 30 million in run rates. But by the end of the quarter, we have an even stronger run rate, so up towards SEK 50 million. So consumables are, of course, the most important. You can see a small little tiny dip here in the last quarter. I think it's mostly a result of orders coming in the day after the quarter. So nothing really there to comment in any way on. The installed base of TetraGraph systems continue to grow. We are closing up towards the 2,000 mark. We are well in line with delivering on these production goals that we announced in early July. And the number of sensors, which is the important really business driver and margin driver here continues to grow very well over the year. So we had -- we announced 3 key deals during the quarter, and then we had another major deal on the East Coast of the U.S. that we announced just after the quarter. But to get a comment, the first one was a leading U.S. university hospital system in the southern part of California. It was 70 TetraGraphs that we announced that we will install over time. That deal has actually gone quicker than we thought, and they're already deploying and installing and starting to use the systems. We won another major competitive evaluation order from another top 10 U.S. rated hospital systems, also in California, that was 110 TetraGraph monitoring systems. Quite a good initial order value for us there and probably in and around SEK 5 million in run rate revenue on consumables over time as it's fully deployed. And that's also now up and running right now as we speak. And then we also announced a contract with one of the leading U.S. IDNs, integrated delivery networks, which is a longer-term contract, but we've started to deliver already. This has a huge opportunity, and it's covering the most of the Western U.S. region. So just to summarize this, like why are we winning these types of deals? Yes, I mean, I would summarize it into 3 categories. We -- Senzime is perceived out there as really the trusted vendor. We're the only company in our niche that is publicly traded. We have a legacy of over 40 years of research and development. Most of our technology and ideas are sprung out of the leading Mayo Clinic, and this has developed over a lengthy period of time, as I said, with strong base in Uppsala. Second one is we are really perceived as the leading solution provider. We have the sharpest algorithm. We have now the fifth generation electromyography or EMG algorithm that really provides a very accurate response. It's a very simple solution now to use with auto calibration. We can connect to most of electronic health records and external patient monitors. And now we have a very broad portfolio of electrodes that are used for both adults, for kids and also for patients with sensitive skin. And then the third really bullet why we're winning the deals is the commercial excellence. We have a brilliant clinical team that helps to support to do the introduction to deploy, to train. So we have that both in U.S. and Germany, but also in support with our distribution partners around the world. So really the inflection point for us as a company has been these new type of guidelines. I mean this is a picture here showing the number of guidelines in our space that has developed over the last 10-plus years. The big driver was when the U.K. came, 2021. But then as the European and the U.S. came this winter, that was really when the inflection point. That's when you start to get the pull from hospitals. And the guidelines are, in summary, saying that all patients that receive paralytic drugs as part of their anesthesia, which is in and around 100 million patients a year, they should all be monitored with a quantitative, objective neuromuscular monitor, and that's exactly what we're offering to the market. So for us, it's important from a business perspective to monitor the utilization rate, how much are these used wants to get out there. And we had a small little dip here, if you can see in the Q3. It's a very small -- I'm not concerned about it. It's mostly that we had quite a large volume of deliveries of monitors that are not yet fully in full use. So if you look at kind of our -- what we define as key deployed accounts, the ones that we really are focusing on, they are up towards the 4.0 level, which meaning 4 TetraSens electrodes used per monitor and week. But if you really nail down to the market, so this is the -- to the left here is the U.S. market. We're seeing a nice positive trend where we are above the 4.0 level already. And if you look at the German market, we are also having a nice trend. So it's a little bit just depending on the regional mix here. I'd just point out one -- so we have one interesting customer in Germany. So we're seeing in Europe, an increasing trend of using our solutions as part of da Vinci and types of robotic surgery. So these patients require a very deep neuromuscular blockade. They need to be absolutely paralyzed to stay perfectly still. And in these instances, it's very important to have an objective, very sharp monitor to do this. And this is just -- a major clinic in Munich showing that once we get in there, and this was a deployment that took about a year, and then it took 6 months to really ramp up. So they are doing more than 2 surgeries a day. So this is a utilization rate way above 10 patients a week. So this is a very nice niche market for us as it develops. So I've shown this slide before to those of you who follow the company. It's understanding how do we actually create value over these soon-to-be 2,000 deployed TetraGraph monitors, but we're still working very diligently to increase utilization, because the more they are used, the more value these TetraGraphs are driving. And just to give a feel again that when they are and what I define as a decently full use, which is 4 patients a week or more, they typically provide up towards SEK 50,000 a year in run rate. And as you see, if you get up to these top tiers, like we had in Germany, we have run rate revenues over SEK 100,000 a year. So our installed base of customers is something we also very track. We continue to grow our hospital base. Now, end of Q3, was just a little above 161 hospitals. These are the hospitals that we can follow and monitor so it excludes what we're doing in Japan. It excludes what we're doing in South Korea and also smaller distribution markets. So it's more to follow the progression of our business. So a comment on the ExSpiron system that we acquired last year from Respiratory Motion, the company we acquired in Boston. We continue to really focus on value creation there as well. We are continuing to integrate it into our sales networks. We have defined a very clear leadership for the business unit itself. We are signing up new distribution partners. It's just a little bit of a longer sales cycle right now than the TetraGraph. So this is more where the TetraGraph was probably 18 to 24 months ago. But it's moving on and there are studies more and more confirming the clinical value of following minute ventilation, following the breathing that is a very early and good predictor of length of stay and helping to find. If you can predict early that you're having breathing problems, then you can understand how to treat the patient and get them quicker out of the postoperative care. Operational efficiencies. So we continue. We moved home production to Uppsala a few years ago. That continues to help to boost our product gross margin. But it's, of course, a mix of portfolio. It's a mix of regional sales, but also control production. But we are now trailing 68.7% year -- over a rolling 12 months and also had a nice gross margin in absolute terms in the quarter. And of course, operational efficiencies and operational control is very important, too. We continue to kind of to -- every single little Swedish krona matters here as well as dollars. So I'm seeing a trend here that our operating expenses are actually -- started to get lower. We've had a number of onetime effects in the past. But if you look at Q3 versus Q2, et cetera, we're seeing a nice kind of slowing trend, but also, as I pointed out toward, I want to flatten this out now as we grow the business. Okay. So to strengthen our long-term financials during the quarter, we conducted 2 direct shares issues. We did this in 2 tranches to really make it fair for the shareholders. So we did one for SEK 56 million in August. And then we did another one as the market captured that, which was SEK 117 million for a slightly higher price of SEK 6.50, and that is still pending final -- it's with the Swedish [indiscernible] to get the shares out, but everything is clear, and these are now registered. So we raised SEK 173 million, and we raised it more or less at market price. So no huge discounts. And I think this is a sign of institutional owners believing in what we do. The Crafoord family and the foundation remains our largest shareholder. But the ones that came in were predominantly the new Segulah Medical Acceleration, a dedicated medtech fund. We also had Carnegie funds come in and also support by the Fourth AP fund, Handelsbanken, Swedbank Robur, et cetera. We announced also that we are cross-listing our share in the U.S. We have quite an investor base in the U.S. So this is pending to go live by the end of October, meaning that you can very easily then also trade our Senzime share in the U.S. market during U.S. opening hours and in U.S. dollars. And I think this is -- we're doing this as a result of interest for the company, interest from U.S. shareholders and to help drive interest in our most important commercial market. Okay. So to wrap up. This is the golden equation that I use to visualize where are we heading. And I've shown this similarly before, but if we can capture 300 hospitals here and we can have them to run approximately 30 TetraGraphs in average per hospital with a utilization rate of 4 TetraSens sensors per week, then this correlates to roughly SEK 300 million in just consumable sales. So this kind of visualizes where we're heading, and this is in line with our financial targets that we've announced. So we're all really in such an exciting phase. I was just back from the large American anesthesia meeting, which is once a year. And it was, I must say, one of the best medical device shows ever. We are really in the midst of a technology and clinical shift. We have a brilliant portfolio of products and a very strong team. So I'm very excited about the future to come. Thank you very much.

Yes. Thank you so much for your presentation.

Thank you.

I would like to start with the classical sports journalist question. How satisfied are you with the quarter?

No, I think the team -- I was very satisfied. The team has done a fantastic job. It's so satisfying to see that after all these years of hard work and development, it's starting to pay off. We have a long journey ahead of us, but we're taking very important steps on the way.

And what have been the most servicing during the quarter, would you say?

Of course, it's always been a hard work with securing long-term funding. So it just takes time. There's a lot of work to it, but I'm very happy now that we have that finalized and set. And now we have the funds we need to really secure our long-term growth plan.

And I guess the financing have taken much of your attention during the quarter.

It does. Yes, yes. It takes a lot of attention. But it's been a very smooth process by doing direct shares issues. It's a very -- as compared to rights issues, which are good too, it's very quick and very efficient and very cheap.

You had a very strong quarter, looking at the inflow of new deals and quite large deals as well. Are you satisfied with the current organization to be able to deliver on these, both with the installation and production?

Absolutely. I mean production, by far, we've already expanded our capacity. So we're delivering to this very quickly. The U.S. team where we've had these specific orders are absolutely fantastic. So they are a team of ICU and operating room nurses who are out there supporting and helping. And right now, we have 6 of our team at one large hospital system in the U.S. and they're very [ methodical ], getting -- helping to create the standards, the protocols to get this up and running. So it's really helping the hospitals to reach their goals and targets and patient safety kind of recommendations.

Great. And you mentioned during your presentation that you're in the leading position, I guess. What would you -- could you make a ballpark guess how large market position you have today?

Yes. Difficult question. I mean we -- our market segment, we have a number of competitors and friends, I would say, who are like us advancing the digital new shift into the electromyography space. And my peers and friends, they are more private companies who I -- we don't really know their numbers. But then we have the other competitor, which is the large companies doing the old analog acceleromyography where you measure the sum of acceleration. And there, you have Philips Healthcare, GE HealthCare, the large companies. So I would say we are the leader in the new digital segment here. That's how I would define it.

Perfect. Perfect. And you have won a lot of deals, but I guess you also have lost some deals. What would be the reason why you are not winning a deal?

Because we're probably -- we can't be everywhere. It's -- I'm proud to say that I'm seeing that we're winning the deals we are working with. But if we look at the U.S., again, it's a large market. We cannot cover every single deal out there. And I think it's good that there's a number of companies. We need to drive this together. So we're almost like an alliance to help make this clinical shift. So there is enough space for everybody out there. But there are different -- we all have a little bit different specifications. Some have different types, the business models. So it's whatever the hospitals prefer. So I wouldn't say again. I don't see us losing any deals that we are directly working on.

And maybe if you could comment on your order backlog, so to speak, going into the fourth quarter, maybe not in numbers, but broadly at least.

Yes. So this is a new era for us, where we have order backlogs. I don't really have -- I can't really comment on the number right here. But I mean we're seeing a backlog in terms of we're now working to install a lot of monitors who are successfully growing into a more full deployed phase. So that will generate revenues over time, yes.