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

Good morning, and warm welcome to Carnegie Investment Bank. My name is Klas Palin, and I'm equity analyst at the bank. And following, for example, Senzime, who will be presenting its Q4 number this morning. The report was released today. And with me in the studio, I have the CEO, Philip Siberg, who will present the company. Welcome, Philip.

Thank you. Nice to be here.

Yes and very nice report that you will now be presenting. I guess you also will be presenting the company and give an introduction to Senzime.

I will. Yes. I'll give a 15-minute intro and then we can have some Q&A. Yes.

Perfect. Perfect. And then I think time is -- you start presentation. Welcome.

All right. Thank you, and thank you for dialing in and listening to our Q4 and 2023 summary. So just to give a 1-minute pitch and recap what is Senzime. And we are a global medical device company headquartered in Uppsala. We have offices in U.S. and Germany. We're addressing 100 million patients a year market and really addressing about SEK 40 billion opportunity. What we're doing is enabling precision-based monitoring of patients in the operating room to make sure they get the right dose of paralytic drugs and that they are woken up and extubated at the right timing. The legacy of the company derives from Mayo Clinic, from Harvard and Mass General, so long-term research behind all this. We have commercial infrastructure in about 30 countries. So it's a combination of direct sales, distribution and license deals. And I would say right now, we're probably one of the fastest-growing companies in the life science sector on the NASDAQ main market. Okay. So a little bit on summarizing the year 2023. And I would say it was a landmark year for us. It was truly the commercial breakthrough year. Our sales grew to just under SEK 36 million, it's about 155% growth. It was driven by large hospital wins and the emergence of the new guidelines that came out in Europe and in the U.S. The gross margin of the company grew up to 69%, just under 70%, and we ramped up the production. We ramped up the teams, and we secured long-term funding. I'll come back to that. And if we look at -- if we isolate Q4 into this -- if isolate Q4, we did SEK 10.9 million. So a good growth of 138%. U.S. Okay, I'll get a 2-minute break. Sorry, can we just do it? All right. Sorry about that, technical break in the morning. So just to wrap up at the Q4, again, with strong growth, a strong market in the U.S. We quadrupled the sales in the U.S. market. Utilization rate of the TetraGraph really took off. I'll come back to that as well. and we started trading on the OTCQX market in the U.S. as well. If we look at our installed base, we have about 2,100 instruments in the market. We've now shipped over 250,000 TetraSens sensors. So that's really taking off as well in the market. So we can see that we're a company in a phase of hockey sticks. We kind of -- the really turning point here was, again, the guidelines coming out in Q4, Q1 of last year. And you can see that the turning point is really happening. The growth of our installed base of customers. We grew -- we had 65 new direct accounts that we can control during the year. This excludes Japanese, South Korea and various distribution markets, but it's -- we're really, really gaining traction here. And then the KPI for us is really to get the utilization in effect. So we're constantly systematically working to get more and more usage out of every single TetraGraph. If you look at our key accounts this year, we grew that utilization rate with 50%. And if you look at the kind of overall utilization rate, it's just under 3, meaning that we're seeing 3 patients a week per TetraGraph. And I ultimately want to get that up to 4 to 5, that's the goal here. So if we spot little bit on the U.S. market, which is 70% of our sales, truly the big opportunity here. We've secured a number of really high-end hospital accounts. We have the top academic and university centers. You can see the utilization here on the left is stronger in the U.S. than it is worldwide in average. And that's also kind of the result of a very strong clinical team helping to build this traction. And 2023 was a year of strong landmark deals again. Just to mention 5 of them very quickly. We signed up a large IDN system, the largest private IDN system in the U.S., potential to grow to SEK 10 million in recurring revenues. We signed up a large top 10 rated U.S. hospital system on the West Coast. We won a university, California hospital system, a leading pediatric hospital system in the Midwest of U.S. and then 2 major systems on the East Coast as well, one in New York. And just to give a limps, what is the business? It's getting the monitors in there and then getting recurring use of the sensors. And this is to give you one example of an account we won in 2022 that once you get there, it's a recurring business. This account itself is about SEK 3.5 million per year, and we're at the level of the utilization rate target that we want to be in the U.S. So why do they choose us? And why do we win these deals? We are the -- Senzime is the leading company in the market in terms of backed by science, backed by long-term research, strong algorithms, high accuracy. We have the commercial excellence. We have the team. We have the capability of helping large hospitals implement neuromuscular monitoring. And we are the trusted partner. We are the only company in the segment where we are -- that is publicly traded and has the long-term investor backing needed. And we're doing a very sustainable in-house production to support us. Okay. So the guidelines were important for the year. And this is -- what the guidelines says, it's a number of things that have happened over the last 10 years. The most important here were the U.S. and the European that came sort of in the same time frame, and they came independent of each other saying that you should monitor every patient that gets paralytic drugs and use a neuromuscular monitor objectively. And just a few days ago, the Canadian guidelines were sharpened to say the same message. The guidelines is a challenging and long-term task. And just to give a recap here. If you look at the left, paralytic drugs were started to use in clinical care in the 40s, 50s. And if you look at the number of research behind this, this is what's been published on PubMed or NIH library, there's over 10,000 -- 11,000 published studies. So it takes time. And then if you look at -- in the 70s, that's when you started to do neuromuscular monitoring. Since then, you have almost 5,000 studies. So this is the collective work and time frame it takes to get the society together to say, okay, we need to make a difference, and that's what happened. And 2 important studies last year that both were part of really validating that we are the key system. One study, which was the Medical College of Wisconsin in combination with the VA showing and validating us towards a laboratory technique that we are the leading accuracy of the system. And then the other one was a study we published in Q4 where we presented because it was published, it was University of Miami and researchers at Mayo, who validated the TetraGraph versus an AI algorithm to prove a 99% accuracy. So innovation is very important. One key development during the quarter was the launch of the TetraSensitive. So it's a specific electromyography EMG sensor used on patients with sensitive skin, which is a 5% to 10% market where people need special because otherwise, they avoid types of skin injuries. Another announcement we just made in terms of R&D was a collaboration with Fukuda that's been going on for quite some years where they launched the NH-100, which is the first integrated module using our technology. So it's really TetraGraph inside and then we provide the sensor. And this -- the Japanese market is certainly interesting. Large base of operating rooms, Fukuda has -- we probably think about 30% market share of this. So here's an opportunity to sell these plug-in modules, and we provide the sensors. So an interesting opportunity in the Japanese market. We moved our production in-house to Uppsala a few years ago and have been systematically working to improve our gross margins, control of suppliers, et cetera. And we had a new record gross margin, just over 70% in the Q4, which rolling 12 is just under 70%. So we're at a good pace on that as well. If we look at our expense levels, in Q4, we had a little bit of a negative effect on currency changes. The U.S. dollar fell about 7%, 8%. And which provided kind of a -- in our P&L, there was a currency effect there. But if you look at the direct operating expenses, excluding the currency effects, we're in line with pretty much where I want to be long term in the company. So during last year, we did 3 funding rounds. We raised SEK 265 million. We did it in one rights issue during the spring, and then we did 2 directed share issues in the fall. 2/3 of the proceeds were raised in directed share issues at market price very effectively. So we welcomed and make sure that both our current investors and new investors have the opportunity to come in. And our main shareholder today remains the Crafoord family whom I made a promise to that we're building here the next [ Gambro ] And then we have a number of institutional shareholders, and I think they're all sharing the view of long-term building this as a global success. We have about 10% of our shareholders in the U.S. And as a consequence of interest from U.S. market, we will be co-listed or parallel listed the share on the OTCQX market in New York. We did that in late October. So the share can now more effectively efficiently be traded from U.S. investors. Okay. So just a few weeks ago, we announced additional U.S. expansion. U.S. is and will continue to be our main market. So we employed more salespeople, getting more traction in the field. We were able to attract the top talent, the best guy in the industry to be our new VP of Global Marketing based in the U.S., Michael Noble, pinched him from Medtronic's Patient Monitoring division. And then we relocated our business to the midst of the U.S. in St. Louis to really have a better way of addressing our customers. So all in all, this is important because we did pretty cost neutral. We reduced overhead expenses back, and then we shifted it to sales, which I think is important. Okay. So a little bit to wrap up. I mean the 300 equation, some of you have seen before, still stands. We had, as I said before, roughly 175 customers or hospitals. And the target is here to get it to 300, and I want to have 30 TetraGraphs per hospital in average. And if these are used an average 4 times a week, which is a relatively low utilization rate, this equals for us a run rate sales of SEK 300 million in consumables only. So the goal remains intact. I'm very confident about the future. We announced some financial targets in 2022, saying that we should reach sales of about SEK 300 million in 2025. And gain a market share of at least 10%. And long term, we should have an EBITDA margin of 40%, and I'm confident that we're on that path. So just to wrap up, this year was -- 2023 was truly a landmark year for Senzime. The commercial breakthrough is happening. We have a very leading niche position in this market. It's really a once-in-a-decade window of opportunity where guidelines are in place, and we have a technology to lead that change. And we have a positive outlook targeting 100 million patients a year that need our help. So thank you. Sorry about the early technical issue.

Yes. Thank you so much, Philip. And congratulations for a fantastic breakthrough year in 2023 and following the new guidelines in particularly the U.S. And you have shown a very impressive order intake throughout the year, especially during the second half. And I'm just wondering how much of these orders have you been able to deliver? Or are you able to deliver on time, if you could just elaborate a little bit here about that?

I mean we deliver pretty much everything on time. There are certain customers that are more placing framework orders with us and say, okay, we want this delivered over a time period. So yes, there are orders in the books, definitely. But we have a delivery position today of probably 99% on orders coming in.

And I know that you don't report your order backlog. Is it possible to give sort of a flavor of how it looks like going into 2024?

I don't have the specific number. We've had the fortunate of being able to deliver quite quick. But yes, there is a pipeline of deliveries and I think the important thing is the pipeline in general for the year, where we see strong opportunities. We've been doing evaluations for a long time. And what we've seen in the last 6 months is also a shift that more and more hospitals do not require 12-month evaluations. So we had a number of deals where they have just called us and said, based on your references based on what we heard, we want your product, so we shipped them immediately. This is everything from high-end university hospitals to -- we secured quite recently one of our first truly rural clinics that was out in the mid -- in the Wild West. So even they are now adopting. It's not the total hospital.

Today sort of looking at your customer base and perhaps have contacts with the people that have already been using your system.

Yes. Word is spreading.

And what's your take when they are looking at your competitors out there? Are they -- how does -- is their view about your competition?

Yes. I mean we have a fantastic competition, and we are struggling, and we're all pitching our own value propositions. And I think it's -- and all in all, this is good for the patient because everybody is driving innovation to be on the forefront. The competition is really about usability and trust of being able to deliver -- when the hospitals order up, it's a commitment of 7 to 10 years. So they want a partner that really can be with them all the way. And that's why I always emphasize, we are the trusted vendor here that people can feel confident in being part of it.

And the guidelines, they were sort of publicly announced in the late 2022, early 2023. And I guess a lot of the low-hanging fruit, so to speak, were the ones who was fast to catch up on this. Do you see still a growing interest when it comes to a monitoring incoming calls.

I think so, definitely. Last year was the year when the guidelines were published, they were announced in late 2022, published in early '23. Everybody saw this -- this draw the attention to big audiences. So if you go to scientific conferences, this is the main key topic. So everybody realized we need to do this. They started to get into the agenda. It came to the management teams, it came into the budgets. So last year was -- there were some fast movers, but I think '24-'25 is going to be the true leverage here because now it's in the plans, it's in the budgets and now it's time to execute. So I think that's why I have a truly positive outlook for the year.

And going back to the competitor situation, I mean, you have like Blink, like the most closest competitor, perhaps when they come to the EMG space, but you also have competitors who deliver systems based on AMG. How is that dynamic progressing?

I mean the -- if we look first technology-wise, EMG, which we are driving is the digital where you're using single-use disposable sensors. AMG is the old analog version where you use a reusable device. And Europe has a strong presence for AMG because it's very cost effective. but it's been proven in many studies to be inaccurate and complicated to use and not suitable all types of patients. So there's a -- the U.S. has been very quick now in moving to EMG from barely nothing. So they are really embracing this. While Europeans are a little bit slower in moving. So that's why the U.S. pace right now is much faster. In terms of competition, yes, we have good competitors out in the market and jointly the market is so big. There are so many hospitals out there. So it's -- we need each other to build this market. So the more feet on the street out there, the more opportunity and for me, it is beneficial not to fight this clinical change at all.

And as you mentioned, the European market is more of an AMG market or have been at least. But I mean looking at your numbers that you reported today, the European sales is behind the U.S., of course. But what do you see when you're going into 2024, do you see some -- like at the end of the tunnel, so to say, for the European market as well?

Yes, definitely. I mean, we won a number of good deals. Germany, which is our direct market. We've secured a number of major hospitals as well as university hospitals. It's more just incremental growth where we're starting in the robotic surgery unit, they understand that this is what we need and then it moves out to more and more operating room. So it's just a little bit slower pace than this kind of U.S. version of going from nothing to 110 monitoring operating.

Any large tenders going on in Europe?

There are definitely. There are some very big ones. And they are everything from very close tenders where we just provide the product to more hands-on tenders where we're part of it, and we're being supportive in the operating.

I just want to move to your 2025 guidance that you're reiterating today. And I mean it's quite optimistic given the numbers today, but you also have shown how you will be moving to reach the numbers, 300 hospitals. Is it possible to reach that number already this year?

I mean we have definitely an ambitious plans for the year. if exactly that's going to be the product mix that remains to be seen. I probably think that we have ability to have more customers than the 300 kind of formula and exactly what will be the mix of number of units and utilization. But what I'm seeing, as I showed, is that once we get in there, utilization rate is higher than I have in my formula. And I believe that with the mix that we have of license partners, distribution and a strong direct sales force, we have the ability to truly grow this hospital base beyond our targets.

And is the number of hospitals or the utilization rate that investors should look for in the coming...

I think it's both. Because we need the new growth. That's one part of our business in hunting and finding and winning the deals. And then as we win it, we implement it. We bring in our clinical team and our distribution and license partners and really to drive up usage. And the key is to get usage. So long term, 80% of our business is going to be disposable sensors, higher-margin recurring run rate business.

Yes. And you showed a very impressive gross margin in Q4. I just wonder if you could describe a little bit about the dynamics when it comes to your cost side. And how much -- I mean, you could grow without the costs...

Good question. I mean we have a cost base where approximately half of the expenses are invested in the U.S. commercial team and half of them are U.S. -- Sweden/Germany and of that includes R&D, regulatory, production, admin, finance, et cetera. I mean I've made firm commitments to the Board and to other stakeholders that we'll try to fix this as much as possible and grow with that level. And I think we made a number of smart changes. As I said, we've flipped expenses from back end to front end and anticipate to continue to grow this company with that type of cost base we have today.

Sounds good. And just like to move to the Fukuda Denshi deal that you have previously recently announced, if you could describe a little bit what that means to you and the collaboration?

Yes. So Fukuda Denshi, as I mentioned, is one of the market leaders with strong dominance in the Japanese market. They are a patient monitoring company. We signed our first license deal with them back in 2017. So they have -- they're selling our portable TetraGraph in the Japanese market. And then since a few years back, we decided to do a co-development project of making a module. So TetraGraph inside linking into their installed base. And if you look at the trend overall of new parameters in the operating room, they move from small portable devices into the systems. So this is really our first modular-based collaboration, which I think opens up the opportunity for more collaboration with other industry partners. This is exclusive for Japan and as I wrote in the press release, there's about 15,000 operating rooms in Japan. And there's an ability here for Fukuda's 100-plus sales force to then low-hanging fruit helped to sell in this accessory.

You also have a similar collaboration with Masimo.

We do. Yes. So we signed a Masimo agreement, collaboration with them in 2022 in the summer. We have reached some milestones in that project, where we now have connectivity between our systems and their patient monitors. We also have a joint development project, which has some delays just pending kind of priorities from Masimo side right now. That still remains to be the plan, and I will come back to you when timing is more accurate to launch that.

Okay. And just looking at Masimo, they have had some struggles during 2023, but have become a little bit more optimistic in the communication, especially when it comes to reaching out for the hospitals. Do you also feel the same -- it's easier to reach out to the hospitals.

Definitely. I mean now the -- I mean, compared to -- we launched in the U.S. in just February, March 2020 right into the headwind of the COVID. So the first 2 years of our U.S. mission was pretty tough. But now the doors are fully open. And I think Masimo had the same thing. Masimo had a very successful consumer home-based market, but also saw that now hospital business is back.

Yes. I also noticed that the other companies within the med-tech space reporting positive outlook when it comes to procedures. I guess it marginally will impact your business, but it's a positive, I guess, driving.

It is, yes. I mean surgeries, operating rooms, utilization is back. We're back to normal. And there is an ability now to bring in new innovations to make a change.

And you raised a lot of money in 2023. Are you still confident that there's -- you have really touched upon this, but you can just...

Yes. We raised money to execute our long-term plan and have the capacity to really make it happen. Will we need more money? My goal is that our customers should now start paying our bills. So rather than going to my owners, which we've done in the past, and we're really thankful, let's use the inflow of customer proceeds and use that to really grow our base. Potentially, the Board and we might align and say, okay, there's an opportunity here for additional leverage of growth that we may raise additional funds to really grasp this market opportunity. But I'm confident that the funds we have really can help to execute the plans we're doing.

And my last question, if you just could describe a little bit, but you are expecting out of 2024 and what investors should be looking for?

I think we try to continue to be as transparent as possible about significant deals. We will announce that. We can announce everything we're doing, continue to track our top line and continue to track that we are maintaining our gross margin and then continue to see that the utilization, is this business model working as I claim. And I continue to show these. So we'll continue to be as open as I can in terms of KPIs and -- but I want to be able to share very positively the things we're doing for this company.

Looking forward to follow the company during 2024. Thank you so much to Philip for the presentation.

Thank you. Thank you for listening.

Thank you.