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

Yes. Hello, and welcome to this live Q&A with Senzime CEO of Philip Siberg.

Thank you.

We'll start off with a short introduction of the company and the quarterly report. Go ahead.

All right. Thank you. Okay. Senzime, a medical device company. We're in the field of perioperative precision-based patient monitoring. I will head into the numbers right away and come back a little bit to the company. Okay. So Q1 was another record sales growth quarter. We saw good growth, 66% growth. reached SEK 12.1 million in sales. U.S. is the main driver, 75% of the business and also the main driver of growth. The -- what we can see here is the dynamics of the business. The run rate really took off. Sorry I'm losing my voice. Okay. Let me just get 1 second here. Sorry about that. We had a water break here. Okay. So momentum in the business is good. If you look at our net sales in the rolling 12 months, we're in the hockey phase -- hockey stick curve here. You can see the pink point is truly the inflection point of the company. That's when the U.S. and the European guidelines were published. So since Q4 of '22 or early '23, we've had a very nice growth trajectory of the company. If you look at the installed base, up until the end of March, we had installed over 2,300 TetraGraphs around the world. So the installed base keeps growing. If you look at the ship number of disposable sensors, we're also seeing a nice, almost exponential growth happening here and a very strong quarter that continues into Q2. And of course, customer growth is everything here. If you look at over the last 12 months, we've secured 83 new hospital contracts. And if I just look at the first quarter alone, we had 33 new hospitals secured. So all in all, we have over 330 hospitals in the regions that I can control the numbers. So this includes some of the smaller distribution markets where I'm not fully aware of what we have. But this is a good business. And if I look at Q1 specifically, I believe that we only lost 1 single deal to a competitor in the U.S. So I think we're really strengthening our market shares in this segment. We are monitoring our utilization rates very closely. Utilization is important because that's what drives sensor sales. We're measuring in 2 different buckets. One is kind of the key opinion leader accounts, the large ones that we can control. If you look at the linear trend over time here, we're successfully kind of scaling this up. I want to reach beyond 4 to 5 patients per week per monitor. That's the goal here. And if you look at the whole -- all accounts, we're growing that as well. And it's hard work in progress. But we have -- and I'm very proud that we have some of the world's leading hospitals as our customers. And it's good to see that it's getting protocolized and it's really expanding the use all over the world. So just to mention a few highlights in the first quarter. In March, we announced one of our largest deals to date, a large Houston-based hospital system that we won in a big competitive tender. We announced that the deal was about 250 TetraGraphs to be rolled out during this year. The number that I have now is probably in excess of 300. So we started. We had a very small shipment in Q1 from this tender, but it really started now to take off in Q2. So we will see the effects of that during the year and also the disposable run rate from that. Another important news for the quarter was our update on our collaboration with Fukuda Denshi, the large Japanese patient monitoring company. So we've had a long 10-year relationship with them. They launched what they call the HN-100, which is an integrated module using the TetraGraph technology that we have. They built it into a module. So we supply them with know-how and we supply them with the single-use sensors. And this integrated solution, I think, is just a start of what is to come in terms of having both a portable device and also integrated solutions into various patient monitors. And then I think the third important event of the first quarter was expansion of the U.S. commercial operations. So we expanded the U.S. team. We hired a brilliant new Vice President of Commercial Marketing based in the U.S. He comes from Medtronic. And then we relocated our offices and placed it in St. Louis. So we're in the middle of U.S., very efficient for shipping and a cost-effective place to be. And we did this all in a very cost-neutral manner. We shifted back-end resources and moved them to the front end. So the commercial team in the U.S. is now very strong with about 25 people and half of the company base there. If we look at the gross margin, it took a little bit of a hit in Q1. We've had a nice trajectory over the last quarters as we moved production back to Uppsala to our head offices and seen also the growth in our consumables. So Q1 was a little bit of an odd quarter. We had a higher ratio of instrument sales. We had a higher ratio -- a very strong sales in the Asian markets, where the margins are a bit lower. And we had some one-off effects in write-downs of product that were all -- that also affected the margin. So I think this is just a temporary effect on the gross margin. If we look at our expense levels, I'm also satisfied that we're having a very tight expense control. We had a significantly lower expense level than we had in the Q4. We're in line with about the same expense level that we had in Q1 of last year, and that is despite significant investments in commercial operations. So I'm glad to see that we found a good balance. I want to grow this company with a balanced and a very controlled expense level, keep on improving the gross margin and then having a strong growth rate. I just iterate, we have a phenomenal base of shareholders in this company, Swedish predominantly large institutions with the Crafoord family and the Crafoord Foundation being our largest shareholder. Just to mention what I've seen happened during the quarter is that we've had some American U.S.-based investors that have decreased their shareholding, while I can see that the Crafoord family has actually increased their shareholding. Otherwise, it's about the same. But I'm very proud of the strong shareholders that backed the company. So just a glimpse of Q2, as we're already there. We've had some good announcements. We announced some significant wins at U.S. clinics, again, both pediatrics, but also advanced robotics in some of the most prestigious U.S. hospitals. We announced that we won a major public tender. It was the Veterans Affairs in Gainesville, which is part of the largest VA system in North Florida. We secured that. We also secured our first group purchasing contract, or a GPO contract, which is a 3-year contract that gives us kind of a hunting license to come into one of the largest integrated delivery networks in the U.S., with -- as a sole supplier of portable EMG-based neuromuscular monitoring solutions. And then I just commented in the CEO report that 66% growth in the quarter. Yes, pretty good number, but I'm a 3-digit growth person. And if I look at what we did by -- as we closed April, we are far beyond the 100% growth rate again. So we had some deals that were just shifted to April. So we're on good track for the year. We are on the internal targets that we've set up, and I'm very positive for the outlook of the year. So my 300 equation stands, I've shown this before, just illustrative showing that when -- as we have 300 hospitals, and I get each hospital to have 30 TetraGraph systems running and each of these TetraGraph systems are running at least 4 times a week, that equals for us a recurring revenue base of SEK 300 million in consumable sales alone. And by doing this, we're creating a very strong and profitable company. So to sum up who we are, I mean we -- I typically describe us and I believe we are the fastest growing on NASDAQ main market in the medical device space. It's driven by world-class technology. That is now available in over 30 markets, powered by a brilliant team that makes all this happen. And the big inflection point for us is being having the best technology in the market that perfectly meets these new European and U.S. guidelines that are saying that every patient that receives paralytic drugs as part of anesthesia, which is about 100 million patients a year, should be using the type of technology that Senzime leads the market with. So I will summarize with that. Thank you very much.

Okay. Thank you, Philip, for the presentation. And you are satisfied with the Q1 outcome, obviously. And you indicated some orders have fallen into Q2. Can you comment on that?

I mean, for example, this large Texas deal that I mentioned, which was phenomenal. We were hoping to get a little bit earlier in the year. It came in pretty mid late March. And these are big hospital systems. You just don't get the order ship overnight. It's kind of a -- it's like a big tender where you roll it out over time. So that -- we just got a few TetraGraph units out in Q1, but now it's well under shipment in Q2.

Right. And what would you say are the greatest operational challenges at the moment for you?

That's a good question. I think it's just -- it's all about a commercial growth here, continuing to maintain the market shares, secure the wins, make sure we have the right capacity of people. I am very content with our operations. We have perfect production. We have the capacity. We can deliver. But it's more about having enough people to meet the demand in the market.

And should we expect the OpEx to be at the same level becoming...

That is the plan. And there can always be some deviations in OpEx because things happen. But the general line is try to keep it within this box. And that includes about half of our OpEx is marketing and sales investments. But then we have a -- we're driving a lot of large innovation projects. That is part of this OpEx that are on route to come out, and I think this will make a major impact on the market.

Right. And in the report, you mentioned that you only lost 1 deal to a competitor. Can you tell us who that competitor was?

I can, but I probably not in a public forum like this. But competitor -- I've always said it before, I love the competitors because they keep us on the toes. We can't win everything. Every time we lose something, we learn something. We take it into consideration to the next deal. But it's good to see that we -- I think we've flipped the market. We twisted and we turned and we perfected our offering. And with the team, with the product and the solution we have, we are winning. I'm really proud of it.

Right. And when you are not winning, what is usually the reason that you're not winning? Is there...

Well, first of all, we're very upset and we're north by -- the reason is it could be a price competition, and I don't want to saturate our price. It could be that some clinicians prefer something and we have something else. So it's -- but I think that there were just a few companies in our space that are driving the EMG, the electromyography, digital transition. And I think that's where this market is evolving too very rapidly, especially in the U.S. And ultimately, the larger installed base of reference accounts we have and the research behind it, we are the trusted and the good long-term choice for hospital systems.

Right. And the situation in Europe, could you comment on the demand here and maybe compare the price sensitivity compared to the U.S. market?

So Europe had a bit of a weaker start of the year. We've seen these effects happen before. It takes time for the budgets to open up for instrument sales. And also, as we came into Q2, we saw that the budget started to open up again. Europe is just a little bit different, where there's already a well-installed base of AMG, the kind of what I deferred as the -- there is an analog technology there that's been there in the market. And so there, the battle for us is more transitioning from analog to digital. And we're seeing the shift happening. We just secured Sweden's second largest hospital yesterday, who has then also seen -- they've been using AMG for many years. And then they've been evaluating us and so, okay, we need the Senzime technology. But again, they start typically in smaller increments. They buy it for the robotic surgery suites and they go to laparoscopic suites, and then it moves to the full hospital. So it's just a little bit of a longer sales cycle.

Right. And price sensitivity compared to the U.S.?

Yes. I mean I would say probably Europeans are a little bit more careful with disposables, but all in all, it's about the same.

Yes. And if you could describe how important it is to develop integrated module to patient monitoring systems, like the one you have with Fukuda Denshi...

Yes. No, I think it's extremely important. If you look at the history of new technologies and patient monitoring as they come into the operating room or ICU, they come in as a new technology with a fancy box. It takes up a lot of space. And then as it gets established, the guidelines come and the industry sees it, everybody wants the technology and then build it in to the already existing patient monitor that's in there. So I anticipate that over time our business is going to transform to being -- a majority of our business will be integrated solutions, where our technology is either plugged in like this or there's a cable into it and the -- so that's why we have dialogues with a lot of the industry players and have a plan to come out with various types of connectivity solutions. But it's a transition that typically takes 7 to 10 years over time.