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

Hello, everyone. Welcome to today's live Q. Senzime released its Q2 report earlier this morning. And with me on LINK, I have the CEO, Philip Siberg. First, he will give us a presentation about the quarterly report. And then after that, we will have a Q&A session discussing the report and, of course, also the news that we received yesterday about the partnership with Philips. But yes, let's start with the presentation about the report.

Good morning. Welcome to the presentation of our second quarter 2026 report here in the midst of Swedish summertime. So the second quarter, a quarter characterized by continued strong growth for our sensors utilization, but continued market headwinds for new monitor sales, specifically in the U.S. market. So U.S. market has continued to be challenging for us over the last 6 months. I do note an improvement. But in parallel to this, we've been working diligently on the fundamentals, and I'm happy to report that we have a 15% decrease in our operating expenses. We are reporting a 27% improvement in our EBITDA, and we're reporting a 46% improvement in our cash flow. And this is despite pretty much a 0 growth quarter. So let me come back a little bit more on the numbers and a little bit the background of the business. Okay. So I wanted to comment on the recent announcement of our partnership with Philips. So I'm extremely pleased to announce this. This is the most important commercial agreement that we've signed so far. I would say it's the result of over 10 years of work. It's the result of our investments in innovation, in clinical and in market access. What we are planning to do is to jointly develop a portfolio of products based on each of our proprietary technologies. We will be driving the development and manufacturing. These will be our products and exactly what we are to develop and what to launch, that remains confidential until it comes out to market. This is an extremely strong validation of our technology. We're partnering with the global leader in patient monitoring and also one of the global leaders as a medical device company. What it does is that it significantly expands our market reach. It will expand our reach way, way beyond the markets we are in today. And I expect this agreement to have a significant positive impact on our medium- to long-term financials. We're targeting new market segments. So this is importantly a complement to what we're doing today. This is a different product. It's going to complement what we are doing today with our portfolio. And the whole idea is also that it will leverage what we're doing. And I believe that the partnership has very nice synergies with the business we're in. So I've noted before, we have been working over the last few years with many industry partners and leaders. I think this is -- the recent Philips announcement is alongside with this. We're working with Fukuda in Japan, now with Philips on a more expanded level. And then we have connectivity of our solutions via GE, Masimo, Mindray, Getinge, Ascom and others. So we're really driving that the unique clinical data that we are creating is now integrated into systems and electronic health records around the world. Looking a little bit more on the numbers. So we continue, of course, to expand the TetraGraph base. As I introduced, it was another tough quarter in terms of new monitor sales. We shipped out 239 monitors in the second quarter, and the number last year was significantly higher. I mean there's one comparable to this that we had 422 last year that were new TetraGraphs that we shipped out quite quickly as upgrades. So existing customers decided to upgrade from their classic TetraGraph. So there is some comparables to be noted in this perspective. TetraSens sensors continues to grow very nicely, 56% growth in, kind of, rolling 12 units. We shipped out about 132,000 sensors. So this corresponds to a growth of about 48% in local currencies. So we're driving utilization with the customers that we have. If we look a little bit then on the product market mix in general. So I mean, we're becoming, as I've always said, more and more a sensor and utilization company. So over 80% of the business in Q2 was disposables. U.S. continues to be, despite the tougher macro climate, the big locomotive for us. But overall, it was a little bit of a bumpy quarter. But again, underlying with 48% growth in local currencies for disposables, while new hardware and monitors took a little bit of a hit during the quarter. If we do a little bit of a deep dive into the U.S., and we've had significant investments in the market. We do have our own team. If we look at sensors, they continue to grow well, 58% up, which is a good driver that utilization really works. The macro climate that I'm noting here is more that the big new hospital opportunities keep getting pushed forward. I think there is a fear of inflation, capital goods in general have had a tougher time to close. So some headwinds. I do believe still we have the opportunity to catch up many of these deals. And as I noted, some of the deals this year versus last year were compared and affected by the rollout that we did last year of the new next-generation monitor. So U.S. -- I mean, if I look at the map, I've shown this before. This is just some highlights over the last 18 months. We've secured and won so many leading hospital systems all across the U.S. And this map is starting to get pretty messy, and this is just to mention a few of them. And then if I add on what's happened in the last couple of months, we've added more leading hospital systems. So the map is starting to get really, really busy, and I'm extremely proud of what we're doing in the U.S. To note, 3 significant accounts or events that we press released during the quarter. The first one was entrance into one of the world's largest integrated delivery networks or IDNs. So this IDN has over 150 hospitals. We've now secured 6 of the hospitals within the system and really moving ourselves up the ladder and I think we have an opportunity here that this could become the largest single account for us. We expanded our presence in a very dominant and very leading U.S. hospital systems in the Southeast of the U.S. So we included another 65 TetraGraphs in that installation. So this account alone has now 160 systems installed and is recurring -- is running at about SEK 6 million in annual recurring revenue. And the third important account was announcing a win, another big and important pediatric account. This is a nationally leading pediatric hospital in the Eastern U.S., and we secured it via a very well-executed competitive evaluation. Further announcements: And further, what we did during the quarter was to get the TetraGraph included in the 3 leading GPOs in the U.S. So more than about 95% of all U.S. hospitals or in some way have GPO agreements. This is agreements that makes them buy and procure goods at a kind of a group purchasing level, meaning you get better prices and it's easier to acquire. So we secured among the 3 leading ones. This will kind of accelerate our access to about 5,000 hospitals in the U.S. And a GPO agreement per se does not give you instant business, but it's a hunting license, and we believe it will accelerate and it will make it easier to get access and win these accounts. So we did sign our first GPO agreement back in 2024. It remains intact. We have delivered quite a lot of monitors. And there, we are the sole source supplier. There's a lot more to come in this space that I will come back to during this year. So in the U.S., we also did some organizational upgrades that we announced. Josi Wood joined us as our new Vice President of Sales. Josi has 20-plus years of experience in driving, growing and been very successful in winning within the medical device space, patient monitoring. So I'm very glad to have her. She joined us on May 11. Jen Sanders was -- she's been with us for 5 years. She was promoted to be our Vice President of Clinical and Med Affairs. And then I just wanted to highlight that Wolfgang Reim, who's been an adviser to us, joined us as an ordinary Board member. He is extremely operational and helping. But Wolfgang has a history of being, among others, CEO of Draeger, the anesthesia and patient monitoring company. He was also the CEO of parts of Siemens and running the U.S. business within ultrasound. So very strong knowledge in how to conquer the U.S. market. So we continue also to lead. I mean we continue to drive innovation, continue to be the leader in this field. We did announce during the quarter that we rolled out our new TetraSens. This is a European-made sensor, and that's important because it's produced with a minimum environmental footprint. It uses novel technologies. And by this, it's a more eco and sustainable product. And because of disposables in general, there's an overarching interest, specifically from European accounts to have sustainable products used in the operating room. So I'm very happy with this, and this also gives us better unit economics in general. We also announced the launch of TetraAnalytics. This is a very powerful cloud-based analytics software. It's AI-ready. And what it does is that it gives you -- visualizes the data from TetraGraph systems. And I think it can turn it into clinical insights, and this is all about driving utilization. So a very powerful tool used in clinical practice to make sure that the TetraGraph are used as expected and then follow trends to make sure you are compliant to guidelines. We had 2 important market approvals and expansions. So we got another FDA clearance. I'm pretty proud of it that we filed with the FDA in early April and already in mid-May, it was cleared. So a number of features that we have now on our future road map to be launched. And then we also announced that we got regulatory approval from ANVISA, which is the Brazilian equivalent to the FDA. So we have secured a partner. We have secured first orders. And in general, we've had some good success in the Latin American markets recently. So we're now active in Chile, in Mexico, in Nicaragua and now in Brazil. And I think these are markets that typically follow a lot of what's going on in the U.S., and there is also local guidelines supporting our products. A little bit more on the numbers. So to start by looking at the gross margin. So the gross margin continues to improve, and this is a consequence of getting a little bit better paid for the products, continuously lower the cost of production and a more favorable product mix with more sensors. Tariffs, of course, and currency effects continue to affect these numbers. But if I look at overall, the reported gross margin of the quarter was 65.7%, which is an improvement over the last couple of quarters. So we're really moving in the right direction. I do believe that the gross margin will continue to improve, thanks to products, new business models. And we're also now -- we just received a few days ago our first repayment from the U.S. tariffs. We received $116,000, and I have about $350,000 more than we are expecting likely coming in over the next couple of quarters. Back to the fundamentals. As noted initially, operating expenses continue to decrease. We have an extremely cost conscious and very efficient way of running our business and continue to drive cost down. So we reduced costs in the quarter with about SEK 6 million, down to SEK 34.2 million. So we decreased it over the 6 months with about 10%. If we look at EBITDA, we're continuing to make progress, a 27% improvement. This was about SEK 6.3 million. So now reducing it to SEK -17.3 million, and it's moving towards. And this is a result of better gross margin and lower operating expenses. And then to the cash flow that took the biggest improvement, 46%, equivalent to SEK 13.1 million, driven by improved results, of course, but also by a very diligent work on optimizing the working capital levels. So we have SEK 37.1 million in our -- in cash end of the quarter, and then we have another SEK 42.5 million in a credit facility. Okay. A little bit short on the investor base. The overall cap chart remains fairly the same on top. I think the notable change is TIN Ny Teknik, the fund. They reduced their shareholding with just under 1.3 million shares. So those shares have been for sale of the market for some time. So just to recap again, 2 seconds, what is it we do again? So remember, Senzime, we have our world-class unique system, the TetraGraph that is used in the operating room. It connects to our disposable sensor that stimulates the patient with small electrical impulses. And by doing this, then we can measure when is it the right timing to intubate the patient. When is it time to get them on the ventilator. And then we can manage the patient throughout the procedures to make sure that everybody gets the right individualized dose of paralytic drugs. And then we define exactly when is it safe to turn off the ventilator and let the patient breathe on its own. So it's a way of personalizing anesthesia and making sure that nobody leaves the operating room with paralysis. And this is all based on over 40 years of research, and we have over 100 patents in the area. And remember, these TetraGraphs are used typically in the operating room with the anesthesiologist, very often in robotic surgery. And by using this type of technology, it's been shown that you can eliminate complications. So you can move the traditional 40% of patients moving out of operating room still paralyzed to 0. And by individualizing monitoring, you can reduce the cost of drugs significantly. Okay. So to wrap this up, what are the key takeaways of the second quarter report? One is the evidence of our hard work in improving the business fundamentals. We continue to drive actions to move Senzime rapidly towards profitability. And this is shown by an increased gross margin. It continues to be increased quarter-over-quarter. We continue to decrease our operating expense level down by 15%. We continue to improve our EBITDA as well as our cash flow. And our goal that by the end of the year within the fourth quarter to show positive cash flow remains intact. Number two, we're seeing a very strong underlying momentum in our sensor sales. We're growing at nearly 50% rate. So the business model works very well. Utilization is going up. And if I look specifically on our key U.S. accounts, they're moving very nicely in the right direction. We're rolling out innovations to further drive and improve utilization, and we keep winning new accounts around the world. And then number three, we're leading a very unique clinical and technology shift. And I am again extremely pleased to have announced the Philips agreement, a long-term agreement. It's a landmark agreement for us where our technology portfolio is validated, and this will drive significant revenues for Senzime over the mid- to long term. In parallel to that, our core business, we have the new U.S. GPO agreements that I think will open up for more business. And we have a world-class team working very hard every day to execute on the mission and vision, and I think we're moving very nicely in the right direction despite some macro headwinds. So thank you for listening and make sure to join us on our mission as we safeguard every patient's journey to wake up securely after anesthesia. Thank you.

Perfect. Thank you very much for the presentation. Can you hear me, Philip?

I can. Can you hear me?

Perfect. Yes. So let's dig into some questions. Maybe we can first start with the report, and then we go into the agreement with Philips. So first, if we talk about the sales, SEK 24.7 million. As you also mentioned in your presentation, you still continue to see this macro uncertainty. Could we expect a bounce back or a rebound during the second half of this year, what do you believe?

I mean, I certainly believe so. I mean it's been a tougher definitely, like I said, first 6 months of the year. And I think it's more general uncertainties in the market. Capital deals, irrespective of how we sell them are just a little bit pushed forward. There's a hesitation. Yet underlying the accounts we have are growing very nicely. And we keep on winning accounts by account, but the big hospital systems where this is a major upfront investment to do somehow has been a little bit challenging during the first 6 months. I do believe in a rebound, and I feel that the market has improved over the last couple of months. So I think we're moving in the right direction.

But maybe you can add some more color to that. You said that you believe that the market has improved a bit. What is the evidence around that?

I think it's more how we are seeing the pipeline evolve, dialogues with customers, the feedback we're getting from -- we have a mix of our own sales team. We have a mix with our sales partners and also a bit a mix of -- if we look, for example, in the Japanese market, we launched with our partner, Fukuda Denshi, the next-gen TetraGraph. It was launched in May, even though it was prelaunched early in the year following the local Japanese clearance in December. But it takes time to build this business. They built a local sales force, specifically around the next-gen TetraGraph. And I think work like that in many markets will start to take off. And I still believe certainly in the same effects in the markets where we sell direct, which is the U.S. and Germany.

But if we look into the numbers, so the sensor sales were really good, in my opinion, during the quarter. Of course, the system deliveries was a little bit weaker than expected. But how many monitors during this quarter were delivered for free versus paid?

So during the quarter, we had -- I mean, all monitors that we shipped and sold were this quarter under standard kind of capital agreements. So for various reasons, we did not close any TetraGraph-as-a-Service agreements as we did in Q1. TetraGraph-as-a-Service, I think, is still a very compelling business model, and we have a lot in the pipeline. It does shorten the sales cycle, but it's still a an investment that needs to be justified, which takes some time sometimes for hospitals given that the recurring sensor cost is something that the hospital incur. But I continue to foresee that, that's going to be part of our business going forward. But specifically in Q2, it was predominantly capital sales.

Because we also received a question from an investor about -- let's see here. You said that it's over 6,000 systems that has been delivered over time. How many of these would you say are active?

Yes, that's a good question. It's slightly under 6,000 units. But it's always hard to define that. And I don't have the exact number. But a part of those are have been upgrades from our previous classic versions. So you can't just multiply the amount of units that we have shipped times utilization to get an accurate number. But I would say, as I've always said in the past, that the business we've been doing in the last 2 to 3 years, these installations are purely driven by protocols and standards of care. So there's a way difference in terms of utilization level. In the early phases of our sell-out where we were selling to very early adopters, which is more perhaps research-oriented, those types of monitors may have lower utilization. But it's hard for me to give you an exact number of the exact installed base that is in use.

Yes. I understand. Also to talk about the costs, the development within operating expenses have been solid. You continue to have a solid cost control. But what is your expectations for the rest of this year and also maybe into 2027, of course?

I mean I've always iterated that we're trying to grow this company very rapidly while maintaining a fixed cost level. But given that the macro uncertainties and lower capital sales on a temporary basis, what we've done is that we've just adjusted the cost base. So we've lowered where the areas where we can. I think a 15% reduction marks a very kind of -- it's pretty significant for us, but it's also the abilities to move. So as we see the market take off, we can adapt to that. But we are definitely driving smarter processes. And I think we are at a lower cost level, and we will remain at that type of level going forward.

Because if we look into your objective, you also restated this in the report that your objective is to reach a positive cash flow during the end of this year. My question is basically -- you really need to grow your sales in order to reach that with the current cost base, but could -- do you expect cost base to decrease a bit? Or, what do you believe? How would you?

Yes. I mean I think you'll see a combination of many factors. We're going to see a combination of continued to increase gross margin. The cost will continue to decrease to kind of a new base level. And I think we're going to see a continued improvement in working capital. We're getting paid a lot faster from our customers. We're working a lot on optimizing working capital levels. So there's a combination of these 3 things and of course, growth in the business. So those 3 things -- 4 things will iterate. And I think that still gives us the ability to very firmly meet the target in Q4 of cash flow positive within Q4.

Okay. Great. But let's dig into the news that we also received last night about the new partnership with Philips. What can you tell us about it?

Well, first of all, I'm extremely proud. This is the work, like I said, over -- it's like 10 years of work behind this, but accelerated work over the last 3 years. But you could almost compare this to what pharma is doing all the time, small pharma companies partnering with big pharma to drive some kind of a molecule. But here, we are partnering as a niche med tech company with big med tech. So I think it's a perfect symbiosis. We're bringing in world-class technology, working together with Philips, which is a global market leader in the field with an enormous reach and a very powerful sales force and also technology portfolio. So I'm extremely pleased about this. I think it verifies it validates what we've been doing, and it's a result of really hard work over the last years.

Okay. Because I believe that when I read the press release, it's a bit difficult to understand the potential. And I know it's a lot of information they can't say probably. You mentioned in the last question that maybe you can compare it to like a licensing deal within pharma, stuff like that. Does this mean that you view this agreement or this partnership like SEK 1 billion deal over time? Is that correct?

I mean, so we did not disclose any numbers here for various reasons. And of course, one is the respect of our big partner, Philips. But this definitely is -- I mean, if you look at what happens in many medical device spaces is that you develop your niche technology and then you partner with large giants to really get the scale of it. And I mean, I've seen many other cases in other patient monitoring sectors where ultimately, 80% of the business is generated through partnerships and various types of technologies being integrated or joint product development, et cetera. So I think this adds a significant revenue stream for us in the mid- to long term. Exactly what this is, we're not going -- we're not making public. But I wouldn't say the word I have a very bullish and significant view on this unless that was the case.

Okay. But did I understand it correctly, you can't say anything about the time line? What does the medium to long term mean for you?

No, we're not going out with that at the moment. So we're not really disclosing at this time what is we are developing and when is it coming to market. And I think that's -- it's more a smart way of doing it to -- as we release this, we'll get the most power out of it rather than telling competition in the world what we're doing.