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

Hi, everyone, and welcome to Redeye. Today, we have Senzime and Philip Siberg here. He will first have a presentation about yesterday's press release, where Senzime gave us a market update or a business update and also talked about the financial situation. So let's start with the presentation by Philip, and then we'll go back to a Q&A session.

Okay. Thank you. I would like to give a little bit more context of our -- on our recent announcement, and it's an announcement that really consists of three main parts. One is giving the market a little bit more security and information related to the Philips agreement that we signed this summer. Number two is I want to share a little bit more insights to our OEM business and what we see in the market and the metrics to follow. And then I want to share a little bit in and around financing and the new package that we've successfully agreed upon that will take us to profitability. Okay. So if we start number one, with the Philips partnership. So we announced this mid-July, and this is truly a transformative agreement for Senzime. It gives us the opportunity to really expand our technology to a global scale. It is our most important OEM agreement so far. It truly complements the business we are in, and it opens the access to markets and installed bases that we otherwise would not be able to reach. So what we're doing is we're jointly developing products, and they are to be commercialized through Philips' global sales channels. We see this business and partnership to be a significant driver of Senzime's long-term growth. And we can't communicate at this point any forecast in and around timing, volumes or revenue projections, but the ambition is very clear. But we're going in this to build a substantial business for Senzime and that it will be a significant driver of our long-term growth. So to reflect a little bit, how did we get there? Where did it all start? I mean we saw from the beginning that taking a new novel parameter, the true transformative stage is when you get it to be integrated and reaching a global stage. So where we are today is that we've monitored over 1 million patients. We've shipped out about 6,000 TetraGraph systems to the market. Our technology is now used in over 750 hospitals around the world, and we have quite a comprehensive IP portfolio of over 100 patents. And this is all supported by strong science and years of usage and extensive clinical data. And if we just reflect on the interesting challenge in the clinical world and kind of the steps of taking an innovation and making it into standard practice. So in essence, I would see it as a 6-step model and the kind of different stages that you need to pass to make it happen. So you start by defining your problem, you have -- you innovate your solution and you have your basic clinical scientific evidence. And we're past that. We have a very strong product, and we have a very robust clinical evidence base. And number two is that you achieve clinical key opinion leader support. And equally there, we have a fascinating network of KOLs around the world that are supporting our mission. Number three is to help drive acceleration Phase I is that you have supportive economics. You can show that this creates value and that there are clinical guidelines recommending your product. Yes, we are there. We are included in guidelines, and we're just on that trajectory. Number four is that you start getting leading hospitals to adopt your product. We're past that as well. As I said, we have leading hospitals around the world advocating as references. And then number five is getting these hospitals to actually implement protocols to start using your technology in clinical practice. And yes, we are there. So then you come to the inflection point. This is -- getting to the inflection point is lengthy. It costs money. And the true transformative driver here is once you get your parameter integrated into OEMs. And by this, meaning that you get your technology built into the hundreds of thousands of patient monitors that are out there, and that is the leverage point to getting into standard of care. A little bit to just reflect on this as well, like what does it take and what have others done in our industry. If you look at the world that we are in, in the operating room, tools to help monitor and help make safer anesthesia. And if you look over the last 40 years, each decade has had one significant innovation. And these innovations have come from basic research and then eventually move to be standard of care. Capnography, for example, came in the 1980s. It was an early bumpy start. Today, it's used in over 100 million patients a year, and 80% of the business today is integrated. Pulse oximetry, the same thing. Now it's used in hundreds of millions of patients after it came into the market in the 1990s. About 90% of that technology is integrated by OEMs. Depth of anesthesia, same thing, a very corresponding business model to what we are doing today, used in about 30 million to 50 million patients a year, 85% integrated. Cerebral oximetry, the last to come in the 2010s, just breaking through now. And I would say that in the 2020 decade that we are in, electromyography-based neuromuscular monitoring is the game changer. And -- we're just seeing the breakthrough of this and still a very small portion of this is integrated, but I believe it's happening. And as part of the release, we wanted to help guide the market a bit and share our insights where do we believe this market is going. If you look at globally, there's about 400,000 operating rooms with typically universal patient monitors that weave in a number of different clinical parameters. And remember, I've noted to tell before, there's about more than 100 million patients that receive paralytic drugs as part of anesthesia and should be monitored with our type of technology. And what we believe is that over the next 10 years, the market for EMG-based monitoring will grow to surpass 80,000 installed units. And that means that we see the EMG technology to surpass the current equally large installed base of AMG systems. So we're seeing a very clear technology shift happening right now. We also believe that within these 80,000 systems and more, approximately 50% of that will be OEM integrated solutions. And we also plan our business towards that 50% of our business going forward will be supplying technology for OEMs. And remember, our goal remains clear. We're on a mission to be the undisputed market leader in this field of EMG-based neuromuscular monitoring. And we are extremely well positioned. We worked tightly over the years with the industry leaders in this field with various types of connectivity, integrations and partnerships. So we're well ahead of the curve, and I think we have a pole position in this industry to really lead the OEM integration market opportunity. Okay. Then the third piece of the release is the financing. So what we've done and what we announced is a new SEK 35 million non-dilutive credit line. It replaces a credit line that we agreed upon with a number of parties in the spring. The difference now is that we have better terms and we've extended it, but we've kept the facility size the same. It's provided predominantly by a group of investors who are already shareholders. So it's the Segulah group of companies as well as the Crafoord Family and the Crafoord Foundation. The good thing about this facility is that we can draw cash as we need, and we only pay interest as we actually draw the money. And there are no other fees in terms of early termination or repayment fees, and there are new -- no dilutive instruments linked to this. So I think it's a very smart and cost-effective way of funding the company as we need the money. So what does this really mean in context? It means that the work that we have been focusing extra much on in 2026, which meaning to improve gross margin to optimize the cost structure, to optimize the working capital. We're seeing that it's starting to generate good results. So combined with the strengthened financing structure and the available funds we have on hand, we believe we have the access to the capital required to reach profitability. And that is while still continuing to invest in the product portfolio we have as well as investing into OEM partnership programs. So kind of the key takeaways to wrap it up. One, I mean, it's the Philips partnership. I mean, I can't emphasize enough how this is a truly strategic breakthrough for us. It's the opportunity for us for scale, and it's going to be a significant contributor to our value going forward. Number two, EMG now starts going OEM, important inflection point in the market. We see and we believe that it will be, again, about 50% of the market going forward and equally as part of our business. And then number three, we have the funding now to take us to profitability and also realize the exciting opportunities of the OEM business. And we're doing this funding at fair market terms and is non-dilutive and we can pull the money as we need it. That's my summary. Thank you.

Thank you very much for the presentation, Philip. Some questions here. Maybe we can dig into the credit facility first. Maybe you could just talk about what are the reasons why you are changing the credit facility?

I mean the -- I mean we're always trying to optimize the terms. I want to get as good terms as possible. And we had initiatives talking to various investors and lenders. And ultimately, I came to the conclusion for the company that this was the best terms we could get.

And also, you said in the press release that it was SEK 35 million and also plus the SEK 7.5 million that you have already used. But if I remember correctly, it was SEK 50 million before in total, right?

Absolutely correct. I mean we announced a credit line of SEK 50 million earlier this year. That was split into SEK 35 million, which was from a group of investors and then SEK 15 million was from DBT, a niche bank. And what we did was we ultimately pulled SEK 7.5 million of that, the DBT funds -- it was a requirement. And then we said, okay, we're not going to draw the additional SEK 7.5 million because we didn't need to. So then we were down at 42.5 million. And then I'm still keeping the SEK 7.5 million and potentially refinancing that. But then we refinanced the SEK 35 million credit line package.

Okay. Great. Also, you have been very clear in the press release and also in your presentation that the cash that you currently have and also the credit will take you to profitability. Is the plan still to start seeing that in Q4? And also, what do you think needs to happen? What actions are you doing to make that happen in Q4?

Yes. I mean we -- I don't want to comment on Q4 as of yet. We have a report in a couple of weeks. But we -- until we've said anything else, that remains the plan. And I believe with sales moving in the right direction, as I said before, with gross margins improving, costs being very disciplined and reduced this year and lots better ways of working with working capital, I think we are well on the track. So that's why I believe this type of financing is the right way to go for the company. And I've been explicitly clear to the market many times that we are funding our final phase to market to profitability by having a credit line agreement and having the customers pay our bills. We're not doing any more dilutive shares issues at this point during this time.

Maybe just one question about the sales because you have also had some interesting news. You had an IDN contract, I think it was last week, also the Veteran Affairs agreement, when could we expect these larger contracts to be seen in sales? Is that already during this year? Or is it more long term?

Yes. We've had -- I mean, an interesting trajectory. If you look at -- I think we reported about 20 consecutive quarters with exceptional growth. And then we head into 2026, and we hit a little bit of a headwind, predominantly because of slower new monitor sales in the U.S. market. So we've had a flat sales the first 6 months, which has been annoying. On the other hand, we've had very nice underlying growth in utilization. So our sensor business keeps getting stronger and stronger for our market. Back to your question, I mean, we -- what was your question again, sorry?

Yes, the question was about the IDN contract last week and also during the spring and the Veteran Affairs.

I mean we've had a year with continuing to sign a lot of big deals. I've had some questions in and around maybe it's been a little bit more quiet here in Q3, but we started the quarter with the Veterans Affairs 5-year sole source agreement, which is very important. We've had a number of very interesting hospital wins. Not all of them are always subject to press releases. And then I announced last week a larger IDN win again this time in the Eastern, Southeastern part of U.S., which I think is very strategically important. Hence, it was worth a press release. But we're starting to see very nice effects from all the wins that I've communicated over the last 3, 4 years. So the results are paying off and the business model for surely works.

Yes. Good to hear that. You can also talk about, of course, the Philips agreement. You remain very clear about how important you see the collaboration with Philips and also other potential OEM collaborations in the future. But when it comes to Philips, you state that you cannot, at the moment, give us any guidelines in terms of revenues, time line and stuff like that. When could we expect to get a more, yes, clearer picture?