Earnings call transcript: Mentice AB reports Q2 2025 decline amid APAC weakness

Mentice AB reported a challenging Q2 2025, with net sales of SEK 63 million, marking a 33% organic decline from the previous year. The company maintained its impressive gross profit margins of 88.65% according to InvestingPro data, while achieving a 9% increase in recurring revenues. However, the company faced a significant drop in order intake, particularly in the APAC region. The stock reacted negatively, falling 5.52% to approach its 52-week low of $1.40.

Key Takeaways

• Net sales declined by 33% year-over-year.
• Stock price decreased by 5.52% post-earnings.
• High gross margins of over 90%.
• Recurring revenues increased by 9% year-over-year.
• Strategic cost-saving measures expected to save SEK 25 million annually.

Company Performance

Mentice AB’s overall performance in Q2 2025 was marked by a notable decline in sales, primarily driven by weaker demand in the APAC region. Despite the challenges, the company maintained high gross margins and saw growth in recurring revenues, indicating some stability in its business model. The performance reflects ongoing industry headwinds and competitive pressures.

Financial Highlights

• Revenue: SEK 63 million, a 33% decline from the previous year.
• EBITDA: Minus SEK 8 million, indicating financial strain.
• Order intake: €57.5 million, down 3% due to weaker APAC demand.
• Gross margins: Over 90%, showcasing operational efficiency.
• Recurring revenues: Increased by 9% year-over-year.

Market Reaction

Following the earnings report, Mentice AB’s stock fell by 5.52%, closing at $1.44, significantly lower than its previous close. The stock has experienced a substantial decline of 45.28% over the past six months, according to InvestingPro data. Despite current market pessimism, InvestingPro’s Fair Value analysis suggests the stock may be undervalued at current levels. This decline reflects investor concerns over the company’s sales decline and financial performance, despite operational efficiencies and cost-saving measures. [Discover more insights with InvestingPro’s comprehensive analysis tools and access 7 additional ProTips for Mentice AB.]

Outlook & Guidance

Mentice AB expects a decent performance in Q3 and Q4, with plans for a rights issue to raise SEK 32 million for investments in R&D and sales. The company is also conducting a strategic review of its Healthcare Systems segment to enhance future growth prospects.

Executive Commentary

Frans, CEO of Mentice AB, emphasized the company’s strong pipeline and interest from the medical device industry, stating, "Our solutions help improve outcomes, create access to care, and lower costs." He also highlighted the company’s unique simulation technologies as a competitive advantage.

Risks and Challenges

• Continued demand weakness in the APAC region could impact future sales.
• Financial strain evidenced by negative EBITDA may affect operational capabilities.
• Extended procurement cycles could delay revenue recognition.
• Potential impact of new healthcare legislation on market dynamics.
• Currency fluctuations impacting financial performance due to foreign exchange exposure.

Q&A

During the earnings call, analysts focused on cost reduction measures and the market reception of the ANKIRAS product. The company addressed strategies for APAC market growth and potential impacts of new healthcare legislation on its operations.

Full transcript - Mentice AB (MNTC) Q2 2025:

Richard, Moderator/Interviewer, D and B Carnegie Bank: Welcome, Pravs and Enrique.

Frans, CEO, Mentis: Thank you, Richard. Thanks for having us.

Richard, Moderator/Interviewer, D and B Carnegie Bank: So the scene is yours.

Frans, CEO, Mentis: Thank you, Richard. So this is we were going to present the Q2 interim basically report, which we have and the earnings call today. So myself, Hans Fenker, together with Ulrik Adrocz, our CFO for Mentis. And what we have today is first of all highlights and an overview, which I will present the financial results by Ulrike. I have some concluding remarks and then we have questions and answers effectively what we see.

So what we see is overall key strategic measures that we implemented within the Mentus organization in a cautious market. And so we had net sales of 63,000,000 And what we saw is that the rolling twelve months net sales came out at $261,000,000 compared to $281,000,000 last year of the last quarter, which is 7% lower than effectively the previous quarter on a rolling twelve months. Order intake €57,500,000 also rolling twelve months down 3% due to primarily weaker demand in APAC. And that’s also what we see is flat sales activities across EMEA and Americas. We see the order intake of growing in EMEA and Americas, but APAC is where we see a weaker demand and that is primarily also due to the lumpiness of the business, but also the development that we need to do with the medical device industry in order to capture that growth.

Overall, saw we had FDA approve of clearance, but also Brazilian clearance for our new release of ANKIRAS and that is really advancing our product offering across those markets. And also what we see is that we are tracking towards the business case that we had that is it when we implemented this also as an acquisition for Anki Ras and we’re tracking well in that and also are discussing also with other companies, medical device industry companies in order to sign up towards Ankiros and make them part of the ecosystems in order to drive flow diverters as also measurement of our pre procedure planning. What we did this quarter was as well as a strategic workforce alignment, which was initiated and announced in June and it enables an estimated annual cost savings of approximately SEK 25,000,000. We have finalized and implemented this realignment now and so that is in full execution and we expect also the first results already to come in also in Q3 of this. What we also did with this is a rights issue towards our shareholders, up to 10% that is it of the shares.

And what is very good news is that there is a significantly high underwritten or underwriting of shares up to 66%, which means that there is strong support not only from our current shareholders, but also from our Board, I would say also our management team towards the strategy that we have implemented for growth. And for that reason, we see it as a positive outlook. Healthcare Systems business as we also stated in the first quarter is under review and we’re looking for ways in order to drive a compelling value proposition also in this space that can be grown. We’re doing this together with a team in order to see what kind of proposition actually can scale and how we can drive revenues for the next years for our hospital business. What we do see, of course, is that in The United States, a new bill was being released, the one big beautiful bill.

And that will also require us to be very specific on clinical evidence towards how we are going to drive solutions in the market and how they impact actually health care systems in first of all improving outcomes, but reducing also their cost base. And that’s what our simulation solutions are designed and that clinical evidence will be part of that health care systems business review that we have implemented. So in all, if we look at the business highlights, as I stated, we did a strategic workforce alignment that we initiated in June and already have implemented now I would say towards July where the cost savings are coming in, in Q3. We did this with quite a bit of speed in order to also to make sure that those benefits are kicking in effectively quite soon. And as stated also this will help us with SEK 25,000,000 on an annual basis from a cost base reduction standpoint.

What we do is also did as part of that reorganization is that we consolidated our research and development, but also manufacturing activities for physical simulation towards Denver to Denver, Colorado and that finalizes then also the vascular simulation and also BioModex integration that we initiated a few years ago as part of acquisitions and that basically finalizes then the integration of that. Now we have continued partnerships with 27 of the 30 largest medical device industry companies and they are really rewards for our unique capabilities that we have towards our realism and realism that we offer as part of simulation towards devices that we implement for device companies and help physicians and care providers to provide patient care. But our strong commitment what we see from those device companies is helping us also towards the solid activity that we see in the remainder of the year for business going forward. We have done and are doing a strategic view of our Healthcare Systems market as I initiated as well and see for ways for sustainable profitable growth for the years to come. Ankiras, I explained as well in Q2 what we saw is that we got clearance in Brazil and The United States and that is helping us and will drive already profitable growth also for Q3 from an impact standpoint and helps us also to become part of the treatment base and the treatment market of our business.

Then finally, what we have done is for foreign exchange, we have hedged our dollar and euro for the remainder of this year. And so that will help us in order to compensate for fluctuations that are coming towards, yeah, basically the Swedish krona. And finally, the rights issue what I explained up to 10% of the share capital which was announced. We expect this to be closed by September. And as I stated also this was quite positive and underwritten towards the from the current shareholders, but also supported by the Board and the management team of Mentus.

So in all, I’d say that will help us set up, I’d say, for future growth and profitable growth for the future to come. Maybe Ulrike, if you could give a little bit more details towards the financials, please.

Ulrik, CFO, Mentis: Yes, thank you. I’m happy to. So I will start with giving you some of the highlights for the second quarter twenty twenty five. Net sales, 63,000,000. Compared to last year, yes, it’s a decline organically of almost 33%.

And we need to remember that Q2 twenty twenty four was the so far all time high record with sales over SEK 100,000,000. So we are comparing with a very, very strong quarter from last year.

Frans, CEO, Mentis: Fair points.

Ulrik, CFO, Mentis: The order intake, 58,000,000, an organic decrease of SEK 40,000,000. Yes, there is an FX effect as well. And when we look at, as Frans mentioned, the cautious medical device industry market and Americas being our biggest market, this actually affects the main impact comes from The Americas and above all, from APAC. From an EBITDA level, it’s a minus result of 8,000,000. We have in these minus SEK 8,000,000 costs taken for the strategic realignment that mentioned that Frans mentioned.

So adjusted, it’s more or less a quarter where we reach a zero level of EBITDA. The order book has a growth of 4.3% if we compare with the second quarter twenty twenty four, although there is an effect of FX with a reduction of minus 5%. Of the order book of SEK 112,000,000, the majority is planned for 2025, almost SEK 62,000,000. And the operational cash flow, yes, it’s affected by the result during Q2, so it’s minus with SEK 7,000,000. To comment a bit more about the cost and the effect of the strategic realignment.

And we’ve said many times in these earnings calls that we prefer to look at our business from a rolling twelve months perspective. And the following graphs that you will see are based on a rolling twelve months perspective. So the sales has had a negative development of minus 7%. And the EBITDA, what was, as I mentioned, affected with SEK 7,600,000.0 that was taken in the quarter, and we estimate this to be the full cost for the strategic realignment. And these costs are related to two separate areas.

The biggest one is the workforce reduction, where the majority has happened in Sweden but also in The U. S, France and Spain. And the second part is cost for consolidating the physical SIM business from Paris and Stony Brook outside of New York to Denver in Colorado, which Frans also mentioned. And we estimate the annual cost savings of these actions to be towards SEK 25,000,000. On a rolling twelve months perspective, looking at the order intake, we see a growth within the MDI, the Medical Device Industry segment, which is our biggest segment.

We see an increase in the Americas region and in the EMEA. And this is unfortunately more than offset by the drop in APAC. And the second quarter last year was a very strong quarter for APAC, so this actually also affects these figures. Looking at HCS, the Health Care segment, there is a pretty stable growth in all the regions. Looking at net sales.

Order intake becomes net sales. So from a rolling twelve months perspective, we see a decline of the 7%. This is an effect of the very strong quarter in 2024 and the cautious market within the MDI segment, which affects the region Americas and APAC. And we see, for EMEA, a stable growth both within the MDI segment and the Health Care segment. And finally, some comments about the recurring revenues, where we see an increase of 9% versus last year, and we see the biggest increase in the software licenses, where we also see that we have 58% of these revenues coming from the region EMEA and 35% from The Americas.

Frans, CEO, Mentis: Very good. Thank you. So I would like to make some concluding remarks. So what we see is a cautious market overall due to macro economical factors and that is affecting our business also. Still, I’d say, we have, I’d say, a solid pipeline and interest from the medical device industry.

I would say despite what longer sales cycles that we currently see. New clearances for Anquiras which we have for Brazil, but also The United States And that gives us on track, let’s say, for growth, but also contribution profitable contribution in the third quarter. Positive effect on basically the reduced cost implemented for the strategic workforce and the realignment that we have done as also the rights issue that we implemented and just announced also. Again, it means a SEK 25,000,000 on an annual basis from a cost base reduction standpoint. The rights issue will generate approximately SEK 32,000,000 I would say and will contribute towards first of all our cash position, but also investments that we’re doing towards growth both in R and D, but also in our sales organization in order to capture profitable growth for the years to come.

And again, I would like to state that it was underwritten well by currently the first I’d say the first and foremost the shareholders in place, but also the Board and the management team, which really that underlines and supports the strategy that we have implemented for growth, I’d say, not only in the Medical Device Industry segment, but also for Health Systems sales as also for Robotics. And also that latter part, I’d say, the continuous long term strategic focus on strengthening the business for our health care systems market is going to be critical. And despite laws that are basically are implemented in The United States, we see ways in order to truly drive profitable growth there and make sure that we have a profitable future for the years to come. So in that, I would say, we see is that business highlights, it is what we see, as I stated, extended procurement cycles. Cycles.

We have done the workforce alignment, regulatory milestones as also our approach that we’re currently looking towards the image guided interventional therapy space. With that, I would like to give it back to you, Richard. Richard.

Richard, Moderator/Interviewer, D and B Carnegie Bank: Thank you, Frans and Enrique. And I have prepared a couple of questions. And as a reminder, you can always ask questions via the chat on the web. So my first question is what are the main measures that you have taken in order to achieve close to breakeven adjusted EBITDA despite the sales development in the quarter?

Frans, CEO, Mentis: No. It is, I’d say, primarily two measures. But also, Rikka, I’d say, correct me if I’m wrong. It’s, first of all, the high gross margins that we basically have for our product portfolio, which is just over 90%, I would say, this quarter. And that is primarily due to first of all cost reduction measures that have been implemented within the cost within the portfolio, so especially the hardware portfolio.

It is also the mix where we are focusing more on software sales than only on the hardware components to it and that really supports us as also a geographical mix will also play into this. When it comes towards also the EBITA levels, it is also related to very strict cost measurement. And that’s also what we have in place in order to make sure that we really look at first of all our discretionary spend, but actually our overall spend in order to make sure that we get the profitability at is it where it needs to be. And to your point, this really sets us up, I’d say, very well that if we get and when we get the revenues to grow and really grow, it will really offset and help us towards EBITA levels for the years to come. So that is the mission that we need to drive is profitable growth, but growth for Mantis.

Richard, Moderator/Interviewer, D and B Carnegie Bank: Okay, great. And have you taken any initiatives for the APAC market in order to return to rolling twelve month growth?

Frans, CEO, Mentis: Yes, because what we see is that, first of all, there is quite a bit of lumpiness or lumpiness, but indeed, it’s Variability. Comes in chunks actually in time. And so what we have done as part of the strategic review that we implemented in Q2 and is still ongoing is that we are looking at the medical device industry market in order to see how we can grow this more effectively also in the APAC side. So we do this globally, but we also would like to see this basically growth in APAC because the activity is there and we anticipate also that we can grow in this area. And it’s simply that is our commitment that we are driving at this moment.

So it’s currently under strategic review and more on this on the basically the next months and quarters.

Richard, Moderator/Interviewer, D and B Carnegie Bank: Okay, great. Historically, Mantis have seen quite a lumpiness over quarters and will emphasize on the second half of the year. Is this a pattern that you might repeat itself this year? Or is this has the seasonal pattern changed?

Frans, CEO, Mentis: Of course, we hope that. I would say, what we do see is that we have solid activity both from the medical device industry side, I’d say, with deals, I’d say, which were also already ongoing in Q1 and Q2, which we expect actually to close, I’d say, in the latter half of the year. So I would say solid activity towards Medical Device industry side. Hospital is basically continuing as expected. So in that sense, I would say, it is we expect, I would say, a decent, I would say, a good Q3 and Q4.

Richard, Moderator/Interviewer, D and B Carnegie Bank: Okay, great. And also, can you explain what is driving the rolling twelve months growth in sales in both EMEA and The Americas?

Frans, CEO, Mentis: Yes, sure. It’s related to our activities and our strong position that we have with the medical device industry business businesses and the companies. What we do see is that we are connected and partnering with 27 of the top 30 medical device industry companies. And what they really reward us and also tell us that we are unique from a realism perspective. So we have the ability to truly provide simulation solutions that help the medical device industry in order to teach, but also train their physicians to implement new devices.

And we are rewarded for that, how do say, in our unique solutions that we provide. And for that, how do say, that is also driving the growth if it comes towards the European or EMEA perspective, but also The Americas. And so we saw our order intake also from a rolling twelve months. We saw it actually growing quite significantly almost both almost double digits. And so but that was unfortunately offset what we saw in APAC.

So especially in EMEA and Americas, that was doing well. Did I miss anything, Ulrik?

Ulrik, CFO, Mentis: No, I think you put it together nicely. Okay,

Richard, Moderator/Interviewer, D and B Carnegie Bank: great. And moving forward to equity rise, how approximately will you use the proceeds that you will get on this?

Frans, CEO, Mentis: Yes. So what we have done is a rights issue indeed, which was announced today. Our expectation is that we’re going to get approximately 32,000,000 out of this and that will support three things. That is, first of all, the cash position that we have on hand. That is it.

The second piece, it is related to investments, investments for growth opportunities that we see for the future to come. Those investments will go first of all into R and D and innovation in order to drive realism further that is required especially for the health care market where they, for example, would like to have patient specific simulation, which means that you can navigate or simulate on a patient that is actually not simulated but the real patient on the table then that you can do that in a virtual environment. So that is what we would like to bring to market. And secondarily, it’s also linked, as I stated also towards clinical evidence and business proof in order to sell our solutions in the market, but also with the right sales organization that we have done in place with the support structure. So it is that is what we are driving of what we are doing with the proceedings.

It will approximately even a third, a third, a third with respect to what we get out of this.

Richard, Moderator/Interviewer, D and B Carnegie Bank: Okay, great. And now I’m moving on to some questions while we’re looking forward a bit. So basically, first of all, what is like the main area where you aim to see cost reductions going forward given the announced programs?

Frans, CEO, Mentis: Cost reductions, I’d say, going forward, I’d say, what we have actually implemented is already is basically a reorganization. And so we have driven, I’d say, efficiency and effectiveness measures. So we have consolidated, for example, our efforts into basically the physical simulation activities which we’re bringing over to Denver. And we’re really committed to this portfolio going forward, but in a more efficiency and effective, I’d say, way going forward. At this moment, I’d say, we need to remain frugal from a cost base perspective, but I don’t see further cost reductions measures, I’d say, needed.

Ulrike, anything you see where we need to do that?

Ulrik, CFO, Mentis: No, I think the measures that we have taken now is to support the strategy for the growth going forward. And there are, as you said, cost reductions within the consolidation of the fiscal SIM. And then obviously, the majority of the cost reduction comes from workforce reductions, which have been done both in Sweden, U. S, Spain and France.

Richard, Moderator/Interviewer, D and B Carnegie Bank: Okay, good. And how has the market received the new updated Ankuris products? And what is your strategy for this going forward?

Frans, CEO, Mentis: Very good question. So actually, it’s gone quite well. So we it is according to our internal expectations also when we acquired Ankiros. And especially with the current approvals and clearances that we received in The United States as also in Brazil, we see the uptake also coming along. And so it is tracking, I would say, close towards what we anticipated from an uptake perspective.

And currently, we are in discussions also with other device companies in order to see whether we can accelerate this growth. We really need this Ankiros project product also in order to support our business if it comes towards pre procedure planning and especially to get into treatment of the neurovascular domain. And so the link that we can provide and also to our virtual simulation, so the combination of vertical simulation as also pre procedure planning is a unique but also very powerful solution in order to grow in the health care space. So we anticipate this to be a stepping stone not only for neurovascular but potentially for other clinical domains as well where we would like to do similar measures in order to grow our business going forward.

Richard, Moderator/Interviewer, D and B Carnegie Bank: Okay, Great. And also like if we look on the sorry, the Healthcare segment, how is the strategy for that going forward?

Frans, CEO, Mentis: It is something which is currently under review. So because we have been at a fit in this market for quite a while from my perspective not growing fast enough and that is related to we need to create more clinical evidence on our outcomes how it contributes towards cost reduction and also how it contributes towards clinical outcomes. And that is what we’re currently looking at. I said with the team in order to see can we create propositions that are easier to scale towards larger networks of delivery networks for health care in order to grow further there. And that is our anticipated strategy what we’ll do, and we will hear more in the second half of how we’re going to do this.

So we’re currently reviewing it. It is not an execution yet. We’re reviewing the strategy as we speak.

Richard, Moderator/Interviewer, D and B Carnegie Bank: Okay, great. And lastly, can you please discuss a bit on how the new use budget rules and bills will affect your business going forward?

Frans, CEO, Mentis: Yeah, it’s a very good question because there’s a lot happening in the market, specifically also in North America where there was a new business a bill going through Congress, the one big beautiful bill. And what you see is that and also what you read from the news is that it will have quite an impact in the future of patients who are going to be insured under Medicaid. And that will probably also have an impact towards revenues of hospitals. And so it will have a negative impact of hospitals. And specifically what we read is that and what we see and anticipate is that for smaller hospitals they will be more impacted.

And what it means for us is that our solutions are even more important, that is it, first of all, to support clinical outcomes, but also cost reduction for hospitals, especially when it comes towards image guided interventional therapy clinical procedures. And we need to make sure that we have the clinical evidence that is supporting those outcomes so that we can show that our solutions help in order to with clinical treatment care. So in that sense, it confirms our strategy that we are relevant as simulation and that we need to drive, I’d say, those solutions in order to improve outcome, create access to care, be there for care providers and lowering cost.

Richard, Moderator/Interviewer, D and B Carnegie Bank: Okay. Excellent. Pransl and Rika, thank you for coming here to D and B Carnegie Bank, and thank you everyone who has been watching.

Frans, CEO, Mentis: Thank you, Richard, for having us.

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