Earnings call transcript: Mentice Q4 2024 highlights robust sales growth

Mentice AB reported a strong finish to the fourth quarter of 2024, with net sales increasing by 22.4% year-over-year. Despite this growth, the company’s stock saw a minor decline of 0.4%, closing at 24.9 SEK, as investors weighed the mixed regional performance and future guidance. According to InvestingPro data, the company maintains impressive gross profit margins of 88.14%, though it faces profitability challenges in the near term.

Key Takeaways

• Net sales rose by 22.4% YoY in Q4 2024.
• Full-year sales growth reached 6%.
• Operational cash flow improved significantly, with SEK 13.4 million in Q4.
• The stock price fell slightly by 0.4% amid mixed regional performance.

Company Performance

Mentice AB demonstrated robust growth in Q4 2024, driven by a significant increase in net sales and operational cash flow. While the EMEA and APAC regions showed strong sales performance, North America remained flat, highlighting regional disparities. The company’s focus on expanding its product offerings in the medical device and hospital segments has contributed to its growth, despite facing challenges in certain markets.

Financial Highlights

• Revenue: Increased by 22.4% YoY in Q4 2024.
• EBITDA margin: 19.1%.
• Net profit: SEK 2 million for the quarter.
• Operational cash flow: SEK 13.4 million in Q4, nearly SEK 18 million for the full year.

Market Reaction

Despite the positive sales growth, Mentice’s stock experienced a slight decline of 0.4%, closing at 24.9 SEK. This movement reflects investor caution, influenced by the flat performance in North America and concerns over future earnings guidance. The stock has declined 39.71% over the past year and trades 62% below its 52-week high, according to InvestingPro data. The company’s Financial Health Score remains "GOOD" at 2.69, despite current market challenges.

Outlook & Guidance

Looking ahead to 2025, Mentice plans to prioritize expanding its medical device industry segment and developing hospital market solutions. The company aims to continue its innovation in image-guided therapy while focusing on software licenses and recurring revenue streams. According to InvestingPro forecasts, EPS is expected to remain negative in FY2024 at -$0.06, though the company operates with a moderate debt level and maintains a healthy current ratio of 1.02.

Executive Commentary

CEO Franz Wenker highlighted the company’s strong finish to 2024, acknowledging the challenges faced during the year. "We need to potentially add a few steps in order to make it a true service and attractive towards our hospital segment," Wenker stated, emphasizing the need for continued innovation and market adaptation. CFO Ulrika Dorts noted the increase in recurring revenue from software, underscoring the company’s strategic focus on this area.

Risks and Challenges

• Regional performance disparities, particularly in North America.
• Potential market saturation in key segments.
• Macroeconomic pressures affecting global sales.
• Supply chain challenges impacting production and delivery.
• Competitive pressures from other medical device companies.

Q&A

During the earnings call, analysts focused on Mentice’s strategic direction under the new CEO and the variability in order intake. The company’s approach to penetrating the hospital market and the reception of the VISTA Ankyras integration were also key topics of discussion.

Full transcript - Mentice AB (MNTC) Q4 2024:

Richard Engberg, Equity Research Analyst, Carnegie Investment Bank: Hello and welcome everyone. My name is Richard Engberg and I’m an equity research here at Carnegie Investment Bank. With me, I have Franz Wenker, CEO of Mentis and Enrique Drots, CFO of Mentis to present the Mentis Q4 results. Franz and Enrique, welcome. The stage is yours.

Thank you.

Franz Wenker, CEO, Mentis: Thank you for having us. Thank you, Richard. First, welcome to today’s Q4 earnings call. And I’m here as stated also with Ulrika Dords, CFO, who requires no further introduction and has been in place for more than a year. I’m the new CEO of Mentos, and I started January 1.

So effectively, I have a long history, twenty five years of history in the med tech industry and global roles both across Asia, China, Europe as also United States, both in upstream roles as also downstream commercial roles. And I’m really excited to be the new CEO of Mentos. Mentis truly a partner, I visit in the triangle of both the medical device industry as also the healthcare delivery networks as also the imaging centers. And it’s a privilege to be the new CEO of Mentis. I would also like to take the opportunity to thank Jorgen Ammannberg, who led the company for seventeen years and really put it how to sit and made it where it is today.

And I’m honored in order to take the reins and bring it forward to the next chapter of further growth. What we have today is four topics. So first of all, Arisette, it is the highlights and the overview what I will give. Then Ulrika Potts will give the financial results. I will provide some concluding remarks and then we will do questions and answers afterwards.

In order to get started, so what we look at the financial summary, we had a strong Q4 basically in 2024 with net sales up 22.4% year over year and it was also with lower operating expenses as also lower personnel cost. And that really drove a positive EBITDA, 19.1% margin as also a net profit of SEK2 million for the quarter. If you look at the total year from a sales perspective, it was behind target. But we saw positive developments in both the Asia Pacific region as also the EMEA region and stable performance in North America. The positive was the operational cash flow, both for the full year as also in the quarter.

And if I now look at the total results, it really sets us up well for 2025 for further growth and performance. If you then look at the business development aspects, if you look at the EMEA sales, it was up by more than 60%, APAC more than 27% for the full year, where we saw modest growth, we almost flat towards the North Americas. It was performing slower in North America and we’re implementing measures in order to make sure that we get more order intake as also further operational execution. And our focus is there both on the medical device industry segment as also the hospital care delivery segment. The other we see is that the medical device industry order intake increased by 24% in Q4 and we saw a strong demand for our solutions.

Especially the introduction of what we call the integration between Neurovascular Connect and VIST Ankyra was received well and also we saw the progress in that Neurovascular segments in order to be in the treatment planning for Hospital Solutions. So in all, a good twenty twenty four Q4. And I would like to hand it over for details to Ulrica Drotz.

Ulrika Dorts/Drotz, CFO, Mentis: Thank you, Franz. So as Franz mentioned, we ended the year with a strong Q4, and that gives a year that is more or less in line with 2023. So net sales up 22.4% compared to the last quarter 2023, and that gives us a total for the year of February, which is a growth of 6%. Together with a higher gross margin both in the quarter and the year as a total, we end up at an EBITDA level of 19.1% on the margin level and an EBITDA result of 16.6% sorry, SEK 1,000,000. And as you see, the full result for the year was created in the fourth quarter, and that is despite the fact that we took one off costs of around SEK 7,500,000.0.

So as Franz mentioned, yes, cost control. This leads to an operational cash flow of 13,400,000.0 in the fourth quarter, which is far above the cash flow from last year. On a full year basis, we have an operational cash flow of almost SEK 18,000,000, which is approximately half of the operation cash flow that we did in 2023. And from an order intake point of view, we had an increase during the quarter of almost 5% and for the full year a decrease of 8%. So moving into more details around the net sales per region.

As we have mentioned many times during these kind of calls, we are looking at our business on a rolling twelve months basis, which you see in the graph on the right upper hand corner. And there you can see that The Americas, which represents the largest region for us, had an increase during the quarter of 20%. But as there has been a lower performance up until the third quarter, this leaves a flat development for the full year. For the EMEA region, there was a really, really strong growth during the fourth quarter of almost 62%. And the fact that EMEA also had delivered weaker during the year up until the third quarter made the growth for the full year at almost 5%.

For the EMEA region, it’s the opposite. It has been a very strong growth throughout the year and a decrease in the fourth quarter. And despite that, we end the year with a growth of 76%. Looking at the net sales from a product area perspective, we see a solid growth for the VISTA products, which is our main product. For the year sorry, for the quarter, it’s an increase of 90% with the biggest part on hardware.

But I want you to highlight that on a yearly full year basis, we see the biggest increase in software and licenses. Physical SIM had a good development during the fourth quarter compared to 2023, and this is also related to the acquisition of BioNomics at the end of twenty twenty three. Just mentioning shortly around the recurring revenues. There has been a flat development for the last and for the quarter and also on a rolling twelve months basis. What we do see is an increase in software licenses, which is what we are aiming for and a somewhat decrease in system rentals.

But the focus on software licenses is important for us. Order intake for the quarter was above last year and that is related to the medical device industry within the EMEA region. And a total order intake of 109,000,000, as I mentioned previously, is somewhat lower than or sorry, it’s an increase with 5% for the quarter, but a full year decrease of 8%. And finally, a comment on the order book, leaving the year with million, where of million is related to revenues to be recognized in 2025. And as you can see, the majority of those revenues are related to software within the Vist product area.

Franz Wenker, CEO, Mentis: Now thank you, Ulrika, for those details. And as stated also, I’m truly excited to be part of this team and to really drive what we call end to end solution, both for the hospital space, but also drive further execution and operational execution in the medical device industry segment. So in all, what we see is that and that is the key takeaways for today is that we had a strong finish to the last quarter of twenty twenty four. It was a challenging year, I’d say, across, but Q4 was strong. And what we see is that the full year results were mostly impacted by a challenging first half with also performance in North America, which was flat.

Robust growth in EMEA and APAC, especially from a sales perspective. And for us, I’d say the acceleration of The Americas is a critical basically priority. So the priorities going forward is first of all advancing the initiative with the launches that we have done in the Neurovascular Connect platform, but also the integration that we do for Vista and Ankuris, which gets us into treatment planning in order to make sure that we have a true end to end solution also for the hospital space. And that will really create and unlock further growth as also making sure that the operational excellence for the medical device industry segment is going to continue. So in all, I would say what we see is that we’re operating in a space, in an image guided therapy space, where we see basically the innovations continuing and Mentis is an integral part of providing innovations in the image guided therapy space and that sets us up well for 2025 and beyond.

Thank you very much.

Richard Engberg, Equity Research Analyst, Carnegie Investment Bank: Thank you, Frans and Ulrika. So now I’ll be having some questions. So my first question is related to you, Frans. This is your first quarterly presentation on Mentis. And you gave us a brief background in the intro of your presentation.

But what do you think are your main experience that can drive Mentis forward?

Franz Wenker, CEO, Mentis: No. Thank you, Richard, for asking that because I have a long experience within the med tech industry, but specifically also in the Image Guided Therapy space, where I’ve worked in both upstream roles, what we call more the product marketing and the development roles as also within the commercial side. I’ve led North America. And I think I can truly help with, first of all, extending the solutions for the hospital space in order to grow further there with the team as also coach and guide the team towards the commercial execution, both globally in order to reach further heights. So I think my experience really could help in this space and it’s really teaming up with the great people that we have from a clinical standpoint, technical standpoint, but also commercial standpoint in order to unlock further growth of Mentis.

Richard Engberg, Equity Research Analyst, Carnegie Investment Bank: And that takes me on to my next question. So what will be your main priorities going into 2025?

Franz Wenker, CEO, Mentis: It is clearly related to making sure that we provide innovations towards the medical device industry segment. So that could be several innovations if it comes towards strong growth areas into valves, for example, or it’s also electrophysiology, cardiac rhythm management. So making sure that we continue to grow and help medical device industry companies to get training, but also compliance towards their physicians. But it’s also the second part is unlocking growth in the hospital spectrum, which requires a little bit of a different what we call value proposition, so a different product. So we cannot translate that one to one our medical device product towards the hospital segment.

We need to potentially add a few steps in order to make it a true service and attractive towards our hospital segment. And I have also the experience there in the many years in order to help with the team. So my priority is extending the growth in medical device industry, but also accelerating further growth in the hospital segment, which basically then confirms also our financial basically ARISID targets that we have set ARISID all in all.

Richard Engberg, Equity Research Analyst, Carnegie Investment Bank: Okay, great. So during the quarter, we show a really strong sales growth, but a bit lower growth in order intake year on year. And I noticed that it was quite a lot of the major orders that came early in the quarter. Is this the main reason for order intake growth being not as high as sales growth?

Franz Wenker, CEO, Mentis: Ulrike, would you like to take this? Because you were the most part of the third during the third. I think

Ulrika Dorts/Drotz, CFO, Mentis: the orders coming in early in the quarter helped actually realizing more a greater part of them than usually as net sales. But I would not really say that that is a reason for the lower order intake. I think this is part of the variability that we have in our business.

Richard Engberg, Equity Research Analyst, Carnegie Investment Bank: Okay, great. And can you please describe the Vist Ankeras integration? How has it been received by the markets?

Franz Wenker, CEO, Mentis: Yes, absolutely, Arisit. So it’s received well. So maybe as Arisit’s a little bit of a background. What we do is basically provided a new product, Arisit introduction with an integration of our simulation solution also with a treatment planning solution with the Ankyraas. And that really helps hospitals in order to be in the treatment planning side.

So it clearly gives a little bit of a different proposition and could provide further growth. And that really helped us, I’d say. So we have introduced it in several hospitals and the feedback was positive. I also traveled already to those hospitals in order to see it and talk to the doctors. And yes, I’d say it is received well.

With a few further tweaks, I think we can extend the growth even further. So received well overall.

Richard Engberg, Equity Research Analyst, Carnegie Investment Bank: Okay, great. And now we’ll break in with a question from Christian Binder of Red Eye. So he’s asking what exact changes will be needed to appeal more to the hospital customers compared to the MDI customers?

Franz Wenker, CEO, Mentis: It’s a great question, I see it so because we have been very, Aristide, well established in the medical device industry as a company. And in order to really go direct towards hospitals, usually a little bit of a service is also required in order to make sure that solutions are truly also adopted. So that people are supporting physicians in order to try and also adopt a new workflow that is required with these solutions. And that is what Mentis also needs to provide, is making sure that we provide this also as a service and making sure that it’s also then implemented as requested. As also workflow wise, I’d say we might have to tweak and tune it a little bit to make it easier and also fit within the workflow of physicians, because they are very busy.

I would say these are high stress, I would say procedures that they’re most of the time doing and it needs to be seamless and fit into their workflow to be adopted. And that’s what we are going to drive with the team.

Richard Engberg, Equity Research Analyst, Carnegie Investment Bank: Okay, great. So my next question is you received three major orders in Q4 and you received one major order now in Q1. Can you please describe the nature of these orders and how they have been delivered?

Franz Wenker, CEO, Mentis: Yes. Ulrike, would you like to take or I can take?

Ulrika Dorts/Drotz, CFO, Mentis: You can take.

Franz Wenker, CEO, Mentis: Yes. So they are for the medical device industry, I’d say, where we have, yes, solutions also in particular clinical areas. And what we do see is that there is strong growth also from a procedural standpoint in valve implants as also cardiac reader management as also ablation procedures for electrophysiology. And it is those MDI companies that have basically requested our services in order to help them with training, but also supporting their physicians in order to do those procedures. And that’s where these three orders are linked towards.

So it’s straight into our strategy and also the execution and a proof that we’re on the right track.

Richard Engberg, Equity Research Analyst, Carnegie Investment Bank: Okay, great. And my next question is regarding the gross margin. It has been really strong in the quarter and during the year. And can you please describe what is the major reason for this really strong gross margin?

Ulrika Dorts/Drotz, CFO, Mentis: One of the reasons is the increase of software with a higher margin than hardware that we’ve seen during the year. And another reason is work and efficiencies that we’ve done around the hardware. So we’ve created it more cost efficient during the year.

Richard Engberg, Equity Research Analyst, Carnegie Investment Bank: Okay, great. And lastly, I noticed in the court report that you made an adjustment in the order book. Can you please describe the reason for this? And is there any chance that this revenue can come back, so to say?

Ulrika Dorts/Drotz, CFO, Mentis: I’ll take that one. Yes.

Franz Wenker, CEO, Mentis: I could take it as well. Please do

Ulrika Dorts/Drotz, CFO, Mentis: so. This relates to an order that was placed before 2023. And since we, at this point in time, don’t see when it will be delivered and the revenue could be taken, we prefer to actually, to book it from the order book. But there is an ongoing discussion. So on the question if it potentially could be realized in the future, yes, we’re working for it.

Franz Wenker, CEO, Mentis: Most likely, it will still, how do you say, to go through revenue, but we don’t know when.

Richard Engberg, Equity Research Analyst, Carnegie Investment Bank: Okay. Great. And lastly, you touched upon it in your presentation, but could you just please briefly describe the development in annual recurring revenue?

Ulrika Dorts/Drotz, CFO, Mentis: Yes. And as I mentioned, the increase is related to software. And towards the end of the year and towards the end of the quarter, we saw an increase in the recurring revenue on software.

Richard Engberg, Equity Research Analyst, Carnegie Investment Bank: Okay, great. Franz and Ulrike, thank you for coming here to Carnegie Bank. And thank you everyone for has been listening. Thanks.

Franz Wenker, CEO, Mentis: Thank you, Richard, for having us.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.