Nexstim Plc (NXTMH) Earnings Call Transcript

Welcome to Nexstim's webinar for investors, analysts and media. Nexstim CEO, Mikko Karvinen; and CFO, Joonas Juokslahti, will be giving a presentation that will take a little over half an hour. And after that, they are available to answer any questions you might have. [Operator Instructions] The webinar will be recorded, and the recording can be accessed on this page after the event ends. You'll be able to access the recording also on the Events page of the Nexstim website. And now let's move on to the presentation. First presenting is Nexstim's CEO, Mikko Karvinen. Go ahead, Mikko.

Thank you, Essi, and welcome, everyone. My name is Mikko Karvinen, and I'm the CEO of Nexstim. And I will be joined in this webinar with our CFO, Joonas Juokslahti. And we are happy to go through our first half 2025 financial results in this webinar. And we will begin this webinar by -- I will be going through a bit about the general story and Nexstim business, continued by, of course, the H1 as a summary and then Joonas will be going through some of the financials in more detail. And then at the end of the webinar I'll come back with some of our 2025 key strategic objectives and then finalize with some information on our new NBS 6 product. So we can go forward with starting off a bit about our strategy, and we started off a new strategy period in the beginning of 2025. And our strategy period here in Nexstim continues until 2028. I want to explain a bit about this picture. Where in the middle, we have our key focuses on our businesses for the strategy period. But beginning with the top, megatrends, so Nexstim is an international medical device growth company, and we are headquartered here in Helsinki, Finland, where our system is developed, where our system is also manufactured in Finland of where we export it around the world. The megatrends that are affecting the medical device business and our brain disease and disorders businesses are the ones in the top, aging population, technological development in health care and health care cost pressures. So those set up the some of the key things that are happening in this business environment of ours. On the below part of this graph, we have our important mission, our vision and our values. So these -- without going into exact detail of each one of those, those are the ones that have the foundation, the platform where we can build our strategy and our business on top. And we've been very stable. It's been a stable, good growing platform, where we can have a successful business growth. So now coming back to the center and the focus of our strategy. We have taken -- we have 4 areas of focus, 4 businesses and the interest that we want to serve, in particular during our strategy period. If we start with the first one on top, the Diagnostics Business. So this is the business where we've been the longest. It's brain mapping. We -- with our navigated Transcranial Magnetic Stimulation technology in our system, we can map the brain motor and speech functions in a very accurate manner, and this helps neurosurgeons perform more safe and safe procedures, safe surgeries and in particular, for example, in tumor surgeries, epilepsy and then somewhat also in the radiotherapy. We announced a large partnership with a German-based company, Brainlab AG at the end of '24, at the end of November. And this partnership is going to be a very key element for our growth during the strategy period in the Diagnostics Business. So through systems and service sales volume increased through a successful Brainlab partnership, we seek to bridge neurosurgery, neurophysiology and neuroscience in a way that ensures growth and profitable growth for Nexstim. So this is an exciting area. I will be going through a bit more detail about the Brainlab partnership soon. So exciting development. On the Therapy Business, this is an area where Nexstim currently already have -- has two approved indications in Europe. It's a major depressive disorder and chronic neuropathic pain treatment. So with our therapy system, which is the newest generation NBS 6, we can help patients that suffer from major depressive disorder or chronic neuropathic pain. We want to continue the development of this part of the business through, of course, these mentioned approved indications, but also want to expand into possible new indications and market opportunities. So there's a lot to do in the area of therapy. And then the new indications path, of course, there are multiple exciting areas that have been researched, but there are also areas where new research information might be available even during the strategy period. So we have also built some interesting partnerships and starts in that area. And if we go into the Research and Neuroscience, which is the third platform here, we try to help the leading research and neuroscience hospitals or clinics around the world in getting forefront technological and clinical development with the Nexstim system. As a very, very new partner in this area. We have Sinaptica Therapeutics to mention. Sinaptica is researching -- doing further research, has research and will be doing further research in the area of treating Alzheimer's disease with TMS-EEG, and we have now -- we've signed an exclusivity agreement with Sinaptica that would enable us to be an exclusive provider of Nexstim TMS and third-party EEG integrated system with their cloud-based software engine. And this is something unique. And it could help, first, research, do more research in the area of Alzheimer's treatment, but also possibly in the future, have a commercial partnership around this. So that's something interesting in developing in that area, just to mention one. And on the final one, the fourth platform, the Clinic Partnerships. We have invested into a few clinics in the United States through this management services organizations. So our investment is into these management services organization that help the clinic partners focus into their business fully, which is helping the patients, treating them with, in this case, Nexstim devices, but also other leading technology and pharma approaches to helping patients who suffer from brain disease and disorders. It's mostly now clinics in the beginning that have -- are treating depression because in the United States, our therapy system is approved for major depressive disorder treatment, but it might evolve in the future also clinics that operate around different brain disease and disorders. So this is an exciting strategic focus area where we continue to -- through expansion through the existing partnerships and also actively monitoring effective new treatment methods, including new indications, but also other treatment forms. So that's in a nutshell where our strategy is focusing on during the upcoming years. And I will next want to remind about the Diagnostic Business, major partnership agreement that we did with Brainlab at the very end of last year. This is an exciting new opportunity for Nexstim because Brainlab is an innovative and a leading company in the area -- in the neurosurgical field, providing the leading neurosurgical hospitals around the world with their technology, their systems and software. So this is something that is extremely new to us. But also at the same time, we have been working with Brainlab with multiple customers already in the past, but the new news in this area is the partnership form. So if we look at the next slide, we have started now a collaboration by signing a development and distribution cooperation agreement. And this helps us first now in the beginning to sell the Nexstim NBS 5 and in the future, the Nexstim NBS 6 diagnostic system once regulatory approved to, of course, a wide customer base that Brainlab already has and then new customers for possibilities through this partnership. At the same time, we are looking -- we are doing some development activities already to deepen the integration between Nexstim and Brainlab, but we are also looking forward to doing even more in the future in developing the next versions of the Nexstim device and also future integration of the Brainlab offering and Nexstim's current offering. But we start out with our NBS 5 as we started already in the distributorship and then continue with the new NBS 6. Now here, we can look at a -- quick look at this before moving on, again, in the area of Diagnostics Business. Here is a very, very simplified noninvasive brain motor mapping in 20-minute slide, which I'll go through because some of the listeners might be unused to how we perform a brain motor mapping. So just to -- this is the area where -- which is key also in the Brainlab partnership. So as basic material for our system, every patient undergoes an MRI scan. So their brain is scanned with an MRI. And in this first step in this slide, we upload their MRI into our Nexstim NBS 5 system or NBS 6 system. And this creates a 3D model of the brain, that's the patient's own brain in a 3D model within our Nexstim system. In the second phase, we registered the patient's head to this MRI that's a 3D model in the Nexstim system. So we tell our system where the patient's physical head is in the relationship to this 3D model. In phase #3, 3D mapping of the brain, where we stimulate the brain, we can stimulate any place in the brain's cortex. We actually we navigate the actual electric field and we visualize that on the cortex and then you can stimulate that area, and we will be starting forming these pinpoints after that -- and multiple pinpoints will form a map of where a certain function is located. We have an EMG and electrodes that measure whatever muscle, for example, in the hands or the legs or the facial muscles you want to be mapping. In Phase 4, we reviewed the areas eliciting responses to avoid during surgery. So this is, of course, a phase where looking at the map and deciding which areas are important in the map, which areas are such that we should be focusing so that the patient can be treated or have surgery in the safest possible manner, with minimal possibilities of risking any deficits of any sort. And then in the final Phase 5, we can export this data that we've done the brain map into surgical planning and navigation tools. And in the Brainlab partnership, this, of course, focuses on integrating this data done with the Nexstim system seamlessly flowing into the Brainlab system, their surgical planning and navigation tools. But we are also compatible with other leading surgical planning and navigation tools. But of course, through this partnership and integration, we look forward to developing the Nexstim, Brainlab integration work to help the surgical planning and navigation in that form to be the very best in the world. That was a quick look into it and a bit of extra information outside of the mostly financial data we will be listening today. Final slide before I go into the H1 event is just a reminder about our business and products, the two businesses that require regulatory approvals. From our side, of course, are the Diagnostics Business and the Therapy Business. We have two businesses, and they are served currently by two systems, also but mainly two, actually three, if we take the NBT. But NBS 5 is currently the system that we use for the presurgical mapping of the brain. This is a business we've been doing the longest over 250 systems sold. We are the only navigated TMS provider in the world system manufacturer that has both the FDA approval and European CE marking for mapping the motor and speech functions of the brand. This is unique, technology, unique offering and approvals to support it. This is the business we are partnered together with Brainlab. In the Therapy side of our business, current -- the newest version NBS 6 and the earlier version of our therapy product, NBT, we have over 110 systems sold, including the therapy software. The two applications are depressions, or major depressive disorder and chronic pain, chronic neuropathic pain, both are CE marked in Europe. So we have the marketing approval for both of those depression and chronic pain here in EU. Depression, major depressive disorder is also FDA approved in the United States, and they have a fairly good existing reimbursement also for treating patients with treatment-resistant depression with TMS. The efficacy is really good. So for patients that suffer from major depressive disorder and have not -- didn't get relief from other treatments such as drugs. We have a patient registry of over 400 patients treated in the United States, and we see that we have about 50%, 5-0, remission rates in this patient category, and over 70% rate in response rates. So this is highly effective for treatment-resistant depression. And for chronic pain, we have the CE marking. We do not have FDA approvals yet, we are evaluating and have been for quite some time evaluating additional clinical trials for this area. And we are doing some work to facilitate certain research in this area, but we don't have the approvals yet. But we do have multiple systems in EU, especially in Finland, where the university hospitals are treating already very successfully pain patients with the Nexstim systems. And we hear about 40% to 50% of the patients get a clinical meaningful pain relief. So also for treatment-resistant pain, chronic pain, this is -- these are excellent results. So that is also something that we want to be aware of when our commercial path move forward. Outside of this slide, there's a neuroscience research and Neuroscience business, we don't require as such regulatory approvals for those systems, but most of the systems that we sell for research and neuroscience purposes are usually based on these FDA or CE marked systems and then we add elements that, of course, are added in a safe way, but they don't require -- they require different ethical approvals from the researching parties, but they don't require the approvals as such, and that's part of our business also. But this is the main volume of business comes from Diagnostics and Therapy currently. Now we can move on into the Nexstim business and financial summary for H1. If we look at the '25 and how did the year start the first 6 months, happy to say that Nexstim accelerated growth and improved profitability. And it was over 40% growth, revenue growth, which is excellent for H1. And in line -- it is very much in line with our main strategic objective, which is focusing on profitable revenue growth. And our sales forecast also for full year '25, I can tell you, looks promising. So especially happy, I am about the fact that the EBITDA was EUR 0.2 million positive. And we have now two consecutive first half years, where we have a positive EBITDA. So H2 '24 and H1 '25 produced a positive EBITDA, and this has never happened in the history of Nexstim. So we see this also as one key milestone or showing the progress in how we have successfully executed profitable revenue growth. I'm very thankful for our teamwork, for the whole Nexstim team in managing, first of all, such growth, in such a profitable manner, but also that we have been, at the same time, developing and training our partner network within the Diagnostic Business, in close collaboration with Brainlab. So a lot of our team effort has also been going during H1 into participating in helping our partners, including Brainlab, deliver our sales and marketing message to as many markets as possible. So Brainlab has thousands of customers, and they have a couple of hundred people in their commercial team. And we've been helping their commercial team in Europe, in areas like Europe and also U.S., especially to understand the technology that we have, integrate our technology into their marketing message. And as you've probably noticed and can notice from both companies' social media or websites. There's a lot of work that has been put -- positive work that has been put there so that the customer understands. First, we need to understand both teams Nexstim and Brainlab, the full offering and the full potential of what it could mean for the customer. And then for the customer to get to this marketing message, and the sales opportunities are opened. This is a big effort that is there. This is a very big strategic investment but we can see that there's a lot of positive things happening right there. So aside from the Brainlab partnership, which we've worked on a lot during the first half, we've also worked on another partnership, which is the Sinaptica therapeutics that I mentioned earlier, part of a planned collaboration in the treatment of Alzheimer's disease. So we signed an exclusivity agreement during late summer -- or early summer. And we've agreed on conditional payments of up to EUR 1.5 million, of which EUR 0.2 million was recognized as revenue during H1. So this exclusive arrangement -- exclusivity agreement means that Nexstim will exclusively be providing Sinaptica with navigated TMS devices, including a third-party EEG to be integrated with their SinaptiStim cloud-based engine and to get these systems into the virtual research that they do. We've delivered already multiple systems during H1. And of course, we're getting ready to help them in this research agenda as much as possible. We still need some -- of course, the payments to happen but also the final agreements to be approved before end of '25, before this long-term exclusive rights are so-called finalized for a longer period, but we are right now already with the agreement signed and the payments made, we are exclusive, pending the final payments and also then the agreement signing, which already we have published some information in the form of a letter of intent. Okay. So there's a lot of positive development in the growth, in the partnerships. And now some focus into a couple of numbers before I give also a possibility to Joonas to go through some financials. So system sales were EUR 2.2 million. There was an increase of almost 80%. So a huge growth during the first half. Recurring sales was EUR 2.1 million, with an increase of 7.7%, so increased but slightly a lot lower than on the system sales side. So system sales drove the growth in the first half. Net sales EUR 4.5 million. That's almost 42% growth. EBITDA positive, as I mentioned, second consecutive half, positive EUR 0.2 million in this first half '25. Operating results for the period, we're still negative, but there's a big step forward also in there, 70% less loss that we made in the first half compared to H1 '24. And cash flow was positive EUR 0.3 million. The main message here is the cash flow from operating activities is positive. Finally, when we split it into the businesses, Diagnostic Business sales, was EUR 2.5 million, a huge increase of 65.3%. Therapy Business, net sales was EUR 1.4 million. there was a slight decrease of EUR 8.4 million (sic) [ 8.4% ] in that area. This was due mainly because of the fact that we sold less therapy devices, but we still have the recurring revenue base. So there was a -- the third revenue decrease is because of the fact that we delivered a lower amount of therapy systems than in the first half of '24. But there are systems in the backlog that will be also delivered during the second half. And then the largest increase percentage-wise was in the Research and Neuroscience business. This includes also the Sinaptica Therapeutics part of our business, EUR 0.6 million, there's an increase of over 565% in that area. And of course, this is a smallest business area right now, but still the one that is growing -- has grown in this report, the fastest. So it's good to have these different areas of business. In comparison, for example, the Therapy Business grew the fastest percentage-wise in the second half of '24. Now the Diagnostics Business grew the fastest. So there's always a bit of change in the half yearly mix of business that we do. But that's also a strength so that different business areas can experience different type of growth percentages for a certain half year period. And then finally, one graph before I let Joonas explain a bit more detail to the financials. If we look at the first halves of the recent -- three first halves in 2 years' time period. If we look at first half '23, first half '24 and first half '25, this is a graph that shows the progress, the very positive progress we've made. First on the net sales side, there's 27% and 42% increases in net sales between these periods. The gross margin has been positively developing. The percentage wise, we've been above 80% or 80% during all these, which is incredibly good results following the COVID inflation and the component also including the tariffs that we've experienced recently in '25, things like this. We have been able to keep our prices and also our purchases in the level that we can show these type of gross margin levels, which are in this industry, they are among the very best gross margin percentages, excellent ones. And then we -- of course, the increased net sales and the increased gross margin followed by our good expense control have brought the EBITDA from over EUR 1 million negative 2 years ago to now slightly positive EBITDA already in '25. So very good solid progress in all of these areas and showing the, I would say, the important strategic objective of profitable growth and managing that through a long, long period. So with that, I thank you for this part, and now it's Joonas turn, please.

Thank you, Mikko, and good afternoon, everybody. My name is Joonas Juokslahti, and I'm the CFO of Nexstim. So let's look at the key figures of the group for the review period. This morning, we had the opportunity to report the first half year of our updated strategy period. And looking back at the previous strategy period, which ended last year in 2024, our compound annual growth rate was approximately 21%. Now in the H1 of 2025, we have managed to double the growth rate. The total net sales increased by 42% to EUR 4.5 million. And the main driver for this rapid growth was the system sales. System sales amounted to EUR 2.2 million with an impressive growth of 80%. And this represents just under half of our total net sales. Recurring revenue grew by 8% to EUR 2.1 million, accounted for 45% of total net sales. And our recurring revenue has become significant and important revenue item for us over the years. And additionally, some EUR 200,000 in revenue was recognized in the first half as licensing income related to the exclusivity agreement with Sinaptica. Now previously, we have reported our revenue split into two business areas, the Diagnostic and Therapy Business. And this period, we have separated the third business area, Research and Neuroscience. There has been activity in this field already in small amounts before, but it was previously reported under either Diagnostic or Therapy based on the nature of the sales. Diagnostic revenue was EUR 2.5 million with 65% growth. And most of the systems sales growth fell on this side of the business. Therapy revenue was EUR 1.4 million with 8% decrease. And this was mainly due to timing of system deliveries. Several therapy system deals were recognized in the comparison period. While now we have those orders in our order backlog and those will be recognized upon delivery of the systems. The new Research and Neuroscience business revenue was approximately EUR 0.6 million with a relative growth of 566%. And that's due to both increased demand in the field, but also lower activity in the field in the comparison period. Gross margin amounted to EUR 3.6 million with an increase of 40%. The gross margin ratio remained at the usual high level, over 80%, being 81% for the review period. And we've been focusing on this so-called profitable growth for the recent years. And internally, we monitor this, for example, by comparing the growth rate of the gross margin to the growth rate of the operating expenses. And in the review period, gross margin grew by approximately 40% and the operating expenses by 11%. So that's indicating a healthy development in this metric. So by function, operating expenses were distributed as follows: we invested the most in sales and marketing, which increased by some 15% from the comparison period, totaling EUR 2 million. R&D expenses were EUR 1.1 million, up 12% in comparison to last year. The admin expenses, which include also regulatory and holiday matters, grew very moderately at about the rate of inflation at about 3% totaling EUR 1.2 million. Our business is traditionally very cyclical. And for example, last year, we delivered roughly half of the year's systems in the last 3 weeks of December. So in this context, it's great that already in H1, our EBITDA was positive at EUR 0.2 million. The operating loss decreased by 72% to approximately EUR 0.2 million, which is nearly at a breakeven level. Net results improved by 64% to minus EUR 0.3 million. Then also the cash flow from operating activities was positive at about EUR 0.3 million and the cash balance at the end of the review period was EUR 2.7 million. And in addition to that, we had accounts receivables that amounted to EUR 2.4 million with an increase of 25%. The group equity also improved by 70% to EUR 3.2 million with an equity ratio of 32%. And in addition to the sales recognized in H1 and reported here, we have received our system orders at a record pace during the year. And those systems are being delivered as we get them from the factory and our standard delivery time is approximately 12 weeks. And now based on the strong first half, the outlook for the full year of 2025 will remain unchanged. So the company estimates its net sales to grow and operating results to improve. So on the next slide, I also wanted to show this trailing 12 months performance graph in this webinar. And this is based on our published reports. So each bar represents a 12-month period, which is calculated by adding up 2 consecutive half years. From this, we can see that on a half year basis, we can -- we have continuously improved our 12-month key figures. And the net sales have grown, for example, by 92% over the 2-year period shown in the graph, which corresponds to a compound annual growth rate of 39%. And as the gross margin ratio has remained at a high level, the gross margin itself has also grown proportionally. And the graph shows that 3 consecutive trailing 12-month periods already are showing positive EBITDA. And that's been growing steadily. And this has been supported by our strong net sales growth and continuous cost awareness in all of our business operations. So this graph concludes my part of the presentation. So I'll now hand over the floor to Mikko for a moment, and then we'll go to the Q&A. Thanks.

Thank you Joonas, for presenting those financial highlights. Okay. So we're getting towards the end of this presentation. I have a few things that I want to still share with you. The first one is the Nexstim key strategic objectives for this year '25. We have three of them. The first one is profitable growth, which we've executed very nicely during the first half. So we aim to increase net sales and improve operating results for the financial year while minimizing the future capital requirements. So this progress well as what we've told you about H1. And of course, we aim to do and continue this positive progress for the remaining part of '25 and reach that full year objective also. If we look at the second one, it's focusing on our strategic partnerships. So we want to support the long-term collaboration between Nexstim and Brainlab. And this has already been also performed well during the first half, as we've tried -- we've integrated our teams together, and we've shared our knowledge of both companies' offerings and met with the teams and strategized about finding the practical solution for the sales and marketing message and how combining our offering is message to the broad customer base that Brainlab has and also we've been performing together in leading events in the area of neurosurgery and conferences where we presented together and be part of the same stance right there at the actual events with enormous interest. We also want to explore the network of other partners in clinics, primarily in the U.S., partnerships such as Sinaptica Therapeutics, their treatment of Alzheimer's in this very new way of combining TMS and EEG with their cloud-based engine and their protocol, getting results, excellent results through those. There's early research supporting their research, and then also our partner clinics through our management services organization and our -- the operations we have in the U.S. through this private equity, Nexstim Investments company. And then finally, but very important, of course, for any technology company, but as we are leaders in this area of navigated Transcranial Magnetic Stimulation, we, of course, need to develop our product all the time to keep our place as the technology leader. And we are launching the new NBS 6 diagnostic system in the key markets. The R&D work is very far already in the very last stages of the R&D projects, I'm confirmed -- I feel comfortable that the R&D risk is minimal anymore. And we are now reaching the phase where the regulatory approvals is the phase that is needed to enable our access to these markets. So we're almost there. But we will be, of course, informing the markets more closely where we are there and start our marketing and also as a final thing here, it will enable the ease of use and future add-on modules in the same system. So therapy, diagnostics in the same system, NBS 6 and then also future modules that we can use -- can be used by our customers. I will also conclude this slide by reading through the future outlook for year 2025. It's similar to what Joonas has presented. The company estimates its net sales to grow and our operating results to improve. So there are no changes from this, what we announced already when we published the 2024 full year and H2 numbers. So the future outlook for year 2025 stands as it is. And then the final slide in my presentation that talks about the future, the very near future already, which is that we will have the new NBS 6 product that has both the therapy and diagnostics available very soon. This is the product that our strategy period 2025, 2028, we will be basing our commercial focus on. And this is a new combined system. So it is built on Nexstim's unique clinical established technology. The modular design allows for expansion of system capabilities over time. So if you buy a system that includes therapy or you buy a system that includes diagnostics and therapy, and you want to add on new modules that will be arriving in the future, it will be possible through this modular structure to add on modules in the future without doing changes to your hardware necessarily. So this is creating long-term value for both Nexstim's customers with the ease of use and the use of update. And then also to our investors through the scalability of the business. And final point that I want to say that we are responding to customer demand. So the NBS 6 software has been developed in close collaboration with some of our customers. So to ensure the best possible level of usability and I -- every time, almost every time I talk to our customers, the NBS 6 customers, the early users of it, I get a lot of positive feedback about how it stands out from anything else in the area of TMS. But of course, as we are a unique technology for navigated TMS and we can do it with ease of use that is something truly unique. And this responds to customer demand for the systems that can do both diagnostics and therapeutic applications and are flexible for the future to help many more patients, whether new indications or current indications, this is a flexible modular system and easy to use. With those words, I end the, I would say, official part of this presentation, you can follow us on social media, X or LinkedIn. And I thank you for listening. Thank you for your interest into Nexstim. And let's see if there are any questions that have been submitted. You're free to, of course, ask anything right now through the Q&A tool if you want, and we would be happy to answer if there's any questions about H1 or anything else related to our business. We'll take a moment to see. Currently, there isn't any questions right now that have been published. Of course, you can reach out to me any time also through e-mail or give a call. Happy to answer any questions if needed. Okay. It seems like there's no questions right now. So first of all, thank you again. I look forward to reporting with our full year numbers in late February of '26. That's, of course, quite far from now. So there will probably be a lot of interesting news flow before that. So well, thank you, and have a great summer day or evening, wherever you're listening to this webinar. Thank you. Bye-bye.