Welcome to Optomed's full year 2021 and Q4 investor call. My name is Sakari Knuutti, and we have also on the line and presenting Seppo Kopsala, Optomed Founder and CEO, and Lars Lindqvist, our CFO. Our Q4 release came out this morning, and the presentation in relation to that is available on our IR website. Note that everybody can unmute themselves by pressing star six. Without further ado, please, Seppo, go ahead. All right. Thank you. All right, let's go through the presentation. If we go straight to the highlights on slide number three. First of all, for full year 2021, good numbers on a full year, but not so great numbers on Q4. Revenue was increasing 14.1% to EUR 14.85 million in a full year. It was mainly because the good growth in USA and North America overall and all the Western markets was growing well, and also our OEM business recovered during the year. Gross margin increased to 71.1%. There was some one-time items increasing the gross margin in both this and reference quarters. Roughly we are in the same level where we have been as an average earlier in the gross margin. China is the very challenging market. It started the year exceptionally well. We had a good-looking new partnership there and starting well, but then on the second half it didn't grow as expected. For that reason, that second half of the year was weak financially. Going to Q4 2021, so China pressed down the revenue in this quarter. In the reference quarter last year, China was extremely good. And now since we couldn't make any deliveries in China this quarter or Q3, so it ended up in a negative growth. All other areas, however, performed very well. We continued very strong growth in the U.S. market and also Europe, OEM, software, recurring revenue. They all increased. In the software segment, we didn't make any large one-time deliveries in Q4 as we did last year. Maybe the most significant thing in Q4 was that we were able to complete our clinical trial. This is the main activity that we have been doing 1.5 years in Optomed. The trial data collection was completed at the end of the year. In February, we published the trial results. Slide number five. Two focus areas, China and U.S. In China, in Q4, we didn't continue the exclusivity for Phoebus Med. Going back to early 2021, that was the time when we changed our distribution system in China. Earlier, Phoebus Med was only one of our customer. It had already been a couple of years our largest single customer. Besides them, we had a wide network of other regional distributors as well. At the beginning of the year, we decided to enter into the exclusive agreement with Phoebus Med because they had earlier signed an agreement with Sinopharm, which is the largest medical device company in China. That was an opportunity to scale our business to nationwide in China. It started very well with the promising results in couple of first provinces in the first half of the year. On the second half of the year, it didn't grow and it didn't expand. We came to know that very end of last year, Phoebus and Sinopharm have canceled their agreement between each other. Consequently, Optomed then decided that at the end of the year we will not renew Phoebus exclusivity either. This is now us going back to the older distribution model so that Phoebus still remain as one of our customers, but there are no grounds to continue with them exclusively anymore. We have a big amount of receivables from Phoebus. Company is alive and they continue paying those receivables, but for the accounting purposes, accrual for the EUR 700,000 of their receivables. Another thing in China that little bit concerns us is that in autumn last year, China published a new guideline. It's called Made in China 2025. Now fundus cameras have been added into this guideline as well. For us, this may mean that some of the public funded hospitals, government hospitals, they may not be able to buy any more foreign-made fundus cameras. For us, this may mean more limited sales opportunities in China. Of course, China is still big, and the private sector is big and growing, and they can continue buying the foreign-made products as before. But there is a limitation for public hospitals to buy them, obviously. Earlier in the history, about half of our sales came from the public hospitals and half came from the private sector. Private sector has been growing recently. This termination of this Phoebus exclusivity and it takes a little bit time to gear up other distributors. Signed direct distribution agreement with Sinopharm on those two provinces where we started very well. They continue distributing our products in those two provinces. Now we have started signing other provinces as well. Because we had big deliveries to Phoebus in the first half of the year and last year, we don't expect similar deliveries in that scale this year. That will impact our first half of the year this year again. U.S. is proceeding very nicely. U.S. is now overtaking China as our largest market. And the good thing in the U.S. is that a lot of the demand and a lot of our revenue comes from direct end users. We are selling directly to hospitals, clinics, larger chain clinics, and screening operators. And then another part of the sale, which is also growing, is coming through the quite wide network of distribution partners. That is more predictable and well in our own control going forward. Because the China uncertainty and promising results from the U.S., we are now focusing very heavily in our future efforts in the U.S. market. Going to slide number six. This is our biggest achievement last year. Completing the clinical trial. This trial was to validate our Aurora camera together with AEYE Health. It is an American-Israeli-based company that have their AI system for detection of diabetic retinopathy. The results are in here, almost 92% sensitivity, 93.6% specificity, and over 99% imageability. It is very significant that all these results are achieved by taking only one single image per eye. This makes the screening process not only very accurate clinically, but also very easy and very fast. Our product AEYE combination compared to any other competing solution and existing solution on the market, it's very cost effective. Our goal will now be to start entering the process for having FDA clearance for the solution. I cannot speculate the possible time frame, and I cannot also publicly compare our results to predicate devices, but the results are available in the public sources so that the comparison can be made. It is a good practice the company itself doesn't make the comparison before the FDA approval is granted. Q4, going to slide number seven. In here you see Q4 numbers. Revenue minus 12%, and gross profit accordingly minus 14%. Gross margin remained roughly on the same level like before. Now in EBITDA, there is this EUR 700,000 accrual made for this Chinese customer receivables. And then there is investments what we are doing in the U.S. market, so that we have established a U.S. company during 2021 and hired people there. That is visible in increased fixed costs. But otherwise, cash flow from operating activities roughly in the same level like last year. Looking at the full year, 14% growth, gross profit 17.9% growth. In this gross profit, there is also one-time type of grant, EUR 500,000 affecting this year. Roughly, we are in the same gross margin levels year over year in a normal business as we have been before. Also this EBITDA, so there is this accrual and increased U.S. expenses and sales and marketing costs visible. Cash flow from operating activities roughly in the same level like a year ago. Looking at the devices segment. In Q4, there was this drop in sales in China. It was a significant amount of sales what we had last year in the Q4 in China. Now it was almost zero, so that caused the negative effect. However, all the Western markets and OEM channel continued very strong growth. Asia and Middle East are still affected, continue affected by COVID lockdowns, so the sales in those markets remained in the same low level like it was a year ago. Gross margins roughly in the same level like before. This credit risk accrual is affecting on EBITDA, same as U.S. expenses. Devices segment full-year growth 14.5% year-over-year. Reasonably good growth. Gross profit increased significantly. In EBITDA, there is this accrual affecting another U.S. ex- going to Software segment, slide 13. This was actually in a Software segment, we were happy with the quarter even though the revenue was in the same... It was actually in the same level, only EUR 80,000 difference like a year ago. Because last year we had a very large project deliveries and one-time invoicing in the Q4. This time we didn't have any such a big project deliveries in the Q4, meaning that this was the growth in recurring revenue from the software. In that sense, it's a good starting point for this year in the software segment. Yeah, mainly the growth over the year it has been new screening and workflow management solution deliveries and increasing amount of recurring revenue from the customers. Slide number 14 is showing the full year of the software segment. Software revenue was EUR 9 million, which is a 14% growth from the previous year. Gross profit increased accordingly, but we have hired quite many software people more so during the year. Fixed costs have been increased, but they are hired and used for further development of our products. That will pay off in the future growth of the software segment. Outlook for 2022, slide number 16. We expect full-year revenue to grow compared to the last year. Slide number 17, financial targets remain the same. In a medium term, target is to continue delivering double-digit annual organic revenue growth, and in a long term, target is to deliver an annual organic revenue growth above 20%. In the short and mid term, we don't have specific EBITDA targets, but focus is delivering the growth and launching these new products to the market. In the long term, business model is expected to be pretty scalable, so the fixed costs should not increase that much as the revenue and the gross profits. That will eventually drive the EBITDA up, and the target will be to reach above 30% levels. Maybe a little bit looking at the next year or this year, the main target is to make progress in our AEYE camera FDA process, and then continue growing the revenue in a key market, especially in the United States. For the balance sheet, our CFO, Lars, will go through that. Thank you, Seppo. I will not go through as I've not done that earlier, go through all the details, but just highlight some things. Equity ratio of almost 59% versus 65% last year. We believe that's still a solid equity ratio. The borrowings of EUR 7 million up half a million versus last year, mainly related to a new loan we received in September. We believe we have a good balance between equity and borrowings. Net working capital of EUR 4.3 million versus EUR 3.4 million is up almost EUR 1 million, and the net working capital consists of receivables, inventory, and accounts payables. Receivables increased, and receivables was EUR 4.6 million and increased EUR 1 million, and majority part of the increase relates to a Chinese customer, which also Seppo discussed about. Finally, just bearing net debt of EUR 0.2 million versus EUR -4.1 million last year. Next slide, number 19, cash flow. Just highlight the cash flow from operating activities was minus EUR half a million versus plus EUR 400,000 last year. That is pretty much what I will talk about. Back to Seppo. Yes, maybe as a final comment that we continue our strategy. The main thing will be to grow in the United States and other key markets, and then bring these AI -integrated cameras to the market. The fastest-growing customer segment where we see the long-term growth opportunity in Optomed is in primary care. These retinal examinations are shifting to primary care in many countries, especially in the United States, and that is much driven by this AI technologies that are now getting adopted. That's pretty much it. I will be happy to take questions. Hello, gentlemen. I guess I will start. This is Juha from Inderes. Could you just kind of sum up what went wrong in China, since clearly everything hasn't gone according to the plan? What are the key things that went wrong? Actually, it is very hard to say why the Sinopharm and Phoebus cooperation didn't work out. You know, the supply chain goes so that Optomed sends the cameras to Phoebus as part of their complete screening solution, and then Sinopharm was the distributor of this complete solution nationwide in China. In order to get this Sinopharm started nationwide, we, on Optomed's behalf, and the same, Phoebus did the same. We cleared all our earlier agreements what we had with the regional distributors. We just went exclusive with this one channel. It was an obvious conscious risk that we decided to take because the upside was so significant. We had worked five or six years with this network of multiple regional distributors. It was very resource-consuming. We needed to have a big team in China, and still we were that way able to cover only small fraction of China. It's such a large country. Only the big companies can cover the country effectively with their own team and own regional distribution network. We saw an opportunity that by working with Sinopharm that has 1,000 subsidiaries in China with tens of thousands of people around the country that if it works out this will scale Phoebus Med solution business and same time Optomed camera sales to whole new level. It can be 10 times or 50 times bigger compared to earlier. It started with couple of provinces. Sinopharm sold cameras and Phoebus solutions pretty well in those provinces, but in Q3 and then eventually Q4, it just didn't move forward to different provinces. That reason is unknown to us. We don't know why. Maybe it's a priority question or maybe there is some other issues between the Phoebus and Sinopharm. We don't know that. Our exclusivity was for one year at the time. When it didn't fly and Phoebus Med also admitted at the end of the year that they will not continue with the Sinopharm on 2022, then we also didn't continue our exclusivity with Phoebus Med. But yes, company is still one of our customers. We have had five or six years good business relationship with them. We expect that to continue in the future as well, even if this one new distribution solution didn't work out. But that's kind of like a China. It's variances can be big, and there are big opportunities that may make lot of revenue in some quarters, but then there may be after that several quarters that there is basically no sales. It has always been like that, and this is maybe continue in the future in China as well. For that reason also, we are focusing more to the United States now, and especially when we got the good results from FDA study. All right. I will continue just a bit. You said that Phoebus is still alive, and I guess quite well, but there's still this loan receivable, and of course, it's kind of worrying, it's a big client of yours, I suppose. I just wanted to understand how much are you still relying on Phoebus, when it comes to China, and is there something to worry about, regarding the future? To put things in perspective, sales to China overall has been about 15% as an average within last two years. 2020 it was above 15%, and last year it dropped below 15% of our company revenue. Majority of this has been coming through Phoebus, but not everything. Now when Phoebus is no longer exclusive, we already have assigned a lot of new distributors. It takes a couple of months for them normally to get started and then the revenue will come back. I don't expect that in the first half of the year in China this year the revenue will be matching what we had in 2021. In the second half of this year it's pretty easy to exceed because in 2021 we didn't have basically any revenue from China in the whole second half of the year. Oh, that's clear. About outlook, you don't give any guidance regarding profitability, but I guess you need to invest more in 2022 to be able to launch Aurora AEYE in the U.S. At the same time, China makes it difficult to grow, at least in the first half. Could you comment on your balance sheet, upcoming investments and cost structure going forward? Cost structure, we have not within last couple of months made many additional hires. We have pretty much the team what we are going to have at least next half a year. It depends on when and if we get good progress in FDA approval process or FDA clearance process, to be precise. We will need to start investing in commercialization and growth in the United States market. That will mean additional hires of a certain amount of people we may talk about initially, maybe between three to six people, and then marketing expenses and so on. There will be at that time additional expenses in the U.S. market. All right. One more from me, and then I will give the space to someone else. I was wondering about the Business Finland loans. I guess this grant was again that you didn't have to pay back the loan. Should we actually expect that you don't actually have to pay these loans back, if you are not making a significant breakthrough? Optomed has been always a company that, we make quite a unique and ambitious technology product. Our camera is not based on the traditional technology. A lot of our development has been trial and error type of thing, so that we have made a lot of very ambitious technology research, and some of them work out and some of them doesn't work out. This loan, what was made by Business Finland, it was exactly one of those projects, I think made five years ago or even more, more than five years ago, that didn't prove to be a technology that we eventually wanted to use in our products. This has not been the only one. About half of the projects what we have done so far with this Business Finland financing has ended up being in a commercial end product. All right. About half. Yeah, about half. That's all from me. Thank you. Hello, gentlemen. Do you hear me? Yes. Hi, Arsène Guekam from Kepler Cheuvreux. A few questions, if I may. First of all, a follow-up question on China. How do you see the market evolution in this country with the new rules that privileges Chinese manufacturers? This is the first one. Second one is why are you confident on the return to growth in H2 2022? Yes. Yeah. Okay. Okay. Yes. Maybe take those two questions first. Sorry, what was the first question? Can you repeat that? How do you see the market evolution in China? Oh, yes. Because now the government would like to privilege. Yes. Chinese manufacturer. Yeah. This is exactly the question. The reason for the guideline in China is obviously that they want to encourage or even force foreign companies to establish the production in China. For Optomed, we have to evaluate if the China overall market will be big enough, and especially in a public sector, government-funded hospitals are big enough for our product, and if we can successfully sell the product in a scale that it makes sense for us to start the local production. We haven't made that decision yet. Especially so far, it has not been that big. Our sales to China public sector, if it's like EUR 1 million a year between EUR 1 million and in some best years EUR 2 million at maximum. It's not quite that big that it can justify own production in China. But the fixed costs are therefore big enough. The private sector has been growing on top of that and eventually some years recently it has been bigger than the public sector. For example, our sales to Phoebus Med is a private sector. Companies like Phoebus Med, there are many companies like them in China. There are bigger opportunities probably for us than selling to government hospitals. This guideline will not affect private companies if they're not funded by government. In one sense, yes, this guideline makes China market less attractive, but it doesn't make it zero. China is still a big market, and the private sector is big market. We will stay in China and maybe the market revenue from that market will remain maybe roughly 10% level in the foreseeable future of our overall revenue. Okay. Just to have an idea of the competitive environment. You said that the Phoebus lost its exclusivity. I would like to know how many other Phoebus camera are available in China. The second point is, why are you confident on return to growth in H2 2022? Yeah. Well, first of all, this competition in China. There are many desktop cameras nowadays made in China. There are many handheld cameras made in China. We are really technologically much more advanced than any of these Chinese products. Of course, it doesn't help us if the government public hospitals cannot buy foreign products. That market is probably very difficult to reach in the future. In the private sector, yes, if private screening operators want to have good quality diagnostics done, they do continue buying the foreign-made products which are simply superior over the Chinese products. We haven't seen the change in the competition, not among the Chinese companies and not among any other country-based products that would threaten our pretty unique position in handheld cameras. If the Chinese private companies continue buying the handheld cameras, I think Optomed is definitely one of the top candidates also in a future as well. That should help us to remain in the market and in China, even though the public sector seems difficult in the future. Second half of the year, obviously, it comes to the very big reference number. 2021 second half, our sales to China was almost zero. We couldn't because big Phoebus Med didn't buy more cameras, and they're bound in exclusivity with them. We couldn't sell to other customers in the second half last year. Those weak reference numbers are pretty easy to exceed this year. Okay. Regarding Aurora AEYE, I know I understand that you cannot give us the timeframe for the clearance, but what is the normal timeline for FDA review? Yeah, that's a good question. Yes, that one I can comment because it's also available in public sources. For example, there are two predicate devices. Eyenuk has their own system in the U.S. market, and IDx nowadays, the name of the company is Digital Diagnostics. For them, it took about half a year after receiving the results from their studies to get FDA approval or clearance. Okay. Have you already defined the marketing strategy for Aurora AEYE in the U.S.? Yes. The marketing strategy is well ready. We know how to launch it, and assuming that one day we will get this approval. Of course, we cannot do any actions. That's strictly prohibited before the approval or clearance is received. For sure, we have plans ready and activities ready. It's a multiple level activities in this type of product launches with key opinion leaders and conference presentations and exhibitions and then establishing pilot and reference sites and those type of things. Then finally commercially launching the product and declaring the pricing and providing the material and training the distribution network. Mm-hmm. You are going to market it on your own. Is it correct? Of course, nothing is declared, but yeah, the standard assumption is that yes, it is Optomed branded. Okay. Last question from my side. R egarding software segment, what could be a normal EBIT margin for this segment? Will it be more in the range of 70% or 80%? For the time being, 70% seems to be like a normal margin. I think recently, we have been little bit above 70%, as an average. 70% is we consider as internal target for our software sales. It will. Once the AEYE products and AEYE revenue increases the share of the software segment, it will change. We have certain AEYE algorithms that are significantly higher margin, but then there are certain other AEYE algorithms which are lower margin than 70%, so. The share of those AEYE revenue is not that significant yet, and only time will tell which AEYE algorithm precisely gets the biggest revenue in the future. That's too early for me to speculate, but I would consider 70% as a guidance. Okay. Thank you, gentlemen. Hello, this is Pia Rosqvist-Heinsalmi from Carnegie. Can you hear me? Yes, very well. Good. Yeah, I have questions both regarding devices, software, and then the business model in the U.S. First of all, you have had the Aurora camera on the market now already for more than a year, so of course outside the U.S. But can you share anything on how your AEYE sales have progressed in Europe and in Asia? How much usage do you see per device and how are these revenues adding up? In Europe, there are also in Asia, there are a few countries where the user base is growing nicely. The majority of the countries, both in Europe and Asia, are still very slow with the AEYE takeoff. Our revenue, even if the user base is growing, our revenue is not significant from AEYE yet, but it is growing year after year. Reason being that many of the countries we have bundled the AEYE usage for the first two years in a purchase price of the camera so that user base is growing, but in the first two years there is not much recurring revenue coming from the AEYE. It's one-time payment, and they can use it for two years making this investment. We do believe that, eventually, every year when we sell more and more cameras this way, then, that builds the user base and starts developing the recurring revenue from the AEYE, in accelerating speed. We do believe based on this, one and a half years what we have been doing this now, it seems to work with this model. But as said, in P&L, you don't see that, significant effect yet. Still to devices, how would you describe the OEM recovery? I mean, where are we compared to 2019 levels? Is it so that the OEM channel does not sell cameras in China at all? That is correct. OEM channels do not sell our cameras in China. They are not registered by CFDA, our OEM customers' cameras. Some of them are in a process, but I'm unable to comment on the possible timeline when the OEM channels possibly get the product to the China market. The growth has been good and recovery has been good this year compared to the last year in OEM channels. But still we are significantly below 2019 levels. I think the recovery should continue this year as well. Okay. Your OEM partners are, I mean, they are unchanged. No change in- No change. In your OEM partners. Yeah. Okay. Yeah, same partners and yeah, all continue in the same way. Yeah. All right. Looking forward to the FDA clearance. Now I understand you can't comment much, but can you share now your thoughts about the business model in the U.S., assuming that you would have an approval or get an approval? How do you plan to sell the product? Is it a licensing agreement? Is it, you know, what kind of model do you plan for? It is quite much the business model will be based on the recurring revenue, including both the AEYE service and the hardware. In the U.S. there are like in many countries, there are certain amount of customers who want to buy the capital equipment and then pay lower amount of revenue from the service or alternatively. The U.S. is especially the country where more and more customers they just want to pay the annual or monthly, I would say monthly cost for using the solution. In this monthly fee or annual fee there can be a component of fixed price or transaction-based pricing. We haven't fixed the model and the pricing yet. I think it will be in the U.S., the market is such that it will be quite much led towards this type of rental model of the whole solution. Okay. The rental model. Would that mean that you would have the camera would be on in your balance sheet, and then you would rent it out? Or how does this play out? Not fully decided yet, so. Okay. Time will tell. Okay. All right. That kind of like, we don't want to fix only every single model because FDA is limiting us from doing any pre-marketing. We don't want to fix these models before we have spoken to first real commercial customers about how they want to buy this type of solution. We need to wait until the approval is made and maybe offer different models at the beginning to early customers and then see what's the right model. Do you know how the solutions on the market from Eyenuk and Digital Diagnostics, how do they sell, or what kind of business model do they have? Yeah. Their standard model is that the customer needs to buy the camera first. It's about $20,000. Then they invoice between $20-$60 per examination. Sorry, who gets the $20-$60 per examination? The AEYE company. Ah. Okay. Okay. And the $20-$60- Yeah. Sorry, the reimbursement is for this, is it around $50-$55? $55 is the average today. Okay. All right. Okay. They are. Okay. Yeah. They have been in history, basically. They take all the reimbursement in some cases. Yeah. Yeah. Okay. Strange. All right. Good to know. Thanks. Still with regards to the U.S., if I may continue with a couple more questions. Do you see a risk that U.S. sales to the U.S. would slow down now, as we wait for the FDA approval? I mean, would clients in the U.S. continue to buy your camera, or would they wait for the new AEYE solution? Yeah. Of course, today and historically, all the cameras have been sold without AI, and they have been sold. To those customers who do not need AEYE. All this AEYE camera market is the new market on top of the traditional camera market, different customers. The traditional camera market where we sell most of the cameras and every other camera manufacturer sells most of the cameras, they are eye clinics and optometrists and t hose primary care clinics who have eye doctors as a consultant. The new market, which is kickstarting now because the reimbursement is coming for the AEYE, is those primary care clinics who don't have any association with the eye doctors. They are two totally different markets. The traditional market will probably continue as strong as before, just buying the cameras. Okay. That's a good clarification. Thank you. Finally, I noted in your report today that you publish the covenants for your loans. I mean, you are well now at the end of 2021, you were clearly, you know, exceeding with healthy numbers, exceeding your covenants. I also noted that you have, or if I read it correctly, that you have to one of the loans a covenant for an EBITDA of zero at the end of 2022. Is that correct, and do you expect to meet this covenant at the end of 2022? Yeah, it's a EUR 1 million loan from one of the banks. Well, first of all, it's not that big a loan. It's EUR 1 million. This is maybe something that we have to decide and discuss with the bank if we proceed in additional investments in the U.S. market. Because if we hire more people it will likely drag the EBITDA down without additional investments. Yes, we are not far from being EBITDA positive. But it depends on how much we want and need to invest in sales and marketing this year. Of course, on the other side, it's depending on how the revenue growth will be. Yeah. Anyway, in order to do these U.S. investments and if we think that they will drag the EBITDA negative, so we need to discuss with the bank what we do. Yeah. All right. Okay. I think that's all for me now. Thank you. Thank you. Please remember that, if you want to unmute yourself, it's star six. All right. It seems like there is no further questions at this point. That concludes our Q4 investor call. Many thanks, everybody, for participating. I hope to see you next time in our Q1 call.