ContextVision AB
OSE:CONTX
Earnings Call Analysis
Summary
Q3-2023
ContextVision, a leader in medical technology software, celebrated a record-breaking third quarter with a 28% net sales growth and maintaining margins in the mid-40s. Despite currency effects accounting for just 6.5% of this growth, the company achieved strong organic sales growth due to increased operational efficiency and a rebuilt service organization. CEO Gerald Potzsch attributes the success to their innovative forefront presence, market flexibility, and a committed team culture, blending new talent with long-serving employees. Newly appointed CFO Richard Hallstrom recognizes the company's growth potential in existing and adjacent areas. Although investing in organic growth programs may impact group margins short-term, the overall outlook remains positive, supported by a strong foothold in the expanding ultrasound market and a strategic shift towards simplifying point-of-care ultrasound imaging.
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Welcome to this third quarter Q&A for ContextVision, the CEO, Gerald Potzsch; and CFO, Richard Hallstrom.
But first to you, Gerald. Give us some highlights for the third quarter.
Well, once again, we've delivered a record breaking quarter. Let me put it in the perspective. So at the beginning of this year in February, we invited the entire company to celebrate first time in a 40-year history, SEK 100 million revenue at the end of 2022. Now 9 months later, we have reached SEK 100 million again. Isn't that fantastic?
Absolutely, yes. And the margins [indiscernible] I understand.
Absolutely. So as you know, it's not all about revenue. In the end, it's the free cash flow that we're generating. So I'm very happy that we kept margins in the mid-40s. EBITDA up over the first 9 months, which is a fantastic trend.
Yes. And then the growth on the top line has continued, you said. And how much this time?
Well, in fact, 28% net sales growth in the third quarter, fantastic. Currency effects, however, have only been 6.5%. But...
Still, it's more than 20%. So how is that possible?
So it's a healthy organic growth, I would say, and we've done quite some work with the team on increasing our clock speed in execution, and we've rebuilt our service organization, and those effects are paying off now.
Well, you just finished your 40th anniversary celebrations. And what do you think is the key behind the success of ContextVision?
So to simplify, the DNA has 3 core components: number one is we've always been at the forefront of innovation. We've managed with strong and reasonable investments in R&D to always keep ahead of the curve. For instance, in AI, we started almost 10 years ago investing into machine learning, which clearly pays off nowadays. Number two, I think we've always been flexible to changing market conditions. So the flexibility of a smaller company and the speed of being able to adjust has also paid off throughout the years. And then number three, I think it's all about the team. So we have a unique company culture, almost a family culture, I must say, with a good blend of new and people that have many years of service. So over the last 2 years, we've around 25% new employees. However, on the 40-year celebration, we have given out awards for years of services. And more than half of the company received an award of 5 years, more than 10 years, 15 years, 20 years, and we even had one to receive a Diamond 30-year.
Wow! Service award. Well, that says something. And Richard, you are on the team, so you have a way to go there. Been here for a month as a CFO. How has the start been?
I already feel part of the family after 1 month here. And I think there is a strong culture, a strong sense of innovation. And I really can understand why ContextVision has been a market leader for 40 years.
But you've been in the med tech business for decades, some larger companies, some smaller growth companies. What is your first take on ContextVision?
I mean this is an amazing med tech software company that takes almost all of the boxes. It has growth, it has profit. It has also a strong cash flow. And I think there are plenty of opportunities for growth, both in the existing business as well as in adjacent areas.
But what did you bring to the table?
I mean I have experience from scaling up businesses from relatively small to really into the OE side of things. And I think that doing this in a profitable manner, that's really what I can bring to the table.
Well, sounds good. Gerald, we talked about the high margins. Do you think they will continue?
Well, absolutely. So for our core business, we plan to continue the level of margins that we've seen in the past. On the other side, I must say, we have announced and we plan to invest a good part of the free cash flow into our organic growth program. So that's going to have an impact short term on the group margins.
Okay. But the top line growth is much higher than your competitors. So why is that?
Well, if you take away the currency effect, we're as I mentioned, still growing very healthy on the organic side. Apart from the internal work that we've done, I think we've also placed the bets right in being in the ultrasound business, which is a strong growing market segment. And even from a geographical and customer base perspective, we have a strong footprint in Asia and is also paying off strongly over the last quarters.
Do you think these high margins will continue?
Well, I don't see a reason why we shouldn't continue executing and growing both in our core business, but as well as in the growth segments. So we're going to see some impact on that also midterm. Let's talk about it a bit more in detail.
Yes, yes, absolutely. And point-of-care ultrasound, the so-called focus that will be important for the growth going forward next year or the year after. What exactly is that ContextVision does within focus?
So we're going to change radically point-of-care imaging in ultrasound. You know the saying that a picture tells more than 1,000 words. And I guess that's the entire problem. So we are facing an explosion of images that need to be taken and then that needs to be acquired. It needs to be read, it needs to be interpreted. It's way too complex to -- it takes way too long, so we need to dramatically simplify the way ultrasound is being used, and we're going to make it independent from the user.
Well, well, it sounds exciting. It's cool. But then all over the world, there's a huge focus on health care and health care investments. Do you feel blessed being in this market?
Well, I guess we all do, right? It's a continuously growing market. It's less impacted from the global issues that we're seeing today, and we're looking very positively into the future.
Right. And what I can add is it's an exciting journey ahead for ContextVision, and it's a really good time for me to start with ContextVision.
It's great to have you.
Thank you.
Unless you [indiscernible].