ContextVision AB

OSE:CONTX

Q3-2025 Earnings Call

[Gerald Potzsch, executive]

Welcome to ContextVision, and welcome to the presentation of our Q3 report. Today with Richard, our CFO; and myself, Gerald. Agenda, as usual, a brief business update. We will then go -- or we will go into the financial developments, and then we'll close with a brief summary and outlook.

Now third quarter, pretty relevant for us. It's going to be the last webcast for the calendar year. And I think it's a good indication on what we've seen throughout the first 9 months and what we can see going on for the rest of the year. But let's stay focused on the third quarter results and the first 9 months for 2025.

In summary, we continue to see turbulent market conditions affecting our sales development. However, our strategic initiatives, both in our image quality business as well as in data quality have continued as planned during the quarter. So we've made solid progress in data quality, mainly by securing key approvals, allowing us to initiate patient recruitments. And within image quality, we've continuously made strategic enhancements and developments for our product portfolio, and that is to align with long-term market trends and customer demands. Also important to mention that in September, we have initiated our share buyback program for the year as it was mandated by the Annual General Meeting back in May. And that really reflects our solid financial position and the confidence in the company's long-term value creation.

So turning in particular, more to the financials for the quarter. Revenue has come in with SEK 23.7 million, and that's a decrease of around 21% compared to last year. Adjusted EBITDA, so that's excluding our data quality investments amounted to SEK 4 million in the quarter, giving an adjusted margin of 16.7%. So operating cash flow in total was negative SEK 2 million for the quarter.

Now for the first 9 months, revenue has reached in total SEK 78.6 million, and that's down 18.6% compared to the same period last year. And likewise, adjusted EBITDA came in at SEK 11.2 million. So we're not happy about those figures, obviously, but we're confident that we're making the right progress, both in image quality and data quality.

Now Richard will go a bit more into the details of the financial results. But before that, let's look a little bit into why we believe the situation in sales development is very much market related, and we remain confident in our business.

So if we look at the business development over a longer period of time as it plays out in between 2020 and 2025 now, we see a compound annual growth rate of around 8.4% for the last 4 years. But it's interesting to look at the shape of the net sales curve now where you see a good increase between 2022 and 2024. And that's mainly based on a heated market in Asia. So we have taken in quite a lot of new contracts, new services, and volume sales related or market-related have grown.

But then you see the curve flattening out in 2023, early 2024. And that's mainly based on platforms that we have under contract, but they are being phased out. So a slow decrease in volume that takes a part of the initial growth and leverages out. But then you see that turning point at the beginning of this year, basically, where global market uncertainty kicks in even on our end. So projects that we have planned in the pipeline are moving out and volumes in the market, so our customers' sales in the end is impacting us somewhat indirectly, somewhat more directly. I'll go into that detail in a minute.

But in the end, we're trading now with a rolling 12 of SEK 113 million in net revenue. And I think that's a good indicator for the current market conditions that we're facing. But important again that we have not lost customers or substantially changed our go-to-market setup or seen changes in customer dynamics. It's more a market dynamics result that we're seeing here.

Likewise, a brief bigger picture on the bottom line curve, so EBITDA or adjusted EBITDA that we see a sharp increase in 2022 after the spin-off of our digital pathology business and the INIFY Laboratories and basically based on reduced headcount and shared resources, giving us a kick in profitability. But then when we decided strategically to invest into the data quality growth initiative, obviously, we anticipated a decrease in profitability. And then obviously, with a decreased net sales at the beginning of 2025, driven by market conditions, plus the continued investment that we have both in our image quality as well as in our data quality business, we see the decrease in profitability.

When it comes to strategically planned investments, this is all on track. But obviously, the impact of the reduced sales on our bottom line is something that we have to anticipate. But I think that we manage respectively. So let's go back a bit more into the third quarter and highlights for the quarter, starting by looking into our business development activities related to our image quality business. As I said, we've made strategic product adjustments that will secure our long-term image quality offering and that we're staying aligned with market and customer dynamics.

And in particular, what shows successful in this quarter is the collaboration with OEM customers, where we extend our footprint from previously focusing on post-processing only to cover the entire image processing or signal processing chain. And we've already presented prototypes with positive feedback. And in fact, we've just signed yet another customer contract on image chain services. And the good thing and planned effect is that this will generate demand for license business subsequently.

So the progress we're making in image quality by focusing on those collaborations will secure our long-term growth. But it's also clear that those type of projects take time to materialize in the revenue development. Short term, it's also important to note that we've prepared the launch of a new clinically focused product line. We mentioned that in last quarter, and the launch will take place in Chicago at RSNA at the end of November in the fourth quarter. So all excited on getting into Chicago and focusing that launch.

Now if we look into the progress on the data quality growth initiative, I'm proud that we've reached major milestones now in the quarter with securing approval from both the Institutional Review Board and the Ethics Committee for our clinical protocol. So our collaboration partner, in this case, University of Washington in Seattle is actively screening patients with the goal of enrolling the first subjects very soon.

So keep in mind, the bigger picture for this growth initiative is to develop a novel AI-powered ultrasound-based biomarker to quantify hepatic steatosis for MASLD or fatty liver patients. So that's in clinical speak metabolic dysfunction associated steatotic liver disease. It's a pretty impressive penetration of the general population. So 1 in 4 is impacted. So there's not many people we can look behind us before we look at ourselves. So it's a huge issue in the global market where I think we present a fantastic step towards noninvasive quantitative scalable diagnostics. So a very effective lower cost opportunity of selecting and then treating those patients worldwide.

So in the study, we plan to collect multimodal imaging data and clinical data. So that means MR, ultrasound, elastography data from more than 100 patients, and that's covering the full MASLD spectrum. So pretty impressive data intake. But we -- as we know, data is the currency of any AI solution. So we're pretty confident that collecting high-quality data will also lead to high-quality products in the data quality initiative.

Now I still want to turn back into the market conditions as we're not happy with the financial results that we're presenting today. The overall environment, as I mentioned, remains challenging. So we continue to see global trade uncertainty and in particular, hesitation amongst our customers in investments, and that is also driven by their customer and market conditions where we see an increased price pressure and a shift in demand from premium systems to high-end or mid-range segments. We also face procurements that are being delayed, and that is, again, reflecting cautious investment decisions in the market.

Now I think it's interesting to mention if I look to the total customer base and the impact on our net sales given those market uncertainties, market-leading customers, so the large Tier-1 OEMs, they're able to manage those market conditions significantly better and have significantly less impact, respectively, on our license sales. So they're more or less stable despite those dynamics in the market. However, smaller customers that have less global footprint, they obviously directly impacted and the reduced volumes directly impact our license sales. So it's a bit of a mixed picture depending on the type of customer and the geography we're looking into. But I think in a nutshell, it's important to note that there is no structural changes in our customer setup. So we've lost -- not lost customers.

We continue to see the phaseout of the platforms that we mentioned earlier. But main challenges and the main drivers behind the continued decrease in license sale compared to last year are market dynamics, right? And I think with the initiatives that I described, both in image quality as well as in data quality, we're able to manage those headwinds. So our focus remains clear on executing both strategic initiatives, and we're building a solid foundation for the future for ContextVision.

Richard, with that having said, maybe it's a good opportunity to go a bit more into the financial details.

[Richard Hallstrom, executive]

Yes. Thank you, Gerald. Now looking at our revenue development. We saw a decline of just over 21% compared to the same quarter of last year with revenues reaching SEK 23.7 million. This was mainly due to lower license sales. However, it's worth mentioning that Q3 last year came in very strong due to sales push from one large customer and also timing of orders from some other customers.

During the quarter, we continued to experience foreign exchange headwinds as U.S. dollars and euro remained weak against the SEK. Negatively, this was impacting our revenues by around 3.5% or SEK 1.1 million. Revenues for the first 9 months came in at SEK 78.6 million versus SEK 96.5 million of last year. And as Gerald mentioned, we still see the same market dynamics as we've discussed in the previous quarters with price pressure, longer decision cycles and delayed procurements due to economic and political uncertainties. While these external factors continue to affect short-term revenues, we remain confident in our long-term strategy, focusing on both image quality and data quality, which we believe will support sustainable growth as market conditions stabilize.

Turning to our profitability. Our EBITDA adjusted for investments in data quality came in at SEK 4 million with an adjusted EBITDA margin of 16.7%. The main reason for the lower profitability this quarter are lower sales, as previously mentioned, due to continued market uncertainty. We also had a non-recurring foreign tax expense of SEK 2.9 million. Transactional FX had a slightly negative effect of SEK 0.1 million in the quarter. And as before, we continue to invest in both image quality and data quality.

To fully unlock the value of these investments, we also continuously invest in the company's infrastructure. This is, for instance, IT systems, QA function, and the new R&D equipment. Our R&D investments will continue to impact results short term, but we are confident that they will pay off in the longer run.

Now looking at our cash flow and financial position. Our cash flow from operating activities came in at SEK 5.2 million before changes in working capital and a negative SEK 2 million after these adjustments. The total cash flow for the quarter was a negative SEK 2.9 million compared to positive SEK 0.4 million of last year. For the first 9 months, our total cash flow ended at a negative SEK 6.9 million compared to SEK 8.5 million the same period of last year. The main reason for the negative cash flows are our lower revenues, continued investments in R&D and our ongoing share buyback program.

To sum up, our cash position remains solid at SEK 67.5 million, providing us ample headroom to continue executing on our long-term plans. We have a strong balance sheet that enable us to continue investing in both image quality and data quality, explore potential M&A opportunities and also carry out shareholder value initiatives such as the share buyback program.

And with that, Gerald, will hand over to you for a summary and outlook.

[Gerald Potzsch, executive]

Well, thanks, Richard. I think confidence was already a good summary. You mentioned it several times in your description. So why are we confident moving forward? And how do we summarize the third quarter? So I think we've made very solid progress, both in image quality as well as in our data quality initiative during the quarter. We're extremely happy in data quality that we have secured key approvals that will allow us to initiate patient recruitment soon. And we're also happy to announce further partnerships to that consortium and we'll provide separate updates on that as it occurs.

In image quality, we've strengthened our collaborations with key OEMs, securing new contracts into the image processing chain. That's an important enabler, both for long-term growth as well as a deeper customer integration, makes us very confident that the role we've chosen both in data quality and image quality is playing off. Short term, next quarter, we're ready to launch our new clinically focused product line at RSNA in Chicago later that year. And again, a major step even to be a more clinically focused in our solution offerings.

So even though that we face those global market uncertainty and the instability in the short term, we're strengthening our position as a leader in image quality and pioneering really new data quality solutions. So those efforts will position ContextVision at the forefront, both of healthcare and technological innovation. And having that said, I think we're ready to capture future opportunities as the industry evolves. So thank you for your attention today, and stay tuned.