Nexstim H2 2022: Slight miss – but long term profitability in sight
Research Update
2023-02-28
13:20
Redeye provides a research update after Nexstim's H2 report, which came in slightly below our projections. As a result, we have made minor adjustments to our base case and provided our perspective on 2023.
FT
Fredrik Thor
Contents
Review of the financials
Per Segment FY22:
Events in 2023
Changes to our estimates
Valuation
Investment thesis
Quality Rating
Financials
Rating definitions
The team
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Total revenue in H2 came in at EUR2.7m (3.4m), -20.5% compared to H2 2021. This was lower than our expectations of EUR3.4m. Per segment, this is mainly explained by the lower-than-expected sales in the diagnostics segment at EUR1.3m compared to our expectation at EUR2.1m. For FY22, net sales came in at EUR9.5m compared to our estimate at EUR10.2m the operating result came in at EUR0.84m compared to our estimates of EUR1.2m
The company declared its transformation into a global process organization in 2023, resulting in potential cost savings of up to EUR0.6m for FY2023. In addition, the company revealed its plan to delist its parallel listing on First North Stockholm. Overall, we observe that the company is emphasizing profitable growth and implementing measures to reduce costs. However, to achieve its objectives in the upcoming years, it is crucial for the company to increase comparable sales growth.
We have updated our Redeye Rating model, resulting in a minor adjustment to the WACC to 12.5% (from 13%). Additionally, we have updated our FX assumptions and conducted some housekeeping of our model. We have also revised our estimates downwards, and subsequently, we have lowered our base case for the share price to SEK60 (62.5) per share.
EURm | 2020 | 2021 | 2022 | 2023e | 2024e |
Revenues | 4.1 | 6.4 | 9.5 | 7.8 | 9.4 |
Revenue Growth | 23.0% | 55.3% | 48.4% | -18.3% | 20.6% |
EBITDA | -3.0 | -1.2 | 1.3 | 0.38 | 0.91 |
EBIT | -3.4 | -1.7 | 0.80 | -0.40 | -0.02 |
EBIT Margin | -81.3% | -25.9% | 8.5% | -5.1% | -0.3% |
Net Income | -4.2 | -0.94 | 1.5 | -0.40 | -0.02 |
Total revenue in H2 came in at EUR2.7m (3.4m), -20.5% compared to H2 2021. This was lower than our expectations of EUR3.4m. Per segment, this is mainly explained by the lower-than-expected sales in the diagnostics segment at EUR1.3m compared to our expectation at EUR2.1m. However, sales in the therapy segment at EUR1.4m slightly exceeded our expectations of EUR1.3m. Nexstim has historically been stronger in H2, but we also note that the diagnostics segment is quite volatile, given the high value per order. Still, given the solid growth in recent years, our expectations were higher, as we have started to see this segment as a significant driver for growth. When comparing to H1 21, investors should be aware of the one-off sales of a prototype system worth EUR0.9m in 21.
For FY22, net sales came in at EUR9.5m compared to our estimate at 10.2m and operating expenses at -EUR8.2m compared to our expectation of EUR 8.1m. For the full year, Nexstim capitalized development costs of EUR1.2m compared to our expectation at EUR1m, which affected the reported operating profit positively but does not impact our valuation. In FY22, the operating result came in at EUR0.84m compared to our estimates of EUR1.2m. When adjusting for the capitalized development costs, adjusted operating result came in at EUR-0.4m compared to our estimates at EUR0.2m. Nexstim’s cash position amounted to EU4.4m compared to our estimation at EUR6.6m.
NBS
Nexstim’s TMS diagnostics segment, used for pre-surgical mapping of brain tumors, decreased roughly 8% YoY in 22. Nexstim sold and delivered 14 NBS systems during the period. When adjusting for the one-off prototype sales, growth in the segment was instead 20%.
NBT
The TMS therapy segment, mainly focused on treating treatment-resistant depression, grew 127% YoY with 62 installed systems worldwide, including eight new installs during 2022. This includes both the NBT system and NBS system with therapy capabilities. Sales growth was driven by the EUR3.5m licensing fee from Magnus Medical, and the segment would otherwise have a small decline during the period.
About the Magnus Medical Deal
In February 2022, it was announced that Nexstim will out-license technology used in its NBT-system to Magnus Medical, a new US-based company built on commercializing a new TMS therapy protocol called “SAINT,” developed at Stanford University. The deal consists of an upfront payment of EUR 3.5 million and a technology royalty for a maximum of five years, projected by Magnus Medical to be approximately EUR 13 million. During the royalty period, i.e., the first five years of commercialization of the technology, Nexstim will not directly sell new NBT therapy systems in the US. However, it will keep its recurring revenues from installed systems, continue sales of its NBS diagnostics system (including combined NBS/NBT system), and invest in partner clinics.
Our impression is that Magnus Medical will start sales in H2 2023, which then would start the exclusivity period.
In 2023, it was announced that the company would transform into a global process organization, hoping to become more efficient, and the company hopes to save up to EUR0.6m for FY2023. It was also announced that the company would remove the parallel listing on First North Stockholm, due to low liquidity and relatively few shareholders. We will start to present our valuation in Euro once the delisting is completed. Overall, the cost control during 2022 and measures to cut costs further in 2023 are positive and a good start to turn the company profitable.
In the report, Nexstim sets a strategic objective to achieve a positive EBITDA result for FY2023. This was quite aligned with our expectations (we assumed EBIT around EUR0m). We slightly tweak our estimate for 23, where we expect slightly lower sales (EUR7.8m) but also implement the cost savings, leading to an EBIT at EUR-0.4m and EBITDA around EUR0.4m. This as we are somewhat more confident in managements focus on cutting costs ahead. We also lowered our diagnostics sales due to the missed expectations in H2 but reiterated our stance on the therapy segment. We still expect Magnus Medical to pay Nexstim royalties during 2023, and given that we expect gross margins of almost 100%, exceeding initial sales of Magnus Medical’s system could push Nexstim over the edge back to profitability again.
New estimates divided by segment
Changes to our estimates.
We do some model housekeeping, including a minor change in the WACC to 12.5% (13%) due to changes in our Redeye Rating model. We also adjust our FX assumptions. Given the slightly amended estimates, we lower our base case to SEK60 (62.5) per share.
Case
TMS Diagnostics market leader with KOL support
Evidence
Precision positions ‘navigated’ TMS well
Supportive Analysis
Challenge
Dependent on Success of Magnus Medical
Challenge
Unprofitable TMS Market
Valuation
Transformation after Magnus Medical Deal Pivotal
People: 3
Business: 3
Financials: 1
Income statement | ||||
EURm | 2021 | 2022 | 2023e | 2024e |
Revenues | 6.4 | 9.5 | 7.8 | 9.4 |
Cost of Revenue | 1.1 | 0.01 | 1.1 | 1.9 |
Operating Expenses | 6.5 | 8.2 | 6.3 | 6.5 |
EBITDA | -1.2 | 1.3 | 0.38 | 0.91 |
Depreciation | 0.44 | 0.48 | 0.78 | 0.94 |
Amortizations | 0.00 | 0.00 | 0.00 | 0.00 |
EBIT | -1.7 | 0.80 | -0.40 | -0.02 |
Shares in Associates | 0.00 | 0.46 | 0.46 | 0.46 |
Interest Expenses | 0.00 | 0.00 | 0.00 | 0.00 |
Net Financial Items | 0.72 | 0.47 | 0.00 | 0.00 |
EBT | -0.94 | 1.3 | -0.40 | -0.02 |
Income Tax Expenses | 0.00 | -0.27 | 0.00 | -0.01 |
Net Income | -0.94 | 1.5 | -0.40 | -0.02 |
Disclosures and disclaimers
Contents
Review of the financials
Per Segment FY22:
Events in 2023
Changes to our estimates
Valuation
Investment thesis
Quality Rating
Financials
Rating definitions
The team
Download article