The sales for Q4 came in at EUR3.7m (EUR4.0m), 18% below our sales estimate of EUR4.5m. This corresponds to a YoY decrease of -9%. We learned from the report that the main reasons for the decrease were lower OEM sales and a strong comparable quarter. Moreover, the gross margin for the quarter was 67% (69%), which was in line with our estimate of 68%. Operating expenses amounted to EUR-3.2m (EUR-3.1m), a bit higher than our OPEX estimate of EUR-2.8m, and EBIT came in at EUR-1.3m (EUR-0.9m), lower than our EBIT estimate of EUR-0.3m. The difference between our estimates and the report is mainly the sales, as other line items fairly aligned with our expectations.

The cash flow from operating activities was EUR-0.5m (EUR-0.1m), and by the end of the quarter, the cash and cash equivalents amounted to EUR7.1m. We believe Optomed has no capital need at the moment, and we argue the current cash position should cover future business activities.

During the last quarter, the devices segment revenue decreased by 7.2% compared to Q4 2022, from EUR1.3m to EUR1.0m. We learned from the report that revenue continued to grow in the global distribution sales and the US; however, low OEM sales are the main reason for the decreasing revenues.

Moreover, the gross margin was 58% (68%), whereas last year’s gross margin was positively affected by a project work for an OEM client. EBITDA in the segment was EUR-0.6m (EUR-0.3m).

The software segment has had a solid performance during Q4 with quarterly sales of EUR2.6m (EUR2.7m), a -3.7% decrease Y/Y compared to a strong Q4 2022. Moreover, the gross margin during the quarter was 72% (69%), and EBITDA was EUR0.6m (EUR0.7m).

Furthermore, in addition to its healthcare customers, Optomed’s software segment also provides development services to a non-healthcare Finnish governmental agency under a contract, the term of which is ending at the beginning of July 2024. Optomed highlights the risk that the company fails to win the procurement process, which would impact 2024 sales by approximately EUR0.5-1.0m. However, in the conference call, Optomed said that it is difficult to know how large the risk is and that the company has won the contract earlier; however, it is essential to notify investors about the risk.

Overall, the report did not meet our expectations regarding sales, especially as Q4 historically has been a strong quarter. However, we learned from the report that the additional data has been submitted to the FDA. We did not receive any information about when to expect a decision from the FDA; however, we believe the decision will come during the next 1-3 months. What is important to mention is that the decision does not need to be binary (yes/no). There could be a scenario where the FDA requests more data; however, as the process has been long and the parties have had a dialogue during the whole process, we expect approval or a non-approval (we estimate a 90% LoA in our estimates).

Based on yesterday’s report, we have made some changes in our estimates for 2024e and 2025e. Firstly, we lower our sales estimates for 2024e from EUR19.4m to EUR18.4m, which is mainly a result of the Q4 sales, creating less confidence in future sales. Moreover, we make some minor changes in our employee benefit expenses estimates between 2024e-2025e. We expect the line item to increase more than previously anticipated in relation to the US launch (2024e increase from EUR9.1m to EUR10.4m and a 2025e increase from EUR10.9m to EUR11.9m).

Regarding Optomed’s FDA process, we argue there is a high possibility of approval, and we expect the US strategy and launch will start directly after the potential approval. As mentioned, the additional data has been submitted to the FDA, and we expect a decision during the next 1-3 months. The FDA approval is highly important for the company and our investment case as there is a clear need for the AI camera in the US, in our view. Moreover, the US strategy will create recurring sales to a much higher degree than currently, which we believe reduces the risk in the case. Optomed´s share has had a negative trend during the last year. The general stock market climate is, of course, a major reason. Additionally, the market has probably had higher expectations of the company’s growth, and the FDA process has been longer than anticipated. However, we argue the share is currently traded at attractive levels and highlight the potential FDA approval as a major trigger for the share.

We expect full-year 2024e sales of EUR18.4m, US subscription revenues from Q2 2024e, and full-year EBITDA of EUR-0.4 and EBIT of EUR-2.9m. Furthermore, we believe the launch of Aurora AEYE will start directly after the FDA approval; however, as it often takes time to establish a new product on the market, we expect sales to rise significantly during 2025e (estimate of EUR33.5m). As we have only made changes in our short-term estimates, the changes do not significantly impact our valuation. Our fair value range is unchanged, with a base case of EUR7.5, a bull case of EUR16, and a bear case of EUR1.5.

Our valuation of Optomed is based on a discounted cash flow model. Our analysis suggests a base case of EUR7.5, representing a significant upside from the current share price levels.

At Redeye, we use three different scenarios to value a company's stock. These provide a more dynamic view of the case.

• Base case: EUR7.5 per share
• Bull case: EUR16 per share
• Bear case: EUR1.5 per share

In our base case of EUR7.5, we assume a European market value in the device segment of approximately EUR22m. We estimate Optomed will have 16% market penetration in 2024e and that the market will grow by 7% across the entire forecast period. Moreover, we assume Optomed's market penetration will increase during the forecast period, arriving at 20% penetration at the end of the period (2030e). Optomed's European software segment has been strong in the past, and we expect approximately 10% annual growth. The Chinese market has been turbulent, and in our base case, we expect this to continue, resulting in low expectations. As Optomed is developing its business in other parts of the world, we believe its RoW sales may increase significantly in the future. However, as we do not expect this in the coming years, and because of the uncertainty, we exclude a potential expansion and only apply minor sales numbers to this segment for our forecast period.

Moreover, we believe the US business model is exciting and vital for the case. In our base case scenario, we assume a 90% LoA by the FDA and estimate that Optomed will have 7,000 subscribers in the US by 2030e. Although we expect the number of subscribers can grow far larger, we would like to get a picture of the interest and demand before assuming higher numbers. We expect to get a better picture during 2024 as the first subscribers have tried and evaluated the offering.

In our bull case scenario of EUR16, we assume a faster ramp-up in sales in all segments. Our assumptions are summarized in the list below:

European devices segment: 7% market CAGR and 25% market penetration by 2030e.

European software segment: Annual average growth of 15% during the forecast period.

Rest of the world: See base case

US: Faster subscription ramp-up, with 11,000 subscribers by 2030e. In this scenario, we assume a 100% LoA.

In this scenario of EUR1.5, we assume a slower sales ramp-up in all segments. Our assumptions are summarized in the list below:

European devices segment: 7% market CAGR and 15% market penetration between 2024e-2030e.

European software segment: Annual average growth of 7% during the forecast period.

Rest of the world: See base case

US: In this scenario, we assume a 0% LoA; however, we expect devices and software sales in the US to continue, assuming an average of 10% growth during the forecast period.

In addition to our DCF valuation, we offer a peer group analysis that compares Optomed with other medtech companies in the Nordic region. These ten companies have enterprise values similar to Optomed. We argue the best measurement is EV/Sales, as Optomed is not currently profitable on a yearly basis.

We argue it is challenging to find similar peers to Optomed, and we observe the company's EV/Sales multiples are 4.0x for 2023 and 3.3x for 2024e. However, the most similar company to Optomed is Revenio Group, which operates in the same area. Even if Revenio is larger than Optomed and is in a later stage, its EV/Sales multiples are around twice as high. We believe such a difference is too massive and argue that Optomed's share is currently trading at low levels, primarily due to the high potential in the US. However, we believe the share price development will improve during the next twelve months and view the upcoming FDA approval as a major trigger for the share.