Nexstim Q3 business review: Hatching growth initiatives

Translation: Original comment published in Finnish on 10/30/2023 at 6:50 am EET

Nexstim published its Q3 business update on Friday. The company reported news about systems delivered during the quarter, the number of which was in line with preliminary data and our expectations. The company does not publish other figures describing business development in the business updates. Nexstim said that it invested in marketing the NBS 6 system and improving cost efficiency during the quarter. The company reiterated its objective of positive EBITDA in 2023 and minimizing future capital needs.

No surprises in the update concerning system sales

Nexstim said it had delivered 9 NBS diagnostics and 2 NBT therapy systems during January-September. In addition, the order backlog included two systems at the end of Q3, and one order and one tendering win was announced in October. So far, the total number of system deals in 2023 is thus 15. We estimate that 2023 system sales could be similar to last year when 22 systems were sold. The end of the year is typically the most active time for system sales, partly due to the timing of public sector budget decisions. The graph below shows the estimated number of systems sold monthly based on Nexstim's reports and releases and the 12-month moving average.

According to the company, the system base suitable for therapy applications was 70, which means an increase of 8 from the beginning of the year. The company reported that the third quarter was a particularly busy time in sales and marketing activities and it participated in several international industry conferences and events during the quarter. The company also announced the upcoming first customer events and deliveries related to the new NBS6 system launched in the spring. NBS6 has FDA approval and CE marking for therapy applications. The company expects approvals for diagnostic applications during 2024, which could boost system sales.

Negotiations are under way to expand the clinic network

One of Nexstim’s strategic goals for this year is to increase the network of collaboration clinics, especially in the US. To date, the company has one collaboration clinic in the US since early 2022. Nexstim said it is involved in negotiations with several potential partner clinics in both the US and Europe. The company recently announced a loan agreement of EUR 1.5 million mainly aimed at growth investments. We estimate that the main purpose of the loan is to expand the clinic network.

Heading into an interesting and difficult to predict 2024

In terms of the outlook, Nexstim's expectations for Q4 continue to be positive despite the tightened global political and weakened general economic outlook. The company reiterated its objective of positive EBITDA and minimizing future capital needs. Achieving this goal would require a significant improvement in business activity compared to H1, when EBITDA amounted to EUR -1.1 million. The visibility to business development is quite low and in the short term, much depends on the NBS6 system's sales pipeline. So far, no deals have been announced, but the update suggests that first deals could be expected later this year. The diagnostic approvals expected next year could increase the demand for NBS6, as we believe Nexstim’s strength is integrated systems capable of many applications with high levels of targetability and controllability.

In terms of expanding the clinic network, it seems that news may be received very soon. On the other hand, network expansion has progressed slowly and there is no visibility to new agreements from outside. Next year, we also expect licensing income based on the licensing agreement with Magnus Medical. The company also announced other licensing negotiations that could lead to new agreements in the future.

In terms of financing, the company’s cash reserves were EUR 2.1 million at the end of H1. The cash reserve has been declining (H2’22: 4.4 MEUR) due to the loss-making business and we estimate in a recent comprehensive report that the company will arrange a share issue next year. We also think it is possible to avoid a share issue, but it would require a clear pick-up in system sales before licensing income starts to improve cash flow more significantly.