Medicalgorithmics S A : Expands Globally, Forges New US Partnerships, and Boosts Q4 2023 Revenue

Medicalgorithmics, a member of the sWIG80 medtech index, recaps 2023 - a year marked by the implementation of a new growth strategy and a successful transition of the business model towards becoming a provider of non-invasive AI software based diagnostic technologies for cardiology. Thanks to gains in the global market (excluding the US), the company's revenue in the fourth quarter of 2023 reached PLN 12.5 million, a 31% increase from the third quarter of the previous year.

"We are pleased with the pace at which we are transforming Medicalgorithmics into a global provider of AI diagnostic software for cardiology. There is significant interest in our offerings. Since announcing our new strategy, we have acquired nine clients, including five in the US, where we are successfully building a multi-distributor-based sales approach. We are also consistently meeting our target of acquiring at least two clients each quarter. It is gratifying that in the first year of implementing our new strategy, we have established a solid and sustainable foundation for Medicalgorithmics' profitable growth. The effects of the strategy are evident in the last quarter of 2023, where we achieved a 31% increase in revenue compared to the third quarter, largely due to device sales that build long-term, stable relationships with clients," says Maciej Gamrot, CFO of Medicalgorithmics.

In the fourth quarter of 2023, Medicalgorithmics reported PLN 12.5 million in consolidated revenue, the best result of the past year, compared to PLN 9.5 million in revenue the quarter before. For the full year of 2023, Medicalgorithmics reported consolidated revenues of PLN 43.1 million, down from PLN 62.7 million the previous year (a 31% decrease year-over-year). Of this, PLN 35.3 million came from the sale of diagnostic and medical services, and PLN 7.8 million from sales of heart monitoring devices.

The decline in revenue reflects the change in the business model in the US, where the company generated revenues of PLN 17.8 million in 2023 compared to PLN 44.0 million the previous year. As part of the change in sales strategy, Medicalgorithmics terminated its exclusive partnership with React (in 2022, the partner bought the loss-making Medi-Lynx from the Polish company) and began acquiring new clients in a non-exclusive model, diversifying sales in this market. Since then, Medicalgorithmics has successfully been building its position in the US as an independent supplier of AI software and ECG analysis devices. The provision of services to React concluded at the end of 2023.

"We see positive effects from the change in our sales model in the US. The cost of its transformation in the form of temporarily lower revenues is part of the strategy. Our goal is to rebuild sales in the US as quickly as possible so that, together with the global market, we achieve monthly sales at 2023 levels when we still provided services to React. We are successfully working to acquire new clients in the US - since the beginning of the year, we have started commercial services for five partners, and we are in advanced discussions with several more firms," says Jarosław Jerzakowski, COO of Medicalgorithmics, responsible for sales and operations.

In the global market (excluding the US), sales in 2023 increased by 36% year-over-year to PLN 25.3 million, compared to PLN 18.7 million in 2022. For the first time in Medicalgorithmics' history, markets other than the US generated more revenue. This is the result of the dynamic business development in Canada, Scandinavia, Poland, and beyond. In 2024, Medicalgorithmics successfully continues this growth by acquiring additional new clients in the global market.

Medicalgorithmics' operational activity is profitable - in 2023, the company generated PLN 1.0 million in sales profit, PLN 0.4 million in operating profit, PLN 2.8 million in EBITDA, and - importantly - positive operational cash flows amounting to PLN 0.2 million. Due to non-cash and one-off provisions for assets and inventories (resulting from the reorganization of development projects) and negative currency exchange differences, Medicalgorithmics reported a consolidated net loss of PLN 0.5 million at the end of last year, compared to PLN 11.8 million net loss the previous year. As of the end of December 2023, the year-end cash balance in the company was PLN 25.5 million, compared to PLN 26.1 million the previous year.

The session index, a metric indicating the number of ECG analyses processed by Medicalgorithmics AI software, began to rise in the fourth quarter of 2023, in line with strategic expectations. In this period, the company completed 36.2 thousand sessions, 10% more than in the previous quarter. Throughout 2023, the session index totaled 143 thousand, which was 10% lower than in 2022, a result of the business model shift and associated decline in the U.S. market sales. However, this decline in the U.S. sessions was largely offset by a 19% growth in the global market (excluding the USA), where Medicalgorithmics realized over 111.4 thousand sessions compared to 93.7 thousand the year before.

In accordance with the development strategy announced in June 2023, created with the involvement of Medicalgorithmics' main shareholder, Biofund Capital Management LLC, the company changed its business model. Moving away from offering exclusively a closed cardiac diagnostic system linked to its own heart monitoring devices, the new strategy focuses on selling a platform for analyzing multi-day ECG recordings with proprietary AI algorithms as a standalone product, as well as integrating these with devices and IT systems of partners. Medicalgorithmics software can be licensed by clients, with the company earning fees in various models, including those based on the number of ECG data analyses performed.

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• April 22, 2024