Modulight Corporation, Company Release, Financial Statements Bulletin (Unaudited) February 23, 2022 at 1.00 p.m. EET

This release is a summary of Modulight's 2022 financial statements bulletin. The whole report is attached to this stock exchange release as a pdf file, and is also available on the Modulight website at https://www.modulight.com/reports-presentations/.

The figures in brackets refer to the corresponding period of the previous year. This financial statements bulletin is unaudited.

Highlights in October–December 2022

• The R&D pipeline grew by one new project to 27 and developed especially towards new business models, such as the pay per treatment (PPT) model. Concrete progress in the product development pipeline was also the FDA approval received in January 2023.
• Revenue was EUR 1,268 (2,374) thousand. The decrease in revenue was due to the company's long sales cycles and delays in customers' research projects.
• EBITDA was EUR -2,000 (-3,715) thousand. Profitability was impacted by low revenue and the company’s decision to accelerate growth strategy implementation.
• EBITDA margin was -157.7 (-156.5) % of revenue.
• Operating result (EBIT) was EUR -2,501 (-4,067) thousand.
• Operating result (EBIT) margin was -197.2 (-171.3) % of revenue.
• Earnings per share was EUR -0.05 (-0.10).
• Modulight published its updated strategy and directed additional resources towards promoting the U.S. market and Go-to-Market activities.

Highlights in 2022

• The total number of projects was 27 (24 at the end of 2021) and the share of large multinational companies grew. There was progress in the R&D project pipeline including opportunities to accelerate the pay per treatment cloud strategy in the short term.
• Customer development projects continued to be affected by delays related to the coronavirus pandemic and shortages in component availability as well as to the uncertainty in the global economy caused by geopolitics. However, the company sees a clear pick-up in the operating environment of the industry, for example, at international trade fairs and in the number of customer visits.
• Revenue was EUR 4,599 (9,071) thousand. The decrease in revenue was due to continued pandemic restrictions in key markets and challenges in component availability, as well as general macroeconomic and geopolitical uncertainty.
• EBITDA was EUR -5,936 (461) thousand. Profitability was impacted by low revenue and the company’s decision to accelerate growth strategy implementation.
• EBITDA margin was -129.1 (5.1) % of revenue.
• Operating result (EBIT) was EUR -7,792 (-753) thousand.
• Operating result (EBIT) margin was -169.4 (-8.3) % of revenue.
• Earnings per share was EUR -0.20 (-0.15).
• The company’s Board of Directors proposes that no dividend be paid for the financial year 2022.
• Modulight updated its strategy and directed additional resources towards promoting the U.S. market and Go-to-Market activities.
• The company's target for 2023-2025 is strong annual revenue growth and a return to strong profitability in terms of EBITDA margin. The market analysis carried out alongside the comprehensive strategy work confirmed the company's decision in early 2022 to accelerate investments to implement the growth strategy despite the decline in revenue.
• Proof of the progress in strategy implementation can also be considered the U.S. market authorization obtained after the financial year. In January 2023, Modulight Corporation received market authorization from the U.S. Food and Drug Administration (FDA) for its ML6710i laser device for the treatment of wet age-related macular degeneration (AMD) in the United States.

Key figures

1) Audited
2) Figure refers to the end of the review period

Outlook for 2023
Modulight has not issued guidance for revenue or profitability in 2023. As the company’s customer projects are still distributed across varying early stages of development, and predicting developments in the market remains challenging, it is difficult to forecast performance in 2023. However, the company expects that changes in the operating environment caused by corona pandemic restrictions as well as macroeconomic and geopolitical uncertainty will still impact its financial performance in the short term.

Seppo Orsila, CEO
A challenging year behind us – positive expectations for the future
The year 2022 as a whole was challenging and disappointing for us. At the beginning of the year, our operating environment was difficult, but towards the end of the year the situation eased, and we were able to turn our business in a better direction. We are seeing a pick-up in the operating environment at trade fairs, number of customer visits, digital channels, and clinical activities. Thanks to our strong balance sheet, we were able to accelerate the implementation of our strategy despite the decline in revenue and to react to changes in the operating environment by sharpening our go-to-market strategy. The market and competitiveness study we commissioned as part of our extensive strategy work confirmed our previous analysis of the competitiveness and market potential of our product. Based on careful evaluation, we decided to continue accelerating investments and implementing our growth strategy despite the decline in sales. Our goal is to grow strongly in each calendar year and return to strong profitability during the strategy period 2023–2025.

Travel restrictions related to the coronavirus pandemic have slowed down our customers' research projects and our own sales efforts for a long time. The effects were still visible in our equipment deliveries due to long sales cycles. In addition, the changes in financial markets made it difficult for some of our customers to finance their product development projects. In the second half of the year, the effects of the pandemic finally began to diminish, and we were able to increase our sales and marketing efforts. Customer meetings and trade fair activities, which are important in our industry, have increased significantly in recent months. The shortage of components that slowed down our investments and deliveries also eased partly as the year progressed.

In 2022, our revenue decreased to EUR 4.6 million from EUR 9.1 million the previous year. Due to the implementation of our growth strategy, our EBITDA was EUR -5.9 million (EUR 0.5 million). We are naturally disappointed that our ten-year profitable growth history was interrupted, as we at Modulight have been particularly proud of our good performance.

With our strong balance sheet, we have been able to accelerate the implementation of our strategy and investments in products, people and equipment. Despite the decline in sales, we believe that accelerating investments is justified based on the situation of our customers as well as the competitiveness and market potential of our products. This was carefully re-validated in the extensive strategy work we carried out during the autumn. We have not suffered from a shortage of personnel, on the contrary, our number of employees increased. Thanks to our good employer image, there was a record number of excellent applicants for all positions, and we have been able to hire new professionals without difficulty. Despite the challenging year, the results of our employee survey were also very positive.
 
Market authorization and record number of projects
Our product development made significant progress in strategic projects, such as the productization of devices for different indications and the development of cloud technology. One significant milestone for us was the market authorization granted by the US Food and Drug Administration (FDA) in early 2023 for a laser device for the treatment of wet age-related macular degeneration (AMD) in the United States. With the authorization, we can start launching the product on the market. The market authorization is immensely important for us, and it shows in concrete terms not only the high quality of our laser technology, but also our pioneering role in the application of cloud services. The market authorization also has a significant reference value for us.

Our most important strategic indicator is our product development pipeline, which grew from 24 projects to a record 27 projects during the year. In the fourth quarter, we started a new project with our current customer, one of the world's largest pharmaceutical companies. With the project, our cooperation expands to new diagnostics, which we have already developed with another major international company. In both cases, our ML7710 clinical laser product is used. This is early-stage research and development.
 
New go-to-market strategy
Despite the challenging year, we are increasingly convinced that there is a great need for our product, and the demand for it is supported by, among other things, the aging population and the need to improve the treatment of cancer and eye diseases. This was also confirmed in the strategy update work we launched in the autumn, where we focused on updating our go-to-market strategy. With the update, we also identified synergistic business areas that support our key strategy in more detail. We are already seeing the first benefits of the new commercialization strategy.

One of the business objectives of our updated strategy is to expand our own local operations in the United States. We have already opened the first product support center on the U.S. East Coast, which our customers regard as a significant step forward, as expected. With the FDA market authorization for the ML6710i laser device, we expect to begin launching the product in the U.S. during the first half of 2023 together with our partner. In Europe and Asia, we focus on selected partnerships, such as our recently launched distribution partnership with Laser 2000. The exclusive partnership makes our products available to the largest European customers in Germany, Austria, Switzerland and France.
 
During the year, we also developed our sustainability, governance and reporting in line with our strategy. From the perspective of sustainability, we proceeded, among other things, by defining our environmental footprint. We completed an emissions calculation that covers our own activities and products, and we compensated for the calculated emissions by participating in the “Taimiteko” project. Our next step is carbon neutrality, which we aim for by 2025. The journey towards this goal has already begun.

During the year, we actively continued to develop our IP portfolio and received a U.S. patent for a medical device that can be configured remotely, among other things. We also filed four new patent applications in the U.S. and extended the protection of a few previous applications to other markets as well. New patent applications related to fluorescence-based diagnostics and imaging and semiconductor technology. 
 
Moving forward with positive expectations
General economic developments, the aftermath of the pandemic and geopolitics continue to influence our industry. Year 2023 has started with a clear pick-up in customer activity and clinical development activities, and we believe that our sales and marketing efforts will contribute to the recovery of our business to strong, profitable growth.

Key factors in our future growth strategy include our state-of-the-art laser technology expertise and new SaaS-based business models such as the pay per treatment (PPT) business model. The U.S. market authorization, new parallel projects and long-term and expanded cooperation with leading companies and researchers in the field are good indicators of the strengths of our technology and cloud solutions and the appreciation of our expertise. Our long-term investments are also clearly starting to bear fruit.

I would like to thank our committed personnel, the Laser Family, for the past year, with whom we are daily working together to develop for instance various devices and treatment methods for the treatment of cancers. A big thank you for the trust in us also to our customers, partners and investors, who have enabled the accelerated implementation of the company's strategy for the benefit of cancer patients.

Events after the end of the reporting period
 On January 23, 2023, Modulight Oyj announced that it had received a market authorization from the US Food and Drug Administration FDA for its ML6710i laser device for the treatment of wet macular degeneration (AMD) in the United States. Sales are expected to start during the first half of 2023.

Board of Directors' proposal for the distribution of distributable funds
On December 31, 2022, the distributable equity of the Group's parent company Modulight Corporation was EUR 59,920 (70,654) thousand. The company’s Board of Directors proposes to the Annual General Meeting that no dividend be paid for the financial year 2022.

Financial reporting in 2023
In 2023, Modulight will publish the following financial reports:

• Business review January–March 2023: April 28, 2023
• Half-year financial report January–June 2023: August 18, 2023
• Business review January–September 2023: October 20, 2023

Webcast
Modulight's CEO Seppo Orsila will present the result in an English-language webcast, which will be held on February 23, 2023, at 2:30 p.m. EET. The broadcast can be followed at https://modulight.videosync.fi/q4-22-results. Questions are to be submitted in writing in the webcast portal. CFO Anca Guina will also be present to answer questions. Presentation materials will be available before the start of the event on the company’s website at www.modulight.com/reports-presentations/.