Welcome to Inderes TV to follow the interview with Juho Himberg, CEO of Optomed, following the company's Q3 earnings release. Hi, Juho!

Hello, Juha.

Let's start with a traditional, easy first question and hope for a brief summary at this point. What were the most important events for Optomed during that Q3?

The most important events were that numerically everything actually improved compared to last year. And perhaps I personally want to highlight our 9-month earnings. Revenue was 1.8% lower than a year ago, but EBITDA was 2.1 million better with the same revenue. In my opinion, that is worth highlighting.

That's very true. However, let's go into these Q3 figures a bit more closely now. EBITDA was 1.1 million. That included a customs refund of 0.2 million, but even so, those margins have developed extremely well. Was there anything else that would in its own way make this something that wouldn't be viable?

Actually nothing. Nothing of the sort that isn't viable. Of course. Naturally, this one single large order happened to fall into this quarter, but the nature of our business now is such that we occasionally get these large orders, and indeed we have received them every year now. Particularly this one customer that now ordered from us has ordered from us for three years in a row and will likely order more this year as well, and potentially more next year.

Right, you mentioned this. They are indeed one of the truly major operators, so their needs are not running out. You can probably confirm this.

I can confirm this, that the needs are not running out, and we have integrated our camera into their systems in such a way that it is very difficult for them to move away from our technology and our camera, so they will continue that business with us.

How much to this? Perhaps later. But indeed, this significant order from the US was 1.9 million. It was apparently delivered now practically in full during Q3. Then of course comes the question of at what level the other traditional device sales are, because growth was excellent. This was a big reason for that. And then there is the Aurora AI. Not only has recurring revenue presumably grown significantly as well. So at what level are the other device sales nowadays? If one looks even over a longer period.

It is pretty much at the same level as before, so there aren't fundamentally huge differences there. Perhaps something that hasn't necessarily come out very well is that in device sales, the US has now been by far our largest country in 2024, in 2025, and this year will also be the case both in device sales and of course in this recurring AI sales.

How about the rest of the world, thinking about Europe and Asia? I know a separate question will still come regarding China, so let's not go into that any further. But is there nevertheless activity and interest in your product there?

Of course there is, but they come from considerably smaller streams, because the US as an individual market is so tremendously large. And this end customer that is buying our cameras at the moment, their revenue in the US is over one hundred billion. We are talking about customers of quite different sizes, markets of quite different sizes, so the US as an individual market is our main focus at the moment.

Well yes, that single customer. Now we got some additional scale for it still, so their needs are indeed probably not running out anytime soon. And then to the cost structure side. Gross margins have increased. That is presumably driven by the impact of Aurora AI, but then costs have also decreased significantly. Is this what we saw in Q3, for example, excluding seasonality factors, then viable going forward when we look at 2027?

It is viable, and we will probably still possibly look at the cost structure so that it gets optimized, that this is not quite finished yet here. We have improved this operational leverage considerably compared to last year, compared to previous years.

Can you tell what kind of things they stem from? The headcount has decreased, but not in any dramatic way. So is it? Are there some clear investments there that are no longer made, which then decrease that cost structure?

Yes. So now that this has begun, for example driving Aurora AI, we are putting resources behind such projects and into such projects that generate revenue for us and generate margin for us. That is, we have taken away a lot of those projects that have been a bit like hopeful wishful-thinking things, which perhaps then in the future, in three, five years, will yield something. Possibly. So we are very much now, our focus is even more precise at the moment on the activities that generate money for us.

Very good. Let's move on. The Aurora AI topic in more detail. The revenue recognized over time grew by a quarter during the period. So now quarter on quarter. And so. Around 0.2 million euros. What can you comment on whether this is practically thanks to Aurora? AI. If there was record sales in Q3 and we got such a bump into this. Are there some other significant things that could explain this?

There is also in that software division, so there is also this recurring billing coming from there. I cannot say quite precisely whether there have been things going up or down on their side, but as you have looked at the right place, that Aurora. AI. AI. business goes precisely to that line there, and Aurora.

AI is apparently still selling well, meaning sales records are in a way being made every quarter.

That's right. Up to now it has been like that, that every quarter has always been larger than the previous one.

Very good. And is there a delay? In its own way, from that sale or the decision to deploy, has it shortened to the point where you get concrete invoicing? You have been able to integrate into systems faster or something like that, so is it still the same or has it shortened?

It is. It is around the same still. That from the first contact to the customer starting to use it, nothing has happened there. But where it has happened is that these existing customers of ours are then taking more of those cameras into use. Perhaps the fastest growth right now comes from existing contracts already underway, to which cameras are being added.

Actually, this would have been one question, where the sales are coming from right now. Meaning existing customers are adding more. What about new significant customers? Have any been acquired now that would be ramping up in the future?

They are coming as well. But regarding that first contact. The fact that we start getting billable revenue, those cycles are still long, so the fastest and easiest business right now comes from satisfied existing customers.

Well, I have to ask now, since this large customer from the United States has been discussed, can you estimate what the scale is in relation to your hardware net sales in recent years, whether a risk concentration might also be coming here?

It has been. It has been a big part of it. In the hardware segment, tens of percents. And you probably remember two years ago when we received that one big order at the end of the year, this was the same customer. So is it a risk concentration? Possibly yes, but then also it is a customer that is growing all the time and needs those cameras. And we have also made investments there during this year, so that for example their. This fleet is starting to be so big that we have built a maintenance organization together with them, a service center for these cameras of ours in the US, so that we have put investments into it on our part and they have put in on theirs.

That is also an opportunity, and let us see how the future goes. Let us move on to the guidance or, in its own way, the Q4 outlook. The guidance requires. Well, not a very big one, but it still requires sales growth. What then? Now there hasn't been any earlier in the year, excluding Q3, which had a massive one-off order, so does achieving that guidance practically necessitate that you get either several medium-sized or some large capex order?

It always necessitates that. Our whole year's guidance necessitates that we get those large capex deals, a few medium-sized ones, or one large capex deal. When we build the guidance at the beginning of the year and now when we look at this year, this deal that came in Q3, it was sort of pent-up demand from the first and second quarters. And then we also have an incentive for customers, often we have this last quarter being big because our prices change at the turn of the year. Customers who order within this year do not necessarily take delivery right away, but we can agree on orders during this year, so we sell at the old prices, and there is often an incentive for customers to take those cameras from us right at the end of the year.

Well yeah, seasonally. Q4 is practically always the strongest, but do you have visibility into that now? Or you do have visibility into the sales pipeline. What kind of orders might be there, so can you comment on how confident you are that these orders will also come in before the end of this year?

It is. It is confident enough that we have given guidance that we will grow and achieve that growth for this year. Of course there are risks there that some partial deliveries will spill over into next year and so on. But. But right now the outlook is this.

Well then, if you think about it, you now made a positive EBITDA, a positive EBIT, and a positive cash flow. Cash also grew there. How likely is it that we can continue from here in such a way that these would be positive in the future as well? Naturally Q4 is seasonally usually strong, but then weakens, so how hard do we have to run to keep these positive in a sustainable way going forward?

Well, it's worth looking at our trend, how for instance our. EBITDA has improved every quarter. Right. When we stick to that trend line. Right, and what do I believe? And that comes precisely through Aurora AI. So this is indeed going to become a permanent state for us.

Well, mostly in the sense of whether you would have been positive in Q3 by these metrics. If there hadn't been a large order, that is probably a calculation of its own.

Would we have been? Would we have been without that? Are we talking about EBITDA now?

Well, if EBITDA, I believe you would have been.

Yeah, we would have been.

All right, let's move on. Cash flow is strong, particularly regarding operations. Investments are a good half a million. Can you tell us where these investments are being directed now? You have clearly refocused the company's operations regarding both the cost structure and investments. So can you tell us what the target of the investments is at the moment?

Quite a lot into services, our portal. The AI portal. Quite a lot, as we are bringing new AIs into our camera, so quite a lot into the software side we are currently investing, also into Lumo, so that we bring more new algorithms to Lumo. We are focusing on that software work right now. Not so much on the hardware side, Lumo is. Now a finished product, somewhat small. Incremental developments are being made to it, but right now we don't have a need to develop a new camera generation right this moment, which automatically leads us to the software side. To the software side, then also to sales and marketing in those areas where we see there is growth. We are investing more resources in those areas.

All right, let's go then. Component question. We have surely all seen that component prices have exploded, at least in the data center sector. What is the situation for you? Is component availability still good? And have you seen increases, and if you have, are you able to pass them on to prices?

What have we actually done? We have bought those components into inventory quite well. And we have. We have a pretty good situation with those components right now. This will come up at some point when these inventories are eaten through, but right now over the next year, perhaps over the next two years. I don't see that these component prices will affect our. Margins. And it's also worth remembering that in this Aurora AI business, which is our absolute core, our number one strategy. The share of that component, the share of that hardware. Even if it were to rise by some x10%, its significance is not as big as perhaps in normal camera sales.

That is correct. Let us move to the US market environment, your main market. In October, US states locked in their operational plans for the first year of Rural Health Transformation funding, and at least Virginia and West Virginia are funding AI-based diabetic eye screening. Has Optomed or AI made it onto the list of approved suppliers in the states, and how large a share or has this been visible in your sales pipeline?

Yes, of course we are included, and we are also present at these Rural Health events. And that is part of our everyday operations, that of course we are there.

Do you believe that this is quite a significant decision that has now been made there for the company's business?

Yes, absolutely. It matters to the company's business. It will grow our business in the medium term.

Right. Next, the revenue model for Aurora AI in the US. It relies on the reimbursement code CPT 92229 and Medicare Advantage quality metrics. How large a part of customers' business cases is the reimbursement itself and how large is the value of the quality metric, and is there anything in the 2027 payment rules or the Software as a Medical Service framework that alters the calculation? So the background here is this Software as a Medical Service. Apparently some kind of framework has been announced, so tell us more about this.

Well, at the moment we do not have any further information on whether there is. Whether there is a revision happening in this framework. There are not even any market rumors about it.

Okay, well earlier in the year there was talk that these HEDIS scores had in their own way caused a certain slowness in customer decision-making, so has it now normalized after all and do you thus see the market pulling in a healthy manner?

It certainly normalized back in April and the market has returned to normal. And this was. There was pent-up demand now, which came into this Q3.

Regarding this tariff. Apparently new ones like this are not coming. So this was now a one-off significant refund that will not recur by default.

That was precisely the case, that we applied for those refunds and received them.

Then regarding exchange rates, particularly the US dollar. Do you hedge against it? Right now the net effect is seen in adjusted revenue growth and revenue growth, but this is probably largely US-driven these days.

It is, it is, and we have. We have indeed crunched the numbers and discussed this. The hedges are terribly expensive. But now that revenue is growing there even more, we certainly need to return to the question of whether we will start seeking a hedge for it. But then there is perhaps something that hedges it slightly. And that is that we have. We have costs. When we manufacture those Auroras and Lumos, those costs are in dollars. So our production cost decreases there as well if the value of the dollar decreases, and then vice versa. There is. There is a small hedge in the fact that only our reporting currency is in euros.

Exactly. Then an interesting question. The US midterm elections and healthcare funding. Do you see this election result having any kind of impact on you? Partly it probably calls for speculation, but given that.

I think this can perhaps calm domestic politics down there a bit in the United States. That not quite all. Those peculiarities. That occurred in the first half of last year and perhaps late in the year too, will necessarily be seen anymore. So perhaps I think the worst is now over. The worst turbulence there otherwise, well I do not believe we are such a small player there anyway that it is very difficult to speculate what will happen to us now.

Yes, I believe many others are also waiting for that time, a somewhat calmer political environment, with great interest. Let us then move towards China. It is not mentioned in the report again, nonetheless. If one follows Vaiscer for example, some small positive news flow is trickling from there. What is the situation in China from Optomed's perspective?

From Optomed's perspective, this Vizer, which is our joint venture partner there, runs the Chinese operation. They have a huge number of pilots ongoing at the moment, and currently we have some costs from China, but very little. And at present there is no revenue coming from there yet. Our situation in China remains binary. And Vizer is certainly working hard there to get this system up and running, but they handle the reporting about it more because we are only involved with 20 percent in that joint venture and Vizer has 80 percent. But it remains binary, and the revenue that has come from there. Has been very small at this point.

So it is probably roughly break-even for you and an option if it shifts into a significant commercial phase.

Exactly. But precisely so, that we have very few resources tied up in it at present.

Yes. Software. Segment. In Q2 you mentioned several competitive bidding processes during the remainder of the year. In addition to Veikkaus, were any others won, and what is the outlook there, are these deals still on the table for you?

They are still on the table for us. Something dropped out, something was added in addition. But. This Veikkaus. The Veikkaus deal was the largest single win during this quarter.

The earnings trend there is also very good. There in Q3. Was there anything specific behind the margin improvement? It seems more that good work was done on the cost side rather than any other major explanation.

Well, we had some price increases at the turn of the year, and then if you remember our Q4 of last year, software and Optomed also made a fairly weak result, and there were a lot of restructuring costs there. That had spilled over into Q4, so those are now paying back. We are moving with an even leaner organizational structure now on the software side as well, so those measures that we took a year ago are now visible.

Understood. The Veikkaus agreement has been announced, and is probably already signed by now. Were the appeal periods and other things finished, or what is the status?

Yes, they are. They have been signed, and we are looking forward to starting deliveries.

What about then? Ubetec by the way, I mean, a very large number of license applications like this have been submitted. Presumably, foreign operators entering the new market need some help with that or are happy to take it. So what kind of potential do you see for Ubetec in the coming years?

I see good potential, and it was important that we got the number one operator in Finland as our customer here, which is an extremely good reference customer for us. And many will then ask them who you use, and through that, we will get more customers. So how many prospects we currently have there looks pretty good.

Can you elaborate a bit on what that product that is being bought actually is in practice? Is it more consulting-driven, meaning full-time equivalents, or is there a concrete product that then scales, so one could better grasp the potential for you?

There is both consulting and software from us. To put it simply, that is what it is. We act in such a way that all these new operators, when they come to the market, operate according to the law, according to the letter of the law, and what we know how to do is to put that legislation into the software and that consultation. There are extremely strict letters of the law regarding what it means to be an operator here, meaning an operator. Here in the Finnish market. And we operate there, bringing that compliance in the form of software.

Questions have been raised about this as well, that if this Ubetec were to embark on a new flourish, it probably wouldn't be a strategic asset for you in a way. Meaning it could potentially be sold then if a good price were obtained for it. At least I see that it is not quite as involved with healthcare.

Indeed. But, but. We have had this gambling monitoring. Business for a couple of decades, and we have expertise on that side. We were not sort of the only player in Finland. Since Finland has had a gaming monopoly, we have the expertise that we can then bring to this. Well. Now that this gaming market is opening up, we have the expertise that we can bring to these operators.

Yes, indeed. Well, one last question about reporting before we paint a bit more detailed picture of next year. Investors now have to deduce the ongoing revenue trend from several balance sheet items or from that table. To be precise, are you going to start reporting? Aurora AI's installed base or the run rate of recurring billing separately at some point?

We will not as long as we have. We have agreed on that contract with AEYE Health that we do not report it. As long as that is the case, we cannot do it. It is a contractual impossibility for us.

I knew the answer, but I asked it anyway so the message gets across to many places at the same time. Then at this point, of course, investors are already looking ahead to next year. You might have a slightly interesting Q4 considering the guidance, the guidance, and the growth requirement, but the earnings trend is very good. How do you see the starting points for next year, and what are the things that we should definitely monitor as investors now?

The improvement of our operating leverage is something worth monitoring. And now when we talk about Q4 for example, then. I looked at our EBITDA for Q4 last year. And then you reflect that on what our earnings capacity is now. Now we have made over two million better EBITDA with the same revenue or slightly smaller revenue. So look at our margin improvement, and of course the top line is important, but also how our earnings capacity improves below that top line, so it's worth focusing on that.

And the drivers for next year are probably, as usual, Aurora AI in the United States. And what kind of contribution can be expected from Lumo next year?

Lumo. As long as Lumo does not have that FDA approval for that AI. Then it is capital sales at that point in the United States, for example. But Lumo is our primary product. Currently, for example, we have the European AI company Airis, with whom we are cooperating, and we expect growth from it next year, as we start to take these AI solutions outside of the United States as well. We believe that the market follows the United States by a few years. And that market is starting to mature. Gradually probably during '27, '28, '29, so that we get other cornerstones there besides the United States.

If I understood the CFO's comments from that conference call correctly, the cost structure is on a sustainable footing and apparently some actions can still be taken, so is it true that costs will not rise next year even though revenue is presumably heading in the right direction?

That is what we are aiming for.

Well, can you? Will we also get earnings guidance next year then? In addition to revenue, traditionally this has only been revenue guidance.

To this, perhaps a comment that if you look at our first 9 months now of this year, we are almost at zero level in EBITDA. So. It is probably worth it. We will probably consider that next year we will also talk more about earnings generation.

Understood. Thank you for these comments and for going through the long list of questions. Best of luck going forward!

Thank you.