Half Year Report

Intelligent Ultrasound Group plc (AIM: IUG), the 'classroom to clinic' ultrasound company, specialising in artificial intelligence (AI) software and simulation, announces its unaudited half year results to 30 June 2023.

Financial highlights

·    Revenue for the period to 30 June 2023 has grown by 3% to £6.1m (H1 2022: £5.9m)

o  H1 2022 revenue figures included £1.4m of one-off orders from the NHS in the UK, so on an adjusted 'like-for-like'* basis, revenue in H1 2023 increased by 35% (H1 2022 adjusted*: £4.5m)

o  The Group's clinical AI products continue to gain traction and revenues more than doubled to £0.7m (H1 2022: £0.3m)

·    Operating loss increased by £0.2m to £1.5m (H1 2022: £1.3m) in the period

·    Cash at bank on 30 June 2023 was £3.3m (31 December 2022: £7.2m), impacted by working capital seasonality in respect of timing of revenues and receipts of inventory in H1

·    Cash utilisation in H2 is expected to be materially lower

·    The Group anticipates reaching profitability with its current cash

Operational highlights

·    ScanNav Anatomy Peripheral Nerve Block (PNB) AI software upgrades released in UK and US market

·    BabyWorks 2.0 simulator product update released

·    ScanTrainer Endometriosis simulator module released

Stuart Gall, CEO of Intelligent Ultrasound commented:

"This has been another positive start to the year. We are growing sales of our AI-related clinical products, as they move out of the early phase of commercialisation and we continue to have an excellent relationship with GE Healthcare, our OEM partner in women's healthcare AI. Our simulation products are performing well in the market and our new releases, including the endometriosis training module for the ScanTrainer simulator, have been well received.

We are building an exciting 'Classroom to Clinic' ultrasound business and we continue to anticipate reaching profitability with our current cash"

Enquiries:

About Intelligent Ultrasound Group

Intelligent Ultrasound (AIM: IUG) is one of the world's leading 'classroom to clinic' ultrasound companies, specialising in real-time hi-fidelity virtual reality simulation for the ultrasound training market ('classroom') and artificial intelligence-based clinical image analysis software tools for the diagnostic medical ultrasound market ('clinic'). Based in Cardiff in the UK and Atlanta in the US, the Group has two revenue streams:

Simulation

Real-time hi-fidelity ultrasound education and training through simulation.  Our main products are the ScanTrainer obstetrics and gynaecology training simulator, the HeartWorks echocardiography training simulator, the BodyWorks Eve Point of Care and Emergency Medicine training simulator with Covid-19 module and the new BabyWorks Neonate and Paediatric training simulator. To date over 1,500 simulators have been sold to over 750 medical institutions around the world.

Clinical AI software

Deep learning-based algorithms to make ultrasound machines smarter and more accessible using our proprietary ScanNav ultrasound image analysis technology. Current products on the market utilising this technology are GE Healthcare's SonoLyst software that is incorporated in their Voluson Expert 22 and SWIFT ultrasound machines; ScanNav Anatomy PNB that simplifies ultrasound-guided needling by providing the user with real-time AI-based anatomy highlighting for a range of medical procedures; and NeedleTrainer that teaches real-time ultrasound-guided needling and incorporates ScanNav Anatomy PNB. 

www.intelligentultrasound.com

NOTE: ScanNav Anatomy PNB is CE approved and cleared for sale in the US by the FDA, but is not available for sale in any other territory requiring government approval for this type of product.

* This is an alternative performance measure defined on page 6.

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2023

This has been another positive trading period for the Group. A strong simulation sales performance in North America was combined with promising progress in our clinical AI software revenues that put us in a good position to continue the growth of the business in 2023 in this exciting sector of the market.

Simulation

Revenue

Although our simulation revenue declined by 5% to £5.3m (H1 2022: £5.6m), the H1 2022 simulation revenue included £1.4m of one-off UK sales to an NHS training initiative, so when compared on a 'like-for-like'* basis our, simulation revenue increased by 27%.

Sales from the Group's direct sales team in North America grew 154% to £2.7m (H1 2022: £1.1m), reflecting the increased product range and investment in the expansion of the sales team over the last 12 months.

The Group's reseller network also had a positive period of trading and increased revenues by 104% to £1.1m (H1 2022: £0.5m). This was a good recovery after a difficult couple of years for our rest of the world revenues, but we believe there remains a significant opportunity for further sales growth in a number of the large European markets such as France and Germany.

The Chinese simulation market has shown signs of recovery, following two years of inactivity and we are working with our reseller to build on this tentative revival and grow sales in this potentially important market.

As expected, the strong H1 weighting to our simulation sales in the UK market last year, resulted in a period on period decline of 61% to £1.6m (H1 2022: £4.0m). This was mainly due to the majority of our 2022 UK sales, which also contained a large one-off NHS training initiative worth £1.4m, being ordered in the first half of the year, rather than following the more normal seasonal spread. If the £1.4m one-off order is removed, on a like-for-like* basis, the decline was 40%. The UK remains an important market for us, both in terms of product testing and revenue, and with a more normal seasonal spread being experienced this year, we expect the UK's simulation sales to close the gap on the 2022 like-for-like full year revenue figure of £3m.  

Research and Development

In the period we focussed on releasing the:

·    BabyWorks 2.0 simulator product update, which included improvements to the lung and brain imaging, as well as new cardiac pathologies

·   Endometriosis training module for the ScanTrainer simulator to help sonographers develop an increased understanding of endometriosis using real ultrasound images

Clinical AI software

Revenue

Our clinical AI revenue, which is now moving out of the early stage of commercialisation, grew 144% to £0.7m (H1 2022: £0.3m) based on sales of three AI related products:

·   Our ScanNav Assist AI technology drives GE HealthCare's SonoLyst X/IR software, the world's first fully integrated ultrasound AI tool that automatically and in real-time recognises the 21 views recommended for fetal sonography imaging and is an optional extra on the Expert 22 and SWIFT ultrasound machines. We continue to have an excellent relationship with GE Healthcare.

·   ScanNav Anatomy Peripheral Nerve Block ("PNB"), is our own CE and FDA cleared, direct-to-market device, that simplifies ultrasound-guided needling by providing the user with real-time AI-based anatomy highlighting for a range of medical procedures. Our aim is to support the large number of anaesthetists, who are competent but less confident in the specialist knowledge of ultrasound anatomy, to perform nerve blocks and as a result increase the number of ultrasound-guided nerve blocks that they can perform. As such we are focussed on releasing studies during the year to support the adoption of the system and educate and grow the market for ScanNav Anatomy PNB.

·    NeedleTrainer, our second direct-to-market device, teaches real-time ultrasound-guided needling and incorporates ScanNav Anatomy PNB to enable medical professionals to develop hand-eye coordination, optimum positioning, and accuracy in ultrasound-guided interventional procedures.

We continue to make positive progress in the commercialisation of these products and revenue is expected to continue to grow in H2 and beyond.

Research and Development

In the period we focussed on releasing the:

·    NeedleTrainer software and calibration enhancements

·    ScanNav Anatomy Peripheral Nerve Block AI software upgrades for the UK and US market

In addition we continue to work on new developments in the areas of women's health, emergency medicine and liver.

Operations

We continue to operate out of our head office in the centre of Cardiff and warehouse in Caerphilly and successfully operate a flexible hybrid work environment, whereby the majority of employees combine office and at-home working that is appropriate to the Company and employee.

Board changes

In June 2023, Ian Whittaker who has served as an Executive Director and Chief Operating Officer (COO) since joining the Group on the acquisition of Inventive Medical Ltd in August 2016, announced he would not be seeking re-election to the Board of Directors at the Annual General Meeting and that he would retire from his position as COO on 31 December 2023.

The Board extends its thanks to Ian for his commitment and invaluable contribution to growing the simulation revenue and profitability significantly over the last seven years and wishes him continued success in his business and personal endeavours.

Environmental, Social, and Governance (ESG)

In May we published our second ESG report in the annual report and accounts and for the first time we have provided a full calculation of our Scope 3 emissions. We are also delighted to be working with the World Federation for Ultrasound in Medicine and Biology ("WFUMB") in their mission to bring sustainable ultrasound training programmes to the underserved areas of the world.

We continue to instigate new initiatives to promote better employee and local engagement and believe we are having a positive impact locally, nationally and globally.

The full report can be viewed here: 2022 ESG Report

Financial Review

·    Revenue of £6.1m (H1 2022: £5.9m)

·    Operating loss for the period of £1.5m (H1 2022: £1.3m)

·    Cash and cash equivalents at 30 June 2023 of £3.3m (31 December 2022: £7.4m)

·    Net cash outflow from operating activities of £2.7m (H1 2022: £0.7m)

H1 2023 was a positive trading period for the Group, seeing a significantly improved performance from the North American and Reseller sales regions as well as continued growth in Clinical AI revenues. Gross profit for the period increased by £0.1m to £3.9m with the average gross margin improving to 65% (H1 2022: 64%).

The Group's operating loss for the period increased by £0.2m to £1.5m (H1 2022: loss of £1.3m), with administrative expenses increasing by £0.3m to £5.4m (H1 2022: £5.1m), largely attributable to increased marketing activity in the US and UK as well as inflationary increases in salaries and other G&A costs,  partly offset by £0.3m lower expensed research and development (R&D). Total research and development (R&D) expenditure in H1 2023 was £1.5m (H1 2022: £1.7m) of which £0.8m (H1 2022: £1.1m) has been expensed and £0.7m (H1 2022: 0.6m) has been capitalised.

The tax credit for the period of £0.3m relating to the UK SME R&D tax credit scheme was slightly lower than the previous period as a result of the reduction in SME R&D tax relief rates introduced as part of the R&D Tax Relief reforms which came into effect from 1 April 2023. These Government changes are expected to reduce the Group's annual R&D tax credit by around 40% in 2023 and 45% in 2024.  

The loss after taxation for the period was £1.2m (H1 2022: £1.0m).

The Group's net assets at 30 June 2023 reduced by £1.2m to £11.0m (31 December 2022: £12.2m). Intangible assets increased by £0.2m to £3.5m relating to capitalised development costs. Property, plant and equipment increased by £0.1m with additions of demonstration equipment.

The profile of sales invoicing was weighted towards the end of the period resulting in significantly higher trade and other receivables at the period end of £3.7m (31 December 2022: £2.0m). Included within trade and other receivables is the current tax asset of £1.0m, representing the R&D tax credit from FY2022 not yet received plus the anticipated R&D tax credit accrued for H1 2023Inventory was also £0.3m higher at 30 June 2023 impacted by timings of inventory receipts.

Trade and other payables at 30 June 2023 were £2.6m (31 December 2022: £2.7m), consisting mainly of trade payables of £1.1m and accruals of £1.3m. Total lease liabilities increased by £0.1m to £0.6m (31 December 2022: £0.5m) attributable to a new lease for our US sales office.

The Group had cash and cash equivalents of £3.3m at 30 June 2023 (31 December 2022: £7.2m), a movement of £3.9m in the period (H1 2022: £1.5m). Operating cash outflows in the period increased by £2.0m to £2.7m (H1 2022: £0.7m) with the cash position being significantly impacted by higher working capital balances within trade receivables and inventory. Cash outflows from investing activities totalled £0.9m, of which £0.7m related to capitalised R&D costs (H1 2022: £0.6m) and £0.2m of additions to property, plant and equipment (H1 2022: £0.4m).

The net cash outflow from financing activities was £0.1m (H1 2022: £0.1m), principally relating to lease payments. The net cash outflow in the second half of the year is expected to significantly reduce with lower inventory and trade receivables in addition to the receipt of the FY2022 R&D tax credit of £0.7m.

Outlook

This has been another positive start to the year.

We are growing sales of our AI-related clinical products, as they move out of the early phase of commercialistion and we continue to have an excellent relationship with GE Healthcare, our OEM partner in women's healthcare AI. Our simulation products are performing well in the market and we are building an exciting 'Classroom to Clinic' ultrasound business.

We continue to anticipate reaching profitability with our current cash.

Stuart Gall

CEO

17 August 2023

\* This is an alternative performance measure that adjusts H12022 revenue for one-off exceptional orders. 'Like-for-like' revenue is reconciled to Revenue as follows:

H12022 Group Revenue (as reported)                    £5.9m

Adjusted for exceptional one-off orders                 £(1.4)m

Adjusted 'like-for-like' revenue                                £3.5m

CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION