C-Rad AB (publ) (CRADB) Earnings Call Transcript & Summary

Good morning. Welcome to C-RAD Webcast for the First Quarter of 2024. I am Greta Cattani, Global Marketing Director, and I will be your moderator for today's session. We have an exciting agenda ahead filled with valuable insights and updates. I'm delighted to introduce our CEO, Cecilia de Leeuw, who will guide us through the financial results and provide insights. Before we start, I'd like to remind you that we will not be taking any questions during the presentation. We encourage you to save your questions for the Q&A session that will follow the presentation. During that session, you will have the opportunity to ask your questions to Cecilia and to Jonas Reinhammar, which is our interim CFO and will join Cecilia for the questions. We will not be taking any questions in the chat. A recording of the webcast will be available on the C-RAD website after the presentation. Without further ado, let's get started. Cecilia, over to you.

Thank you, Greta, and welcome to our Q1 presentation. It's great to see so many of you here on our call today. For those of you that might be new to C-RAD, we are part of the fight against cancer. Radiation therapy, which is our field, is an important part of this fight. Approximately half of all cancer patients have radiation therapy as part of their treatment plan. Let's look into the Q1 numbers. The year is starting off with the best ever revenue for a first quarter. The revenue growth of 40% to SEK 118 million is our best quarter so far -- our best first quarter so far and the second best ever, and we have growth in all markets. Profitable growth continues to be our focus also for 2024, and the EBIT for Q1 more than doubled translating to an EBIT margin of 12%. While the macroeconomic situation continues to be challenging, we have a stable order intake of SEK 92 million which was at the same level as the first quarter of last year. Surface Guided Radiation Therapy or SGRT is increasingly becoming a given in the treatment workflow, and we are seeing great interest across all markets. The order backlog of SEK 730 million, an increase of 12% from Q1 last year. The cash flow from operations increased to SEK 16.5 million, supported by improved profitability and slightly lowered inventory levels. Our continued and profitable growth is moving our operations and organization towards the next level. C-RAD has been growing rapidly in the recent years, which has taken us to a new level of operations. To further strengthen our foundation and enhance our capability to deliver on the strategy, we will make additional investments in the offering, reach an organization during 2024. We are also strengthening our back office with process improvements and automation. Let's take a closer look into our markets and the sales performance. The U.S. is starting to show signs of recovery, and we can see that some investments that were on hold are now moving. I'm pleased that the revenue grew 41% supported by a strong order backlog conversion. This includes deliveries both due to U.S. and Canada, including some proton orders. The order intake of SEK 25 million is an increase of 20%. Satisfied customers are important for our business in Americas. And hence, a cross-functional team program has been initiated to assess the customer satisfaction. EMEA started the year well on the revenue side, growing 31% for the first quarter with also here a strong conversion of the backlog. Order intake had a softer start with a decline of 25%, and this is mainly due to the lack of the larger tenders, the larger national tenders that we have seen in the last couple of years. And in addition, there is an increased tendency to delay extension of service contracts with many clinics being under cost pressure. We are intensifying our market activity and will hold a second distributor meeting for this year, this time in the Middle East. In the quarter, we received a SEK 12 million extension order from our partner and distributor Tecnosan in Italy, connected to the national tender awarded in the end of 2022. Another positive highlight is that we replaced a competitor in talent, mainly due to our proven quality and performance. The interest in SGRT and our technology in the APAC markets is high and the first quarter of this year was no exception. Revenues increased 57% and order intake was SEK 34 million, a growth of 25%. New orders were taken in high competition in Australia from GenesisCare for the newest and most advanced facility in Western Sydney, and this confirms our market-leading position. We participated in the ITEM conference, Japan, with our industry partners and the unmet demand for SGRT in Japan is evident. The market activity level in China continues to be high and so is the interest in our technology. I'm also pleased to announce that the important registration of our new generation of products in China was approved in April. We have a healthy order backlog of SEK 730 million to deliver off. A bit more than half or 55% is products and 45% is services, and the backlog consists of orders received but not yet delivered. And the growth of products is true also on the revenue side. Product revenue outpaced services revenue for this quarter. It is, however, worth noting that the installed base of products is an opportunity for future service contracts. Our focus on profitable growth continues and continues also to show results with a strong EBIT margin and a healthy gross margin of 65%. Cash flow has also been a focus area over the last quarters and the positive trend is clearly visible. We have a positive cash flow of SEK 14 million in the quarter and an improved cash flow from operations. We have also started to work with trimming the inventory levels. This year started off in full speed. And I was recently returned from our important trade show, ESTRO, where we announced our very interesting strategic research collaboration with RaySearch. And we are 2 strong Swedish companies who have many common customers. And in the collaboration between our 2 R&D departments, we showcased one potential application as a demo at ESTRO. The rich data from the C-RAD services provides enhanced input to the RaySearch treatment planning system. And with that, let's summarize our focus going forward and the value of investing in the fight against cancer. Across our global team, we continue to build our capabilities in line with the execution plan and our focus on profitable growth. Firstly, the investment in research and development organization is to secure our world-class portfolio today and tomorrow, and that continues. Patient safety and improved quality of life is the foundation for our technology. SGRT or Surface Guided Radiation Therapy is all about the precise targeting of the tumor while minimizing radiation exposure to healthy tissues. We have a seamless integration to our industrial partners such as Elekta, Varian, Accuray and the proton and CT suppliers. Secondly, we have a hybrid approach to improve scalability and global reach with a combination of direct sales and partners. To capture the unmet demand of SGRT, we are strengthening the capabilities of our distributor network. In early March, we had the first face-to-face APAC distributor meeting, and later in March, the EMEA distributors gathered for training and knowledge sharing. Next up is the upcoming distributors meeting in the Middle East. Thirdly, it's still early days for SGRT and a lot more to do. And I'm really pleased to see that SGRT is rapidly becoming a given in the clinics as part of the treatment workflow. The interest in the market is high, and many of the tenders today have the requirement from the start. This is true both for linacs and proton machines. And in addition, the investment is minor, only some 5% of the total investment to equip the treatment room. And even for advanced markets, only some 30% of the linear accelerators are equipped with SGRT and hence, we see an opportunity to retrofit existing linacs. Services is another strategic asset for 2 main reasons: firstly, to ensure that our customers are using the technology to its full potential. And secondly, we want to secure a growing portion of recurring revenue. This requires hard work. Last but not least, we have a solid financial position with SEK 147 million in cash balance and an equity-to-asset ratio of 68% and are completely debt free. Our focus on profitable growth continues to show results. In conclusion, why do we do all this? Well, it's about serving our customers, ensuring safety and efficiency in advanced radiation oncology and we are part of the important fight against cancer and to improve lives of cancer patients around the world. And with that, it's time for questions, and I will be accompanied by Jonas Reinhammar, our interim CFO as of today.

Thank you, Cecilia.

It's now time for the Q&A session. [Operator Instructions]. We have the first question from Christian Lee.

I hope you can hear me.

Yes, we do.

Absolutely.

I have 3, please. You plan to make investments in the offering with an organization during 2024. Could you please quantify what it means in terms of increasing OpEx? And also a few words on your product development?

Yes. So let's start with the investments. So just stepping one step back, we have been growing quickly in the past years. And now it's actually time to take the next level of making sure that we have solid operations and we are investing in things like automation and process improvements. So I cannot specifically quantify, but it's quite natural when you grow, for example, to ensure that you have a services organization that can take care of all the new installations that we have around the world. And when it comes to R&D, for example, it's also important for us to continue to be on top and market-leading. So that also makes perfect sense.

I guess we have a second question from Christian again.

Yes, please. Increasing services is a priority for you. How does this resonate with your strategy execution to strengthen your distributor network, combined with direct sales and partners. Can you please elaborate the dynamics of the service agreements, depending on what sales channel the services are delivered through?

And it's definitely so that services is a priority for us. So when it comes to the service agreements, it doesn't make such a big difference whether we go direct or whether we go through distributors. The important thing here and why I want to emphasize that we are working with a hybrid approach, it's not only on the sales side, but it's also partly on the services side. So since we have the focus on profitable growth, it's important for us to make sure that we have -- that we are cost conscious in everything we do. So sometimes, let's say, for example, if we have -- if we are just starting on the market, it might make more sense for us to go through a distributor because they already have a position in the market when we grow, we might want to have more people of our own, for example. So that's how we or the services organization really try to manage the cost step by step.

And I guess, we still have one more question from Christian.

Yes. Perfect. It would be interesting to hear your thoughts on adaptive RT if it represents opportunities or potential threats for SGRT as a concept and how the launch of Elekta Evo could impact your collaboration with Elekta?

No, I think in general, adaptive radiation therapy is really important. It's also part of what we do already. When it comes to Elekta Evo, that is -- it doesn't change anything in our collaboration. The collaboration with Elekta is really great. And for Elekta Evo that was launched at ESTRO as you mentioned, it's still important to know in this workflow and the process to know that the patient is exactly on the same place between the imaging and there the SGRT technology with the monitoring mix a lot of -- it's still extremely important. So no, we don't see any change in the need for SGRT.

The next question will be from Mikael Jakobsson.

Hello, can you hear me?

Yes, we do.

Okay. Great. Yes. The first question, maybe answered, but I'm going to reiterate it. So what is your assessment of how Elekta's new Evo could impact your position in the SGRT market?

Mikael, nice to speak with you. No. As I partly covered already, we also believe that adaptive is very important and is part of how we also see how the treatment is progressing. But do remember that it's still very important that the patient is in the position that you intend the patient to be. And it's a long time that the patient is on the couch. So we don't see any change in that importance, in that need. I think in general, it is for us, it's good that the market of radiation therapy continues to enhance and evolve and we stay on top of that.

[Operator Instructions]. Okay. We have a second question from Mikael.

Yes, I have a few more. So let's see. Your former CFO resigned with a 6-months' notice period. Where did you appoint an interim CFO while he still had a notice period remaining?