CellaVision AB (publ) (CEVI) Earnings Call Transcript & Summary

Hello, and welcome to the CellaVision Q4 2021 Report. Today, I am pleased to present the CEO, Simon Østergaard; and the CFO, Magnus Blixt. [Operator Instructions] Speakers, please begin.

Thank you very much, and welcome, everybody, out there. So this is Simon Østergaard here, and I'm pleased to announce that we have Magnus Blixt, our CFO, with me in the room here. Today, we are going to present our year-end bulletin in Q4 2021. And also, obviously, the full year consolidated results. So we will hop right into the financials for '21. And then we will actually jump into -- we're very excited to share our strategic direction for our 5-year plan. So that's the agenda for today. If we go to the next slides after the financial, I can talk a little bit about the quarterly operational highlights. So essentially, we summarize our results as a strong finish to the year. We landed our revenues of SEK 164 million from Q4, equivalent to 25% growth. And then that brings us to an annual result of SEK 566 million for the full year. We had -- looking over the year, we have organic growth of 24%, but we had a bit of a headwind on the currency effect of just over 4%. So that brings us to 20% in Swedish krona. In terms of our accelerators of the business, we have obviously continued the journey of intensifying our activities for the small and medium labs. So getting our CellaVision DC-1 instrument out there. And we can see that our activity are increasing. There's an opportunity to actually go out and demonstrate them, which is really a healthy sign. Now specifically on the sales side, we have -- we can report a 66% growth, in unit growth for the full year of DC-1. In terms of the reagents over the year, we've had a relatively strong year. I think Q1 was -- sorry, Q4 was a little bit weaker than previous 3 quarters. However, we see no signs of -- we still have successful in interest our hematology reagents, and we landed at 13% in local currency for the hematology reagent power line. We're continuing to invest in manufacturing capacity, and we're also looking into our -- what it takes to endorse our global expansion strategy. It's been a pleasure to work over the past, let's say, half a year and now being able to share the direction that we have outlined for the company, both to create value short term, but certainly also on the more long-term measures. So this will be part of the [ minutes ] and that's it. We take the next slide and hop into the financial development for the quarter. I'll talk a little bit about the top line and how we ended up. I think what I'd highlight on this slide is our gross margin that came out at 70% for the quarter and almost -- 69% for the full year. I think the main explanation for the increase from 66% in 2020 was our product mix. We had considerable growth in Americas. We really came back strong throughout the quarter, the Americas, which has really showed high sales of software with higher gross margins. So that affects our gross margin. Furthermore, our instrument and software sales collectively are growing at a higher pace than our reagent business. So that has -- also had a contribution to our healthy gross margin of 70%. If we take the operating profits, we landed for the quarter at SEK 52 million, which is equivalent to an EBITDA of SEK 60 million. And on the year, our operating profit was just short of SEK 163 million, equivalent to -- with an EBITDA then of SEK 196 million full year. So that's EBITDA margins at 37% for the quarter and 35% for the full year. We've increased our R&D spend when comparing with last year with a couple of percentage points. So we have started to start-up projects that have been on hold throughout the COVID period. And we've also started to ramp up activities in the direction of our revised new strategy. Cash flow-wise, we landed the year at a total cash flow of SEK 27 million that comes out of a healthy operating cash flow of SEK 160 million for the full year. We've had big things. We capitalized SEK 39 million. And we acquired the Clearbridge so the IT rights of about SEK 31 million. And then we had dividends. So that's kind of the big chunks that brings us to the total cash flow of [ about ] SEK 27 million. Next slide, please. So here we show the regional highlights split. So as said, we start on the left-hand side in Americas. We had 94% growth on the quarter, obviously, a very high percentage. Of course, it signals also the low compare from last year. However, having said that, this is the strongest quarter ever for Americas. We're seeing increasing activity levels, which has not necessarily translated into sales. But we really are able to access the laboratories in North America. So that's really coming back strong. So here, we can really talk about post-pandemic situations. And we're also seeing tractions in Latin and also in South America. Staying on the DC-1 side, it's worth mentioning that we actually -- we were able to really continue our journey of building what we call ecosystem. But also within the vet space, so we've had a large order with DC-1 to support the vet business of a particular client. Going to EMEA. I think the highlights there, where we lost 6 percentage point on the quarter, but actually had a relatively stellar year throughout the quarters with a relatively high sales throughout the second year of the pandemic, consistently landing at plus 17% for the full region. And as said, the reagent business takes us a little bit down here, so that the instrument software business was actually more than -- growing more than 20%. What I'd like to highlight here, yes, I think the intelligence we get also from the activities is really well on its way. Of course, Omicron, et cetera, is out there with some level of insecurity. However, we really think that we are back in line with -- almost in line with the activities and the freedom to operate together with our partners in Europe. Going to APAC. Here we saw on the quarter, 6% growth, going flat. So SEK 103 million in total revenue for the region, same as for FY '20. I think here, we were -- we had some timing. So there was -- this number in Q4 contains a Japanese order or some orders for Japan that helps us a bit. Otherwise, there are certain markets, this is where we are mostly affected by COVID. It's a big scatter out there. But our -- we see that -- we don't quite have the same flexibility to visit and demonstrate our solutions. So we're still negatively affected by COVID on the activity level. And then on sales, we're pleased to see that we're able to maintain our sales also in China. Since we're up against the compare where we actually had shipments to migrate in the second half of 2020, but we have actually managed to mitigate that and come in at the same level here. In some of the smaller markets, we also saw strength. Korea is one area, and there are a number of small ones where we -- to have some places, so we are pleased with that. Going into the next slide, that actually shows our -- where we slice our results based on the product groups, instruments, reagents, software and others, which also contains spare parts. On the instrument side, we had a consistently 16% growth. And of course, happy to see our activities and our numbers coming out. Now that we're still early days in the DC-1 launch as -- which was started in -- with CE mark in '19 and in '20 in the U.S. But the conversations we have with our partners and the end-users is positive. So we hope to continue that journey. For the reagents, I already commented on the SEK 22 million on the quarter, which was a little bit lower than the first 3 quarters. And we're exploiting kind of specifically those SEK 2 million or those couple of millions there. It doesn't seem to be a systemic situation at all. And also, what is really healthy is that our APAC expansion is on its way. We've tried, this time around in the report, to provide more transparency on what we work on, what is the status across the region. We're working on our partners to really get our classic stains into the region. So hopefully, you will appreciate the change in the report. As said on the software side, really healthy growth, SEK 39 million for the quarter. We've seen a healthy software growth, and we are seeing our Remote Review software being our biggest contributor that really tries to get our small solutions with our large lab solutions. So we're pleased with our product category, the growth of that. All right. That brings me into the next chapter here, which is our strategy '23-'26. So if we fast forward to how we lead the way in digital cell morphology. There, I think it's important to pause here and really express my appreciation for what the team and our partners have accomplished over the years. It is a successful journey that has enabled investment in growth. We really consider ourselves very fortunate and hardworking to be able to in invest our business and pursue our vision of continuing to be the leading provider of digital cell morphology pharmacology. We're still around 200. And here, we have a plan where we actually in balance with the growth on the top line, but we certainly want to invest in innovation, as you will see. And we have a global footprint. But now we're also at the verge where the pandemic is levering also. We are looking at where and starting our investments into our market support organization, so we can support continued growth. I think if we -- yes, I think we take the next slide where we actually share the 5 pillars of our strategy. This is how we are unlocking the full potential of CellaVision. And I think it's important to emphasize here that we are really continuing our journey of digitalizing and improving microscopy workflows in the world's medical labs. And that consisted of different levers here, all the pillars. First pillar is really our core business that we have brought us and created the position for digital cell morphology globally. That is where we want to maximize and really spend the bulk of our resources to secure continued strong growth in the large lab segment. So here, you're really maximizing, which also requires investments. We are having our accelerators that has been developed, and we are on the verge of really bringing them out there globally as well as within the dimension of lab sizes. So this is adopting our DC-1 into the small and medium labs and tying that together with our large labs. We are driving this growth based on the RAL acquisition back in '19. We're only continue now being hindered by a couple of years of disturbances from the pandemic. Nevertheless, we have progressed our plans of really growing in Europe, but also growing our classic stains for APAC and we're certainly also working on how to get into Americas. We have new agenda items where we bucket them under our expanding our activities and our focus to establish growth drivers in what we call specialty analysis. And I'll talk a little bit more about that on the next slide. But this is a very, very interesting area that we think ties very well together with our position in the large labs and our accelerating levers we already have in pillar 2 and 3. Furthermore, we are -- we've sent a signal of acquiring new technologies throughout '21. But here, we are really specifically saying that we're exploring how we can contribute and leverage our capabilities and our assets into new areas. And that actually also includes, of course, the bulk of really assisting our journey within hematology. But in essence, we are building the foundation to remain the market leader within hematology, and we are leveraging our journey to explore new areas. So if we take the next slides, we kind of unfolded at a level slightly below the headlines. So the value proposition that we've outlined here for the large lab is this is where we have the high-volume routine analysis of peripheral blood samples. And this is really what has been attractive for us and a driver, also hardware and software. And of course, it goes hand-in-hand as we convert and get our reagents, and we also have consumable sales in this -- for this segment. We have, in the small, medium lab segment, we see the same type of analysis but actually performed not in the large solutions where they also assist with the workflow, but where we are actually bringing digitalization into labs' works totally manual today. So it's a new penetration of the DC-1 getting into that. But we certainly see hardware and software sales as a big thing here. Reagents. And here, you should note that it's not just our classic stains, what we have for routine peripheral blood samples. It's also to support our new pillar on the specialty. So what we are signaling here is that we are tying together reagents with software development or new algorithms to assist the specialty analysis. So this is where the strategic move of actually acquiring RAL Diagnostics comes to play, so we can develop innovative solution that ties together instruments, software and region. On the expanding agenda here, we see a number of opportunities for revenue streams. It's really important that addressing this low-volume gain that it is. It's actually to efficient -- make an efficient workflow in the labs. So here we see opportunities to sell additional instruments to the large labs and also to the small, medium labs, but also to assist the large lab in not disrupting their workflow when they have to diagnose diseases that are not considered high volume, but which still exists. And when they exist and if you want to digitalize that, it will interrupt the workflow. So this will become a growth driver that consists of both new sales and new instrument sales the DC-1 and even larger instruments are also software and consumables. And here, there will also be opportunities for considering our recurrent revenue models. On the exploiting -- or on our exploring pillar. We -- as we have announced, we have novel technology that we are doing our feasibility work on. And really specifically, we are starting to progress that on the internal side. And we can see high speed and superior scanning performance, so we can leverage that in new areas. So here, we are starting to invest and formalize a smaller team to make this happen. And now it's time also to work with partners on technology maturation, but also on channels, so we can look into opportunities for new strategic alliances. On the hematology side, we add up the addressable market to around SEK 5 billion across these segments here. In terms of the next slide, this is the ecosystem that we -- that is really -- we're able -- this is our mission based on our strategic pillars. So here we are building an ecosystem with opportunities and synergies. It's a sticky offering where we tie together our instruments with software solutions and superior algorithm that has been trained on RAL reagents. So you can see that we have a value proposition that really goes along the lines of diagnostic certainty. The fact that we can control the sample preparation with our own reagents as well. And here, there's a growth driver also for our reagent business tied together with small, medium lab sizes. This is a focus for us. And for the new innovative developments, we will develop our own reagents and tie them together so our algorithms are tied and together trained on our RAL reagents. So that becomes a competitive edge by providing high quality and consistency and accuracy in a standardized way. Workflow advantages, as I've talked about throughout this ecosystem of -- with labs of various -- variable sizes, we tie that together, all the communication. The data flow of results, the interpretation done by medical doctors, wherever they may be, can be done with our Remote Review software and even also for these low-volume analysis. So that we separate the workflow and make an efficient hematology workflow for this. This brings me into the next one where we are laying the foundation for the short- and the long-term growth. Certainly, as we say, some of our levers here to be successful in executing and delivering on these pillars and across the value chain. One of the very important one is obviously innovation. It's in our blood as we say. So now we are ramping up and accelerating our development, both for existing programs, the programs that have been on hold, and we're beginning to invest in these new areas. We still have our core business, and we are investing in that to remain the #1 leader of digital cell authority across the large labs. Supply chain is something which is really increasingly important with the growth journey we have that both have -- that has the expansion element to it also on a regional basis. So this is a key thing that we are looking into and also to make sure we have our capacity in place, which is also why we, in this year and next year, are investing in our facilities in Martillac, France for the reagent business as a starting point. On the people side, of course, we have a history -- we have a very, very strong history together at CellaVision and now also with our RAL team where we now have one corporate branding around CellaVision. We have an open team. We have different footprints and bringing these companies and entities and our organization together into 1 mission about digitalizing and really building sufficient workflows. So that's something that we don't forget the people component in our journey, yes. The people component also goes hand-in-hand with our partnerships. We are really looking at leveraging our capabilities and assets. But we're also very knowledgeable that execution of our agenda, in particular, in the new areas, we are going to exploit partners who can -- where we can build synergies and develop the solutions while also getting general access. So this speaks to the fact that we are considering the direct model as a good direction to execute on this strategy going forward. And then again, the end customers, we will invest in our presence. We are marketing our offerings directly in collaboration with partners. And this is time also to revisit our market support organization to strengthen our organization, where we can see market potential to contribute to future growth. So these are the 5 levers that we're working on with initiatives below to make things happen. That brings me into 13. Here, I will just emphasize our financial ambitions behind the strategic direction. We are -- although our base business is growing and we are continuously growing, we are still having the aspirations of 15% revenue growth. We have changed from the old metrics where it was on an EBIT measure, we have changed to an EBITDA margin of exceeding 30%. And this has been our performance for some time. We are allowing ourselves a room to increase investments to secure the long-term growth of CellaVision. But we are certainly really eager to, of course, continue to exceed this metric. On the capital allocation priorities, as you've heard me talking about, then we are investing in growth, people, innovation, capacity, channel and marketing. We are -- on the acquisition side, we are focused on maximizing the value from the latest 2 acquisitions, so that's RAL Diagnostics and also our Clearbridge, the IP under our -- that we're exploring within new areas. But we're curious to explore M&A opportunities that can help us accelerate our strategic journey, definitely. On the return to shareholders, on our dividend policy, we are proposing a raise to SEK 2 -- SEK 2, SEK 3 per share, which is kind of in the middle of our dividend policy, which is obviously to be approved by the AGM. But this is where we landed there. And then finally, before go into the Q&A, our summary. So hopefully, at least, from our side, we do believe we delivered a strong finish to the year with 24% organic growth for our business. It's been a privilege joining the team personally in early 2001 and now executing and working with the team to pursue our new strategic direction, which should really continue our growth journey, but also lay the land for long-term growth of CellaVision, given the incredibly capable people we have within our team at a global scale. So I'm looking forward to discuss this in separate meetings, et cetera, but obviously, also in the Q&A coming up. So with that, I will now -- if we could open the channel, Magnus and myself, will be very happy to take any questions.

[Operator Instructions] Our first question comes from the line of Ulrik Trattner of Carnegie.

Great. I have a few questions, if I may. And this being one of the first times you're presenting for an overview or an updated view on the total addressable market as well as penetration. Two points, 22% penetration in large labs. That seems rather slow from the 21% that you reported back in 2019. Is there's something we're expecting to continue that is going to -- sort of penetration is going to increase by 1, 2 percentage points annually? Is there's something you can actually do in order to increase that? And secondly, you report as previously, 17,000 labs that are addressable. Have you, in any way, increased your price assumption, changed your view on replacement cycles? Or how do you just derive these numbers? Even if I assume 7 years replacement, which is quite aggressive, you will only come up to SEK 1.2 billion. So what am I missing here? That would be my first question.

Thank you, Ulrik. Yes, on the 22%, I think it's fair to assume that we will continue the journey of 1, 2 percentage points to penetrate the large labs, which we've done historically and continue that journey. We see that -- we don't see that, that necessarily slows down. So we're on that journey. Of course, the mix between the mature and the immature markets will be different. There are certain regions that -- where we had a higher penetration, maybe somewhat slower, and then there are a lot of runway in other areas. But I think 1% to 2% is really where we are continuing to strive for growth. In terms of the 17 (sic) [ 17,000 ] labs, we're continuously updating our view from the market perspective per country. And we are still around 17,000, maybe a little bit higher in our assumptions as to the addressable market. So that's kind of where we are with the market sizing from a lab perspective. And then you had a...

But -- but help me break -- yes. Yes, sorry, just help me break down then sort of your assumption how you're able to drive at roughly SEK 2 billion in total addressable markets if there's only 17,000 labs because that is what I've been sort of assuming as well. If we're looking at a price per system of roughly EUR 100,000, your distributors taking half of that, and you have 7 years replacement cycle, you would not come up to more than SEK 1.2 billion. So what has -- sort of in those metrics have changed?

I think -- it seems like you are a little bit on the low side on the pricing side if you take end user pricing here. So I don't think that has changed.

I mean, so it's 40%, 50% higher...

Yes.

Okay. So the prices have increased by 40% to 50%?

No, no, I think you just need to be clear whether it's our revenue or it's the end user revenue.

Yes, yes. Sure. But the outside -- the communicated out price to end customer has been, for the last 5 years, EUR 100,000. So that price and the distributor margin has been 50%. So have the price system -- or the price per system increased by 40% to 50%? Or had the distributor margin come down? Or is there -- where am I sort of doing my miscalculations here?

Yes. I can comment a little bit on that just generally. We need to add some software and spare parts and consumables into the equation as well. So it's not only the instrument. There's also these consumptions and other installments that we have with the lab. So if you add those on, then you have a higher average sales price, let's say, if you include all of that in the equation and be calculated.

A good proportion of software comes in when the installation takes place.

And just sort of -- it goes quite sort of into my second question as well, 17,000 labs, roughly 5,000 in the U.S., 5,000 in Europe and 7,000 in APAC. Majority of sort of your sales mix and why others is performing well, at least what it's been historically, is that U.S. is driving sales. And U.S., they have a higher portion of upselling from software. So what's the attachment rate of others across the different regions? As well as, are you expecting the U.S. markets to outperform the other regions in the coming few quarters?

Well, I expect the journey in the U.S. was just to be continuing. And you're right that there's a higher attachment of software in Europe. But we also believe that, that transition will also take place -- sorry, in the U.S., that transition of software and the adoption of our instruments will also continue in Europe. But it's much more fragmented in Europe because it's in many more countries. It's different organizations. It's different payment systems, so it's much more fragmented. And this is also why it is a bit slower in Europe as opposed to actually penetrating 1 country with a few partners, same organizations.

Okay. Great. Next question would be on your new financial targets as well as your new strategic agenda. So your financial targets, that implies that you're to double your revenues to 2026. If you could give us a split between sort of hematology sales or hematology analyzer sales, reagent sales and expansion sales into these new areas by 2026, just to help us sort of understand where we should find this sort of doubling of revenues to 2026.

The -- in the period, the bulk of the business will continue to be on the large labs. And then we will see, increasingly, contributions from the geographic expansion on the revenue side -- on the reagent side. And in addition, we do believe that the small lab segment, medium lab segment, the DC1 tractions where we are now seeing 50% volume growth, we do believe that will continue. And as we get 5 years back, we've not penetrated a very large proportion of the addressable market for the small to large lab segment. As we get into the period and as we get to -- and as we have developed the specialty analysis, that will allow us for new growth drivers, because then we will be able to place DC1s, not just for the small to the medium labs, but also to the large labs. Because they will take out these analysis, supplement their -- the high-volume workflow.

Yes. And when do you expect to launch such a system?

So the applications were obviously under development. We will not disclose the timing of them. But we will have some of the applications coming out throughout this 5-year time. So they will come as droplets, if you like.

Okay. And just 2 more questions before I get back into the queue. How are we to get sort of reassured that this brings a similar value proposition to what you have been offering in hematology analyzers? Or is that too soon to call out? Because you have such clear value proposition for large labs.

Yes, so your question is related to...

So when are we supposed to get more details on exact segments and the value proposition that you bring to that specific segment? So when are we supposed to get more information to get some reassurance?

The reassurance will happen as we launched the first application where we will pursue researchers on strategy to begin with and then do the clinical validation, bring them into IVD solutions. But they will be out there. Of course, this strategy is based on conversations with the market. All our users. we have more than 1,000 users attached to us. So the specific need to solve this unmet need in the hematology lab, this is where we see that there's a more than 90% demand for these solutions. And this is where we are confident that it's the right thing to actually solve that issue for the lab so that they don't disturb the lab's -- the lab work flow.

Okay. Great. Two more questions sort of just popped up into my head. You're talking about 50% volume growth for the DC-1. What is the volume growth for the [ DC-1200 and the DC-9600 ]? As well as my last question is, you're moving away from an EBIT target to an EBITDA target. But what is your expected rate of depreciation and amortization over this period in terms of percentage of sales?

We -- the biggest chunks of depreciations would be our tangible assets, and that could be related to the capacity expansion in France. And that is not a very heavy post, I would say. And then the rest is coming from depreciation on capitalized expenditures, and that's the more significant portion of our depreciation. And as long as we capitalize, as long as we develop, it won't affect our depreciation rates. But as soon as we market launch our products, they will go into depreciation. And it's still a bit in the future before we have any larger changes to the depreciation ratios.

Just a follow-up on that one on the minus, because your depreciation rate has been around 6%, slightly higher in 2020 in percentage of sales. But that's supposed to be a low number once these applications are launched.

It's actually a rather low number historically as well. We've been a little bit higher. So it's going to be a phasing as we introduce new developments, new software, new hardwares to a market. And when we start to sell those, that's when we start to depreciate those as well, over 5 years for some and over 10 years for others.

Okay. So essentially, what you're stating here is an unchanged EBIT margin assumption of roughly about 20% for 2026. So essentially, you're reinstating your old financial objectives. You're changing EBITDA to EBIT -- EBIT to EBITDA.

No. I think if we look historically, we've had around a 5% difference between our EBIT margins and EBITDA margins, sort of in that area. And I think this time around is 5%, 6%, yes 5% to 6%.

Okay. And then on to the other question that I had, talking about 50% volume growth for the DC1, where are we at with the DM1200 and 9600 in terms of volume growth?

Yes. We're not disclosing the specific number. We have a new environment, but double digit.

Okay. Just to sort of -- trying to sort of decipher the numbers here again, sort of the total instrument sales. I don't get it to really add up. If you're having 50% volume growth for the DC1 and double digits system sales for the large lab segment, then system sales would have been quite a lot higher. So how certain are you that it is double-digit growth for the large lab segment?

That is -- the growth is also, I mean, on top of the instrument growth, we have the reagent growth, and we also have the software, which is considerable. So that's kind of what...

Yes, yes. But I'm just looking at sort of the isolated instrument growth. Instruments being instruments, right?

So the question was how certain we are?

Yes. You're talking -- you said that you were seeing double-digit system sales growth for the large lab segments. And just trying to sort of decipher the numbers of system sales with 50% sales for the DC-1 coupled with what you're stating that it's double digits, then it should be higher, right? Than your reported growth must be higher system sales.

To derive the 15% total, you need higher increase in your calculations, Ulrik, in what areas?

It sounds like the sort of -- the growth for large lab segment is below double digits if DC-1 is growing in that 50% plus in terms of its sales.

Okay, I see where you're coming from. But when you talk about percentage growth from a low base, then the contribution comes gradually. And in the beginning, the contribution in monetary in absolute numbers is not so large. And that is...

That's good but there must have been a couple of -- it still must have been a couple of millions, right? And that could have sort of offset the entire growth for the segment if it's SEK 10 million. Okay, I can get back to you on that front.

Yes, we could have a conversation around that, of course, offline, if you'd like. But that is how we see it. We have -- on the large systems, it's a double-digit growth. And then, of course, a lot higher growth rates on the small systems, but on a much lower starting base. And then we have software that grow a little bit faster than our average instrument sales. And we have our reagents that we globalize. So we have -- still have good growth in Europe, but the growth rates will be a lot higher than in percent in the APAC region and the Americas region, but also, there, from a low starting base. And all in all, it adds up to these financial targets that we have set out over time.

Our next question comes from the line of Felix Wienen of SFO.

Perfect. Yes. Thank you very much for the very strong organic growth. A couple of questions, please. The first one would be on your supply chain, and you've maneuvered that very well over the last quarters given what other companies are reporting. So in terms of your visibility and stability going forward, are you confident with that?

Oh, that's a great question. And I'd say we are sending the signal again and really explaining that our numbers have not been affected by the supply chain, and we're really pleased with that. And having said that, we are working very proactively to make that happen. We are spending a lot of time on actually managing our components supply. So we are spending efforts on trying to increase our inventory levels. And that's not just easy because there is another, you can say, competition for the components for the time being. And we're also spending calories on validating alternative components. So I appreciate that you picked up that we -- we've managed to manage it. So this is really a focus area to keep it that way. But we do think going forward, that we will continue to be challenged over the next year or 2 or so. So this is really an area that gets lots of attention in order not to prevent our delivery situation. But there seems to be items that have never been an issue that are all of a sudden an issue. So we are challenged in this area, and the team has done well in mitigating it.

Perfect. The next question will be obviously with the prices going higher for virtually everything, in particular, logistics costs. So does that have any impact on you in terms of your ability to raise prices towards customers? Have you had any negotiations yet? Are you planning anything? Any color you could give would be helpful.

Yes. We are certainly planning to have that conversation. We see inflation rates going on. We see component prices there or conversations with some of the suppliers, definitely. So that's a conversation we need to have. And this is really what needs to be baked into our price increases for the coming year. It's not like we can do it overnight because we are contractually bound on certain contracts. But there are windows where we can have this conversation, so this is obviously something we're working on.

Great. Obviously, I noted and you commented on it, on the veterinary side, a larger order there. First question, I'm obviously very satisfied about that. So if you could give a bit more color on the market and whether anything has developed there? And secondly, whether that was in the U.S. where I think you're most above on that side. And was that a one-off order? Or should we expect anything going forward?

But -- you're right, it was in the U.S. or is in the U.S.. And I think this is -- customers really picked up on the vision of building what we term as an ecosystem. They have done extremely well and streamlining all their working processes and digitalizing everything with the use of our systems. We are very pleased with this. In this context, it was add-ons. It was a large order of DC-1s that were added. So for this client, we have conversations as to can we actually expand in other geographic jurisdictions to have the same model. So that's super exciting. So we want to continue, and we have a pretty healthy offering within the vet space. But we do believe that the -- where we can see volume, this is where our solutions really serves the purpose, a combination of large DMs and DC-1s. So this is what we're positioning.

Very good. let's briefly move over to the DC-1 system. In the press release, you mentioned that you had customer feedback in the U.S., customer insight, I think, you called it. Could you share a bit more color there with us? What was the response? What was -- did they have any areas of improvement for you? Or have they just been very satisfied with the system and with its use? And also -- yes, and then another question on this if I may.

Yes, certainly. No, it's a great question. Yes, we've actually -- we've tried to exploit the strength of the value proposition and why -- and now that we are seeing both. And by then, we have -- keep on in every day in this very minute using the DC-1 out there. Why is it value for them? And we see that it confirms that there is the certainty component that it's standardized. That is appreciated in the lab environment. I think the Remote Review software is really recognized as a very, very high-value proposition for the labs where they are associated with other labs, so these networks. But very interestingly, the amount of the network labs, this -- the degree of those or the presence of those is larger in Americas as opposed to Europe and APAC. However, in Europe, we see the same pattern. But there's a larger fraction of stand-alone labs, and they really appreciate digitalizing the, also, low-volume workflow on peripheral blood samples. So the accuracy and the consistency, the independence of med tech is something which is highly valued. So that strengthened our confidence in that we have a product which is a staple and which we can scale and attach to our large systems from a software perspective.

Okay. Also regarding the DC-1, and the press release, you state or talk about long sales cycles. And does that mean that your orders or your revenues from DC-1 have been below your expectations? Or does it mean that once a customer has verified the product, sales can be particularly strong because that's lengthy. So should we pick up -- do you expect a strong growth from DC-1 in '22 or '23?

Yes. This is back to our challenges, which has probably been the biggest challenge if we kind of reflect upon the pandemic period. The DC-1 is positioned to labs who are not -- if they're a stand-alone lab, they are not doing digital cell morphology, these small, medium labs. So not only do we have to actually really have them understand the value proposition of DC-1 specifically, but also taking a step back and learning about the opportunities and the implications from going digital. That's the first step, and then the DC-1 comes in. Which means that it's really important that you're on-site, that you have the DC-1 with you. Our market support colleagues, they bring the DC-1 into the lab, and they demonstrate it. This has been extremely difficult. So that's the activity. And when we talk about activity levels, that has not really happened. And then the reason why we add on and we emphasize that there's a long sales cycle there, once you've conveyed this and the user understands and has the need, then there could be a year until the next sales budget cycle comes up at the hospital. So now we are seeing traction, as I said, on the activity side. But we're really -- we're starting to believe that, that will translate into sales, so we can continue this healthy double-digit growth even though we're at the early stage of the growth journey with 56% year-over-year growth FY '21.

Of course. Of course, yes. And then on the reagent side, please. And after that question, I'd step back into the line. It's obviously shown solid growth, 8% in Europe. Now you're expanding [ Tel Aviv ], and how do you see -- how do you view the development for Asia and the progress? And I really appreciate the table, the new table that you've provided in the presentation and the press release about the progress. So when should we be expecting this substantial thing in other regions outside of Europe? Is that something, obviously, part of your '26 strategy? But if you could help us locate a bit when we should be expecting a couple of million revenues from other regions than Europe.

Yes. I think the first step to start is really this region in APAC that we outlined here. Because as you can see, we -- it's not just that we have registrations and [ late rings ] and so forth. We really need also the partners to substitute their current suppliers, and that is starting to happen. So as you can see in Australia. We're at the verge of starting in China, New Zealand, Korea, Singapore. So we are gradually adding markets where we can start penetrating the market. Then it's the other thing, once you start commercializing, and this will go gradually, essentially beginning in 2022 with these countries. But the sale will -- it will not be a hockey stick because also, the timing of converting 1 supplier of a region to a new when you're running a lab is also -- there's a better window for doing that when you're exchanging your instruments. So we believe that as we convert and as our customers are also selling -- well, our partners are selling cell counters, that's a beautiful window for us to also exchange their reagent business. So that's really -- it's going to go gradually for this region. Then we're obviously working with our distribution partners also, to consider going outside of Europe, where we have healthy growth. We still expect that we can grow within Europe, but we also want to go to Americas. So these are things we're working on. And we are especially looking into our methanol-free reagent, which is a really high-value proposition from an environmental perspective. So we're working on getting that in and substituting current suppliers in that market.

[Operator Instructions] And our next question again comes from the line of Felix Wienen of SFO.

Perfect. Then just 2, 3 quick ones more. First one would be if you can comment on visibility into the first half of this year, probably inventory situation at your customers' pipeline, anything about that.

Yes. Here, I'd probably comment on the activities. And I can only say that we -- also in light of Omicron and so forth, we are seeing activities together with our partners and lab access. We are not hindered by actually getting out there. So I'd say we're seeing continuing -- continued momentum, put it that way. That's -- and that's -- so that's relatively helpful.

Yes. Absolutely. You've got a fair enough comparison base in the first half in any case. And the last one on the software in the fourth quarter. Was that due to specific software upgrade? I mean the revenues there have been strong in all regions. So was there any material one-off effect in there? That would be interesting.

Yes. We had a lot of placements which drove, where the attachment rate of software to the instruments were relatively high. But we've also sold additional software. Especially, the remote review has been very healthy. And our hypothesis is that, that's likely also tied to DC-1. So that you can combine the DC-1 with the large systems.

Interesting. Perfect. And I just want to say that [ it's ] obviously been a strong year. I've seen the software revenue was the highest in 2021 and also with the first ever quarter with more than SEK 100 million in instrument sales. So looking forward to what you're bringing to the table in terms of growth. And yes, good luck going forward.

Yes. Wonderful. Thank you so much.

And we have no further questions at this time. Please go ahead, speakers.

All right. With that, first of all, I really appreciate everybody listening in and the questions. We are really happy to take further dialogue. We're super excited with the ending of 2021. We really had a strong finish and strong momentum. And we are extremely excited internally to get going and execute on our strategic direction. Because we really intend to accelerate our efforts and protect our position by being this industry-leading provider of solutions that benefits both patients with blood-borne or blood-based diseases, but also the lab personnel throughout the world. So we're super excited to come back and give you an update next quarter. With that, thank you very much.