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

Welcome to CellaVision Q2 Report 2025. [Operator Instructions] Now I will hand the conference over to CEO, Simon Østergaard. Please go ahead.

Thank you very much for the intro, and thank you, everyone out there who has an interest in CellaVision, to hear our presentation for the second quarter in our fiscal year 2025. I have our CFO, Magnus Blixt, with me, and we'll be pleased to present and discuss the report today. The quarter in brief. Basically, we have categorized and labeled our report, robust results with mixed regional performance. So you can say it's a report where we are reporting SEK 191 million top line. So it represents 2% growth, equivalent to 7.8% or almost 8% organic growth given the headwind on currency of around 6%. It's a quarter where we have had significant contributions from APAC with some exceptional contributions, and then we've had quarterly variations from Americas and EMEA given the nature of our business. But I will try and unfold that as we progress. First of all, a few highlights on the progress of our strategic directions while executing the Power of Focus strategy. We're actually on a number of things. We have a lot of progress on the internal lines, both in how we work commercially with our key partner but also on our investment program into innovation and development. This quarter, we want to highlight the progress we've made with the bone marrow module. The bone marrow analysis and the clinical trials are very close to completion. In fact, a number of the studies have been completed. We're continuing certain clinical validations in the U.S. And here, we are reporting pretty much as previously -- I think previously we've said that we expect for EU, we expect our documentation to be reviewed by the notified body by the end of the year. And here, we modify that and say at the beginning of 2026. However, this should still enable our commercial launch in Europe to begin in the beginning of 2026. So things are according to plan. A little bit out of our hands with regards to the actual review, which includes the work with the notified body. But good progress, and it's been a privilege to follow the program. And now we're really excited to see the -- and we expect to get the approval. So that is exciting for us. We're also in this quarter, as you know, those of you who have followed CellaVision, we have invested significantly in our R&D and development efforts. And here we are highlighting that we're actually coming out with an upgraded software for our CellaVision DI-60, our integrated system with Sysmex. It contains both improved user interface and several new features, but it also offers seamless integration with the Sysmex smearing and staining device, SP-50. And it's now being compatible with our methanol-free stain, our proprietary stain. So this is a very important milestone on our journey of doing globalization of our reagent portfolio. So those were the really appropriate highlights to emphasize in this quarter. Let's go to the financial development. So on this somewhat busy slide but very organized slide, you see our Q2 results spelled out from a P&L perspective, and you have comparison quarters from last year year-to-date this year compared with year-to-date last year and then the full fiscal year on the very right-hand side for 2024. We will spend the most of our calories on the first column or two. So I said organic growth of almost 8% and a gross margin which is lifted up against the comparable quarter last year, it's lifted to 68%. So we've had positive contributions somewhat from price increases but also negative contribution from FX. We have operating expenses of 41% up against sales. That's primarily a little bit more higher burn rate on the admin, complying with certain systems regulatory-wise, and also a slightly increased R&D spend as well according to our strategy. So that gives us an EBITDA of SEK 60 million sort of comparable with the -- equivalent to the comparable quarter and an EBITDA margin of 31% in line with our corporate objectives. I can unfold our R&D spend a little. It's 22%. It's increased from 19% to 22%. And in sort of actual numbers, we've spent SEK 42 million versus SEK 36 million last year in the comparable quarter. So here, we have approximately SEK 22 million sitting in the P&L and then we have SEK 20 million capitalized versus last year where we had SEK 20 million sitting in the P&L and SEK 16 million capitalized. Cash flow wise, we have an operating cash flow of SEK 58 million this quarter. So we've had positive contribution from our working capital, SEK 7.5 million, primarily due to the fact that we've driven down accounts receivable and we've driven down inventory. So that's kind of a share contribution, if you like. On the investment side, I talked about the capitalized R&D, which is the SEK 20 million, which is the majority of the SEK 25 million we have on the investment side of our cash flow. And on the financial cash flow implications, we have minus SEK 63 million, and that is pretty much SEK 60 million going to dividends of our shareholders. So that leaves us with a total cash flow of SEK 30 million this quarter, which is somewhat stronger than the comparable quarter last year. Still a very healthy company from a financial perspective with hardly any debt. And we have cash and bank equivalents of SEK 155 million sitting on the balance sheet as of today or as of this quarter. Let's try and unfold the regional highlights on the top line, what happens in Americas, EMEA and APAC. So for Americas, we had organic growth of 5%. So that was equivalent to SEK 66 million. Say, we had pretty healthy contribution from our integrated systems, the DI-60. However, we had a softer contribution this quarter from our DC-1 instrument sales catering for the smaller laboratories. Say, our analysis is probably more related to internal matters on the DIFF-Line, where we've been transitioning from one smearing device where we've had issues to a more simple smearing device. So that has impacted the demand side. We still see continued progress in expanding our market presence in Latin America and especially in countries like Brazil, where we see a traction for the DC-1 instrument format. For EMEA, a little bit more modest but also on the low side, organic growth of 1%. So we're reporting SEK 80 million here. It's a little bit mixed, large and small. But what is good to hear is that there is actually momentum across multiple countries. Also when we have the communication with our key partner, there are orders coming in from multiple countries but, of course, a little bit soft sort of order placement for installation. That is the nature between getting the orders from the lab versus the time of installation. And then I can talk to APAC, where I would say a very strong APAC. SEK 46 million organic growth, equivalent to 27% after the 5% currency effect there. There is a contribution sort of in general from APAC, but also an exceptional contribution since strategically we've been running a program where we are manufacturing the DI-60 out of China. And as part of that process, we have shipped a number of components going to the made in China manufacturing line, which is what you also see in our numbers with a little bit exceptional high contribution from APAC and especially to China. But again, abroad, the integrated solution is strong. And we have also -- over the years we have, you can say, centralized and streamlined our commercial operations across APAC to really work closely with our key partner being Sysmex. But we have actually also expanded in Southeast Asia with the resource to help us and Sysmex drive growth in the region. So we are still investing in the sales and marketing, also on the research side. Yes. This chart, sales per product group, that's when we carve the revenue in product categories: instruments, reagents, software and others, where others refer to our spare parts and/or consumables. And here, I think I already talked about the instrument dynamic. But in general, this quarter, it is the large instruments that remains the significant driver. We do have some product mix within that category as well, but also across the small instrument category, as I alluded to. What I want to highlight on the reagents is especially for EMEA, we have 20% growth versus the comparable quarter for hematology reagents. So hematology reagents and especially in EMEA where we have the majority of our sales is really growing healthy double digits, which is according to our strategy and good to see. Again, our reagent expansion strategic pillar embraces both APAC and the U.S. And for APAC, as you will see and if you digest some of the detailed numbers, then we are growing the APAC reagent. However, it's still small numbers spread across multiple markets. But we are increasing from 1.5 to 1.8 and about 1 million increase compared with 2.3 million last year year-to-date and 3.2 million now. So it's about 1 million we've grown year-to-date with the comparable quarter. So that's, of course, smaller numbers. But the big driver in APAC is China, where we are working on our distribution setup to eventually get into China and combine that with our total offering as the only solution provider who can deliver both instruments, reagents and superior software. And for the U.S., I should also say, I mentioned the MCDh now being available with our software upgrade. I think that is extremely strategically important, that milestone. It endorses for our opportunity to bring MCDh both to Europe but, of course, also to the U.S. where we via Sysmex have a large opportunity to improve and deliver a much more environmentally friendly solution to the labs. So that is a key milestone that you will hear more about as we plan the big launch for autumn. Yes. And the remaining part around software is pretty much in line with our installed base and our instrument sales. So let's take the key takeaways. It's a little bit rich, but I'm actually pretty proud of what we are reporting on this slide. Again, we see this mixed regional performance. But we see organic growth. There is some, let's call -- I shouldn't say seasonality, but there is a function as to when are we hearing about orders at hospitals versus when we need to deliver. And if I look at the Power of Focus strategy and I think about the strategic partnership that we have closed, we're continuing to improve the way we work and the way we work marketing-wise, sales-wise, sales support wise, but we're also increasing our engagement in the investment program and really making some progress. And I think these bullets, these sub-bullets speaks to our progress. The clinical trials for bone marrow are now completed for Europe and we can really start to envision our CE mark. There is obviously insecurity around when you file before you get the actual approval of your documentation. However, we are confident that we will have a CE mark by the beginning of 2026 leading to our launch. I have introduced today without sort of announcing the actual launch and the content, but we're very proud and I'm very proud of the team who has actually done this improved software version that we will launch this year. And then I also want to emphasize that our R&D spend entails the adaptation of our superior technology, Fourier Ptychographic Microscopy, FPM, which we are lifting into our core hematology business and the next-generation solution. So that is progressing according to plan and so is the continued exploration of our FPM in adjacent fields such as pathology and cytology, where we're also really refining and improving the technology and having external engagement and conversations around that superior and proprietary technology. So we do continue on our journey to continue pushing the limit of delivering cutting-edge solutions, reaffirming our market position in line with our strategic plan. So finally, I mean, before we go to question and answers, I think it's a super special day for me and not the least for Magnus, our CFO. Magnus has decided to leave CellaVision after 12 years. So this is actually your final call.

That's right. It is.

You've been here, almost sitting here for 50 times, I guess. But of course, I want to thank you so much for what you've done for the company and the journey you've been on from a very small to a midsized company where we are on a very interesting trajectory. I think with your capabilities, you will have all opportunities going further. But of course, I want to thank you also -- and this community where you work closely with multiple investors to thank you for all you have done for the company. So thanks, Magnus.

Thank you, Simon. It's been excellent 12 years. Thanks a lot.

Wonderful. And with that, I think it's appropriate to open the mic and have some questions for the ones who have not reached the beach yet. Thank you very much for listening in.

[Operator Instructions] The next question comes from Ulrik Trattner from DNB Carnegie.

I hope you can hear me all right. A few short questions on my end, first being related to the deliveries to China. Should we consider this to be a sort of inventory buildup and for this to be potentially sequentially a little bit weaker in the coming quarters? That would be my first question.

Thanks, Ulrik. I would say that what you imply in the question, that's probably a fair assumption. So we've shipped multiple components and modules to China, which is part of validating the manufacturing line, and they will be targeted for the Chinese market. So there is -- we could expect a little bit of weakness coming from that situation. However, we still see demand from the Chinese market. But the assumption is fair, yes.

Great. And kind of a follow-up on that. In my mind, sort of this mix of CellaVision combination and integration with the smearing device and the methanol-free reagents is a bit ahead of time and it's a big opportunity for you to grow globally with your reagents. So kind of there are multiple questions here. How should we view this short term in terms of global ramp-up of this? How unique is this product? And thirdly, where does it stand in terms of pricing versus your legacy products in terms of reagents?

Yes. I think what we're reporting here is, also if we go years back at the Capital Markets Day, we said there's a prerequisite that needs to be fixed in order for us to actually run MCDh especially with Sysmex on the SP-50. And that is what we are reporting, that, that seems to fixed by now. That's really a milestone. So where we are is that we can now start to get customer feedback from the stains. And so it doesn't just jump straight into a launch plan. But the launch is not too far away. It is a function of -- and its decision also made by Sysmex obviously, as to when and where. But the launch for next year is primarily what you should be looking at. But it's a major milestone and it's a major opportunity now to finally start considering and opening up the market opportunity in the U.S. where we hardly have any sales today. Yes. With regards to the pricing piece, that is a balance, and I think I'm not going to comment on that. That's obviously also a discussion we have with Sysmex. It's also a function of the final protocol in terms of the consumption of the different regions where the specific COGS lands. But it can be a little bit adjustment to the pricing. Of course, it comes with a higher value proposition than the classic stains since it's environmentally friendly. There's also improved waste management and there is less service needed when you start running the RAL stains, including the methanol-free. So there is an operational improvement, which should also be reflected in the pricing.

Great. And last question on my end relates to these prolonged order to installation times which we have seen across the board for medtech companies. So just how much of a delay or postponement are you experiencing based on sort of historical numbers?

Yes. Yes, typically, we've used to say that from orders placed by labs, even though it can take many years, then we've typically said 2 to 6 months. But now we're seeing -- we hear that it's probably more 2 to 9 months. So there's a little bit more slack in when the orders come in and then when is everything in line to actually do the implementation, when are resources at the laboratories, IT, et cetera, available for the actual implementation. So that's a little bit prolonged but it's not significantly. But it is prolonged.

Great. And now unfortunately I didn't have any questions for you, Magnus. But thanks for all the support throughout the years, and good luck in your future endeavors.

Thank you, Ulrik. Appreciate it.

The next question comes from Richard Ramanius from RedEye.

I had some questions. Could you tell us the sales potential for the bone marrow application?

Yes. So the bone marrow application is what we define as -- it's under the Head of our Specialty Analysis. So it's analysis that are done -- actually, this is not done on the peripheral blood, but it's done on the bone marrow samples. So it's more of a specialty analysis. And we believe that the market potential is close to SEK 1 billion per year, and that's for the entire specialty segment. But the majority of that, the biggest application or opportunity refers to bone marrow. So that is kind of, I would say, the majority of that number is bone marrow. It's a market that sits in the large lab segment. So it's a market where we anticipate we can target it or we will target it with our DC-1 platform. So the instrument that has previously or is being positioned for the small lab segment, that will be the engine that will be targeted for the large lab segment. And then it will host the actual software application, the AI piece that classifies the different cells in bone marrow. So it's an opportunity that sits in the large lab segment for the majority. That's how we read the market and where we expect we will generate the revenue from.

Would you say this is an opportunity to upsell the DC-1 instruments?

Yes. Upsell, yes. It will expand the addressable market for DC-1, I think I'll phrase it in that way. Because all of a sudden, the DC-1 was designed for the small lab segment, but given the fact that very few labs have a high number of bone marrow samples, then it can actually easily accommodate the needs of bone marrow samples in the large lab environment. So there, it's tying into the large lab and being an opportunity for the large lab to standardize their workflow and save time when they do bone marrow analysis, assist their bone marrow analysis, which is a critical analysis because this is actually the analysis where typically you deal with leukemia, lymphoma patients. So it's getting into severe patient or supporting severe patient diagnosis.

Very well. I had a modeling question, but I could rephrase it like this. You're investing quite large amounts of money either through the cost or through R&D or through capitalization. And once these investments are completed, how do you think that will affect your EBITDA margin? Do you think it will improve? Or do you think you will always have a similar level of investment into research and the investments will simply translate into better sales?

That's a tricky one in terms of outlook. I would say though that the value creation we, as an innovation company, can come with, I think there is a strong value creation by actually investing in own programs. So I think the shareholders are very well off that we tie together, continue to develop and innovate. I think that is what we are proving with the Power of Focus strategy where we, over the years, have increased our spend, but now we're actually starting to see things come out of it. So I think it's important for us to stay faithful to the innovation profile and that translate into investments. However, I would also emphasize that we are in a phase where we have invested on multiple strategic pillars, which has increased our investment profile significantly. There is a scenario where we can take that down a little bit. However, we are looking to invest in new things in our road maps after having completed what already sits there. So I don't want to send the expectations that we just get through and then we harvest based on whatever innovation we have. Having said that, I'm cautiously saying that, hey, we know we're at a high level and we could potentially bring it down. But I really want to reserve and be transparent to the shareholder community that we are an innovation company. I think that's our raison d'être, if you like. It is about driving the innovation. This is why we've been successful. So we shouldn't leave that profile. But there can be a little bit of, let's call it, a financial upside given the fact that we're in a historical situation right now. That was a little bit wordy, but I hope you understand my perspective here.

Yes, it certainly makes sense. And perhaps a bit of both, I would interpret it as that, a bit slight margin improvement but also I think sales trajectory, would be my understanding.

Yes. Exactly.

But could you say also how much -- or rather, can you capitalize any of the investments going into the FPM project?

Yes. So I think it's twofold. So we capitalize investments that goes into FPM on the hematology analyzer that also here on the actual slides, we're talking about the adaptation of FPM for our core hematology business. That is capitalized because that is due to the maturity level of the program. However, if we have activities on the FPM where it's more immature or where we refine at the -- you can say it's before development, it's more in the innovation phase, the feasibility testing, that is not capitalized. That is sitting in the P&L right away. So we have a development model where we, after a certain stage gate, then we start capitalizing. But certain prerequisites need to be in place in order for us to capitalize. So that's really how you should look at it. So it's a little bit of a mixed bag, but the majority of the program is on the hematology side, and that is capitalized. Magnus, I think you will correct me if I'm on track.

I'm nodding here. You can't hear it, but I'm nodding here and I agree with what you say.

Sure.

Okay. Last question. You have a quite healthy balance sheet. Cash, SEK 55 million. Very limited loans. Why do you maintain this position instead of, let's say, paying it out in dividends? Are there any potential uses like acquisitions?

It's a great question. And it's obviously also an ongoing discussion, I should say, we have in the boardroom as to how to leverage our financial situation. As you can hear, we are very cognizant that the key value driver is actually investing on our own programs. In terms of acquisitions, we acquired the FPM technology. We acquired the RAL Diagnostics. That were two, we believe, are really long-term attractive and successful acquisitions. So we are not refusing that, or if there is a technology that comes along or other opportunities, also supply chain-wise there can be opportunities where to expand our business, we may pick up something on that along those lines. But it is also important for me to emphasize that the vision we have with the Power of Focus strategy is building the digital ecosystem. So everything has to work within our current solutions, which makes it a little bit more difficult just to plug and play something from the outside. And this is also part of the secret where CellaVision has been successful in building something that really works. We see that also from entrants coming into this field that it's not easy to make things work, which is why M&A targets, there are not that many that fits into our core hematology strategy. But outside and supply chain-wise, there could be opportunities. And this is where we're well suited to onboard such an acquisition if we see someone is fit.

Next question comes from Ludvig Lundgren from Nordea.

First, I wanted to continue a bit on Richard's question on R&D costs. So R&D was SEK 43 million here in Q2. And is it possible to quantify about how much of this relates to the bone marrow application? And maybe if you have any external costs here at the end of this project that might disappear when you launch this product.

Yes, Ludvig. I think I can start answering a little bit overall. The actual cost for the bone marrow has increased given the fact that we are using external labs for the clinical validation. So the burn rate for the bone marrow program in these last 2 quarters-ish have been somewhat higher, I would say. I'm not sure we dissect our cost base at the project basis, so I'll probably a little bit cautious in doing so. But it has been -- and I should also emphasize that all the costs related to bone marrow that we're using, they have been capitalized. But it's a significant program. It's not just a small thing, which is also why that has taken us 3 years to bring it out.

Okay. Great. So yes, I assume then that a significant part of the increase here on the capitalized side relates to these external programs.

Yes, it's external. It's a ramp-up on the bone marrow, but it also entails a ramp-up on our other investment programs. And you can see them here. We're also emphasizing the fact that we've made a big milestone on our software upgrade that will be launched in autumn and we are pursuing our next gen. So they are also -- maybe, I'd say, incrementally, you're right. The majority could be bone marrow. That's a fair assumption, actually. But the others have also increased a little according to the details.

Okay. Perfect. And then I wondered a bit about funnel activity here during the quarter and if you've seen any change in customer behavior throughout the quarter or if it has been stable throughout this month.

Relatively stable. We hear sort of despite a quarter that's sort of politically has been very unstable, then we haven't actually gotten feedback that it has translated into significant instability in terms of order placement along the lines of what we saw in Q3, Q4 when we had the presidential elections. We've heard nothing about that, basically.

Okay. And then final one. Wondering about this software upgrade for DI-60 that you mentioned. How will the sales process look for this? And is there a significant price difference compared to the software that you currently have for this product?

Now the sales model -- so this is our integrated product with Sysmex. So that will continue according to that. However, the user experience and also the several new features including, you can say, a more tight integration with Sysmex will make us more competitive. Also in accounts where they are about to replace, then this will be a very attractive product upgrade in order to replace and choose another DI-60. So you could see it as a life cycle management move with significant customer value. That's how you should look at it.

Okay. So mainly to new DI-60 installations then, I suppose?

And to new accounts. It will be even more attractive to choose it. But just what I'm saying is that, of course, it will lift significantly also for accounts who has been running or who's changing the blood line. Here, they will actually get more customer benefits.

Okay. Great. Those are my questions. So yes, good luck to you, Magnus, and thanks for all the help during these years.

Thank you, Ludvig.

The next question comes from Bobby Powar from Liontrust Asset Management.

Hopefully, you can hear me.

Yes. Very well, thanks.

Yes. Brilliant. Congratulations on a great 12 years, Magnus. I just had a question on your comment on the small labs where you've seen a bit of softer demand in the U.S. I just wondered if you could give a bit more detail on the drivers of that and whether that's just been a phenomenon you've seen in the Americas in the quarter or other regions, too.

Yes, sure. No, we've been a little bit exposed given the fact that we've had issues with one of the components in what we call a DIFF-Line. And that is the smearing component where we've had some inconsistencies. So we're doing a root cause analysis on this smearing device. That is kind of what has hindered -- that has impacted our DC-1 sales. That's how we analyze the situation. So you should see my comment as more of an internal thing affecting the customers rather than a switch in demand for the DC-1. So this is an internal matter that we are searching for the root cause, also with the mitigation strategy to have a more simple smearing device which we already have, which will be positioned together with the StainBox and the DC-1. So that's kind of how we should look at it. I should add, that has impacted the U.S. the most since historically we've seen the small lab market being very attractive for the DC-1, and it still is given the IHN network structures of hospitals, which we also see in Europe but not to the same extent. So this is why our numbers in the U.S. have been more affected than in Europe.

Brilliant. And then I just had a second question just on I think you mentioned pricing had been a positive contributor in the quarter. I just wondered if you could talk through your pricing strategy for this year compared to last year. That would be great.

Yes. So essentially, the pricing for the majority of the -- we do annual price adjustments. And the reason why, you can say, we don't have the full impact of the price adjustments in Q2 is that everything that has booked for delivery in Q2 but has been placed prior to Q2 is charged based on the old pricing scheme. This is why the full impact typically of the price adjustment that takes place as per 1st of April comes into effect in Q3. That's kind of the dynamic. And that is for the majority of our business. We do have multiple contracts also on the reagent side and so forth. But I'd say, in general, for the instrument side, given the fact that also we are -- say, most of our business goes via Sysmex, then that is the main contributor.

And the timing of the price increases is the same this year as it was last year.

Yes, that's right.

[Operator Instructions] There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Yes. Thank you very much, and thank you, everybody out there listening in. We appreciate your interest in CellaVision, as you know. Again, my closing comment is really, today, we are reporting robust results with regional performance. I think what I reflected upon is that the 3 years after communicating the vision of CellaVision, which we captured in the Power of Focus strategy 3 years ago, I'm extremely proud on behalf of the team to say that now output is really starting to get out there. We are starting to unfold the many investment programs we have internally. So even though there are always insecurities and things when you deal with regulatory approvals and so forth, we have confidence across our strategic pillars that we will make a difference and launch really superior contributions to our winning ecosystem. So thanks again for the continued attention, as I said. Also, thanks to all our staff for making this happen. You all deserve a very good summer break, and I'm sure the ones on the call also to serve a summer break. So finally, thanks to you, Magnus. You certainly also deserve a summer break. We will be back here in autumn. I think we have our next call on November 6, where we report on the Q3 results. We will do a lot of hard work before then. But for now, I wish everybody a great summer, and take care out there. Thanks.