RaySearch Laboratories AB (publ) (RAYB) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. And welcome to the telephone conference in conjunction wit RaySearch's Year-End Report 2020. [Operator Instructions] I must advise you this conference is being recorded today. And I would now like to hand the conference over to your speaker, Johan Löf. Please go ahead.

Thank you. Good afternoon, and welcome to RaySearch Earnings Conference Call for the Fourth Quarter of 2020. My name is Johan Löf, and I'm the CEO and Founder of RaySearch. With me, I have our CFO, Peter Thysell. And together, we'll try to answer any questions that you may have after my presentation. I will start by giving an overview of our fourth quarter. The COVID-19 pandemic had a negative impact on RaySearch also in the fourth quarter. The market conditions were challenging in Europe, while we noted a continued recovery in Asia. We also saw signs of recovery in North America towards the end of the year. Then as an example, we received a major order from Johns Hopkins Medicine in the U.S. They have been using RayStation for proton therapy planning since 2017. And in December, they decided to expand RayStation installation to include all forms of photon therapy. Thereby, they will gradually replace all other treatment planning systems. During the fourth quarter, our total order intake was SEK 239 million, representing a 14% decline year-on-year. Our net sales declined 32% to SEK 160 million. The reason for the decline was lower license sales, mainly due to the pandemic. In addition, we do not meet all the criteria for recognizing license revenue for several large orders for RayStation that we received at the end of the year. This was also the case for 2 contracts regarding our new RayCommand treatment control system, which was launched in December. The revenues for these orders are instead expected to be recognized throughout 2021. Due to lower sales, our operating profit declined to minus SEK 15 million, representing an operating margin of minus 9%. In the fourth quarter, our cash flow was minus SEK 21 million. Despite the challenging market conditions caused by the pandemic, 2020 was still a productive year in many ways, with continued focus on product development, cost reductions and efficiency improvements. During the year, we released new versions of RayStation, for example, the new support for brachytherapy and proton therapy planning for eye cancer treatments and improved ability to generate treatment plans using machine learning in Plan Explorer. We also released new versions of RayCare with improved integration with RayStation, interface for interoperability with Varian's TrueBeam machine, and support for multiple parallel patient treatments and workflows. Also, in December, we released the first version of our RayCommand treatment control system, which also obtained market clearance in several European countries. For end users, RayCommand offers uniform management and control of important systems in the treatment room, such as the treatment machine, the treatment couch, imaging systems and patient positioning devices. In December, the first version of our RayIntelligence data analytics system was also released. RayIntelligence will provide cancer centers with a stable infrastructure they need to accelerate the introduction of machine learning throughout the entire radiation therapy workflow. So in summary, RaySearch product portfolio was significantly strengthened in 2020. For the full year 2020, our net sales declined 12% to SEK 652 million, and our operating loss totaled minus SEK 3 million, representing an operating margin of minus 1%. The full year result was negatively affected by currency translation effects related to balance sheet items, and adjusted for that, the operating profit had amounted to SEK 26 million compared to SEK 49 million during 2019. Despite the challenging market conditions, cash flow remained strong at SEK 62 million, and the company's financial position is very robust. Looking ahead, it's still difficult to say with any great uncertainty -- with any great certainty how the ongoing pandemic will affect the coming quarters. The situation has stabilized and begun to normalize in many countries, while other countries are facing the second or third wave of the pandemic. We see continued recovery in Asia and initial signs of recovery in other regions. Overall, we expect the negative effects of the pandemic on the company's sales and earnings to continue for some months to come, although we expect the effects to decline continuously during 2021. Despite the short-term challenges, we are still optimistic about the future. The underlying need for efficient software solutions for cancer care remains unchanged and treatment of cancer patients must go on. We, therefore, believe that the market and demand for our products will normalize and return to previous levels after the pandemic has subsided. One of the effects of the pandemic could be an acceleration of the ongoing digital transformation. The pandemic has radically revealed the major potential and benefits of digital technology, which could be positive for RaySearch's operations in the longer term because the company's software solutions make it possible for cancer centers to increase their efficiency. I will end with a final comment on our strategy. RaySearch's high pace of innovation will continue in order to secure our market position and return to strong growth as soon as the world is in a more normalized state. RayStation and RayCare are already the market's leading systems to simplifying and streamlining the highly complex workflows of cancer centers, and we are determined to increase our lead in 2021. In 2021, more and more cancer centers will introduce RayCare for clinical use and the interoperability with Varian's linear accelerator, TrueBeam, will significantly increase RayCare's market potential and improve workflows for our existing customers. Our teams are also developing tools to support surgeons from planning and performing surgery to remove tumors. In the longer term, our goal is that RayStation and RayCare will form a single system for planning, optimizing and managing combined cancer care within a range of treatment modalities: medical oncology, surgical oncology and radiation oncology. Overall, we see both challenges and opportunities, even though we are currently living in the turbulent time due to the ongoing pandemic. This concludes my presentation. Peter and I are now ready to answer your questions.

[Operator Instructions] And your first question comes from the line of Kristofer Liljeberg from Carnegie.

Yes. I have 4 questions, if that's okay. The first one is I wonder if it's possible maybe to quantify the size of the orders that was not revenue recognized in Q4, if we exclude the ones related to RayCommand? My second question is relating to operating costs and how you think about them going forward. Of course, they are temporarily lower right now, but it seems the rapid expansion in hiring and higher cost in recent years has been geared for much higher sales than what you currently have. The third question is, if you could comment how you maybe see the uptake for RayCare in 2021? And whether you think it will be possible to sell with any large volumes without having connectivity agreement for a broader range of Elekta and Varian hardware products? And the final question is, how do you see the potential to add sales with existing customer from the new RayStation modules that's about to be launched?

Okay, Kristofer. So I think we need to -- let's start to answer the first 3. We need some, I think, clarification on the third -- on the fourth. So the revenues sort of shifted from 2020 to 2021. It's a little bit more than SEK 60 million plus that we strongly believe will be recognized during the year now.

Sorry, could you say that again?

About SEK 60-plus million.

And is that including RayCommand?

Yes.

Okay. And RayCommand is because that could be up to SEK 60 million. So is that SEK 60 million you have included there? Or ...

No, no. It's less for -- so the separation that was, let's say, after discussion for Q4, maybe it was SEK 40 million RayCommand and SEK 20-plus million RayStation.

Second about cost. So that's true, of course, that we have expanded and geared for much higher sales in the past years. And we will now slow down on recruitment in 2021 and consolidate the operating margins before we continue to expand on the program. I don't know if you have any follow-up questions to that answer, Kristofer?

How are you thinking about traveling and all the exhibition, et cetera, of course, that's probably important...

It would be much less in 2021 as well. As far as we can see, the only big one that's still on the table is ASTRO. That's in the U.S., but that's -- I mean, it's very likely that, that will also turn into virtual conference. It's very hard to say. But at least for the first half year and the summer, I don't think there will be any larger real conferences. And I will...