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

Good day, and thank you for standing by, and welcome to the telephone conference in conjunction with the RaySearch interim for the report for the second quarter 2021. [Operator Instructions] For your information, the conference is being recorded. Now I would 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 Second Quarter of 2021. My name is Johan Löf, and I'm the CEO and Founder of RaySearch. With me here, 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 a brief overview of our second quarter. The COVID-19 pandemic had a negative impact on RaySearch also in Q2. Market conditions remain challenging in Europe and North America, while the market situation was somewhat better in Asia. In the second quarter 2021, our order intake was SEK 190 million, representing a 7% increase year-on-year. However, our net sales declined 6% to SEK 155 million, and the change is explained by lower license sales, mainly due to the pandemic, but also negative currency effects. As far as we know, we are not losing market shares. And with fixed currencies, our net sales would have increased 5% quarter-to-quarter. Our recurring support revenues rose 9% and accounted for 44% of our net sales. However, as a result of our lower license sales, our operating profit declined to minus SEK 22 million, representing an operating margin of minus 15%. Our cash flow was minus SEK 74 million in the second quarter, part of due to a repayment of our credit facility of SEK 50 million. And also investments in our new head office in Stockholm. Since it's uncertain how long the pandemic will have a negative impact on our revenues, going forward, we will focus even more on our costs. While continuing the strategically important investment in our product portfolio, we will adapt our operations in various ways to achieve substantial cost savings. However, over the next few months, our operating expenses will most likely increase year-on-year, mainly because several product launches during the past year have resulted in increased depreciation. Overall, our profitability will remain under pressure in the short term before sales return to normal and the cost savings take effect. The ongoing pandemic has caused significant challenges for RaySearch, but we still believe strongly in our strategy for comprehensive cancer care. And therefore, we have chosen to continue our important product expansion and investment in our product portfolio. At the end of last year, we launched 2 new products RayIntelligence and RayCommand. RayIntelligence is our platform for data-driven oncology and machine learning. This software as a service platform is fully integrated with both RayStation and RaySearch, and it enables cancer centers to consolidate, structure and search data to individualize treatment protocols and also hopefully improve patient outcomes. RayIntelligence is our first product that is only available via annual subscription. This allows customers to pay on an ongoing basis, thereby avoiding a substantial initial investment. RayCommand is our treatment control system, which offers unified management and control of the main systems in the radiotherapy treatment room, the treatment machine, the treatment couch, imaging systems and patient positioning devices. The goal is to ensure safe and effective patient care while offering a more consistent user experience and a more efficient workflow regardless of the type of treatment machine. The development of RayStation and RayCare continues at a fast pace. One of the main use for RayStation is that we are introducing support for Accuray's Cyberknife machine. We already supported TomoTherapy and Radixact machines and thereby RayStation provides complete support for the entire suite of Accuray machines. Another focus is improving an integration between RayStation and RayCare. This is particularly important for cancer centers that use complex treatment processes and adaptive treatment techniques that plays high demands on official scheduling and optimized resource utilization. During the year, we will also release a large number of new machine learning models. This can be used in both new and older versions of RayStation and can immediately be used by customers in markets with more regulatory obstacles. Several research projects are also in progress, studying opportunities to apply our tools outside the area of radiation therapy, for instance, in medical imaging and various types of surgery. Because of the large number of undiagnosed cancer cases during the pandemic, there will be a surge in new cases after COVID. And this means that clinics will need to treat more patients per day for the same resources. Efficient resource utilization in CancerCare has long been a focus area for RaySearch. Our software enables fast and automated preparation of treatment plans for each patient, it also shortens treatment duration while retaining treatment quality and provides more efficient scheduling of the treatment machines and health professionals. Following the vaccine rollout, we will now gradually increase our sales activities in the coming quarters, for example, by taking part in ESTRO Madrid in August and ASTRO in Chicago in October, 2 of the major conferences in our field. It will be research mission to show cancer clinics, large and small, how they can improve their activities through software-driven innovation, strategy that will ultimately deliver workflow efficiencies while giving more patients access to the best possible cancer care. This concludes my presentation. Peter and I are now ready for any questions that you may have.

[Operator Instructions] And we are taking our first question from the line of Rain Leesi at Avaron Asset Management.

This is Rain from Avaron Asset Management. I would like to further ask on the COVID impacts as you kind of brought this out as continues to impact your sales activity. I mean, generally, we have seen economies opening up. And if we look at the activity of the cancer treatment equipment manufacturers than their sales are already recovering. So kind of why you remain more impacted compared to vendable others? Could you be elaborate on it?

Yes. Well, I suppose that you refer to Varian and Elekta?

Yes.

And I think Yes, there are some aspects of that. It's very hard to compare these companies. We don't know how -- I mean they're mainly in hardware, and they have very long lead times. And in general, I think it's hard to just compare hardware and software. Hardware machines, for instance, we used to replace machines on a regular basis, it's not like -- not really a business decision for the clinic. They often use link for 10 years and then us buy a new one. It's not a big undertaking really. It's not a critical decision for the operation. Whereas to replace an oncology information system and treatment planning system is not -- it involves a lot of people that -- involves the entire department and I think it's -- that can be a reason. So we don't -- I don't think you or we can see exactly, I mean if the software business of Elekta and Varian are doing okay in these markets. And we see it clearly how -- we know that the hospitals that we speak to, for instance, mainly North America and Europe. They -- the decisions are delayed. It is recovered, they're still overwhelmed by the COVID situation. They have the travel restrictions, they cannot come to the conferences and they are really sort of preoccupied with the -- still with the pandemic, and there are delays in making decisions and there are budget freezes. So this is just -- we don't -- we haven't seen -- during this time, there hasn't been any deals that have gone to either Elekta and Varian that we are involved in. So it's just postponements and delays of decisions. So I think of course, we announced [ cider ], it's maybe it looks strange. So I think the key explanation is that we are in 2 different fields of radiotherapy. It's different between software and hardware. That's -- I think that's the best explanation.

Okay. I remember in the past, you have an ad hoc basis commented on the number of on-site demos you have had during the period. Can you kind of maybe give kind of some reference, how many on-site demos you have been giving, let's say, in the last quarter or in the last half year? And how this kind of compares with, let's say, BRICO with situation, just to maybe some reference?

It's like a complete stop. Maybe now we'll start to get some -- they start to open up a little bit, but we haven't been allowed to visit the hospitals for a very long time. And it doesn't mean that we haven't had any contact with them. We have had many, many more -- I mean we are better at online demonstrations now than ever. So we do a lot of those. So those compensate in part for the lack of on-site demos. And hopefully, I really go back to on-site demos, but hopefully, we will be able to do higher quality online demos going forward because those are much more efficient and that we can save money, not traveling there. And during the pandemic, we have the entire organization is it's much more skilled now in providing this sort of interaction with -- or having the sort of interaction with the customer. So -- but to answer your question, during the pandemic, the hospitals in Europe and globally have been pretty much close for visits.

Okay. Okay. And I don't know if there are any participants there are a couple of more questions, if I may.

Sure go on.