Sectra AB (publ) (SECTB) Earnings Call Transcript & Summary

Good morning, and welcome to Sectra's 9-month Interim Report Presentation with CEO, Torbjörn Kronander; and CFO, Jessica Holmquist. My name is Helena Pettersson, Investor Relations Officer, and I will be the moderator of the Q&A session later. You are most welcome to write your questions in the chat function, it's open from start. And with that, I hand over to you, Torbjörn.

All right. Thank you very much. So our 9 months, it will begin -- first as usual, will do intro and highlights by me, then Jessica will talk about financial development. I will talk a little about our way forward and then we have a Q&A session at the end. And you can also e-mail during the presentation or via the chat function, to give questions on during while we talk, we will reply to them after the session. Sectra is doing business in 3 major areas, of which one is subdivided. We have Imaging IT, which is taking care of images in hospitals, mainly radiology, x-rays and MRI, et cetera. But increasingly also other images, some of the largest contracts we have received lately is all image management in the entire hospital system that includes then pathology and other things as well. And then, we have Secure Communications where we do -- that's where our name actually origins. We were doing encryption technologies before we started medical. And we do have very high level and advanced encryption systems. These are the on governmental -- military and governmental levels, classified information, the SECRET levels, and the discreeted levels. And that has now been begun growing much more than before, as you will see later in the presentation. And then we have business innovation, which is our greenhouse for new IDs that doesn't really fit into one of the major cash-generating businesses, things that are might be profitable already, but they are not big enough to motivate becoming a real business line or they are growth areas where we are not yet profitable at all, one such is Genomics IT. We do -- increasingly, we are becoming a diagnostics company. We have been not only imaging company that we're general imaging company, but the images are mainly used for diagnostics. We have concentrated on the diseases of the aging person, which will have a big underlying growth because of demographics in the entire western world. And if -- oncology cancer diseases, it's one of those areas where aging people get sick. And if you do oncology today, you also want to handle genomics, which is sequencing of the tumor and the Germline DNA of the people -- of the patients, and that is used for precision medicine, where we've got increasing wish from our customer base mainly in pathology, digital pathology, to also have them out with Genomics IT, there were no production systems from Genomics IT. And Sectra is a company who are specializing in production. Hospitals must become much more industrialized they had been. They have increasing workloads and it's got to be run efficiently. And Genomics is a rapidly increasing area, which has not yet had any production IT support. We are developing such a system together with University of Pennsylvania in the United States. And that development is just now going to clinical tests. We don't have to do clinical trials for it. It is exempt from that type of FDA approval. But we need to do clinical tests, of course, in the latter part, with the customers have to do there. It's been 1.5 year development and it looks very promising, and it will be integrated together with pathology and radiology for oncology diagnostics. Highlights from the quarter that passed. We have strong performance in all operating areas right now. It's very nice to see that we have very high customer satisfaction. I'll come back to that in a while. We are expansive growth phases in several areas. We are doing large investments, which is can be seen in our cost, but there will be paybacks on these becoming this and we have rapid progress in this transition to as a service model. And that also drives up upfront costs as in such a process, you get paid when people begin to use the systems, not when they decide to buy it as we got paid before with licenses, yet you have to take it live. You have to implement it and run the product. That drives cost while the income is deferred to later that is, we see that clearly on the part of this year. And again, transforming as a delivery as a service, our net sales last year increased by 20 -- or the first 9 months increased by 27%. That is high growth, it's demanding, but it's also very nice to have it. Our profit per share increased by 23%. Recurring revenue, which is an increasingly important thing in this world where we are moving over to deliver as a service organization, increased even more by 28% and the churn on recurring revenue, the number of customer contracts, not a number, but the amount of money that we lose for recurring revenue every year is no meaning it's getting a new recurring revenue contract in if you lose it 3 quarters later. That is extremely low. It's 0.4%. Customers are happy and they stay with us. And of course, that is a very important aspect, if you were to become a services company, because if you lose customers, you lose that revenue. But people like us and they stay with us. We also won our Best in KLAS award -- and Best in KLAS is an organization in the U.S. We would ask customer surveys and of course, they sell these reports to customers who want to buy systems in the future. They do this independently, award the vendors. They ask customers mainly start in the U.S. what do you think of these other vendors you have and then they rank all the vendors. It is very interesting reports both for vendors. We can learn from competition and also know where we're good and where we need to improve which drives quality in the entire business, but it's also good for customers because they see what vendors out there that have had the customers. And of course, that increases likability. They will be happy themselves, you could buy that product. And we have now won U.S. PACS in Large hospital. PACS, Picture Archiving and Communication System. That's our main business line, mainly in radiology. 11 years in a row, and that makes us very, very proud. We are a small company in Sweden that wins the most important award you can have for customer satisfaction in U.S. Medical IT. Now there are more categories, of course, and we only compete in one of these categories. But the one where we are in, we have now had the happiest customers a 11 years in a row, and we had quite a good margin to the second part. Now a large hospital in the U.S. is the main target in the U.S., but we also have some smaller hospitals, and we won that as well. So we won both the large and small hospitals in the U.S. We won in Canada, and there we have a huge gap to the second one. For the fifth year in a row, we won Northern Europe. Europe before was one region. They have now split it up in a Northern European, Southern European and one is DACH, one is France, and one is U.K. We are second in DACH and U.K. We need to improve that. We'd like to complete, but we're #1 in Northern and Southern Europe. In France, we're too small in radiology to go direct. Very often, we run by partnerships. Genomics, we're developing things in partnerships. The ideal situation for development for us is that we scale, we prepare to do something and then customers come with a problem to us. So we find the problem together with the customer that they have and then we'll solve it. And genomics IT is a very good example where we actually saw many years ago that we will need to do something in Genomics, because it's a need in oncology and cancer care. So we staffed up by people who -- bioinformatics these days, who know that, but we didn't start development until we got a customer who wanted to develop together with us. And that has now been done together with University of Pennsylvania. And as I said before, we're going to clinical tests which means that try out is in a normal clinical setting, not trials, it's not clinical trials, clinical test, right about now. We do also another partnership, we can talk about with vendors and customers. This is when hospitals want to use AI, we have decided that our strategy is better done where we have more or less an App Store as Apple have it for AI than actually developing this ourselves. So we have a very good offering in App Store for AI, for hospitals around the world where they either can develop their own AI based on the archive, AI is really looking glass into market, if you look at with or without size. But it's also possible for vendors, AI vendors who use us to come into the hospital. And then we take part of their revenue but we also take care of the security vetting, et cetera, for hospitals. And we also very often do integration and exchange of information between various healthcare systems. We are kind of -- where we are in the middle man in this -- in the exchange. And the financial targets for the group are fulfilled and they are in order equity to assets ratio, which is we -- if our systems fail, the hospital is or the customer in communications is in a dire position. We've heard from customers that they consider our system to be the most important IT system of the entire hospital, which is important. Then you don't buy that from a vendor, you don't trust and financial stability is, of course, very important, they don't want a vendor to go under. But so equity assets are just something we value. It should be above 30%. It's a hygiene measure. It's not good. Our main goal is to have this as high as possible, but it should be above 30%. We are currently at 49%. And the other hygiene measure and people sometimes don't say that we see this as a hygiene measure margin. If you have a good margin, we said that is about 15%, then it's a good thing, then we can also invest. If we get excess margin ways above this, we have run out of good ideas for the future. So the hygiene level of this target is 15%, we are currently at 19% and then the real main target is to grow EBIT per share over 5 years. And there, the target is 50%, and we are ways above that now at 132% EBIT per share growth over the 5 years. Some highlights in Secure Communications. We have considered -- this has been a problematic area for us for several years. We have now a completely changed market situation. We have a new management and we see considerably improved sales and earnings. This is now a growth area that is profitable to that. Very strong order intake, and we also have new offerings. We have been in developing phase for several years and we have now new products that we ship to customers, mainly in mobile phones, encrypted mobile phones, but also increasing in very high speed network devices on the highest possible approval levels for [ Secure Communications. ] We won a large -- as an example, we won a large customer win that we've got an increased business together with the Swedish authorities for a fixed phone, not a mobile phone, but a fixed phone that follows the SECRET level of functionality of classified information. In Business Innovation, we have Orthopedics IT, which is steadily growing. We have Medical Education, which is also steadily growing. And we have Genomics IT. As I said before, Genomics IT is going to clinical testing in University of Pennsylvania, just about now. We are beginning to prepare it to sell that to a wider market. But right now, we want to see that we can make University of Pennsylvania happy first. We have Orthopedics IT, which is mainly sold through Imaging IT as special applications for orthopedics and with Medical Education, which is not a medical device. So this can be sold without approvals but based on the same software to a large extent as image. And this itself is teaching both basic medical students in medical schools, but also continued education of medical and veterinary professionals because they now live in a world which is changing very rapidly and they need to keep up the speed. That is a rapidly increasing area as well. One example of medical education here, we've got an [ order ] of University of Saarland in Germany, where we're helping out with the teaching of medical radiographic students. So they are the people who are going to run, operate the radiology devices and MRIs and CTs in the future and they need tools. They want to understand how images look like. And this is a complete cloud-based offering, where they can access this both on the big kind of big, big device, but also on the iPads and PCs at home. Imaging IT Solution highlights cloud recurring revenue. This is the main business of Sectra and our cloud recurring revenue, which is the revenue that we are doing in the cloud. So I mean, recurring revenue is both service agreements that we always had. But the cloud recurring revenue, that is a replacement of the initial license sales, as I said before, that is increasing and is up 57%. Very low recurring revenue churn, as we said before. And we have there achieved Best in KLAS because that is the part who achieves that for 11th year in a row, like I said before. And one win there that is interesting is NHS Scotland. Scotland is have their own NHS. There are different national health systems for England and Scotland and Northern Ireland in the U.K. And they had one purchase for PAC systems for the entire country. They do about 5 million radiology exams per year, which were awarded to us. We replaced the incumbent there and is now in product to be delivered. They are not yet in a phase where they pay. This is a pay for per month or pay per usage situation, but they are not yet paying, but we have investments to getting them live. That was a large order. Then I will leave over to Jessica, who will tell you about the financials.

Good morning, and welcome to the presentation of the financial development, 9 months into our fiscal year. We see high demand for our offerings with contracted order bookings, surpassing SEK 5 billion for the 9-month period of which roughly SEK 2.5 billion is guaranteed order intake. The largest contract secured in the period remains the 10-year Sectra on cloud with the U.S. hospital chain which we received in the first quarter. During the third quarter, we received several significant orders, Torbjörn spoke about the order from the agreement with NHS, National Health Services in Scotland and also the order from the Swedish authorities for systems and solutions for secure communication. We also received an order for a cloud-based enterprise imaging from a network of U.S. hospitals and outpatient clinics. And we remind you that the size of individual orders create quarterly variations in reported order numbers. And our sales are steadily growing, up 27% to SEK 2.66 billion for the 9-month period. And satisfied customers underlying growth and also a favorable currency development in the 9-month period together drive the overall sales growth. Adjusting for currency impact, sales grew by 24%. And the SaaS transition is driving recurring revenue growth, and the cloud recurring revenue part increased by 56% versus the comparable period. And as Torbjörn also pointed out, happy customers keep our recurring revenue churn at a low level currently at 0.4% on a rolling 12-month basis. In the third quarter, we increased sales by 20% to SEK 694 million. And although we are transitioning into more predictable revenue streams, which will decrease quarterly variations over time, we can continue to expect fluctuations in growth and profit levels as long as we have both on-prem and cloud deliveries. All business segments increased sales year-over-year. Imaging IT keeps growing as we continuously deploy new customers and also as existing customers are increasing the use of installed solutions. Secure Communications increased year-over-year by 43%. And surpasses SEK 300 million on a rolling 12-month basis and this is a result of good order inflow during the year. In Business Innovation, we increased sales by 25% driven by the development, both within medical education and the orthopedics area. We are growing sales in all of the Sectra's geographic markets, a stable trend confirmed in this report, and we see the highest growth in the U.K., the U.S. and the Swedish markets. And the U.K. growth in the U.K. market stands out and is a result of successful contract additions over the past years. Denmark, Canada and Australia exhibit the highest growth in rest of Europe -- in Europe and rest of the world. Operating profit rose 24% year-over-year to SEK 320 million. This is a result of growing sales, favorable currency development and also increased contribution from Secure Communications to the group operating profit. Our operating profit margin was at 15.5% in the period or 18.5% rolling 12 months and continued investments in SaaS and cloud deliveries as well as new major contracts that initially increased costs are impacting profitability in the period and in the third quarter. In the third quarter, our operating profit declined by 14.5% to SEK 74 million. And I repeat that as long as we have both on-prem and cloud deliveries, we will continue to have fluctuations in profit levels between individual quarters. All business segments also increased operating profit year-over-year. Imaging IT, which is up 11% carries implementation costs for Imaging contracts, as mentioned, whereas revenues from these contracts will grow gradually over the coming years as the customers become fully operational in the installed systems. Secure Communications showed a significant uplift versus last year, and this is driven by the higher volume of business. And cash flow in the 9-month period, cash flow from operations in the 9-month period amounted to SEK 193 million. And cash flow from -- cash flow generation from operations was strong in the third quarter, explained by advanced invoicing of support agreements and also less outflow from settlement of current liabilities than in the comparable quarter. And at the end of the period, our cash balance amounted to SEK 689 million. And that was the end of my part of the presentation.

Thank you, Jessica. I will continue with our way forward as we all see it today. We are definitely transformed into as a service company, mainly in Imaging IT, that's where the impact is larger because of it's size. But for instance, medical applications already there, we have also orthopedics, which is more or less already there fully. And we have an increasing portion of it also in communications, they were less, because they will get an order for a number of security devices they delivered and normally they have paid for, but Communications is a small part of the company. As we said before, we have an increasing recurring revenue. We have a large interest in pay per usage in all product areas, as I said before, less on Communications, but still also there for some types of devices and then it's more or less a rental of a hardware device and that they pay for usage for me. If you are going to become a successful recurring revenue company, you need low churn, and we have a very low churn below 1%. Revenue and profit growth will temporarily be changed smaller while we flip close initial large staples of initial income from a license sale to becoming revenue over the years instead. But after 4, 5, 6 years, of course, it would be grossly profitable compared to having initial sales and just service income after that. We are also seeing that we have an increasing interest from existing customers who paid a license fee earlier to become a Software-as-a-Service customer. And if they do that, we give them initial discount for 4 years about to kind of pay them back for the license that they own, but we'll gradually take them up to full payment. Our new products is very often only developed for Software-as-a-Service environment. And so even existing customers are converting over to this and that, of course, will be a growth immediately when they change because they will pay from day one more than the service contract. After 5 years, they pay as much as any Sectra One customers. But we need to take the investments upfront. So we've got some really huge orders there during the year, as you know, we have told you and from -- but they are now in implementation phase, there we need to invest and we don't get paid as we did before upfront. We get paid when they begin to use it. Which means that we have, as Jessica also said, large upfront cost that we have to take. Long term, the financial effects of this will be strongly positive. And it's one of the few things where both customers and vendors feel good about it. It's most of us like to pay this if we have a feeling, we can stop paying if it doesn't work. And of course, then just get more money long term. In Medical IT, these are the growth areas. I spoke a little about in the beginning with the demographics of the world today, the diseases of the aging person is the most important investing. It said that about half of the cost of healthcare in the Western country is done for the last year of living. So it's a huge kind of weight on cost for the aging people. That's where society has to invest. And when society has to invest, with the growth area, disregarding if it's a low tide or high tide in the economy as general, society has to invest there. And those 5 of neurodegenerative disease, Alzheimer causing very much, Parkinson, MS, cardiovascular disease like chronic heart failure, et cetera, cancer diseases, muscoskeletal diseases and vision. These areas where we are working a lot in delivering very good solutions and based on medical imaging historically. But now with Genomics, we are also increasing the agnostic capability for cancer outside of pure imaging, very closely related to imaging. It goes together with pathology, but it is not images that we are dealing with. And this is new, as I said before. And the vision for Medical Imaging is collecting all images related to diagnostic data and one single system for the hospitals. This is better care for patients, but it's also lower cost for the hospitals. Having many IT systems, I know the customer in the U.S. that have 1,000 -- that is not a huge hospital, they have 1,000 IT systems. This is a huge cost driver not only for buying that but just having competence to maintain them. And they want to reduce that. There's a huge consolidation going on now in imaging and in IT in general in the U.S. market. It's also security risk, which also drives hospitals to having fewer system because every single system is a potential threat vector for getting bad stuff into their IT systems. So it's reduced complexity, but also higher security if you do fewer systems. So we are the only vendor today that can do all the medical images in one single IT system. There is no other vendor who can do this in one system. There are other vendors that will sell it but I cannot tell it in one system when they sell parallel system and then you back -- then you just get one invoice but it's several systems still. So we're still the only one who can do all of this in one system. So we have radiology, pathology and cancer care going together. We saw that 8 years ago where we digitized the Linköping University hospitals here in Sweden. Now Sweden is by far the world leader in digital pathology. And we have that in the same system. And now we're adding also Genomics into that. The only vendor with all of these in one system, and they are built for production. We are not mainly a research company. We are a company who they will deliver industrial production systems for healthcare, because that is what healthcare need to go through in order to cope with the explosion in the cost we see. So from the search are tools to production. And as I said before, we are now doing that transition with Genomics IT. And the hospitals have been increasingly doing sequencing and DNA sequencing for cancer special but they've done that on research systems. We are now introducing one of the first real production systems for Genomics IT, an area with huge growth. So genomics is estimated to grow about 19% a year for the overseeable future, while imaging is about 10%, 9%. In cybersecurity, we live in the new digital reality. There is an increasing international tension that we are aware of, all of us. We also see increasing cybercrime, not the least against the healthcare. Because healthcare pays out a reservoir attack because otherwise, patients die where many companies simply salute the grievances about it and do not pay out. They do are not going to pay to customers, but -- or to criminals, but hospitals had to pay. That means that healthcare is a very strong target and we see synergies there from our security knowledge into Medical. We are very well positioned in security, and we have a very strong brand name in that area, which is required. That's another area where brand is crucially important. Threats are expanding, and attackers are getting smarter. An example is that these new large language models, GPTs, from you're probably all aware of, they can also be used on the attacker side. They can build an attack software in a fraction of the time it took before when a vulnerability was discovered. The crooks are also used in much more advanced technology. They do phishing e-mails that looks very similar to reality and the threats are expanding a lot. It's larger and larger impact as well of these because the size of science is more and more digital. Yes, that demands more and more countermeasures and thus investments from society and one of those investments in the course of encrypted channels and encrypted traffic. So why should you invest in Sectra going forward? We are positioning markets that are by external factors forced to grow. It's nice to be in a growth market, but it's even nicer to be in a growth market that has to grow even in a low tide in society. And both healthcare and cybersecurity, we grow, it has to grow. And that, of course, is a nice market to be in. We have a high customer satisfaction and a very strong brand, where brand is crucial. If our IT systems stop, the hospitals capital grinding halt. If our IT security systems do not function, bad things will happen to the people who talk over that phone. It requires a very strong brand that makes huge barriers of entry. For 3 guys in the garage type of operations. It's a very difficult market to enter, but when you're in it, of course, it's a good situation. We have a rapidly increasing recurring revenue and very low churn, which provides good prospects for the long term. Yet we have very exciting self-finance prospects for future growth in our business innovation. All of these can become major. Not all of them will be. We have had several there. We have shut down a few of them. Historically, we have sold one of them. But it's all of them have potential. Then if that comes to fruition or not, we will see. But it's an impressing. And in Sectra, all management own shares, we like that to be effect. So you know we have our kind of mind where our work is. The upcoming financial events going forward is our annual meeting in September and the year-end report in June. And of course, most welcome to attend the Annual General Meeting if you have owned shares and that would be held in Linköping. Also, these meetings are important for us. We want them to be productive for you as viewers, as the same way we think about our product with customers. So if you have any suggestions, anything you want us to change or modify in this, please send an e-mail to [email protected] and suggest that we can make them better. Any questions? I should follow online, please use the chat function, and Helena will read the questions for you.

Yes. Thank you, Torbjörn and Jessica. We have a number of questions, and I will start with the ones that arrived before the meeting from [indiscernible] and Nicola Kalinowski. The first question is, given the recently strong performance in the Secure Communications segment, could you help us understand how the general business momentum has changed in the Secure Communications segment in the last year?

And that is mainly due to the tensions in Europe, I would say. It's also a common completion of our products that we've been developing a long time, but the increasing tensions and the awareness of cybersecurities warfare, which is happening in Ukraine has driven that a lot.

The guaranteed order bookings are nearly SEK 1.76 billion was very strong. Could you please help us unpack that figure in terms of which orders have had the largest contribution?

Well, the guaranteed order intake of SEK 1.7 billion in the quarter is spread over Scotland, that too the no-name U.S. contracts and also the order intake in Secure Communications.

We note that you continue to sell the traditional license model in the U.S. Could you please help us understand what types of U.S. clients prefer Sectra One rather than Sectra One Cloud and what might be the practical reasons for this preference?

It's like old transitions of a new kind of paradigm, not everyone jumped as well at once, right? When people got mobile phones, some people had them earlier and some people got them very late. And that might be because of the policies of the IT department of the hospital, it might also be because of the external network. If you're going to work with a cloud, public cloud solution, you need a very high-speed network into the servers of the cloud operators. And if you don't have that, you need to have them on-prem. So we will see but they are getting fewer and fewer public or on-prem installations also going forward. But there are a few.

And the final question here is, could you please provide us with some color on what markets in Europe face a large replacement cycle of legacy PACS?

It's very difficult to say, it's very different for different markets. And there's 2 reasons why people change PACS. One is that the developer has not kept up development with the new technologies, images from radiology equipment, for instance, get larger and larger, bigger and bigger data. If they haven't built the IT system to cope with this very large images, the system will become slow. So that's one reason why people exchange them. Another one is consolidation. And in areas of countries where we have a huge consolidation customers, they merge hospital into larger entities, that will drive needs to have one IT systems for all the group together and some of the old systems will not cope with that environment. If you look into where this will -- is happening, right, it has happened a lot in the U.K. all the hospitals were owned by the NHS, of course, are not all, but almost all in England, but they have consolidated into consortiums, which buy IT together. And then the legacy systems have not been able to cope with that. U.K. is almost through it, but we see other countries -- there's a lot of countries in Europe, which still have a very, very diversified and fragmented healthcare market. I will not give examples, but there are large companies -- categories in Europe where this is the case.

Then I will move on to questions from Kristofer Liljeberg at Carnigie. Could you explain which contracts are driving the strong sales growth in the U.K. last 2 quarters?

Several contracts are contributing, but Scotland is, of course, one.

Our costs for implementing new contracts, mainly on the personnel and external cost line were also impact on gross margin?

Yes, mainly on the personnel cost line at this point in time.

When could we expect cost to peak for implementing large recently signed contracts?

I can take that. And we like -- we don't like it to pick, because if we continue to grow, the cost will increase, but the transition into software service that will peak now over the next or within 2 years. But cost for implementation, we like that to increase because that drives future business.

Part of order intake this quarter to be delivered within the next 12 months, is that mainly related to Secure Communications?

It's on the medical side, is the majority.

Okay. Then I will move over to questions that we have received in the chat function. And the first one is, just to be clear regarding the recurring revenue within Imaging IT Solutions in Q3. Does that mean you have SEK 98 million recurring revenue from Software-as-a-Service and around SEK 307 million recurring revenue from service/consulting sales?

Well, yes, if we buy Software-as-a-Service mean the part that is cloud-based, that's cloud recurring revenue is the recurring revenue from cloud delivered projects.

Could you please talk a bit about the split between Software-as-a-Service and cloud revenues and service consulting revenue from the larger orders in the quarter?

Could you repeat that, please?

The question is if you could talk a bit about the split between SaaS/cloud revenues and service/consulting revenue from the larger orders in the quarter?

I mean, if we sell Sectra One Cloud or cloud-based systems, it will end up in the cloud recurring revenue stream of revenues. I don't know, if I fully understand that question.

No. I think, it was more about the split in the order intake, if I interpret with the question.

Most of the current order intake is for recurring, future recurring revenue.

And the next question is from David Vignon at Stifel. And the first question is the growth in average number of employees has been slowing down since the first quarter, and the number of employees has been growing at a slower pace than revenue for a while now. Are you happy with the size of the team? Or are there areas in which you expect to hire significantly more in the coming quarters?

That is a figure we can't reveal. But in general, we had to invest earlier on with people. It takes high to get people up to speed. We've got some massively large order that we had to invest to get -- to be able to implement. And you saw that a little bit earlier this year.

And the next question is about the other side of the cost. On the contrary, your other external costs have been growing fast this year. What's the biggest driver behind this?

I would say, it's divided with many things. One, of course, is cloud costs. We pay now our cloud providers what they need, kind of the platform cost is increasing. We have a good margin above that, but it's still a cost that we have to do. We also have consultants in some areas, and we have hardware that some customers still buy from us.

And the third question from David. Could you give us more details on the attachment rate you're seeing with existing customers for your other ologies beside radiology and breast imaging?

Quite good. Well, people who is a radiology customer, wants to have a new pathology system. For instance, of course, we are on co-position. It will be much cheaper buying that from us because they already have all the basic infrastructure. They can start paying KLAS for the pathology exams, they do. So that attachment rate is quite high.

Is this contributing you to your growth? Or is growth still materially skewed towards radiology?

It's materially largest in radiology, but the other ologies are growing faster.

And I'll just check, so we haven't received any more questions by e-mail. And that is the case. So I have a final question then. I think, if no one else online, have a question. Can you comment on the large quarterly variation? Can you give a bit more flavor on that?

There's 2 things driving what we see now in the current model change. One is, of course, moving licenses to recurring revenue. The other one is that the consolidation in the hospitals is increasing. So the orders get much bigger because there's now many hospitals or even countries buying one system as we saw in Scotland. That means, the deal size gets bigger, but things are also spreading out. Now the deal size drives, of course, if one of those are on-prem or license-based, that's a huge order. And when that is recognized, it makes a huge impact. So even though you could think that it will decrease with increasing revenue, we will keep the large variations, mainly because the order size or also the other ones are increasing or not. So we will continue, and we normally say that you have to look at Sectra on a rolling 12 basis, because you cannot predict the next quarter from one quarter because it goes up and down depending on these are realized.

Okay. I think, that was the final question.

All right. And we thank you very much and look forward to hear or see you again in June 5. Thank you.