CellaVision AB (publ)

Thank you very much for the intro and thank you very much for everyone out there who has taken the time and interest to dial in to hear our quarter report, the first here in 2024. I have our CFO, Mattens-Blitzbeckst with me and we'll be happy to present and also to answer any questions you may have subsequently. But let's dive right into it. So the first quarter this year, we ended our revenues at 170 million SEC, which represents an organic growth of 22%. So essentially no currency effect. EBITDA margin-wise, we landed the result at 29%.

So

it's a little bit lower than our corporate target and I'll get back to the main driver, which evolves around our gross margin. If we take the highlight of our quarter, we believe this represents a solid start to the year. We have in fact growth from all regions and we have had both number-wise, if you like, revenue-wise, but also the conversations we've had at interfacing with end users and so forth. We have a strong belief that our traction for all our solutions is really compelling and that actually goes beyond just one region that is also represented across the different markets. Financially, television is in a strong position and I will sort of elaborate on our cashflow, but cashflow, balance sheet-wise, we're in a very solid position. Furthermore, I also wanna emphasize that we are working hard on progressing our strategic direction and we are really progressing there. Finally, now one of the levers for our strategic pillar around our globalization of our reagent business is going according to plan and we now have our new factory up and running in Bordeaux. We had a little bit of an adjustment to our plan for the bone marrow under the specialty analysis, strategic pillar. So the specialty analysis is where we're looking at new diseases to diagnose with sophisticated AI and tailor-made reagents. For the bone marrow projects, we do have an adjustment around our assumption to the registration. So basically, it was assumed to be a class A product initially and we don't believe that's the path to take, which has introduced a longer time for registration as we need to engage and document in a way that has to be, we have to engage with our notified body to a larger extent and that adds delays, so we believe that our product will be launched next year in 2025. Furthermore, a key message, which was actually happening in Q1, but we actually took the liberty to report that just after signing the last annual report in the beginning of February, but we did in this quarter sign a strategic alliance agreement with Sysmex Corporation in this quarter, so we have formalized our mutual commitments until 2038 around our partnerships. And I can talk a little bit about that as we proceed, but we have really been trying to unfold and work on our objectives throughout this, joint collect objectives throughout this quarter. With that, I suggest we take the next slide and try and unfold the P&L. So as sex, pretty strong growth organically, of course, also fair to say up against a weak compare in Q1

last

year. I think the weak spot in our results this quarter is actually not on the revenue, it's on the gross margin. We had a 66% gross margin, and that is really, there's a few drivers for that. It's the product mix, so the combination of the offerings, the different components was not in our favor from a gross margin perspective. We were low on software, which hits us also against actually, even though the revenue last year in the compare was low, then the software component was relatively high. So we're a little bit hit on that. Material cost prices has gone up as well, and we have not implemented only to a very little degree our price increases. That's another thing that this represents on the cost side, the full year raise of supplies and materials. However, we have had no adjustments on the pricing. So that is also why the gross margin is a little bit lower than usual. On the operating expenses, I have to say, we're in full control. We did some restructuring at the end of last year, which is coming into effect. So we've managed to keep our sales and marketing cost totally constant, even though there are cost increases also for some of these services and et cetera, but that has remained in total control. And we're also, we are only increasing our admin and our R&D with a little bit of consultancy and really mind you. So it's pretty much kept constant according to our plan. Which means that our EBDAR of 49 million is obviously much better due to the higher revenue. However, we are the EBDAR margin of 29% is really comes below our target of 30% or more. And that is due to the gross margin, as I just alluded to. We are continuing our path of investing in R&D to support our power of focus strategy, which is also pretty much in line with our plan here. And we're also capitalizing our R&D costs. So we did, we capitalized about 2 million more than last year. So we ended around 15 million. Looking at the cashflow, we are proud to say it's a pretty strong cashflow. From operating activities, we landed at 50 million before we do the working capital adjustment. And when we do the working capital adjustment, we added another 21 million. So we landed our operating cashflow at 71. On the working capital, we've been working very actively on continuing the journey of reducing our inventory. That has given us some contributions sort of in line with previous quarters, maybe 20% of the working capital delta there. And then 80% actually comes from the account receivable where we have gotten the payment from a strong Q4 as well. So cashflow wise, it was solid. Yeah, on the investment side, I talked about the capitalized development, but also I think it's fair to say that we completed our manufacturing expansion, as I also mentioned in the beginning, and that actually brings seven, eight million less of investments into the equation, which also translates into a strong total cashflow of 44 million versus a negative result in our compare. So balance sheet wise, this actually results in a cash and cash equivalence of 167 million SEC today, which is in a compare of 93 a year ago. And we have driven down our long-term debt. So it's about 25 million as of now. So we are in a very strong positions from a balance sheet perspective, cashflow perspective. Let's go to the next slide. So let's take a look at the regional highlights. And so across the board, across the three regions, as you see here, very similar growth from 21 to 23%, which translate into 22 overall of top line growth and organic growth. Essentially, I'm proud to see that there is really traction in Americas for, in fact, our instruments are growing large and small. We had a particular very good quarter on the small ones. So I would say high double digit growth, very high double digit growth for the DC ones. So again, we are building our strategy of building ecosystems in the lab, in the hematology lab environment. And that is also about capturing the blood work in the smaller labs. And we are pursuing with that. So we are selling DC ones for the small lab segment. However, for some of these IHMs in the US, the situation is that we are selling into IHMs that may already be running in the large labs, which means that the need for software is a little bit lower. So what we've seen is that's at least a main hypothesis that we are seeing a little bit lower software as a result of that. So our software sales this quarter, when we talk about product mix has been weaker. And we are up against a relatively hard compare proportionally from last year on the software side. So this is one of the drivers for the lower gross margin. Other than that, we are ramping up sales in Latin America also on the Diffline. We see appetite for the Diffline, the DC one, including our pre-analytical workflow components. So that's very interesting for us to drive growth in that region. And also we've gotten good feedback from the feature that we have launched in the US in terms of feathered edge, which is able to detect platelet clumps in the blood smear. So that's another assisting digital enabling platform for the clinical community that has been well received. In EMEA, we ended up with instrument sales of 27% in total. Sales increased to 79 million for the region. The 27% growth on the instrument side. And I'm also super pleased to see that that was entailed both from our large instruments, but also we have significantly growth in the small segment. So it is promising. Specifically, if we zoom in on the UK where we've traditionally had a little bit of challenge getting adoption there, we're really seeing some interesting moves there. And also in the Middle East where of course, Saudi is probably the largest country in that or largest market in that region. I'll talk a little bit more about regions later. For APAC, yeah, here I'm super pleased to see that our revenue is actually continuing in China, but actually we also see growth in Japan. We have had a little bit of an inventory situation in Japan, but we are out of the woods. So we're starting to see orders coming from Japan as well. And then given the alliance with Zysmex, we also seeing some very good conversations on time and getting closer to how we can penetrate and adopt digital cell morphology in that region, which is a little bit more immature as opposed to EMEA and Americas. So all in all, also positive signs from EMEA. If we go to the sales per product group and slide the sales numbers per family, product family, the first one is instruments. So here we had on the instrument side and totally it was 91 million versus 66 in the quarter. So it is a significant growth, but we also had a little bit of inventory adjustment in the comparative quarter. That's fair to say. I did mention the significant DC1 adoption in America very much and also for Europe. And again, we are pleased to see that this line, I'm aware we've been talking about the launch of this lines sort of quarters back, but bear in mind that for us, that's our launch, that's when the products are ready and then our cost, then our partners actually bring it out and test it in the labs, get the feedback from the clinics. So there's a time delay from we sort of launch it as a celebration and then until our partners really bring it out and launch it and push the marketing campaign. But that is starting to happen now in the US as well and with traction and opportunities in Latin America. So exciting times for us. On the reagent side, just continuing a steady recurrent revenue growth there with 20% out of EMEA. So we increased 36 to 36 million. So that really sort of really makes us comfortable in terms of the significant investment we undertook throughout 2023 where we built a new factory and we are ready to entertain this double digit continuous growth figures we see from our hematology fraction of the reagent business. And software again, yes, I'll get the tough compare but no doubt it was lower than expected. So we're sort of looking into that, but it was weak and that is one of the drivers is the networks. But let's see what variability that was present for the quarter versus sort of a general drive of software. Yeah, that was

probably it.

So if we go to the key takeaways and I just give you the brief version here. Again, a strong start to the year. And as you saw really consistent growth across all regions. We acknowledge a weak cross margin. We are in full control, OPEX wise and we've done some adjustments to really set us up for success with this new innovation and commercial setup with Sysmex, but we're in full control. Coming back to the gross margin product mix, price, pricing for reasons that are not really implemented to a great extent at all, daily impact us. And then everything as I said, we translate our P&L and also our working capital management into a very strong cashflow for the company. So we've been working with enhanced collaboration with our key distribution partners. And I would pair that with our strategic alliance agreement with Sysmex. We've really started to get into the weeds of understanding the individual markets, making new connections with our colleagues at Sysmex and starting to interpret what it really takes in terms of training and focus on what is needed at the end user labs out there to pursue the mission of adopting digital cell morphology as part of the block line, but also to innovate new sophisticated solutions to protect our leadership within hematology. And then again, I wanna emphasize that one of the leaders of the first specialty application is the bone marrow. We are confident with the adjustments we've made in the product. We are running the clinical trials. However, we will spend months on the alignment and the dialogue with our notified body. So we will have the results of all the, we expect to see mark in 2025, very limited financial impact from that because all the programs has been budgeted for and it's a slow ramp up, but it will be a module that will be used on the DC1. So we have time also to build a solid loan strategy, but for now we are focusing on completing our clinical studies on the module. So with that, I think we should go to question and answers if there are anything around. So please open the floor for any questions you may have.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Ulrich Trattner from Carnegie. Please go ahead.

Great, thank you very much. And good

day Simon and Magnus. A few questions on my end related to topics you already highlighted. Starting off with bone marrow and the slight delay here in C mark. If you can get us some more clarification when you are expected to receive approval in 2025. And in addition, as you mentioned, it's a small financial impact since it will be a gradual step up in sales. But when are we to expect some meaningful contribution from bone marrow? Is that possible in the later 2025 or is that more feasible in 2026?

I think when we talk about, yeah, thanks and hi Ulrich. When we talk about the launch of a product like bone marrow, I think when you use the word meaningful, I interpret that as something that gives significant revenues. That is a few years out because I do believe that what will happen is that we will have the bone marrow module and there needs to be a level of conflict with the product because it will assist the manual interpretation. So I think people will start to use it. There will be endorsement, but typically for these types of modules, it will take some years to make meaningful revenues. However, I think we are set up perfectly for a good launch because we already have the customer base who will require this. This will be primarily the large labs where they have adopted the concept of digital self-euthology. So I'm positive when we have concluded on the clinical trials and the documentation, pretty positive that we will get out there, but the revenue, we don't expect like a hockey stick. There is always a certain delay. The purchasing cycles will be less because it's not a total bloodline. It's only the DC one and the software. So I think the investment in this tool here will speak in favor of increasing the slope on the adoption line.

Great, and a follow-up question on that. Since you mentioned, it won't follow the same purchasing pattern

as a complete bloodline, which is replaced every nine to 11 years. So what's your interpretation on how this will be implemented or the sales cycle of this new system?

Yeah, it's probably a little early because we only have limited feedback from the sites that we work with who are very interested in this because it's also a huge clinical question, or clinical needs. But I see no reason why we shouldn't, over the course of a five-year period, sort of really have a high adoption of this in the labs that are already running digital semaphore. It is plugged right into the ecosystem. It's just more concept. But again, the DC one will now be also targeted for the last labs and not just the small labs, where we are seeing significant adoption these days. So it is a revenue opportunity for us, instrument and software-wise, for the last lab.

Great. And since you mentioned DC one, and if I may to interpret this correctly, you sound more optimistic than before regarding the DC one development in Europe. Has anything changed the dynamics of the customers you have targeted, your efforts in Europe, or is there any other factor that plays into this and your optimistic outlook?

Yeah, I mean, I would say black and white. I can see that our growth rates are pretty, sort of very healthy double-digit in Europe for the DC one. So that makes me hopeful around this. Then I know that every quarter, there can be some, sometimes it's low, sometimes it's high, but actually that's sort of proof, assisted with really an appetite to, in ultimate countries where digital semaphore has not been adopted that well, there I see the, we see the DC one as the really a good tool. It's affordable, but it really demonstrates in the environment where you don't necessarily have that many trained medical technologies. So we are starting to see some really positive appetite to start adopting digital semaphore via the DC one. So that's really where I see the change. And then no secret, we, of course, our alliance with Systemics endorses and open doors for new teams where we can have a closer conversation. So we get wise on how we help position this together with Systemics.

Great. And last question on my end, and you talked about this, it really looks like you've entered a phase of very strict cost control. What is to be expected here in the coming quarters? Are you in the mode here when growth returns that you will start to invest again? And I know that you have this collaboration with Systemics and this opens a lot of doors. And I'm guessing there is an ambition on your end to expand on the sales and marketing side of things as well. So where are we at in terms of managing cost versus growth here?

Yeah, no, I think also given the inventory adjustments we were faced with throughout 2020, end of 2022 and throughout 2023, we wanted really to be responsible since we had a less control of our top line to really control our cost base so we could deliver profits for the company. At the same time, we had a drive of being efficient. And that's what we implemented in autumn on the sales and marketing side, making sure that our setup is tuned also as we were seeing the light at the end of the tunnel with the Alliance, we had to set ourselves up optimally. But that's not to say that we're not investing in sales and marketing. We are doing that in terms of tools, training, but we're also seeing opportunity where it makes sense to invest people in markets where we can fuel and accelerate the adoption of digital soma folio. We have a few countries on the map. And so we're not hesitant to invest, but we're investing our money very wisely with a reasonable rate of return. That's really how you should look at it. So there's been a little bit of a, I think clean up is a hard, too harsh of a word, but there has been an optimization going on. On the R&D expense, we spent 21% of our revenue this quarter on R&D and the power of focus strategy with large labs, small labs, reagents, specialty, and also the new areas. That strategy, we are pursuing that as we have articulated previously. We have funded our R&D, also our next gen program, et cetera. The specialty fueled by bone marrow and others has been fueled. So we are pursuing that. There is a question mark around. We are seeing so promising results from our FPM technology. So there is, we do have conversations on how to and how much to invest. That is a conversation for the future, but you should know that we are really seeing a positive maturation of the technology. So at some point, we are really having serious conversation whether we should ramp up our investments to mature that and also in collaboration with potential partners as we alluded to in the Q4 report.

Great, that is very helpful. Thank you very much, Simon. And now we get back into the queue.

No, thanks, all right.

The next question comes from Ludwig from Lundgren. Please go ahead.

Yes, hi Simon and Magnus. Thanks for taking my question. So first I want to dig in a bit to the gross margins which was down a bit compared to last year. So you say it's mainly a sales mix, but also mentioned I think in the report that it could be offset by the price increases somewhat. And so I wonder for, yeah, how much of an effect can this have for example for Q2 and as we move through 2024?

Yeah, yeah. Magnus, you can elaborate on that. Yeah, I can elaborate

a little bit on that. It's correct that we saw some negative effects from the price mix, the product mix. And also if you look at, yeah, the price increases, the way we roll in price increases to offset inflation pressure, let's say. The way we roll those in this year versus last year is that there is a slight delay when it comes to negotiations. They've dragged out a little bit longer in time. So last year we saw some effect in Q1 and most of the effect in Q2. And this year we're a little bit later in that process. So there is not so much effect at all actually in the Q1 for that one. We expect to start seeing that from Q2 and onwards.

Okay, great. That's very helpful. And then maybe a bit on the SysMix partnership. So we have seen SysMix rolling out the XR series in EMEA in mid 2023, I think it started. And also we see you delivering quite good instrument sales in EMEA. Is this connected or is it not driven really by replacements?

It is somewhat connected because they also have in some countries really high attachment rates. So we're certainly partnering on that side. Definitely. And that is the XR that comes to play here. But I think it's not just replacing, it's also a cycle thing for the labs where they actually purchase a new bloodline. Here SysMix are marketing the XR and that's where our DI60 follows suit.

All right, great. So, and then also with this new partnership, could this maybe enable you to be able to push reagents in new geographies or is this mainly focused in relation to the instrument side?

No, this is more as you elude or sort of implicitly say in the question here that this is a global ambition of leading in hematology. So certainly we see this as an opportunity to roll out and pursue our strategic pillar of globalizing reagents. No doubt that we have a strong footprint in Ea, but we have certain ambitions around APAC where we've started to launch, but certainly also around the US. So we see this partnership as an ally for globalization of reagents on top. We really wanna bring the best workflow out in the hematology via this alliance. And we think that's the opportunity we have at hand collectively.

Right, and is it possible to get some type of timeline for when we could see a potential step up in, for example, Americas or APAC?

Now, APAC, we can be explicit around that. We are seeing that we are starting to get revenues from multiple countries, smaller markets where they start to position the realm as dance, which is really helpful. We have not seen significant revenues from the large countries like China. So that's a little bit more long-term, but this is something we are really working on. We think that's a great opportunity. And then I will be more explicit on the US when appropriate, but certainly it's an ambition of ours. And we have on the internal lines, working on the prerequisites for that to happen. And here I can just plainly say that here we are progressing.

Perfect, very helpful. Thanks a lot for taking my question.

No, it's a pleasure.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

All right, yeah, again, thanks to everyone out there for listening in on our Q1 call. I said strong start to the year. I just wanna close by also thanking my internal, my colleagues for that and also our partners and not the least our Systemics colleagues for all the communication and engagement we've seen throughout this quarter. Just wanna emphasize that we have our annual general meeting being held here in Lund, Sweden on the 3rd of May in a week. So we are looking forward to seeing any shareholders at that meeting. So thanks a lot and we'll get back and continue to push the business. So thanks a lot, have a great day.