CellaVision AB (publ)

regulatory wise and also a slightly increased R&D spend as well, according to our strategy. So that gives us an EBITDA of 60 million in sort of comparable with an 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 42 million versus 36 million last year in the comparable quarter. So here we have approximately 22 million sitting in the P&L and then we have 20 million capitalized versus last year where we had 20 million sitting in the P&L and 16 million capitalized. Cash flow wise, we have an operating cash flow of 58 million this quarter. So we've had positive contribution from our working capital, 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 shared contribution, if you like. On the investment side, I talked about the capitalized R&D, which is the 20 million, which is the majority of the 25 million we have on the investment side of our cash flow. And on the financial cash flow implications, we have minus 63 million, and that is pretty much 60 million going to dividends of our shareholders. So that leaves us with a total cash flow of minus 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 155 million sitting on the balance sheet as of today, as of this quarter. Let's try and unfold the regional highlights on the top line, what happens in America, in the U.S. and in the APEC. So for America, we had a growth of 5%, so that was equivalent to 66 million. So we had a 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 different 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 attraction 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 were reporting 80 million here. So 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, 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, a broad, 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 are actually also expanding in Southeast Asia with the resource to help us and Sysmex drive growth in the region. So we're still investing in the sales and marketing also on the research side. Yeah, this chart sales per product group, that's when we carve the revenue in product categories, instruments, regions, software and others, where others refers to our spare parts and how oil consumables. And here, I think I already talked about the dynamic, but in general, this quarter, it is the large instruments that remains the significant driver. We do have some product mix within the category as well, but also across the small instrument category, as I alluded to. What I want to highlight under reagents is especially for EMEAN, we have 20% growth versus the comparable quarter for hematology regions. So hematology regions 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 US. And for APAC, as you will see in 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 with from 1.5 to 1.8 and about a million increase compared with 2.3 million last year, year to date and 3.2 now. So it's about a million with withdrawn 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 set up 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 softwares. And for the US, I should also mention 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 US where we via Sysmecs have a large opportunity to improve and deliver 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. 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, that's cool. 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 a CE mark. There is obviously insecurity around when you file before you get the actual approval of your documentation. However, we're 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&E spans entails the adaptation of our superior technology for titographic 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 questions 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 television after 12 years. So this is actually your final call. That's right. You've been there 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 of the journey you've been on from a very small to a mid-sized 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 in 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.

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

Thank you very much. I hope you can hear me all right. A few short questions on my end. First being related to the deliveries to China, did we consider this to be an inventory buildup and for this to be actually sequentially a little bit weaker in the common quarters? That would be my first question.

Thanks for the work. I would say that's what you imply in the question. That's probably a fair assumption. So we 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 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 yes.

Great. Thank you. And kind of a follow up on that. In my mind, this sort of this max elevation combination and integration with the smear device and the methanol free reagents is a bit ahead of time. And I get the big opportunity for you to grow globally with your reagents. So 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?

Yeah, I think what we're reporting here is also if we go years back at the capsule market day, we said there was a there's a prerequisite that needs to be fixed in order for us to actually run in CDH with with especially with CISMEX on the SP 50. And that is what we are reporting that that seems to be fixed by now. That's a really a milestone. So where we are is that we are that we can now start to do customer get customer feedback from the stains. And so it doesn't just run straight into a launch plan. But the launch is not too far away. It is a function of and its decision also made by CISMEX, obviously, as to when and where. But but but the launch for next year is probably 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 US, where we hardly have any sales today. With regards to the

and just in terms of yeah.

Yeah, with regards to the pricing piece, and that is that is a balance. And I think I'm not going to comment on that. That's obviously also a question we are a discussion we have with CISMEX. It's also a function of the final protocol in terms of the consumption of the different regions where the specific Cox lands. But it's going to be it can be a little bit adjustment to the pricing. Of course, it comes with a higher proposition than the classic stains. Since it's environmentally friendly, there's also there's improved waste management and there is less service needed when you start running the rail 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 fermented companies. So just how much of a delayed or postponement are you experiencing based on historical numbers?

Yeah, yeah, typically we we've used to say that that from orders are placed by by labs, then we even though we can take many years, then we typically set two to six months. But now we're we're seeing we hear that it's probably more two to nine months. So there is a there's a little bit more slack in when the orders comes in. And then when is the when is everything in line to actually do the implementation when our resources at the laboratories, IT, etc., available for the implementation. So that that's a little bit prolonged, but it's not significantly but but but it is prolonged.

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

Thank you, Alderich. Appreciate it. Yeah, thanks, Alderich.

The next question comes from Richard Romanius from Red Eye. Please go ahead.

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

Yeah. So the the bone marrow application is what we define as it's under the head of our specialty analysis. So it's analysis that I've done. Actually, this is not done on the peripheral plot, but it's done on the bone marrow samples. There's more of a specialty analysis. And we believe that the market potential is close to one billion sec per year. And the majority that's for the entire specialty segment, but the majority of that is actually the biggest application or opportunity refers to bone marrow. So that is 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 DC1 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 what we expect, where we expect we will generate the revenue from.

Would you say this is an opportunity to upsell the DC1 instrument?

Yeah, upsell, yes. It will expand the addressable market for DC1. I think I'll phrase it in that way because all of a sudden the DC1 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 really 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 you typically you deal with leukemia and former patients. So it's getting into severe patient, 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 your R&D or through capitalization. Once these investments are completed, how do you think that will affect the cost of the R&D or affect your DAA margin? Do you think it will improve or do you think you will always have a similar level of investment into research and that will the investment 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's 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're proving with the power of focus strategy where we over the years have increased our spends 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 roadmaps after having completed what already sits there. So I don't want to send the expectation 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 why our raison d'etre 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 a 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 I hope you understand my perspective here.

Yeah, it certainly makes sense. Perhaps a bit both I would interpret it as a bit of a slight modern improvement but also I can sense trajectory. Could you say also how much or rather can you capitalize any of the investments going into the FPM project?

Yeah, so I think it's two-folded. So we capitalize investments that goes into FPM on the hematology analyzer. We also hear on the actual slides where 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 FPM where it's more immature or where we refine at that you can say it's before the 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 needs 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'm nodding here you can't hear it but I'm nodding and I agree with what you say.

Sure. Okay, last question. You have a quite healthy balance sheet cash under 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 a discussion 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 round diagnostics that were too we believe are really long-term attractive and successful acquisitions. So we are not refusing that if there is 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 clock and place something from the outside. And this is also part of the secret where Sellevision has been successful in building something that really works. We see that also from from in trends coming into this field that 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 to onboard such an acquisition if we see someone is fit.

Okay perfect thanks for answering my questions.

Thanks Richard.

Next question comes from Ludwig Lundgren from Nordia. Please go ahead.

Yes hi Simon and Magnus. First I wanted to continue a bit on Rickard's question on R&D costs. So R&D was 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?

Yeah Ludwig I think I can start answering a little bit overall. The actual cost for the bone marrow has been has increased given the fact that we are using external labs for the clinical validations. So the burn rate for the bone marrow program in these last few years two quarters have been somewhat higher I would say. I'm not sure we dissect our cost base at the project basis so I'll probably be 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've been capitalized. But it's a significant program. It's a significant program. It's not just a small thing which is also why it has taken us three years to bring it out.

Okay great so yeah I assume then that a significant part of the increase here on the capitalized side relates to these external programs.

Yeah it's really it's external. It's a ramp up on the bone marrow but it also entails a ramp up on other investment programs and you can see them here. We are also emphasizing the fact that we've made a big milestone on our software upgrades 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 my to the details.

Okay perfect thank you. 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 you know 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 thank you. And then final one wondering about this software upgrade for for the I60 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 models so this is our integrated product with SysMix 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 SysMix 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 DI60. So you could see it as a lifecycle management move with significant customer value. That's how you should look at it.

Okay so mainly to new DI60 installations then I suppose.

And to new accounts it will be even more attractive to choose it. So but I'm 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 bloodline. Here they will actually get more customer benefits.

Okay great those were my questions. So yeah good luck to you Magnus and thanks for the help all the help during this year. Thank you Ludwig.

Yeah thanks Ludwig.

The next question comes from Bobby Poir from LionTrust Asset Management. Please go ahead.

Hi there hopefully you can hear me.

Yeah very well thanks.

Yeah brilliant. Thank you very much for the presentation Simon and 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 US. I just wondered if you could give a bit more detail on the drives of that and whether that's just been a phenomenon you've seen in the Americas in the quarter or other regions too. Thank you.

Yeah sure. Now 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 code analysis on this smearing device. That is kind of what has that has impacted our DC1 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 the DC1. So this is an internal matter that we are searching for the root cause. Also with the mitigation strategy you have a more simple smear ring device which we already have which will be positioned together with the the stain box and the DC1. So that's kind of how we should look at it. And that has I should add that has impacted the US the most since we historically we've seen the small lab market being very attractive for the DC1 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 US have been more effective than in Europe.

Brilliant thank you very much. And then I've had a second question just on I think you mentioned pricing has been a positive contributor in the quarter. I just wondered if you could talk for your pricing strategy for this year compared to last year. Be quiet thank you.

Yeah so essentially the pricing for the majority of the it's it's 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 operate is charged based on the old pricing scheme. This is why the full impact typically of the price adjustments that takes place as per 1st of April comes into effect in Q3. That's kind of the 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 so most of our business goes via SysMix then that is the main contributor.

And the timing of the price increases is the same this year as it was last year. Yeah that's right.

Thank you so much guys.

Pleasure thanks for the questions.

As a reminder if you wish to ask a question please dial pound key five on your telephone keypad. There are no more questions at this time so I hand the conference back to the speakers for any closing comments.

Yeah thank you very much and thank you everybody out there listening in. We appreciate your interest in Celevision 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 three years after communicating the vision of Celevision which we captured in the power of focus strategy three 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 approval 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 deserve 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 6th 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.