CellaVision AB (publ)

The participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to CEO Simon Ostergaard. Please go ahead.

Thank you very much. And thanks to everyone taking the time to listen in to our quarterly report that we've launched this morning for our third quarter. I'm happy to say that I also have our interim CFO, Monica Jensen, with me and will be happy to also answer any questions you may have when we get to that part of the session. So the quarter in brief. And so we have named our quarter report soft quarter with mixed regional performance. And this is also related to currency effects. We saw Americas and EMEA. We had some quarterly variations resulting in modest growth, which we are highlighting here. We are coming out with a quarter here where we are reporting net sales decreased by 1.7 percentage points to 176 million. However, due to the FX headwind of minus 4.3%, then sales increased organically by 2.6% during this quarter versus the comparable quarter last year. On the EBITDA side, we increased our EBITDA to 50 million, so we increased by 1 million, and this relates to or corresponds to an EBITDA margin of 28%, also a small increase. In terms of what we want to highlight with regards to our strategic direction and our progress, we actually see a lot of progress. It's a very exciting time for the company and our partner. We're highlighting the fact that we've completed our clinical trial. We've submitted our documentation to receive the C mark for our bone marrow application. We do expect this one to be done according to plan and obtain the CMOD by, here we say, early 2026. I think we've set Q1, so that's still in line. We are positively optimistic around it, even though there are, of course, always risks with anything, but this is an exciting time. Now we are really looking into training and the commercial launch activities for 2026. Another big chunk of our investment has gone into an upgraded software for our platforms where we've done the verification that has been completed and now being installed at customer sites for final validation before we roll it out, which is planned for next quarter, which is this quarter here in November. All right. Thank you. Here we go. And then a slide around the financial development. So it's a busy slide, but what you have here is our Q3 numbers reported fresh at the very left-hand side, the comparable quarter, and then the year-to-date numbers for 2025 in the middle, followed by the compare last year, and then the full year 2024 on the very right-hand side. So I talked about the organic growth and the revenue of 176. If we sort of peel the onion and work our way through the P&L, that translates into a gross margin of 69%. So we increased the gross margin by a percentage point. We had full impact from our price increases during Q3, and we had a little bit of a product mix. So that was a positive contribution. On the operating expense side of things, we invested 82 million, went down as compared to last year, a little bit on sales, a little bit on admin, and according to plan, invested a little bit more on the R&D side. So that actually translated into a growth of EBITDA of around two percentage points. So from 49 to 50 million, despite the negative decline in revenue. On the R&D side, as you can see, 24% of sales is what we have invested into R&D, of course, slightly affected by sales. However, really the investments are following our plan and we've capitalized a little bit less than normal, only 14 million this quarter, which is primarily due to the vacation piece. And partly also completion of the software upgrade, which also had a little bit of an impact on how much we capitalized. On the cash flow side of things, we had a cash flow before the working capital items of 52 million. And then the working capital adjustments or impact was increased. was actually minus 22 million. And the majority of that was from accounts receivable since we had quite a number of orders being placed in September. So this is why our accounts receivable increased. So we had an operating gas flow of 29.6 million, 30 million. And on the investment side, we invested 22 million, both on the capitalized R&D activities, as I said, but also investments into data storage was a significant chunk this year to server capacity for some of our new technologies. And then after subtracting our four million of finance activities, the cash flow that were related with that, we ended up with a total cash flow of four million. So that's really the story around our P&L. Let's take a look at the regional highlights. So in Americas, we had 68 million on the top line coming from the Americas region, South and Northern America, which is equivalent to organic growth of 4%. So we also had currency effect there, of course. I'd say in general, it came from really good traction on the large instrument platforms and less from the smaller instruments where we saw a modest decrease. However, we also saw good traction in Latin America. So that is also positive for future growth. Generally, I'd say also when we look at our leading indicators in collaboration with our strategic partner, We believe that we have increasing potential in the US, which was also confirmed in the half-year report of Sysmex launched yesterday. In EMEA, likewise, sales amounted to 96 million versus the 98 last year. That is an organic growth of 1%. I think this was actually acceptable also in the light that we were up against a pretty tough compare since we had inventory build up in the comparable quarter last year. So a decent single-digit growth in reality. We had reagents growth as well, quite a bit from AMIA. However, on the hematology side, it was modest, very modest with only 1%. So there was some facing of orders on the hematology side there, but generally a good 14% growth on the reagent business. For APAC, I'd highlight that it was a soft quarter, 13 million. So 10% growth, but of course on a very low base. This was also what we hinted in our previous quarterly report where we had some inventory shipping since we are entering our program where we are manufacturing out of China. So we ship quite a number of of parts and instrument modules to China, which impacted sales. This was the main contributor to a soft sales across APAC. We sold also outside of China. So we do see momentum in pockets across Southeast Asia and Australia. So that is a positive outlook there. And then I also want to emphasize that we are seeing good traction, 5x improvement of revenue sales from our reagent in APAC. Of course, it's small numbers in APAC, but it gives us the confidence that our penetration and expansion in APAC on the reagent side is on the right track. If we cut the numbers, in terms of sales per product group. So same numbers, but sliced per product category. We have 93 million versus 102 on the instrument category. And again, contribution from the large instruments was important. And then as I just alluded to on the Made in China initiative, it is very important for us to be able to participate in the market in China by manufacturing our instrument in China. So that is a project that is finally also coming to the end as part of our strategy. On the reagent side, I mentioned the growth of 40 million in revenue versus the 35. So that's the 14% growth. So good to see also that our, what we define as non-hematology is actually contributing with a decent sort of single digit healthy growth this quarter here. So that is really good. And then finally on the software side, 43. So, and that is also a correlation of against how we're doing on the instrument side, but it is actually a decent software revenue we accomplished. And also we had a contribution coming from spare parts and consumables worth 23 million. So the key takeaways is that, as we say, yes, we've had somewhat softer quarter with some different variation across the regions, but the underlying is a healthy business, which is supported by the gradually expanding strategic partnership which is advancing across multiple dimensions on internal processes on the now the focus also on launching the products, because this is another thing that the power of focus strategy that we launched in June 2022. It is starting to provide the output both from what you see when we decided to enter the specialty arena or specialty analysis with the bone marrow that is expected to come out. So our focus and activities are really on training and commercial loans activities. And so they will be here as we start the new calendar year. I also emphasized the software upgrade without going into details prior to launch, then I would say that it is delivering a faster, smarter workflow and it does have a new cutting edge user experience. In terms of our fifth pillar in our strategic direction or strategy, the power of focus, we also have these new areas where we expand beyond hematology, which is really the focus of deploying our 4U titrographic microscopy technology, the FPM technology. And we have reported that we are lifting this into our next generation hematology analyzer. And that is really proceeding according to plan. And based on this development, we're now also able to really scan different sample formats in the context of cytology and pathology as an example. And that is also an exciting area where we are having discussions with partners, potential partners playing in those fields. So taken together, a solid quarter. We worked hard, but also on the R&D and now on the marketing side is wrapping up. So it's a pleasure to present the result today. And with that, I think we should open the floor for questions. Any questions are, of course, welcome. Thanks.

If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Simon Larson from Danske Bank. Please go ahead.

Yes, hi Simon. I'd like to maybe kick off with a question on the software upgrade you announced here is rolling out. Should we expect any financial impact from rollout here already in Q4? And will this be sold as an option to the customers? Will it be mandatory? How will you charge for it? Just any more color on the software upgrade will be helpful.

Sure. The software upgrade is is seen as an upgrade on our instruments, both on the usability and the performance to improve the workflow. We have decided that this will be part of the package when you purchase the bloodline. Why I suspect as an example, then this will not come with an additional fee for the end user. So this is really a means of differentiation. So you should see this as a growth contributor by keep on being relevant in the labs and demonstrating our innovation model muscle prior to our next generation system. That's how you should look at it.

Okay, that is very clear. And also on the R&D cap specs here going forward, I think roughly the levels now, I'd say like 70 million per year capitalized. Should we expect this to decline here going forward as you know the software product is now rolling out bone marrow is coming out of course still investing in the next generation instruments uh i suppose but but how should how do you believe we should look at you know the capitalized r d here in coming let's say one or two years should it decline more to a you know historic level or should be kept uh roughly at the same level yes our aspiration is really to

maintain focus on us being an innovation company. I think we are at a pretty decent level. here on the capitalization we have a portfolio of projects we want to start so so if this is also a bandwidth um question for us i think we're at a reasonable level um but but as we see more of our projects being terminated it is a balance as to how mature our new projects are we capitalizing or are they more immature than that so you may see some changes in in our capitalization but our intention is actually to keep on investing in in the r d phase and we expect that we as we see more changes also throughout next year we'll probably give give more sort of guidance or or how update on how we see it as we've come to the end of the power of focus so we will certainly be more specific around this particular question as we enter 2026.

I think that would be a good idea. I think as you're now sort of finishing up a few of these bigger projects, it would be good to help us understand how we should look at this going forward. Maybe the final one from my end. You mentioned, I think, that the cash flow was a bit held back by an increased amount of orders placed during the end of the Q3 quarter. Could we expect that sort of this dynamic to sort of have continued into Q4, i.e. that sort of how you enter Q4 is looking sort of good on that same trajectory, or was it just a matter of timing and that it sort of ended up in the late Q3 here, order intake and delivery?

That is simply just the nature of the payment terms when we receive the orders throughout September. That's why you see this fluctuation on accounts receivable this time around. It's not a systemic thing per se. It's really a timing thing. Okay, clear. Thanks so much. I get second line. Thank you very much, Simon.

The next question comes from Ulrich Trattner from DNB Carnegie. Please go ahead.

Thank you very much. A few questions on my end. Starting off with the product mix and the gross margin, and you say you've had a favorable product mix here in the quarter, improving margins, but regardless of the mix, some portions here in your or profile are increasing its gross margin sequentially, like systems, software or reagents. And because the margins are a bit higher than it's been before and you're still sort of affected by negative effects in the quarter. So can you help us decipher what segment is improving its margins?

Yeah, I think pricing was one element. In terms of mix thing, we still had 14% growth on the region side. That actually pulls down the margin. We have a little bit lower margin on the region side versus instruments and software. But that was still, despite that, we had sort of solid growth on the large instruments, which kind of contributed to the 1% increase versus the last year.

Yes, still, any way you look at it, if you split it up into two segments, like cell morphology systems or morphology systems and reagents, some of these segments have improved its gross margin sequentially and year over year.

Yeah. So help me out here. What are you looking for specifically?

Which product group is it that you're... I'm just trying to figure out what in the product mix have increased its margin. Regardless of the mix, some of your system or reagents have increased its margins sequentially. And I'm just trying to figure out which part of it is moving the needle.

Yeah, I think maybe this time around, I think we had probably more contribution from last systems versus the small. So that has been a contributor, positively contributing to the overall gross market. I'd say that's probably the driver you're looking for.

Yeah, that's great. Thanks. And the software upgrades live here in November enables you to commercialize wider sort of the MCDH reagents. Have you received any feedback from customers? And can you just give us sort of the highlights here of how you intend to commercialize it sort of near term? Will it be initial sort of customer feedback, then gradual ramp up, or how should we view this?

Yeah, no, that's a great question. No, you're absolutely right that the software upgrade also comes with the opportunity that you can say changes on the smearing and staining device by Sysmex, which is called SP50. So that has also been upgraded so they can host our methanol-free stain. That's an important part of this integrated software upgrade. So that allows us now to actually start positioning methanol-free stains or Sysmex to position the methanol-free stains to be used on the SP50, which is a major milestone. So we're in the phase of evaluating the stain with customers. I believe that Europe will be first. This is where we have the majority of our business on the round, the classic stains. So there can be some conversion, but the value proposition of methanol-free is strong. So that can still contribute in Europe. And then it's also an enabler for the U.S. And we expect the launch in 2026 for the US. Here, there's both customer assessments and a little bit of a, you can say, regional preferences that we are working on finalizing. But we expect the launch to be happening next year. That's kind of where we are for the US. Great.

And if we were to look at sort of China, and you've been working here and we can read in the reports on sort of transferring systems, and I guess it's Sysmex that is trying to build up manufacturing in China in order to participate in local tenders. So where are they in terms of operations in China?

They have a fixed site in China where we work together. So we are doing our manufacturing of our Chinese devices within China. in their plant as part of that. And they also have cell counters manufactured out of China. And as you say, rightfully, that allows us to actually participate in hospital tenders or deals where it's a prerequisite that you have Chinese manufactured instruments. So this is why this strategic initiative has been an important enabler for us to continue to compete in a... in a more competitive market as opposed to elsewhere.

And are we to expect any effects from this initiative?

Sorry, can you repeat that, Ulrik?

Are we supposed to expect any acceleration in China sales from this initiative in the near term?

I think it's fair to be mindful also, if you read the report that came out yesterday from Sysmex, it is obvious that China is a fierce competitive market to be in. However, this gives us the opportunity to actually compete in collaboration with China in that market. So protecting the market share that they report they have and of course aiming for growth via differentiation is our game plan. But it is fierce that we all know that both on the pricing side and on the competitive side with local players, it is a difficult market, but it is relatively sizable for out of our APAC numbers, which is also why we have invested in this program to protect our position.

Okay, great. And last question of mine and building a little bit more on the capitalized R&D. It's down quite a lot sequentially, and as you highlighted, sort of summer months and reported R&D is up. To what degree is this sort of just summer months in prioritization and how much of this is pipeline maturing? The bone marrow application has now been submitted. What is left in terms of R&D spend for bone marrow application and as well sort of the software upgrade? is also now a commercial product. So I guess that will not run you that much R&D.

No, that's true. I think after Q2, we also released some consultant costs or some consultants, which is also reflected in the less capitalization. And as you say, of course, also the amount capitalized is equal to what we did last year, but coming from a higher base. So that is really because we are also releasing some consultants. Having said that, we are an organization innovation company and i think that's super important which is also what i i tried to elaborate to simon in the previous um the previous uh questioners that were that were opposed there um so we are seeking for opportunities to invest and and maintain our strategic focus of differentiating We cannot disclose what are those programs. That would be unwise from a competitive position. But our intention is to really pursue our direction. And back to part of your question was also related to bone marrow. We are confident as report, of course, there are risks, but we're confident that we're getting the C-mark for Europe. We still have investments to do to complete our trials and the work that we do to also enter the US. So we're not fully at harbor, so to speak, with the investments related to bone marrow.

Great. That was all questions on my end. Thank you, Simon. Thanks, Ulrik.

The next question comes from Christian Lee from Pareto Securities. Please go ahead.

Good morning and thank you for taking my questions. The first one is regarding the instrument sales that declined year on year, but your tone remains optimistic and especially for the larger systems. So should we view this as an indication that demand strength will translate into stronger instrument sales in Q4 already?

I probably defer to sort of be super specific on what happens in Q4. However, I do know that our leading indicators are positive. I do know that Sysmex for the past two quarters, so including the quarter they reported yesterday, So they're Q1 and Q2 equivalent to calendar year Q2, Q3. I do note that they are signaling or they are reporting instrument growth of 10% in the US and 4% in Europe. And I think there is a healthy environment. This is also what we see. So we're positively optimistic. So you read my tone correctly, but I will defer for being super specific until we've seen what orders we get in and so forth.

Okay, perfect. And demand for smaller instruments appears a bit softer than for the larger ones. Do you view this as a temporary situation, and what factors do you believe could drive a recovery in the near term?

Yeah. No, I think it's temporarily. I think we, together with our partners, pushed concepts which included both for the small labs, which included both the smearing and the staining and our DC-1 instruments. Prior to this, we had a... very healthy double digit growth on the DC1 instrument sold by itself. And then we positioned this instrument package called the Diffline. And it is no secret that we had some operational performance issues with the smear box. So I truly believe that part of the issue is not the market demand. It's our product issue that we had. And now we do have another simple solution that can substitute. So it's a matter of getting aligned and getting back and really working with the opportunities. As opposed to, because we have seen a glitch in the pipeline that were built up due to this. But I really trust that it's a temporary thing. The demand is there. And also, if I look at it, especially in the US, all the IHNs are set up for our solution. And I do believe we're the only company who can actually serve that segment. in a networked manner from small labs integrated with the connectivity and our software solution to cater and be managed and decided upon from a diagnostic perspective at the large labs. So it's temporary, Christian.

Okay, great. My final question. Regions performed really well with strong momentum in APAC. Do you see any risk of inventory buildup in the region that could dampen sales in the future?

No, you're right. I'd say inventory buildup, then I'm thinking specifically around China. And the challenge there when you build up a own manufacturing is that, first of all, the line, we are selling a lot into China that is then sitting in a manufacturing line. And then after that, you have a layer of 60 to 70 distributors below. So there's a very little transparency to the end user in China. So from that perspective, I would probably answer that, yes, there is a risk of some inventory buildup for the time being, because it's very hard to translate how much is actually entering the end users for the time being. So there's a little bit of risk for that, specifically related to China.

Great. Thank you very much.

Thanks, Christian.

The next question comes from Ludvig Lundgren from Nordia. Please go ahead.

Yes. Hi, Simon. So I wanted to continue a bit on this last question with APAC instrument sales. So, of course, it was lower in Q3 with some inventory stocking following the large Q2 order. But given that you now have local assembly in China, as I understand it, will this lead to APEC instruments even more lumpy ahead? It has been lumpy historically as well, but could it be even further enhanced now?

The lumpiness is primarily driven for China and not APAC as a whole. So that's for China specifically, I would say. But temporarily, I can certainly not guarantee that there will not be some lumpiness. China, sorry, APAC has always been quite lumpy. And also because China is the biggest market that we serve. However, I do see opportunities both when we look at Japan and when we look at Southeast Asia, not the least in Australia and New Zealand. So some lumpiness can occur. That cannot be neglected, so to speak. But still, I think it's positive that we're actually seeing opportunities both on the instrument side and then also on the reagent side, where we believe there is a good opportunity to actually bundle our offerings because we are the only provider who can actually provide both instrument software and reagents.

Okay, great. So, yeah, just to follow up to that. So, you saw this 3 million reagent sales in APAC in Q3. Like, we have seen some spikes in reagent sales as well. Like, is this to be considered somewhat of a one-off, this level, or does it rather reflect that you are seeing a significant increase in reagent customers in the region?

No, you're right. It's not a... continuous sort of flow there is lumpiness if you look at the the revenue for for apac reagents per se however um we do believe that that the uh the shipments that we send they go to multiple markets so you should see it as a sign of uh of us starting to actually grow the base of rail regions being consumed across multiple markets in apac so i think that's the positive thing um And then we're also working on our logistics setup to serve the reagent market in APAC, which is another driver that can also help us facilitate and provide the reagents. So you should expect growth, but I cannot guarantee that there will not be this lumpiness because it is a matter of large shipments that go when they go, and sometimes they don't go. So that's how you should look at it.

Okay, understand, very clear. And then another follow up, just like looking at instrument sales in APAC. So on a rolling 12 months basis, I guess it has stabilized now around 25, 27 million, something like that. Like, is this a fair level to extrapolate ahead? Or do you expect this to grow? For example, looking into 26?

For example, to the last part, I didn't hear that.

Yeah, so for 2026, do you expect to have a similar amount of quarterly deliveries on an average level?

Yeah, it's always tricky with the average question. I think it's a decent level. Having said that, there are specific opportunities. I'd say that when we look into and we discuss with our partners, there are specific opportunities sitting in APAC that are significant. And if they don't come, then you end up with this problem. relatively flat look. However, the spikes can certainly come because we have some good opportunities across network hospitals, both in Australia and New Zealand, but also in Japan. And if they materialize, then I think we should certainly expect growth when you do your math over the 2026.

Okay, great. And, like, because I think last year, we saw quite a significant spike in a pack instrument deliveries into for, like, is there any seasonal component to that, that, you know, customers trying to fill fill their budgets? Or was that more of a one off?

We compare that with last year. What I recall was that we had to serve, we were obligated to serve a specific tender that was five years old type of thing. So that happens in the comparable quarter Q4 last year. I don't expect there to be much, you can call it seasonality per se. It's more a function of whether specific opportunities materialize rather than seasonality.

Okay, thank you. And then final question, like you've talked a bit before about reagent sales in the US and the potential there, like any updates on that? And if we could start to see, you know, this starting to ramp in into 26 or yeah, just have to think about that.

yeah no i i think about it in a way where we've been also at our capital market day when we launched the power of focus we were really emphasizing that mcdh the methanol first state is the enabler to go and penetrate the region market in the us That assumption has not changed, but now we've progressed much further, so we're actually able to bring MCDH onto the Sysmex smearing and staining device that is consuming our methanol-free stain. So I think we've come a long way on the development side. So now it's about getting some customer feedback on the stain, whether there are any last tweaks. For US, I do expect it to materialize, let's say mid-2026, which of course means that the contribution from the reagent in 2026 US It's not enormously, but milestone-wise and the fact that we start launching this has enormous impact also on how we work with the team over there to actually position our total solution now also including instruments. So by the end of the day, very exciting times for us.

Okay, yeah, I agree. Thanks a lot for taking my questions.

Thanks, Ludvig. Pleasure.

As a reminder, if you wish to ask a question, please dial pound key 5 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.

Thank you very much. And first of all, thanks to all of you taking the time to listen in and staying with us throughout the Q&A. In my closure comment, I want to thank especially our strategic partners, the partner organizations all across the regions and the different functions. I really see gradual, constant progress here. One and a half year after we especially launched the strategic alliance agreement with the Sysmex Corporation team. I also, in particular, want to thank our own team, our staff. It's been an extremely, probably more than usual, a tough quarter, and I think they know what I refer to on the internal lines. However, the dedication and the focus seems to take no ends all across our functions. So really a heartfelt piece of appreciation here. And then finally, I want to emphasize that on February 5th, 2026, this is when we announce and present our year-end bulletin for 2025. So that will be published and we are looking very much forward to present the results. And with that, I thank you for your attention and your interest in Celevision. Thank you.