Elekta AB (publ)

Good morning, everyone, and welcome to Elekta's Q3 earnings call. Maybe it's a good idea to start to introduce myself. My name is Peter Nyquist. I will be the head of IR here at Elekta. I have previous experience from some other Swedish blue-chip companies, like 10 years at Ericsson as Head of Investor Relations, and before that at Electrolux as Head of Investor Relations, and before that SCA SCT. So I have quite a few years in this line of occupation, experience from a lot of different kind of businesses, and I am really looking forward to work here at Electa. So with me here today in Stockholm, I have our CEO, Gustav Salford, and our CFO, Tobias Hägglö, who will present the result later on here. So today's agenda will start with Gustav presenting some highlights of the development of the quarter. Then Tobias will give you details on the financials on the presentation and ends with Gustav's view on Elekta's outlook. And the presentation there will be, as usual, time for questions after that. But before starting, I would like to remind you that some of the information discussed on this call contains forward looking statements. This can include projections regarding revenue, operating result, cash flow, as well as products and product development. These statements involve risks and uncertainties that may cause actual result to differ material from those set forth in this statement. With that said, I will hand over to Gustav. So please, Gustav.

Thank you, Peter, and a big welcome to Elekta. It's amazing to have you on board as our new head of investor relations. And thank you to all of you attending the call. So we continued to deliver on our strategy access 2025 in Q3 towards a world where everyone has access to the best cancer care. We drove significant improvements and generated a fifth consecutive quarter with revenue growth and expanded EBIT margin. Order intake was negatively impacted by a slower China market together with tough comparables in several regions. Order intake declined by 17% and we expect the order situation to improve in Q4. So if we now look a bit on how we delivered the strategy, and I'll give you a couple of examples how we delivered on it in Q3. One example is our mosaic on quality information system, and it's part of our software suite, ElectaOne. And it won the best-in-class award, and I'll come back to this later in the presentation. We also announced a collaboration with Bristol Myers Squibb to develop a digital solution for patients with melanoma based on our digital platform, Kaiku Health. We won a major order for proton treatment planning software with our partner, IBA. And as a part of giving access to the best cancer care, we have signed an important order with the Croatian Ministry of Health for Electa, Lenax and Brachytherapy systems. And we also won an order to transition a US center to MR-Lenax program with Electa Unity. In our efforts around resilience and process excellence, we focused on improving cash flow, which resulted in the best Q3 cash flow in Electa's history. And going forward, we'll continue our activities to structurally improve working capital. And now a couple of more words on the Best in Class Award. It's based on feedback from thousands of clinical users, collected and evaluated by an independent research firm, Class. And the last year's introduction of ElectaOne, our software-as-a-service offering, demonstrated our focus on personalization, integration, and a streamlined user experience. And it enables clinicians to boost productivity and enhance personalized care. And winning this prestigious award and the increased use of Elekta's digital solutions globally is the result of our investments in software during the recent years. And we now really see how accelerated innovation brings a direct benefit to healthcare providers and the patients they treat. And I would also like to take you through our strong innovation agenda that will drive growth in the years to come. And we have three main focus areas. Personalized precision, elevated productivity, and integrated informatics. And if I start with personalized precision, it means that routine personalization of every treatment from comprehensive motion management with Unity. But it's also about bringing online adaptive treatments to our CT Linux portfolio. Personalized precision also means utilize patient-reported outcomes to monitor and optimize care based on our digital platform, Kaiku Health. If we then turn to elevated productivity, it's truly enabled by our comprehensive ElectaOne software suite. And ElectaOne will drive towards 50% cost reduction per treatment from automating and workflows with SmartFlow, and from also automating planning and delivery from smart view and outer planning. ElectaOne is integrated informatics and analytics across all our software, improving decision-making from data insights and real-world outcomes. This creates new exciting opportunities for us to further leverage AI to optimize the patient's treatment journey. If we now turn to the order development during the third quarter, we saw that order intake declined by 70% in Q3 and seven years to date. However, if you look at the book-to-bill ratio, it came out in at 0.98 and the order backlog amounted to 42 billion SEC. And we continue to pursue a faster conversion rate from order to revenue. And looking at the order backlog, it's still on a robust level and rolling four quarters book-to-bill ratio is well about one. A platform for future growth. And if you look at the order development per region, America showed a flat development in the quarter. EMEA declined by 11% and is mainly due to tough comparables year to date, year over year, with last year's large tenders in Southern Europe. And as I mentioned earlier, we received an important deal from the Croatian Ministry of Health, including Elekta's full suite offering. Orders in APAC decreased by 36%, mainly driven by China. However, we were increasing our market share in China, and we expect order growth to come back during the spring. And overall for Electa, and in the fourth quarter, we expect the order intake to improve. And if we then turn to revenue, Q3 was the fifth consecutive quarter of revenue growth. We grew with 4% in Q3 and 8% year-to-date. Solutions increased by 4% and service with 5%. And the negative impact on the disruptions in the Red Sea was approximately 1% point in Q3. However, this is, of course, a timing effect where revenues will be delivered in Q4. We are addressing the continued impact from inflation with price increases and new product launches across our portfolio. And we see that the effect from the price increases will gradually be seen as of Q4. APAC grew revenue by 7%, where most of the market increased installations. China showed a strong double-digit growth, and we continue to have a market-leading position in the country. America's sales increased by 6%, mainly driven by solid sales in North America. And EMEA declined by 1%, mainly due to tough comparables from the installations of last year's large deals in Southern Europe and the UK. At the end of the quarter, Electa had an installed base of approximately 7,300 units that was up 3% year over year. And with that, I turned over to Tobias for the financials.

Thank you, Gustav, and good morning, everyone. Before starting, I also would like to take the opportunity to welcome you, Peter. If we then look at our financials, Q3 marked the fifth consecutive quarters with profitable growth. In constant exchange rates, revenue grew with 4% supported by solid growth in APEC and Americas. Adjusted gross margin increased sequentially by 90 basis points. Year over year, gross margin declined by 150 basis points. While logistics costs have started to come down, we have inflationary pressure from higher material and salary costs. Our operating margin improved by 90 basis points in the quarter, supported by continued sales growth and improved operational excellence. If you look at the financial development in more detail, we can see that foreign exchange rates had a positive impact on net sales of 1% points, a slight negative impact on gross margin, while contributing positively on adjusted EBIT margin by 80 basis points. Then, looking at the operational drivers to our gross margin, we benefited from continued sales growth, inflationary pressure from materials and salaries caused continuing quarter with pressure on the margin. Moving down to our EBIT margin, we benefited from higher sales and lower operating expenses. Then, if we continue then to look into our expenses in more details. All in all, despite salary inflation, the operating expenses decreased by 3% year-over-year, driven by continued cost control. Selling expenses decreased by 2% and administrative expenses by 3% following cost reductions. We continue our focus on keeping a solid cost control to further leverage our margins. Net R&D expenses declined 4% year-over-year. We remain focused on our innovation pipeline, as Gustav previously mentioned. R&D is the ultimate way for us to improve our profitability by launching market-leading product solutions. It is key for us to continue to deliver new innovations to improve our margins. In the quarter, gross R&D declined to 11.9% on net sales on a rolling 12-month basis. This is a sequential decrease from 12% in Q2. Moving over to working capital. Networking capital as a share of sales ended at minus 6% in the quarter, a significant improvement versus Q3 previous years. The improvements compared to last year were mainly driven by lower accounts receivables and inventory. Accrued income has come down due to strong collections from projects in Southern Europe with longer billing terms. We have also managed to decrease our inventory levels through an efficient supply chain management. Cash flow after investments amounted to $600. 31 million SEC, and it was almost 800 million SEC better than Q3 last year. And it marks the best Q3 cash flow in Lekta's history. This strong cash flow was primarily driven by higher earnings and reduction of working capital. Cash conversion amounted to 94%, well above our target of 70%. Over to you, Gustav.