Elekta AB (publ)

Hi, and good morning, everyone, and welcome to this second quarter investor and analyst call. My name is Peter Nyqvist. I'm heading up investor relations at Elekta. With me here, I have, for the first time, our new President and CEO, Jakob Just-Bomholt. And welcome, Jakob, for the first call, and hopefully many to follow. Together with Jakob, we have our CFO, Tobias Hägglund. Jakob and Tobias will present the results for the second quarter and in the fiscal year of 25-26. So we'll start off with Jakob giving some initial reflections on his first quarter as CEO, followed by a summary of the Q2 financials, including the order review announced today. Then Tobias will go into the more details around the financials and the NECTA's outlook. Jakob can then present the change in operating model and the organization structure leading to the cost reductions that we announced today as well. And after the presentation, we will, as usual, be available for a Q&A session. But before I start, I want to remind you that some of the information discussed in this call contains forward-looking statements. These can include projections regarding revenues, operating result, cash flow, as well as products and product development. This statement involves risk and uncertainties that may cause actual results to differ material from those set forth in the statements. With that said, I will hand over the word to you, Jakob.

Thank you very much. So let me start by talking a bit about some of the initial reflections and then give highlight on Q2, then Tobias, you will go into Q2 financials in greater details, and then importantly, we'll get back to electa reset, if you will, our new operating model. But on initial reflections, before I go into the details here on that slide, I would just say, fundamentally, I like what I see. I'm now four months into the position. Obviously, perspectives will modify somewhat, but I do think what we will outline here in terms of strength and challenges and opportunities will set the direction for the company ahead of us. We have been very open. Electra is not performing at full potential as incoming CEO. I think that's great. It gives us a lot to do. It also gives us an opportunity to do better. When we look at the company, we don't feel and I don't feel that there are structural headwind. Of course, we have competition like for any company, but the challenges are really within our control to face, and that's what we're about to do. Today, we disclose our mushroom battle one. We call it simplifying power speed, but I'll get back to it. But let me go a little bit in details with some of the reflections, and if I start on the positive side, you know, it's not positive. Cancer burden is increasing. You all know that. Cancer incidence is on the rise. But fortunately, due to aging population and growing population, we see more and more that cancer is a chronic disease. So you get treated, you're cured, you come back, and then you're using elective equipment again. Then the second major trend is that there is a shortage of professionals. I've heard numbers up to a shortage of 80 million. So that really speaks for us as a vendor into the industry to innovate, to support the professionals with speed and better treatment and more precision. At Electra, if I turn to the right, We are well positioned. We are number two. We are not number one. That's in many ways attractive position to be in, but we are clearly number two. Radiation therapy is an attractive and growing med tech segment. We look at the segment likely to grow faster than the average med tech segment. Then we have many strongholds built up over many years in key markets outside U.S., strong in Europe, strong in many Middle East Africa markets, strong, very strong in China, strong in a number of Asia Pacific regions. But clearly, what we also imply here is that we are not strong enough in the U.S. and I'll get back to that on some of the challenges and opportunities. We are the only dedicated, 100% dedicated company focused on radiotherapy, I think it's such a strength. Because when you're dedicated, you have to have product passion. You have to focus on your customers. You have to execute fast. We have a well-recognized brand. And what I truly cherish coming from a company with more indirect sales force, we have a direct sales force. So we are really in control of our commercial execution. When we look at R&D spend, we have been willing to spend on innovation. I think that's right because when you look at the graph again to the left, there is a need for us to innovate. We need more precision. We need more speed. We are not mature or end of the road in terms of innovation. When you look at gross spend, we spend roughly 12%, so it's very high for a medtech company. So it's certainly sufficient to realize what I would call future best-in-class solutions, because that is the future of electric, that we have best-in-class products, highly innovative, and the current spending run rate supports that. And then we have, if you will, a razor blade model. So we sell our solutions, but then we supplement that revenue generation by more predictable, profitable software upgrades, but also service markets. And as you see, our service business continues to grow. There are a lot of strengths. We have fairly asset-light. We have, as you will outline, to be as good net working capital. Our physical CapEx requirements are relatively low. So there are many things to like about Electa. And if we go on the next page, then importantly also we have a strong portfolio logic. If I just speak a little bit to it, then perhaps many of you know, but Electa, The products are complementary, both from a brand commercial but also workflow perspective. So if I start from the right, we are building software that really connect the different modalities because that's a customer need. And often when we tender, it's not only a Linux, it's bundled with other products as well. But our Gamma Knife was started at Electra. That is the gold standard for stereotactic radiosurgery of the brain. And we are uniquely positioned and clear market leader. Same for brachytherapy, actually. It's highly targeted, internally delivered dose for specific cancers. It's not for all. It's cost-effective, so it's also attractive for emerging markets. And very often it complements a Linux treatment, so you can get a boost of and then you get your Linux treatments or the other way around. And then we have our Linux, and we are the only one with both MR-guided and CT-guided Linux. So the CT-guided Linux is really the workhorse for high-volume broad cancer treatment, and MR-guided is the top of the line with ultimate precision. So I want to take away, my takeaway is, and hopefully yours as well, The portfolio logic is good. That's not where we have a challenge. We don't need to slice off or do big portfolio changes. It really makes sense. But then, of course, if we get into improvement areas and we also believe in the statement that we are not at full potential and the industry is attractive, then what do we need to look at? If we look at gross margin, it's too low. We used to be in the 40s, better up actually in the 40s. We did see a dip post-pandemic or during the pandemic, and we never really recovered. And if we look at it now, we have too much single source, too much supplier dependency. Some of them take advantage, and we will double down on continuous engineering to make sure that that we have a relentless cost reduction focus in the years ahead. There's not a quick fix, but it's going to happen, and it's certainly viable. Then when we look at our 12% gross spend on innovation, I do think we need to become more focused, more commercially driven. Electra comes with very strong scientific expertise, roots strong within academia, I would certainly push us to be a little bit more commercially focused when we take innovation bets in the future. And then, of course, over time, we need to grow at or above the market. When we look at our growth rate, we have to accept that we have been growing. over the last really half a decade, even a bit longer, a bit slower, somewhat slower, actually, than main competitors. We don't like that. Specifically, we need a turnaround in our U.S. business. We'll get back on FDA, I'm sure. And then we want to preserve our China position where Electra very cleverly have been early in the market, have localized our supply chain. And then overall, when I look at the commercial organization, and as you know, I've taken the regions in direct report, we need stronger commercial execution. We will have to apply cost focus across all spend categories, standardizing our processes, and then I'll get back to organization, but we are looking at simplification. But it really starts with A new operating model, that's a starting point that then leads into a simplified organizational structure to target faster speed, faster speed on product development, operational execution, commercial execution, really with the goal of focusing on our customers and patients. And then on quality of earnings. we will work hard to make the link between EBIT and cash strengthen. So these are some of the reflections I initially want to share with you. As we'll disclose in the end, we'll give a strategy update with further details during January. We then look at Q2 specifically, and I'll do it fairly fast. We did 1% organic growth, 2% on orders, strongest in Europe, 11%, so we continue to see momentum of our product launches. That's good. APAC saw revenue growth outside China, but it couldn't compensate for the double-digit decline in China. But on China, it's quite positive that we are now seeing growth in orders. They had a depleted backlog. We knew that. We now saw in Q2 order growth. And when we look at the momentum, it looks quite positive for second half skewed towards Q4. Then negative growth of 8% in USA, despite actually quite good order intake. but clearly we need a commercial turnaround. We'll say the commercial organization needs but we need a turnaround in the US. We did have growth in Latin. Then one of my first actions as CEO was to change the reporting line of the regional heads reporting to me. And then we initiated an action to review, to make a comprehensive review of the order backlog. And that's what I want to update you on today. Compared to the order review presented in June, we have implemented, I would say, a little bit firmer interpretation of order criteria in areas such as delivery times, end customer side, down payment price, indexation, et cetera. There will always be a judgmental call. Is the license there? Is the site ready? And now we apply a firmer interpretation. It's predominantly old orders that we are now canceling. But this action will tell you we should have better forecasting accuracy, both in terms of sales development and profitability. The cancellation is 2.2 billion. I would say this is it. We don't expect further structural revision of the order backlog. That's, for me, important to communicate. I've been in it at great detail. I would also like to stress that it has no revenue impact for this year or next year as such, and there's no cash flow impact, so we are not going to pay back any customer deposits. So that's where we stand. I would like to end by saying it's quite important to take away that we have an order backlog that I consider at a healthy level two times annual sales give and take based on last year's sale. So we have a lot of business to look forward to, if you will. So if I close on Q2, book to bill of one. All right. Rolling 12-month, importantly, 1.09. We continue to see good momentum in Europe. Of course, I like to see over time higher net sales growth than 1%. That's clear. Good margin uptake close to 38%. On EBIT, 10.1% versus last year, 9.8%. But if you adjust for lower capitalization and higher amortization is actually quite a significant improvement in, if you will, cash-based EBIT margin. And then you will outline to be, but if we look at year-to-date cash generation significantly better than same period last year, and good to see that net debt versus a year ago has been reduced by almost 700 million cents. So that concludes, and then I look forward to coming back to the operating model.

Okay, yeah, thank you, Jakob, and good to have you on board here. So I will then move into the quarter here a little bit more in detail. You mentioned that, Jakob, that we grew here in the quarter by 1%. This is done in constant exchange rates. We had a decline in our solutions operations by 4% while our service grew by 7%. And also would like to mention here that the product launches of Elekta 1 and Elekta Evo had a continued positive contribution in the quarter. Then looking at the profitability, we land here in the second quarter a gross margin of 37.9%, which then means 220 basis points improvement year over year. We see that our new products continue to contribute positively. We also have a higher share of our service and business in the quarter. Our break in Euro business, a strong development, strong growth in the quarter. Price continues to be positive. And then here, as we had in the previous quarter, we have a negative impact then from tariffs effects and this negative impact is then 70 and 50 basis points respectively correspondingly to a total of 163 million stack in the quarter the operating margin adjusted EBIT margin amounted to 10.1 percent to 30 basis points improvement and you are fully correct Jacob that we have a reduction in our gross R&D. When you see the impact here, net R&D is increasing in the quarter, driven then by both lower capitalizations and the higher amortizations. Selling and admin expenses increased somewhat in the quarter, and this was Selective investments in marketing and IT and a bit of the phasing of the ASTRO cost here compared to last year, as well as some transition-related costs. But we will come back, as you were pointing out, Jacob, here to the program that we are on here. Net income amounted to 229 million SEC and adjusted earnings per share amounted to 0.65 SEC. So let's move into next slide. And FX, I think that we have a similar view here of the FX movements as we had in the previous quarter. So how does FX then impact our operations? The first point being is that, as you know, our reporting currency is the Swedish krona. And when you have strengthening of the Swedish krona versus the main currencies, USD and Euro, this means that the sales in dollars and Euro actually becomes less worth in Swedish krona, which then leads to, in nominating terms, lower revenues and earnings in SEC, everything else equal, the translation effect as such. Then secondly here, we also have more revenues and cost in dollars. And when you actually then have the depreciation of the U.S. dollar versus our main cost currencies, euro and pounds, we also have then a favorable currency transactional impact in the quarter. And as you see in this table then, FX then had a negative impact of 50 basis points on the adjusted gross margin and 60 basis points on the adjusted EBIT margin. Coming back here to Jakob's point here, we have a reduction of the net debt of 700 million SEK year over year, and it's obviously then driven by the cash flow generation. If you look now year to date, we have in the seasonal week start, since we're building working capital in the first two quarters to larger quarters later in the year, we normally have a week start of our cash flow generation. But if you compare this to last year, we are about 900 million SEC better when you look at the cash flow of the continuous investments. When you look at the quarter, we improve our cash flow year-over-year by 389 million SEC. And this is then driven here, as you point, Jacob, to lower R&D spend as well as more favorable development of working capital here with more customer advances as well as reduction of accounts receivables. And our net working capital as a percentage net sales is now a negative of 7%. If you then look at the cash conversion here, it amounts to 91% compared to 65% a year ago. And if you then look at some more long-term trends and key financial metrics and look into the net sales, gross margin, EBIT margin, and operating cash flows, which obviously are all key metrics here for driving profitable growth and return to our shareholders, is that we have seen net sales on a rolling 12-month basis, which is relatively flat year over year. However, we see a positive trend for both the gross margin and the EBIT margin. And then here, what we just were talking about is that we've also seen a positive development for the operating cash flow, where we have delivered significant improvement year over year. If you then focus a bit on the outlook for the second half of the current fiscal year 2025-26 and the full fiscal year, we reiterate our full year 2025-26 outlook where we expect net sales in constant currency to grow year-over-year. We expect sales in China to start recovering during the second half of 2025-26. And furthermore, we expect a continued negative impact from tariffs and FX at current exchange rates. So with that, I hand over to you, Jacob.

Yeah. So if we move on in terms of driving improvements, then we commenced really three months ago, a forensic, if you will, of Electra did a 360 review as a leadership team and together with the board to assess the situation. And with the outset in that analysis, we then defined the four must-win battles, of which we are today disclosing the first one. We call it simplifying power speed. And it's really about a new operating model. I've seen certain comments saying, oh, it's a cost-saving exercise. It's not. It's a new operating model. Then there are consequences of that new operating model that I'll come back to in terms of cost saving. But the aim was really to increase velocity for our product development organization, our commercial execution, and our operational execution. The secret sauce of a company like Electa when we compete with the even larger enterprise has to be speed, agility, customer intimacy, product passion. So what we are trying to do with this exercise, and we will do it, is to simplify how we organize. We will eliminate complexity and certainly become a bit more assertive and insist on accountability. But with accountability also comes ability to empower teams, so we move decision-making closer to our customers. And then in doing so, we approach the organizational review zero base. We say, okay, these are the focus areas. This is how we want the operating model to work. What organizational size do we then need to support those priorities? And we have then moved it into a much more decentralized model with regional-based P&Ls. So we will take our regions P&L that will add up, give and take, to electors P&L. Again, to increase ownership mindset, make sure we drive decisions closer to where we need customers, increase speed, agility, make people work as – as owners of their own business, if you will. We then look at this slide. There has been changes to the executive committee. It's not all of these boxes that are part of the executive committee, but they do report to me with the exception of, you know, that reports to Brachy. But let me highlight some key functions here. We have made changes in the executive committee. We communicated that almost three months ago. We feel good about these changes. We have now hired new CFO, but thank you so much to you Tobias for still being here in the interim. We have hired a new head of HR soon to be disclosed. We have a service ongoing for COO. We have strong regional managers, but what we did when we looked at how we are organized is to say, how can we increase the span of control? And some of the consequence I will outline on the following page really stems from that we have increased the so-called span of control from six to eight and a half. And we have reduced organizational layers from nine to six. And you can say, is that a big thing? It's a big thing because it reduces the chains in the chain of command. It makes us more agile. and obviously it has significant consequences, not least on management positions. So if we go on the next one, then I'll outline some of the consequences. So based on the new operating model and based on the supporting org structure, and a sterile-based approach, we have then defined that we need to do a net reduction in our workforce roughly 10%. We have 4,500 today, and we have identified 450. It will happen pretty quick. It has major impact on material positions. The targeted cost reduction is no less than 500 million SEC. It's a net reduction. It will impact our Q1, 26, 27, but you're going to start to see impact really from our Q4 this year. If we give a split, because some of the resources are part of COGS today, 30% we estimate are COGS, so it goes into the gross margin, and 70% OPEX. Those numbers may change, but they're actually They are right, and then we are going to communicate with Q3 latest, the restructuring charge. But I'll just reiterate what it is, what is stated to the right. We are doing this to get speed and agility. We are doing this to firm up our accountability so we can empower our teams. Yes, absolutely, we need cross-discipline across it. and then we are doing this to increase velocity across the border at Elector. So it's a big day. I would also say it's a tough day because we have to disappoint a lot of colleagues that they will no longer be part of the journey, but our job is to continue to be successful, financially successful, so we can invest in life-saving technology, and that's what we are committed to. And then we look forward to giving you a further strategy update during January 26th. We're deliberating the date. We'll get back to you in due course. We will have our interim report early March. And then we will invite for Capital Markets Day in June here in Stockholm and very much look forward to that with the leadership team standing behind the updated financials. Thank you. So let me conclude here by saying good performance, strong performance in Europe. Yeah, ElectroEvo is making an impact. It's also a great product, I have to say. Cross-margin improving. Cash flow, as you outlined, Tobias, continues to be better than last year. We have now disclosed our first mushroom battle leading to a simplified organization. But as I said, really with with the view of accelerating execution. And then we have done a comprehensive order review, and based on firmer interpretation of criteria, we canceled 2.2 billion, but no cash flow effect, no revenue impact.

Great. Thanks, Jacob and Tobias, for a bit longer presentation, but it was very much needed in where we stand right now. So we have still 30 minutes for a Q&A. I think Jacob went through the calendar. There's nothing to add to that. So try to keep the questions two at each time. So if you have further questions, you can line up later in the queue. So everybody has a chance to ask a question. So by that, operator, we are now open for Q&A sessions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their telephone. You will hear a tone to confirm that you have a hand ring in the queue. If you wish to remove yourself from the question queue, you may press star and 2. Questioner on the phone, I request to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and 1 at this time. The first question comes from the line of Dashband Kavya from UBS. Please go ahead.

Morning, Kavya.

Morning. Good morning. Thank you for taking my questions. Two for me, please. First was just around the order review. So I understand your reasoning with just applying stricter criteria on the back of the June review. I don't suppose you could provide any more colour on sort of the regional exposure of the orders that were cancelled. And then the second was just on the EVO in Europe. So would you be able to compare how it's been doing this quarter versus last quarter? I appreciate you called it out on the call, but it wasn't called out in the press release, hence the question, and whether this strength is mostly upgrades or whole device sales. I don't see any side color on that. Thanks very much.

Yeah, I can do that. Yeah, so we did the order review, and as I said, we applied the same criteria, but in a firmer context. If we look at regions, it was predominantly our Middle East, Africa region. That's where we saw the biggest impact. It was old orders, so some of them up to five years. There will always be a degree of subjectiveness. Do we think the right is going to be ready? Is there funding in this or that location? And as I said, now we apply the firmer interpretation. On EVO, up from last quarter in terms of units, marginally, an outlook good second half.

Thank you very much. That's okay, Clay.

Thank you.

Okay. We'll move to the next question. Please, Mr. President.

The next question comes from the line of Wadston Mathias from SEB. Please go ahead.

Morning, Mathias. Hello, Mathias.

Good morning. Thanks for your questions. I already put myself to two questions. I want to ask some commentary on sales growth going forward, perhaps after 2025, 2026. So if we look at the recent five, ten years, electa has grown, let's say, around 3% per annum. Order momentum has not been there recently in some areas, you know, it's understandable, for instance, China. With the cost savings also now ahead and the operational improvements we talked about, the third program, I think, so what kind of growth rate do you see doable for the company more structurally, let's say midterm? Yeah, it sounds very difficult to outpace the growth within the recent five years. or am I missing something there? That's the first one, and then I have another one. Thank you.

So we don't provide more guidance than what we have for this year, and that's a positive organic growth rate. On the mid to long term, we will come back to that at Capital Market Day. On cost saving, I would just like you to... Come back to what I said, we are adjusting the operating model to accelerate commercial execution. As a consequence of operating model, there are cost savings. And over time, we clearly need to grow above the market. That's our ambition. And we'll come back with the detailed plan latest capital market day next year.

Yeah, yes. you disclose book to build for China, which is appreciated. And it looks like the water mountain picks up. Could you also remind sort of how books to build for China look, let's say last four months or fiscal 2024, 25, just to get a sense of where we are on China right now. That's my second one. Thank you.

Yeah. So, so Yeah, we had a book to build roughly 1.3 this quarter, roughly 1.3 last quarter, then rolling 12 months, as I recall, 1.14. Then I think the importance to say, well, we recognize at Electa we are more bullish than most medtechs on China, but we have the visibility we have. So Electa got in early. We have localized our supply chain. Then the market was strong. Then we had the anti-corruption campaign. It became much, much weaker. But if we look at our first half, we have seen the RT market up by a very strong amount. And we are now seeing positive year-on-year order growth. And when we look at our sales funnel, it looks like a strong both revenue order growth, double-digit, high double-digit second half. So that's a visibility we have, and we believe it.

Absolutely. Absolutely. And just add to that, Mattias, when you look at the book deal here for China, it has actually been a steady increase, and you saw a reported number, but if you would look at the rolling 12, it has actually been a steady improvement here over the quokkas here, and it has been ongoing for a while.

Thank you very much. That's very clear.

Thank you.

Thanks, Mattias. We'll move to the next question.

next question comes from the line of g berg christopher from carnage please go ahead hello guys um yeah also two questions uh first uh coming back to that i implied cost savings from the from the new operating model it seems all ls equal that would add some three percentage points to the depot in but I think you talked about this being a net effect, but are there some negative factors that might offset this? For example, you mentioned that you want to improve quality of earnings. One way of doing that is, of course, to stop capitalized R&D. If you were to do that, I guess that would, at least from an accounting perspective, remove part of the otherwise positive effect, if you could comment on that.

Yeah, we absolutely can. Yeah, you should think that way, that we say no less than 500 million SEC, and there will be full impact on the margins with the split I outlined, COX and OPEX, but of course coming to EBIT. I think let's keep accounting separate. I just say that in general, we like to build a closer link between EBIT and cash generation. We have heard that from a number of you also that you would like to see that. I agree. I'm not a big fan of too much capitalization. Some you have to do, but we are certainly deliberating on what is the right approach going forward. But that's accounting, so I think we need to keep that separate.

Okay, yes, so be careful. So the way you report EBIT, it might not improve the total 500 million.

I would more say differently that the 3% you should expect with full run rate for Q1 next fiscal and whether we will do adjustment and how we do capitalize is a separate topic and frankly we haven't be decided on anything, except what I'm saying, that I would like to see a stronger link between EBIT and cash flow. Absolutely.

Okay, thanks. And then my second question, of course, the importance here of getting EVO approved in the US. I saw you comment or said to one of the Swedish news agencies that you expect to Have an approval within the 880 days review period. So maybe if you could, yeah, talk about your confidence and how this process is ongoing with the FTM. Thanks.

Yeah. Yeah. Yeah. So we have been confident along the way. It's just taking a really long time. So we submitted over the summer, and as you outline here, you have a 180-day window. There are periods in the submission process where, The clock has stopped, but you should say 180 to 100 days, and we do expect to get approval within. Of course, it's not fully in our control. There is a regulatory body, but based on indications, we are positive. We have been positive all along the way. We are even more positive now than we were three months ago. Yes. Great. Thanks, Christopher.

We will move to the next question, please.

The next question comes from the line of Jernunder Ludwig from Anders Banken. Please go ahead.

Hello, Dirk.

Hello, Dirk.

Hi, Ludwig. I'm from Anders Banken. Thanks for taking my questions. I have two, please, and I'll take them one by one. So the first one is around the regional restructuring of the P&L. As a consequence of this, do you have any or could you say anything about how incentive systems will change to grab the more local P&L ownership?

Yeah, I could, and I probably will in due course, but first I would like to discuss it with the regional management team. Today we are announcing the change in structure, but clearly we want incentives to match the value creation of Electa. And I would in general like to see a stronger ownership mindset in the company.

Okay, thank you. And my second question is on the cost savings as well. You gave us the figure of 500 million sec annually in cost savings. Would you be willing to give us some more flavor on the different parts and how they will move in, let's say, next year? So, if you share up the and how should we expect different parts to move given the 500 million? The parts you will have to decrease and are the parts expected to increase?

Yeah. Yeah, that's a good question. I think the guidance we give here is no less than 500 million SEC. So the approach has been to start by saying what is the right structure, and then we are down to now individuals. In general, we have been doing it to increase commercial execution and operational execution, and very importantly, avoid duplicate work, which we have identified. de-layering become more agile. I will not go into the specific details in terms of where are we removing the 450. We, as you can imagine, we have a town hall this afternoon. We will, I think our staff deserves to be told first in greater detail. But I think what you should take away is that we do this to enhance the execution, and then as a consequence, there are savings no less than 500 million SEK, and we are fully committed to you will see the full run rate effect Q1 next year, and that's not too far away.

And you also had allocation that was in the gross margin and was below the gross margin. Yeah, good point.

Thanks so much. Thanks so much. Thank you. We'll move to the next question. I think it's from Erik Kassel at Örnskibank.

Hello, good morning, everyone. First, I want to talk a bit about the software backlog and deliveries in Europe. I mean, we're naturally seeing EMEA margins come up quite significantly, and I just want to get some sort of understanding on how much of that is driven by software, and if possible, I'd like to know if the software book to bill is is still positive in EMEA.

Yeah, what, I mean, I think we stated here, I think as you alluded to here, we have seen a very strong contribution from, I mean, both in terms of the for SC as well as the upgrades here of the existing Linux, what we call then Iris. And when it comes to, when it comes to, we see a continued, continued strong development here. And you heard Jacob talk about the second half. So that remains, and that is what we, we view it very positively.

Yeah, so I can say sequentially, yeah, sequentially, we had double-digit growth sequentially on iris and electroplaning.

Is that on orders or on delivers? Both. And is the book-to-bill still positive?

We don't go in. It is, actually, but we don't go in. further details. In general, we keep our book to build at a fairly aggregate level for competitive reasons.

Yes. Okay, perfect. Then just last question.

Solutions seems to be down some 20% organically in America.

I was just wondering how much more is it down in the US since that's a key driver and that seems pretty strong and how many more quarters of negative organic growth in the US do you expect to see?

So we actually had a good order quarter in the U.S. here in Q2. But we do expect that the solutions will bounce back, obviously, when we get the EVO FDA approved. So we look forward to our Q4 this year. Then we need to get reference sites upgraded. We need to sell into our uninstalled base, make the market recognize the EVO platform, which is versatile and precise. And then it's going to be the grind of selling and competing.

And I can also add a little bit of flavor without giving numbers, as well as the revenues are better in the U.S. than on average for Americas.

Thanks, Erik, for those two questions. We'll move to the next question, which I think is from Veronica Dubaj. Good morning, Veronica.

Good morning, and thank you guys for taking my questions. I am going to take two questions. The first one is how you're thinking about the competitive landscape, obviously, Varian or Healthineers announced the plan to launch a new next generation LIMAC platform sometime in 2026. I'm just curious kind of how you think EVO will stack up against that and sort of as you fast forward into 26 and 27, whether this is a concern for you. And then my second question is a bigger question, obviously, the ambition to return to market growth. I know you guys don't want to die, but I'm just curious if you might be willing to at least give a little bit of timeline on when you think that is achievable. Is this already a project for 26, 27? Is there more R&D work that's going to take a bit more time? And, you know, we need to wait a little bit longer. So, any color you can give around, and that would be great. Thanks so much.

Yeah, I can take those. In general, I prefer not to comment on competitors' product portfolio. We focus on us, and of course, in our engine room, we benchmark, and we are taking note of the same data points that you highlight. We look at our competitive situation here now, and we think we stack up. Of course, we have certain improvement areas. We have certain strength. I'm not going to disclose them all. It would not be a smart move. And then, as I started out by saying, we invest 12% of revenue in R&D. So we have a number of pipeline projects ourselves, some exciting, some needs tweak. And then let's see how we stack up. But I personally would say, and I lift that in other companies as well, Being dedicated to RTE and being willing to fund investment and being passionate about what you do from a product development perspective can take you very far. And it should be the secret source of a company like Electa. Then when you come to growth, yes, clearly our ambition is over time to grow at, I would dare to say, a stock market level. No medtech company would want to lose market share as we've been doing for some years. I've been very clear to the organization, very clear to the commercial part, but also to the product development guys that now it's time to shape up. In terms of when, I think let's come back when we have capital market data. I think that's appropriate. So it's not hip shooting, but it's really anchored in a financial plan.

Very good. I have to try. Thank you.

Thanks, Veronica. Thank you. We'll move to the next question. Yon Unwin at Barclays. Good morning, Yon. Morning, Yon.

Morning. Good morning. I just had a question on the R&D expense. You've commented that it's 12% of revenues, but also that you need to sort of focus on more commercially viable projects. Is there scope for that 12% of percentage of sales to come down over time as you focus that R&D intensity on the commercial projects? And then my second question is on the mid-term targets and sort of taking over the CEO role and how confident you are in the ability to increase growth margin to pre-pandemic levels and EBIT margin above 14%. And any color you can give on a timeline for those targets would be helpful. Thank you.

On R&D expense, what I can say is 12% is in general high. It's in many ways good because it's funded today in our cash flow at least. What I stated was that when we look at both existing portfolio and future portfolio initiatives, we will have a strong commercial lens as well as scientific and feature lens to really understand what are we solving for. I think if you take, for instance, our MR-guided Linux Unity, Wonderful product, truly making impact in the market. Commercially, we haven't achieved what we hoped for when we started out that project. And we want to make sure that we learn from that when we move forward. Is there scope for further reduction? We'll see. I think it starts by saying, do we have the right projects in the pipeline? If we do, we'll keep at 12%. If we don't, we'll reduce. In terms of mid-term targets, a restate will We'll get back to that in our capital market. I would say, though, I think there are opportunities to increase the gross margin, but I'm not going to say whether that's at or above our mid-term guidance. We'll come back to that.

Great. Thank you very much. Thank you.

And the next question will come from Stian Gustafsson at ABG. Good morning, Stian. Good morning, Stian.

Good morning. So two questions on Evo, please. Firstly, regarding going back to the FDA approval process, have they communicated with you that there is a delay related to the government shutdown? Do you think that has had any impact on the timeline for your approval process? And my second question would be if you could – Remind me about how you plan to roll out the launch globally of Evo in China, Japan, and other key markets.

Yeah. To take your first question, no impact from shutdown. We have a good dialogue with FDA, actually very good. Secondly, rollout, yeah, we got EVO domestic approved in China, so that's good. Focus is on ensuring market access. It's coming in. It's actually proceeding quite nicely. The sole spot is in U.S., but I think we discussed that already.

So it's already approved in China. Yeah. Excellent. Thank you very much.

We think so also.

Okay, thanks, Dan. Now we'll move to the next question from David Ablington at EP Morgan. Good morning, David.

Hello, David. Good morning, guys. Thanks for the question. First one, sort of bigger picture one, on the 450 roles being cut. Just wondered how you think about eliminating that level of workforce, 10,000 workforce, without having impacts on R&D, quality of services, manufacturing capacity, just how you keep thinking about that And then secondly, as you look into next year, street-stop, mid-single, top-line growth, how comfortable are you with that, given the fact that all the growth has been tracking some way below that? Thank you.

So if I take the first one, keep in mind we solve for something different than reducing headcount by 10%. We solve for speed, execution, accountability, delivering products faster to the market. And in doing so, we have a delay of the organization, increased span of control. So as such, if you do the math, then it has a very significant impact on managerial positions. We are not reducing frontline field service engineers. So it is an office-based managerial reduction. And we do it because we believe we can. frankly, and we believe that it enabled us to move faster with firmer accountability. We have had too many functions with duplicate roles, duplicate managers, and that's what we are resetting. And then we also take the liberty to be a little bit less corporate, a little bit more business savvy. So we are streamlining central functions across the board with due consideration to guardrails and controls. So we feel good about that, and it's confirmed throughout that we should be able to move, I would have to say, faster than we are today from a commercial and product development perspective. In terms of longer-term guidance, I'll stay at what you said we guide this year, positive organic growth rate, and then we'll come back at the capital market day, and we very much look forward to that.

Thank you.

Thanks, David. And now we'll come up to the last question for this session, and that is a question from Ludvig Lundgren at Nordea.

Hello, Ludvig. Yes, hi. Thank you for taking my questions. So two for me, and first one on gross margin. I wonder if you had any effect from tariff mitigation actions here in the quarter and whether you have some further pricing potential here moving ahead.

Yeah, we have some, but I think on average here that what we see as a net impact from the tariffs is actually that it drags down the gross margin in a quarter. But obviously, to your point, and I think also what we alluded to earlier, in general, more broad terms that we would continue to work here on the passing through this cost through the value chain and also here addressing in terms of productivity as such.

Okay, great. And then final one on the order cancellations here. I guess these were mainly orders that had very small or no prepayments connected to them. So I wonder, like looking at the remaining part of the order backlog, have all of the remaining orders some prepayment attached to them or how does it look for the main part?

A very significant part. Typically, if it's public tender, we don't get prepayment. Then we have some older orders that we have deemed very high likelihood will lead to revenue generation that are without a prepayment. But in general, you should think that all orders coming in now from private sector will have prepayment or they have to be Thank you very much.

Thank you, Ludvig. And that was the end of this call, but maybe before closing, a final remark from your side, Jacob?

Yes, we are on it. This is a quarter of execution. As you may also sense, We have focus on what happens this quarter, next quarter, the next 18 months. We know that we are not at full potential. It's a lot of hard work. I take a lot of comfort in that everyone from board of directors to management team to elected employees are committed that we know we need to change and we know we can do better and we don't do it just for our shareholders. We also do, but we also do it so we can continue to drive our purpose of of building hope, invest in technology. As I started out by saying, there's a huge unmet need for radiation therapy, and there's a strong need for us to innovate and be a strong competitive alternative to the major player. So look forward to meeting all of you in future engagements. Thanks.

Thank you. Thank you very much, everyone.

Ladies and gentlemen, the conference is now over. Thank you for choosing CodeSchool and thank you for participating in the conference. You may now disconnect your line. Goodbye.