Elekta AB (publ)

Hi, and good morning, everyone. My name is Peter Nyquist. I'm heading up Investor Relations here at Elekta. With me here in Stockholm, I have our CEO, Jakob Josbomolt. I have our CFO, Tobias Häggrave, who's doing his last quarter, as well as our incoming CFO, Klara Eiriks, who will not present today, but she will be available here in the studio. Tobias and Jacob will present the result, as always, for the fiscal year 2026, third quarter. We will start the presentation with Jacob giving away the takeaways from the third quarter. as well as an update where we are in the strategic execution and the change of operating model and the cost savings related to that as well. Tobias then will talk about the financials and the electa's outlook. After the presentation, as always, we will have time for questions and answers. But before we start, 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 product and product development. These statements involve risks and uncertainties that may cause actual results to differ material from those set forth in his statements. With that said, I would like to give the word to you, Jacob. Please, Jacob.

Thank you, Peter. Thanks. And welcome to all of you. So before I get into the quarter, let me just share some overall reflections. It's a solid quarter, but Alexa, we still are not trading at what I believe is the long-term potential of the company. So that calls for a clear strategy. It calls for decisiveness. It calls for execution, bias to action, bold decisions, and I would say we are on that journey. I would say specifically related to the change in our operating model, I really appreciate the support from leaders within Electa, Electa colleagues. We're changing a lot. We're changing the structure. We're changing layers. We are letting go of people who are highly valued and deeply competent. But we have to change, coming back to my point that we're not trading at full potential. But the support in getting there has been spectacular. As I'll outline essentially by the end of this week, we are running consultations in UK. We will be concluded with the change we outlined end of November. That's very good. And then big thanks to you, Tobias. You have ensured that we have had a very orderly transition in leadership within the finance function. And welcome to you at this call. And we look forward to you presenting the numbers at our Q4 and annual accounts. But let me then turn into what this call is really about, our Q3. As I said, it's solid quarter. We have to recognize significant impact from FX. And we will also see impact coming into Q4. And then clearly also in line with the guidance we gave at Q2, a significant impact in reported EBIT from a restructuring chart of a bit more than 400 million SEC. We stand by the guidance that it will be less than 500 million. On orders, I would say good. A book to build up 1.17, it was 1.15. last year. Keep in mind that typically Q3 is a good order intake quarter because we roll on a lot of the service contracts, particularly in Europe, that given quarter. And then we saw, and I'll come back to China, we did see order growth, we did see revenue growth, so that's pleasing. But it was also expected. On U.S., I'll come back to, but there, year-to-date, we have seen good orders coming in. It was also much needed, and then we continued the momentum on Europe. So all in all, when I look at the book-to-bill rolling 12-month of 1.09, I think it's healthy. We would like to see it higher, but it's healthy. In terms of organic growth, we are 2%, continue to see good momentum in Europe, and as I said, China returning to growth, and we stand by the view that we expect both on orders and revenue double-digit growth, probably around 10% in China for second half of the year, and then what? what our Chinese general manager and Ming outline in the strategy update, we do see the market bouncing back almost to pre-anti-corruption levels in terms of units. Gross margin at 38.3% supported by product launches and also pricing. We actually do see a bit of tailwind on that mix and pricing, but a hit win on the cost and that's a big focus area. I'll come back to that later on, but of course it's going to be a significant focus area for us going forward. EBIT margin at 11.9%, a bit higher than last year, but just keep in mind, on a comparable basis, we get headwind from less capitalization, more amortization, relatively speaking. adjusting for it, the EBIT cash margin that we look a lot at at Electra is significantly higher, and you will outline that to be on a rolling 12-month basis. It's really good news. I can say my sincere hope is that coming into next year, the EBIT cash and the reported EBIT will be roughly the same number, meaning that our amortization and capitalization will be a match. Let's see if we get there. in terms of cash flow less good than last quarter or same quarter last year but we should keep in mind that overall year to date we see good cash flow improvement and we have paid out roughly 100 million SEC in the quarter linked to restructuring charts. So if we move on to the next page on commercial development, America has a decrease of 6%, fundamentally, of course, not attractive. That's why we have a must win battle to address it. We did outline last time that we were positive on getting EVO approval. I think it's important as part of our commitment that we have a good say do ratio. And we were of course pleased to see that on 16th of January, we could announce EVO approval. Year-to-date, as I said, we have double-digit order growth, substantial double-digit order growth in the U.S. alone. That's also needed because our decrease in revenue reflects a depleted order backlog. So we have a lot of work ahead of us. But, of course, every quarter that goes well and is growing is a good quarter. And year-to-date we have been doing well. We have sold. to customers on the promise of Evo upgrade that's now happening. And we are building our funnel going forward, but you shouldn't expect that it's just gonna be a huge splash going forward because a lot of the orders have been already taking a year today. But of course the customer interest is good going forward. And we will look at commercializing Electra Evo the way we have done in Europe. we continue to see growth in South America linked to very strong order intake prior years. On APAC, as I said, and as expected, China is returning to growth. We do see a little bit slowdown in other large countries, notably Japan, also Indonesia, where there's a big tender, so the market is really awaiting what will happen there. And then on EMEA, We see a good increase, continuous strong momentum in Europe and of course we need to sustain that going forward. And then I just flag here Middle East could potentially impact timing of installation. It's way too early to indicate how many we have a sense for what are the installations at risk and it's not going to be material and it will just be a time delay if that happens from Q4 to Q1. So, all in all, I would say a solid quarter commercially, but of course, we would like to see that number go up, and that's what our strategy is all about. Yeah. So, if we take the next slide and look at our mushroom battles, this is what we outlined end of January. We feel very good about them. They have been working through. Some we have found, some we have less found, and I'll give you more details on simplifying power speed. We did this, I'll just remind you, not to save costs, of course we take that in, but we did it to increase velocity of our decision making within operations, within commercial, and most notably also within our innovation department. We are de-layering, we are empowering, we are driving culture. It's part of performance management. I think it's going to deliver a lot of good results. And I actually start to feel that the puzzle is getting assembled. We are moving on from... having it as an initiative that we needed to execute on to kind of things are settling down. And as I started out by saying thanks to great work by the leaders and colleagues at Electa. It's a lot of change. We have asked people to come back to the office because we feel being an innovation driven company, we can really benefit from problem solving together rather than at a distance. to focused innovation. There are a lot I could say, but there's also a lot that could be used against us commercially, but I would highlight that we continue to invest in innovation. We believe there is significant need for our solutions going forward. Our current product portfolio will become even better going forward, linked to what we have in our pipeline, but we will do it more focused. We will have a stronger commercial lens on it, and we will unfold more of that thought process when we meet at the Capital Market Day in June. Then our third initiative expanded China within the USA. China is important for Electa. We are market leaders. We did unfold what does that mean, but it really goes into localizing Electa in China. We are both from a product point of view, we have a very, very strong market. organization, we are localizing our supply chain and then we also consider we have both local products and we are saying should we have even a broader made in China for China product portfolio. So we actually feel good about our China position, not least also because What we said is that the market is going to recover. And then with Elekta Evo, it's now about competing in the U.S. This is Elekta's biggest opportunity because this is the market where our relative share is the lowest compared to other places. I believe we have every right to compete in the market. That's what I hear from our customers. There is systemic demand for having strong competition, and we are ready. And then lastly, the fourth on continuous COX reduction. I would really say in today's quite volatile world, it has two dimensions. And one is to continually address our bill of material, our ability to install and service our installed base. So that's on cost. A lot of focus will be on continuous engineering to update our tech stack. and work with our vendors to continuously increase quality, lower cost. But we also focus a lot on pricing to ensure that we can mitigate certain cost increases in today's volatile world. So we're establishing a pricing desk here in Stockholm. I feel good about that. And we certainly have potential to become more dynamic in how we approach that top line part of pricing. of our business. So that's where we are. If we then go into our operating model, I have to say actually, I think we have done well. And by the end of this week, we will almost have executed all the changes that we outlined to you end of November so that's in three months and we are now at 83% but the remaining 17% is due to a consultation in UK which is happening This week, of course, it's been tough for us within the lecture, but it will serve the company very, very well to clarify roles, responsibilities, who are accountable for what, reduce layers, decentralize, push decision makings to those who have the best knowledge, and then move with the bias to action. So we stand by what we state that we will have run rate savings without jeopardizing commercial or innovation of more than 500 million SEC, full impact Q1 next year, i.e. from 1st of May. The mix is 30% COX, 70% OPEX. We're still simulating, but that's our best evaluation. Restructuring charts to be taken this year between 450 and 500 million. We have taken 417 here in Q3. And then, as I said, we are moving well. And then in parallel, we are now linked to budget and also, Clara, with your support, we are now assessing all the discretionary spend because I do think there is potential for Elector to just be very, very, very prudent in terms of where we allocate resource and cost, and that should also support us into next year. So that's where we are. And then with that, over to you, Tobias.

Thank you, Jakob. And good morning, everyone. So let's look in to the third quarter then a little bit more in detail. And I think Jacob alluded to several of the points here on the slide. Net sales in the quarter increased by 2% and we had a growth here in solution by 1% and service by 3%. We can see a continued strong momentum in Europe supported by our product launches, Electa Evo, Electa One. And also when looking into our Chinese operations, as you know, this has been impacted by the anti-corruption campaign here over the last years, it's actually returning here to growth in the quarter after two years, which is a very positive signal. Then moving down in the P&L, looking into the gross margin, we have an improvement here of 120 basis points. In the quarter, we have a negative impact from tariffs of 100 basis points, and then furthermore from FX of 130 basis points. But including this, we are improving our gross margin. It is supported by the product launches. It's also, as you heard Jacob mentioned, supported by general price improvements that we see across our products. If you then look at the operating margin, we have an improvement here of 20 basis points amounting to 11.9% of points in the quarter. This is driven by the improved gross margin. We also can see that we have lower R&D investments and also lower admin costs here year over year in the quarter. And what also Jacob mentioned here is that we do have lower capitalization of R&D and higher amortizations. And if you actually would look at the cash EBIT margin, adjusted cash EBIT margin is actually up 170 basis points in the quarter year over year. And then also here we do have restructuring charges here of 417 million SEC reported as items affecting comparability, which is also then reflected in the earnings per share. What we have seen in the quarter is quite a rapid move of the currencies. And here we have outlined the effect here both from operations and then also sorted out the currency impact. So what we see in our P&L is that our net sales are impacted by more than 500 million SEC negative in the quarter from the FX moves. And in terms of growth, this corresponds to minus 12%. This is predominantly driven by a stronger Swedish krona versus our main revenue currencies, the US dollar and the euro. When you then look further down in the P&L, we have a negative impact on our gross margin of 130 basis points, which I just mentioned, and furthermore here on the operating margin of 180 basis points. And in addition to the translational currency impact, which I just mentioned, this is also driven then by the dollar depreciation versus our main cost currencies in euro and pound. If you then look at the cash flow, and Jacob mentioned this, we do have a lower cash flow year over year in the third quarter. Still though, that year to date, our cash flow is more than 400 million SEC better than last year. We've also had more smooth development of our working capital in the inventory development especially. In this slide here, we have sorted out the effect of restructuring provisions, and then here stated more solely the working capital development in the quarter, which was stable. Then investments are lower than last year, both here in the quarter as well as year to date. and taxes interest net and other are on the same level as Q3 last year. The cash flow generation this year has led to that we have a net debt decrease of more than 200 million sec compared to Q3 last year. Then looking at the trends here, I was talking about the currency impact and nominal terms. We have seen a bit of slight decline of the revenues, although currency adjusted growth here in the quarters. But when you look at it, and I was talking about the improved gross margin, there is a steady trend here, strongly supported by the product launches and the price improvements, and also which, of course, then with the must-win battles that Jacob was on will be further supported to the gross margin development. So steady improvement here over the quarters on the gross margin. We have also a improvement here on a 12 month rolling basis on the operating margin improvement. And if you then would look again at the cash operating margin, it's a strong improvement here, which has been ongoing here quarter by quarter, sequentially. Then looking at the cash flow, we have a lower cash flow in Q3. But if you look at the, as well as the year-to-date, you look at the 12-month rolling, it's a significant stronger cash flow over the last 12 months than what we had here a year ago. And if you then look at the outlook, we reiterate our 25, 26 outlook. We expect net sales and constant currency to grow year over year. and we also expect a negative impact here on earnings and from tariffs in q4 as well and the mid-term targets and no change there and they are confirmed so by that I would like to, before the Q&A session, say a big thank you to all here over the years here. Working with you has been a pleasure. And I then hand over the word to you, Jakob.

So closing remarks should reflect what you just heard. So solid quota, solid performance. We have launched EVO now in the US also. We are building up the funnel, good order growth year to date. Obviously, we have strong currency headwind and also increased tariff headwind, despite gross margin is at 38.3%. And as you outlined, Tobias, with an improving trend and we need to sustain that. And then we focus a lot on what we can control as part of our must-win battles. Super important. And we are well on the way of resetting how we operate and how we think and how we execute within Electa. And by the way, it will also lead to cost reduction of more than 500 million SEC. And then we focus obviously on cash flow generation also. That's also why... We can report here year-to-date an increase of almost half a billion SEC.

Thanks. And before we start with the Q&A, I just want to remind you that we have the capital market here in Stockholm set for June 17. So it will be here in Stockholm. More information will be distributed later on. And with that, I think we have one. Yes, and this is the calendar for the following report. So the next one comes in May 28th, our Q4 earnings report. So with that, I would like to open up for questions, operators, and I think the first question comes from UBS in Kavaya, Deshpande, please.

Good morning, sir. Can you hear me?

Yes, we can hear you perfect. Good morning.

Perfect. Thank you for taking my questions. Two things both on China. The first is, would you be able to share how much China order growth actually was in the quarter and remind us how this compared to Q2 and Q1, please? Just because you've been quite specific about the target to grow orders around 10% in H2, so it would be a bit helpful to get some more specificity on the year-to-date trend. And then just more generally, would you be able to remind us, please, why you think the radiotherapy category in China differs to other capital equipment markets where the We've obviously seen this acceleration in share shifts towards Chinese players over the past year and a bit, specifically to United Imaging, who look like they're getting good traction with their new O-Ring LINAC and adaptive radiotherapy product as well. Please. Thank you.

Yeah, thanks, Kavaya. Good questions, of course. So we'll stick to second half. We say double-digit growth on orders, but we have positive both on revenue and orders here in Q3. So that's good. and it is linked to market recovering. Of course, we have also asked ourselves, why are we an outlier on China versus other medtech companies? But I think the short answer is the market is heavily under-penetrated. You have 1.8 linear accelerator per capita, and there is a growing cancer burden in the country. So there has now been pent-up demand, and we used to have 300 Linux, it dropped to 170, and now It could very well be 260, 270 Linux going forward. So we're not entirely back. Then in terms of competitive situation, we also outlined there are a lot of local ring-based competitors, but there's really one who has traction, that's United Imaging. despite, I would say, and also because of we have localized our products and our market presence, we remain the market leader. We have lost a bit of share, but we remain in the high 30s in terms of market share, and that's also our aspiration going forward.

Perfect. Thank you very much. Thanks, Kamarja. And we'll move to the next question, Kepler Chevreux, and that's Oliver Reinberg. Hello. Good morning, Oliver. Good morning, Oliver.

Hi, good morning, guys. Quick question from my side, if I may. Firstly, can you just provide us a bit of color on the order intake composition? I would assume that a large part is driven by evil. Can you just confirm that to be ideally quantified? And if that's the case, what kind of product categories have seen any kind of declines? That's question number one. Secondly, just looking forward to Q4, we had a very strong comparison in terms of gross margin. I just wondered if you can share any kind of thoughts of that, what to expect going forward now. And lastly, just on strategy, Jacob, I just wondered, can you just discuss how you think about the critical size of elect our wall? You know, because you have to pay for a kind of global marketing installation service infrastructure. How easy is that? And related to that, how do you think about the role of partnerships in the past? There was always a discussion of the importance of independence. Would be helpful to get your thoughts on that. Thanks very much.

All right. I'll take the very easy one first. Gross margin Q4, we don't give that guidance, I'm sorry. We will stay with our guidance. We believe in organic growth, positive for this year, so I hope you understand that. In terms of order intake, what I will share is that, of course, we just got the approval in U.S. mid-January and our quarter ended January. But we have seen a very substantial order growth in the U.S. It's still too low, but very substantial relative to prior years linked to the expectation of EVO getting approved. And as we got more certain, then we saw that pick up. We are now converting that order backlog from Versace into Evo, so that's working. We are, by the way, also upgrading to Iris, and then we can just see the funnel opportunity. I would dare to say quite rapidly expanding in terms of prospective customers. having interest and of course we hope to see the same commercial traction in U.S. and why shouldn't we as we have seen in Europe and there are roughly two-thirds of what we sell of new solutions are evil related. So that gives you a good indication and it's also a nice system I have to say. It's versatile, it's adaptive, it's competitive, so we'll continue to build from that. Then the last one in terms of electors, critical size, I would love to answer it. It will probably also take 10 minutes, and it's certainly a worthwhile topic for Capital Market Day. But if you will get my helicopter perspective, then relative to our main competitor, of course we are smaller. But I would just dare to say that we are the focused radiation therapy market, and that comes with a lot of benefits. Then we have assessed our product portfolio. The product portfolio logic is absolutely sound from bracket to neural to linear accelerator CTMR to supporting software suite. So the logic stands. And we believe we can build that ecosystem that is relevant. And then there will be a choice. You can have electors who are a little bit more open, not fully open, but a little bit more open than others. Or you can go for a more closed system. And that's good. We want to give customers choice, and then we want to compete for our fair market share.

Thanks, Jakob. Thanks, Oliver. We'll move to – Perfect. Thank you. Thanks, Oliver. We'll move to Handelsbanken and Ludvig Germander. Good morning, Ludvig. Morning, Ludvig.

Good morning. Thanks for taking my questions. I have a few. I want to start with the cost savings program, please. And you've been talking about it, of course. But would you say that the underlying impact from savings during this quarter has been in line with your own expectations? Or would you say that for the quarter has been above your own expectations in terms of how fast you've been able to get the impact from it? That's my first one.

As expected, very little impact this quarter. It will have a significant impact in Q4. But the model, Ludwig, we did was really focused on Q1, and there we are, I would say, on par with maybe a little bit above our expectations.

Okay, thank you. And just to make sure regarding this restructuring charge of 417 million SEC in the P&L, is it fair to assume that most of this was a cash expense in the quarter as well?

No, most of it is actually provision, but you also have a certain degree of payments in a quarter cash cost.

So what we guide is roughly 100 million was paid out in the quarter. That means remaining 300 remains to be paid out, and that's in line with the expectation. And then we will have some further provisions to be made. So the guidance we have given is 450 to 500, of which we have paid out, if you will, 100. Great.

Very helpful. Thanks for that. And then just one final one. On the Middle East situation you mentioned, I know you said it's too early to modify, but would you be willing to give us any context here, like how much of sales or orders are related to the region where you see a risk of any delayed installations? Just to get some sense on how to think about it.

Sure, sure. So, but take it with a grain of salt, because as you all know, the situation is fluid. But in terms of... potentially impacted installations and thereby sale would be 2% of Q4 sales. So I would say it's a very manageable amount and then we follow in real time those installations. That number may change, given where we are and what we see, but I was still there to say it's manageable. Then our perspective may look different in a week's time.

Thanks.

Thank you so much.

Thank you, Ludvig. So we'll move to Mattias Wahlsten at SEB. Morning, Mattias.

Morning.

Can you hear me? Yes, we hear you perfect. Thanks.

Good. First question, maybe another one that takes 10 minutes to answer, but you talked about commercially driven innovation. in the presentation so if you could give just some examples on what this statement really means you know focus on software recently hardware new platforms versus refining current platforms etc etc that's the first one yeah it's also a fundamental question and we outlined a little bit in in the strategy outlook we'll outline more of course and find the boundary between what we

want to say and what we can't say and so forth. But yes, commercially driven means a little bit less big platform, more modular driven innovation. It's deliberately vague. Sorry about that, Mathias. But I would say we reduce a risk profile in our innovation, we increase the traction and I would say when we spent a lot of time over the last four months in assessing our innovation pipeline, I'm also hands-on involved in it, I have to say. We put a customer lens on and a commercial lens on, and you should expect that over the next four months we will significantly enhance the portfolio of our customers. cm linux portfolio and that goes both for hardware and software so so i feel very good that's also why we are willing to fund continued investment as i said we do we are not asking our investors to underwrite an increase in gross r d it will come down a little bit but but we should be able to see more output and then let's not forget it's not only resources put in it's also how efficient you are So we are also structurally addressing the efficiency within our R&D engine, if you will.

Thank you. Thank you so much. And then you talked a little bit about EVO and the comparison to Europe and so on. But, you know, from what you've heard and seen now in terms of customer behavior, customer feedback, what conclusions can be drawn if you compare sort of what you've seen in Europe since sort of late 2024? And also, if you could even offer this on sort of off-grid versus newly matched.

Yeah. If I take the latter first, then given that we have sold quite a few units this year with the promise of upgrading technical obsolescence against the fee, then you can say we have essentially already sold EVOs in the U.S. and will continue to sell EVO. Then we are now upgrading, we will build reference sites, we will prove the uh provide clinical evidence and it matters a lot that we shouldn't ask us-based customers i met some of them here three weeks ago in in holland but then they had to fly to you to europe that's not very efficient so we're now building our reference sites with the evo so we can demonstrate the value and then we look at our funnel and so far so good but i'm not going to commit to a number i think it's too early days but why I would just say, why wouldn't we see the same demand in U.S. as we have seen in Europe? And there we have just seen a good traction. But I would rather demonstrate it through actions than promise here for the future. But so far, so good, I would say.

Perfect. And then I will squeeze in one final quick one. So you said book-to-bill was 1.3 first half in the Q2 report for China. Could you give that year-to-date figure now, book-to-bill for China?

Yeah, it's about 1.1 for China. And so we will end up with a book to build. I'll just do the math here. But it will be above 1.1. And that's important milestone because we have seen a depletion. in our China backlog. So we actually had a good revenue year after the anti-corruption, but we were depleting the backlog, and now we are building the backlog again. And that's why we essentially feel pretty okay about our China position, recognizing everything that is said in terms of competing. And we're also using it, I would say, very often, as Europeans, we are a bit defensive. I look at it differently. How can we tap into China's speed? How can we build competitiveness in China? And if we can compete in China, when we can, we can also take that know-how elsewhere in the world.

Great. Thanks, Mattias. Thank you so much. Thank you, Mattias. We'll move to Veronica Dubajova from Citi. Hello and good morning, Veronica.

Hi, guys. Good morning, and thank you for taking my questions. I'm going to keep it to two, please. My first one is just to understand the sort of process of converting some of the older orders in the U.S. to EVO. Can you sort of maybe talk through from a customer perspective how that works and also just from an accounting perspective when you, you know, when you do trigger that conversion, does that show up in the gross order number or is it just because it's a conversion of an older order there is no incremental impact on that? if you could just touch upon how that works. That's the first one. And then, obviously, you guys are pushing ahead with the restructuring with the strategic changes. And so it would be great to sort of just get a little bit of a pulse on the organization and what's the feedback, where does morale sit, anything that sort of, you know, is worrying you in terms of how the organization is dealing with the changes that you've put into place. Thank you so much.

Yeah, I can do that. So if we talk about upgrade to Evo, that will now happen and there will be incremental charts. I don't want to share the specifics, but it's substantial. And then they will be triggered from a revenue recognition point of view when we installed the units. That's typically when we recognize the revenue. So that's how it's going to go. In terms of restructuring, As I started out by saying, I have to say, I've just been super impressed all around with the behaviors from owners to leadership to employees. We knew we needed to change. And then at the same time, we empathize because the change is tough. And it is not only in terms of fewer people, it's also the way of working. And I have to say, I've just seen so many people who work, including a few here in this room, until very last day, and it's massively impressive. I think the morale is good. You could say the biggest impact on morale is actually... We have implemented a four-day in the office policy. But we do that because elect our purpose is so important. We need to innovate for customers and patients around the world. There's more than 2 million patients being treated in our ecosystem, you can say. And we feel that we need to increase momentum. and velocity, and part of that is inspiring each other. But all in all, I have to say I'm very pleased with where we are. We haven't lost focus on commercial, on customer, on cost and so forth, but I have to say there's a lot more to do. So the mushroom battles we have outlined is really meant for the next 24 months. And as I said, as part of that mushroom battle one, we are now addressing our discretionary spend and we are just going through line by line. And that's important because we only want to spend money where it adds value, either for our customers, patients or investors.

Thank you for that, Jennifer. And just to clarify, so when you upgrade, I don't know, a Versa from, you know, to Evo, what's the impact on the order backlog? Do you recognize the whole order, the price uplift? How does that work?

Yeah, then we, once we upgrade, we recognize it in the order backlog, and when we install it, we recognize it in revenue. And obviously, it's quite good margins. Yeah, yeah.

Yeah, but from an order perspective?

Yeah, so when we then commit to the order, then there is an order backlog increase. But the way you should think about it, you will not see it in the total. Yeah, you will see it, but it's not going to be that significant in the total order backlog number.

And it's the upgrade value. It's not like we double counted here, Veronica, if that's your question.

Okay, perfect. That's just what I was trying to get at. Okay. Thank you guys so much. Yes. Appreciate it. Thank you.

Thanks, Veronica. The next question will come from Christopher Lilleberg at Carnegie. Good morning, Christopher. Good morning, Christopher.

Good morning. Three questions. The first one is you said that you're looking at other costs there besides the restructuring program. So should we interpret that as you expect or that you see potential for more savings than the 500 million in the next fiscal year?

Hi, Gustav. You should interpret what we have said is we are committed to run rate of more than 500 million sec. And now we'll just, we are running through the machine and then let's see where we get to.

Okay. And I understand you don't want to be specific, but just to clarify, do you expect China and USA sales growth to be positive now in the fourth quarter, given what's happening with better order momentum?

I think the only thing I'll say on China is we have guided towards second half growth, right? Double digit growth, probably around 10%. On US, I will put that under the overall group umbrella and say we guide at a positive organic growth for the year. I know we are vague. I hope we can be more precise, but I'll stick to the guidance here now.

Okay. But when you said 10% in China, is that for orders or sales? Both. Both. Okay. That makes sense. And then my final question, I noticed you said here that you – would like cash EBIT to be in line with reported EBIT, i.e. a much less positive effect from capitalized R&D. In a such a scenario, would you say that this midterm EBIT margin target of 14% is still valid, i.e. that the cash EBIT improvement would be even bigger?

Let's get back to our capital markets. But if I just address in isolation, and I think many of you on this call will agree, if we look a couple of years ago, difference between reported and cash-based was 4%. Last year it was 3%. This year it's 1.3%. And it's complex. And I personally like to keep things simple. So within Electa, we look at gross and despent. And why not then take the next step in the simplification and match capitalization with amortization? How that will be executed, we are evaluating. But I do think I said that we are committed to improving the quality of earnings, and I think this is an important part of it.

Great. Thanks, Kristoffer. Okay. Thank you, Kristoffer. Thank you. So next question will go to Steven Gustafsson at ABG. Morning, Stan.

Morning. Two questions, and the first one is a follow-up. Did I hear you correctly when you said that you expect to see a substantial part of the cost-saving program to materialize in Q4. I think previously you talked about it to come in Q1 next fiscal year. But do you expect to see it already now in Q4?

Not full amount, but substantial, so you heard correctly. Hi, Steve.

Hi. That's very positive to hear. My second question is related to China. Obviously, you book orders there now for EU, but Have you also started to book sales or when will you start installations of EVO in China?

So it goes into what I outlined here that we expect in second half both from orders and revenue growth of around 10%. Specifically on EVO in China, yes, we got approval. We also see it's a relatively smaller part of the overall portfolio from a commercial point of view. We sell Harmony Pro also with adaptive treatment possibility.

Okay. I mean, but you are allowed to make installations of Evo in China now? Yeah. That's right. Perfect. That's all from me. Thank you very much. Thank you.

Thanks, Dan. And I would like to welcome in David Eddington and JP Morgan into the call to ask questions. Good morning, David. Morning, David.

Morning, guys. Thanks for the question. Just on the US, please. So, firstly, I assume you saw some pent-up demand on orders with the approval of the EVO. I just wanted to sort of quantify how much of that was the pent-up demand and how you're expecting orders to develop in the US in the coming quarter. And then secondly, I just wondered if you've seen any customer reaction to the Varia announcement that they're launching a new platform in the late summer.

So if I take Varian first, hi David. I don't comment on competitors' product. We are very well aware both from an IP point of view and in the market performance. I think it's actually fundamentally good because it's more adaptive and we are just very early on in the S-curve of making adaptive radiation therapy treatment the main product. So I think for more options to a customer will expand that piece of the market. And then we look at our own innovation roadmap and feel actually good about our relative strength today, tomorrow, and in two years. Specifically on US, I mean, obviously, it's helpful to have your best product available for commercialization. As I said, part of that pent-up demand was taking in the quarters up to, so we also had a good Q3, and some of the orders we had prior to FDA approval because we included a provision in the contract that it would be upgraded once we got the approval. And now we have the work ahead of us in building the funnel, building the reference sites, and really get into the track of what we have seen in Europe. I would say, so I don't want to give specific guidance. I don't think that's appropriate for Q4. I would say that overall, We are not getting our fair market share in U.S. That's why we have it as a must-win battle. We now have the product portfolio, I would say, to compete. We have set the organization. We know what we need to do. Now we just need to do it and demonstrate it in actions, actually.

Thanks, David.

Let me just quickly follow up. Go ahead.

Yes, absolutely.

Just wondering, with the announcement that they are launching in September, has that seen any customers who were potentially looking at eBay just sort of pause and wait to see what's coming in September?

It's not the feedback I'm getting. I mean, I look at our funnel and how it develops, and that part looks okay. Thank you.

Thanks, David. Next question will go to Richard Felton at Goldman Sachs. Good morning, Richard. Morning, Richard.

Morning, guys. Thanks for the questions. T3, please. The first one is on one of the must-win battles, winning in the U.S. So, obviously, having EVO in the market is an important part of that. But can you talk about what you are potentially doing differently from a commercial execution perspective in that market going forward? And then the second question, just coming back to China, you alluded to a little bit of market share losses, but there's still a market share in the high 30s in that market. Could you just clarify, are those comments based on the installed base overall or share of new placements? Thank you.

China share of new placements. Basically, we look at how many Linux been purchased and it's very transparent, the China market and then what has been our share. On US, yeah, I can share a bit. I mean, it, of course, always starts with a suitable product, but then commercial execution matters a lot. And that's going back into our decentralized model. So, we are pushing P&L responsibility to our five regions. We report here three, but we have five reporting directly to me. We have de-layered the organization. We are centralizing part of the pricing, strategic pricing framework, but otherwise we are out there. Then we have spent a lot of time mapping our existing install base, what our retention strategy. We look at aging profile. We look at flips. We look at greenfields. We are mapping out the market. We really, and I have to say, I'm pushing a lot on let's build the funnel, because funnel should be predictor for order intake, which should be a predictor for revenue generation. I'm not saying we are there yet, but we are doing quite some swings, I would say, in structured commercial execution, but that goes for all regions.

Thank you very much.

And then maybe I'll just say, and then at the same time, and very, very importantly, we recognize we are on a burning platform and we are deeply frustrated about where we are in the U.S., not least because I think it's good for our customers and our patients or their patients to have a strong competitive alternative. We think we have that now. They are part of our portfolio. We want to do even better, and that's what we are addressing in focused innovation, and we need to address it fast.

Great. Thanks, Richard, for those questions. We move to SP1 markets with Johan Unerus as the next question. Morning, Johan.

Excellent. Good morning.

My... We lost you there, Johan, or maybe you... Hi. Can you hear us? Yeah, now we can hear you. Good.

Can you hear me? Yeah. Thank you for taking our questions. I think we were double commanded there. Yeah. Follow up on the funnel in the U.S. Evo is, of course, extremely important in the U.S., and clearly very important bit of that must-win battle. What about the funnel so far? Can you see any new Elekta, any orders coming from centers and accounts which are new to Elekta or is this Elekta users already?

Yeah, so if we look at it, funnel is important. Let's not forget funnel on service and our GPS, OIS software is extremely important. We have Brachyneuro also important. But if we get to LINAC, I mean, quite pleasing. We have done some flips, you know, taken from competitors. I think that's very important. When they flip us, we flip them. And then it's less a greenfield market, actually, because it's so mature. If we look at the funnel, I would say I think we are on track in building it. I still, before I commit to saying that we are at the same track as Europe, I want to see that converted and in execution. But as I say, we just got the approval, so I think it's also okay. But so far, so good. So far, so good.

Yes, and to follow up to that, it's obviously very important to have the centers and reference sites. You referred to that earlier. How long will it take to get that in place? Three to six months?

It will happen very quickly. It will happen very quickly. Some of them here in Q4 also.

Good. And what about the sense of time from order to order? installation in the funnel, are most of them fairly imminent orders, so to speak?

I don't want to give the specifics here in terms of maturity from funnel to orders. And then the way you should think about it is from order to revenue, it's typically 12 months. But with significant variations from order to order. But it's, of course, important because if you look at U.S., we have a very favorable working capital. I mean, people pay up front and so forth. So I think it's not only from a revenue and EBIT, it's also from a cash perspective favorable that we get our fair market share.

Is it fair to say that that dynamic is in line with what to be expected in the Linux hardware market in general, or could it be faster?

I think if it relates to Evo, we are on expectations, but I still would say we need a bit more time. We got approval in mid-January. We have received quite a few orders. You saw order intake Q3 linked to EVO, so that's good. I look at year-to-date and I can see a substantial, substantial increase in US-based, not America-based, but US-based orders. I like that. Let's see how we sustain it over the next couple of quarters and our ability to then convert funnel into actual wins. That's what I'm looking at.

Thanks, Johan. Excellent. Thanks, Johan. We will now move to the last question for this session, and that will be Ludvig Lundgren at Nordea. So good morning, Ludvig.

Good morning, Ludvig.

Yes, morning. Thank you for taking my questions. So a bit of a follow-up to the EVO and the U.S. So I think in Europe you actually initially saw sales being driven by IRIS upgrades for like previous Versa installations. And as these have shorter lead times than new installations, I just wonder if you will expect to see a similar pattern in the U.S., and then also if you can remind us of the margins of these type of installations.

Yeah, so the margins, I think, let me put it this way, 80% plus. So they're obviously attractive. And we are looking at upgrading. It will be less than in Europe from that point of view. But we will do Iris upgrades here in Q4. But we also did that last year. So when you look at the comp, we look at a Q4 that is a tougher comparable quarter last year, but we still stand by, of course, the guidance we have given in terms of organic growth for the year.

Okay, understood. And then my final one, just on, if you have any updates on the Section 232 investigation, and also if you can comment on this recent US tariff changes and how you expect that to affect?

We are evaluating it. We actually report here this quarter a bit higher tariff impact, but it's also linked to selling more in US. So in a way it's a positive problem, but we are still evaluating and understanding. So I think we need a bit more time with everything that's going on.

Thanks, Ludvig, for those two questions. Thank you. Before we close the call, any final remarks from your side, Jacob?

Solid quarter. We are busy. We execute a lot. We have to continue the momentum, bias to action, clear strategy. Then we look forward to Capital Market Day. So with your support, Clara, I hope, and endorsed by the board, we can outline a financial plan that management stands behind.

Thanks. Thank you very much.