RaySearch Laboratories AB (publ)

Welcome to Research Presentation of the First Quarter 2022. My name is Karolina Stavlis, and I'm Head of Investor Relations. As usual, our CEO and founder, Johan Löf, and our CFO, Nina Grönberg, will walk you through the key highlights and financial results of the quarter. After the presentation, we will open the floor for questions. Simply raise your hand in teams to ask a question live. And with that short introduction, I will now hand over to you, Johan.

Thank you, Carolina, and welcome again, everyone. I apologize for my voice. I have a cold, as you can tell. Before we dive into the results and highlights, let me start with a quick overview of Razor's business. So Razor is a software company, and we focus on, and recommend. What we see here is a schematic view of a comprehensive cancer center. Although research has been focused on radiation therapy for the first 25 years, we are now about to expand into the other areas of cancer therapy, into chemotherapy, surgery, and liver ablation, for example. So everything that goes on in a comprehensive cancer I think it's important to look at the long-term performance on research. This diagram shows the revenue all the way back from 2008. And you can see here that there's been a steady growth every year. growing year over year. I would also like to show another view of the same thing, basically, where we also look for every year at the revenues for the individual quarters. And as you can see, for many of these years, there are fluctuations between quarters. We can look at 2017 for examples. It fluctuates, but nevertheless, there is a growth for the full 12 months. Another example can be 2022. You see fluctuations. Some of the weak issue too, but when you take all the quarters together, again, growth. 2024, the same thing. And 2025 even has a similar situation. So this is nothing unusual for research. There are, of course, underlying revenues from the support, but 40 plus percent. And many smaller orders are the foundation for the revenue for every quarter. But whether the quarter is really good or bad depends on a few big deals. It can be two, three, four different deals. that determine whether the quarter is late or not. And they can fall, you know, within a quarter or they shift to the next quarter or the quarter after that. But this shows a very long track record for many, many years that even though there are fluctuations between quarters, the growth over the 12-month period happens anyway. So I just want to highlight that, even though we have a softer quarter this quarter. All right, so Q2 in brief. Profitability remained robust despite the software net sales in the first quarter. Net sales declined by 20% to 290 million Swedish crowns. It was mainly due to a stronger Swedish crown and a tough comparison in the last year, which included a large order of carbon ions from China. So the organic growth was a negative 5%. But as I mentioned, there were a number of these that we thought would come in into this quarter, but they didn't simply. It's a timing effect, and then we come in in Q2 or Q3 at the latest. I have one example of a It was ordered then that the purchase order was signed, but it was stuck in the Chinese customs, and that's something that's very unfortunate and not something we can control. So that order is already in now as an example. The recurring support revenue continued to provide stability, amounting to $133 million, or 42% of total revenue. Operating profit reached 68 million Swedish crowns corresponding to an operating margin of 23 percent in line with last year. Some business highlights. The demand remained steady during the first quarter with high customer activity across our markets. We secured several strategically important deals, including three new order in key markets. We received our first RayCare order in China, together with an order for RayStation for a proton therapy facility at the Shanghai Proton and Heavy Iron Center. The solution is to support an upright proton therapy system, which is a cost-effective pathway for clinics to introduce proton therapy. The order is an important milestone for us in this large and growing market. In France, Institute Hartmann chose to replace its existing treatment planning and oncology information systems, Eclipse and ARIA, which are from Marion, with RayStation and RayCare, enabling a unified workflow across a mixed treatment machine environment. And this was our first RayCare order in France. In Germany, several clinics selected RayStation to replace Pinnacle, And we continue to see business opportunities ahead of that system's planned end of life in 2027. We're also proud that the first patients were treated in the railway station in Ukraine during the quarter. That's an important step in modernizing radiotherapy under very challenging circumstances in this country. I will now hand over to Ina. to go through the financial development and be more speed-heavy.

Thank you, Johan. The quarter one sales numbers may give the picture that business is slowing down, but as you heard from Johan, that's not the case. Order intake dropped 13% compared to last year, It was affected by currency and in relation to a very strong comparison quarter with above 70% growth. The activity from our customers and in our sales team remains on a high level. The book-to-bill ratio was 1.2 and order backlog end of March amounted to $1,615,000,000. and 624 of those is expected to turn into net sales in the next 12 months. Moving forward to net sales and EBIT, net sales was down 12% in the first quarter. More than half of the downturn is related to a weaker Swedish krona in 2026. although quarter one last year was the quarter when the value of U.S. dollar, euro, and several currencies started to fall. The organic growth was minus 5%, again in relation to a strong first quarter 2025, and to raise such normal fluctuation. And as Johan mentioned, we had revenue that got slack in customs in China, and for other reasons, delayed into later quarters. License sales decreased with 24%, and support sales with 1% year on year. Taking away currency effects from support numbers, the growth would have been 8%. Despite the lower sales, EBIT was solid at 68 million, and the margin amounted to 23%, which is the same level as last year. We have approximately 20% of our costs in US dollar, and together with good cost control and slightly higher R&D capitalization rate, operating costs were stable. In the 2026 quarter one, currency gains from revaluation of working capital gave us a positive 10 million SEC effect. The rolling 12 development graph over net sales and EBIT, as you see in this picture, is tipping down a bit in the 2026 first quarter. As you can see, it also did in quarter two last year. Just to turn upwards again in the next quarter and then continue its pathway upwards. The rolling 12 EBIT margin amounts to 22%. Moving on to the next slide and the revenue split, as Johan said, the support revenue was 42% of total revenue. That is a slightly bigger part than we usually have, and that is related to the lower license sales in the quarter. The lack of growth in support revenue was, as mentioned, mainly due to currency. And we also had some periodization effects from a couple of contracts that gave us a lower number in the first quarter. And I want to highlight here that those periodization effects, it doesn't mean that we lose any revenue. It just means that revenue is sometimes moved between the quarters. The next slide and the cash flow, the underlying performance in cash flow was good in the first quarter, and we had about 30 million inflow from contract assets. However, this positive effect was offset by an active choice to pre-purchase inventory, something we did in order to mitigate effects from price increases in hardware. It is service and computer that we normally buy upon order and transfer almost instantly to the customer. Cash balance end of the quarter amounted to 439 million, and cash flow remains an important focus area also going forward. And with this, I'll hand over to you. Adaptive.

Yes, so online adaptive is a very hot topic in radiotherapy right now. Online adaptive in general allows you to modify the treatment when the patient is on the treatment couch, and you take an image of the patient in treatment position, check the changes in anatomy, and then you change the plan to adapt for those changes. So a very strong feature here is that we have, with a combination of rake, deliver online adaptive on this machine. So I'm going to show you, in a very simplified manner here, the workflow surrounding such an online adaptive treatment. So we have a patient here, as you see to the right. on the treatment couch, and there is a true beam. We also see the control room where an operator has screens for, for example, rain care and rain station. And if you zoom in on the rain care screen here, we look at the treatment course for this particular patient whose name is Thomas Fisher. We switch to the treatment calendar. This particular clinic has three different machines, a proton machine, which is one, a radix act from AccuRay, and two different true beams from Varian. And you see the various time slots here for the different machines. We zoom in on Thomas Fischer. He's on an online adaptive protocol. So the first thing we do is to – of the patient in the treatment position. And via the existing interface between RayCare and TrueBeam called VTI, we can transfer that image and the registration back to the RayCare. Then the operator opens the adaptive free planning module in RayStation and start that adaptive workflow. The first step is to correct that image that we received from the machine because it's not of the same quality as a diagnostic CT image. You see to the right is the image that is transferred from the machine, generated by the machine. To the left you see a corrected common CT image. We have used the diagnostic CT to extend the image outside of the field of view of the combined CT imaging system. And we have also refined it using information from that diagnostic CT image. You see that the left image is sharper than the right image. So that's the first step. The second step is to use AI, or in this case, deep learning algorithm for segmentation of the structures. So that's done very rapidly. in a few seconds that completed. After that, the dose is calculated on today's image, or today's patient anatomy. And that's what you see to the left. So to the right, you see the dose distribution. That was the planned dose distribution. Let's say the dose distribution that the doctor signed on. The tumor here is the white contour that you see. That's the clinical target volume that we want to evaluate. And there's a perfect match here between the high-dose region, which is red, and the shape of the tumor. And then the dose distribution drops off very quickly towards the healthy tissue surrounding. But if you look at the right or the left image, There has been some shifts in the geometry. So if we apply the same beams on today's patient geometry, you see it doesn't really hit the tumor. There is an under dosage in some part of the tumor up here, the top left part of the tumor. And there is an over dosage outside of the tumor in the lower right part. It should look like the dashed curve here for the tumor, but it is actually like the solid line, which signifies an under dosage of the tumor. And the under dose volume histograms illustrate over dosage of rectum and bladder. We can also look at the clinical goals here. the radiation qualities have improved and all the green lights for all the . But now this treatment would have some red lights here. So we're not happy with that. So the next step is then to recompute the geometry of today. And you can see on the left how the dose distribution is now shaped new geometry and it will now in a few seconds here wrap around the and then conform very well to that new geometry yes now it's done so what we can see here are a couple of things now the dose distribution the high dose region is perfectly matching the tumor shape again and we get good protection of the rectum down here and also the bladder on top for the tumor are overlapping, so we have the same tumor coverage again as we had for the originally approved plan, and it's all green lights. Okay, so now we're done with the adaptation. I talked a lot now here. In reality, from when we get the first images that you saw in the beginning, very important iterator. The procedure that I talked about after that, creating a synthetic CT, applying deep learning segmentation to get the structures, and then compute an adaptive plan, that whole procedure takes about 45 seconds. So it's much more rapid. I had to stop and explain what was going on. But in a realistic setting, this can be done in under a minute. because the patient is on the couch, we want this to be quick so that we can treat the patient as soon as possible. So the next step here is that we assign, we say we're going to assign this adaptive plan, and Reica will transfer that adaptive plan via the VDI interface to the machine, and the machine will now deliver this adaptive plan. So it makes two rotations around the patient, one like that, and then the second heart is coming here. So that is how effective online adaptive can be on a true beam. We expect the first re-treatment to be done in this exact way in a couple of weeks in So to summarize, the first quarter was softer in terms of net sales, as I've seen, while profitability remained robust. Demand for integrated and automated workflows in cancer care remained strong. and are supported by solid sales pipeline. There is a growing interest in online adaptive solutions, and as I said, we expect the first online adaptive treatments with a combination of RayStation, RayCare, and TrueBeam to happen within the next couple of weeks. I'm also confident that we'll reach our operating margin target of at least 25% for the full year 2026. And around the line of long-term financial commitment, the board has decided on a new operating margin target, which is at least 30% for full year 2028. With innovative software, strong customer relationships, a global footprint, and a growing base of recurring revenues, RaySource is well positioned for continued growth. And we are now open for questions, and I would hand the word over to Karolina.

Yes, we will start the Q&A with live questions. Please raise your hand and please, if you would like to ask a question. The first question comes from Christoffer E. Gebeit at the MBA Committee.

So, yeah, thank you. Good morning. follow up on what you said Harry about online adaptive so when do you expect to have the FDA approval for Raycare online adapted with the true beam available we expect to have that in the fall around October timeframe this year okay and if that delayed from before or

Yeah, perhaps. It's a complex FTA situation with several different versions of both race station and race care that are sort of in the pipeline at the same time. So there are dependencies between these versions, and that's where we are now. But it will still be clear to U.S. customers when the first treatments with online adaptive aware of that. And these are improvements within existing modules. There are three modules in RayStation that support that you need to do this adaptive, the thing that I showed in the presentation. And you can purchase those already now, and then when the version if they approved, people or everyone will have those modules and there are no support contracts, they will be upgraded to that version and that they will have that capability right away.

And do you see that that use customers are, you know, happy to, you know, start acquiring Raycare before the approval for this purpose?

Yeah, I think they can. Some customers already have this capability with RayCare via RayStation. So they will have access to it when they can start to use it clinically once approved.

Okay. So how do you view RayCare orders picking up here throughout the year? Would you expect some improved momentum outside the U.S. once you have done the first treatments and then

We already see better momentum than last year. So we had, I think we had four regular orders full year 2025. And we have three orders already to Q1 2026. And so we will start to ramp up now. finally that starting to show some good momentum.

And I agree with you. I think the concept of online adaptive and what you could do here with Raycare, of course, lowers the entry barriers. Do you see potential for this online adaptive concept to accelerate the research growth in the coming years?

I really think it has that potential because it is a very obvious thing that you want to do. Everyone, I mean, it was very clear when I showed to you here what the benefit is. And we are extremely well positioned in this field. Historically, we've been very strong and adaptive to begin with 25 years ago so so yes I think this can have overall a very positive impact on research and in combination also with all the new vendors that are coming into play with Hitachi's Oxray and Leo Kansaki's Grace and all these new machines and they all want to do together with us.

And then one question on the R&D capitalization that's higher this quarter versus previously, both in absolute terms but also in as a central sales, I think it was like six percent of sales G1 and it has been more like one to three percent in recent quarters. So how should we think about this coming quarters for the full year and What type of impact will capitalization have on the 25% modern target for this year?

Thank you. Yeah, to answer your first question when you put it in relation to sales, you must also take into consideration that sales was a bit lower this month. That, of course, hires the rate. But besides that, I mean, we had more hours that was spent on the projects that we capitalized in quarter one. I don't see any special pattern in that. It can vary between the quarters. But, of course, I mean, we have increased the number of employees that work within R&D. So that means that we have higher expenses and with that a higher amount of capitalizations. But I think that in general, I would say that we will keep the same. Approximately, we capitalize 70% of the expenses. And I think that we will keep that rate also going forward with some fluctuations between the quarters.

So for the portfolio, do you think it's fair to assume a similar around 1% of sales as we have seen in the last three years, actually?

Do you mean expenses or capitalization?

I think it's hard to... What I'm interested in is the net effect of capitalization. that has been around one percent of sales recent years now it was six percent this quarter i know there's a seasonal effect was higher in q1 also last year but i i just wondering because if you look at the full year target if you start capitalizing more it's of course super easy for you to reach the 25 percent margin you have to make sure that's not what's happening here thanks

No, we will not reach the margin due to capitalization. And as I said, I think we will continue to capitalize about 70% of the expenses, and the expenses will increase as we add employees into the R&D function, and as we had.

Okay, thank you.

Is that enough?

The differentiation, of course.

Yeah, yeah, I mean, yeah, since we do capitalize more because we have increased the R&D function, that will, of course, mean that the depreciations in the next coming year will increase as well.

Yeah, okay. Thank you.

Thank you, Peter. Our next question comes from Oskar Bergman at Red Eye. Oskar, thanks so much.

Okay, thank you. The question I have first off is a bit speculative, so I suspect maybe you won't be able to answer, but I have to ask. The updated financial targets of at least 30% a bit more than by 2028, that's I think in line with analyst consensus and at least confirming my own, but I'm wondering what would be needed for you to go beyond 30%? Um... Well, it's just more sales. And would that be Raycare sales specifically, or could it be done with just Raystation?

It would be Raystation, Raycare, and Raycommand.

Okay, thank you. And then you mentioned some other order delays in Q1. I was wondering if you can give some background to the reason for this, or if we should just consider it You know, business as usual.

Yeah, it's business as usual in the sense that the customs situation in China was one very specific thing. In the other cases, it's just that maybe the signing procedure wasn't completed on the things like that. So this is... I think we had an unusual... What happens here?

A number of... Something happened here with the... A presentation.

So sometimes we are unlikely on several of these orders... sort of, we missed the end of the quarter. So it's not the first time this happens, but we are very vulnerable. It looks much worse than it actually is. If you look historically, it has happened many, many times, but then you zoom out 12 months, and then it's extremely robust in terms of growth.

Yeah, I agree. And I'm not sure if you mentioned an pinnacle conversion in the report or the conference call. Maybe you did, maybe I assumed that. But I was wondering if you can define maybe the percentage of sales that came from converting clinics and if we should expect that the conversion window could be closed sometime during Q3 or very early in Q4 at the latest.

The pinnacle, it was 22%, right, in Q1.

Yeah, of licensees.

Of licensees. All the software licensees, it was 22%. And I think it will continue throughout the whole year, the pinnacle replacements, because the amenity is still ongoing. We've been very successful in Germany. these left out there are still in the U.S. So I think it will continue all the way into the end of the year, actually.

Interesting. I just have two more quick questions, if that's okay. I think in the Q3 report, you initiated the six-month trial peer campaign with the certain customers, and you opened up the additional modalities. So Just any sort of status updates on this would be appreciated.

Yeah, we only have the two pilot regions still, which is Benelux and UK. It has been very well received in both regions. I think in Benelux they are more active on this, and they spend the time, too, because it takes time. for them to evaluate as well. In the UK, they're happy about the offer, but they have less time for everyday work to spend time on this. Of course, they should because it's a good investment on their side. We have seen and learned also that it takes some effort from our side to train on these new functionalities that we open up so that they can get a good experience when they try it. We have to train them in using these functionalities. So I think it was a good approach, actually, to do it in a limited fashion to start with so that we learn. It was more complex than we had anticipated, but so far so good, I would say.

Okay, so we'll now go back to sort of the sketching table, do some tweaks, or will you expand the campaign?

What happened? Yeah, basically so.

I would say yes. Okay, I think someone else is on the line. Okay, just a final question here. You have a very strong market chart in photon therapy, and I'm just curious about what the other players are doing here to increase their market chart, or Are they maybe not focusing on this area for some reason?

Yeah, I think the others are simply not very focused on this. We don't see much competition in this area. is one, I know it's only electa variant that are involved here. Variant left proton therapy in a sense when they, well, when they cancel their machine production, the protein. I think they may and then sort of the eclipse support of protons also I think they are maybe returning. I'm not sure. I think Electa won a proton order somewhere for treatment planning recently. But we still have almost 100%, I would say, of the new sales for the treatment planning from research. Yes, it's still a great area for us, a great segment for us to be active in, and we focus really hard on that, and we work with all the different photo vendors, and there are many that we support. There's a lot of activity in this field all over the world, but mainly in Asia. China, they have a plan to build 100 article samples, a combination of Well, I think 70% protons only and 30% including carbon ions. So they have a very high ambition. And Korea, Japan, these countries, Taiwan, they are building particle centers, a lot of particle centers, which is very good for us.

Thank you very much. Thank you. Thank you.

Next, we have Mattias Valspeen from FDB.

Mattias, please go ahead.

Hello. Can you hear me?

Yes.

Great. So I have a question on France order that you talked about. So if you could elaborate a little bit on the key reason for them to replace the Varian software suite. And also, I wonder if they're So Hartmann's Halcyon system will be affected by this change of software? And also, when do you expect integration with Halcyon with Raycar to be possible, sort of seamless integration?

Yes. Okay, so this is, let's say, a medium-sized center. They have, I believe, two different cyberknives from Accurae. They have one true beam from Varian and three Halcyons from Varian. So six machines in total. The total order was, I believe, 35 million Swedish crowns. There would be a phased approach with, and we only recognized, I think, 11 million of that in the Q1. And then we recognize as, yeah, that the rest is coming later. So they have a good line with CyberKnife, RayCare combined with CyberKnife and TrueBeam beginning of next year. And then the three Halcyons beginning of 2028. The interoperability work, or the interoperability project between RayCare and Halcyon is ongoing with Variant. as we're working together on that. There is no definite timeline yet. So I would prefer not to communicate that now, but for sure before they need to start beginning of 2028. And, yeah, so why did they choose? Why did they switch? I think there were several reasons. They're very happy with the level of automation in both the make and realization, the scripting and other means, and the streamlined workflows. And especially since they have non-variable machines as well, the two-sided ice, I think that helps. So... Yeah, I think they believe in the power of this bundle research and Raycare and also the vision going forward for this software. It's a very important order for us. We're very happy that we got it.

Okay. But I'd say they will never switch if it wasn't for the latest news flow around Raycare. Should be.

No, I think that was, this is a direct consequence of the interoperability between, that's an important factor, of course, that's an enabler. That's a requirement, but that would not in itself be enough for them to switch, but it really opens up the door when we have the interoperability in place for and then we also have a plan for how soon.

Good. And then my next question is regarding growth. So it's been a lot of discussion around Q1, but just sort of what makes you confident to go back to solid growth rates already in Q2 here?

I think I've tried to... as it happened over and over again, that you cannot, I mean, you fool yourself if you look at a single quarter for research. A few days that determine the sort of the quality of the quarter, and they can end up on either side of the quarter. And so, That's what it is. And we have such a good track record, if you believe history at all. Look at what has happened since all the way, even further back. The reason why we picked 2008 was that we got the first revenues from Ray Station in 2009. We couldn't even further back. And we still have this very steady growth and fluctuations in quarters. So that's, with the current, you know, license model, that's what we have to live with. And either people understand that or they don't understand that. I don't think it's so difficult to understand, but it seems to be very difficult. And if I had a subscription model, then this would be much smoother. But we don't, because our customers don't want that right now. And most of them don't want that. So we adapt. And either you look at research on a 12-month or a 24-month window, then everything is fine. Or you focus on the quarter, and then you have to be nervous all the time.

Thanks. Last one from me would be, do you have any worry that growth will fade off in 2027, specifically due to the vacuum traces from Pinnacle contributions fading off for you?

Absolutely not.

Okay, thank you very much.

Thank you. Thank you, Matilda.

We will now take a question from Magnus Bernek. Magnus Bernek.

Yes, hello, Johan. My question was partly answered, but... I would like to know about the EBIT margin expected to reach 30% by 2028. If you could give me the details for how such a margin improvement will be achieved, and could I assume that the margin improvement will be gradual, or will it mirror the ramp-up of ratio?

No, I cannot say anything else that we will have at least 30% EBIT margin in 2028, full year 2028. It will not, and it will be gradual increase of margin, but I don't see how I can give you more details on exactly how that will be achieved.

Okay. Secondly, I would also like to ask, because you have this change in the board since Gitum ordered like a trial, and I just wonder if he will not be convicted, will he be welcome back to the board?

That's a good question. I haven't thought about that at this stage. But I think it's, as I said before, it's very unfortunate what has happened. I really like Gunther Morder as a person, so of course this is awful. He is not convicted yet. We have to keep that in mind. So I think that's all I have to say regarding that at the moment.

Okay, that was all my questions. Thank you very much. Thank you.

Thank you. We have two written questions also. The first one is, what is the status of the Ortega order? When will the rail care delivery take place, and in which quarter will it be invoiced? Yeah, so in quarter one, we delivered rail station to two Ortega sites, And Raycare delivers to those two sites is planned for quarter three and quarter four. Yeah. And the next question is.

We can add to that. So those are the first two sites.

Yeah.

And then the remaining seven will be delivered during 2027 and 2028 is the current plan. Yes.

During which quarter will the order from the Shanghai portal and heavy iron center speak in Shanghai be invoiced? I don't have that information to you, Johan.

The revenue?

Yeah.

I think the revenue for RayStation happened in Q1, and the revenue for RayCare hasn't happened yet.

Yeah, okay.

But it will happen later this year.

And that concludes the Q&A session. Thank you for joining us today. Should you have any follow-up questions, please don't hesitate to reach out to us. We look forward to connecting with you again on August 13th for our Q2 results. Have a great day. Thank you. Thank you. Thank you.