Surgical Science Sweden AB (publ)

Good day and welcome to another Rapport Commentary. This time it's Surgical Science that has closed their books for the first quarter of 2022. And with me on the link to comment on the quarter, I have Gisli Hennemark, VD. Welcome! Thank you so much, Mike. It's great to be here. It's great to have you back. We'll start with the figures first. The net turnover reached 159 million, a fairly substantial increase compared to the previous year's first quarter of 37 million kronor. The turnover result reached 20 million kronor, an increase also from the previous year's first quarter. What do you think of these figures?

Well, it's a good start to 2022. And then, of course, in terms of bookkeeping, it will be a very big increase. But if you look at comparable units, as if we had owned the companies we acquired during the whole period of 2021, then it is still an increase of over 30 percent in turnover. And then it is mainly educational products where we sell product to the university hospital under our own brand, which has gone very strong in the quarter, made 60% of the turnover. For some reason, there is a currency effect there. We have definitely been helped by the weaker crown. It is about half of that growth if you look at so-called currency-adjusted growth. But we're happy with it. We're happy with the start.

Educational Products has grown. What's behind that growth?

Well, there is an established need after Covid, where some customers have not invested as they should. It is also partly a change in behavior. As a result of the pandemic, and it is now in the queue in the operating rooms, you question how you have done before and realize then with customers that it is actually very good to move den tidiga delen av inlärningskurvan till simulering. Och sen är det generellt ett ökat fokus på patientsäkerhet. Så det är många faktorer som spelar in, plus att kunderna uppskattar vår breda produktportfölj efter de här sammanslagningarna. Det är en och samma cloudlösning, en fantastisk service- och supportorganisation runt om i hela världen. Så det är många faktorer som går väldigt bra på den marknaden.

While educational products grew during the quarter, industry OEMs were characterized by a lack of components. Many see light at the end of the tunnel regarding this situation.

Do you agree? Yes, I do. Then it is slightly different from customer to customer and so on. But we commented in the part of the report that we experience Lower license revenues, that is, when we import softwares from the medical technology company's own hardware, and which then goes out to end customers. These are the real high-marginal products from us, where we get paid for our software solution. And there we are dependent on the hardware of the medical technology company. So there are customers who are waiting for simulators, for example in robot surgery. And there it was problematic in Q4, but definitely in Q1. But we have good indications that this is about to fix itself, so we see that there is an established need that will be able to be delivered in the coming quarter. And then we started to specialise our different income streams. And then you can see that other parts of the industrial programme are doing very well. For example, our development revenues, that is, when we adapt our softwares and embed them. on the hardware of the pharmaceutical company, we get revenue for that effort, so to speak, in the form of consulting revenue, and they were strong in the quarter. So actually, all parts of the business are doing well, except for the fact that there is a certain skew of some licensing revenue.

Exactly, and you highlight in the CEO that there has been a high pressure on development work. Can you give some examples?

Yes, maybe not some specific examples, but we have a high pressure in a number of different areas where customers see the value of simulation and in the technology that we can add to their products. And that always means a certain amount of work when you are, for example, to connect our softwares with the customer's hardware. For example, in robotic surgery, you must have an API connection between their hardware and our software. So there are big needs there, and we have big projects going on. And even in other areas at Industry OEM, where we have cooperation with pharmaceutical technology companies, there is a good demand. You see the value of simulation.

Unpredictable to miss during this quarter was the terrible war that broke out in Ukraine. This is something that you also raised in the report and you mention in your words that you have received a lot of questions about your sales in Russia.

Could you tell us? Yes, there are quite a few who have asked us, especially since we in Q4 of the report raised that Russia was a market that went very strong. And then it is so within Educational Products where we sell with local partners on about 60 markets around the world, that it can affect a lot from quarter to quarter and year to year where the major transactions exist. It has to do with quite long cycles in the sales process and when there is financing and so on. In this quarter, as the educational products went very strong, we realized that Asia was very good with China and India, but also the UK. So it is not strange that from quarter to quarter or year to year, there are different markets that are more or less strong. In Russia, we have been in more than 15 years with local parties that we have very close cooperation with. Men det är klart, i den här situationen så blir det ju väldigt svårt att bedriva verksamhet i Ryssland. Sen har vi då en del indirekt försäljning via våra medicintekniksamarbeten, i och med att sjukvårdsprodukter är undantagna från olika embargon. Så det finns fortfarande en del rysslandsrelaterade intäkter, men det är ingenting som vi har for a reason to especially comment, but this is normal that it varies from quarter to quarter where the revenues come from within Educational Products.

During 2021, you acquired Symbionics. Is that integration ready now or is there anything left to do?

There are always things left to do, Mike, but we have come a long way and we have a joint organization. We managed to get out IT systems and other things from our counterpart, 3D Systems, which we acquired from that company. But above all, I think it's a very good energy in the company and it works very well with all new colleagues in Tel Aviv. So we feel a good presence from the integration. It is also reflected in the figures that despite a lot of work to get all these things in place, we have continued to have a very good sales growth.

Cool. I'm going to end with a general question. We are in May and we are moving into June and then half of 2022 has passed. What are your expectations for the second half?

Well, I hope and believe that our good momentum will continue, that we will be able to have new collaborations within Industry OEM, that the robot companies continue to come with their good news and their positive indications. We saw Medtronic get European approval in the fall for its robot Hugo. It's a huge company when they start to roll out their products and that creates license revenues with us, but also a number of other Robot 20 customers. We have about ten such companies that license our technology, each a few as long as they have come out with their products. So I hope that from 2022. And then, it's a turbulent world we live in, but You can't do much more than adapt. We try to take care of the opportunities that arise. We have a continuous acquisition agenda. It has been a successful and important strategy for us. It will be an important part of our strategy in the future. In turbulent times, opportunities also arise. If you are a growing company, have good profitability and a very strong cash flow, then it will be good to actually be able to act when opportunities arise.

It will be fun to follow up on that development. Gizli, that was all my questions, but I have to thank you so much for your time and wish both you and Celtical Science good luck.

Great, thank you so much Mike, have a good one.