Surgical Science Sweden AB (publ)

Good morning, everyone. My name is Gisli Hennemark. I'm the CEO of Surgical Science. And I also have together with me Anna Ahlberg, the CFO. We will run through a few slides and provide some general comments. And then we will open up for questions and finish by no later than 12 o'clock. Educational products had a turnaround in the second quarter of this year. Minus 13% may not sound like a turnaround, but it is big time. After the slow start of the quarter, there was a clear shift in momentum. And this trend has really continued in the third quarter. Big tenders are back. And for those of you who were with us on our last call, you remember how important it is that we have this base of revenue from big tenders. And they're back, definitely back. Especially in Eastern Europe, a lot of EU money being channeled into large projects there. And we also see a bright spot in China, where we had a strong, solid quarter after a number of quarters with difficulties. It's Looking better, but it's a little bit too early to tell because China is hard to predict. And the big picture here, and it's always easier to understand it in the reverse mirror, is that 2023, inflation really took off. All the hospital budgets went bust, basically. And our customers stopped buying. And there was no Q4 effect. Get into 2024, new budgets. People are naturally very hesitant and cautious. But now inflation is down. Governments are spending money and daring to put their foot on the gas pedal again. And we're definitely seeing it in our sales. And we're seeing it in our pipeline. We have good visibility of the coming quarters in our pipeline. The full 2024, if we look at that, let's start by looking at what was the full 2023. It was 518 million Swedish crowns in educational products. And so far in 2024, after six months, we have 189 million Swedish crowns. So basically, we need to do 165 times two to reach 518 and then go above. This is doable given the pipeline and also one specific large tender that we've been working on for quite some time, but it is uncertain. And it also depends a lot on deliveries and when the orders close and when we're able to ship and so on. So this is a change from what we said in the last quarter, but it's still doable, but there is uncertainty. Moving on, industry OEM. at plus 15%. Here it's extremely gratifying to see that our strategy is working. And we have said that a number of times. But now it shows in the numbers. We actually triple the sales of simulators compared to the same period as last year. And simulators in this business area consists of specific, product-specific simulators to medical device companies and we see no change going forward in this strong demand. So our strategy of having global key account teams and the recruitments we made into that team and working with the largest med device customers to really serve them is working and it's very gratifying to see. And this is despite the fact industry OEM is growing, despite the fact that license revenue was down 9 million Swedish crowns quarter over quarter. And in this area, we see new entrants coming to market that are doing their regulatory approvals. They're perhaps doing adjustments to their robots, but also most importantly, They have been facing the same hospital market and same hospital budgets as we have. So the consumption of licenses has been slower than expected in the early 2024. And remember, these new entrants, they buy licenses from us in bundles, in packages. And then they use them and then they buy new packages. So this is a bit bumpy. When it comes to the market leader, Intuitive, they've had a fantastic launch of DaVinci 5. And they also said publicly that this is a controlled rollout of the DaVinci 5. So it's close customers. who are selected partners, many of them who have been working with Intuitive to do the regulatory approvals that are now the customers. And they are preparing for the larger general rollout in 2025. So in this controlled rollout, there is no simulation on the DaVinci 5. And this is natural because these are customers that are very familiar and have worked very closely with Intuitive on DaVinci 5. And when they are then moving into next year, they will do a number of hardware and software upgrades and simulation is one of them. And then DaVinci 5 robots from this year, as well as going forward, will be equipped with simulation. So overall, our picture is 67 million license revenue is down a bit, a bit of headwind from the new entrance and no revenue from DaVinci Five. But it's not lost revenue because that will be an opportunity when DaVinci Five is launched in 2025. And if we're looking at robotic surgery more more broadly the srs conference the the society of robotic surgery just took place now in in in june end of june and it's never been bigger more more players more participants great technology advancements that are being presented um massive success for da vinci 5 a lot of new entrants. They keep on coming new companies to markets, in particularly Asian ones. And we will also see a continued consolidation, which has just started in this market. We had a fantastic SRS. We also had our new ultra portable head mounted display extension, that's a long word, but basically we use the same simulation software that our partners have on their robotic console in a head mounted display so they can get more value out of the simulation and we can generate more license revenue. We have now the first order, first test order for this product and it will be delivered in Q3. We've also signed one new robotic customer, a European one, that will generate license revenue as well as development revenue. And with this 28th quarterly report for me as the CEO, it's now time to hand over the company in really good hands. Tom Englund, I'm looking at him right now. He's here in the studio videos with us, even though he's not mic'd up. We will have now a time to work side by side. I will lead the company up until October 1st, and then Tom takes over. So that feels really good. We are confident that we are in the very early phases of simulation, because if you look at the digitalization, how we can utilize our software on med device companies own platforms, robotic surgery is sort of just the first step there. And we are doing amazing work with our educational customers and in our educational products. And we have the really strong synergy between the two areas. So I feel very good and I'm very proud of what the team and I have accomplished in these last nine years. And I feel very happy to hand it over to Tom. And after our 2026 goals that we have a couple of years still to get to, Tom will shape and form and lead us into the future. And with that, I hand over to Anna.

Thank you very much, Gisli. Hi, everyone. So I will dig into the numbers a bit more, starting then with revenues. As Gisli talked about, we saw a rebound for educational products, especially towards the end of the quarter. Industry OEM continued to show very strong development with many interesting orders and prospects outside of robotics. And within robotics, we also signed a new customer, as Gisli mentioned, even though, of course, it does not show in in this quarter's numbers. In total, for the quarter, we had sales of 212 million SEK. In SEK, that was down 2%, and in local currencies, down 1%. Educational products then, down 13% versus Q2 last year, but up 39% versus Q1. And as mentioned, then Asia and especially China had a strong quarter and China is a very important market for us within educational products. So that's, of course, important, even if it is a bit early to say that this will continue and that there are no more effects from the anti-corruption campaign that has affected us for quite some time. Large tenders are back and we see several that should be closed during this year. Ended the quarter strong with a good order book. A larger order book going out of the quarter than coming into it. And Q3 has continued on that same note. Industry OEM was up 15%. License revenues then down, Gisli explained. the reasons for this. Stimulated sales continue to be very strong and so did development revenues. I will talk a bit more about them on the next slide. But in total then industry OEM was 40% of our total sales and educational products 52%. Looking then at our four different revenue streams that we report on and in the report you also have them divided by business area. License revenues, as mentioned, down 9 million SEK and constituting 32% of our total revenues. Emphasizing again that they are lumpy for new entrants since they purchased the licenses in packages or batches. And some that have bought these packages have used less than expected during the first half of the year. And that is then impacting, of course, new orders. But we see revenues from several customers now within this revenue stream. Simulator sales, we saw a rebound from the first quarter. Educational products increased 62%. An industry OEM continued, even though it was down a bit from Q1, continued the very strong development. We also said for that part that it is a bit more bumpy since these are projects that include both products and also development revenues. And development revenues higher and consisting then of both robotics projects as well as what I just mentioned, sales of simulators within the Indoo OEM area. Service revenues continue to be stable and growing over time with a larger installed base. Costs and margins for the quarter. We continue to have good cost control. Q2 was a quarter with high activity. And so OPEX costs were higher than in Q1. And also compared to Q2 last year, they were higher, reflecting both on the fact that we are a growing company. We have more employees. We see inflation on, for example, wages. And for this quarter, we also had some costs that were more of a one-off or rare nature, such as uh ceo recruitment costs sales costs were then 20 of our sales for the quarter admin 10 r d on on par and 23 of sales where we activated costs on our balance sheets of just below 10 million that was approximately the same as last quarter Our gross margin was the same as last year and it was better than Q1. The decreased share of license revenues had a negative effect on the gross margin while we had a good product mix and also the average sales price affected the margin positively. The operating result then ended at 33 million SEK or a margin of 16%. Looking at our organization, we were the same number of employees going out of Q2 as going out of Q1. And there was six more than Q2 of last year. And down to the right, you can see the split between our different sites. Adjusted EBIT, where we have our financial goal of 40% in 2026, and where we add back amortizations on acquisition-related items to our EBIT, was 19% for the quarter, up from 17% in Q1. And for the first six months, it was 18%, or 72 million SEK. Our finance net for the quarter was a positive of 4.4. That is primarily interest on our bank balances. That was 4.7. And then we have some revaluation items on internal loans and also IFRS 16 effect. Last year, so in the comparison numbers, we also had a revaluation effect on the contingency consideration for the MIMIC acquisition. I will talk a bit more about that under cash flow. The net result for the quarter was 29 million. And looking at the cash flow then, we had really tough numbers to compare against. Q2 of last year was all-time high. From operating activities, we gained 30 million SEC, and included in that number is a negative for working capital, minus 17 million SEC. We increased our inventory. A large part of that was due to higher inventory of finished goods and work in process. Our accounts receivables, however, decreased. And as you can see from the gray line, it continued to decrease as a percentage of last 12 months' sales. Cash flow from investing activities is primarily investments in development costs. And then from financing activities, there we had this payout of the last part of the contingent consideration for the MIMIC acquisition. That was 1.1 million US or approximately 12 million SEC. It didn't affect the income statement. It was booked in Q4 last year, but it was paid out during Q2. And then Q2 last year, we instead had a positive item of 19 million SEC. attributable to redemption of an options program. We ended Q2 with cash and bank balances amounting to 667 million SEK. And with that we will open up for questions.

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