Surgical Science Sweden AB (publ)

Hi everybody and welcome to Q3 report presentation of Surgical Science, which is also the first quarterly report presented by me, Tom Englund, as the new CEO of the company. Next to me here in the studio is Anna Ahlberg, our company CFO. We will use the time today to first present the report and then we will take questions from the audience. To start off with, The Q3 report is a result that me and the surgical science team are quite pleased with. We show currency adjusted growth of 12% versus previous quarter three with an EBIT margin of 20%. And we see a generally positive development across the entire business. As you know, we have two different business areas, educational products and industry OEM. And it's great to see that both of our business areas are now growing. Educational products grew 2% versus quarter three last year and 17% growth versus previous quarter, which means an accelerating growth. And industry OEM grew with a strong 22% versus same quarter last year. Looking a little bit deeper into educational products, during the second quarter, we said that the turnaround had come for educational products and that we saw an increased customer activity and greater pipelines than before. It's good to see that this turnaround continued in quarter three with plus 2% versus last year and 17% growth versus previous second quarter. All regions grew, but in slightly different pace. Europe was up 49%, North America plus four and Europe plus six versus previous quarter. Last quarter, we said that it's a question mark whether the business area will show growth for the full year and that it partly depended on whether we received a large tender. We can now say that the large tender will not affect quarter four, regardless of outcome. And this means that we don't see that we will show growth for the full year. We, however, feel very confident about the growth prospects of educational products for 2025 and beyond. Moving into industry OEM, we show a solid growth of 22% revenue growth, which is a continuation of the strong development we have had in the business area in the previous quarters. This business area consists of simulator sales to med device companies, as well as software simulation packages to robotic surgery companies. If we look at sales of simulators, it increased by 82% to 26 million. And so far this year, simulator sales have grown a whopping 182% to 84 million sec. We see a clear trend. among customers to consider our simulators to be business critical for a wider range of functions and disciplines within their company. That means that simulators are now actively being used in departments such as education, sales and marketing, as well as R&D. And this in turn means that the number of simulators per customer is increasing. And during the quarter, we also delivered the first units of our ultra portable simulator to a very important industry customer of ours. DevRevs developmental revenues contracted by 20% to 9 million SEC. This revenue is lumpy in nature, but we remain confident in the growth and we have a very healthy pipeline of projects for the coming 12 months. Looking deeper at the license revenues, they increased by 17% to 65 million SEC. We had a solid development during the quarter of our license revenues, and it's very positive for us to see that the robotics market is developing, with more entrants now getting closer to start active sales or marketing of their products. Distal Motion and CMR Surgical announced that they had received FDA approval for certain procedures, and Johnson & Johnson, one of the world's largest medtech companies, had filed for and just received an IDE approval for their Ottava systems. which is the step before the actual FDA approval. These new entrants, who also are customer of ours, will drive robotics market growth and, in turn, the training needs for robotics and, therefore, the demand for simulation. Regarding DV5, we have no further news than what we already shared in the second quarter. Intuitive is targeting a full launch of the DV5 system during mid-2025 and is currently conducting a controlled pre-launch to selected customers. These systems are equipped with clinical software only and do not have simulation on them, completely according to plan. And to finish off, Intuitive is an esteemed customer of us, and we are working hard to ensure that Intuitive has a great digital experience, including simulation, in time for the full launch of the DV5. I have now been in the formal position for six weeks and before that on a six-week introduction period together with gisli hennemark the previous ceo and during these first weeks in the company i've spent a lot of time with the team and with our customers to understand the ins and outs and the market that we operate in i've had the opportunity to walk alongside gisli who has been invaluable in the handover period and one on the slide there to your right the lower right picture You can see a picture from one of our introduction meetings in our office in Tel Aviv. And my focus on top of understanding the company and relationship building internally and externally has been to develop a plan and goals to help us achieve our short term growth ambitions and longer term market leading ambitions that we have for surgical science. As we now look towards 2025, I'm filled with excitement and energy for the continued growth journey. We are world leading products, a super strong, highly engaged and global team. We have the stability and brand of a market leader, and we operate in a growing and rapidly developing market with prominent customers. We have challenges mainly related to our ability to handle rapid customer growth and operational scalability. But these are challenges that I feel confident that we will be able to handle. And addressing these challenges will also help us build a much bigger and much more successful company. And with that, I would like to hand over the word to Anna to go over the financial numbers.

Thank you, Tom. And hi, everyone. So starting with revenues per business area, as Tom said, we show growth for both our business areas. And our total sales was up 10% to just below 232 million. In local currencies, it was up 12%. And this is the first quarter in a very long time that we have had negative effects. As I'm sure most of you know, we are heavily dependent on above all the US dollar, where we have over 80% of our sales in that currency. And of course, for translation differences, we are also dependent on the shekel. Educational products. As Tom said, in our Q2 report, we talked about the turnaround that we saw for educational products. And we continue to see and feel this momentum. We had some weak quarters before and a very weak Q1, but we now continue to see money flowing into the system, even though the picture is a bit different between different geographies. Sales was up 2% compared to Q3 last year, but 17% compared to the last quarter, Q2. For Asia, we saw a good increase over Q3 last year, and a smaller increase compared to Q2. China, an important market for us, and it's been affected by the anti-corruption campaign for quite some time. And we are still cautious to say that it's over. But sales there were on par compared to Q3 last year. A bit lower than Q2, though. The market that showed the strongest growth, both when you look at Q3 last year as well as Q2, was India. And we also commented on India before because that market was affected by the election taking place. that affected both Q1 and Q2. But now the administration is in place and we see very good development. Europe, as Tom mentioned, plus 49% compared to Q2 and plus 10 compared to Q3 last year. And if we look at The markets where we had the strongest development, and as we talked about also before, the money flowing into Eastern Europe, we see Poland and Bulgaria being very strong for the quarter. North America, plus 4% compared to Q2 and lower than Q3 last year. The US market was on par, but we had a larger order in Brazil last year. that affected the comparison numbers. Industry OEM up 22% and licensed revenues ended at 65 million, up 17%. We also see the continued very strong development for our simulator sales within industry OEM, plus 82% ending at 26 million. Development revenues were down I will come back to that on the next slide where we see our different revenue streams and you have them also divided by business area in the report. License revenues up as we talked about and also then as a percentage of total revenues, 28% compared to 26% Q3 last year. Emphasizing again and as always that this is lumpy for new entrants since they purchased their licenses in batches and we have seen for 2024 that sales of new packages has been weaker than last year to new entrants. Our simulator sales if we combine simulator sales within educational products and industry OEM this was the strongest that we've had since q4 2022. and it was plus 10 compared to q3 last year and plus 18 compared to to q2 development revenues as i mentioned then a bit weaker if we compared to q3 last year but as you can see that was also a very very strong quarter if you can compare to the other quarters in 2023 and it was still a bit stronger than in Q2. This is industry, development revenues is all within industry OEM and it consists of both robotics projects as well as projects tied to sales of simulators. Moving on to look at our costs and the EBIT margin for the quarter. Our gross margin was 69%, same as in Q3 last year. A bit stronger than in Q2 when we had 68%, despite the fact that we had a higher share of license revenues in Q2. And this is then due to the volume factor that we had now higher volume of simulators, meaning that fixed costs are then distributed on a higher number of simulators. Comparing to Q3 last year, the increased share of license revenues has a positive effect on the gross margin. We also had a favorable product mix. However, our average sales price was slightly lower. Sales costs, they were a bit higher than last year, but on par with Q2. We had in Q3 a lower activity regarding when it comes to congresses and trade fairs than in Q1 and Q2. And that is the pattern we have every year. So that is normal. The lower costs due to this were offset by the fact that we in the quarter had higher agent fees. And that is really dependent on where we sell during the quarter. 18% of sales, same as Q3 last year. Administration costs were on par with last year and a bit lower than Q2, 8% of sales. And then R&D costs, they were a bit higher than Q2 and significantly approximately 10 million higher than Q3 last year. We continue to invest in our R&D organization. We continue to employ skilled software developers. We also activated less. And that depends on what we are working on, what type of projects. And we also, as I mentioned before, had less development revenues. And that means that we move less costs to cost of goods sold. So it becomes a bit technical here. But you can find our R&D costs in three different lines, the cost of goods sold, the actual R&D line, and then in the balance sheet where we activate. If we combine these and look at the total R&D costs, we see that they did not increase 10 million. They increased 5 million from 58 to 63 million. The item other consists primarily of options or option programs and FX effects. And in Q3, we had a larger effect when it comes to the option program. And that is attributable to the new program that was approved by the AGM in May. And that is the Swedish part of the programme, where the participants get the premium as a bonus, and we pay social costs on them, and it's also the IFRS 2 effect. And that was the same now in Q3 this year as in Q3 last year. But it's a higher effect in Q3 than previous quarters. organization going out of q3 this year we were 270 employees in the company compared to 260 going out of q3 last year and you can see the split between the different sites down to the right The adjusted EBIT margin for the quarter was 22% compared to 27% Q3 last year, and up from Q2 when it was 19%. And for the nine-month period, we had an adjusted EBIT margin, where we then adjust. We have the EBIT and we adjust for costs attributable to our acquisitions, amortizations and depreciations. margin was 20 for the nine month period compared to 26 last year our finance net was a positive 7 million most of that is attributable to interest on our bank balances and then we also have items related to revaluation of internal loans towards subsidiaries and an ifrx 16 effects. The net result for the quarter was 43 million SEK. Our cash flow for the quarter was a bit weaker than what we have been used to. From operating activities it was a plus of 22 million SEK. In that amount we have a minus of 9.4 due to the fact that we paid out taxes in Israel on a previous financial year. And then we had a negative change in working capital amounting to 32 million. Inventory changed marginally. However, our accounts receivables increased significantly. I usually talk about accounts receivables and the work that we always do on that. We've been working very diligently on it for quite some time, and we had a very big positive effect after getting the AR stock from 3D Systems when we acquired Symbionics, and then we continued to work on that, and we've had a very nice development, and especially in the US, which is our largest direct market, where that's always something to work on. So of course, I've said before that I don't think that this will decrease much more if we look at the percentage, accounts receivables as a percentage of rolling 12-month sales. But of course, we would not like it to go up. We don't see any general increasing trend or any cause for concern. It's more a timing issue that when orders and payments come in, we had quite significant amounts falling due in the beginning of October. And then cash flow from investing activities, that's mainly investments in development costs. The item from financial activities was very small for the quarter. And then we had a negative exchange rate difference in cash amounting to 7 million. That meant that we ended the quarter with 666 million SEC on our bank balances. And with that, we conclude this part of the presentation. And I think we can open up for questions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Ulrich Trattner from Carnegie. Please go ahead.