Surgical Science Sweden AB (publ)

Now I will hand over to the speakers, CEO Tom Englund and CFO Anna Ahlberg. Please go ahead.

Welcome to this earnings call for Surgical Science for Q3 2025. My name is Tom Englund, CEO, and with me today I have our CFO Anna Ahlberg. Q3 was a clear step in the right direction for Surgical Science. Total sales of 264 million SEK was an all time high for the company. And this result was despite the negative impact on sales from currencies of five percentage points. The group grew by 14% compared to the same quarter last year and by 19% adjusted for currency effects. Adjusted EBIT amounted to 33 million SEK, and was negatively impacted by restructuring costs of 2 million. Adjusted for these costs, profitability was 13%. Since around six months back, we have initiated a set of activities to improve our profitability, primarily focused on our hardware and software simulator business, that is not the robotics or development business. And we're now happy to see that these activities are beginning to have an effect, and we expect further improvements in the quarters to come. Speaking about educational products, this business unit stabilized during the quarter from the weak revenue of the previous quarter. We saw a growth of 8% compared to the same quarter in 2024 and 26% compared to the previous quarter. We saw good demand and customer activity in several regions during the quarter, with Europe showing the strongest growth at 46%. The entire ultrasound simulation segment, which became a strategic focus area in connection with the acquisition of intelligent ultrasound, also developed positively with high customer demand in all markets except for the UK. In the UK, we continue to see problems and sluggishness in the allocation of funds from the National Health Service, NHS, which is a key source of funding for our products. And this had a strong negative impact on sales in this market. The Americas grew by 9%, which was lower than our expectations and as in previous quarters due to extended sales cycles in a tougher budgetary climate for hospitals. Sales in the US for comparable units, that is when we exclude intelligent ultrasound, decreased. Our sales team in the US report signs that the market is becoming more active, and this is also visible in the number of quotes we send out and how much leads we generate inbound and at external events. Still, for quarter three, sales in the US was a disappointment. During the quarter, we saw two prominent associations launch training programs that include certification based on simulators from surgical science. Together with the American Society for Gastrointestinal Endoscopy, ASGE, we launched a plan for training and certification in diagnostic endoscopy, or so-called EUS curriculum, which is based on our GI mentor simulator. For the first time ever, trainees can earn an ASGE certificate of completion directly through the simulator, marking a major step towards standardization of certification. And this is important since it elevates simulation from a training tool to a recognized certification platform. In addition, Our robotics mentor, Robotic Surgery Simulator, now includes the GISEA curriculum from the European Academy of Gynecology Surgery's recognized framework for training in robotic surgery. EAGS and Surgical Science have together developed the robotic psychomotor skills curriculum and test, where all exercises have been validated and benchmarked scientifically. These two collaborations are important steps in our work to make simulation a widely used and recognized tool in both the training, but also the certification of physicians and healthcare personnel. The result for surgical science will be an increased overall demand for our products required for certifications, and also that our customers will find it easier to obtain budgetary approval for these products. Very exciting developments. Switching over to industry OEM. Industry OEM performed well during the quarter with sales increasing by 20%. Development revenue increased by 131% compared with the same quarter in 2024. And the business area saw a strong inflow of new development projects, both in medical device simulation and robotics. In the medical device simulation area, we secured what is potentially the largest single deal in the company's history in this segment during the quarter for one of the world's largest medical device companies. The contract spans over four years. The first phase will be a development project, including sales of a first batch of simulators for the customer's training and sales activities. And then further simulators will be ordered in the coming years. We initiated the project as well as recognized development revenue from the project during the quarter. Simulation is rapidly becoming a critical tool for these customers in their sales, marketing and customer trading activities. In addition to this, we signed another large order with the same customer during the quarter, which proves our ability to sell multiple broad projects to the same customer and cements our preferred supplier status with the customer. the robotics product area our robotics express has been very well received in the market robotics express is a simulator for surgeons to become proficient in robotic surgery the demand for training robotic surgery is very very strong and is expected to increase further in the coming years as hospitals increasingly switch to this type of minimally invasive surgery our ability to offer a solution to this training challenge faced both by hospitals as well as by the robotics companies will enable more surgeons to be trained more effectively in this field. Due to the length of the sales cycles, we expect significant revenue impact from Robotics Express to start during quarter one of 2026. License revenue for the third quarter amounted to 66 million SEK, which is a slight increase compared with the same period in the preceding year, despite the stronger Swedish krona. Intuitive, CerticaSign's biggest customer, reported 19% procedural growth for the DaVinci system in the third quarter, and the installed base grew by 13%, primarily driven by the new DaVinci 5 platform. In the US, we continue to see a decline in simulation subscribers on older generation DaVinci systems due to them being replaced with a new platform. For the second quarter in a row, our revenue from new robotic manufacturers remained at a low level. However, at the beginning of the fourth quarter of 2025, we're once again seeing stronger sales to these other robotic manufacturers. Overall, we note that several of our customers in robotic surgery are approaching commercial launches, which is expected to lead to an increase in license revenue in the coming quarters and years. Now, regarding profitability, our gross margin amounted to 65%, which is down from the 69% last year. One of the reasons for the decline is the very strong simulator sales in relation to license revenue, which thus accounted for a lower share of total sales than in the corresponding period last year. Other reasons are currency effects and also the inclusion of intelligent ultrasound into the financial with a different margin and loss making at the time of acquisition than surgical science. As I stated in the beginning, for several quarters now, we have been pursuing a number of initiatives to improve profitability within educational products. Our goal is to significantly improve profitability in this area, which will in turn impact group profitability very positively. We saw during the quarter that these initiatives started to have an effect, despite the headwinds that we see from currency effects. And over the coming quarters and in 2026, I expect continued positive results thanks to this plan.

So continuing to look at the numbers a bit more in detail for the quarter, then we had sales of 264 million. That was up 14%. And 19 million then came from intelligent ultrasound or IU. And all IU sales are attributable to the educational products business area. And when we look at product groups, it's within the ultrasound product group. In local currencies then, as Tom mentioned, sales was up 19%. And starting from last quarter, we now see a negative effect from currencies on our overall sales with our approximately 80% of revenues in US dollars. We are doing some things to try and mitigate this, except from raising prices. We also now quote more countries in euros instead of in US dollars, for example. Out of Q2, we had an unusually high backlog or order stock for simulators, where the difference between ingoing and outgoing order stock was approximately 30 million sec. And this was relatively evenly distributed between the two business areas. Most of these orders were shipped during the third quarter, and there is no significant difference between the opening and closing order book, excluding the site and then after the third quarter. Looking at the business areas, the split in revenues was 53% for educational products and 47% for industry OEM, where educational products was up 8%. However, down 6% if we exclude IU revenues. And as Tom said, UK sales here are weak and well below expectations. The Asia region declined by 5% compared with the same quarter last year. Sales in China, they were stronger than in both the first and second quarters, but in line with the comparison period, while sales declined in India if we look at the comparison period. Sales in Europe then remained strong despite weak sales in the UK and increased by 46%, where we saw for the quarter strong sales in countries such as the Czech Republic, Poland and Portugal. And then the North and South America region increased by 9% compared with the corresponding quarter last year. However, then sales decreased for comparable units, and this is mainly attributable to the US. In the quarter, Brazil was a country that delivered strong sales. And yes, as we've said all through the year, then the US market has been tough a lot of leads and discussions but the deals have taken longer to to close and for the quarter we had costs for tariffs customs duties approximately two million sec these we have for this quarter been able to pass on to the customers industry then up 20%, we saw all revenue streams increasing and we also saw very high activity level. And as Tom mentioned, several good deals that potentially can be very large for us. For the first nine months of the year then, this means that sales were 724 million, an increase of 14% or 20% in local currencies. And IU is included with 59 million SEK. And that means that sales increased by 5% for comparable units. Educational products up 17% or down one if we exclude IU. And again, Europe is the region that continues to show the strongest development and has done so throughout the year. Industry OEM up 12% for the year to date, where licensed revenues are up 7%. And if we then move on to our revenue streams and continue with licensed revenues, they were then 25% of total revenues for the quarter compared to 28% last year. um as as mentioned many times before and as tom talked about this is slumpy for new entrance many of our customers are still in early phase and they purchase their licenses in batches and then can that can then cause a timing effect between when the license is purchased and when it's used um so for the quarter as also in q2 this part of the license sales was unusually low. However, at the start of Q4, we have seen better sales to these players. And then when it comes to Intuitive, we had the same effect as in Q2 that we saw a decline when it comes to renewals of subscriptions for SimNow with the older generations. However, for this quarter, this was offset by higher revenues from DV5 if we compare to Q2. Simulator sales as a whole was up 14% compared to Q3 2024. And this was the second strongest quarter ever for this revenue stream. Both areas increased, EADU however, as we saw, not if we exclude the IU sales, but Indu was really strong. And also here we've said before that this is more lumpy than for sales within EADU since it's usually tied to larger projects where development is also involved. And development revenues were up a lot also for this quarter. partly due to the project we have for a Ministry of Defense in the Southeast Asian country, but not at all entirely. Development revenues were good also for other customers. The Southeast Asian project, it's for 18 months and 52 million. 0.9 million US was recognized in Q3 and we estimate approximately the same amount for Q4 on this order. And we continue to see stable service revenues. Moving on to costs and the EBIT margin for this quarter, as Tom mentioned, our gross margin was 65% versus 69% in Q3 last year. And we had several factors influencing the fact that the margin was lower. License revenues then being a lower share of total sales and also currency effects. They had a negative impact of approximately 1.5 percentage points where The lower US dollar exchange rate has not had an impact on costs yet. Part of our costs is of course also in US dollars, but these inputs were purchased previously and then at a higher exchange rate. The proportion of direct sales also impacts the gross margin, and it was lower within educational products and then mainly, that is mainly than the US. And we talked about intelligent ultrasound and that they have a lower gross margin on those products. On the positive side, we see that our price increases that we've done are starting to show effect. Regarding OPEX, sales costs were 21% of sales and for the quarter that includes some restructuring costs, approximately 1.5 million SEK. That is then attributable to further reductions in the sales force in the US as a consequence of the acquisition of IU. Admin costs were 8% of sales and during the quarter we completed the merge of former then former I use us subsidiary with one of surgical sciences us subsidiaries and that resulted in some slight slightly higher legal costs and tax consultancy fees. R&D costs 21% of sales and we were we activated seven million sec a bit lower than the same period last year and as you know the costs on this line vary depending on how much development revenue there is for the quarter as salaries for the portion of development department staff who have worked on these projects that generate development revenue they are transferred to cost of goods sold and and that means that more was transferred also in this quarter since development revenues were high And going back to IU, when we acquired IU, we said that we estimated rationalizations and cost savings to between 1.5 and 2 million pounds sterling on an annual basis. And as of Q3 and on an annual basis, We have made cost savings of approximately 2.5 million pounds in relation to the cost structure that existed in the company at the time of the takeover. And that is done mainly in the form of reduced costs related to the company's previous stock market listing and staff reductions, mainly in respect of sales personnel. For the quarter, cost savings of approximately 6 million SEK are included. And as mentioned before, restructuring costs of 1.5 related to further personnel reductions are also included. Still, because of lower sales than expected, primarily in the UK, as discussed before for IU, the operating result for IU was a loss of 11 million. So, of course, when we look at the comparison numbers after that, we have made an acquisition in February of this year of IU within the ultrasound sector. That was a loss-making company and we have made taken several measures done as discussed on the cost side, still making loss, but we believe a lot in the ultrasound sector and we see a lot of positive signs from this sector. It was also an acquisition that we were able to make at 0.5 times sales. Other operating income and costs that mainly consists of costs for the company's option programs, as well as the revaluation of operating assets and liabilities in foreign currencies. And for the quarter, we had a negative impact on results of 7.2 million attributable to this revaluation. It was slightly negative also in the corresponding period in 2024, but as you might remember, there was a large negative due to this in Q2. So following this, our operating profit for the third quarter, excluding the restructuring costs, was 27 million, or an operating margin of 11%. Organization wise, we were 328 people going out of the quarter, one person more than going out of Q2. With the IU acquisition, we added 48 people and then we had a number of redundancies. We continue to employ above all software developers. However, we are also working intensely with efficiency improving projects and employ with caution and cost consciousness. And you can see the split between our sites down to the right. Adjusted EBIT, exclusive of amortizations and surplus values related to acquisitions. That was for the quarter 13% compared to 22 last year. And for the first nine months, it was 10% compared to 20 last year. FinanceNet. As most of you know, we have no loan financing, so net financial items for the quarter was primarily interest income on bank deposits. It was also revaluation of internal loan liabilities to subsidiaries and impacted by IFRS 16. Then our tax expense for the quarter was 10 million and net profit was 20. That means that the effective tax rate was high. The largest reason for this is that there's a larger portion of loss-making entities within the group, including Intelligent Ultrasound this year, and that then increases the relative effects of tax costs. In addition to that, we had some items that were in relation to 2024 fiscal year in the US and some minimum taxes that were also paid. And as mentioned, the net result for the quarter was 20 million SEK. Looking at the cash flow, negative 4 million from operating activities, and from working capital negative of 45 million that is primarily because of higher accounts receivables and that is primarily that is due to higher sales we do not see any increased risk in our accounts receivable stock inventories decreased slightly Cash flow from investing activities and financing activities is nothing to mention here for the quarter. And that meant that cash for the end of the period, September 30th, ended at 597 million SEK.