Surgical Science Sweden AB (publ)

Welcome to Surgical Science Q4 Report 2025 presentation. During the Q&A session, participants can ask questions by pressing pound key 5 on their telephone keypad. During the Q&A, we kindly ask participants to limit yourselves to two questions at first. If you have additional questions, please queue up again by pressing pound key 5. 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 the fourth quarter of 2025. My name is Tom Englund, CEO, and with me today, I have our CFO, Anna Ahlberg. We will first present the summary of quarter four and our results, and then we will have the Q&A session. We're pleased that like quarter three, quarter four was a clear step in the right direction for Surgical Science. We had sales of 269 million SEC and grew by 15%, adjusted for currency effects. And our license revenues, almost exclusively from robotics companies, were the highest ever reported at 92 million SEC, which was an increase of 21%. The adjusted EBIT amounted to 46 million, or 17%. On December 8th, Last year, we presented our new financial targets of annual sales growth of 10 to 15 percent with profitability of more than 15 percent. And it's gratifying to see that we're now delivering fourth quarter results in line with these targets. So if we move over to educational products, performance in educational products was mixed with growth of 4 percent. North and South America showed strong growth of 43% with a good distribution between the different countries. And we are seeing a clear recovery now in this region compared with previous quarters with a higher customer activity and bigger sales pipelines. And we're also cautiously optimistic about the future. Asia, on the other hand, saw sales decline by 21%, driven by a continued challenging market situation in China with generally lower activity and demand. One of our strategic goals is to increase the profitability in all segments outside of robotics. For our high volume products, we are now beginning to see the impact of this strategic initiative. During Q4, our average sales prices increased by around 9% compared with Q4 2024 at fixed exchange rates, without us experiencing any significant effect on volumes. The impact is most felt in direct sales, and indirect channels usually show a delay, but we expect further positive price effects to be seen during this year. Also during the quarter, a new partner path distributor program was introduced on a broad scale, and this program aims to improve cooperation, sales, and efficiency between us and our partners, which among other things will contribute to increased profitability. Highlighting the ultrasound segment, the ultrasound segment experienced a very high level of activity, both within hospitals but also in industrial customers. Although ultrasound sales increased by 48% compared to Q4-24, the segment did not meet our growth expectations as pro forma sales, including the acquisition of intelligent ultrasound, declined. The main reason for this decline we consider to be structural challenges within our own direct sales force, something that we've already addressed during the past quarter. For ultrasound, and you can see the picture of an ultrasound simulation product to the right, three new simulation modules were launched during quarter four and in January. One of these is targeted towards the diagnosis of endometriosis, which is a major health problem affecting 1 in 10 women. The module supports one of our focus areas, women's health, an area that is neglected in healthcare and where we have identified that our unique products and solution can create significant value and contribute to earlier diagnosis. This is one clear example of how surgical science fulfills Our purpose one locking the full potential of every medical professional to improve health care outcomes and save lives. During quarter one, you can expect the first products which are based on the joint technology platform from surgical science and intelligent ultrasound to be launched. We're not yet done with integration and still have a lot of work to do to realize the full synergies from the acquisition of intelligent ultrasound. Now, moving over to industry. The robotics segment had a strong quarter. License revenue grew by 21% to 92 million sec, which was an all-time high for the company. We saw strong license revenues from our largest customer, Intuitive, as well as several other players in the US and China. These other players are now beginning to install robots in significant numbers, which is in turn driving our license revenues. The collaboration with our largest customer, Intuitive, continued during the quarter, and in January 26, Intuitive announced that its system had been used on more than 20 million patients to date. This, together with the 18% growth in procedures during the quarter, is clear evidence of the strong demand and broad adoption of robotic surgery. Both intuitive and surgical science agree on the critical role that simulation plays in training robotic surgeons. Digital offerings are becoming increasingly important for robotics companies, and surgical science is playing a central role in the development of these offerings. During the quarter, our customer Johnson & Johnson applied for a so-called de novo classification in order to start marketing its Otava robot for gastrointestinal procedures. Another customer, Medtronic, received FDA approval for the use of its Hugo robot in urological procedures in the US. And two days ago, Medtronic announced the first commercial surgery with Hugo robotic surgery system at the Cleveland Clinic in the US. There are now several hundred robot models that are either actively being sold or about to hit the market. So the science is developing simulation solutions for most of the 20 largest robotics companies. And we feel very confident in the value and uniqueness of our offering in robotic surgery. We have a big challenge. and growing pipeline of robotics projects, and we see opportunities for deeper integration into our customers' digital offerings and our ability to create value for many years to come, in line with a recently presented strategy. The introduction of our latest simulator, Robotics Express, has been successful, and sales and deliveries have started to pick up speed. 14 simulation exercises have been launched on the simulator so far, and the portfolio will be expanded on an ongoing basis. At the International Meeting on Simulation in Healthcare, IMSH, in San Antonio in January, we showcased our products that are making use of AI technologies for the first time ever. In these products, AI is helping to analyze the instrument handling of laparoscopic surgeons or skills for the surgeons to practice and improve. At the same time, within our core offering of real-time simulation of surgical procedures, we today see major limitations in the power and scalability of AI to handle and calculate models that could generate the complex real-time surgical simulation that our customers require. Therefore, surgical sciences simulation technologies will continue to be the ultimate solution for high-quality real-time surgical simulation for the foreseeable future. And surgical sciences product experience will be improved significantly with the use of AI. Moving over to medical device simulation. During quarter four, continued progress was also made in strengthening the company's position within the medical device industry with a focus on endovascular applications. At the end of the year, the pipeline of ongoing development projects was 15% larger than at the same point in 2024. Our development revenue is project-based and may fluctuate between quarters and not fully reflect the underlying level of activity. At the end of 2025, The proportion of repeat customers for development projects exceeded 70%, demonstrating that cervical science is making progress toward becoming an even more integrated and long-term partner to these customers. During the quarter, several important solutions were delivered to our customers, including the areas of peripheral artery disease and pulmonary thrombectomy. At the same time, sales of simulators to medical device companies for product-specific training fell to 21 million SEC, compared with a very strong comparative quarter of 43 million SEC. So, over to the strategy and the work going forward. CerticoSciences' new strategy was presented at the Capital Markets Day in December last year. The aim is to continue growing the company profitably, and establish a market-leading position within our five different market segments, all of which currently have low to very low penetration. We are now pursuing active internal efforts to deliver on the strategy and are seeing progress across all initiatives. And we feel very confident that this is the right strategy that will lead to increased shareholder value. Surgical Science is currently a world leader in medical simulation with a very strong brand. Our position is unique with market-leading products, strong and effective direct and indirect sales channels, and an extensive medical expertise that our customers rely on for their training and development. Our global reach and support, which ensure reliability and presence, are critical factors for our customers. 2025 has been a challenging year in many ways, particularly in relation to the news surrounding our largest customer, Intuitive, and the development of our share price. At the same time, Sodica Science has made great strides forward in many respects and is now in many ways a significantly stronger company than it was a year ago. Demand for our product is growing steadily, driven by a greater need for training, increased digitalization and a more complex healthcare. I'm optimistic about the future where our solutions will become a central part of healthcare training and our ability to generate profitable growth over time. And with that, I would like to hand over to Anna to present the financials in more detail.

Thank you, Tom, and welcome, everyone. We start with sales, and for the quarter then we had sales of 269 million SEC, up 7%. 14 million came from intelligent ultrasound. And I should just mention intelligent ultrasound is today reigning to Surgical Science UK, but we will still use IU when we talk about this acquired business throughout the presentation. And all IU sales are attributable to the EDU products business area and the ultrasound product group. In local currencies, sales were up 15%. And we have, after Q1 of last year, since then seen a significant negative effect from currencies on our overall sales and also on our result. And we'll come back to that later. We are just below 80% of revenues in U.S. dollars. We are mitigating this as best we can, except for raising prices that Tom also talked about. We also now quote more countries in euros instead of in US dollars, for example. However, this will not mean a very large change in the ratio between different currencies, since a lot of our revenues originate from the US. Looking At the business areas, the split was 48% for EDU and 52% for INDU for the quarter, where then EDU was up 4%, but down 8% if we exclude IU. And as Tom mentioned, the Asia region declined. 21% compared with the same quarter last year. And that was attributable to China having a weaker quarter, while countries such as Japan and the Philippines showed good sales. Sales in Europe was weaker than last quarter, meaning Q3, but still remained strong and increased by 4%. France and Poland did particularly well in this quarter. And then the comparative figure also includes a major order to Romania. But mentioning Poland, this market has been really strong for us during these last quarters. It was at an all-time high for last year as a total, and it is also our largest market in Europe. The North and South America region increased by 43% compared with the corresponding quarter last year. And this is attributable to the U.S., which is really nice to see since we have had some tougher quarters there. And this is even when excluding sales from intelligent ultrasound. That is also that part of the business, the largest market. But even if we excluded it, the increase is attributable to the U.S. Indoo, up 10%. We had, as mentioned, all-time high license revenues of 92 million. Development revenues were also very strong, while simulator sales within the business area was weaker. I will come back to this when we look at the revenue streams on the next slide. But for the full year, then, this means that sales were 992 million. This is an increase of 12% or 19% in local currencies. And in that number, IU is included with 75 million. Their sales for the full year was 80 million. They are in our books and consolidated as of February 18th, 2025. And that meant that in SEC, sales were down approximately 30%. This is largely attributable to the UK and lower sales to NHS. We've talked about that before, and it's something that we are, of course, not at all satisfied with. The UK market was also a market where we saw that sales should be coming from the full product range, also the other surgical science products, as it then moved to being a direct market. However, and as Tom talked about, we do see a lot of positive signs for our ultrasound products. product group where we are now merging our technologies and we have really exciting products in the pipeline. EDU for the full year 2025 was up 13% and INDU 11% where license revenues were up 11% for the year. And looking then at the revenue streams, license revenues for the quarter were 34% of our total revenues compared to 30% last year. We saw really good sales, both from Intuitive and that was then both from DV5, as well as from the older generations, as well as a larger batch revenue order from one of our other robotic companies customers. So as I think you're all aware of them, we did during the fourth quarter on November 25th receive a cancellation from Intuitive on the memorandum of understanding that was signed in January. And this memorandum of understanding implied that all DV5s would be equipped with simulation from us. The cancellation meant that we now, as of January 1st this year, go back to the previous existing agreement between the companies. And advanced simulation from us will only be offered to a minority of the customers. For the older generations, such as XI, for example, the agreement has not been changed. It was always an optional feature. And our estimate for this was and still is that it will impact license revenues negatively by 60 to 90 million SEK for this year. However, as we have also emphasized and Tom talked about it, we still have significant revenues from Intuitive and we continue to work very closely together on a roadmap for future simulation. Moving on then to the next revenue stream simulator sales that was as a whole down 12% compared to Q4 2024. This is due to the industry business area. This is more lumpy, than for sales within EDU, since it's usually tied to larger projects where development is also involved. And it sometimes also has to be seen together with development revenues. And as an example, the project that we have in a Southeast Asian country, That is still in the development revenue phase. This will then, during this year and towards the end of this project, move from being pure development revenues to pure simulator sales. So it is usually a mix of the two, and the simulator sales also usually comes towards the end of the different projects. Development revenues then up a lot also for this quarter and the project that I just mentioned. Here we had revenues of 0.7 million US and we estimate the same for this quarter Q1. So this is of course a factor for the increase, but not at all entirely. We had very good development revenues also for our customers. Our gross margin for the quarter was 66% versus 68% in Q4 2024. The fact that license revenue made up a higher share of total sales than in the corresponding period had a positive effect. However, currency effects have a large negative impact on the margin, approximately 2.3 percentage points. And unfortunately, the lower USD exchange rate has less impact on the cost of goods sold than on other cost items. because our input goods are primarily purchased in other currencies than in dollars, and also production and the associated wage costs, they are also not in US dollars. Then another factor impacting the gross margin negatively that we have seen throughout the year and commented on is that we do have lower gross margin on the IU products. But then also on the positive side, we see that our price increases are starting to have an effect. And that is, as mentioned, something we will continue to pursue. Regarding OPEX sales costs, they were 17% of sales for the quarter, 20% in the corresponding quarter. And here we see that the reductions in the sales force following the acquisition of IU have now reached their full effect. And then for the quarter we also had some lower costs of a more non-recurring nature due to lower agency fees. This is attributable to sales in certain countries. So it depends on if we sell more or less to these countries. So that means that the cost level was maybe a bit on the low side because of this. But as I said, we have definitely lowered our level for the sales costs. And we have during the year also worked a lot with operational efficiency and we have done reorganizations in line with this. Administration costs, 9% of sales, same as Q4 last year. And R&D costs, 22% of sales. We activated slightly less, 9 million instead of 10 million SEC. And then we had in this quarter restructuring costs on this line of approximately 3 million SEK. And this is related to the termination of development personnel in Seattle. During Q4, we restructured our U.S. operations. And this resulted in us closing our Seattle office. We consolidated our operations to our office in Cleveland. And that is then our hub for all commercial activities and services and customer interaction. In Seattle, we had primarily development personnel. And so in connection with this restructuring, these employments were terminated. We still have a few other roles working remotely. And we have the lease for the Seattle office until October 2027. So as I mentioned, the quarter then saw the full impact of the cost reductions we've done after the acquisition of Intelligent Ultrasound. We have done more than we said we would do. We said between 1.5 and 2 million British pounds. On an annual basis, we have done 2.5, and that then meant approximately 8 million SEC in the fourth quarter. Still then, because of the lower sales that we discussed, and lower than expected primarily in the UK, the operating result for IU was a loss for the quarter of approximately 5 million SEC. Other operating income and operating cost studies, then mainly costs for the company's option programs, as well as the revaluation of operating assets and liabilities in foreign currencies. We had a negative impact on this line and on profits in the amount of approximately seven million during the quarter. And during Q4, we an internal dividend from Israel. We are taking, as I mentioned before, certain actions to reduce the effect of the weakening US dollar. So we're both reducing intercompany items and we also have as little cash as possible in USDs. So that's something we're working actively with. Following this, then, our operating profit for the fourth quarter was 40 million SEK, corresponding to a margin of 15%. And for the full year, the FX effects that I mentioned before on the line other, that was a negative 38 million then for the year. And if we exclude these and we also recalculate our revenues and costs with last year's exchange rates, and also then exclude acquisition and restructuring costs for the year. And that was in an amount of 30 million SEC. Then we reached an EBIT of 177 million for the year, or 17%. Organization-wise, we were 313 people at the end of the period, and that is 15 less than going out of Q3. The majority of the change then attributable to the closing of the Seattle office. With the IU acquisition, we added 48 people, and today we have 11 less here. Adjusted EBIT for the quarter, the result was 46 million SEK. And as mentioned, we had some restructuring costs due to the closure of the Seattle office. Excluding those, we had an adjusted EBIT margin of 18%, same as last year. For the full year, then, the adjusted EBIT margin was 12% compared to 2019 in 2024. Finance net and taxes. No loan financing meant that net financial items that mainly consist of interest income on bank deposits. And then also revaluation of some loan liabilities to subsidiaries. The effect of IFRS is also impacting the finance net. Then regarding taxes for the year, the expense here consists of estimated tax on profit for the year and the change in deferred tax assets. This year's tax expense includes U.S. taxes attributable to the previous year and also taxes that are not linked to taxable income. Combined with the effect of the loss in intelligent ultrasound, this means that the effective tax rate increased. And then also for the year, our profit includes the acquisition costs, approximately 23 million. And those are not tax deductible. That is then also impacting the rate. And then cash flow from operating activities was 73 million for the quarter compared to 57 for Q4 in 2024. Changes in working capital was really small, a small negative of 3 million SEC. Inventories were pretty much unchanged and accounts receivable decreased. Accrued income increased, and this is primarily cash. due to higher license revenues. And they are then paid in the coming quarter, meaning now in Q1, and they have already been paid. So that basically means that the last day of the quarter is when this amount is at its highest. Investing activities, we invested approximately 3 million in the quarter in our ongoing construction of new production facilities in Tel Aviv. they are expected to be commissioned in the second quarter of this year. And then for financing activities, the larger amount on the line for lease liabilities is actually an adjustment in the quarter, so nothing to mention here for the year. And cash flow then was a positive of 32 million for the quarter before FX adjustments. And we ended the year with 616 million SEC in our bank accounts. And with that, I hand back to you, Tom.