Surgical Science Sweden AB (publ)

Hi, everyone, and welcome to this earnings call for Certical Science for the first quarter of 2026. My name is Tom Englund. I'm the CEO. And with me today, I have Anna Ahlberg, our CFO. So we'll start with a walkthrough of quarter one and the numbers, and then we'll open up for questions. So quarter one is a quarter with two stories running in parallel. On the surface, reported sales are down 6% to 236 million SEC. But once you strip out the currency headwind that we had and the dollar moved significantly against us, the underlying business grew by 4%. And if you look at cash flow, we generated 65 million sec from operations, which is a very strong number and significantly better than the same quarter last year. So the business itself is in good shape. Adjusted EBIT came in at 28 million SEC or 12%. That's in line with last year. And when you adjust for currencies, it's actually around 16% right at our target level. So the headwind here is, as with the revenue, almost entirely a currency story and not an operational one. Throughout the quarter, we're executing on the strategy we laid out at the Capital Markets Day in December. And I feel good about where we're headed. So now I want to take you through the different parts of the business. Educational products grew by 6% or 14% growth in local currencies. And there are some exciting things happening here that I want to highlight. EMEA had an exceptional quarter. Revenue was up 80% or over 80%, driven by a number of strong deals across Eastern Europe. And the UK, which, as you know, is where our Certical Science UK team operates, posted one of its best quarters ever. Sales in pound sterling for the quarter actually exceeded the total for all of 2025, which is a big statement. And it also tells me that the investment that we have made in building that business is starting to pay off in a meaningful way. The Americas is a different story right now. We were down about 10% in local currency, and we see a trend in Americas with our active customers that despite pipelines being full, the purchasing decisions by our customers take slightly longer time. There's a certain hesitation in the market, particularly in the US, and we think it's tied to the broader macro environment. The silver lining though, is that the activity is still very high with big pipelines, as I said, especially within ultrasound and robotics, which gives us confidence that demand is there. China deserves a specific mention. The government in China is actively pushing to support locally operated and manufactured companies, which creates a headwind for our simulator business in particular. This has as an effect that the Chinese sales declined during quarter one versus the same quarter last year. However, we are not standing still and we are taking concrete steps to address this, but it's a structural shift that we need to navigate carefully. The quarter saw several important product launches within our endovascular simulation portfolio for pulmonary embolism and ICE 3D or three-dimensional intracardiac ultrasound. The product and R&D teams are working with an exciting product pipeline with the aim of broadening and improving our strong portfolio even further, and also to increase the penetration in this very under-penetrated market. So I want to speak a bit about ultrasound. Ultrasound had a strong quarter, and I'm particularly pleased with the momentum that we're seeing in ultrasound. The adoption of ultrasound across clinical settings is accelerating, and we're well positioned to capture that. Women's health continues to be a big and key focus for us, and I think it's worth pausing on why. Ultrasound is one of the primary tools for diagnosing conditions that disproportionately affect women, and it has historically been under-resourced in terms of training. Our solutions are genuinely making a difference, helping clinicians diagnose earlier with more confidence. That's directly in line with the purpose of surgical science. The ultrasound simulation market is also genuinely exciting from a financial perspective due to the high number of potential users and the big size of the potential market. Ultrasound simulation has the opportunity to represent an even larger share of the revenues of surgical science in the future. A milestone this quarter was that we launched the first products built on the shared technology platform between Surgical Science and Surgical Science UK, or formal Intelligent Ultrasound. This is the first tangible output from R&D from the integration of Intelligent Ultrasound, and it's a meaningful step. There's still plenty of integration work ahead, but the direction is clear and we're moving really fast. Now to robotics, where the headline number requires some context. Industry revenues were down 17% and license revenue came in at 68 million SEC versus 84 million SEC in quarter one last year. If you look at revenue in local currency though, the license revenue was only $600,000 or 8% lower than quarter one of 2025. Licensed revenues in quarter one in USD were actually higher than two out of four quarters of 2025. As we have previously communicated, the memorandum of understanding with Intuitive did not result in a signed agreement, and we reverted back to our existing contract at the start of the year. We previously estimated a 60 to 90 million SEC negative impact on licensed revenues for 26 versus 25, and that estimated remains unchanged. I want to be clear about what this is and what it is not. It is not a deterioration of relationship with intuitive, quite the opposite. The collaboration is as strong as it has ever been. What's changed is the commercial structure reverting back to an old agreement. And we're working within that. Our conviction remains that simulation will be a central component of the digital offerings in the robotic platforms of the future. And surgical science will be at the heart of that. On a market level, the picture is really exciting. The robotics market is very dynamic and fast growing. Intuitive received FDA approval for cardiac procedures. Johnson & Johnson got the Novo classification for Ottawa. Medtronic received US approval for Yugo in urology. And the commercial competition in the US market for robotic surgery is now real. And that's actually a good thing for surgical science, because it means more robots, more training needs, and more licenses. We also had license revenues from several of our other robotic customers during the quarter, which is a clear sign that players beyond Intuitive are now deploying robots at scale. We are developing simulation solutions for most of the top 20 robotics companies. Our pipeline is bigger than it's ever been, and the long-term opportunity here is very big. Medical device had a quieter quarter financially. Development revenue at 14 million sec can simulate the sales of 20 million sec. And this is a business that moves in lumps. Projects have long lead times, and the comparison last year was particularly tough because that several customers undertook large scale fleet upgrades at the same time. We have a clear high ambition within this segment and definitely a growth strategy, and we expect to show solid growth in the future. We should not judge success on one quarter alone and look too much at lag indicators. Rather, the underlying lead indicators remain strong. More than 70% of customers in active development projects are repeat clients. That's a loyalty and retention number that tells you about the quality of what we deliver. We're working with many of the biggest MedTech customers globally and are a critical supplier in their deliveries. And we continue to see new clients entering as well. The foundation is solid. As outlined in the strategy, we have a strong focus on improving our gross margins and we are seeing the effects of our work. On pricing, the work that we have done here continues to deliver. However, the effects of our price increases are countered by the currency headwind that we have had since so much of our sales is in US dollars. we pushed through another price increase in April. The full effect will show up gradually as sales cycles close throughout the year, but the trend is positive and gives us confidence in margin improvement ahead. So let me step back and talk about where we're going. The strategy we laid out in December is about becoming a company that truly addresses the full potential of medical simulation across five segments, all of which have very low penetration today. And we are in the early innings of a long game. We have no debt and we have 668 million in cash. We have the market leading position. We have the products, we have the relationships and we have the clinical expertise. This combination is genuinely rare and it gives us real options to invest in growth, to pursue acquisitions and also to return capital when the timing is right. In quarter two, aside from the work with growing these five segments, we will put significant focus on our operational and production structure, particularly on how we scale manufacturing in a way that reduces cost per unit and makes us more resilient to supply chain disruptions. Our new production facility in Tel Aviv is expected to go live during the quarter, which is going to be an important milestone for us. The tailwinds are real and they're growing. An aging population, increasingly complex procedures, a shortage of trained healthcare professionals, higher standards for patient safety, all of these are driving demand for simulation every single year. We're building for that world, and I'm confident that we have the right strategy, the right team, and the right assets to get there. With that, I will hand over to Anna to walk through the financials.

Thank you, Tom. Yes, we're very pleased to report a solid start to the year. For the quarter then, we had sales of 235 million, down 6% in SEC, but up 4% in local currencies. And we have, after Q1 2025, seen a significant negative effect from currencies on our overall sales and also on our result. I will come back to that later. with our just below 80% of revenues in US dollars. For 2025, the full year, the average USD rate was down 7%. But for this first quarter against Q1 last year, it is down with a full 14%. And so, of course, that affects us. As I have mentioned before, we are doing some things to try and mitigate this. We are raising prices. And as Tom mentioned, we did one more price increase in April. And we also try and quote more countries in euros instead of in US dollars where this is possible. This will not mean a very large change in the ratio between different currencies since a lot of our revenues originate from the US. But we see for Q1, there we had approximately 70% of our revenues in US dollars. So it's down approximately seven percentage points if we compare to the full year 2025. And looking at our two business areas for the quarter, the split was 55% for EDU and 45% then for INDU. EDU then up, strong quarter up 6% or 14 in local currencies. For this year, we have updated our revenue segments somewhat. The geographic regions have been adjusted slightly and sales by product segment have replaced sales by product group. And this is done in line with the segments that we have presented in our new strategy. Apart from the emergency medicine segment, that is still too small to be reported separately, and we therefore now have it included in the medical device segment. So back to regions, Tom already talked about it then. EMEA was very, very strong, up over 80%. The Eastern European countries accounted for the majority of this increase, and then the UK had a quarter that was stronger than any other quarter in 2025. Revenue in the Americas, then down by 24% compared to Q1 last year, primarily related to the US, but excluding currency effects, sales for this region decreased by 10%. APAC saw a 25% decline, primarily then attributable to China. Also, we had a large order for Pakistan in the prior year quarter. India was also strong for this quarter. Indu down 17% or 7% then excluding FX effects and licensed revenues, as Thomas talked about 68 million, a decrease in SEC of 19%, but eight then FX adjusted. And if we look at our revenue streams, that means that we had 29% of our revenues were licensed revenues in the quarter. which we see as a good number and again it was as expected that intuitive was down due to the previously announced NYU cancellation reverting back to the old agreement between the company starting January 1st and again the previous estimate that we had that this will have a negative impact on our license revenues of 60 to 90 million that is still our best estimate However, we did have revenues also from several other countries and customers in this quarter. Simulator sales as a whole was down 2% compared to Q1 last year. And this is then due to our industry business area. As Tom said, it's more lumpy for sales than within EDU since it's usually tied to larger projects where development is also involved. And our development revenues, they were up a bit compared to last year, but weaker than the previous three quarters. And this is then primarily due to the project we have in Southeast Asian country. This project saw revenues of only 2 million SEK in this quarter due to a minor restructuring of one of the project's milestones. The total for the project is still the same, even with a smaller addition. But for this quarter, we saw some weaker revenues. And moving on then to our costs and EBIT margin, as mentioned, our gross margin then for the quarter was 66%, 69% if we look at the comparable quarter. Licensed revenues, as we've seen, a lower share of total sales. And then the currency effects, that effect was approximately 2.2 percentage points in the quarter. And here it's important to note that the lower dollar exchange rate has for us less impact on the cost of goods sold than on other cost items. Our input goods are primarily purchased in currencies other than USDs and production and associated wage costs are also not in US dollars. Also for the quarter, the proportion of direct sales within educational products and then primarily in the US was lower. And this also then has a dampening effect on the gross margin. So these three are the main three reasons. And then on the positive side, we have the price increases that we implemented in 2025. And as mentioned, we did another one in April. Regarding OPEX, sales costs were 21% of sales. In the comparative quarter we had some restructuring costs attributable to the acquisition of intelligent ultrasound, now Surgical Science UK. And then we also did some further restructuring in Q3. And then starting in Q4 last year, the reductions that we implemented in the Salesforce following the acquisition started to have full effects on the cost side. Tariffs from the US implemented in Q2 last year, meaning that we had no costs for this in the comparable quarter, Q1 last year. And for this quarter, then tariffs amounted to approximately 2.4 million SEK. Admin costs 8% of sales, same as Q1 last year if we exclude acquisition costs for IU in the comparable quarter. In absolute numbers, admin costs were down if we compare to previous quarters. We have started to work on the relisting process. But these costs, we will of course inform of how much costs we have for each quarter due to this process. And we expect the relisting to take place next year. R&D costs, 24% of sales. We activated slightly less, 9 million instead of 10 million SEK in the quarter. The costs on this line also vary depending on how much development revenue there is for the quarter since salaries for the portion of the development team that have worked on projects that generate development are transferred to cost of goods sold. and in absolute numbers for R&D costs we were down a bit compared to last quarter Q4 however then we also had some restructuring costs on this line 3 million SEK related to the termination of development personnel in Seattle on the other hand we had more development revenues then meaning more costs were moved to the cost of goods line but all in all if we look at all these different items our R&D costs were down a bit compared to Q4 even though we continue to invest in this area. The other operating income and operating costs line 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 this quarter, we had a negative impact on results. So just above 5 million SEC attributable to this revaluation compared to a positive of just under 2 million SEC last year. So following this then our operating profit our EBIT for the quarter was 23 million SEK corresponding to an operating margin of 10%. If we then adjust our P&L for FX effects EBIT amounted to 36 million or 14%. And the way we did this is that we used the average exchange rate for Q1 last year, recalculated the P&L. However, balance sheet items and their impact on this line, the other operating income and expenses line, that has not been restricted. Organization wise, the number of employees at the end of the period was 317. That's 19 less than going out of Q1 last year. And the majority of this change is attributable to the restructuring of the Salesforce following the acquisition of IU and also the closing of the Seattle office in Q4 last year. For adjusted EBIT, which is an EBIT exclusive of amortizations on surplus values related to acquisitions, the result here for the quarter was 28 million. And if we then adjust for FX effects the same way as we did for EBIT, our adjusted EBIT was 42 million sec or 16%. Finance net and taxes, not much to say here for the quarter. We have no loan financing, meaning that the net financial items mainly consist of interest income on bank deposits and also we have revaluation of internal loan liabilities to subsidiaries and an IFRS 16 effect. Net profit for the quarter 19 million and the tax expense was 3 million. For this year there are tax loss carry forwards in the US attributable to Mimic and also in the UK attributable to Surgical Science UK. And then cash flow, we saw a very strong quarter on the cash flow side, 65 million from operating activities compared with the minus five last year. We had a big positive from working capital, 36 million, where inventory remained largely unchanged while accounts receivable decreased. current receivables, including accrued income, and that mainly relates to accrued license revenues that we invoice and that are paid in the following quarter, that has also decreased, meaning a positive effect on the cash flow. Investing activities, Tom talked about our new production facility in Tel Aviv and for this quarter we invested approximately 6 million. And as also mentioned, they are expected to be commissioned now in the second quarter. Financing activity is not much to mention here for the quarter. And that meant that cash flow was a positive 51 million for the quarter. And we ended the quarter with 668 million in our cash and bank. And with that, we open up for questions.

I would like to conclude by first thanking Anna and then a short wrap up. Quarter one was a solid quarter for Surgical Science. The underlying business is growing. Margins are in line with last year and cash flow was the best quarter one we've had in some time. The currency environment has been a real headwind. and the intuitive impact on the license revenue is playing out as expected. But if you look through those two factors, what you see is a company executing well. We have momentum in EMEA. We have a very strong quarter in the UK. We have exciting new product launches generally and specifically in ultrasound. We have a growing robotics ecosystem beyond intuitive and a pricing strategy that is working. We are not yet at our financial targets. We have been clear that 2027 is the year we expect to hit them, but we're moving in the right direction and building the foundation that gets us there. The opportunity in front of surgical science is significant. Simulation will become a central part of how healthcare trains its professional, and we intend to lead that shift. With that, we open the floor for questions. Next up.