Welcome to the CellaVision Audiocast with Teleconference Q3 2022. For the first part of the call, all participants will be in listen-only mode, so there's no need to mute your own individual lines. Afterwards, there'll be a question and answer session. Today, I'm pleased to present CEO Simon Østergaard and CFO Magnus Blixt. Speakers, please begin.
Thank you very much. Thank you everyone out there listening in to hear about our Q3 highlights. I think we can get right into it. If we take the next slide, that's perfect. The Q3 this year has been a challenging quarter, and I will do my best to explain the underlying drivers behind our numbers. We did have some external challenges affecting our results. We ended up Q3 with SEK 141 million in revenue, which represents 7% growth. However, adjusted for currency effects, we had -3%. That is primarily due to the 10% positive contribution from the US or the 10% and mainly from the US dollar.
This results in an EBITDA of SEK 29 million, which is at 21%, which is obviously lower than our normal performance. I'll do my best to explain what is going on revenue-wise, what's going on cost-wise, margin-wise, et cetera, et cetera. If we look at the gross margin piece, the positive currency effects did not. It certainly helped, but it did not quite contribute for the challenging market conditions, but also the increase in the inflation we've seen on our materials, which is hitting our costs negatively. Generally, I would say Q3 is our difficult quarter. It's if we look historically, there is a bit of seasonality. We tend to have difficulty due to the vacation period, especially in Europe, Americas.
This is what we've seen this year as well. This is no different. However, our weakest point this quarter is indeed in Asia, in particular in China and Japan, and mostly in China. This is where we have implications from the lockdowns. We can talk a little bit about that later as well. In terms of our strategic direction, we are pleased to announce that we are continuing our strategy that we have launched the Power of Focus. We've been successful in building up the required team to expand our focus also into new areas. So our strategic pillars around specialty and around new areas is going according to plan. We've also been able to increase our activity levels also up against the comparative quarter last year.
Much more activity. This is also seen by our ability to join conferences in Chicago and Bologna, where we've participated in the shows, and we've launched the DIFF-Line. We have also on the reagent side, on our reagent pillar, we have focused on really increasing our sales after the EU IVDR directive was launched in May this year. We're seeing sort of starting to increase traction for our methanol-free, but in general as a sound growth of our hematology ranges. Also finally, on the internal side, we are successful despite the challenges of building and getting materials, et cetera. We've been successful in executing according to our construction plan where we expand our reagent premises in Bordeaux.
We expect that to be completed in Q2 next year. Next slide, please. I briefly launched sort of the result at the top line. If we kind of go through the key points of the P&L here, our gross margin was not quite. It took a small hit compared to last year. Again, positive contribution from FX, but the pressure on the increasing material costs. We had operating expenses of 56% of revenue. That represents SEK 79 million. We did increase with just over SEK 20 million in OPEX. That is partly explained by we have SEK 13 million in R&D. We have SEK 6 million in higher activity sales and marketing-wise.
In the R&D, we also had a write-off of SEK 3 million for one of our, or a couple of our, small programs. Furthermore, related to the R&D costs, we have used a bit more consultants to cover ongoing development projects 'cause we have used ordinary staff to also validate replacement components in this difficult time. I should say, though, that supply-wise, we have been able to serve our customers. With an operating expense metric of 56%, we land the EBITDA at SEK 29 million. This is only 21%, so much lower than last year. However, our year-to-date is 31%. Obviously we are ramping up on the R&D side.
I said we had SEK 39 million before capitalization, which is an increase of SEK 26 million. Let's say on a base of SEK 26 million, I should say, from last year. Just to comment on the capitalization, we capitalized just over SEK 8 million. It's a bit lower metric than normal, and this is a result of our strategy. We are increasing also in the new areas where we are running projects that cannot be capitalized yet. This is part of the incremental R&D where we've invested in a new team for the new areas. That's the explanation for that. Cash flow wise, we landed an operating cash flow of SEK 31 million.
We had investments including the capitalization of the R&D projects of SEK 13 million, and we had financing activities of SEK 11 million, which brings us down to a total cash flow of SEK 6 million in the quarter. Right. Let's take the next slide, please. Zooming in. Looking at the regional highlight, when we look at the revenue distribution, we're reasonably satisfied with the Americas and EMEA. In Americas, we had 23% growth in the quarter. Obviously, there is a strong contribution also from FX. However, our revenue in Americas is about, say 40% of the revenue is in euros. We're not fully exposed to the US dollar, which means that the number we represent here does represent growth.
We ended the quarter of SEK 59 million and SEK 214 million year-to-date, which is 56.6% year-to-date growth. We still have traction. We have good activities from our team and our partners in North America, and we're pleased to get the feedback of the DIFF-Line at the AACC show in Chicago. In EMEA, we see solid performance, SEK 74 million over SEK 66 million in the comparative quarter last year. SEK 219 million throughout the year, which represents 14% year-to-date growth. Had pretty solid double-digit growth on the instrument sales.
Also, I said, we're in Europe, this is where we also see traction on the reagent side, as I'll come back to. The weakest point I said was APAC. We have -54% growth, so we went down from SEK 18 million to SEK 8 million in the quarter. There is no doubt that the large order we delivered in Q2 is impacted by the lockdowns in, especially in China. That has led to inventory buildup and postponed orders from our partners. We've had limited sales of instruments in APAC this quarter, which is really what takes our full quarter down.
If we go to the next slide where we have got the sales per product group, and again emphasizes on the left-hand side, we see instrument growth of 0% this quarter, so SEK 75 million. However, if we look at the integrated solutions and our DC-1, they continue to do well in Americas. Also if we look at the DC-1s, there is enormous traction to tie in the DC-1s to the network hospital chain. In Europe, it's kind of mixed. Also, the standalone laboratories request the DC-1. We're pleased with it, and we are very excited about our launch of not just selling a DC-1 box, but selling a workflow solution for the small/medium labs with the DIFF-Line.
Reagents-wise, 8% growth, 11% year-to-date. We actually had 15% growth in local currency on our hematology reagents, which is the majority of our reagent sales. This is really what strategically is extremely important for us. We still have a solid delivery of good reagents that goes outside hematology, and they are continuing to grow with single digit growth. On the software and others, we saw traction to combine the instrument sales in EMEA with remote review. That's positive.
Also the portion if we look at this and deduct the portion of software and others category up against the total sales, that goes down in this quarter with a couple of percentage points up against year-to-date. That is a normal consequence of our instruments being also a couple of percentage points down in the total revenue. That follows suit. A bit low really on our instruments, which has spillover effect to software, and as said, primarily from APAC. I'll take the next slide. Which is the summary slide here. Here we can summarize our quarter as CellaVision being on track with our plans, with what we've set ourselves out to do.
However, we're on track despite challenging conditions in the quarter. We were impacted by external factors such as the lockdowns in key markets, especially China. We are also impacted by the normal Q3 seasonality, which is historically. I think there's a difference between this year and last year. Last year, our performance was, let's say, acceptable. We were on our way out of the recession. I think this year we've had a very strong H1. We have been faced with strong orders in Q2, and that invites for inventory build-up if we are hit by external factors such as the lockdowns. That's what we're seeing in China. We have been successful in focusing and executing our strategy to build the teams, which is the first step to onboard new strategic pillars.
We've been working hard on actually managing the costs and the access to components. Obviously that has an impact as well. We need to serve our customers, and we need to build and push our strategy to be the innovation leader within hematology, which we've set ourselves out to be for the long-term future. Good feedback from not just having the DC-1 on the shelf, but actually being able to present a workflow with SmearBox and the StainBox to cater for the small medium lab laboratory. We're continuing to work on the launch and the acceptance of the entire workflow solution as a package. We're also continuing our reagent strategy.
Very pleased to see that CellaVision, with the brand of RAL and the ability now that IVDR is alive, that we can see there is traction because we are compliant with the IVDR, so we have a competitive advantage, and we have manufacturing capacity for the future as we're building up. We are very curious about the work we do with our partners who are assessing our stains, so that we can expand into other geographies. That is going according to plan. Finally, a comment on our financial targets. year-to-date, we're just short of the 15% in 2022. Our EBITDA margin, we have set ourselves up to deliver EBITDA above 30%.
Traditionally, over the quarters, we've exceeded that number by far. This has been a comment that we've received very often. This quarter, we obviously don't deliver, but the metrics is given over an economic cycle, and we're at 31% EBITDA for the year. This is a symptom of us pursuing our strategy, increasing our cost base for the time being. This is not the intention that it'll have the same acceleration over time. That combined with a challenging top-line environment leads us to a lower EBITDA of 21% throughout the quarter. Hopefully, that sheds a bit more light on our reports. Magnus and myself are very pleased to engage in any questions and conversations now. Thank you very much for your attention.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name has been announced, you can ask your question. If you find your question is answered before it's your turn to speak, you can dial zero two to cancel. Once again, if you wish to ask a question, please dial zero one, and if you find your question is answered, you can dial zero two to cancel. Our first question comes from the line of Ulrik Trattner at Carnegie. Please go ahead. Your line is open.
Thank you very much, and good day. I have a few, if I may. If we can start off with breaking down the growth per segment. As you mentioned, hematology and reagents is growing 15% in local currencies. That leads me to look at our instruments declining double digits organically. Is that correct? Is that mainly explained by APAC? How is it looking in the other markets, Americas and EMEA?
That's mainly explained by APAC. Correct. Thanks for your question. Excuse me. That's mainly due to the lower increase of instruments in APAC. Definitely.
Would you still state that instruments are growing organically in Americas and EMEA?
Yes. We would. Double digit.
Okay, great. On the gross margin side, you talk about one-offs in Q3 related to higher purchasing prices. How much of this is actually one-off that won't carry into Q4 and probably next year as well? I believe we have seen a lot of companies experiencing higher purchasing costs. You had FX gains on the top line of around 13 million SEK. Is this roughly what you experienced in terms of increased purchasing in Q3? I know you mentioned that it's slightly higher than that, but are we in the ballpark to assume that additional purchasing is around 14 million SEK in Q3?
Yes. Hello, Ulrik. Magnus here. When it comes to the increases in Q3 and what we call the one-offs, it's not one-offs due to write-downs or anything like that. It's one-offs more considered in a slightly longer perspective. It's a pressure upwards on purchase pricing that will continue also into the future. Some of it is related to short-term increases, that is spot market purchases, for example. When it comes to a little bit longer perspective with inflation rates, it's really difficult to say what's going to happen.
Great. Could you clarify if sort of FX gains of around SEK 13 million, are we to consider sort of the increased purchasing prices to be in that ballpark, SEK 13 million-SEK 15 million in Q3?
Yeah. We could see that the FX tailwind we've had from FX is almost offsetting increasing pricing that we've seen in the quarter. It's close, but there is a slight decrease in the margin. With unchanged customer pricing and a fairly stable mix, that is a conclusion you can make.
It's a fairly stable mix.
Yeah.
However, if we look at it, there's a few percentage points. If you divide the pie, the agents take a little bit more cloud this quarter than normal.
Yeah. They do.
that also influenced the gross margin mix.
That's a downside on the gross margin mix, and then the APAC portion of total sales is a little bit lower. That would be a slightly positive effect since we have lower rates of software in the APAC region.
Yeah. Great. R&D side, you know, quite a lot of increase in cost here in the quarter. I think it's around 78% up year-over-year. Two-part question here. So how much of this is explained by building up a new team around expansion areas and new indications? As well as you mentioned this SEK 3 million write-down in Q3, what is that related to? The obvious question, is this sort of the new base level that we should expect, given that you're currently in this strategic plan to expand your product offerings? Is this the R&D level that we should expect going forward?
Yeah. The SEK 3 million that we have written off, they refer to two small projects that were paused as we entered the COVID. Roadmap-wise, there is no rationale to continue those. That's the reason. That's true one-off, if you like.
Yeah.
The incremental R&D cost of SEK 13 million, so the 78% you refer to, that's going from SEK 17 million up to SEK 30 million, as I recall it. These are a rough estimate, would be half of it is our new teams. We're really ramping up in being able to serve the specialty segment and also following through the acquisition of Clearbridge last year. This is our FPM technology. Of course, a big thing for us is just to stay ahead of the game is next generation development. This is also where we've ramped up. In terms of what does the outlook of R&D costs look like, I'd say, we have been ramping up definitely to deliver on the strategy. You will not see the continued growth. I'm not saying that we're not expanding, but we will not accelerate the cost base to the same extent as we've done.
This should be a maintained level?
This will maintain with maybe a few investments. That's how I would look at it.
Okay.
We think it's super important actually. With the aspiration and the mission we have, we believe that investing in our own activities is the way to build the ecosystem. This is why you see a bit more organic investments. This is how we can deliver on serving the customers with all the needs.
Yeah. Great. Since a lot of these investments are into new TAM specialty segments, you mentioned the FPM technology as well, when are we to then expect revenues from these expansion segments?
I have no doubt that throughout 2023, we will be explicit around news coming out on the specialty. We're pretty excited about that. Good progress, good team. We will obviously the FPM acquisition that can come in, let's say, two flavors. Obviously, it's a technology we acquired, which is also why we cannot capitalize it according to our policies. We're vetting the opportunity for this technology. I think I've said this before. This can certainly be used outside of hematology, but it also carries a competitive advantage within hematology. I'll be more explicit as to when we will utilize that technology. We're in a very positive technology maturation phase for the time being.
Okay, great. Two more questions, if I may. You mentioned instruments growing organically in both Americas and EMEA. Is that the case for both, the DC one and the large lab products? As well as do you believe that there's been any sort of inventory buildup in these regions heading into Q3 that could help sort of mitigate numbers in going into Q4?
No, I think we had for Americas a bit of an inventory buildup in Q2. However, we've still served Americas with the DC ones throughout the Q3 quarter. We know that there was a bit of inventory sitting as we exited Q2. That is positive from the sense that we've baked off the inventory, and we have served the customers throughout Q3. Pretty good traction around it. This is positive.
Were there organic growth for both the DC-1 and large labs in, let's take the Americas as an isolated market?
Yes, absolutely, Ulrik, there was. I could highlight a little bit on our split when it comes to FX effect, because about one-third of our sales is in US dollars and two-thirds in euro. We've seen the strongest currency FX change on the dollar, of course. It's around 4% on the euro and around 20% for the dollar. That mix is important to keep in mind. Our sales on the American market is partly in US dollars because some of our high running products are sold on global contracts and in euro across the world.
Okay, that's great. Thanks for clarifying that. Last question. CapEx related to new production lines in Bordeaux. How much are we talking about in fixed terms?
In the quarter here, I think we had CapEx investment in intangible assets of around SEK 4.5 million, and the vast majority of that goes into that project in Bordeaux.
The entirety of that project.
EUR 3.4 million.
Okay, great. Thank you very much for taking my questions, and I'll get back into the queue.
Thanks, Ulrik.
Thank you. Once again, if there are any further questions, please dial zero one on your telephone keypads now. If you find your question is answered before it's your turn to speak, you can dial zero two to cancel. There'll be a brief pause now while we register any further questions. Okay. Currently, there are no further questions coming through from the phone lines. Once again, if there are no further questions, at this point, I'll hand back to our speakers for the closing comments.
All right. Thank you very much, and thanks again for dialing in to hear about our Q3. I said, we are still on track despite with our activities, despite the challenging conditions throughout the quarter. I'd highlight the seasonality and the impact from APAC. However, I'm on behalf of the team and my colleagues, I'm proud to see the progress we do on the internal lines and we will do everything also to work our way out of the challenges we see in the external environment with increasing cost prices and how to mitigate supply situation, but also building the foundation for the future and pursuing our mission that we have set ourselves out to do. Thanks a lot.
We're looking forward to update you on at the next quarter.