Okay. Good morning, everyone, and welcome to C-RAD's presentation of the Q2 report. My name is Emelie Gessner Gozzi, and I will be moderating today's webcast. The report will be presented to you by Tim Thurn, our CEO, and Henrik Bergentoft, our CFO. The presentation today will address the first half of the fiscal year 2022. Tim will start off with a short introduction and comment on the financial highlights, followed by an analysis of the sales development before he finishes with commenting on the key events. Henrik will guide you through the financial review before he hands the microphone back to Tim, who will conclude the presentation with a short overview of the market. Before we close the webcast, there will be an opportunity to ask questions.
If you would like to ask a question, please press the Raise Hand button, and I will open up the microphone for you at the end of the presentation and give you the opportunity to ask the question you have. We will not be responding to any written questions in the chat or the Q&A. Outside of this question session, in the end, all of your microphones will be muted. A recording of the webcast will be available later on today on our C-RAD website. With that, I hand over the word to Tim.
Great, Emelie. Thank you very much. Let's get started with an introduction and the financial highlights. C-RAD is active in the field of cancer treatment. Our customers are hospitals that fight cancer with radiation. In modern high-precision radiation therapy, accurate tumor alignment is crucial for safe and successful treatment. C-RAD- positioning products are supporting this process and are fully integrated in the workflow. Over the past years, C-RAD has been growing significantly and generated last year SEK 200 million in revenue at an operating margin of 14%. In the second quarter, we again saw a very strong order intake with growth of 46% compared to last year. Revenue increased with 4%, leaving us with a record high order backlog of close to SEK 500 million. Operating income amounted to SEK 0.8 million and a margin of 1.2%.
The decrease compared to last year is a function of us investing in an organization to generate exponential growth in combination with increased cost, mainly due to the normalization of how we engage with customers and the return of physical marketing events. Our order intake growth is certainly confirming that we are already generating a return on our investments. Let's take a closer look at our sales performance. If you look at the distribution [audio distortion] of the orders by region, we can again deliver measurable growth in order intake in all regions, both for the second quarter but also for the first half of the year. We have booked orders for SEK 105 million, reflecting growth of 46%. The huge unmet demand for cancer care in the APAC region creates an underlying demand for high-precision radiation therapy equipment.
This, in combination with C-RAD's strong presence and an excellent market position in the region, creates a momentum reflected in order intake growth of 88%. It should be noted that also order intake is still somewhat affected by the lockdowns in China, resulting in a significant slowdown in the business activity. With that said, we also noticed a constant improvement throughout the second quarter. Continued growth also in our largest region, EMEA, as well as in the Americas, with 26% and 37%, respectively. In the Middle East region, C-RAD secured a large order for multiple hospitals or several orders for multiple hospitals in the region. In conclusion, a very strong momentum in order intake confirming the interest in our products and solutions. Let's take a quick look at the distribution of the orders by product category.
I believe the important takeaways are, first of all, a very positive development of our product sales. Sales of our main product line, the Positioning products, grew with 77%. More and more cancer treatment centers are considering surface tracking to be the standard in the treatment procedure. The ultimate confirmation of that is continuously more orders being placed with C-RAD for our state-of-the-art solutions. The second takeaway, we had a very strong quarter for our Lifecycle or service products in the first three months of this year. Even though we see in the second quarter the volatility with a decrease of 11% compared to the second quarter last year, for the first six months, we still improved with 49%.
This is just another confirmation of the volatility that we are exposed to. Our business reflected both in revenue, but even more in order intake, is subject to a very distinct seasonality pattern, whereas usually the second half of the year is significantly stronger than the first two quarters. This is since many customers are hospitals and clinics which have annual budget cycles aligned to the calendar year. The year opened with a challenging situation with the return of the pandemic and subsequent lockdowns in China that entailed negative effects on our revenue. Hence, it is encouraging to returning to revenue growth again. Americas is showing a solid growth of 24%. The growth in APAC is due to some recovery in China, but mainly attributed to other markets in the region performing well. Previous year, EMEA had a very strong quarter that was not matched this year.
I do want to emphasize that our revenue is completely connected with us delivering the orders to our customers. Typically, our orders are destined for newly built cancer centers, requesting delivery of the products when the construction plan is ready to receive it. We naturally push for quick deliveries, but it is important to highlight that our deliveries are subject to external factors beyond our control, which brings some volatility in revenue as a natural part of our business. Taking a closer look at our service business. Of course, we are closely monitoring the development of the service business and therewith the recurring revenues as part of our total revenue. Due to the volatility in individual quarters, we should look at the trend. I believe it is very encouraging and has developed well over the last years.
During 2022, close to 20% of our revenue is coming from the service business. The service business has higher margins than the product business and provides a stable revenue base for the years to come. Coming to the key events during and after the period. Two announcements. First of all, Henrik, our CFO, is going to leave us by November 15th. The plan for recruiting a successor has already started. Second announcement, I, Tim Thurn, after 12 years with the company and now almost 10 years in the position as CEO, I'm going to leave C-RAD and hand off the baton to Cecilia by the end of this year. I believe that Cecilia will take over the company in good shape and is able to take the company on the growth journey further.
I'm fully committed to ensure a smooth handover as CEO, but also as a larger shareholder in the company. Another announcement is related to guidelines that have been published by the ESTRO ACROP Surface Tracking Group. The ESTRO is a professional community, the largest professional community here in Europe, and ACROP is a focus group that has been founded and started to define protocols and procedures for the successful implementation in surface tracking. This group has released a report with such guidelines during the second quarter and is now published. This is the second report of its nature, and earlier this year we saw a similar report published that's very targeted for the U.S. market from the U.S. physicists organization.
All these developments are very important and very encouraging in the context of seeing this technology being picked up and becoming standard of care. I would like to focus this slide on the situation in China. I think we are all aware about the measures that the Chinese government has taken, and those measures have a significant impact on the population and also on public life. The situation is affecting also our team, our customers, and the distributors. Whereas we see an improvement, the overall situation in the second quarter in comparison to the beginning of this year, it still affects our partner and our business. I'm, however, convinced about the midterm and definitely the long-term perspective in this market, and therefore, I believe the situation is only temporary.
I believe that this market has a huge unmet demand and a commitment from the government to invest in cancer care. C-RAD is in a strong position and is market leader in the surface tracking space. Therefore, we have decided to continue to invest in this market, strengthen our commercial organization to support direct sales, our OEM relationships, and also our distributors. This is not only applicable for China. During the last quarter, we have actively worked on strengthening our commercial organization also in Europe or in the EMEA region and for the U.S. It is our firm belief that surface tracking is on its way to become standard of care, and we are very positive about the potential of the technology.
To further enhance future growth, we took the decision to strengthen our commercial team by adding 30% more salespeople in the strategic markets t hat we have announced in May. New team members will join C-RAD now during the second half of 2022. We believe that C-RAD has a great opportunity out there. There's a demand for high- precision patient- positioning equipment, and the demand is expected to even grow. We want to engage with more customers, and by that, drive adoption with a higher pace. With that, I hand over the presentation to Henrik, who will guide you through the financial review.
Thank you so much, Tim. Perhaps I will start just making a comment on my departure sort from C-RAD being very much in line with Tim's departure. That is purely coincidental and nothing more to that. By that, let's start by looking at our P&L statement for the second quarter and the six-month period. With a couple comments I wanna make, starting off with our operational expenses. Looking at our external expenses, they amounted to SEK 18.6 million for the quarter as compared to SEK 12.7 million last year. The increase is driven by several factors. Last year's operating expenses were significantly impacted by the pandemic, with negligible traveling and no physical market events taking place.
During the second quarter this year, the ESTRO exhibition was again a physical event where C-RAD enjoyed great attention with its presence, which by default generated costs in terms of fees, travel, and marketing material not in play at all previous year. Expenses also includes a SEK 1 million one-off cost related to the change of CEO. External consultants have been used to a greater extent, primarily in our R&D projects compared to last year, which is also reflected in the capitalized development cost, which I will comment on later. C-RAD has measurable costs in foreign currencies, primarily in USD and euros. As the weakening of the SEK has happened, that has increased our cost by approximately SEK 0.8 million for the six months period, with the main effect in the second quarter.
Moving on to personnel expenses, that for the quarter amounted to SEK 23.6 million as compared to SEK 17.6 million. As with external expenses, the weakening of the SEK has increased personnel costs by approximately SEK 1.1 million for the six-month period, with the main effect in the second quarter. The average number of employees amounted to 70 during the second quarter in 2022, compared to 62 during the corresponding period in 2021. At the end of June 2022, the number of employees in the group amounted to 70 compared to 64 last year. The main composition of the other operating income and expense item relates to the fluctuations in exchanges, and thus the revaluation of balance sheet items being a positive impact on the P&L statement in this quarter.
Capitalization during the quarter amounted to SEK 2.4 million, compared to SEK 1.2 million last year. That is related to continued development of the positioning products. The increased capitalization compared to last year is due to more efforts being put into development as compared to maintenance, and also that external consultants have been engaged to a greater extent as compared to last year. Moving on, looking at our revenue and gross margin per quarter, and in particular now focusing on the gross margin. The gross profit margin for the quarter came in at 65% compared to 63% in the corresponding quarter last year.
Fluctuations in gross profit margin can be expected between periods, as it is dependent on the product mix and a variation of sales channels in our different markets, where a larger portion of direct sales was the main driver behind the improved gross margin compared to the same quarter in 2021. In addition, the growing portion of services in revenue has a positive impact on the gross margin. As clearly shown by this graph, the gross margin has a positive trend improvement over time. Another graph, over a longer period of time, this time displaying revenue and operating profit by quarter. As seen, there's a clear positive trend over time. That said, much as Tim already commented on, there is a seasonal pattern in C-RAD's operations.
The second half of the year is usually the strongest period, both in terms of order intake and revenue. This is due to the fact that a large number of customers are hospitals and clinics, which have annual budgets aligned to the calendar year. As the larger part of C-RAD's cost base is fixed, fluctuations in the revenue have a direct impact on the quarterly operating profit. Volatility in order intake and revenue between quarters and markets is to be expected in our business. This is a snapshot of our balance sheet and our cash flow statement as of end of June, with a couple of comments to be made, starting off with the balance sheet. The company is completely debt-free and has a solidity of 76% and a cash position of SEK 108 million.
On top of that, an unused credit facility of SEK 20 million. Looking at the cash flow statement, the negative working capital is a result from a higher inventory level to secure capacity to deliver and also partly negatively affected by delayed payments from China. This last slide of the financial presentation displays our order backlog. As I think most of you know, the order backlog represents orders that have been received but not yet delivered, invoiced, or recognized as revenue. The backlog amounted to almost SEK 500 million at the end of June, a growth of 42% compared to last year. The total order backlog is represented by SEK 266.5 million that is related to products and SEK 232 million that is reflected to Lifecycle business or service contracts.
When it comes to the service contract, about SEK 42 million representing some 18% of the order backlog for the Lifecycle business will be recognized as revenue within the coming 12 months, as service contracts are recognized as revenue over the contract period. The service contracts can be up to eight years, while the most common contract period is three-five years. That marks the end of the financial presentation. I'm happy to hand over the microphone to Tim again.
Thank you, Henrik. Our vision is to provide superior treatment in radiation oncology for all patients. With our mission is to be the preferred partner to ensure safety and efficiency in advanced radiation oncology, helping to cure more patients and improve their quality of life. Cancer is among the leading causes of death worldwide. Three methods have been established to treat cancer, which is surgery, drug therapy or chemotherapy, and radiation therapy. C-RAD is active in the field of radiotherapy, and our products are used to improve patient safety and increase efficiency. The demand for our products is driven by the worldwide implementation of high-precision treatment techniques. If you look at the C-RAD value proposition, it is safety and efficiency. Safety for the patient and efficiency for the center.
With the use of C-RAD's technology, treatment techniques, high-precision treatment techniques can be implemented that increase the patient throughput and allow to reduce significantly treatment times. At the same time, implementing these high-precision treatment techniques, they come as a risk, which can be compensated by C-RAD's camera technology and increase this patient safety to make sure that the radiation beam is only turned on when the patient and ultimately the tumor is exactly in the right spot. We are positioning our products at the price point that requires the healthcare provider to invest another 5% of the investment for a treatment room. For another 5%, they get the benefit of patient safety and enable them to adopt these highly efficient treatment techniques. A fundamental pillar of our growth journey is the adoption of our technology.
We believe that the technology is on its way to become standard of care. There are a few good examples that underline our assessment. Proton therapy, which can be considered as the spearhead of precision radiation therapy. Here, essentially all new centers are choosing the technology to provide a safe and efficient workflow. Another example is the development of the tenders over the past years, where a good example is the Spanish government, where a tender was released for a countrywide tender where surface tracking was made a requirement on all new LINACs. Another angle to look at the standard of care is the clinical, angle.
We see a development over the past last years, where the adoption from focusing using the technology on only breast patients has developed to today's adoption, where roughly 70%, and in some cases even 100% of the patients that are treated at any given center that is equipped with the technology is surface tracking applied. That was a very strong development over the last years. The centers that have the technology are not using it only for one indication. It's not a niche application anymore. It has developed to a broad solution that can be used on essentially all patients. When we look at the market and the market opportunity, we are focusing our activities on the advanced radiation therapy markets.
There needs to be a certain level of sophistication in the market to adopt high-precision radiation therapy, and that is where the C-RAD technology or the customers can benefit from the C-RAD technology. The total market is assessed to be roughly 15,000 LINACs. Approximately 70% of the accelerators are installed in what we call the advanced markets, and that is what we are targeting. When we look at saying it becomes standard of care. It means that essentially all LINACs in these markets over time will be equipped with, or we expect them to be equipped with surface tracking. Looking at 75% attachment rate, that would mean around 8,000 units. If we look at the current market penetration, we see that there are another 70% of this 8,000 LINACs to go after.
What is included here is the opportunity to retrofit on existing LINACs, but also new LINACs that are installed over time. If we look at the C-RAD market potential, we have sold globally around 1,200 systems. We are looking at an opportunity to bundle our technology together with new LINACs sold, but also to upgrade existing LINACs. The dominant part of our business today is related to new LINACs, meaning the customer is purchasing our technology in conjunction with an investment in a new treatment machine. With the current sales volume of new LINACs to the advanced market, we assess the opportunity to be approximately SEK 1 billion annually.
Even though it is at the moment a smaller part of our business, we believe as the technology becomes standard of care, that more customers are inclined to retrofit our technology to their existing LINAC, provided that the machine isn't equipped with surface tracking already. We looked into the service business earlier in this presentation, which gives us a great opportunity for future growth. On top of these three pillars, the global market for radiation therapy is growing with 6%-8% and with significantly higher growth rates in some of the Asian markets where C-RAD has a market-leading position. Looking at the development of C-RAD from a revenue and operating profit perspective over the past five years. We have been growing revenue with close to or 18.5% over the past five years, whereas in 2018 we reached a break-even.
Now last year in 2021 we had a 14% operating profit margin. Looking at the technology, the system that we are providing and the clinical benefits. First of all, it is dose-free, meaning less side effects for the patient. It's a non-invasive system compared to other technologies that are invasive. It is a tremendous benefit in terms of ease of use. It is a markerless system which translates into patient comfort. Due to the integration that we have done with the surrounding system, it has less impact on the daily workflow. Based on studies published by important customers, worldwide, they show and demonstrate that the patient compliance is far beyond 90% of the patients. All in all, it is a very versatile and compliant solution for a large number of patients.
Looking at the strategy, it is based on product excellence, sales excellence and service excellence. We believe that we have a great product. The clinical applications for this product are clearly rendered. In clinical application, we have demonstrated the benefit of our technology. We are focusing now on sales excellence and service excellence. Sales excellence, we want to get out the message. We need to get out the message about surface tracking and the benefits that the technology can bring to the healthcare providers on the one hand, but to the patients on the other hand. We spoke already about the service business, which has keep developing fantastically over the last years at a high pace and high margin. Perhaps to close this presentation with a summary of why to invest in C-RAD.
First of all, what we are doing, we provide value for the society in the fight against cancer. C-RAD has a proven recognized product. It is established in the market with 1,200 systems delivered. Comprehensive market access with the teams that we have, either in the form of direct sales through our own people or distributors or our OEM partners. We are present at the most relevant markets worldwide. Surface tracking becomes standard of care, and this delivers a huge growth potential for the future.
Last but not least, C-RAD has a very stable financial platform, which gives us some comfort in the past years in the COVID situation, w e were able to, you know, source components, build up a stock level to be not as much affected by the shortage of components as maybe others. With that, I close the presentation and open the microphone for any questions you might have.
Thank you very much, Tim and Henrik, for a very well- presented presentation. We will now open up for questions. I will remind you that to ask a question, please click the Raise Hand button at the bottom of the window, and I will indicate when your microphone is open, so you can ask your question. We already have a few people who would like to ask questions. [Peter Wienand], please go ahead and ask the first question.
Peter, you're still on mute.
Peter, you are on mute, so you need to unmute yourself. If you click on unmute in the bottom left. I can't do that for you. At the bottom of the window you have the picture of the microphone. If you click on that, you will unmute yourself, and you can ask your question. Okay. We will move on. Erik Cassel, please go ahead and ask your question.
Hello. I hope you can hear me all right.
Very well.
Yes.
Okay, perfect. Yeah, I have a couple of questions. I'll take them one by one. Starting off, I mean, order intake, obviously very impressive, and I hope we can dig in a bit more into a bit more detail on that to understand it better. First off, on the positioning products, I mean, we know that there are large ongoing tenders in Europe, and I think the first tenders in Spain and orders has started to come in now. Although that region does not particularly stand out, it's mostly APAC, has there been any contributions into the Q2 numbers in order intake from that, or is that still more into H2?
No. I mean, there are first results also from the Spanish tender in the Q2 numbers, yes, from an order intake perspective.
Is that a significant part of it, or is the underlying market keeping up quite well?
The underlying market is keeping up pretty well. I think there are the first projects now that are realized. I mean, there's a certain time period now under which the customer's hospitals can decide on their solution under this tender. It is not only Spain that was driving growth. I think I also mentioned that we had a couple of orders from the Middle East region that were contributing to the EMEA result from an order intake perspective.
On APAC, I mean, from what I'm hearing from the LINAC players, tenders in APAC and then especially China are being postponed to a large extent. I think that order intake stands out to me and is sort of in contrast to what they're communicating. Could you perhaps just explain a bit more in detail on what's going on in APAC so we can understand if there's any particular country or large order that pops out in this quarter?
Yeah. No, but I mean, I fully agree, and very good question, Erik. But I mean, APAC is China and also the surrounding countries, so basically entire Asia. Whereas we exactly see the same of what you were commenting on from other companies in China, we very much see that the business is still affected. I would like to emphasize, though, it is better than in the first quarter. Business picked up both on the order intake side, but also on the revenue side in the second quarter. That is definitely a positive development. That is closely related to the lockdowns that somewhat softened now, still pretty restrictive, but somewhat softened compared to before.
Business is starting again. Hospitals start to go out and tender again. Systems can be delivered and accepted by the customers and revenue can be generated. If you look at the markets outside China, I think we had both Japan and Australia contributing quite significantly during this quarter. In general, I would say that the Asian market has a huge unmet demand for cancer care, which is driving the interest in radiation therapy equipment and also the C-RAD technology. I would like to comment also in this context on India. As you know, we have commented in previous reports, we engaged in the Indian market with a direct presence last year, which we have even strengthened this year.
Also this market has continued to develop, well. Of course, in the bigger picture it is more, still is more contribution, but we see that the C-RAD presence is well paying off. The number of projects that we are working on, the number of projects that we have in the funnel is constantly increasing. I think it is an overall positive business environment in the Asia region, yes, but I agree China is an exception here where the business is not on the same level as on pre-COVID times.
Okay. That's good to hear that other countries are keeping up. Are you able to give any more color on, you know, perhaps how much China is down year- over- year in terms of orders and sales, to sort of understand how much other parts are contributing?
I mean, in the first quarter it was close to nothing, and from that perspective, we were excited about everything what happens in the second quarter in China. I don't want to give any details here, but I think we are roughly on the level 50% as what we had pre-COVID times for China.
Okay. Thank you very much for that. And then for the rest of the year, I mean, I guess China is the largest swing factor when it comes to, you know, full- year earnings perhaps. I'm hearing different things. Last I heard from Varian is that they're still positive for H2 recovery and sort of have reiterated their guidance for full year LINAC installations in China. When I last talked to Elekta, they were a bit more cautious and hesitant on China and that sort of recovery. I'm just wondering in which way you're leaning. Are you still think that the market will sort of fully recover or is it a bit more cautious in your view?
Yeah. I think the two answers that you got are very well reflecting the volatility and the uncertainty that is there in the market. I mean, certainly the lockdown, for example, in the larger Shanghai region, was softened earlier. Everyone was very enthusiastic. Now a kind of soft lockdown has been implemented again. It is still very volatile. I mean, we know that the Chinese government is very restrictive in the execution of their plans to, you know, mitigate the effects of COVID by implementing lockdowns. With that said, I mean, overall, I do believe the market is recovering. As I said, in the first quarter it was close to nothing. Second quarter was somewhat more positive, but it is still very volatile. I'm a bit cautious, but if I'm leaning towards a positive development midterm.
Okay, great. Thank you very much. That was actually all of the questions that we had for today. Yes, it is. Or Erik, do you? Yeah, I believe Erik actually has another question. So hold on. Go ahead, Erik.
Hi. Yeah, yeah. I had a few more questions if that's okay. I was just gonna ask on the, you know, delayed payments in China, what's the risk of that turning into some sort of write-down? Is that contingent on, you know, some sort of fully recovering China and normalization? How should we see the risk of that?
I would assess that risk as very low since this is at the end a Chinese governmental hospital that is paying our distributor that then is paying us. The holdup is that due to the lockdowns a lot of projects have not been finalized and payments are only released once the projects are finalized. Short answer is we see very low risk in having any write downs there.
Okay. V ery good. Very good. Then last question from me. I mean, Tim, you talked a lot in your CEO comments of how your revenue is connected to actually delivering the orders to customers and that there are, you know, external factors in play that seems to have hindered you. But could you just talk about perhaps, you know, actual results compared to delivery plans that you had and how we should think about, you know, sales phasing of those missed deliveries if that's the case?
Yeah. No, but that was more an effort to explain the overall situation. I think without commenting on our internal budget or expectations now. I think both U.S. and Europe and also for that purpose, I mean, large part of Asia were not affected at all. China, we discussed already. The matter of the fact is of course that, I mean, as the technology becomes more established and we are typically today much earlier involved in the sales process than we have been involved in many years back where, you know, a large part was retrofit.
It is certainly so that we are more dependent on the implementation of the LINAC in the room and if that is postponed due to building or construction delays, then it has a direct impact on C-RAD as well. I mean, we are kind of, you know, I wouldn't say the last element to be installed in the room, but I mean, we are definitely more towards the end of the implementation process involved when the C-RAD technology is set up and for that matter, also delivered to the customer. I mean, nothing has changed there and I mean, there are no changes that we see worth commenting on either. It was really more a matter of explaining the overall situation, how revenue is connected to orders.
Okay. Yeah. That makes sense. That was actually all the questions I had for you today, so thank you very much for good answers and enjoy the rest of the summer, I guess. Thank you very much.
Thank you.
Thank you.
Thank you, Erik. That was actually the last questions we had for today. I thank you all for today, and I wish you a fantastic summer. Bye.