This meeting is being recorded.
Good morning everyone. Welcome to C-RAD's Presentation of The First Quarter of 2023 Financial Report. My name is Basak Karakus, and I am your moderator for today's session. I'm pleased to introduce our CEO, Cecilia de Leeuw, and our CFO, Christoffer Herou, who will present the financial results and answer your questions today. Cecilia will begin by providing an overview of the financial highlights in Q1, followed by an analysis of sales development.
Next, Christoffer will provide a financial review before he hands over the microphone back to Cecilia, who will summarize. Before we start, please note that we will not be taking any questions in the chat, and all your microphones will be muted throughout our presentation. After the presentation, we will have a Q&A session. I will turn on your microphone, and you will be able to ask your question directly to Cecilia and Christoffer. Finally, I'd like to remind you that the recording of the webcast will be available on our website shortly after this webcast. Without further ado, let's get started. Cecilia, the floor is yours.
Thank you, Basak. It's great to be here today, this time with our new CFO, Christoffer Herou. Before I go into the Q1 numbers, I'd like to remind you of the world that we act in. C-RAD is in the field of radiation therapy, which is one of three ways to treat cancer. In fact, approximately 50% of cancer patients are treated with radiation therapy, as many patients get a combination.
For example, surgery and radiation therapy. Our customers are mainly hospitals and clinics, we are active in the field of surface-guided radiation therapy or SGRT and are well-established on the market. Our job is to treat more patients safely. The radiation dose needs to be delivered to the tumor with high precision in order not to damage healthy tissue. This is where our groundbreaking technology comes in.
Safety and the quality of life of the patient is key. In addition, our products speed up the workflow during the setup and treatment of the patient, which increases efficiency and hence more patients can be treated. One would think that it's a given to use SGRT in radiation therapy.
The additional investment is only some 5% of the total investment to equip the cancer treatment room. We have mainly three ways to go to market: Direct with our industrial partners such as Elekta, Accuray, Varian, proton suppliers such as IBA, Mevion, Hitachi, and our global network of distributors. Often, it's a combination of these. Let's move into the result and some highlights of the first quarter. This is my first quarter as the CEO of C-RAD, and I am pleased to say that we had a solid start of the year.
I have spent a lot of time traveling to meet and work with my team, our partners, and also gotten the opportunity to receive feedback directly from customers at the hospitals and clinics. The order intake was stable with a growth of 12%, and we continue with that to build up our backlog, which is now an impressive SEK 649 million.
We continue to see strong interest from our customers, and there is an underlying unmet demand, both in advanced markets, for example, Germany, as well as developing markets, who are in the early phase of building up their radiotherapy capabilities. India, with an increasing GDP and a growing demand for healthcare, is a good example of that. Our revenues grew 50% to SEK 84 million compared to the same period last year, which is indeed a good start of 2023.
I'm pleased to see that all regions are showing strong growth and that China is continuing its journey back towards pre-COVID levels. Our focus during the first quarter has been on growing the top line but at the same time managing cost. I am pleased that we can display that in an EBIT of SEK 6.4 million for the quarter, corresponding to an EBIT margin of 7.5%.
Again, I'm excited to be here today with Christoffer, who took office actually this Tuesday of this week. Let's look into a few highlights that are displaying the high interest of our technology. The year started off strong with a prestigious win in Germany with the leading radiotherapy practice, Nordstrahl.
It includes both Catalyst SHD and Sentinel systems, as well as a multi-year service agreement worth a bit more than SEK 8 million . We have an ambition to increase services as well as growing our business in the U.S. Our multi-year extension with radiation oncology network in Missouri, U.S., is a proof of the trust in us. The value of this order is almost SEK 9 million . At the end of the quarter or after the end of the quarter, we got yet another confirmation that surface-guided radiation therapy is becoming a standard part of the treatment. Australian network Cancer Care Associates selected us for all their clinics across Australia, an order worth SEK 23 million . Let's take a closer look into our markets and the sales performance.
Order intake for the first quarter amounted to SEK 91 million , a growth of 12%, as I mentioned just earlier. In constant currencies, order intake increased 5% compared with the same quarter last year. EMEA grew by 18% to almost SEK 44 million , and we continue to see a growing interest across countries, both for new systems and retrofit to existing accelerators. In APAC, order intake increased by 12% to SEK 27 m illion , and here we are positively impacted by China opening up. Let me click on China. We are market leaders there, and are expanding, executing on our strategy of more direct sales, so in combination with our network of distributors. This improves our reach and also our profitability.
Order intake in The Americas was at the same level as last year. What we hear from our customers also is that cost increases in the US is leading to a slower uptake of investments. Let's take a quick look at the distribution of orders by product category. We had a growth both in products and for services. The order intake for products amounted to roughly SEK 60 million in the quarter, which is an increase of 8% compared to the same period last year. The order intake for service agreements was even stronger and grew 21% to SEK 30 million. As a reminder, our business is subject to a very distinct seasonality pattern, and as you can see in this graph, the second half of the year is typically stronger than the first half.
The main reason is that our customers typically have an annual budget, which is aligned with the calendar year. The fourth quarter is normally the strongest. However, last year was unusually strong due to the Italy order of SEK 46 million. Let's take a look on the impact that the order intake had on our backlog. Order intake represents orders that has been received but not yet delivered or invoiced. The backlog, as mentioned earlier, amounts to SEK 649 million at the end of the quarter, and this is an increase of 44% compared to last year. A bit more than half, or SEK 364 million, relates to products and SEK 285 relates to service contracts.
The conversion rate, which is the time from receiving an order until delivery is made, is six months for products for this quarter. This depends on I mean, this depends on several factors and varies between periods. For example, is the clinic ready to receive our system? Service contracts can be up to eight years. Most commonly it is three to five years for us. Let me move into revenue per market. I am pleased to see that we have revenue growth in all markets. Revenue in EMEA increased by 48% to SEK 44 million. APAC increased 64% to SEK 22 million. One large factor for the impressive growth in APAC is again, you know that China is getting back towards pre-COVID, a pre-COVID situation. The AmErikas increased 39% to almost SEK 18 million.
Finally, let's take a closer look at our products and services business. Growing services is an important part of our strategy. It's not only for recurring revenue, which is also very good, but it's also due to the improved customer experience and a way for us to get closer to our customers. We are monitoring the contribution of service revenue as a function of the total revenue. This is a trend that we foresee continuing to increase over time as both install base and the attachment rate for service contract continues to develop favorably. Products, which is the lion's share of our total revenue, had a growth of 51% compared to the same time last year. With that, over to you, Christoffer, for a closer look at the financials.
Thank you, Cecilia. Hello, everyone. My name is Christoffer Herou, and I just started as the CFO here at C-RAD. I've got a very good impression so far of the company, the colleagues, and the culture. I will now give you some more details about the income statement as well as the cash flow and our financial position in general.
The revenue increase of 50%, which Cecilia mentioned, corresponds to that we in the current quarter had a revenue of SEK 84 million . At the same time, we were able to keep the gross margin at 65%. As you can see, the operating expenses have increased compared to last year. However, if we compare to Q4 in 2022, the cost level in the current quarter is significantly lower. More information about the operating expenses will follow later on in the presentation.
Despite the increase in operating expenses, we reached an EBIT of SEK 6.4 million to compare with a level of SEK 0.2 million from last year. The revenues in the current quarter ended up as mentioned at SEK 84 million. The geographic split between our markets is fairly stable compared to the distribution of fiscal year 2022. We are pleased to see that services share of the revenue is increasing and amounts to 18% in the current quarter. This illustrates the improved profitability in the current quarter compared to last year. The gross profit increased from SEK 36 million-SEK 55 million, which corresponds to an increase of 53%. We are pleased to see an improvement in EBIT in the current quarter to SEK 6.4 million, which corresponds to an EBIT margin of 7.5%.
The historic development of revenues and gross margin for the last five years is shown here. The overall trend is that the revenues are increasing, but that we also have been able to increase the gross margins at the same time. This is mainly due to a larger portion of service business in our revenues. The operating expenses have increased to SEK 49 million in the current quarter compared to SEK 36 million last year. The investment in our organization is continuing in a sensible way. Since Q1 2022, we have added resources within sales, services, and R&D. In addition to this, the travel costs have increased due to the higher activity level in the company. Inflation has impacted external costs negatively.
As we have a significant part of our personal expenses in foreign currencies, the weakening of the SEK also had a negative impact on our costs in the current quarter compared to last year. However, if you look to the right, you can see that the revenues are increasing at a higher rate than the operating expenses.
This is important on our path forward reaching profitable growth. The cash flow in our company fluctuates between the quarters. In the current quarter, the cash flow was negative with SEK 16.9 million. The major reason for this is that there were many customer orders which were delivered towards the end of the quarter, and therefore the cash in will be recognized after the quarter end.
We also had an increase in the inventories to secure future delivery capacity. On the overall level, we have a stable cash position with SEK 105 million in cash balance and an equity to asset ratio of 73% at the quarter end. With that, I would like to hand over to you again, Cecilia.
Thank you Christoffer. We have had a solid first quarter, and I am pleased with our revenue growth and the improved profitability. With SGRT, we are able to treat more patients safely. This quarter, we have put a lot of focus on growing the top line and at the same time managing our spend. Our first quarter started off well with a revenue growth of 50% and a number of important wins. We have improved our profitability to an EBIT of SEK 6.4 million. All this despite a challenging macroeconomic environment. The cash flow was impacted by the fact that we had deliveries in the very end of the quarter. Still, our financial position is very strong. In conclusion, we will continue to deliver on our strategy for profitable growth.
We as C-RAD have an important role to play in making SGRT becoming standard of care, I look forward to our continued strive to bring SGRT to more patients around the world. With that, it is time for questions. Over to you, Basak.
Thank you, Cecilia. It's time for questions. As a reminder, if you have a question, please use the Raise Hand button, and I will turn on your microphone, and you will be able to ask your question. I see some of you have already raised your hands. Let's get started. Christian Lee y es, please go ahead and ask your question.
Yes. Thank you. I hope you can hear me.
Yeah, absolutely.
Yeah, we can.
Okay. Excellent. I was wondering if you could give some color on the overall SGRT market? Given that you grew organically by 36% in Q1, would it be fair to assume that you're growing faster than the SGRT market and gaining market shares? What do you estimate your current market share of SGRT?
Yeah, we definitely see a growth in the market as more and more accelerators are equipped with SGRT, and this, of course, is different in different markets. In some markets, we are definitely the market leader, China, for example. I think overall, we have somewhere of a 30% market share, but of course, that depends, region per region. I think that is one of the reason why we also want to be a bit stronger in the U.S.
Okay. Thank you. You had good order intake in EMEA and APAC. It was a bit slow in AmErikas. Could you please elaborate on what you're seeing in this region except for adverse impact from cost increases from, for the customers? Do you expect it to improve in near term? Are you seeing a tougher competition from Varian in this region?
You all know that AmErikas or the U.S. is a very big and important market. It's the biggest radiotherapy market in the world. What we hear from our customers in hospitals and clinics is that they can feel the increases that they have in cost due to inflation and other cost increases. We don't really see a slowdown. We just see a hesitation when it comes to making the decision. We right now, we are not necessarily impacted, but it is something that we see when we talk to our clients or to our customers.
Okay. Thank you. My final question before I jump into the queue again. OpEx increased by 44% year-over-year as part of your strategy of growing the commercial team. How should we think about OpEx going forward? Do you plan to continue increasing the commercial team from current levels, or have you reached the level you want to be at?
We, as I said earlier, we are on a growth journey. There is a huge unmet demand in the market, and it's important for us to make sure that we do the land grab in the markets that are a priority for us. Continuously, we, going back to the investment that we did last year, we are now seeing, , some good things coming out of that investment. Continuously, we look to, you know, where we need to strengthen. You know, I just wanna emphasize that we are doing that, it has to be balanced between top line and cost. That is key for us going forward.
Okay. Thank you very much.
Thank you, Christian.
Thank you, Christian. Okay. Our next question is coming from Erik Cassel. Erik, you can now go ahead and ask your question.
Perfect. I hope you hear me all right.
Yes, we can.
Absolutely.
Perfect. Perfect. Well, good morning then, Cecilia and Christoffer . I guess, congratulations are also in place. I have a couple of questions. I'll just jump right in with the first one.
Yeah.
The, the reopening of China was obviously supportive for you this quarter. Could you just talk about the monthly cadence during Q1? I mean, did you see a notable pickup of installations late in the quarter, or was it pretty stable throughout Q1?
As I also talked about earlier in terms of the cash flow, we have a tendency to have more installations by the end of the quarter. There was nothing unusual about this quarter. This quarter, we had quite a high level of installations. It's more towards the end.
Okay. Do you think that pace could continue into Q2, or has, you know, the catch-up effects mainly been in Q1?
In China, you mean?
Yes, exactly.
Yeah. We continue to see, as the market is opening up and actually approaching towards the levels of activity that China had before COVID, we continue to see a lot of activity from our team in China. Lots of conferences, discussions, customer meetings, and so on.
Okay. You, you also talked about increasing stock levels to, you know, meet demands of the order backlog and have faster deliveries, et cetera. I mean, does this relate to any particular big deliveries in Q2 that you're preferring for, or is this more, you know, a general buildup?
In, during 2022, you know, we made a conscious decision to have stock levels to secure our deliveries to the customers. Actually in our industry, we haven't yet seen this easing up. We continue to see uncertainties which, for us to be able to secure fast deliveries to our customers, we are where we are in terms of stock levels.
Okay.
we monitor this, constantly, obviously.
Okay. Okay, good. Could you just remind us of the timing of deliveries for the larger Italy and Spain orders?
Mm-hmm.
My sort of understanding is that from LINAC manufacturer that, you know, installations start maybe July.
Mm-hmm
for some this year. I mean, is that what you're seeing as well? How much of the volumes that you've received now, maybe especially for the Italy tender?
Mm-hmm
Do you think will fall in 2023?
What we have already made some minor deliveries for the Italy tender. Just as you said rightly, Erik, we also foresee that the major part will happen in the second half of this year. We also see that some of the deliveries will happen also during 2024.
Do you have any idea of the potential split between 2023 and 2024?
No, I cannot comment on that yet because it really depends on our partners.
Okay. Okay, perfect. Last year, at least with the sort of LINAC manufacturers, there were a lot of discussions about, you know, similar but smaller tenders as the Italy and Spain one. I believe like Czech Republic had one as well.
Mm-hmm.
I haven't heard anything really about that in the last couple of months. Have you seen that progressing to an extent? If so, I mean, do you have any indication if SGRT will see any support in national tender guidelines?
I mean, I think in general, it is very interesting for us, when it comes to the national, the national tenders that we see in Europe. Looking at Spain, looking at Italy, it's been, you know, more or less 100% SGRT. W e are monitoring this. No, when it comes to the Czech tender, we don't have any updates there either, so see the same thing as you. We have the Croatia tender, which is one that is on hold now, which has an interesting part with SGRT. The other one that we see is the Romania tender, that is also on our radar.
Okay. Okay, perfect. Thank you for that. Then I have two last questions that are sort of similar to Christian's before, but I just wanted to get a little bit more color on that if it's possible. I mean, you said that investment decisions now take longer.
Mm-hmm.
I understand that hospital may take longer to come to a decision, but are you at least seeing some increases in terms of hospitals contemplating SGRT and discussing it with you?
I think, you know, it's nothing different in the U.S. compared to the rest of the world, I mean, to the advanced markets. The interest and understanding and uptake of SGRT is growing a lot. And I think when it comes to the U.S., we have lots of activity, lots of discussions with our with our the hospitals and clinics there. But as we talked about before, they have a situation with inflation and cost increases so that is another topic of discussion for them with in the industry.
When do you think these US customers will have enough visibility to make a decision on that? Do you think that's a potential H2 decision for them?
For us, we have ongoing lots of discussions on, for example, retrofitting existing accelerators that don't yet have SGRT, for example. That's a very good and cost-effective way to increase the efficiency in the workflow, and, you know, for the LINAC vendor to stay stronger. That is one thing that we are focusing on a lot also.
Okay. Thank you. Last question for me on costs as well.
Mm-hmm.
Sort of to get a bit more specific on the cost side as well. I mean, personnel costs was really the big driver of OpEx last year. I now see that, you know, personnel is flat Q on Q at 80. Just specifically, I mean, are you actively hiring for more positions now, or do you at least have any plans to hire more people, or are you happy with the levels?
We constantly oversee where we hire and where we have consultants because in some cases, it's actually more cost-effective for us to have our own people versus consultants. W e do this with a conscious view on managing the cost in all areas, I would say.
Okay. Well, thank you very much. That's all for me.
Thank you, Erik.
Thank you, Erik. I can see that Christian has another question.
Yes. Thank you. I think the tender in Italy did not include service contracts. I'm a little bit curious about the order from Australian Cancer Care Associates of SEK 23 million.
Mm-hmm.
Does it include service contracts?
not at this point, Christian. It's something that we are discussing with them, but the SEK 23 million does not include services at this point.
Okay. Thank you.
Thank you. I see that there are no more questions. Oh, Erik has one.
It might be an old hand. I don't know.
No, I don't think so. Erik, do you have any other questions? Okay. Exactly. Okay. I see, yes, that's all for today. I'd like to take this opportunity to thank our CEO, Cecilia de Leeuw, and our CFO, Christoffer Herou, for the insightful presentation and for taking the time to answer your questions today. I would also thank everyone who attended this webcast. Thank you all for your commitment to staying informed about C-RAD's financial performance. I'd like to remind you that a recording of this webcast will be available on our website shortly. Thank you again for joining us, and we wish you all a wonderful day.
Thank you, everyone, and thank you, Basak.
Thank you, Cecilia and Christoffer.