Welcome to C-RAD's webcast for the second quarter of 2023 financial report. My name is Basak Karakus, and I'm your moderator for today's session. We have an exciting agenda ahead, filled with valuable insights and updates, and I am delighted to introduce our CEO, Cecilia de Leeuw, and our CFO, Christoffer Herou, who will guide us through the financial results and provide insights today. Cecilia will kick off today's webcast by providing an overview of the financial highlights from Q2, shedding light on our progress and achievements during this period. Following that, Christoffer will delve into a comprehensive financial review, providing valuable analysis and key figures. Before we start, I would like to remind you that we will not be taking any questions during the presentation, both verbally or through the chat.
We encourage you to save your questions for the Q&A session that will follow the presentations. During the Q&A session, I will unmute your microphones, and you will have the opportunity to ask your questions directly to Cecilia and Christoffer. To participate, simply click on the raise your hand button. On a final note, I'd like to remind you that a recording of the webcast will be available on our website shortly after we end this live session. Without further ado, let's get started. Cecilia, over to you.
Thank you, Basak. It's great to be here today in the middle of the Swedish summer. Before I go into the Q2 numbers, I'd like to remind you of the world we act in. Cancer is one of the world's biggest health challenges and unfortunately growing. Our customers are mainly hospitals and clinics, and we are active in the field of surface-guided radiation therapy or SGRT, and are well established in the market. What keeps us on our toes is to treat more patients safely. What do we mean by that? The radiation dose needs to be delivered to the tumor with high precision, not to damage healthy tissue. This is where our groundbreaking technology comes in. Our SGRT technology and the underlying modern algorithms provide a precise, efficient, and safe experience for the patients and the staff in the clinic.
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. We go to market in mainly three ways: direct with our industrial partners such as Elekta, Accuray, and Varian, and proton suppliers such as IBA, Mevion, and Hitachi, and of course, our strong network of distributors. Often, it is a combination of these. 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. Our system is integrated with all the linear accelerator providers and major proton suppliers. C-RAD is acting in a highly regulated area, which also means that the entry barriers for newcomers in SGRT is high and the reason for the limited number of players.
With that, let's move to the results and some highlights from the second quarter. I am pleased to share that we have had another strong quarter of revenue growth. During my first six months as CEO, we have put a lot of focus on profitable growth, and we are starting to see that in the results and in improved EBIT. Revenues were up 44% in comparable quarters. We had an increased order intake with a growth of 11% and continue to build up our backlog, which is now at an all-time high of SEK 679 million. That is 36% up from last year. Our sales and services teams have been busy with customer demos, reference visits, and in general, capturing the high interest in our technology. The most important European MedTech trade show is ESTRO.
This year it took place in Vienna, and the show was a great success and actually our busiest ever. We did live demos to potential customers, and ESTRO also gives us an opportunity to conclude business discussions when we meet face-to-face. One big difference from earlier years was that most of our visitors already had a good insight into the value of SGRT. Another event that generated a lot of interest at ESTRO was that together with our important partner, Accuray, and their CEO, Suzanne Winter, I did the European launch of our breast cancer solution, VitalHold. As already stated, our focus during this quarter has been on growing the top line and at the same time, managing costs.
I am pleased that we can display that in an EBIT of SEK 7.4 million for the quarter, corresponding to an EBIT margin of 8.2%. Compared with the first half of the year, we have a total EBIT of SEK 13.8 million, versus less than SEK 1 million in Q2 last year. With that, let's look into a few highlights, displaying the high interest in our technology. The uptake of surface tracking, the surface tracking technology is really exciting and important. For quite some time, we have been talking about SGRT becoming the standard of care or being part of the standard practice in the clinic. We see more and more proof of this, and this quarter, we received two large orders that will have SGRT on all their sites.
The SEK 23 million order from Cancer Care Associates in Australia, which we mentioned in the Q1 reporting, already have their first site up and running. The second order of SEK 9 million by our long-term partner, MVZ, show their great trust in our technology partnership and our further stride in enhancing the cancer treatment. Let's take a closer look into the markets and the sales performance. Order intake for the first quarter amounted to SEK 118, a growth of 12%. In constant currencies, order intake increased 2%. EMEA grew by 29% to almost SEK 53 million, We continue to see growing interest across the countries, both advanced and developing markets.
In APAC, order increase, intake increased with an exceptionally strong 52% to SEK 56 million, and we are positively impacted by the large Australian order of SEK 23 million and by China continuing to getting back to normal. I am pleased with our global resilience of global growth of 12%, despite Americas having a challenging quarter. Order intake in the Americas was SEK 9 million, and clearly that is below my expectation. As highlighted in both our Q4 and Q1 report, the cost increases in the U.S. due to inflation is leading to a slower uptake in investments. We experience customer decisions taking longer time. Rising cost due to inflation is also impacting the construction of new clinics. This had a substantial impact this quarter.
One way to counter this slowdown is to increase our focus on retrofits, and that is equipping already existing linear accelerators with our SGRT technology. This is a relatively smaller investment decision, as SGRT is only some 5% of the total system, as I mentioned earlier. Our focused marketing is also generating a strong pipeline. Over time, the increased activity levels in Latin America is promising for the Americas region as a whole. Let's have a look at the first half year. Order intake grew 12% to SEK 209 million for the first six months. In constant currencies, order intake increased 4%, and we continue to see significant demand and a 24% growth in EMEA, both with new systems and retrofit to existing accelerators. APAC is continuing its strong performance with 36% growth.
We are market leaders in both Australia and China, two of the markets positively impacting the APAC performance. The cost increases and the slowing down of investment decisions in the U.S. is softening the first half performance in the Americas. Let's take a look at the distribution of orders by product category. We had growth in both products and for services. Products is the lion's share of the business, but I'm really happy to see that service agreements is increasing faster with 23% to SEK 23 million, and this is in line with our strategy to grow services. It is not only important for the recurring revenue, but also due to the improved customer experience and a way for us to get even closer to our customers. As a reminder, our business is subject to a very distinct seasonality pattern.
As displayed 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 annual budgets aligned to the calendar year, and 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 at the impact the order intake had on our backlog. With order backlog, we mean it represents the order that have been received but you have not yet delivered or invoiced. We have an all-time high order backlog of 679 at the end of the quarter, which is, as I said, an increase of 36% compared to the same time last year. Out of the order backlog, more than half, or 57%, is products and 43% is services.
The conversion rate, that is the time from receiving an order until delivery is made, is six months for product this quarter. However, this depends on several factors and varies between periods. For example, when the clinics are ready to receive the system. The services contracts can be up to eight years, while the most common contract period is three to five years. Let's move into revenue per market. Overall, we had another strong quarter with high revenue growth of 44% and 29% in constant currency. Revenues in EMEA increased 43% to SEK 44 million , and APAC more than doubled or increased by 116% to SEK 35 million .
One large factor for the impressive growth in APAC is that we are delivering from the strong backlog from multiple countries in the APAC region, and that China is continuing to recover. The Americas decreased by 24% to SEK 12 million , the rising costs are also impacting construction of new treatment facilities and hence delaying when the clinic can receive our system. If we look then at the first half, we started off the first half of the year very well, with 47% revenue growth compared to the first half of 2022. EMEA, and even more so, APAC, is performing really well, with 45% and 92% growth, respectively. Americas is growing 4%, that is despite the challenging market situation slowing down investment decisions. Finally, before I hand over to Christoffer, let us touch on the legal dispute with a former employee.
End of this quarter, the Patent and Market Court of Appeal partly awarded a former employee compensation for an invention used by C-RAD. This is the fourth case in a series of cases where C-RAD has been successful in all other cases. According to our legal counsel, the ruling is both surprising and unique, this is further displayed in the fact that the Patent and Market Court of Appeal is opening up for appeal to the Supreme Court. What is the patent all about then? It is used for back projection of light onto the patient. This is a minor part of the product and mainly used during setup of the patient. Not all clinics use this back projection feature, as you can see the same information on the screen where the patient's actual and intended position is visualized. C-RAD will appeal to the Supreme Court latest by July 28th.
With that, over to you, Christoffer, for a closer look at the finances.
Oh, thank you very much, Cecilia, and good morning, everyone. It's great to be here today to present my second interim report as CFO at C-RAD, and to be able to share the financial information from our last quarter. We are proud to have reached a new all-time high in order backlog, a revenue growth year-to-date of 47%, and another quarter with improved EBITDA. At the same time, we also have items and processes to improve, and I look forward to further contribute to this. The revenue of almost SEK 91 million corresponds to an increase of 44%. With this, we are continuing to show strength in the conversion from order backlog to revenues also in this quarter. Year-to-date, we see a strong growth of 47%, amounting to a revenue of SEK 175 million. The gross profit margin remains healthy with 63%.
Some fluctuations in gross profit margin between the quarters is to be expected, depending on the product mix and the revenue split between different sales channels during the quarter. As you can see, the operating expenses have increased compared to last year. We consider that the growth in order intake, as well as revenues, shows that the investments we have done in strengthening the organization have started to pay off. The EBIT for the quarter of SEK 7.4 million and SEK 13.8 million year-to-date shows that we, during this year, have taken substantial steps in our way towards profitable growth. The geographic split in revenues between our markets has changed a bit during this quarter, as APAC had an outstanding quarter and Americas had a slower quarter. It's satisfying to see that services share of the revenue is continuing to increase and now amount to 20%.
As Cecilia de Leeuw mentioned previously, growing services is in many ways an important part of our strategy. During the last years, we have seen a steady increase in services share of our total revenue. This is a trend we foresee continuing to increase over time as both the installed base and the attachment rate for services contract continue to develop. The revenues coming from products had a growth of 40% compared to last year, and services showed an increase in the revenues with a magnificent 67%. At the same time as we are delivering the strong revenue growth, we are able to keep up our healthy gross margin of 63% in the current quarter and 64% year to date. This results in a gross profit of SEK 57 million in the current quarter.
The gross profit increase year-to-date of 46% corresponds well to the year-to-date revenue increase of 47%. For the second consecutive quarter, we are pleased to see an improvement in EBIT to SEK 7.4 million, which corresponds to an EBIT margin of 8.2%. This is to be compared to the EBIT level of SEK 0.8 million from last year, and year-to-date, we see a steady EBIT improvement of almost SEK 13 million. 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 services business in our revenues. The operating expenses of SEK 50 million in the current quarter are more or less flat compared to the previous quarter.
The increase to the level of 40 last year is explained by a higher number of employees of 83 at the end of this quarter, compared to 70 one year ago. As mentioned, the growth in order intake and revenues shows that the investments in our organization have paid off. With this organization, we are looking forward to drive the business, continue the conversion of our all-time high order backlog to revenues, gross profit and EBIT. In the graph to the right, you can follow the dotted lines to see that the revenues are increasing at a higher rate than the operating expenses. This is important on our path forward achieving profitable growth. The cash flow in our company fluctuates between the quarters. We are not satisfied with the level of negative cash flow in this quarter.
Even though we are in a growth phase where a negative development of the working capital could be expected, the development that we see in this quarter is not our way going forward. Behind the negative working capital, the major impact is coming from an increase in accounts receivable. As said, we are in a growth phase with increased revenues, so from that perspective, an increase in accounts receivable is to be expected. I have also identified that we have some internal processes which needs to be improved as well. We have now initiated an internal project to execute on process improvements. We are also looking into how to improve terms and conditions in our customer contracts. Some of the actions taken will have positive effect short term, while other actions are expected to show improvements medium or long term.
Even though the decrease in cash in the current quarter, on the overall level, we still have a stable cash position with SEK 83 million in cash balance and an equity to asset ratio of 73% at quarter end. With that, I would like to hand it over to you again, Cecilia.
Thank you, Christoffer. We had a solid second quarter, and I am very pleased with our strong revenue growth and that our focus on profitable growth is starting to show in our numbers. In the first six months, we improved EBIT from 1 to SEK 13.8 million . Spending time with our customers and learning how they use our products in their clinics is very important to me and to C-RAD. Not only does it provide unique insights into the daily life and needs of the staff in the clinic, but it also helps evolving our roadmap and our priorities. By increasing the efficiency in the treatment workflow, we enable the clinic to treat even more patients. Ultimately, this results in the precise targeting of the tumor while minimizing radiation exposure to healthy tissues, safeguarding the overall well-being of the patient.
SGRT is rapidly becoming a given in the clinics and the treatment workflow, and I'm excited to see that our two large orders for the quarter will have SGRT on all their sites going forward. We have an all-time high order backlog, including the two major orders this quarter from Australia and Germany. The cash flow was negatively impacted, mainly by accounts receivable. This has very high focus, and we have initiated an improvement program, as you just heard from Christoffer. Still, our financial position is very strong. In conclusion, we will continue to deliver on our strategy for profitable growth. We at C-RAD have an important role to play in making SGRT becoming standard of care, and I look forward to our continued strive to bring SGRT to more patients around the world. With that, it's time for questions. Over to you, Basak.
Thank you, Cecilia and Christoffer. Yes. Let's move on to the Q&A session. Before that, I can see that one of our participants have typed in questions in the Q&A field. As a reminder, we are not taking any questions in the chat. If you have a question, please click on the raise hand button. I will unmute your microphone, so you can ask your question directly to Cecilia and Christoffer. With that, let's see. I cannot see any raised hands. I'm sure you have some questions. Please don't use the. One of our anonymous attendee, Amir Ahmed, Anders Jølkby, you have some questions. If you cannot find the Raise Hand button, I will try to find your name and unmute. Now I can see your hands. Amir. Unmute.
I'm unmuting your microphone, so please go ahead and ask your question.
Hi, good morning. Can you hear me?
Yeah, absolutely.
Great. I'm with two small children, that's why I chatted. My first question is, what kind of OpEx categories do you have in Q4, which you don't have in the rest of the quarters?
Do you want to take that, Christoffer?
Yeah. Q4, I've been here for 2.5 months, so I don't have the Q4 numbers under my skin, so to speak, but I know that there were a lot of one-off costs coming up in Q4 last year. As I mentioned, now we see that we are have the same level of costs in Q2 now than what we had in Q1 this year. Now we are on a more, in my opinion, foreseeable and stable level regarding that.
Yeah, maybe I can add also that, in Q4, we had the change of CEO and CFO, so there were costs related to that. Also, we had a bit of a, you know, unbalance between the investments that we made, the forward-leaning investments in sales, services, and R&D, versus the top line. That is something that now going forward, we put a lot of focus on when it comes to the profitable growth.
Got it. Thanks. My second question is, if this case goes with the Högsta domstolen, can the ruling become worse, or can it be only better or the same?
Now the timeline for that appeal, that is the 28th of July. I mean, we can only, yeah, have knowledge about our actions into that deadline. As previously communicated, we have taken a decision in our board to put the go to the Supreme Court, and so and we cannot speculate what the other party might do in this process.
Actually, if I may add, we believe that we have a very strong case. As I mentioned before, it's unusual that the that we get this advantage to bring up the case in the Supreme Court, according to our legal advisors. That further displays that it's an unusual and unique case, which also has been the advice of our legal advisors.
Okay, got it. From my understanding, maybe I'm wrong here, when a order comes to Elekta or Varian.
Mm-hmm.
Let's say it comes, day one, that order includes an SGRT, they don't send the order to you, C-RAD, immediately. They wait with that a few months or quarters. Is that something you recognize, or do you immediately get the order? My question, I guess is there a some sort of lag effect from the LINAC providers?
Amir, it really is case by case. We have lots of different models in how we, you know, what happens between the order and the delivery. As I mentioned earlier, you know, sometimes it's a new build, for example, then we have one situation, you know, other cases, it's a retrofit, then, actually, it's the order typically comes from the hospital as such. It really depends, and it depends between markets also.
Got it, thanks. Just my last question for now is, I guess, the situation in the Americas, or specifically the U.S. Do you have any sort of insight if the total market for SGRT or LINAC, in general, is becoming cooler? Do you see that, for instance, Vision RT is taking orders, but you're not? How should we think about this?
The interest, and as I said earlier, it's not about us losing market share. I didn't exactly say that, but it's not about us losing market share. It's very much due to the fact that the cost increases are delaying the decisions. You know, we're not alone in the market to see that in this industry. I think what we can say also is that in the U.S., they're a bit quicker to act on cost increases, and again, that is slowing down. The interest and the interest that we see in SGRT is absolutely not cooling down, on the contrary.
As I mentioned earlier, one way for us to counter the slowdown and the delay that the cost increases have on the decisions from the clinics and the hospital, is for us to work with something that is a little bit of a lower threshold, such as retrofitting or bringing SGRT to existing LINAC. That is a smaller investment and also a quicker process.
Got it. Actually, yeah, thank you. One more question. When you view, as you know, been a CEO for six months now, and the decision to increase the OpEx during 2022 dramatically was obviously not under your steering. Now that you've, you know, taken a look at the total organization, are you satisfied with the capacity, or do you see pockets here and there that needs to be filled?
Very good question, Amir. Thanks. I think there was a very conscious decision during 2022 to invest in the organization, R&D services, and sales, and that is for the reason that we have a huge unmet demand in the market that we want to capture, and these processes take, you know, quite some time. Last quarter, we talked about an order from Nordstrahl, and that was a quick one. It's a one-year process, so we had to be acting early to capture the demand. With that said, we constantly oversee this, and the task for me and Christoffer is to really manage the timing here and do the investments in the right pace.
That is the key focus forward, and that is what we also mean by profitable growth.
Okay. Thank you very much. That's all.
Thanks.
Thank you, Amir. Anders Jolkby, hopefully it was the correct pronunciation. Yes, please go ahead and ask your question. I think your microphone is turned off. Yes, please go ahead now. Yeah.
Okay, I hope you can hear me.
Yes.
Good morning, all, and thank you for a very good quarter. That's amazing. Great to see that. I just had a question because I see that the workforce has increased by 18%. I just wonder, in what areas you have hired new people, and also in what geographical areas, if it's just in Sweden or also abroad?
Just to start with that, the increase that you mentioned, that is then compared to, end of June last year. The last quarter, if we start in that, end from last of March until last of June, then we have three employees-
Okay
- so to speak. That is, less-
Okay, yeah, because that was a little scary when I saw that.
Yeah.
Okay. Okay.
To compare with one year ago.
All right.
- those 13 that we have touched upon before that's a combination of sales employees in R&D, and also within service.
All right. Okay. Thank you.
Anders, if I may add, you know, just as an example, the U.K., for example, was, is a market that we were pretty weak in, and there last year, we hired a sales guy, and he's done, you know, really good work, and that is really starting to pay off-
Okay
- in the U.K. market, for example.
Okay. That's good. Thank you. Thank you, we hope all our guests to see the share price going north now. Been waiting long time for that.
Thank you, Anders.
Thank you.
Thank you, Anders. I'm looking at, again, the chat field. Our anonymous attendee, I think he or she left, so I cannot see any raised hands. That was the final question for today, I think. This concludes our Q&A session. Just one final check. Yes. Oh, Amir, you raised your hand again, or-
Yes, correct.
Yes, please go ahead.
Okay, if no one else is going to ask questions, I have one more. During 2022, the revenue or the total market for SGRT, if you view it as C-RAD plus Vision RT, increased quite dramatically. Like, specifically, it was flat a few years, again, C-RAD plus Vision RT, and then suddenly took a huge bump in 2022. What happened during 2022? I mean, obviously, standard of care, et cetera, I understand this, but this should obviously not happen suddenly, right? It should happen gradually. If you can help me understand this.
Yeah. If I just look back at what has happened over the last years, the uptake has actually been quite steep. I think one potential positive aspect here is that there were a couple of clinical papers that came out, which is something that is important in our industry, and that has also, I think, increased the interest and uptake of SGRT. There were a number of large EU-financed country-wide tenders, for example, the one that I mentioned earlier in Italy, for example, that most likely positively impacted the numbers. I think multiple things, but also the general uptake of the market is pretty strong.
Thank you.
Thank you, Amir.
Thank you, Amir. Yes, that was the final question for today, I think. Yes. Thank you again, Cecilia and Christoffer, for providing us with a comprehensive understanding of C-RAD's performance during the second quarter. On behalf of C-RAD, I would also thank everyone for attending today's webcast. For those who may have missed any part of this webcast or would like to revisit the information shared, a recording will be made available on our website shortly. Thank you once again for joining us today. We appreciate your continued support. Together, we are making a difference in cancer care. Stay tuned for our future updates, and have a wonderful day and summer. Thank you.
Thank you so much.