Welcome, everyone, to C-RAD's presentation of the Interim Report for the first quarter 2020. Like always, we start with a few administrative announcements. All participants will be muted during the presentation, and like always, the webcast will be recorded, and the recording will be made accessible in the investor section of the C-RAD website after the webcast.
Today's webcast is presented to you by Henrik Bergentoft, our new CFO, and me, Tim Thurn, the CEO. Henrik joined us in March, so it's his first quarterly report and his first presentation at C-RAD. Henrik, why don't you start with a short introduction?
Thank you, Tim. As said, I've been the CFO of C-RAD for two months, so this is my first quarterly report, and I am thrilled to be a member of the executive team of C-RAD. It's a company with great growth potential going forward and a growth potential that comes from actually being a major contributor in improving cancer treatment and quality of life. So great feeling to be here. My background is from other small-cap contexts where growth and technology essentially has been on the agenda, so I look forward to carrying on that tradition within C-RAD. Thanks for being here.
Great, Henrik. Thanks so we have changed the format of our presentation a bit. The webcasts are usually very well attended from existing investors, but also a group of people.
Sorry, continue.
Who have been involved in C-RAD for a long time?
So during the first part, I will give a short introduction and then I'll comment.
And then I'll comment on COVID.
I'll give an assessment of our insights, and then I'll finish.
So 14.8%.
From COVID-19.
I'll briefly guide you through financial results before I will finish the presentation. Update on the market.
Following that.
At the end of the presentation, there will be a Q&A session.
As mentioned earlier.
You can post your questions through the chat function, and we are happy to answer them.
Our IR director is the [distorted].
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 a safe and successful treatment. C-RAD's positioning products are supporting this process and are fully integrated in the clinical workflow. Over the past years, C-RAD has been growing significantly and generated last year a profitable result at about 200 million SEK in revenue. Our mission summarizes the overall goal. C-RAD's cutting-edge solutions ensure exceptional high precision, safety, and efficiency in advanced radiation therapy, helping to cure more cancer patients and improve their quality of life. C-RAD has sold about 400 systems.
Sorry.
Sorry. Has sold about 500 systems, where about 400 systems are installed within what we call the advanced market of radiation therapy. Those countries are marked in orange in this map. With offices in Sweden, Germany, France, Belgium, Florida, and China, we are serving our customers through our sales and service organization. Looking at the financial highlights in this quarter, it was certainly a turbulent quarter, whereas the world was first hit in China and Asia in the beginning of the quarter, whereas Europe and especially the U.S. were affected in the second half of the quarter. Despite the challenging market situation, order intake totaled to 47.7 million SEK, essentially on the same level as 2019. Revenue grew with about 10% to 51.8 million SEK, resulting in an order backlog of 261.5 million SEK.
With somewhat increased operational expenses, the operating profit is essentially on the same level as 2019, generating a positive net result of 0.4 million SEK . We have issued a press release to give an update on the implications to our business due to COVID-19. I will not repeat the entire press release, however, I'll pick out a few essential points. We can conclude that customers' demand and availability are affected, whereas coming quarters are expected to be volatile. To what extent cannot be quantified nor estimated at this stage. C-RAD has a very solid cash position. We do believe that COVID does not have a negative impact on the demand for our products in the long run. We expect the rapid adoption of our technology to continue. Let's take a closer look at the results of our sales activities.
Looking at the order intake in Q1 compared to the same period in the prior year, the total is, as mentioned, essentially on the same level. As I think what is really important is to note the strong growth in our main segment, the positioning products, which grew with 25%. This segment accounted for 86% of the order intake in the first quarter. We believe this is a very good result. After an exceptional strong first quarter last year from a service perspective, the order intake of 4.4 million SEK in 2020. Positioning products are to a large majority generating revenue during the coming 12 months, where service agreements are in average for a 3 - 5 year period. The order intake for the HIT laser continues to be weak, with a decline of 42%.
I would like to mention that the distribution products, the activities around selling distribution products, have stopped in October last year, and therefore the expected order intake can be zero. Looking at the order intake by market, America had a very strong decline compared to last year, partly related to the large service contracts that I mentioned earlier, but primarily because the shutdown this year due to COVID was executed consequently, and activities in March were very, very limited. On the positive note, we received the first order as part of the cooperation with Elekta during the quarter. Both EMEA and APEC came in very strong. In China, the government was very consequent in handling the COVID issue, and we saw that towards the end of the quarter, activities resumed. It should also be noted that Japan is delivering results after a weaker 2019.
This is very much in line with our expectations. Revenue overall grew with 10% year over year. Especially the growth in the life cycle business can be noted with 70%. As most of our service contracts are running over a longer period of time, the volatility in order intake does not directly translate into volatility in revenue. Even though the total service revenue is still below 10% of the total revenue, it is an encouraging trend, and for other companies in our industry, service revenues are a very significant revenue stream, and we are working on that. Looking at the market, America grew with 62%, driven by projects in the US, Latin America, and also Central America. EMEA had a positive development with 16%, and in APEC, we saw a small decline after a lower order intake in 2016.
Looking at the trend, we can conclude that the first half, and especially the first quarter, is usually weaker than the second half of the fiscal year. The trend is very positive, and comparing the full year order intake in 2017 with 2019, we grew with approximately 40%. Looking at the order intake and revenue by region, America, I think since 2019, we see a positive momentum due to the expected changes in the reimbursement system. Also, the cooperation with Elekta yielded the first results now in the first quarter this year. And I want to mention at this point that we appointed Frank Lohr as President of North America in January to handle the activities through our direct sales organization, but also to manage the cooperation with Elekta locally. The EMEA region showed a very strong growth year over year, 300% since the first quarter 2016.
We can say that C-RAD is the market leader in [ seed] markets here in the EMEA region. Also, the APEC region had a very dynamic journey with 400% growth during the same period. Main markets here for us are China and Japan, whereas we are the market leader in China with six out of 10 of the national cancer centers currently using C-RAD during radiation therapy. The trend in order intake and revenue results is very encouraging, and this plays the interest from customers in surface tracking, specifically in our technology. Our earlier assessment of a significantly growing interest in the market for our surface tracking solution continues to be unchanged, and I think this is really most important. This is the underlying driver. With the commitment of the treatment machine vendors toward positioning technology, we are convinced all steps are supporting our earlier assessment.
This technology is on its way to become standard of care. Moving over to the key events, C-RAD carried out a new share issue to support the growth journey. There's also an expansion in the product portfolio. I'm happy to see that there has been a big interest among the larger institutions and that there are major investors willing to support our continued growth. It is also very encouraging to see that the professional community topics around surface tracking enjoy more attention. Different meetings are taking place, so for example a dedicated meeting in Swansea Bay in Wales. A customer of ours conducted a seminar on their own initiative for other customers, but also for potential customers. The number of participants shows the great interest in such topics. Also, the British Institute of Radiology had a dedicated meeting in February where several speakers from customer users presented their research findings.
On the R&D side, we also made good progress during the first quarter. The new Catalyst+ was released in March. Catalyst + is a new versatile hardware platform for the C-RAD system. Besides improved performance and compelling design, we succeeded to reduce the cost notably. The product has been released, and market introduction follows in step in line with us obtaining regulatory clearance for the market. The first units to Europe and Australia have been shipped end of March. Installations are ongoing to the extent possible, but we are confident the first systems will go into clinical operation during the second quarter. We released also our key accessory product. This is a new primarily software-driven module to track resources, more specifically immobilization devices in the hospitals. Usually, patient setup requires different devices to support the patient during treatment.
It is important to ensure that the right devices are used, the right settings are implemented, and the position of the device is validated. The now released version uses RFID technology. The software is integrated into the C-RAD c4D software platform. This does not only allow us to provide a great user experience in terms of integration, but also offers the opportunity to sell this module as an upgrade to existing customers. So that is, I hand over to Henrik, who will guide you through the financial review.
Thank you, Tim. So starting off with a summary of the key financial metrics for the quarter, reported order intake amounted to 47.7 million SEK, essentially the same level as last year, but minus 3% in constant currency. Reported revenue amounted to 51.8 million SEK compared to 47.7 million SEK last year, corresponding to a 10% growth in constant currency for seven years.
Is the Q2 when we get there? I'm sure that will be more exciting, and before now and then, I hope you keep an eye on the chart.
Let us connect your line.
Operating income amounted to 1 million SEK , corresponding to a margin of 1.9% as compared to last year, where the operating income was 1.2 million SEK with a margin of 2.5%. The cash position at the end of the quarter amounted to 87.9 million SEK compared to 29.5 million SEK at the beginning of the year. The order backlog amounted to 261.5 million SEK , a growth of 30% compared to last year's 201.2 million SEK . This next slide gives you a more detailed look at the P&L statement. As said, reported revenue grew by 10% to 51.8 million SEK , with variations between the regions. Deliveries in China were impacted by COVID-19, being the main explanation for the decrease in revenue of 18% in the APEC region.
Revenue in America grew with 62%, spearheaded by strong performance in Latin America, whereas North America was hampered by the consequences of COVID-19 to a larger extent. In EMEA, several deliveries were made despite the shutdown due to the pandemic, generating a revenue growth of 16%. The gross profit margin was 58% during the first quarter 2020. For the full year 2019 and the first quarter 2019, the gross margin was 59%. The gross margin will be presented in a historical context on the following slide. Operational expenses for the quarter amounted to 11.4 million SEK compared to 10.3 million SEK last year. This includes a positive outcome in a court appeal on trade secrets. Returning fees previously paid by the company amounted to 1.7 million SEK . Hence, the underlying level of operating expenses is approximately in line with the second part of 2019.
Here, actions are being taken to onboard lower costs to mitigate the possible decrease in revenue due to the effect of COVID-19. Personnel expenses for the quarter amounted to 18.9 million SEK compared to 14.8 million SEK last year. The main increase is due to a non-recurring cost of approximately 2 million SEK related to changes in the U.S.-based executive team. The remainder of the increase relates to a higher number of employees, which amounted to 61 in average during the first quarter.
Hello, and welcome to the C-RAD Q1 report. During the conference call, all participants will be in listen-only mode. Afterwards, there will be a Q&A on the company's assessment of pandemic-related deliveries. The CEO will now begin. Please go ahead.
The exchange rates for both the euro and the dollars, which are the company's main trading currencies, increased during the quarter. The revaluation of balance sheet items resulted in a positive, not yet realized, exchange rate difference of 0.9 million SEK included in the other operating income caption. Capitalization of the development costs during the quarter amounted to 1.8 million SEK and are related to the continued development of our positioning products. The total capitalized development cost amounts to 14.7 million SEK compared to 22 million SEK same period last year. The lower amount is related to the write-down of the Gemini project, which was done in the fourth quarter of 2019. All combined, operating income for the quarter amounted to 1 million SEK, corresponding to a margin of 1.9% compared to 1.2 million SEK and 2.5% in Q1 last year.
As commented on, the operating income includes non-recurring items of a negative 2 million SEK in personal expenses and a positive 1.7 million SEK in operating expenses, a net of minus 0.3 million SEK . The net results of the tax in the quarter amounted to 0.4 million SEK . Tax expenses refer to reverse-deferred tax assets for the Swedish entities and hence do not affect cash flow. This next slide shows revenue and gross margin displayed over a longer period of time. So, as you can see, the gross profit margin of 58% in the first quarter is in line with the last two full years' average gross margin. Fluctuations in the gross profit can be expected between periods as it is dependent on the product mix and also a variation of sales channels in our different markets.
The purpose of this slide is to put C-RAD's growth journey into a context where investments have been made in the organization to support that growth, generating an increase in total operating expenses. This graph outlines operating expenses and revenue for the last three years, where we can see that these investments are, in fact, paying off in the sense that the revenue trend line has a steeper upward-leaning curve as compared to operating expenses, equally meaning that the average yearly operating expenses in relation to sales is going down as a function of the growth that the company is producing. This next slide shows operating profit and revenue combined over a longer period of time.
As seen, the business of C-RAD is volatile, especially between the quarters, and is expected to be so also going forward since larger single orders have an effect in the quarter when they are delivered. However, the trend line clearly shows that C-RAD is on a growth journey, but the company also, since mid-2018, has reached an important milestone in the sense that the company is on the verge of delivering all its operating expenses.
If you wish to ask a question, please dial 0.
Now, leaving the P&L statement and moving on to the balance sheet and starting off with cash flow. So, during the quarter, the company conducted a directed rights issue with the issue of 2.5 million B shares amounting to 108 million SEK in additional capital, fueling the company with 102 million SEK net of issue-related costs. Following the rights issue, a bank loan of 20 million SEK was fully amortized, and the company ceased to use factoring. In summary, the above generated a cash flow from financing activities of 72.8 million SEK. Operating cash flow for the quarter amounted to minus 12.1 million SEK. The negative operating cash flow is due to significant late deliveries in the quarter, partly related to the finalization of the new product Catalyst Plus towards the end of the quarter. Total liquid funds at the end of the quarter amounted to 87.9 million SEK.
This slide summarizes the balance sheet, and I want to make a couple of comments. On the asset side, I want to highlight two things. One is that current receivables are high due to a high level of customer receivables related to late invoicing, already commented on in the cash flow section. Secondly, and again, is the cash position of 87.9 million SEK, which, following the rights issue, is at a very solid level from a historical perspective. On the debt and equity side, I want to highlight that, again, following the rights issue, the solidity is at a historically high level of 77%, and also that the company, after the repayment of the 20 million SEK loan, now is debt-free. The final slide of the financial presentation presents a true and real asset for the company, which is the order backlog.
The order backlog represents orders that have been received but not delivered and invoiced. The backlog amounted to 261.5 million SEK at the end of the quarter, an increase of 30% compared to the same period last year. From the total order backlog, 137 million SEK relates to products, representing a growth of 17%, and 125 million SEK refers to lifecycle business, i.e., service contracts, a growth of 48%. 20.9 million SEK of the order backlog for lifecycle business is planned to be recognized as revenue within 12 months since service contracts are recognized as revenue over the contract period. The service contract can be up to eight years, but while the average duration is three to five years. And this marks the end of the financial presentation. Now, back to you, Tim.
Thank you, Henrik. So let's take a look at the market overview.
So basically, there are three ways of how cancer is treated: surgery, basically as part of a surgery procedure, the tumor cells are cut out. Alternatives are drug therapy, chemotherapy, or radiation therapy. So C-RAD is focusing its activities only on the radiation therapy field. It can be said that 50%-60% of all cancer patients in high-income countries will go through radiation therapy. So that might either be a combination therapy, a combination with the drug therapy, with chemotherapy, or a combination with the surgery, or it might be only radiation therapy. And at the same time, in looking at the less developed countries, it's only roughly 25% of the cancer patients that actually have access to radiation therapy. So there is still a huge potential for the radiation therapy segment to grow. Looking at some reports and the development of radiation therapy, the.
I hope to see you all next time and thank you for being here, and have a great day.
Year projection until the year 2025.
Thank you very much.
The annual growth is calculated to be 7.8%.
Good morning, and welcome.
Looking at the radiation therapy market more in detail, there are roughly 12,000 linear accelerators installed.
Good morning, and welcome to C-RAD's quarterly report presentation.
75%, roughly 9,000 accelerators are installed in what we call the advanced markets. And out of this 75%, we expect another 75% of the accelerators to be equipped with surface tracking, with motion management in one way or the other. Motion management, according to our opinion, is on its way to becoming the standard of care. And with the current market penetration of only 20%, there is still a huge potential for C-RAD to grow. Looking in the years back, we can also conclude that C-RAD has been outperforming the market. What is the underlying driver? If you take a look at the table on the lower right corner of my slide here, the conventional therapy, this is essentially the way how cancer patients are treated nowadays.
Conventional therapy has several advantages, but when it comes to high-precision radiation therapy, then we are looking at SRS and SBRT, and also this hypofractionated in the last row here is also to be considered as a high-precision radiation therapy. Looking at the trends, 2016 versus 2030 now, we see that the conventional therapy is expected to go down from about 60% to just below 30%. So there is a strong decline in the conventional therapy, and at the same time, an incline on SRS, SBRT, and also on the hypofractionated. SRS is expected to essentially double, and hypofractionated treatment is expected to grow with more than 50%. So basically, there is a clear trend in the direction of high-precision radiation therapy, and that also requires an accurate patient alignment. And that is where the C-RAD products come into play.
Looking at the cancer indications for male and female patients, prostate and breast for females are the most common cancer indications worldwide. Lung is basically number two, especially in the Asian region. This is a very common cancer indication. So the C-RAD systems are designed to support the treatment of those most common cancer indications, but as it is a very versatile platform, there are many other indications where C-RAD technology can be applied. Looking at the value proposition, essentially, there are two areas. One is to increase treatment efficiency for our customers, meaning being able to treat more patients within a given time frame. But then on the other side, it is also the accuracy, namely increasing or improving the positioning accuracy. So usually, this is something to be balanced.
If you take a look at the chart on the lower right corner, there are different ways how patient positioning can be done, and it always is a trade-off between time and accuracy. Looking at the laser, that's an area where C-RAD is also involved in. It is a very fast way of setting up the patient. The time is very short, but also the accuracy. It is not a very accurate system or a very accurate way of setting up the patient. That might be fine for certain indications and for certain treatment techniques, but as there is this shift in radiation therapy towards high-precision treatment techniques, more accurate patient positioning methods are required. Looking then at the other end of the scale, we have something which is called Cone Beam CT, similar in other technologies, which essentially takes images of the patient.
They are considered to be very, very accurate. However, the time it takes to position the patient is also fairly long, so surface tracking or motion management, that's our main business, the positioning product. It's an excellent compromise in the sense of it is a very accurate method, and it is a very fast patient setup possibility, so looking at the interest in the global scale, in Asian markets, for example, where there is a very high patient load, customers might be interested to improve the treatment efficiency with the purpose of giving access to radiation therapy for a larger number of patients. In other markets, the focus is perhaps more on the accuracy side, where one is chasing really the last millimeter. All in all, for all customer groups, the C-RAD system has a value, and therewith, I want to finish my presentation.
Here we have the financial calendar, but I open up for the Q&A session, and as I said, please feel free to post your questions in the chat function, and we will go through them and answer the questions, so the first question is related to the order intake in the U.S. Can you please elaborate on the order intake in the U.S.? Yes, so I think what I said in the earlier part of the presentation, what we have seen is that the COVID was hitting the U.S. very strong, and especially the hospitals were very restrictive in terms of closing down their activities. So that had a severe impact on C-RAD and also on other companies. How is the collaboration with Elekta? The next question, as mentioned in the presentation, the first order came in line with our expectations now during the first quarter.
So the teams are working well together in the field. There's still, of course, a certain alignment process, but I see that they are running in the right direction, and the cooperation is constantly improving. The next question is related, if I could comment on the news that was published by Elekta with regards to the sale of their German subsidiary, Medical Intelligence. It is not related to C-RAD. For me, that step was not a big surprise, but I think I should not comment more in depth about the activities that Elekta is conducting. However, what I can say very clearly is that this step has no impact on our collaboration or our activities with C-RAD. So looking at the next question. So what is the gross margin for the Catalyst Plus?
I mean, we are not commenting on this in detail for good reason, but I think I mentioned in part of my presentation that the cost is notably lower than on the Catalyst system. So hence, we are expecting improved gross profit. So how can the U.S. be so much more affected by COVID than other regions, given that they were hit last? Do you see any latency effect from Catalyst Plus in the U.S.? Well, I mean, this latency, I think we can show that this basically has passed, at least on the global scale. We see that the growth of the positioning product in order intake this quarter was 25%, which I think is basically a continuation of the trend that we saw already starting in the second half of last year.
So I think this latency situation has passed that it's not impacting the business anymore. Now, I think the U.S. is very much a result of the restrictions that were implemented as part of the COVID-19 pandemic. Hospitals were very quick in shutting down their activities, stopping all procurement processes. And that's typically, or let's say the overall market situation in the U.S. is slightly different than what we see, for example, in Europe or in large parts of Asia. It's a private market, and the private hospitals are much more agile to react on external factors than governmental hospitals or governmental-funded hospitals are usually operating in. So I think what we see in Europe is that the effect hit the hospitals much slower, and that's also why we saw the positive development in the EMEA region.
How do you explain higher order intake but lower revenue in the APEC given COVID-19? So I mean, the lower revenue was partly related to the fact that in the beginning of the quarter, we were not able to deliver to certain markets in Asia simply because they were closed. The hospitals were closed. But as I mentioned, in the second half of the quarter, this activity has resumed. I think in general, I mean, if we take China as it is the largest market, therefore, I think the Chinese government was very effective in the way how they handled the situation. It was a short, intense period of time, but after that, they were also very quick in order to resume the activities. So the next question is related to any further information regarding Gemini. I can repeat what we said earlier, what we commented earlier on.
We had this write-down end of last year in the fourth quarter of development efforts. The focus of our organization is on the positioning products, not on Gemini. As I commented also last time, I mean, we are supporting the ongoing activity, but very clear also that the focus is on the business with the positioning products. Can you please clarify the clinical process and regulatory path forward for Catalyst Plus? Yeah. Brief and just in a nutshell, but I mean, essentially, the healthcare market or the med tech market is a very regulated market, and unfortunately, most of the countries have their own regulations. So essentially, what it means is that the companies need to go through a clearance process with the respective governments. This is something what we are used to. This is nothing unusual.
So in those countries where we want to sell the product, we need to have this regulatory clearance completed. We started with Europe, the CE mark, because that was our largest territory. It was the focus. The U.S. is the next market, and other markets will follow. So basically, the implementation of Catalyst Plus is going to be gradually. The launch in the different markets depends on the regulatory clearance. And there are certain markets. Europe is, for example, very straightforward. I think the process in some of the Asian markets, for example, is a bit more complex. Also, maybe in Latin America, it takes more time, and it can be up to two years for a product. Was the growth of 25% for the positioning products due to delivery to the Belgium order? I think the 25%, that relates to the order intake.
So the Belgium order was booked still in the fourth quarter last year. So no, I mean, this was a project that was generated and converted into orders during the first quarter of this year. So yeah, a few questions that have already been addressed.
Hello. Thank you for joining today's call. Thank you for joining. You may now disconnect your line.
Can you comment on the COVID-19 effect you see as per today in every region? No forecast, just the situation here.
No. Okay, Steven.
So basically, a forecast.
So well, I mean, I think I indicated already that China resumed. They were very effective in handling the pandemic. I think then Europe and the U.S. were hit at a later stage. I think we commented on that, but I'm not making now any comments or statements on our expectation, how long this will take.
I think, I mean, looking at the numbers that are publicly available about the situation, I think that is basically also what affects us, and the measures in these various countries affect us. So as soon as they are released and, let's say, the markets are open, the activities can resume also for C-RAD.
Great. So that was the last question. So then I would like to thank everyone for taking the time to attend our webcast today. I wish everyone a nice day and a nice afternoon, and perhaps we see some of you during our annual meeting at the end of this week here in Uppsala. Thank you very much.