Hello, and welcome to the presentation of RaySearch Interim Report for the second quarter of 2024. My name is Eva Nelson, and I will be the moderator here today. Joining us in today's call is Johan Löf, RaySearch Founder and CEO, and Annika Blondeau Henriksson, CFO. Johan and Annika will give you a short summary of the quarter, including the financials, and after that, we open up the questions, which you can ask either orally or in writing. I also want to remind you that this session is recorded, and you can find it through the same link as you used for this Teams meeting and on RaySearch website. And with that, I hand over to you, Johan. Please, go ahead.
Thank you, Eva. I would also like to welcome all of you to today's webcast. I'm happy to report that our sales for the second quarter of the year were our highest ever for a quarter, SEK 319 million, which is up 33% compared to the same period in 2023. Our operating profit was SEK 79 million, corresponding to an operating margin of 25%. The improved margin was mainly due to increased license revenue, which amounted to SEK 164 million. Of this, SEK 37 million was generated from prepaid licenses sale to our long-standing collaboration partner, MedAustron, in Austria. Order intake for the quarter was SEK 290 million, compared to SEK 239 million last year.
Cash flow from operations were SEK 155 million, and cash and cash equivalents were SEK 435 million. To summarize, we are keeping up our momentum, and our opportunities for continued growth are good. RaySearch continues to have a strong financial position, stable cash flow, and no loans. The New York Proton Center has been our customer since 2022, when they bought their first RayStation licenses. Today, two years later, I'm pleased to announce that after a thorough evaluation, the center has decided to expand its use, so that going forward, RayStation will be used for the majority of the center's treatment planning. In June, RayStation was used for the world's first clinical treatment with OXRAY, which is Hitachi's new and groundbreaking linear accelerator.
The treatment machine was developed in partnership with Kyoto University Hospital and integrated RayStation through a close collaboration between Hitachi and us. OXRAY has new treatment possibilities with extremely high precision and flexibility, and I really look forward to continuing this exciting collaboration with our long-standing partner, Hitachi. The latest version of RayCare was launched in late May, and as we have communicated earlier, this version is already certified to be interoperable with all linear accelerators in the Varian TrueBeam family. In technical evaluations of different oncology information systems, RayCare has received positive reviews, and in combination with the further improved functionality in the new version, we see that RayCare is now a very attractive alternative to other systems. This has also been confirmed by both new and existing customers, for example, when we presented RayCare, PTCOG and AAPM during the summer.
Okay, so now let's take a closer look at the financials. Annika, please go ahead.
Thank you, Johan. We present here in the second quarter our order increase, which increased by 21% from SEK 239 million to SEK 290 million. The order intake for licenses increased by 42% from 94 to SEK 134 million, and the order intake for support came pretty much in line with the same period of last year at SEK 118 million. Our net sales increased by 33%, amounting to SEK 390 million compared to SEK 239 million in Q2 of last year. The exchange rate impact on net sales was small in the quarter. Adjusting for the exchange, rates, the net sales increased by 32%.
License sales amounted to SEK 164 million in the quarter, of which SEK 37 million was generated from a delivery to MedAustron in Austria in the period. The support revenue amounted to SEK 150 million compared to last year's SEK 102 million, corresponding to an increase of about 13%. The strong sales in the quarter resulted in an operating profit amounting to SEK 79 million and an operating margin of 25%, to be compared to last year's result of SEK 18 million and a margin of 8%. This is the eighth consecutive quarter with a positive operating profit for RaySearch. The good result in the period and a positive impact from working capital explains and generated a cash flow from operations amounted to SEK 155 million, an improvement of SEK 87 million from last year's SEK 67 million.
Cash at the end of the period amounted to SEK 435 million. For the six months period of 2024, the order intake amounted to SEK 529 million and increased by 19% from last year's SEK 446 million. The order intake for licensing increased by 30% to SEK 247 million, and the order intake for support increased by 11% to SEK 199 million from last year's SEK 179 million. RaySearch's net sales amounted to SEK 576 million, and increased by 23% from last year's SEK 470 million. The sales of licenses and support amounted to SEK 282 million and SEK 221 million, respectively.
The strong sales for the six months period of 2024 resulted in an operating profit amounting to SEK 121 million, compared to last year's SEK 42 million, and operating margin improved for this six months period from last year's 9.9% to 22%. Cash flow from operations for the period improved compared to the same period of last year, from SEK 221 million to SEK 322 million. On this graph, we are looking at RaySearch's development of the operating result, quarter by quarter since Q2 of 2022. And as, as you can see, it shows a steady improvement, both in absolute amount as in operating margin, with the last quarter amounted to SEK 71.79 million and a 25% operating margin.
The next slide is presenting RaySearch's development of net sales in a twelve-month perspective, where we end the past twelve months period at SEK 1,129 million, ending June. The number shows a steady growth of total net sales, as well as an increase in support revenue. Support revenue, which amounts to 40% of the last twelve months net sales. On this slide, we present RaySearch's development, net sales, and operating result in a twelve-month perspective since Q2 of 2022. The development of rolling twelve months net sales has grown from SEK 693 million in the second quarter, 2022, to now SEK 1,129 million, end of June 2024.
The operating result has improved from a negative SEK 33 million for the 12 months preceding Q2 2022, to a positive SEK 198 million for the past 12 months, ending June 2024. So we end the period with a backlog of SEK 1,791 million, of which SEK 507 million is expected to generate net sales in the following 12 months period to come. Back to you, Johan.
Thank you, Annika. So I'm happy to once again be able to summarize a positive quarter. We can clearly see that an increase in sales has a direct positive impact on our operating profit, which shows the strength of our business model. Our target of an operating margin of at least 20% by 2026 remains, and I think this quarter's operating margin of close to 25% gives a good indication that the long-term target is reasonable. With a strong order backlog of SEK 1.8 billion and continuously growing support revenue, I look forward to the future with confidence. Thank you.
So thank you, Johan and Annika, and we will now open up for questions, and you can ask them either orally or write them in the Q&A section. So to ask the question orally, please press the Raise Hand button at the top menu in the Teams window, and I will announce your name when it's your turn. Please don't forget to unmute yourself. And for those of you who prefer to ask your question in writing, please use the Q&A function, which you'll also find at the top menu in the Teams window. So now we have two oral questions. So, Christopher, please, go ahead.
Yeah, thank you. Two questions. First, if you could comment on the highest selling cost here sequentially, especially if we add back the effect from the release of the previous customer loss reserve. And then my second question relates to working capital and whether you could give some more comments about, I would say, very positive working capital development, and also in the quarter, even if you now recognize this revenue for MedAustron, which I think should have, all else equal, should have a negative impact on, on the working capital. Thank you.
Well, to start with the higher selling cost, it is that we have had more activities, more sales activities in the Q2, compared to what we were spending in Q2 of last year. So that's. And we have also some more people, but predominantly, it's the activities, sales activities that we have spent more on. The second question on the working capital, yes, we are very happy that the working capital has improved. Part of it is driven by the reversal or the reimbursement from the bankruptcy case that we in previous year actually wrote down then SEK 10.8 million. And now, when the conclusion of the bankruptcy case is over, we received then a cash SEK 10.8 million. So that is one of the explanation.
But also we had a good collection of some of the larger orders that was sold in previous quarter. So a good collection position as well.
Thank you.
Okay, thank you.
Thank you.
We also have a question from Carlos Moreno. Thank you, Kristofer Liljeberg.... Please go ahead, Carlos.
Hi there. I just had a question actually not directly tied to this quarter, but just something I was reading about this quarter that I've been meaning to ask you, and that was, I was reading a piece about the implementation of RayCare into hospitals that have existing software, so from one of the big two providers. And they said, basically, it's impossible to bring it in because of data issues, porting over proprietary data and existing databases. It's just not viable. RayCare is only really applicable to new setups. And I just wanted to ask you, do you think that's true? Or do you think there's anything you can do to make it easier to-
Oh, yeah, but I, well-
That was it.
Can I ask a question?
I just had a quick question on that.
But it's simply not true, so I don't know where you get that information from. We can migrate any ARIA or MOSAIQ clinic to RayCare. It's not an issue at all.
There's no data privacy issues or-
No.
Do you need like a big...? Do you need 'cause you're, you know, a relatively small company?
No, the clinic owns its data, so it's absolutely no problem. That's really a very strange question.
Okay.
I don't know where you get your information from.
No, no, that's great.
But that's not, it's simply not true. Okay?
You've been very clear in your answer. Thank you very much.
Thank you.
Thank you. So now we have a couple of written questions. The first one is from Johan Rim. "So the backlog of SEK 1,017.91 million, is that for hardware and/or software? And when do you think the delivery of this backlog will be?
It's mainly software. It's mainly...
Support
... support
It's presented in the report on page four.
Yeah. And what do we say? SEK 500-something million-
Yeah, 507.
Five and seven million will be recognized as revenue within the next 12 months. It's mainly software licenses. It's mainly, the biggest chunk is support revenue, but out of this SEK 1.7 billion, plus or so, SEK 1.8 billion, SEK 507 million is to be delivered within 12 months, and that's mainly license revenues.
Okay, thank you. And then we have three questions from Mats. I'll start with the first one. "Are there any more prepaid licenses that have not yet been billed?
It's prepaid licenses that has not been billed? It's not really. If it's prepaid, it has been billed. It, we have issued an invoice, so, I don't really understand the question.
Yes, maybe you need to clarify.
Yeah. But we do have a part of our contract is that when the customer signs up, we have a down payment of a certain percentage on the contract value that we issue as an invoice, but doesn't necessarily mean that we are recognizing revenue or haven't delivered anything yet.
Okay.
That is-
We'll see if you're happy with that answer, Mats. Otherwise, you'll have to write again. So the next question from Mats is: "What is the status of the large Spain order? Have you started the implementation?
No, that will start next year.
Next year?
Yeah. So the first one or two clinics in Spain will be implemented next. This, the implementation will start in 2025.
2025. Thank you, and the last question from Mats here now: "How much of the space in the head office are you trying to rent out?
Two floors.
Two floors. Thank you, Johan. Are there any more questions? Yes, this one from Jaap Pannevis. "Hello. Can you talk about potential for RayCare to drive acceleration of sales growing in 2025 and beyond? Is this going to be meaningful?
Yes. I mean, we, of course, we, believe very strongly in the RayCare platform. We have been building this for over 10, 10 years now, since 2012. We know in evaluation that it's a, it's a very competitive product, and it really represents the, the next generation for, oncology information systems. How, how big impact it will have in 2025, we'll see, but it will, surely increase from previous years, I would say. But going forward, this will be, in, in long term, this will be at least as important as, RayStation in driving sales.
Thank you for that answer, Johan, and I don't see any-
Carlos Moreno.
Oh, Carlos Moreno again. Okay, please go ahead.
Just one other question. I just wanted to ask as you're a slightly smaller company compared to the kind of big two, do you think this is an area that's very right for using AI to improve the product? Do you think you'll be able to access, you know, AI... Integrate AI into your software?
Oh, yeah.
Do you think the big two will have an advantage, or do you think as you're smaller and nimble, you'll have an advantage? 'Cause it does seem-
No, I mean-
... an area of software that AI is really applicable to.
Oh, yeah.
Sorry, thank you.
No, but I mean, we are very active in AI, has been for many, many years. We even have our own separate machine learning department at the company. So machine learning and AI, or if you call it AI, is very central for us. And we already have, since several years, products out based on AI that are simplifying and speeding up treatment planning, both segmentation of structures, but also the actual development of the treatment plan, the optimization of the treatment plan. But AI will also be applicable to you know, outcome data, understanding the efficacy of different treatment methods, and but also in terms of efficiency in the clinic.
So far we have only AI products out related to RayStation, but we will surely apply AI also to applications in RayCare. We are very much on this topic.
Great. Thanks.
Thank you.
Thank you, Carlos. Then there's a question from Henrik Carlman. Please, go ahead.
Yes. Hi, thank you for taking my question. This is Henrik Carlman from KS Capital. I was wondering, Johan, if you could talk a little bit about sort of the margin targets that you have of operating margin by 20% by 2026. It seems like it's quite modest, given the development of the company, or do you plan for massive investments in the company as it is right now?
I think that's a very relevant question, but I think it's that we have set this target that we feel very comfortable with, so we really will strive to achieve this. One shouldn't say just because we had a really good quarter this quarter that we should suddenly revise these targets. That's not how we like to operate. We want to be more, have a more, let's say, stable. The strategy stays the same. But, I mean, if we beat the target by 2026, that's fine, too. But this is what we want to communicate, that this long-term target is fixed at a minimum of 20%.
Okay.
Operating margin in 2026.
Yeah. Of course, it's a strong, strong quarter, but even if you adjust for the one-offs, you know, the development is really, really good this quarter and the past couple of quarters, actually. So to me, it seems like if a strong sales development continues, you will achieve or exceed this target much earlier than by 2026, if you don't make large investments into the organizations. But, is there anything that you see that you have to invest in or that you could invest in that could even improve the company even further, that you would like to do?
Yeah, that's nothing I can comment on now, but, but obviously, it's possible that we will beat this target in 2026.
Mm.
It's not, we don't rule that out. But, for now, this is what we want to stick to as a, as a communicate the target.
Okay. Thank you very much, and congratulations on-
We do feel, we do feel comfortable with this target.
Yeah. Thank you, and congratulations on a very good report and a very good development of the company so far.
Thank you.
Thank you, Henrik. Now, we have a couple of more written questions. Here's one from James: "On the support order intake, is the Q2 quarter always seasonally strong?
No, Q2 is usually not the strongest quarter. Q4 is usually our strongest quarter.
Yes. Yes, yeah, normally we have like a kind of smaller hockey stick impact with regards to order intake, that we're always stronger in the Q4, because of budgeting reason, normally, with the hospitals. So, yeah, I think we were just very lucky this quarter that it was so strong and, yeah, tied to some of the licenses sales that was occurring also.
Okay, thank you. There's another question from James: "What percentage of license value do you aim for on support contracts, and how has this changed?
Okay, we don't aim at a specific support revenue percentage. It's at 40% now, and it's steadily growing. Did it grow by 17% this quarter?
Mm-hmm.
Something like that. So it is growing steadily. But obviously, we would like the license revenue to grow even stronger, and then the percentage goes down. So, in absolute numbers, support revenues will grow. The ratio of total sales will just be a consequence of how much we can grow the license revenue.
Okay. Thank you for that. Jaap Pannevis has another question. Maybe you touched on that already, but I'll still put it. "You have now already delivered 20% EBIT in the Q2. What is the priority beyond this?" Connecting to the other question. "Accelerate growth or further margin expansion?
No, we'll just keep the operations as planned and look at the target at the same, at the same time in every decision that we make.
Okay. Thank you for that. Any more questions? No, there don't seem to be any more questions. So, thank you then for your participation. We conclude this session now and look forward to continuing talking to you. If not before, then it's gonna be when the interim report for the third quarter of 2024 will be presented, and that's on the eighth of November this year. Lastly, I'd like to remind you that you can always find the presentation, the same link you used for this meeting, and on RaySearch website. Thank you, and goodbye.
Thank you. Bye-bye.