Hello, and, welcome to the presentation of RaySearch Interim Report for the Second Quarter of 2023. My name is Eva Nilsson, and I will be the moderator here today. Joining us in today's call is, as, always, Johan Löf, RaySearch founder and CEO, and also the new interim CFO, Annika Blondeau Henriksson. Johan and Annika will give you a short summary of the quarter, including the financials, and after that, we open up for questions, which you can ask either, orally in the call or submit in the text field under the presentation. So remember, if you want to ask a question orally, you need to be in the call. 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 call and also on RaySearch website.
With that, I hand it over to you, Johan. Please, go ahead.
Thank you, Eva. I would also like to welcome everyone to today's webcast, and an extra welcome to Annika as well. I'm happy to note that the positive trend is continuing. Sales during the second quarter were our highest ever for a second quarter and amounted to SEK 240 million, up 49%. Would have been 41% at unchanged exchange rates, compared with the year-on-year period. And also, this is the second highest sales figure ever for a quarter. Q4 2022 is still the highest. We had a cash flow of SEK -3 million, and the EBIT was SEK 18 million, resulting in an operating margin of 7.6%, which is still well below our long-term target.
The quarter was negatively impacted by currency translation effects, increased rental costs due to inflation, and higher costs for external services. The sharp increase in sales that we've seen in the last couple of quarters is clearly linked to the reopening of the market and our strong offering. We believe that this momentum will continue and have therefore decided to continue our offensive marketing strategy. As in the previous quarter, sales for the second quarter were not based on any major orders. The largest single revenue item was SEK 11 million, but mainly consist of a combination of revenues from many small and normal-sized orders, and of course, the support revenue. We have a strong financial position with cash and cash equivalents of SEK 246 million.
We have renegotiated our financing solution with the bank, where we terminated the previously unutilized revolving credit of SEK 150 million and replaced it with an increased overdraft facility of SEK 75 million. Overall, we have a stable financial position for continued growth. I would like to highlight some important orders that we received during the quarter. In early May, New York University Langone Hospital on Long Island placed an order for RayStation, to replace their existing treatment planning system. Today, the center is equipped with a combination of Varian linear accelerators, Accuray's CyberKnife, and Radixact systems. And because RayStation is compatible with all of these, the hospital will now get a unified solution for treatment planning, across all their machines. Another U.S. order for RayStation is the, the one from Southwest Florida Proton.
They're setting up a new facility on Florida's West Coast, which will be the first cancer center in the region to offer proton therapy, and it's here that RayStation will be installed. Moving over to Asia, we received a new order from Shinva, which is a Chinese manufacturer of linear accelerators. We've been delivering RayStation to Shinva for many years, which they have sold in China together with their own machines. The new order is for 15 RayPlan systems, our streamlined version of RayStation. As the Chinese market has a huge potential, I'm really looking forward to our continued collaboration with Shinva. The largest order of the quarter, approximately SEK 21 million, came from another Asian company, called SHI Industrial Equipment, based in Taiwan. They will install RayStation in Taichung Veterans General Hospital in Taichung.
Concerning RayCare, I'm excited about the order we received from the Australian Bragg Centre for Proton Therapy and Research. This is a center under construction, and it will be the first proton center in Australia, thereby also the first of its kind in the Southern Hemisphere. The center is planning to purchase RayStation at a later stage, so I hope to be able to talk more about Bragg in the future. As previously communicated, the interoperability between RayCare and Varian's TrueBeam took longer to achieve than we had hoped. But now, after an extensive and joint validation program, this is in place. TrueBeam is Varian's most widespread treatment platform.
It's used by thousands of centers all over the world and I therefore expect that the certification will significantly increase the market potential of RayCare from 2024 and forward. Yonsei Cancer Center in Seoul, Korea, has been using RayStation for both photon and carbon ion planning for a long time. It was also the first center in the Asia-Pacific region to buy RayCare, and a couple of months ago, the team at Yonsei treated their first patient using both RayStation and RayCare. It's the first center to take RayCare in clinical use in Asia, so this is an important milestone for us. In June, we signed a collaboration agreement with a small Japanese company called B- dot Medical. Together with them, we hope to advance proton therapy further by integrating RayStation and RayCare with their ultra-compact proton therapy system.
It's a very impressive design indeed. Unite RT is the new and unique collaboration of leading stakeholders in radiotherapy that was initiated during the spring. The purpose of Unite RT is to improve collaboration and competition in our industry. During AAPM in Houston at the end of July, we continued to spread the message about this initiative, and there was a great interest from both companies and customers. Today, we are already 17 members, and we see a growing interest among industry colleagues. Now, let's take a closer look at the financial. So please, Annika, go ahead.
Thank you, Johan. And we start with presenting our key metrics of presenting our order intake and net sales first. The order intake in the second quarter amounted to SEK 239 million, and this is an increase by close to 13% year-over-year. License order intake was SEK 94 million, which correspond to an increase of 41%, and support order intake increased less than 1%, and came in just below 120 million SEK. Net sales amounted to SEK 240 million, an increase of 49% compared to the same period of last year. If we adjust for the exchange rate impact, change in sales increased by 41%.
Licenses net sales increased by 47% compared to Q2, and came in just above SEK 100 million, while support net sales was SEK 102 million, and an increase by 39% compared to Q2 of last year. In the quarter, it's worth mentioning that we have a couple of customer contracts for support that were renegotiated, which generated SEK 6 million of additional support net sales and should be considered to be one- off effects. Our operating profit improved from a loss of SEK 20 million in 2022 to a profit of SEK 18 million this year, and this represent an operating margin of 7.6%. A strong improvement, which is driven by our higher net sales, but partially offset by higher operating expenses compared to Q2 of last year.
The operating expense, they increased due to currency translation effects from our subsidiaries, increased selling expenses due to a return to a more normalized activity level post-COVID, and they also increased on the administrative expense part, due to still relatively high share of rental, senior external consultants. Then we also have a general inflation impact, which particularly hits our renting cost. So in the second quarter, total operating expenses, they increased to SEK 221 million compared to SEK 180 of last year. Lastly, we had come to our cash flow for the period, which was SEK -3 million, and we would like to highlight that cash flow always needs to be seen over long-term horizon and can fluctuate over time for research.
However, in the period, we have seen a high net sales, in particular in the last month of the quarter, which explains why that our customer receivable has increased, and consequently, we have presented and reported a negative cash flow. Half-year order intake amounted to SEK 446 million, a decrease of 8% compared to the same period of last year. Net sales for the period amounted to SEK 470 million, and represent an increase of 28%, where all licenses was reported to SEK 205 million kronas, support revenues amounted to SEK 189 million, hardware revenue amounted to SEK 56 million kronas, and trading and other revenue amounted to twenty million kronas.
Our operating profit was reported to SEK 42 million in the first half of the year, from 10 in the same period last year, representing then an 8.9% margin compared to 2.7 of last year. Lastly, cash flow for the six-month period was SEK 81 million, to be compared with 52 of the same period last year. This graph displays our order intake and revenue over the past quarters in a rolling twelve-months perspective, and we can see that our rolling twelve months order intake amounts now to SEK 1,179 million. The rolling 12 months net sales amounts to SEK 945 million, and the trends for both order intake and net sales shows a continued growth.
At the end of the period, our total order backlog was SEK 1,955 million, of which SEK 615 million is expected to generate revenue over the next 12 months. The remaining amount in the order backlog pertains per to support commitments that are primarily expected to generate revenue during the four coming years. Operating profit over time and by quarter. The second quarter of this year, 2022, was the fourth consecutive quarter, which was positive on the operating profit side. At the end of the period, and to reference to what Johan just mentioned, we are closing, ending the period with a strong financial position, a cash and cash equivalent of SEK 256 million.
In July, the previously unutilized revolving credit of SEK 150 million was terminated, and we replaced it with an increased credit facility of SEK 75 million. So back to you, Johan.
Thank you, Annika. So just to summarize, I'm happy to see that the market conditions and RaySearch's momentum continue to improve. If we summarize the first 2 quarters, the first half year was the strongest ever for us. Our order backlog also continues to be very strong, to date, almost SEK 2 billion. Moving forward, our focus will be on improving the operating margin, and we have set a target to have a margin of at least 20%, within three years. With our strategy and market outlook, I'm convinced that we will reach this goal. Thank you very much.
Thank you, Johan and Annika. We now open up for questions. Operator, over to you.
We will now begin the question and answer session. Anyone who has a question may press star and one on the touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. Our first question comes from the line of Kristofer Liljeberg from Carnegie. Please go ahead.
Yeah, thank you. It's Kristofer here from Carnegie. Strong quarter, congratulations to that. I have four questions. The first relates to the higher selling and R&D cost in the quarter. Personally, I thought it would maybe go up a little bit more gradually, so I don't know, did you do a lot of hiring at the end of last quarter or early this quarter that impacted this? Or is it something else not related to an increased number of personnel that's driving that? My first question.
Oh, okay. So, I thought you would. I appreciate that we can answer a question at a time. So, would you like to take that?
Yes, I can start, and then you fill in, Johan-
Okay, yeah.
if there's some-
Perfect
... some supplementary information you would like to give.
Okay.
Well, the selling expenses and the R&D expenses growth, I assume, was the question. The selling expenses have increased, and we have had a lot of activities on various ex- what do we call them?
Like, like, trade shows.
Trade shows and similar. So that's one of the reasons. We have also obviously the increased sales also trigger some more bonuses and these kind of things, commissions to the salespersons. I want you to comment on the headcount side. The R&D is increasing because we have had less time spent on certain of the projects, so that's why the gross R&D is going up, and consequently, we have higher personnel expenses. Basically, we have worked less on what we have normally capitalizing in the quarter, specifically. The headcount on these two functions-
The headcount on the have not increased significantly during Q2. We have been recruiting, but we will join during the second half of the year. But I think ESTRO should be highlighted here as a driver and the... Because we had a much smaller presence at ESTRO 2022. And as Annika mentioned, we do travel for sales a lot more 2023 compared to 2022.
Thanks. That's very helpful. You think it's fair to assume that selling cost will be lower in the third quarter than in the second quarter, and then go up again in the fourth quarter with the ASTRO trade show?
... Yeah, that's a fair assumption.
Okay, great. And my second question, also related to cost, but administrative cost. And you mentioned, there's still quite a number of external consultancies. So when do you expect that to go down, and will it be replaced by internal hiring instead so that we won't see any positive effect on the cost level from this?
Yeah. Yeah. Okay, so, I can start, Annika, and you fill in. I think that that's the main driver here for the main-- I mean, the main reason for the high admin costs. The rent is another important one. But, we... I would say, I mean, we want to do this, as soon as we can, but it can't be done in an instant. Now, we have, now we have a very-- I mean, we have a stable financial department, but it's expensive. I would say, I mean, during next year, for sure, this will be, for sure, the second half of 2024, we should have a normalized situation with less, if any, consultants in place. Annika.
Now, I can only echo what Johan is saying, that we are working on a plan to replace consultant with permanent staff.
Would it be possible to give some sort of indication how much that impact would be on the cost level?
I think unfortunately, it's a little bit too early to say because it's, it depends also what kind of profile we are looking for. And, labor market, particularly in the Stockholm area, is still, very, very...
Competitive
... competitive, yes. So,
Okay.
We are working on it to make it as a good solution as possible for RaySearch.
That makes sense. Thank you. The third question, really nice to see an EBIT margin target, something that I think many have been waiting for.
Yes.
For that to be reached, is it possible to say anything about what type of sales growth is needed? Because I guess you, you're also talking here about, you know, doing more investments in marketing, et cetera. So, yeah, I don't know if you want to answer that or not.
I can say that we can reach. I mean, of course, we have modeled this extensively before we commit to the target. And I will not say exactly what growth it requires, but it's a reasonable growth. It's not, it's quite conservative assumption on growth year-over-year. So, we are quite confident that this can be reached. But I will not lock myself into exact top line and cost.
No. Okay. No.
But I-
I understand
... the this particular margin will be reached.
Yeah. Okay. And, have you done any assumption when it comes to the level of capitalized R&D, et cetera, related to this, target, if I compare with maybe historically or so?
It's been on a, on a similar level, as historically.
Okay. And then my final question, with TrueBeam clearance here, how much do you believe this could impact, say, positively in the next one to two years?
I can't quantify that, but there are many customers that are happy about this new possibility to choose an alternative oncology information system. But I cannot quantify it now. But what I can say is that we won't see any real impact on sales until 2024. But then we'll start to see this, and going forward, it would have a very positive effect on the RayCare sales.
Okay. Thank you very much.
Thank you.
Our next question comes from Pontus Dackmo, from Protean Funds. Please go ahead.
Hi, Johan and Annika. Can you hear me okay?
Yes.
Yes, we can hear you.
Well, first of all, thanks for the solid report and the margin target. I can only echo what Christopher said, that it's a nice crutch for us when we try to model the future here. I just have a few questions. One is on the order intake side. I mean, license orders grew 41%, but support orders only a fraction above zero. Is there a lag effect here? Do support orders normally follow license order with a lag, or how does that work? If you could just explain.
Did you catch the-
No, I did not catch the question, so just-
Can you please repeat the question?
Yes.
Okay, now, I'm just noting the discrepancy between license order growth and support order growth. Is there a lag effect in there? Does the support orders follow the license orders with a lag?
Yes, of course. I mean, support is based on the total installed base from 2009 contribute to the support. So, simply put, the sales during 2023 of licenses don't generate; there is a 12-month warranty period, so they don't generate any support revenues until one year after.
Yep.
So it's
It's very-
Yeah, so the answer is yes, there is a lag between, but, but also the-
Yeah
... support revenue is a percentage of the entire installed base. So every customer that bought licenses from 2009 and forward contribute to the support revenue.
Excellent.
Does that make sense?
My second question is. Yeah, that makes perfect sense. Thank you. Then on the FX side, I mean, it is a bit difficult as an external observer to understand why you don't have a positive effect from FX. Could you elaborate a little bit on that?
Yes. I mean, we mentioned in the report that we are impacted favorably with of the favorable development on the net sales. 8% is currency, the currency impact.
The difference between 49% and-
And forty-one
... and 41.
Yes. But then obviously we also have in the OpEx also a negative impact of the currencies, dollar and euros predominantly. But net bottom line, we have, we have a favorable impact, which we have not stated in the report how much it is. So favorably, yes, but we have not stated how much it is.
Okay. Right. Then on, a couple of your industry peers have noted that there's some noise in the market on suspected corruption in China involving some Western hardware manufacturers. Do you see an impact from this at all, or is it an opportunity for you, given your collaboration with the Chinese manufacturers?
Which part was an opportunity? I mean, we have not been... We have not seen any corruption from our perspective. Do you refer to?
Well, there is allegedly a clampdown on suspected corrupt incident where someone has been bribed to acquire.
Okay.
-a Linux-
Aha
... as the manufacturer.
I see.
I'm just wondering whether-
Uh, well-
Since you provide the software for a Chinese vendor, perhaps there's an opportunity there.
Aha. First of all, we haven't seen any corruption. But we are well aware that there is plenty of corruption in China. But I don't see how we could see an upside for... I guess I can't. I don't understand the question really.
Okay, let's come back to it offline.
Okay. Any other questions?
I think that was all my questions.
Okay, thanks.
As a reminder, if you wish to register for a question, you may press star then one.
Okay, thank you. Then there are a couple of written questions. There's the first one from Anders Hedlund: "Have you considered going cloud with one or more of your products, and subsequently, change revenue model to a more subscription-based one?
Okay. So yes, we have one product that is only cloud, which is Ray Intelligence, and it also has a rental subscription payment model attached to it. All our products can be cloud-based, and I mean, we run them like that. RayCare is essentially a cloud-based product, but it's based in the hospitals. It runs on the hospital's own cloud because they want to keep the patient data within the walls of the hospital. RayStation can also be run in the cloud, and that's how we demonstrate, for instance, RayStation, and we distribute evaluation system.
Before, in the past, we distributed computers to hospitals that wanted to try RayStation for three months, or six months, or something like that, but they can now try RayStation, running it from the cloud. So technically, it's not an issue, it's just a preference from. And we actually have a couple of customers where we provide a cloud service for RayStation. But in general, most hospitals want to run it on-prem, so to say. And it's not. The payment model is actually a separate issue. We have subscribers, even though the system runs on-prem, and we offer. Any customer can choose to buy any of our products, either, except for Ray Intelligence, it's only available, you can only pay by subscription.
But all the other products can be paid either with a traditional license model, an upfront payment for licenses, and then a support fee, annual support fee, or you can have an annual subscription fee. We only have, I would say, less than 20 subscribers of RayStation, but it's up to the customer to choose. And yeah, hopefully over time, this will be a more common payment model because it is attractive, but it's also good that it doesn't, that people don't convert everyone at once, because that will be a cash flow issue for us. But if it happens gradually, I think it would be a very nice transition for RaySearch.
Okay. Thank you. Hope you're happy with that, Anders. Mats Andersson asks, "Can you please inform about the potential concerning license revenues for TrueBeam and Philips? Which of these has the biggest potential?
I think what he refers to is, when he mentions Philips, that Pinnacle is end of life in 2026, and there is an installed base out there in the world that have Pinnacle, and they have to convert to something else before the end of 2026. So that's a big potential for us, and we constantly grab customers like that that go from Pinnacle to RayStation. But it would be a spike during or an increase of this conversion in 2025 and 2026. And then it's hard to compare that with the RayCare, which one is the greatest, the RayCare potential, thanks to TrueBeam or this Pinnacle conversion.
I can't say that. I don't know, simply put.
Okay. Thank you. And then Eric Erk has two questions. Eric Erk.
Uh.
Probably not his name, but Eric. And it's just a Gmail address, so I don't know.
I see.
Eric Anderson! Sorry, I can see that now. Okay, please, "Can you please elaborate a bit on the interest from customers in RayCare and what you foresee in terms of RayCare sales going forward?" We just talked about that. "Can you also please indicate how much RayCare sales was at as a share of total sales so far in 2023?
Do we have that number?
I have to pick it up, so-
Okay.
We have it. I can-
Mm-hmm.
Was it year to date, so-?
But it's still a smaller portion, of course. So, RayCare sales and RayCare is still in its infancy, let's say. Especially on the revenue side, we have huge orders for RayCare, for instance, the Ortega project, where nine centers, proton centers, purchased RayCare. So, but the revenue contribution for RayCare is still small. But it will... It's growing, and it will, I think, accelerate in growth and have a much bigger impact on revenues from 2024 and onwards.
RayCare, SEK 8. SEK 8.6 in the quarter. Licenses. Okay.
Yeah. Okay.
Okay, we'll move on to the next one. Eric has another question: "The three large orders that you took in the quarter that has not been recognized yet as revenue, when will these orders be invoiced?
It varies. We, I don't think we can comment on that.
Depends on the customer agreements.
Yep.
Okay. That was all, I think.
All the questions?
All the questions. You found anymore? No?
All right.
Okay, then. Thanks, everybody. I think we can conclude this session now, and we look forward to continue talking to you. And that will be when the report for the third quarter will be presented, and that's on the seventeenth of November. And I would also like to remind you that you can always find the presentation through the same link as you used today, and also on RaySearch website. So, thank you for your participation, and goodbye.
Thank you. Bye-bye.
Thank you.