Thank you. Good afternoon and welcome to Research Earnings Conference Call for the Q1 of 2021. My name is Johan Loeb and I'm the CEO and Founder of Research. With me, I have our CFO, Peter Tisssell And together we'll try to answer any questions that you may have after my presentation. I will start by giving a brief overview of our Q1.
The COVID-nineteen pandemic had a negative impact on research also in Q1. Market conditions remained challenging in Europe and North America, while they improved in Asia. Last year, pre COVID, we reported a record high order intake, net sales and operating profit in the Q1. In the Q1 of 2021, our order intake was SEK 145,000,000 representing a 52% decline year on year. Our net sales declined 22% to SEK182,000,000, which is explained by lower license sales due to the pandemic and the strong Q1 in 2020.
Our recurring support revenue continued to rise and now accounts for 38% of our net sales. As a result of our lower sales, our operating profit declined to SEK 12,000,000 representing an operating margin of 8%. Cash flow remains strong and was SEK 33,000,000 in the first quarter, thereby Research has generated a positive cash flow of about SEK 100,000,000 during the past 12 months. However, The lower profits in Q1 also resulted in a breach of an EBITDA based covenant in our revolving credit facility agreement with our bank SEB. As a consequence, SEB has requested prepayment of the outstanding debt of SEK 50,000,000.
This is unfortunate, but not a big problem for us since our liquidity amounts to more than One more than SEK 200,000,000 and the company has a net debt of minus SEK 66,000,000. The credit facility will be available for utilization as soon as the company satisfies of the financial covenants according to the agreement. Despite the challenging market conditions caused by the pandemic, the past year has been still being productive for research. Some examples, our customer base increased by more than 100 new cancer clinics, which is actually more than previous years. We strengthened our product portfolio significantly Our continued development of our core systems, Ray Station and Ray Clear and the launch of 2 new systems, Ray Intelligence and Ray Command.
Our customer satisfaction ratings have remained at a very high level. Our cash flow has remained strong and our financial position remains solid. One of the main news for RayStation is that we are introducing support for Accuray's CyberKnife machine. We already supported tomotherapy and Radixact machines and thereby RayStation can provide complete support for the entire suite of Accuray machines. During 2021, we will also release a large number of machine learning models for RayStation, which can significantly improve both productivity and treatment outcomes.
Another area of focus for 2021 with improved workflows and integration between RayStation and RayCare. This is especially important for clinics that use complex treatment procedures and adaptive treatment techniques, which places high demands on efficient scheduling and optimal resource utilization. While the uncertainties associated with COVID-nineteen It will stay with us for a while, at least until national and regional vaccination programs approach full coverage. We remain optimistic about the research long term strategy for comprehensive cancer care. If anything, The need for accelerated digital transformation of the oncology workflow has been amplified by events over the past 12 months.
Early in the pandemic, for example, the World Health Organization found that 1 in 3 countries in Europe Reported partially or completely disrupted cancer services. While some national snapshots indicate that as many as 10% or more of new cancer cases may have gone undiagnosed in the past year. Put simply, cancer centers and their care teams will need very efficient tools if they are to diagnose, treat and manage the post COVID surge in cancer cases in the best possible way. Going forward, it would be Research's mission to show cancer clinics, large and small, how they can improve their activities through software driven innovation, a strategy that will ultimately deliver workflow efficiencies while giving more patients access to the best possible cancer care. This concludes my presentation.
Peter and I are now ready to answer your questions.
The first question is from Hans Bostrom. Please ask your question.
Yes. Hello. My name is Hans Bostrom of Trinidad and Delta in London. I have two questions, please. I wouldn't be very interested to hear if you could elaborate on how you think cancer diagnosed might Change, if at all, because of this pent up demand, shall we say, for diagnosis once this pandemic is over?
Do you have Any more sort of explicit thoughts on that? And secondly, could you also tell us how your sales process has been impacted by the pandemic? I see your selling costs are considerably down year on year. It would be interesting to hear how you think that how it might potentially sustainably change from the pandemic. Thank you.
Thank you for those questions. Regarding the first one, the well, the diagnosis will of course there will be a heavy burden on First of all, the diagnosis, we are not heavily involved in that part. But then when it comes to Efficiencies, it seems like for our systems that the cancer clinic need to treat more patients than they did before. So they need to be able to plan more patients And we create treatment plans, we need to be able to take them through the entire workflow to deliver the treatment and to follow-up the treatment And in all of these steps software can really improve and speed up things. For instance, just to give you a concrete example, so it doesn't become too abstract.
Before you create a treatment plan for radiotherapy treatment of cancer, you need to segment the Patient anatomy, we need to define the different structures including the tumor volume and that's a quite It can be very tedious, quite heavy process. It just takes time. That is just one example of tools in our system, Ray Station that where we can automate that whole procedure. We have several different algorithm, the last algorithms. The last family of algorithms are based on machine learning and they are extremely rapid.
They can be trained on hundreds of patients beforehand that are having contoured in a careful way And then you can apply these deep learning models to new patients and get the result in seconds. Other aspects is that our way of optimizing the Radiotherapy delivery, that is how the beams are configured and computed to deliver the radiation dose. Our way of optimizing those means that with the same quality treatment, the patient can be on the treatment couch that is in the treatment room for a shorter period and that means you can treat essentially more patients per hour. And this will become extremely and these are just two examples. There are many, many.
So these are aspects of how you can just by using with the same hardware, everything, same staff, so forth. By just utilizing sound and good software, you can treat more patients per day and that will show that will become very important after COVID-nineteen is gone. Regarding the second question, yes, our sales process has been very different during this time. One of the main reasons why we don't Where you see lower costs is that we spend much less time traveling around The world we don't participate in the huge trade shows that we usually go to where Entire community shows up as they have been canceled during this pandemic And because those were associated with the costs, so we say those. So do I think it's sustainable to work like this?
I don't think so. I think we need to to some extent we will be more efficient in how we will do some less This is to clinics and customers and partners. But it won't be 50% or sometimes that will be a reduction will take away the maybe some unnecessary trips can be replaced by digital online conversations and everyone is up to speed in those areas now. So everyone is better prepared, but we need to We need to meet face to face still in the future. So there will be reductions, but You know, we still need to this has only been 1 year plus that we have been away from our customers.
We are We still have a certain momentum that we have built up over many, many years with relationships and the market presence and brand recognition and all of that. And of course that It stays for life, but it doesn't stay forever. So we need to participate in in the most important trade shows and we need to visit customers in the future. I think there are we will be able to streamline some things and reduced cost, but it won't be at these levels, I don't think. Okay.
Does that answer your question or do you have any?
No, that's fine. That's very interesting. I mean, do you have a sense of how much lower your structure your expenses could be on a percentage basis based on?
Very hard to say, but let's say maybe we could get away with 70% of what we spent today, something on those. It's very hard to predict. I think we will be able to reduce. We have to we still have to travel.
So that's a 30% reduction of our historical cost associated with trade fairs and traveling and things like that. Thank you very much.
Thank you.
Our next question is from Raine Lisi. Please ask your question.
Hi. I have two questions. 1st, for the again follow-up to this COVID impact on sales. In the past, you have mentioned How many on-site demos you have performed? Just to get you kind of get more tangible Feeling on the COVID impact, maybe you could elaborate how many on-site demands you have had in the most recent quarter and how this compares With the pre COVID levels.
Okay.
I can answer that first and you can take the second one after. Is that okay? Yes.
So
Well, basically, on-site demos have been globally very close to 0 during this time. The clinics one has to remember that our customers are they are part of hospitals. They are cancer clinics that are part of hospitals that are completely occupied with COVID treatments. And for the hospitals is, first of all, all hands on deck to handle the corona situation. And it's also a lot of restrictions because they are terrified that their staff will be infected by corona from outside visitors.
So they are around the world very strict on avoiding I mean, there are some exceptions, but overall The hospitals don't want vendors to come and visit and show their products and so on. So and we fully respect that. On the other hand, we have had Many, many online demos. So there have been a huge search in online demos And they also they have been very much improved during this period. So it really worked on and that's going back to the previous question.
I think that is actually One change going forward with existing customers and maybe In some cases, completely new customers, we can today produce a much better show for When it comes to the demos are very important for us when customers' rail station or railcar or NOAR products, they are essentially hooked. We have to show them the product and then they can convince. And now we can do that Much better. I mean, we did online demos before as well, but we are much, much better at that now. And we have built up studios, professional Studios where we can we don't only have this incredibly boring Teams experience or Zoom experience that Everyone is tired of by now, but we can we have more of a studio environment with them is more alive.
So the customer can see all presenters Walk around in the room and point at the screen and then we can replace that with fill up the entire screen with all the only the graphical user interface and we can It becomes a much more dynamic and live experience. And this is something that we will benefit from the post krona as well that we can do more of this. We will travel as well, but we can essentially create we can reach many more potential customers to these enhanced online demos.
Okay. Thank you. My other question This on the competitive landscape, at least from the investor communication, it seems that recently Elekta and Varian have Increased focus on the software offering. So maybe you could kind of elaborate how So this has changed your competitive position?
Yeah, sure. The landscape is, if you look at treatment planning, you can stay with that, make it simple. We have 3 competitors, it's Philips, Varian and Elekta. And Phillips, obviously, they are going away. They are they're not investing.
So That system is not considered really a competitor anymore. Varian, we have always had great respect for Varian because of The size and their market dominance in terms of the machines, the linacs And they have a very good treatment planning system. It's not as good as ours. We still are quite far ahead And they're pushing very hard to catch us, which is I mean, that's good for the field and the big picture. Elekta, They have ambitions as well.
We don't see that yet. We can't the current system is not really As Seth, when you compare the rail station to Monaco in a competitive situation, It's I mean, it almost never happens that we would lose in such a situation. But you're right in that these companies, they focus more on software now. They realize that software It's the most important thing in Cancer Care actually. All the other things are necessary, of course, but to take a big step forward, it's It's about software machine learning and big data and all of this.
And So that's a natural evolution, I think. But these two companies are, I'd say, core hardware companies. They're not as simply not as good in developing software So we are, but for sure they are increasing their efforts.
Okay. Just maybe I know one follow-up. I mean, If basically, if I look at revenue performance of Varian and Elekta, I mean, they are not although they are slowly quoting this COVID impact, which is kind of I haven't kept on their sales, but at the end of the day, their revenues are not seeing such a Significant decline. So I'm just wondering, and in my view, they are approaching same clients as you are in that sense. So I'm just wondering whether there's kind of a significant difference in how the equipment manufacturers And you approved the client or maybe for some reason the parallel that I'm bringing is not relevant at all?
I think it's very hard to compare. We also have huge report contracts for their machines and so on just running recurring revenues that has probably stabilizing effect. I mean, we will start to see our recurring revenue is growing in Besides and it becomes the stabilizing factor for us as well. So we start from a lower starting point. So I don't really know how to answer that question If they are less we know whether we are affected by the pandemic because our customers are there are budget freezes, there are Different situations, different focus for the clinics right now.
We don't They are not very eager to invest in big software systems when they are dealing with the pandemic. But we see Changes happening that customers in Europe and United States So to interact much more with us now. So they are kind of getting out of this situation. We see a lot of signs in that direction. In Asia, we see Asia is one of our it's our strongest region right now.
So they have They covered much earlier from COVID and there we see a lot of it. And in China and Japan, we have seen That has been very strong contributors to our revenue stream. We have really balanced The slow markets in Europe and North America. So we see good signs, good discussions now. People are kind of waking up from this COVID sleep in those regions.
So a lot more discussions are happening now. So I think We will start to see good signs going forward this year of improved improved sales. Okay. Did that answer your question? Are there any other questions?
Thank you.
Thank you.
Okay. Thank you. Our next one is from Matthew McNeil. Please ask your question.
Hi, thanks for taking my question. Just wanted to ask about An update on R and D, the company has launched a couple of new products recently and just wondering if you can provide any color On the forward outlook for R and D from here?
So I suppose the question is whether we should we are going to increase our R and D organization significantly. I think we it's It's quite I mean, it's substantial today and It's important to remember that research is to a large extent an R and D company that happened to have a decent profit. A lot of our developments that we are doing are really long term investments. So rail station that we started in 2,008 to build in 2,008 has been profitable for just a few years and it's just gaining momentum. Raycar is in its infancy.
We started that development in 2012 And to now Ray Commander Intelligence are on the market. And so we are we have very long term plans and long term So one has to keep that in mind when because if you look at the size of the R and D department, which is more than half of the Company staff and probably similar in cost, total cost. So of course we are you know, we could be extremely if we didn't have this Long term vision, if you wanted to be profitable, we could be Crazy profitable, but that's not really our Our goal is to be extremely profitable in the future and its software that will come as the volumes pick up. I don't think the R and D department needs It will stay at this level or slight increase going forward. We will have a very good machine that generates the best products in the world.
That's why The top cancer centers in the world want to have our products and want to work with us is because we have the is quality by far highest quality software systems. But just to answer your question here, we will not will stay at these levels, slight increase going forward.
Thank you. That's very helpful. And maybe just as a second question, the company Established a presence in Australia. Just wondering if you can provide any additional color on the opportunity in that market and Maybe if you were to compare that market, does it resemble more Something like the U. S, Europe or Asia?
Thank you. No, it's not a huge market. And we have a presence there already. We have a number of customers there, quite early adopters as well. We have long time customers in both Australia and New Zealand.
And we just have a distributor as we have just replaced our distributor with our own presence there, our own company and it is not due to just a few employees. But it's a good it's quite as I know, they are in general early adopters in both of those countries. They are looking into protons and even carbon ions and of course our systems are the systems of choice if you're going Do anything with particles. And of course, it's a much smaller market compared to the United States for instance. It's just a natural It's not a huge thing, it's just a natural step for us to go direct in Australia.
We have good customers there and we weren't happy with Distributors, we and we had good Australians within our amongst our employees. So it was a very good fit to go Thank you.
I actually think that concludes our conference call. Thanks all for today.