Our nine-month presentation this fiscal year. The agenda: I will do the intro and highlights, as you shown. Jessica will go into financial development. I will talk a little about the way forward, and we have the question Q&A session via chat function and email. You can also email and chat during the presentation, as Elias said. First, a little about our different business operations. We have Imaging IT, the by far largest operation handling images. Initially, that was radiology. Increasingly, we do all images in the hospitals. We are still unique in that we, in one single system, can handle all the different image types of the hospital, from radiology, pathology, ophthalmology, cardiology, dermatology, etc. There are images; it is a very important part of the diagnostic process. It is growing a lot by itself.
We have Secure Communications on the right, where we separate comms from the beginning, secure transmission, where we do mainly encryption solutions for communications, both as mobile handsets, but increasingly also in fast, highly secure network operations. We have Business Innovation, which is our greenhouse for new, interesting ideas, where products can be for a while before they have to develop. Since one year back, about, we have Genomics IT as well, which is an increasingly part of di agnostic process, especially for oncology and cancer. We have had one hospital live at University of Pennsylvania in the U.S. for almost a year by now. We are in the process of, or we have quite a large interest in that area going forward. That is where we deviate a little bit from images. We also handle other data. But it is unstructured data.
It's not something you put in a database easily. A little about highlight of the quarter, we were number one in customer satisfaction. This year, we got a record number of awards. We got eight. The most important is large hospitals in the U.S., but we also won small hospitals in the U.S., Canada, Northern Europe, Southern Europe, DACH, which is Germany, Austria, Switzerland, and Middle East this year. Digital Pathology, which is only one award still, because there's too few customers in the U.S. still to have a separate report from Digital Pathology in the U.S. Digital Pathology is global. The picture is from the award ceremony in Las Vegas only two weeks ago. We are building a strong and future-proof business. We do have high customer satisfaction. We think that is super important for long-term success.
We are also in a rapid progression to as a service model. We're selling software as a service and not as a license. That has a quite strong impact on the revenue and profits during the transition. After the transition, it would be good for both customers and us as a vendor. We think that it drives significant growth and major investments to increase the growth going forward. Extensive patent portfolio, which we saw a version of this quarter, where we actually had a settlement in the U.S., agreement in the U.S., that resulted in a net increase in profitability of more than SEK 100 million. Unusual, this first time we got such a big payback from patents, but it shows clearly that a strong IP portfolio is very important.
We have transformation to as a service model, the cloud recurring revenue, which is a very important measure or indicator for this transition. This is the increase in the recurring revenue based on cloud sales. We are moving, we have two transitions, both payment transition to pay as a service, but also that we're moving the products up into the cloud instead of having a lot of hardware on-prem. These are not the same thing. People very often confuse them. We do both at the same time. We do have customers who have on-prem hardware who still pay as a service model, but we have no customers who buy a license in the cloud. The cloud recurring revenue is the recurring revenue we get from these cloud transitions. As you've seen, we've been in the transition for quite a while, but now significant numbers and very high growth.
It is a very important indicator for us. Recurring revenue as a whole includes also service revenues from the old installations. That also increased by 18%. We have churn. If you want to keep building business in the cloud and a software as a service, you do not want to lose customers. We have 0.6%, which is a very low churn. That means that the incoming customers very often stay, or almost always stay. Happy customers, best way to grow. The contract order bookings was up 9%. It is very important to realize that last year, this period, we have a very strong order intake. It is a little unfair comparison, but it was still good. Net sales was up 13%.
Now note that when you lose those initial license sales and get over to software as a service revenue, if we had still been on the old model, it would have been bigger. Profit per share increased by 60%. However, that was including the one-time patent settlement. Positive non-recurring effect from patent settlement, as I said before. We have an extensive patent portfolio. One is the U.S. patent within mobile VPN solutions. It is inside Secure Communications. During Q3 we have licensed to U.S. corporation as part of a set that resulted in a profit increase of more than SEK 100 million. Financial targets for the group are our stability, the equity to assets ratio that should be above 30%. It is currently 47%, so well above our threshold. Profitability margin should be above 15%. We are well above that at 19%, despite the transition.
We have now introduced a little extra curve that you said, the dotted curve that is including the patent settlement as not part of normal operations. We will have split curves for a while to show that difference in the curves here. Our main target, when the first hygiene measures are fulfilled, is growth of profits per share. That should increase by more than 50% over five years. We are currently at 121%. Of course, including the patent, as you see, there is ways above that as well. In Secure Communications, it is today our fastest growing operating area. We have high demand for our Secure Communication products. It is an increasing tension in the world, as you know. Especially Europe has woken up that Europe has to handle their own defense in the future. That has driven demand for our products.
We have positive earnings boost from the patent settlement as well. Secure Communications had an all-time high this last quarter. One interesting area outside of the pure defense is an order we have gotten from the Swedish Prison and Probation Service, where the inmates will need to have a discussion with their lawyers, some external information, but it needs to be done in a very secure way. They are not allowed to talk to anyone. It has got to be encrypted between the lawyer and the inmate. We have received an order for Secure Communications for apps that we do on Samsung Tabs that are used by the clients or the inmates for communication with legal entities and getting whatever they are allowed to get from the outside without risking that they can communicate to the outside world. In Business Innovation, Orthopaedics is good progress.
We have received pre-operative planning increases, and we're also the post-operative follow-up operations, which is actually a very interesting area. Revisions of prosthesis is very expensive and also highly risky for patients. Medical Education, we have had a tougher time, and that's mainly because we before sold large terminals hardware, and those have more or less gone away for us, but the recurring revenue is strong. The growth and recurring revenue for our education is very strong, but the loss of the hardware business, which was predictable, has happened this quarter and impacts both profits and revenue. Genomics IT, we have large interest, but this is in a customer phase. We have our first customer. People want to see how that works out before buying more, but we have a large interest.
We were last week in a large international conference in Las Vegas called HIMSS, Health Informatics in Medicine. It was clear that our oncology story about what we do in pathology, genomics, and radiology combined for oncology diagnosis was very well received. In research, we focus on various aspects of AI and clinical decision making. In Imaging IT, we have ongoing transformation to SaaS, as I said before. Cloud recurring revenue was up 45% there. We have some very large orders coming in, and we have high interest on the market, not only in the U.S., all over where we are present. We are not present in all countries in the world. We have selected to be multinational and not global. It is better to have good market share in the markets where we are in than to have small market share in many markets.
I will leave the word to Jessica Holmquist, our CFO.
Thank you. Welcome. Good morning and welcome to this part of the presentation where I will walk you through the financial development in the nine-month period. Demand for our products, Sectra's products and services remain high, with contracted order bookings surpassing SEK 5.8 billion in the nine-month period, of which roughly SEK 5.3 billion was guaranteed order intake. The largest order secured year to date remains the Sectra One Cloud from Québec, received earlier this year of SEK 3.1 billion. During the third quarter, we received orders for Digital Pathology from customers in Norway, Sweden, and the U.S. We also saw the University of Hartford place an order for our services for medical education. In Secure Communication, we also received various orders. A European defense customer signed a contract for Tiger/S system, including service and support. Excuse me.
We also received an order for further development of existing systems by the Swedish authorities. As always, we point out that the size of individual orders causes large quarterly fluctuations in order bookings. Sales are steadily increasing, up 13% to SEK 2,326 million in the period, with only minor impact from currency. It is high customer satisfaction, underlying growth, and also the strong development in Secure Communication that jointly drive the overall sales growth. This fast transition drives recurring revenue. As you also heard Torbjörn saying, the cloud recurring revenue increased by 44% year-on-year. We are pleased to report low recurring revenue churn of 0.6%, rolling 12. The third quarter as such had an increase in sales of 22%. In addition to the growth drivers mentioned before, we recognized license revenue in the quarter driving the sales development in the third quarter.
Our main business areas increased sales year-on-year. Imaging IT grows with new customers and hospitals continuously being deployed, and also existing ones ramping up the usage. In Secure Communication, we saw the fastest growth in the period, up 41% year-on-year, and now close to SEK 460 million rolling 12, a result of increases both in product deliveries and development projects. In Business Innovation, we see rapid growth in recurring revenue, but that could not fully compensate for lower non-recurring revenue in the period. Looking at sales by geography, we conclude growth in all markets with strong development in Sweden and the Netherlands, driven by the trend in Secure Communication. We observe the highest growth in absolute term outside Sweden in what we call Rest of Europe, spread across several markets. We also note stable growth in our main markets.
Our operating profit increased by 29% to SEK 414 million, excluding the non-recurring patent settlement. The growth in recurring revenue combined with the higher non-recurring revenue from licenses in the third quarter, and again, the strong performance in Secure Communication contributed to the operating profit growth and the strengthened margin. The third quarter in isolation with an operating profit of SEK 205 million, excluding the patent, stands out as an exceptionally strong third quarter. Given quarterly fluctuations, it is important to focus on long-term trends when assessing Sectra's financial performance. Our main business areas also increased profit year-on-year. Imaging IT, which is up 20% year-on-year, is positively impacted by the strong third quarter. However, non-recurring revenue is lower than in the comparable nine-month period, as we see customers purchase services rather than traditional software licenses.
In Imaging IT, we still carry implementation costs for the major customer contracts received in recent years, where none of them is yet in full production. In Secure Communication, we see strong performance year-on-year. The operating profit is at SEK 60 million, excluding the patent, equal to a margin of 19%. This is driven by higher volume in general. Our cash flow from operations amounted to SEK 700 million in the period. We had strong cash flow generation both in the second and especially in the third quarter. The main drivers behind the strong cash flow are increases in advances from customers, also the patent settlement, as well as the underlying profits. Over to you, Torbjörn.
Thank you, Jessica. A little about our way forward. We have a saying that success in business and most things is very easy.
Just live and act the oldest rule of human history, the golden rule. We try to tell our people and remember ourselves that if we treat customers the way we want to be treated ourselves, we'll be okay. Very often businesses forget that. This is the unusual IT company. I preach the oldest rule in the world. That has resulted in good rankings in KLAS, which is a company in Salt Lake City in Utah who evaluates medical IT, not only the things we do, but all medical IT. They then do reports about this, and they rank vendors in different categories in IT within the medical field. We have come out top again for the 11th year in a row in North America, large hospital, which is what we started with. Now they have been doing evaluations in other areas as well.
We came out on top in eight areas, as I said before, of Digital Pathology is a new area besides Radiology. One thing they ask about, and I have shown this picture again, I will show it again. One thing they ask customers is, would you buy again for large vendors? Now, this is previous years. This was 2024, and 98% of our customers would buy from us again. We are so high above all competitors, and I did not want to bash people, so I blanked out the names of those vendors. We are the only one above the mean, the market average at 81%. This has been published this year again, but we are not allowed to share it with you yet. I can say our rank has not decreased, which is a thing I can say. We actually increased it from 98%.
This is an old quote that we used internally as well. Profit in business comes mainly from repeat customers, customers that boast about your product or service that bring friends with them. Our main reason we have grown so well in the markets we're in is that we have happy customers who tell other customers that we are an okay company to work with. That drives our growth. In Medical IT, we see that the demographics of the Western world is alarming. Not only the Western, Japan and Korea is as bad or worse. China is getting there. People live longer and longer and get sicker and sicker. The workforce working in medical is fewer and fewer. Everyone cannot work in healthcare. That means the healthcare operators in the world must become way more efficient in order to cope with this situation.
Our job is to help them with tools to do that. The medical main growth areas again will be neurodegenerative disease, the diseases of the elderly, cardiovascular disease, cancer, skeletal, and vision and hearing. The green areas is where we do ourselves. In neurodegenerative disease, we have partners that measure MS, plaque, etc. but we do the main imaging ourselves. Cardiovascular, we do increasingly products in cardiology. In cancer, we do both pathology and omics and radiology, musculoskeletal. We have our Orthopaedics business. In vision and hearing, we have ophthalmology image handling, which is increasingly complex. These areas will grow in the future, despite if it is a good time or a recession even, because people will not get less sick in a recession. Efficient workforce is then becoming paramount important. We hear it more and more and more that how efficient is it?
Doctors cannot move around. Doctors have to do the work, and they cannot fiddle with IT too much either. They need to be able to treat patients and diagnose patients. We are the only vendor with all of these specialties in one single system. Another reason why it is good to have this is that the hospitals today have too many IT systems. I know at least one hospital that has more than 1,000 in a not super large hospital. 1,000 IT systems is a huge cybersecurity risk. It is also very expensive to hospitals to maintain and run because they need people who know all of these 1,000. Consolidation of IT in hospitals is very important. We are the only vendor with all imaging in one single system. Other vendors can offer pathology and radiology, but they have it in different systems.
We have it in one. In the Sectra One offer that we now have as a SaaS model, we offer all of these. You can get one contract, and then you just add on the other ones when you need them. That enables better care for patients because you can do things faster, efficient workflows, lower cost, reduce complexity, increase cybersecurity. We have minted the tagline, "Brilliant workflows. Made for You," that we use for clinical exhibitions. We have that as a tagline on clinical exhibitions. At the IT exhibitions, we have modified and called it "Brilliant consolidation. Made for You." That we use at the HIMSS now. That is a very important thing to see in areas of hospitals all around the world. They need to get the number of IT systems down. In cybersecurity, we have a new digital reality.
There is increasing international tension, and cybercrime drives strong growth. We know that nations attack each other's infrastructure, both for IT, but also in reality. Especially the IT parts, we can prevent to a large extent, not to 100%, but we can help preventing that with our products. We are very well positioned. We have a very strong brand name in Europe in cybersecurity. We also have extensive research and patents as you saw from the patent settlement. Again, our philosophy with shareholders, it starts with the rational strategy in a growing market. Both cybersecurity and medical IT need to grow despite high tide, low tide in the society at large. We have more and more IT needs to be protected, and threats are increasing. We have the aging populations that need care, despite there not more people working in healthcare.
Both of these are good markets to be in, and they have to grow because of the underlying forces. If you have happy customers, then in order to have happy customers, you need happy employees. You cannot have happy customers without happy employees. We work a lot with that as well. We need to be expensive when you're worth it. We should not give things for free. We are good, and we are worthy of having a reasonable pay for it. You are a little stubborn and reasonable cost control. Then shareholders will be happy. I think we have proven that over the last 15 years or so. It comes in that order. That is how we build our strategy. That is why having happy customers is so important.
Long term, I would like to take a note that the quarterly variations in Sectra are very large. Last quarter, we had a little dip compared to the previous year Q2. This year it was up. Do not evaluate Sectra on quarterly variations. It is up some quarters and down others. Look at 12 months rolling when you evaluate Sectra, and then you see a nice slope upwards over the years. I just want to remind you of not extrapolating everything. It goes good in one quarter, bad in one quarter. That does not mean that you can take that little curve from between quarters upwards or downwards. Why should we, as shareholders, etc.? We are positioned in markets that are, as I said before, by external factors forced to grow. We have a high customer satisfaction and a strong brand, rapidly increasing recurring revenue and very low churn.
Yet we have very exciting self-financed projects that could be a startup by itself, but we run them internally in our Business Innovation, but also within the different business areas. Management owns shares, which we think is a good thing. Not only options, but they also own shares. With that, we conclude. We set the upcoming 2025 financial events and annual general meeting. First, we have a capital market date for medical, not for communications this time. It is only for medical. It will be in Stockholm, March 27th. June 12th, we have year-end report. September 9th, we have our annual general meeting that will be in Linköping, Sweden, and in real life. Your feedback is important for these meetings. Please let us know what you think. Send an email to info.investor@sectra.com.
We are very open to changing the format of these meetings and listen to you because we do this for you, not for us. We go into questions, please.
Yes, thank you, Torbjörn and Jessica, for your presentations. We have a number of questions that we have received both through email and online in the chat function. I would like to encourage all of you online that if you have any further questions, please write them. I will start with a few questions from Nikola Kalanoski at ABG. The first question is, could you please provide us with a status update on your customers' appetite for additional module purchases in both North America and Europe?
It's quite large.
When a hospital trusts us, for instance, in radiology or in pathology, when they want to extend that to another ology, they very often come to us. Not all the time, but very often. The next question is regarding the U.K.
How would you say that the investment needs for Cloud PACS and additional modules looks like in the U.K., where you already have a leading position?
It's good. We are one of the trusted vendors for NHS. We see that we have sold quite a lot of pathology, for instance, into our installed base already. It's a good position to be in the U.K., and we are very happy working with the U.K. NHS is a good customer. I hope it's a good vendor for them.
We have a question about the U.S. and staff sharing.
Is it possible to use staff from the U.S. to aid with implementations in Canada, for example? Or does the staff need to be local when it regards implementations?
We cannot use cross-country staff. Normally, they need a work permit in the state where they are. Very often, our Canadian staff are American citizens or the other way around. Then we can use them in the other country.
A fourth question here. Would you say that a long Cloud implementation process could make some prospective clients not choosing Sectra? Are there other factors that are typically more important when selecting a Cloud PACS vendor?
It varies a little bit. I do not think it is the most important factor. The most important factor is the quality and that they get good service. The long implementation time is very often not due to us.
It is normally due to that they need to get networks in place, especially in Cloud. They need fast networks into the Cloud provider. That is not depending on us. It is also internal operations in the hospital. They have to change a lot of things, and that takes time.
I will move over to questions in the chat function. The first question comes from Jakob Lembke. What drove the strong quarter-on-quarter increase in Cloud recurring revenue in Q3? Should we expect this to continue in coming quarters?
We made a retroactive reclassification from non-recurring revenue to Cloud recurring revenue of SEK 10 million, impacting the quarter-on-quarter.
Further questions from Jakob. Trying to understand the strong margin development in Imaging IT, it seems like cost did not increase year over year despite sales increase and group employees increasing 9%.
Yeah, in the third quarter, we recognized license revenue. That impacts both the sales, of course, and then the operating profit and strengthens the margin. That is what happened in the third quarter.
The next question is, are there any effects, revaluation, or other positive one-offs impacting Q3 EBIT in Imaging IT?
There was some currency impact in the third quarter. Again, I would say it is the license revenue that we were able to recognize in the third quarter that caused a large impact. It is also, of course, timing of when it comes to cost. We can have timing of larger customer events driving sales and travel expenses, for example. That could happen one year and not take place the next year.
For the moment, a final question from Jakob Lembke.
On Secure Communications, do you expect to benefit from Europe's ambitions to significantly increase defense spending? Possible to say when you start to see increased orders?
I think we are. I think we are doing that already as Sweden has extended its budgets for defense and also has other countries in Europe. Yes, I think we will be positively impacted by that.
Okay, thank you. I will move on to questions from Kristofer Liljeberg at Carnegie. The first question is regarding operating costs. Adjusting for legal advisory cost, it seems OpEx only increased 6% year-on-year in Q3 and has now been virtually flat sequentially over the last four quarters. Is this just a temporary slowdown considering the comment that deployments will continue to impact margins negatively next fiscal year?
I would say we have, again, it's a lot of timing that impacts quarter-on-quarter when it comes to operating expenses. Of course, we try to be careful. We manage costs. We have good cost control. With the large deployments ahead of us, that takes some resources. I don't know if you would like to add something there, Torbjörn.
We are, of course, we should increase revenue more than cost. Otherwise, it would be very bad. It's variation between quarters as well .
Next quarter from Kristofer is on the same topic. What explains that external cost adjusted for legal cost in Q3 are down versus second half last year? Less external consultancies or something else?
We're rather down on travel and sales expenses. When it comes to external consultants, we're more or less flat. Some increase, but more or less flat.
It's a mix of different operating expenses.
The third question from Kristofer. How large was the licensing order recognized in Q3 that you said explained strong earnings in Imaging IT?
That we do not disclose.
Okay, I will move on to private investor, I suppose, who has a question regarding the patent settlement. The patent settlement is in other revenue with SEK 195 million. I know what the question is. I need to. Where in the income statement is the cost recognized for the patent settlement?
That's in other operating expenses. The line is other external expenses, I think, in the income statement. It's named.
Thank you. We have one further question from Jakob Lembke. Can you give a status update on the implementation with the large U.S. health network and Québec?
It's progressing. It takes time to start up the server side.
I know the networks, as I said before. It also takes reorganization on the customer side. They have to be trained. In Québec, for instance, we have about 125,000 employees need to be trained on our products. That is a large effort that we do not do ourselves, but we train the trainers, and that takes time.
Okay, I will switch to email again with a few questions from private investor. He is wondering what's included in recurring revenue versus cloud recurring revenue.
Cloud recurring revenue is when the services we deliver are cloud-based. That's the difference between recurring and cloud recurring.
R ecurring also includes service contracts, all the old installations that were done forever. Our first installation was still on-premise, but they need service. Those service contracts are not included in the cloud recurring revenue.
Okay, the next question there is why not all competitors are included in the KLAS ratings?
It depends on how many installations they have in a certain region because of statistical significance. KLAS says that it should be about 15 installations, for instance, in the U.S., and I think 5 in Europe, to be included. They do not want to include one or two customers. That would be not statistically significant.
Thank you. I think we have addressed all the questions for today.
All right. We thank you for your attendance and look forward to seeing you soon again. Thank you.