Welcome to CellaVision Q2 report 2023. For the first part of the conference call, the participants will be in listen-only mode. During the questions- and- answer session, participants are able to ask questions by dialing star five on their telephone keypad. I will hand the conference over to the speaker, CEO Simon Østergaard. Please go ahead. Thank you very much, welcome everybody on the call. I have our CFO, Magnus Blixt, with me, we're pleased that you dial in to listen to our Q2 report and results that we just launched this morning. The quarter in brief. The report, we've called it Positive Development with Strong Sales in the Americas. I think we're coming out of an era with some soft quarters, here we present a reasonable return, if you like, especially with focus on Americas. That's why we have given our report this headline. We come out of the quarter with, you know, really a confirmation that the underlying value proposition we have and what we do for our distribution partners is confirmed. There's a persistent need for our solutions. That's somewhat comforting. We saw Americas coming back. We are still seeing challenges across EMEA and APAC, and here the inventory levels is kicking in, if you like. We'll talk a little bit more about that later. Also, I think in general, the macroeconomic situation, especially with focus on Europe, is giving us some uncertainty on the sales side. With regards to our progress on the strategic direction, as you will see today, when we announce the reagent numbers, we have good traction on the reagent business. We're still seeing momentum from the IVDR and the fact that we actually have a very compelling product portfolio, the RAL branded reagent portfolio. We are continuing our efforts to expand into APAC, adding that on top of our solid presence and growing presence across Europe. Also, with regards to our strategic direction, we're working on adding more content into our ecosystem, and we've really received positive and constructive feedback from some of the shows, both at the ISLH in New Orleans. Where on Sunday we'll be going to the AACC. We'll do demos there as well, and we've gotten a lot of good feedback from some symposiums in Europe from user groups. The quarter landed at SEK 170 million, that is a decrease of 8%. Actually, organically, it's - 15% if we take the positive currency effect of 7% into effect. The EBITDA landed at SEK 56 million, up against SEK 61 million in a comparable quarter. We are reporting an EBITDA margin above our ambition at 33%. Let's try and dial into the financial development from a PNL perspective. Gross margin was improved. Here we see the full impact of our price adjustments that were adjusted as per January this year. We also have still have some tailwind on the FX side, obviously. That's a gross margin of 70%, pretty much in line with the Q1. On the operating expenses, that's 43% of sales. If we go to actuals, it's SEK 73 million. If we kind of dissect the SEK 73 million in expenses, we had SEK 44 million from sales and marketing. That's an increase of SEK 3 million, pretty much, from inflation and FX impact, since we have the majority of headcounts in this bucket, they sit outside of Sweden. We have done some savings on the admin side. Here we landed at SEK 18 million spent, so we saved a couple of millions there. R&D was pretty flat with SEK 20 million, slightly higher capitalization from SEK 11 million, the last in the comparable quarter. Now we capitalized SEK 14 million. That also demonstrates where we are at. We're slightly more efficiency, we are not hiring to the same extent as last year when we were building up teams and having less efficiency. We're starting to see traction and output from our programs here. I said, the EBITDA landed at SEK 56 million, equivalent to 33%. Percentage-wise, very much in line with the compare. On the year to date, if you see the middle of the column, we have a year to date of 29%. That really shows kind of the dynamic of our business, that in Q1 we had 25%, in Q2 we have 33%, so we land at 29% for the year. It, it's really a function of the. top line we had in Q1 that took our EBITDA down. However, we are focusing a lot on keeping our cost in, sort of managing our costs and spending them wisely. That's also what we have, I would say have had success in doing. Yeah, if we go to the cash flow, as I hear the operating cash flows from our operating activities was SEK 28 million. I think it's important to emphasize that we've had an increase in our working capital, so that went up from spending, so - 14 up to - SEK 24 million this quarter. And this is really an increase both in inventory on our side and also in our accounts receivable. We have had higher working capital investments that we, of course, intend to bring down. On the cash flow from investing activities, we had - SEK 21 million, so we spent SEK 21 million. That's primarily the SEK 14 million in capitalized R&D, and then it's also investment into the factory that we are sort of in the final phase of completing and getting into operations down in Malmö on the region side. From cash flow from financing activities, we spent, that was SEK 65 million, up against SEK 58 million. Pretty much the difference there is the extra dividends that we paid out here in Q2. That's kind of the state of the nation. A lot of investment in working capital, of course, the dividend payout takes down our total cash flow, so that landed at SEK 58 million. If we progress on the next slide, we have some regional highlights to report. Zooming in on Americas. Here on this chart, you see a 12% growth on the quarter, and -10% against or year to date, -10%. Really, the Q1 in Americas was where we took the hit on the inventory level, that is confirmed, and which is also why our sales come back up to SEK 81 million, actually beating the compare. We're pretty sort of reasonably satisfied that we are at a year-to-date level of SEK 140 million versus SEK 155 million, especially taking into account that the SEK 15 million we had in inventory loss, if you like, which was higher than the SEK 15 billion. Here we're pretty much in control. There's a very healthy demand for our products, and we can see we are really pursuing our strategy to the best of our knowledge of building the ecosystems and tying together the networks labs. For EMEA, this is a mixed bag, if you like. - 8% for Q2 and - 3%. It's really we're seeing a still a challenge on the instrument side and an upside on the reagent part that I will come to on the next slide. Here we landed at SEK 76 million versus SEK 83 in the, in the, let's say, tough compare. There is a theme here around laboratories across Europe. We believe, at least it's our impression, that there could be some hesitance in making capital investments due to the macroeconomic volatility and the uncertainty that is out there, given the current situation. That is part of the explanation. We are seeing, we haven't had a very abrupt cut on the inventory level, but we are convinced that that exists for the time being. This quarter and the next, we will be dealing with some inventory levels. Then, you know, looking more strategically at where we're going, both in boosting with the reagents that I'll talk to in a second, but also in terms of pushing our strategic agenda and expanding beyond our pillars and getting into the specialty arena. Here, we've had a couple of user group meetings and gathering, getting feedback from clinicians by demonstrating our Bone Marrow Application. We're very pleased with the feedback. We take it very seriously. We're very pleased with the way that the workflow is appreciated and the quality of the algorithm that really classifies the cells here. We believe we have a strong product. We are starting the clinical validations in autumn, and we aim for CE mark in the H2 of 2024. For APAC, it's, it's obviously a challenge with a huge double-digit, -53%, negative for Q2. It's, it's very, APAC is a bit binary. APAC, traditionally, we're getting large orders or nothing, I think we should take the, the actual numbers, on in percentage-wise, with a bit of caution. However, EUR 13 million is, very much lower than EUR 28 million, so we're still dealing with issues on the inventory level. We actually do believe that we are reaching the low level or lower level in China, and there may be something left in Japan. We are reasonably confident that we are draining off the inventory level in China. In general, we're actually seeing interest in our technologies and our offerings, not the least, now that we are pushing our reagent portfolio across APAC. Yeah, I will go to the next slide. If we cut the revenue or the results per product group and look at the instruments. So obviously the majority of our when we have the revenue into instruments, we have - 13%. We decreased from 107 in the comparable quarter to SEK 92 million. That's really the gap we see in EMEA and APAC here. Large instruments remain a significant driver of our sales. That is how we have been building this market and how that has been the main driver, and that will probably exist in that way. However, we're seeing reasonable, good traction on the DC-1. I'd say we're pretty, it varies a bit, but it's probably 10%-20% of our revenue, which comes from the small instrument. Especially in Americas, where we are seeing a significant uptake to really build the ecosystems and tie together small and medium labs with the large labs. That's attractive. In terms of the reagents, as I said, I'll come back to that. There we saw 44% positive growth for Q2. That's a 32 on a year-to-date base versus the comparable quarter. That's a pretty strong double-digit growth rate, and that is consisting of both volume growth, price increases, but also FX. The majority here is in euros. We are having positive tailwind on all those drivers, which is really positive. The driver is obviously we saw the IVDR, the regulatory framework that came into effect in May 2022. That has really given a lot of traction for established players and such as ourselves, where we are IVDR compliant, but also I think it has given a realization of the quality of our product. Very consistent, good quality stains, and it doesn't clog the smearing devices. That has been a driver for us. The software and others category is linked to the instrument category. Here we see - 19% over the quarter, and that is affected by the decline in the instrument sales, especially the software part of it. Of course, the other category where we have spare parts and consumable is more a function of the installed base, but we see the drop here is primarily due to the lower installation rates on instruments. If I were to sum up, where are we? What are the key takeaways? We dare say that we have positive development during this quarter. As you can see, both from the numbers that I presented this morning, the Americas is recovering from the challenges or the adjustment, if you like. There's been a lot more focus on inventory management, cash, and trimming that. That is natural, given the situation where interest rates has increased significantly. That is also what spills into the journey for EMEA and APAC. I think it's fair to say that we really on the internal side, we see good progress on our strategic direction. The best external example, if I can say so, is to zoom in on the presentations of the bone marrow application. We do believe that this will add yet another edge to our offerings. It will solve a clinical need that has been pronounced pretty much for years in a very routine manner that is very comprehensive, very tricky, takes a lot of manual time. Here we can really assist the labs in providing the right diagnosis for cancer patients, multiple myeloma, et cetera. We're very excited about this progress amongst other internal development programs, where we also have traction, which I will talk about at an appropriate point in time. We've had a lot of focus on our operational efficiency, and we've managed the expense development and the cost base sort of very diligently. Cautious spending has been a key word for us, and we really have worked on protecting both our gross margin, but also our operating profit. I think we proved that in this context here, that we've sort of we were on a growth phase also to expand and execute on the strategic agenda. Here we're really trying to still execute on our long-term projects, doing it in a cautious and efficient manner. That has been the key word for us. Yeah, with that, I think I actually will open for questions. If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Ulrik Trattner from Carnegie. Please go ahead. Great. Thank you very much, and hi, Simon. a few question on my end, and perhaps if we can start off with reagents. I know it's really strong development in reagents, and you touched upon this in Europe, under the IVDR. What is, sort of, is it purely regulatory that is driving reagent sales? Because it looks like we have reached some type of new sales level for this segment. Is this something that will persist here in the medium term as well? No, that's a great question, Ulrik. I think the regulatory theme has kind of disrupted the market a bit. Some players are not able, capability and investment-wise, to become IVDR compliant, and that has fostered a need for laboratory to seek alternatives. I think there is an underlying, really, a demand for changing whatever vendor has been out there. That has given us a volume growth. I think also, I think part of it is really the quality of the RAL. Now it's being displayed and utilized in more labs. This is where we are seeing an uptick. I don't think we should... I hope we would stay at these very healthy double-digit growth levels, of course. It's also fair to say that we did, given our costs, for a lot of the raw materials increase, we did do a price increase, which was, let's say, more than the ordinary. That is also what you see here when you compare with previous. Again, of course, the euro is strong versus the SEK, which also really adds to the growth here, when we convert our sales into SEK. Sure. You talked about it briefly here, but is it fair to assume, because it really looks like it now, it's a changing regulatory environment, that you have a lot better pricing power for your reagents, especially in Europe, and that should favor you guys, given that you already have a premium product? Yeah, I think we were, we're obviously competitive in what we deliver. It's not priced at a price prohibitive level, because you can have such a great product, but you kind of price yourself out of the market. We've found an appropriate level where also our partners, they take their cut, but it's attractive for the end users as well, given the quality they get. Okay. Second question would relate then to system sales. Correct me if I'm wrong or if I'm interpreting your comments wrongly here. In the U.S., it sounds like you're referring to it as it is sales to large labs as the driver of sales in the quarter. As you refer to it, smaller labs shows growth potential. From a non sort of, or an FX-adjusted growth level here, are all segments growing, or is it mainly large labs in terms of systems in the U.S. that it's growing? I think, for the U.S., in terms of value, it is the large lab systems. It is the large systems placed for the large labs that makes up the majority of the SEK revenue. However, we are seeing growth in the small to medium category. My comment was that if you transfer, or if you translate the value we get from the small system, it's obviously less. We have reached, it varies from quarter to quarter, but we have reached 10 to, let's say, give it a span between 10% and 20% of our instrument SEK revenue, it actually comes from the small labs. We are seeing significant growth, and there's a lot of interest in the Americas. There, it is really the key here is that the hospital management is very tied together, sort of in general, given the fact that you have a lot of the IHNs. We are seeing a lot of, you know, orders where DC-1s are connected to the large lab, so they are tying together the small lab segments, and we are seeing growth in that category. This is where we see the most growth for the DC-1. However, we still have confirmation from Europe, and we are selling to Europe as well. It's, we don't see as many instruments being shipped on the same order. It's kind of another dynamic in across Europe, I'd say. The adoption is slower. It's slower in Europe. I think that's reasonable to say. We are penetrating various countries, various healthcare systems. That's another challenge, a known challenge. I think we've talked about that. It also goes with the large lab systems. That's pretty pronounced on the small system. Okay. If we were to shift focus to APAC and China, and you talk about it sounds like they are lagging behind, but the same type of dynamic that we have seen in other geographies, inflated inventories now catching up in terms of recovery from COVID, but the inventory levels are high. You also talk about price pressure in China, and work being done with your distributors. What can you actually do in terms of pricing with your distributors? My impression is that you have a sort of collective contract with your distributors globally in terms of pricing. Would that, if you were to infringe on that in China, would that affect rest of your contracts? No, we would have flexibility to entertain conversations and negotiations on how do we collectively build a compelling value proposition, also considering the price level in a given market, such as China. That is a theme, because you're absolutely right, there is price pressure, and there is also a driver in China to buy Chinese products. That's another element that needs to be managed for that market. We can do, let's say, a more tailor-made solution for China in particular to stay competitive. It's not just about price, it's also the offering. This is where we also believe that our agent portfolio is important to have a total solution being the only provider who can actually deliver that. Okay, great. Last question on my end would be on the FX impact on EBIT. If I'd done my calculations right, it was roughly EUR 14 million on top line. Given what you said regarding your market activity and sort of market being mainly denoted in Europe, especially sort of expansion part of it, just how much was your sort of tailwind of the FX on EBIT? Yeah, this is Magnus here now. We have. I think you're correct, you calculate correctly on the top line. On the operating expenses side, I would say that we have some employees that are paid in euros. We have the operations in France and also some market support resources that are paid in euros and U.S. dollars and different currencies. We do see that on the expense side as well. But should you... Now- Is it fair to assume that it's roughly half or more than half of the SEK 14 million that is positive on the EBIT or? The FX effects on the operating side is less than that. Yeah, it's less than the inflation. It's less than the effects of the inflation on the operating side as well, on the operating expenses. We also see some inflationary pressure on the cost side, that is more pronounced than the FX effect. Okay, great. That was all question on my end. I'll get back to the queue. Thanks for taking my questions. Thanks, Ulrik. The next question comes from Ludvig Lundgren from Nordea. Please go ahead. Thank you very much, hi, Simon and Magnus. Thank you. Congratulations on a great quarter. Hi, good to see that you're back on track in the most important market, Americas. You still have challenges with the instruments in EMEA. From what you've learned from the distributors' inventory pattern in Americas, where do you think we are in the cycle of when it comes to EMEA? What do you think is the difference here regarding capital investment hesitance among the customers? A great question, Josephine. I would say, so the first question, where are we in this cycle? I think it's fair to say that EMEA was not, it was not implementing an entry control as abrupt as what happened in Americas in Q1. So we would estimate that there's a little bit of an impact here, but it can certainly spill into, let's say, the next quarter. That's our impression. For Europe, I think it's also for our distributors, it's more, it's harder to control across Europe, because it's multiple sales teams. It's somewhat more difficult to actually have the visibility on the inside of our distributors, on what is the demand, how many deals will be won, et cetera. We see that, and that means that the inventory adjustment, which started a little bit later, will probably flow further into this fiscal year. For APAC, we're getting the impression that there may be something left in maybe in Japan, but we are probably getting to a low level in China. Then it becomes more a question of winning tenders or deals. That would be my impression. Here we are closer to a natural demand or pull, if you like. All right, thank you. Yeah, I mentioned it quickly, but, why do you think the investment, CapEx investment hesitance is different in EMEA versus in the Americas? Why do you see that? Yeah, no, that's a good question. I think the Americas, first of all, it's a more of a private scene, private hospitals, and they have normalized their running their operations. Our value is really, really compelling for the entire U.S. I think that's one driver, which is very close to CellaVision, where we can influence. I think on Europe side, there is a lot of push on the macroeconomic situation with so if you look at the individual countries and the situation we're in with war, it fosters some macroeconomic uncertainty, and that can spill into healthcare investments, which are much more public across Europe. I think there is a bit of hesitance as to when you get down to the hospital levels, and will the budgets be the same, et cetera. Because there's a higher competitive edge for financing, within the different economies or different countries, basically. I think that's probably that hesitance is likely what we see. Perfect. Thanks a lot. A question on the reagent side. You mentioned that the decline is accelerating, and I guess that's also in the Americas. My question is, why is reagent sales down in Americas? I know that we're at low numbers here, but how should I think ahead on this development? Yeah, I think, I think for the Americas, there, our strategy is really to... We don't have a lot of presence in the Americas for historical reasons. We do believe that Americas, here, the competitive situation is such that we need to come out with MCDh, so our sort of superior product that is methanol-free, so environmentally friendly, et cetera. We believe that that is the key. We are starting to see, well, that could be an ally with distribution partners, but there are also work to be done in order to make it work on the smearing devices. There's a bit of development to be managed before we can actually launch it full speed ahead in the Americas. I anticipate that we will continue to see traction for our reagent portfolio across Europe. We will start to see, even though it's small numbers, if you, if you look at the reagents in APAC, we have it in one of the appendices. What we're really makes me, I'd say, positive in a way, is that we're actually now getting through all the different phases we've been through with registrations across APAC, product labeling. They're getting evaluated, we're starting to see small orders across multiple countries. We are, we're doing the right things in APAC, and I think that will, over gradually, over time, it will certainly, help. The, the trick is that typically, reagents are adopted when the labs, they change their smearing device. That's another driver, that it's not just selling reagents. It typically happens when there's a new smearing device, then they also change reagent, because then everything is up for validations, and then it's time to do it. The adoption will take years. It's not gonna be a hockey stick, but all the enablers, we're working on getting them out there, so, or getting them out of the way, so to speak, the challenges so we can penetrate the markets. It will take a little bit more time for the US. That's where we are. All right, thank you. The last question from my end. Looking at other players in the life science tool space, and I'm thinking of those that are providers of instruments biopharma, we see that the CapEx investment hesitance, is still an issue. Would you say that we have seen a release in this regard at hospital labs specifically? What do you think is the dynamic here? Can you elaborate a bit on your thinking here? Sorry, you compared with life science tools for pharma or? Yeah, exactly. The labs at the, yeah, biopharma customers instead of hospital labs. Yeah, I think that's a totally, relatively different segment in the research arena. Whereas in the clinical space, where you have to have the capacity to actually provide the diagnosis of real blood samples, to diagnose patients, I think that's a different dynamic, where you are, you're very much where we see the challenges in, in Europe. That's really back to the hospital funding per se. I think the research arena could also be affected in, in EMEA, given the same argument around the hospital funding, et cetera. If we look at the pharma customers, I would say that's probably not the driver for the if you compare with the tools within pharma companies. That's more their specific competitive situation, which will determine their appetite to invest. Right. Thanks a lot for taking my questions. Yep, I'll get back to you. Thank you. Thank you. There are no more questions at this time. I hand the conference back to the speaker for any closing comments. All right, thanks, and thanks to everyone out there for dialing in, and thanks to Ulrik Trattner and Josephine for some great questions. We love the interest in our company. I'd say sort of closing remarks from our side would be that, you know, despite some coming out of a period with some soft quarters, we're actually very convinced and have confirmation that our value that we provide to customers and clinical end users is really competitive. There is a persistent need for our solutions. I think Q2 demonstrated our scalability, and especially if you look at Q1, we talked a little bit about it today, but we have really demonstrated our scalability in terms of managing costs, getting EBITDA elevated with a better top line. I think that's a key thing that we can take away when we consider the dynamic of our business. I think, both to everyone out there, but also to our entire team, I truly believe we continue to do the right things, even though they may not be visible externally from quarter to quarter. I can see that we have a lot of progress to really push our vision of establishing a superior ecosystem across the vast majority of hematology labs. I know we're doing the right things. With that, it's summertime, we're actually off to the AACC show in Anaheim, California, that's gonna be super exciting to talk with partners out there and demonstrate bone marrow. I hope you will also take some time off, and I wish you all a good summer. Thanks for dialing in.