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Welcome to CellaVision Q1 Report 2024.
[Operator Instructions] Now I will hand the conference over to CEO, Simon Ostergaard. Please go ahead.
Thank you very much for the intro, and thank you very much for everyone out there who has taken the time and interest to dial in to hear our quarter report, the first year in 2024. I have our CFO, Magnus Blixt with me, and we'll be happy to present and also to answer any questions you may have subsequently. But let's dive right into it. So the first quarter this year, we ended our revenues at SEK 170 million, which represents an organic growth of 22%. So essentially no currency effect. EBITDA or EBITDA margin-wise, we landed the result at 29%. So it's a little bit lower than our corporate target, and I'll get back to the main driver, which evolves around our gross margin. If we take the highlight of our quarter, we believe this represents a solid start to the year.
We have, in fact, a growth from all regions. And we have had both number wise, if you like, revenue-wise, but also the conversations we've had at interfacing with end users and so forth. We have the strong belief that our traction for all our solutions is really compelling, and that actually goes beyond just one region that is also represented across the different markets. Financially, CellaVision is in a strong position. And I will sort of elaborate on our cash flow, but cash flow balance sheet-wise, we're in a very solid position. Furthermore, I also want to emphasize that we are working hard on progressing our strategic direction. And we are really progressing there.
Finally, now one of the levers for our strategic pillar around our globalization of our reagent business is going according to plan, and we now have our new factory up and running in Bordeaux. We had a little bit of an adjustment to our plan for the bone marrow under the specialty analysis and strategic pillar. So the specialty analysis is where we're looking at new diseases to diagnose with sophisticated AI and tailor-made reagents. For the bone marrow projects, we do have an adjustment around our assumption to the registration. So basically, it was assumed to be a Class A product initially. And we don't believe that's the path to take, which has introduced a longer time for registration as we need to engage and document in a way that has to be -- we have to engage with our notified body to a larger extent, and that adds delays. So we believe that our product will be launched next year in 2025.
Furthermore, a key message, which was actually happening in Q1, but we actually took the liberty to report that just after signing the last annual report in the beginning of February. But we did in this quarter signed a strategic alliance agreement with Sysmex Corporation in this quarter. So we have formalized our mutual commitments until 2038 around our partnerships. And I can talk a little bit about that as we perceive, but we have really been trying to unfold and work on our objectives throughout the -- joint collect objectives throughout this quarter. With that, I suggest we take the next slide and try and unfold the P&L. So as I said, pretty strong growth organically. Of course, also fair to say up against a weak compare in Q1 last year. I think the weak spot in our results this quarter is actually not under revenue, it's on the gross margin. We had a 66% gross margin. And that is really -- there's a few drivers for that. It's the product mix. So the combination of the offerings, the different components was not in our favor from a gross margin perspective. We were low on software, which hits us also against actually, even though the revenue last year in the compare was low, then the software component was relatively high. So we're a little bit hit on that. Material cost prices has gone up as well, and we have not implemented only to a very little degree, our price increases. That's another thing that this represents on the cost side and the full year raise of superior -- of supplies and materials. However, we have had no adjustments on the pricing. So that is also why the gross margin is a little bit lower than usual.
On the operating expenses, I have to say we're in full control. We did some restructuring at the end of last year, which is coming into effect. So we've managed to keep our sales and marketing costs totally constant, even though there are cost increases also for some of these services and et cetera, but that has remained in total control. And we are only increasing our admin and our R&D with a little bit of consultancy and really [indiscernible]. So it is pretty much kept constant according to our plan. Which means that our EBITDA of SEK 49 million is obviously much better due to the higher revenue. However, we are -- the EBITDA margin of 29% is really comes below our target of 30% or more, and that is due to the gross margin, as I just alluded to.
We are continuing our path of investing in R&D to support our power focused strategy, which is also pretty much in line with our plan here and we're also capitalizing our R&D costs. So we did -- we capitalized about SEK 2 million more than last year. So we ended around SEK 15 million. Looking at the cash flow. We are proud to say it's a pretty strong cash flow from operating activities, we landed at SEK 50 million before we do the working capital adjustment. And when we do the working capital adjustment, we added another SEK 21 million. So we landed our operating cash flow at SEK 71 million. On the working capital, we've been working very actively on continuing the journey of reducing our inventory. That has given us some contribution sort of in line with previous quarters, maybe 20% of the working capital delta there and then 80% actually comes from the accounts receivable, where we have gotten the payment from a strong Q4 as well.
So cash flow wise, it was solid. On the investment side, I talked about the capitalized development, but also I think it's fair to say that we completed our manufacturing expansion, as I also mentioned in the beginning, and that actually brings SEK 7 million, SEK 8 million less of investments into the equation, which also translates into a strong total cash flow of SEK 44 million versus a negative result in our compare. So balance sheet-wise, this actually results in a cash and cash equivalents of SEK 167 million today, which is in a compare of SEK 93 million a year ago. And we have driven down our long-term debt. So it's about SEK 25 million as of now. So we are in a very strong position from a balance sheet perspective and a cash flow perspective. Let's go to the next slide. So let's take a look at the regional highlights. So across the board, across the 3 regions, as you see here, very similar growth from 21% to 23%, which translate into 22% overall of top line growth and organic growth. Essentially, I'm proud to see that there is really a traction in Americas for, in fact, our instruments are growing, large and small. We've had a particular very good quarter on the small ones. So I would say high double-digit growth, very high double-digit growth for the DC-1s. So again, we are building our strategy of building ecosystems in the Latin hematology lab environment. And that is also about capturing the blood work in the smaller labs. And we are pursuing with that. So we are selling DC-1s for the small lab segment. However, for some of these IHMs in the U.S. the situation is that we are selling into IHMs that may already be running in the large labs, which means that the need for software is a little bit lower.
So what we've seen is that's at least a main hypothesis that we are seeing a little bit lower software as a result of that. So our software sales this quarter when we talk about product mix has been weaker, and we are up against a relatively hard compare proportionally from last year on the software side. So this is one of the drivers for the lower gross margin. Other than that, we are ramping up sales in Latin America. Also on the decline, we see appetite for the decline of DC-1, including our pre-analytical workflow components so that's very interesting for us to drive growth in that region. And also, we've gotten good feedback from the feature that we have launched in the U.S. in terms of feathered edge, which is able to detect platelet plants in the blood smear. So that's another assisting digital enabling platform for the clinical community that has been well received.
In EMEA, we ended up with instrument sales of 27% in total. Sales increased to SEK 79 million for the region but 27% growth on the instrument side. And I'm also super pleased to see that, that was entailed both from our large instruments, but also we had significantly growth in the small segment. So it is promising. Specifically, if we zoom in on the U.K. where we've traditionally had a little bit of talent getting adoption there. We're really seeing some interesting moves there. And also in the Middle East, where, of course, Saudi is probably the largest country in that or largest market in that region. I'll talk a little bit more about regions later. For APAC, yes. Here, we are super pleased to see that our revenue is actually continuing in China, but actually, it's also -- we're also seeing growth in Japan. We have had a little bit of an inventory situation in Japan, but we are out of the woods we're starting to see orders coming from Japan as well.
And then given the alliance with Sysmex, we're also seeing some very good conversations on and getting closer to how we can penetrate and adopt digital cell morphology in that region, which is a little bit more immature as opposed to EMEA and Americas. So all in all, also positive signs from EMEA. If we go to the sales per product group and slide, the sales numbers per family -- product family. The first one is instruments. So here, we had -- on the instrument side, in total, it was SEK 91 million versus SEK 66 million in the quarter. So it is a significant growth, but we also had a little bit of inventory adjustment in the comparative quarter. That's fair to say. I did mention the significant DC-1 adoption in America. Very much and also so for Europe, and again, we are pleased to see that DIFF-Line, I'm aware we've been talking about the launch of DIFF-Lines sort of quarters back. But bear in mind that for us, that's our launch, that's when the products are ready and then our partners actually bring it out and test it in the labs, get the feedback from the clinics. So there's a time delay from we sort of launched it as a CellaVision. And then until our partners really bring it out and launch it and push the marketing campaign. But that is starting to happen now in the U.S. as well and with traction and opportunities in Latin America. So exciting times for us. On the reagent side, just continuing a steady recurring revenue growth there with 20% out of EMEA. So we increased SEK 36 million. So that really sort really makes us comfortable in terms of the significant investment we undertook throughout 2023, where we built a new factory, and we are ready to entertain this double-digit continuous growth figures we see from our hematology fraction of the reagent business.
Software, again, yes, up against a tough compare, but no doubt, it was lower than expected. So we're sort of looking into that but it was weak, and that is -- one of the drivers is the networks. But let's see what variability that was present for the quarter versus sort of a general drive of software. Yes, that is probably -- so if we go to the key takeaways, and I'll just give you the brief version here. Again, a strong start to the year and as you saw, really consistent growth across all regions. We acknowledge a weak gross margin. We are in full control OpEx wise, and we've done some adjustments to really set us up for success with this new innovation and commercial setup with Sysmex, but we're in full control.
Coming back to the gross margin, product mix price increases that are not really implemented to a great extent at all, did impact us. And then everything, as I said, we translate our P&L and also our working capital management into a very strong cash flow for the company. So we've been working with enhanced collaboration with our key distribution partners, and I would pair that with our strategic alliance agreement with Sysmex, we've really started to get into the ways of understanding the individual markets, making new connections with our colleagues at Sysmex and starting to interpret what it really takes in terms of training and focus on what is needed at the end-user labs out there to pursue the mission of adopting digital cell morphology as part of the blood line but also to innovate new sophisticated solutions to protect our leadership within hematology. And then again, I want to emphasize that one of the levers for the first specialty application is the bone marrow. We are confident with the adjustments we've made in the product. We are running the clinical trials. However, we will spend a month on the alignment and the dialogue with our notified body. So we will have the results of all the -- we expect the CE mark in 2025, very limited financial impact from that because all the programs has been budgeted for, and it's a slow ramp up, but it will be a module that will be used on the DC-1. So we are -- we have time also to build a solid loan strategy. But for now, we are focusing on completing our clinical studies on the module.
So with that, I think we should go to question and answers, if there are anything around. So please open the floor for any questions you may have.
[Operator Instructions] The next question comes from Ulrik Trattner from Carnegie.
A few questions from my end related to topics you already highlighted, starting off with bone marrow and the slight delay here in CE mark, if you can get some more clarification when you are expected to receive approval in 2025. And in addition, as you mentioned, it's a small financial impact since it will be a gradual step-up in sales. But when are we to expect some meaningful contribution from bone marrow? Is that possible in the later 2025? Or is that more feasible in 2026?
I think when we talk about -- yes, thanks and hi, Ulrik. When we talk about the launch of a product like bone marrow, I think when you use the word meaningful at us, that's a -- I interpret that as something that gives significant revenues. That is a few years out because I do believe that what will happen is that we will have the bone marrow module and there needs to be a level of comfort with the product because it will assist the manual interpretation. So I think people will start to use it, there will be endorsement. But typically, for these type of modules, it will take some years to make meaningful revenues. However, I think we are set up perfectly for a good launch because we already have the customer base who will require this.
This is -- this will be primarily the large labs where they have adopted the concept of digital cell morphology. So I'm positive when we have concluded on the clinical trials and the documentation, pretty positive that we will get out there but the revenue, we don't expect like a hockey stick. There is always a certain delay. The purchasing cycles will be less because it's not a total blood line. It's not only it's the DC-1 and the software. So I think the investment in this tool here will be less of a -- that will speak in favor of increasing the slope on the adoption line.
Great. And a follow-up question on that since you mentioned it. It won't follow the same purchasing pattern as a complete blood line, which has replaced [ pre ] 9 to 11 years. So what's your interpretation on how this will be implemented or the sales cycle of this new system?
Yes, I'd say it's probably a little early because we only have limited feedback from the sites that we work with, who are very interested in this because it's sold a huge clinical question about clinical needs. But I see no reason why we should -- over the course of a 5-year period, sort of really have a high adoption of this in the labs that are already running digital cell morphology. It is plugged right into the ecosystem. It's just more content. But again, the DC-1 will now be also targeted for the large labs and not just the small labs, which where we are seeing significant adoption these days. So it is a revenue opportunity for us instrument and software wise for the large lab.
Great. And since you mentioned DC-1 and if I may to interpret this correctly, you sound more optimistic than before regarding the DC-1 development in Europe. Has anything changed the dynamics, the customers you have targeted your efforts in Europe? Or is there any other factor that plays into this and your optimistic outlook?
Yes. I mean, I would say black and white, I can see that our growth rates is pretty sort of very healthy double digit in Europe for the DC-1. So that makes me hopeful around this, then I know that every quarter, there can be sometimes is low sometimes is high. But actually, that sort of proof assisted with really an appetite to alternate countries where digital cell morphology has not been adopted that well. There, I see -- we see the DC-1 as really a good tool. It's affordable, but it really demonstrates in the environment where you're not -- you don't necessarily have that many trained medical technologies. So we are starting to see some really positive appetite to start adopting digital cell morphology via the DC-1. So that's really where I see the change. And then no secret. We, of course, our alliance with Sysmex in doses and open doors for new teams where we can have a closer conversation. So we get wiser on how we help position this together with Sysmex.
Great. And last question on my end, and you talked about this it really looks like you've entered a phase of a very strict cost control. What is to be expected here in the coming quarters? Are you in a mode here when growth returns that you will start to invest again. And I know that you have this collaboration with Sysmex, and this opens a lot of doors. And I'm guessing there is ambition on your end to expand on the sales and marketing side of things as well. So where are we at in terms of managing cost versus growth here?
Yes. No, I think also, given the inventory adjustments we were faced with -- throughout end of 2022 and throughout 2023, we wanted really to be responsible since we had a less control of our top line to really control our cost base, so we could deliver profits for the company. At the same time, we had a drive of being efficient, and that's what we implemented in autumn on the sales and marketing side. Making sure that our setup is tuned also as we were seeing the light at the end of the tunnel with the alliance. We have to set us up optimally. But that's not to say that we're not investing in sales and marketing. We are doing that in terms of tools, training, but we're also seeing opportunity where it makes sense to invest people in markets where we can fuel and accelerate the adoption of digital cell morphology.
We have a few countries on the map. And so we're not hesitant to invest, but we're investing our money very wisely with a reasonable rate of return. That's really how you should look at it. So there's been a little bit of a cleanup is too harsh of a word, but there has been an optimization going on. On the R&D spend, we spent 21% of our revenue this quarter on R&D and the power focused strategy with large labs, small labs, reagents, specialty and also the new areas. That strategy, we are pursuing that as we have articulated previously, we have funded our R&D also our next-gen program, et cetera, the specialty fueled by bone marrows and others has been fueled. So we are pursuing that.
There is a question mark around we are seeing so promising results from our FPM technology. So there is -- we do have conversations on how to and how much to invest. That is a conversation for the future. But you should know that we are really seeing a positive maturation of the technology. So at some point, we are really having serious conversations whether we should ramp up our investments to mature that in -- also in collaboration with potential partners as we alluded to in the Q4 report.
The next question comes from [ Ludvig ] from [ Landgren ].
So first, I want to dig in a bit to the gross margins, which was down a bit compared to last year. So you say it's mainly a sales mix, but also mentioned, I think, in the report that it's could be offset by the price increases somewhat. And so I wonder how much of an effect can this have for example, for Q2 and as we move through 2024.
Yes. Magnus, you can elaborate on that.
Yes, I can elaborate a little bit on that. It's correct that we saw some negative effects from the price mix, yes, the product mix and also, if you look at yes, the price increases the way we roll in price increases to offset inflation pressure, let's say, the way we roll those in this year versus last year is that there is a slight delay. When it comes to negotiations, they've dragged out a little bit longer in time. So last year, we saw some effect in Q1 and most of the effect in Q2. And this year, we're a little bit later in that process. So there is not so much effect at all actually in the Q1 for that one. We expect to start seeing that from Q2 and onwards.
And then maybe a bit on the Sysmex partnership. So we have seen Sysmex rolling out the XR Series in EMEA in mid-2023. I think it started and also we see you delivering quite good instrument sales in EMEA. Is this connected? Or is it not driven really by replacements.
It is somewhat connected because they also have, in some countries, a really high attachment rate. So we're certainly partnering on that side, definitely. And that is the XR that comes to play here. But I think it's not just replacing -- it's also a cycle thing. Through the large labs where they actually purchased a new blood line here, Sysmex are marketing the XR. And that's where our DI-60 follows suit.
So -- and then also with this new partnership, could this maybe enable you to be able to push reagents in new geographies? Or is this mainly focused in relation to the instrument side?
No, this is more, as you alluded or sort of implicitly say in the question here, this is a global ambition of leading in hematology. So certainly, we see this as an opportunity to roll out and pursue our strategic pillar of globalizing regions. No doubt that we have a strong footprint in EMEA but we have certainly ambitions around APAC, where we've started to launch, but certainly also around the U.S. So we see this partnership as an ally for globalization of reagents on top. We really want to bring the best workflow out in the hematology via this alliance, and we think that's the opportunity we have at hand collectively.
Right. And is it possible to get some type of time line for when we could see a potential step up in, for example, Americas or APAC?
Now APAC, we can be explicit on that. We are seeing that we are starting to get revenues from multiple countries, smaller markets, where they start to position the rounds, which is really helpful. We've not seen significant revenues from the large countries like China. So that's a little bit more long term, but this is something we are really working on. We think that's a great opportunity. And then I will be more explicit on the U.S. when appropriate. But certainly, it's an ambition of ours. And we are -- on the internal lines, working on the prerequisites for that to happen. And here, I can just like to say that here we are progressing.
There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
All right. Yes, again, thanks to everyone out there for listening in on our Q1 call. I said, a strong start to the year. I just want to close by also thanking my internal -- my colleagues for that and also our partners and not the least, our Sysmex colleagues for all the communication and engagement we've seen throughout this quarter. I just want to emphasize that we have our Annual General Meeting being held here in Lund, Sweden on the third of May in a week. So we are looking forward to seeing any shareholders at that meeting. So thanks a lot, and we'll get back and continue to push the business. So thanks a lot. Have a great day.