CellaVision AB

STO:CEVI

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, welcome to CellaVision Q1 report for 2021. Today, I am pleased to present CEO, Simon Østergaard; and CFO, Magnus Blixt. [Operator Instructions] I will now hand over to Simon Østergaard. Please begin your meeting.

[Simon Østergaard, CEO & President]

Thank you very much. And good morning or good day, everybody, on the call. It's a pleasure, as CEO for CellaVision, to have the opportunity to present our Q1 interim report today.It will be a 2-section presentation. So we'll first have a company presentation where I will elaborate on who we are, what we do and how and where we play. And this is the basis for the Q1 results that I'm happy to present. And then Magnus, I'm happy to hand the discussion in the Q&A session.Next slide, please. And honestly, you can probably press twice. So the first slide, which will come up is about creating health care -- creating value in health care. So we're in the field of hematology. And our vision is really to become, and we are the leader in global digitalization and automation of block analysis, both in the achievement segment, but also in the late segment. We have a world-leading position within digital cell morphology, which has been interfused and acquired over the past 2 decades. So in short, our vision is to replace microscopes in laboratories and, however, it goes beyond just traditional microscopes. It's really about offering a complete lab workflow and providing diagnostic certainty.On the photo, you can actually see what we do. Our solution delivers images of stained blood. And so we can take high-resolution images of blood cells. We have algorithms and artificial intelligence that will manage the interpretation, so we can do so classification and characterization. So that's what we do.If we take the next slide, we get into the area of where we play. Currently, we have a considerable penetration in the large labs. The large hematology labs are defined by labs that are doing more than 130 samples per day. That's how we view the market. And we collaborate and we are very adjacent in the workflow to our distribution partners that I'll talk a bit about later. These are the companies that are doing the blood sampling. They're processing their samples through complete lot counters. So -- and the process is -- or I should say, the market is 2.5 billion blood samples per year. That's how we -- that's the size of it. And these samples are processed in the cell counters. And then approximately 15% of those would display abnormalities in cell count. These are blood samples that could be candidates for anemia, infections or certain cancers like leukemia and myeloma. And these are then subject for microscopic analysis. This is where we come into play.We provide the strains. We provide the digital cell morphology analysis. And what you see on the right-hand side of this slide is that we've penetrated about 22% of this market. So we are on an upward trajectory, and we're up against competition being the conventional traditional microscope just short of 80% today. So there's still a considerable share to end market to tap into.Next slide, please. This same value proposition is also applicable for the medium to the smaller labs. This is not a segment that we've been able to address considerably with our solutions, but we are actually now that we will learn. So we have in this segment about 100,000 labs, 1/3 of them being medium and then a large pool of small labs doing less than 30 samples per day. We consider this market to be somewhat smaller than the large lab market, 1.5 billion blood samples. And again, working closely, interacting in the workflow where the company is having the cell counters. However, in this segment, there is a change because we -- as you can see on some of the -- on one of the next couple of slides, we are actually also offering in this part a slight smearing and staining system for the low volume segment. So here, we are substituting our stains from RAL -- branded RAL diagnostics, and we're actually taking a larger share of the value chain.This is a segment, which has not been penetrated. We launched the DC-1. We launched in Europe in 2019. We got approval for the product in Q4 last quarter, Q4 2020, in the U.S. So we're on our way, and we are in registration process in China. But we have not penetrated the market. However, we are seeing adoption, and I'll get back to that a bit later.Next slide, please. So on the next slide, we talk about our partnering and our business model. We are commercializing our solutions in indirect business model. And it's based on partnerships with the last hematology players and the distributors in the field. And we have agreements with all the different players.In combination with working with our distribution partners, we also have our own market support organization who supports both our partners in conveying the value proposition of digital cell morphology, but they're also working with the end user to make sure we really demonstrate the potential of what we offer to the market.Manufacturing wise, we've also chosen and, in fact, the combination, but it's a partnering model where we have outsourced our manufacturing in Sweden with regards to instruments. While -- due to the -- or as part of the acquisition, we actually have our own reagent manufacturing in Bodo and the southern part of France. Totally, we are -- we have 180 people in our organization, just over 100 here in Sweden, 50 in France and the remaining part supporting our partners in the countries. And that is a presence of 18 markets, but in fact, we support 40 markets. We have presence -- physical presence in 18 different markets. Which leads me on to the next slide, please, where it kind of displays our strategic agenda. Below our strategic agenda topics or themes, we have strategic initiatives and we have strategic actions. If I -- here, we will just show the high level display and number one and number two talks about geographic expansion in the left-hand upper corner and segment expansion. This is actually -- you can say, we've pursued a 3-pronged strategy, both geographic expansion, expansion across the lab sizes, as I talked about when I explained about the market, but also now not only being and offering a solution-based on software and hardware, but also actually having charge of the regions. So we have the full system suite.Innovation wise, that is -- that strategy is now reflected in our capabilities. So we can do innovation of a full system solution, hardware-software applications reagents, which means we actually control the entire workflow to provide and improve diagnostic certainty. And we are intending to do this and focus our innovation agenda, both short term, medium term, but also long term.On the lower hand corner, we have our examples of our nimble business model that I already explained on the previous slides. So in terms of our supply chain and our go-to-market model with partnerships. It's about simplicity. It's about high quality. And because we are respectful of the way we play and the diagnostic industry we play in, and also the way we reach the entire hematology market with our partnerships.Overall, in the green buckets, you see our kind of ambitions of having 15% organic growth per year over an economic side. And also on the profitability, we take pride in having -- exceeding 20% profitability, which has certainly been the case if you looked in the past.Next slide, please. And you can press twice because that leaves the concluding slide that summarizes my introduction to CellaVision, which is about the overview of the hematology workflow. On this slide, you will see how our business model and our offerings allows us to connect with complete blocked counters although the company is offering the deep block counters -- yes, this is the slide please. Across the different lab sizes, as we've talked about today. And also what is very, very pivotal here is that not only can we address, you can say, horizontally, the large labs and the small mid-sized labs now, we can also bundle them together with connectivity. So we can really serve the integrated hospital networks with our solutions for smaller labs, larger labs and bundling together with remote renewed software and other value-driving components.So essentially, CellaVision is taking a large share with our distribution partners, and we're delivering a certain wireless workflow with reliability, accuracy and standardization.So that's kind of the intro. And now I think we should jump into the financial results for 2021, Q1. So I'm happy to -- I'll just have a sip. I'm happy to present the result of ending at SEK 134 million for Q1. Its result then reflects organic growth of 7%, but it also reflects a foreign exchange impact of negative 7%, which gives us a pretty much a flat year-over-year comparison.If we dive into the different regions, starting with Americas, this is where we have seen a decreased minus 23% against last year, which was a tough baseline in the light that Q1 was pre-COVID. However, if we really go down to the chart on the right-hand side and look at the blue pie in the bottom for Americas, we can see that actually in the U.S., COVID kind of impacted Q2 significantly versus a bit right away into Q2. And then ever since then, we've had an upward trend ever since -- or in 2020, and we are seeing that continuing. So that's really the positive news that we are seeing traction. We still have higher attachment rates. So when our partners are placing their cell counters, then we are attached in those deals. So we still see 90% attachment rate, which is really a healthy sign.I've talked about the DC-1, serving the small customers. And as I said, in the previous quarter, we got 510(k) for DC-1 in the U.S. and it has a strong potential in the U.S. We have a strong pipeline for DC-1 when we correspond with our partners. And the DC-1 really has a strong value proposition, which is tailored to the U.S. lab and hospital structure. It's about integrated hospital networks over there. And it's also about hospital consolidation. So it really fits the value prop for the U.S. So we are very, very excited about the opportunity to grow the business via DC-1 as well.We don't have a lot of sales of reagents. So our product line is in process and getting introduced. So in brief, I'd say 2020 was about contract management. And here, we are entering the phase of testing, tryouts and demonstrating the stains with customers to drive adoption and to train our distributors. So that's an exciting growth driver there.Going into APAC. Here, we -- our sales decreased 6%, down to SEK 24 million, still to modest beating China and Japan. We saw some removal of old placements in Japan, which contributed -- gave a good healthy contribution to our quarter. So then going into DC-1 for APAC, which is also an interesting products to serve that market. It does represent a new value proposition in APAC. APAC is more fragmented. It's not as up as compared to U.S., I just talked about. There are less integrated hospital networks, and there could also be -- we are learning about the price sensitivity versus quality parameters in APAC. So this is a market where we have certainly started our adoption. I would say, we -- in Q1, we sold 50% of the total sales in 2020. So we are on a good trajectory. There is certain interest, but it comes in large states and also the different countries. We see Australia, Korea and India, especially on the COVID, which actually hinders our opportunity to go to the labs demonstrated because that -- here we need physical presence. So that's the short version on APAC.Coming into EMEA. Here, sales grew by 24% to an all-time high quarter of SEK 68 million, and that's on top of a very good quarter in Q4. So we're obviously very pleased with that. The main drivers here were France and Germany. Nordics and Benelux also had positive contributions here. When we analyze the markets, there were no sort of, strictly speaking, one-off per se. However, for Germany, we did see some tender -- sizable tender deliverables, tenders that has been one in 2020 -- early 2020. So it's a long -- not only a long sales target, but it's also a long delivery cycles for our products. And so we saw some headwind -- some tailwind from Germany in this quarter, which also means that when we look forward and we discuss with our partners, there is optimism around France, but there's less optimism -- a bit more insecurity as to what the market will bring for Germany. And that goes also for the other markets. The fact of the COVID with the potential new lockdowns can actually hamper our sales activity. And so that's the biggest risk we see in Europe, different countries, different levels of vaccinations. So that's where we are on that. I think there's one good thing I also want to emphasize on Europe. We had a strong quarter with RAL. In fact, we had 10% growth in Q1 year-over-year in local currency in euros, which then translates into 3% growth in SEK. However, another good quarter.Okay. Next slide, please. So here, taking together a few key themes. So here we've highlighted a section on COVID because it has impacted us, and it is still impacting us and will do so in this year. Looking back, COVID came in Q1 and momentum was actually lost over the course of 6 months except for U.S., where we kind of saw this steep drop. We -- in this recovery phase, where we have vaccination as a leading indicator as to when we see business activities coming up. We also expect that there will be a timing -- it will take time for us to regain the activities, the access to the labs. However, we're doing everything we possibly can also to educate our partners, train them. So time is certainly not wasted. But air time is something we are looking forward to. The DC-1 -- the strongest adoption for DC-1, it's in Europe. That's where we've seen a really, really good traction. Also in Q1 for Europe, we saw 50% sales of what -- of the total sales in 2020. And remember, we have CE mark that for Europe in the entire 2020. So adoption is -- it does had a traction. U.S., has set strong potential for DC-1, and we started -- we see traction in APAC. But there are much more to learn about those segments in APAC, given the structure.China, yes, test and evaluations are ongoing. You can say briefly, we did a lot of documentation throughout last year, and this year is about the testing. So it's also a partnership with the authorities out there. So that's work ongoing in terms of testing -- type testing and clinical trial.I'll jump down to -- I'll speak a bit about reagents in a sec. But finally, here, I just want to say it's been a pleasure also to my team members. It's been a pleasure joining and being the CEO now for 2 months and really getting on the inside of CellaVision. It's a very, very strong company, strong capabilities, strong culture across RAL and CellaVision. 2 reasonable both, RAL also very old legacy. But combining those is really -- I think it's a very, very winning model in diagnostics, which we now have software/hardware reagents expertise to build our full system solutions and control them.My focus will certainly be on innovation and commercialization. We -- on the innovation piece, I've emphasized that we need to stay and remain relevant short-term to medium term. So we are really working. And there's a strong road map here at CellaVision, and we are obviously refining and expanding on that. And then we want to lead long-term innovations to balance our road map. A good example of this. Even though it's Q1 reporting, but just after closing Q1, we finalized our due diligence on the exclusive rights or the IP of the FPM, the Fourier Ptychographic Microscopy technology. So that's a long-term investment that is giving us the exclusive rights to this technology. It provides us or allows us to actually build high-resolution images or composed high-resolution images, but using low magnification optics. In other words, we can extract information from these photos with low magnification optics, the existing optics out there, if you like, and we can do it with high speed. So this really speaks to a diagnostic workflow, which is very, very interesting for the future. It's on feasibility testing now. And as we've said, this has potential. This is why we are excited about it, but we are still in a very, very early phase. We are doing feasibility assessing. We are doing prototyping of it. But this is an example of how we want to build on the foundation we have today.Furthermore, commercialization. I think we've done very well. The team has done very well in acquiring RAL. It's a great team. And the adoption of the products and bundling it together with our other solution is on the agenda for us to build these ultimate diagnostic solutions. And then the DC-1 adoption that ties together the networks and the value probably in a smaller -- both smaller labs and less -- with the less samples is really, really key. So we have a very, very important agenda point or topics on our strategic agenda here.Let's go to the next slide. So here we have the development. And as you can see, the number was SEK 134 million for the quarter, pretty much equivalent to Q1 last year. And as already said, negative growth, plus 7%, minus 7%, with an FX impact. And if we look at the gross margin, it's actually pretty strong at 69%. It's on par with Q1. We had -- and we've had improvements if we compare with Q2, Q3, Q4 last year. So we had a better product mix with additional instruments. But also, we had an increase in software, which is driving profitability upwards. And that was primarily in the U.S. and especially the remote reduce, which fits with the integrated network -- hospital networks.And then -- so this actually translate into the highest EBITDA of SEK 46.2 million. So that's a great result. It actually also translate into a very, very strong cash flow -- operating cash flow of SEK 26 million, which is higher than the compare of SEK 15 million the year before. And furthermore, the total cash flow when we go deeper down, it's SEK 8.8 million, up against minus SEK 5.2 million last year. And on top of this, it's actually despite the fact that we decreased our in-debt by approximately SEK 6 million. So it's a very strong quarterly results on the cash flow side.To the next slide. Here, we display the development of our company for the past 5 years and also having a rolling 12 months on the very right-hand side. And so we have been growing in average 15%, but obviously, 2020 was historical unprecedented year. Has taken us somewhat down. What I really want to point out here to summarize is the business model. The example we see, especially when we look at the operating expenses on the chart down there, light blue line, we see our flexibility in our business model. Its total comes in early 2020, and we could instantaneously do tight cost control and be agile to actually level off our operating expenses, which meant that we could maintain good margins. We've had no layoffs. We're still ready to drive our agenda forward. We've kept new hires on a lower level. But we already -- which is really a good platform for the future.I think we're almost at the 30 minutes mark that was allocated here. So I actually suggest we push here or stop here and then we enter the Q&A. And Magnus and myself will be happy to answer any questions you may have.

[Operator]

[Operator Instructions] We have a question from the line of Ulrik Trattner from Carnegie.

[Ulrik Trattner, Research Analyst]

Yes, I have a few, but I'll start off and just cut me off if there are too many of those. EMEA development, obviously, very strong, high sales recorded for you guys. But as you mentioned, there were some tender deliveries in Germany. Could you help us decide for -- what else is driving the growth in EMEA? And is there anything left on that tender to be delivered? And is there any further tender deliveries expected in the next few quarters?

[Simon Østergaard, CEO & President]

I'd say, generally, it is a tender-based business. So we continuously have tenders that come and go. This tender that I explicitly spelled out was a sizable tender, and that is coming to an end. So that was something that contributed for Q1, but which will not continue. So that's on the tender piece, Ulrik. And I think what drives growth here is that we still expect we have on the RAL side, on the reagents region side, we have a strong footprint. We still, and by then, a stronger, higher base of our reagents on RAL. And we see unhindered traction in Europe, which -- where you asked about. But this is also the growth driver, especially for APAC and Americas where we hardly had any sales. On the DC-1, I would say that's a growth driver for Europe. Certainly, highest adoption, as I said. And actually, we also expect that, that will glue in because we also have some level of integrated hospital networks in Europe, and that will do in also the demand for our larger medium platforms.

[Ulrik Trattner, Research Analyst]

Great. So for work just to move to Americas. And we have received quite positive comments from other med tech companies with high exposure into the Americas on capital equipment. Is there anything specific that why your sales is down, especially for system sales to be down closely to 50% in the quarter? And when do you expect it to be back to normalized levels? Perhaps, is there still some delays in terms of the sales cycles, as you are reliable on distributors? And as we could also then just keep our focus on the U.S. market. And you quite recently reintroduced the RAL product offering in the U.S. What has been the initial feedback on the reagents in the U.S.?

[Simon Østergaard, CEO & President]

The initial feedback. So there, we've really spent last year also having the, say, contract management around our portfolio and having that discussion with our partners. And now it's about testing and tryouts of the reagents. So it's -- for hematologists and , they want to see the stain themselves. That has been challenged. That's challenging in an environment where we've not been able to access the labs. So that has hindered kind of progress on that. So we've done internal work, but not that much external work, specifically for RAL.And if we go to the decline. I'd say if you look at the trajectory, it's a steady increase we see over the course of the quarters. And with vaccination of -- well, 35%, 40% of the population having had the first shot, we think that also translate into access to labs. What we hear from our partners is that certain hospitals, it is actually possible to go, but we are not at the level where we used to be. So there's still online meetings and so forth. And that format, the virtual meetings are okay for an established business or if we have, I can say, a sales call related to our larger instruments. But it's harder with new innovations like the RAL portfolio for the U.S. or the DC-1. That's where you want to see it when I demonstrate it. So that's what drives. So we still think that throughout 2020, we expect, also with the pipeline we hear from our partners, that we will have this gradual increase.

[Ulrik Trattner, Research Analyst]

Okay. Clear. And on to APAC. If you're going to start off, you mentioned the delays for the DC-1 in launching into China. Can you please help us clarify when we are expected to have the DC-1 cleared and approved on the Chinese market as well as looking at the entire APAC region, would you consider the situation being worse than it was 1 year ago? As well as we are also seeing in Q1. And I know it's hard to do quarter-on-quarter comparison for you guys, but we're seeing a sequential decline in sales for APAC. Should that be more viewed as Q4 was especially strong? Or has the situation become more problematic for you guys?

[Simon Østergaard, CEO & President]

Yes. I think if we start with the DC-1 going into China, that's -- the exercise we have to do there is very dependent on external the authorities to do the type testing and also the clinical trials, which has to be conducted in China. That's the first thing. So that kind of -- is that after 2021, although are we coming into 2022? That's the question. On top of that, I would say, specific for China, there are not integrated hospital networks to the same extent as we see in -- especially in Americas, but -- and partly in Europe. That's not the case in China. So this is where we also got to learn as we have the product and start testing, having the conversations with the customers out there, what is the market opportunity for the product in China? What segments can we -- the Class 2, Class 1 for us? Can we actually address it? And is the pricing acceptable? So that's something we are looking at if we're looking at China.Across the region, we've highlighted the countries where we really see impact from COVID getting access in places like India, as obvious, and Korea, Australia. However, we still get the inputs that it's a very, very compelling product with DC-1. So we are very excited about it. But again, a new product being introduced in a market we cannot demonstrate it. It's challenging. So that calls for some -- you can see -- on clarity as to how and when we build momentum in that -- in those fragmented markets.

[Ulrik Trattner, Research Analyst]

Okay. Great. Just going back to, you mentioned that the potential could be sort of price discussions for DC-1 in China. Are you evaluating pricing the DC-1 lower into APAC in comparison to EMEA and Americas? That would deviate from your historical pricing of your portfolio, right?

[Simon Østergaard, CEO & President]

No, this is a conversation we will have also with our partners. How it seems -- remember, the way we sell is in a total solution for the hematology lab. So this is something we address essentially country-by-country with the partners.

[Ulrik Trattner, Research Analyst]

Okay. Great. 2 last questions on my end, please. Could we just talk about production capacity for RAL? It's been more of a stable business, and we're seeing volume picking up. Is there any bottlenecks in your current production capacity, which needs to be addressed in order to align it with your ambition on the products of RAL growing in the next few years?

[Simon Østergaard, CEO & President]

Yes. We are actually expanding our manufacturing footprint in France to cope with volume increase and also to standardize on processes. And that's an ongoing bucket where we will see -- well, we are expanding the factory, as we speak, in the planning phase, which will -- and we'll see some investments coming in this year with potentially a small spillover to 2022. So we're certainly -- it's a great question, Ulrik, and you point towards a key strategic initiative an enabler for us that we are focusing on to support the growth of RAL.

[Ulrik Trattner, Research Analyst]

Great. And last question, just a quick one. 2-part question on the new FPM technology. And it's just -- will the full sort of SEK 29 million be paid in full during Q2? And is there any integration-related costs to buying this technology over the next few quarters?

[Simon Østergaard, CEO & President]

So we will pay 90% of the amount in Q2, and then the remaining 10% will be in 2022.

[Ulrik Trattner, Research Analyst]

Great. And any integration-related costs? Or it will just be integrated into next development projects?

[Simon Østergaard, CEO & President]

Yes. I'm sorry, can you repeat? Integrate, you mean other costs related on top of...

[Ulrik Trattner, Research Analyst]

Yes. Exactly, exactly. Yes.

[Simon Østergaard, CEO & President]

Our services. We have some, I'd say, insignificant costs related to the transaction that we will carry in our P&L.

[Operator]

We have a question from the line of Carl-Oscar Bredengen from Berenberg.

[Carl-Oscar Green Bredengen]

You mentioned that you see that the activity level started to pick up. Can you talk a little bit about when throughout the quarter you started to be able to do physical meetings in several jurisdictions that you were successful in? And how you're seeing the pipeline sort of escalate? Has there been a lot of postponed projects in the pipeline that are now starting to pick up again? And are you seeing that activity -- to which extent are you seeing that activity thread increasing going forward?

[Simon Østergaard, CEO & President]

Yes. It's -- if we go back to Europe, it's kind of weird. We -- in the southern part, we can actually visit and see customers. But in the northern part, also in Germany and France, we don't travel. We don't have access to it. So it's not totally correlated with our sales numbers. And that's back to the fact that the sales cycle is out. When do we see the customer does not translate into a sales number in the same quarter. So that's one, so Europe is really fragmented. We're actually seeing most activity in the south. Believe it or not, we were kind of surprised when we learned this. Whereas U.S., it's gradually -- it's really -- it follows our -- the activity level gradually, being able to see the labs. That is coming on board. I think there is a bit of confidence over there as well given the vaccinations. So I think that's kind of correlates with that. It's -- as we hear from our partners and from our market support organization, we are not at 100% yet. It could be at 50%. We're on an uphill -- sorry, upwards trajectory in terms of visits and face-to-face demonstrations. That's kind of the short version for Europe and Americas.

[Carl-Oscar Green Bredengen]

Okay. So a small positive development in the gross margin. Was there anything particularly related to that? Or is that just more a quarterly one-off?

[Simon Østergaard, CEO & President]

We had a good product mix. So that contributed. And then we -- also, if you see one of the slides, we actually show the sales per product group. So we had a significant increase in software, which translate into gross margin as well, a good gross margin. So that was a key contributor for the improved. So depending on the mix, then we don't hope it's a one-off.

[Operator]

[Operator Instructions] We have a question from the line of Felix Wienen from SFO.

[Felix Wienen]

Simon, welcome to the company, which we followed since 4 years now very closely and, obviously, Zlatko and Magnus have done an excellent job over that time. So it's great to see you come in with fresh eyes and an ambition to take the company to the next level. So given that we meet here for the first time, maybe you can just start and reflect again, on your career experience so far, in particular, with regards to driving revenue growth and execution and also related to an indirect business model like this one, that would be great.

[Simon Østergaard, CEO & President]

Yes. So career wise, the indirect business model is certainly not new to me. I have been managing a business with Agilent technologies for 4, 5 years back in the days, where we also are commercializing products in an indirect model with the majority of the IDG players. So I think it allows for a very, very new setup with fast action. And I saw the same benefits of the way and the good decisions that the solution has taken over time. So that's a plus. I say from my experience in pathology, this is also a business -- it's tissue-based diagnostics, but it resembles what we do here at CellaVision significantly. Here, it's -- the format of the sample is blood. Whereas in tissue based, it's obviously tissue. But the nature of the business is very similar, placing instruments, having reagent consumption and a recurrent business model. So I think here, at CellaVision with the acquisition of RAL, we are getting the opportunity to contribute and add to our revenue stream with more recurrent characters. That's both software, but it's certainly also the potential with the reagents business. And that's something I've been working extensively with. Here, we don't control the end customer. In the CellaVision, we are working with our distribution partners, which is different from my previous experience where we primarily were selling directly to the labs. That's the job of our partners, which means that the business model for them is around -- also price per analysis or price per slide and so forth. That's a different setup for us as we are contributing to our partners.And then the last thing I want to highlight also career wise, is I've always worked in the business development, innovation and commercialization. So it's kind of been across those areas. And I see the innovation agenda here at CellaVision. It's a super healthy company. We can be very ambitious on behalf of innovation to maintain our position, but not be complacent. I think that's important. We don't want to become complacent. We want to be aggressive of being seen as the leader. And that's some of the activities we are working on, and I have a lot of respect for what has been done in the company, as I'm going to tell my folks here in the company later. It's not about building a turnaround, but there are things we really need to get our arms around, and we have all opportunities with the capabilities that persist in this company. So it's going to be a very, very interesting journey ahead of us over the next many years.

[Felix Wienen]

Excellent. That's great to hear. And as you saw very motivated and very keen to follow that over the next couple of years. So essentially another question probably touches a bit the innovation point of view. One area of the story that excite me very much, but we've not -- unfortunately not seen a lot of progress over the last couple of years in the veterinary space from -- when I look at in the market, we see a lot of consolidation in the U.S., in particular, on the lab side. Now it's also starting in Europe. So I think it's a fantastic market to launch our products. We cut the costs for the labs, while also raising the standard and the outcome. So your views around that will be interesting? I think also, CellaVision launched the product together with IVAX Labs. And I would be keen. I mean they have big plans for the hematology side there. So I will be keen to hear about progress and customer feedback?

[Simon Østergaard, CEO & President]

Yes. I think you're right. The vet is actually an interesting segment. And what we've recently heard from our partners in the U.S. is that throughout COVID the companion segment has grown. It has really expanded. So it is an interesting sector. And so this is also about building contracts with the labs or a chain of labs. There CellaVision we've been kind of really had one larger relationship, but this is something that is a growth opportunity to look into because we actually have the offering. So certainly, that is an interesting sector. It's never going to grow as big as the human. It's not, but it's certainly not insignificant.

[Felix Wienen]

Yes. Perfect. Excellent. And then the last one, and we touched on previously, it's just again about service and software. Just curious about the visibility. I mean Q1 seems to be a strong quarter, and it has been last year as well, but then unfortunately, tapered off during the following quarters. So anything that we should expect that to remain stable or accelerate, decelerate sequentially will be fantastic?

[Simon Østergaard, CEO & President]

Yes. We actually have reasonable confidence around Q2. Underneath the reasonable, I would say there is some concerns that we share with our partners on the uncertainties in Europe with the on and off lockdowns. So that's one thing. However, we are not super concerned around Q2. Our mind is also -- because we are starting to see orders coming in and it looks healthy. But the question is also, can we maintain it for the full year. And that's a bit early for us to comment on that.

[Felix Wienen]

And then my last question is about APAC. Again, I remember that I think in 2019, you won a bigger order -- tender in Australia that was up for delivery in 2020 and '21. So just, from a conceptual point of view is, do I remember that correctly and I'm sure, does that mean that we should expect growth to clearly step up on the instrument side in APAC during the remainder of the year?

[Simon Østergaard, CEO & President]

Yes. To my best knowledge, and Magnus may correct me here, there is no clarity on the particular tender you mentioned from 2019 yet in Australia. So that's still pending. So we would love to see that happen, honestly. But we are not there yet.

[Felix Wienen]

You mean in terms of continuing to deliver or starting to deliver?

[Simon Østergaard, CEO & President]

Starting to deliver.

[Operator]

[Operator Instructions] There are no further questions registered, so I hand back to the speakers for any closing remarks.

[Simon Østergaard, CEO & President]

Thank you very much. And first of all, thanks for everybody for listening in and providing the meaningful questions. As I said in the beginning, it's a pleasure to represent CellaVision here today. I'm looking forward to our many earnings call in the future. I think we have a great opportunity with the company, and I've been extremely excited coming into the company, leading the team, being exposed to the culture, but also seeing that we can actually make a difference for hematology here. So that's exciting. So with that, I will close our Q1 interim report presentation, and I'm looking forward to our continued discussions in the future. Thanks.