CellaVision AB

STO:CEVI

Earnings Call Transcript 2018-Q2

[Operator]

Ladies and gentlemen, welcome to the CellaVision AB Q2 Reports 2018. Today, I am pleased to present our host, CEO, Zlatko Rihter. [Operator Instructions] Please begin.

[Zlatko Rihter, CEO & President]

Yes. Hello, everybody. Good day. This summer day, July 17, when CellaVision released its Q2 report. My name is Zlatko Rihter, I'm the CEO. And I will walk you through the quarter 2 outcome during the coming half an hour or so. And I will walk you step-by-step through the reporting. As always, we'll start a little bit to update you on CellaVision, how we see the world. So my suggestion is that we move to Slide #4. As I think we mentioned many times throughout the years, and we'll continue to do so, is that we are more and more, I mean, adding focus to really try to replace traditional microscope within hematology labs. I think that's one of the core duties we have with the technology we have, and we're trying to do the best to really challenge the ways of doing morphology or digital -- or analysis of microscopes. It's been done the same way since the late 19th century, and we are now trying to challenge that more and more. And I think, step-by-step, we're getting there and are becoming more and more successful. So that's kind of the vision we have and we'll continue to have that vision for a while. If we move to Slide #5, just to repeat a little bit how our world looks like. There are roughly 4 billion blood samples taken every year, and they are processed in a, what we call, hematology line with several steps. First steps being a cell counter, which is provided by our distributors. And out of the 4 billion samples, roughly 15% has to be reviewed in the second stage. And that's where the lab can choose between doing the analysis in the traditional microscope with a human being called the DNA, doing the analysis or pass that in a digital environment, which is then called digital microscopy, which is our way of doing it. And the 15% review rate, globally, of the 4 billion samples means that there are roughly 600 million samples per year that are analyzed, which is kind of the foundation for our market. Yet, these days still, more than 80% of all analysis is done with traditional microscopes, so we are step-by-step trying to transform that market into digital market. And I think we started 10 years ago with nothing, and now we are close to 20%. End of last year, we have 18% penetration, so that means that almost 2,700 labs at that date use CellaVision, but still, more than 10,000 or more than 12,000 uses traditional microscopy. So of course, this is core for us to step-by-step trying to work ourselves through that.If we then move to the next slide and discuss a little bit on why the market is transforming into our technology and also why specific labs choose us instead of traditional microscopy, so we have both kind of with the macro, and more of [ USPs ] that we can provide. There are 3 macro variables, I would say. We have the demographic aspect where we have more and more older people. And of course, that means more and more blood samples, because they spend more and more time in hospital environments. We have the efficiency demand where we today see it clear, and this is increasing all the time. Labor shortage in labs, basically means that it's very hard to recruit biomedical analysts or med techs that they are called sometimes, which puts a lot of pressure on hospitals and their lead times for example, that it's kind of leaves the result in longer, longer lead times or turnover times of -- between the patients coming in to the lab and getting the result. And we also see a reduced health care spending, and this is one area where the public or private lab chains try to save money. And we also see privatization going on, which means that there are a lot of -- a number of private lab chains emerging, and they're looking to efficiency, consolidation and standardization. And this is what I would say our best customers because this is where we can add most value. So I think there are a few very important macro variables, macroeconomic variables that are kind of going in our favor right now. On top of that, we have the general digitalization trend that also helps us, of course, more understanding for the benefits that digitalization in general can provide.Looking into more into kind of the [ USPs ] and why a customer should choose us, and this is, of course, what we try to sell our system to lab. This is the arguments we are using. We have grouped them into 3 as well: patient value or patient outcome. I usually say that we kind of deliver the holy grail of med tech where we can both add patient -- improve patient outcome, and we have proof for that, and we can also reduce costs in different ways for the lab, which is I think a very good combination.Looking at patient value, and this is, of course, where we have a lot of data, and this is how we kind of develop different arguments through different type of studies and thereby having concrete offerings at the end of the day. So we see that, for example, we have data showing that a patient's turnaround time, or when they can start to diagnose, mostly 6.5 to 1.5 hours in this type of lab environment, that's 70% decrease in time, which is pretty good. That also means that you can initiate the treatments quicker, 4 hours quicker than in average than you can do with traditional microscope. We can monitor patients in a completely different way, and of course, you can have access anywhere, any time to our system. You don't have to be in the lab even, which is, of course, mandatory if you run a traditional microscope.Quality-wise, our devices are cleared by FDA, which basically means that they are approved not only in the U.S. but everywhere. It's usually very important part of that, so we have approval -- global approval for our systems. And today, I think that the CellaVision systems in hematology are predicative devices even, so that's kind of the reference point, and today, I would say than the human being is that anymore, so the trend is towards that.And of course, when you look at our analysis, you look at the computer screen, which basically means that it can be many people looking at the same sample, which is very hard in a microscope. And then we have the image analysis or classification of cells also that we offer. So we can basically get all the cells classified, thanks to our artificial intelligence software. So that's also, of course, an important thing, and that saves a lot of time because you don't have to do that manually. You just look at the result of the DNA and approve it. And then we have the cost efficiency aspect, which I think is also a key -- very important that with connectivity, et cetera, we have a second wave of savings. Before we staff people in the lab, now it can connect to many labs together; you can sit in 1 location and cover many labs, which is, of course, another benefit. But in average, we say that we free up 2 resources comparing the cost of those versus the cost of our system means that the pay of time for the lab is around 1 year or so. And then, of course, the ergonomic part that you don't have to sit over microscope 8 hours every day also reduce sick leave. So we have -- usually, I say we have 11 very strong unique selling propositions to a customer, and this is, of course, what we try to argue for. And that has to be proved versus something that's been out there for more than 150 years, which is the traditional microscope. So that's kind of a challenge we have in front of us, and I think step-by-step, we are getting there. Just looking a little bit at the market, I'll come back a little bit to the progress on the small and medium-sized labs project that we are running, technology project. But we believe, and I think this is confirmed step-by-step now when we're looking into our data, that there are roughly 15,000 large labs maybe a little bit more, and there are around 100,000 medium and small labs out there. So today, our current market is the large labs, and that's where we have penetrated a little bit, just below 3,000 of those, but we also have 100,000 medium and small labs coming up as our market when we launch the CellaVision DC-1, that is about to be launched in distant future coming back to that. So that's kind of the market we are targeting. If you look at the large labs currently, the penetration is that we have 24% in Americas, 19% in EMEA and 10% in Asia Pacific. And step by step, we are increasing those numbers, which is good. If we then move to Slide #8 and also kind of looking a little bit on our model. I mean we have step-by-step, the last few years, taken ourselves into becoming more skilled in running an indirect business model. We try to optimize our business according to that. And I think, step-by-step, we are getting better and better. And we now also have, I would say, all key distributor, hematology providers as our partners. And I think what we've added, I'll come back during the quarter, which now also that I think we have more or less all the needed ones when it comes to launching the new system into the small- and mid-sized market. Which basically means that we are -- we have that part in place before we have even launched the product, which feels really good. We are present today directly with our market support offices in 14 markets, which is also, I would say, a quite big achievement. Just a few years ago, we were only present in 4 markets, so we have really accelerated our geographic expansion the last few years, and we strongly believe that we need to have presence in all key markets to be successful. We see a clear connection between selling a lot of systems and having people in place, still in the indirect business model framework, which is important to remember. We also continuously have a third-party manufacturing site, Kitron helping us to assemble the systems, but of course, we own at this time. And recently we passed 100 employees worldwide and we are increasing that number step-by-step, because both when it comes to innovation and engineering and market presence, we believe that there need to be more people out there. So that's kind of that part. If we just take a little bit more of a deep dive then or roundup the indirect business model, Slide 9. So we have basically defined what is core for us, where we need to be kind of best-in-class or best in the world even, and we also defined where we believe that we need to work with partnerships. And innovation is CellaVision core. And we have for many years been around our R&D spending versus sales has been around or even above the 15%, and it still is and it will continue to be so. And to be able to really replace the microscope in all labs, we need to probably add a few applications the coming years within hematology. So that means that we have and we are continuously strengthening that theme. And we own our own, I would say, innovation in that sense. So we really have that as an in-house core theme. Manufacturing, especially the assembly part, and also logistics, we have decided that, that's kind of non-core in that sense. So we have a partner, which is Kitron in this case, and they do the assembly for us and that gives us a lot of flexibility in that sense to manage that.And then we've also defined that we need to be present locally in different markets, so we have defined market support as the CellaVision core competence. And we would like to have expertise that can speak the local language work with the local customer base and local -- also with the -- even if we have Global Partners, they all have local teams in the local markets, so that we have people in place supporting those. And that's kind of the themes and that's kind of what we've been rolling out the last few years. And then we have sales and distribution, so that means that our partners at the end of the day do the transactions with the end customers, and we can upsell to them. So that's, I would say, the definition of an indirect model, and that's, of course, something we have as a partnership because they have so much more coverage than we can ever have. And then, of course, end customer is key as well. We really, really need to understand their needs, and we spend a lot of time trying to figure out how we can add even more value to them at the end of the day.So that's a little bit on our indirect business model, which is kind of, together with, I would say, the innovation part, the 2 core components in the CellaVision roadmap, so to speak.Moving to Slide 10, just to cover the strategic agenda. I think we've shown this a few times and we have the same strategy as before. We try to continuously execute that. So even if it doesn't change, there is so much activities behind each of these growth. Take geographic expansion, I mean our goal is to move into an additional 3, 4 new markets per year, and that's what we've done for the last 2, 3 years. And we continue to do that, and there will come an update on that in the [indiscernible] as well. Segment expansion. I think going from large into small and medium-sized labs for a company like us is a big, big challenge, and that's where we're right now trying to understand how we best can serve that with the new product or technology [indiscernible] . We also have some business in the veterinary market, but that's a little bit the niche. But that means that we are moving from 1 to 3 segments basically, just as we moved from 3 to, I would say, 14 markets in a few years on the geographic expansion side. Innovation, as I said before, as long as we talk about hematology, the key focus for us now is to really replace traditional microscopes, and we're really trying to understand what type of hardware we have to have. Now, we have large and the small coming up platform, hardware platform. And then we also have to understand what type of applications do we need to add over time to really, really replace an application. I mean that's the type of analysis that are done in a hematology lab. And we have everything from white and red blood cells analysis. We have platelet analysis, but also more specific, or I would say, a niche type of applications like malaria analysis, which happens in some markets or bone marrow, et cetera. So that's kind of where we need to spend time now to figure out how we as fast as possible can cover that as well.Partnerships. Working in an indirect commercial model means that we need to be very close to our partners. We are proud and happy that we have all the global players on board, and of course, our goal is to continue to develop a close partnership with them, which is very important.And then, usually, the fifth that I always -- a fifth kind of key component that I always mention is the streamlined supply chain. And by that, we mean that we have a very -- even if we work at very conservative market space, we have a very high tech product. And it's a lot of -- the product life cycles for many of the components are not that long, so sourcing, strategic sourcing is becoming more and more important to make sure that we have the latest technology in our systems. And I think we spend a lot of efforts and thinking around the DC-1 that is coming out now for a small and mid-sized labs, where we've kind of tried to fill up that so that we have the sustainable product over time also, so we won't end up in too many end-of-life issues in the components. So that's that. That's kind of the background. It's a short update on where we are on our kind of activities. I think, at the end of the day, the activities are key, because if you execute activities, good activities in a good way, then the rest comes. And the rest is probably the rest of this presentation, which is the kind of the Q2 highlights. And just to summarize that a little bit, move to Slide #12. Quarter 2 2018 I think was a stable, good quarter for CellaVision. We had a 17% growth or 15% organic growth; taking out the FX was 2%. What we are quite proud of this quarter is that we had a stable growth in all 3 regions. I've been CEO now for 3 years and I cannot remember if we ever had growth in all 3 regions at the same time, and that feels very satisfying.Deep diving a little bit in the different markets. I think America shows stable development. Americas has been a good growth area for us for a long time, and we continue to do that. And both U.S. and Canada, which I would say are 2 of our most mature markets continues to deliver a good underlying growth and there was a good underlying customer demand in both markets. We have opened up 2 new markets recently, Brazil and Mexico, and we see early days still, but a lot of the high activities in both markets, together we just represent customers. So there we are now right in this kind of stage where we just established ourselves and now we're kind of building momentum there, and every market goes through the same process. I think, for those of you that has followed us, remember that China wasn't that much a few years ago, and now China is something completely different, because we went through the same journey there. So moving to APAC, a satisfying quarters, 48% growth, strong development. There are 2 key markets, which is China and Japan. And China again, I think I mentioned that a few times, is the #2 country in sales after the U.S., but it took us a few years to get there. So that's kind of why we need to expand and have people in place, because when we have teams in place [indiscernible] after some time. And we see a lot of activities in China or in Asia in general, but in China specifically, where we have a lot of local market activities, we are building step-by-step more and more reference centers, which means that we can deliver more customers to our centers. We provide more and more morphology training, which means that the more and more DNAs and labs get aware of our technology. And that's kind of wings on the waters, that's how we get more and more coverage, and I think China is proving to be one of those markets that this works really good in. And also, during the quarter, we established a new market, India, where we now have our office or a center in Mumbai, and that means that we have now opened up another market that -- where we're trying now step-by-step to penetrate. So that's our 14th market where we are present. That means that this year so far, we established ourselves in Mexico and India. EMEA, a little bit lower growth than the other 2 regions, but also, we have to remember that EMEA has been struggling for some time. It's very nice to see now that we had a good quarter in EMEA, and we've had several good quarters in EMEA. And we see now that the newly established support functions, especially in U.K., DACH, which is the German-speaking part of Europe and France, now shows good signs of commercial success. And also Middle East where we've been for some time, also had a good sales development the last few quarters. Which basically means that we strongly believe, again, that establishing ourselves in the market gives results, and especially in those markets where we see good progress right now. And we also strengthened the team in EMEA where we have a newly recruited director in EMEA, which basically means that we now can even more accelerate the penetration, the market penetration. So that's quite good on the geographic side. If we then move to Slide 13. As we mentioned a few times, I think it's 3 things when it comes to the small and mid-sized labs units that are developed, we need to get the production up and going. We, of course, need to finalize the design and get the product approved, but we also need to make sure that we have all relevant distributors on board.And during the quarter, we signed with Nihon Kohden, which is a player in the mid segments, where the mid and small labs segment, where we believe that the DC-1 will be placed. And we also expanded our agreement that we had with Horiba, which is one of the players also in the large lab segment during the quarter. As I said, I mean, initially, we have added 1 or 2 every quarter, so this is part of our business now to really try to cover everything. And I think by the DC-1 launch, we have all them on board. If we then look into the innovation side, as we said, we are now close to launch products for the mid and small hematology lab segment. We believe that they were up 100,000 labs over time, that this is kind of the market for that, and the development is kind of coming to -- towards its end. We'll have both the human and later on also a veterinary version of that. And right now, we have kind of the commercialization preparation, which basically means we're working very close with our distributors to prepare them and make sure that, once the product is approved, it can be sold through them. They have the right skills and training for that in the different markets; primary focus, firstly, will be EMEA, Australia and Canada and maybe a few Asian markets. But then, at the same time, of course, we are running the last stages of the projects. Right now, we are on a preparation phase for external clinical studies, and that's a key part if you want to get the CE market at the end of the day. Those will be running around between now and the end of this year. And hopefully, if everything goes well, we have the CE mark and then we can start to commercialize the product. As I mentioned before, also on the innovation side, we are increasing investments into our innovation capabilities, and we need to hire more people, especially here in Lund where we have the Innovation Center. If we want to replace the microscope completely, we have a few more innovative applications to develop and that's, of course, what we'll try to do. That's that. Moving to Slide 14, just to put the new product into perspective. As you can see, it fits nicely into kind of the new hardware that we right now developed, will fit into the applications, connectivity and also the kind of competencies of products we provide. So it's a part of our complete solution at the end of the day. So that means that you can -- I think the most important takeaway from this slide is that the DC-1 will fit well into kind of the whole solution that we have. And where we hope for early wins, and then we'll see if they will come is that in lab chains where we have 1 or 2 core labs and then maybe 5 to 10 satellite labs connected in the same structure. That should be like a [indiscernible] here down in southern Sweden or it could be a lab chain like LabCorp or LifeLabs or Unilabs here in Europe, where they want to kind of fully complete their digitalization, we can offer that with a small unit. And they can use the same software basically and will have the same GUI and everything else looking in this network. So that's what we're hoping for and that's kind of it will be kind of when we launch it will be our first target.Moving to Slide 15, just to kind of give a high level specification. There are a number of things that are unique with the system for you that are a little bit interested in technology. I think what we are doing here is that we have developed our own camera, which basically means that we can customize that to our needs. And then I think other things that are important is that we will -- this system launch will be able to use as microscope if the customer wants; we have the digital scan capability, which basically means that you can use it as a standard microscope, but you can also use this for analysis. And there will also -- it's a very a small system, 10 kilos and I think one other key aspect that needs to mention here is this pay per analysis option, which basically means that especially for the smallest labs that may be don't have the money, because this will be EUR 30,000 to EUR 40,000 end customer price. But if they don't have that funding for investments, they can go for the PPA version where they basically gets the lower investment, but then the pay per analysis instead, so we'll have that as an option. So we'll have 2 versions: one capital sales and one price per analysis where you use a smart card kind of solution to run slides, and then you can pay per slide instead, or pay per analysis instead for the system only [indiscernible] . So there are different -- there will be different financial models going with it. So this is for us a little bit to access also the smallest labs that cannot afford investments of EUR 30,000 to EUR 40,000 in this area. So that's it on that side. And then if we summarize by moving to Slide 17, with the financial development, looking at the figures. Quarter 2 '18, SEK 91.9 million sales. We had growth of 17%. Strong gross margin. Development versus last year, and that's as always several aspects, but we are working also on trying to improve our cost base all the time. I think this is a good result of that. I think for those of you that talk to me sometimes, OpEx versus sales is a key KPI for us, and we try to keep that as low as possible and decrease that over time, which I think we've done step-by-step and we had a good quarter. So when all those things comes together, you end up in a pretty good position. And we had an EBIT of SEK 31.6 million, and in percentage 34% this quarter, which was quite good. As you all know, we have a very volatile business model. That means that we'll see volatility also in the future, and that's kind of how it is, so should judge us on kind of more of long term.And if you look at the Slide 18, which is a little bit more over few years, you can see that, on those KPIs here, when it comes to the P&L, we have step-by-step improved that over time. And I think the last column there is a 12-month rolling, and some of you might remember, it's minus 2 the first months 2018, and then that's also a little bit linked to that we had a few great quarters last year. So again, short term, there will be some volatility, but over time, we target 15% growth, and I will say that we will continue to do that.And if we then deep dive a little bit more into the financial figures and the further comments. In the quarter, we had a 2% currency exchange rate effect versus last year, so again, organic growth ended up at 15%. Strong gross margin development, 75%. A little bit product mix and a little bit cost efficiency improvements in the business. Expenses are increasing, and we want them to increase, because we are focusing on expansion on the sales and marketing side with adding new markets like India; and also focusing on product development, which is a matter of, of course, key aspect of the whole innovation part.For those of you that have deep dived a little bit in the capitalized R&D, it's a little bit lower, Q2 this year versus last year. The main reason for that is that, a year ago, the DC-1 development was in an extreme intensive -- intense phase and we also had some tooling investments which didn't happen this quarter. So it's -- we're in another type of stage in that project, so that's why that's lower, but historically, it's still quite high investments for the quarter.And then, finally, on the cash flow side. Comments on that is that, yes, total cash flow was negative, but if you remove the dividend, we had a pretty strong operational cash flow of almost SEK 29 million. So all in all, I think that is quite strong as well for this quarter. So that's a little bit it. And then if we look at the, which will be my final slide, Slide 20, just looking a little bit into the distribution. As I said, being a global company, [ I know you ] really want to have revenue well spread, and right now, we have roughly half of our business in Americas and then 1/3 in EMEA and 20% in APAC. And as I said, over time, I see it kind of a 1/3 in each region kind of spread, and I think we are developing towards that.Good, so that's kind of it. That was my presentation. And by that, I suggest that we open up for Q&A.

[Operator]

[Operator Instructions] Our first question comes from the line of Sten Gustafsson of ABG.

[Sten Gustafsson, Analyst]

Sten Gustafsson from ABG. I have a few questions. First of all, could you quantify the potential in India, Mexico and Brazil in terms of number of potential labs? And also, if you could comment a little bit on the pricing in those markets. And I also want to hear if there are any changes in the market dynamics. And if you could comment on that, in terms of growth or competition or anything. And also, finally, if you could give us some sort of time frame when we will hear more about your innovation. Maybe I missed it on the call, when you will start to talk about the next type of innovation after you would launch the small and mid-sized lab product. That will be the questions from me.

[Zlatko Rihter, CEO & President]

Yes. Let's see if I capture all of them. The first one was Mexico and Brazil, and I think...

[Sten Gustafsson, Analyst]

And India.

[Zlatko Rihter, CEO & President]

And India? Yes. I think if you look at Brazil and Mexico, they're like more than -- I mean you can compare them to I think markets like -- where we have quite good success today like China, like Japan, et cetera, where we have a certain penetration. So there are hundreds of labs in both markets basically. I think India is a little bit different at this stage. It's more a fragmented market, so there are more small labs, a little bit like Europe looked like maybe 10 years ago. I think for those of you that follow the market like France where there has been an extreme consolidation, they went from more than 5,000 labs, many of them very, very small, down to maybe 1,200, 1,300 labs today. And I think India is more like the 5,000 labs type of market, a lot of small labs. And I think India will be very important from our perspective when it comes to the small unit, which will fit well there. And if you look at some other companies like -- like some of our partners like Boule Diagnostics, they are quite successful in these markets. So there is a special medium and small market. Then we need to go even more in depth to really get the figures crisp and clear because to get good data, it takes some time. But I think we have a good kind of picture of that to do the first 2 years to get going. And especially, in India I think will be more of a -- there is a large lab segment, but it's a little bit smaller relatively to -- if you look at per capital or per hospital, then maybe in markets like China, and Japan, and Europe and U.S., but there is, on the other hand, very large systems and a large amount of the small labs. And on top of that, you have the kind of the growth parameter. The growth is higher in those markets than in the Western world from number of new labs, a number of lab centers, et cetera, since healthcare is kind of growing and being available for more and more people. So that was the first question. And then we had the -- see now I lost the rest.

[Sten Gustafsson, Analyst]

If you could comment on the price in -- the price point in those markets, [ is it any ] different?

[Zlatko Rihter, CEO & President]

Not really. We have a kind of a -- we have a global price because we have a global relationships with our partners, so we have kind of a global price set-up with them. And I think that's kind of one of the benefits having an indirect business model, of course. So our understanding is that the price doesn't differ that much locally. But of course, if it's too high-priced, that more kind of limits market initially. But if you start from scratch, you still have a certain market to grab. So this is kind of a -- you have to develop it step-by-step, and that's why it takes a few years in each market to get up to speed. So that's kind of it. And then we talk about competition, not that much has happened on the competitive side since the last few quarters. Roche still have -- they have launched their Bloodhound. We do not see them as a competitor. And I would say that the only company that we can see here and there being at least on -- or popping up is a company called West Medica with their solution, HemaVision (sic) [ Vision Hema ]. Otherwise, we were very alone in this segment to this date and what we can see. And we don't see any other company, for example, being in some kind of [ fast track ] clearance procedure right now -- process right now with this type of technologies, so that means that what we can see is that we are still quite alone. And then the...

[Sten Gustafsson, Analyst]

I'm sorry, what was the name of the company? West Medica?

[Zlatko Rihter, CEO & President]

West -- West Medica. They are based in a headquarters in Austria, in Vienna. And then we talk a little bit about innovation. If I understood you right, you asked about innovation post DC-1 launch, or did I understand that right?

[Sten Gustafsson, Analyst]

Yes.

[Zlatko Rihter, CEO & President]

Well, I think where our focus will be, without too being specific at this state, is because right now, I mean we need to focus and make sure that we [indiscernible] properly. But I think if you look at the next wave of innovation, of course, the key theme from a customer perspective is if you really, really want to completely replace the microscope, you need to have all the key applications offered at the end of the day. And that is applications such as -- I mean all the analysis therefore done in lab where you use a microscope. So it's again look the platelets, looking into malaria, bone marrow, et cetera. And we need to go for all those kind of decide exactly in which sequence we approach those to really be able to completely digitalize the lab. Right now, I mean we are close, but we're not fully there, because now we cover the routine analysis, but when they get old samples in this, you still have to look in the microscope. So I think that's kind of one area we have a lot of focus. And then connectivity becomes more and more important that you can continuously connect systems. And I think the big part of DC-1 will be to figure out how can we really fully make sure that if you have a lab chain or a public health care system where you have 2, 3 central hospitals and then you have maybe 10, 15 satellite labs, how do you in the best possible way connect those together to get the maximum efficiency out of that. So that's kind of another area we'll need to look into. So I would say that's kind of the thinking that we're going through. And then we have some exploratory work looking in outside of core business, cetology and pathology. But the main focus would still be in hematology. So much to go there.

[Operator]

Our next question comes from the line of [ Felix Enin ] of FFO.

[Unknown Analyst]

[ Felix Enin ] from [indiscernible] FFO. I have 2 or 3 questions, please. The first 2, a bit more strategic, and then another question for the DC-1 data. And so the first one, on -- when I see companies with your kind of growth potential, sometimes, the management teams become very greedy and try to take 2 steps at the same time and then ultimately stumble and basically screw up. So I wonder your thoughts around how you manage so well over the last quarters and years already to keep a cool head also in the corporation and operate step-by-step as you outline every quarter. So just do you want to share a bit of your thoughts around this, how you keep your structure?

[Zlatko Rihter, CEO & President]

Yes. I think what you have to do is that you have to -- this is my personal view now, so it will become maybe a little more philosophical, but let's take that risk. I see very -- I mean you have to have a clear strategy; this is what you want to achieve. And I think then you once you've set that, you have to be really, really be focused. And in our world, I mean, what we see is that we have x number of labs out there, we believe that we have a disruptive superior technology, and we need to penetrate those. And we've figured out that, if you have people in place, that makes -- helps a lot, and then step-by-step, you have to develop new applications to kind of regularly come up with new things, that once they start to replace, they get something new basically. I think if you buy a car every 3 years, you want to have something new in the car if you buy from the same brand twice. So I think that's kind of our base philosophy. And to achieve that, then you have to execute that very well. So we said our conclusion is we need to be innovative and we have to work in an indirect business model. So we ask ourselves, how do we really, really optimize that all the way through and become skilled in doing that? And I think that's kind of where we spend a lot of time thinking the last few years. Once you believe in that, then it's more execution. Let's add 2, 3 new markets; let's add applications we need to add. And I think that's what we try to do. And then when it comes to adjacent, on top of it, we try to run then a little bit separate from the kind of the core business so that we don't lose focus there. And then I think, as you grow, then new opportunities emerges. I think everybody that kind of, if you learn a thing, you see new opportunities all the time, and that's kind of we try to grab those. And then we are in a very conservative business, so it doesn't -- if you come up with something today, you don't launch it tomorrow. So you need some time. And that's why I usually say, for example, as a concrete example, when we talk about the geographic expansion, when we go into new market like India, you should not expect major sales next quarter. It always -- and we have so many example that it takes 2 to 3 years. So we have to make sure that we do the right activities, and then hopefully, we can harvest a few years later on. So that will be my kind of broad answer to that question.

[Unknown Analyst]

Yes. That's very good. As you've shown in the last quarters, it's very, very favored, very strong. And then linking into this is the structure and the morale in the company. I've asked about the question a couple of quarters back, how for a fast-growing company, you need a certain structure to be able to pass responsibility along to regional managers and so on. Now you hired a new manager responsible for EMEA. So a question, is he incremental or does he replace somebody? And also, do you want to talk a bit about morale in the company given the great results that you are delivering?

[Zlatko Rihter, CEO & President]

Yes. I think the new -- we had an EMEA manager before, so the new person is kind of just coming in. He is not incremental in that sense, but we still have -- the old EMEA manager went into another position basically, that fits him very well. So I think it's kind of win-win in 2 ways. We get a stronger resource in another part of the team and then we get a person that's been around for a long time in the business as EMEA manager, so I think that's good. I think morale-wise, I think what we try to do as much as possible, for example, it's very hard -- I mean we measure kind of how satisfied our employees are very regularly, so we get kind of -- given every quarter, we get kind of an outcome of that to be able to see, so that we keep on in a good way. We also have a policy trying to recruit people internal to management positions, for example. We have a lot of focus on that, so we'll make sure that people in the company see that they have pathways in their career to make them stay. We are very proud that when people wants to be with us for a long time. And on top of that, I think also we have a quite cool product, so it's quite fun to be part of this journey, to be part of developing this technology, and that shouldn't be underestimated. We are in the forefront in many technologies, so that means if you work with CellaVision, in many cases, you will work with kind of the latest and greatest technology, which is also I think an important motivation factor. So that's kind of a few of those. I don't know -- I think that will be my answer to that.

[Unknown Analyst]

Yes, very good. I particularly like that you try to elevate people internally. With many successful global companies, you see that the ones that are really successful is that they try show the employees the dream, the vision where you can go to make them stay at the company, which I think is very valuable. And then the third question, probably not as philosophical, a more boring one. On the DC-1, the new products, given that it comes at a lower price point, does that have any impact on group margins? Should we think about a -- you've got longer term guidance about pricing margins, and you're significantly above that at the moment. Should we expect margins to come down structurally as you launch that new product, or not really?

[Zlatko Rihter, CEO & President]

No. I think the plan for DC-1, the CellaVision DC-1 unit is that it will be in the same level gross margin wise as for big systems. And we also have to look at the market support structure that we have today, that structure should be able to support that product, so it's like similar to the large systems, which basically means that the people will get more and more product in our portfolio to promote and to drive. So all in all, I think it should be in line with the current kind of KPIs on gross margin, et cetera, that we have. That's how we have designed a product from start basically. And when we try to understand -- I mean the first thing we ask when we started this project 3, 4 years ago was, "At what price would you buy this type of system? That was the key question we had to our customers. And the second question then was, "Can we develop something that is in the same range profitability-wise that the large systems?" So we got yes on both those after, of course, lot of discussions, we said let's go ahead, so that's the plan.

[Unknown Analyst]

Okay, sure. And then just one very last question that just came to my head. It is, I remember that over the past couple of quarters, you launched a software upgrade, a new application I think that was available in the U.S. Do you know which one I mean?

[Zlatko Rihter, CEO & President]

Yes. I mean we have -- I suppose you mean the advanced RBC.

[Unknown Analyst]

Yes.

[Zlatko Rihter, CEO & President]

It was cleared by FDA August last year.

[Unknown Analyst]

Yes, exactly. So when you talked a lot your vision, your strategy going forward, I thought I want to ask about your product renewals that upgrade like this, so the smaller bits of the business. Have you got a clear agenda and clear pipeline of this going forward over the next 2 to 3 years? Have you got good visibility on these upgrades and updates aside from the new product introductions like the DC-1, for example?

[Zlatko Rihter, CEO & President]

Yes, we do. And what you have to remember is when we do this, because the most sensitive part from a regulatory perspective are our applications. So when we launch something like we did with advanced RBC, it's kind of a 3 to 4 years before we get it approved anywhere, especially to get it, for example, FDA cleared, it's a pretty substantial effort. So we need to plan for that upfront, and then we have like 3, 4, 5 years perspective on our roadmaps, make sure that we can kind of sequence them in the right way, because you have to plan for -- if you take RBC, which is now approved globally, but if you take maybe the next application, that would be around platelets, which is also an important analysis that labs do, we already now have to start to prepare for clinical studies here to make sure that it's managed the proper way. So for us, just because you kind of [indiscernible] or a program an application, then you have all the regulatory and commercial launch steps also ahead of you. So it's a -- you have to have a long-term planning in those things. It's very important, so it's done properly, because if you do clinical studies in the wrong way, as many companies have experienced that throughout years, you can lose 1 or 2 years very, very fast.

[Operator]

[Operator Instructions] Okay. There seems to be no further questions at this time, so I'll hand back to the speaker for the closing comments.

[Zlatko Rihter, CEO & President]

Excellent. So thank you for calling in, even if it's vacation time for many of you. I hope that you'll have a good summer. And I think next time, we'll talk is October 23, I think when we launch the Q3. So I wish you all a good summer, and until then, take care.