CellaVision AB

STO:CEVI

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, welcome to the CellaVision AB Q3 report for 2020. Today, I'm pleased to present CEO, Zlatko Rihter. [Operator Instructions] Zlatko, please begin.

[Zlatko Rihter, President & CEO]

Thank you. Good morning, everybody. Zlatko here in Lunc together with Maria Morin, who is Head of Corporate Communications here; and also Magnus Blixt, CFO. So I will take you through the presentation; and also, Magnus will chip in and help me today. So I'll start now. So please move to Slide #3. And for those of you that haven't followed us throughout the years, I think it's important to give a little bit of a baseline. And then, of course, CellaVision, the vision and mission at the end of the day for us is to replace traditional microscopes in laboratories. And since we have a strong offering both when it comes to the outcomes side, that we can provide a good outcome in blood analysis, and we also improve efficiency by digitalizing the workflow in the lab and automatizing it, we also address the cost base basically. So sometimes, we will call it kind of the holy grail that we deliver value to customers and labs at the end of the day. I think that has -- throughout the year has proven to be a success and thereby also helps CellaVision to penetrate the market throughout the years. If we move then to Slide #4 just to give you an overview of the situation out in the market. All in all, there are roughly 4 billion blood samples taken every year probably. 2.5 billion of those are taken in large labs, which we define as the lab that have more than 130 samples per day, and there are 17,000 of those around the world. And the whole kind of -- the whole target and objective of kind of the hematology workflow is to address and assess bladder-related diseases that can be clustered, I think, into 3 groups. You have the blood cancers like lymphoma, myeloma; you have an anemias; and you also have severe infections, basically. And there are 30 of those at the end of The day needs to be diagnosed. And the first step in the hematology workflow is there is a cell counter, and the cell counter kind of looks for abnormalities in the blood. And if there is an abnormality, you have to do a second step in analysis, which is the microscopy analysis. And there are 2 options since the last 15, 20 years. One is CellaVision and one is traditional microscopy. And of course, 15% of 2.5 billion lab samples is just below -- south of, yes, 380 million samples per year roughly, which is the CellaVision market that we step by step try to go for. And of course, we have, over the years, and we'll continue to do, try to take a larger and larger part of that workflow. And of course, as you all remember, we acquired a company called RAL Diagnostics end of last year. They are part of that workflow since then. Basically, we're trying to optimize the whole process. In large labs, we have penetrated roughly -- a little bit more than 20% of the market end of last year, which means that a little bit more than 3,500 labs out of the 17,000 are using CellaVision. So that's the setup in the large labs. The other major segment that we address is the small and medium hematology labs, and there are roughly 100,000 of those globally. And it's basically the same workflow, but, of course, it's much less samples in those labs. I would say it's -- we define that as less than 130 samples per day. And there, we will then advise or recommend the DC-1s and the smear workflow, the workflow that goes with that, that we launched -- CE marked February last year, and I'll come back a little bit on the development on that later on as well. So that is a market segment we're starting to penetrate now step by step. And it's still very low percentages, but we have a few hundred of those out there today that we have shipped, so to speak, during the last year. So that's kind of the 2 major segments that CellaVision aims to target. I think another important component in our -- if you go to Slide 6 -- in our offering is the business model that we've developed throughout the years, where we've been very loyal to this indirect business model, where we basically partner up with global hematology players. We have global long-term agreements with all of them since long, and we are working close to them since long. And we complement that with our market support offices, where we now are present in 18 countries -- or 18 markets and cover more than 40 countries. And you can see all the countries where we have presence listed here. And I think Russia is the last one this year that became operational, I would say, this summer basically. So that's how it looks like on that. And then we have a setup where we basically have a -- when it comes to the devices part, the systems, we have a third-party manufacturing, and we have in-house production or manufacturing for the reagents or the stains. And all in all, we have a little bit less than 200 employees globally. So that's CellaVision. I would say the 6 players, Sysmex, Beckman, Mindray, Siemens, HORIBA and Abbott, are basically covering the whole hematology market. If a customer wants to buy a hematology line or products, they go to one of these 6. And then we are, of course, behind them as a part of their offering. So that's how it works. And as you can also see, that Sysmex is a very dominant player. They have, I would say, more than 65% global market share, which means that they are a little bit, the last years at least, driving the market. And the runner ups are Mindray and Beckman. And we, of course, cooperate with all those. The strategic agenda for CellaVision has been also pretty the same for the last few years, if you go to Slide 7. We have focused on geographic expansion to be present with local colleagues in the local markets to penetrate and open up those. We're also focused a lot on segment expansion. We moved from 1 to 4 segments within the last year basically, where we now have strong offerings and can start to penetrate and commercialize those. Innovation has always been high on our agenda. And I think at least the last 5 years, it's been more than 50% R&D spend versus sales, which is, I think, it's a good -- in that. Supply chain, focusing on that. And also then, since we have an indirect business model, it's a lot of focus on developed partnerships basically. And you can also see kind of our financial targets that we picked up a few years ago. And those are over an economic life cycle. So that's that. If you go then to Slide #9. Basically, just to kind of summarize the presentation, also showing a little bit of the products we have, is that we have now, I would say, since a year back, so if we would have gone a year back here, we have only provided digital morphology systems for large labs basically. And we have then expanded by acquisitions but also with our organic development with the DC-1. So now we kind of cover the whole workflow. So once the blood has to be analyzed in a microscope, we can basically cover everything that is needed since a year back basically. And then, of course, our challenge is to commercialize this in all key markets because there are always some tweaks in every country that needs to be addressed. But that's basically what we have in front of us. We spent a lot of time, I would say, the last years to really kind of put this portfolio together, which is now ready and also, in many ways, commercialized already. So I think it's important when we discuss that you understand that this is kind of the setup we have. So that's that. If we then move a little bit into the financials, which is kind of the key point of this call. We had -- we reported a 24% decline in sales versus last Q3, as you've all seen. And of course, the majority of that part is related to COVID and the challenges we've had with that the last few quarters. So if you look a little bit region-by-region on Slide 11, Americas has been -- I would say a few tough quarters behind us. I think if we just kind of give a status where we are today, we've got a 510(k) clearance for CellaVision DC-1. As you remember, we, for a long time, said that we target Q4, and we're quite proud and happy that we managed to deliver a 510(k) clearance in Q4. So that basically means that we as of now also can start to commercialize and sell basically DC-1 in U.S. And it's -- I mean, we have 2 major partners there, that's Beckman and Sysmex, and they're both ready and prepared to do that. So we will start that basically immediately. We got the 510(k) clear last Friday, so it's pretty fresh. We've also seen a very tough year in U.S. I think we're not the only company. U.S. has been a tough market, and we've seen a lot of negative impact due to COVID-19 in Q3 especially. And I think it's basically so that our products are installation products, which basically means that there needs to be a team that goes into the lab and, together with Sysmex and the lab personnel and others, install the products, set up all the IT structure, et cetera, before it's operational. And that has been tough the last 2 quarters basically. What we see now is that in U.S. especially, we see that the low point in sales has been passed now. And we see during the last -- end of last quarter and now when we move into quarter 4 is that we see installations increasing again from the low levels, which I think is a very positive sign. If we look at attachment rates. So basically, if we look at how many of all installations include CellaVision, they are still as high as before. So when we look at our partners, in this case Sysmex and Beckman, they have suffered as much as we have in U.S. during the last, let's say, 2 quarters, and we now together have started to increase sales again. Then, of course, it's always hard to predict the future right now, but I think now we see at least a stable improvement coming up. Meanwhile, we have also signed global distribution partnerships when it comes to slide preparation, which is especially reagents/stains, which means that we can now start to address also markets in our partners in Americas with our -- with the RAL stains. And that's been a closed market before CellaVision acquired RAL a year ago. So that's also been a good progress. So right now, in the middle of discussing how we'll start to build up that business basically. So all in all, if we summarize, U.S. -- or Americas and U.S. for that matter, it's been a few tough quarters behind us. We see that the low point has been passed. We see increased installations again. We see a DC-1 that is now cleared for sales. So I think we have a pretty -- and we have then a global partnership, global distribution agreements with our key partners. So that means that we now can start to push on the gas again and start to move ahead. So that's that. If we then look at APAC, a little bit of a weak quarter. But if you look at year-to-date growth, it's 34%. I think what happened there was that we had a few distributors that -- especially in China, that were a bit nervous about our capabilities to keep up production during the pandemic in Q2. We saw some inventory buildup in Q2 basically that has kind of a little bit hit us in Q3. I think all in all, if we summarize APAC, that's probably the region that's more back -- mostly back to, let's say, a normal situation or a pre-corona situation when it comes to business. Both China and also Japan has shown strength, I would say, and is showing that. And from an activity perspective, it's more or less back to normal. So that means that all the activities that we do to build penetration and market improvements are being done. I think the 2 markets that still are a little bit shaky, if I may say so, is India and Australia, where we see that there are restrictions in those markets. But I think the key markets are coming together. And also in APAC, we've now signed global partnerships, which basically means that also there, we're now running pilots in some key markets. Korea, Hong Kong are 2 examples of that. And we're moving to other markets also, which spans the coming months, and we'll start to build our presence there, where it's very closely linked to, of course, our digital morphology products. Then EMEA. Of course there, we have growth, but that's also partly to the -- a lot of the RAL Diagnostics. And this is the last quarter when we are not fully comparing apple to apple on that. We see that there is a commercial integration of RAL that is finalized. And of course, there is a lot of focus around still in Europe because that's the historical base for the RAL sales. So we are also trying to grow that market. We have had also there a negative impact due to COVID, especially, I would say, in Q3. But then we've also seen that the market is opening up again. And I think, at least the last month, we've seen a return to normalization. And we also see now that the DC-1 orders are coming in again, which was not the case for a quarter or so. And also, to finalize EMEA, we now have an operational -- fully operational market support organization in Russia that can start to address that market. So to summarize it a little bit, I think APAC and EMEA, especially APAC, are really, I mean, full activities; EMEA close to full activities; and Americas kind of have passed the, let's call it, the low point that happened during this quarter. So I think all in all, it's more positive than it's been the last 2 quarters, where we had indicated clearly that we have challenges in the market. If we then move to Slide #12 and just to kind of give a little bit more -- other highlights in Q3. First of all, again, we got the 510(k) clearance last Friday. So that means that we'll start to ship DC-1s, and we can do that. So that's kind of the focus area now, and we'll start to penetrate the U.S. market, which is, of course, our -- normally -- under normal circumstances, our #1 market. And of course, next steps for us is to also get a registration or regulatory clearance, commercial clearance, in China because that's now the only market where DC-1 is not yet approved, which is something that will take place next year basically. So for all other markets now, we can ship DC-1. As you all know, it's a year ago since we acquired RAL Diagnostics. We spent quite a lot of time this year to kind of develop integration activities, and those are now finalized and they are institutionalized. And we also recently launched a new global organization that is now operational, and that kind of should drive so that we optimize all the synergies here that goes with the RAL Diagnostics acquisition. Then on the COVID-19 side, I think some highlights there -- or maybe highlight is the wrong word, but some comments on that. I think what we see now, especially where we have installed CellaVision systems as before, is that they are used more than ever. I mean we are a little bit -- if we take it a little bit to -- stretch it a little bit, we're a little bit like MS Teams or Microsoft Teams or Zoom for the hematology lab. That basically means that if you sit in the lab and have a CellaVision equipment, you don't have to be in the lab. You can work remotely. If you have traditional microscopy, then you have to sit in the lab and do the analysis. And as you all know, it's -- in all areas, people are asked to work from home. So we see more -- in labs where we are installed, we see very high usage of our systems, especially kind of the connectivity part of it, more than ever. And then, of course, we have also -- as, I would say, all other companies, but we can do it even more than others because we have this kind of digital solution at the end of the day, we can implement all the virtual work methods and make sure that we can run remote customer training. And there is a very high focus to implement this remote access procedures and applications that we have in labs. So that's extremely hard, important. So the challenge we've had the last 2 quarters is basically to be able to install new installations. So the pipeline is there. It's been just that you have to get the lab to open up and then it can then install. So that's been key since we have hardware that has to be physically installed in the lab. Yes. And then the reagents or the RAL Diagnostics product lines, we are now launched that globally. We need to launch that. I think RAL were strong in 5 European markets prior to the acquisition. Now we target to be strong in 40 to 50 markets globally in the coming years. So that's, of course, a process that's ongoing. And of course, the first step there is always to have distribution contracts with your partners so that you can start to sell. And then, of course, once you have that, you take the next step. We also launched a complete veterinary system or offering into the veterinary system. And there, we also have a close partnership now with Sysmex and some pilot installations in one of the largest, I would say, veterinary lab chains, which is IDEXX basically, where we are supporting their digital morphology. So that will be a rollout. It's still, I would say, a small fragmented part of the business, but now we have a kind of a tangible way forward here. But still, it's a small part of the total business for us. But I think it's one important step forward in that area, where we now have a substantial possibility to start to penetrate that segment as well. And that's both for the DC-1 and the large lab systems since we have that [ in our universe ] and all those. So summarizing that, that's basic, I would say, the highlights. And then we have one other highlight, and that is, of course, as you may know, I will leave end of November since I've been appointed as CEO at another company. So this is also my last quarter to report, 24th and last for now at least. And we have also appointed an acting CEO that will step in when I leave, and that is Magnus Blixt basically, who has been the CFO for the last 7 years at CellaVision. So I think we have a very good acting CEO coming in here. And I will also hand over to Magnus now and allow him to go through the financial numbers more in detail, I would say. So Magnus, the stage is yours.

[Magnus Blixt, Chief Financial Officer]

Okay. Thanks a lot, Zlatko, yes. I will take you through the last slides here, the financials. And starting with Page #13, we have a quarterly overview of some of the key ratios in our income statement. And we can see that we ended up Q3 with sales of SEK 88 million. If you look at the trend, you can see that it's a clear dip to a normal trend curve that we have. And as Zlatko has explained, we've been affected with a pandemic, with the COVID pandemic. It has affected our revenue. It's 8% down year-over-year. And if we exclude currency effects and structural effects, it's 24% down. So quite significant. Nevertheless, we've been able to preserve results at a fairly good level. We have an EBITDA of SEK 24.6 million, and that is around 28% EBITDA margin. So considering the downturn on top line, the financial results are quite good anyhow on the bottom line. Much of that is through what we call cost-conscious operations. We have prioritized our activities in our projects and focused on the necessary ones only. And by doing that, we've been able to keep our costs under good control, and that has then resulted in a fairly good outcome on the bottom line. Comment on the gross margin. It's 64.8% this year versus 76.1% last year. And then this year, it includes also the product line from the acquisition that we did in Q4 2019, and the gross margin in that product line, the reagents, is lower than the average before. So that's the explanation of the downturn there. In the next slide, Slide #14, a few more comments on the Q3 outcome. If we look at the sales, we could see that, yes, organically, it was 24% down. FX effects was negative 5% in the quarter, and then the structural effect is solely related to the RAL acquisition that was done in Q4 last year. So this is the last quarter where we will have this structural effect in the comparison. Expenses. I talked about cost-conscious operations. And you can see that expenses decreased 21% versus last year. And if we exclude the RAL expenses, we can see that the downturn is actually 32%. So quite significant there. I need to mention also that we released accruals for incentive programs worth SEK 6.6 million in this quarter. So that's also part of the low cost, low expenses. Capitalized R&D. That's the projects that we're working on, and that's the R&D work that is going to render new products in the future. And we're happy to see that, that has actually increased in the quarter compared to last year. So the focused activities that we have is to keep the important R&D projects running at full speed. So SEK 5.5 million this year versus SEK 3 million last year. Yes, from a cash flow point of view, it was negative for the quarter by SEK 20 million. And last year at the same time, it was positive with almost SEK 28 million. A difference between the years is that we, this year, have started to depreciate on loans related to the acquisition. We didn't do -- we didn't have any loans last year. So this is the first year we have that. Also, cash flow from operation, negative SEK 3.9 million. And there is a negative effect on working capital mostly related to inventory build actually. That's where we have that one. All right. Next slide, Slide #15. Here, we can see more year-over-year trends. And if we look at the rolling 12, I think that's SEK 490 million in sales, and that represents a 16% growth versus the last period -- last rolling 12 period same time last year. So it's an increase, but a little bit slower increase than we are used to seeing. If we look at the last line in the table, the EBITDA margin, we can see that we have an EBITDA of 29%, which is a little bit lower but still fairly good, considering the situation in the market, I would say. A key ratio for us that is quite important is the operating expenses in relation to sales. And we can see that it's fairly low. Even though that sales are low, we've been able to keep the same ratio almost here. So 44% in that ratio. And if we look at the chart down to the right in this picture here, we can see -- if you look at the blue bars, you can see that the sales trend is some -- the growth trend is somewhat slower here for the rolling 12 numbers of -- due to the effect of the COVID. And if you look at the lighter blue line, you can see that, yes, the growth rates in operating expenses has also been reduced significantly. So this is where we run the cost-conscious operations. And you can see the scalability in the CellaVision business model here on this slide. And that's basically from my side.

[Zlatko Rihter, President & CEO]

Yes. Okay. So that's kind of it for today from a presentation perspective. So then we open up for questions, basically.

[Operator]

[Operator Instructions] Our first question comes from the line of Ulrik Trattner from Carnegie.

[Ulrik Trattner, Research Analyst]

Good luck, Zlatko Rihter.

[Zlatko Rihter, President & CEO]

Thank you.

[Ulrik Trattner, Research Analyst]

I have a few questions. And you try -- I feel like you're emphasizing weak U.S. markets. But note that European and APAC is much worse off on a Q2 to Q3 comparison. Do you see the same type of inventory buildup in these markets throughout Q2 that have affected Q3 as well?

[Zlatko Rihter, President & CEO]

Yes. I mean APAC, if I comment on that, I mean, it was clearly so that when the pandemic come -- and that came first to China, of course, which is, at the end of the day, our #2 market, and then it came to Europe in March basically, which was like end of Q1, early Q2. So I'd say that since I think -- I think where China reacted, I mean, I don't think it was only us, is that they basically were scared that we couldn't deliver. So in Q2, I mean, if you look at the growth in Q2, I think it was 100% or so versus Q2 last year. They placed extra orders to be safe if something happens because they didn't trust our ability to deliver. And that, of course, affected Q3 because now they had to kind of empty out that safety stock. And going forward, I think we have a more normal situation where we don't see that same stock-up and we don't see -- we see higher trust because we were able to deliver throughout the whole pandemic and we are able to deliver also now. So I think we will see a little bit less volatility here, where I think APAC has been 1 quarter plus 100% and the next quarter minus whatever, minus a lot, at least 40%, 50%. And still, when I then summarize the first 3 quarters, I think in Asia, we see a strong performance in that region with 34% growth basically. So that's where we are. And I think Q2 was gigantic for us, and then Q3 was a little bit more painful for that region.

[Ulrik Trattner, Research Analyst]

Okay. And on to the next ones. I note that RAL has quite a dramatic drop in gross margin by 10 percentage points compared to Q2. Is there any specific reason for that major drop? Because I note that the volume in terms of sales is not down that dramatically, but 10% seems to be quite a steep drop in gross margin.

[Zlatko Rihter, President & CEO]

Yes. I think there are 2 reasons. I can take one and then I will allow Magnus to explain the other one. First of all, I mean, RAL had a very good development the first 2 quarters. Despite the pandemic and all that, they had a solid growth. So there was some stock-up building in EMEA especially for RAL stains, especially by our partner, Sysmex. And of course, in Q3, that -- we show -- also it's vacation times in all that in Europe, so we saw a softer Q3. And of course, they had a lower top line. The gross margins are affected in RAL. That's one explanation. Then we also had another kind of a cutoff thing that happened and of Q3 that Magnus is going to explain more in detail.

[Magnus Blixt, Chief Financial Officer]

Yes. I can explain it a little bit. Of course, when you recognize your sales, your sales recognition should be aligned with your delivery terms, your input terms. And here, we found a difference between how it was done in the past and how we want to do it in the future. So when identifying that, we need a onetime correction here in Q3, and that hit the top line with about SEK 1 million to get that correction in there. So that's a onetime effect that we see.

[Zlatko Rihter, President & CEO]

Yes. So that's the 2 reasons for that.

[Ulrik Trattner, Research Analyst]

Okay. Great. So just on the margin and the cost expansion because I note that this was your fourth consecutive quarter with negative EBIT growth, and this despite RAL contributing in 3 of these quarters. So could you give us some -- shed some light on the cost expansion trend going forward? Is sort of what we're seeing on a rolling 12-month basis what we should expect going forward as well?

[Zlatko Rihter, President & CEO]

Yes. I mean one thing that we have worked very hard with the last, I would say, at least 5 years if not more is our business model, to make it as scalable as possible. And that means that we can kind of follow top line with our cost base. And we are ready to accelerate on activities, which means that you increase your OpEx base as soon as we see the light in the tunnel. And we, as many other companies, put a contingency plan in place in March this year where we basically park certain activities and really went for the most important activities. And somewhere, of course, naturally, it was hard to travel for a few months and so forth. So what we've done now is that since we see, as I mentioned here, in all regions basically in different ways the light in the tunnel, if I may say so, we now started to accelerate some activities again, some projects and also some other activities in marketing and sales. So we will monitor the market development closely. And we are dependent here on, of course, Beckman and Sysmex and the other ones. Once they can go in and install again, we will follow. As I said, we have the same attachment rates as before. So that basically means that as soon as they can go out and start to install, we will follow with that, and then we'll also accelerate the -- maybe accelerate is a strong word, but start to increase our activities and thereby our OpEx. But should anything go down the drain, let's say that we have a second global wave and we have lockdown globally, we can also follow down with the -- and go back to the contingency state. And we can do that quite fast because that's the -- we don't sit with a lot of kind of product manufacturing personnel or a big sales force out there. So we can be very, very agile to what's happening in the market and adapt all the time. I think that's one of the benefits with the business model we have. And that's what we use now. So we can quite quickly -- if we see a good trend, which we, I would say, do right now, then we can adapt to that and start to activate -- initiate activities again. And that's how we will do this. So we monitor. Really we try to monitor the market development all the time. How does it look? How many installations are going on? And how much can our partners in different markets go out and install things or systems? And then we follow with activities. So that -- I think that's how it would look like for the coming years, at least until the pandemic is here. We guard -- we safeguard our business or balance sheet at the end of the day.

[Ulrik Trattner, Research Analyst]

Great. Two last questions, one in regards to the veterinary segment. You have been selling to the veterinary segment, which are your prior platform. So just from a legacy perspective, how much have veterinary segment contributed to total sales percentage-wise? And sir, the second question is, have you taken any orders as of today on the DC-1 platform for the veterinary segment?

[Zlatko Rihter, President & CEO]

Yes. I think percentage-wise, we -- as you -- for those of you that have followed us a few years, in the past we had direct sales, and we made a big -- we won a big deal, I think it's 5 years ago now, for Antech, where we installed a lot of veterinary instruments. And then we had a kind of a tough journey because we -- again, we operate best in indirect models. So we turned around and said, let's -- we have to find other ways. So we spent kind of a lot of time to get partners on board. And primarily, Sysmex stepped on board. And at the same time, we also had to adjust our offering basically to make it more attractive to the market. So we now have veterinary applications both for DC-1 and also for DI-60, which is the Sysmex OEM product. And Sysmex together with IDEXX, which is the major player here on the customer side, so to speak, have started up a big hematology installation program. They have a product called ProCyte, which is the Sysmex CBC, and that's cell count for that segment. And they're now also starting to promote digital morphology into that segment. And that, of course, is a DC-1 or a DI-60 depending on the size of the lab. So we have pilot installations in U.K. We have pilot installations in U.S., where we sold. And also, we have sold a few DC-1 that's also -- so -- but that's starting up right now. So we should see some development there the coming year. The long-term outlook for that market segment is very hard to say, but it's a few percentages of our sales currently. So I wouldn't put the number, but it's a low number, low percentage at this time. But now we have a partner, and we have a partner that is promoting digital morphology into that segment, which is a big change versus before.

[Ulrik Trattner, Research Analyst]

Perfect. Last question is on the DC-1. And as you stated in this report and during this call, the U.S. market is kind of problematic right now. Obviously, it seems to be trending in the right direction end of the quarter. But do you see sort of the current state of the market as problematic launching the DC-1?

[Zlatko Rihter, President & CEO]

Could you just repeat the question? I didn't follow you.

[Ulrik Trattner, Research Analyst]

Yes. Yes, sure. I'll now try to just keep it short. Do you see it as problematic or more problematic to launch the DC-1 in the U.S. based on sort of current market dynamics with -- or, sorry, current market conditions with COVID-19?

[Zlatko Rihter, President & CEO]

Absolutely. I mean if you ask me, I would prefer not to have COVID-19 every day of the week. That would make our lives much easier. That being said, we can still do it now. I think 6 months ago or 3 months ago, it would have been much tougher. Now it's opening up at least step by step. So now we can go ahead. But, I mean, in a perfect world, there will be no COVID-19. Then we could have gone full ahead, so to speak. I mean we can do it, but it's not as optimal as it could be, if I say so. But it's much better than it was 3 months ago.

[Ulrik Trattner, Research Analyst]

Very good. Perfect. I'll go back to queue. And once again, good luck, Zlatko. And Magnus, welcome to the CEO chair.

[Magnus Blixt, Chief Financial Officer]

Thank you.

[Operator]

And the next question comes from the line of Felix Wienen from SFO.

[Felix Wienen]

A couple. The first one on inventory levels or stocks in the supply chain. Can you just briefly talk about China again? Is it -- are levels now below average? Or -- and are customers reordering? Or are they in line with longer-term averages? Just what you see there.

[Zlatko Rihter, President & CEO]

Yes. I think to -- I think Ulrik had the same questions. So what you can do here to get kind of the full picture, I would say, Q1 was normal, and then you have to take Q2 and Q3 and divide that -- sum up and divide by 2 basically because that's normal. And then Q4 will be more normal again, if you understand what I mean. So Q2 was extraordinary in one way and Q3 were extraordinary in the other way.

[Felix Wienen]

Okay. Very clear.

[Zlatko Rihter, President & CEO]

You follow me?

[Felix Wienen]

Yes. And then on your own balance sheet, I noticed that, and Magnus touched on it, the inventory levels are significantly higher on a year-on-year comparison but also compared to Q2. Can you just shed some light into that? Probably Magnus, was that related to the DC-1 ones?

[Zlatko Rihter, President & CEO]

Yes. Magnus, can you answer that?

[Felix Wienen]

Or is that related to vet?

[Magnus Blixt, Chief Financial Officer]

I can see 2 -- there are 2 effects basically. And one is that if you sell a little bit less instruments, you tend to have a little bit more finished goods in inventory. That's one. And then on the other hand, for components, we have one -- we made some last-time buy of critical components or -- to our systems. And yes, of course, when you do that, you have a negative impact on your cash flow, you build some inventory. And then as you use that inventory, you'll get your money back, so -- then you have a positive effect later on then on the cash flow statement. But yes, we're going to have a little bit higher inventory for -- in the near future, let's say.

[Felix Wienen]

Okay. Very good. And then on leverage, Magnus, into you. I noticed that the debt on the balance sheet is coming down quite nicely. So can you just elaborate again on the maturity profile of the long-term debt and whether you plan to refinance that or whether you plan to pay it down in full? And also, give a rough indication about the quarterly repayment rate. Is it around SEK 10 million or whether -- that's it.

[Magnus Blixt, Chief Financial Officer]

It's a little less by quarter. To be exact, if I remember correctly, it's about SEK 5.7 million that is related to the loan for the acquisition that we repay each quarter. And the plan is -- it's a straight amortization, and the plan is just to pay it back here now and then -- but of course, we follow the cash situation closely. But so far, we -- during the pandemic, we're still generating cash and then have a fairly good cash position. So we continue to amortize on the loan.

[Felix Wienen]

Okay. Perfect. And then both of you or whoever wants to take it again on the RAL product, the reagent. From the sales there and probably also through your machines, the connectedness to your database that you can see, can you see that -- the number of blood samples that are being analyzed, if -- can you see a pattern going through the pandemic that -- if we've reached a low point and now the number of samples being analyzed is increasing? And where are we compared to level of pre-COVID? Or -- and probably give some kind of indication of how that shape looked. Was it very deep? If we look at some companies, they see the Q2 being down, I don't know, 40%, 50%? Or was it down more -- was it like 15%? Or just some -- any kind of indication would be fantastic.

[Zlatko Rihter, President & CEO]

Yes. I mean I can answer that. I mean we've seen the same pattern more or less in other markets. So when the pandemic came -- now you have to remember that we take care of the more severe blood samples. So we are not that much affected as the -- all the blood samples, so to speak. But what's happened is in every market basically, China in Q1 and then Europe in Q2 and U.S. in Q2 as a few examples, and we've also seen that lab chains have reported the same development. And we've done our own studies showing the same figures, is that first 2, 3 months of the pandemic, it went down 40% to 50%. The blood samples as such, I think, are part of it. Because 15% are reviewed, I think that's been a little bit higher. So that number has been a little bit lower and then gradually growing back. And I would say now, we're more or less 90% to 100% back on track pre-COVID, so to speak. So it's been like a 6-month journey in every market: down 40%, 50% and then slowly back to close to 100%. So I think now we are back to the old numbers in most markets.

[Felix Wienen]

Yes. And then on the -- just on RAL again, on the global rollout, can you give us some kind of -- just an idea about what the contribution will be to either revenues or -- in '21? Or just the shape of that rollout, how will it be just to give us a better idea of what we should be factoring in?

[Zlatko Rihter, President & CEO]

Yes. And I can give a little bit high level because, I mean, when we set targets, it's a little bit that -- if you look at RAL historically, they've been growing, I have to say, 5%, 10% the last 3, 4 years. And I think if I take out the pandemic under normal circumstances, the plan is, of course, to grow 15% there as we -- the part of the business. And the way to do that is, of course, to continue to grow in the core markets where RAL has been very successful, markets like France, Germany, Benelux, the core markets, and, parallel with that, also introduce RAL to many other markets where CellaVision has been successful. And our focus right now is, of course, to expand it in Europe but also to introduce RAL especially in APAC. So markets like Korea, Hong Kong, and we'll take that further to China, Japan and in Australia in the next step. So that's where we're spending time to prepare for that and make sure that we can start to deliver to those markets. And I think pilot cases in Korea and Hong Kong have been successful, so we've got a great start. But this is a step-by-step process, of course. And then, of course, the Americas is next step as well. And then also with DC-1, just to be clear, that is launched with the RAL stain already today. So even with a small installed base, that will step-by-step increase, of course. And there we have the RAL stains attached. There is a protocol, which is also supported by Sysmex, for example.

[Felix Wienen]

Very interesting. That's very interesting. And just following up on the RAL products. I remember a couple of quarters ago in a conference call we had a discussion about the competitive environment there and difficulty of getting the RAL products winning market share from existing players. Probably you can share some more experience or feedback from customers' takeup. Anything you've seen in the marketplace would be great just to have some more flesh on that debate.

[Zlatko Rihter, President & CEO]

I think, I mean, what we're doing is we're utilizing our relationship with our partners as we had before, and we're adding a component in that. So when we discuss with Sysmex, Beckman around this, now we also discuss slide preparation, offering reagents and all the equipment we are making and the staining devices. So -- and of course, the first steps there has been to sign global distribution. That's kind of the ticket to play. Once you've done that, then you have to start to go local basically or regional and discuss with the different management teams in the different markets of how to launch it. So we have like parallel discussions. And then, of course, in the perfect world, there will be no COVID, then you can travel and do hands-on training and all that since we have limitations. In that, we are focused on virtual training sessions, which has worked quite okay. But of course, it's a little bit more challenging. So next steps now is to move into new markets. But, I mean, there's always some tweaks you have to do for each market. It's not -- that always goes for everything we do in real life.

[Felix Wienen]

Okay. So your -- I mean, the end customers of Sysmex and so on, they don't turn the product down and say, hey, I've got a better or...

[Zlatko Rihter, President & CEO]

No. No, no, RAL or Siemens are very high-quality product. But of course, it's known in 4 or 5 markets where they have been around for a long time and already are well penetrated. And then if you come to Korea, I would rather -- then you have to kind of start from scratch and build a reputation. That's what I mean. And then you have to do the same thing in Hong Kong and so on basically. But we are very determined to be successful in our markets. And so we just have to do the homework and the classic blood, sweat and tear part of it, which we're in the middle of now.

[Felix Wienen]

Yes. Very clear. Okay, just 2 more quick questions. This was one to you, Zlatko, in terms of thinking forward as you leave the company. What are the best ideas that you would give for your successor, might it be Magnus or might it be another person? As I understand, Magnus is an interim decision. The first question is that.

[Zlatko Rihter, President & CEO]

I think what made CellaVision successful the last 5, 6 years or even before that is the focus, that you take a larger and larger part of the hematology workflow with RAL, with DC-1 and all the things we're doing. I think now we have the portfolio. We have a complete portfolio also for the vet segment but especially the human segment. And now it's all about doing the same trick as we've done in maybe U.S. and Scandinavia, in the whole world basically, to turn every market into success. And that is a lot of -- we need to do what we did in those markets, in maybe 40, 50 markets, at the end of the day and come to a situation where we'll have attachment rates for the small and large labs. And on top of that here, you also kind of position stain protocols where you show value to the customers and push that. And I think continue to do what we do but do it in a focused way. It's a lot of energy, but you get a good return on investment there. And I think we've proven that before, and I think we just should continue to do that for now. That will be my number one focus.

[Felix Wienen]

And then to Magnus. I think, as I judge it, Zlatko's focus is very much on the commercial agenda: driving distribution, building up the sales offices and so on and then ultimately getting the orders in. So how do you plan to fill that role and, in particular, divide your time between these tasks and then the CFO role? And related to that, will you probably distribute some more responsibility to the head of the sales department and just to others?

[Magnus Blixt, Chief Financial Officer]

Yes. For sure, Zlatko has been very strong in the commercial area. But there is another good thing: that he's been building a very strong team, too. So we are a capable team of driving these projects. All the way through product development, through commercialization, there is a strong team. So sure, I will take part in that team and try to coordinate operations the best I can. I made sure to have some relief on the finance side, so I can -- I actually can spend some more time on the overall business, and I'm looking forward to this. It's an interim period. So it's a window of time, and I will do the best of this time.

[Zlatko Rihter, President & CEO]

I would just like to add, I mean, I might have perceived being quite commercial, but meanwhile, we have invested a lot into innovation. I mean we have developed the DC-1 the last 5 years that we just launched, which is a completely new product from scratch, and it's a new segment. We have also invested into RAL to have that as part of our portfolio, which is maybe a, I would say, call it, nonorganic R&D at the end of the day, but now we have it as part of our portfolio. So I think we as a team has focused on both. Then maybe, I think, in all the quarterly reports, and so we've maybe pushed a little bit more for the business model and the commercial part. But I think we have -- I mean, we have invested a lot in innovation. I think that if you look at the CellaVision innovation team, it's 3x as big as it was 4, 5 years ago in personnel, which means that we can do 3x as many activities. But then, of course, since it's R&D, we were a little bit cautious in kind of telling what we're doing before we can launch things basically. So that's maybe why when we sit in a quarterly report or have discussions, we focus more on the commercial part, because that's a little bit more -- it's less secret and more transparent in that way.

[Felix Wienen]

Sure. Okay, perfect. Zlatko, to you, all the best. And Magnus, I look forward to hearing you on the next conference call.

[Magnus Blixt, Chief Financial Officer]

Thank you.

[Operator]

The next question comes from the line of Carl-Oscar Bredengen from Berenberg.

[Carl-Oscar Bredengen]

I have a follow-up question to the launch of the DC-1 or the market approval in the U.S. How should we think about the market uptake here? We touched a little bit about the current trading. But given that you have now received the market launch, is the product readily available for the distributors to apply and sell into different pending processes? Is this happening immediately? Or how -- is there a specific lead time for the sale?

[Zlatko Rihter, President & CEO]

Yes. I think, of course, there is -- formally, it's clear. So that means that we can ship it if there comes an order. What we've done in parallel is that our partners, they have kind of Americas organizations. And, when they did their preparation to launch that, both Sysmex and Beckman, I mean, Canada is also part of Americas, and there it's been available for a year or so. So they basically prepared their launch completely. So U.S. was already pending a 510(k) clearance, which now has happened. So they're ready to go basically. But then, of course, you need to start the sales cycle. So there is probably a few extra going away now because it's been kind of early adopters. But then you have to start the sales cycle. So the sales reps have to go out and get the deals, and then you have installation x weeks or months after that. And then you start to build up the pipeline. And that has to happen now because if the customer wants the product, we need to be able to ship it, and a very important part of that is 510(k). Meanwhile, we prepared here in production and all that. So we have industrialized the product and ramped up production and all those things that we talked about last year. But we're really focusing on industrializing the product. So we are ready to ship if and when orders come.

[Carl-Oscar Bredengen]

Okay. And we -- you mentioned that obviously, the physical presence at the laboratories for installations is taking a toll on -- weighing on the sales. But how should we think about the actual tendering processes and the interaction between distributors and the clients? Is there a building pipeline of new sales installations that needs to be taken that have been postponed this year coming out? Has the new progress in pipeline continues to build? Or is -- has this also been put on hold alongside the installation?

[Zlatko Rihter, President & CEO]

I think, I mean, there was a hit in Q2, Q3 definitely. But what I think also is 2 things. I mean, again, we're a little bit back on track, again, because we see that installations are going up. So labs are opening up again. I think the other part is that both distributor ourselves and customers has learned to work virtually. So we can do a lot through Teams or Zoom. And a lot of the interactions takes place in that forum these days, also tender processes. So that means that at the end of the day, I think it's back to normal. But it's more -- now it's a different type of fora. You don't meet physically. You meet over Teams and you do the processes there. And I think that is happening.

[Carl-Oscar Bredengen]

Okay. And just lastly, I think some of the previous comments we got on the amount of unit sales for the DC-1 was sort of a ballpark estimate of between 100, 200 units sold so far. Is there any updated number you can provide us with that, how the progress has gone? Because this has sort of been the ballpark estimate for some time now. And if we -- any light you can shed on the development or sale of DC-1?

[Zlatko Rihter, President & CEO]

Yes. I mean I would say 200-plus at this stage. And I think what's happened is that we had a very strong -- we were ready in Q4. Then we could start to, well, eat up the back orders and really shipped last year, Q4. In Q1, we went into the quarter with full speed ahead and then the COVID came. So Q2, Q3, we're dead more or less. And now we see an uptick again. So it's like a sinus curve (sic) [ sine curve ], I think somebody said. It really looks like that, the sales. And now it's kind of trending up again. And of course, we hope that the U.S. -- the 510(k) will give it a boost on top of that. What we see in EMEA, for example, is that they were back to, call it, the normal pre-corona on DC-1, which was a very good sign for us a month ago or so.

[Operator]

And as there are no further questions, I will hand it back to the speakers for closing remarks.

[Zlatko Rihter, President & CEO]

Okay. So then thank you again for calling in and good luck to everybody. We might meet in other fora somewhere else some time, who knows. And I'm convinced that Magnus and the team here will take you through the coming quarterly reports in a fantastic way. So thank you and have a good day.

[Operator]

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.