CellaVision AB

STO:CEVI

Earnings Call Transcript 2020-Q4

[Operator]

Hello, and welcome to CellaVision AB year-end report for 2020. [Operator Instructions] Today, I am pleased to present Magnus Blixt, acting CEO. Please go ahead with your meeting.

[Magnus Blixt, CFO & Acting CEO]

Thank you very much, and welcome, everyone, to this call, where we will go through CellaVision's year-end bulletin and a little bit of background to CellaVision and the financials and activities for Q4. I'm calling in from winter, sunny and cold Lund. Lund is where we have the head office of CellaVision. My normal role is that I'm CFO for the company, but currently, I'm doubling as acting CEO. For those of you who have called in the past, I'm sure that you recognize that it usually was Zlatko Rihter that presented these reports, but he has left CellaVision in November and is currently heading up Mölnlycke Health Care as CEO for that organization. CellaVision has appointed a new CEO Simon Østergaard. And we are looking forward to welcoming him on board in March. And in the meantime, I'm doubling as acting CEO. As usual, we will start with a short presentation of CellaVision and then continue with activities and financials for Q4 and also full year. And at the end, there will be time for some questions and answers. Please move on to Slide #3. Our vision, background story on what we do. CellaVision is a medtech company, and we're active in the field of digital morphology. To be more precise, we analyze blood cells. And we provide solutions for the blood labs in hospitals and commercial labs. Our vision is to replace the manual microscope and not only replace the image capturing parts, but also automating the analysis of the image and creating, with our technology, an efficient workflow in the blood lab. Since this is high-volume, routine analysis, the value that we create when implementing our solutions is very good for the health care sector and for the patients in the end, a great value there. Please move on to Slide #4. The first market that CellaVision approached around more than 10 years ago, is the largest labs. That's where it makes the most sense to automate. We find about 17,000 really large labs around the globe, about 5,000 in Americas, 5,000 in the EMEA and 7,000 in the APAC region. And our definition of a large lab is a lab where you do more than 130 blood samples per day. And for this market, which is our original market, we created instruments, what we call our high capacity instruments, and then they are well suited for this market. I talked before about that this is a routine analysis. And if you look at it on a global perspective, there is about 2.5 billion blood samples taken every year. The first step with a blood sample like this is that it goes through an instrument called a cell counter. It's a high-speed analysis and about 85% of the samples, they get analyzed to a sufficient level in that instrument. In about 15% of the cases, a more in-depth analysis is needed. And this is where CellaVision instruments come into play or you can use a manual microscope. And our market penetration today, let's say, is that we do globally, about 22% of these 380 million samples, they go through CellaVision instruments, and still 78%, they go through the manual microscope. It's not homogenous. So in some areas, a lot more than 22% go through CellaVision instruments in our, what we call, mature markets. And then other places, it's a lot less. But on average, it's about 22%, meaning that there is a lot more to do on this large market -- large labs market. That is our original market that we have approached. Slide #5, please. Last year, we launched a new system where we could also analyze blood samples that are suited for medium-sized and small-sized labs. It is lower in capacity and significantly lower in price. That's why it's not suited for the high lab sector, but more suited for the medium and low, and our definition is that if you do less than 130, it's a medium lab. And if you go even lower, so it's less than 30 samples per day, then we call that lab as a small lab. And in this sector, there's about 1.5 billion blood samples drawn every year. The process is very similar to the large labs, and about 15% of them are flagged out for in-depth analysis. And then you can choose to use either a manual microscope or of course, CellaVision's new instrument. We call it the DC-1, which is well suited for this medium and small lab sector. And since it's a brand-new instrument, we haven't sold so many. So if we count in percent, it's less than 1% of the world market that goes through our instruments and by far, the majority goes through a manual microscope. As we launched this solution, we can see that we can gain big market share in this sector versus the manual microscope as well. Move on to Slide #6, please. Okay. So we do commercial operations in an indirect business model. And it's efficient and scalable for us to do it that way. On the sell side, we sell through partners. And the benefit is that these partners, they have existing sales force and service technicians around the globe. And they also work with the other instruments in the bloodline. So when a hospital or a lab exchanges their bloodline, they are looking at an array of instruments that needs to be replaced. And these partners, they have the full assortment. So from a selling point of view, it makes sense to replace everything at the same time. We have complemented this indirect sales model with local presence, only a few persons, CellaVision employees in each country. And they support and help our distribution partners in these countries. When it comes to talking about the benefits of digital morphology doing it in our instruments instead of using manual microscope, and we have learned that it makes a big difference if you have these market support specialists in place or not. And currently, we have them in 18 countries, 18 markets, and we reached more than 40 countries with this. So we still have some white spots on the map, but the coverage is starting to be pretty good actually. When it comes to manufacturing, we have 2 approaches. One is a third-party manufacturer and one is in-house. And when it comes to our instruments, both large and small, we do that with a third-party manufacturer in Jönköping, north of Lund here in Sweden. And when it comes to reagents, stains, then we have a facility in Bordeaux in France, where we do that manufacturing in-house. We are about 180 employees worldwide as a company here. Most of them are based here in Lund. At the bottom of the page, you see the names of the partners that we use for sales and distribution, well-known names, well-known players within the field of hematology. And the top row is -- they are selling our large labs instruments and the small -- and the bottom line is for the smaller and midsized labs. Next slide, please, Slide #7. Well, this is CellaVision strategic agenda. We have 5 agenda topics -- strategic agenda topics. If you look at the first one, geographic expansion. We still have some white spots on the map. And we find that this indirect business model that we have is very efficient in covering these white spots. So what we do is add new market support presence. And with that, we can open up new markets and very fast, grow and cover more countries around the globe. The solution that you use in a blood lab is the same, you do it in APAC, in EMEA or in Americas. So geographic expansion is very important for us. Segment expansion is important as well. We started out in the large labs. We have instruments for small labs, small and medium-sized labs as well. And we also have instruments aimed for the veterinary markets. The veterinary market is a lot smaller than the human market. So but we have developed instruments for that as well. Innovation is an important bold and strategic agenda for us. And we continuously develop new systems and new analysis, and we spend about 15% of our revenue reinvesting in innovation. So that's an important part. Streamlined supply chain, well, both 3P, third-party manufacturing and in-house. We focus a lot on quality, and we focus a lot on cost control in this area. And when a company like ours work with partnerships for sales and for production, the partnership is important to maintain. So we spend energy in making it easy and simple to interact and work with CellaVision when you're a partner to us. So please change for Slide #9. Here we have the hematology workflow. So first, I'd like to talk a little bit about the workflow and the instruments that we have in what we call a bloodline, a series of instruments. And then secondly, we talk about CellaVision part of that offering. And as you see on the top line, we have the large labs described and the bottom line, the small, medium-sized labs. So the first thing that happens when a blood sample comes into the blood lab is that, it goes through a cell counter, and about 85% of the samples are being analyzed, and the results are sufficient in that step, but 15% of the cases, you need further analysis. And the first step to do is actually to prepare a glass slide that can go under a microscope or into a CellaVision instrument. And you make a smear and you make a stain. So these 2 instruments are called slide preparation instruments. And then the next step is to color the slide to get good contrast of the blood cells that are on the slide. And CellaVision has also developed stain protocols describing the procedure on how to do this in the best way. And then the final and last step is to put the slide in CellaVision instruments to get the automatic analysis going or you can choose a manual microscope as well to do that, so. Now for the large labs, you can see that the 3 first steps that are -- those instruments are provided with our partners, the cell counter, the smear maker and the stainer. They are part of our partners' assortment and what CellaVision can provide here is stain that goes into the stainer machine and then stain protocols to get the right procedures going and of course, our large CellaVision instrument for digital morphology. If you look at the small and midsize labs, CellaVision can take a bigger responsibility of the workflow. Our partners, they provide the cell counter still, a smaller version of it, a little bit lower capacity and cheaper, of course, as the rest of the instrument in this bloodline here. And CellaVision can also provide the smear maker to make the glass smear. We can provide the stainer to stain the glass. And we can also provide, of course, the liquid reagent that is soaked or put into the stainer. And the same protocol and the digital morphology system. So very similar workflows, but CellaVision can take a little bit larger responsibility for the small and medium-sized labs. Slide #11, please. Now we're into financials and the fourth quarter highlights. If we look at the 3 regions, Americas is usually our biggest region. I can summarize that the Americas has had a tough year. There is a slight improvement in Q4 compared to the previous 2 quarters. But it's still negative 43% versus last year, which was a very strong year then. So it's a tough comparison. And the full year comparison year-over-year is negative 34%. And we can conclude though, and we're happy to see that the attachment rate, if there is a bloodline being replaced in the Americas, the attachment rate or the ratio of these blood lines being sold with the CellaVision instrument, that's unchanged. So the conclusion -- our conclusion is that when the market recovers, then our sales should recover with it. A few activities that we've had on the American market, the DC-1, the small lower capacity instruments, got FDA clearance in October. And by that, it's commercially available in the U.S.A. and also, we continue to work with the launch of our RAL stains, the products that are being produced in the factory in Bordeaux. They are -- we have previously been strong in Europe. RAL has a history -- a strong history in Europe, but not so strong in Americas and in APAC, and we are continuing to globalize that offering. The APAC region, it has had a strong Q4 and actually a very strong year as well despite the pandemic. We have 23% positive versus last year in Q4 and the full year comparison is positive 29% and it's mainly driven by our 2 largest markets in Asia, China and Japan. In China, we haven't seen so much effects of the COVID pandemic. The business climate is basically normal and good activities. So strong sales in China. And we also see good demand in Japan, and we see that some old technologies being replaced with CellaVision technology. So that has given a special boost to the Japanese market during the year. Some areas in APAC are still affected by the COVID and the second wave of the COVID, like Australia, Korea and India. They're still affected and travel restrictions are in place. EMEA had a stronger quarter, the last quarter of the year compared to the previous quarters. It was plus 6% versus last year for the EMEA region. Full year growth was 44%, but we acquired a company, RAL last year in Q4. So if we adjust for the structural effect of that, it was negative for full year for the EMEA region. We could see a few larger tenders in Q4 that helped help the sales and also compensated a bit for the difficult business times that we still have seen in Europe. And last, in January, we established market support offices in Russia, and it's proceeding and registrations of products have begun in Russia. So that will be our next market in the EMEA region that will open up. Next slide, please. Slide #12. Yes, continue the key highlights. The CellaVision DC-1, we talked about in -- that we got FDA clearance in October, and we have now some information that our key partners are planning to launch in March already. And as soon as the pandemic and the business climate allows, we expect to see increased sales from a low level but increased sales of the DC-1 instruments, I think, suited for this market. Registrations are ongoing in China, and they're continuing according to plan. And we have the CE mark from before. So now it's only China that is left for registration, then the whole world is open for DC-1 sales. Comments regarding the COVID situation. We continue to adapt to the COVID situation, still travel restrictions, and we work digitally, both internally with meetings and also externally with meetings with customers and trainings and service technicians. We're happy to say and to see that we have not had to reduce our workforce at all. Our workforce is intact. And we are ready to accelerate. We have the staff in place. And as soon as the market recovers, we are ready to accelerate. So we're waiting to see the positive signals in the market. Reagents distribution, we require the company RAL to produce -- RAL produces reagents, the stains, and we acquired RAL in October 2019. Historically, RAL has been strong in Europe. And now we are globalizing the assortment and test and evaluations are ongoing in the APAC region and in the Americas region. And then last but not least, we're looking forward to welcoming Simon Østergaard as new President and CEO of CellaVision, and he will come on Board in March. So in a little bit -- in a month's time, we will welcome him on Board here at CellaVision. Okay. Next slide, please. Slide #13. Financial development and some key insights for Q4. You can see that we had a sale of SEK 131 million in Q4, and that was a reduction of 13% compared to the last period, the same -- last year same period. The comment there is that we had negative FX effect, the Swedish krona has strengthened versus euros and dollars. And the FX effect was about 6%, meaning that we had an organic growth of approximately 6% in the year. Stable gross margins and underlying operating expenses versus sales, you can see that we have 41% if you take the ratio of expenses versus sales, and it's quite low, and it's proving that our cost conscious operations is preserving the margins for us. The EBITDA margin is 31%, and we feel that under the circumstances, that's a good margin. We had a significant effect from COVID and also effects from negative FX. And still, we have 31% EBITDA margin. Next slide, please. Slide #14. Further comments on the Q4 results. Well, we commented already on the effect of the FX on the sales. If we look at the full year, we also have a structural effect. We did the acquisition in Q4 of RAL in Q4 2019. And if we deduct the structural and FX effects from the full year, it's not a 2% growth, but it's a negative 10% organic development on the sales. I talked before about the expenses and how we run a cost-conscious operation. We don't -- we haven't had to lay off or reduce any workforce, but we have prioritized our projects and focused on the most important ones. And by that, we have been able to reduce our expenses. And the organic reduction adjusted for structural and FX effect is negative 14% year-over-year. Development projects, that has increased. Our capitalized R&D has increased versus last year. The full year is SEK 25.5 million versus SEK 16 million last year. So it means that we have been able to prior prioritize our important development projects. So there, we have not reduced activities, which we think is important for the future of CellaVision. And if we look at the cash flow, the full year cash flow for the company, the total cash flow was approximately 0. And a couple of onetime effects on the cash flow is that we did not do any dividend, like we have done in the past. Usually, we have had dividends. But no dividend this year due to the corona. And also, we had a slight increase to inventory due to a last time buy of a critical component. And that increase will continue into 2021, and then we see reductions of inventory over 4, 5 years. So it's a temporary increase in inventory that we see related to this onetime buy. Next slide, please, Slide #15. Okay, here is financial development year-over-year. And if we look at the growth trend, we can see that 2020 is definitely a different year in the light of COVID-19. So growth here is 2% only compared to the previous period here, a lot lower. Gross margin is around 66%, which is lower than previous periods as well. That product mix effects from the acquisition of RAL and adding the product group reagents has reduced the overall gross margin to this level to 66%. And then we have the ratio, operating expenses versus sales. And we can see that the cost-conscious operations we end up at 43% on this key KPI, which is quite low over a historic period, as you can see. And with this operation, cost-conscious operation and scalable business model that we have, we've been able to preserve quite good profit margins, and the EBITDA margin for the year is 30%. And if we look at the chart down below here, we can see that definitely that 2020 is a special year. There's less growth, and we can also see that operating expenses is down. And EBITDA is down, but not as much as it would have been if we had kept our original plan for operating expenses. So we think that we have balanced this special year 2020 in a good way. That was the last slide. Thank you.

[Operator]

And we will now open up for questions. [Operator Instructions] Our first question comes from the line of Ulrik Trattner from Carnegie.

[Ulrik Trattner, Research Analyst]

I have a few questions. In the report, you sounded quite muted in the sort of market recovery in the U.S. and said recovery is supposed to happen once vaccination program has had effect. Are we still to expect growth in the first half of this year in the U.S.? Or is this more on a sort of negative stance that you're expecting growth to rebound first in the second half of this year?

[Magnus Blixt, CFO & Acting CEO]

Yes. Exactly. U.S. being the largest market for us and a very important market, we follow the vaccination programs as careful as we can. We found some good websites where we can see the trends. And if I follow -- if I have the right data, just like about 10% of the American population or the U.S. population has now being vaccinated. So the vaccine program seems to be rolled out a little bit quicker there than average around the world, I would say, or quicker than in Europe, at least. So that's -- I think that's the most important factor to find to have the market go back to more normal conditions or normal market -- business climate. Another factor is that we see that we are learning to do business or businesses are learning to cope with the pandemic and using digital ways of doing business. So there is a slight effect of that learning curve, we feel. But the most important factor is actually the rollout of the vaccines. Another comment to that is that we have rather long sales cycles. You can see that how you replace a bloodline in hospital. It's a rather long cycle from first visits to installment and training and that line being put into operations. And of course, when the pandemic hits, it slows down a little -- it takes a little bit longer time to slow down. But then as the pandemic wears off, since the sales cycle is long, it takes a little longer time to ramp back up again. So we are confident or we are optimistic that it will take a little bit time before we're back into full swing. And it's really hard to judge and say. I think the best way is to actually follow the trends of the vaccinations and also to keep in mind that the sales cycles are quite long for CellaVision.

[Ulrik Trattner, Research Analyst]

Would you say that it's more crucial that the society opening up that you have the availability to go out to these labs? Or is it more sort of tied to the general health diagnostics, as this is part of a bloodline, but that is back up to capacity back from where it's been shifted more towards COVID-19.

[Magnus Blixt, CFO & Acting CEO]

Yes. For the sales cycle for us, it's more -- it's important to be able to actually to visit the lab and to have access to the lab and to do the installments, do the trainings, do the quality systems and get the new bloodlines operational. That's important for us. And to do that, you need to be able to travel, and you need to be welcoming to the hospital. And if the hospital is too busy, taking care of other things that are more urgent, then it's hard to get the attention that you need or it's hard to find the time slot. So I guess it's a mix of the 2 things that you're mentioning.

[Ulrik Trattner, Research Analyst]

Okay. Great. And just as the DC-1 was approved in October last year, how much did the DC-1 contribute to sales in the fourth quarter?

[Magnus Blixt, CFO & Acting CEO]

Very small contribution so far. It's basically prelaunch, let's say, pre-launch systems that we have shipped, and we expect to see, as the market recovers and as our partners focus more on this and we work more actively with the DC-1, then we expect to see more increase in the sales. But so far, the DC-1 has been hard to launch. It's a new technology, and new technologies are not that well known, and it's part of nature that you need to talk a little bit more about it when it's a new instrument. And that's even more difficult under pandemic than to sell some technology that is somehow known, at least our large labs are a bit familiar with our instruments, I would say. And then it takes a little less physical meetings to get the sales going. But for the DC-1, it's been more difficult.

[Ulrik Trattner, Research Analyst]

Okay. Great. Then on to operating expenses. And you're talking about the structural cost reduction. So year-over-year, 14% for the full year. But as I look at the numbers, it seems like your capital-light R&D has gone up 37% year-over-year. Would it have been more fair to look at adjusted numbers? And by those numbers, it seems like there is simply close to 0 sort of cost reduction year-over-year?

[Magnus Blixt, CFO & Acting CEO]

Yes. I would say that's a valid point, actually, because capitalized R&D increased from SEK 16 million to SEK 25 million, and that is seen as a reduction, of course, of expenses. So in one way, I think it's a fair comment. And then in another way, we can say that we have been more efficient with our R&D time spent. It's been spent on projects that we will live off in the future. So in that sense, it's been more efficient this year. And it was actually quite low last year because the DC-1, the new small instrument was in the final stages. And in the final stages, there was some fine tunings and some commercialization and industrialization, of the product. And those expenses, we were not able to capitalize. So that stake was rather low last year actually and better spent this year.

[Ulrik Trattner, Research Analyst]

Okay. Great. Last question before I get back into the queue. And it's actually regarding to sort of capitalize the R&D and depreciation and how we should be able to decide for the gross margin between the different segments. Is there any way that you can specify RAL sales in the quarter? Or at least sort of specify what was sort of the gross margin for your sort of original morphology analyzers. And also on RAL's gross margin development, it seems like it's down closer to 6 percentage points year-over-year, although we see sort of a gradual recovery from last quarter, which was on a really low point. Any reason for RAL being at that level of the gross margin. Is that based on scale?

[Magnus Blixt, CFO & Acting CEO]

Yes. I think the part of our business that has had less impact from the pandemic is actually the RAL business because it's not installation products, it's recurring business. And we haven't had so much hiccups in the supply chain either. It's been working quite smooth under the circumstances. And we have actually seen a bit of growth year-over-year on that segment. So we're quite pleased with the development there. And then long-term margin developments for RAL, well, we think that we can see that increased volumes in a factory usually leads to some improvements, but we also see that the improvements are usually linked to hard work. So it's not going to come overnight. It's probably hard work and gradual step-by-step improvement that we can expect. And we also see that it will be hard to come up to the same level as we have for the instruments. I think the competition and the market climate makes that very difficult.

[Ulrik Trattner, Research Analyst]

Okay. Great. And just if you can help us sort of decide for what RAL sales amounted to? Or if you can specify the gross margin of your morphology analyzers ex RAL, what those numbers were?

[Magnus Blixt, CFO & Acting CEO]

Yes. I can give some hints on that. In the report, we have one table that is reconciling sales. And in there, there is a product group called Reagents. Reagent is the largest part of RAL sales, almost 90% or in that area. So by following that, in the reports, you can get a good sense of the development. And what was the other question?

[Ulrik Trattner, Research Analyst]

It was...

[Magnus Blixt, CFO & Acting CEO]

Gross margin development for the rest of the assortment. The rest of the assortment is quite stable, actually, when it comes to gross margins. You can see smaller swings. And I would say, if you follow currency effects because we have the sales in euro and dollar and most of the costs are in Swedish kroner, there is some leakage, like computer components and optics. We buy them in kroner, but there is a leakage from U.S. dollars into the kroner with a bit of delay. So by following -- I would say, by following the exchange rates, you can follow the old gross margin development quite well.

[Ulrik Trattner, Research Analyst]

Okay. Great. So just to be clear, a good talk is that 10% of our system sales is actually RAL systems as well, capital goods.

[Magnus Blixt, CFO & Acting CEO]

There is a bit of RAL systems that are being sold in the numbers. But it's quite small numbers so far.

[Operator]

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

[Felix Wienen]

Magnus, a couple of questions, please. The first one would be if you could add some more detail to the comment around the tenders in Europe and whether these have translated into revenue already as it sounds in the fourth quarter, or whether these have been orders and probably how they phase through the year, if you could add? That's the first question.

[Magnus Blixt, CFO & Acting CEO]

Yes. Yes, a few -- I mean, part of this is actually that we tie to tender. So I wouldn't say that it's extraordinary or onetime effect but we could pinpoint that a few of them probably fell into the Q4 period. And it was related to sales in Italy and sales in Germany and a bit in the U.K., a little bit of a mix there. And we think that, that helped the sales a little bit for the European region in Q4. And we have a volatile business. So it's not unusual that you see swings between quarters. And -- but we just highlighted that in the report because during the circumstances and the pretty tough conditions that we see during that second wave of COVID in Europe right now, we thought it was appropriate to highlight that in the report.

[Felix Wienen]

Sure. The other question also comes back to R&D and capitalized R&D. Just for me to understand it better, does this increased capitalized R&D relate to -- still to the DC-1 development or to other new projects? And if it's to new projects, if you could give some more detail around the type of project. I think in the past, we discussed about malaria or bone marrow analysis. So just some more detail will be fantastic and how you're getting ahead on these.

[Magnus Blixt, CFO & Acting CEO]

Yes. The DC-1 is now launched in all markets, except on the Chinese market. And as soon as our products are commercial in a market, all cost after that is expense. That's our accounting procedures to have it that way. And I think that's pretty much standard. So the capitalized R&D is related to new developments. And it's -- it's both hardware and new platforms, new more modern instrument platforms. And then it's related to software that you can load on the platforms and other -- yes, other software developments that are needed to have a competitive offering. You mentioned a few specific one there. I won't do that because we're not usually not disclosing the pipeline of product development because it's sometimes an iterative process to move forward, and there could be reprioritization, sorry, over the period. So we prefer not to comment on the specific ones. But a large part of it is related to platforms for future instruments, I would say.

[Felix Wienen]

That's fine. And then 2 more quick questions. The next one on leverage, please. Just -- I don't have the numbers in front of me right now, where does net debt-to-EBITDA stand now. And where do you expect this to be at the end of 2021?

[Magnus Blixt, CFO & Acting CEO]

The leverage, sorry. Can you repeat that, please?

[Felix Wienen]

Sure. On leverage, is the question -- the first point would be on net debt to EBITDA, where that stands at the moment, just because I don't have the numbers in front of me right now? And where do you expect that to end the year for the year 2021, where do you expect net debt-to-EBITDA then?

[Magnus Blixt, CFO & Acting CEO]

Yes -- in front of me. I have to pass on that. I don't have those numbers either in front of me or in my head. So I have to pass on that one. Sorry. But we depreciate over 5 years on the loans that we have. That's the guidance, at least. And the loans are related to acquisition of the RAL that was done in Q4 2019.

[Felix Wienen]

Okay. That's fine. And then last question on RAL. I remember that in past conference calls, we discussed about the competitiveness of the products, and competitors, I think, Merck and others, stepping up and maybe wanting to defend their market share instead of allowing RAL to scale. So just if you could share some anecdotal evidence of how that has developed, how competition has behaved over the last year. I think in a comment, you also mentioned that competition is tough. So just some more color would be fantastic.

[Magnus Blixt, CFO & Acting CEO]

Yes. I think when you look at products like reagents, you should look at the full cost of, not just the cost of the per milliliter or per liter, you should look at the full cost of running your equipment. So there is a part that's quality related. If you get good quality, because that saves time, and there is a part where they could save time in service and maintenance. And then there is, of course, the cost of the products. And if you look at the whole perspective of that -- all those parameters, we believe that the RAL offering is quite competitive, actually. And it has to be proven. It has been proven in Europe, and we think that we can prove it also in other parts of the world. We have some sales in Korea, for example, in APAC, and we are doing evaluations in both North America and in Asia to see if we can convince our partners and our customers that we have the best offering when it comes to this. And because of that protocol, the staining protocol, the process, description of how to use it, I think that's important, too, as a factor; will increase quality and save time in the labs.

[Operator]

[Operator Instructions] We have a question from the line of Carl-Oscar from Berenberg.

[Carl-Oscar Bredengen]

I think most of my questions have already been answered. I just want to tie a little bit back with Ulrik was asking about in terms of the markets going forward. Obviously, I know it's a little bit -- it's a very different situation that we're in. But following on from the Q3 results, the sort of the communication from your end was that we're past the trough. And is this sort of a reiterated statement from your end? Do we think that we'll pass the trough? Or should we expect more severe jumpy quarters going forward?

[Magnus Blixt, CFO & Acting CEO]

Yes, I expect it to be a rocky road still, but I expect to see gradual improvements going forward. And I also think it's a really difficult situation to predict what's going on because I think we are in hands of a lot of external factors when it comes to recovery in the markets and quite closely related to supply and implementation of vaccine programs. So I think we will see great improvements during the first half of this year, but we won't be back to normal activities. That's the hypothesis that we're working from right now, but we don't know if we're right or not, but that's our view right now.

[Operator]

There are no further questions registered. So I hand back to Magnus for any closing remarks.

[Magnus Blixt, CFO & Acting CEO]

All right. Thanks very much for calling in, and thanks for your interest in CellaVision. Next time, the report will be presented is in April. That's going to be our Q1 report, and then you will have a chance to meet Simon Østergaard, our new CEO, who will be presenting at that time. So thank you for now.