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Welcome.
Thanks, Klas.
Go ahead with your presentation, please.
Thank you. So we're going to go -- I'm going to make some initial remarks and we're going to have Ulrika talking about a little bit more details, and I'm going to go do some final and concluding remarks, and then we go into question and answers.
So first, obviously, my name is Göran Malmberg, I'm the CEO. I've been in this position since 2008. And, Ulrika?
Yes, I'm Ulrika Voksepp. I'm the CFO and I joined in January.
Yes. All right. So we jump in. So first, a couple of remarks. I mean we had a slower start in Q1, mainly related to January and February, while March and the beginning of the second quarter has been in line with our expectations. And obviously, this is no larger trends or no other reasons than our normal variability of orders related to our relationship with large medical device companies. So that's what we have here in the first quarter. And obviously, the slower performance in the first 2 months of the quarter also have a direct consequence of overall order intake and net sales, and with a direct consequence on profitability for the quarter.
While we have to say that despite this, we were able to execute on cash flows, we have a positive cash flow for the quarter. But then also need to be -- I need to reiterate the fact that we, as we'll talk about a bit later, we communicated updated financial targets and we are fully confident that we have the ability to continue to deliver on those targets. While we never talk about an individual quarter, we have been able to grow over the last 3, 4, 5 years with a 22%, 23% CAGR. And that's what our financial targets are indicating. So that's sort of introductory remarks.
If you go through some of the business development related highlights from the first quarter. I mean we have worked a lot on the organizational development. We started off with a global company kickoff, which is always a very important event to build out [ churn ] and really reconfirm a direction of what we're doing.
We also have added resources across the organization. I think most significantly, we have implemented a global account structure to more strategically interact with our largest medical device companies. And that's also we have backfilled with more salespeople, both in the U.S. and in Europe. But we also have hired across the company, both in technology and other functions. So that's important to note, that we're really building the organization here for the year, but also for the future.
We have seen a continued positive development. As you know, we had a very strong year last year with a 25% growth on top line. And we're continuing to develop with our larger accounts, building opportunities with these, which is really important to understand. We've also seen -- as you might have noted, we had a slower performance from the U.S. from the softened hospital market generally during 2023, and I would say, especially from U.S.. But we, in the end of last year, we added on new resources and we have continued that in the first quarter here. And we can see that we are already now greatly improved the pipeline even if that doesn't show an actual business in the first quarter. So that's also important to follow going forward here.
We also, partly as a consequence of the acquisition of Biomodex in the fourth quarter last year in the Physical Simulation side, we have had a strong year with about 40% improved business for Physical. And really, this is both from U.S. and Europe. And with the Biomodex acquisition, we have now the ability to produce and deliver physical products, both from U.S. and from U.S. -- sorry, from U.S. and from Europe.
And as we noted in the Q4 report, we got approval for 510(k) for Ankyras, our Spanish precision medicine tool, in the end of last year or the first couple of days of this year. And that's really important for the development of the U.S. business, where we're now building up reference sites and engaging in discussions with the main potential clients in both the U.S. and in Europe. So that's really from a business development point of view.
So we go into the detailed numbers. I mean I'm not intending to go through these in details, we can just conclude that the top line performance is lower due to what I said, lower start January, February, and that had a consequence all the way down to EBITDA and net profit. While as you said, we generated positive cash flow.
So that's sort of my 30,000 feet introduction. So we'll hand over to Ulrika.
Thank you. And we have mentioned a couple of times, Göran mentioned it today and we mentioned at the Capital Markets Day in March, we have a variability in order intake over the quarters and over the years. And therefore, of course, order is actually having a very large impact of that specific quarter. And as Göran mentioned, we had a very slow start at the beginning of the year, especially January, February, and margin beginning of Q2 catching up according to expectation, as Göran said as well.
And what we can see here is that we then obviously look at rolling 12 months because that gives to us a better picture of how we are performing. And if you look at the graph at the right-hand side, you will see that there is an underlying improving trend despite this very slow quarter in Q1 this year. And this slow start is mainly related to the U.S. and the MDI and our VIST product, which is the system solution.
And looking at net sales per region, with the slow start, obviously, net sales is at a lower point than the corresponding quarter last year. So with SEK 45 million, that all gives an effect of the profitability as you will see later on. And already mentioning the Americas being the biggest region for us with a decrease of net sales in 31%. That is really affecting the full year very much. And we need to look at this in the light of the Americas growing extremely good, positive, almost 50% last year for the full year. So we see this as a consequence of that. And again, to highlight, we see the increase at the end of the quarter according to expectations.
Looking at net sales per product area. And maybe some of you remember, we used to term this segmentation based on the hardware/software type of product, now we're looking at the product areas because that makes more sense for us to follow up on how we are looking at the business and our own performance. So here again, we can see it's Mentice VIST, it's system mainly related to the U.S. market, which is affecting the lower net sales for the quarter.
Then going to the order book. Obviously, the order intake is affecting the order book. So looking at the order book compared to the end of last year, we see a decrease of 6%. But looking at the order book in relation to the first quarter in 2023, we had an increase of 16.4%. Of those SEK 147 million, SEK 91 million are really scheduled or estimate for 2024. And with the results from Q1 and the order book, we see that we have a good foundation for the growth going forward.
Just to mention very briefly around annual recurring revenue. As you might know, this is related to the hospital and the health care system. And with a slow start that we had there also last year, we see a small increase -- decrease, sorry, in the recurring revenue.
And to mention briefly on costs and gross margin, I want to start with the gross margin, which is very, very high for the quarter. This is unusually high, so we don't estimate this going forward. And this is because of the product mix, with a bigger share of software sales compared to system sales. And to mention briefly around the other external costs. As you can see, we anticipate around SEK 4 million of the costs to be very specific for this quarter.
And we also have cost of above SEK 2 million related to the valuation unrealized of the -- valuation of the FX hedging that we're doing. And to add to this, we have a couple of temporary consultants while we are recruiting. So going forward, when these recruitments are done, those costs will then end up in personnel costs instead of external costs, as they are right now.
And finally, a comment on cash flow despite the lower start of the year with a lower net sales and with the costs, we still have a positive cash flow from operating activities, even higher than compared to Q1 2023.
Thank you, Ulrika. So just going to go back and comment on the updated financial targets we communicated in our Capital Markets Day back in March, end of March. And I think it's important here to know that we have the ambition to continue to grow at a very high level. We have, as we said, experienced 22%, 23% CAGR over the last 4 or 5 years, and we expect that to continue. So we adjust the financial targets slightly downwards, just to reflect on the -- on our ability to grow. We are obviously a much larger company now compared to 4 or 5 years back. So this is really for us to communicate that we believe we can continue to grow at a very high level.
And with profitability, we are saying that we -- which I will talk about in the next slide, we will continue to invest heavily in technology, but also market development. So that's why we are clarifying, safe to say, that we have a path up to 20% EBITDA within the next 3 years, while we retain the long-term target for EBITDA at 30%. And obviously, the ambition is to continue to improve our efficiency, to generate positive operational cash flow. Hence, we believe we can finance this growth by ourselves.
Yes. So I'm just going to touch on the strategic directions here. I mean we have communicated since the end of '22, how we work on improving efficiency of what we do. We are moving into standard applications. These are just a couple of cornerstones on our strategy that we talked more in detail about during the Capital Markets Day.
One, the first point here holds still true. Our core focus is to expand what we call vertically in the image-guided therapy arena. So add more solutions, expand our solutions. We also have a firm belief that we can continue to develop our core technology around the high-fidelity vascular simulation products and move more into what's relevant for experienced physicians in the daily clinical practice. So that's a big effort that's been for some time, a couple of years.
We also continue to see a very large opportunity on 2 areas. One is to develop a more strategic channel. And the other one is to, as I talked about initially, to really more strategically work together with our larger medical device accounts to really be seen as trusted partners and to be able to expand with them with new solutions for these areas -- for this area.
And then, obviously, we're still always monitoring the market for opportunity for further acquisitions. I mean we have done 7 acquisitions since the start of the company and a handful over the last 4, 5 years. And we will continue to look for that to really make sure we are building the most unique portfolio of products in the space.
So my final slide is really to conclude on where we are. I mean we have a clear confirmation from key opinion leaders and clients and the market generally that we are moving in the right direction, that our products make sense. We can also see that we have a very scattered or, I would say, unstructured competition in the space. We are a clear market leader and we have a lot of opportunities to continue to expand and both gain market share, but also to develop the market. And with that, it's just to say that we are the market leader in the specific space.
So from a business point of view, important to note that, I mean, with the updated financial targets from the Capital Markets Day, we have a confidence in our ability to develop -- to deliver on that, sorry, with, as we see, high level of growth and continuously increasing kind of profitability.
We see opportunities developing in a rapid speed, both on the industry side and the hospital side. So we have a positive view of our future. And I think it's important to see how we invest in the organizational development. The strategic account structure is an important part of that, but also overall, how we develop our organization.
So with that, I am done. And I'll hand over to Klas again for some questions.
Okay. Thank you so much, Göran, and I'm actually stepping in for Rikard Engberg, who's the main analyst of Mentice. So I have some good questions, something from him.
Sure.
But if we could start off with the Q1. And you mentioned during your presentation, that it was quite slow in January, February. I mean if you could give us some further granularity what happened in January and February. Is it possible to...
Do you want me to take it or -- yes?
You can start.
All right. Right. No, as I said, I mean we have a high dependency to our larger accounts. And there's a lot of different reasons why a [ project ] happened in January versus February or March or April. So it's real. And we operate with fairly large individual orders compared to the overall amount. So if we have 2 or 3 orders that move from 1 quarter to another, that's really what we're seeing. So I think it's important, as we said, this is not an underlying trend or a change of demand or a change in the market, this is just the lumpiness or the variability of our business. .
Some shift in the decision process and of the customer or something like that. So...
No. Absolutely not. And we can see that in the in the strong underlying pipeline we have. I mean I think it's a bit -- as Ulrika said, it's a bit of a reaction to 2023 where we had -- U.S. had a fantastic year. I mean with more than 50% increase on order intake, and that's a little bit of a reaction to that. I mean this is mainly U.S. So again, nothing that worries me as well or at least [ now ].
And do you feel as confident in all your markets? Do you see a good customer demand everywhere? Or is there any differences?
No. I mean I think generally, I mean, we have had some macro geopolitical issues in APAC, in Asia, and in China especially, that we've been working with. I mean that's hard to forecast, obviously. So we had a slower 2023, and we're not going to probably be above -- significantly above '22. Now, I'm talking forward-looking, I shouldn't do that. But I mean we are -- we see that there's a solid business in APAC, but a bit softer I would say. Europe is overall strong, and I think it's sort of a better balanced between hospital and industry, and we see good demand on both sides there.
Latin America has also been moving in a good way. We had a decent year last year and we started off this year in a good way, and that's obviously across this South American region. I mean many of the countries there. So that's also positive.
And you had sort of fantastic gross margin in Q1, if you could focus a little bit on that. You touched upon that and told us about the product mix. Obviously, an important factor. But where should we -- if you could put it in a 12-month perspective, perhaps, about the gross margin.
To avoid to make forecasts, I think we should look at the average from last year. Because as I said, the average for Q1 is so extremely affected by the high percentage of software sales, where we have a higher margin. And it's very clear also that we -- that the sales that is missing in Q1 is then related to the system sales with a lower margin. So this is merely a product mix effect. So I think what we saw last year is probably more normal gross margin.
But I mean we -- I mean, if you look historically, I mean we have said that 83.5%, 84%, 85% is probably where we should be. The last 1, 1.5 year, we had slightly higher, but also that's an FX component. Based on that, we maybe have 85%, 86% [ probably in '24 ]. But I still think that's where we should be. And you should know that when we talk COGS, we only relate to hardware. So software is 100% margin. So if we sell...
In that way [indiscernible].
Yes, if we slow -- are slow on systems, then obviously the gross margin [indiscernible] goes through.
Perfect. Perfect. And going a little bit further down in the P&L and from the cost side, I guess the COGS were up slightly in Q1. If you could -- I mean, do you need to invest further in the personnel during -- for the rest of the year? Do you see your -- if you could give some sort of indication how satisfied you are over the current situation?
I think as you mentioned, Göran, we are making investments in the organization and adding resources where we see there is need for growing, because we have the growth ambitions. So therefore -- and as I mentioned, we have temporary consultant recruitments that we are -- both replacements and recruiting going forward. So yes, we need to make sure that we have the organization to meet our targets.
And when we talked about that in the Capital Markets Day that we -- and we obviously had a period where you were lenient on hiring to try to get in balance and get a better productivity per employee, while getting into, say, at end of 2023 and going into '24, that we are investing in the organization again. And that's really across the organization, both technology, sales support and so forth. So yes, so we are adding people during the year.
Okay. Perfect. Perfect. And also a question about the integration of Biomodex, how that is progressing.
Yes, it's very early on now. But I mean, as you said, we started off in a good way. We have we have implemented a production ability in the U.S. for Biomodex. We can produce both our traditional physical products and Biomodex in the U.S. And we have sort of production reestablished in Europe. We are building a business unit. And we have appointed a responsible integrator, so we can integrate the business into one. And eventually, we will also consolidate in the platform.
But I mean, I think it's clear from the customer feedback that there are good, complementary benefits of both those products. I mean some people like the structure and the durability of the products we had on the neuro side or the Physical Sim side and others like the rapid turnaround, I mean, the cost efficiency on the Biomodex. So it's a very nice complement. And it's really also, in a very clear way, consolidating the Physical Sim market. We have very few, we found, competitors left there in that space. So it builds on our strategy, I would say.
And you have done some M&A in the past years. And I mean how is the climate out there right now? Have you seen the stock market getting a little bit stronger and perhaps the sentiment as well. But do you see any changes in the ability to make further acquisitions?
It would be nice to have a little bit more positive view on that. they -- that would make it easier to don't make acquisitions. But -- if I may joke about it a bit. But that -- obviously, that's needed. But I think the ability of the market or to find objects in the market is still pretty good. There is a lot of opportunities in the market for acquisitions.
That sounds very good. And then I would jump to Ankyras, that you have built out and promoted. I guess if you could describe a little bit what -- how the customer reacts.
Well, I mean the ultimate customer is the physicians. And I don't know -- I mean, some of the people in the audience have probably participated or have seen the Capital Markets Day. We had there a physician from Chicago called Dr. Demetrius Lopes that presented how he's using Ankyras together with all of our products, both the physical and virtual side. And it's really interesting to see how important Ankyras is to add to the confidence of a physician, the ability to take the right decision for the treatment.
And we have both from a physician point of view, but also from our initial clients, a very clear move to simulate on every single case. I mean rather than, if you go back a year or so we talked about it, "Oh, maybe I'd just do it with the more complex cases." But the findings so far has been that the value of doing that simulation, spending 10, 15 minutes on Ankyras before you do the case and be confident to pick the right size, it's -- it brings so much value. So several of the clients that maybe was a little bit skeptical initially, "Why would I spend spent 15 minutes on this?" And now say, "Absolutely. I will do it on every single case because it makes me confident to make the right decision."
And the consequence of making the wrong decision or picking the wrong size device is that you have to readmit the patient and review the procedure. So we see a lot of opportunities there. And it's really again, builds very good to our overall story, how everything links kind of together in a complete portfolio. If that makes sense, yes?
Okay. Yes, that makes sense. And so we should expect perhaps a little bit order intake during the year?
That would be nice. That would be nice. I mean Rome was not built in 1 day, as they usually say, but absolutely.
And how important is Ankyras to reach your financial targets, especially when it comes to the growth targets?
I mean it's more, I think, on the messaging and the completeness of our portfolio and completeness of a story. There, I think, Ankyras is very important. And the view of us to be able to move into other specialties going from neuro to structural heart to other places, I think it's very important that we are succeeding there. But from a direct revenue impact, Ankyras is still fairly small. That market is a fraction of our total business.
But you feel confident that you can reach the growth targets for perhaps order in 2024?
Can I answer that?
Yes, you can.
Yes.
Perfect. Perfect. That's very good. And my last question at least is that you had a nice order from a medtech company recently, almost $800,000. If you could give us some color to that, perhaps.
Yes. We have a part of the medtech business that is really moving very nicely. Obviously, we can't -- or unfortunately, we can't talk about the client. But this is an additional development order to develop a new version of one of these softwares for this clients, and that will generate license revenue for the entire installed base of that. And this client is now between 60 and 80 systems and moving very rapidly up on more systems. So every new application we add would add software sales to every system we have sold. So it's very important to building the footprint with this client. And it's a very nice relationship. And there's a lot of opportunities around -- both at specialty, but also with the specific client. So more to come there.
Sounds very good. I'm very satisfied with my question at least, and I'm looking forward to see the following reports from you during the year. I don't -- if you want to say anything, any final words or something like that? Or we just should end it?
No. I think we are excited about what we're doing and excited about the opportunity. So we will continue pushing for what we want to accomplish. So thanks. Thanks for this, Klas.
Sounds very good. Thank you so much, and thank you all for listening in.