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RaySearch Laboratories
Interim / Quarterly Report • Nov 14, 2019
3101_10-q_2019-11-14_b9b4d7bc-10f5-4ab1-9ca3-86e92e1d86b9.pdf
Interim / Quarterly Report
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INTERIM REPORT JANUARY 1-SEPTEMBER 30, 2019
"Following a record first half year, sales weakened in the third quarter. However, the market situation and demand for our products remain favorable and we have confidence in our strategy"
Johan Löf, CEO of RaySearch. Comments on page 2.
THIRD QUARTER (JULY-SEPTEMBER 2019)
- Net sales SEK 144.3 M (150.5)
- Result after tax SEK -7.5 M (13.5) and earnings per share before/after dilution SEK -0.22 (0.39)
- Operating result SEK -6.3 M (12.4)
- Cash flow SEK -13.5 M (-17.0)
- Order intake SEK 196.8 M (175.7)
NINE MONTHS (JANUARY-SEPTEMBER 2019)
- Net sales SEK 507.1 M (407.8)
- Profit after tax SEK 31.5 M (45.9) and earnings per share before/after dilution SEK 0.92 (1.34)
- Operating profit SEK 45.7 M (52.8)
- Cash flow SEK -11.2 M (-54.9)
- Order intake SEK 769.0 M (510.3)
- Order backlog SEK 1,124.7 M (740.4) at the end of the period
SIGNIFICANT EVENTS DURING THE THIRD QUARTER
- The RayStation® treatment planning system was chosen by several leading cancer centers, including UC Davis Medical Center in the US, Centre d'Oncologie Saint Vincent and Centre de Cancérologie les Dentellières in France and Nagoya City West Medical Center in Japan. In addition, Emory Proton Therapy Center in the US expanded its existing installation.
- RayCare 3A*, the latest version of RaySearch's oncology information system, was released in July.
- RaySearch and Vision RT announced a strategic development partnership.
- A ten-year rental lease was signed for a new head office in Stockholm with commencement in the third quarter of 2021.
SIGNIFICANT EVENTS AFTER THE END OF THE REPORTING PERIOD
• RaySearch received new regulatory market clearance for RayStation in China.
FINANCIAL SUMMARY
| AMOUNTS IN SEK 000s | JUL-SEP JAN-SEP |
OCT 2018- | FULL-YEAR | |||
|---|---|---|---|---|---|---|
| 20191 | 20182 | 20191 | 20182 | SEP 20193 | 20182 | |
| Net sales | 144,349 | 150,479 | 507,085 | 407,775 | 726,528 | 627,218 |
| Operating profit/loss | -6,345 | 12,421 | 45,701 | 52,787 | 87,374 | 94,460 |
| Operating margin, % | -4.4 | 8.3 | 9.0 | 12.9 | 12.0 | 15.1 |
| Profit/loss for the period | -7,525 | 13,500 | 31,474 | 45,874 | 64,123 | 78,523 |
| Earnings/loss per share before/after dilution, SEK |
-0.22 | 0.39 | 0.92 | 1.34 | 1.87 | 2.29 |
| Cash flow from operating activities | 51,761 | -12,883 | 239,006 | 57,858 | 359,621 | 178,472 |
| Cash flow for the period | -13,475 | -17,031 | -11,162 | -54,952 | 45,595 | 1,805 |
| Return on equity, % | -1.1 | 2.4 | 4.8 | 8.1 | 9.7 | 12.7 |
| Equity/assets ratio at the end of the period, % |
55.6 | 59.9 | 55.6 | 59.9 | 55.6 | 59.5 |
| Share price at the end of the period, SEK | 160.7 | 122.3 | 160.7 | 122.3 | 160.7 | 96.5 |
1 IFRS 16 compliance. 2 IAS 17 compliance. 3 IFRS 16 compliance from 2019, and IAS 17 compliance in prior periods.
* Regulatory clearance is required in some markets.
CEO COMMENTS
WEAKER LICENSE SALES IN THE THIRD QUARTER
After a record first half year, license sales became weaker in the third quarter. More support agreements contributed to an increase in total order intake of 12 percent to SEK 197 (177) million, but net sales decreased by 4 percent to SEK 144 (150) million and operating profit decreased to SEK -6 (12) million. Operating profit was affected by positive currency translation effects and adjusted for this, operating profit had decreased to SEK -26 M (18).
A LONGER PERSPECTIVE
We are in a market with uneven order flows where individual large transactions can have significant effects on revenue recognition between quarters and therefore a longer perspective on our operations should be taken. For example, during the first nine months order bookings increased by 51 percent to SEK 769 (510) million and net sales increased by 24 percent to SEK 507 (408). This gives a brighter and more accurate picture than the last quarter.
In addition, we can note that we report revenue less than 66 percent of our total order intake during the period (see the graph). Operating profit decreased to SEK 46 M (53), but our cash flow adjusted for amortization of bank loans increased to SEK 64 M (-95). This shows that our strategy is working and that RaySearch's innovative software solutions for improved cancer treatment are continuously gaining new ground.
CONTINUING SUCCESS WITH WORLD-LEADING CLINICS
In 2019, RaySearch continued to reap great success among several of the world's leading cancer clinics. For example, 11 of the 20 highestranked cancer clinics in the United States have purchased RayStation. Several of our largest customers, including Princess Margaret Cancer Center, MD Anderson, Moffitt Cancer Center, University of Washington Medical Center and Massachusetts General Hospital, have also decided to gradually replace all existing treatment planning systems and use RayStation alone. During the third quarter, for example, we received a large supplement order from the Emory Proton Therapy Center.
ORDER INTAKE & RECOGNIZED REVENUE
This clearly shows the potential in what we do, both that our innovative software solutions can streamline workflows in clinical environments and improve treatment outcomes for cancer patients. It also shows what
business opportunities RaySearch has with its product portfolio and significant additional sales to existing customers.
In October we also received a new regulatory clearance for RayStation from the Chinese authority NMPA (formerly CFDA). RayStation is designed to support many different types of treatment machines and stands out in both efficiency and performance. Therefore, RayStation is very well suited for the Chinese market.
CHALLENGE TO ALSO REACH THE SMALL CLINICS
One of our challenges is reaching more small clinics. Since these have different conditions and needs than the largest clinics, we have developed a special strategy that makes it easier for them to move to RayStation. To succeed, products of the highest class are required, which we have, but also a large market organization and patience, since the sales cycles are long in our industry. This requires large investments in both development and market organizations, which leads to squeezed margins in the short term, but it is an investment that is expected to provide better growth and profitability in the longer term.
As a result of our efforts, we have noted a growing interest in many small clinics over the past two quarters, which is very promising.
THE DEVELOPMENT OF RAYCARE CONTINUES ACCORDING TO PLAN
RaySearch has always been a company in constant development and that applies even more now. A new chapter commenced when RayCare, our innovative oncology information system was put into clinical use for the first time just over a year ago, and more clinics are expected to follow in the coming year.
Our development work also continues at full strength. Already today, RayStation and RayCare are the market's leading systems for simplifying and streamlining the very complex operations conducted at a cancer clinic. We are determined to increase this lead.
Stockholm, November 14, 2019
Johan Löf CEO RaySearch Laboratories AB (publ)
FINANCIAL INFORMATION
ORDER INTAKE
In the third quarter of 2019, order intake rose 12.0 percent year-on-year to SEK 196.8 M (175.7). License order intake was relatively weak in the quarter following a very strong first half of the year. However, this was offset by a rise in order intake for support agreements.
| Rolling | Full-year | ||||||
|---|---|---|---|---|---|---|---|
| Order intake (amounts in SEK M) | Q3-19 | Q2-19 | Q1-19 | Q4-18 | Q3-18 | 12 months | 2018 |
| Licenses | 87.2 | 197.0 | 101.7 | 197.4 | 105.6 | 583.2 | 508.0 |
| Hardware | 20.8 | 15.6 | 24.2 | 16.5 | 19.6 | 77.1 | 62.6 |
| Support (incl. warranty support) | 83.0 | 147.7 | 70.9 | 73.5 | 45.9 | 374.6 | 213.2 |
| Training and other | 5.8 | 10.3 | 4.9 | 8.0 | 4.6 | 28.9 | 21.4 |
| Total order intake | 196.8 | 370.6 | 201.6 | 294.9 | 175.7 | 1,063.9 | 805.2 |
| Order backlog (amounts in SEK M) | Q3-19 | Q2-19 | Q1-19 | Q4-18 | Q3-18 | ||
| Licenses | 147.1 | 139.1 | 74.9 | 69.9 | 30.8 | ||
| Hardware | 44.3 | 28.7 | 27.0 | 32.7 | 34.7 | ||
| Support (incl. warranty support) | 892.7 | 837.3 | 742.5 | 697.3 | 652.8 | ||
| Training and other | 40.6 | 38.0 | 32.5 | 28.1 | 22.1 | ||
| Total order backlog at the end of the period | 1,124.7 | 1,043.1 | 876.9 | 828.0 | 740.4 |
In the first nine months of 2019, order intake rose 50.7 percent to SEK 769.0 M (510.3). License order intake rose 24.2 percent to SEK 385.9 M (310.7) and order intake for support agreements rose 115.3 percent to SEK 301.6 M (140.1).
At September 30, 2019, the total order backlog amounted to SEK 1,125 M (740.4), which is expected to generate revenue of approximately SEK 380 M over the next 12 months.
The reported order intake and order backlog do not include the order totaling SEK 127 M from MedAustron International GmbH, secured in the second quarter of 2019, for sub-licensing to a cancer center in Iran. RaySearch intends to work with the order, but due to the prevailing sanctions, compliance and business risks related to projects involving this specific country, it is currently difficult to predict when revenues can be recognized.
REVENUE
In the third quarter of 2019, net sales declined 4.1 percent to SEK 144.3 M (150.5). The decrease was mainly due to weak license sales and a drop in hardware revenue. The organic change in sales amounted to SEK -8.4 percent (27.5).
Recurring support revenue rose sharply, however, as a result of a larger installed customer base and positive currency effects. The application of IFRS 15 Revenue from Contracts with Customers from January 1, 2018 temporarily reduced the company's revenue recognition in 2018 and accounts for almost half of the increase in support revenue from RayStation during the third quarter compared with the year-earlier period.
| Rolling 12 | Full-year | ||||||
|---|---|---|---|---|---|---|---|
| Revenue (amounts in SEK M) | Q3-19 | Q2-19 | Q1-19 | Q4-18 | Q3-18 | months | 2018 |
| License revenue – RayStation/RayCare | 76.2 | 115.4 | 92.3 | 147.3 | 89.4 | 431.2 | 411.5 |
| License revenue – Partners | 5.3 | 8.2 | 6.9 | 10.6 | 9.8 | 31.0 | 38.8 |
| Hardware revenue | 6.9 | 13.2 | 30.0 | 18.6 | 16.7 | 68.7 | 53.6 |
| Support revenue – RayStation/RayCare | 48.6 | 45.2 | 38.6 | 37.5 | 28.8 | 169.9 | 104.4 |
| Support revenue – Partners | 3.0 | 2.9 | 3.1 | 2.6 | 2.8 | 11.6 | 10.9 |
| Training and other revenue – RayStation | 4.4 | 4.7 | 2.2 | 2.8 | 2.9 | 14.1 | 7.9 |
| Net sales | 144.3 | 189.7 | 173.1 | 219.4 | 150.5 | 726.5 | 627.2 |
| Sales change, corresp. period, % | -4.0% | 34.5% | 48.9% | 7.1% | 34.7% | 18.5% | 7.2% |
| Organic sales change, corresp. period, % | -8.4% | 27.7% | 41.9% | 4.3% | 27.5% | 14.2% | 5.8% |
In the first nine months, net sales rose 24.4 percent to SEK 507.1 M (407.8). The improvement was mainly due to higher support revenue for RayStation/RayCare, increased hardware sales and positive currency effects. Organic sales growth was
20.0 per cent (6.8), and reported net sales accounted for 66 percent (80) of total order intake in the first nine months of the year.
During the nine-month period, net sales had the following geographic distribution: North America, 41 percent (44); Asia, 17 percent (12); Europe and the rest of the world, 42 percent (44).
License revenue for RayStation and RayCare rose 7 percent to SEK 283.9 M (264.2). Recurring support revenue rose 88 percent to SEK 141.5 M (75.1), representing 28 percent (18) of net sales in the first nine-month period. Hardware sales, which have a limited profit margin, rose 43 percent to SEK 50.1 M (35.0). Excluding hardware sales, sales rose 18 percent.
Revenue from sales of software modules via partners declined 28 percent to SEK 20.4 M (28.2), representing 4 percent (7) of net sales for the first nine months of the year.
OPERATING RESULT
In the third quarter of 2019, the operating result declined to a loss of SEK -6.3 M (profit: 12.4), representing an operating margin of -4.4 percent (8.3). The deterioration in earnings is mainly due to weak license sales for RayStation in the US and Europe and rising operating expenses.
In the third quarter, operating expenses increased 9.2 percent to SEK 150.7 M (138.1). This was largely due to the increase in number of employees, but also higher costs for premises and depreciation, and that the ASTRO Annual Meeting was held in the third quarter of 2019 compared with the fourth quarter in the preceding year.
Due to the application of IFRS 16 Leases on January 1, 2019, the operating result was impacted by a reduction in operating lease charges and an increase in depreciation. In the third quarter of 2019, IFRS 16 had a positive impact of SEK 0.7 M on the operating result.
Other operating income and expenses pertain to exchange-rate gains and losses. In the third quarter 2019, the net of these exchange-rate gains and losses amounted to SEK 19.8 M (-6.0) since a large proportion of the Group's receivables are denominated in USD and EUR, which strengthened against the SEK in the third quarter compared with the end of the second quarter. Adjusted for the effects of these currency translations, the operating result for the third quarter of 2019 would have amounted to SEK -26.1 M (profit: 18.4) and operating expenses would have risen by 29.0 percent.
During the first nine months, operating profit declined to SEK 45.7 M (52.8), representing an operating margin of 9.0 percent (12.9).
Currency effects
The company is impacted by USD and EUR to SEK exchange-rate trends, since the majority of sales are invoiced in USD and EUR, while most costs are in SEK.
At unchanged exchange rates, the change in organic sales was -8.4 percent in the third quarter of 2019, compared with the year-earlier period. In addition, the company also had exchange-rate gains of SEK 19.8 M (-6.0) for balance sheet items in the third quarter. Currency effects therefore had a highly positive impact on net sales and operating profit in the third quarter 2019.
A sensitivity analysis of the company's currency exposure shows that a 1-percentage point change in the USD exchange rate against the SEK would have impacted consolidated operating profit by approximately +/- SEK 3.0 M in the third quarter of 2019, while a corresponding change in the EUR exchange rate would have impacted consolidated operating profit by approximately +/- SEK 1.5 M.
The company follows the financial policy established by the Board, whereby exchange-rate fluctuations are not hedged.
Capitalization of development costs
RaySearch is a research and development-oriented company that makes significant investments in the development of various software solutions for improved cancer treatment. At September 30, 2019, some 188 employees (149) were engaged in research and development, corresponding to 52 percent (51) of the total number of employees.
| Capitalization of development costs | Q3-19 | Q2-19 | Q1-19 | Q4-18 | Q3-18 | Rolling 12 months |
Full-year 2018 |
|---|---|---|---|---|---|---|---|
| Research and development costs | 52.0 | 56.2 | 50.3 | 55.4 | 42.8 | 213.9 | 202.0 |
| Capitalization of development costs | -36.5 | -40.0 | -38.2 | -40.5 | -31.5 | -155.2 | -149.9 |
| Amortization of capitalized development costs | 29.9 | 27.2 | 26.8 | 25.5 | 25.0 | 109.4 | 95.6 |
| Research and development costs after adjustments for capitalization and amortization of development |
45.4 | 43.4 | 39.0 | 40.4 | 36.3 | 168.1 | 147.7 |
| costs |
In the first nine months of 2019, research and development costs rose 8.1 percent to SEK 158.5 M (146.6), corresponding to 31 percent (36) of the company's net sales. The improvement was mainly due to more developers for RayCare.
Development costs of SEK 114.7 M (109.4) were capitalized, corresponding to 72 percent (75) of total research and development costs.
Amortization of capitalized development costs rose 19.7 percent to SEK 83.9 M (70.1), and the increase was due to the expansion of development activities for RayStation and RayCare.
After adjustments for capitalization and amortization of development costs, research and development costs rose 19.1 percent to SEK 127.8 M (107.3).
Amortization and depreciation
In the third quarter of 2019, total amortization and depreciation increased 59.6 percent to SEK 47.6 M (29.8), of which amortization of intangible fixed assets accounted for SEK 30.0 M (25.1), mainly related to capitalized development costs. Depreciation of tangible fixed assets increased to SEK 17.7 M (4.7), primarily due to the company's investments in new offices in North America, but also the application of IFRS 16, refer to Notes 1-2.
In the nine-month period, total amortization and depreciation amounted to SEK 134.6 M (82.8), of which amortization of intangible fixed assets totaled SEK 84.0 M (70.1), primarily related to capitalized development costs. Depreciation of tangible fixed assets amounted to SEK 50.6 M (12.7).
PROFIT/LOSS AND EARNINGS PER SHARE
In the third quarter of 2019, the result after tax totaled SEK -7.5 M (13.5), representing earnings per share before and after dilution of SEK -0.22 (0.39). In the first nine months of 2019, profit after tax totaled SEK 31.5 M (45.9), representing earnings per share of SEK 0.92 (1.34) before and after dilution.
Tax expense for the first nine months of the year amounted to SEK -10.5 M (-5.2), corresponding to an effective tax rate of 25.1 percent (10.1).
CASH FLOW AND LIQUIDITY
In the third quarter of 2019, cash flow from operating activities amounted to SEK 51.8 M (-12.9). The improvement was primarily due to a decrease in operating receivables as a result of higher payments from customers, while operating liabilities have risen in line with the expansion of operations. The increase in non-cash items was also due to leases being recognized as depreciation in accordance with IFRS 16 this year, whereas they were recognized in operating activities in the preceding period.
Working capital mainly comprises various types of customer receivables, such as accounts receivable and current and long-term unbilled customer receivables in instances where payment plans exist.
During the first nine months of the year, cash flow from operating activities was SEK 239.0 M (57.9).
At the end of the period, the company's total customer receivables accounted for 53 percent (81) of net sales over the past 12 months, and working capital for 20 percent (55) of net sales during the same period. The decline was mainly due to higher payments from customers.
Our payment model
A typical transaction for RaySearch involves various performance obligations, such as the delivery of licenses, hardware, support and training.
When RaySearch has fulfilled its performance obligation to a customer, for example, delivered licenses, and an unconditional right to consideration exists, a revenue and corresponding receivable are recognized.
A number of payment alternatives are subsequently available:
- Payment within an invoice period of 30 or 60 days from delivery.
- Payment over a certain period, normally 6 to 12 months from delivery.
In the vast majority of cases, payment is received for hardware and support within 30 to 60 days. However, RaySearch has a high proportion of new customers and it is common that new customers require up to 12 months to acquire and install separate IT infrastructure to gain maximum performance from our software. Accordingly, many new customers opt for a payment plan for our licenses, resulting in a subsequent delay in RaySearch invoicing the customer and receiving payment.
Irrespective of the payment model, a revenue and its corresponding receivable are recognized when the company has fulfilled its performance obligation. RaySearch has three types of customer receivables: Accounts receivable (current billed customer receivables) and, in the event of a payment plan, Current and Long-term unbilled customer receivables.
The increase in unbilled customer receivables over the past year was the result of more agreements with payment plans, primarily in North America. RaySearch assesses that the credit risk is low since the customers are institutions with high credit ratings.
The business model is tried, tested and effective. RaySearch's total credit losses (confirmed and probable) only amount
In the third quarter, cash flow from investing activities was SEK -48.6 M (-43.2). Investments in intangible fixed assets amounted to SEK -36.8 M (-31.5), comprising capitalized development costs for RayStation, RayCare and RayCommand. Investments in tangible fixed assets amounted to SEK -11.7 M (-11.7), mainly comprising investments in the company's new offices in North America and computers. to 0.5 percent of total sales since the start in 2000.
During the first nine months, cash flow from investing activities was SEK -151.1 M (-150.4). Investments in intangible fixed assets amounted to SEK -115.1 M (-109.4), comprising capitalized development costs. Investments in tangible fixed assets amounted to SEK -36.0 M (-41.0).
Cash flow from financing activities was SEK -16.7 M (39.2) in the third quarter of 2019. In the nine-month period, cash flow from financing activities was SEK -99.1 M (37.6), primarily as a result of repayment of SEK 75 M of the company's revolving loan facility, and long-term lease payments paid in accordance with IFRS 16.
Cash flow for the period was SEK -13.5 M (-17.0) in the third quarter and SEK -11.2 M (-55.0) for the first nine months of 2019. At September 30, 2019, consolidated cash and cash equivalents was SEK 107.5 M (52.9).
FINANCIAL POSITION
At September 30, 2019, RaySearch's total assets amounted to SEK 1,253 M (1,043) and the equity/assets ratio was 55.6 percent (59.9).
IFRS 16 Leases has been applied since January 1, 2019, which increases the company's total assets. Without application of the new accounting policies, the equity/assets ratio would have been 62.2 percent.
Current receivables amounted to SEK 445.6 M (547.1). The receivables mainly comprised various types of customer receivables, and the decrease despite high sales growth, was primarily due to an rise in payments from customers.
In the third quarter of 2019, the company signed a ten-year rental lease for a new head office in Stockholm with commencement in the third quarter of 2021.
In 2017, the company's line of credit was increased from SEK 100 M to SEK 350 M. The credit line expires in May 2022 and comprises a revolving loan facility of up to SEK 300 M, and an overdraft facility of SEK 50 M. Chattel mortgages amounted to SEK 100 M. At September 30, 2019, a short-term loan of SEK 49 M (74) was raised under the company's revolving loan facility and SEK 0 M (39.9) of the credit facility had been drawn.
At September 30, 2019, the Group's net debt totaled SEK 78.0 M (69.1). IFRS 16 Leases has been applied since January 1, 2019, which increases the company's net debt, mainly because the remaining lease commitments are recognized as liabilities on the balance sheet. Without application of the new accounting policies, net debt would have amounted to SEK -58.0 M, refer to Note 2.
EMPLOYEES
In the January-September period of 2019, the average number of employees in the Group was 317 (278). At the end of the third quarter, the Group had 360 (294) employees, of whom 268 (222) were based in Sweden, and 92 (72) in foreign subsidiaries.
PARENT COMPANY
RaySearch Laboratories AB (publ) is the Parent Company of the RaySearch Group. Since the Parent Company's operations are consistent with the Group's operations in all material respects, the comments for the Group are also largely relevant for the Parent Company.
Differences in profitability between the Parent Company and the Group are attributable to the Parent Company accounting for a relatively high proportion of operating expenses, and to the capitalization of development costs being recognized in the Group but not in the Parent Company. The Parent Company was also not affected by the changes under IFRS 16, and instead continues to recognize lease charges on a straight-line basis over the period of contract. This reduces operating profit compared with if IFRS 16 had been applied.
The Parent Company's current receivables mainly comprise receivables from Group companies and external customers.
SIGNIFICANT EVENTS DURING THE PERIOD
RayStation selected by several leading cancer centers
In 2019, the RayStation® treatment planning system was chosen by several leading cancer centers, including Moffitt Cancer Center and Loma Linda University Medical Center, Oklahoma Proton Center, UC Davis Medical Center and Hoag Memorial Hospital in the US, Genolier Clinic (part of the Swiss Medical Network) in Switzerland, AKH Vienna/Medical University of Vienna in Austria, Velindre Cancer Center and Cambridge University Hospitals in the UK, Universitätsklinikum Düsseldorf in Germany, Centre d'Oncologie Saint Vincent and Centre de Cancérologie les Dentellières in France, Nagoya City West Medical Center in Japan, and Proton Therapy Center Czech in the Czech Republic. In addition, Georgia Proton Treatment Center in the US expanded its existing installation.
Expanded collaboration with Mevion
RaySearch and Mevion Medical Systems extended their strategic collaboration to further advance capabilities of Mevion's HYPERSCAN® proton therapy system and the unique Adaptive Aperture® proton multi-leaf collimator (pMLC) in the treatment planning system RayStation.
RayCare selected by several leading cancer centers
In 2019, both Genolier Clinic (part of the Swiss Medical Network) and MedAustron chose RayCare as their oncology information system (OIS). This means that RaySearch has to date received eight commercial orders for RayCare, three of which were secured in 2019.
Further orders for RayCommand
In June 2019, MedAustron selected RayCommand as its treatment control system. RaySearch had previously received its first order for RayCommand from Advanced Oncotherapy (AVO) in the UK in 2018. RayCommand is under development and launch is preliminarily scheduled for the second half of 2020.
RayStation 9A released
In June 2019, RayStation 9A, the latest version of RaySearch's treatment planning system, was released in June with greater support for additional machines and treatment techniques, as well as enhancements in the integration with RayCare.
FDA clearance for machine learning applications
In June 2019, RaySearch received FDA clearance for RayStation 8B, which includes the first machine learning applications in a treatment planning system on the market.
RayCare 3A released
RayCare 3A, the latest version of RaySearch's oncology information system containing several new functions, was released in July 2019, as was the RayCare Flow feature package that is designed to improve resource management, increase efficiency of treatment planning workflow and automate image management.
Long-term development partnership with Vision RT
RaySearch and Vision RT, a leader in Surface Guided Radiation Therapy (SGRT), have entered into a long-term development partnership, whose aims include developing interfaces and functions to ensure seamless workflows between the companies' respective products.
SIGNIFICANT EVENTS AFTER THE END OF THE REPORTING PERIOD
New regulatory clearance for RayStation in China
In October, RaySearch received a new regulatory clearance from the Chinese authorities NMPA (previously CFDA) for the treatment planning system RayStation.
THE COMPANY'S SHARE
At September 30, 2019, the total number of registered shares in RaySearch was 34,282,773, of which 8,454,975 were Class A and 25,827,798 Class B shares. The quotient value is SEK 0.50 and the company's share capital amounts to SEK 17,141,386.50. Each Class A share entitles the holder to ten votes, and each Class B share to one vote, at a general meeting. At September 30, 2019, the total number of voting rights in RaySearch was 110,377,548.
SHARE OWNERSHIP
At September 30, 2019, the number of shareholders in RaySearch was 6,943, according to Euroclear, and the largest shareholders were as follows:
| Class A | Class B | Share | |||
|---|---|---|---|---|---|
| Name | shares | shares | Total shares | capital, % | Votes, % |
| Johan Löf | 6,243,084 | 418,393 | 6,661,477 | 19.4 | 56.9 |
| Oppenheimer Funds | 0 | 4,346,433 | 4,346,433 | 12.7 | 3.9 |
| Swedbank Robur Funds | 0 | 2,100,000 | 2,100,000 | 6.1 | 1.9 |
| First AP Fund | 0 | 1,982,448 | 1,982,448 | 5.8 | 1.8 |
| Wasatch Advisors | 0 | 1,535,000 | 1,535,000 | 4.5 | 1.4 |
| Anders Brahme | 1,150,161 | 200,000 | 1,350,161 | 3.9 | 10.6 |
| Carl Filip Bergendal | 1,061,577 | 139,920 | 1,201,497 | 3.5 | 9.7 |
| Montanaro Funds | 0 | 1,045,000 | 1,045,000 | 3.0 | 0.9 |
| La Financière de l'Echiquier | 0 | 1,037,000 | 1,037,000 | 3.0 | 0.9 |
| Nordnet Pension | 0 | 1,013,386 | 1,013,386 | 3.0 | 0.9 |
| Total, 10 largest shareholders | 8,454,822 | 13,817,580 | 22,272,402 | 65.0 | 89.1 |
| Others | 153 | 12,010,218 | 12,010,371 | 35.0 | 10.9 |
| Total | 8,454,975 | 25,827,798 | 34,282,773 | 100.0 | 100.0 |
Source: Euroclear, FI, MorningStar and Montanaro.
OTHER INFORMATION
2020 ANNUAL GENERAL MEETING
The Annual General Meeting (AGM) of RaySearch Laboratories AB (publ) will be held on Tuesday, May 19, 2020 at 6:00 p.m. at the company's office on Sveavägen 44, Stockholm, Sweden. Shareholders wishing to have a matter addressed at the AGM must submit a written request to the Board of Directors. Such a request must normally have been received by the Board of Directors not later than seven (7) weeks prior to the AGM.
RISKS AND UNCERTAINTIES
As a global Group with operations in different parts of the world, RaySearch is exposed to various risks and uncertainties, such as market risk, business risk, compliance risk, operational risk and financial risk. RaySearch's risk management aims to identify, measure and reduce risks related to the Group's transactions and operations. No significant changes have been made to the risk assessment compared with the 2018 Annual Report. For more information about risks and risk management, refer to pages 9-10 and 36-38 of RaySearch's 2018 Annual Report.
SEASONAL VARIATIONS
RaySearch's operations are somewhat characterized by seasonal variations that are typical for the industry, whereby the fourth quarter is normally the strongest – mainly because many customers have budgets that follow the calendar year.
ENVIRONMENT AND SUSTAINABILITY
Sustainability is a key aspect of RaySearch's strategy and operations, and the company is working actively to become a sustainable enterprise. The primary aim of RaySearch's operations is to help cancer centers improve and save the lives of cancer patients. With our innovative software solutions, we are continuously striving to improve and streamline workflows in clinical environments and to improve treatment outcomes for cancer patients. The customer value we create presents business opportunities for RaySearch, but also major social benefit and economic gains.
The negative environmental impact of the company's products is limited. The company's environmental impact is mainly related to the purchase of goods and services, energy use and transportation. RaySearch aims to contribute to sustainable development and therefore works actively to improve the company's environmental performance wherever this is economically reasonable.
Stockholm, November 14, 2019
Johan Löf CEO and Board member
AUDITOR'S REVIEW REPORT
INTRODUCTION
We have conducted a review of the interim financial information (interim report) for RaySearch Laboratories AB (publ) at September 30, 2019 and for the nine-month period that ended on that date. The Board of Directors and the President are responsible for the preparation and presentation of this interim report in accordance with IAS 34 and the Annual Accounts Act Our responsibility is to express an opinion on this interim report based on our review.
SCOPE OF THE REVIEW
We have conducted our review in accordance with the International Standard on Review Engagements, ISRE 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical audit and other review procedures. A review has a different focus and is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and other generally accepted auditing standards.
The procedures performed in a review do not enable us to obtain a level of assurance that would make us aware of all significant matters that might be identified in an audit. Therefore, the opinion expressed on the basis of a review does not give the same assurance as an opinion expressed on the basis of an audit.
OPINION
Based on our review, nothing has come to our attention that causes us to believe that the interim report is not prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act regarding the Group, and in accordance with the Swedish Annual Accounts Act for the Parent Company.
Stockholm, November 14, 2019
Ernst & Young AB
Anna Svanberg Authorized Public Accountant
FOR FURTHER INFORMATION, PLEASE CONTACT:
| Johan Löf, CEO | Tel: +46 (0)8 510 530 00 | E-mail: [email protected] |
|---|---|---|
| Peter Thysell, CFO | Tel: +46 (0)70 661 05 59 | E-mail: [email protected] |
The information contained in this interim report was submitted for publication on November 14, 2019 at at 7:45 a.m. CET.
TELECONFERENCE IN CONNECTION WITH THE INTERIM REPORT
CEO Johan Löf and CFO Peter Thysell will present RaySearch's interim report for January-September 2019 at a teleconference in English on Thursday, November 14, 2019 at 4:00 p.m. CET.
For login details to the teleconference, please register on: http://emea.directeventreg.com/registration/3036698
FINANCIAL CALENDAR
Year-end report, 2019 February 14, 2020 Interim report for the first quarter, 2020 May 5, 2020 2020 Annual General Meeting May 19, 2020
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME IN SUMMARY
| AMOUNTS IN SEK 000s | JUL-SEP JAN-SEP |
OCT 2018- | FULL-YEAR | |||
|---|---|---|---|---|---|---|
| Note | 20191 | 20182 | 20191 | 20182 | SEP 20193 | 20182 |
| Net sales 2.3 |
144,349 | 150,479 | 507,085 | 407,775 | 726,528 | 627,218 |
| Cost of goods sold4 | -7,512 | -10,674 | -46,503 | -31,702 | -70,825 | -56,024 |
| Gross profit | 136,837 | 139,805 | 460,582 | 376,073 | 655,703 | 571,194 |
| Other operating income | 22,047 | – | 40,717 | 26,583 | 49,525 | 35,391 |
| Selling expenses | -94,148 | -67,204 | -251,242 | -178,218 | -334,935 | -261,911 |
| Administrative expenses | -23,317 | -17,872 | -69,945 | -59,021 | -102,907 | -91,983 |
| Research and development costs | -45,469 | -36,339 | -127,783 | -107,325 | -168,149 | -147,691 |
| Other operating expenses | -2,295 | -5,970 | -6,628 | -5,306 | -11,862 | -10,540 |
| Operating profit/loss | -6,345 | 12,421 | 45,701 | 52,787 | 87,374 | 94,460 |
| Loss from financial items | -853 | -914 | -3,706 | -1,738 | -5,664 | -3,696 |
| Profit/loss before tax | -7,198 | 11,506 | 41,995 | 51,048 | 81,711 | 90,764 |
| Tax | -327 | 1,994 | -10,521 | -5,174 | -17,588 | -12,241 |
| Profit/loss for the period attributable to | -7,525 | 13,500 | 31,474 | 45,874 | 64,123 | 78,523 |
| Parent Company shareholders | ||||||
| Other comprehensive income | ||||||
| Items to be reclassified to profit or loss | ||||||
| Translation difference of foreign operations for the period |
-13 | 22 | -108 | -1,339 | -264 | -1,495 |
| Comprehensive income for the period attributable to Parent Company shareholders |
-7,538 | 13,522 | 31,366 | 44,535 | 63,859 | 77,028 |
| Earnings/loss per share before and after dilution (SEK) |
-0.22 | 0.39 | 0.92 | 1.34 | 1.87 | 2.29 |
1 IFRS 16 compliance.
2 IAS 17 compliance.
3 IFRS 16 compliance from 2019, and IAS 17 compliance in prior periods.
4 Comprises costs for hardware and royalties but not the amortization of capitalized development costs, which is included in research and development costs.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY IN SUMMARY
| AMOUNTS IN SEK 000s | JUL-SEP | JAN-SEP | FULL-YEAR | ||
|---|---|---|---|---|---|
| 20191 | 20182 | 20191 | 20182 | 2018 | |
| Opening balance according to adopted Annual Report |
694,394 | 611,438 | 657,453 | 580,425 | 580,425 |
| Effect of IFRS 16 | – | – | -1,963 | – | – |
| Opening balance after adjustments for IFRS 16 |
694,394 | 611,438 | 655,490 | 580,425 | 580,425 |
| Profit/loss for the period | -7,525 | 13,500 | 31,474 | 45,874 | 78,523 |
| Translation difference for the period | -13 | 22 | -108 | -1,339 | -1,495 |
| Closing balance | 686,856 | 624,960 | 686,856 | 624,960 | 657,453 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION IN SUMMARY
| AMOUNTS IN SEK 000s | Note | Sep 30, 2019 | Sep 30, 2018 | Dec 31, 2018 |
|---|---|---|---|---|
| ASSETS | ||||
| Intangible fixed assets | 408,422 | 361,875 | 377,341 | |
| Tangible fixed assets | 1.2 | 232,744 | 65,833 | 93,081 |
| Deferred tax assets | 9,037 | 2,530 | 7,408 | |
| Other long-term receivables | 18,178 | 12,555 | 23,454 | |
| Total fixed assets | 668,381 | 442,793 | 501,284 | |
| Inventories | 14,315 | 226 | 9,617 | |
| Current receivables | 445,616 | 547,103 | 482,323 | |
| Cash and cash equivalents | 107,482 | 52,893 | 112,198 | |
| Total current assets | 567,413 | 600,222 | 604,138 | |
| TOTAL ASSETS | 1,235,794 | 1,043,015 | 1,105,422 | |
| EQUITY AND LIABILITIES | ||||
| Equity | 2 | 686,855 | 624,960 | 657,453 |
| Deferred tax liabilities | 109,956 | 98,215 | 103,954 | |
| Long-term interest-bearing liabilities | 1.2 | 99,087 | 7,943 | 7,215 |
| Total long-term liabilities | 209,043 | 106,158 | 111,169 | |
| Accounts payable | 24,871 | 21,537 | 32,366 | |
| Current interest-bearing liabilities | 1.2 | 86,386 | 114,055 | 124,283 |
| Other current liabilities | 2 | 228,639 | 176,305 | 180,151 |
| Total current liabilities | 339,896 | 311,897 | 336,800 | |
| TOTAL EQUITY AND LIABILITIES | 1,235,794 | 1,043,015 | 1,105,422 |
CONSOLIDATED STATEMENT OF CASH FLOW IN SUMMARY
| AMOUNTS IN SEK 000s | JUL-SEP | JAN-SEP | FULL-YEAR | ||
|---|---|---|---|---|---|
| Note | 20191 | 20182 | 20191 | 20182 | 2018 |
| Profit/loss before tax | -7,198 | 11,506 | 41,995 | 51,048 | 90,764 |
| Adjusted for non-cash items1) | 35,252 | 37,087 | 114,885 | 62,615 | 91,475 |
| Taxes paid | -9,818 | -10,091 | -23,668 | -37,399 | -40,922 |
| Cash flow from operating activities before changes in working capital |
18,236 | 38,502 | 133,212 | 76,264 | 141,317 |
| Cash flow from changes in operating receivables | 91 | -45,441 | 78,977 | -60,119 | -20,307 |
| Cash flow from changes in operating liabilities | 33,435 | -5,945 | 26,818 | 41,712 | 57,462 |
| Cash flow from operating activities | 51,761 | -12,883 | 239,006 | 57,858 | 178,472 |
| Cash flow from investing activities | -48,568 | -43,298 | -151,054 | -150,367 | -223,625 |
| Cash flow from financing activities | -16,668 | 39,150 | -99,114 | 37,557 | 46,958 |
| Cash flow for the period | -13,475 | -17,031 | -11,162 | -54,952 | 1,805 |
| Cash and cash equivalents at the beginning of the period |
118,125 | 69,153 | 112,198 | 104,156 | 104,156 |
| Exchange-rate difference in cash and cash equivalents | 2,833 | 771 | 6,447 | 3,689 | 6,237 |
| Cash and cash equivalents at the end of the period | 107,482 | 52,893 | 107,482 | 52,893 | 112,198 |
1 These amounts mainly include amortization of capitalized development costs.
PARENT COMPANY INCOME STATEMENT IN SUMMARY
| AMOUNTS IN SEK 000s | JUL-SEP | JAN-SEP | FULL-YEAR | ||
|---|---|---|---|---|---|
| Note | 2019 | 2018 | 2019 | 2018 | 2018 |
| Net sales | 101,267 | 111,789 | 365,437 | 305,643 | 466,157 |
| Cost of goods sold1 | -4,770 | -4,759 | -26,753 | -14,563 | -26,006 |
| Gross profit | 96,497 | 107,030 | 338,684 | 291,080 | 440,151 |
| Other operating income | 22,045 | – | 40,275 | 26,583 | 35,090 |
| Selling expenses | -60,106 | -38,915 | -149,322 | -104,834 | -153,986 |
| Administrative expenses | -23,183 | -17,745 | -69,580 | -58,685 | -91,824 |
| Research and development costs | -52,198 | -42,761 | -159,015 | -146,602 | -202,007 |
| Other operating expenses | -1,418 | -5,970 | -3,479 | -5,318 | -10,197 |
| Operating profit/loss | -18,363 | 1,639 | -2,437 | 2,224 | 17,227 |
| Profit/loss from financial items | 918 | -784 | 2,422 | -1,369 | 3,858 |
| Profit/loss after financial items | -17,445 | 855 | -15 | 855 | 21,085 |
| Appropriations | – | – | – | – | -12,739 |
| Profit/loss before tax | -17,445 | 855 | -15 | 855 | 8,346 |
| Tax on profit for the period | 1,336 | -1,793 | -3,188 | -1,793 | -4,637 |
| Profit/loss for the period | -16,109 | -938 | -3,203 | -938 | 3,709 |
1 Comprises costs for hardware and royalties but not the amortization of capitalized development costs, which is included in research and development costs.
PARENT COMPANY STATEMENT OF COMPREHENSIVE INCOME IN SUMMARY
| AMOUNTS IN SEK 000s | JUL-SEP | JAN-SEP | FULL-YEAR | ||
|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | 2018 | |
| Profit/loss for the period | -16,109 | -938 | -3,203 | -938 | 3,709 |
| Other comprehensive income | – | – | – | – | – |
| Comprehensive income for the period | -16,109 | -938 | -3,203 | -938 | 3,709 |
PARENT COMPANY BALANCE SHEET IN SUMMARY
| AMOUNTS IN SEK 000s | Note | Sep 30, 2019 | Sep 30, 2018 | Dec 31, 2018 |
|---|---|---|---|---|
| ASSETS | ||||
| Intangible fixed assets | 750 | – | 427 | |
| Tangible fixed assets | 36,111 | 27,704 | 38,023 | |
| Shares and participations | 1,911 | 1,772 | 1,772 | |
| Deferred tax assets | 4,022 | 742 | 3,132 | |
| Long-term receivables from Group companies | 8 | 87,722 | – | 152,507 |
| Other long-term receivables | 12,470 | 12,373 | 16,665 | |
| Total fixed assets | 142,986 | 42,591 | 212,526 | |
| Inventories | 0 | 226 | 763 | |
| Current receivables | 395,801 | 539,299 | 404,661 | |
| Cash and bank balances | 59,688 | 5,549 | 9,375 | |
| Total current assets | 455,489 | 545,074 | 414,799 | |
| TOTAL ASSETS | 598,475 | 587,665 | 627,325 | |
| EQUITY AND LIABILITIES | ||||
| Equity | 272,560 | 271,117 | 275,763 | |
| Untaxed reserves | 110,248 | 97,510 | 110,248 | |
| Accounts payable | 14,028 | 19,860 | 21,308 | |
| Current interest-bearing liabilities | 49,433 | 114,055 | 124,283 | |
| Other current liabilities | 152,206 | 85,123 | 95,723 | |
| Total current liabilities | 215,667 | 219,038 | 241,314 | |
| TOTAL EQUITY AND LIABILITIES | 598,475 | 587,665 | 627,325 |
NOTES, GROUP
NOTE 1 ACCOUNTING POLICIES
The accounting policies applied are consistent with those described in the 2018 Annual Report for RaySearch Laboratories AB (publ), which is available at www.raysearchlabs.com.This interim report has been prepared in accordance with IAS 34 Interim Financial Reporting and the Swedish Annual Accounts Act.
The Parent Company applies the Swedish Annual Accounts Act and RFR 2 Accounting for Legal Entities. The interim report for the Parent Company has been prepared in accordance with the Swedish Annual Accounts Act, Chapter 9, Interim report.
New or revised accounting standards applicable to annual reporting periods beginning on or after January 1, 2019.
IFRS 16 Leases has been applied since January 1, 2019. The application of IFRS 16 entails that identified leases, primarily rental leases, will be recognized on the balance sheet. This impacts numerous financial performance measures and key figures, such as EBITDA, operating profit, net financial items, shareholders' equity, return on equity and net debt. RaySearch applied the standard's modified retrospective method, which means that no comparative figures were restated. The lease liability was measured at the present value of the lease payments over the remaining lease term, and the right-of-use asset for all contracts equaled the calculated depreciated value from the lease commencement, with the application of the incremental borrowing rate. RaySearch has also elected to apply the exemption rules for short-term leases and leases where the underlying asset is of low value. In addition, RaySearch has elected not to reassess if a contract is, or contains, a lease at the date of initial application. Nor does RaySearch exclude non-lease components in any contracts.
For leases previously classified as finance leases under IAS 17, the carrying amount of the right-of-use asset and lease liability was measured at January 1, 2019 at the carrying amount of the lease asset and lease liability under IAS 17 immediately prior to that date.
When transitioning to IFRS 16, the Group recognized right-of-use assets at SEK 165 M and new lease liabilities at SEK 167 M, of which current lease liabilities account for SEK 31 M. The difference between assets and liabilities depends on prepaid lease payments recognized as assets on December 31, 2018, which were added to right-of-use assets at January 1, 2019. There was also an impact of SEK 2 M on shareholders' equity due to measuring the right-of-use asset as if the standard had been applied since the lease commencements. At the end of the quarter, the lease liability amounted to SEK 136.0 M. The right-of-use assets are presented on the fixed assets line on the consolidated balance sheet and the lease liabilities are presented as line items under long-term and current interest-bearing liabilities. A summary of opening lease liabilities is presented in the table below:
| AMOUNTS IN SEK 000s | Jan 1, 2019 | |
|---|---|---|
| Operating lease commitments at December 31, 2018 | 181,478 | |
| Discounting with the Group's incremental borrowing rate at January 1, 2019 | -13,779 | |
| Plus: liabilities for finance leases at December 31, 2018 | ||
| (Less): short-term leases expensed on a straight-line basis | ||
| (Less): leases for which the underlying asset is low value that are expensed on a straight-line basis | ||
| Lease liability recognized at January 1, 2019 | 174,708 | |
| - of which current lease liability |
34,262 | |
| - of which long-term lease liability |
140,446 |
When measuring the lease liability, the Group discounted the lease payments using the incremental borrowing rate at January 1, 2019. The weighted average interest rate used varies between 1.5 and 3 percent, depending on the incremental rate of each Group company.
In accordance with IFRS 16 transition options, the lease liability for leases previously classified as financial leases has, in the initial amount for 2019 as specified above, been recognized at the same amount as at the end of 2018.
NOTE 2 IMPACT OF CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
IFRS 16 Leases
The recognized right-of-use assets and lease liabilities changed as follows during the period:
| AMOUNTS IN SEK 000s | RIGHT-OF-USE ASSETS | LEASE | ||
|---|---|---|---|---|
| Premises | Other | Total | LIABILITIES | |
| Opening balance, January 1, 2019 | 160,003 | 12,966 | 172,969 | -174,708 |
| Additional leases (+) | 378 | 1,052 | 1,430 | -1,406 |
| Amortization and depreciation (-) | -24,661 | -5,748 | -30,410 | |
| Revaluation of leases (+/-) | -20,936 | 0 | -20,936 | 20,936 |
| Translation difference for the period | 7,144 | 98 | 7,242 | -7,637 |
| Interest expense (-) | -3,024 | |||
| Lease payments paid (+) | 29,810 | |||
| Closing balance, September 30, 2019 | 121,927 | 8,368 | 130,295 | -136,029 |
In the table above, revaluation of leases pertains to a new assessment of rental leases for office premises in Stockholm. To-date during the year, IFRS 16 has impacted consolidated profit or loss as follows:
| AMOUNTS IN SEK 000s | YTD 2019 |
|---|---|
| Operating expenses | 29,790 |
| Amortization and depreciation | -27,737 |
| Effect on consolidated operating profit | 2,053 |
| Interest expense | -2,761 |
| Effect on consolidated profit before tax | -708 |
NOTE 3 REVENUE FROM CONTRACTS WITH CUSTOMERS
RaySearch conducts sales of goods and services in various regions. Revenue from sales of licenses and hardware is recognized in profit or loss at a point in time, while revenue from sales of training and support is recognized over time.
| AMOUNTS IN SEK 000s | JUL-SEP 2019 | JUL-SEP 2018 | |||||
|---|---|---|---|---|---|---|---|
| RayStation/RayCare | Partners | Total | RayStation/RayCare | Partners | Total | ||
| Revenue by type | |||||||
| Licenses | 76,200 | 5,281 | 81,481 | 89,445 | 9,729 | 99,174 | |
| Support | 48,610 | 2,973 | 51,583 | 28,818 | 2,846 | 31,664 | |
| Hardware | 6,869 | 0 | 6,869 | 16,659 | 0 | 16,659 | |
| Training and other | 4,416 | 0 | 4,416 | 2,983 | 0 | 2,983 | |
| Total revenue from contracts with customers | 136,095 | 8,254 | 144,349 | 137,904 | 12,575 | 150,479 | |
| Revenue by geographic market | |||||||
| North America | 56,216 | 169 | 56,385 | 67,617 | 6,215 | 73,832 | |
| APAC | 40,599 | 3,798 | 44,397 | 15,609 | 1,417 | 17,026 | |
| Europe and rest of the world | 39,280 | 4,287 | 43,567 | 54,678 | 4,944 | 59,622 | |
| Total revenue from contracts with customers | 136,095 | 8,254 | 144,349 | 137,904 | 12,575 | 150,479 | |
| Revenue by date for revenue recognition | |||||||
| Goods/services transferred at a point in time | 83,069 | 5,281 | 88,350 | 106,104 | 9,729 | 115,833 | |
| Services transferred over time | 53,026 | 2,973 | 55,999 | 31,801 | 2,846 | 34,646 | |
| Total revenue from contracts with customers | 136,095 | 8,254 | 144,349 | 137,904 | 12,575 | 150,479 |
INTERIM REPORT JANUARY 1-SEPTEMBER 30, 2019
| AMOUNTS IN SEK 000s | JAN-SEP 2019 | JAN-SEP 2018 | |||||
|---|---|---|---|---|---|---|---|
| RayStation/RayCare | Partners | Total | RayStation/RayCare | Partners | Total | ||
| Revenue by type | |||||||
| Licenses | 283,863 | 20,385 | 304,248 | 264,240 | 28,206 | 292,446 | |
| Support | 132,448 | 9,022 | 141,470 | 66,872 | 8,276 | 75,148 | |
| Hardware | 50,064 | 0 | 50,064 | 34,956 | 0 | 34,956 | |
| Training and other | 11,303 | 0 | 11,303 | 5,226 | 0 | 5,226 | |
| Total revenue from contracts with customers | 477,678 | 29,407 | 507,085 | 371,293 | 36,482 | 407,775 | |
| Revenue by geographic market | |||||||
| North America | 208,776 | 1,629 | 210,405 | 170,308 | 16,734 | 187,042 | |
| APAC | 79,156 | 6,104 | 85,260 | 43,616 | 4,286 | 47,902 | |
| Europe and rest of the world | 189,746 | 21,674 | 211,420 | 157,369 | 15,463 | 172,832 | |
| Total revenue from contracts with customers | 477,678 | 29,407 | 507,085 | 371,293 | 36,482 | 407,775 | |
| Revenue by date for revenue recognition | |||||||
| Goods/services transferred at a point in time1 | 333,927 | 20,385 | 354,312 | 299,196 | 28,206 | 327,402 | |
| Services transferred over time2 | 143,751 | 9,022 | 152,773 | 72,098 | 8,276 | 80,373 | |
| Total revenue from contracts with customers | 477,678 | 29,407 | 507,085 | 371,293 | 36,482 | 407,775 |
1 Licenses and hardware
2 Support, training and other
NOTE 4 ESTIMATES
Preparation of the interim report requires that company management make estimates that affect the carrying amounts. The actual outcome could deviate from these estimates. The critical sources of uncertainty in the estimates are the same as those in the most recent Annual Report.
NOTE 5 FINANCIAL INSTRUMENTS
RaySearch's financial assets and liabilities comprise billed and unbilled receivables, cash and cash equivalents, accrued expenses, accounts payable, bank loans and finance leases. Long-term receivables are discounted, while other financial assets and liabilities have short maturities. Accordingly, the fair values of all financial instruments are deemed to correspond approximately to their carrying amounts.
The provision for expected credit losses is a weighted assessment of payment history, reports from external credit rating agencies and other customer-specific information. At the end of September 2019, the credit loss provision was SEK 20.6 M (6.6).
The improvement was mainly due to credit loss provisions for receivables in Iran and China. Historically, the Group's credit losses have been limited. Since the company was founded in 2000, actual credit losses have amounted to 0.02 percent and provisions for expected credit losses to 0.5 percent of total sales.
NOTE 6 RELATED-PARTY TRANSACTIONS
No transactions were conducted between RaySearch and related parties with any material impact on the company's position and earnings during the period.
NOTE 7 PLEDGED ASSETS IN THE GROUP AND PARENT COMPANY
| AMOUNTS IN SEK 000s | Sep 30, 2019 | Sep 30, 2018 | Dec 31, 2018 |
|---|---|---|---|
| Chattel mortgages | 100,000 | 100,000 | 100,000 |
| Guarantees | 8,822 | 8,001 | 6,096 |
NOTE 8 LONG-TERM RECEIVABLES FROM GROUP COMPANIES
At December 31, 2018, the Parent Company issued two long-term loans to its US subsidiary – a five-year loan of USD 7 M to finance the subsidiary's investments in new offices, and a three-year loan of USD 10 M to finance the subsidiary's payment plans to external customers. During the first nine months of 2019, these were repaid in full, totaling USD 3.6 M.
GROUP QUARTERLY OVERVIEW
| 2019 | 2018 | 2017 | ||||||
|---|---|---|---|---|---|---|---|---|
| AMOUNTS IN SEK 000s | Q31,4 | Q21,4 | Q11,4 | Q41 | Q31 | Q21 | Q11 | Q42 |
| Income statement | ||||||||
| Net sales | 144,349 | 189,658 | 173,078 | 219,443 | 150,479 | 141,039 | 116,257 | 204,961 |
| Sales change, % | -4.1 | 34.5 | 48.9 | 7.1 | 34.7 | -0.4 | -8.3 | 7.1 |
| Operating profit/loss | -6,345 | 28,809 | 23,237 | 41,673 | 12,421 | 26,258 | 14,108 | 98,698 |
| Operating margin, % | -4.4 | 15.2 | 13.4 | 19.0 | 8.3 | 18.6 | 12.1 | 48.2 |
| Profit/loss for the period | -7,525 | 21,833 | 17,166 | 32,649 | 13,500 | 20,595 | 11,779 | 72,289 |
| Net margin, % | -5.2 | 11.5 | 9.9 | 14.9 | 9.0 | 14.6 | 10.1 | 35.3 |
| Cash flow | ||||||||
| Operating activities | 51,761 | 136,938 | 50,307 | 120,614 | -12,883 | 14,720 | 56,021 | 46,785 |
| Investing activities | -48,568 | -57,067 | -45,419 | -73,258 | -43,298 | -64,003 | -43,066 | -46,207 |
| Financing activities | -16,668 | -75,740 | -6,706 | 9,401 | 39,150 | -979 | -614 | 34,028 |
| Cash flow for the period | -13,475 | 4,131 | -1,818 | 56,756 | -17,031 | -50,262 | 12,341 | 34,606 |
| Capital structure | ||||||||
| Equity/assets ratio, % | 55.6 | 55.9 | 52.0 | 59.5 | 59.9 | 61.4 | 63.5 | 63.4 |
| Net debt | 77,991 | 92,024 | 181,649 | 19,300 | 69,105 | 13,595 | -34,701 | -20,372 |
| Debt/equity ratio | 0.1 | 0.1 | 0.3 | 0.0 | 0.1 | 0.0 | -0.1 | 0 |
| Net debt/EBITDA | 0.3 | 0.4 | 0.8 | 0.1 | 0.3 | 0.1 | -0.2 | -0.1 |
| Per share data, SEK | ||||||||
| Earnings per share before dilution | -0.22 | 0.64 | 0.50 | 0.95 | 0.39 | 0.6 | 0.34 | 2.11 |
| Earnings per share after dilution | -0.22 | 0.64 | 0.50 | 0.95 | 0.39 | 0.6 | 0.34 | 2.11 |
| Equity per share | 20.03 | 20.25 | 19.62 | 19.18 | 18.23 | 17.84 | 17.28 | 16.93 |
| Share price at the end of the period | 160.7 | 132.6 | 103.7 | 96.5 | 122.3 | 105 | 123 | 171 |
| Other | ||||||||
| No. of shares before and after dilution, 000s | 34,282.8 | 34,282.8 | 34,282.8 | 34,282.8 | 34,282.8 | 34,282.8 | 34,282.8 | 34,282.8 |
| Average no. of employees | 317 | 306 | 299 | 293 | 286 | 280 | 267 | 253 |
GROUP, ROLLING 12 MONTHS
| AMOUNTS IN SEK 000s | Oct 2018- Sep 20191,4 |
Jul 2018- Jun 20191,4 |
Apr 2018- Mar 20191,4 |
Jan 2018- Dec 20181 |
Oct 2017- Sep 20183 |
Jul 2017- Jun 20183 |
Apr 2017- Mar 20183 |
Jan 2017- Dec 20172 |
|---|---|---|---|---|---|---|---|---|
| Income statement | ||||||||
| Net sales | 726,528 | 732,658 | 684,039 | 627,218 | 612,736 | 573,960 | 574,555 | 585,086 |
| Operating profit/loss | 87,374 | 106,140 | 103,589 | 94,460 | 151,485 | 139,730 | 140,311 | 159,669 |
| Operating margin, % | 12.0 | 14.5 | 15.1 | 15.1 | 24.7 | 24.3 | 24.4 | 27.3 |
1 IFRS 15 compliance.
2 IAS 18 compliance.
3 IFRS 15 compliance in 2018, and IAS 18 compliance in the remaining quarters.
4 IFRS 16 compliance from 2019
DEFINITIONS OF KEY RATIOS
The interim report refers to a number of non-IFRS financial measures that are used to provide investors and company management with additional information to assess the company's operations. The various non-IFRS measures used to complement the IFRS financial statements are described below.
| Non-IFRS measures | Definition | Reason for using the measure |
|---|---|---|
| Order intake | The value (transaction price) of all orders received and | Order intake is an indicator of future revenue and thus a |
| changes to existing orders during the current period | key figure for the management of RaySearch's operations | |
| Order backlog | The value of orders at the end of the period that the | The order backlog shows the value of orders already |
| company has yet to deliver and recognize as revenue, | booked by RaySearch that will be converted to revenue in | |
| meaning remaining performance obligations | the future. | |
| according to IFRS 15.120a | ||
| Sales change | The change in net sales compared with the year | The measure is used to track the performance of the |
| earlier period expressed as a percentage | company's operations between periods | |
| Change in organic sales | Change in growth excluding currency effects | This measure is used to monitor underlying sales change |
| driven by alterations in volume, pricing and mix for | ||
| comparable units between different periods | ||
| Gross profit | Net sales minus cost of goods sold | Gross profit is used to measure the margin before sales, |
| research, development and administrative expenses | ||
| Operating profit/loss | Calculated as operating profit before financial items | Operating profit provides an overall picture of the total |
| and tax | generation of earnings in operating activities | |
| Operating margin | Operating profit expressed as a percentage of net | Together with sales growth, the operating margin is a key |
| sales | element for monitoring value creation | |
| Net margin | Profit for the period as a percentage of net sales for | The net margin shows the percentage of net sales |
| the period | remaining after the company's expenses have been | |
| deducted | ||
| Equity per share | Equity divided by number of shares at the end of the period |
Shows the return generated on the owners' invested capital per share from a shareholder perspective |
| Rolling 12 months' sales, | Sales, operating profit or other results measured over | This measure is used to more clearly illustrate the trends |
| operating profit or other | the past 12-month period | for sales, operating profit and other results, which is |
| results | relevant because RaySearch's revenue is subject to | |
| monthly variations | ||
| Working capital | Working capital comprises inventories, operating | This measure shows how much working capital is tied up in |
| receivables and operating liabilities, and is obtained | operations and can be shown in relation to net sales to | |
| from the statement of financial position. Operating | demonstrate the efficiency with which working capital has | |
| receivables comprise accounts receivable, other | been used | |
| receivables and non-interest bearing prepaid | ||
| expenses and accrued income. Operating liabilities | ||
| include other non-interest bearing long-term | ||
| liabilities, advance payments from customers, | ||
| accounts payable, other current liabilities and non | ||
| interest bearing accrued expenses and deferred | ||
| income. | ||
| Return on equity | Calculated as profit/loss for the period as a | Shows the return generated on the owners' invested |
| percentage of average equity. Average equity is | capital from a shareholder perspective | |
| calculated as the sum of equity at the end of the | ||
| period plus equity at the end of the year-earlier period, divided by two |
||
| Equity/assets ratio | Equity expressed as a percentage of total assets at | This is a standard measure to show financial risk, and is |
| the end of the period | expressed as the percentage of the total restricted equity | |
| financed by the owners | ||
| Net debt | Interest-bearing liabilities less cash and cash | This measure shows the Group's total indebtedness |
| equivalents | ||
| and interest-bearing current and long-term | ||
| receivables | ||
| Debt/equity ratio | Net debt in relation to equity | The measure shows financial risk and is used by |
| management | ||
| to monitor the Group's indebtedness | ||
| Net debt/EBITDA | Net debt at the end of the period in relation to | A relevant measure from a credit perspective that shows |
| operating profit before depreciation over the past 12- | the company's ability to handle its debt | |
| month period |
CALCULATION OF FINANCIAL MEASURES NOT INCLUDED IN THE IFRS FRAMEWORK
| AMOUNTS IN SEK 000s | Sep 30, 20191 | Sep 30, 2018 | Dec 31, 2018 |
|---|---|---|---|
| Working capital | |||
| Accounts receivable (current billed customer receivables) | 176,213 | 234,260 | 276,473 |
| Current unbilled customer receivables | 190,415 | 249,577 | 154,763 |
| Long-term unbilled customer receivables | 18,074 | 12,200 | 23,118 |
| Inventories | 14,315 | 226 | 9,617 |
| Other current receivables (excl. tax) | 38,556 | 38,207 | 30,385 |
| Accounts payable | -24,871 | -21,537 | -32,366 |
| Other current liabilities (excl. tax) | -264,303 | -174,105 | -179,802 |
| Working capital | 148,399 | 338,828 | 282,188 |
| AMOUNTS IN SEK 000s | Sep 30, 20191 | Sep 30, 2018 | Dec 31, 2018 |
| Net debt | |||
| Current interest-bearing liabilities | 86,386 | 114,055 | 124,283 |
| Long-term interest-bearing liabilities | 99,087 | 7,943 | 7,215 |
| Cash and cash equivalents | -107,482 | -52,893 | -112,198 |
| Net debt | 77,991 | 69,105 | 19,300 |
| AMOUNTS IN SEK 000s | Sep 30, 2019 | Sep 30, 2018 | Dec 31, 2018 |
| Net debt excluding IFRS 16 | |||
| Current interest-bearing liabilities | 49,433 | 114,055 | 124,283 |
| Long-term interest-bearing liabilities | 0 | 7,943 | 7,215 |
| Cash and cash equivalents | -107,482 | -52,893 | -112,198 |
| Net debt excluding IFRS 16 | -58,049 | 69,105 | 19,300 |
| AMOUNTS IN SEK 000s | Sep 30, 2019 | Sep 30, 2018 | Dec 31, 2018 |
| Equity/assets ratio excluding IFRS 16 | |||
| Equity | 689,441 | 624,960 | 657,453 |
| Total assets | 1,108,674 | 1,043,015 | 1,105,422 |
| Equity/assets ratio excluding IFRS 16, % | 62.2 | 59.9 | 59.5 |
| AMOUNTS IN SEK 000s | Oct 2018- Sep 20191 |
Oct 2017- Sep 20182 |
Full-year 2018 |
| EBITDA | |||
| Operating profit/loss | 87,374 | 151,485 | 94,461 |
| Amortization and depreciation | 165,643 | 99,693 | 113,844 |
| EBITDA | 253,017 | 251,178 | 208,305 |
1 IFRS 16 compliance from 2019.
2 IFRS 15 compliance from 2018, and IAS 18 compliance in prior periods.
HEAD OFFICE
RaySearch Laboratories AB (publ) Box 3297 SE-103 65 Stockholm, Sweden
STREET ADDRESS
Sveavägen 44, Floor 7 SE-111 34 Stockholm, Sweden
Tel: +46 (0)8 510 530 00 www.RaySearchlabs.com Corporate Registration Number: 556322-6157
ABOUT RAYSEARCH
RaySearch Laboratories AB (publ) is a medical technology company that develops innovative software solutions for improved cancer treatment. The company develops and markets the RayStation treatment planning system and RayCare oncology information system to cancer centers all over the world and distributes the products through licensing agreements with leading medical technology companies. RaySearch's software is currently used by over 2,600 centers in more than 65 countries. The company was founded in 2000 as a spin-off from the Karolinska Institute in Stockholm and the share has been listed for trading on Nasdaq Stockholm since 2003.
More information about RaySearch is available at www.raysearchlabs.com
VISION AND BUSINESS CONCEPT
The company's vision is a world where cancer is conquered and RaySearch's business concept is to provide innovative software to continuously improve cancer treatment.
STRATEGY
A radiation therapy center essentially needs two software platforms for its operations: a treatment planning system, and an information system. With RayStation and RayCare, RaySearch will strengthen its position and continue to grow with high profitability. The strategy rests on a strong focus on software development, leading functionality, broad support for many different types of treatment techniques and radiation therapy devices, as well as extensive investments in research and development.
BUSINESS MODEL
RaySearch's revenues are generated when customers pay an initial license fee for the right to use RaySearch's software and an annual service fee for access to updates and support. The RayStation treatment planning system and the RayCare oncology information system are developed at RaySearch's head office in Stockholm, and distributed and supported by the company's global marketing organization.
