Quarterly Report • May 11, 2010
Quarterly Report
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• The collaboration agreement with Varian was expanded in April
"The year 2010 started favorably with a strong first quarter. Thanks to several key product launches toward year-end 2009, revenues increased by 66 percent and the number of licenses sold almost doubled. This means that the quarterly revenues were the second highest ever for RaySearch," says Johan Löf, CEO of RaySearch.
"It was an important milestone to receive 510(k) clearance from the FDA for our treatment planning system RayStation®. This means that we can now market the system in the US", concludes Johan Löf.
| Amounts in SEK 000s | Jan-Mar | Full year | |
|---|---|---|---|
| 2010 | 2009 | 2009 | |
| Net sales | 28,062 | 16,936 | 83,687 |
| Operating profit | 11,241 | 9,851 | 40,862 |
| Operating margin % | 40.0 | 58.1 | 48.8 |
| Net profit | 8,234 | 7,323 | 30,146 |
| Earnings per share, SEK | 0.24 | 0.21 | 0.88 |
| Share price at close of period | 44.60 | 16.10 | 29.50 |
The information in this interim report is such that RaySearch must disclose publicly in accordance with the Swedish Securities and Clearing Operating Act and/or the Financial Instruments Trading Act. The information was made public on 11 May at 7.45 am.
The year 2010 started favorably with a strong first quarter. Thanks to several key product launches toward year-end 2009, revenues increased by 66 percent to SEK 28.1 M, despite a negative impact by currency effects during the period. The number of licenses sold was almost doubled and amounted to 261. This means that the quarterly revenues were the second highest ever for RaySearch. Net profit increased 12 percent to SEK 8.2 M. The profit growth rate is lower than the revenue growth rate since amortizations of capitalized development expenses increased as the new products started generating revenues.
The revenue increase was mainly attributable to the product for VMAT (Volumetric Modulated Arc Therapy), that our partner Philips started selling under the SmartArc brand in November last year. VMAT is an important trend in the market and demand has remained strong. It is also positive to note that sales of older Philips products have also increased during the first quarter. This is probably driven by the SmartArc sales, as the older products are a prerequisite for upgrading to SmartArc.
Sales through Nucletron were also sharply higher during the first quarter, compared with the yearearlier period. Nucletron launched our solution for VMAT along with a product for model-based segmentation toward year-end 2009 but, as opposed to Philips, the bulk of Nucletron's sales are in Europe. The introduction of VMAT is progressing slower in Europe than in the US, so for Nucletron the older products are accounting for almost all growth. Nucletron has invested significantly during the past few years to increase growth in the software segment and, hopefully, we are now seeing the results of these efforts, although it is too early to conclude that this is a trend.
Last summer, IBA Dosimetry launched a new version of our jointly developed quality assurance system COMPASS ®. The new version offers support for VMAT treatments, making the system even more competitive. Thanks to this expansion, we noted a sharp increase in sales during the first quarter. We are also working to expand the system in 2010 to include advanced adaptive functionality which will further increase the sales potential.
The restructuring of our partnership with Varian at the end of April represents an important new development. We entered the original agreement in 2007 and launched the first three RaySearch products last summer, integrated in Varian's Eclipse™ treatment planning system. To date volumes have been small, but Varian is the leading supplier of radiation therapy equipment, with a very large installed base that offers substantial potential. The new agreement adds an exciting new product and it also makes it easier to add more products in the future, and we now see very strong potential for increased sales, starting as early as this year.
It is also positive to note that TomoTherapy started deliveries of its new SharePlan™ product last week. The product, which was launched in 2009, can therefore start generating revenues for RaySearch.
In our development operations, we have continued to run several major projects in parallel at a very high pace. We have invested substantial resources in the collaboration project with Siemens that was initiated in May 2009. Under the terms of the agreement with Siemens, RaySearch will provide a number of treatment planning modules for advanced radiation therapy. The modules will be integrated in Siemens' syngo® Suite for Oncology, an integrated platform for workflow management in radiation therapy clinics. The collaboration is expected to start generating revenues for RaySearch during the second half of 2010.
We have also continued to focus strongly on a system for treatment planning of proton therapy for the German clinic WPE. The proton system is integrated in RaySearch's proprietary treatment planning system RayStation®. Proton therapy is one of the most advanced forms of radiation therapy and is a key future area for RaySearch. The project is progressing as planned and the system is scheduled to be fully developed and clinically operational during 2010. Within the proton segment, we will also, together, with Nucletron, participate in the tender process of a treatment planning system for the
Skandion Clinic, a new proton center that will be built in Sweden. The tender is expected to be decided during 2010.
In addition to these projects, we are also updating our existing products and now have a very high workload in product development. In order for RaySearch to strengthen its position as the leading development company for advanced software used in radiation therapy, we must also continue to allocate resources for more long-term research work. To achieve this goal, we plan to recruit additional system developers during the spring. We are also working intensively with business development. We are discussing the expansion of several of our partnership agreements, and we also have a number of highly interesting solutions under development that have not yet been made public.
As a complement to our existing partner-based business model we continue to seek collaborations directly with a few selected leading research-intensive clinics. WPE is a good example of such a clinic. It was an important milestone to receive 510(k) clearance from the FDA for RayStation®. This means that RaySearch can now market RayStation® in the US and enter similar collaboration agreements in that region too.
To conclude, the beginning of the year has been very intense, and the remainder of 2010 will probably continue along the same line. Several exciting products will be completed during the year, such as our first products for Siemens and our proprietary system for final delivery to WPE. Combined with robust demand for the new products launched toward the end of 2009, the potential for sustaining our current trend of business growth is favorable.
Stockholm, May 11, 2010
Johan Löf President and CEO RaySearch Laboratories AB (publ)
In March RaySearch received 510(k) clearance for RayStation® from the FDA. RayStation® is RaySearch's proprietary complete treatment planning system that integrates all RaySearch's advanced treatment planning solutions into one flexible system. It includes functionality such as RaySearch's market-leading algorithms for IMRT and VMAT optimization, highly accurate dose engines for both photon and proton therapy and will have full support for 4D adaptive radiation therapy. The system is built on the latest software architecture and has a graphical user interface offering state-of-the-art usability. As a complement to the partner-based business model, RayStation® offers the possibility to collaborate directly with a few selected leading research-intensive clinics. In June 2009 a first agreement was signed in Europe with the German clinic WPE where RayStation® is planned to be clinically operational in 2010. Receiving 510(k) clearance means that RaySearch can now market RayStation® in the US and enter similar collaboration agreements in that region too.
In April, the license agreement with Varian Medical Systems was restructured to add one new product, strengthen the collaborative product development efforts, and make it easier to add new capabilities and features to Varian's Eclipse™ treatment planning system. The original agreement was signed in May 2007 and to date three products from RaySearch have been integrated in Eclipse. These are tools for biological evaluation, biological optimization, and optimization of conventional 3D-CRT.
During the first quarter of 2010, sales rose by 65.7 percent compared with the year-earlier period to SEK 28.1 M (16.9). Sales consist primarily of license revenue via partners and support revenue. The number of licenses sold via partners amounted to 261 (137) and license revenue during the first quarter of 2010 totaled SEK 23.5 M (9.7). The main reason for the increase in license revenue was that the new product for VMAT via Philips began to generate revenue. License sales were also positively impacted by larger volumes of older products sold via Philips, Nucletron and IBA Dosimetry. Sales were adversely affected by the decrease in support revenue of 36.1 percent to SEK 4.6 M (7.2) during the first quarter. Since support revenues are based on accumulated license sales, they generally increase continually. However, with effect from the second quarter of 2009, support revenue for RaySearch's first product p-RayOptimizer began to decline since the product, which has been on the market since 2001, now requires less maintenance.
The company is dependent on trends in the USD and EUR exchange rates in relation to SEK, since invoicing is conducted in USD and EUR. During the first quarter of 2010, revenue in USD was reported at an average exchange rate of SEK 7.19 compared with SEK 8.48 during the corresponding period in 2009. During the first quarter of 2010, revenue in EUR was booked at an average exchange rate of SEK 9.79, compared with SEK 10.88 during the year-earlier period. Thus, the exchange rates impacted negatively on sales during the first quarter. With unchanged exchange rates, sales would have increased by 93.0 percent compared with the corresponding period in 2009, 27.3 percentage points higher than the actual outcome. A sensitivity analysis of currency exposure shows that the effect on operating profit for the first quarter of 2010 from a change in the USD exchange rate of +/- 10 percent would have been +/- SEK 2.2 M and that the corresponding effect of a change in the average EUR exchange rate of +/- 10 percent would have been SEK +/- 0.6 M. The company pursues the currency policy set by the Board of Directors.
Operating profit for the first quarter of 2010 totaled SEK 11.2 M (9.8), corresponding to an operating margin of 40.0 (58.1) percent. Operating expenses, excluding exchange-rate gains and losses, increased from the first quarter of 2009 by SEK 8.0 M to SEK 15.3 M. Other operating revenue and other operating expenses refer to exchange-rate gains and losses, with the net of these amounting to a loss of SEK 1.5 M (profit: 0.4). The increase in operating expenses derived primarily from amortizations within development.
As of March 31, 2010, 55 (45) employees were engaged in research and development. Research and development costs include payroll costs, consulting fees, computer equipment and premises. Research and development costs before capitalization and amortization of development costs, totaled SEK 15.0 M (12.5). During the first quarter of 2010, capitalized development costs totaled SEK 10.5 M (10.5). Amortization of capitalized development costs during the first quarter of 2010 totaled SEK 6.5 M (1.7) M. The reason for the increase during the period was that capitalized development costs for the company's products began to be amortized during the third and fourth quarters of 2009 as installations commenced of the new products in clinics. Research and development costs after adjustments for capitalization and amortization of developments costs totaled SEK 11.0 M (3.7).
Amortization of intangible assets during the first quarter of 2010 amounted to SEK 6.5 M (1.7) and depreciation of tangible fixed assets was SEK 0.1 M (0.0). Overall, amortization and depreciation during the first quarter of 2010 totaled 6.6 M (1.7) M. Amortization and depreciation primarily comprised capitalized development costs.
Profit after tax for the first quarter of 2010 totaled SEK 8.2 M (7.3), which means that earnings per share were SEK 0.24 (0.21).
Most of RaySearch's existing customers operate in the US, it is worth noting that the proportion of license revenues that derive from North America increased during the period after having declined the during past year. License revenues for the first quarter of 2010 were distributed as follows: North America 54 (36) percent, Asia 22 (32) percent and Europe and the rest of the world 24 (32) percent.
Cash flow from operating activities during the first quarter of 2010 totaled SEK 8.9 M (19.1), with overall cash flow during the first period amounting to a negative SEK 1.8 M (positive 8.7). Cash flow decrease is due to increasing current receivables increased during the quarter. Changes in working capital therefore had a negative effect of SEK 9.3 M during the first quarter compared with a positive impact of SEK 8.4 M during the year earlier period. Cash flow from investing activities declined to a negative SEK 10.7 M (neg: 10.4) due to higher development expenditure.
As of March 31, 2010, cash and cash equivalents totaled SEK 78.2 M, compared with SEK 79.3 M as of March 31, 2009. As of March 31, 2010, current receivables amounted to SEK 36.1 M compared with SEK 14.1 M on March 31, 2009. The steep increase is explained by the large sales growth during the last two quarters. RaySearch has no interest-bearing liabilities.
Fixed assets primarily comprise capitalized development costs. Investments in intangible fixed assets during the first quarter of 2010 totaled SEK 10.5 M (10.5) and investments in tangible fixed assets SEK 0.5 (0.2) MSEK.
At the end of the first quarter, the number of RaySearch employees was 61 (50). The average number of employees during the period January-March 2010 was 60 (50).
Since the financial reporting of the Parent Company corresponds in all material matters to the financial reporting of the Group, the comments for the Group are also highly relevant for the Parent Company. Capitalization of development costs is recognized in the Group, but not in the Parent Company.
| Amounts in SEK 000s | Jan-March | Full year | |
|---|---|---|---|
| 2010 | 2009 | 2009 | |
| Net sales | 28,062 | 16,936 | 83,687 |
| Cost of goods sold | -3 | -201 | -1,013 |
| Gross profit | 28,059 | 16,735 | 82,674 |
| Other operating income | 0 | 559 | 0 |
| Selling expenses | -416 | -546 | -3,604 |
| Administrative expenses | -3,892 | -3,075 | -12,691 |
| Research and development costs | -10,982 | -3,695 | -24,718 |
| Other operating expenses | -1,528 | -127 | -799 |
| Operating profit | 11,241 | 9,851 | 40,862 |
| Result from financial items | 6 | 241 | 421 |
| Profit before tax | 11,247 | 10,092 | 41,283 |
| Tax | -3,013 | -2,769 | -11,137 |
| Profit for the period1) | 8,234 | 7,323 | 30,146 |
| Earnings per share before full dilution (SEK) | 0.24 | 0.21 | 0.88 |
| Earnings per share after full dilution (SEK) | 0.24 | 0.21 | 0.88 |
| Amounts in SEK 000s | Jan-March | Full year | |
|---|---|---|---|
| 2010 | 2009 | 2009 | |
| Profit for the period | 8,234 | 7,323 | 30,146 |
| Other comprehensive income | - | - | - |
| Comprehensive income for the period1) | 8,234 | 7,323 | 30,146 |
1) 100 % attributable to shareholders in the Parent Company
| Amounts in SEK 000s | Mar 31, 2010 | Mar 31, 2009 | Dec. 31, 2009 |
|---|---|---|---|
| ASSETS | |||
| Intangible fixed assets | 116,185 | 90,380 | 112,323 |
| Tangible fixed assets | 2,314 | 1,919 | 2,068 |
| Deferred tax assets | 8,216 | 10,569 | 8,216 |
| Total fixed assets | 126,715 | 102,868 | 122,607 |
| Current receivables | 36,087 | 14,105 | 30,478 |
| Cash and cash equivalents | 78,176 | 79,337 | 80,013 |
| Total current assets | 114,263 | 93,442 | 110,491 |
| TOTAL ASSETS | 240,978 | 196,310 | 233,098 |
| EQUITY AND LIABILITIES | |||
| Equity | 193,092 | 157,758 | 184,858 |
| Deferred tax liabilities | 36,002 | 28,564 | 34,949 |
| Other long-term liabilities | 642 | 1,610 | 642 |
| Accounts payable | 1,655 | 1,977 | 5,525 |
| Other current liabilities | 9,587 | 6,401 | 7,124 |
| TOTAL EQUITY AND LIABILITIES | 240,978 | 196,310 | 233,098 |
| Pledged assets | 5,000 | 5,000 | 5,000 |
| Contingent liabilities | none | none | none |
| Amounts in SEK 000s | Jan-March | Full year | |
|---|---|---|---|
| 2010 | 2009 | 2009 | |
| Profit before tax | 11,247 | 10,092 | 41,283 |
| Adjusted for non-cash items * | 6,646 | 1,731 | 12,389 |
| Taxes paid | 279 | -1,157 | -1,933 |
| Cash flow from operating activities | 18,172 | 10,666 | 51,739 |
| before changes in working capital | |||
| Cash flow from changes in working capital | -9,255 | 8,427 | -2,532 |
| Cash flow from operating activities | 8,917 | 19,093 | 49,207 |
| Cash flow from investing activities ** | -10,754 | -10,400 | -43,148 |
| Cash flow from financing activities | 0 | 0 | 3,310 |
| Cash flow for the period | -1,837 | 8,693 | 9,369 |
| Cash and cash equivalents at the beginning of the period |
80,013 | 70,644 | 70,644 |
| Cash and cash equivalents at the end of the period |
78,176 | 79,337 | 80,013 |
* These amounts include amortization of capitalized development costs.
** These amounts include capitalized development costs.
| Amounts in SEK 000s | Jan-March 2010 |
Full year 2009 |
|---|---|---|
| Opening balance | 184,858 | 150,435 |
| Comprehensive income for the period | 8,234 | 30,146 |
| Exercise of options | 0 | 4,277 |
| Closing balance | 193,092 | 184,858 |
| Amounts in SEK 000s | Jan-March 2010 |
Full year 2009 |
|---|---|---|
| Total number of shares (opening and closing balance) | 34,282,773 | 34,282,773 |
| Holding of treasury shares, opening balance | 299,628 | 449,628 |
| Holding of treasury shares, closing balance | 299,628 | 299,628 |
| Average number of treasury shares | 299,628 | 435,244 |
| Amounts in SEK 000s | 2010 | Jan-March 2009 |
2008 | Full year 2009 |
|---|---|---|---|---|
| Net sales | 28,062 | 16,936 | 15,595 | 83,687 |
| Operating profit | 11,241 | 9,851 | 3,637 | 40,862 |
| Operating margin, % | 40.0 | 58.1 | 23.3 | 48.8 |
| Profit margin, % | 40.1 | 59.6 | 28.4 | 49.3 |
| Net profit | 8,234 | 7,323 | 3,134 | 30,146 |
| Earnings per share, SEK* | 0.24 | 0.21 | 0.09 | 0.88 |
| Return on capital employed, % | 24.2 | 19.9 | 19.1 | 24.6 |
| Return on equity, % | 17.7 | 15.0 | 13.4 | 18.0 |
| Equity/assets ratio, % | 80.1 | 80.4 | 80.7 | 79.3 |
| Adjusted equity per share at the end of | ||||
| the period, SEK* | 5.63 | 4.60 | 4.11 | 5.39 |
| Share price at the end of the period, | ||||
| SEK* | 44.60 | 16.10 | 46.00 | 29.50 |
* Adjusted for 3:1 stock split
| Amounts in SEK 000s | Jan-March | Full year | |
|---|---|---|---|
| 2010 | 2009 | 2009 | |
| Net sales | 28,062 | 16,936 | 83,687 |
| Cost of goods sold | -3 | -201 | -1,013 |
| Gross profit | 28,059 | 16,735 | 82,674 |
| Other operating income | 0 | 559 | 0 |
| Selling expenses | -416 | -546 | -3,604 |
| Administrative expenses | -3,892 | -3,545 | -14,491 |
| Research and development costs | -14,986 | -12,060 | -54,095 |
| Other operating expenses | -1,528 | -127 | -799 |
| Operating profit | 7,237 | 1,016 | 9,685 |
| Result from financial items | 6 | 192 | 345 |
| Profit after financial items | 7,243 | 1,208 | 10,030 |
| Appropriations | 0 | - | -1,909 |
| Profit before tax | 7,243 | 1,208 | 8,121, |
| Tax | -1,960 | -432 | -2,416 |
| Net profit | 5,283 | 776 | 5,705 |
| Amounts in SEK 000s | Mar 31, 2010 | Mar 31, 2009 | Dec 31, 2009 |
|---|---|---|---|
| ASSETS | |||
| Intangible fixed assets | 494 | 1,061 | 636 |
| Tangible fixed assets | 2,314 | 1,919 | 2,068 |
| Financial fixed assets | 2,160 | 2,160 | 2,160 |
| Deferred tax assets | 8,216 | 10,569 | 8,216 |
| Total fixed assets | 13,184 | 15,709 | 13,080 |
| Current receivables | 36,087 | 28,196 | 30,478 |
| Cash and cash equivalents | 70,900 | 63,375 | 72,724 |
| Total current assets | 106,987 | 91,571 | 103,202 |
| TOTAL ASSETS | 120,171 | 107,280 | 116,282 |
| EQUITY AND LIABILITIES | |||
| Equity | 87,742 | 77,530 | 82,459 |
| Untaxed reserves | 21,199 | 19,290 | 21,199 |
| Accounts payable | 1,655 | 1,978 | 5,525 |
| Other current liabilities | 9,575 | 8,482 | 7,099 |
| TOTAL EQUITY AND LIABILITIES | 120,171 | 107,280 | 116,282 |
| Pledged assets | 5,000 | 5,000 | 5,000 |
| Contingent liabilities | None | None | None |
The consolidated financial statements for the first quarter of 2010 were prepared in compliance with the International Financial Reporting Standards (IFRS) as adopted by the EU, and the Swedish Annual Accounts Act. This interim report was prepared in accordance with IAS 34 Interim Financial Reporting. The Parent Company's financial statements were prepared pursuant to the Annual Accounts Act and the requirements contained in the Swedish Financial Reporting Board's recommendation RFR 2.3 Accounting for Legal Entities.
RaySearch's financial policy governing the management of financial risks was established by the Board of Directors and represents a framework of guidelines and rules in the form of risk mandates and limits for financial activities. RaySearch is primarily affected by exchange-rate risk. All of RaySearch's net sales are in USD or EUR. In accordance with the established financial policy, no currency hedging is employed. The financial policy is updated at least once annually.
As a result of its activities, RaySearch is exposed to various operational risks, including the following: dependency on key persons, competition and strategic partnerships. RaySearch currently has partnerships with Philips, Varian, Siemens, Nucletron, IBA Dosimetry and TomoTherapy. RaySearch also has several research partnerships. If RaySearch were to lose one or more of these partners, this could have a major impact on the company's sales, profit and financial position. This risk decreases as the number of partners increases. RaySearch engages in continuous discussions with a number of medical technology companies in respect of new collaborations.
For more detailed information about RaySearch's financial risk management and operational risks, refer to page 48 of the 2009 Annual Report.
No transactions between RaySearch and related parties materially affected the company's position and earnings.
Preparation of the interim report requires that company management makes estimates that affect the recognized amounts for assets, liabilities, revenues and expenses. 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.
Stockholm, May 11, 2010
Johan Löf President and Board member
To the Board of RaySearch Laboratories AB Corporate Registration Number 556322-6157
I have reviewed the attached interim report for RaySearch Laboratories AB (publ) for the period January 1, 2010 to March 31, 2010. The Board of Directors and the President are responsible for the preparation of this interim report in accordance with IAS 34 and the Swedish Annual Accounts Act. My responsibility is to express a conclusion on the year-end report based on my review.
I have conducted my review in accordance with the Swedish standard for such reviews, (SÖG) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Company. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review has a different focus and is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards in Sweden RS and good auditing practice in general. The measures taken during a review do not enable me to obtain assurance that I would become aware of all significant matters that might be identified in an audit. Thus, the conclusion expressed on the basis of a review does not offer the same degree of assurance as a conclusion based on an audit.
Based on my review, nothing has come to my attention that causes me to believe that the attached interim report has not been prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act for the Group and the Swedish Annual Accounts Act for the Parent Company.
Stockholm, May 11, 2010
Anders Linér Authorized Public Accountant KPMG
Johan Löf, President Telephone: 08-545 061 30 [email protected]
RaySearch Laboratories AB (publ) Corporate reg. no.: 556322-6157 Sveavägen 25 111 34 Stockholm
The Annual GeneralMeeting will be held on May 25, 2010 at 6 pm in the Kammarsalen at Berns Conference Center, Berzelii Park, Stockholm.
Six-month interim report August 27, 2010 Interim report for the third quarter November 12, 2010
RaySearch Laboratories is a medical technology company that develops advanced software solutions for improved radiation therapy of cancer. RaySearch's products are mainly sold through license agreements with leading partners such as Philips, Varian, Siemens, Nucletron, IBA Dosimetry and TomoTherapy. To date, 15 products have been launched and RaySearch's software is used at some 1,500 clinics in more than 30 countries. In addition, existing license agreements cover more than 15 other products that are scheduled to be launched in the coming years. RaySearch was founded in 2000 as a spin-off from Karolinska Institutet in Stockholm and the company is listed in the Small Cap segment on NASDAQ OMX Stockholm.
For more information about RaySearch, visit www.raysearchlabs.com.
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