Sectra shares jump 11% as cloud revenue soars, patent settlement boosts profit

Investing.com -- Shares of Sectra (ST:SECTb) surged 11% on Friday after the Swedish medical imaging and cybersecurity company posted strong financial results for its fiscal third quarter, buoyed by increased demand for its cloud-based healthcare IT solutions and a one-time gain from a patent settlement.

The company, known for its enterprise imaging systems used in hospitals and security solutions for government agencies, reported a 22.2% rise in net sales for the three months ending January 2025, reaching SEK 848.4 million. 

Growth was primarily driven by a 57.8% increase in cloud-related recurring revenue, which climbed to SEK 162.8 million.

Operating profit for the quarter stood at SEK 314.7 million, a sharp increase from SEK 74.4 million a year earlier. 

The result included a non-recurring gain of SEK 110 million from a patent settlement related to secure communications technology. 

Excluding that settlement, operating profit rose 175.1% to SEK 204.7 million, highlighting strong performance in the company’s core operations.

Sectra’s business is split between its medical imaging IT division and its secure communications segment. 

The healthcare-focused side of the company continued to perform well, especially in North America, where it has established itself as a leading provider of enterprise imaging solutions. 

According to industry research firm KLAS, Sectra was the most selected vendor for large radiology imaging system contracts in the U.S. over the past two years. 

The company noted that nearly all new sales in the U.S. and Canada are now cloud-based SaaS deliveries, marking a shift from traditional licensing models.

Secure Communications, Sectra’s cybersecurity division, recorded a 39.2% increase in sales for the quarter. The segment has seen rising demand amid growing global concerns over data security. Recent contract wins with European defense clients and Swedish government agencies have contributed to the division’s expansion.

Sectra’s shift toward subscription-based services has weighed on short-term order bookings, which fell 47.8% year-on-year for the quarter. However, over a nine-month period, total contracted order bookings were up 9% at SEK 5.8 billion, signaling continued long-term demand.

Cash flow from operations more than doubled to SEK 580.7 million in the third quarter, up from SEK 233.2 million a year ago. The company attributed this to a combination of strong earnings and increased advances from customers.

Sectra expects continued growth in its recurring revenue streams as more healthcare providers transition to cloud-based imaging solutions. 

While the shift from traditional software licensing to cloud subscriptions temporarily dampens revenue recognition, the company believes the long-term benefits will outweigh the near-term challenges.

Sectra’s chief executive, Torbjörn Kronander, emphasized that customer satisfaction remains at the core of the company’s strategy. "Satisfied customers and good cost control lead to a positive long-term performance," he said. 

Despite broader economic uncertainty, Sectra remains optimistic about the future, citing strong demand for both its medical imaging and cybersecurity solutions. 

"The transition that we and our customers are now going through is a difficult but positive one," Kronander added. "With the very large projects we are carrying out, these negative effects will continue into the next fiscal year, putting pressure on our operating margin and sales before our new major customers start using our services in the volumes planned. While the change is having a short-term dampening effect on our financial performance, it will be highly beneficial in the long term—for us and for our customers."

The company sees its markets—healthcare IT and secure communications—as long-term growth areas relatively insulated from economic fluctuations.