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Surgical Science, a leader in medical simulation software, reported its Q4 2024 earnings, showing a stable revenue performance with strategic expansions in product lines and market reach. The company’s revenue for the full year 2024 remained flat at SEK 883 million compared to 2023, while Q4 revenue rose by 11% year-over-year to SEK 251.5 million. According to InvestingPro analysis, the company maintains strong financial health with a robust gross profit margin of 67% and appears fairly valued based on current market conditions. Despite these positive developments, the stock did not experience significant fluctuations post-announcement.
Key Takeaways
- Q4 2024 revenue increased by 11% year-over-year to SEK 251.5 million.
- Strategic acquisition of Intelligent Ultrasound positions the company as a market leader in ultrasound simulation.
- Significant growth in the Industry OEM market, with simulator sales up by 124%.
- Expanded production capacity and reorganized management to enhance efficiency.
Company Performance
Surgical Science’s performance in Q4 2024 reflects a strategic focus on expanding its market presence and product offerings. The company maintained its revenue at SEK 883 million for the full year, with notable growth in the Industry OEM market segment. This segment saw a 21% increase in Q4, driven by a substantial 124% rise in simulator sales. The company’s expansion into new markets, such as military medical training, further underscores its growth strategy.
Financial Highlights
- Full Year 2024 Revenue: SEK 883 million (flat year-over-year)
- Q4 2024 Revenue: SEK 251.5 million (+11% year-over-year)
- Full Year EBIT Margin: 16%
- Q4 EBIT: SEK 39 million (16% margin)
- Adjusted Q4 EBIT: SEK 45 million (18% margin)
- Cash Flow from Operating Activities: SEK 57 million
- Closing Cash: SEK 968 million
Outlook & Guidance
Looking ahead, Surgical Science has set ambitious financial targets for 2026, aiming for SEK 1.5 billion in revenue and a 40% adjusted EBIT margin. The company remains optimistic about the Industry OEM market, projecting around 20% growth, while maintaining a cautiously optimistic stance on the Educational Products market, targeting a 10-15% growth rate. InvestingPro subscribers have access to detailed financial health scores and comprehensive analysis, with over 30 additional exclusive insights available. Get the full picture with InvestingPro’s detailed research report, part of our coverage of 1,400+ top stocks.
Executive Commentary
CEO Tom England emphasized the importance of simulation in the medical device industry, stating, "Simulation is becoming a very important tool for med device companies." He also expressed confidence in the company’s position in the robotics market, noting, "We still have very strong belief in the underlying growth in the robotics market."
Risks and Challenges
- Constrained budgets in hospitals and training centers could limit growth in the Educational Products market.
- The integration of Intelligent Ultrasound may pose challenges in maintaining profit margins.
- Global economic uncertainties could impact the company’s expansion plans and market demand.
Q&A
During the earnings call, analysts focused on the revenue recognition of the Intuitive agreement and the challenges faced in the educational market due to budget constraints. The company also detailed its strategy for expanding sales and R&D functions to support growth.
Full transcript - S & U (SUS) Q4 2024:
Conference Operator: For report 20 20 four. For the first part of the presentation, participants will be in listen only mode. During the q and a session, participants can ask questions by pressing the pound key followed by five on their telephone keypad. During the q and a, I kindly ask participants to limit themselves to two questions at first. If you have additional questions, please queue up again by pressing pound key five.
I will now hand over to CEO Tom England and CFO Anna Alberg.
Tom England, CEO, Surgical Science: Welcome to this year end and quarter four presentation of Surgical Science. My name is Tom England, CEO of Surgical Science. And with me today, I have Anna Allberg, our company CFO. We’ll use our time together today to first present the report and then we will take questions from the audience. We can look back at an eventful and positive fourth quarter for Surgical Science and a good end to 2024.
The year started weekly with a tough business environment in educational products. Our turnaround came in quarter two of last year and sales and marketing market conditions have since steadily improved during the year to end with record sales for the group of SEK $252,000,000. Starting with educational products, the quarter saw a growth for the business area of 2% to SEK 125,000,000. Some geographies had considerable growth like Asia with 29% and Europe with 20% growth, whereas our reported market Americas decreased by 20%. We’re cautiously optimistic about developments in educational products even though the growth is not in line with our growth expectations of 10 to 15% right now, which we have for this business area.
On the one hand, we’re seeing a clear increase in customer activity and requests for quotes in all markets. On the other hand, the global budgetary climate for hospitals and training centers remains strained, which prolongs the time it takes to convert quotes into orders. Our team has a very high activity level and we have taken several very specific actions to increase the growth pace and convert more quotes to orders. And our outlook for our different regions, Americas, EMEA and APAC is positive. A key priority for us right now is also to develop and optimize our sales channels to ensure our now very broad product portfolio has the best global reach.
After the end of the quarter, we announced that we had won a procurement amounting to 52,000,000 SEK in a Southeast Asian country. This order is for a virtual or mixed reality solution to train military medical personnel in emergency situations and in emergency procedures. This order is expected to be delivered over eighteen months with work starting in quarter one twenty twenty five. We consider this to be a breakthrough order, which is very exciting and holds great potential as it relates to a new innovative product for a new and potentially very large customer segment for us. There are many similar types of customers around the world, and the need for training in these type of procedures and environment is very, very high.
Looking a little bit at industry OEM, which has performed strongly throughout 2024, we continued to perform well also in the fourth quarter. Sales amounted to SEK 127,000,000 with an increase of 21%. Our sales of simulators towards non robotic customers in the medical device space grew by 124% to SEK 43,000,000, which was an all time high. This result is due to a combination of existing customers making repeat purchases from us as well as an increasing number of new customers who are buying simulators from us for the first time. It’s clear that simulation is becoming an important tool for med device companies to train their customers and sales team teams as well as use in r and d and development efforts.
We also received orders for several large development projects during quarter four from robotic manufacturers and medical device companies around the world. These orders did not materialize into revenue in quarter four but will do so during the coming quarters. Licenses. License revenue grew by 1% during the quarter to SEK76 million. Surgical Science gets license revenues from several robotics companies, and customers can either be invoiced from the for the licenses they consume during the quarter or they can buy licenses in packs for several quarters ahead.
This means that revenue development can be lumpy in nature depending on when our customers purchase their licenses. As has been mentioned previously, there are several robotics manufacturers right now that are coming into the market and who are in various stages of the regulatory approval process prior to start of sales and marketing. These new companies all now have a steady growth of new procedures, which means that the systems are being used by more surgeons and each system is being used for more types of procedures. This in turn will drive the need for training and simulations on these new systems. And since many of the company companies are customers to Sertica Science, eventually it will also turn into license revenues for us.
We can do little to affect the later part of the commercialization efforts of the robotics companies, and we are dependent on their success, of course, in their robotics sales. One major milestone for our company during the past two quarters has been our new agreement with one of our main customers and the world’s largest robotics manufacturer, Intuitive. This agreement, where prices are set for the next four years, means that Intuitive will equip and ship all new DaVinci five systems with simulation from Surgical Science. DaVinci five is the latest and most highest performance robot of Intuitive. We have in our existing contract had a significant portion of subscription revenue and starting now in January 2025, the revenue model will become entirely subscription based.
And this new agreement is fully in line with the 2026 financial targets that we have regarding Intuitive. Another very important event for us during the last quarter was the announcement of our intention to acquire UK based Intelligent Ultrasound. Intelligent Ultrasound is a Cardiff based company within ultrasound simulation and which has a broad product portfolio. The acquisition makes Surgical Science the market leader in ultrasound simulation, which is an exciting area with strong potential for us. As was announced by a press release yesterday, the scheme of arrangement has successfully been completed.
And yesterday, we were happy to welcome the Intelligent Ultrasound team into the Sertica Science family, and we look forward to the continued journey together. We see a lot of users who need training and simulation in order to use ultrasound to ensure efficiency and quality of diagnostics. In industry OEM, we can also see several major application areas combining ultrasound with other technologies. A few of these or many others are needle training, anesthesia training, and drug delivery. This acquisition also means that we will open up a sales office and establish ourselves directly in The UK market where we see good growth opportunity both within educational products and industry OEM.
Profitability for the quarter was SEK39 million or 16%. The quarter saw higher costs related for sales incentives and a higher share of sales from distributors, which affects our margins negatively. Furthermore, similar as previous quarters, we made investments into our sales and R and D teams to increase our geographical coverage in sales and our capacity to handle R and D projects and responds quicker to customer requests. An important focus area is and will be our ability to scale the company efficiently to make it possible for us to handle more customers and revenue without with an increase in our internal efficiency. We also see many opportunities in the market right now outside of our traditional segments where we invest for growth.
We approach these investments with a careful and financially very prudent approach. Cash flow for the quarter was strong and net cash increased by SEK66 million for the quarter. On the topic of our operations after the end of the quarter, the decision was made to expand the production capacity of our existing premises in Tel Aviv in order to continue to grow and handle the increased volumes. As I mentioned in the quarter three report, the focus has been on strengthening delivery capacity in R and D and developing our sales and distribution channels to cover the market better. We are during quarter four and also in quarter one reorganize reorganizing R and D to increase our capacity to handle development projects and our ability to respond to customer requests faster.
We’ve also reorganized the sales function into regional division to get closer to our customers and distributors and to more effectively leverage our shared resources. And finally, the management team has been reshaped and reduced from eight to five members to create clear ownership and ensure quicker decision making. Niklas Olson has been appointed to the new role of Chief Revenue Officer with responsibility for all sales for all our business areas and Ariel Van Moshe to Chief R and D Officer. And with that, I would like to hand over to Anna.
Anna Alberg, CFO, Surgical Science: Thank you, Tom. So as Tom mentioned, we saw a strong end to the year with all time high sales coming in at SEK251.5 million, up 11%, and that was the same then in local currencies. Educational product sales was up 2%. We saw a market increase in Asia, and that was all due to China. We also said that we have a positive outlook on China for this year for 2025.
Europe was also strong, both if we compare to q three and q four of last year. We had a large order in Romania if we can compare to to q three. We also had that in q four of last year, so we also had other markets being strong. But then as Tom also mentioned, the North and South American region was weaker. Brazil was strong, but US was weaker.
And we are cautiously optimistic looking forward for the business area. Industry OEM, up 21%. And although not with much, we still saw time high sales for license revenues, 76,000,000. And our simulator sales continued. It’s very strong development up a 24% for the quarter and at all time high level at 42 coming in at 42,500,000.0 SEK.
While development revenues for the quarter was somewhat weaker. That meant that for the full year 2024, our net sales came in on par with 2023, 883 compared to 884 for this for 2024, which in light of our very weak q one, we see as positive. And for the first time in in a long time, our the currency effect is working against us. As you know, we have more than 80% of our sales in US dollars. And if we look at sales in local currencies, it was slightly higher, plus 1%.
Educational products then, weaker, minus 15% for the year, although finishing better than it it it started for sure. And industry OEM continuing its very strong growth journey and being up 21%. And that meant for the full year, you see the graph is then the split between our two different business areas. And for the full year, sales between the two business areas was $50.50. And if we compare to 2023, it was 59 for educational products and 41 for industry OEM.
Looking at our revenue streams, as mentioned, license revenues were at all time high but a bit lower than q four last year as a percentage of total revenues, 30 versus 33. And for the year, license revenues decreased by 2% and came in at 272 versus 278. That meant 31% of total revenues. That was both for 2024 as well as for 2023. As you know and as as Tom also talked about, they are more bumpy for new entrants since they purchased the licenses in batches.
And if we compare to 2023, that is what we see that has affected these revenues during 2024. Simulator sales was the strongest it has been since q four twenty twenty two, and a lot then, of course, due to the strong growth within industry OEM. Simulator sales within industry grew by a 60% for the full year 2024. And development revenues consist of both robotics projects and projects tied to sales of simulators within industry. This was, as I mentioned, weaker in q four, but it is not a sign of new projects being fewer.
We have commented before that this can be also bumpy if we are in between SOWs or statement of works, for example, for for long projects. And as you know, we also announced the Singapore deal, which entails development revenues. And and we also said that we closed some robotic orders where we have development revenues that will come during 2025. Costs and EBIT margin, we had a gross margin of 68% versus q four last year when we had a very strong gross margin of 70 1. 68 was also the number for the full year compared to 69 for 2023.
And compared then to q four in 2023, we saw a lower share of license revenues, as I mentioned, 30 versus 33, and that had then a negative effect on the gross margin. And since The US market was weaker, that meant a lower share of direct sales. And we also had some more service cases affecting the gross margin for the quarter. If we look at our sales costs, approximately 5,000,000 SEK of of those were costs of a more rare nature related to things such as demo equipment, provisions we had for a few accounts receivables and higher commissions. And that depends on to what country we sell, how these commissions fall.
We also had five more people joining this team in q four in in four different countries. So we also invest for the future and for the prospects we see. Admin was 9% of sales, and we still have some higher double management costs both for current and previous CEO. R and d costs were higher. And if we compare to q three of last year, we, again, invest in this organization, and we continue to employ more people.
So we were more employees. However, it is also important to remember that our r and d costs end up on three different lines. They end up in cost of goods sold on the actual r and d line and also in the balance sheet as capitalized. And if we compare to q q four to q three of last year, since development revenues were lower, that meant that less of the r and d costs for q four were moved to cost of goods sold. When we adjust for these effects and look at the total r and d costs for q four compared to q three, they were in line with each other on the same level.
For the full year year then for these different functions, we see that we increased sales costs with 5%, admin costs 6%, and r and d costs 8%. Again, all investing in the future to meet all the possibilities that that we see ahead. On the line other, primarily two items, option programs, that was 1.5 for the quarter, and then FXFX. And they were quite large during q four. We had a volatile US dollar during the quarter, especially towards the shekel.
EBIT then came in at 39,000,000 SEK for the quarter, 16%, and for the full year, a hundred and 40 4 or 16%. Organization wise, we were 14 more people in the organization going out of 2024 compared to going out of 2023. And you can see the split between our different countries down to the right. Adjusted EBIT for the quarter came in at 45,000,000 SEK, a margin of 18%. And for the year at 169 or 19%.
Finance net for the quarter, slight slight positive. We have, of course, interest on our bank balances. For this quarter, we also have the interest cost for the GBP loan that we took in conjunction with the IU acquisition. And on the negative side, then also, we also had revaluation of internal loans towards subsidiaries and an IFRS 16 effect. There’s a large number in in the comparative figure.
Last year, we had the last part of the contingent consideration for the Mimic acquisition. A smaller part was paid out in the beginning of last year, 1,100,000.0, but the rest was then reversed in the finance net. So that is why that number is is so high. That was 70,000,000. And net result for the quarter was 36,000,000, and for the full year, then a hundred and 32.
Cash flow, as Tom said, we had a very strong quarter in terms of of cash flow, making up also for for the weekly q q three we had. We from operating activities, we had a positive of 57,000,000, and we had a slight negative from changing working capital. And looking at the balance sheet in absolute numbers, we can see that inventory and accounts receivable, they increased somewhat. However, this is all due to FX. In local currencies, they were actually both a bit lower going out of q four than going out of q three.
And then cash flow from investing activities, that’s mainly investments in development costs. Cash flow from financing activities then, of course, affected by the fact that we took this loan, this short term loan, £17,000,000 sterling, for the IU acquisition. That was then a positive in the cash flow for with 235,000,000 SEK. That meant that we had closing cash of 968,000,000. However, looking instead of on net cash excluding the loan, we were at 733, which was then a positive in the quarter of SEK 66,000,000.
And we can see that accounts receivables as a percentage of sales last twelve months was on the same level as as last quarter. So this is usually my last slide, but since we had a number of news events after the year end, I just wanted to summarize them here. In January 15, on January 15, then we announced the LOI with Intuitive that Tom talked about. And on February 3, the election committee gave their proposal for the AGM in May. And the pro pro proposal is for all board members to be reelected.
And for Gisle, our previous CEO, to be the chairman, Roland Bangson, who’s been the chairman for many years, has declined reelection. On February 4, then announcing the contract in Southeast Asia, SEK 50 2 Million over a period of eighteen months and then both development revenues and and products. And then we had three different releases actually on on the intelligent ultrasound acquisition, but the most important, of course, being the one yesterday, which announced that it has now come into force. And IU will be consolidated as of the state. We are now starting our post completion review that we also talked about when we announced the acquisition.
Payment will be executed within fourteen days from the state. And, as you might have seen in the report, we had no costs in the p and l for this acquisition in in 2024. That will be in q one. And the costs are estimated at SEK 25,000,000.
Tom England, CEO, Surgical Science: Thank you, Anna. I would like to conclude this presentation by saying that we can look back at the positive and very eventful quarter during quarter four of last year. And the team and myself, we are excited and energized for the continued journey for surgical science. We are world leading products. We have a highly engaged and global team.
We have the stability and brand of a market leader, and we operate in a growing and rapidly developing market with prominent customers. We have great momentum in industry OEM. We also strengthened our relations with the key robotic companies during the quarter. In educational, business climate is improving, although at a slower pace than expected. And intelligent ultrasound is an exciting addition to the company and an opportunity to grow further within ultrasound simulation.
And with that, I would like to open the floor for questions.
Maria Carlson Osipova, Analyst, DNB: If you
Conference Operator: wish to ask a question, please dial 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial 6 on your telephone keypad. The next question comes from Maria Carlson Osipova from DNB. Please go ahead.
Maria Carlson Osipova, Analyst, DNB: Hi there, Tom and Anna, and thank you for taking my questions. First, we can work relations on an all time high revenue levels. Very nice to see. I have two questions, one slightly longer, one slightly shorter. And I’d like to start with the expansion of the sales force and the expansion of the R and D force to meet all the requirements that you’ve talked about.
Could you talk a little bit about the timeframe of this? How will that translate on, for instance, the employee levels? And which regions are you looking at? So in total, this project, how long do you think it will take and what will it be in the numbers? Can you talk about that a bit?
Tom England, CEO, Surgical Science: Yes. When it comes to the sales reorganization and expansion of the sales force, what we’re doing is that we are, first of all, trying to, we are rearranging our internal resources to more efficiently serve the salespeople that we have out traveling meeting customers so that we can be more efficient with our internal resources. That means then that we would be able to have a financial efficiency as we scale the sales team. And then we are selectively recruiting salespeople in regions where we have direct sales representation. Now that would be mainly EMEA and Americas.
And we see investments going both into industry OEM with key account sales as well as educational products with territory sales managers. When it comes to R and D, what we are doing is that we are reshaping the responsibilities of the r and d team to be able to create competence hubs and to be able to speed up the development speed and development projects as well as handle more projects simultaneously. So it’s it’s primarily utilizing the same resources from the beginning, but we’re also within r and d recruiting to meet the increased customer requests that we get primarily on the industry OEM side. And we will see a continuous investment into both sales and r and d. We don’t I don’t foresee it to be like step wise, big steps, but rather a continuous small smaller investment into both these areas.
Hope that answers your question.
Maria Carlson Osipova, Analyst, DNB: Yes, it is. Thank you very much. And the shorter one, do you talk about the proportion of direct sales that you have? Could you paint a bit of a broader picture on that and what effect it might have on the gross margins?
Anna Alberg, CFO, Surgical Science: Within educational products, we sell primarily through distributors, but we do have The US as I mean, our largest direct market. So, of course, the margins there are the gross margin is, of course, higher since we have our own sales force. So that’s why that is being affected. So we we don’t have the exact split. Is that if that’s what you mean?
But you can see the split between geographies for educational products. And there you have the North And South America region. And, of course, a lot of that is is The US. Did that answer your question, please?
Maria Carlson Osipova, Analyst, DNB: Yeah. Yeah. Thank you. I’ll get back in the queue. Thank you very much.
Conference Operator: The next question comes from Ulrich Traitner from Carnegie. Please go ahead.
Ulrich Traitner, Analyst, Carnegie: Thank you very much. And let’s start off with license revenues. I know it’s lumpy between quarters, 1% growth in this quarter. You talk about a very positive outlook for 25%. But looking at rolling twelve months, which I guess it’s the best proxy or to get some kind of sense on the direction, it’s at 7% and been sort of gradually declining.
So where should we sort of look for in 2025? I know there’s expansion of robotics provider and you are the simulation provider of these customers. As well as on the DV5, in their communication, they state that the software suite will be available on their DV5 platform by end of this year. And you talk about this new collaboration being affected from January 25. So if you can just help us decipher what that entails as well as what does entail for the close to 300 already sort of sold system for the DV5.
Will they be retractively be equipped with your software and that would be recognized as revenue? Or how should we look at it?
Tom England, CEO, Surgical Science: Hi, Ulrik. I can answer that question. So first one, on the question of kind of general growth levels for the year ahead across the both business units. Our messaging in the last couple of quarters has been that we see a very strong customer activity and growth rate increase in industry OEM around the 20% mark, and we have very positive outlook for industry OEM going forward. We have a stated 10% to 15 growth ambition with educational products, and we have been below that primarily due to the very, very weak quarter one of last year.
And then we have seen improvements, gradual improvements. We would have liked them to go faster, but we definitely see a more positive outlook. And then the question is rather, you know, on the velocity of the the the the improvements there. We have visibility into the pipeline a couple of quarters ahead. So we can we can we can, we can already now know about how how how the market is turning.
When it comes to the quest
Anna Alberg, CFO, Surgical Science: If I can just jump in because we had another question on visibility and a written question. And as you know, also within educational products, there are usually in in many markets very large tenders. And we have a very good visibility on these, but they they often run for a long time. And that’s what something we discussed many times before. It means we have good visibility, but it’s very hard to say exactly in what quarter, they will fall.
You saw also we we talked about the, the, order that we now announced in the Southeast Asian country. We talked about that already in q two and q three. So it is hard to know exactly when these tenders will will be ready. And then on visibility within industry OEM, again, we have the bumpiness for the licenses. It means we have good visibility long term, but it can be more bumpy in the quarters.
Because when we get an order for a license revenue, we immediately recognize them. If we get a batch order, it’s not dependent on when the robotic company actually then sell the robots or these licenses that are connected to to that robot. And then, of course, we have many novel projects that we we discussed, such as, again, the Southeast Asia where we and new areas where we where where we now invest, where we see great potential. But it’s it’s something that is more novel.
Tom England, CEO, Surgical Science: And then regarding your question about, intuitive Ulrich, we have signed now a four year agreement to supply Intuitive with simulation software for their new d v five robot. We have already had an agreement regarding the older intuitive robots, and that’s still in place. And this new agreement then is valid from January 2025 so that all robots that are shipped from January 2025 and onwards will carry the so called SIM Now package of Sertico Science, where sorry, of Intuitive, where Sertico Science is a supplier. It is the ambition by Intuitive to also equip the d v five’s that have been sold during 2024 with this SIMNow package. However, this is a process that will take more time.
It will take a couple of quarters. The ambition is for this re installation to happen during 2025, but it can be even longer than that before all the units that were shipped in 2024 are equipped because there’s also hardware implications to this upgrade that they need to
Ulrich Traitner, Analyst, Carnegie: do. Okay. Can I just get a sort of a clarification on that? You mean that from effectively from January of this year, all robots that are shipped from Intuitive EV5 then are equipped with sort of full software including your simulation. And it’s not like because what we’ve been hearing from Intuitive’s earnings call is that their ambition is for all the software to become effective by end of this year.
So that If I can get some clarification on that.
Tom England, CEO, Surgical Science: Okay. We will starting January, all the units, the DB5 units that are shipped will be offered with the SIM NOW software, which includes in the surgical science simulation. So that is the case. Yeah.
Victor Hogber, Analyst, Danske Bank (CSE:DANSKE): Okay. That’s great.
Ulrich Traitner, Analyst, Carnegie: And secondly, on the educational segment, and you talk about good visibility, but hard to predict when in the quarter that these will hit your sales. How about sort of the political uncertainty that is in The U. S. As of current with different types of efficiency measures put into place? Does that play into further delays from what you saw in 2024?
Or how does that come into play on your end?
Tom England, CEO, Surgical Science: Yes. As I mentioned in the text in the year end report, it is unpredictable climate now in education globally, I would say. On the one hand, we see an improved market climate, and you can, of course, see the sales growth here quarter on quarter in education. On the other hand, we know that many of the hospitals and training centers have a constrained budget and that deals take longer to close than before. This is definitely the case in The US as well.
And now with a new administration, there might be even further implications for that, but I do don’t foresee any major sort of differences to the situation that it’s already been. I mean, the truth is that the budgets are constrained, but we are still feeling more and more optimistic, both in The US as well as globally with the business traction that we have within the educational products. Because it is so that, I mean, the the our customers still need to perform trainings for surgeons. This, in many cases, simulation is not a nice have. It’s a must have for for for our customers.
So they can delay purchasing for some for some time, but it’s critical to for them to ensure, you know, healthy patient outcomes and good surgery surgery quality. And that then speaks in favor of of of sales then coming back. Hope that answers your question.
Ulrich Traitner, Analyst, Carnegie: Can I just get a yes, if I can just get a quick sort of follow-up? It would be
Victor Hogber, Analyst, Danske Bank: a quick one, I promise.
Ulrich Traitner, Analyst, Carnegie: Would you say that majority of your educational simulation sales is related to replacement of old systems that are on the market? Or is it completely new purchasing, I. E. Sort of new training centers?
Tom England, CEO, Surgical Science: It’s a very good question. And it’s a very healthy mix between existing customers who want to increase the capacity or their training centers, either for making more students go through a specific procedure or they want to grow the number of applications that the training center can provide, but also many new customers that have not used simulation before and are jumping on the bandwagon. For example, smaller hospitals in smaller cities outside of the main university hospitals. So there’s a healthy mix of existing and new customers.
Ulrich Traitner, Analyst, Carnegie: Great. Thank you very much, and I’ll get back into the queue.
Conference Operator: The next question comes from Victor Hogber from Danske Bank. Please go ahead.
Victor Hogber, Analyst, Danske Bank: Good morning. So yes, on the Intuitive agreement, without delving into the contract specifics, you’ve said Intuitive’s part of the 2026 target and that already a substantial part of license revenues are subscriptions based from Intuitive that is. More than half, I would assume. Could you confirm that it’s above 60% or say anything about the already now subscription based revenues, yes, so that we get the base to model from?
Anna Alberg, CFO, Surgical Science: Yeah. We know that it would be good information to have how much has been recurring, and not. What we have said and always say is that when we acquired Symbionix, the revenues they had from Intuitive, the largest part was was recurring. And again, as Tom said, it’s we we did have a good portion of recurring already before, and now we’re moving to a fully subscription based model. So sorry, Victor.
No. No. I cannot give you any any more detail than that.
Victor Hogber, Analyst, Danske Bank: Okay. Fair enough. We have to try. And on the IntelliJet ultrasound acquisition, it dilutes the group margin, three percentage points to begin with. Optically, it makes it increasingly hard to reach the 40% to build the margin target for 2026, but you’re still keeping the targets.
Just what kind of levers are you going to pull within 2025 and 2026 to be able to come at least close to the 40% target? Is that relying mainly on maybe a software acquisition that you have lined up that would increase the group margin? Or is the implications from the intuitive, Adil, accretive to margins, just some of the drivers for basically doubling the margin from 2024 to 2026, that would be helpful?
Anna Alberg, CFO, Surgical Science: Yes. Yes. We still have the financial goals for 2026, so SEK 1,500,000,000.0 in revenues and 40% adjusted EBIT margin. And, I mean, that’s something we, of course, constantly look at. What we said when we announced the IU acquisition is that, of course, all things equal, that will make it easier to reach the revenue target and harder to reach the margin target.
And as we also talked about, we are now entering this post completion review. And that is a process we we we want to to look into. And we also talked about the the cost savings that we anticipate, but we need to do this post completion review.
Tom England, CEO, Surgical Science: And then to add to that, I mean, the the the profitability goals that we have set up for 2026 implies that we have a large increase in the license revenue from several big robotics customers and that it would be back end loaded as well more towards the latter part of 2026. And we still have very strong belief in the kind of underlying growth in the robotics market. And it’s also mentioned about the strong procedural growth about the new entrants that are coming in. So we still feel very, very positive about our opportunities to to get licensed revenues from these players.
Anna Alberg, CFO, Surgical Science: And you also asked about acquisitions. And, I mean, we just just announced one way and we said before that, and that’s the same answer now, that that’s an important part of our strategy, and it it continues to be. And and the goal that we had for 1.5 said clearly said that it can entail a complimentary acquisition the acquisitions, which this one then was. Do we still have Victor on the line?
Victor Hogber, Analyst, Danske Bank: Yeah. I thought I only had two questions. Sorry. I’ll get back in line and then add some more.
Tom England, CEO, Surgical Science: Thank you.
Anna Alberg, CFO, Surgical Science: Thanks, Victor.
Conference Operator: As a reminder, if you wish to ask a question, please dial key 5 on your telephone keypad. The next question comes from Christian Lee from Pareto Securities. Please go ahead.
Christian Lee, Analyst, Pareto Securities: Thank you and good morning Tom and Anna. Thank you for taking my questions. Sales of simulators within the industry OEM have been really strong in 2024. So it would be very helpful if you could give us some color on the outlook for 2025 if you expect to keep the strong momentum.
Tom England, CEO, Surgical Science: We definitely expect it to keep a strong momentum. Simulation is becoming a very important tool for the med device companies in both their revenue generating activities for the new products that they launch into the market, as well as for the education activities when they educate customers on these new products and then also for the r and d activities. And many times there are no alternatives really to simulation for these companies. They can’t use live people or any other tools available. And this is then now becoming more and more aware.
This this this is, becoming awareness around this is becoming bigger within these companies, and that’s then driving the demand. So we see repeat business from existing customers with increased volumes of simulators, and we also see new companies and these new companies buying simulators from us. And some of these medical device companies are, you know, very, very big companies. So that can mean that we move from one division or one function into another division and one function within the same company. But it can also mean completely new big companies.
Christian Lee, Analyst, Pareto Securities: Thank you. That’s very helpful. And regarding educational products, The U. S. Market has been a little bit weakish, but you sounded a little bit more optimistic about the growth opportunities.
Was it for the long term? Or do you also see any changes of the market easing up in the short term?
Tom England, CEO, Surgical Science: It is quite difficult to predict the pace of recovery. That’s probably one of the areas where there is like biggest question marks. Because on the one hand, we see a very healthy pipeline and an optimistic sales team and lots of very good dialogues, both globally, but definitely also in The US and definitely also in the short term, is young. On the other hand, we know from experience now and a couple of quarters back that, as I said, growth rates within educational products for certain areas have not been where we wanted them to be. And that is then due to the budgetary climate.
It’s not that we’re losing out on orders for competition. It’s rather that they become frozen and because of budgetary reasons. And then, of course, to predict how this will develop also perhaps given new political development and so on becomes difficult. But if you look at kind of the visibility that we have in the pipeline and the other sales related KPIs that we follow, we see a positive development in the short term, both in The US as well as in the other countries. But then we are also cautiously, we are cautious about it given the past performance and some of the difficulties that we’ve had in closing those deals.
So it’s that kind of balance that is difficult to get our heads completely right around, which makes it a little bit difficult for us to be more specific in our kind of forward looking statements.
Christian Lee, Analyst, Pareto Securities: Okay. Perfect. Thank you very much. I will get back to
Anna Alberg, CFO, Surgical Science: Okay. So let’s just briefly look at the written questions. We have a question, saying given the procurement deal of fifty two m sec, large development projects starting and d v five start, what does that mean for margins revenue growth going into q one twenty twenty five? And maybe more a general comment on 2025, not not q one. And this development, the deal in Southeast Asia is, of course, for for eighteen months.
So it’s it only just started now towards the end of of q one. So we will not see any an effect of that in in q one. But it’s it’s, of course, important I mean, our different revenue streams have very different margins. And that’s, of course, why we we want license revenues to be as large as possible because that pretty much falls all the way way through. And then we have our development revenues and often tied then to to simulator sales or just development revenues tied to to license revenues for the robotics projects.
And if we talk about these large development projects that we now see and that we discussed, many of them are sort of a novel nature where we are, you know, expanding into new areas, finding new niches, etcetera. That’s, of course, very important how we work with these projects. And Tom talked about efficiency in the r and d organization, etcetera. That’s super important that we are able to scale up and use these efficiencies because many of these projects are a bit new to us. And and we, of course, need to be very well aware and keep track of hours, etcetera.
At the same time, we are also investing for the future when we do these projects. And again, going back to the Southeast Asian project as as Tom mentioned, this is sort of a concept that we hope that we will then be able to to sell more of. So so in some cases, it’s it’s it might be a mix between investments going forward and new projects. And and again, the the the split between our different revenue streams, of course, affect affect our margins.
Tom England, CEO, Surgical Science: Can I build on that just a second, Karl? Also, this is one of the reasons to why we did this r and d organ reorganization. Right? Because we see a very strong influx both in development projects, both for for new areas that Anna just said, as well as for existing customers who want to do more of us. And then, our ability to handle more projects with existing staff or only with limited investments into R and D becomes a key growth driver for us.
Right? And I think that this is an area where economies of scale are very important. As the biggest company with many, many software developers, we will be able to build platforms. We will be able to reuse assets. We will be able to create uniform ways of working and load balance the teams, geographically in a better way.
And that then would drive this efficiency and customer responsiveness. So it’s definitely key area here for us to to be able to continue to grow both within industry and and education. And it’s, I guess, underlying, it’s a very positive problem to have. Right? But you have to think about financial efficiency as well as in, like, in in together with the operational efficiency.
Anna Alberg, CFO, Surgical Science: Then we have some questions on intelligent ultrasound. Maybe I just start with some parts of it, and then you can talk about the outlook, Tom. So 2024 revenues, if that matched the guide expectation given in December, it has actually been communicated. The final number was 8,500,000, was in in one of these announcements that were made. And, also question on if it was consolidated then in our p and l from yesterday.
And, yes, it will be. So it will be consolidated as of yesterday for the q one report.
Tom England, CEO, Surgical Science: And the growth profile of IntelliD and Ultrasound going forward, we believe that the growth profile will be in line with the growth profile of educational products in the short term. And then if you think about the opportunities that we have long term to develop the product portfolio to grow both into new applications within educational products, but also to grow into applications within industry, we see that we would be able to accelerate the growth from the interest in Intelligent Ultrasound acquisition. This is a very big market potential for us, but it will take some time to sort of kink the growth curve here and get the synergies from the combined ultrasound offerings from Surgical Science and the intelligent ultrasound. Do you expect a material impact from the Intuitive deal on your OEM growth already in 2025? We expect some impact from the Intuitive deal on the growth, for sure, in 2025.
And it’s dependent a little bit on the mix of robots that are shipped, the different types, models of intuitive robots that are shipped shipped. And it’s also dependent a little bit on the mix of the customer mix within the OEM segment, how big that growth growth rate will be.
Anna Alberg, CFO, Surgical Science: I think that concludes the Let me see. The margin profile of the Trauma VR product. Yeah. You saw the the this is this is still a very early phase product. And for the the large order in the Southeast Asian country, as you saw, it also entails development work.
And so there will be a lot of development work in different and so there will be a lot of development work in different different versions, etcetera. It’s it of course, in the beginning, when you start with a new product, it’s always you have a smaller scale. We have some products that are smaller. And, of course, then the margin is often lower and grows with, I mean, the number and and scaling up production, etcetera. But but in line with our educational products, I should say.
Tom England, CEO, Surgical Science: I think that’s all the questions.
Anna Alberg, CFO, Surgical Science: Yes. That I think that concludes also the written questions. So with that, we
Tom England, CEO, Surgical Science: Unless there’s any more questions?
Conference Operator: No. The next question comes from Victor Hogber from Danske Bank. Please go ahead.
Tom England, CEO, Surgical Science: Victor?
Victor Hogber, Analyst, Danske Bank: Yes. Thank you. Last question. Yes, so just a follow-up on the last written question on the growth effects from the new Intuitive agreement. Just if you could say because in general, when you spread out revenues over time, which was previously paid upfront, that’s a negative effect, a hammock effect on revenues.
We don’t know the number of or the share of subscriptions today, but it’s fairly high, you hinted at. But do you expect this to be a positive or negative thing for growth and revenues to be positive in 2025? In any other company, it would have been a negative effect to begin with. Just a clarification on that.
Tom England, CEO, Surgical Science: Long term, we think that it can be a positive effect. But short term, there’s so many different factors in play. You know, it’s the number of of robots that are shipped. It’s the mix of the robots that are shipped and some other factors as well that we can’t be that we can’t go into. So we can’t comment on the short term.
Long term, of course, it will have a positive effect.
Victor Hogber, Analyst, Danske Bank: Okay. Thank you.
Tom England, CEO, Surgical Science: Great. And that then concludes our presentation.
Victor Hogber, Analyst, Danske Bank: There are
Conference Operator: no more questions. So I hand the conference back to the speakers for the closing comments.
Tom England, CEO, Surgical Science: Thank you for all those questions. And thank you for listening to our presentation. Have a great day.
Victor Hogber, Analyst, Danske Bank: Bye bye.
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