Main Sector Rotation ETF Price & Performance (SECT)

We have had one possible light at Universal and it's Pennsylvania in The U. S. For almost a year by now, and we are in the process of over quite a large interest in that area, though, for So that's where we deviate a little different images. We also handle other Docker But it's unstructured data. It's not something you put in a database easily. Little about the highlight of the quarter. We were voted number one in customer satisfaction. At this year, we've got a record number of awards. We've got eight And the most important is large trust us in The U. S. But we also want small hospitals in The U. S. Canada, Northern Europe, Southern Europe, DACH, which is Germany, Austria, Switzerland, and Middle East this year. And digital pathology, which is only one award still because it's too few customers in The U. S. State to have a separate report from digital pathology in The U. S. So digital pathology is global. The picture is from the award ceremony in Las Vegas early. Two weeks ago. We are building a stronger future for business. We do have higher customer satisfaction. We think that is super important for long term success.

We are also in a rapid progression to as a service model. We're selling software as a service. And not as a license sales. That has a quite strong impact on the revenue and profits during the transition. But after transition, it would be good for both customers and us as a vendor. And we think this drives significant growth and major investments to increase the growth going forward. Extensive patent portfolio, which we saw a version of this quarter where we actually had a settlement in The U. S, agreement in The U. S. That resulted in a net increase in profitability of more than SEK 100,000,000. And you showed this first time we've got such a big impact from patterns, but it shows clearly that at a strong IP portfolio is very important. With translations as a service model, the cloud recurring revenue, which is a very important measure this or indicator for this transition, but we this is the increase in the recurring revenue based on cloud sales. We are moving with two transitions, both payment transition to pay as a service but also that we're moving the products up into the cloud. Instead of having a lot of hardware on prem.

These are not the same thing. People very often confuse them. But we do both at the same time. We do have customers who have on prem hardware who still pay as a service model, but we have no customers who buy a license in the cloud. The cloud recurring revenue is the recurring revenue we get from these cloud transitions And as you've seen, we've been in the position for quite a while, but now a very important indicator for us. Return revenue as a whole includes also service revenue, from the old installations, that also increased by 18%. And then we have churn. If you want to keep have a building business in the cloud and a software service, you don't want to lose customers. [indiscernible] And we have 0.6%, which is a very low churn And that means that the incoming customers were of a state or almost all of a state. At the customers, best way to grow. The contract order bookings was up 9%. It's very important to realize that last year, this period, we have a very strong order intake. So it's a little unfair comparison. It was still good. And net sales was up 13% Now note that when you lose those initial licenses and get over to Software as a Service revenue, if it's we have still been on the old model, it would have been bigger.

And profit per share increased by 60% However, that was including the one time [indiscernible] Positive [indiscernible] before, we have an extensive patent portfolio while it's The U. S. Patent within mobile VPN solutions. So it's inside SECTRA communications. That we during Q3 have license to U. S. Corporation as part of the set. That resulted in a profit increase of more than SEK100 million. Financial targets for the group, are our stability, the equity to assets ratio that is should be above 30% is currently 47, so well above our threshold. Prostability margin should be above 15%. Or well above that at 2019 despite the transition We have now introduced a little extra curve that you SECTRA dot curve that's including the patent settlement. That's not part of normal operations. We'll have split curves for a while to show that difference in the curves here. And then our main target when the first hygiene measures are fulfilled, is growth of profits per share. And that should increase by more than 50% over five year. We are current at 121%. And of course, including the patent, as you see, there is ways above that as well. In SECTRA Communications, we have it is today our fastest growing operating area.

We have high demand for our SECTRA communication products. It's increased tension in the world, as you know, and especially Europe have woken up like that. Europe has to handle their own defense in future. And that has proven demand for our products. We have positive earnings boost from the patent settlement as well as the communications all time high [indiscernible] One interesting area without of the pure defense is an order we have got them from the switch Prison and Probation Service. Where the inmates will need to have a discussion with their lawyers some external information, but it needs to be done in a very secure way. They are not allowed talk to anyone. And it's got to be encrypted between the lawyer and the inmate. And we have received an order for SECTRA communications for pets that we do on Samsung apps that are used by the clients. Or the inmates for communication with legal entities. Without risking that they can communicate to the outside world. In business innovation, Orthopaedics is good progress. We have received [indiscernible] planning increases and also the postoperative follow-up operations, which is actually a very interesting area. Revisions of prosthesis is very expensive and also the high risk for patients.

Medical education, we have had a tougher time, and that's mainly because we before sold large terminals, hardware and those have more or less gone away for us. But the return on revenue is strong. So the growth in return on revenue for education is very strong. But the loss of the hardware business which was predictable, has happened this quarter. And impacts both profits and revenue. Genomics IT, we have large interest, but this is in the Casa phase. We have our first customer People want to see how that works out before buying more. But we have large interest than we were less weekend a large international conference in Health Informatics in Medicine. And it was clear that our oncology is a story about what we do. Pathology, genomics are already combined. For oncology diagnosis was very well received. [indiscernible] And a research will focus on various aspects of AI. Clinical decision making. In Imaging IT, we have ongoing transformation to SaaS, as I said before. Cloud recurring revenue was up 45% there. And we have some very large orders coming in. And we have high interest on the market. Not only in The U. S, all over where we are present, we are not present in all countries in the world.

We have selected to be multinational and not global. It's better to be a good market share in the markets where we're in than to have small markets. In market share in many markets. Then I'll leave the word to Jessica, who will please ask if Thank you.

Welcome good morning and welcome to this part of the presentation where I will walk you through the financial development in the nine month period. Demand for our products such as products and services, remain high. With contracted order bookings surpassing 5,800,000,000.0 in the nine month period. Of which roughly €5,300,000,000 was guaranteed order intake. And the largest order secured year to date remains the SECTRA one cloud from Quebec received earlier this year of 3,100,000,000.0 During the third quarter, we received orders for digital pathology from customers in Norway, Sweden and The U. S. We also saw the University of Hartford and place an order for our services for medical education. And in SECTRA communication, we also received various orders A European defense customer signed the contract for Tigress system. Including service and support, excuse me, And we also received an order for further development of existing systems. By the Swedish authorities. And as always, we point out that the size of individual orders causes large quarterly fluctuations in order bookings. Sales are steadily increasing up 13% to €2,326,000,000 in the period. With only minor impact from currency. It's high customer satisfaction, underlying growth and also the strong development in SECTRA communication that jointly drive the overall sales growth.

And then this fast transition drives recurring revenue and you also heard Torbjorn saying, the cloud recurring revenue increased by 44% year on year. And we are pleased to report low recurring revenue churn. Of 0.6% rolling 12 The third quarter as such had an increase in sales of 22%. In addition to the growth drivers mentioned before, we recognized license revenue in the in the quarter, driving the sales development in the third quarter. Our main business areas increased sales year on year. Imaging IT grows with new customers and hospitals continuously being deployed. And also existing ones ramping up the usage. And in SECTRA Communication, we saw the fastest growth in the period up 41% year on year. And now close to €460,000,000 rolling 12 a result of increase both increases both in product deliveries and development projects. Business innovation we see rapid growth in recurring revenue but that could not fully compensate for lower non recurring revenue. In the period. Looking at sales, by geography, we conclude growth in all markets with strong development in Sweden and The Netherlands. Driven by the trend in SECTRA communication. And we observed the highest growth in absolute term outside Sweden in what we call SECTRA of Europe, and spread across several markets.

And we also note stable growth in our main markets. Our operating profit increased by 29% to $414,000,000 Excluding the nonrecurring patent settlement, And the growth in recurring revenue combined with the higher non recurring revenue from licenses in the third quarter and again the strong performance in SECTRA communication. Contributed to the operating profit growth and the strengthened margin [indiscernible] third quarter in isolation with an operating profit of NOK205 million, excluding the patent. Stands out as an exceptionally strong third quarter. And given quarterly fluctuations, it is important to focus on long term trends when assessing SECTRA financial performance. Our main business areas also increased profit year on year Imaging IT, which is up 20% year on year, is positively impacted by the strong fourth quarter. However, non recurring revenue is lower than in the comparable nine month period. As we see customers purchase services rather than traditional software licenses. And in Imaging IT, we still carry implementation costs for the major customer contracts received in recent years where none of them is yet in full production. [indiscernible] SECTRA communication, we see strong performance year on year. The operating profit is at SEK 60,000,000 excluding the patent, equal to a margin of 19%.

And again, this is driven by higher volume in general. Our cash flow from operations amount to 700,000,000 in the period.

And we we had strong cash flow generation both in the second and especially in the third quarter. And the main drivers behind the strong cash flow are increases in advances from customers, also the patent settlement and as well as the underlying profit.

All right. Thank you, Desskamp. A little about the way forward. We have a saying that success in distance and most things is very easy, just live and act. [indiscernible] We try to tell our people and remember ourselves that if we treat customers, then we want to be treated ourselves. We'll be okay. Very often businesses forget that. It's unusual like the company are pretty fearless rule in the world. And that has resulted in a good rankings in Klas, which Klas is a company in Salt Lake City in Utah. Who evaluates medical IT, not only the things we do, but all medical IT and then do reports about this and they rank vendors in respect in different categories in IT within the medical field. And we have came out top again for the eleventh year in a row in North America, large hospital, which is what we started with, but now they have the evaluations in other areas as well. We came out on top in eight areas, as I said before, of digital pathology is a new area besides radiology. One thing they asked about, and I've shown this picture again, I will show it again, They ask one thing they ask customers is, would you buy again for large vendors?

Now this is previous years previous year. This 2024. And 98% of our customers would buy us again. We are so high above all competitors and I didn't want to bash people. So I I blanked out the names of those vendors. But we are the only one above the mean the market average at 8% to 1%. This has been published this year again, but we are not allowed to it with you yet. But I can say our rank has not decreased. Which is I think I can say. We actually increased it from 98% And this is an old quote that we used internally as well. Profit and business come mainly for repeat customers customers that boast about your product or service that bring trends with them. And our main reason we have grown so well in the markets we're in that we have had the customers to tell other customers that we are an okay company to work with. And that drives our growth. In Medical IT, we see that the demographics of the Western world is alarming, not only the Japan and Korea is as bad or worse and China is getting there People leave longer and longer and get sicker and sicker, the workforce working medical is fewer and fewer, and one cannot work in health care.

That means the healthcare operators in the world must become ways more efficient in order to cope with this situation. And our job is to help them with tools to do that. And the medical main growth areas again will be neurodegenerative TTCs, the diseases of the elderly, cardiovascular disease, cancer, skeletal and vision and hearing. And the green areas is where we do ourselves in neurodegenerative disease, we have partners at MEASURE, MS, BLACK, etcetera. But we do the main imaging of cells. Cardiovascular we do increasingly products in cardiology. In cancer, we do both pathology andomics and radiology, musculoskeletal. We have our orthopedics business. And then vision and hearing. We have ophthalmology image handling, which is increasingly complex. These areas will grow in the future despite if it's a good time or a recession even. Because people will not get less sick in a recession. Efficiency in the workforce is then becoming paramount importance DevCo. We hear more and more and more of that how efficient is it? Doctors cannot move around. Doctors has to do the work. And they cannot fill with IT too much either. They need to be able to pre patient in diagnosis. Patients.

Patients. We are the only vendor with all of this huge specialties in one single system. That's another reason why it's good to have this is that the hospitals today have too many IT systems. I know at least one hospital that have more than 1,000 and they're not super large hospital. IT assistance is huge cybersecurity risk It's also very expensive to have one to maintain and run because it needs people know all of these thousand. So consolidation of IT in hospitals are very We are the only vendor with all imaging in one single system. Other vendors can offer Patolia and Radioli, but they have it in different systems. We have it in one And in SECTRA sector one offer that we now have as sector as a source model, we offer all of these. You can get one contract and then you just add on the other ones when you need it. That enables better care for patients because you can do things faster. Efficient workflows, lower cost, reduce complexity, [indiscernible] increase cybersecurity. And we have the same, we have minted the tagline, brilliant work [indiscernible] Made for you that we use for clinical exhibitions, and we have that as a tagline on our clinical exhibitions.

But at the IT exhibitions, we've modified and calling brilliant consolidation made for you. And that we used at the HIMSS now. And that's a very important thing for CIOs of hospitals all around the world. They need get the number of IT systems down. In Cybersecurity, we have a new digital reality. There is increasing international tension and cybercrime drives strong growth. We know that nations attack each other's infrastructure. Both for IT but also in reality. But especially the IT parts, we can prevent to a large extent, not to %, but we can help preventing that with our products. We are very well positioned. We have a very strong prime name in Europe, in Cyprus. Security. We also have extensive research and patents as you saw from the patent sale. Again, our philosophy with shareholders it starts with a rational strategy in the growing market, both cybersecurity and medical IT need to grow. Despite high tide or low tide in the society at large. We have more and more IT needs. We have protected our threats are increasing. And we have the aging populations that need care despite there not more people working there. So and both of these are good markets to be in, and they have to grow because of the underlying forces.

Then if you have Apple customers, then in order to have app customers, you need app BNPLES. You cannot have happy customers without happy employees. We work a lot with that as well. And then we need to be expensive when you're worth it. We should not give things for free. We are good, and we are worthy of having a reasonable pay for it. And then you're a little stubborn and reasonable cost control, then shareholders will be happy I think we have proven that over the last fifteen years or so. But it comes in that order. And that is how it will be the strategy that that's why having happy customers are so important. Long term, I would like to take a note that the quarterly variations in sector are very large. Last quarter, we had a little dip compared to the previous year. Q2 this year was up. There won't evaluate SECTRA on quarterly variations. It's up some quarters and down others. Look at twelve months rolling when you evaluate SECTRA. And then you see the nice slope upwards over the years. But I just want to remind you of not extrapolating everything. It goes good in one quarter, bad in one quarter.

That does not mean that you can take that little curve between quarters upwards or downwards. So why should we shareholder, etcetera? We are positioning the markets that are, as I said before, by external factors, forced to grow. Have a high customer satisfaction and a strong brand. [indiscernible] rapidly increasing recurring revenue and very low churn, yet we have very exciting self financed projects that could be a startup by itself, but we run them internally in our innovation, but also within the different business areas. And management owned shares, which we think is a good thing. Not only options, but they also own the shares. And with that, we'll conclude. And we'll set upcoming twenty twenty five financial events and Annual General Meeting First, we have a capital of market data from medical, not for communication This time, it's only for medical. It will be in Stockholm. March 27, And during twenty fifth, we have a year end year report. And September 9, we'll have our Annual General Meeting that will be in the industry in Sweden and in [indiscernible] Your feedback is important for these meetings. Please let us know what you think. Send an email to info@.dimesserset.com.

We are very open to change here the format of these meetings. And listen to you because we do this for you, not for us. And then we'll go to questions, please.

Yes. Thank you, Torbjorn and Jeske for your presentations. We have a number of questions that we have received both through email and online in the chat function. And I would like to encourage all of you online that if you have any further questions, please write them. And I will start with a few questions from Nicola Kalanowski at A. AGG. And the first question is, could you please provide us with a status up update on your customers' appetite for additional module purchases in both North America and Europe? It's quite large. [indiscernible] hospital trust us, for instance, in radiology or in pathology, they want to extend that to another ology, they very often come to us, not all the time, but very often.

And the next question is regarding UK. How would you say that the investment needs for cloud packs and additional modules looks like in The UK? Where you already have a leading position.

It's good. We are one of the trusted vendors for NHS. And we see that we have sold quite a lot of pathology, for instance, into our installed base already, but it's a good position to be in UK. And we are very happy working with The UK. NHS is a good customer. We hope, is a good vendor for And then we have a question about U. S. And staff sharing. Is it possible to use staff from The U. S. To aid with implementations in Canada, for example? Or does the staff need to be local when it regards implementations?

We cannot use cross country staff. Normally, they need a work permit to in the state where they are, but very often our Canadian staff are American citizens or the other way around. And then we can use them in the other company.

And a fourth question here. Would you say that a long cloud implementation process could make some prospective clients not choosing, etcetera, Or are there other factors that are typically more important when select It varies a little bit. I don't think it's the most important factor. The most important factor is the quality. And that they get good service. Now the long implementation time is very often not due to us. It is normally due to that they need to get networks in place, especially in cloud They need fast networks into the cloud provider. And that is not depending on us. It's also internal operations in the hospital. They have to change a lot of things and that takes time.

And then I'll move over to questions in the chat function. And the first question comes from Jacob Lem. [indiscernible] And what drove the strong quarter on quarter increase in cloud recurring revenue in K3? And should we expect this to continue in coming quarters? We made a retroactive reclassification from non recurring revenue to cloud recurring revenue. Of €10,000,000 impacting the quarter on quarter And further questions from Jacob. Trying to understand the strong margin development in Imaging IT. It seems like cost did not increase year over year despite sales increase and group employees increasing 9%. Well, so yes, in the third quarter, we recognized license revenue. And that impacts both the sales, of course, and then the operating profit and strengthens the margin. And so that's what happened in the third quarter. And the next question is, are there any effects revaluation or other positive one offs impacting K3 EBIT in Imaging IT. Yes, there is some currency impact in in the third quarter. But again, I would say it's the license revenue that we were able to recognize in the third quarter that caused a large impact. And then it's also, of course, timing of when it comes to cost we can have it can be timing of larger customer events driving sales and travel expenses, for example.

That could happen one year and not take place the next year. And for the moment of final question from Jakoblemke. On SECTRA communications, Do you expect to benefit from Europe's ambitions to significantly increase defense spending Possible to say when you start to see increased orders?

I think we are. I think we are doing that already. As Sweden has extended its budgets for defense and so as other countries in Europe. So yes, I think we will be positively impacted by that.

Okay. Thank you. And then I'll move on to Chris. From Christophe Lilleberg at Kaneige. And the first question is regarding operating costs. Adjusting for legal advisory cost, it seems OpEx only increased 6% year on year in K3 and has now been virtually flat sequentially over the last four quarters. Is this just a temporary slowdown considering the comment that deployments will continue to impact margins negatively next fiscal year. I would say we have well, again, it's a lot of timing that impacts quarter on quarter. When it comes to operating expenses. But of course, we try to be careful. We manage costs We have good cost control. But with the large deployments ahead of us, we that takes some resources. I don't know if you have it, would like to add something there. [indiscernible] It's we are of course, we should increase revenue more cost. Otherwise, it would be very bad. But it's a variation between quarters as well.

Next quarter from Chris Hoffer is on the same topic. What explains that external cost adjusted for legal cost in case are down versus second half last year. Less external consultancies or something else? It's we're rather down on travel and sales expenses and when it comes to external consultants, we're more or less flat. Some increase, but more or less flat. It's a mix of different operating expenses. Another question from Christophe. How large was the licensing order recognized in K3 that you said explains strong earnings in Imaging IT. That we do not disclose. Okay. Then I'll move on to private investor, I suppose. Who has a question regarding the patent settlement. In the the patent settlement is in other revenue with SEK195 million I know what the question is. I need to where in the income statement is the costs recognized for the patent settlement. That's in other operating expenses. The lines other external expenses, I think, in the income statement. It's named Thank you. And we have one further question from Jorg Lemke. Can you give a status update on the implementation with the large U. S. Health network in Quebec.

It's progressing. It takes time to start up the server side. So I know the networks, as I said before, it also takes reorganization of the customer side. They have to be trained in Quebec, for instance. We have or about 125,000 employees need to be trained on our products. That is a large effort that we do not do ourselves, but we train the trainers and that takes time.

Okay. And then I will switch to e mail again with a few questions from private investor. And he is wondering what's included in recurring revenue versus cloud recurring revenue. Cloud recurring revenue is when when the services that we deliver are cloud based. That's the that's the difference. Between recurring and cloud recurring.

And recurring also includes service contracts, all the old installations that we have done forever. Our first installation is still on premise. [indiscernible] but they need service. And those service contracts are not included in the cloud revenue.

Okay. And the next question there is why not all competitors are included in the class rate?

It depends on how many deletions they have in a certain region because of statistical significance. Clauses that it should be about 15 installations, for instance, in The U. S. And I think five in Europe. It could be included. They don't want to include one or two customers that would be not statistically significant.

Thank you. Then I think we have addressed all the questions for today.

Right. Then we thank you for your attendance and looking forward to seeing you soon again. Thank you.

Thank you.