Elekta AB Unsponsored ADR Class B ((EKTAY)) has held its Q3 earnings call. Read on for the main highlights of the call.
Elekta AB’s recent earnings call revealed a mixed sentiment, acknowledging notable achievements in product launches and significant order growth, particularly in European markets. However, the company also faces challenges, especially in the U.S. and China, which have affected their EBIT margin guidance.
Growth in Net Sales and Orders
Elekta reported a modest 2% increase in net sales in constant currencies, with an impressive 21% order growth at constant exchange rates compared to the previous year. This growth was largely driven by strong performances in Europe and the Asia-Pacific (APAC) region, highlighting the company’s expanding market presence in these areas.
Successful Product Launches
The launch of Elekta Evo, an AI-powered adaptive CT-Linac, along with the Elekta ONE Planning software suite, was well-received. These innovations contributed significantly to the company’s order and sales growth, particularly enhancing their standing in the European market.
Record High Cash Flow
Elekta achieved a record high cash flow, reaching SEK730 million after continuous investments. This milestone was supported by increased EBITDA, reduced investments, and decreased working capital, marking a strong financial performance for the third quarter.
Cost Reduction Achievements
The company’s cost reduction initiatives have been fruitful, generating SEK264 million in annual run rate savings over the first nine months. These savings are ahead of plan and target, reflecting effective operational efficiency strategies.
High Customer Satisfaction
Elekta received the Best-in-Class award, a testament to the positive feedback from thousands of clinical users. This accolade underscores the success of Elekta’s digital solutions and software investments, enhancing customer satisfaction and trust.
Decline in U.S. and China Sales
Sales in the U.S. and China have declined, with a 10% drop in the U.S. and an 8% decrease in China. These declines are attributed to challenging market conditions and delays in regulatory clearance for the Evo product in the U.S.
Lower EBIT Margin Guidance
Elekta expects a lower EBIT margin for the full year 2024-2025 compared to the previous year. This adjustment is due to the anticipated lower sales volumes in the U.S. and China, impacting overall profitability.
Service Margin Pressure
The company is experiencing service margin pressure due to a geographical mix with strong growth in emerging markets and higher material costs. This has affected the profitability of their service offerings.
Regulatory Delays in the U.S.
Delays in securing U.S. clearance for the Elekta Evo have impacted sales and installation volumes. This regulatory hurdle presents a significant challenge for Elekta as they aim to increase their U.S. market penetration.
Forward-looking Guidance
Looking ahead, Elekta anticipates a slight increase in net sales by 2% in constant currencies, mainly due to strong performances in Europe and the majority of APAC markets, despite the setbacks in the U.S. and China. The adjusted gross margin has improved to 37.1%, with an EBIT margin of 11.7%, driven by price increases and a favorable product mix. Although the full-year guidance projects stable net sales and a lower EBIT margin compared to the previous year, Elekta remains optimistic about achieving an EBIT margin of 14% or higher beyond this fiscal year, supported by robust customer interest and a comprehensive product portfolio.
In conclusion, Elekta AB’s earnings call reflects a balanced sentiment with significant achievements in product innovation and order growth, primarily in European markets. However, challenges in the U.S. and China, along with regulatory delays, have tempered the company’s financial outlook. Despite these obstacles, Elekta’s strategic initiatives and strong product offerings position them well for future growth and improved profitability.