Ambu A S Ord

Ladies and gentlemen, welcome to AMBU Annual Report 2019-2020. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Today, I am pleased to present AMBU CEO Juan Jose Gonzalez and CFO Michael Haycott. I will now hand the word over to Nikolai from IR. Please begin your meeting.

Thank you. Good morning, everyone, and welcome to our full year 2019-20 conference call. My name is Nikolai, and I am from the investor relations team. With me here at the AMBU head office in Copenhagen, I have our CEO, Juan Jose Gonzalez, and our CFO, Michael Heigardt. During this conference call, Juan Jose Gonzalez will talk about the highlights for the quarter and for the full year, and Michael Heigardt will review the financials, and then we will take your questions. Please limit your questions to only three at a time and get back into the queue if you have additional questions. The duration of this call will be approximately one hour, and you can, via our website, follow the investor presentation we will go through live. Now, I would like to give the word to our CEO, Juan Jose Gonzalez.

Hello, everyone, and thank you for joining us this morning. It's an important day today. We are going to share our full year results, the progress on our strategic priorities, on our innovation pipeline. and give you an outlook for this new year. Now, when we talk about AMBU, it's always important to start with two key factors regarding the company. One is, what is the potential for the single-use endoscopy market? And we have always shared in that single-use endoscopy is one of the most attractive medical device markets. And I have to say, after what we have experienced last year, we are even more convinced regarding the potential of this market, a market that will go from 0.5 billion in 2020 to 2.5 billion in 2024. And all the drivers behind the creation of this market, the higher focus on cross-contamination infection control, the convenience and compelling economic offering, the rapid technology advancements, whether it is sensors or lighting or software, combined with support from the government and regulators. You know, each of these trends are becoming stronger every year, and combined, making the transition from reusable to single-use unavoidable. Now, within a market as attractive as this one, we will expect to see more competitors coming in. So the question is, what will be AMBU's ability to compete in this market? And there are three reasons why we believe AMBU is uniquely positioned to remain the leader in single-use endoscopy. Number one, we have 10 years of experience in single-use endoscopy. In many ways, we have created this market. Number two, we have a modular innovation engine. We basically brought the modularization expertise from automotive, combined with a high cadence from consumer electronics, to create an innovation engine that allow us to develop and launch new products faster and at a higher scale than any other company. And this is augmented by the fact that we have a high-scale local manufacturing. Today, we sell over a million of scopes a year that basically give us a scale advantage of five times versus our next largest competitor. And the highest scale locus manufacturing also allow us to introduce advanced innovation at prices that allow hospitals to migrate from reusable to single use. And of course, all this innovation is supported by a dedicated commercial organization. Today, we have the largest dedicated single use endoscopy commercial organization globally, which has been strengthened over the last two years significantly. And you can see how all of these competitive advantages have already translated into superior performance. If you look at three years ago, our visualization business was about 600 million DKK and last year it was nearly three times the size that shows an ability to execute to bring innovation and commercialize it in a way that delivers results and of course going forward all of these things our modularization our high scale our commercial infrastructure are much bigger than what we have seen in the previous three years, which should be translated into superior growth. Now, let's talk about the key messages for this meeting. First of all, on the back of the COVID-19 pandemic, we see that the single-use endoscopy market is developing at a rapid pace. health care systems are looking at ways to restart elective procedures in efficient and safe ways, and single-use endoscopy is part of a solution. And in addition, the focus on contamination levels in endoscopy continues to increase, and last year was a record year in terms of peer publications on what are the real issues with reusable endoscopy and what are the contamination rates and what can be done to be able to move away from that. Now, in terms of performance, last year was an important milestone for the company. We exceeded our one million single-use endoscopes, which consolidate us as the largest a single-use endoscopy manufacturer. We grew 26% on the back of our visualization business, growing 81%. In the U.S., actually, we saw an underlying growth of 23%, and we not only increased our market share in bronchoscopy, but we also strengthened our position on the back of GPO contract wins. These GPO wins, by the way, did not require price discounts. The pricing impact from these contracts is minimal. And the main reason why we are able to secure preferential position in these contracts without conceding in price is that we already had the most attractive economic offering. There was no need for AMBU to reduce prices to match any competitor. but actually the breadth of our portfolio, combined with the economic offering, combined with the pipeline, make GPOs conclude that the best strategic partner as they create the single use endoscopy categories was Sample. And finally, we finished the year as a stronger company. We have a larger commercial infrastructure. Our commercial infrastructure in the US For visualization, it's three times the size as the previous year. It's twice the size in Europe and Asia Pacific. And we enter two very important endoscopy markets, urology and GI. And I'm going to share how excited we are with the momentum we are seeing with these launches. And finally, we remain committed behind our aspiration of being the world's most innovative single-use endoscopy player. And on the back of that, you will see a rapid expansion of our innovation pipeline. Just to give you a sense, in the last three years, we introduced five new products in single-use endoscopy. And for the next three years, we are planning to introduce 20 new products. It's four times the number of new product launches. That will make us by far the most innovative company with the broadest portfolio in the market. Now, to support this innovation and the rapid volume growth, we are also going to invest in a second single-use endoscopic perfacturing plant in Mexico that will be dedicated to support our largest market globally, the U.S. And all of this investment in commercial infrastructure, in innovation, in manufacturing capabilities, is being translated on a guidance of an organic revenue growth of 17% to 20%, an EBIT margin of 11% to 12%, and a target in terms of a number of single-use endoscopy cells of 1.3 to 1.4 million. Now, there are very few companies in medical devices that are able to grow in a year 26%. And there are even fewer that on the back of that are able to set a guidance of 17 to 20%. With this guidance, we are also showcasing that AMBU is today one of the fastest growing medical device companies globally. Now, let's go through some of the details behind this. And let's start with a case for single-use endoscopy. And every quarter, I have been sharing with you how much more activity there is behind it. And I have to say, if we look at 2020, Number one, the patient safety organization, ERCI, actually listed device cleaning, disinfection, and sterilization as one of the most important safety concerns of 2020. And it is on the back of that that in 2020, we had the highest number of peer review studies. And for me, something which is very important is having already concluded the contamination issues in bronchoscopy, having already evaluated and showing the serious issues around contamination in colonoscopy, how now investigators are starting to focus in colonoscopy and gastroscopy. And some of the initial studies are showing a contamination rate of over 10%. And as you can imagine, that is very important as gastroscopy and colonoscopy account for more than 75 million procedures globally. And in addition to that, we have seen the FDA and the National Association supporting the creation of single-use endoscopy. The FDA had a second safety recommendation, CMS implemented a special reimbursement for the outpatient channel where they are absorbing the full cost of single-use endoscopy. And national bronchoscopy associations around the world have indicated that if there is a need to do a bronchoscopy, that they recommend to do single-use bronchoscopy. And it is on the back of that that we move into 2020 and 2021 with the single-use endoscopy market continuing to accelerate and develop. Now, if we look at our performance as a company, let me just say a few words regarding our anesthesia and PMD business. Our performance last year was minus 1% in terms of organic growth. And there was a lot of volatility as these businesses are driven by elective procedures. So when we saw the impact of COVID-19 in quarter three, we saw, of course, that elective procedures were canceled. the market reduced, and on the back of that, our performance declined. But since then, we have seen a stabilization, and we finished in quarter four more or less at the same level as we were in quarter one before the pandemic started. Now, within the portfolio, there is a lot of volatility. As you know, our resuscitators within anesthesia are using the treatment of COVID-19 patients, and we experienced a significant increase in demand. And that, of course, is being offset by the negative impact in patient monitoring, which is linked to these selective procedures. But overall, we are finishing the year with a more stable core business. And we expect that next year, especially in the second half, as the COVID-19 pandemic is stabilized, that our core portfolio is going to grow faster than in a normal market. Now, if we go into our visualization business, it has been an incredible performance last year. A growth of 81% exceeding the one million endoscopy mark. The investments in our commercial infrastructure, the New Mexico plant, that basically shows the momentum that we had behind what is our number one engine of growth as a company. And if you look at the performance by region, Europe basically doubled their visualization business. In bronchoscopy, it took 15 points of market share. In the rest of the world, whether it was in Japan or Australia, we also saw very rapid growth. And in North America, our 71% growth is... Higher also driven by the fact that we did our distributor transition the previous year. But if you adjust for that, our North America business grew 23% last year, with 19% growth in quarter four. So basically, our growth has recovered as the COVID-19 pandemic subsides. and all of our investments will make North America a very important growth engine of growth next year. Now, if we look at the performance of the two businesses that we had at the beginning of last year, Pulmonology and ENT, overall in the case of Pulmonology, we gained 700 new customers since the start of the COVID-19 pandemic. We expanded our market share. We finished the year with a 30% market share in pulmonology with significant market shares both in the U.S. and in Europe and with a very strong underlying demand, as I mentioned, in the U.S. And in addition to that, if you look at ENT, which is primarily an elective business, the run rate on ENT also has increased significantly. So if you compare September of 2020 with February before our COVID-19 pandemic started, our run rate has increased by 60%. Actually, we have won 550 new customers in the U.S., throughout the year with 100 new customers in Q4. And there is a very strong uptake in terms of unit sales, which will make ENT an important cross-engine for us this year and in the years to come. But it's not just about pulmonology and ENT. We have very strong momentum there, but we also enter into urology and GI. And in the case of urology, the initial performance of the product is very promising. First of all, we had positive results from our control market study, and I will share in a minute regarding the results. But our ESCO 4 system has our most advanced technology. So it's the first time that we are introducing a product that we believe It's very competitive with the most advanced reusable cystoscopies. And the traction actually has shown that as soon as you get to parity with reusable endoscopy performance, then the transition to single use will accelerate. 650 pro demonstrations, 220 ongoing trials with a major U.S. urology accounts, Thirty of the top 100 U.S. urology organizations have already converted or they are on trial phase to adopt our single-use system. Approval for Europe to start commercialization this year. And what you see on the right-hand side, is how all of this is being translated into sales. And what we have is a comparison regarding our ESCO three in Bronco compared with the first month of our ESCO ENT compared with the first weeks of our ESCO Cisco. And we were always saying that ENT was penetrating the market at four to five times faster rate than Bronco. And as you can see, Cysto is penetrating the market at an even faster rate than ENT. It's early on, but Cysto is a six million procedure market. It's the largest urology market. And everything that we know today indicates that our entrance into urology is going to be successful and our escop system is going to be a very important growth engine for the company. And let me just share with you what is so special about this product that is making this level of performance. And if you look at the clinical results that we have in terms of our system, First of all, we have 65 cystoscopy procedures performed. We use 32 top urology physicians across 12 sites. And we ask them to use our S-COP system for both diagnostic and therapeutic procedures. And we have obtained 100% success rates. Our product can be used across all different types of cystoscopy procedures, across all different aspects. And more importantly, 93% of all the ratings were very good or good ratings around image quality, bending, navigation, and the overall performance of the scope and the monitor. Now, the reason why the adoption is so fast is that when you take a reusable cystoscope and you send it for cleaning and sterilization, the image resolution of the performance of the probe deteriorates. So if you do that every day, every week, every month, after a year, you have a product with a diminished EMAS resolution and that reusable product compared with a verescope system is inferior. And that's basically what is driving the rapid adoption. Now, it's of course not just about urology. We also enter into GI. And we believe that single-use colonoscopy is going to be one of the most important markets in single-use endoscopy. And that's why this launch is so important for the company. So first of all, we advanced our control market release, which confirmed adequate performance across ERCP procedures. We are actually expecting a rapid penetration of single-use endoscopy. First of all, our US GI commercial organization is 100% in place. We are talking about 190 dedicated self-forcing GI, most of them coming from the GI sector, from the largest GI endoscopy players in the country. And they have actually performed not just over 550 pro demonstrations, But actually, they have lined up 300 of the largest ERCP hospitals in the country. These hospitals account for more than 60% of the total U.S. duonoscopy market volume. We are gearing towards a full commercial launch starting in December. And we also have submitted our U.S. clinical trial to clinicaltrial.gov. and we are expecting to start in January 2021. On the back of what we are seeing in terms of the engagement of duonoscopy accounts to adopt single use, our commercial infrastructure, the receptiveness on the product, we believe that our S-COP2 is going to be a major growth engine in 2020, 2021. Now, That makes, that's why 2019 and 2020 was so important. But we plan to continue to innovate and to continue to innovate rapidly. Our aspiration is to be the world's most innovative single-use endoscopy player. And what you have here is a pipeline that we have shared with all of you. And a couple of things. Number one, We increase our R&D organization by 80% in 2019, 2020, to make sure that we maintain our advantage in sensor technology and lightning and software. Last year, we introduced three new products. I spoke about our ASCOP Sisto and our ASCOP Duo. But, of course, we also introduced our most advanced monitor, our AVU2 Advanced. And all of our scopes works with same ABU2Advance, which also gives us modularity and synergistic effect. Hospitals don't need to buy new monitors or processors to use our technology. But once they do their initial investment, they can leverage that across our entire portfolio of offerings. Now, this new year, 2020 and 2021, is also going to be very important in terms of number of launches. We are planning to introduce four launches, out of which three are going to be in GI. We are going to enter into colonoscopy and gastroscopy in the second half of the year. We are going to introduce our new AVOX, which is the advanced processor that will allow us to deliver a superior EMAS resolution. And we are also going to expand into the Bronco suite. And right now, we have 30% of the pulmonology market, which is about 3 million procedures. But we have not entered into the Bronco suite, which is another 3 million procedures. And the launch of our S-COP5 is going to help us to double the market size in bronchoscopy and enter a market with a product that has very advanced image resolution, which will be used for physicians to do very complex diagnostic procedures. And that's going to be a very important launch and one that will ensure that our bronchoscopy portfolio continues to grow. But it's not just about our launches next year. Let me show you what we are planning for the next three years. And what you have here is a comparison of the number of launches that we had in the previous three years with the number of launches that we are going to have over the next three years. And basically, in the last three years, we introduced five new single-use scopes and monitors. And for the next three years, we plan to introduce 20 new products. For this year, eight the following year, and eight the following year. But basically, we'll make sure that AMBU continues to have by far the broadest portfolio in single-use endoscopy. It will make sure that we are the company that moves faster to the next generation technology to make sure that every time, disregarding of the endoscopy procedure, a physician tests our product and compares it with any other single-use competitor product, that it has the best clinical performance. And it will allow us also to complete our offering. All of these launches are focused on bronchoscopy, on ENT, on urology, and GI. So it's not about entering into new markets, but in the markets that we have already declared that we are going to enter, to go deeper and consolidate AMBU as a leading single-use endoscopy company. So this is what I wanted to share with you. We have a promising and exciting journey in front of us, but let me pass it with our CFO, Michael, that will talk about our financial performance.

Thank you, Juan Jose. Let me start by going through some of the highlights for the full year. We delivered an organic revenue growth of 26%, driven by 81% growth in visualization. We expanded our commercial and innovation infrastructures and hired approximately 1,000 new colleagues who have now joined Angu. Our visualization sales force in key markets have up to tripled in size. The financial results for 2020 was significantly influenced by the pandemic, leading to an overall stronger demand for ASCO 4 block and the further strengthening of the value proposition for single-use endoscopes. The demand also increased for resuscitators, which led to growth in anesthesia, while the cancellation of elective procedures meant that PMDs saw a decline in sales. For visualization, we experienced high double-digit growth rates across all geographies, leading to a full-year visualization growth of 81%. The European growth was positively impacted by COVID, as bronchoscopy is part of the treatment of COVID patients. In the U.S., however, the approach from the Association of Pulmonologists was to avoid bronchoscopy on suspected COVID-19 patients, which led to lower revenue in the U.S. in the second half. At the beginning of the year, the expected volume of single-use endoscopes was approximately 900,000 units. However, as the year developed and the demand increased, the expectation was adjusted upwards to more than 1 million. And when the year ended, we have sold 1,085,000 units, equal to an increase of more than 70% over last year. Our core business delivered a negative growth of 1%, with anesthesia posting positive 7% growth, driven by the increased demand for resuscitators. PMD saw a negative growth of 10%. as COVID globally caused a shift in priorities at hospitals, leading to elective procedures being put on hold. Lastly, we ended the year with an EBIT margin before special items of 12%, as we accelerated our commercial investments. North America accounted for 45% of revenue, with an organic growth of 25%. With the transition of the distributor in the US of ASCO 4 and an expanded visualization sales organization, US was prepared for strong growth in 19-20. A year after the transition, we can confirm that all business has been retained and that the decision to go direct was the right one as it has enabled us to deliver better service to our customers in a troublesome year where we were able to demonstrate an underlying growth in bronchoscopes by overall 23% in the U.S. The impact of COVID on the business in the U.S. is complex. Towards the end of the second quarter, we saw positive impact from the pandemic, which continued in Q3. However, as the virus spread, we saw less activity at hospitals. This was combined with restricted access to hospitals and changes in guidelines from American authorities on how and when to bronc. Since end of Q3 and into Q4, we have, however, seen a steady recovery as electives are being resumed. On this basis, visualization in the U.S. has grown 71%, with the above-mentioned 23% underlying volume growth in bronchoscopes. And the seizure grew 8%, driven by a strong demand for resuscitators and breathing circuits. P&D, however, declined by 8% as much of the portfolio taps directly into elective procedures. Europe accounted for 43% of revenue with an organic growth of 32%. Visualization sales grew by 96% as the consensus view in European healthcare was to switch to single-use endoscopes, which had a significant and very positive impact on the demand for our single-use endoscopes. Q2 and Q3 were the high points with two and three-digit growth rates, respectively, while anesthesia saw an organic growth of 6%, driven by resuscitated sales like in the U.S., and PMD declined by 10%, also due to cancellation of electives. The rest of the world accounted for 12% of revenue with an organic growth of 13%. The organic growth in visualization was 55%, driven by sales in Australia, China, and Japan. The market dynamics in the rest of the world were similar to Europe and the U.S. with regard to anesthesia and PMD, except that the surge in demand peaked in Q2. This impacted our ability to supply primary resuscitators and resulted in an organic growth of 4% in anesthesia and a decline in PMD of 15%. So now let me go through the key numbers on our P&L. Revenue for the fourth quarter was 871 million DKK of 44% organic, while our full year top line ends at 3.6 billion DKK. This corresponds to an organic and reported growth of 26%, including positive impact from COVID and the effect from transitioning to a direct sales model in the U.S. The gross margin for Q4 was 61.4%. And for the full year, our margin ended at 62%, up 4 percentage points over last year. This year's cross-profit was very positively impacted by a better product mix due to the volume growth in visualization and by scale in our manufacturing. Capacity costs for the quarter were 507 million DKK, an increase of almost 60%. For the year, total capacity costs are up by 54%, ending at almost 1.8 billion. The growth comes primarily from a 61% increase in selling and distribution costs due to the expansion of the commercial infrastructure across regions. Lastly, EBIT ended at 29 million DKK in the fourth quarter and a 3.3% EBIT margin for that quarter. For the full year, we reached an EBIT margin of 12%, corresponding to $428 million in EBIT. Moving on to the highlights of our cash flow and balance sheet. Pre-cash flow before acquisition equals negative $133 million, which again equals minus 4% of 12-month revenue. Cash flow from operating activities is down by 238%. and is accretable to the lower reported EBIT, but also to changes in net working capital. The changes to working capital include the normalization of working capital following the decision about transferring the distributor back in Q4 last year and building the direct sales organization, including a compensation paid of 136 million DKK or 20 million U.S. dollars. The milestone payment of 40 million euros or 298 million DKK conditional on the FJA clearance of our duodenoscope was paid after the end of the year in October 2020. At the end of the year, net working capital ended at 16% of Trust Month's revenue and our total equity ended at 2.4 billion, equal to a ratio of 48% of total assets. And lastly, Net interest bearing debt ended at 1.3 billion corresponding to a ratio of 2.2 times EBITDA before special items. And lastly, let me outline the financial guidance for 2021. 2019-20 marked our entry into new endoscopy areas with the launch of our single-use cystoscope and our duodenoscope. For 2021, Our organic growth is now expected to be in the range of 17 to 20%. The growth will be driven by visualization, which will continue to see high double-digit growth rates. We expect our two new scopes, a scope SISTO and a scope DOO, to contribute sizable amounts to our organic growth. The COVID pandemic have affected our visualization business in terms of change growth patterns across geographies, and these patterns will affect the geographical growth rates for visualization in 2021. And anesthesia and our P&D business were negatively impacted by COVID in 2020. Both business areas are expected to return to positive growth rates in 2021 as the market conditions improve. The negative impact of COVID in 2020 will cause anesthesia and PMD to exceed what is considered our normal growth rates for the long term in 2021. The growth rates for these businesses will be relatively low in the early part of the year, while we expect to see an increase towards the end of the year 2021. Lastly, we expect our organic growth to be back-end loaded, and especially Q2 and Q3 can be relatively soft due to the last year's comparables. In terms of EBIT margin bespoke special items, we expect to be in the range of 11% to 12%. The quarterly buildup of the margin will be back-end loaded as we continue to build scale as we launch our pipeline and convert the market. Endoscope unit sold is expected in the range 1.3 to 1.4 million units. Growth will be driven by the bronchoscopes, but also the rhinolaryngoscopes, ENC, the cystoscopes, and the duodenoscopes are expected to contribute to the overall unit growth. With this update, let me give the word back to you, Hans.

Thank you very much. And let me just say that this guidance reflects a strong momentum of the company. the ability to continue to grow at very fast rates on the back of innovation and investments in commercial infrastructure. AMBU has the potential to become one of the largest European-based metacompanies, a company that is known for rapid growth, for high levels of profitability, and for the strong creation of shareholder value. Now let's go into the Q&A.

Thank you. If you would like to ask a question, please press 01 on your telephone keypad. If you wish to withdraw a question, you may do so by pressing 02 to cancel. That is 01 if you would like to ask a question. Our first question is from Catherine Tennyson from Bank of America. Please go ahead.

Hi, thank you so much. I have two, if I may. So, my first one, I'm just wondering if you'd give me an update so far on the number of doctors that you've already signed up for that geodemoscope trial commencing in January of 2021. I just noticed on slide 13, you indicated that the controlled market release confirms adequate performance of that geodemoscope in the ERCP procedures. What has been your main pieces of sort of negative feedback or concerns from doctors that have looked at this product so far? And then on my second question, in Q4 we had 255,000 scopes, which is a pretty solid number, but it did fall slightly below consensus expectations. Can you just help me understand what drove that slight weakness? Was it inventory buildup in hospitals as a result of COVID stockpilings? competition dynamics in various regions, so any color on that would be helpful. Thank you.

Yes, Kathleen. Thank you very much. And listen, in terms of the clinical trials, you will see the details in clinical.gov, but we are targeting multiple sites, and we can get this site. There are multiple duonoscopic physicians doing the test. So you're talking about... large-scale number of people that will participate in the study, which is what you need to be able to do a study of 500 patients. In terms of CMR, I think we say that it's adequate as it reflects the fact that there are several different ERCP procedures of very different levels of complexity. And right now, the experience that we are having shows that the product can perform across different levels of complexity. I mean, the only thing that we can tell you is that there are some highlights regarding the superior performance of our DeskCop Duo. Image resolution, field of view, weight of the scope, maneuverability, which is very important in ERC-based. And then we also see that there is a learning curve. These are new products for a physician, different to a reusable scope. They are designed to be very similar, but at the end they are slightly different, so they always have to learn how to basically maneuver them. And what we have seen is that when they go through a couple of procedures, they are able to to quickly adjust our technique and being able to perform them successfully. So that's as far as we can tell you. And then in terms of volume, last year has been a year of significant volatility as you can imagine. And the main difference between Q4 and Q3 is mainly where, as you might remember, Europe grew exponentially in Q3, and there were movements in terms of orders and so forth that create such a difference in terms of growth rates. But when you step back from all the volatility and you just see the overall growth rate for the year, You can see that we are finishing having gained significant market share in pulmonology with a very encouraging performance in terms of ENT system. And then on top of that, we have Duo that we believe is going to be an important growth engine for us this year. So that's maybe where it's better to focus on.

Super, and I just want a quick one, if I can squeeze it in. Just doing last math, to me it looks like relative to Q2 and Q3, we've seen a low single-digit decline in the average ASP per scope. Can you help me understand the mixed effects that came into play in Q4, or basically any idea on proportional pulmonary versus ENT versus other scopes that you sold with Q4?

Yeah, hey, I cannot give you the breakdown of our scope, but I can tell you that, as we have been saying all the time, that we have very, very stable prices. So the only impact you're seeing in the average blended ASP from quarter over quarter in Q3 into Q4 comes from that blend. I think, as Juan Jose was also alluding to, what is very important to understand is that in Q4 we have a high growth in age groups in the U.S. of 19% if you measure the direct growth in the market. That is what has been actually delivered into the hospitals. So that's probably one of the issues or one of the reasons why you see an uptick in the overall price because we have very high prices in the U.S.

That's super. Thanks so much.

And our next question is from Christian Ryan from Nordea. Please go ahead.

Hi. Good morning. I have three questions. So my first question is to your visualization sales in North America and whether you can sort of comment a little bit around the sales dynamics here in Q4 and whether you consider your sales to be satisfactory. Because when I look back to 1819 and Q2 and Q3, so the two quarters prior to your tri-annual termination, you did around 23, 24 million US dollars in sales in North American visualization. Since then, you've tripled the sales force. You've launched three new products. And here in Q4, you then do around 28 million US dollars. So how should we think about this? Is there an impact from competition? Is it a matter of the market not really being back from COVID yet? And would you have expected more? So that's my first question. And then my second question is to the growth opportunities in the new products that you're bringing to market for the current year. So you mentioned in connection with guidance that you expect sizable impact from both the Cystoscope and the Dudenoscope. You didn't mention the ENT portfolio. Is that simply just a matter of it not having been launched in the last year? My question is really whether you could give any sort of light on the hierarchy of which of these new products you expect to contribute most to growth. And then my final question is just a quick one on the Dudenoscope trial. Can you give us sort of a very rough indication on the length of this trial? Should we expect a readout after a couple of months, or should we think something more like nine, ten months before we have a readout from the start in January? Thank you.

Hey, Christian. This is Michael. So I will take the first two questions, and Juan Jose will take your third question. the visualization growth in the US is really, really difficult for you to evaluate based on the numbers that we provide. So I think the best indicator we can give you is that this year we have been able to grow 23% over last year. So what we're telling you is that In 1819, we had the buildup of the distributor and by the end of Q3, we communicated to transition the distributor and there was all the inventory liquidation and so forth. What is important to understand is two things, that we had a very, very satisfactory transitioning of the distributor. We have taken over all accounts. There has not been any casualties in that process. And on the back of that, we have retained the prices. We have the expected price levels in the U.S. that we had when we were for the portion of the account where we were direct. And that entire portfolio, including what was taken over, have been grown by 23% on average throughout the year. That's been some lows and some highs in the quarter, especially the Q3 was very difficult, as we reported, but overall 23% on top of the transitioning is a very, very satisfactory result, we believe. With respect to the guidance, I think I actually said when I mentioned the number of scopes, I mentioned Sisto, Duo, as well as ENT. So if I did not put words to it with respect to the growth in values, that was a mistake. You're going to see a very, very nice growth contribution next year from all three recently launched products, namely ENT, Sisto, and Duo, and we're very, very comfortable about the prognosis that we're working with. Okay, thank you.

Yeah, thank you. I would just add what makes AMBU such a unique company, the number of growth engines that we have. Just if you look at our exit higher share point in pulmonology, as the market stabilizes, you should expect our pulmonology portfolio to grow at a very healthy rate. On top of that, we are is still building EMT. And, of course, we just launched Sys2Undo, and we are expecting an even faster level of adoption. So we don't rely on one specific launch, but the fact that we have four attractive growth engines for the company is at the core behind our ability to be able to set such an aggressive guidance in terms of top-line growth. Now, in terms of the clinical, we expect it to take us a year to complete. And, again, we will share preliminary results when we finish our first 60 patients. And, of course, we are moving with the clinical trial because we are confident regarding the performance of our product and the ability to show positive results in a clinical.

Okay. Thank you very much.

Thank you, Christian.

And our next question is from Thomas Bowers from Down to the Bank. Please go ahead.

Yes, thank you very much. A lot of sort of follow-ups here from the – first of all, can you just confirm that the ASCO Bronco in Q4 in the U.S. was 19 percent? That was sort of what I heard you say or think I heard you say previously. And then maybe in connection with that, can you maybe comment a little bit on how you see the first part of the first quarter here related to the ASCOPE, with also in particular the increases in COVID-19 cases here in Europe, and maybe UK in particular, and maybe also if you have any color on inventory levels at the hospitals. So that would be very helpful. And then just a follow-up on the duodenoscope. So I understand the trial will take approximately one year to complete. So what's the sort of the timeline for the first 60 patients? And can you confirm, is this still a U.S. trial, or have you included European hospitals to that as well? Thank you.

Sure. Go ahead. So first of all, let me just confirm our growth of 19% in Q4, that was our age of Bronco. Now in terms of COVID-19, I think we are going to have a difficult winter and we are seeing a rapid increase in COVID-19 cases. And we should expect a similar dynamics to what we saw during the first wave, but maybe not to such an extreme level. I think hospitals are starting to learn how to treat patients. They are also learning how to be able to continue elective procedures in spite of the pandemic. So the big switch that we saw in the first wave is something that we are not expecting. Now, having said that, we believe we are going to see a positive impact in Europe. We feel that in the US, there will be more pressure, but as we have a larger commercial infrastructure, a larger number of new accounts and deeper penetration that we should be able to continue to grow. And then we are expecting not to face COVID-19 challenges in the second half of the year. And on the back of that, we will see a very strong acceleration. And then finally, I mean, we'll share with you the 60 patients as soon as we have them. And this is still a U.S.-focused trial.

Okay, thank you very much. So just to understand, so in the full year guidance, 2021 guidance, you have some impact expected from COVID-19 in Europe, is that correct?

Yeah.

Okay, great. Thank you.

Thank you.

And our next question is from David Adlington from JP Morgan. Please go ahead.

So just in terms of the cadence through the year, it looks like you're putting towards obviously a stronger second half with respect to the top line of margins. Just wondered if you could use any sort of bandwidth around the cadence of margins and particularly through the year and whether we should be thinking about Q1 being perhaps even lower than the fourth quarter. In terms of, again, just around the scope growth, you're looking to potentially another 200 to 300 scopes over last year. I was wondering if you're willing to just give us, you know, all that extra 200 to 300, roughly how many you're expecting from Bronco, Dubdina, and Sisto, and NEMT would be useful. And I think also just more generally, do you have any plans for greater disclosure around the actual scope numbers rather than just one particular scope number, which is becoming probably a little bit less helpful? Thanks.

Sure, David. I lost your voice for your third question. Do you mind repeating that?

The first question?

No, the last one.

The last one, yeah. Any plans to improve your disclosure around the number of scopes? A single scopes number when you're reporting now of four or five different types of scopes? a single scope number is probably less helpful if we actually got the actual numbers of individual scopes. Thanks.

Yeah. So let me address the question number two and three, and then Michael will talk about the expected evolution of our margin quarter over quarter for this year. So today we do not provide specific information by segment. We give you our overall for visualization, anesthesia, patient monitoring, bioregion, the pipeline, and we give you some highlights in terms of what is the level of traction. And of course, we are always looking at making sure that you have enough information to be able to properly assess the company. So we haven't made any decisions regarding further disclosure by segments. But of course, we expect as the business becomes larger and more complex at some point, that's something that we will certainly consider. But this I can tell you, as Michael mentioned before, we expect ENT, CISTO, and DUO to be important growth engine for us starting this year. And the combination of the rapid penetration In the case of Duo, the high price point make it have a positive financial impact in the company. And then this is something that you need to estimate in terms of how much will it be.

Okay. Hey, David. So I think when you make your model on how the scalability of AMBU is going to evolve as we go into the year, I think you need to make the prognosis on your growth, of course. And as we said previously, we expect the full Salesforce expansion to be in play when we go out of this current quarter here. The model is, of course, going to be very front-end loaded. That means that the margins that we're going to have in the late part of the year are going to exceed what we will be reporting here in the beginning of the year. It's difficult for me to guide you with a lot more details without really getting into the fundamentals. So I think those should be the main assumptions that would apply to your model. Okay, fair enough.

Thank you. And our next question is from Yiwei Chao from SCB. Please go ahead.

Thank you for taking in my question. I have two. Firstly, a follow-up question on the even margin guidance here for next year. Would you please give us an indication on your expectation for gross margin and also any comment on the sales marketing cost and R&D expense would be very helpful. on the CapEx ratio, the two percentage point increase CapEx ratio for next year, and how much does relating to the Mexico plan, and how much will increase depreciation when the federal expansion is done? Thank you.

Yes, so let me see how much I can help you here. Your first question was about, you said, our expansion of the gross margin? Yes, exactly. I think the way you should see it is that what is driving the gross margin is the product less the capacity cost that we have in our operation. And overall, the capacity cost that we are going to have as we go into 2021 are not going to exceed very significantly above the level whereby we enter 19-20. So we're going to see a pickup in the gross margin that is relating to the impact from the positive mix that we're going to have. Then you talked about the Mexico and the level of investment that we're going to have this year. The level of investment here in 2021 are going to be relative modest. I cannot give you the exact number, but out of our total investments for this year, it's going to be, say, well below 10%. So the part of the investments are going to come the year following 2021. And then with respect to the amortization that this is going to drive, that is obviously too early because those are only going to kick in in the year 2022, 2023. But as I recall, we will be amortizing such an asset roughly over 15 years.

Very great, thanks. And a follow-up question here, and how much capacity do you expand to in Mexico plan?

We have not said anything about that yet, but we will come back on it on a later time when we approach the opening of the factory. Great, thanks.

Thank you.

And our next question is from Niels Lipp from Carnegie.

Please go ahead. Good morning. So my first question on your duodenoscope, do you expect to sell it while you trial the product in these 500 patients? And also, are you expecting to get paid for those 500 scopes or products? how many is going to be used for those 500 patients. And that leads me to my last question. So what would be the total cost for this study? Thank you.

Sure. So first of all, let me just go back to my comments regarding the progress on the commercialization of our Ascope Duo. We have 100% of our GI commercial organization in place. That's a cell of about 190 people. We have done more than 550 demonstrations. We have lined up 300 of the largest ERCP centers in the U.S. that account for more than 60% of the total U.S. volume. to start evaluations as soon as we start our full commercialization, which is 1st of December. So if you're asking me whether we are planning to sell while we do the clinical trial, yes, the plan is to do this full commercialization And that's why we say that what ASCOB do is going to be an important growth engine for the company. And it's going to be basically the driver of the fail. It's not going to be the clinical trial. Now, in terms of the clinical trial, we don't really comment in terms of details of how the mechanics work. But we are commercializing this trial, basically.

Okay, great. And then just finally, did you still record a positive ASP effect of approximately 13, 15% in your U.S. visualization division in quarter four?

Could you repeat that again? Whether we record a... Whether the...

ASP effect was positive by around 13% to 15% in your U.S. visualization division in quarter four as in the previous three quarters.

Yes. Year over year, we are seeing exactly the same prices on our direct business as we've been seeing in the previous quarter. So that means that the uptake that we have gained from transitioning the distributor has been booked.

And there will be no ASP effect from the Bronco in the U.S. in fiscal 2021?

Not something that is out of the extraordinary. We have a very, very stable business over there. I think that's also what we have been communicating quite over some quarters, Nils, that because we have a unique product here, we have stable prices, and that's also the reason why We're not coming out saying that attesting the product to PPO contracts comes at a big cost. That's not how it is playing out.

Okay, great. I'll jump back in the queue.

Thank you.

And our next question is from Benjamin Silverstone from ABG. Please go ahead.

Thank you, and thank you for taking my questions. I have two, if that's okay, and I apologize in advance if they've already been asked. I was briefly interrupted on the call for one brief moment. The first question is in regards to your new product launches. You announced that you have eight new products launching in the next few years, in addition to the 12 that we already knew. I was wondering if you were able to give a bit more flavor on these eight new products that we don't really know anything about at the moment. and potentially some flavor on the size of these products and the material nature that they will have on your business. And the last question is in regards to your production. You mentioned that you will open your new production plant in Mexico in 2023-ish. And as I recall, you have a capacity limit in Malaysia of around 3 million scopes. Would you be able to give some flavor on the production capacity at your new plant in Mexico? Thank you.

Sure. Thank you. Thank you, Benjamin. So in terms of your question regarding the new product launch, do you mind just repeating again exactly what you would like to know?

Of course. Thank you. So if you could give some flavor on the material nature that it will have in your business so you know which products they're going to be.

Yeah. Yeah, let me just give you a bit of perspective. First of all, we are going from five new pros to 20 new products. And that just shows the power of having an R&D modular engine. Because only if you have an R&D modular engine, you are able to basically do what is called core-based innovation. and then customize it to be able to come up with multiple products at the same time at a faster rate with lower costs and lower development risk. And this is something that, as you can imagine, we are going from five to 20. And as we continue to remain committed to our investment in R&D, When we go and announce our pipeline from years four to six, you should expect to see another jump in terms of number of new products. And our plan is the following regarding the next three years. is we are going to remain focused on a bronchoscopy, ENT, urology, and GI. So all of these launches, the 12 that you know plus the eight new ones, are going to be focused on this segment. The second thing is, similar to what you are seeing over the next two years, the plan is that we continue to introduce very rapidly next generation of products. In the same way as we went from ESCO 1, 2, 3, 4, 5, you will see us with our ENT high resolution, our Cystoscope high definition, and our Duo version 1 and Duo version 2. You will see us actually continue to move very rapidly to the next generation. We consider this to be an innovation race. that we intend to win. Now, as we move into next generations, we are also completing our portfolio. We want to make sure that where it is in bronchoscopy or where it is in GI, that we have the most complete portfolio. That's what you are seeing us launching our Ascope Duo, a column, a gastro, a dual version two. And you can imagine that part of these eight new pros will make sure that within GI, we continue to innovate and complete the portfolio. And that's basically the strategy in terms of our innovation. You will also see us focusing on more advanced monitors, more advanced eight-box processors that help to strengthen the diagnostic performance of single-use products. Now, in terms of how material our launches in year three are going to be, the only thing I can say is that we are focused on making sure that we have an innovation cadence that allows the company to sustain its rapid growth rate as it becomes larger and larger. And that's basically how we have selected the next kind of a year, three new products, and that's what we are expecting in terms of the impact.

And Benjamin, with respect to the capacity, you are fully correct that out in Malaysia we have a blended capacity. somewhere around 2, 3 quarter, 3 million units per year. And you can almost do the math that assuming that the factory in Mexico is available in the beginning of 22, 23, we are going to have quite significant headroom still remaining in Malaysia to grow. With respect to the capacity that we will be building in Malaysia, we would like to move a little further into the construction before we give you further details. But it's going to be a very comprehensive site that we will be setting up in Mexico.

Thank you very much.

And just as a reminder, if you do wish to ask a question, please press 01 on your telephone keypad now. Our next question is from Michael Healy from Barenburg. Please go ahead.

Good morning, guys, and thanks for squeezing me in here. Just a couple of quick ones. I know you spoke earlier on this year about new accounts being created. I think you had 10% extra in Q2 and then maybe 5% in Q3. Do you have a number at hand for your total global accounts now? I think it was about 6,300 before. Any details on that? Just on the GPO contract, I think it's quite positive there, but just to confirm, You mentioned that the ASP is set to remain stable, you know, broadly with the group that we've seen up to now. Is that the case? And is that the case for the duration of the contract, three years? And is there any kind of minimum order commitment from these GPOs in order to enter into these agreements? Thanks a lot.

Sure. Thank you. Thank you for that. So, in terms of total number of new accounts, I guess you had a number before, and you can, you know, you can look at how many new accounts we have now. But I would say that we, if you look at the key markets where we have a direct commercialization, we have been able to penetrate with our single-use bronchoscopy in all the major healthcare systems. Now, in terms of ASP, this is important to know. If I'm a GPO and I decide to create a single use endoscopy segment and I look for a partner to have a sole source agreement, basically AMBU is the natural partner. It has the most attractive economic offering. with a significant price advantage. It has the broadest portfolio. It has the best clinical performance. And on top of that, it has a pipeline that will allow any healthcare system which are part of the GPO to use single-use endoscopy across the procedure. And it is because of that that when we have signed this agreement, we haven't had to reduce our ASP. Our ASP is stable. for the entire duration of a contract. Now, every agreement is different in nature. In the case of Premier, for example, you have a Surpass and the Ascent agreement programs, where if you are a member of that program, you need to get a percentage of your total single-use endoscopy buying from a manufacturer, in this case from AMBU. And the implication of that is that we not only have access across all the healthcare systems which are part of the GPO, but it's also difficult for any member to move away from our single-use bronchoscopy, for example, because then it will lose the preferential in terms of pricing. And we also get a benefit that as we introduce our pros, they are in the contract, and then they are embraced by the healthcare system so they can get to that level of volume threshold to access for the preferential terms. In other GPOs, you have different programs, but in general, what these GPOs agreements are doing two things. One is creating the single use endoscopy category. And that was very important for us because now we are not going to compete in urology and GI as a very small company going against very large players. Now within single-use endoscopy, we are the largest single-use endoscopy player. But also it's giving us a reach and access for all of our 20 new pros coming in. and creating barriers for any company that tries to move health assistance away from AMO.

Great. Thank you. And just to follow up then, is there an agreement within those contracts then for some of the new projects that are going to launch in the coming year or two, particularly the colonoscope and gastroscope? Is there a price agreed there?

Yes. I mean, again, it varies by type of program within the GPO, but in the ones where we have the agreement, we actually have automatic access. As soon as we get the FDA approval, then we are able to commercialize the product. And that's for all products to be launched during that time of the contract.

Okay. Thank you very much, Juan Jose.

Thank you, Michael.

And just as a final reminder, if you do wish to ask a question, please press 01 on your telephone keypad now. And we have no further audio questions. I will hand the word back to the speakers.

All right. Thank you very much. And let me just say 2019 and 2020 has been, I would say, a difficult year for anybody that works in health care. It has been a reminder regarding the importance to collaborate, the importance to work together across government, healthcare systems, and manufacturers, the value of innovation that helps to address problems like contamination and the important role that society plays. We have tried to fulfill our responsibility. making our resuscitators and single-use endoscopy available. But also in the process, we have seen an acceleration in the development of the market. We have demonstrated a very strong performance. We have invested in our commercial infrastructure and innovation pipeline. We have entered new segments. And now we have a new year coming in. We will still face a pandemic, but we are confident that we are building all the right assets to make sure that this company fulfills its potential and in the process becomes one of the largest European-based metacompany. Thank you very much.