Ambu A S Ord

Good morning, everyone, and welcome to this call today with the Q2 2023-24 financial results from Ambu. My name is Britt Milby Jensen. I'm the CEO of Ambu. And with me today, I have Henrik Skakbender, our CFO. The agenda for today, as usual, is that I'll go through some of the business highlights, and after that, I'll hand over to Henrik to cover the financials, and we will finish today's meeting with a Q&A session. So let's dive right into it, starting with the financial highlights. So for the Q2, our second quarter of the fiscal year, we delivered a strong organic revenue growth of 15.5%. This was driven by a strong momentum in our endoscopy business where we grew 22.3%. If we look at our profitability, we continue to also strengthen that with an EBIT margin before special items of 14.2% compared to 3.9% in the quarter just one year ago. The free cashflow, we also continue to strengthen that. We delivered 128 million for the quarter. Again, continued strong momentum here. And if we look at the overall business from the first half of our fiscal year, 23, 24, we have delivered a total organic revenue growth of 14.9%. So later this month, it will be two years since I took over as the CEO of Ambu. I'm very proud about the momentum that has been driven in these two years. It's basically coming from very dedicated colleagues that understand how we deliver value to our customers who go to work engaged and motivated every day. We have made great progress on the transformation journey that we launched with our Zoom In strategy, but there's still a lot more that we believe that we can do to take this even further. So let me give, as usual, an update on our progress on the strategy, starting in the top left corner here with our innovative solutions. Because we did have some progress this quarter with two new FDA approvals in our gastroenterology portfolio. We had our new generation of our Ascope Duodeno 2 approved by the FDA a little over a month ago. And we also had our Ascope GastroLarge with a larger working channel approved. And then on top of that, we are announcing a bronchosimulator that I'll come back and talk about, which is a good training tool within our key segment pulmonology. We are continuing our transformation and our strong focus on how we execute in this quarter as well. You see that both in the revenue growth but also in the increased profitability. We are laser focused on taking price increases in the areas where there's a need to improve profitability. And then we also continue our transformation to improve efficiency and scalability in how we work. And we are on the plan that we launched together with the strategy end of 2022. On the people side, we have strengthened our organization, bringing both new people into the leadership team and also bringing new capabilities in to improve on how we work in delivering on the strategy. And then we are also making progress in how we work strengthening both our global mindset and also the impact we have in front of the customers. On sustainability, I, in the last quarter, talked about how we have our science-based targets approved and how we have also made a clear plan for how we are net zero by 2045. What I'll report on this quarter is that we are now, with our GastroLarge, launching the first endoscope in the US market made of the bioplastic material, that we are gradually converting all our endoscopy portfolio to be using this material, which we will be complete by, as previously announced, early in the next fiscal year, 2024-2025. So overall, again, another strong quarter with good momentum and progress across the full portfolio. Let's look a bit at the financials. So we delivered in the quarter a total revenue of 1,367,000,000 DKK. That represents a growth of 15.5%. If we look at how big a share this is of our total revenue, we are now with endoscopy at 59% of the total revenue. driven by the 22.3% growth. And then with a nice growth in anesthesia and patient monitoring, this represents today 41% of our total revenue. So if we dive into the segments now, starting this time with anesthesia and patient monitoring. So as you could see here, we delivered 560 million corresponding to the 7%. And for the full half year, we delivered 4.2% growth. If you look at these numbers and compare with last year, you have to reduce the focus by 20 million, which is 20 million we had of revenue in the 40 markets that we also reported on last time that we have exited. Then another key focus that we have in this segment specifically is on price increases. We have carefully examined our business and have looked to increase prices in the areas where we are either not profitable or have too little profitability. This we are delivering on in line with our expectations and actually the outcome of some of these negotiations on big contracts, which is something that is continuing also into the next quarters that we look at. That means that what we have seen now is that we expect for this fiscal year positive growth in anesthesia and patient monitoring. This was a little more difficult to have a full transparent view on a couple of quarters ago where we still had more of these negotiations in front of us. Now let's look at our endoscopy business. Again, we grew 22.3%. We delivered 807 million DKK for the quarter. And if we look at the total growth also coming from a strong Q1 that we reported on a couple of months back, we are now year to date at 23.6% growth in our endoscopy segment. This is driven by a combination of strong growth, both in pulmonology, ENT and urology. Looking into the details of what we have delivered and the strong momentum, it also means that the guidance that we set for this segment in the beginning of this year of delivering around 15% endoscopy revenue for the full year, we are increasing that to say above 15% because we believe that we can do better with where we are today than the 15% that we previously reported on. Let's go more into the two different segments that we report on, starting with pulmonology, which remains still our biggest endoscopy segment. This is a segment that you know has been previously impacted by COVID. We are now post that and have come to the normalization as we also mentioned in the last quarter. This quarter's revenue of 427 million and a growth of 13.9% brings us to a year-to-date growth of 15.9% and a total of 825 million DKK. We are, as usual at this time of year, we are affected by the flu season. I'll come back and comment on that shortly. We continue to have strong momentum, both on our ASCOPE4 and also strong progress in our most advanced scope, ASCOPE5. And then we have vivacide, which we did not have in Q2 last year. It was launched around the end of the Q2 last year. Then on the ASCOPE 5, as you know, we previously reported that we are the only bronchoscope out there that has received this special reimbursement status with the Center for Medicare and Medicaid Services. This means that for procedures done with our ASCOPE 5 scope, hospitals can get additional reimbursement. We are happy to announce that we are continuing to see positive interest towards this opportunity and it's something that we are continuing to focus on. Let's just look at the flu data. And what you see on this graph is data from the flu season focused on the U.S. You see the flu season development measured as visits to a health care professional driven by flu-like infections. flu-like symptoms. And what you see on this graph is that not only in this fiscal year, in the first half, we have had an above average compared to the last five years in terms of flu rates. And remember, this does have a positive impact on our pulmonology business. What we saw compared to last year, we had a very strong Q1 in terms of flu levels, where it was slightly lower this year. If we then look at the Q2 that we just finished, we saw last year that the flu levels... went down quite significantly, where this year they stayed at a higher level compared to previous. So overall, this does have a positive impact. We do not specify exactly how much. It can be a little difficult to get the full details, but we definitely see a strong correlation here. Now let me move to what I talked about before, our Bronco Simulator, which is a product that we have made available for training purposes of pulmonologists around the world. Basically, it's a product that is not yet approved to be used in patients, so it's only for training. And therefore, it's also not a product that is generating any form of meaningful revenue for the business, just to make that very clear. However, it is a product that receives a lot of interest and positive feedback because it enables healthcare professionals in a training session to look at both to document and also to track where in the lung and anatomy have you been with the endoscope. So overall, this is something that for us is a first of many steps into using AI into our products. It's a key focus in our R&D team because we do believe that through AI technology, we are able to improve the performance of our scopes going forward. Something that you'll hear much more about in the coming years, but for now, this is a tool that is available for training purposes. So let's look at the endoscopy business that is outside pulmonology. So this is ENT, urology, and GI. In this segment, we had for the quarter an impressive 33.3% growth, leading to a total revenue of 380 million DKK. And for the first half of the year, we are at 33.7% growth. This is mainly driven by continued very strong growth in both our ENT segment and in urology. If we look at the urology segment specifically, this continues to be the sister scope driving the majority of this revenue. We did some quarters back get our ureteroscope approved in Europe. It's still pending in the U.S., but this is not yet driving any meaningful revenue as we are still in the controlled market release phase, as we call it, when we are still testing the product with key hospitals. Also, to strengthen our revenue in this area, we are continuing to expand our portfolio, and I am happy to touch upon two key approvals that we had with the FDA in this quarter. The first one is our new generation ASCOPE Duodenal II. So this is a product that represents a new generation of our Duodeno II. It's based on our existing technology platform that we use for all the other scopes. It's a product that is designed to both relieve the burden of the complex reprocessing that you have today, but at the same time also with a fully sterilized endoscope meet the demands that the healthcare professionals have when they're performing these quite complicated procedures. We have worked closely with leading physicians in the space to come up with this new generation and improved solution, where we have enhanced, compared to the first version that we came out with, enhanced the product on a number of key features, such as imaging, such as the way that the product is handled, and some of the components around the maneuverability. Given that the nature of ESCP procedures is quite challenging for physicians, we do not have strong expectations of a rapid uptake. How we are going to do in the coming months is that we are working with selected key hospitals for again what we call our controlled market release, where they for the first time can use the product in patients and give us the feedback that we are looking for before we are looking to bring this out commercially in our fiscal year 24-25. What is also very clear is that for this product, it was an area that we made a huge bet in a couple of years back. The approach that we take today in this segment is quite different. We are very focused on taking a stepwise approach as when we launched our bronchoscope many years ago, it was a step by step until we got a meaningful penetration. And we are expecting to do exactly the same. We have learned a lot from the physicians from our previous experience. We have built a strong network, and we do believe that we have something to offer, but most of our commercial resources are still focused on the three other segments that I talked about, pulmonology, urology, and ENT. Let me talk about the other approval that we had with the FDA. And this is our Ascope GastroLarge. So basically, the only gastroscope out there with this large a working channel. This is something that has been quite in demand from a number of healthcare professionals because having a 4.2 millimeter working channel allows them to do therapeutic procedures that are much easier than they have been able to do before. An example of this could be acute bleedings that are performed in many countries in the ICU department. So this is also a product that fits well into our GI portfolio, where we will exactly, as I talked about with our duodenoscope, together with the existing gastroscope that we have on the market, we are taking a step-by-step focus on the niches where there's a high need approach in how we roll this product out. So before handing over to Henrik, let me just look at the market, finishing off with that, and also to illustrate why we are focusing across the different segments. What this graph shows, and you have seen this before, is the number of procedures performed in the countries that we focus on, which is still around 100 million procedures in total. The value of an endoscope across these procedures varies across the segments, and we have not included that for simplicity on this map. But what you do see on this map is the dark blue color, which is most prevailing to the left in the pulmonology, urology, and ENT segment. This is the current sales volume that we have today. So we stopped some quarters back announcing specific volumes in terms of number of scopes that we distribute or that we sell in each of the different segments that we are in, but this should give a rough picture. The light blue color that you see on the picture is how we best assess the addressable market out there with our current portfolio. Here it's important to mention that this is, of course, very subjective for healthcare professionals. Some believe that it's useful in some processes, others do not. So it's an overall estimate. And what is also important to note here is that we are continuing our innovation and R&D efforts to expand the use of the scope within each of the segments. So this is only a picture that you see now where the light blue color will expand over time. My final point with this slide is to note that the GI segment represents around two-thirds of the total number of procedures done in endoscopy. This also explains why this is a market that we continue to see an opportunity in, because this market is compared to pulmonology, urology, and ENT, where not so many years ago these segments were not served by single-use endoscopes, but they are today. And we do see in gastroenterology over time with the longer-term glasses on that this market has potential to convert segment by segment into a single-use market. And this is where, as market leaders in single-use endoscopy, we believe that we should be at the forefront. And we have now products that we can continue to expand from and that can be used in the hospitals. So this concludes my session, and I'm happy to hand over to you, Henrik, to go through the financials.

Thank you very much, Britt. And I'm happy to be here today and present the financials for Q2. So let's jump into it. As Britt said, we had a very strong Q2, total reported sales of 1,367,000,000 DKK, a total reported growth of 15%, of which 15.5% was organic growth and a negative currency effect of 0.5%. If you look at the growth by segment, Britt has addressed that. Of course, that was mainly driven by our endoscopy growth, second by anesthesia and patient monitoring. From a geographical perspective, we had strong growth across all of our three overall geographic regions, with particular continued strong momentum in the U.S. and also very solid growth in EMEA. So another very solid quarter. Turning to margin, as Britt also said, we had a strong pickup in 8-bit margin in our second quarter. both if you compare to last year, where we had an improvement of more than 10 percentage points, and also if you compare to our Q1. The main driver of this improvement is still a better OPEX ratio, so OPEX leverage, second by also an improvement in our gross margin. And let me just double-click on that. So starting with gross margin, we had a pickup of a total gross margin level to 813 million DKK. representing an improvement of almost 4% in points in gross margin level versus the same quarter last year, bringing us to a 59.5% gross margin for Q2. The main drivers of this improvement is a combination of, one, the pricing increases in anesthesia and patient monitoring that Britt also talked about, the mix between endoscopy and anesthesia patient monitoring, where endoscopy still has higher gross margin, production efficiencies, and also a bit of tailwind on the currency side. But the main driver still being pricing and the mix between endoscopy and anesthesia patient monitoring. Secondly, looking at OPEX, we saw a leveling out, a plateauing of our total OPEX, so our Q2 OPEX ended at 619 million DKK, which is pretty much flat, versus last year at 618. Therefore, with a solid growth, the OPEX ratio dropped almost by seven percentage points, 6.7 to be exact, even though we have been investing more in our commercial resources across the organization. The main driver of this is that we still see a drop in our distribution costs, which is only partly offset by more investments in our commercial organization. Looking ahead, we will continue to invest in further growth, and therefore we are expecting the total OPEX to go up in the quarters to come, but we're also still targeting a further improvement in the OPEX ratio. Turning to cash flow, We're very happy to report another quarter with a strong cash flow. We reported a total free cash flow for Q2 of 128 million DKK, bringing the first half year to 263 million DKK. If you see how that has developed over the last five quarters, you can see that now we are at a more stable level. Our network and capital ratio for Q2 ended at 20%, something I'll comment more on in a second. And overall, we see a good and solid cash conversion in the business. However, we also still see a slightly lower capex level than we would expect going forward. And therefore, even though we are now guiding on a higher cash flow, we will expect a slightly lower free cash flow for the second half of the year. More specifically, as I said before, our networking capital ratio against revenue is now at 20%, which is also the level we're targeting long-term. We're seeing a solid development both on trade receivables and payables and also an adequate buildup in our inventories to support further growth. CapEx ended low, even though it was up from the last quarter, from 4% now to 5% in Q2. It's still below the historical level, and we are expecting this to go up in quarter three and quarter four, so overall to go up in the second half of the year. Overall, with the continuation of the implementation of the zoom-in strategy, we are expecting the EBITDA to continue to go up, supporting also a further improvement in our EBIT margin. So lastly, we are happy to reiterate that we, on the 10th of April, increased our guidance for the full year on revenue to 10% to 12% from a previous guidance of 7% to 10%, and on EBIT margin also from 10% to 12% from a previous guidance of 8% to 10%. Furthermore, on cash flow, guidance now of a total of 370 million plus. Next to this, we are now on revenue, as Britt also mentioned before, specifying on revenue growth specifically, that we're expecting our endoscopy solution to grow more than 15%, compared to previously where we were guiding around 15%, and also that we are now expecting positive growth from anesthesia and patient monitoring. All of that said, we are still seeing ahead of us for second half, as I commented on in our Q1 update, some challenges ahead in terms of the percentage growth levels, both with harder comparables on pulmonology for Q3 and Q4, and also we are still seeing some risks within anesthesia patient monitoring, which is why we're still keeping the guidance at a total growth of 10% to 12% despite the very strong second quarter. That concludes the finance update, and with that, I will hand it over to the operator for questions. Thank you.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask the questions may press star and one on a touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question is from the line of Martin Breno from Nordea. Please go ahead.