Ambu A S Ord

Hello everyone and welcome to the AMBU presentation of our Q3 2023-2024 financial results. I'm Britt Milby Jensen, I'm the CEO of AMBU and with me today I have Henrik Skagbender, our Chief Financial Officer. On the agenda today, I'll start providing an overall update on the business, and then I'll hand over to Henrik to go through the financials, and then we'll end with a Q&A session. So jumping right into the numbers, we delivered in Q3 2023-24 a total organic revenue growth of 15%. If we look at how that is split into the different segments, starting with the endoscopy solutions segment, we grew 18% in our endoscopy business in the quarter and 21.6% in the full nine months of this fiscal year. When we look at profitability, our EBIT margin before special items ended at 12.9%. And on the free cash flow, we delivered 163 million Danish kroner for the quarter. So overall, a strong quarter that we are very excited about continuing the strong quarter over quarter momentum, as well as being driven by a very strong offering to our customers. and thousands of dedicated employees who do a great job every day for Ambu to progress our zoom-in strategy. So talking about our zoom-in strategy, let's look at the progress on the different fronts because we do continue to see progress on all four areas. Starting with our customer solutions, we are very happy and excited to announce that in the quarter, we had approvals of two new solutions that we will bring to our customers. The first one is our ureteroscope, our Ascope 5 uretero, which we now have approved both in the US, both with our A-Box 2 and A-View 2 Advanced. We also have the European approval of that product since some months, so we are now excited about the progress, which I'll come back to later. Another milestone we had was that we had our Ascope Duodeno 2 approved in Europe. We had, or in the US, sorry, we now have, in April of this year, sorry, we had the FDA approval, and now we also have the approval in Europe, so that product is approved in both areas. Also something that I'll come back to. Moving on to our continuous focus on execution, Henrik will talk about this later, but overall very strong momentum in improving our profitability, which remains a key focus. And also the focus we have on strengthening the scalability and efficiency in our business continues to be a key focus area. On the people side, we continue to focus a lot on how we work and how we deliver value. In this quarter, we welcomed a new colleague to the executive leadership team, Graciela Meluselli, who joined AMBU as the new chief operating officer on the 10th of June. At the same time, we have also Romana Hassan, who had been with AMBU as the chief marketing officer for seven months, left the organization in the period. Overall, in Ambu, we have a program that we call One Beat that is focused on that organizational transformation. And we are continuing with a lot of progress in that, in how we, again, optimize the scalability of our organization to prepare for future growth, which is our key focus as a company. Sustainability is an area that is very high on our agenda as well. Our focus is twofold. One, on the net zero reduction where we have made good progress on the CO2 per ton of manufacturing, which we decreased by 10% over the previous year. One other thing that is a strong focus for us is how we help our customers also be more sustainable. One of the things we have done here is that we have introduced bioplastic in all the handles of our scopes. That is close to being rolled out across the full portfolio. And at the same time, we are advancing the use of that material into more products, most lately the laryngeal mask in our anesthesia portfolio. Let's look a bit more at the numbers. In the quarter, the 15% growth amounted to 1.38 billion DKK. If we look at how the revenue is split across the segments, 10.9% growth in anesthesia and patient monitoring and 18% of growth in endoscopy solutions. With this, we continue to increase the endoscopy solutions as the percent of total revenue, which is now at 59%, and then 41% of our business is anesthesia and patient monitoring, which a year ago amounted to 43%. If we take a closer look at the segments starting with anesthesia and patient monitoring, we had a very strong year. It's quite a while since we reported double-digit growth in this area. And after the first nine months, we are at 6.4%. So if we take a step back and look at this portfolio, one year ago when I stood here, we talked about the uncertainty moving into this financial year of whether we would see growth at all. The key reason for this was that we knew we were going to implement significant price increases across multiple segments and we were not sure how the customers would respond. The combination, which is the key driver of the growth we have now, of good response, meaning that we have not yet lost significant volume with these price increases, is one key driver of the 10.9% growth in the quarter. Another key driver is that we have overall seen favorable market growth when it comes to procedure activity. Those are the two main reasons why we can deliver this strong growth. When we look ahead, we would like to flag that there is still some risk in losing contract volumes. In other words, sometimes we know instantly when we lose a contract due to price because they will go with another vendor. In other cases, we may still be on the list, but it will take a while before the customer may react on the price increase that we have seen. So that is something that is important for us to flag. But overall, strong feedback and strong momentum in this business overall, fairly equally distributed across the two segments, anesthesia and patient monitoring. So let's look at Endoscopy Solutions, our main growth area as a company. We reported 18% growth in the quarter. If we look at the first nine months of the year, we are growing by 21.6%, amounting to, for the first nine months, 2.368 billion DKK. This growth represents solid growth across all the segments that we are in, and it's also helped by, as for anesthesia and patient monitoring, a good market growth when it comes to a number of procedures. Pulmonology now represents roughly half of our total endoscopy revenue, and we have seen a good growth in this segment. And then ENT and urology are two segments that continue to grow with very solid double digit numbers. In gastroenterology, we continue to also see a growing revenue, mainly driven by our A-scope gastro and our A-scope gastro large. If we look at pulmonology, so the segment that we have been in for the longest, we grew 9.9% in the quarter. And when we look at it year to date, we are at 13.9% growth overall. If you look at the graph here, you will also see that the growth or the revenue that we report in Q3 is slightly lower than what we see in Q2. And that is simply due to the fact of flu season where our bronchoscopes are used. So Q2 typically is a fairly strong quarter where we see positive impact by the flu. What we are very pleased about is that we see a continued momentum in this business with AScope 5 continuing to gain traction and reporting very good growth. If we look at the other segments that we report together, so endoscopy solutions excluding pulmonology, we grew 27.6% in the quarter. And if we look at the first nine months, we are growing by 31.5%. So significantly above market growth in this segment. Again, across the different segments, ENT, which is very much driven by our US colleagues, we continue to see a very strong growth trajectory with a good mix of new customers coming in and strengthening our revenue and our usage with existing customers, partly related still to the expansion into the fees indication that we had last year. Urology is also an area where we continue to see very strong growth. It's still Ascope 4 system that is growing, but with new products coming into the urology space, which we have only been in for less than five years, we are very excited about the outlook here. And then last but not least, the GI. We see GI as an area that is still relevant for AMBU that holds long term potential where we have taken away a number of commercial resources compared to where we were two plus years ago. But we still see with this niche by niche approach, very good momentum and growth. So let's look at some of the new solutions that we have approved in the quarter, starting with our Ascope 5 Euridro. This is a product that we have tested right now and we are towards the end of the phase that we call our controlled market release, which is basically a phase where we, after approval, engage with hospitals both in Europe and the US and use for the first time the product in real-life patient cases to see the response. We have had very good response in this phase. We have made some minor improvements of the product based on the feedback and we are now towards the end of the controlled market release phase and we are approaching what we call the launch of the product in the coming months. This is a product that is launching into a market where there's already some single use providers and where the market has already converted a large part of the market into single use. So we are very excited to tap into that and also leverage the relationships that we have with existing customers, as well as our strong presence now in urology, which we didn't have when we launched the Cystoscope. Then we have our Ascope Duodeno 2 solution, and those who have followed AMBU for some years will know that this is the area where we, with the first generation, put a huge amount of resources behind the first generation and didn't live up to our own expectations. What we have done since is that we have gone back, made significant improvements, leveraged the new technology platform that we have and that we use across all scopes and some of the software advancements that we have developed and then in close collaboration with customers made significant improvements in a number of areas. We were very excited to both get the FDA approval in April and most recently the CE mark in Europe. And we have started the controlled market release. So we do have numerous cases being performed with our duodenoscope in real life patients. And the results so far are very positive. With the history we have, we want to make sure that we take the thorough time to review this. Also due to the fact that the ERCP procedures where this scope is used are procedures characterized with very high complexity. So we want to make sure that we have exactly the right understanding of the usage of our product. So far so good, and when we move into the commercial launch phase sometime well into the next fiscal year, we will do it with a very different approach as we did previously, because we are not going to allocate the same amount of resources, but we are going to take a step-by-step approach, gradually expanding the usage. Again, back to the point I made before, that GEI is an area that we are very committed to, but we see that more as a long-term potential. So with these two new approvals, taking a step back and looking at the full portfolio that we have, we are expanding our portfolio when it comes to products being in the market across the different segments. And I think what is worth noting is that pulmonology where we started some 16 years ago, we are now expanding into a very strong portfolio that our commercial colleagues can leverage with the customers, with the video laryngoscope being a new addition that will come into our portfolio in the not so distant future. Then I want to point out urology that I just talked about. We went into this as a new segment only with the ASCOPE 4 system. But now we have expanded into the ASCOPE 5 system, the more advanced version for more advanced procedures requiring better image quality than with ASCOPE system 4. And then also with the ureteroscope, we are building a strong portfolio in this segment. If we then look to the left side, something that we increasingly focused on is our systems or the software. And because we are the company with the broadest endoscopy portfolio, we also have a lot of opportunities to leverage the technology platform and the software that right now comes on the AVU2 Advanced and the ABOX2, where all our scopes fit into one of these platforms. And the software and the setup on those two platforms is quite similar in many ways. This allows also for our customers to very easily adopt new patients. Most recently, the example I put around urology, where we come out with a ureteroscope that will be easy to plug into the AVU2 Advanced in the US that the customers are already very familiar with. Also, we are looking into some of the technology that is coming up out there to better and better use software to improve the image quality and other features that has benefits for our customers. And we will continue to focus increasingly on the software side to make sure that we can leverage that technology to bring an even better customer experience to our customers. So with this, I'll hand over to you, Henrik, to go more into our financials.

Thank you very much, Britt. And before I go into the financials, I also just want to start by reiterating what Britt said. We are very happy with Q3. And obviously, that is also why we, on the 10th of July, decided to increase our guidance. And I'll come back to also our view on the guidance later on in the presentation. So looking at Q3, then as Britt said, we landed a total revenue of 1.383 million DKK, corresponding to a total growth, organic growth of 15%, adding to that a positive impact from FX of 0.7, bringing the total combined growth to 15.7%. Very happy with the overall results and a continuation of the momentum that we've seen in Q1 and Q2, now into Q3. Looking at the regions, we're also seeing a continuation of the strong growth in Americas. Now also a continuing growth in Europe, even though that was one of the areas we, as you may have noted in Q2, we're looking a little bit for how would they develop in Q3, but really strong development. So overall, on a regional basis, we're also very happy with how we see double digit across all of our regions. Looking a little bit further then on growth overall for the first nine months, we now are just above 4 billion in total. And split by segments, as Britt said, obviously the main growth driver is our endoscopy solutions growing at 21.6%. Next to that, our legacy business, anesthesia and patient monitoring, growing 6.4%. This is a very solid growth momentum and something that basically brings us, you could say, ahead of our expectation on the long term, being a 10% CAGR growth across the years, if you look across the two-year period since we launched ZoomIn. Obviously then looking at decomposing the growth, it's also important to say we are right now still a little bit in a rebalancing mode and therefore like we communicated in Q1 and Q2, interesting thing in Q3 was obviously to see what is our pulmonology performance and even though a 9.9% growth in pulmonology is down a bit versus Q1 and Q3, it's actually really, we feel, solid continued growth considering that we had strong comparables for Q3, and we also have the same for Q4 in pulmonology last year. Similarly, as Britt also said, obviously we are very much following the growth momentum in our anesthesia and patient monitoring business since a substantial part of the overall growth is driven by price increases. It is also a positive market development, as Britt said, which of course we expect to continue, but we are monitoring it and therefore also very much looking to what should we expect going forward. Last but not least, under industry solutions, I think it's also important to highlight our very strong growth outside pulmonology. The above 20% growth in Q3 that Britt also referred to, which right now is a combination of a very strong offering, but obviously also first mover advantages on some of our products. We are very much looking forward to now having the Urito product in the market, which will hopefully enable us to extend that momentum further going forward. Then turning to earnings, I think another really solid quarter for us and an extension of a really, really solid quarter in Q2 and also a solid quarter in Q1. If you decompose how our margin expansion of about 5.3 percentage points is split across gross margin and OPEX, we're very happy to see our gross margin going up. I'll come back to some of the drivers of this later, but overall, obviously, the price increases are a key factor of that, but also scalability in our manufacturing footprint, meaning that even though our Anastasia and page monitoring business is growing faster than we expected, we're still able to actually lift our cross-margin versus last year. Second to that, we also had a decreasing OPEX ratio in Q3, despite making a number of investments in our organization and in the long-term foundation, which I'll also come back to. So a very satisfactory Q3 also in terms of margin. If we double-click on gross margin, as I said, this is a continuation of a number of quarters where we've managed to increase the margin quarter by quarter. And again, here in quarter three, we're seeing still a combination of positive product mix. The endoscopy solution segment obviously have a higher gross margin than the anesthesia and patient monitoring segment, so that growing faster is helping us. Second, the price increases are lifting our anesthesia and patient monitoring segment. And last but not least, both the combination of scale in our production costs, meaning particularly our indirect production costs, but also tailwind from currencies are also helping us right now. Then looking at OPEX, we had an increase actually in OPEX ratio between Q2 and Q3, and this is driven by two main factors. One, we are investing more in our commercial organization, which we also communicated both in Q1 and Q2, mainly focused on ensuring we get more salespeople, more customer-facing people who can deliver our existing products, but also new products to the customers, and ensure that we have a strong footprint in the face of the customer. We're still in the ramp-up phase of that, but are seeing really solid and strong momentum there, and also a lot of interest from the market and from candidates in joining Ambu, which is really positive to see. Secondly, we've also deliberately made a number of investments a little bit in Q2, but now more in Q3 on IT systems, on some of the infrastructure elements of building the AMBU for the future, building the foundation for the future, something that I'll also come back to. But that is why you see the administration and IT costs going up in Q3. Lastly, in terms of financial performance, I think one of the key, key performance metrics for us is still managing a solid cash flow. And Q3 was another testament that we are now really on a continuation of a very strong trend. Last year in Q3 and Q4, a big part of the positive cash flow was us managing our network and capital better. Still, we have a close eye on network and capital, but as you can see from the graph, in Q3, network and capital was almost net zero. in terms of change for the quarter, and the real strong cash flow was therefore mainly driven by strong earnings and still slightly lower CapEx than expected. For us, this is a great testament to building a much stronger business, building a much stronger balance sheet, something that is very, very useful for our journey going forward. So again, decomposing cash flow. I think if we look at the network and capital ratio, we're now at a state where we are close to and the range of what we also communicated would be our long-term target range, around 20% network and capital ratio. Underneath, we've been very, very selectively investing in making sure we have the right inventory levels at all of our high runner categories. And now also in connection with product launches, have the right level of inventory to support a strong launch. Secondly, CapEx is still at a lower level. As you can see, it's gone a bit up since Q1, but similar level as Q2. We are expecting that to go up a little bit further as we continue to invest more in the foundation and invest more in R&D. And then lastly, again, looking at the EBITDA line, this is a great testament to where we are in terms of executing on the zoom-in strategy, obviously also helped by strong organic growth, but really focused on making sure we also manage our margin and expand our margin along the way. So taking a step back or step up in terms of where we are since we launched the overall zoom-in strategy, now back in the first half of 2023, I think it's fair to say that we're now at a stage where we've moved a very long way. And frankly also, from our perspective, probably a little bit ahead of what we expected when we launched the plan. The first phase was really about scoping the program, then launching it, and then executing quick wins. And back in Q1, I talked about the deliberate decision to extend the quick win phase, so to speak, because we believed that there was more to gain still, something that I believe you can now see both in terms of growth, but in particular, in terms of margin. We will still execute on those quick wins and they will still have an effect going forward, but we also now more and more looking at what is the foundational things we should do to ensure that we can continue and extend and expand on the growth journey we are on to build the AMBU for the future. And therefore we are now moving more and more into this phase three of really looking at what is the foundation we need for the future to both support the growth and support the margin expansion. And when looking ahead, it's always good to look a little bit back and say what have we really succeeded with in terms of accelerating execution, in terms of driving some of the initiatives that were launched back in 2023. And a way of looking at it at least is looking at what are the drivers of our margin expansion if you look at the full nine month period for this financial year. And looking at the graph on the left, it's clear to see that we're working both on expanding our gross margin and expanding our OPEX. Double-clicking on a gross margin, it's really back to driving a stronger focus on pricing. We're doing that both in our endoscopy business, of course, in particular in connection with launch, but also now, as we've talked about a lot in the anesthesia and patient monitoring business, frankly, more successfully than we expected when we started, but also very mindfully managing how do we make sure to continue this drive and make it a continuous effort to manage price. Second is really making sure that we have a strong product mix and of course support the high growth segments, but also manage our product mix within each of the categories. Right now as Endoscopy Solutions is growing faster than anesthesia and patient monitoring, that alone is also helping our cross margin. Last but not least, as you also heard us talk about before, we have a strong manufacturing footprint. We also still have a manufacturing footprint which is not fully utilized. Of course, that's positive when you're on a growth journey, but it also means that we are still seeing a continuation of the journey of expanding or making sure we have a better utilization of our manufacturing footprint, of expanding our sales and offerings within the existing footprint we have, and that will also support our gross margin. It has already. and it will continue to do so going forward. Secondly, we are seeing a number of effects also helping scalability in OPEX. We still, right now, have a significant cost in terms of distribution, which is part of our selling and distribution costs, something we are working on with better inventory management, with better planning with our customers, something we believe we can still manage better going forward. We have a number of initiatives running on how do we scale our administration, and that's also why we are right now investing in the foundation to be able to scale even further. And last but not least, we also work on how do we scale our global commercial network and R&D, mindful that we also really want to make sure that they support the continuous growth. Looking at the first nine months, you can say we have expanded our margin more by scaling our OPEX, and we believe this is a journey that will continue. And looking at how will we go from the 12% towards our long-term financial target of 20%, potentially adjusted for strategic opportunities along the way. But looking at that gap from where we are today to 20%, we still believe that OPEX will be the main driver of the two of closing that margin gap. And therefore, that's also something we are very deliberately now, you could say, incorporated in our plans in terms of how we move forward, still supporting growth, but also very much making sure we manage the margin expansion journey. So what do we mean by investing more in the foundation? What does that mean building the AMPU for the future? Well, for us, it can at least be all down to at least four key areas where we're right now very much focusing on making the right investments. The first area is back to what we talked about already back in Q1 of building a stronger commercial setup, both bringing more salespeople, but also a strong setup around the salespeople. That will require costs on the short term, as it will take time to bring the right people on board, train the right people, and make sure that they can continuously drive sales. It's a very explicit focus of ours, of course, particularly in the segments where we're seeing high growth, so within endoscopy solutions, and right now in particular also supporting the upcoming product launches particularly the ureteroscope. Secondly, it's really ensuring that we run a global, strong, agile, but also lean operation, managing our manufacturing footprint, but also managing our supplier base and driving more efficiency in our distribution setup. Thirdly, it's investing in our IT landscape. AMBU has grown fast, and we believe there's more to be gained in terms of automation, in terms of working better globally, and therefore really driving continuous effort of investing in the right things to drive better scalability in our business. And last but not least, it is really making sure that with all of the three above and while making these investments, we still also make sure that we invest in the core that will drive further innovation and organic growth going forward in R&D capabilities, in really understanding our customers at an even deeper level, and making sure that we tie our innovation very much to the customers in a customer-driven way, both looking at new technologies, software, like we described before, but also looking at AI. So this combined will mean that we are right now working on how do we incorporate all of these investment areas, all of these investments in the foundation in our future plans. We still believe we have lots of margin expansion to do and these will not hamper them, but this will mean that we will selectively make these investments over the coming years to make sure that we really can support the longer term growth journey. And therefore, on that growth journey, we've talked a lot about organic growth, rightfully, and since the start of ZoomIn, that has been the main focus. With a stronger balance sheet, with a stronger margin, with a much firmer grip on our cash flow, we also feel now is the time to openly state that, of course, we're also looking at inorganic opportunities. It's very, very important for us to reiterate the point that organic growth and growth overall is the main focus of our strategy. Obviously now coupled with a focus on also margin expansion, but inorganic growth is certainly a vehicle to accelerate the organic growth journey with very deliberate focus on how can we look at technologies or companies that can support our growth journey on that way. A premise for even looking at M&A, of course, is that you have your balance sheet under control. And therefore, on the left side, you'll see on the graph, just looking at our net interest bearing debt to EBITDA level, we've managed to now deliver significantly with strong performance. And obviously, that opens for a different view on how M&A can be part of our long-term growth strategy. Of course, we will look at this under the guidance of our gearing level, guidance, you could say, of gearing up to max two and a half X EBITDA, which is what we also communicated in our capital markets day, and also under the guidance of our dividend policy, but still that leaves quite a room for looking at opportunities. What opportunities will we look at? Well, again, as I said initially, we will look at opportunities that support organic growth, value-adding acquisitions within existing business areas or in clear adjacencies to accelerate the growth or technologies that can accelerate the growth. It's still early days, but given our situation, we all felt today was the right time to communicate that this is an ambition we're actively looking in and also actively investing management and resource time into. So ending on this year then, more specifically, and coming back to what I said when I started the financial review, we're very happy to reiterate that we upgraded our financial guidance on the 10th of July. So our guidance for the full year now is 12 to 14% organic growth, 11 to 13% EBIT margin, and plus 450 million free cash flow. Overall, we feel we are on a strong momentum. We feel Q3 is another testament to that strong momentum. And we also feel now with our financial strength that we can allow ourselves to look even broader in terms of how we can extend that momentum. Thank you very much. That ends my presentation and I will hand it back to the operator.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their 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. Questionnaires on the phone are requested to disable loudspeaker mode while asking a question. We have a first question from the line of Niels Granholm Leth from Carnegie. Please go ahead.