Boule Diagnostics AB (publ)

Good morning everybody and welcome to the fourth quarter's earnings poll for Bull Diagnostics. I'm Holger Lembree, CFO for Bull Diagnostics. With me I have our CEO Torben Ilsen and after our presentations we will open up for questions. Please also feel free to type questions in the chat field along the presentation. With that I'm handing over to our CEO Torben.

Thank you Holger and good morning to everybody on the call. Let's begin by taking a look at the Q4 highlights. Overall, it was a stable quarter in which we delivered slightly below last year. Instrument unit sales closed slightly above last year. However, overall sales was negatively impacted by lower average selling price on our instruments. Consumable sales was, as expected, negatively impacted by the transition to a licensed manufacturing model in India. This impact will further increase as we ramp up production in India for both consumables and now also instruments in 2025. OEM compensated partly for the lower sales and once again delivered a strong quarter. Our primary focus in 2024 has been on expanding our operating margins through structural cost reductions and fostering a culture of operational excellence. In Q4, we executed our third and most comprehensive restructuring round to date. This involved reorganizing our R&D team, streamlining operations, and reducing overhead costs, resulting in an annualized savings in spend of approximately 18 million SEC. In the process, we established a new supply chain function, integrating purchasing, planning, and order management to optimize our processes and enhance our customer service. In R&D, we restructured the team and put in place new leadership tasked with challenging the project plan and scope. And finally, we have transferred all product maintenance projects to a newly formed product engineering team in operations. We delivered significant improvements in both operating profit and margin, and we begin to see the impact of all the initiatives we've taken to reduce cost and increase productivity. As a consequence of all these changes, we incurred higher restructuring costs, which adversely impacted our cash flow. From a portfolio perspective, Q4 has also been very eventful. Our license instrument manufacturing site in India went live in Q4, as scheduled, and we booked our first instrument license revenue in the quarter. And finally, we're very pleased to announce that Buhl has entered a multi-year exclusive distribution agreement with Vital Scientific for their clinical chemistry portfolio in the US. Vital Scientific is a leader in benchtop clinical chemistry solutions, and they've been in the US market for more than 20 years. Like Buhl, Vital Scientific develops and manufactures high quality instrumentation, for the decentralized segment. This agreement represents an important step towards building a more diversified and synergistic portfolio that meets our customers' needs. There is a strong synergistic fit with Bool portfolio of products. Our companies share similar customer target segments and a similar distribution model. Clinical chemistry is complementary to hematology, which will add value to our customers and also give us bundle opportunities. And we can leverage our current sales and service infrastructure in the US, giving us some operational efficiency gains. We're excited about this future partnership and we anticipate the commercialization of this agreement to commence in the first half of the year and be fully implemented in the second half of 2025. When fully implemented, this will add approximately 20 million SEC to our US revenue with a good margin profile. In summary, we reported Q4 sales of 143.2 million SEC down 3.3%, where 1.5% was related to currency, leading to a negative 1.8% organic decline, which, if we adjust for the India license model impact, is equivalent to a 1.2% organic growth. Adjusted gross profit was flat at 65.7 million. Adjusted gross margin improved to 45.9% from 44.5% as a consequence of favorable mix and efficiency gains. Adjusted EBIT significantly improved by 85.7% to 19.5 million as a result of the improved gross profit and lower operating expenses. and adjusted operating margin reached 13.6% up from 7.1. Cashflow from operating activities was 15.1 million and available liquidity at the end of the quarter was 58 million SEC. Looking at our full year performance, we reported sales of 559 million down 0.6% organically, which again, if we adjust for the India license model impact is equivalent to a 4% organic growth. Adjusted gross profit increased by 2.2% to 250 million. Adjusted EBIT significantly improved by 63% to 64 million, and adjusted operating margin reached 11.4%, up 4.5 points. Cash flow from operating activities closed at 47 million SEC. Taking a look at the overall sales by quarter, Q4 was down 1.8% organically. However, we closed 2024 more or less flat, declining 0.6% organically, which, as I stated earlier, equates to approximately 0.4% organic growth if we adjust for the India license model impact. Looking at sales growth by region in Q4, it was a bit of a mixed bag from a geographical perspective. We had good performance in Latin America, Eastern Europe and India. In Southeast Asia, we continue to struggle due to competitive pressure from Chinese manufacturers and also local policies favoring local manufactured products. Africa, North America, and Western Europe were challenged in the quarter. And specifically in Africa, we've been challenged with delayed payments blocking new orders. From a product mix perspective, OEM and consumables slash license revenue continue to outgrow our instrument revenue. Zooming in at our hematology business specifically, we had a soft quarter. Sales declined by 11.9% for the quarter and full year closed 6.5% below last year. Adjusted for license revenue, Q4 closed at approximately negative 3.5%. Main detractors in the quarter was a geographical mix with a proportionally higher sales in lower price markets. Instrument unit sales in Q4 totaled 1,144, which was 1% above last year, despite the fact that we activated our instrument license model in India. Reagents and controls business was down 13% for Q4 and flat for the full year. In Q4, we started switching our instrument sales to India to a license model, which will have negative impact on our top line of estimated 30 million sec annually, but with a positive margin impact.

On the OEM side, we see continued good performance.

In Q4, sales grew 10%, and full year we are growing 14%, which is very encouraging. From Q1 2021 to present, OEM has grown 162%, and our funnel continues to grow and mature. When we look into beginning of 2025, we see a lower order pipeline in the beginning of the year, but for the full year, we expect the business to be stable. And with that, I'll hand it over to you, Helge, to take a closer look at the financials.

Thank you, Torben. Starting with the financial summary of the quarter end, we had a slightly negative organic sales, as Tobbe mentioned. If you're looking into the cost of sold goods, that decreased and adjusted gross margin improved for us up to 45.9 compared to 44.5 last year. The positive change was mainly impacted from the efficiency gains in the production, but more so from the conversion over to a licensed model for India. Operating expenses, adjusted for the one-time items related to restructuring decreased with 19.4%. This is mainly an effect of the restructuring activities we've implemented throughout the last nine months in 2024. In Q4, we launched a second restructuring program, and that will lower our annual spend of 18 million SEK. This is mainly related to R&D and that will lower our capitalization of R&D activities throughout 2025. Altogether, that resulted in a significant decrease of our adjusted operating profit for the quarter and reached 13.6%. Cash flow from operating activities was a bit weaker in the quarter, mainly due to high payments for severance and restructuring payrolls. If we're looking at the full year, we had a slightly lower sales driven by FX and the change business model in India impacted us negatively. From a profitability perspective, we have improved the gross profit with two percentage points and lowered our operating expenses with 11%, altogether at lifting our operating margins back into double digits of 11.4% for the full year. If we then take a look on operating margin on the longer trend, we can now see 11 consecutive quarters with improving margins. A rolling 12 chart was up from 7.1% last year to 13.6% for 2024. If we look at how it's converting into values, we see here an increase, a meaningful increase of 62% from last year's 39 million up to the 60%. 3.8 we had for 24. If you're looking into the details then of the cost in relations to sales, the cost of goods decreased 1.4%, mainly as a result of the change business model for India. Selling expenses was low below last year, and this is mainly a result of a reduction of headcounts and other saving activities that we implemented in Q2 and in Q3, 24. Administrative expenses was flat compared to last year. R&D expenses decreased 4.9% due to less consultants, but also partly due to the restructuring we did throughout Q4 of R&D organization. In total, operation expenses was 6.2% point lower compared to last year in relation to sales. And our operating income expenses were negative, mainly due to the fact that we had a negative currency impact from conversions from US dollars to SEC. All in all together, an improvement of the profitability margin with 6.5%. Looking down on the cash flow chart, the cash flow was a bit softer in the quarter, and this is mainly due to severance payments we have of restructuring implemented in the second and in the third quarter, and partly also due to activities done in the fourth quarter. When we're looking into 2025, we have about 6 million in severance payments to do in the quarter, so cash flow is expected to be lower in the beginning of the year and then turn into more positive territory in the second half of 2025. If we compare our cash flow conversion from operating activities with our EBITDA adjusted for the write-downs we've done for Russia and intangible assets. The conversion rate reached 97% for a full year. Taking a look on the liquidity and credit facility, We ended the quarter with a cash position of 23 million, and including an additional unused credit facilities of 35, it taking us to an available liquidity level of 58 million SEK. And we had a net cash EBIT of minus 0.2 times in the quarter end. In the quarter, we also increased our revolving credit facility with 2 million US dollars. With that, I'm leaving back to Todd.

Thanks, Holger. Q4 marks the culmination of a year of significant transformation. Our focus has been on executing on our three strategic priorities that we outlined in the second quarter of 2024. And during the recent three quarters, we have successfully streamlined the organization and are now in a much better position to focus on our broader strategic priorities. While the continued work around improving our profitability remains a top priority for 2025, we will also be making steps towards accelerating organic growth and building a stronger growth oriented portfolio. We've taken the first initial steps with our instrument license manufacturing in India and our distribution agreement with Vital Scientific in the US. Finally, To sum up our performance, I would say that it's been a stable Q4 and a stable year. We've made significant improvements towards our financial target of reaching 15% operating margin. We continue our efforts to improve our profitability through process improvement and reductions in structural cost. And finally, we'll focus on relentless execution of our three strategic priorities. That concludes our presentation. Thank you for your attention and let's open it up for Q&A.

The first question comes from Christian Lee.

Please unmute yourself and ask the question.

Thank you. Good morning. I hope you can hear me. Hello. Can you hear me? Christian, can you please repeat the question? Can you hear me? I can hear you, Christian. I don't know. We can hear you, Christian. Please come again. Sorry. Christian, will you please repeat your question? We have a sound back here in the studio. Okay. It sounds like we can't hear Christian.

Patrick, sorry, Philip Ekengren, you have raised your arm. Please feel free to ask a question and mute yourself.

Thanks very much, Holger. This is Philip from LBG. So I have a few questions here, maybe starting on costs. So the gross margin, what should we expect in terms of run rate for 25? Is the adjusted gross margin for Q4 the best proxy going forward, or how should we think about that? Thanks.

So our gross margin is, I would say, pretty affected by the mix of sales we have, because we have pretty different margin profiles of the different businesses. Underlying, of course, the shift into a license module in India would work favorable for a gross margin. Overtime it's hard to give you an exact guidance for it, but underlying that would support the margin, step by step, because margin wise, but it's still it will impact the impacted also by by the mix.

Roger that, thank you and on OPEX clear improvements here year over year, what can you say about that you took some additional restructuring costs now in Q4. Is that the last cost we can expect related to the restructuring, or is there more to come?

It's hard to say any predictions for the future. Looking into what we did in Q4, we made a significant restructuring of our R&D organization. You should see that as it will be a lower capitalization of R&D going into 2025 because the organization will be smaller and basically also lower investments into R&D. So less of an impact on the cost, but of course on the cash flow side, it will have a positive impact.

But on the improvements on OPEX, that should kind of continue going forward, or should we expect a return to higher OPEX levels in 2025?

I mean, the vision, what we have done throughout the year is to get the OPEX run rate lower. And that you see clearly for the full year. What I say, and the issues we did in the second and third quarter, which is a result of in the fourth quarter, that is, of course, to remain when we're going into 2025. But the activities we did in Q4 was mainly related to R&D, and that will lower the capitalization of R&D spend.

Roger that, thanks. Clear message there. And on sales, I have a question regarding the number of sold instruments. That seems to have been down nearly in Q3, and then flat now in Q4. Can you comment on that and give more color on it?

I think that our performance in Q4 was in line with our expectations. We see that in the market, there is a continued shift towards five-part technology. However, there's still sufficient demand for our three-part technology. So I think it was a stable performance we had in 2024.

And on the lower selling price on the instruments, any comment on that?

I think that what we are experiencing in the market is, of course, as a consequence of the market demand slowly shifting towards five-part technology, that puts pressure on the general pricing for three-part solutions. We saw that pressure both in Q3 and in Q4, but that's also coupled with the fact that we have taken a more aggressive approach in our sales. So we're sort of balancing the install base growth objective with a slightly lower average selling price.

Perfect. Thank you. And then finally, from me, any news on the development of the new five-part system, any updated timeline or anything of that sort?

Now, we're not communicating any updated timeline. As we alluded to, we have done a rather significant restructure of our R&D department in Q4. It's no secret that the BM950 project historically has suffered many delays. We've taken more of a proactive approach, changing the leadership, making sure that we get fresh eyes on the project. And as we stated here, right now, this team is reviewing the project plan and the scope. But for now, we are not communicating any changes to our plans.

Perfect. That was all for me. Thank you very much, guys. Thank you.

Thank you, Philip. I see, Kristian, you're back on the call. Please unmute yourself and try again.

Yes. Good morning. I hope you can hear me now.

Yes.

OK, great. Thank you. You mentioned that capitalization of your expenses in product development would decrease in 2025. You have previously indicated that the investments into the new platform would amount to around 45 million. Are there any changes?

Given that the spend was a little bit lower in Q4 than we had guided for, it might be that 45 is A few millions too low, so 50 would probably be better proxy than something like that.

Okay, thank you.

And can you talk about the distribution agreement with Vital Scientific? You mentioned that It will add sales of 20 million when fully implemented with an attractive margin. How will this impact the margins going forward?

I'm not sure I understand the question. Could you rephrase the last bit, please?

Yeah, this agreement with Vital Scientific, will it have a positive impact on the margins or negatively?

I think that remains to be seen. I think that to give you a little bit more context on the vital business, it's comprising of both sales and service. The first part that will be implemented will be the sales piece of the business and service will then follow in the later half of the year. I would say that the margin profile is comparable to the profile that we have here at Boom. So I would say from a percentage perspective, it will probably not change much, but it will add profitable revenue to our business.

Okay, thank you. And as you're wrapping up the license sales in India for instruments as well, should we expect the instrument sales to decrease in 2025?

As we earlier communicated in Q4, We gave you an example if we, let's say, would sell the same volume as in 2023, but with a license module instead, it would probably have an impact on the top line of around 30 million SEC.

Okay, so that includes both regions and instruments?

Yeah. Okay, thank you. That's all from me. was happening in 24, but yeah, that will continue also into 25. Okay, thank you. Okay, any more questions? Thank you, Christian. We have a question coming in from Rikard. Rikard, please unmute yourself and ask a question.

Yes, good morning. Thank you for taking my questions, Rikard Andersson from Handelsbanken. Just two questions, please. So first, it would be interesting to hear an update on the five-part system development just essentially checking in a little bit on the timelines and the status of moving into sort of clinical validation steps moving forward so i'll start there with maybe a bit of an update there yeah thanks for uh ricard uh so maybe just uh coming back to my previous statement here we we did a we did a rather comprehensive restructure

in this quarter of the R&D team, and we put in place a new leadership. We asked the new leadership team to take a look at the current plan, the current scope of the project, to check if there are any, you can say, material changes or material risks that we should be aware of related to the project now that we have fresh eyes on the project. For now, we are still in the planning phase. We have not communicated any changes to the plans that we communicated in the last earnings call. So from that perspective, there's really no change in the timing of the project as such.

Okay, that's great. And then I just noticed in the quarter seems to be quite a step up in sales in Russia, if I'm not mistaking. So any flavor on the driver of that, any stocking or any other dynamic to keep in mind? I just wanted to follow up on that number. Thank you.

No, I would say this is more a reflection of timing. I would say, generally speaking, Russia performed to our expectations for the year. So we were possibly a little back-end loaded for the year when it comes to Russia. So it was maybe more of a timing impact than anything else.

Okay. And I noticed also in the CEO letter and in the commentary previously, you mentioned sort of timing of orders or phasing of orders impacting the quarter overall, not specifically in that region, but could you add a comment on, or elaborate a little bit on that comment, just to put it in perspective?

Yeah. I mean, we operated in various different geographies, but I will say that in Q4, we were challenged specifically in Africa, where we were facing problems with receiving payments in time. And that, of course, held back orders that will then be pushed into the following quarter. I would say that we've probably seen more challenges in Africa in Q4 relative to what we have seen in the previous three quarters. That could be, again, just a timing issue, but I think it's something that impacted our quarter and close this year.

Okay, that's great. And any possibility to quantify roughly that magnitude of that delay or phasing?

No, that would be difficult for us to quantify that. We would not want to give any forward-looking statements here.

Okay, that's clear. Thanks for taking my questions.

Thank you. Thank you, Rickard. I think that was the last question we have on the call. And with that, I'm thanking everybody for participating and listening into the year-end call for Google Diagnostics. And I wish you all a great day. Thank you very much.

Thank you.