Boule Diagnostics AB

Good morning, everybody, and welcome to the first quarter's earnings call for Bull Diagnostics. I'm Holger Lambert, CFO for Bull Diagnostics, and with me, I have our CEO, Torben Nielsen. After our presentation, we will open up for questions, but please also feel free to type questions in the chat field. With that, I'm handing over to our CEO, Torben Nielsen.

Yeah, thanks, Holger, and good morning to everyone, and thank you for joining this Q1 earnings call for 2025. We'll begin by taking a look at the highlights of the quarter. And overall, it was a bit of a mixed bag. Despite a satisfactory order intake in the quarter, we were unable to complete many of our orders in time for Q1 close, which led to declining sales of both instruments and consumables. Due to the geopolitical instability and uncertainty about the US tariff policy, many of our core markets in the Middle East and Africa restricted global access to US dollars, which led to delayed payments and ultimately delayed shipments of instruments and reagents. On top of that, we delivered an unusually big order of 600 instruments to India in Q1 of last year, which combined then led to an unfavorable year-on-year comparison of minus 25% total organic growth per quarter. This naturally looks dramatic. However, we are encouraged by the fact that we begin Q2 with a larger than expected backlog of orders. On a positive note, our OEM business delivered 7% organic growth in the quarter. and we managed to both extend and expand one of our supply agreements with a leading global IBD company. The quarter also saw significant improvements in operating margin driven by favorable mix and the full read-through of all the restructuring activities we had in 2024. As communicated earlier, expanding our operating margin remains a top priority also in 2025, and we continue to execute on that priority. In Q1, we realized 13 million second annualized spend reduction from rightsizing our R&D team in Sweden as a direct consequence of the BM950 project closed down. In addition, I'm excited to share that we, this month, April, signed a new and expanded lease agreement for our second manufacturing site in Sponer, giving us the opportunity to consolidate our entire Swedish operations into one site and vacate the current head office. By doing so, we optimize our footprint, we reduce our cost, and we can design our workflows for optimal efficiency in accordance with lean principles. We expect the site consolidation to begin in Q4 2025. In Q1, we onboarded a new regional sales manager for Southeast Asia based in the Philippines. This was the first step in our strategic efforts to invest in organic growth by adding resources in the region, staying close to our customers and operate efficiently. In Q2, we will onboard another two sales representatives in the US to support our efforts there. In March, we announced the closure of the BM950 five-part hematology analyzer project. The decision was taken due to newly identified technical issues that significantly impacted the project's time to market and overall profitability. We concluded that we would not be able to bring the BM950 to the market fast enough to support the current demand, and therefore we took the decision to close the project and adjust our portfolio strategy. For many years, Bool have enjoyed successful collaboration with technology partners to supplement and strengthen our proprietary portfolio. Moving forward, Bool will focus exclusively on collaboration with leading technology partners to build a competitive instrument portfolio that meets the involving needs of our customers in a timely and more cost-effective way, which is critical when wanting to stay relevant to our distribution partners and end customers. In line with our new strategy and our strategic objective of building a better, stronger, growth-oriented portfolio, we have extended our technology partnership agreement for our current M51 five-part hematology analyzer. This means that we have this solution available through 2027. And in addition, we're on track with the implementation of our exclusive distribution agreement for the vital scientific clinical chemistry business in the U.S., We expect to begin the commercialization in Q3 2025. So what will the new portfolio strategy mean to the business? Here we put together a simple graphic representation of how our instrument portfolio will develop over time. Our current portfolio is made up in large by instruments that we source through technology partners. And our new portfolio strategy should really be viewed as an evolution of the way we've been building up our portfolio in recent years. In our human portfolio, we have our own proprietary three-part hematology platform, marked in blue. And we have a five-part hematology analyzer, the M51, from a technology partner marked in green. We added the M51 five-part analyzer in 2023. and we expect to double sales of this instrument in 2025. In Q3 this year, we will add chemistry in the US to our distribution agreement with Vital Scientific, and we are actively engaging with both current and potential partners to explore options for our future portfolio enhancements. In our veterinary portfolio, we have our own proprietary four-part analyzer and have supplemented with a five-part hematology analyzer, the H50V, and a compact chemistry analyzer, C200, both from technology partners. Here we are currently actively evaluating a potential new hematology addition to our veterinary portfolio. By not engaging in own instrument development in the future, We benefit from being able to focus our resources much more and build the necessary capabilities required to test, validate, register, and market new technologies fast. Through our partners, we have access to the most recent technological developments and can essentially operate at the speed of the market and do this at significantly lower cost. Proprietary technology often provide a higher level of differentiation which may give you a competitive advantage. However, given the competitive landscape in hematology and the speed of innovation we've seen in the recent decade, we believe that Google will be in a better position to compete when deploying a technology-powered strategy. With this strategy, we can continue to leverage our strong distribution network, brand legacy, and reputation of high quality and service as a competitive advantage when adding new products to our portfolio in the future. Taking a look at the Q1 financials, in summary, we reported Q1 sales of 113 million SEC down minus 23.6%. And we had a 1.5% favorable currency impact leading to a total 25.1% negative organic growth. Adjusted gross profit was down at 53.7 million SEC due to lower sales. But adjusted gross margin improved to 47.4%, up from 46.2% because of favorable mix and efficiency gains. Despite declining sales, we achieved 17 million second adjusted EBIT, mainly driven by savings from restructuring efforts in 2024, now fully materializing. And our adjusted operating margin reached 15.1%, up 2.2 points from 12.9%. Cashflow from operating activities was minus 7.8 million sec, negatively impacted by severance payments, increased inventory and receivables. And we closed the quarter with available liquidity of 38 million sec. If you look at overall sales by quarter, Q1 was down minus 25% organically due to delayed shipments and unfavorable comparison to last year. And from a graphical perspective, in Q1, it was also a little bit of a mixed bag. Southeast Asia was down primarily due to India. In India, we saw low sales compared to last year due to an unusually large instrument order and also a gradual transition to instrument license manufacturing. In Southeast Asia, as stated earlier, we onboarded a new regional sales manager based in the Philippines as part of our growth strategy. Africa and Middle East were down, mainly due to delayed payments caused by enlarged restricted access to U.S. dollars. And U.S. and Latam delivered a soft border. In the U.S., we've had open territories and are now onboarding two new sales reps in Q2 to support our growth. Looking at our hematology business specifically, we had a soft quarter due to the delay of orders and tough year-on-year comparison. Sales declined by 31%, and we only shipped 543 instruments. We closed Q1 with a higher-than-usual backlog, which will benefit Q2. In Q4, 2024, we started switching our instrument sales in India to a licensed model, which will have negative impact on our top line of estimated 30 million set in 2025, but with a positive margin impact. On the OEM side, we see continued good performance. We grew 7% organically and managed to extend and expand one of our supply agreements with a global IBD company. Our sales funnel continues to mature in line with our expectations. With that, I'll hand it over to you, Holger, to take a closer look at the financials.

Thank you, Torben. I'll start with a financial summary of the quarter. We had a negative organic sales growth, as Torben stated, while we see our cost of sold goods decrease and gross margin improve to 47.4, up from 46.2 last year. The improvement of the gross margin was mainly an impact of efficiency improvements, but I would say more so to a favorable mix of having less of sales of instruments in the quarter and the growing OEM business for us. Operating expenses adjusted for one-time items decreased to 21% from last year, as we now see a clear result from our restructuring activities that was done throughout last year. In Q1, we closed The development project BM950 and the closing and related restructuring costs to that project resulted in a one-time cost of 18.5 million. In total, our adjusted operating profit for the quarter was 2 million SEK below last year due to lower sales. However, our operating margin increased to 15.1%, which is our highest margin since 2020. Cash flow from operating activities was soft in the quarter. mainly due to high payments related to severance payments, but also inventory buildup in the quarter. Taking a look then on the margin in a longer trend, we have now seen our operating margin quarter over quarter improving over the last 12 consecutive quarters. If you're looking on the rolling 12-month chart, you can see that our margin have improved from 8% last year up to 11.8%. So an improvement of 3.8 percentage points from last year. And then looking on the profit in terms of value, we have seen the increasing margin also transferring over in an improving profitability and absolute value. And despite lower sales in the quarter, we continued at a good level. Taking a look on the adjusted cost breakdown as percentage of sales, our cost of goods sold improved by 1.2%, so down to 52.6% as a result of favorable. Selling expenses was in line with last year, despite our lower sales, and that's a result of reduction in number of headcounts and other saving initiatives that was implemented last year. Administrative expenses in percentage of sales was slightly up compared to last year. R&D expenses increased 0.5 in percent of sales. However, R&D was down in costs if we adjust to the closure of a development project. Just taking a stop there at the R&D expenses. In 2024, we spent 115 million SEC on R&D. where if we capitalized 77 million. Given the closure of a BM950 project and the savings we have implemented in last year, the R&D spend is expected to go down with about 50% on annual basis, all else equal going forward. Some R&D resources that has been previously working on the project will be moving over the focus on OEM products, as well as developing blood controls. And since we will not capitalize R&D going forward, the cost that is booked in the P&L is expected to increase somewhat. However, the spend from a cash perspective on R&D will decrease with about 50% on an annual basis going forward. In total, operating expenses decreased to 21% if we adjust for one-time items in the quarter. Our operating income expenses were slightly negative due to currency impact in the quarter. Altogether, adjusted operating margin increased in a good way up 2.2 percentage points compared to last year. If we take a look on the cash flow from operating activities, we see a lower quarter that was to some extent expected due to the guidance we gave in the last quarter of having severance payments coming through in the quarter. We had about 8 million SEK of these in the first quarter, and there also remains about 6 million to be paid in Q2 and another two to be paid in Q3.