Boule Diagnostics AB (publ)

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

Thank you, Holger, and good morning, and welcome to all of you joining this Q2 earnings call. Let's begin by looking at the highlights of the quarter. The second quarter of the year saw the continued effects of the geopolitical instability with longer than usual supply chain lead times, delayed payments from key customers due to continuing bank restrictions and unfavorable effects development from a weakening US dollar. CO2 was overall and relatively speaking a stable quarter. with a 3.3% organic decline compared to last year. Instrument unit sales grew 17% year over year, however, at a lower average selling price. This is part of our strategic focus to grow our install base as a way of investing in future reagent business growth. Our five pound instrument sales more than doubled in both the quarter and year to date. reflecting the higher demand for five-part technology in the market. Consumable sales came in 12% below last year, largely due to the delayed payments, which then delayed shipments, and we ended up closing the quarter with a larger than usual backlog, like what we experienced in Q1. OEM sales were in line with our expectations and on level with last year's sales due to timing of orders, However, we do expect continued good development in the second half of the year. Gross margin declined in the quarter to 38.7% due to product mix. Our instrument sales grew, but at a lower average selling price, which diluted the gross margin. Cost control continued to be in focus and because of all implemented restructuring initiatives in the past 12 months, we've now lowered our operating expense spend by 47%. The operating margin declined to 4.5% compared with 7.2% last year as a direct result of lower sales and gross margin and adjusted average closed at 5.8 million SEC. Despite a challenging quarter, we delivered a positive operating cash flow in Q2 of 2.9 million SEC. This is a critical milestone and a result of our diligent efforts to balance the structural cost, working capital and position pool to invest in the future. To support our strategic transformation, we are strengthening our executive leadership team with deep subject matter expertise in R&D and proven track records in project execution. In May, we welcomed Eva Sperling to our team as Chief of Staff Eva brings significant project management and lean experience from heading up the R&D project management office at Cepheid, a world leader in molecular diagnostics. And in June, we promoted Lucy Yerian, the chief technology officer, to support our strategic focus on OEM and blood controls development. Lucy has a PhD in analytical chemistry and brings more than 15 years of industry experience as research scientist, lab manager,

and head of R&D.

In Q2, we made important progress in our instrument portfolio strategy. Here is a simplified overview of our current and future portfolio ads. Everything marked in blue are our current proprietary instruments. Everything marked in green, our technology partner instruments and future identified portfolio ads are represented by these bluish icons. In our human portfolio, we have doubled our unit sales of the M51 five-part instrument year-to-date, and we commercialized our vital scientific clinical chemistry distribution agreement in the US. In addition, we have now identified the most important portfolio edge, which we are currently working on bringing in for validation. In our veterinary portfolio, we successfully validated a new state-of-the-art hematology analyzer, which we intend to launch soon. With this portfolio addition, we add a product that will be able to compete with the market leaders in veterinary care and open segments of the market that is currently not available to us. This is the first instrument that has been validated by our newly established technology onboarding team in Sweden. In August, we expect to get validation of another instrument portfolio candidate in the veterinary portfolio. Taking a closer look at the Q2 financials. In summary, we reported Q2 sales of 129 million SEC down 5.6% and with a unfavorable 2.3% currency impact leading to a 3.3% organic decline. Gross profit landed at 50 million SEC, down from 59 million SEC due to mix, lower sales, and lower prices on our instruments. We've begun to see the impact of a weakened U.S. dollar and increased materials costs due to tariffs. Gross margin declined to 38.7% from 43.1%. Despite declining sales, we achieved 5.8 million SEC in adjusted EBIT, and we achieved positive operating cash flow of 2.9 million because of savings from restructuring efforts in 2024, now fully materializing. Available liquidity end of the quarter was 39 million SEC. Quick look at the overall sales by quarter. You can see the Q2 was down 3.3% organically. due to lower average selling price on instruments, and delayed payments and shipments on reagents. From a regional perspective in the quarter, US and LATAM saw a decline in our hematology and CDS reagent business. In these markets, high competitive pressure and lack of portfolio fit are the main challenges. Southeast Asia saw growth from strong sales in India, supported by more stable performance in the region. Europe grew primarily due to strong veterinary sales, and Middle East and Africa declined due to challenges linked with geopolitical unrest. Looking at our hematology business specifically, we had a soft border with a 6% organic decline due to lower ASP on our instruments and delayed payments and shipments on reagents. In total, instrument unit sales closed 16% above last year, however, at a lower average selling price as a direct consequence of a more focused approach to growing our installed base as a way of investing in future reaging growth. Our five-part instrument sales more than doubled in both the quarter and year to date, reflecting the continued high demand for five-part technology in the market. And our consumable sales did come in 12% below last year, however, largely due to delayed payments. And we did close the quarter with a larger than usual backlog, like we experienced in Q1. OEM sales were in line with our expectations, and Q2 was in level with last year's sales due to timing of orders and unfavorable US dollar. However, we expect continued good development in the second half of the year. our sales funnel continues to mature in line with our expectations. And with that, I'll hand it over to you, Hager, to take a closer look at financials.

Thank you, Torben. Starting with a financial summary of a quarter, we had a negative organic sales growth of 3.3%, and our cost of sold goods increased despite the lower sales and diluted our gross margin to 38.7, down from 43.6 last year. This was mainly driven by the seismics with strong instrument sales and price pressure on instruments and somewhat weakening US dollars in the quarter. Last year, we spent 80.9 million in operating expenses, where of 8.5 million was related to restructuring activities and a lost tax case. And another 23.5 million was related to the R&D project BM950. If you compare that spend level to this quarter level of 43.1, we reduced the spending of 47%. We also now see the full impact of restructuring activities we have done in the last 12 months. In total, we have reduced the full-time employees and consultants with a net of 59 FTEs. We know we have more to do when it comes to the cost structure and But if we're looking on the changes so far, it has been transformational for the running cost base and for our target to bring us back to positive operating cash flow. But despite these decreases of our spend, the low gross profit impacted us negatively in the quarter and lowered our operating margin to 55.8 million compared to 9.9 million last year. Looking at the adjusted cost as percentage of sales, our cost of goods increased 4.4%. Selling expenses was down to 19.8% as a result of the structural changes we have done in both sales, marketing, as well as in the service organization. Administrative cost was down slightly due to a bit lower consulting cost and IT. R&D and QR decreased significantly, and this is due to the fact that we closed the development project BM950 in the first quarter of 25. And that cost was capitalized last year, as you see further below in the slide. And in percentage of sales, we decreased the spending a little bit more, actually, than we capitalized in last year. Adjusted operating margin decreased to 4.5% compared to last year's 7.2%. related to the gross margin change. Looking into the operating cash flow then, we had ambition to come back to positive operating cash flow and in the second half of 25, but we're able to achieve it already in this quarter. This is despite that we had 12 million second payments for restructuring closure of a R&D project in the quarter, as well as payments for the restructuring that we have done in the last quarters. It remained about 4 million in the balance sheet to be paid for restructurings in the second half of 25. The improvements we see on the other side in the working capital is coming from inventory, a little bit lower inventory levels, as well as slightly improved collection on the receivable side. And this is shifting us back to a more positive trend. And to us, it's an important milestone in the transformation for us to bring bull back to a cash generating company. If you take a look on the liquidity and credit situation, we ended the quarter with 23 million in cash and unused credit facilities of another 16 million. In total, the liquidity was slightly up compared to the last quarter. With that, I'm handing back to you, Torbjörn.

Thanks, Holger. So in summary, we continue to make progress on our three strategic priorities. As Holger said, Q2 marked an important milestone in that we returned to a positive operating cash flow. Over the past four quarters, we've taken significant steps towards reducing the structural cost, expanding the operating margins, and we've managed to reduce the operating expense spent with 47%. To fuel our organic growth, we've strengthened the executive leadership team with deep R&D subject matter expertise within reagent and block controls development and years of experience within project execution and lean implementation. In addition, we focused more strategically on install-based growth as a way of investing in future reagent growth, resulting in a 17% instrument growth for the quarter. Finally, we've made important progress in our efforts to build a stronger and more growth oriented portfolio by successfully validating a new hematology instrument for veterinary care and commercialized our clinical chemistry distribution agreement in the US. That completes our formal presentation. Thank you for your attention and we'll now open it up for questions.

If you would like to ask a question, please raise your hand in Teams.

The first question comes from Michael, please, Michael unmute yourself and Ask your question.

Yes, about the gross margin and the sales price for the third-part instruments. Is this a new normal or how should we see this lowered ASP?

Yeah, thanks, Michael. It is probably a new normal. We have taken a more focused approach. to building up our installed base. And consequently, we are having to be more aggressive on our pricing on the instruments. However, in conjunction, we are also seeing in the market the prices deteriorating, probably as a maybe temporary measure to overcome some of the geopolitical challenges in the market. I think that what we should expect going forward is that we will see a lower ASP in general, especially on the entry level five part instruments, which is our M51. So I think that partly this is a new normal and partly this is probably a temporary reaction to the geopolitical situation in the market.

But you don't see further deterioration in ASP going forward? I mean, it's hard to quantify, but do you see a risk of further deterioration?

At this point, I do not see a risk of further deterioration. I think that we have stabilized on a slightly lower level than we have had historically on the five-part instruments. And I think also the impact is further amplified by the fact that we have significantly increased our unit sales. So I think that the five-part market price in the entry-level segment, I think, is stabilized at the level we are seeing now. It may be that it will bounce back slightly upwards as the market normalizes, hopefully, over the coming quarters, but for now, I expect it to be rather stable.

Okay, thank you. Thank you, Michael. We currently have no more questions in line.

So if there's no more questions, we would like to thank everybody for participating and listening in to our call today. Thank you very much. Thank you.