Vitrolife AB (publ)

Hello and welcome to the Interim Report Quarter 1, 2023. My name is Caroline and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration of the call, your lines will be on listen-only mode. However, you'll have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star 0 and you'll be connected to an operator. I will now hand over the call to your host. Mr. John Sigurdsson, to begin today's conference. Thank you.

Yeah, thanks for that. Good morning, and welcome to the conference call for the interim report for the first quarter of 2023 for Vitrolife Group. My name is John Sigurdsson, and I'm normally the chairman of the board of directors, but now, until August 1st, I will be the interim CEO until the new CEO, Brondon Brophy, will join the company. I'm here together with our CFO, Patrick Torb, and we will talk you through the investor presentation, which you will find on our website, detrolife.com. After the presentation, we will open up for questions, as usual. Move to page number two, please. This is a good quarter and a good start of the year, which is reflected on the text on the slide, actually. The first quarter, we increased our sales with 14% to $854 million. But the best reflection of the real hotline development is the organic, constant currency growth net of this continued business, meaning life for life. And this growth is 9%. We grow in all market regions, and particularly in APAC, with impressive 23%. All our business areas continued to grow, and the growth in the business area of consumer booths was especially strong during the quarter. Moving on to performance, we increased our gross margin with 1% to 59.2%, mainly driven by growth, product mix, and lower cost base for genetic services. Interdump increased to set 282 million resulting in a margin of 33% net of non-recurring cost of 20 million SEK. The earnings per share, including the non-recurring cost, increased with 23% to 0.74 SEK. The operating capital for the quarter is, as usual, quite strong, 160 million SEK for the quarter. This puts us in the comfortable to EBITDA ratio 1.3 compared to 2.9 last year. Now, having said that, now over to you, Patrick. Thank you for that, Joon. And let's move to slide number three, where we will look then a bit more into the sales performance per market region. And I will focus also then on the like-to-like business, which is then the 9% which where we then exclude the discontinued business from COVID-19 testing and also then the part of the DPDX that is not longer within our portfolio. Starting then with Americas, we grew with 6% and that is driven then primarily then from a solid growth in genetic services. That grew 10% actually during the quarter. particularly than in U.S., but also strong growth in South America, although from a lower base on that side. We continue then to grow also the consumables portfolio in U.S., but have a slight decline in technologies installations that, you know, will shift over the quarters. EMEA was a bit shy, just 1% growth, but also quite a bit differences within the region on that side, continuously solid growth on consumables. products across the line in the whole region. Genetic services grew strongly then in Middle East, but offset a bit then by a decline in South Europe. Technologies gained a couple of major accounts during the quarter, but that was actually offset then by large installations during the first quarter last year. So all in all, for EMEA then plus one. APAC, 23%. And in APAC, we grew within all business areas. All markets were growing except for China. And in China, we have seen then a significant increase at the end of the quarter after they have abandoned the zero COVID policies. This will positively impact in the coming quarters. We have seen less of that impact during the first quarter. So more to come on that side once the Chinese market continues to grow going forward. But during the quarter, we also had strong deliveries then on installations of the embryo scope to customers in APAC and the rest of the Pacific. And you see also that the share of the total sales continued to be balanced within the group. So moving to slide number four, where we look more into business-era consumables. which is then growth in all areas. We grow organically then with 12% in local currencies, and we grow in all product areas, media, disposable devices, and also genomics. On that side, we have, as we have talked about in the third and fourth quarter, we have focused on our scalability and investments, and we have increased our production capacity, primarily then for disposable devices. And that is going in the right way. And we have been able to increase our production during the first quarter. And we have also taken actions for scalability during the first quarter then to be able to deliver, particularly then for our media portfolio with the additional demand as expected when the Chinese market is going up. So all in all, strong growth in consumables within all product areas and all Moving on then to technologies. And as you know, there are continuously over the quarter when it comes to the installations, which you see to the left here as well. But continuously strong growth all in all, so plus 7% for the quarter. Continuously then focused on the time-lapse technology and the embryo scope supported them with our AI capabilities as you know about IDASCORE. Now it's becoming more and more standard of care in several markets in APAC and EMEA. Generally also then increase our sales of software during the quarters here as well and the business mix will change a bit going forward with more recurring revenues. We did major installations in APAC with a growth of 55%. In EMEA, we did a couple of key new installations then to existing and new customers in part of EMEA, while we did large installations during last year that we did not do this year on that side. In America, from a relatively small volume, we declined with 35%. But that is also related to that we did installations last year, that we did not do this year. Moving on to page number six and genetic services. We see continuously then growth in genetic services business who then like for like, which is then excluding the COVID and the DPDX that we have Discontinued grew with 7% in local currencies with growth in all market regions. And this is also good due to that we have seasonality impacts that makes the first quarter of Genetic Sermony normally the weakest one. We grew in Americas, which is the largest market for genetic services, driven by US, but also then, as I mentioned initially, good growth percentage-wise in South America. Volume growth is strong. ASP is slightly lower, but we are working then, as we have talked about previously, with updating our customer offer to our customers and focus on continuous profitable growth and scalability on that side. EMEA, yeah, we grew strongly within Middle East. On that side, that is then the driver behind that one, but then a small decline than in other parts of the market on that side. and continuous growth in APAC. So moving on then to a bit more on some of the financial highlights. So move to page number seven. We have then increased the sales to 854 million Swedish crowns, which is then a 14% increase in SEK. Like for like, the equivalent number was 60% then SEK, but more importantly than the 9% excluding then the discontinued business. That is the most important thing to focus on. We increased and improved our profitability. Gross margin then increased with about a percent unit to just south of 57% or then 59% if you then also look on the running base where we then take out the amortization for acquisition related intangible assets. The improvement of profitability is driven by higher volume, product mix, and also that we have a lower recurring cost base for our genetic services business from the actions that we have initiated during the last year. EBITDA, like for like, where we then adjust for those non-recurring costs of 20 million Swedish crown, ends up then of 282 million Swedish crowns, giving us then an EBITDA margin of 33%. Moving to the next slide, slide number eight, where we focus a bit on the operational expenses. Also there, like for like, excluding non-recurring costs on that side of 17 million Swedish crown, we increased the OPEX with 8%. This was driven then by higher sales and marketing activities, the non-recurring costs, but also negative currency impact as we have the majority of the operations and stocks located outside of Sweden. R&D, the lower R&D is then related to the activities that we did at the end of the second quarter last year, where we now have an agreement with Carlos Simon Foundation that we did on that side, which means that we focus more on the D within our operations and the R within the agreement with Carlos Simon. on that side. So that have then resulted in that the net of R&D is lower, but the output is expected to be higher when we focus on the exploratory research. Moving to the next slide, where you then see the summary of the financials. We, again, just to repeat those, we continue to increase the sales, 854 improvements in gross margin and in the adjusted gross margin. 56, 59, increased also then the adjusted EBITDA to 33% on that side. And then as Jon mentioned initially here, we continue to improve the operating cash flow to 160 million, which puts us in a bit more favorable positions than in the net debt to EBITDA. So with those words, I'll leave it over to you again, Jon, to conclude. Thank you, Patrick. We have gone through the quarter, but now I would like to reflect on our standing in the broader market and our, in my view, the ability to leverage on it. We started by expressing our view that this was a good quarter and a good start of the year. Last year, we have been basically consolidating and putting in place structure that will leverage on our comprehensive end impressive product portfolio, and seventh, our position as a leader in technology and service to our demanding customers. Going forward, we believe we will have a great opportunity to continue to grow by focusing on excellence in our offer to our customers and to use our capabilities for economical scale and consultation. We are now a group with a broad product line which includes medical device, including software, consumables, and now genetic services. This is becoming increasingly important in the future where we see even bigger and more sophisticated IVF chains in many fewer and more advanced suppliers. We believe that the new combined sales and marketing organization is a big step in this direction and will enable us to generate value creating offers to our customers. We will also continue to look for opportunities to add new products and services to our portfolio through internal development and well-placed acquisitions. Scalability is not only in the sales and marketing and service to our customers though. We have a proven front record of increasing profitability of acquisitions by utilizing economical scale and by getting out of sub-performing units that do not fit in our long-term strategy. I believe we have enviable front sides in a market with solid underlying growth, and we have both the ability and ambitions to get us there. In other words, the force is with us and so is the future. Now, thank you, and now we can open up for questions.

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