Vitrolife AB (publ)

Hello and welcome to Interim Report Q2 2023. My name is Ben and I will be the 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. However, you will 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 question. If you require assistance at any point, please press star 0 and you will be connected to an operator. I will now hand you over to your host, Mr. John Egertson, CEO, to begin today's conference. Thank you.

Yeah, thank you. Yeah, good morning and welcome to the conference call for the Interim Report Second Quarter 2023 for Vitrolab Group. Today, July 14, and the time now is 10 o'clock. My name is, as I said before, John Sigurdsson, and I am the interim CEO here. I am here together with our CFO, Patrick Toth, and we will talk you through the investor presentation and their after open offer questions. You will find the presentation on our new website, vitrolabgroup.com. Let's go to page number two. The APEC has been exceptionally good for this quarter as well as for the whole 2023. For the Vitrolab Group, we increased our sales with 9% to SAC 905 million, excluding discontinued business. Our sales growth was 10% in SAC and 4% in local currencies. The growth in the market regions as well as our business areas differed a bit during this quarter. With the exception of the COVID recovery in China, we see that the number of IVF cycles is returning to a more normalized level, although there is still big differences between and within regions. We also see that several countries have introduced or are about to introduce reimbursement programs, and this will increase the underlying growth in the future, both medium and long-term. During the quarter, we had a moderate growth in EMEA, a decrease in Americas, and a solid growth in APAC. Our business area level technologies and genetic services declined slightly, while our growth in consumables was particularly strong during the quarter. We believe that the high cycle goal has put a dumping effect on technology investment as many of our customers delay their investment to keep an interrupted workflow in the post-COVID period. Now let's move into performance. Net of non-recurring warranty provisions, the gross margin run rate was 56.5%. The margin was driven and impacted by growth and the product and the market mix. EBITDA adjusted for the non-recurring cost increased to SEC 299 million or 33% EBITDA margin. Vitrolife continued to generate a very healthy operating cash flow and we increased the operating cash flow to 211 million SEC for the quarter and for the the year for 372 million SEC for the first half year. Now, Patrick, over to you.

Thank you, Jon. And let's move on then to page number three. And as Jon said, I mean, the growth in the market regions differed a bit throughout the quarter. And also to repeat that, the markets and IVF in terms of IVF cycles are returning to some kind of more normalized level, with the exception of China, that also has a big impact on APAC, although there are still differences between the regions, as we see, and also within the regions. Looking then on our sales performance per market region in local currencies, the growth was then summarized to 4%, and that is excluding the discontinued business, for the quarter. So I will start with Americas where we decreased our sales with 6% for this quarter. We continue then to grow our consumables business and declined in technologies. Technologies in Americas is from a small base and has normal quarterly fluctuations. Genetic services was impacted both on customer and product mix. America, then, market-wise, we continue to grow in South America, although, again, from a lower base. And during the quarter, we also then was impacted by new customer gains that we had in U.S. that was offsetted by a large clinic chain that decided to insource the basic PDTA testing. And throughout the year, we have seen several changes in the genetic testing market in the U.S., where some players within genetics now focus on other genetic testing areas. This gives opportunities for us, which we have taken, and we grew in specific areas like carrier screening testing as one example, and we will continue to strengthen our capabilities in U.S. The growth in EMEA was 3%, and that again shifts a bit within the region as well, and the growth regional-wise is driven then from north and central Europe as well as Middle East. Strong and robust growth of our consumables products across the line. Genetics services continue to grow strongly in Middle East. This quarter offset a bit by a decline in the northern part of Europe. Technologies made some major gains, some major accounts in the northern and central Europe during the quarter, but also offset them by large installations that was done during the last year. Growth in APAC, 19%, and we grew within all business areas. Growth was strong in several markets, particularly Japan, Southeast Asia, and also China. And we have seen that the activities in China has continued to increase during this quarter, but is still impacted by COVID. So moving on to the next slide, page number four, where we look a bit more into business-era consumables. So all in all, growth of 24% in Swedish crowns and 17% in organic growth in local currencies. with a solid growth in all product areas, media, disposable devices, and also the genomic kits that we sell through the business area, consumables. Our focus is on scalability and the investments that we have done previously to increase the production capacity of disposable devices. HANA has enabled growth in all market regions, We have, of course, very high quality standards. And during this quarter, we have scaled and ramped up our production on media, particularly to meet the increased demand, particularly that comes from APAC and China more specifically. So moving on to slide number five on business area technologies. And as we know, there are continuously some volatility over the quarter for our installations, depending on the clinic's ability. to take on the installations of our systems. The growth within technologies is continuously driven by standardization within the consolidation of the clinic chains, focused on improving the workflow, in addition then to use the embryo scope as an embryo selection tool. We have strong pipeline and strong interest from customers to use our embryo scope, supported then by our AI capabilities of IDASCORP. That becomes continuously more standard of care in several markets in APAC and EMEA. For the quarter, we declined the sales of 2% in SIEC, 7% in local currencies. America dropped 38%, but is impacted by some installations to customers in South America primarily last year. And in U.S., we continuously see opportunity for the embryoscope as we are focusing on workflow and efficiency gain for clinics using biopsy that can gain additional workflow improvements on using our equipment. In EMEA, we did some major installations to customers this year, but also last year, and hence we see a decrease on that side. And APAC continues to grow, and we see it continue to grow in primarily Japan. And as we have seen in other markets, when it comes to recovery from COVID, we see that the consumables products normally comes first, and thereafter investment into technologies. And that is what we now expect in China going forward as well, where the recovery has started on the consumables products first. Investments into technologies is another budget and will probably come later on during this year and into next year. Moving on to page number six on genetic services, starting then where we then declined 1% in Swedish crown and 4% in local currencies for the quarter. And that is, of course, then excluding the discontinued business on that side. Starting then with the largest market for genetic testing, which is Americas, where we, during this quarter, declined with 10%. We increased by 10% during the first quarter. We continue to grow solidly then in South America, but the basis is lower than compared to North America. A couple of things have impacted during this quarter. Firstly, if we're then starting with the customers, we have done some changes there as well. We have a strong position continuously amongst large clinic chains. One of them has decided to insource their basic testing, and we have also been able to gain new customers that offset the majority of that lost sales, which is really good. And as I said initially, we have also now started to strengthen our products and services portfolio and will now also then start to sell the newly launched Smart PDTA Plus. That will continue to be competitive when it comes to the embryo testing on that side. Secondly, there has been some changes then within the genetic testing market. Some players working within genetics have decided to focus on other things. which is an opportunity that we have taken and grown into areas like carrier screening testing as one example. We have also then seen a bit of a change when it comes to the product mix, where we are gaining again on the embryo testing, not only in PDTA, but also on PDTM, but we have declined in our demetrium testing ERA on that side. So that is one of the big drivers for the decline that we've had in America throughout the quarter. Moving on to EMA, where we had a moderate growth, continuously then a strong position on EMA in the Middle East, but it has been a bit offset by moderate growth in the northern part of Europe. In APAC, we continue to grow. We grew with 9%, and that is driven then by growth in key markets like Japan, Taiwan, with endometrium testing and embryo testing, PDTA and ERA. Moving on to page number seven, where we then summarize the financial highlights. And let me repeat then, we have then a growth of 9% in Swedish crown for the quarter, and that is then equivalent to 10% in Swedish crown for if we then exclude the discontinued business. And the growth in local currencies organically is then 4% if we then exclude the discontinued business. Gross margin for the quarter was impacted by a non-recurring cost that excluding that one gives us then a run rate of 56.5%. Margin was impacted positively then by the growth that we have, particularly consumables, but negatively impacted by the market and product mix that we have, particularly then in America, but with a lower recurring cost base that we have for genetic services that is also continuing to be a positive driver for the cost profits. EBITDA level, we increased that one, and 299 is then the like-for-like, then giving us an EBITDA margin of 33%. Moving to the next slide on operating expenses, that increased with 7% to 317 million Swedish kronor for the quarter, and that was driven then by investments into sales and marketing activities, such as ESHRE, the big conference here that was done in the end of the quarter, and also relating to personnel costs on that side. Since the majority of our operations and staff are located outside of Sweden, of course, we have a negative impact on currencies, which is approximately half of the increase on that side. Exploratory research focus, R&D cost is then slightly lower compared to last year, and that is primarily dependent on that we have done the agreement on the foundation that was signed in the beginning of the third quarter last year. So that is an impact that you see on the positive side throughout this quarter. Yes, so moving on to the next slide, which is then again a summary on the key financials. To highlight a few things here, sales, 905, and then we have the adjusted gross margin, which is 58.1, and that's where we adjust them for the amortization of acquisition-related intangible assets. EBITDA margin, 33%, and we continue then to strengthen the operating cash flow on that side. So that increased by 17%. for the quarter, giving us then a strong cash flow both for the quarter and then obviously for the first six months of this year. And this gives us then a lower net debt to EBITDA on a rolling 12-month basis that now is 1.3 times compared to last year, 2.4. Then I'll leave it back to you, Jon, for some final comments.