Vitrolife AB (publ)

Hello and welcome to the Virtual Life Group In-Frame Report Q2 2024. My name is Laura and I will 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 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 zero and you will be connected to an operator. I will now hand you over to your host, Patrick Tolf, to begin today's conference. Thank you.

Thank you. Good morning and welcome to the conference call for the interim report for the second quarter 2024 for the Vitrolife Group. My name is Patrick Tolf, CFO for the Vitrolife Group, and today is the 17th of July and the time is now 10 o'clock. We will, as always, do a presentation, and thereafter open up for Q&A. You will find the presentation at our website, vitralifegroup.com, and I will now leave over the word to our CEO, Bronwyn Brophy.

Thank you, Patrick. Good morning, everyone, and thank you for dialing in. I will now move you to the second page of the presentation and take you through the Q2 highlights for the Vitralife Group. So starting with our growth margin, you can see that we've increased growth margin to 59.9%. This is mainly as a result of product mix, but we also did have some operational efficiencies within our business area genetics. EBITDA also proving as a consequence, coming in at 34.7. In terms of growth, we'd like to highlight technologies, which had a very strong quarter, 40% growth. This was driven by very high growth in North America, but the EMEA region also performing strongly. And then finally, to highlight the acquisition of eFertility, which we completed in May. This acquisition is a core element of our strategy in terms of building out an automated and integrated platform for IVF clinics globally. Okay, so moving on then to the next page and we will look at some of the key financials. So sales coming in at 941 million sec for the quarter, an organic growth of 4% in local currency, better growth certainly despite the headwinds that we face in our genomic kits business. Growth margin, as I've already mentioned, coming in at 59.9 as a consequence of product mix, but also those operational efficiencies that I mentioned. EBITDA, 327 million SEC for the quarter and 34.7% margin. Cash flow also increasing to 236 million SEC and net income up to 143 million SEC. So you can see earnings per share also increasing there to 1.06%. Okay, I will move you on now, and we'll take a look at the sales and the growth per geographical segment. So, Americas, bear in mind that this includes both North and South America. America had sales of $316 million for the quarter, growing at 5%, with North America, it has to be said, being the main driver, delivering growth across all of the business areas, with the exception of genomic kits. The EMEA region, sales of 355 million sex for the quarter, growth of 11% in our largest region. The growth really coming from, well, across the board, but Southwest Europe, Middle East performing particularly well. And you'll see in the later slides, strong performance, very strong performance in technologies in EMEA. And then APAC region, sales of 270 million sec in the quarter, a decline of 5%. This region is significantly impacted by the genomic kits and also a very strong quarter in 2023 as one of our key competitors exited the market. So you can see that we do this shift, have a quarter in our share of total sales. with EMEA leading now at 38%, Americas on 33% and APAC at 29%. Okay, moving on then to the business areas and we will start with the consumable business area. So sales here are 356 million sec. I think you can see if you look at the bar chart here that Q2 last year was exceptionally strong. due to that competitor exiting the market and we really benefited from that mainly in APAC. So despite this we did deliver double digit growth in media in the US and solid media growth in EMEA. APAC most definitely challenged with the comps in consumables and we did have a softer quarter in disposable devices in both EMEA and APAC. This is primarily due to the phasing of distributor orders and actually Again, I would say there that APAC is the region most impacted. But strong performance in media, which is good to see, and very strong performance in consumables across the board with 14% growth. Okay, moving on then to the technologies business area. A great quarter for this business area, sales of 197 million SECs. a growth of 40%. Terrific performance in Americas, but also a very strong quarter in EMEA. So, you know, you can see Americas 174% growth off a lower base, but EMEA 50%. And we do have relatively high penetration of time lapse already across most of Europe in particular. APAC 2%, a very strong quarter again last year. in this region, but I would like to point out that China still managed to deliver high double-digit growth again in the quarter. So strong growth across the board, and we are certainly seeing accelerated adoption in America. Okay, moving on then to our genetics business area. So sales of 388 million set in the quarter. a decline of 7% in local currencies. Bear in mind that this genetics business area is a combination of genetic services and genomic kits. And in fact, genetic services returned to mid single digit growth this quarter. However, genomic kits significantly impacted the top line growth. We're also starting to see some nice sales growth in tests like carrier screening and And from a regional perspective, our growth in genetic services is accelerating outside of the U.S., with EMEA growing high single digit. And we had multiple markets actually across the globe growing at double digits. So good to see that genetic services is back growing. Okay. I'm now going to hand you over to Patrick, who will take you through the geographical segment.

Thank you, Bronwyn. And moving on then to slide number eight, which is then the geographical segment, down then to market contribution. And just to repeat, as Bronwyn said here, the impact of the decline of the kitted business has been the highest in America and APAC. So despite the decline in sales, we have actually strengthened the market contribution in all regions, with the most notably increase that you see in America, going down from 32.1 up to 37.2. And despite the decline in revenues that we had in APAC, we're actually even also there strengthening the market contribution to 46.7%. And here in this slide, you can also then see the gross income, how that's distributed amongst the regions, and this also then tells you the importance then on the product mix and how that has impacted us throughout the quarter. So moving on to the next slide to go through the highlights of the quarter. Again, as we see, the net sales increased 4% in SEAC and also then in organic growth in local currencies was also 4%. And for this quarter, we have had a minimal impact on the currencies. Moving on then to the gross income, which then increased to 564 million, giving us then a stronger gross margin up to 59.9, which is an increase of 4% units compared to Q2 last year. We have talked about the impact then on the positive product mix. We have grown stronger then within business area technologies, media, and then we are also returning them to growth in our genetic testing portfolio. On operational excellence improvements, we have been talking and been focusing a lot on operational excellence over the past quarters, and now it's Very inspiring to see that the changes and the focused work that we have been doing then within genetic services on operational excellence are starting to gain momentum, which we see then in the numbers here as well. So we have impressive improvements then within our genetic services business. And what we are doing there is, of course, efficiencies and process harmonizations across the lab in combination with more efficient work with cost management to our suppliers. All in all, this points down to that we have also then increased our EBITDA to 327 million, giving us then an EBITDA margin of 34.7%. Moving on to the next slide, where we then have the operating expenses that you can see are increasing then compared to last year with 8%. We are continuing then to invest into sales and marketing, also then to increase our capabilities in key markets. You also see that our R&D expenses are slightly lower compared to the same quarter last year. The main driver behind that one are product phasing and also increased capitalization. Throughout the quarter, we have also then taken one-off costs that are relating then to restructuring and also acquisition-related costs. And this has also then impacted the tax rate that has been unusually high during this quarter. So, moving on to the next slide, where I will then summarize the financials here. Again, just to repeat, sales, 941, improving then the gross margin to 59.9%. giving then EBITDA, an EBITDA margin to 34.7. Net income is increasing, which gives us then a net income margin of 15.3%. Earnings per share are increasing to 106. And again, we are continuing to deliver good operating cash flow, increasing to 236 million for the quarter. Net debt to EBITDA increases, one time this quarter slightly higher compared to what it was in Q1, and that is due to that we have used cash to fund the acquisitions that we have done throughout the quarter. With those words, I'll leave it back to you, Bronwyn.

Thank you, Patrick. So moving on then to the Corporate Strategy Vitralife Group. And today we'd like to spend a little bit more time on the progress updating you on the progress that we are making on the key strategic pillar of owning the platform, connecting products and services with the recent acquisition of eFertility. So if you'd like to move on to the next slide, I'll take you through, I guess, the rationale and the benefits of that acquisition to the Betrolite Group. So eFertility is an innovative system and software company. transforming IVF clinic management. The company has both a witnessing system and an EOR platform. We're interested in both, but definitely the witnessing system is a core part of that platform build-out. So eWitness is an error prevention system that optimizes the workflow in the lab and provides data and reliable insights, tracking and tracing each and every action that takes place on the patient's IVF journey. We are currently rolling out eWitness in Europe, so the company is based in the Netherlands. So we're starting the rollout in Europe and we will follow with other regions next year. You can imagine how core this is to our strategy because our vision is to bring increased standardization and automation to IVF clinics, connect all of the products and services, and eWitness does exactly that. Just in terms of the market, there are approximately 5,000 clinics worldwide and the current penetration of witnessing systems is approximately 10%. So we're very excited about this acquisition and expect to be able to drive growth in all regions going forward, but as I mentioned, starting in Europe. So My final slide then before we hand over to Q&A. So what is the focus of the Vitrolife Group for the rest of the year? You know, five key priorities here. One, increase share and penetration in the US and China. So I think you've seen from the quarterly results that we are finally starting to gain some nice traction in the US. We need to keep that going. We are investing in commercial capabilities, as Patrick mentioned. That's ongoing and we will continue to do that at a steady pace. We're also strengthening our relationships with the clinic chains, they're very important customers, through strategic account management. Number two priority, increase market share in consumables. We're seeing some very nice momentum in media. We have opportunities to take share. I think you can see from our quarterly results that we are doing that in multiple regions, and we need to continue to do that going forward. We believe we have an opportunity to increase our market share in disposable devices, most notably in needles and pipettes, and we're going to double down there in quarter three and quarter four. Accelerate penetration and utilization of time lapse, another strong quarter in technologies. What we're seeing is that customers very much appreciate the work, as well as the clinical benefits, of course, but the workflow and automation benefits that time lapse brings to the core of the lab. We need to continue to build on this. And then I think very importantly, increase utilization per installed embryoscope. We don't just want to sell capital. We want to sell, of course, the embryoscope, but also drive utilization. So that's a core element of our technology strategy. Fourth priority, accelerate growth across the broader genetics portfolio. And this is what we're starting to see in quarter two. So we have increased sales on carrier screening, on non-invasive tests. I would like to point out, though, that we are also increasing sales in our core PGTA business. But I think diversification is important so that we don't have an over-reliance on any one test. So really leverage the full genetic services portfolio, and then drive increased adoption outside of the U.S. You've seen that this quarter we have some nice growth in genetic services in EMEA, as an example, high single digits. So that's a core part of our strategy and also our focus going forward. And then, as Patrick mentioned, driving operational excellence across the company across We have improved on margins this quarter. We need to be able to fund our journey to accelerate our top line growth. And we believe that we have an opportunity to leverage synergies across the business areas, streamlining processes and systems going forward. So thank you for your attention. And I will now hand over for Q&A.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We will now take our first question from Stan Gustafson of ABG Sandal Collier. Your line is open, please go ahead.

Thank you and good morning. I was wondering if you could tell us the split there on the improvement in gross margin How much of the uplift is coming from this improvement in operational excellence, and how much was product mix? Thank you, too.

Thank you. The product mix, again, here, as we see throughout the court, we know that the kids in business are declining. We know that we are growing, then, within the technologies sector. we are also then making improvements within genetic services. So all the product mix from that perspective is positive from a margin side. On the cost side, then, the main improvements, as we mentioned, have been done within the genetics business area and then primarily then within the genetic services area here, as I mentioned before. So the main driver on the cost side is coming then out of the genetic services business.

Okay. In terms of the split, is it possible to quantify how much of the uplift is driven by these two factors?

Obviously, we are fully aware of that one. We don't disclose that one in detail. I think if you do a bit of math backwards and forwards, you can get some indication on that side. But the main driver is on the genetic services aspect. cost improvements for the quarter here?

Yeah, I would say that maybe, but I'm giving exact splits. So I think on the gross margin, the majority of the benefit is coming from the product mix. So we're growing in the highest margin product area. Okay, that's a fact. In terms of the operational excellence and the synergies that we are seeing there, the majority of that is coming from genetic service. without giving exact numbers. Does that help to answer your question?

Sure. Thank you. Thank you. I appreciate it. Thank you, Sven. Could you give us an update on the competitive landscape and potentially your market share there on the media business, given what has happened over the past three, four quarters?

Yeah, so we actually don't have published publicly available market share data, unfortunately, in IVF or in reproductive health. But what I can tell you is based on the growth rates that we're seeing, so our growth rates and also then the market growth rates, we are most definitely taking share in North America. Our growth is significantly above the market. we are taking share in multiple countries in EMEA. Again, the growth there is significantly above the market. And in APAC, I would say that in most countries in the APAC region, we are taking share. China, it's difficult to assess because, of course, last year, we had significant gains in this quarter with the exit of a competitor. But If you break it down below the regional level, I would argue that in most markets, our growth is well above market growth rates. So we would be confident that we are taking share from our key competitor, but also other competitors. So there's some nice traction in terms of media growth.

Yeah, that's That sounds reasonable. My thinking was more of how much longer, I mean, for how long can you outgrow the market if you've taken over a significant portion of the business from your competitor? If you reach sort of a peak market share now, or can this continue for several years to outgrow the market? Yeah.

Yeah, so there's always room to take market share. So I would argue that we still have plenty of runway to take market share. There are a number of factors influencing this particular one. First of all, you know, the vitrolife group media is synonymous with very high quality, and that's really important always, okay, in relation to IVF procedures and outcomes. So that's one. Second is ability to meet the demand. So, you know, it's fine and dandy for, you know, to move competitive accounts over to the Vetrolife Group, we have to be able to supply. We had increased capacity in media over the past 12 months, and that's a good thing, right, because we've been able to meet that demand. We still have capacity, so we expect to be able to continue to meet that demand going forward. And, you know, why would this not continue? You know, this is a very core central product. There is a degree of differentiation in media more than one might expect. So I would argue that we have high quality, we can meet demand, we have degree of differentiation, we provide a lot of training and education when it comes to media, training for embryologists, training for people working in the lab. So our ambition has to be that we continue to take market share in media globally.

Thank you. Very helpful. One final question or maybe clarification. Maybe this is for Patrick, but in the cash flow statements, you have a line called cash flows from losing control of subsidiaries. I was just wondering if you could explain what you lost there.

Yes. That is relating then to the restructuring activities that we have done, and that is related then to various kind of sanctions that have been imposed by EU and operations in markets that we are no longer existing in here. So that's exiting from some key markets that we have been doing now as well. So that's the reason behind that.

Okay, very clear. Thank you very much. I'll get back into the line. Thank you.

Thank you. Thank you. And we'll now take our next question from Richard and the grants of Handelsbanken. Your line is open. Please go ahead.

Good morning and thank you for taking my questions. So the first one, I would like to look a bit closer on some of the exceptional items or the standout pieces of the result here. If you could quantify the US large order in technologies and if could also maybe quantify the impact from the headwind of disposable devices and consumables. And maybe if we should expect a bounce back there in Q3, just to understand the dynamics of the sort of distributor ordering on that one. I'll start there. Thank you.

Sure. Thank you for the question, Richard. So starting with the sizable order in the US, it's a large order. It's one of the largest orders that we have received in North America. but there were other large orders during the quarter. So just to clarify, the performance of technologies in North America is not attributable solely to this large order. The reality is that embryoscope is growing across North America. So while we were delighted to get this order over the line and we're grateful for the support of EKN, there were multiple orders that came in for multiple systems in the US. This one just happened to be the largest. And this is an order that will come in tranches. So it doesn't all come in at once. It's going to come in in a number of tranches. So, you know, delighted to get the order with a very important and strategic clinic chain. But it was one in a number of good results for technologies and embryoscope in North America during the quarter. The second question then, Rickard, is on disposable devices. Yeah, I guess phasing is the key challenge here. So I just do want to point out on disposable devices, we did have high single-digit growth in America. So we're taking share for disposable devices in North America Less distributors there, so we didn't sort of see that impact. The main impact of disposable devices is in the APAC region. This is also the region where we have the, I suppose, greatest reliance or highest number of large distributors. So we would have a more positive outlook in the second half of the year in terms of that business returning to growth. And as I said in the CEO comments in the quarterly report, most notably in pipettes and needles where we do have a degree of differentiation. We have a particular needle which is quite unique and doctors in particular like it a lot. So a phasing issue and expected to improve to a more positive trajectory in the second half of the year. So hopefully, Rickards, that gives you a little bit more colour in terms of your questions.

Very clear. Thank you very much. Secondly, on the gross margin, we saw a very nice expansion. Is this level of sort of 60% sustainable for the remainder of the year? Or maybe you could help us with some of the push and the pulls as we go into the second half. Thank you.

Will I start, Patrick, and then? Yeah. So yeah, definitely a nice performance on the gross margin. As we mentioned, mix is playing a key role here. So growing very strongly in technologies, which is a nice margin business for us, also growing nicely on media. So I guess to summarize, we are growing in the areas with the highest margins. So that product mix really, really helps. I do want to give a call out to the genetic services team in Valencia because there's been a lot of work going on there in terms of lab consolidation, rationalization, turnaround time, driving down the cost per sample. And that's an ongoing program. That doesn't happen in one quarter, okay? This is a journey that we're on in terms of increased efficiency. So I do think we will continue to see some benefits from that going forward. Can they maintain, you know, That level of magnitude, that would be challenging, okay, because they did some particularly nice work during this quarter that we benefited from. But, you know, operational efficiency is a journey. It shouldn't happen in one quarter. You know, that said, maintaining, if you would allow me to round up by the 0.1, maintaining gross margins in the 60% levels you know, would be nice, but would definitely be a little bit challenging. And then just in terms of the genomic kitted business, that is our, it's the lowest margin business across the portfolio. We, you know, we do expect to see a better performance from that business in the second half of the year. So, that may have some dilutive effect on the margins. I don't know, Patrick, if there's anything I missed that you would add. So, Hopefully, Rickard, that answer satisfies your question.

Very clear. And just a quick final one, if I could. So genetic services, you mentioned mid-single-digit growth in the quarter in totality. Is it reasonable to assume sort of high single-digit growth in genetic services second half, just trying to get a sense of sort of where the trajectory moves as we move into the second half and just what type of growth rates we should be thinking there?

Yeah. So, Rickard, my philosophy is slow and steady wins the race. Okay. So, you know, what are we seeing in genetic services? We are seeing, you know, North America returned to growth. Okay. So we're seeing North America returning to growth. We're seeing genetic testing accelerating outside of the U.S. We are seeing tests outside of PGTA accelerating and penetration and adoption going up. So they are all some pretty nice tailwinds that we have. It's also important to bear in mind that in quarter one and quarter two last year, we still hadn't suffered the effect of the insourcing. So growth, we could reasonably expect growth rates in genetic services to slowly pick up in the second half of the year. It is good to see the core PGTA business returning to growth. We do still see decline in parts of the portfolio and one test in particular. But overall, the outlook for genetic services is starting to look more positive. I don't want to make promises around high single digits. I'm going to stick to the narrative that slow and steady wins the race here. And our goal has and will always be to deliver steady, profitable growth. We probably could accelerate the growth, but we don't want it to come at the cost of profit. But a better outlook, I would summarize by saying, without making any promises. Thank you, Richard.

Thank you very much. Thank you. Your line is open. Please go ahead. Patrick, you might want to check on your mute button, please.

Oh, thank you. Can you hear me? Yes. Yeah, great. Thanks for taking the questions. Maybe I could... Start a little bit with your operating expenses, if you can talk a little bit about what you see for the second half of this year, especially when it comes to sales and distribution that were a little bit higher than what I had expected. Is this a new level that we should expect going forward, or were there anything specific or special in the numbers for this quarter?

Yeah, if I may start there on that topic, I mean, as I say here, we have then continued and we will continue to invest when it comes to sales and marketing activities. That's for sure that we're going to continue to build up competence and capabilities within our sales and marketing. As well throughout the quarter here, as I mentioned, we have then taken a couple of costs that are more of one-off character here as well. So from that perspective, that is also then both within sales and marketing and admin, we have then taken one-off costs here as well. And we mentioned that in the report, that that is approximately then $15 million for the quarter. So obviously that will not be there going forward. But we will continue to invest when it comes to sales and marketing to continue to strengthen our position on that end. And also just to repeat on the R&D, yes, we are continuing to focus more on R&D, and as projects are more and more facing and doing progress, the key ones are for the next generation when it comes to time lapse, which we are focusing on as well, and obviously some of the genetic testing side as well. We are then starting to capitalize a bit here as well, so that means that the expense side of it goes down slightly, as you have seen, also then over the quarter to this year compared to last year.

Good. Just to follow up on that, is it possible to split the $15 million between how much came into sales and distribution and how much came into admin for the quarter? Yeah.

The main part of this increase throughout the quarter has been on sales and marketing.

Okay, great. And the fact that you're capitalizing more, I noticed that your amortization depreciation is up a little bit. Is that a new level that we should expect?

Yeah, sometimes it will probably go up slightly. I mean, if you compare this one, this quarter compared to last year, it's slightly up, as you say. So I think you should expect that we are amortizing a bit more going forward here as well. And then keep in mind also that we have done then two acquisitions throughout the quarter that will be amortization on as well.

Great. Last question, if I may. Bronwyn, you talked about this large order on the U.S. market and that it comes in in different tranches. Is it possible to say anything about timing of the future tranches? Is it something that will come in already in Q3 or is it a longer process?

Yeah, so I would say part one or tranche one in Q2, but we will also see additional orders coming in in Q3 and Q4. And maybe if I could just point out It's actually US and Canada. I don't want to let the poor Canadians down by not giving them a shout out. So it's North America, it's US. This particular chain is in both the US and Canada. Okay. But yeah, I would argue three main tranches that it will come in in, Patrick.

Okay, great. Thank you, guys.

Thank you very much. Thank you.

Thank you. And we'll now take our next question from Jakob Lemke of SEB. Your line is open. Please go ahead.

Hi and good morning. My first question is on the consumables, which I think did a very strong improvement here quarter to quarter. It would be interesting to hear how much of this is seasonality and how much of this is sort of this market share gain accelerating.

Yeah, Jacob, that's you, right? Sorry, because our line blocked out a little bit, so I couldn't hear who the speaker was, but I think I'm identifying the voice as Jacob, right? Yeah, so, yeah, Jacob, I would say on the consumable side, to summarize, shared in America, particularly North America, and also in several countries in EMEA, also several countries in APAC. So growing, you know, well above market in Pacific, in India, Southeast Asia. So most markets share gain on the media side. On the disposable devices, share gain in both North and South America. some gain in parts in a couple of markets that we have in EMEA, but challenge then on the distributor ordering side. So definitely the phasing we believe is impacting us on the disposable device. I would point out though that just in terms of consumable revenue, media is by far the larger part of the revenue when it comes to contribution to consumables. So how much of it is seasonality? That's a great question, actually. We didn't see a summer drop-off during the quarter. We really didn't. It can happen at different times during the year. The ESHRA Congress was quite late this year, Jacob, so that only took place last year, excuse me, last week in Amsterdam. So I would expect that most of the labs were fully operational right up to the end of the quarter. It seems to be they're taking a slightly later summer holidays. So I don't see a big seasonality factor at this point in time. Hopefully that answers your question, Jacob.

Just a short follow-on, but If we look at North America, for example, would you say that this market share gains in media accelerated during Q2?

Yeah, most definitely. Yeah, it accelerated. You know, it takes a little bit of time for a clinic to change media provider. So, you know, switching is not that simple because the entire – process have to be validated. So if somebody is to move to vitro-like group media, our media has to be fully validated by the lab. So it doesn't happen quickly. And we probably expected it to happen a little bit faster, but I think now we're seeing once customers tried the media, validated the media and liked the media, they started to come over. So most definitely the share gain is accelerating in this quarter.

Great. And then moving on to technologies, which is very strong in North America, as you said. It would be interesting to hear a bit about the sort of driving forces behind this, if it's more sort of the clinics demanding this or anything different you are doing internally, selling this and so on.

Yeah, fantastic question. So we're increasing our presence in the US. We presented it as part of our corporate strategy. We want to double down in the largest IVF market in the world. So we're increasing our commercial presence and we are increasing our focus on both capital sales and driving utilization of time lapse. Fact. And that's definitely reaping benefits. I think the other thing that we're doing better that we probably hadn't done up to now is really being able to prove the workflow benefits of time lapse. You know, embryos spend a significant amount of their time outside of the uterus in a time lapse machine. I believe it's north of 90%. So customers are really starting to see the benefit to the clinic by not having to quite literally mind the embryos. And that's what happens with traditional incubators. So the workflow, the efficiency at a time of labor shortages in most of the Western world. So that is both a market factor, but also the increased focus on driving capital sales, utilization. And then I think very importantly, we're also investing in clinical education, training. You know, we don't sort of sell the embryoscope and walk away. We make sure that everybody is trained, understands, understands the benefits, time control, pressure, humidity, everything, all of the benefits that come from installing an embryoscope in the clinic. So we probably slightly changed our positioning in the US to focus more on those areas and the market is reacting particularly well to it.

Yeah. Okay. And shortly before you have talked about the sort of pipeline being strong in technologies, is that still the case or have you delivered a lot of that already?

The pipeline, no, the pipeline continues to look good. Okay, so we're putting a lot of emphasis on commercial excellence, pipeline, funnel, Salesforce, metrics, a lot of focus going into that area with up the ante. And no, the funnel looks good. The funnel looks good. across most regions, actually. I mean, EMEA is not going to be able to maintain a 50% growth rate. I know we're talking a lot about the Americas, but 50% growth in the market with the highest number of installed embryoscopes could arguably be said to be an even better performance. So I think it would be tough for EMEA to maintain those types of levels. The US pipeline looks very good, as does APAC. I do want to call out China. China also had a very strong quarter in time lapse. The APAC numbers don't look as exciting because Japan and Pacific had a very strong quarter in time lapse last year. China is still in very high double-digit growth on time lapse with a healthy-looking funnel. Just to manage expectations, maintaining 40% growth on time lapse, that's not going to be That would be a very, very tough ask. But I would summarize by saying, Jacob, that the funnel and the pipeline look very good and we are rigorously monitoring and tracking it as well as the consumable revenue per installed embryos.

Okay, and just finally on genetic services, I know comps are a bit easier here in Q2, but to me it seems like there's quite a significant underlying improvement as well. Could you just talk about, yeah, the sort of drivers behind that underlying improvement?

Yeah, so you're correct. The comps were very tough for genetic services this quarter because, as I mentioned previously, We were only starting to be impacted by the insourcing issue, so we still had the bulk of that revenue in Q2, and actually the error decline accelerated in the second half of the year. So the comps were challenging. Yeah, underlying good performance, nice to see PGTA, the recovery in PGTA. I know there were concerns, is this insourcing trend a one-way train, and we had always said no. I think we're being proven correct on that one because we do see the growth there. I think it's good to see as well, Jacob, the growth across the broader portfolio, carrier screening, some nice growth there. Also, the non-invasive tests are doing well. That's good because we believe a lot in non-invasive going forward. Certainly, in the U.S., but also particularly outside of the U.S. So good to see the growth in the U.S. You know, EMEA, I have to call EMEA out here as well. High single-digit growth in genetic services with several markets in double-digit territory. So that's good, despite the comps. And then APAC, you know, very strong performance in India. very strong performance in Southeast Asia. So yeah, it's definitely looking better. I don't like to get too excited, Jacob. We have a phrase in Ireland, and I'm sure you have an equivalent one in Sweden, one swallow doesn't make a summer, but definitely the fundamentals are looking better in genetic services, and we are much happier with the quarter. And certainly back to the tracking and the metrics going forward, they look more positive.

Okay. Sounds like it's moving in the right direction then. That's all for me. Thank you very much.

Thank you, Jacob. Thank you. And we'll now take our next question from Ulrich Trattner of Carnegie. Your line is open. Please go ahead.

Great. Thank you very much. And I will try to bore you with not asking the same question again. But I need to touch base on the market here again, specifically in media and in the US. And you touched upon this. It takes some time for the IVF labs to validate your products and to run them in their labs. Are you... expecting, or out of the labs or lab chains, you were expecting to switch to your media, would you see that majority of the effect have already come into Q2, or are there more to switch to virtualized products by second half of the year? That would be my first question.

Yes, so thank you, Ulrich. There should be more that we can convert to our media. And I think we should do that on the basis of high quality, on-time delivery and differentiation. Because I don't want us to be complacent as a company and assume that our competitor will always have those challenges. I would like the Future Life Group to win based on merit. And we do believe that we have the highest quality. We certainly have the most stringent quality controls, highest quality media on the market. So, you know, we should believe in ourselves and back ourselves and continue to convert and take share in media in the coming quarters. I think there's plenty more clinics and chains out there that we can convert to our media.

Great. And on the gross margin, and I know you talk a lot about product mix and I fully understand that as well as you're talking about gross margin improvements in in genetics, but you have historically talked about the opportunity to increase margins, not only in these new segments of vitro life, but also in consumables. So where are we at on that currently?

I mean, we are taking that improves as well. But the main driver for this quarter has been the ones that we have talked about now as well when it comes to Genetic services particularly. But, of course, it's to continue then to build up the scalability that we have in the manufacturing here as well. As we talked about previously, it's about increasing then capacity for media, as one example, as demand has increased. So we are continuing to work on that side, and we will continue to do so even further on here as well. So all of that contributes as well, but the main driver for the quarter has been the product mix and on the cost side and primarily out of genetic services?

Yeah, I mean, it's a great question, Ulrich. It needs to be across the board, okay, and it has been. I think that, you know, a key focus for a consumable business has been capacity, and I'm glad we've been focusing on capacity. Had we not, we would not have been able to capture the share in media, right? But you are right. What are we doing there to improve margins? A lot of automation and investment in the consumables business in the past 12 months, increased use of robotics in several of our manufacturing plants, which is important in a labour-constrained market. So some improvements there. And I think just across the consumables portfolio, disposable devices as well, we've been looking to take out costs scale, increase efficiencies there. So it is across the board and also in technologies too, right? You know, healthy margins there, but there's always room for improvement. So, you know, the programs are everywhere. They're in all of the business areas and in all of our manufacturing sites around the globe. So from Hugsbo to San Diego.

Great. And if we were to switch over to genetics, and you sound optimistic. I know it's slow and steady, but looking at sort of what you're stating in terms of growth across regions, it sounds very positive. And I also note that you talk a lot about carrier screening, and I heard a numerous presentation of Estro last week focusing on the progress of carrier screening. Is there a shift in the market currently towards those types of genetic tests? And as well, the change, there must have been a change in the market dynamics and pricing of these tests giving semaphore material leaving the industry. And if you can help me provide some granularity on that, that would be very helpful.

Yeah, so you've done your homework, Ulrike. I wouldn't expect anything less. So, yeah, I mean, carrier screening, the adoption of carrier screening is growing rapidly. Fastest growing region is Americas, but EMEA is also very, very high. A little bit less so in APAC, which you would expect, okay, for something like carrier screening. non-invasive as well, right? So big, big emphasis on non-invasive. We've been investing, obviously, in that area. Adoption there is increasing pretty rapidly, mainly in Americas and in APAC, okay? So no surprises, I suppose, that APAC is where growth of non-invasive tests are at their highest. So, you know, I don't know, we say there are puts and takes, you know, almost every region. As I look at the three regions, you know, there are healthy pockets in carrier screening, in non-invasive. And then as I keep coming back to, right, let's not forget about the core. I mean, you know, PGTA well established in the US, not so well established outside of the US, but I think the rest you know, the rest of the world is looking at the US success rates up and around the 50% when the rest of the world is hovering in and around, you know, the 33 to 35 and US has a higher penetration of genetic testing. So, you know, one could reasonably assume that the adoption rates outside of the US for genetic testing is going to continue to increase. But yeah, I don't want to be overly bullish. We have to make this happen. This is market development. It's classic market development. It's not, you know, taking share is one thing. Developing a market, training, gathering the clinical evidence, working on reimbursement, health economic data, that all takes time. And this is going to take time. And yeah, but it's certainly looking better, Ulrich.

Great. And then the million-dollar question, quite literally, where are we at in terms of the progress of combining genetic tests and time-lapse and for that data to mature and to be published? It sounds like a key component for some true deep penetration of time-lapse in the US market beyond the efficiency gains of the system.

Yeah, so as we presented during our Capital Markets Day, you know, key pillar of our strategy to marry time lapse and genetic testing, you know, it's a complex program and we have our teams in Aarhus and Valencia working on that together. Difficult to give an exact timeline. My teams wouldn't even give me an exact timeline on that particular one, but I can say that the program, it's a program, not a project, given its magnitude, but the program is progressing well. Patrick mentioned the capitalization. We are increasing our spend in R&D, and most of that investment is going into the next-gen development, which essentially marries the two technologies. I think what's also good to see, Ulrich, is that... we're seeing now from the U.S. with the traction that we're gaining on embryoscope is that, you know, it starts with embryoscope and genetic testing living side by side. We see them as complementary. We don't see them as competitive. U.S. is clearly starting to see that too. And that really helps to set the stage for the future platform of being able to do both. So it's going to take us time. I certainly don't want to over-promise on this one, but we are doubling down and making good progress.

Great. And it wouldn't be fair to not ask a question about the e-witnessing acquisition and the witnessing in general. So if you could highlight the difference between your witnessing system and the rest of the market, and in addition to I listened to a few testimonials in Europe, and they're talking about saving 0.3 times for personnel converting to e-witnessing from manual. Is this the type of general time saving or efficiency gains that is expected? And in addition, 10% penetration. Yeah. this is for a general market, where do you expect this to move within the next five years?

Yeah, so, yeah, current rate stands at about 10% globally. There are regional differences, you know, with the Western world slightly ahead. The key difference, without going too technical, but the key difference between our system, I can say it's our system now and other systems on the market, is that we can offer both barcode and or FID. And the other key element here is integrations with EMRs, which is really complex because the EMRs in this space are very fragmented, much more fragmented than you would see in other areas of healthcare. The fantastic thing about eFertility is you know, we have the EMR platform in there. So the team that have come over as part of this acquisition have really high competence and knowledge when it comes to EMR. So that also gives us, you know, gives us a boost. But all systems have their pros and cons. How rapidly will the adoption and the penetration take place? Well, you know, that's on us, right? We, as a company, and our competitors as well, need to be able to demonstrate with evidence the benefits of using a witnessing system. Of course, there are the emotional benefits of, you know, the tracking and tracing and the degree of comfort that gives to couples. But we need to be able to prove that with maths as well, to some of the points that you're bringing up there, Ulrich. What exactly is the time-saving... what data exactly do we get from the system. So it is early stage. We're only at 10% penetration in terms of the market. But, you know, that's what we need to do. We need to be able to bring the data, the evidence, demonstrate the efficiency, train. You know, you will have seen from our academy in Booth at Escher, we need to be able to train people in the use of witnessing and the benefits. So We're very excited, but we have a lot of work to do when it comes to witnessing.

And do you dare to make an assumption where sort of the general market in terms of the penetration of the witnessing system will move in terms of are we supposed to believe that 30 to 50% of 5F clinics will most likely use a witnessing system within the next five years.

Yeah, you're really tempting me to give you a number, but all I can say is you would reasonably expect the adoption rates to start accelerating. The reality is that a witnessing system, apart from all of the benefits that we've just spoken about, I mean, at the end of the day, it also gives huge peace of mind to the couple undergoing IVF that every step, you know, if we take it down to the micro level, it's easy to get lost in the numbers and the penetration. If we take it down to the micro patient level, you know, would a couple undergoing IVF prefer to go to a clinic where they know there is a witnessing system installed and each and every step of their personal IVF journey is being tracked traced and quality proofed? I would say yes, of course we would want that. And that then becomes a marketing tool for clinics that, you know, we have witnessing. We track, we trace, and we barcode. In our case, we barcode or we RFID. So I would be advocating to patients when they're choosing their clinic and they're, you know, choosing their doctor, you know, look for a clinic that has a witnessing system. in terms of, you know, quality, traceability and workflow. So, yeah, I think we would like to be ambitious about the growth prospects, Ulrich.

Great. That was all question on my end. Thank you, Bronwyn and Patrick.

Thank you very much. I think we are up on time. So I would just like to thank you all for dialing in. Thank you for your great questions. And for those of you waiting to head off on your summer holidays, Have a wonderful summer and we look forward to speaking to you soon. Thank you very much. Thank you.

Thank you. This concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.