Vitrolife AB (publ)

Hello and welcome to the Virtual Life Group Interim Report Q3 2024. My name is Laura and I will be a 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 questions. 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 Tov, to begin today's conference. Thank you.

Thank you, and good morning to you all, and welcome to the telephone conference for the third quarter 2024 for the Virtual Life Group. Today is the 24th of October, 2024, and the time is now 10 o'clock. My name is Patrick Tolf, and I'm the CFO for the Virtual Life Group. You will find the presentation on our website, virtuallifegroup.com slash investors. And I will now leave the word over to our CEO, Bronwyn Brophy.

Thank you very much, Patrick, and good morning, everyone. So if I can move you to page two, which is the Q3 2024 highlights. Highlight number one is a growth of 7% in local currency. I would say we're not getting ahead of ourselves here, but this is our highest quarter in terms of growth in local currency since quarter one, 2023. Consumables growth of 13%. We're particularly happy to see our core business growing double digits, and this is also one of the strongest quarters. for our consumable business, actually in a couple of years. And then finally, genetic services, North America growth of 9%. So good to see North America genetic services turning the corner. So if I can now move you to page three, please, where we'll talk about the key financials. So sales of 867 million sec in the quarter, a growth of 2% in SEC and 7% in local currency. The sales growth in SEC, I must point out, was impacted by the appreciation of the SEC versus some of the major currencies in APAC and South America, and Patrick will talk a little bit more about that later. Growth margin increased to 58.6. driven by product mix and operational efficiencies, primarily coming from our genetics business area. EBITDA margin, 33.4, so stable and remaining above the 33% mark. Operating cash flow, 206 million sec, and earnings per share, 0.85 sec. So, we could maybe bring you down then to the first nine months of 2024, because, of course, We just have one quarter to go. So our organic growth is 4% year-to-date in local currencies. I think we do see some steady progression here. We had 0% growth in quarter one, 4% growth in quarter two, and now 7% growth in local currencies in quarter three. And then moving on to EBITDA year-to-date, 888 million SECs. which is a margin percentage of 33.5 up from 32.3 the same period last year. So if I can now move you on to page four, please. And I'll talk you through our sales and growth per geographical segment. So let me start by saying that we are growing across all product lines with double digit growth in media, disposable devices, and technology. We have one exception, which is genomic kits. Genomic kits declined by 26% in the quarter, and the region that was most impacted is America, or the U.S., if I'm to be more specific. So, looking then, we had America's at 2%, 9% in EMEA, which is our biggest region, 9% in APAC, giving us the 7% in total. So, looking at America then, we had sales of 273 million sec, with strong growth in media and technology, and as previously mentioned, 9% growth in genetic services in North America. However, genomic hits continued to decline, impacting growth in this region as a whole. EMEA now our largest region, still our largest region, with 38% share of total sales. So here we had growth of 9% with media and disposable devices doing very well, actually. I should call out our southwest region where we have gone direct in Iberia, and here we delivered triple-digit growth in the quarter. This is a combination of volume and margin. And then finally to APAC. So APAC returned to growth this quarter, which is good to see. Japan, Southeast Asia, and India were driving the growth. China also performing well, but I think it's good to see other markets picking up their growth rate, particularly Japan, which had a great quarter. Okay, moving on then to page five, and we will start to look at the business areas. So, starting with our consumable business area, and as I mentioned, 13% Organic growth overall, 9% in Americas, 22% in EMEA, and 8% in APAC. So with 345 million SEC in revenue, this is not our largest quarter in absolute revenue terms, but it is our highest growth percentage in local currency for a couple of years. And you will remember that genomic kits previously formed part of our consumables business area. That is now part of genetics business area. Media continues to perform very well where we are outgrowing the market and taking share in all regions. But I think what's also nice to see here in consumables is that disposable devices is growing even faster actually than media this quarter. The commercial teams have been focusing their efforts here, so it is nice to see some traction across the broader consumables portfolio. So, good performance by our core consumables business. If I could now move you on then to page six to our technologies business area. So, here we delivered organic growth of 11%, 11% in Americas, 6% in EMEA, and 17% in APAC. So, another good quarter here in technologies on the back of a very large quarter, too, you will remember, with APAC and particularly Japan performing very strongly in both time lapse and off-tax lasers. I think what's also good to see in the technologies business is that revenue per system, which is a key indicator of utilization within the clinic is also increasing. Look, I want to draw your attention to the bar chart because you will see that going into quarter four, we have some very tough comparables to navigate, which is gonna make it challenging to beat that record-breaking Q4 in 2023 But overall, technology's business looking in very good shape, actually. The rolling 12-month growth is looking good from both a systems, consumables, and service revenue perspective. And then finally, before I hand you over to Patrick, I'll move you to page 7, where we will look at our genetics business area. So, genetics business area, flat for the quarter in genetics. with genetic services back to growth at 5.5%, but genomic kits declining by 26%. We had 9% growth in genetic services in North America and 12% growth in APAC, so we can see that genetic testing is definitely increasing outside of Americas. And the growth in APAC and, in fact, in the U.S. was driven by PGT. with both PGTA and the more differentiated PGTM doing well. However, genomics, genomic kits, continued to decline, although I should point out that the rate of the decline is decreasing month on month, quarter on quarter, as the stocking effect eases. We can see that during the transition to embryo map, which is our new kit technology, some customers did use that transition to move to next generation sequencers or higher throughput sequencers, more modern sequencers, several ways to describe that one, of course. Genomic kits only account for approximately 10% of the total revenue of genetics, but they do allow us to offer a genetic testing solution to customers who test in-house. So what are we doing to return our genomic kit business to growth? So we've now validated our kits on the next generation sequencers, and we believe that combined with the embryo map software, we have an opportunity to return the genomic kit business to growth in the coming quarters. So with that, I will hand you over to Patrick, who will take you through the geographical segments.

Thank you, Bronwyn. And we are now on page number eight. And I will then start on the geographical segments who are then Americas, EMEA, and APAC. Starting to the right here with the total sales of 867 million SEAC. And as Bronwyn mentioned previously, I mean, we have had quite a big impact when it comes to FX for this quarter. And that primarily came from a business area perspective and for our business area genetics, and then more particularly when it comes to region perspective, Americas or more precise, South America, and then also an overall impact in APAC. So with the sales of $867 million, we have increased our then gross income. from last year to 473 to 508 million SEK. And that gives us then a gross margin of 58.6%, which is approximately 3% unit improvement compared to last year. And if you look upon how those are distributed then amongst the regions, we see that we are basically relatively steady when it comes to gross margin then for APAC. We are more or less on par with where we were last year, The largest improvements have come in EMEA and also in Americas, where we have then grown about 4% units each for the quarter. So the improvements that we've had on the gross margin, I mean, that are allowing us to continue to invest in growth. And if you look then to our selling expenses for the quarter, that has increased from last year's 162 million And that has increased then to 190 million throughout this quarter. And how is that then? Yes, the largest changes you see are within EMEA. That went from 56 to 73 million. And the largest impact on that one is that we now go direct through our acquisition of EMB and also that we have then the cost for e-fertility included in these numbers. So those are the main drivers when it comes to EMEA. And then we continue to invest in commercial capabilities, and most notably, we have started to do that one in one of our key markets in North America. So going down then to market contribution, we see that that is approximately flat or slightly lower for Americas and EMEA compared to last year, while we are continuing then to improve in APAC. And for the group, we are slightly above or you could say flat compared to last year. Moving on then to slide number nine, where I will again repeat a bit on the Q3 financial highlights. Again here, as we have talked about, the 867 million compared to 848 gives us a 2% increase in SIEC. But most importantly, the organic growth in local currencies are 7% for the quarter. And the current impact primarily, as I mentioned before, came out of APAC and Americas, and particularly then for our business area genetics. Again, we continue then to improve the gross income and improve the gross margin to 58.6%. And we have had a positive product mix through the quarter with consumables growing, as Robin mentioned previously. with 13%, technologies growing with 11%, and also now genetic services growing with 5.5% for the quarter. Again, just to repeat, we continue to deliver on our operational excellence improvements, particularly when it comes to our genetic services business, where we continue to decrease the cost per sample. All in all, this gives us then an EBITDA of $289 million, which consequently then gives us an EBITDA margin of 33.4% compared to 33.9% last year. So we are slightly lower then on EBITDA margin compared to last year. Moving on to slide 10, which is then the operating expenses. That, compared to last year, increased with 14%. I have mentioned sales and marketing. Again, we are continuing to invest in sales and marketing capabilities in key markets. And again, we have then two large impacts, which is where we go direct for the acquisition of EMV and also on e-fertility. When you look on R&D, I mean, that's slightly different. lower or flat, you can say, compared to last year, and that is then related to product facing, and also that as we have continued then to make the progress in the various programs, we can do more capitalization on the R&D spending that we do. Admin, slight increase, but relatively flat compared to last year. And the other operating expenses, that's really where you then see the negative FX impact on the income statement, and that's basically where you then make the revaluation of the net working capital, and that is the big part of the other operating expenses of 18 million. That was 6 million last year. Going to slide number 11, which is my last slide, is then the key financials, and I would like to focus a bit more on the year to date. Again, to repeat, we are growing then 4% in local currencies, 2% in fixed, so that brings us then to a sales for the first nine months of 2,650,000. We continue to increase our gross margins. That goes from 56.1 to 58.6. Continue then to strengthen our EBITDA from 842 to 888, and consequently then a EBITDA margin improvement from 32.3 to 33.5. Net income also continues to increase, and we are strengthening then the earning per share from 242 last year to 2.76 per share for the first nine months of 2024. Operating cash flow continues to improve here, so 640 for the first nine months this year, And then, all in all, this combined then gives us then a net debt to EBITDA on a rolling 12-month basis. An improvement, again, from 1.1 down to 0.8 for the first nine months this year. And that's the same, obviously, for the quarter. So, with those words, I'll give it back to you, Bronwyn.

Thank you, Patrick. So, our corporate strategy, the B2B Group corporate strategy. So, you have all seen this strategy before. one pager many times. In fact, I hope I'm not boring you with it. But on this particular occasion, I would like to draw your attention to the financial targets. And I get asked this question often, which is what do we mean by long-term? The answer is five years. So we presented these financial targets, so annual organic revenue growth in local currencies above 10%. EBITDA margin above 33 and net debt to EBITDA below 3. We announced these targets in December 2023, so we are coming up to our one-year mark. So, I would say we are one year into the five-year plan. So, how are we doing? Well, obviously, we're going to do our very best to get to these targets as soon as possible. And we do have parts of the business already at double-digit growth. However, we have other parts of the business growing closer to the cycle growth, and we estimate that to be at 5% currently. So it will take time and investment to get the entire company growing above 10%. But we do believe that we are on the right path. So moving on then to my final slide, and this is also a slide that you will have seen before. In fact, it's the exact same slide that I presented at the end of quarter two. And the reason why I want to show it again is to really demonstrate to you how we are progressing and how we are executing on what we say we are going to execute on. So the first point here is increasing share and penetration. in the US and China. And clearly we are taking share quite nicely now on media, also on disposable devices in both of these key geographies. We're investing in our commercial capabilities. We have recruited just this quarter a new vice president of marketing in the United States. We've recruited more sales reps on the ground and we are building out our strategic account management capabilities. We have also invested, I should say, excuse me, in increased feet on the street in China as well, which is also helping to drive the growth there. The secondary focus at the end of quarter two, and still holds true, is to increase market share and consumables. We've had some pretty good momentum in media for several quarters now, but what we wanted to do was to increase our market share across the consumables portfolio, with disposable devices being a key area of focus in quarter three. And that is definitely starting to pay dividends. I think EMEA leading the charge, but we see some nice traction across the pest and needles in all of our regions. Accelerating penetration and utilization, very, very important for time lapse. We don't just want to sell systems, we want the systems to be used, we want them to generate So, increasing utilization per installed embryoscope, all of our metrics there are also on track, which is good to see. The fourth point, then, is to accelerate the growth of the broader genetics portfolio. Why? We don't want to be overly reliant on any one test or on any one region. So, we have been focusing on increasing sales across a broader portfolio. genetic portfolio in areas like carrier screening and non-invasive tests. And carrier screening had a strong quarter in quarter three. I think also very importantly, driving growth outside of the US. Of course, the US is the largest market for genetic services and genetic testing in general, but the acceptance is increasing around the globe. And then finally, on the operational excellence piece, I think we are getting some good synergies and our operational excellence program, particularly in genetics, is doing well, but we're also seeing some dividends coming out of consumables. What we really need to do in quarter four and going into 2025 is to leverage synergies across the business areas. So I would say some good work done, but more to do. But overall, in terms of our focus areas for Q3. They will continue to be the key focus areas for Q4 and on into 2025. So some good, steady progress across the board on our focus areas. So that is it for me. With that, I will hand back over to the moderator, and we will open up for Q&A. Thank you for your attention.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. We'll pause for just a moment while waiting for them to queue for questions. Thank you. We will now take our first question from Sten Gustafsson of ABG. Your line is open. Please go ahead.

Yes. Hello. Good morning, everyone. My first question is on time lapse in the U.S. I think you write in the report that you had strong growth in North America, but that was primarily Latin America or South America, if I remember correctly. If you could share with us how the growth rate for time lapse in the U.S. has developed in the quarter and also maybe year-to-date, that would be very helpful.

Yes, so thank you for the question, Stan. Yes, so with time lapse, we typically look at rolling 12 months because it can be a little bit lumpy depending on phasing. So it was a slightly softer quarter in North America, very strong quarter in South America for time lapse. slightly softer quarter in North America, and that's primarily down to phasing. They had a big quarter two, and the pipeline for quarter four is also quite strong. So hopefully that explains your question. So we obviously have in America's North and South America, South America had a very strong quarter on time lapse, and actually also on Optex lasers. So Optex lasers had quite a good quarter in several markets this quarter, which, yeah, hasn't been a big area of focus, but is starting to get some nice traction. So North America is mainly down to stay using South America, a very strong quarter. But overall, the rolling 12 months on time lapse in America, both North and South, is looking quite strong. Is there anything you would add, Patrick?

What are the main pushbacks you get? I'm trying to figure out the reason why the penetration rate is so much lower in the U.S. compared to Europe and Asia. If that is about to change going forward.

Yeah, it's a great question. So the U.S. has a much higher penetration of genetic testing. And what has been happening historically is markets typically focus more on genetic testing or on morphokinetics or AI, which is essentially what we have with time lapse. What we are increasingly starting to see, not just in North America, but around the globe, is time-lapse technology and genetic testing living side by side. So essentially, time-lapse and AI, IDA score, being used to triage the embryos that go for testing. I'm really sorry. I don't want to get too technical here because I love this topic. It's one of my passions. But that's essentially what you have then. North America is much more penetrated on genetic testing, and that has been the standard of care there. but increasingly we're seeing the role of AI. The other point that I would make is that we have our IDA score. IDA score is not yet approved in North America. We are working on that to get regulatory approval for IDA score in North America, and that will help to accelerate the penetration. But overall, in general, adoption of time-lapse is increasing, even in markets that have more heavily relied on genetic testing.

Thank you very much for those comments. Very helpful. And then maybe a question for Patrick on how we should think about operating expenses going into Q4. Anything you want to highlight that we should be mindful about?

No, I think – hey, Sten. So I think on that side, I mean, some of those – selling expenses here that we now have seen them for the quarter will continue to be so right because that's basically a bit more since we now go direct and and we have also then incorporated the e-fertility some of that will continue to be there and again we will continue to invest when it comes to our global sales and marketing capabilities as well here so of course the swinging part will be what will happen on the fx here as well and as i mentioned previously i mean We have seen quite big impact then, and that happens then in the other operating income. And that is, of course, relating to what happens then on the currency market. But all in all, we will continue to invest here and continue then to focus when it comes to R&D. So no big news when it comes to the fourth quarter. So we will continue the same strategy as we have outside in the past as well here.

Perfect. Thank you very much. I'll get back to the line.

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

Hi, and good morning. My first question is on genetic services, which seems to improve here throughout the year, and particularly on the PBTA side. Would you say there's anything particular behind that, or what can you say?

So, yeah, good morning, Jacob. So, good performance in genetic services. And while we are focusing outside of the U.S. and on the tests like carrier screening, as I mentioned, the core PGT business did really, really well, and it's the bulk of the revenue of genetics. So that's really where the growth came from. I think it's important to keep our feet on the ground and stay humble, but the growth rates in North America would indicate that we are taking share because the growth of 9% is above the market growth rates in that geography. So there appears to be some share gain in North America. And there are a couple of other countries just looking at it at the sort of market level. We have some pretty strong growth in a number of markets around the world. And most of that is driven by the PGT portfolio, as I said, PGTA and PGTM. So, yeah. Hopefully that answers your question, Jacob.

Yeah, and a follow-up on that. I guess you still have some maybe headwind from the ERA tests in some regions, but just based on the sort of momentum you're seeing now, do you expect genetic services to get back to sort of high single-digit growth here in the coming quarters?

Yeah, so great question. I think some good traction, high single-digit growth globally, I think will still be a challenge. It's probably going to take us several quarters to get there. But some of the fundamentals needed to get us to that point are definitely looking better. The decline in error has definitely slowed in most geographies. but it's not growing. It has returned to growth, so still a slight drag on the portfolio. But PGT, as I said, doing well, and carrier screening doing very well, although the materiality of that is still relatively small. So I think slow and steady is probably the name of the game here, Jacob. I think it will take several quarters, but the fundamentals are definitely looking better. And I think to have our largest market, which is North America, growing up in high single digits is a sign of a healthier business.

Okay, sounds good. And then on consumables, quite strong in this quarter. Is there any chasing effect in the quarter? I know you talked about disposable devices, for example, being a bit slower last quarter.

Yeah. No, it doesn't seem to be phasing effect. It's pretty much across the board, Jacob. So, I mean, media is doing really well everywhere if I look at it market on market. And then disposable devices, again, across the board. Like, you know, without giving exact figures and pointing the competitors where to go, but the disposable devices growth, as I mentioned, is actually – well above the media growth. And it's in most markets. It's in all regions, very strong in EMEA, also very strong in APAC. So I don't think it's phasing. I think it's been a slow, steady climb to get there. And the commercial teams have very much been focusing on our PAPES, which we believe are high premium quality, and also on our sense needle, which is a differentiated needle. So it has been an area of focus of the commercial team. I mean, essentially what we're trying to do is leverage the full Venture Life Group portfolio and not, again, be overly reliant on the media. I mean, how long are we going to continue to take share for? We need to make sure that it's taking share across the portfolio and not solely reliant on media, where we have been capitalizing on share gains. So it doesn't appear to be phasing. It's across the board, Jacob.

Okay, that sounds promising. And then just on APAC consumables here, the second quarter in a row with a bit more modest growth, I would say. Is there anything we should be mindful in there?

Yeah, I think... Yeah, it's probably not. I mean, it's not up at the levels of the other two. You know, but it is still growing above market. We have a couple of markets where I think we could probably double down a bit. But in general, you know, I would say media growing slightly above market. We do have to remember that in China we took significant share of Last year, actually for several quarters, we've been taking share in China. So that's probably leveling out a bit. I mean, our market share in China is very significant now. There's not a lot more places to go to take share. So, you know, media is still above market in APAC region as a whole. Disposable devices, well above market growth. So, yeah, maybe a little bit of the China factor.

um coming into play there jacob okay uh and then just finally a bit of a housekeeping question but were there any sales contribution from e-fertility here in q3 uh yes it has uh started to to come a bit here uh in the in the third quarter as well we do not uh record that separately here as well so i mean that's part of the technologies business uh as we said before here but uh Small contribution throughout the quarter here as well. And of course, we do think that we have a really interesting pipeline, not just only for that one to be sold specifically, but also the combination of selling infertility and the positive impact that that will have combining them with our technologies and consumables business as well. But the small contribution for the quarter here.

Yeah.

Okay.

Maybe just to point out on e-fertility, Jacob, that we have launched in the EMEA region. We haven't yet launched in the U.S. That's coming in 2025, although they are very eager to get going with the launch. So to Patrick's point, marginal contribution, but increasing contribution month on month. And I think the sales funnel is starting to build pretty nicely. Okay.

Okay, that's all from me. Thank you very much.

Thank you, Jacob. Thank you. And we will now take our next question from Ulrich Tretner of Carpentergy. Your line is open. Please go ahead.

Thank you very much. And a couple of questions on my end. And getting back to consumables in the media, and you talked about this disposable device that's growing. I know you talked about different types of effects. But do you feel that this could to any extent be MDR-related for a competitor or to any way related to disruption in the cook medical operations, driving sort of excess growth and market share gains for disposables, needles in particular, given that you obviously also scaled up your operations in Gothenburg by, twice the production capacity lately, and now we're seeing it coming through. So how much should we read into that?

Yes, so that's an excellent question. You've done your homework, as always, Ulrik. So we've been increasing capacity on the disposable devices for a while now. Okay, so, well, actually in media and disposable devices. So increasing capacity in Denver, increasing capacity in in Gothenburg and increasing capacity in San Diego. And that is really helping to fuel the growth. It's very hard to conclusively say what percentage is coming from what. But, you know, pipettes are doing well. Our sense needle is differentiated. You will have seen some of our, you know, social media and promotional campaigns around sense. It is a less painful needle used for egg retrieval, and that is starting to get some traction. Is there a distraction factor with some of our competitors? Potentially, but it would be very difficult to measure that. But I think what's interesting to see here on disposable devices is it's across the board. It's every single market actually that I'm looking at here. is growing and growing very nicely. And we probably, you know, haven't really been focusing on this commercially as we could have or should have been, whereas we very much started to double down here because we see it as a growth opportunity and also, you know, growth opportunity and also ability to take share there by delivering above market growth. So it's... Yeah, I think a combination, really, Ulrich, of increased capacity, increased confidence, commercial focus, and potentially some distraction factor, although that's not the report that we hear back from the field. So, yeah. And we do believe in it going forward, which is clearly why we're continuing to invest.

Okay, great. And on switching topics to technologies and the U.S. market, and you obtained a large commercial contract that you talked about in Q2, and you mentioned it being delivered in three branches, branches with effect in Q3 and Q4. It looks like we see a minor effect here in Q3 in terms of absolute sales numbers. It looks like kind of a low to normalize order. Can you give us some indication on what effect that commercial contract had in Q3 and if we are expecting for that to ramp up in Q4?

Yeah, so great question. So yeah, that particular order is gonna come in in three tranches. We didn't get tranche number two in this quarter. So it's coming and the order is there and it's confirmed and no concerns on that. But I do think we have a phasing effect on time lapse, particularly in North America. So yes, Q2 very strong. pipeline in Q4 looking good, but it is a little bit lumpier. And the reason being is that obviously the US has very large clinic chains. 60% of all clinics in the United States now are part of chains. So it does make the business a little bit lumpier quarter to quarter. So there is a little bit of that factor going on, Jacob. But overall, We are absolutely focusing on time lapse in North America. We have put more commercial muscle in there. I don't believe there was enough in the past, so we're definitely doubling down. And also our strategic account management function, which we have created specifically to work with the chains, is focusing on time lapse. The one, I suppose, maybe hindrance or impediment that the U.S. has when it comes to time lapse that EMEA doesn't have, and that is IDA score. So, we are working on regulatory approval for IDA score in North America, but that's going to take time. So, we primarily promote time lapse embryoscope in North America on workflow and clinic efficiency. So... Just an area where we need to work the regulatory side to improve the value proposition of time lapse. And then to the earlier point that Sten made, this is a market where genetic testing is much more prevalent. So time lapse is really only starting to sort of find its place in terms of living alongside. But workflow being the key benefit, and I'm sure you saw the press press release time lapse 10 times faster. So it was bringing a lot of efficiency. This article was published in Nature magazine in August. So it does bring a lot of workflow efficiency to the clinics. And that's really what we're focusing on for North America.

Yeah, and just a follow-up question related to that. And obviously, genetic has been the prime source of embryo selection throughout as long as I can remember, and time lapse is more of a workflow efficiency tool. But I also know that, and you talked about this at your Capital Markets Day, your efforts in combining genetics and time lapse deriving data that would confirm additional benefit of the two combined. So where are we at in terms of that progression?

Yeah, so that is the key play. That is core to our own, the platform pillar of our strategy, where we will essentially marry time-lapse embryoscope AI technology with non-invasive genetic testing. So, I mean, really what we're doing there is using AI to triage the embryos that get genetically tested. The program is progressing well. It's on track. It is a three-year program with multiple phases, but it's progressing very well. Patrick spoke about our R&D investment, and we've been putting a lot of R&D dollars, people, effort into exactly what you described. So most of that development takes place in Aarhus in Denmark and in partnership with the team in Valencia. So it's on track. Yep.

Right. And if we were to switch to genetics, and since we're talking about clinical studies, if you can give us some update on the non-invasive ERA trial that is ongoing. I know from clinical trials that it's supposed to be completed in 2026. Is there anything you want to mention more around that study and potential readout?

Yeah. So, yeah. So error study ongoing. The recruitment has been slow. That's not unusual in clinical trials, especially in clinical trials where a significant number of the clinics and customers are privately owned. So we have broadened the inclusion criteria, and since we broadened the inclusion criteria, the recruitment rates have increased. So that's good to see. It was stagnating a little bit, but it's now starting to ramp up on recruitment. So probably still on track for 2026, of course. The market would like additional clinical data earlier, but I think it's important to get high-quality clinical data as opposed to fast clinical data. So, yeah, recruitment is picking up. I would say still on track, but starting off it was a bit slower than expected, Ulrik.

Okay, and if we're to follow on with the non-invasive PGT study ongoing in the U.S. as well, with expected completion mid-year next year, I guess that's the Embrace product to expect from that.

Yeah, exactly. So yeah, non-invasive core area of focus for us, that is also on track. So that's led by our clinical team in Valencia and by Dr. Carmen Rubio. A little bit easier to recruit for that particular one. So should be on track to announce the results probably in and around ASRM time next year. Yeah.

Great. And just going into numbers here for genetics as well. And you're stating core genetic services growing 5.5% in the quarter. I just need to fact check here. What do you mean by core genetic services? Is that genetic services overall? Because if it's genetic services overall, I'm not getting... the kits declined by 27%. If I add 5.5% from your genetic services sales in Q3 last year, I'm getting genetic test kit sales just below 20 million, and that would spur an additional question whether you are gradually phasing out genetic test kits and it's no longer a priority area of yours.

Okay, I can start. Sorry, everyone's going to be tired of my voice. I'll start and then I'll hand over to Patrick. So when we say genetic services, we mean everything except genomic kits, Ulrich. So that's genetics, that's the whole lot. So just to sort of remind everybody, genomic kits was part of the consumables business area. And keep me honest here, Patrick, in quarter one, of this year, we moved genomic kits into genetic services, creating genetics business area. That's correct. So that's what's kind of making the comp a little bit noisy. Patrick, I don't know if you know.

No, I think you summarized it well there, Bronwyn. I mean, and then again here, Ulrik, obviously then the genetic services business, and that's what we're referring to having done a growth quarter-over-quarter with 5.5%, whilst then the kit business has a significant decline here compared to the same quarter last year.

Yeah, and that was kind of what I was alluding to, because due to backtracking of genetic kit sales, IU reported a number and genetic services numbers in June of last year. It looks more like genetic tests declined 75% year-on-year compared

No, no. Then you need to check your numbers there, Ulrik. Of course, I mean, it was the year-to-date impact on genomic kits is larger than the one that you see for the quarter. That's your idea. But I do not really recognize that kind of number that you talked about on genomic kits.

Okay. So, actually, maybe just to help, So we don't have exact breakout for what you're looking for, Ulrich, but the decline of the kids has been easing quarter after quarter. So these are not exact numbers, but ballpark in the first half of the year, it would have been close to 50% because of that very significant stocking impact. So taking us back to 2023, we have stocking up in quarter one and quarter two. of 2023, inflating the numbers, okay, because people were stocking up prior to transitioning to the new technology. Remember, the old kits were essentially being discontinued. And these were kits that people had been using for a very long time, very loyal to the Illumina technology. That's why we had to upgrade our kits to a new technology and why we developed embryo masks. So then we come into 2024, we have really high comparables in quarter one, really high comparables in quarter two, some residual in quarter three, so that the effect is lessening as the year progresses, that's for sure. But there are some definitely, we can see now because the stocking impact is lessening, there are some customers that that have essentially traded up to next generation sequencers. So I think the second part of your question is, do kits play a role? Do we see kits playing a role going forward? And it's an important strategic question. The reality is, by having a genomic kit with our embryo map software, which is now validated on next generation sequencers, we have a product offering for those clinics and laboratories that test in-house. Without kits, we don't have a play in those clinics. It's a much smaller part of the market. Our focus is clearly on our own laboratories, our genetic services business. That's our premium offering. And kits is only 10% of the total sales, but it does give us an opportunity to play in that segment of the market. So a lot of technical information, but hopefully that helps to answer your question.

Yes, sure. And also just in clarification, and I'm not sure if I misheard you during the initial presentation, but you mentioned you saw a decrease slowing month on month. And did you also mention that it's potentially growing in Q4 already year on year?

I didn't. I intentionally did not say that. What I would say is, is that certain markets are expecting that business to return to growth in quarter four, but not all markets are expecting it to return to growth in quarter four. So as we look at our, we forecast monthly and quarterly. And Some of our regions are expecting the growth to return. Others think it's going to be quarter one next year before the growth returns. But it is turning the corner, that's for sure.

Great. I know I've been taking up a lot of time, but just one last question, short one. Gross margin improvements. Is it purely product mix or is there anything structural within Vitrolife that is driving the strong gross margin?

I would say the main driver are, again, as we said, I mean, it's the product mix, absolutely, that contributes the largest part of the improvements, I would say. And the other thing are, obviously, here, as we also mentioned, that are the operational efficiency gains that we do, particularly within our genetic services business, where we continue then to work on – reducing the cost of sample, improving the turnaround times, and improve our overall way of working when it comes to the labs that we have throughout the world. So those are the main contributors for improvement in the gross margin. Okay, great. Thank you very much for taking all my questions.

Thank you.

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

Hi and thank you for taking my questions. So first one on technologies obviously quite significant volatility in the quarters but following up on the comment you made there Bronwyn on the slide should we expect technologies to grow in Q4 given the challenge in comparable or maybe you could add sort of a little bit more commentary around the growth profile in Q4 for technologies

uh if you're able to grow from that base i'll start there thank you yes so good morning rickard and thank you for your question and i think the bar chart explains best what we're up against so um we have a good forecast or a book a robust forecast for uh quarter four beating 206 i think is going to be it's going to be tough this was Patrick, again, you'll keep me honest on this one, but I think that was the highest quarter of all time for technology. Correct. In Q4 2023. So that's going to be a tough one, Rickard, and I prefer not to overpromise and underdeliver. So the current forecast is not coming up to 206. So I think that's going to be a challenging quarter to beat. It's looking like a strong quarter, but not to Q4 2023. not to Q4 2023 level. The revenue per system has picked up, the service revenue has picked up, so all of the sort of utilization metrics are good, but to beat 206 is going to be very tough.

All right, that's very clear and helpful. I appreciate that. But given this comparative headwind, both on technologies as well as to an extent on the genomic kits, do you think it's fair to see group organic growth somewhere in line with what we saw in Q3 and Q4, or do you think you will outpace and grow above in the sort of higher single-digit range in Q4, just to get a sense of the moving parts?

Well, you know that we do not give any specific guidance when it comes to exact numbers on growth per quarter, but I mean, we have, as Von Wien has said here as well, we do have a positive momentum, which is on the underlying side here. We talked about that one for the genetic services, just recently also then on technologies, as Bronwyn explained here. And we continue to see a good momentum when it comes to our consumables business. So there are no quality structure or anything changed on the underlying businesses that we do here. So we continue to focus on the markets where we are active in and to

deliver according to our our strategy here that we have for the end of the quarter here as well for the end of the year all right perfect and just the final one maybe a little bit more you know housekeeping or nitty-gritty but you know admin costs are quite significant sequential decline in the quarter anything to call out there and how should we think about admin expense into q4 should it be similar rather to the levels we saw in the first half of the year. Just trying to get a sense, a little bit of that movement so I understand. Thank you so much.

Now when it comes to admin, of course we will continue here as we have said to invest and a lot of those digitalization efforts that we have as part of our strategy is also captured majority then into our admin cost as well. So we will continue to focus on our digitalization to what the rest of this year, but also into the coming year as well. So I think the level that we are now seeing is approximately on where we could expect us to be going forward. Maybe it's slightly up here due to investments here, as I said. And that is then also offset here, as Bronwyn alluded here to before as well, when it comes to driving down the operational excellence here. And we want to And we know that takes a bit of a time to do that, and we need probably to invest in order to save money in the longer run as well.

That's clear. Thank you for taking my questions. I'll stop there in the interest of time. Thanks again.

Thank you.

Thanks very much, Richard. Thank you. And we will now take our next question from Johan Linares of Red Eye. Your line is open. Please go ahead.

Great. Thanks. Just about two questions. The first on genetic kid seems to be tougher headwind than perhaps you expected earlier in the year. What to expect on that side sort of of the coming quarter? What should we think of sort of stabilizing baseline in the future?

Yes, so thank you for your question, Johan. Yeah, definitely a tough headwind. So significant stocking factor. I think as well the complexities of transitioning from one technology to another. The technology that we were transitioning from, customers had been, as I mentioned previously, using it for many years. And some took the opportunity to upgrade their laboratories. So, you know... We probably did, I would say, underestimate the complexity of some of that in early 2023. That said, we believe the worst is past us. So we've sort of had our most too difficult, not the best English, but our most challenging comparables in terms of quarter one and quarter two this year. We did still have some stocking impact in quarter three because we had quite an amount of VeriSeq built up. So it has been getting easier, Johan, as the quarters move on. Do you think the worst is past us? And as I mentioned to Rickard's question, we are Some of our markets at least are expecting to be able to return our genomic kits to growth in quarter four. Not all, but some. I do think it's important to keep the context of kits in here. So the decline has been significant for sure, but it does only account for 10%, approximately 10% of the revenue of genetics business area. That said, it was big enough to impact the growth overall. So I would say worst of us passed us some green shoots in some of our regions. So it will get better in Q4 and then further improvement in quarter one 2025. And as I said, what are we doing about it ultimately? We have validated our new kits and our new software on all of the higher tech sequencers. So that does give us every opportunity to play back in that space.

Great, thanks. That's useful. And more sort of in macro questions. AI is, of course, very interesting and it's an opportunity for you. It could perhaps also be partly a challenge for other businesses as well, sort of market-leading businesses. I presume that the access and ownership to data is critical here, and how do you see that? Are you in a very good position to capitalize on that, or could it be a challenge in some regions and in some clinics?

Yeah. So, excellent question, and you are spot on. I mean, Embryoscope has been around for a very long time. So we have millions of images and data to work on in terms of AI, algorithms, probability calculations. So we are in a position of strength But, Johan, I'm paid to be paranoid and never to be complacent. So, yeah, we are in a position of strength. We have access to more data in this space than most, but we have to use the data, right? And it's absolutely paramount that we stay ahead on the AI piece. We have a fantastic team here. um of biostatisticians and people ai specialists in in orhos um similarly in valencia so it is most definitely an area of focus for us it's an area of strength but it's an area where we have to be sure we are not complacent um so we're working pretty hard in that area and i think it was Ulrich had asked a question around the marrying of the genetic testing portfolio and AI. That's clearly part of our platform play, so a key element of our R&D strategy going forward. So, yeah, but I think a lot more to come on AI in this space.

And how it should be – judge the progress ahead on this side? Should we expect visible contribution in one year or two years?

Yeah, so our next generation platform does a multi-year program. So we start to do some releases in two years' time, some more in 36 months, three years. So it is sort of, I would say, more iterative R&D as opposed to Big Bang. I think that's a safer way to do R&D. with a much lower risk profile. So it's really going to be iterative, I would say, Johan, and we should be able to bring it to all regions. I think everybody's very, very excited about the role that AI can play. What I would point out is the regulatory piece is very, very important because there are players out in the market promoting AI in the field of IVF without having navigated the necessary, or maybe not the necessary, but without having navigated through the regulatory authority. That's not the road that we want to take. We want to work with the FDA, we want to work with the regulatory bodies in the EU and partner with them to bring

regulate to bring regulatory approved ai uh to the market so i think that's that's really really important we're gonna we're gonna go by the book here great that's useful and so we should expect some visible contribution towards your end of your sort of long-term period which is yeah sort of four years remaining so so so year three year four from now on yeah

Yeah, I would say within the horizon of our five-year corporate strategy, we should start to see some of those benefits coming through. And the witnessing company that we have acquired, that also feeds into that. So, yeah, you're correct.

And what about scope for additional complementary acquisition in this space?

Yeah, we're on it. So yeah, that's precisely what we're working on. So very synergistic targets that are closely aligned with our strategy, with our core strategy of integrating the products and services of the IVF journey. Yeah, I think eWitness was one of those acquisitions. There are a couple more that we are currently looking at. So, yeah, you're also correct there.

Very good. Thank you.

Thank you very much, Pax Mica.

Thank you.

Okay. Thank you. That was our last question. I will now hand it back to Bonwen for closing remarks. Thank you.

Thank you very much. So just thanks to all for dialing in. Thank you for your very interesting questions. You've clearly all done a lot of homework, which is a sign of interest in the VitraLife group, and we are very grateful and appreciative of that. So have a wonderful day, and thank you all very much.

Thank you.

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