Vitrolife AB (publ)

Hello and welcome to the Vitrolife Group fourth quarter and full year report 2024 conference call. Please note this conference is being recorded and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions. This can be done by pressing star 1 on your telephone keypad to register your question. You are kindly asked to limit yourself to one question only and a follow-up question if needed. before rejoining the queue, if required. If you need assistance at any point, please press star zero, and you'll be connected to an operator. I will now hand you over to your hosts, Bronwyn Brophy-O'Connor and Helena Wennerström, to begin today's conference. Thank you.

Thank you, and good morning from beautiful Stockholm. My name is Bronwyn Brophy-O'Connor, and I'm the CEO of the Virtualize Group. And with me today, I have the Acting Chief Financial Officer of the VitraLife Group, Helena Wennerstrom. So if I can now move you to page two of the presentation, and I will talk you through the Q4 2024 highlights. So we are happy to report sales of 959 million set. a growth of 6% in local currencies and a strong finish to 2024. We delivered an all-time high sales in technologies of 215 million sec. We're very proud of this achievement because we exceeded our own expectations and set a new record, surpassing the previous record, which was set in quarter four in 2023. and EBITDA margin performing very, very strongly, coming in at 35.1%. This was, in fact, the highest EBITDA in terms of percentage in 2024. I'd now like to move you to slide number three, and we'll talk through some of the key financials. So I've obviously mentioned the 959 million SEC already, our highest revenue on record, growth of 6% in SEC and local currencies, So you will remember in previous quarters, we did have quite a bit of movement between the SEC and local, but in this instance, both coming in at 6%. Growth margin increased to 61.1%. This is primarily due to the high revenue, the portfolio mix, and some operational efficiencies, most notably in our genetics business area. EBIT, as I mentioned, performing strongly, also driven as similar factors to gross margin. EBIT, a total number coming in for the quarter at 337 million SEC. We increased our operating cash flow from 171 million SEC up to 268. And then just looking down to the full year, sales of 3.6 billion, that's 3% in SEC and 4% in local currency. EBIT after the year increasing from 32.3 to 34% and operating cash flow for the year coming in at 907 million SEC. I'll now move you to slide four and we'll talk through our geographical segments. Starting with Americas, we had sales in Americas increasing by 9% with growth across all of our business areas with consumables in particular performing very strongly, well above the market, and it's clear that we are taking share in the Americas. South America had an excellent quarter across the entire portfolio. Looking then at EMEA, which is our largest region, EMEA also had Slower market growth rates here, so a very nice performance of 10%, driven by strong growth in consumables. And again, in this region, we're taking share, particularly in media. Technologies also delivered high growth, both in terms of time-lapse systems and also laser. A tough quarter for APAC, it has to be said, most notably in technologies, where we had sold a lot of time-lapse systems in Q4 in 2023. Consumables was also high in the same period last year, so we were facing some very challenging comps in this geography in quarter four. Interestingly, this is the first region, APEC, where we're starting to see a recovery of our genomic kits business. I always like to talk about our internal rivalry between the regions, and you can now see that EMEA is our largest region globally, contributing 40% in terms of share of sales APAC falling back to 28%, and America's now on 32%. Okay, so moving on then into slide five, we will start by looking at the consumables business area. Really delighted and proud, I have to say, to see such strong growth in our consumables business area. We grew 12% in the quarter, which is well above the cycle and market growth. And I think maybe if I could draw your attention to the graph you can clearly see a significant step change in the performance of the consumables business versus 2023. Looking then at the regional breakdown, 24% growth in Americas with double-digit growth across the portfolio in both North and South America. 14% growth in EMEA, a great performance in a region with, as I said, lower cycle and market growth rate. And then APAC, delivering growth, but a very challenging quarter due to the comps that I mentioned previously. So really, really great performance by our consumable business and taking share across the portfolio and in multiple markets. Okay, I will move you on then to slide six, and we'll take a look at our technologies business area. And all-time, so a new all-time revenue high of 250 million set, beating the previous record set in Q4 2023. I would like to point out, for those of you who may think I was being conservative in terms of technologies in Q4, we beat our own expectations here. So a lot of kudos to our teams in the regions and also our team in Aarhus for what is definitely a great quarter for the technologies business. Organic growth then of 9% overall, with the MAIA delivering a great performance, 30% growth versus the same period last year. So really, really strong there. And again, if we look at the graph, you can see the step change in the technologies business area in 2024 versus 2023. I did mention that Q4 was the previous quarter, previous highest quarter and that was driven by APAC at the time. So, again, APAC, poor old APAC is facing some very, very challenging comps here and we knew that it was going to be a challenge to deliver growth. I think what's important to point out in relation to the technologies business area, it's not just sales increasing on the capital side, but we are also seeing revenue per installed embryoscope, a key metric which we track because it's an indication of utilization, and that is also tracking up very nicely across the board. So good capital growth and nice growth in terms of the utilization of those embryoscopes post-installation. And then moving on, To the next slide, slide number seven, to our genetics business area. So genetics business area was flat in the quarter with modest growth in genetic services and a decrease in genomic kits globally. On the services side, the main reason was phasing between the quarters. We didn't see any particular peaks or troughs in any one test. In relation to the kits, EMEA and North America were still negatively impacted. However, I am happy to now report that the stocking impact that we experienced for the majority of 24 has now bottomed out. Just one highlight I would like to point out, and that is on Americas. You can see Americas is growing 5%, so North America, in terms of genetic services testing, is performing very well, particularly in our core embryo testing. North America is It was impacted, again, in the quarter by genomic kits. There was a stocking impact, but as I mentioned previously, we did suffer a customer loss on genomic kits in North America. So, yeah, I would say a stable enough quarter, suffering with some phasing issues, but in general, you know, steady as she goes when it comes to genetic services. And with that, I would like to pass you over to Helena, who will take us through the geographical segments.

Thank you, Bronwyn. And we are now on page number eight. And I will dig a bit deeper into geographical segments, which are Americas, EMEA, and APAC. Starting on the right-hand side, as Bronwyn mentioned earlier, we have the highest revenue quarter on record with a total sales of 959 million cents. and a record high gross margin of 61.1%, compared to a very strong quarter previous year, when the sales amounted to 904 million SEK, with a gross margin of 56.9%. The market contribution amounts to 388 million SEK, with a contribution margin of 4.5%. Corresponding quarter previous year amounted to 332 million SEK, with a contribution margin of 36.7%. an improvement of 3.8 percentage points. Let's take a deep dive into the geographic segment from the left-hand side. In America, we had a sales of 311 million SEK, with an organic growth of 9% in local currencies compared to previous year. The gross income amounted to 171 million SEK, with a gross margin of 55%. An improvement since last year's gross income of 144 million SEK and corresponding gross margin of 50.2%. The selling expenses have only increased marginally in the quarter from 73 million SEK to 76 million SEK. This is going to increase going forward primarily in North America. The strength and gross margin falls directly down to the contribution margin for the quarter of 30.5%. A significant improvement since last year's contribution margin of 24.7%. In May, we had a sales of 383 million SEC, with an organic growth of 10% in local currencies compared to previous year. The gross income of 245 million SEC, with a gross margin of 64%, is also a significant improvement since last year's gross income of 194 million SEC, and corresponding gross margin of 56.2%. The selling expenses have increased from 68 million SEK to 82 million SEK as we continue to invest in safe and marketing in key markets, like in our go-to-market model in Southwest Europe. Here we can see a significantly higher contribution margin for the quarter, 42.3%, and improvement since last year's contribution margin of 36.5%. In APEC, we had a sales of 265 million SEC with an organic growth of minus 2% in local currencies compared to previous year. The gross income of 170 million SEC with a gross margin of 64.2%, slightly lower than previous year's gross income of 176 million SEC and corresponding gross margin of 64.7%. The selling expenses have also decreased from 42 million SEC down to 14 million SEC. APAC had a contribution margin for the quarter of 49.1%, which is slightly lower compared to last year's contribution margin of 49.3%. Moving on to slide number nine. On this slide, I will once again repeat, based on the Q4 financial highlights, and as we talked about, the sales of 959 million compared to a very, very strong quarter previous year, with a sales of 904 million SEK, gives us a 6% increase in SEK, but also 6% increase in organic growth in local currency for the quarter. We continue to improve the gross income from 540 million SEK to 586 million SEK, and improve the gross margin from 56.9% to 61.1%. We have had a positive product mix from the quarter, with consumables growing and all-time high sales in technologies. However, a slight top-line decrease for genetics, but with a significantly improved gross margin as a result of our operation efficiency program. And we continue to deliver on our operational excellence improvements and capitalize as well on the higher volumes. And all in all, This gives us an EBITDA of 337 million SEC compared to 294 million SEC previous year, which consequently gives us an EBITDA margin of 35.1% compared to 32.5% last year. Moving on to slide number 10. So some comments about operating expenses. We continue to invest in safety marketing capabilities in key markets. We have then two large impacts, which is where we go direct in through the acquisition of EMV and also the impact of e-fertility. And when you look on the R&D, that's flat compared to last year, this quarter. However, we continue to make progress in various programs. In relation to administration expenses, they are mainly higher due to one-off effects. such as the increased bonus accrues in the quarter based on better performance of the quarter and of the year. So operating expenses decreased due to difference in translation effects in connection to revaluation of working capital at the year-end closing rate. This going to slide number 11. So let us now look at some of the key financials, and I would like to focus a bit more on the full year numbers. And we are growing the sales of 4% in local currency and 3% in SEC. That brings us up to sales for the year of 3,609 million SEC compared to previous year of 3,512 million SEC. And we continue to increase our gross margins. That goes from 56.3 percent to 59.3 percent. We also continue to strengthen our EBITDA from 1,136 milliseconds to 1,225 milliseconds, and consequently then an EBITDA margin improvement from 32.3 percent to 34 percent for the year. Previous year, we had an impairment charge of 4,300 million SEC contributed to a negative net income for the year. So let us now focus on the adjusted net income set, which has continued to increase, and the amount is just 540 million SEC compared to 449 million SEC previous year, which gives us the adjusted earnings per share of 3.78 SEC after dilution compared to 3.31 SEC previous year, an improvement of 40.2%. operating cash flow continues to improve and amounted to 907 million SEC for the year compared to 757 million a year previous year. And we have a strong balance sheet with an equity ratio of 78.2% and the net debt to EBITDA 12 months rolling on 0.7 compared to 1.7 previous year at the end of the year. And finally, from my side, the board proposed a dividend of 149 million SEK compared to 135 million SEK previous year, corresponding to a dividend per share of 1.10 SEK, an increase of 10%, and it corresponds to 32% of the net income of the tax. With those words, I will hand it over to you, Bronwyn, again.

Thank you, Helena, and if I could move everybody on to slide 12. How are we doing? Are we on track or are we not on track? Well, this is the corporate strategy of the VitraLife Group as presented in December, one year ago. And this is the blueprint. I mean, this is our path, the path of the VitraLife Group. And one year into this five-year plan, we firmly believe it is as relevant as ever and will ultimately lead to the achievement of our long-term financial objectives. If I could just draw your eyes to those long-term financial objectives, how are we tracking? Well, when it comes to EBITDA and our net debt to EBITDA, we're on track in terms of those two financial goals. In relation to our growth rates, maybe if I could just remind everyone, but you probably know these numbers just as well as I do, we had 0% growth in quarter one, 4% growth in quarter two, 7% growth in quarter three, 6% growth in quarter four against very, very strong comps in the previous quarter of 2023. And I would say that quarter four has been our strongest quarter to date, certainly since I came in as a CEO with 6%, and then that EBITDA margin up at 35%. So we are slowly, steadily progressing towards the achievement of these goals. If I could take you down then to look at some of the pillars, our strategic pillars as we talk about, and I would first like to mention the own the platform connecting products and services. So how are we doing there? We're progressing nicely with our in-house development and we are complementing the in-house development of that platform with some M&A activity, most notably the acquisition of eFertility, so combining eFertility The witnessing piece with our embryoscope, very, very core to building out that platform. On the innovate to expand leadership, we've become much more targeted in terms of our R&D investment. So we've really decided where are the areas that we're going to double down to move the needle in relation to that platform play. And again, I think that focus and prioritisation is leading, we believe, to an acceleration of the rate at which we will be able to bring new products and tests to market. Pillar number three, accelerate growth in key markets. How are we doing there? So we have been ramping up in the U.S. in particular, so in North America, but most notably in the U.S. and China, and we are definitely starting to see that already pay back in terms of the growth rates picking up. and some fairly significant share gains across the portfolio, particularly in consumables. So, you know, we're going to stick to the playbook in terms of this one because we believe it's working. Optimized go-to-market model is the fourth pillar, or fourth strategic pillar, and here we've been very much focusing up to now on leveraging the breadth of the full vitralife group portfolio. We're going to tweak this one as we move into 2025. It will still be about leveraging the breadth of the portfolio, but also the differentiation that we have in the Vitrolife Group portfolio, which is not, we believe, in our opinion, some of the other players in the market may have broad portfolios, but don't have the level of differentiation we see as a competitive advantage. And the other point that we will be leveraging, I think we've done a nice job of that in 2024, and it's helped with the share gains, and that is on the quality piece. You know, our products, our tests, and our services are of a very, very high quality. In relation to driving operational excellence, so we saw some nice gross margin improvements in 2024, in part due to efficiency gains in our genetics business. In 2025, of course, we will continue to drive efficiency gains, but we will also focus our efforts on those operational initiatives that help to accelerate and drive growth. And then just maybe one final point in relation to EBITDA. So a very nice performance on EBITDA in quarter four, as you can see. We are performing strongly, but we do want to be able to continue to invest in growth and innovation going forward. So I think to keep those very, very high EBITDA levels would be nice, but we want to have the flexibility to be able to invest in the other pillars of growth and innovation. So one year into a five-year plan, and I would say execution is on track. Okay, great. So I will move you to the final slide of the presentation, which is our forward-looking focus for 2025. And I've set this out in relation to those five platforms just for continuity. So, pillar number one, owning the platform, connecting products and services. What do we want to do in 2025? We want to advance the penetration of Embryoscope. We've been picking up the pace very nicely in our technologies business Throughout 2024, we want to drive utilization of those embryoscopes, as I mentioned previously. And then, of course, we're bringing in the e-witness piece to improve workflow automation. And I think very, very importantly for patients going into an IVF clinic, traceability. I would say that that e-witness funnel pipeline is starting to build nicely in the key focus geography. So this is not a global long to be all things to all people, but again, very focused and very targeted. On the innovate to expand leadership, we're going to continue to do exactly what we have been doing, which is targeted R&D investment in order to bring solutions to market faster and I think we have an exciting pipeline, but your pipeline is only as good as your ability to commercialize on time. So we're going to stick to that very, I call it ruthless prioritization, but it's very much a positive thing. Accelerate growth then in key markets, increasing share and penetration in the U.S., number one goal in terms of market. China as well, we've had some very good traction for several years now, and we will continue to focus there. I mean, we're seeing the benefits, so we're going to continue to double down in the largest markets that are growing fastest and where we can not just grow, but we can grow profitably and sustainably, which is very much the mantra of the Venture Life Group. Optimizing the go-to-market model I mentioned on my previous slide. Leveraging the full strength, great, yeah, but this year will be more about the differentiation and the quality that the Vetrolife Group portfolio brings to our partners, to clinics and to patients around the world. And then in terms of driving operational excellence, in 2024, we made some good progress in our operational efficiency as reflected in our margin expansion. Going into 2025, we will obviously continue to maintain that sort of rigid focus on cost, but also to increase efficiency To increase the focus of or expand maybe is a better way to explain it, to expand the focus of that pillar to ensure that the initiatives that we double down on are also helping us to thrive our growth. So with that, I would like to say thank you very much for your attention and we will now open up for Q&A.

Thank you. As a reminder, if you would like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. You are kindly asked to limit yourselves to one question only and a follow-up question if needed before rejoining the queue if required. If you change your mind and want to withdraw your question, please press star 2 and please ensure your lines are unmuted locally as you'll be prompted when to ask your question. The first question comes from a line of David Johansen from Nordea. Please go ahead.

Hi, good morning. Thank you for taking my questions. First, just on the risk assessment that you highlighted in your prepared remarks, could you expand on these continued activities and what business area and specific regions this relates to? And then, is this something we should expect already by Q1, or is this more of a gradual phase as we... to the 3%, I think, which you alluded to. And then also, if I may, just on the gross margin expansion that you had in the quarter, how much of the 420 genetics business, and if you're able to quantify that, thank you.

Yes, so thank you for your question, David. So in relation to the discontinued activities, it is 3% of the total sales of the Vitrolife Group in 2024. I would say that this is not a strategic decision to exit certain markets, but it is part of our ongoing and continuous assessment to ensure that we continue to comply with all international sanctions and regulations. So this is a iterative process that we are continually having to adjust and accommodate. Early in the final quarter, we discontinue more business in certain countries. As a policy, we don't specifically name those countries because, you know, at the end of the day, We're operating in healthcare. In an ideal world, we would like all patients around the world to have access to IVF, irrespective of what political circumstances they happen to be living under. But the reality is we have to comply as a company with sanctions and regulations. So early in quarter four, in order to continue to comply, we did have to exit certain... certain parts of the business in a small number of markets. I would say that one of those markets in particular has been a growth driver for the Vitralife Group in previous years. It was probably becoming less of a growth driver because of the impact of the sanctions in that particular country. But I would point out that in terms of the Vitralife Group corporate strategy that I've just taken you through, It hasn't been one of our double-down focus markets going forward. So, yeah, decision taken early Q4. I would say a gradual impact in 2025. And it's not any one specific test or particular part of the portfolio. It's pretty broad across all areas of the business. So hopefully I've answered that question in as much as I can. Your second question then is in relation to growth margin data. And, yeah, that's a combination of portfolio but also geographic mix. I think you can see that pretty clearly in probably Helena's slide more than mine. So technologies and conceivables, high margin business, the more we, The more we sell of those two business areas, the better the margins for the future life group, and Q4 was a very, very strong quarter for consumables and technologies. The geographic piece is also important. Not all of our regions have the same level of margin contribution, so that also helped. And then just in relation to the efficiency gains in genetics, We actually started to see that in Q3. It moved into Q4 as well. I'm not sure, Helena, if I can give, I know what the exact percentage is, but I'm not sure if I can quote the exact percentage. I don't think I can. But I would say that the gross margin improvement, if we'd like to call it improvement contribution of genetics, was pretty significant. And it was a consequence of lab rationalization, more efficiency in terms of turnaround time, so several factors there. We have had an efficiency program operating in genetics for maybe 14 months, and really the fruits of that starting to come through. So there was also a little bit on the procurement side as well, so we secured better pricing from some of our suppliers in genetics. But, yeah, it's a significant part of the margin improvement coming from genetics, I'm happy to say. So hopefully I've answered your questions, David. And thank you very much. Yeah, thank you. Okay, far too good.

The next question comes from a line of Richard Andekrans from Endors Banken. Please go ahead.

Good morning. Thank you for taking my questions. First, a question here on China. Clearly, we see good momentum on IVF reimbursement with essentially nationwide coverage now exiting the year. So how is this impacting cycle growth and maybe some thoughts into 2025? And do you see any increased pricing pressure? I have a follow-up as well, but to start there.

Yeah, so excellent question, and you're spot on, Richard, in terms of the reimbursement improving. Very interestingly, and I had a long and detailed conversation with our very experienced China leader, we're not really seeing a pickup in overall cycle growth rates in China. What we are seeing is a shift from the big urban centers to the regional centers. because the way the reimbursement is working out is it's reimbursement in your local province. So what typically had been happening in China up to now was that people in need of IVF moved from rural centres to the urban provincial capitals to undergo their IVF treatment, whereas with this new reimbursement landscape, They're sort of being forced to go local. So it's more of a shift in the site of care as opposed to the overall cycle growth. To the second part of your question, what does that mean for 2025? We are cautiously optimistic that in time, and the key question is how long will it take, of course, how long is a piece of string, but in time one would reasonably expect that that would help. cycle growth in China. I mean, it's one of the reasons why the national government and provincial government have taken these decisions. China desperately needs to increase the birth rate. So we haven't seen it yet, but we are excited. expecting it to lead to a slow, maybe not large, but a slow pickup in overall cycle growth in China. Now, I've answered two parts of your question, but I'm not sure if you asked me your second. You have a third question. Sorry, Richard. I'll hand back to you if you think you have another question, and hopefully I've answered your question comprehensively.

I appreciate it. Thank you. I had a follow-up. So what share of sales was China in 2024? And are you seeing any pressure to set up local supply chains? I know you have not really committed to localization of the supply chains, historically at least.

Yeah. So we don't get exact percentage of sales of China, but I can tell you it's Mid. Between mid and high single digit in terms of total. Without giving exact percentages, Amelie and Helena will be looking at me here to make sure I don't divulge anything that I shouldn't or give my competitors a toe up in terms of one of our very critical regions. So, yeah, that's China. And then, sorry, Richard, the second part of that question was?

Just localisation of supply chains. Yeah.

Yes, we do have some localization already in China in terms of some of the labware parts of our portfolio. That's going to be really, really important because with the buy local policy in China, I think it's going to be very challenging for players to continue to grow in that market without investing in manufacturing supply chain capabilities. So we have already done that in China and Obviously, we do that thoughtfully in terms of selecting which parts of the portfolio we would localize in and which parts which maybe have more proprietary technology we would maintain closer to the motherships of Gothenburg and Aarhus. But we do consider ourselves pretty well hedged in China in terms of localization and genuinely investing in a market where we have been very successful up to now.

All right. Thanks for taking my questions.

The next question comes from a line of Ulrich Pappner from Carnegie. Please go ahead.

Thank you very much, and good morning, Bronwyn and Elena. And a question on the market share gains that you're obviously experiencing, mainly in the U.S. as well. I think it's very obvious to see that the big opportunity here is for market contribution to go higher in the U.S. And I guess you would be balancing this out with higher SD&A costs, like building on the momentum that you have online, in the U.S., just on the progress in terms of have you seen sort of the most of the market share gains and what to expect in terms of sort of the mix between top-line prioritization versus bottom-line prioritization into 2025?

Yeah. Good morning, Ulrich. Great questions, as always. So, yeah, U.S. is double down market. We've been investing there, so we appointed a new U.S. leader mid- end of first quarter last year, reporting directly to me and on the executive management team of the company. We've been investing in new area vice presidents. We've been investing in commercial headcount. But that has been phased throughout the year. So kind of slow and steady investments throughout the year. And it's been paying dividends. So in relation to share gains, some very nice. share gains in media, but also in disposable devices. So I would say U.S. is leading the charge. I mean, media we've been doing well globally throughout the year in terms of taking share. But I would say in relation to disposable devices, I hope I'm not discrediting any of my other regions, but I think U.S. is also leading the charge on the wider part of the consumer's portfolio. Some very nice share gains there. I think as well on the time lapse we've been getting some good traction, but also seeing the utilization of time lapse going up in the U.S. You know, we don't have anywhere near the penetration of time lapse in the U.S. as we would have in some of our other geographies. They have been a little bit slower to adopt it, but I think with the increased headcount, we would hope to be able to accelerate that. So, yeah, moving into 2025, can we continue that pace? Well, we're investing there to do precisely that. So, you know, that's the play. So, you know, the goal is to continue to take share across the portfolio in the United States. That's everywhere. That's genetics, consumables. And in technologies, it's not so much about taking share but more developing the market. I think in relation to the second part of your question, if you look at the sales and marketing spend in Americas, you're probably – it's probably posing the question. It doesn't look like a big ramp-up in terms of spend. What I would point out there is Americas is North and South America, and we have been diverting resources to the U.S. primarily. So, some of the sort of lower growth, lower profit markets have been funding part of that U.S. journey. But going into 2025, you will see a slow and steady progression in terms of sales and marketing expense in North America. And we expect that investment to be repaid with slow, steady acceleration in the growth in U.S.

Great. That was great. Yeah, and if I can add a follow-up question as well. And that relates to sort of also sort of the margin contribution, but obviously sort of the wider group margins and the margin lift that we've seen in genetic services, and you referred to it as... operational excellence, and you see that this has changed since Q3. And what I'm seeing is that the margin development of genetics is highly dependent on volume, and obviously volume has been growing from Q3 and now in Q4 as well. So just how should we view sort of the general organic margin development of genetic services versus what what you've been doing in terms of operational excellence and given that you're in the midst of presenting I guess you would in 2025 present interim data on the era side in the US that could shift focus to higher volume as well I guess it was a lot of questions into one but hopefully I made myself clear

No, no, you did. And you're pointing out a really critical factor. So as in any services business, high volumes, nice margins, volumes go down, you still have that overhead because it's people in a lab. So, you know, if you've got high volumes coming in or low volumes coming in, you still have to pay the salaries of the people running that business. So volume most definitely helps margin in a business like this. But what I would say here is there has been a targeted effort to reduce the COGS, and people are a lot of the COGS in genetic services. So, yes, volume helps, but I have to say the operational efficiency gains have been significant because, you know, we've very much been focusing on this. The margin profile of the Future Life Group in general is very strong. It's healthy. We're a premium quality and services company, and we have been working at increasing the margins of that part of the business. That's a significant part of our revenue. Maybe not to get it to the consumables and technologies level, but certainly to raise that. So, yes, it's volumes, but it is most definitely operational efficiencies as well. And we've rationalized, we've closed certain laboratories, as I previously mentioned. We've invested in things like higher throughput sequencers, all of that gives efficiency. We have been doubling down on the core tests as well. I think that's important. In something like genetic services, you can't be all things to all people. Well, you can, but you won't be able to do it very profitably. So I think that's kind of been one of the other focus areas. So, yeah, hopefully that answers your question, Ulrich.

Yeah, that was great. Thank you very much.

Super. Thank you.

The next question comes from the line of Jakob Lemke from SEB. Please go ahead.

Thank you. My question is on technologies. What caused the best unexpected outcome here in Q4, and how do you feel about the pipeline going into 2025?

Yeah, great question. We beat our expectations here. I was concerned about technologies in quarter four because of the strength of last year. But you know what, Jacob? A very wise person early in my career once said to me, in any company you need to have portfolio balance and you need to have geographic balance. And I think we benefited from both of those factors in Q4 because we knew the challenge was going to be in APAC. And I, you know, I think in fairness to the APAC team, they had everything within their power to have the strongest quarter possible, but they were just never going to be able to beat Q4 2023. The other regions stepped up. So if you look at the technology slide, if I can bring you back to that, you know, APAC very, very challenged, okay, so minus 10%, but EMEA and America's really stepping up on both time lapse and lasers. I would like to point that one out because, yeah, I guess lasers is the bridesmaid of this business and Rioscope takes the glory a lot of the time. So it's really that geographic balance that helped us. And the month of December was extremely strong on capital sales. But also importantly, I think what's helping technologies overall is the consumable revenue stream. I mean, you know, you're not going to be able to sell embryoscopes. forever, every single quarter to deliver these types of growth rates. We have to be focused on driving the utilization. Otherwise, we create a rod for our own backs. So that's really what did it, Jacob. But we genuinely surpassed our own expectations. And we have some some photos of the final weeks of the year with all the embryoscopes going out around the world. So a big shout-out to all our teams around the globe for the incredible performance there, and particularly to the team in Arthas who did an outstanding job delivering a record quarter. So that was the secret sauce, Jacob.

And how do you feel about the pipeline for 2025?

Yeah, so capital sales, as you know, it's cyclical. So it depends on year-end budgets. It depends on the tax year. Some years it's the calendar year. Other countries it's the, you know, end of April. So it depends. So we've been focusing a lot with our new chief commercial officer on building the funnel and how we manage that, putting a lot more rigor using tools like Salesforce, So always starting the year in a business where you have a heavy component of capital sales, it's going to start a little bit light. But in terms of general funnel building, I think we've been bringing much more rigor to that. So it will probably be light in quarter one. It usually is. If you look at the phasing historically in the Nutrilite Group, Q1 is usually a weak enough quarter in technologies. But, you know, I think the pipeline looks good. We didn't do anything – and we didn't do any crazy things in quarter four, no stocking up or anything like that. So I would say it's sort of – it'll be a slow but usual steady start to the year. Yeah. And, again, I want – as a team and as a company, we need to be focusing not just on the capital piece but on the utilization as well. Yeah. Yeah. So I hope that answers your question, Jacob. Yeah?

Yeah, thank you.

Okay, welcome.

Before proceeding to the next questions, as a reminder, if you would like to join the queue for questions, please press star 1 on your telephone keypad. The next question comes from a line of Patrick Ling from D&B Markets. Please go ahead.

Thank you. First, can I have a follow-up question? on the discussion about the markets that you will exit. Could you give us some sense of the profitability in those markets? Will this be positive for your overall margin or will it be negative initially?

Yes, so good morning, Patrick. Great question. I would say neutral enough on the margins. We don't foresee a big impact there. I wouldn't call those markets, you know, particularly high margins, yes.

Okay, so then we can just, you know, look at the sales and assume that it's, you know, company market margins. Good, good.

Yeah, and revenue, the historical revenue growth in one of these markets in particular, you know, would have been high, wasn't a focused market going forward, but historical growth rates have been strong in that particular market. And as I said, not a strategic decision to exit, but a, continuing to comply with sanctions.

Okay, understood. Then I also had a question regarding your revaluation impact on the operating expenses that you talked about, if you could give us a sense of the size of that in the quarter.

It was more related to the differences between the years, so you could see a bigger impact of that from the previous year. It was more related to the 2023 numbers.

And the delta between the two years?

That is what you can see in the operating expenses. So we had previous year we had these 13 million in the operating expenses.

And this year?

And now we had one.

Okay. So 12 million delta between the years.

Yes.

Great. And then my final question is to you, Don. I mean, when I read your outlook statement, I mean, you talk in the short term about mid-single-digit growth, and previously, if I remember correctly, in Q3, you talked about 5% to 7% organic growth. How should we interpret that? Are we becoming a little bit more cautious on the short-term outlook, or...? Do you just think it's basically the same outlook?

Yeah, I think it's the same outlook. I think, Patrick, where maybe we need to be more clear is I think we've communicated 5% to 7% and that's being interpreted as the growth is between 5% to 7% when I think what we see more is the cycle growth is more mid-single digits slowly but surely expected to pick up in and around, you know, up to in and around the 7% range. What I would say is there seem to be pretty significant regional differences, and I think that's going to be important in terms of the geographic contribution of our revenue. So there are definitely differences. certain markets in Asia where cycle growth is slow. There are parts in, you know, Australia, Japan, where it's low single digits. It's already below 5%. But then markets like the U.S., above 5%. So the regional mix is... It's quite different. So I would say it's similar to where we've previously seen it, but I think we've been doing a lot more market intel around the differences in terms of the regional growth rates. So hopefully that answers your question with a bit more clarity. Actually, I take responsibility. I wrote that paragraph because I wanted it to be a bit more succinct. around the growth rate, so hopefully that clarifies in terms of expectations.

It does. It does. Great. Thank you very much.

Thank you, Patrick.

The next question comes from a line of Stan Gustafson from ABG Sandal, Korea. Please go ahead.

Thank you. One question and a follow-up on the previous comment regarding the discontinuation from certain markets. Maybe we should start with that one. Will that be reported outside of your organic growth as some sort of separate line of discontinuation? That would be my first question.

So, good morning, Sten. So, I think your question, sorry, I lost you just at the very start of that question. So, is it that with the discontinued business, will it be reported separately?

I mean, will that be included in your organic growth rate as a negative number? Will it contribute negatively to your organic growth rate?

It will, it will. Okay. Yes, it will be a part of the negative impact, of course, in the growth going forward.

It's 3%.

It's not that major, so we need to separate them from the other numbers. So it will be in the total.

All right, thank you. And then back to my actual question, and that's talking about the dynamics in the genetics business. You talked about that if you could start with the kids, the stopping effect should have bottomed up, but it sounded like you had lost a customer there. So should we expect to see continued pressure on that subgroup? well, those products. And then when it comes to actual services, it was flattish in the quarter. And so my question is, what's holding back growth now? Is it more on the PGATA or ERA or any other issues holding back growth in the service part of the genetics business?

Yeah. So thank you for the question. So to start with the kids piece, we don't expect it to be a drag on growth going into 2025. So we have had the stocking impact hurting us significantly more in the first part of the year, lessening as the year went out. But that shouldn't be a factor in 2025. We did lose a large customer for our kid business in North America during this transition. from one technology to another. But, you know, overall, KITS, in terms of the materiality of genetic services, it's not significant. What I would say on KITS is, though, it is not an area of sort of strategic focus doubled down. It has a lower growth profile and it has a lower margin profile than the rest of the genetics business area. So in terms of You know, when we're giving the priorities to the commercial teams, it's not in the top three double downs. And then just on the genetic services core piece, Stan, what I would say is that on the embryo testing portfolio, so the PGTA portfolio, that's performing nicely. We're performing nicely in core genetics. We do see stabilization in some of the tests that have had more challenging quarters, So it's not an alarm bell in terms of any particular test, but more down to phasing between the quarters, as you correctly mentioned, growth in quarter, you know, some very strong growth in quarter three, lower in quarter four. There was some growth. It's not completely flat. Genomic kits did still pull it down, but we see it more as a phasing issue. And if we look at It can be challenging enough to forecast in genetic services. What we tend to look at is the sample rates coming in and out of the labs, as opposed to the invoicing. The invoicing and revenue recognition can be a little bit lumpier. In some geographies, you're billing patients, so that makes that a little bit trickier. And the lab samples coming in is pretty stable, so it's more revenue phasing between the quarters that we see. And then moving into 2025, the focus is absolutely on our core embryo testing and some of the newer tests in the portfolio, like carrier screening, which are growing very nicely. You know, so it's going to be similar to the rest of the portfolio. We're going to double down on the tests that can grow fastest with the highest profitability possible. in the markets where we can accelerate and grow most profitably. So it's really more of a phasing effect in genetic services.

Excellent. Thank you very much for those comments.

You're very welcome. And maybe just before the moderator closes out, I would just like to thank you all very sincerely for your support and your great questions keeping us on our toes throughout 2024. Oh, I believe, is there one more question? Yes? Oh, sorry, there is one more question, but good to get in the thank yous in advance of the last question.

The last question comes from a line of Johan Uneros from Red Eye. Please go ahead.

Thank you for taking the question, and congratulations. I think most take the view that you're firmly on track. Yes, on the Americas, the overall, well, both the gross margins and the EBITDA margins is still lagging compared with the rest of the group. Presumably your objective is to improve America's in line with the rest of the group. What time horizon and dynamics should we think about in that?

Yes, fantastic observation. This is also the region with the highest proportion of services sales, so MIT. is what impacts margin in Americas. So a number of things in this area. We have a lot of opportunity in technologies. Technologies is differentiated, brings something completely unique to the IVF lab. So as we drive more technology sales in Americas, that should help margins. Consumables as well, some nice traction. I mean, I don't think it's realistic for us to continue to take the level of share gain that we took in 2024. I don't want to sound bearish, but that would be very, very challenging. I think some of our competitors are not going to take that one line down. But we do obviously want to increase the consumables revenue, which also helps margin. And then we are working most notably in North America, on some operational efficiencies in terms of the genetics business, but also in areas like customer service, which is very, very important. Everybody likes good service, no one more than the Americans. So a lot of efforts going on there to try to improve the margins piece. It's a fantastic question and observation.

So perhaps it sounds more like a three-year journey or something like that.

Yeah, yeah. U.S. is – everything is going to be a journey here that we're talking about today. And, you know, based on my experience of 28 years trying to move the needle in multiple companies in America, this is going to take time, okay? You just don't move the needle in the U.S. in 12 months. But I think what's reassuring to see is the slow, steady progress. But, yeah, I mean, for U.S. to get to the margin levels of some of the other regions, yeah, that's not going to happen in a year.

Excellent. That's very useful. And another cloud on the summer days, the return on, Equity, you have improved this, but even though Q4 is solid and very good quarter, it's in line with the rest of the year. Your margins is close to or even better than your targets. What will drive your capital efficiency going forward? Mila?

Yeah, of course, we will look into the capital structure to try to optimize it going forward. And we are also, of course, still monitoring the improvement of the margins. That is a part of it as well. So overall, we will look into that part as well.

Very good. Perhaps some targets going forward as well.

Let's see what the other year can bring to the table.

Okay. Thanks for taking our questions.

Thank you.

This was our last question, so I'll hand back to you, host, for conclusion.

Yes, so thank you all. Some fantastic questions. As I mentioned, definitely keeping us on our toes. But very importantly, thank you for your support. and your confidence and your trust throughout 2024 and really looking forward to some challenging, interesting, and productive earnings calls in 2025. So thank you all very much over and out from Stockholm. Thank you.

Thank you for joining today's call. You may now disconnect your lines.