Vitrolife AB (publ)

Hello and welcome to the Virtual Life Group Interim Report Q1 2025. My name is Laura and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration of the call your lines will be on listen only mode. However, you 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 a question. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Bronwyn Broughy-O'Connor, to begin today's conference. Thank you.

Thank you and good morning, everyone. This is Bronwyn Broughy-O'Connor, CEO of the Vitralife Group, speaking, and I'm joined by Helena Wennerstrom, the Acting CFO of the Vitralife Group. So, thank you for joining. I would like to move you to the first page and start with the Q1 2025 highlights. So starting with our largest region, which is EMEA, we delivered 14% growth in EMEA when excluding discounted business. So really strong performance in our largest region, and it's actually across the board in that region, all markets. Second point I would like to highlight is Americas, so growth of 9% in Americas driven by strong performance in North America. Most of you will be aware that we have been doubling down in the U.S. and North America. A lot of our efforts have been going in there over the past 12 months, so it's nice to see us starting to reap the benefits of those investments. And then the third point is we've strengthened our organizational structure. As a company, we have three main strategic priorities, growth, innovation, and operational excellence. So clearly, operational excellence and innovation, very strong priorities for the company. And we appointed a chief operating officer and a senior vice president of innovation to bolster and lead these programs in the company. I would like to move you then to the next page, and we will discuss the first quarter key financials. So, this was a quarter, as I guess for most companies, with multiple factors to navigate. Obviously, the tariffs, but particularly challenging for us and persons in our case, was the discontinuation of business in a large market in our EMEA region. Despite this, we delivered revenues of 842 million SEC and organic growth of 1% and 3% when excluding this discontinued business. Our growth margin increased to 57.4% and EBITDA was 257 million SEC in the quarter, corresponding to an EBITDA percentage of 30.6. We did have a negative ethics impact in the quarter of $13 million, but we also have higher selling expenses due to our U.S. ramp-up in what I've just mentioned there are our key focus markets for growth. Operating cash flow was 69 million second a quarter, and Helena will take us through in detail the precise timing of factors at play here, and then earnings per share of 0.74. I would now like to move you on to the next slide, please, where we will discuss our sales and growth per geographical segment. So sales of 270 million SEC in Americas with 9% growth in the quarter. North America performed very well with double-digit growth in the quarter. So Americas, as you can see, is now our second largest region. We have up to now been vying for that position with APAC and Americas, but Americas clearly now in second position in terms of revenue contributions. In EMEA, sales of 334 million set in the quarter, a growth of 8% in local currencies, organic growth in local currencies, and 14% when adjusted for discontinued business. Strong growth, as I mentioned, across all markets in the region, which is great to see. So our largest region performing very, very strongly. And then APAC, a challenging quarter in our APAC region with exceptionally high comps to compete with. The year of the dragon in 2024 clearly impacted cycle numbers and revenue. Importantly, I would like to highlight that we do not see any market share losses in our APAC region. And I will spend a bit of time in the coming slides to take you through the precise impact of the year of the dragon on the financial performance of the APAC region. So if I can now move you on and we will discuss market region EMEA in more detail. So sales of 334 million FEC, as I mentioned, an organic growth of 8%, 14% excluding discontinued business. We saw strong sales across the entire consumables portfolio, which is great to see. So we're really benefiting from our pull-through strategy of leveraging the full breadth of the virtualized groups portfolio. This was also a record quarter for technology sales in the region with the highest penetration of time lapse globally. So I wouldn't call EMEA a mature region in terms of time lapse, but it is the region with the highest number of systems installed. So great to see the growth here. A weaker performance in genetics in the region, but this is, as I mentioned, the region impacted by the discontinued business, and genetics had been performing well in that market. Our With the Think solution is starting to gain some very nice traction, which is great to see, and we signed an agreement with one of the largest clinic chains in EMEA to roll out our solution across their network in partnership with them. So lots of nice green sheets on our witnessing solution. And I think leveraging and pulling through, as I mentioned, leveraging the full breadth of the portfolio, those embryos growth consumables and witnessing is proven to be a very compelling value proposition to our customers. Then I would like to draw your attention to the chart below and the normal quarterly phasing, which you can see. So typically in the future life group, Q4 is our highest revenue quarter, followed by Q3, then Q2, and Q1 is normally our lowest revenue quarter. And I think it's important to point out this quarterly phasing in the context of the dynamic that we saw in APAC, which I will explain in the coming slides. So all told, a really great performance in our largest region, market region EMEA, across all markets in that region and right across the portfolio, with the exception, as I mentioned, of genetics. And very positive signs on the wisdom sale. Okay, I'd now like to move you through to the market region, America. So with sales of 270 million sets in the quarter, we delivered an organic growth of 9%. North America has started to ramp up nicely, and in fact, we delivered our best quarter in North America in 11 quarters. So we're starting to get some very nice traction in what has been a focused market for us for some time. Steady growth in consumables, however, in North America, however, we did have a weaker quarter in the town in the consumables portfolio, and that diluted the America's impact slightly. Technology is performing very well, good to see. We're continuing to drive penetration of our embryoscope and across North America. And then genetics performed very strongly during the quarter, driven by our PGTA family of tests. We're seeing some new customer wins there, so it's a very nice ramp-up across the PGTA family of tests. And I'm happy to say that we have not seen any impact from the PGTA lawsuits in the U.S., In fact, our growth in PGTA tests is accelerating. Again, then, if I can draw your attention to the chart below, you will see the quarterly phasing with a slight tweak. So, I would like to highlight that Q2 2024 was a particularly high quarter in Americas. because we secured a significant time-lapse order during that quarter. However, historically, again, in Americas, we typically see a pattern of Q4 being the strongest, followed by Q2, Q3, and then Q1, which is just a slight anomaly in the phasing in 2024 due to that large technologies order. Just in terms of phasing of technologies in general, with the consolidation in the market on the clinic site, we do tend to see and experience larger fluctuations in our technology business. This is because larger chains tend to make larger purchases. And we've been seeing that. I mean, you can see it in Q2 last year, but we're starting to see more of that. It does make forecasting more challenging but we have also been investing in commercial excellence in order to tightly monitor our FOMO and enable us to forecast more accurately in terms of technology. So a good quarter in America and we're delighted to see the traction in North America and also good to see no impact on the PGTA test but rather in fact it is accelerating. Okay, I'd now like to move you to market region APAC. And here I would like to start by drawing your attention to the graph below, where you can see that in 2024, APAC did not follow the normal quarterly phasing of Q4, Q3, Q2, and Q1. Why? 2024 was the year of the dragon. and couples hoping to have a baby born in this luckiest of years had to undergo IVF in quarter one 2024 or the first month of quarter two 2024 to potentially make this a reality. This impacted both cycle numbers phasing and made the comps very challenging. So you can clearly see on the graph below, in 2024, Q1 was by far our largest quarter, followed by Q2, then Q3, and then just slightly below that was Q4. So an unusual year impacted by the year of the dragon. It may sound strange to Westerners and Europeans to be talking about dragons when it comes to and IVF reporting, but this is the reality across Southeast Asia, China and Southeast Asia. To compound matters then, Q1 2024 was also an exceptionally strong quarter for technology. So we had very high comps to navigate, and then to compound matters, Q1 2024 was a record-breaking quarter for embryo scope sales across APAC China, Southeast Asia, and Japan. Now, I would like to say that we did see some signs of recovery starting to show in the cycle numbers towards the end of March. So January and February, very tough, but towards the end of March, we started to see things picking up. And then if I could bring your eyes back to the chart, as you can see from the chart, the phasing becomes more favourable in the second half of the year. In addition, based on what we have seen towards the end of the quarter and expect to see going forward, we predict that the cycle numbers will be returning to normal levels as the year progresses. So a challenging quarter for our APAC region. I'd like to move you on then to the next slide where we will look at our revenue per segment and our product group. So you are used to us reporting to your RASA segments and business areas. Our business areas are now covered under product groups. So I just want to point that out so that everybody can follow the presentation. So if we look then at the revenue by geography, we can see that the EMEA region is now our largest region with 40%, been our largest region for quite a while, but it has put some distance between it and the other regions with this strong quarter that we've just delivered there. And Merit is now our second largest region, 32%, and APAC falling back into third position with 28% growth. We're all navigating challenging and dynamic factors in the macroeconomic environment. And I think this good geographic balance that we have in the vitro life group has proved critical. So we can see that not having an over-reliance on any one region is a very healthy thing in the changing times. And they are performing very strongly, as I mentioned, despite the higher level of penetration. And America is now our second largest region. And this is really driven by the acceleration that we're starting to see in North America, which, of course, has been a strategic decision of our company to focus on the largest IVF market in the world. If I could bring you then over to the chart on the right-hand side, just to take you through the balance in terms of the revenue by product groups, we are also well-balanced from a product group perspective, as you can see, although I would point out for technologies that this can fluctuate to a larger or greater extent, and this is increasingly being impacted by purchases of larger volumes of embryoscopes by the clinic chain. So all in all, if you look at the rolling 12 months of our technology sales, you can clearly see an upward trajectory, but we do see more fluctuations between the quarters. I'm now going to hand it over to Helena and take you through some of our key financials, and I'll speak to you then in a few more minutes.

Thank you, Bronwyn. And we are now on page number nine. And I will dig a bit deeper into the geographical segment. which are Americas, EMEA, and APEC. Starting on the right-hand side, as Bronwyn mentioned earlier, we had a sales of 842 million SEC and a gross margin of 57.4%, an improvement compared with the previous year when the sales amounted to 841 million SEC with a gross margin of 57.1%. The market contribution amounted to 300 million SEC with a contribution margin of 35.6%. Corresponding quarter previous year amounted to 311 million SEC, with a contribution margin of 37%, a decrease by 1.4 percentage points, negatively impacted by product and market mix. Let's now take a deep dive in the geographical segments from the left-hand side. In America, we had a sales of 270 million SEC, with an organic growth of 9% in local currencies, driven by a strong growth in North America. Saving consumables increased by 2% in local currencies, negatively impacted by order phasing in Latin. And phasing technologies increased by 9% in local currencies, as you continue to drive penetration and utilization of embryo scope. Phasing genetics increased by 12% in local currencies, with strong performance across the region. And we did not see any impact of our target PGTA test revenue as a result of the PGTA class action process. The gross income amounted to 145 million SEK with a gross margin of 53.7%, compared to last year's gross income of 141 million SEK with a gross margin of 56.9%, negatively impacted by the product mix. The selling expenses have increased in the quarter from 58 million SEK to 77 million SEK, since we have continued to invest in sales and marketing capabilities in the key markets. The market contribution for the quarter was 25.3%. In EMEA, we had a sales of 334 million SEK, with an organic growth of 14% in local currencies, excluding discontinued business. The gross income of 199 milliseconds with a gross margin of 59.6 is a significant improvement compared to last year's gross income of 170 milliseconds and corresponding gross margin of 54.8%. Sales in consumer goods increased by 9% in local currencies and 60% excluding discontinued business. Treatment by strong sales across the portfolio. And states in technologies increased by 46% in local currency and 47% excluding discontinued business with high growth across technologies. States in genetics decreased by 11% in local currencies and 5% excluding discontinued business. And the selling expenses have decreased from 69 million SEK to 68 million SEK. And we can see a higher contribution margin for the quarter. 39.2%, an improvement since last year's contribution margin of 32.3%, positively impacted by product mix. In APAC, we had a sales of 238 million SEC, with an organic growth of minus 50% in local currencies compared to previous year. The comparable quarter last year was exceptionally strong for consumables and technologies, and sales in consumables decreased by 3% in local currencies, And technologies decreased by 38% in the third currency, negatively impacted by timing of capital orders. Saving genetics decreased by 2% in local currencies. And the gross income of 139 million SEK with a gross margin of 58.4%, which is lower than previous year's gross income of 117 million SEK and corresponding gross margin of 60.1%. The selling expenses have also decreased from 42 million SEK down to 38 million SEK. And APAC has a contribution margin for the quarter of 42.4%, which is lower compared to last year's contribution margin of 45.2%, which is volume-related. Moving on to slide number 10. On this slide, I will comment on Q1 financial highlights. As earlier mentioned, the sales amounted to 842 million SEK compared to previous year, with sales of 841 million SEK. This gives us 1% increase in local currencies, 0% in SEC, but 3% in local currencies, excluding discontinued business. As part of our ongoing risk assessment procedures, and to ensure we continue to comply with all applicable international sanctions, we decided to discontinue activities in certain markets in EMEA as we announced in the Q4 report 2024, representing less than 3% of our annual revenue, and this is effective from 1st of January 2025. The gross income amounted to 483 million SEK compared to 481 million SEK previous year, and improved the gross margin significantly. slightly from 57.1% to 57.4%. All in all, this gives us an EBITDA of 257 milliseconds compared to 272 milliseconds previous year, and an EBITDA margin of 30.6% compared to 32.4% last year. The decrease in margin is primarily due to foreign exchange impact and increased selling expenses in Americans. Moving on to the next slide. Some comments about operating expenses. We continue to invest in sales and marketing capabilities in key markets, contributing with an increase of selling expenses from 169,000 to 183,000. R&D expenses have decreased mainly due to a reduction in expenses for external services and a slight increase in capitalization. but restoration expenses are slightly lower than previous year. Other operating items amounted to minus 9 million SEK versus positive 7 million SEK comparable quarter, mainly affected by foreign exchange impact of minus 30 million SEK in the quarter versus plus 1 million SEK comparable quarter. It is related to translation effects in connection to revaluation of world capital at the closing rate. Going to page number 12. So let us now look at some key credentials and do a small recap. We are growing the sales of 1% in local currencies and 0% in SEC. However, we have improved 3% in local currencies, excluding discontinued business. A strong growth in EMEA, despite the helping of discontinued business. A strong growth in America, driven by a strong growth in North America. APAC had an organic growth of minus 15% in local currencies, and the comparable quarter last year was exceptionally strong in consumables and technologies, as we heard from you mentioned earlier. The gross margins improved from 57.1% to 57.4%. The EBITDA amounted to 267 million SEC, compared to 272 million SEC, and an EBITDA margin of 30.6% for the quarter 2025, compared to 32.4% for the previous year. The decrease in margins primarily due to foreign exchange impact and increase in expenses in Americas. The financial net amounted to minus 10 million SEK compared to minus 24 million SEK previous year. Primarily, it's positively impacted by foreign exchange gain, and interest expenses lost 70 million SEK compared to 23 million SEK previous year. Net income amounted to 100 million SEK compared to 150 million SEK previous year, which gives us an adjusting earnings per share of 0.74 Swedish kronor compared to to France previous year. Taxes amounted to minus 41 million SEK compared to 28 million SEK previous year. The increase is driven by restructuring activities, withholding taxes, geographical market mix. Historically, the normalized average tax rate amounts to approximately 23-25% depending on the geographical market mix. Operating cash flow amounted to 69 million SEK for the year compared to 198 million SEK previous year. And changes in the working capital had a negative effect of 111 million SEK this year compared to 39 million SEK previous year, mainly driven by reduced trade tables. And the tax pay over year increase of 53 million SEK is more than the time we mentioned. And we have a strong balance sheet with a liquidity ratio of 78.9% and a net debt to EBITDA on 0.6 compared to 0.9 previous year by the end of the quarter. And I will now hand over to you again, Dawn.