ArcticZymes Technologies ASA (AZT) Earnings Call Transcript & Summary

Good morning, and welcome to ArcticZymes Q2 2026 Report. My name is Michael Akoh. I'm CEO of ArcticZymes. And I'm, as usual, joined by our CFO, Borge Sorvoll, as well as our CCO, Paul Blackburn. Let's take a look at our agenda today. We're going to start off by looking into the Q2 highlights as well as a recap of our strategy. Then, Paul is going to go through an interesting commercial update. He's going to look at the numbers for our 2 segments, but he's also going to focus on a couple of customer cases. Then, Borge is going to go through our financial performance, and I'm going to come back and look a bit into the future, recap our ambition -- and do a general summary of today's presentation. And last but not least, we're going to look into our -- the questions that you might have after today's presentation. But let's get started. We had a good strong start to the year. We've had a good first half, and the business is in general in a good place today. We had a total revenue for the quarter just shy of NOK 34 million, up 17%. And we had sales revenues just shy of NOK 32 million. That's up 19% year-over-year. We had a bit of currency headwind. So the constant exchange rate growth was at 29%. Our profitability came in with an EBITDA of NOK 7.4 million, up significantly compared to last year. Looking at the first half, as mentioned, we've had a strong start to the year. We're executing on our strategy, and we had NOK 69 million, which is an increase of 28%. Looking at the sales revenue number, we had NOK 63.7 million. That's up 27%. Again, the currency headwind was significant. So, the constant exchange rate growth rate was 39%. And profitability for the first 6 months came in at NOK 9 million, significantly better than last year. I would also like to talk just a bit about some of the milestones in the quarter. We have had a clear strategy to penetrate more CDMOs. We believe that, that's going to be a clear path towards further growth with our SAN enzymes. And in this quarter, we saw the onboarding of a new CDMO. And this new CDMO started to use M-SAN GMP. We have been talking to them for a long time. Paul is going to go more into details, but they didn't want to start with using SAN before we had a GMP version. We now have that, as you know, and now they have been onboarding, and we expect growth from this CDMO going forward. Paul is, as mentioned, going to give more details in regards to this customer case. Another interesting event that happened just after the end of the quarter was that one of our customers that we've been working with for a long time, got their cancer screening test, FDA PMA approved. We believe that this is going to be a significant growth driver for especially our Molecular Tools segment as we have the proteinase embedded in their workflow, and there are also other opportunities with this customer. Paul is going to allude more to this very, very interesting customer case. In regards to innovation, you all know that we have a strategy of building a pillar within the RNA IVT workflow space. And we have started all the prelaunch activities in regards to the enzymes that we will be launching. So right now -- we are doing global beta testing of 2 enzymes, and we are getting some really encouraging results. We got a quote here that showcases what an impact that our ET-N1 can have on the sample preparation step. We're seeing that they have step today, which is 6 hours. And with our ET-N1, they can cut that downtime down to 30 minutes. So, really impactful for the customers. So, there's going to be a lot more in regards to that going forward. Next slide. I just also want to do a quick recap of our strategy, which was also highlighted on our Capital Markets Day in March. We have a number of strategic pillars that are going to enable us to accelerate growth over time, but also create more resilience for the business. As you all have heard a number of times, we are really working on getting closer to the customer. We're really getting closer to the customer today than we were just 12 months ago. Something that's impacting us across the value chain. We're going from being a more transactional company to becoming a more customer-centric and application-led solutions provider. In regards to creating more resilience and also growing the business, we are creating a wider base. We are diversifying, and we're increasing the number of markets that we are addressing and the products that are being sold. We're already seeing the impact of that in regards to metagenomics, where we're using the SAN enzymes for a new application. And we're going to see the same thing within the RNA space. We have enzymes that we're selling today into a different application space that can also be used within the IVT RNA workflow. So, we have a good base. The strategic pillars: Molecular Tools, Viral Vectors, and the new one, RNA Therapeutics. And then we also have a focus on increasing our business through some of our channel partners. Two weeks ago, I was in Japan, and I saw firsthand that we have a lot of opportunities by, first of all, selecting the right partners and motivating those partners. So, in the long term, this is going to also generate new business for the company. And with that, I would like to hand the word to Paul Blackburn, our Chief Commercial Officer. Go ahead, Paul.

Thank you, Michael. Good morning, and thank you all for joining us. It's a real pleasure to take you through our commercial performance for the second quarter of 2026 because this is a quarter I've been really looking forward to presenting. And the headline is a simple one, and it's a really good one. The commercial engine is working. Growth is broad-based rather than resting on any single product or any single customer. And several of the strategic programs we've been patiently building for years are now converting into real repeatable orders. So, over the next few minutes, I'm going to walk you through 4 things. First, the headline number for the quarter and what sits beneath them; second, how each of our 2 portfolios performed, Biomanufacturing and Molecular Tools. Third, the first half of the year taken as a whole because 2 consecutive quarters of growth tells a really convincing story compared to one. And finally, I'm going to talk about 3 customer programs that I think is the clearest signal of where our business is heading over the next 2 to 5 years. The theme running through all of this is quality of growth. We're not chasing volume for its own sake. We're winning positions inside customer workflows, and these are difficult to replace in markets that are expanding with partners who are moving from evaluation into clinical and commercial manufacture, and that is the kind of growth that compounds. Now that, of course, is the very definition of momentum. So let's start with the quarter itself. So this is a slide I'm really pleased to show you. Revenue for the second quarter came in at NOK 31.9 million. This is a growth of 19% year-on-year and an increase of NOK 5.1 million against the same quarter last year. In plain terms, this is the largest second quarter the company has delivered outside the exceptional COVID period, which is a genuine milestone. I'd also like to draw your attention to the 12-month trailing average on the right of the slide. Quarterly numbers can, of course, move around with order timing showing volatility. And so, this 12-month rolling view is an honest one. And as you can see, it's pointing firmly upwards. And that line is a turnaround made visible. And it tells you that this isn't a single fortunate quarter. It's a trend that's been building steadily through the past year as our commercial strategy has taken hold. It's also worth noting that we achieved this despite meaningful currency headwinds of between 5% and 10% year-on-year. On a constant currency basis, our figure is actually NOK 34.6 million. The underlying commercial performance is, therefore, stronger than reported, and it shows strong demand. It also shows a broad customer base and a growth path that we can clearly see ahead of us. So, let me now break that down by portfolio, starting with Biomanufacturing. Biomanufacturing delivered NOK 15.9 million in the quarter. That is 6% up sequentially on the first quarter, although it is 12% down against a very strong comparative quarter last year. And I want to be really straightforward about that year-on-year number because the stuff behind it is still genuinely encouraging. The comparison is against an unusually strong second quarter in 2025. And this softness is concentrated around a very small number of accounts in one territory rather than being a broad market signal. And across the rest of the world, the picture is one of solid broad-based demand with particularly strong demand across APAC. The headline for me on this slide, though, is GMP. This was a record quarter for our GMP products, and they rebounded strongly after a slightly quieter first quarter. And that matters more than this absolute number because GMP is the gateway to clinical manufacture. When a customer moves to GMP-grade, they're committing our enzyme into a regulated process. And that's a decision that's really expensive and time-consuming for them to reverse. So, GMP revenue is, therefore, some of the highest quality revenue that we can generate. We're also seeing strong adoption still among CDMOs alongside established pharma accounts, and biotechs. So, put simply, this portfolio is being designed into clinical manufacturing processes at an encouraging rate. And that's exactly, of course, the kind of position we want to hold as these programs progress. There has been a change in some CDMO behaviors. I've spent some time recently with some senior employees in these places. What they're seeing is their primary producers are introducing more milestones closer together. And the consequence of that is that they're perhaps a little less free with their spend. Now to Molecular Tools, where the growth story is really quite striking. Molecular Tools delivered NOK 16 million in the quarter, which is up 84% year-on-year. And that is, of course, a remarkable number. But I want to give you the texture behind it rather than simply letting it sit there. A significant part of that step-up comes from our large partner returning after an ordering pattern that had a reset. And we always said that, that would come back. But what's more important is, what's happening underneath that account. The rest of the portfolio with other customers still grew by a healthy amount. And there is now a widening base of accounts doing between NOK 0.5 million and NOK 2 million a year. And that base is growing across the board. That broadening is our strategic prize. Application diversity is what turns our portfolio from a small number of large relationships into a resilient business. We're seeing our enzymes being adopted across diagnostics, life science, research, food safety, and other industrial applications. And each new application makes the next one easier to win. So, the strategy that we set out is working, and the growth path here is one we expect to keep building on. Next slide. So, let me now step back and look at the first half of the year as a whole because this is where the picture becomes really compelling. Total revenue for the first 6 months was NOK 63.7 million. That is a growth of 27% against the first half of 2025 and 39% on a constant currency basis. So, 2 consecutive quarters of strong revenue growth is not a coincidence of timing; it's a trend. And if we look at the split, Molecular Tools contributed NOK 32.5 million, up 78% year-on-year, and Biomanufacturing contributed NOK 31.2 million, which is essentially flat at minus 2% against a strong comparative period. The 2 portfolios are now almost exactly balanced in size, and that gives us a really healthy shape. When one portfolio faces a tough comparative, the other can carry the momentum. And the title of this slide is deliberate. This is growth from quality. It comes from having more customers, more applications, more geographies, and the rising proportion of GMP-grade material heading into those regulated manufacturing environments. And those are durable foundations. They set us up well for the second half where we've got visibility of several programs moving from evaluation into supply. And I'd like to spend the rest of my time on 3 of those because they show you what the next few years can look like. The first is a multiyear diagnostic partnership in cancer screening, and it's one of the most exciting positions that we hold. Our proteinase embedded inside a high-growth liquid biopsy workflow. And I want to be really precise about the word embedded. Our enzyme is an enabler of the kit, not an accessory to it. And our enzyme was selected because it's the only one on the market that performed reliably in their assay. That is a real technical advantage that's going to be genuinely difficult for anyone to displace. If you look at the time line along the bottom of the slide, it shows a story of steady methodical progress. Validation of our enzyme happened in 2021. Clinical trials ran from 2022 until the results were submitted in 2025. This company audited our facility in August 2024 and had no major deviations. And then the milestone that they've been working for the last 5 years, PMA, or premarket approval, was granted in July 2026. That approval moves our partnership into the commercial stage. A scale-up order has already been placed for autumn of 2026, and we hold a 2-year forecast from the partner. We've initiated a formal scale-up project on our side, of course, to meet this. The answer is the impact is twofold. Firstly, it's a revenue driver in its own right, but also, the approval of this first kit opens the door to inclusion in future kits, which address other cancer types. And this is a broader commercial partnership. And this is exactly the compounding we're looking for. Next slide. So, the second program shows how quickly our GMP launch is opening doors. A Southern European CDMO evaluated our nuclease for an in vivo CAR-T clinical trial in the first quarter of this year. They told us plainly that consideration and inclusion depended on our mSAN GMP launch, which is a very direct validation of that investment. From evaluation, the program moved to audit and tech transfer within the second quarter. And again, our audit passed with no major deviations. And from there, it's moved very fast. And we've already signed an 18-month worldwide supply agreement with this partner, which runs to the end of 2027. And the first purchase order was placed right at the close of the second quarter. Our forecast for the second half indicates growth -- revenue growth from this relationship. From first evaluation to signed worldwide supply agreement in 2 quarters is genuinely a fast cycle in this industry. And what that makes this strategically important is, of course, we can repeat this playbook: audit, agreement, reoccurring orders, and we're going to run with this, of course, with other manufacturers. And we're already doing so, which extends our footprint for GMP across EMEA, the U.S., and APAC. The in vivo CAR-T market is, of course, very hot at the moment. And we're establishing a position so that we can be ahead of the wave rather than simply chasing it. The third example is my favorite, perhaps my favorite because it shows long-term compounding value of being designed in early and, honestly, the way that we work within the ecosystem of cell and gene therapy companies. So, our nuclease was specified and designed in preclinically by a small innovative company, and validated and scaled up in their processes over several years from 2019. That company was then acquired by a global pharma group. And crucially, our enzyme was retained through the acquisition and revalidated by this new parent in 2025. When a large pharma revalidates and keeps a component like an enzyme through integration, this is about as strong technical endorsement as you can receive. And this program is now progressing into GMP clinical manufacture, which will run through 2026 to 2028. And there is an estimated market launch in the 2028 to 2029 window. Order value has already doubled since the acquisition. And this relationship has given us access to a global pharma organization and visibility of their other programs. So, this is an example of a relationship that began with a start-up and design-in, and it's opened the door to one of the largest players in the industry. And that's the pattern that I'd like to leave you with. Design-in demand compounds as programs advance towards commercial supply. Across these 3 examples, we've got a diagnostic platform entering commercial launch, a manufacturing partner scaling with GMP through a signed agreement, and a large pharma program heading into late-stage clinical manufacturing. Add to that, a record outside COVID second quarter, 2 consecutive quarters of strong growth, and a broadening customer and application base. And I hope you can see why we're optimistic about what comes next. Thank you. I'd like to move to Borge for the financials.

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Sorry. Thank you, Paul and Michael, for that introduction on, kind of, the good things that we've seen now to the start of the year. And I am going to take you through some of the financial highlights, a little bit about our financial position, and some of how the expenses have been in the second quarter and in the first half of the year. A large part of our reported top line is, as both Michael and Paul alluded to, is influenced by currency. So, I want to start by isolating that effect. In the second quarter, the Norwegian kroner weakened against both the U.S. dollar and the euro compared to the start of the year where we saw a different effect here. And the Norwegian kroner was still stronger, and it continues to create headwind on reported sales because most of our revenues are invoiced in both euro and USD. And as Michael and Paul stated, on a constant currency basis, our second quarter sales, they were -- would have been NOK 34.6 million rather than the NOK 31.9 million. And that is a difference of NOK 2.7 million or around 8% if we are using the same currency in 2026 as we did in 2025 in the second quarter. And for the first half of the year, our reported sales would have been NOK 69.3 million versus NOK 63.7 million, or a NOK 5.7 million difference, or an 8% difference there as well, if we use the same currency. And the key message by this is that the underlying commercial performance is stronger than the reported revenue line, what it indicates. But also, currency works in both directions. And we do see some cost benefits from a stronger NOK, but because our revenue exposure is larger than our FX-exposed cost base, the net effect of a stronger NOK remains negative for our profitability. But we will, of course, continue to monitor this and close, and we are evaluating how to reduce the volatility on the currency side moving forward. So, looking at the operating cost base for the second quarter, and it shows a good balance between investing for growth and maintaining discipline. Our sales revenue increased by 19% year-on-year to NOK 31.9 million, whereas our operating costs only increased by 6% to NOK 26.5 million. And this is, kind of, the operating leverage that we've been talking about. Revenue growth is increasingly converting into EBITDA because the cost base is largely fixed. You can also see that our personnel expenses were NOK 16.2 million, up 18% from the second quarter last year, and this is in line with our plan. And it also reflects the full effect of the commercial hires we made through 2025. It also reflects that we have had normal salary adjustments, and we have that continued reduction in capitalization of personnel expenses. And we have also accrued a higher bonus compared to the second quarter last year. And this is also important because this is not a new structural step-up in our cost base. This reflects the resources that we already put in place to drive the top line at the end that we did at the end of last year. Our operating expenses were NOK 8.8 million. It's actually lower than what we had last year. But we have also -- even though we have increased external support for growth opportunities, but the overall spend remains controlled. We also had a currency tailwind in the second quarter of close to NOK 0.5 million, which has reduced our operating expenses a little bit. So, the message here is simple. We are continuing to invest in -- behind the commercial execution and the strategic opportunities that we are working on. And the business is starting to see the operating leverage expected from this platform. Growth in revenue is clearly outpacing the growth in cost. But of course, the challenge will be to continue to grow the top line on a -- on a steady basis while we keep our expenses in control. We will, of course, invest in our expenses in the expenses and personnel, but we expect the top line to grow with a larger percentage here. Looking into the profitability. And of course, the second quarter shows a strong continuation of the margin improvement that we've seen over the last year. EBITDA was NOK 7.4 million in the quarter, as Michael stated in the beginning, compared to NOK 3.9 million in the second quarter last year. And this represents an increase of 19% or a doubling of the number. EBITDA margin improved to 23% compared to 15% in the second quarter last year, and the 5% that we saw in the first quarter this year. And of course, this improvement is driven primarily by higher sales revenue, high gross margins, and also that we have a disciplined cost development. Gross margin remains -- still remains strong at approximately 95%. And that is important because it means that incremental revenue has a meaningful impact on the profitability of the company when the fixed cost base is already in place. For the first 6 months of the year, EBITDA was NOK 9 million compared to a close breakeven at the first half of 2025. And this gives us a stronger -- and of course, this gives us a stronger earnings base going into the second half of the year. Finally, turning into our cash and financial position. At the end of the second quarter, our cash and cash -- our cash and short-term investments totaled NOK 269 million, consisting of NOK 190 million in cash and close to NOK 80 million in short-term investments, which is, kind of, mutual funds and interest rate funds with a low risk. And of course, this puts us in a robust financial position and continues to give us the flexibility we need to execute on our strategy. For the first 6 months, cash has increased by NOK 2.5 million. And of course, this is also supported by a positive operating cash flow of NOK 8.1 million, but we have also continued to invest in the business with NOK 3.6 million in investing activities primarily related to machines and equipment, and we have some financing activities that of NOK 2 million that is related to lease payments here. So, to summarize the financial section here. Q2 demonstrates a strong revenue quality. We have improved our profitability, and we have a solid financial position. And the commercial investments we made through 2025 are now starting to show through the numbers, and we are well positioned to execute on our strategy. And with that, I will hand it over to Michael, who will take us through the last part of this presentation and the Q&A.

Thanks a lot, Borge and Paul. I'm going to give you an outlook and also as a summary before we, as mentioned, go to our questions and answers. Just want to recap again our ambition and our execution priorities. We are working to build a scalable, profitable growth platform. And we're seeing the first results that we are doing that successfully. Our ambition is sustainable double-digit growth, targeting outperformance of the markets that we serve. And that was clearly what we also delivered during the first half of the year. This is going to lead to profitability, margin expansion through the operating leverage that we have also seen during the first half year, stronger cash generation, and the financial flexibility to fund both organic and inorganic growth activities. The core priorities that we have, it is to continue to invest in scaling a high-performance commercial engine. We have seen that it's working. So, we're going to invest more in the commercial organization going forward, both in the form of headcount as well as the activity level in general. Innovation is, of course, also crucial. We are focusing a lot on the RNA space at the moment. And we're both doing it internally as well as partnering up with partners in regards to generating application data for our enzymes. We already had a great example in Paul's presentation in regards to how we are expanding our penetration in the Viral Vectors market through onboarding more CDMOs. That is going to continue in the coming quarters. Diversity -- not diversity, diversification in regards to finding new application areas for our existing enzymes is also a key focus. You were talking about the metagenomic space. And then, a key priority is, as we have also talked about in the start of this presentation, is to establish ourselves as a player within the RNA IVT workflow. There's a lot of potential within this space. I also just want to take one moment to reflect about the fact that as a listed company, you very often focus on the next quarter. So, it can become rather short term. So, I'm really pleased that I had the opportunity to attend a number of our business reviews with the business developers this week, where we have the opportunity also to look further into the future. And there, I saw one thing: I saw opportunities. We have a number of opportunities that are of significant magnitude, not just in the coming quarters, but, actually, in the coming years. Paul has already talked about a couple of them. And that really gives me a lot of confidence in our ability to grow this business significantly going forward. So, that was great to see. It is opportunities that can meaningfully create growth and transform the company in the coming years, not just within the Viral Vectors space, but, also, within the Molecular Tools space. One of the things that you do as CEO sometimes is that you make mistakes. And I believe that one of the mistakes that I have done is to underestimate what was left in terms of growth for our Molecular Tools portfolio. We have a lot of opportunity within that space. There's a lot more that can be done to generate growth. And we have excellent opportunities that can become significantly big, not just in regards to the cancer screening platform that Paul talked about, but also, a number of other great opportunities that we are currently working with. And that's important because that means that we have a more balanced view on the business, and the diversification is going to create a more resilient growth case going forward. The next slide, Borge, is a summary of the quarter. We delivered significantly -- significant growth both in the quarter and in the first half of '26. We also had a significant improvement in our profitability. And we also saw that the operating leverage that we have in our platform is starting to kick in, in regards to 19% growth against the 6% increase in our operating expense in the second quarter. And we have the strength to do the right things, both in terms of organic growth activities as well as inorganic growth activities. So, we have a profitable self-funded platform where the opportunities of growth compound as the customers scale. So, the business is, in summary, in a very good place now. And we are ready to execute on our strategy as we have done so far. And with that, I would like to thank you for your attention today and open up for the Q&A session.

All right. Thank you for that, Michael. I will try -- we have received quite a few questions online, and I will try and take to the majority of these questions here. We have one question. China CDMOs and biotechs are still in a great recovery phase. There's a lot of funding and financing available. Are there any successes for ArcticZymes in penetrating this market here?

Paul, you can answer that.

I can take that one, absolutely. So, yes, we -- at the beginning of this year, we put in a dedicated channel manager whose main focus is working in APAC. And that person has been incredibly successful working with our established distributors, one of which we have in China. He's running a sampling program with that distributor. China is, of course, a difficult market from a price, and a competitive, and patent perspective. But we are making some inroads there. I think possibly what's more interesting is some of the success that we're seeing in Japan, early-stage success. The Japanese market, kind of, respects the values that ArcticZymes delivers in terms of the quality and the reputation, the auditability, and things like this. So yes, I completely agree that China is a great market, although it is a difficult market. In the short term and medium term, we see more potential in Japan.

All right. You have highlighted that there was some timing effect on the sales in that Biomanufacturing orders fell out of the quarter. Can you elaborate a little bit about on the size of these orders?

Yes, certainly, I can take that one as well. So, it wasn't so much that orders fell out of this quarter -- sorry, quarter 2. It was more that we had a couple, and it really was a couple of large orders in Q2 2025. So, the year-over-year just -- it's very difficult to make that look positive when you have a business like ours. So, we know exactly why they didn't repeat. It's a simple phasing issue. And it was more that than something not happening in Q2, where, actually, we were delighted with the performance of Biomanufacturing across a lot of customers that are adopting.

Okay. Thank you for that. You have also highlighted that you onboarded a new European CDMO in the second quarter. It seems as if the inclusion is mainly related to one specific customer program. Do you see potential for this CDMO to also include SAN in the other customer programs similar to what OXB now is using SAN in general Biomanufacturing protocol? Or how do you see this one?

Yes. Again, sorry, I don't want to dominate, but I'll take that one. So, yes, absolutely. So, we've got a really nice relationship with the CDMO. And in vivo customers are particularly sensitive to quality. I mean, all cell and gene therapy is, of course, sensitive, but in vivo customers are particularly sensitive. And we believe that they will be adopting us into and suggesting us, and genuinely platforming us into more in vivo therapies as they go through clinical stages.