Boule Diagnostics AB (publ) (BOUL) Earnings Call Transcript & Summary

[Audio Gap] the rollout of vaccine. And as you have read in the press that U.S. have to come farthest and that's also where we see the strongest performance in the quarter. And we actually see reaching the same level as we did in the first quarter of 2020 there. Instrument order intake is good and sales are up quarter-on-quarter since the second quarter of last year, and that's a global trend and Asia is still very slow due to the outbreak of COVID, which is where the pandemic is still prevailing. So overall, positive signals from the market, positive that we see increasing sales and we also see a strong order intake and currently, we actually have a demand that exceeds our supply and we see some. We have struggled a bit with managing the incoming material and component supplies during the first quarter and that's kind of still prevailing in the second quarter. In the last quarter, we talked about the -- our important strategic initiatives to establish local production in Russia. That was due to start right now but has been delayed due to that -- one of our suppliers were forced to take on some deliveries to the Russian government for COVID-related equipment, but that project is now on the -- had a good traction and we expect to start local production in summer. In the first quarter, we have also established a number of new suppliers in the EMEA, particularly, the Middle East and Africa, which is the region where we want to grow going forward and we have signed no less than 6 distribution agreements that we're now starting out. Another important work, which is mainly internal has been our preparations for IVDR, which is the new regulatory framework that we need to adhere to starting in May 2022 and that work is going according to plan and that's very nice to see. And then, a big investment in our new product platform has progressed also very well and we have passed the milestones and keeping the pace and the product as we expect and we want to see. So that's very positive. And also in the quarter, we launched a new website and part of that is also a partner portal, where we can give service to our many distributors. And then part of that, we have also updated the Boule graphical profile, and we have also started trainings in the Boule Academy setup, where we train both distributors and also later, we will also train end users. So lots of very good traction there and very pleased with the progress. So what does the numbers show then? Well, it's -- we're still in the pandemic and we're not back to the levels where we were in 2019. If you look, we are now seeing growth on -- compared to the last quarter last year, we were up 12%. So we see there this recovery. In constant currency, we're still 6% below our sales last year and our net sales is -- was SEK100 million in this first quarter. Gross margin is down by 2.2 percentage points to year -- a year ago and that's explained by the low capacity utilization in our production plants. OpEx is down SEK3 million versus last year and most of that savings is related to marketing and sales. We also generated a positive operating cash flow of SEK12.6 million in quarter, and that money was used to invest in our new platform and the investment there is -- will start a SEK1 million in the first quarter, slightly up from the last quarter last year and this is according to plan, where we'll now intensify work on the industrialization and start going into the preparing production and setup for this new products. The result is an EBIT margin of 6.8% and this is below our ambitions and below our capabilities, but we are very hopeful now when the market normalizes, that we will continue to improve our profitability. So if you look at how the revenue developed, we have seen the recovery instrument sales and the biggest loss in revenue versus last year is still in the consumables. And there are many of our markets, in particular, in markets in Asia, where we have a large installed base. There are still significant restrictions. So that's really where we see the lowest -- the lower sales, and where we do not yet have recovered from the pandemic. And as you can see that basically across all regions, with exception of the United States, we were still having sales, which is high last year, but if you look in constant currency, U.S. is actually up by 6% versus last year. So clearly, there are very positive signals from that market. So let's then see what is the EBIT that we generate and what's to explain it what has happened. So the biggest impact on the EBIT is really the lower sales and so the volume effect is baking. The other is that the gross margin that before I mentioned, where we have a lower utilization of our -- in manufacturing capacity, but also we have a product mix -- is not -- which is unfavorable where we have more instruments, which is lower margin than our consumables, which really generates to high margin. But we also have a cost saving that improves our profitability slightly in the quarter. So through this pandemic and then during all of last year, we have kept an eye on our cash flow and we have managed to have resources, both manpower, but also been able to finance our important growth initiatives and we have continued to do so during the first quarter. And we had an operating cash flow, which is okay, I would say, in the first quarter and we have used that to invest in this new growth initiatives, where the investment in the new platform is the biggest. So if you look at available liquidity, we are at the end of the quarter at the same level as we were when we entered in the quarter. So our financial position is present. So what can we then expect going forward? Well, we see just a ground cell market recovery, so we see a positive momentum in most markets outside Asia. And as you have read, probably in the past, I mean, this is very much related to how the rollout of vaccine is done in the various markets. And however, there are continued uncertainty going forward and due to the virus spreads mainly in Asia. We hope that things will be -- the markets will recover there also, but it will probably take also the second quarter. And as I mentioned a quarter ago, I mean, transport and logistics has been very challenging throughout 2020 and has continued to be so now in the initial part of the first quarter. And we have also experienced like many other industries that there are shortages for the component or price. So we are -- we have been very busy in managing our supply chain, making sure that we can -- have all the material needed. But as I said, currently our sales is really limited by our production capacity and the production capacity is limited by material supply, but overall, I think we have things under good control and we've continued order intake and the strong order book as we enter this second quarter, and it is very, very promising. And we also expect that the restrictions are loosened in the major markets, but also the consumables things will come back. So what are we focusing on now going forward? And the priorities remain from a quarter ago. We are working intensely with our digital marketing and it has our support to our distributors and I think being there in the omnichannels, making sure that we are visible, available through digital media is extremely important as we now want to help our distributors get back in business. And of course, we will work with this new distributors, make sure that they get the good start. A key priority is to make sure that the local production in Russia now starts and we have all -- are also ramping up the production of the new OEM reagents that we have talked about, that we have a new OEM supply agreement, long-term supply agreement, where delivery is now starting and ramping up in the second quarter. And then, of course, a lot of our focus is going into our development of our new product in product platform, and that's the work that we'll continue to put for the -- in the coming year, but we are very, very excited about the progress that we're doing in this project and what that will bring to Boule in the future. So with that, I think, I will end here today and open up for question. And I thank you very much for your attention.

Jesper, can you hear me? Victor here from ABG.

Victor, it looks like you are...

I'm ready to go at least. Can you hear me?

Yes, we can hear you now.

Okay. That's great, thanks a lot for taking the questions. Perhaps, I missed it by the beginning of this call, but I'll ask it anyway, just on the order intake side, it looks to have been quite good at least in Q1 and in this case that is a quite decent start to Q2 as well. Just if I understood it correctly, that it's not only that you managed to deliver a good part of that order intake in Q1, but it's also that the order book looks quite good for Q2, is that how we should read it?

That's correct. We have seen -- we are basically entering the second quarter with an order book, which is bigger than it usually is at the beginning of the quarter, so that's positive.

Okay, that's good to hear. And then, just on the supply chain constraints, given that you should have had some headwinds at least in this quarter as well from transportation and so forth. Is it fair to assume that from these, let's say, 900 or so systems that the risk is rather that you will not be able to deliver those numbers or is that sort of a fair baseline to assume if everything remains the same as it is at the moment for this Q2, very short term?

Very short term, I mean, I think there is always slight risk, but I think we have things under control. But I think what I think wanted to mention is that there are extra resources and we know that we see the transportation cost is going up, so we are adding some additional cost that we wouldn't maybe have in a normal market situation. It's more of the effort that is needed to deliver, then we're actually delivering.

And on the component side then, just curious, if your current sort of inventory allows for deliveries, similar to what we saw in Q1 or if that's going to be pushed forward?

I mean, absolutely, we can manage the level that we were at Q1 and even beyond that. But I think, we see that there are some uncertainties and there is really a quite a lot of efforts. And I mean, this is -- I mean, you can read about it, it's basic for every company and we experienced that as well. I mean it's -- some additional efforts to manage.

Sure. And just finally, I think, I saw that you actually grew sales in Latin America, which perhaps is a bit surprising given the circumstances. Could you just shed some light on that before announcing the Q1 result?

We received some bigger orders that have been delivered in the quarter. So I think it's related to a few important contracts.

And otherwise in that region, would you say it's more similar to what you experienced now in Asia or how would you describe the -- that...

I would say that at least in the markets we are, it is not as bad as in Asia, but clearly, I think they have a -- they are still in the middle of the pandemic, I would say. Christian?

Yes. I think Victor covered lot of -- many of my questions already, but since you have the challenges with reduced supply of materials, are you considering some kind of expansion of your sourcing to meet the demand?

I think, we -- really were clearly -- I mean, we work a lot with sourcing to get material. And expanding, I mean, I think it's -- no, not really, I mean, I don't think we are. We are working on and we have our RM suppliers and I think we have a good collaboration and it's just a little bit challenging and there is also some uncertainty, given the logistics and getting some time, et cetera. So it's just a difficult period, but I think we have a good collaboration with our suppliers and I think we have attention to what the bottlenecks that we see.

Okay. You had very good order intake in beginning of the year, could you please give some color on -- in which markets do you see the strongest demand?

I can't. I mean I think the U.S. domestic market that took out in this quarter, and then I think, is basically across the whole market, except Asia. And then, clearly, India is a big market for us, which is now very much impacted by the pandemic. So there the order intake is lower than normal. So -- from -- U.S. takes sales and then the other markets front.

And given that the norm so strong from the U.S. and destination program has progressed very well in the U.S., do you see the demand for the consumables and coming back in the U.S. as well and the short term?

Yes. If you're asking, straightforward answer, yes.

Yes, okay. It was loud and clear. And my final question is regarding the new distributors in EMEA, considering that you have already around 200 distributors worldwide, how many are based in EMEA and what market will the new distributors cover?

I think I need to ask, if you see that, you can tell us, the number of distributors in EMEA. But I can tell you, the areas that we're looking for growth now is in the Middle East, where we don't have such a strong presence and also, Africa will be a future growth market and we think it's important to establish ourselves there. So we have some couple of distributors in Sub-Saharan Africa that we are now opening up. And this is not so important maybe short term, but we think that long term, that this is the region where we want to be a strong player. Do we have anyone else? No more questions? Then, I would say, thank you very much for attending today and you're always welcome to reach out to myself and Christina Rubenhag if you have any additional questions. So thank you very much and have a nice evening. Take care, bye-bye.