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

Good morning, everyone, and thank you for joining us today. My name is Jesper Söderqvist. I'm the CEO of Boule Diagnostics. I'm here together with our CFO, Jan Benjaminson. And today, we will present the business highlights and the results for the first quarter. I am very pleased that we can report that we have improved profitability, both at the gross profit level and also at the EBIT level. We had a soft start of the year, but we saw that sales and order picked up in March so that we could deliver an okay quarter. The price increases we implemented last year are helping with increasing the profitability, but we also get help from an improved supply chain situation where we see that the supplies of a particular electronic component is normalizing. And compared to previous years, we had significantly lower purchasing costs related to the electronic components. However, we live in a time with a lot of uncertainty. And therefore, we have started an efficiency and saving program to ensure that we can drive profitability and also deliver stable supplies. Last year, we started to collaborate with Fuji regarding sales of veterinary products in Southern Europe. The initial customer feedback has been very good. And also, the collaboration with Boule and Fuji has worked very well. Therefore, we have now extended the distribution of the veterinary products to 5 additional countries in Europe. I'm also very pleased that we can... [Audio Gap] versus last year. And it's also a consecutive improvement versus the fourth quarter of last year. EBIT increased by 1.1 percentage points. In this quarter, we have invested about SEK 15 million in development of our new product platform. The cash flow -- operating cash flow for the quarter was negative, and that is mainly related to that the account receivable increased as we shipped many products late in the quarter. We have now seen that many of those invoices have been paid during the month of April. If we now look at the -- how the revenue is distributed between the product lines, we can see that the instrument is flat. Despite that, we have shipped about 1,000 instruments, which is about 200 instruments less than last year. However, price increases and currency tailwind maintained the revenue level at the same level as last year. The growth is driven by consumable sales to our own installed base that grew by 15%. If you look at how sales has developed in the different markets, we see that the growth has really been in Africa and Middle East. In late 2020, we invested in establishing local presence in Middle East and Africa. And those activities are now paying off, and we see that we have more and more opportunities in Africa and the Middle East. And this growth, which was quite significant in the quarter, is despite that the biggest market for us in Africa, Egypt, had a slow quarter. The decline in Eastern Europe is due to the Russia situation, and we don't expect that, that situation will improve. So looking at how profitability has developed, as I said, the gross margin developed very well during the quarter, thanks to the price increases we implemented last year, but also the improved supply situation. And we also have done efficiency improvements in our production. As you can see, our operating expenses increased. That is mainly due to 2 reasons: one is that we have one-off items related to layoffs in the beginning of this quarter; but also that we have a currency effect as we have quite a few people employed in the U.S. In the end, our EBIT is SEK 12 million and an EBIT margin of 8.5%. If we zoom out and look at how sales has developed in the last few years, we can see here the instrument and consumable sales. The blue bars here are the number of instruments delivered quarter-by-quarter. And as you can see, we have fluctuations. We had some downturn in the second half of last year, but now we see that instrument sales are coming up again. Despite that we are comparing to one of our record quarters, Q1, we have maintained the revenue levels of the instruments. For reagents consumable revenue, we continue to see a steady growth. And this is really good, and I think it really showed the strength of the business model that Boule are using, where we place instruments in the market that is then used in consumables for the lifetime of the instruments. I would also like to draw your attention to that the -- how the OEM consumable sales has developed the last few years. We have actually doubled our revenue from OEM consumable sales. And we continue to see a solid sales growth from our OEM customers. The great increase the last few years is really driven by a new product launch by one of our partners. But we also see that we have a very nice pipeline of new opportunities with new OEM customers, that we can be a supplier to these other hematology providers is really a recognition of our capabilities when it comes to development of consumables as well as our manufacturing capabilities. So looking at the market, we see that there's an underlying growth for laboratory diagnostics in general and in hematology in particular, both for 3-part and 5-part instruments. The growth for 5-part is significantly higher than 3-part. But we -- despite that, we see a growth for the 3-part. We see that there is a growing demand and accelerating demand both for mature markets, but also from some of the emerging markets in Asia. Despite that we live in a world with a pretty chaotic geopolitical situation, we see that the supply chain and logistics continue to normalize, which is very positive as this will minimize our costs for the supplies. If you look at the different markets where we are active, we see that the U.S. market continues to develop well with continued growth of our OEM consumable sales. In Asia, India is the most important market for us, and they have a requirement for made-in-India products to participate in public tenders. Therefore, our initiative to establish local manufacturing of reagents in India is very important. That project we kicked off last year and is progressing as planned, and we target to deliver the first products to customers in the end of the third quarter. Western Europe now looks very promising, thanks to the addition of new products, but also that we have Fuji as a new distribution partner in Europe. We have had a fairly poor coverage of the European market. But with Fuji, we will get a strong partner that -- where we will penetrate the European market significantly better than we have done in the past. We see that the revenues from Eastern Europe will continue to decline as we see that there's no end of the Russian war in Ukraine in sight. And as I alluded to before, Middle East and Africa looks very promising. We have signed up several new partners, and we have good momentum in the sales and new opportunities lining up. So then let's look at our product offerings. The last few years, the veterinary sales have accounted for about 10% of the overall revenue. Our flagship product for the veterinary market is our 4-part hematology analyzer, Exigo H400. It's a compact device ideal for the smaller, midsized laboratory. It has several unique features with multiple sampling options. And particularly important is the micro-pipette adapter, which uses a very small sampling volume ideal for small pets. We also have a built-in mixer, which is space-saving, but also allows for a very consistent sampling preparation. We also have the chemistry analyzer, Exigo C200, which is a dry chemistry analyzer, maintenance-free, which, bundled with Exigo H400, is a very attractive offering. And now I am very pleased that we, in the second quarter, will also launch an entry-level 5-part hematology analyzer. Also in the veterinary market, there is a demand for 5-part analyzers, and that is particularly pronounced in the European market. This new analyzer has several unique features, and it will be launched in Europe in the second quarter. And we expect that this will contribute to our sales in the veterinary market in the second half of 2023. Of course, we are also continuing our development of our new platform, which will also include more advanced 5-party instruments. For this development, the focus is on the human market. This new advanced 5-part instrument that we're planning to launch in end of 2024 will be fully connected to an advanced data management cloud software for remote monitoring of performance. And later on, we will also add additional functionality. But this also has several unique technologies when it comes to digitizing the signal processing and also the 5-angle optic laser that will be used for the differential of the white blood cells as well as counting immature red blood cells, also referred to as retics. With this, we will have a product platform and the new advanced 5-part product for the human market. We will have a very strong offering in the 5-part market. The program is progressing as planned. We're working hard now to finalize the product for the clinical validation. And we target to launch the product in end of 2024, and we will see significant contribution from sales of these new products in 2025. So to summarize the first quarter, we are pleased to see that the profitability is improving. We have now lined up new opportunities with new distributors both in Middle East and Africa, but also improved coverage of the veterinary market in Europe. We're in the phase where we're preparing a launch of a new veterinary product that will contribute to our growth in 2023. We have an efficiency saving program that we started in the beginning of the quarter. That has already started to give positive results, and I expect that, that will further help improve our profitability in 2023. And of course, very importantly, we are continuing to make progress with the development of our new product platform. So thanks a lot for joining us here today. And with this, I conclude my presentation and open up for questions.

I see, Gonzalo, you have raised your hand. So please go ahead.

Jesper, one question on your instruments segment. You're saying that the demand for the 5-part instrument seems to be increasing in like more established markets, but also in Asia. So my question is, how is -- how will this affect your current instrument sales moving forward for the rest of '23 and also for '24, until you launch your new segment? Are you expecting sort of a decline in sales of instruments or you will aim to maintain these levels as they are now? So yes, I mean, how do you see this move forward until you launch?

So as you know, we don't give a detailed forecast of our revenue, but I could respond like this that we see an increase of the growth in the 3-part market, which is quite moderate. And I expect that our 3-part sales will remain roughly at the level we have right now. But as you know, our instrument sales are fluctuating from quarter-to-quarter. But I expect that the 3-part revenue will remain roughly at the same level as it has been over the last few years. And in addition, we have our 5-parts offerings, which will also generate revenue and also establish an installed base of 5-part instruments that we can later upgrade with our new instrument that we will launch.

Okay. Clear. And a second question, if I can, it's regarding your 5-part instruments, but for veterinary use, the one that you will launch next quarter. Can you give us some color on the market for this? And how can we -- how much can we expect this to impact the veterinary segment moving forward? I mean a little bit if you could expand on that market.

Yes. Again, I will not give a detailed revenue forecast. But it's clear that, in particular, in the more mature markets that there is a demand for 5-part instruments for veterinary clinics. And by that, we now are adding 5-part instruments to our already strong product portfolio, means that we have a full offering. And this will help us drive revenue both of these new 5-part instruments, but it will also generate sales of our existing portfolio. Thank you. I think Christian has raised his hand as well. Please, Christian?

I was wondering about the strong gross margin of 46%. Is this a level we can expect during 2023? And would it be possible to break down how much of the improvement that was related to improved efficiency, price adjustments and improved supply situation?