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

Okay. Let's start. Good morning, and thank you for joining this call. I'm Jesper Sarkis, I'm the CEO of Boule. I'm currently in Dubai, where Boule is participating in Medlab Middle East, which is a significant exhibition in the field of laboratory medicine, attracting some 30,000 participants. And today, I will be presenting our year-end results and also give you a business and organization update. Back at our headquarter in Stockholm, we have our departing CFO, Jan Benjaminson, ready to support and help out with any questions that you may have after the presentation. Please be aware that this presentation is being recorded. And if you don't want to be on video with your comments or questions, please let us know after the call, and we will delete those parts. You have the opportunity to place questions in the team chat during the presentation. And then after my presentation, we will open up for questions. So thank you again for being here, and let's get started. So in Q4, Boule achieved several significant highlights. And I'm particularly pleased that we can report a good organic sales growth of 4.3%. And this growth has been driven mainly by our vet sales across Europe and also instrument sales in Asia. And this is related to a larger order of 1,200 instruments to India, where about 1/3 was delivered in the third quarter -- in the fourth quarter. We report a strong operating cash flow, and this is thanks to our increased focus on operational efficiency. And I'm really pleased to see that those activities are really paying off. Also in December, we delivered our first product from our partner's new reagent factory in India. And this really marks the start of our new business model, where instead of product sales, we will have license revenues from India. This will decrease our top line growth, but it will increase our gross margins going forward. And also local production in India will enable our partners to participate in public tenders, which is a requirement from the Indian government to financing these public tenders, that you have local production and make in India products. At Medlab, this week, we are particularly excited since we showcase several new products, and we show our new veterinary instrument [indiscernible] that we released last summer. But we also show our new five-part solutions, the Medonic N55 and [indiscernible] Pro, which is based on our new cutting-edge technology platform. So really happy to be here, and myself and a few of my colleagues will report a little bit where we are on our platform projects and our new products that are coming out. But let's start with the financials. So we report a growth negative 1%. However, that is actually equivalent to an organic growth of 4.3%. Gross margin decreased slightly with 0.2 percentage points. Despite that we have this larger order to India, which is strategically priced, which we reduced our gross profit in the period. This strategic price order will, however, increase our installed base in India and will secure future consumables revenues with higher margin. Our EBIT increased by 0.4 percentage points. However, adjusted for one-offs, which is related to write-offs of fixed assets, the EBIT that we report would have been SEK 15 million instead of the SEK 7 million that we show in our EBIT margin. We continue to work on our working capital, and we can report a strong operating cash flow of SEK 29 million in the period. Our investments in our new technology platform was SEK 21 million during the fourth quarter. And this is really showing the commitment we have to bring out these new products, but also move Boule to the forefront of innovation in the coming years. So if you look at the sales bridge, we reported sales of SEK 148 million. We actually had the best quarter in 2023 in the last quarter. However, we had an exceptionally strong quarter in 2022. So it is a reasonable sales also in U.S. despite that it shows some negative growth here. The growth in Asia was mainly driven by this larger instrument order to India. And then we continue to see a decline in Eastern Europe due to the war in Ukraine. And then as I said initially, in Europe, we had a strong sales of our new veterinary solutions. If we look at our profitability, despite some of the challenges we have in the market and also the strategic price orders, we had a fairly good gross profit and gross margins remain at the same level as last year. And that is really thanks to the improvements we have done in production, particularly instrument production. If you look at OpEx, it increased in the period, but this is mainly due to the onetime costs where we did write-off of fixed assets, both in marketing, but also in R&D related to older assets that we will not use going forward as we renew our product portfolio. And as I said, reported for this onetime cost, our EBIT margin would have been 10% instead of the 7% that we report in the period. So to get a better view of the business, I really like this rolling 12-month graph. And as you can see here that we had a good instrument sales in the quarter. And you see that the instruments in the rolling 12 months is increasing. We sold slightly more than 1,100 instruments. A large portion of it is thanks to this large order in India, but also the number of veterinary instruments increased in Europe. And the increase of veterinary sales is both related to this new product, the [indiscernible], which is the 5-part instruments, but also when we bundle that offer with our legacy instrument, the 4-part Exigo H400, it has turned out to be a very strong offering, and we have seen growth both for the 5-part and the 4-part instruments during the later part of 2023. You can see that our reagent revenue is leveling out. And I think that is related to both that we see some lower testing in our installed base of 3-parts, but also that we now in December, started our new business model where we start to -- instead of getting revenue from product sales, yet a smaller revenue from the license business model, but which comes then instead with a higher margin. If you look at Asia, overall, we actually had increase of consumable sales in Southeast Asia out if you look outside India. If we look at our OEM business, which has shown a significant growth in the last few years, we had our best quarter actually in the fourth quarter during -- for last year. But if you compare it to the fourth quarter of 2022, we had exceptional sales. So in this quarter, the reported sales is actually down 19%. But I would say that the business continues to develop very well. And I'm also very excited to see that we have put more and more emphasis on our OEM consumable business and putting both marketing sales and development efforts. And that has really resulted in that we have a number of new projects in our pipeline, and it's been filling up the last year, which will create significant growth opportunities going forward. So I look very positively on our advancements in the [Audio Gap] and what we can achieve in -- for that business going forward. So if we zoom out a little bit and look at the market, what is it looking like? So in U.S., our focus is really on the OEM business until we have FDA approval and released our new instruments in the U.S. market. So the OEM business has developed well, and I'm expecting that it will continue to do develop well over the coming years. And also we have some significant opportunities longer term that can contribute to our growth in the U.S. In Asia, we see a really intense competition, mainly from Chinese manufacturers. And several markets and the biggest market being India, really favor local manufacturing. And we have now taken steps to both produce reagents locally, but also started a project to transfer production of our older 3-part instruments to India so that we can have a stronger position in India when it comes to making India products. In Western Europe, I think you've seen that for many companies, but it's really a difficult investment climate and the market has been volatile. What we see is that the opportunities in that seems to be quite solid. And we look favorably how our veterinary business will develop going forward. Eastern Europe, it's very tragic, but there's really no end to Russia going in Ukraine, and I expect to see further declines of our business in Eastern Europe. In LatAm, we haven't seen strong growth lately, and it's really related to that large part of this market is doing -- volume testing is really down on the 5-part instruments. So this will create good opportunities when we come with our updated portfolio, but our 3-part sales is fairly moderate in LatAm currently. However, we have identified growth opportunities in the veterinary market, and we are considering to release our new product also for sales in LatAm in the coming year. Middle East and Africa, and being here in Dubai, I can really see it's a very dynamic region, and we have created an increased footprint. We have several new distributors coming on board. However, there are difficulties with payment restrictions from several markets and weak currencies, which really limit sales short term at least. So overall, I mean, we are operating in a very volatile market with uncertain economic and geopolitical development. And of course, the latest development will increase costs for supply chain and logistics if there's no kind of short-term solution to the war in the Middle East. But I would say, despite this market volatility, we continue to in our best -- we continue to invest in [indiscernible] portfolio. And also in the market, there are continued investment in health care overall. And this will continue in the emerging markets as expected, which will create also sales -- increased sales of diagnostics where we -- that we will benefit from. So as I said, we are in Dubai this week and we are showcasing our new products for the first time to customers. So we have recorded a little video yesterday, which was the first day of the show. So I thought I would share this video with you, and you can listen to a few of my colleagues here, what they experienced in Dubai. [Presentation]

Hi, I'm Jeanette Nikus and I'm product manager at Boule Diagnostics. I'm here at Medlab Middle East in Dubai's annual conference. So this year, I'm happy to announce that I brought with me a couple of new members of the Boule hematology family. We're introducing the 950-series. And this is Medonic N55 and on the other side, [indiscernible] Pro. So different product lines of the same platform. So opening today.

Hello, my name is Admir Gusic. I am sales director for Europe [indiscernible] Africa. [indiscernible] Dubai, to present our new 5-part. Of course, the rest of the products that we have. I am very happy to tell you that we have a lot of meetings that we book [indiscernible] Africa and the Middle East, because they have a very big interest about our products. Of course, the [indiscernible], 5-part and [indiscernible] 3-part. I can get more from Basim who lives here in Dubai and take part of Middle East.

Good morning. We are here in the Medlab in Dubai, the most important exhibition for the medical equipment and laboratory equipment in the region. We are proud to meet our family partners from Boule, that they are excited to grow our business in the region. I wish everybody a successful show. Thank you.

So hello, everyone. My name is George Wanyoike, the area manager for Africa, for Boule Medical. We are so excited to see you here today and to also invite you for the Arab Health Medlab. We are excited to present our 5-part analyzer that we have been waiting to launch to the world. Very excited for that. We are really having a lot of people who are interested in that from us. And to also be part of our distribution network. Please welcome and enjoy the show. So with these new systems, as with all our Boule hematology analyzers, we are targeting the decentralized testing market. So it's been -- we're expected from our partners and customers with the robustness that Boule hematology analyzers bring. So as with our 3-part analyzers these new systems contain the Boule fluidic system, making the analyzers really robust that allows installations in remote areas. But at the same time, we bring measurement quality at par with the central laboratory, which is so important for doctors and patients to have accurate results, [indiscernible] for decision making.

Sorry, I was on mute. Thank you pointing that out. So it feels really good to be here in Dubai and that we started the launch of these new products. And as Jeanette alluded to, I mean, we show that we have a robust and accurate instrument performance, and we compare that to central laboratory equipment, and we can show the same accurate results. So this is really exciting, and I'm very happy too that we got to this point now. We're in the final preparations of our performance evaluation, where we will do clinical trials at several sites in the U.S. We're in discussions with FDA regarding the details of the clinical studies. And we have some things we need to iron out before we can complete the protocols. So we'll see how that ends. What we know is that the requirements for the CE mark according to IVR, we have a good grip on. And we are continuing to be committed to submit the regulatory submissions for both CE and FDA for year-end. However, it could be that we will submit for CE a couple of months earlier because we may need to extend the studies in the U.S. to have FDA approval for our solution for the micropipette adapter, which is a unique feature that we have with our instruments. However, our plans to start sales during the first half of 2025 remains. And yes, so everything is moving ahead. And very, very happy that we have reached this point now. Also, I would like to make another announcement, and that is that we have [indiscernible] our executive team. As we already announced, Jan Benjaminson is handing over the responsibility as CFO for Boule to Holger tomorrow. Holger comes with a solid career in various finance positions, working at ASSA ABLOY during a very long period. So he has a lot of experience working in the manufacturing company, similar to the Boule operations. So I'm very happy to have Holger on board. We have also hired Simonetta Tumbiolo. Born and raised in Italy, she has a PhD in biomedical chemistry and has worked in various marketing roles, and it's really a great addition to the team as we will increase our marketing efforts going forward when we launch our new products. So great additions to our team and really happy to welcome them. So in summary, we are operating in a very volatile market, and I think as an organization, we're becoming better and better to manage the various challenges that we have seen in the last few years and also profitability going forward. I would like to point out that we are continuing to increase our installed base. And thanks to the business model we have [Audio Gap] where we place instruments and then have recurring revenue during the lifetime of the instruments. I think this makes a very robust business model that we will continue to leverage going forward. Of course, building a larger installed base will be significantly faster once we release our new 5-part instruments because this is really where the market is growing. And I think with this instrument, we will have a very strong position in the decentralized market for human diagnostics. And then with the updates we have done on the veterinary portfolio last year, I expect to see growth coming this coming year. And then, of course, the OEM has grown very well in the past few years, and we will continue to invest to grow this business going forward. And then short term, in 2024, we have a lot of activities focusing on optimizing our working capital and really drive efficiency in the production. And that is how we will improve our profitability short term going forward. So with that, I would thank you for your attention and open up for questions.

I can see that Sten here has raised his hand. So Sten, please.

Sorry. Can you hear me now?

We can hear you.

First of all, regarding the CapEx, when do you expect to see that coming down? I think you previously said it kind of peaked in Q3. Now it looks like it has been relatively stable into Q4. Is it fair to assume that it will come down in Q1 and Q2 of '24?

No, I think it will remain roughly at this level. The significant decline will come after we release the instrument and start production. So the major step down in investments will really come in during 2025 or starting in 2025.

Okay. And then regarding India, you said in the report that the order to India had a negative impact on the gross margin of 4.4%. And now you said that you shipped roughly 1/3 of that order. So is it fair to assume that the gross margin all else be equal will be held back in the first half then for '24? For the same reason.

I would say, of course, the major impact will come in -- on the gross margin will be held back during the first quarter and then improve going into the second quarter.

And then when it comes to the U.S. filing for the new system, if you can give me -- just remind me about the time line from you -- from the time you filed until approval. How long is that process for these kind of instruments?

Well, the normal time from FDA is 120 days, but we all know that this is not happening. So very often at least. And the review time lines has really varied, particularly the last few years related to the pandemic. But I would say I cannot really judge that. I mean it seems that -- if you talk to people, a reasonable estimate at least is around 6 months for the 510(k). Sometimes it goes faster and sometimes it got slower and it's really out of our control. I think the good thing is that we have had pre-sub meetings. We have a good dialogue with FDA where we're really discussing the study protocols in detail, which -- so I don't think we will expect any new surprises once we file the 510(k).

And when do you expect to know for sure if you need to do that extra study, before filing?

Well, I would say, we will know by the end of the first quarter, if we need to extend the study period. But it basically means that we probably need to prolong the study time for FDA. And if that is the case, we'll file for CE market before 510(k). And then -- just to say, just to be clear on that, for most of the markets -- clearly, in Europe, we need a CE Mark; in U.S., you need the 510(k). But the markets around the world, they can live with either/or. So [indiscernible] is good because we have two options, right? And it seems like now that the review times for the CE mark with the notify body are coming down as well.

Yes. My final question is regarding 2024, and I know you don't like to give us a guidance. So without giving a guidance, would you still expect sales growth to improve year-over-year compared to 2023, despite all the turbulence in the world and what have you?

I prefer not to answer that question. I mean, I think you answered it yourself, when you say that the world is turbulent. We operate in a very volatile market. There are so many things that it's really outside our control. If everything is -- if we don't have too many surprises -- I think we have a solid plan going forward, but where it will end, I don't know. I cannot see -- so please let me know if there are some questions. Was there any questions on...

This is Christian from Pareto, if I may.

Please, Christian.

Okay. Great. This -- the first question is a follow-up on your CapEx in the product platform. You wrote in the report that you expect the investments to be at the level of 2023. So is that around SEK 70 million to SEK 75 million for the full year, 2024?

I don't give such detailed estimates going forward. But I mean, it's roughly at the same level. And then we look at the overall -- also, you have to be clear. We look at the overall investment, which is not only in R&D, but it's also related to production equipment, et cetera, going forward.

Okay. Are expenses for clinical trials included in this number?

Yes.

Okay. Great. And your organic sales growth of 4.3% in Q4, would it be possible to break down how much of it was due to price adjustments versus volume growth?

I prefer not to answer that question. I mean, I think we report what we report, and those are the details that we will give out.

Alright. And if you're looking on the underlying EBIT margin, does it for write-downs coming in at 10%. How should we think about the EBIT margin in 2024? Do you expect to maintain at this level or...

So I mean we don't give any detailed forecast going forward. So -- but as you can see, if you look at over the last year, we have done improvements in our earnings quarter-by-quarter. There are ups and downs related to some of the significant events, which are sometimes very often outside of our control. What I can say is that we have -- I think the organization is performing better and better and that we are seeing significant improvements in our operations and particularly in the instrument manufacturing, which I think will help us drive profitability in 2024.

Okay. Excellent. Thank you very much.

Any more questions? Then thank you very much for your attention and for participating in this call. I wish you all a nice day, and see you soon again. Take care. Bye-bye.