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

Good morning, everybody, and welcome to the First Quarter's Earnings Call for Boule Diagnostics. I'm Holger Lembrer, CFO for Boule since the last 3 months. With me, I have Torben Nielsen, our new CEO for Boule Diagnostics, that will present together with me the first quarter's earnings. After the presentation, we will open up for questions. But please also feel free to write questions in the chat field. With that, I'm leaving over to you, Torben.

Thank you, Holger, and good morning, everyone. I'm excited about this opportunity. I'm excited about being able to speak to you today. I joined Boule on April 16, and I bring with me more than 20 years of commercial experience in the med tech industry, where I have held leadership roles of increasing responsibility, complexity and geographic span. Most of my leadership experience I've gained within the Danaher Corporation, an organization that is very committed to building a culture of continuous improvement and operational excellence, and I intend to bring these values and skill set with me into my new role as CEO here at Boule Diagnostics. I would like to take this opportunity to thank the former CEO, Jesper Söderqvist, for all the work that he's done, bringing Boule to where it is today and for his active support in the transition process. Boule Diagnostics is a great company with a great team and a strong following. I believe there is significant opportunity to create value for all stakeholders. I understand the work we have ahead and I'm energized about this opportunity. I believe in this company, and I voted with my feet. Much more to come in the following quarters as I complete my immersion and form the direction of the company. Now let's take a look at the highlights for Q1. Despite challenging market conditions with uncertainties and geographical disturbance in some of our key markets, we had a good start to the year. Organic growth was 5.4%, and I'm pleased that we can report improved profitability growth at the gross profit level as well as for EBIT. We have extended our successful partnership with Fuji with 5 more European countries, and we are seeing positive results. The supply chain situation is stable, and we closely monitor the situation in the Middle East to mitigate any future risk. We continue to focus on improving our profitability and efficiency across all areas of our operations. If we take a little closer look at the financials, net revenue totaled SEK 147.8 million, up 3.3% with organic growth of 5.4%. Gross profit improved 3% to SEK 68.3 million. Gross margin was flat compared to last year at 46.2%, with lower margins and continued deliveries to our strategic customer in India. Operating expenses were in line with last year when including a onetime redundancy cost of SEK 3.7 million related to the CEO change. EBIT was SEK 15.4 million, an improvement of 27%. Operating margin improved by 2 percentage points to 10.5%. Cash flow from operating activities improved significantly to SEK 12 million and liquidity strengthened in the quarter. Looking at sales from a longer perspective, we continue to see sequential growth in sales with Q1 of 3.3% and reaching an all-time high revenue performance. Growth in Q1 was supported by a large onetime unit order to India with deliveries to be completed early Q2. From a regional perspective, Europe and Asia delivered strong growth. U.S. and Middle East were stable, while Africa and Latin America declined. In Africa, we are challenged with payment restrictions and weak currencies. And in Latin America, the demand for 3-part technology is declining in favor of 5-part technology. If we look at sales by product area, 2/3 of our revenue comes from consumables, including OEM and others, which is in line with our business model. Double-clicking on our instrument sales, Q1 performance was strong. We sold 1,377 units, supported by a large order from India and continued growth in our vet business in Europe. Consumables slightly declined quarter-over-quarter as India switched to a reagent license business model. On the OEM side, we saw a small decline in the first quarter of the year, primarily driven by some customers reducing their inventory level. In general, our OEM business is very stable. The sales funnel for new projects continue to grow and mature, creating significant growth opportunities going forward. Turning to our next generation 5-part hematology system for humans. We continue to making progress on the system. Based on our current time line, we expect that the instrument will be submitted for validation during the second half of 2024. FDA has requested a larger test sample than initially planned for, and we now expect an FDA approval and CE marking to be completed during the second half of 2025. With this time line, we expect the first sales from our new platform BM900, to be reported in the beginning of 2026. With that update, I hand it over to you, Holger to walk us through the financials.

Thank you, Torben. Starting then with the financial summary. We had a good organic sales growth for the quarter of 5.4%. The cost of goods sold increased in line with the sales, which made the gross margin to stay stable at 46.2%. Operating expenses remain in level with last year and other operating expenses improved due to less currency impact than last year. Altogether resulted in a strong increase of operating profit for the quarter. And if we're adjusting for a onetime redundancy costs for the previous year, operating margin was 12.9%. Net financial items increased slightly in the quarter year-over-year due to a bit higher interest rates than last year. Earnings per share increased with 25% to 25 -- compared to 20% over last year. The cash flow from operating activities improved up to SEK 12.5 million compared to minus 9% last year. If you're looking on the operating margin over a longer trend, we see that the operating margin continued to improve quarter-over-quarter for the last 8 consecutive quarters. Adjusted for the onetime cost for the CEO redundancy costs, operating margin was the highest for us since the pandemic period. If you look then on the operating profit in terms of value. We reported out SEK 15.4 million. Adjusted for the onetime cost, it was SEK 19.1 million, giving us a rolling 12 profit of SEK 42.5 million compared to SEK 30.7 million last year, which is an increase of 38%. If we're looking on the cost as a breakdown of percentage compared to sales, cost of goods remained at SEK 53.4 million. In the quarter, we continued to deliver on the large order to India, and this put pressure on the margin with about 1.9 percentage points. So the margin that was kept flat and the dilution was offset by increased efficiency gains in the production as well as high capacity utilizations in the quarter. The selling expenses was up mainly due to salary increases and FX conversion from U.S. dollars to SEK. Administrative expenses was up due to the redundancy costs for the previous CEO. R&D expenses was down in percentage of sales, whereas our quality expenses decreased with 42% in the quarter. Most of R&D work is currently done on the BM 900 project, and those costs are capitalized. In operational expenses, if we adjust for the onetime cost, our operational expenses was decreasing with 7% compared to last year's first quarter. Our operating income and expenses supported the margin of 0.9% due to less headwind from FX. Moving over to cash flow. The cash flow developed in the quarter. We increased the inventory of SEK 3.9 million, and that is mainly due to some buildup from a low level last year to be able to deliver on the large order for India. We also had an increase in operating receivables mainly related to accounts receivables, which is the backside of having growth of sales. The adjustments of noncash items mainly relates to depreciation and currency impact. Altogether, we reached the cash flow from operating activities of SEK 12.5 million compared to minus SEK 9 million last year. It's a good improvement, but we still have more work to do and continue to work on our working capital levels. If you're looking on the chart to the right, we see a continuous trend here of positive development from the cash flow. It's a result of both improved profitability, but also work -- good work that has been done on the working capital side. Moving over to liquidity. We ended the quarter with a solid cash position of SEK 41 million. If including the additional untapped credit facilities, available liquidity was SEK 100 million by end of the quarter, and the net cash to EBIT was 0.2%. With this liquidity situation, we confirm that we have a financing required for completing our ongoing development of a platform BM 900. With that, I'm leaving back to you, Torben for final conclusions.

Yes. Thanks, Holger. So concluding on the first quarter, I think it's fair to say that Q1 2024 marked a good beginning to the year. Our priorities are clear. We need to bring the BM 950 to the market. We need to continue to grow our web business. We need to invest in future OEM growth, and we need to continue to optimize working capital and efficiency in production. That concluded our formal presentation, and we will now open up for questions.

We have one question coming in from Sten.

Great. Sten Gustafsson from ABG.

Sten, can you hear us?

Yes. I can hear you. Can you hear me?

Now we can hear you, Sten. Go ahead.

Okay. Great. So a few questions. First of all, with regards to the order to India, how much of the shipments in this quarter was related to that order? And how much is left to be delivered? I think you had a bit of shipments also in Q4 last year. That would be my first question.

So thank you for your questions, Sten. If you're taking a large order to India, we delivered the majority of it in the first quarter this year. We had, let's say, 20-ish percent in Q4 and 20% probably remaining to be delivered in the second quarter. And then about 60% was delivered in the first quarter.