Vitrolife AB (publ) (VITR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by and welcome to Vitro interim report January - September 2021. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Thomas Axelsson. Please go ahead, sir.

Thank you very much, and welcome to Vitrolife interim report January - September 2021. The presenter today is Mikael Engblom, CFO of the company and myself, Thomas Axelsson. Please then go to Page #2, and I will do a quick summary about the quarter. It is a very good quarter with successful activities and in numbers, it is sales of SEK 406 million that is growth of 27%. The increase in local currency is 30%. If we are then looking upon the complete organization, then with the operation and EBITDA, we had corresponding to a margin of 40%, adjusted to 42%. So overall, a good quarter from a financial and operational side. Strategically, also from operations side, a very good period, where we have agreed to acquire 100% of the Igenomix business. And at the end of the period, it's also important to then mention together with the Igenomix acquisition that EGM has approved a non-cash issue of SEK 6.4 billion. And also that a new CFO will be appointed from the 1st of January, his name is Patrik Tolf. Please go to Page #3, and I will try to give you a better feeling for the IVF market overall and, of course, also about how we have done in this market. First, I would like to say that it is a good growth, it is 30% in local currency. But to be humble, the growth this year is positively impacted by the fact that the third quarter previous year was negatively impacted by the pandemic. So by saying that, I would try to do coordinated, let's say, explanation about the business itself and also about the cycle numbers and where we are on that. So let's start on our region segment and region, Japan Pacific. Good growth 17% and it was SEK 54 million. I don't think that it's been anything specifically within that territory this year. If we compare it then with -- as we do here within last year's quarter, it is 17%. If we are then going into Asia, it was sales of SEK 93 million, a good growth of 26%. Then in EMEA, it is a growth of 35%, and it is actually in real numbers, SEK 181 million. And then finally, Americas, a growth of 33%, and it was SEK 78 million. Okay. The organization then during this year has been working under a condition, where they've not been able to go to exhibitions, they've not been able to travel normally, and we've not been able to do installations and those in a normal way. We have not done some of the forward-looking activities, but I would like to say that seeing it working works extremely well. The market contribution with this growth is quite good. We can see into the market contribution then per segment that, for instance, the large territory, largest territory in EMEA, has reached a market contribution of around 50%. Okay. Let's put this into the perspective on the market and what should we compare with? Should we compare with '20? Yes, to some extent and that's what we are doing in this report, because the market was picking back in Q3 last year. So Japan Pacific was the region back then that was least impacted and if I compare then with 2019, the growth in Japan Pacific is around 10%, 11%. And that is definitely in line with the market. I don't have any clear market growth numbers, but we feel confident that we are doing very well in that region. Then coming into the region about Asia. Asia is the biggest market for us with China, not the biggest market, but the individual geographical region is China. Last year, it was impacted, of course, by COVID. It was impacted a lot by COVID in India and in Thailand and those markets. Some of those markets are large from IVF tourist point of view. For instance, the Chinese is going to those territories. So that we are having a growth of 26% is, of course, great, but however, we are, I think, well informed that the region has not bounced back to a normal situation. And it is mainly those markets that I mentioned, Southeast Asia, partly India that are behind in cycle numbers compared with 2019. Then EMEA, very good growth. We are growing with 35% in comparison with 2019, we are growing extremely well. What we see within the EMEA is good growth within the consumables and also within the time-lapse business. So the changes within the market in that territory with some consolidation and also that IVF clinic change are then consolidating the, consolidating the market and we are able to have discussions with them. It has been quite successful for us. So the growth is very good, 35%. Americas, U.S. are definitely back. It is a growth of 33%. It is a situation, when we are talking to the customers in the U.S. that it is big pressure on the clinics from the patients, which is good. And it is a capacity situation. For instance, we have heard that there are some shortest of train staff. And let's say, the outcome of that is that some clinics are starting to consider how they will do with the standardization and also how they will do with the workflow. Those 2 things, the workflow and standardization can be very good combined with our product offering and also with our technology side with time-lapse. So the growth of 33%, if I compare that with numbers of Q3 '19, a normal year, we have been growing with 22%. So what am I trying to say? Trying to say that the market is back. There are some territories like the U.S. and some EMEA markets that are doing more cycles than before the pandemic. And then there are still some markets that are trying to get back into normal things. The projections going forward regarding COVID is something that we can't do, but we see that clinics are trying to keep open. And we also see that public clinics, hospitals that are doing fertility treatment, they are also -- have a big, big intention to continue the IVF treatment. So going through then the sales and going into the different divisions, it's a similar thing here. What I would like to say about the operations is, I'm very pleased about the planning. It's difficult to plan in a situation like this. So our supply and planning for keeping up with a high, very high service level has been successful. Our cost this period for, for instance, keeping a high service level with a difficult planning, if that would be the case, and we would not be successful, then we will have a scrap. It is a period of very little scrap. The only thing that really is a challenge is the fright situation. It is, of course, impacting the profitability, but it's also another risk, and that is that some of our product, they do need cold chain. And if there is a delay in that side, the products cannot then be delivered to the end users. So consumables, we have had growth in every product area. Technology, great growth. And I would like to say that the growth is 81%, but also we should take into consideration the technology can go up and down depending upon our ability to do installations, and those are then need to be in line with how the clinics are maybe shutting down or doing some repairs, so we can go in and do installation. So really, really good quarter for the technology. If we compare then also with genomics, a good growth in that area and when it is genomics and the biggest market areas for us U.S. and then, of course, we have the EMEA market. That's more following the clinics that are on the front side, on this side and are doing PGT-A. So seeing this information regarding the market itself, sales, seeing about the different divisions, our thoughts are and expectations are that the market has come back, and it is going to continue in that route, at least what we can see going forward. Then strategically, we have talked about that we are driving towards a situation of serving the clinics better. We are talking about how can we do that together with the consolidation together with the clinic owners together with also the ones that are running the daily life. So in that situation, we have got through our business normally through our business also by selling PGT-A kits, a situation where we can see that customers are also asking for services within the genetics. So during this period, we have come to an agreement to acquire 100% of Igenomix. As I said, the reason is to better serve clinics, professionals, and patients and by joining these 2 strong platforms, we are aiming for what we will do to create a leader in reproductive health technology. The situation also that business that is changing due to technology and also due to many other things like reimbursement and other things, it is important to keep up with R&D and product development. And we see a good, good integration opportunity with increasing and a better outcome from the research within Vitrolife in combination with the great research from Igenomix. Scalability towards customers and have one view of the customers is the key integration thing for us. And that was also the reason why we made an agreement to acquire Igenomix. It is around one view of the customers. To look into the situation that we have had as an overall goal and that is reduced the time to pregnancy and have a healthy outcome of this kind of treatment. Similar situation and what has been the culture and values within Igenomix. That's the reason why I believe that these 2 identities can do a good job together. So by that, please change to Page #6. This is just an example. This is about embryo evaluation and the tools that we have. We have had for a long time, and we are a market leader, and we are running the algorithms development regarding embryo evaluation from morphology. We have also stepped into only a situation, where we are selling kits for the sequencing of the chromosome PGT-A. Combining the situation on what kind of information that you need to have a successful outcome, the situation is you need a good embryo you will also need a situation, where an embryo will be accepted by the endometrium, so it is about not only a good embryo, it is also about window or implementation. Combining that test, that Igenomix test like a non-invasive to PGT-A to PGT-M and also within their testing for ERA and other testing, we believe that we will have an opportunity to expand into the high-growth IVF and also diagnostic testing sector. And I would like to say that Igenomix are not only IVF oriented, they cover a wide spectrum of the genetic diagnostics in the reproduction, of course, but also within personalized medicine. So overall, good sales, good profitability and a good, good return of the market within the IVF and also on acquisition, strategically acquisition that we hope that we will close within a time period going forward. And Mikael, please go through the kind of structure, and terms then and change to Page #7.

Thank you. Yes. As communicated earlier, the acquisition is 100% of the shares in Igenomix, and the total consideration is EUR1.25 billion or equivalent to approximately SEK 12.7 billion on a cash and debt-free basis. And these shares are then purchased from the sellers, where the major seller is equity. We plan to finance this through a mix of share issue in kind directly to the sellers, a directed share issue to institutional investors. And the current cash balances in the company, together with newly committed debt facilities. And the directed share issue was carried out in July, and the amount was approximately SEK 3.6 billion. In October, an extra general meeting of shareholders decided to approve the proposal to issue the shares in kind to the sellers of approximately SEK 6.4 billion. And this issue in kind will then be carried out in connection with the closing of the transaction. The closing is subject to customer closing conditions and regulatory approvals. We estimate that closing will happen around year-end. We have done all regulatory filings that we have identified, and we have received some approvals, and we're waiting on some approvals. But we do not see any issues in obtaining approvals from where we stand today. The combined group is expected to have a pro forma sales last 12 months as of June 2021 of approximately SEK 2.5 billion and to have an EBITDA of SEK 864 million. So that corresponds to an EBITDA margin of 35% for the combined group. With that, please change to number 8 for some financials regarding the third quarter. So the gross margin was 65%, up compared to 62% in the same quarter last year. And the main explanation is economies of scale following increased sales. The EBITDA margin was 40%, compared to 42% the year before. But the EBITDA includes, as Thomas mentioned about SEK 8 million of acquisition-related costs, related to the Igenomix acquisition. So if we would exclude those cost of onetime character, the underlying margin was 42%. The net debt in relation to EBITDA was minus 7.6%. And the reason for this high net cash position is, of course, the directed share issue that we carried out in the summer and that we are keeping the money in the bank waiting for paying the purchase amount. When it comes to transaction costs, provided that the transaction closes in fourth quarter, we expect another about SEK 85 million of transaction-related one-time costs to be accounted for in the fourth quarter as a cost. And that is, of course, an estimate based on the total cost. With that, we'll change to Page #9 please, for the outlook. The outlook is essentially unchanged. We expect long-term market growth of 5% to 10%. And as before, we expect the same drivers for that. The demographics, the social acceptance for IVF to go in middle class and that parents-to-be wait longer with having children and then hence in a need for more fertility treatments. We will focus on sales expansion and broadening the product offering and as before, it will be both organic and through own development. So we have development initiatives in all our divisions as well as acquisition with an example, the Igenomix as an example that we mentioned. With that, operator, we are ready to take questions.

Please, operator, we are ready to take questions.

Ladies and gentlemen, we now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Ulrik Trattner from Carnegie. Please go ahead.

Great. Thank you very much and this is Ulrik Trattner from Carnegie. Congratulations on a stellar quarter. A few questions on my end. First one relating to the recovery in IVF cycles in Europe and by your approximation, how are we currently in Europe, if you were to look at Europe in total and specifically, if you can do a deep dive in important markets such as Spain and Turkey, how does it look like?

Okay. Hi, Ulrik, it's Thomas. Specifically, on different markets, it can look quite different. You know that Spain is a market that has IVF tourism, of course and that is impacting the Spanish market. So if it is a market in Europe that has not recovered the normal way, it is Spain. We're also mentioning a really troubled area as Turkey, Turkey due to well, the exchange rate, and that was even disaster last week for the Turkey customers. So those 2 countries are still below normal cycle numbers in our view. If we are then looking into other territories, we can see U.K. or France or Italy or Poland or Russia. They have come back quite well. And some of them, as also mentioned in earlier quarterly reports, the private ones are very busy. So overall, I do believe that the EMEA market itself compared to 2019 in cycle numbers are maybe a little bit more than flat, but not more than that, not more than that. Then -- yes, okay, that was EMEA.

Great. And just continuing on the recovery trend or perhaps even the pent-up demand, looking at Americas or perhaps more specifically the U.S. are we to consider that the U.S. market is still above the average growth trend in number of cycles, as it's been for the last 3 or 4 quarters?

Yes, yes. In discussions with customers, because I think this is a key thing for going forward, is this something that is COVID related, so they have an ability to work from home, some of them, so they could go down and have some consultants discussions together with the clinics or what has happened? We don't really know. But the clinic see a large flow on customer patients that are asking for treatments or asking for what they could do. Also, when I'm looking into other fields, so we can see if IVF or, let's say, the reproduction business is growing, there is difficult to get supply as an example from the sperm banks. So it's not only the IVF clinics. It is overall an interest in the IVF field, is that partly also due to the coming more mandated states? Is it partly due to that we have more companies that are introducing some kind of benefit for the employees to do IVF as part of their package. That's difficult to say. The only thing we see is that the market is growing. Customers, some customers are having a challenge regarding the inflow of patients. So for sure, U.S. is the market that the last year has been bouncing back quickest and has -- and are also overachieving in a number of cycles.

Great. And on the Technology segment, really strong development in the quarter. Has there been any large order? Or is this to be considered widespread demand? And how much can you say to be related to the new IDA score in terms of interest for time lapse? Or is that hard to say at this moment?

First, what's good with this quarter is of course the growth with 81%. But that's compared to last year and what's especially good, if we look into the operations is that this period, we have not had any huge single order. So it is spread between many, many customers and especially then within the EMEA side. Is that part of IDA score, I would like to say that, yes, partly, but not only. There is an acceptance for time-lapse and more and more clinics are seeing the advantages of it and also the beauty of having a quick selection tool that is not expensive for the end user. So some of it is due to IDA score, not that they are using it, it is that they are challenged and very positive to the situation that our current AI support guided annotations has helped those customers. And those customers let's say that, that has helped them. They are, of course, interested in the next-generation of it. Sales-wise, no, we don't see any direct consequence of it. Indirectly, yes, I do believe that part of this growth is due to that they would like to be on board and have the opportunity to have better clinical outcome, but especially more efficiency within the workflow at the IVF laboratory.

Great. Two more questions on my end. Gross margin-wise, good performance in this quarter. Are we seeing similar effects on freight cost in Q3 as we did in Q2 and should we interpret the improvement sequentially in gross margins on volume? Or are you seeing the fright costs slowing off or sort of the accelerated price cost due to COVID slowing off?

Well, freight costs are still quite high compared to before the pandemic, so the consequence of the improved margin in the third quarter is more to do with the high sales.

And when is it hard to predict when the store price costs are to go down? Or that's more dependent on the pandemic and not really something that you can foresee?

Yes. I mean, that's -- it's difficult to predict that. I think the whole world is seeing these freight costs in all industries at the moment. So your guess is as good as ours.

Okay. That's great, Mikael. And last question is perhaps a bigger picture question and it's on the Igenomix acquisition and just how much customer overlap do you currently have essentially, how many more clinics or customers do you serve compared to our genomics, given that, that would be the major driver of cross selling synergies, I would assume.

Yes. You know that we are selling to most customers. And it is not yet closing. So we are not able to look into their numbers that way, but by doing a good guess from what we know about the market, and we have full control, at least our own situation is that I can generalize and say like this, that Vitrolife big customers are also large customers, it is clinic change. It is customers that has more than at least 500 cycles. And in that situation, you know that if they are quite big, they have their own IVF laboratories. So the situation that we are having an ambition to help all clinics to get more efficiency and also to be able to do genetic testing. The genetic testing that is currently sold from us, it's only the kits, they are sold to larger clinics. They are also sold to some genetic laboratories. And Igenomix, they have a mix there. But I would -- a good, good guess is that their customers are generally smaller than our customers. So the service that they do for smaller customers fit well into a situation with Vitrolife that the services is a larger part of their external cost. So by combining an offer and being able to go in and support those midsized to smaller customers, that's where I see that the customer segment, where we would have the best integration opportunities to have a combined offering there. If -- how many are they, are there 1,500? Are they 2,000? Are they 800? I can't really tell you.

Okay. That's great, Thomas. And just a follow-up on that. Are you predicting a general trend, where more is done outside of their own IVF labs, given that do they have the capability and know how to run these tests to the same extent and quality-wise, as Igenomix in-house? Or should we expect more of these services to be moved to decentralized service solutions such as Igenomix?

I think I would like to answer this, you will see more of all of it. You will see more of that clean change or in territories, where they are regulatory-wise being allowed to do PGT-A that those larger clinics will then set up their own laboratories. For instance, if it's going to be regulatory, more accepted in Japan and the likelihood that they will buy from laboratories or let's say, set up their own laboratories, then I would say that it's probably in Japan and more likelihood that they will go for their own laboratory, since the clinics are so big and they would like to control the information. However, when they're setting up that, they are only covering part of the Igenomix portfolio, so it is a little bit, let's say, I wouldn't say dangerous, but we have to consider that when you're setting up your own laboratory, it is often for doing PGT-A, but it's so much more that the customers are asking for. They could ask for PGT-M, they could be in a situation, where they would like to have ERA testing or even other tests. And in those cases, they will have their own laboratory, but also outsource those tests that they can't do themselves. So there is a mix, there is a gray zone between those. And finally, then, why do I believe it's going to be more growth within the existing laboratories, let's say, that's the reason is that PGT-A is growing. And there is an unmet demand in many, many territories. We are sitting in just screening right now, and that's not allowed here. So if it would be here, then it would, at least we will sell a little bit more in this market. And we have customers, not customers we have patients that are traveling from Sweden to other markets just to do this. So it is a situation, decentralized laboratory, yes, centralized laboratories, yes, and also growth within the market. And fourthly, the width of the portfolio.

Great. Just one last question, following up on that. Are you seeing any territories or markets, where we are to expect some more positive view on accepting PGT-A in the near term?

Yes, there are, I mean it is -- overall, it is a change in the regulatory side. The second biggest market in number of cycles is Japan. There has a discussion been going on and together with many other things that is happening within the IVF market in Japan, the situation regarding PGT-A and other testing are definitely on the table, and they are already approved for a certain amount of clinics to actually do PGT-A and also to have outside laboratories. But it's still, let's say, at the beginning of the usage.

Great. And once again, congratulations on a good quarter. And Mikael, good luck into the future.

Thank you, Ulrik.

Thank you. Our next question from Bjorn Olander from Murgata. Please go ahead. Your line is open.

Yes. It's supposed to be Bjorn Olander from Murgata Equity Research. Thank you for taking my questions. Of course, many of them were already asked by Ulrik, but I'll circle back to some of them. Some markets are -- have not recovered yet. But those who have, can we know to what extent that has been driven by pent-up demand from couples who haven't been able to receive treatment? And how much is just sort of a normal market growth dynamic?

No, that's something we don't have numbers on. And I think no one will have that kind of number. Pent-up demand, when the clinics are opening up, they've been working to get rid of that pent-up demand, of course, then. But it's also a situation, where it's important that we also take into consideration, it is a timing situation for the couples or the individuals that want to do this kind of treatment. So there are also signs from clinics, where we are discussing with them, when I'm discussing with them that couples have dropped out, I mean they feel it's taking too long time, they feel that they have decided then to not continue this race. So there is a pent-up demand, yes. But there's also a situation that it is also an increasing dropout rate. Those combined still is that it's a bigger interest than the dropout.

Okay. Interesting and very quite tragic. I would also like to circle back to the challenges with logistics and transportation and so on. In the second quarter, you mentioned, you specified SEK 3 million impact on the COGS line, impacting around 1 percentage point on the gross margin. Is it a similar level now or why don't you specify that or do you expect that to be sort of the new normal with higher logistics and so on?

Yes. Well, I would say that it's probably -- I mean, it is in the same region as last year and so we didn't specify it specifically in this report, but it's in the same region as -- sorry, not last year, same region as in the second quarter.

Yes, okay. That makes sense, I mean, what we hear from all the companies, is that also -- I mean, I noticed the inventory level are coming up quarter-by-quarter, is that due to, I mean, are you building inventory for sort of raw materials or finished goods to sort of ensure that you can deliver or is this just a normal impact from higher sales levels?

I will say a little bit of both, we increased sales, and now we're increasing our inventory levels. But we have also -- for those raw materials where we see a risk of supply, we have tried to build stock, so it's both.

Okay. And then finally, on Igenomix, when it closes, hopefully before the year-end and what kind of information will you provide then? I mean, of course, the market will look for, I mean, pro forma figures and the post the 9-month figure is available at that point. So any sort of -- what will you provide when you close that? Or do we have to wait for the fourth quarter to arrive?

Yes. I think we'll have to come back with exactly what kind of financials we will present, but I mean there are guidance in what you should present in reporting when you do an acquisition. And so we will, of course, report accordingly. But we will have -- we will look into that a little bit more detail and come back on that.

And of course, the stock market always wants to have historical figures, if possible, and preferably on quarterly levels, we can see also the sort of seasonal patterns and so on.

The next question is from Patrik Ling from DNB Markets. Please go ahead.

Thank you. I actually have a few follow-up questions as well. First one to Mikael, I mean, you mentioned approximately SEK 85 million in one-off costs in Q4, is that all we should expect or should we expect that there will be some one-off costs when you integrate Igenomix next year?

Yes, I mean, this is the transaction-related cost that I'm mentioning. And of course, integration costs, I mean, our plans is to continue to operate Igenomix in the same successful way as has been in the past. So we don't foresee any huge integration costs, but of course, there might be some integration costs, but that is something we'll have to come back on in that case.

Okay. Great. Then can I also ask you then about transportation costs, I mean since you remember that you said once or a couple of times before that freight cost has more or less a neutral impact on your EBIT line, so if you also charge clients for freight revenue and stuff like that. So could you -- it's about the SEK 20 million impact on cost, is that total net effect or is that sort of just related to your transportation internally in the company?

Exactly. So we are -- I mean, the cost for sending our goods out to customers, that's being recorded as a marketing and sales expense in our P&L and we invoiced that cost to our customers. So that means that, that is kind of cost-neutral or EBITDA neutral. However, we do have costs for bringing home raw materials, and that's being recorded in the cost of goods. And we also have cost for transportation between our factories of raw materials and finished goods. So that is also being recorded as cost of goods. So those costs are not being invoiced to customers. So they impact the cost of goods, and that was about SEK 3 million in second quarter and something like that in the third quarter as well.

Okay. Great. And could I also ask, I mean, I noticed that the tax rate in Q3 was slightly higher than what we've seen before. Were there any specific issues in the third quarter or is this a one-off or should we expect something that Q3 is the new normal?

No, it was some one-off items in the third quarter related to the acquisition of Igenomix, some costs were not deductible and it was also related to the Parallabs acquisition that we did a couple of years ago. So those were kind of one-off effects. So we should expect tax rate -- effective tax rates to come back to previous levels, if we exclude for these kind of one-off items.

Okay. Great. Then last question, I mean, I know that we've talked quite a lot over the last year about these markets in Asia and in Europe, where you have a lot of IVF tourisms. Do you think that, that is a phenomenon that will come back to old levels? Or do you think that patients rather do this at home, because people are afraid of traveling and traveling might be at a considerably lower level going forward?

Difficult question. The IVF tourists, those customers that are, let's say, and it isn't so big, but those customers are number one, they can afford it. Number two, they have decided to get better treatment than what they can get within their own, let's say, territory, their own country or within their own town or they are in a situation, where they are asking for treatment that is not allowed within a country. So I do believe that IVF tourists will continue. I could also do my own conclusion that maybe even that's going to be higher, because the awareness and the openness regarding what you can do within the IVF field, for instance, if you have bad sperm quality and you are really in one country, I don't want to say what countries, there are a lot, you can't buy donated sperms and then to have the kind of treatment, if you have a situation where everything is positive on the female situation, then they go to another country, and that's IVF tourism. So there are underlying situations that will be drivers and also the continuous business within the IVF.

The next question is from Jakob Lembke from ABG Sundal. Please go ahead, your line is open.

First on sort of the market come back, I believe you sort of stated the same wording that the market is at the same levels as pandemic at the Q2 report, so I was just wondering if you've seen sort of any Delta now, since the Q2 report, if there's any markets that's sort of materially improving since last quarter?

The consumable business, yes, it goes well. It is a similar situation there and it is the technology that I would like to maybe emphasize that we can see that the willingness to invest first coming out of the pandemic, the customers was having an issue regarding their own balance sheet and especially the cash, growing then -- going back to normal cycles, predicting the future, then time-lapse is, of course, technology are picking up the interest quicker, let's say, that from a low, low level, since consumables has had a very stable level with the growth of cycles and with our ability to take new customers.

Okay. And you mentioned that sort of a capacity shortage in the U.S. market. Should we think of that as sort of translating into higher growth in the technology segment near term?

Near-term or not, that's the situation what the customers are dealing with. And if there are different ways of solving it, one way is, of course, to work harder and another way is to work with the educational program, so they can get more trains. But an easy way of doing it is to go into changing the workflow. So from our side, yes, we see a situation in U.S., where regarding the time-lapse and morphology, they value time-lapse differently than what they do in Europe and in Asia. In Europe and Asia, it is regarding the clinical outcome and the easiness of doing morphology. In U.S., it is partly those, but also that it makes them very efficient workflow.

Okay. And my last question is on Igenomix. Just if you can give an update if they're still doing sort of material COVID-19 testing and if you suspect that, that will continue into next year?

No. Since we announced the deal, we are in a silent period. It is a terrible situation for us that we won a deal and get into this and work together with them, but due to old regulations, we are not getting that kind of information. You know that they had a good COVID business, we have not calculated on the COVID business and it's part of our long-term business, it's good for them to have had that kind of skills to use the opportunity. But our -- let's say, our calculations and what we will do is not to focus on COVID-related testing.

The next question is from Johan Unnerus from Redeye. Please go ahead.

I had a bad line, temporary. I think it's been enough question, but one question, perhaps we could take anyway and that's the huge improvement in Europe, not at least in terms of earning margins, it's a huge improvement. Can you expand a bit on that?

Yes. One, of course, the scalability and within the sales organization, where it has been difficult to maybe keep up with the demand from sales to recruit new people and have a better market presence. We are behind a little bit there and are recruiting more and more people. So that, let's say, an efficiency due to the COVID on both the recruitment and training of them. The second thing is, of course, the scalability and especially around if you are selling more of products that has high gross margin and consumables and part of the time-lapse is having a very, very great gross margin. Especially consumers are higher than what it is within the normal business, let's say, the total business. And since we've had good growth in those 2 areas, there's some effect of selling more products with the right profitability mix and unfortunately not having, unfortunate not from my side, good, but maybe from the sales force, they would like to have more people on the street.

Interesting. And perhaps also expand a bit on the digital business port that's involved both your own executional business and, I believe, some support in your solutions and services provided, isn't that the case?

Yes. That has been, I'm sometimes saying that I like what the COVID has done towards Vitrolife in changing the structure. All of that was done before on-site by people, currently we have built up the -- like academy or those kind of training programs and also training programs that are direct and interactive between the audience or the clinic or the person in our staff. So going forward, that kind of training will be done more virtually than before. So yes, there are maybe some of those concerns, but we have never had so many sessions than what we currently have in training, so I wouldn't say simple things, but things that are within the daily work for an IVF lab, and it works extremely well.

We're looking forward to 2022.

There are no further questions at the moment.

Okay. If there isn't any more questions, I would like to end this session then, and thank you all, and especially, I would like to thank Mikael. This is the 41st quarterly report or interim report that we are doing together, so thank you, Mikael, for all of this work, and thank you for the audience today, and goodbye.

Thanks. This concludes your conference for today. Thank you for participating. You may now disconnect.