Xvivo Perfusion AB (publ) (XVIVO) Earnings Call Transcript & Summary

Welcome to Xvivo Q4 Report for 2023 [Operator Instructions]. Now, I will hand the conference over to CEO, Christoffer Rosenblad and CFO, Kristoffer Nordstrom.

Thank you so much for that, and welcome to Xvivo's earnings call for the fourth quarter of 2023 as well as the full year, '23. Today's presenters are me, Christoffer Rosenblad, I'm currently at the headquarters in Gothenburg and our CFO, Kristoffer Nordstrom, who is in Philadelphia and living in the U.S. currently. And with that, we go to the next slide, Slide 3, which is a glance on the Q4 financials. And I'm happy to report the improvement in all 3 business areas. The adjusted EBITDA was slightly lower than expected, and our CFO will get into the details later in the presentation. For sales, it came in at a record SEK 156 million. The gross margins are continuously improving also in Q4. I'm especially proud of the dominant gross margin, where we are closing into the 2027 strategic goal of 70% gross margin already now and show 69% during the quarter and 66% during the year. But for the avoidance of doubt, the dominant growth is hampered by production capacity. It's still growing and growing as expected. However, the Forex growth or the line growth is lower than expected during Q4. And this is mainly explained with Xvivo having few feet on the ground in the U.S. due to the reorganization of the U.S. sales team to enable the product service model. To some extent, a few orders end up on the wrong side of the new year, this year versus last year, but that is not the main reason. We are also pleased to report that the integration of our latest 3 acquisitions has progressed according to plan and now significantly contributes to the growth we see in the quarter and the year. And as I said, the dominant portfolio continues to grow as fast as we can during the quarter, plus 22%. The key here is that we see higher growth in Q4 versus Q3, which means that we have enabled higher quantities for production in Q4. So, sequentially, we are growing. And we can see that the main limiting factor, of course, is production, and for really high growth in abdominal, we need to get into the U.S. market, which I will come into later in the presentation. And with that, we go to the full-year picture. A key takeaway here is that a quarter can stick up, but important is the annual progress we can see. And we see growth in all segments and improving gross margins. That has led to an EBITDA amount being almost double of that in 2022 in amount. So, we posted SEK 103 million adjusted EBITDA at SEK 23 million versus SEK 56 million last year. So, we see progress year-on-year. When we look back at '23, we can conclude that not only the numbers in our current lung business are pointing in the right direction, but also past many important milestones. I mean, for example, the heart usage in Australia, the U.S. study includes DCD, and it has started with good inclusion of patients and has cost recoveries. Also the 2 recent acquisitions in services has been integrated and there has been a very good integration, which we are both proud and happy about. And lastly, the overwhelming positive feedback from our liver and kidney customers, both in terms of clinical results and in terms of user experience. And you will hear more from our CFO on the numbers later, so I will skip more into the highlights and we will look into organ by organ highlights '23 and what expect '24 for clarity. And we will start with heart on Slide #6 and the accomplishment '23. And it has been a truly fantastic year for the Xvivo heart technology and especially I want to mention that we finished the heart trial. We now look forward to the presentation of data. The U.S. trial has started and is including patients according to plan and the study is unique in the sense that includes both DBD and DCD hearts in one study. And I mentioned before, I mentioned again that the opportunity to include DCD trial and design was very important. The DCD portion of the donor pool in the U.S. was approximately 1/3 last year and DCD is growing very fast. So having the opportunity to perfuse also DCD hearts prior to transportation, will be key to save more hearts in the U.S. and hence, give the opportunity to more patients with end-stage heart disease, a chance to longer and healthier lives. And it's hard to not mention Australia and the compassionate use we see there. It continued at the high level through the year. We see that approximately 30% of all heart transplants in Australia and New Zealand or with our heart box and we can only use it for DBD right now. And there, we actually are up to 37% of all DBD hearts in Australia. And I think this is a testament for what the heart technology can do in the future also in other markets. And the reason for this and the last point is that, the data published from Australia was just fantastic. It was presented during ICT in April last year, and we see that the 30-day mortality was 0, even though we more than doubled our body time from the generally accepted 4 hours. And the testament with the doctors in Australia say is that, if we don't do the donation transplantation within the same CD, we think is unethical to not use the heart box. So, that brings us into the Slide #7 and what we'll be focused on during this year, '24. The key milestone for this year is obviously the presentation during ISHLT April this year in Prague from the European randomized control trial. And the next key milestone then will be the subsequent regulatory approval in Europe. The status right now is that we have handed in all our technical and clinical documentation to be approved by the notified body. We have had very good response times. We are on plan for the body also for the Swedish MPA, who has to prove some of the pharmaceutical substances have shown response. What we see now is that the European agency that has to review one pharmaceutical substance might push the timeline from Q2 approval to somewhere during late Q3, early Q4, and then a subclinical launch in Q4. This is under investigation if we can do something about it, but this is the current status of the approval. I want to mention that in the meantime, we have applied for compassionate use also in Europe at a few targeted countries in Europe. The third key thing to look out for is, of course, the U.S. trial. It has very good momentum right now. We have already as of Monday this week, included 15 patients, where 4 are DCDs. On Monday, we will initiate the fifth site. So, we can see that the first 5 sites perform approximately 500 first half of the year in the U.S., which represents 11% of the total U.S. volumes in '23. Hence, this study will give us a very good footprint the day we will launch that product in the U.S. And with that, we will move over to the next organ, which is lung and accomplishment during this year. We can see that the hub model has proven to be successful in the U.S. for lung EVLP, and we have established 2 hubs in Europe this year. This is something we will continue to grow. We are the market leader, and we want to be perceived as the fourth in the lung. So, we have master classes. They are very appreciated by the lung transplant community. And I must say a lot of good ideas on how to use the best XPS for new indicators are shared and presented during those meetings. Of course, regulatory hurdles will be there, but we hopefully see the fruit of those new indications in approximately 4 to 5 years if everything goes well. And lastly, even though it's not a key strategic initiative, we are focusing on hub models. There is a high interest for the XPS at many clinics. And we have actually 7 XPS installations through the year 2023. And now the key is, of course, to train them and as fast as possible, get them up to approximately 12 EVLPs per year, which we deem is the hurdle for having a successful EVLP program. And with that, we look into '24 and what we plan to do. And in short, we plan to have 3 main initiatives in '24. The first one is, we want to continue to be perceived as the fourth leader in lung transplants. So, to accomplish that, we will increase efforts in EVLP training and collaboration between the clinics. Two, we'll continue to expand the hub concept both in the EU and the U.S. It shows successful so far and with more feet on the ground in the U.S., we think that we are having a very successful '24 in this regard. We also have a pipeline of clinics, which show high interest. So, now it's time to execute on that interest. And three, we haven't talked about this before, I think, we have demonstrated now that if we increase flushing volume for Perfadex Plus, it has proven to be beneficial for the lung, both the donated lung and the patient. So, this is something we will drive to demonstrate at clinics to drive above-market volume growth next year and also to drive better patient outcomes in lung transplantation. And from lung, we will go over to the next slide, which is kidney and our kidney assist transport product that you see on the picture there. And we are now on Slide 10. And even though we don't see it in sales right now, it's been a fantastic year for the kidney transplant. We have all DCDs in the Netherlands refute kidney based obviously on the very good last study results, where we had 97% 1-year survival versus standard of care, 90%. I said it before, I'll say it again, production of disposable kits has hampered the launch and we are investing as fast and as much as possible we can to solve this issue. So, that's what we mentioned. To date, we have fully launched the kidney set transport in the Netherlands and Italy, Italy in Q4 '23. Next fully launched market is the U.S., there has been a selective launch of the kidney transplants to learn more from the market in the U.S., in Australia, in Sweden, and Spain, a few of our smaller countries. And so far, we have got a very good initial response from the customers and the response is one, confirming that the clinical results we have seen published in Lancet that it holds, and two, confirming that it's easy to use, which is very important for getting a large uptake of the product. And with that, we go to Slide 11 and looking forward to 2024 where key is ramping up production, so we get more kits. We are gradually ramping it up. So we see that we got more kits in Q4 versus Q3, and I expect to see a further ramp up in Q1 versus Q3 '23. The next key milestone, though, to alleviate the key hurdle of quantities is that we will have our components automated manufacturing. We have a deadline for 30 June, 2024 this year, and that will enable a full launch in the U.S. approximately after the holiday than in Q3 if we follow this plan. And as I said, I still expect that we will see gradually more and more quantities and gradually improving sales then. In parallel to improving production, we will expand the U.S. abdominal field force to enable meeting more customers, especially opioids. And in the opioids where the majority of kidney perfusions are made. We see a very high interest in the U.S., and we need enough sales and clinical staff on the field to meet this high interest we have. And with increasing disposable volumes, we will launch Kidney Assist Transport in country by country in Europe as well, but we will focus on the U.S. first. And with that, we go over to the next organ and next product, which brings us into liver. Liver has been a key growth driver for Xvivo in 2023. And it's also impressive how many milestones have been passed through this year. And just to mention a few, we integrated Avionord approximately 1 month after we acquired them. We sent the press release that they have just accomplished that they perfuse the 1,200 liver. We can also see that this service product model works very well. And in Italy, the Avionord, now Xvivo perfusion services, they produced almost 25% of all livers in Italy now, which is a far higher penetration ratio than we've seen in any other country, and it's actually only beaten by what we see in the heart in Australia in terms of fast uptick in the market. I also want to mention that, as I said before, I'm very proud of both cost improvement on the production side and price improvements on the sales side, and we see better gross margins. We always said that we expect 70% during the strategy period, 2027. But we now see that goal is in reach a lot faster than that. And when accomplished, when we complete the goal, we'll come back with new goals, of course. A lot of studies have come out also during 2023. And it has really shown the product leadership, both in terms of clinical results as well as convenience for the transplant team. So, for example, the Liver Assist shows significant high gross survival compared to static cold storage. Also, the recent press release, I think it must be yesterday, of long-term perfusion is showing that we can enable plannable surgery to some extent, and that study has attracted a lot of interest. And lastly, I want to mention a very important MDR approval, which enabled 24-hour perfusion. So this, together with the study, will open up Liver Assist, not only for improving liver casted outcome, which is an indication, but it will also open up for logistical use and daytime surgery. And if you read the study of the press release, we see that we can reduce our surgery time if we move it to daytime versus nighttime, which is, of course, will enable more livers in the future. And with that, talking about the future, we go to the next slide, 13, and we talk about what we're going to accomplish this year and what are the key milestones to load. And I said before, we have 2 key bottlenecks for increased lever growth and there are on production capacity and to lack of U.S. approval. So, of course, we will focus on that this year. And we hope that we can submit an IDE at the end of this year. Also to mention, in terms of production capacity, kidney has the priority #1 right now in our production scale-up project. Liver has #2, where we see that the number of kits produced are too low at the moment. We are continuously and gradually increasing volumes until the end of this year when we believe that our full-scale production will be fully up and running. And also being the European market leader, we want to be perceived as the fourth leader as well. So, during 2024, we'll host a master class to spread liver knowledge in the community, similar to what we have done on lungs. And this will hopefully drive new indications, plan day-time surgery, et cetera. Also the launch of the new MDR device with remote monitoring, so both enabling 24 hours on label and remote monitoring will support usability and daytime surgery. And with that, we go over to the last segment, which is the organ recovery service. And to start with, I must say I'm truly, truly impressed by the organ recovery team and the progress made during 2023. They've done a fantastic job. They have literally improved on all parameters as well as pilot NRP service and established scalable partnerships for ground and air transportation during 2023. So, in 2023, we have laid the foundation that will enable a control, high-quality, and scalable growth path for organ recovery in the U.S., where we can also start to pilot the product and service revenue model that we believe that a lot of our clinics is going to have. So with that, we can go over to the 2024 plan for organ recovery service business. The demand for organ recovery is very high in the U.S. and to meet the demand short term, we will expand our clinical roster, and we will also expand geographically in the U.S. We are now on the East Coast in the U.S. And we believe that there, we have good coverage with approximately 10% of all hearts and lung recovered, but we want to spread to other geographic areas in the U.S. For midterm, we will expand the offering to include NRP. It's a fast-growing indication and showing very good clinical results. And as I said, established a product service offering. The goal with the product service offering is to support the clinics with the first 25 hours of the transplant process in order for them to one, sleep more during the night and enable them to do more transplants. And with that, we can go over to Slide 16, which is a divided slide, and jump to Slide 17 for our clinical pipeline. And as a company, we will, of course, focus on the current business. And right now, we are hitting the market with approximately 1.5 products or 1.3 products of the 4 possible that being lung globally and liver in Europe. So, to enable a full global footprint, we are also focusing on the kidney launch and the regulatory approvals for the heart globally and liver in the U.S. So, in the U.S., as I said, the heart trial is progressing according to plan, and they are working very hard to include all clinics as soon as possible. But I'm glad to see that we have a clinical trial really on plan as that gives good confidence for the future. I have mentioned the situation in Europe. We are according to plan for regulatory approval in Europe. The part which we can't really effect right now is the EMA or the European Medical Agency, where we will get back when we have more information, but if they use their full 210 days, we might push the commercial launch into Q4, 2024. And in Australia, New Zealand, it's less of an issue since the products is used in 37% of all DBDs right now. And the regulatory improvement will be pending the CE mark so, we will come back to that. For the liver, we have previously reported that we have been granted breakthrough device designation by the FDA. This will mean we get a faster through the FDA-PMA process. It's also a quality stamp that the products are innovative and fulfill a need on the market for both U.S. clinicians and patients. We have started both the process of documenting the IDE application. We have started to invest in the organization, both to run the study and to file the documentation. The aim is that we hand in all this documentation for an IDE application during this year. And with that, I will hand over to our CFO, that is actually also on the picture here on Slide 17, and I hand over the control to you, Kristoffer.

Thank you, Christoffer. So, this is an overview slide at the beginning. So, first, some short comments on sales, as I will elaborate more on this area on the following slides as usual. Net sales in Q4 came in at SEK 156 million with an organic growth of 12%. And as we have already said, full-year sales SEK 598 million and organic growth of 30%. Strong overall gross margin improvements as we achieved 75% in Q4 and 74% for the full year. We should spend some time on EBITDA and EBIT. So, adjusted EBIT in Q4 was SEK 1 million, meaning 1%. We want to clarify that adjusted EBIT in Q4 includes a few cost items impacting comparability. Firstly, we had a retrospective full-year amortization, which we highlighted in the report of immaterial assets connected to the Avionord acquisition, amounting to SEK 6 million. The following 4 years, the yearly amortization of SEK 6 million will be recognized evenly each quarter with SEK 1.5 million. But in this year, we had everything in the same quarter, so to say, SEK 6 million. In Q4, we also had SEK 6 million in extra cost provisions for employee bonuses for achieved milestones not previously provisioned for during the year. So, this impacted Q4 in isolation for both EBIT and EBITDA. Excluding these cost items, EBIT in Q4 would have been 9% and EBITDA would have been 17%, which is more in line with our full-year achievements. As you see in the numbers on the right, year-on-year adjusted EBIT tripled versus last year, and EBITDA almost doubled. So, we are definitely developing in the right direction. Moving over to the business area thoracic. Sales came in at SEK 98 million versus SEK 88 million last year. Organic growth of disposables were 14% in the quarter and full year, the growth was 28% year-on-year. On the gross margin side, we delivered yet another strong quarter, 85% gross margin, primarily a result of ASP development in both machine perfusion and static preservation over the year. Americas, as you can see, stood for 62% of sales, and that's our relation in line with previous quarters. Transplant volumes in the U.S. came in flat in Q4 versus Q3, and it's kind of hard to compare specific quarters. But looking at the full-year trend, 2023, lung transplants in the U.S. grew 12%, which is a strong development historically. Moving over to abdominal. On the abdominal side, we continue to grow quarter-by-quarter as a result of our solid position in Europe mainly with a strong customer offering. Net sales amounted to SEK 38 million, which is a new record quarter. The organic growth of disposables in Q4 was 22% and for the full year, a very strong 54% organic growth. Liver stood for 80% of total sales in the quarter and also for the full year. Over the year, we have gradually increased our Kidney Assist Transport sales from a growing installed base on the selective markets. I noticed there was a question in the chat here about cat sales, and we had in Q4, sales of SEK 7 million. And year-to-date, it was SEK 22 million. And we have seen a gradual increase quarter-by-quarter fairly linear, I would say. And that stepwise development is what we also expect for next year. Gross margin disposables came in at 69% in the quarter and 66% for the full year, and this is a significant increase. And we are, as Christoffer mentioned, before planning our ambition to solidify these margins on a level over 70% during our strategy period. Moving over to Business Air Services. So, as previously communicated, 2023 has been a very good year for us, where we have put a high focus on strengthening our organization and partnerships in order to optimize the service offering and also to prepare for business integration. So, we are very proud that we today are involved in 10% of all thoracic organ recoveries in our active service area, which is primarily the East Coast. That's a significant number given the fact that this is a company that has not existed that many years and a great position to grow from. So, number of cases in 2023 grew 14% to 562 cases. And we now move into 2024 with a scalable model, and we see growth potential in various dimensions over time. Q4 sales were SEK 19 million and grew 19% versus last year. Full-year sales were SEK 79 million and grew 57%. EBITDA and profitability. Adjusted EBITDA came in on 14% in Q4, which means that the good rolling 12-month trend temporarily weakened, as you've seen. This is, as previously explained, due to the increased costs primarily in the isolated quarter of Q4. Full-year adjusted EBITDA was 17%, an improvement from last year's 14%. And I mean, as we said, our ambition is to continue to improve EBITDA, but we should do that in a balanced way so we also make the right decisions and the right investments in the big market opportunity. And sales growth and strong gross margin improvement will be the engine. My final slide here on the cash flow and financials. We're happy over the development of our cash flow from operating activities in Q4 and also for the full year. So plus SEK 18 million in Q4 and plus SEK 46 million for the full year of 2023. I also want to mention that our cash flow from activities also covers our current spend on investments in machine perfusion devices placed at the customers. And the ambition is to continue to see that also in 2024, as our investments in these assets will, of course, increase. We ended the year with a strong cash position of SEK 546 million. And that was all from me, for now, Christoffer, over to you.

Thank you. Thank you, Nordstrom. And with that, we go over to the outlook. And as always, I want to remind you on Slide 26 on the long-term outlook and where we are, both in terms of the market and this company. And you should remember the demand for transplant is 10x of today's supplies. The sales value of machine perfusion versus cold static storage is also approximately 10x. So, we're looking at a large market opportunity. Machine perfusion and service models have been proven to increase the number of orders to be used for transplantation, especially in the fast-growing DCD organ pool. So service models and machine perfusion together will enable DCD graphs in the future and will drive growth in the near term. And lastly, to grow all the way to 10 in the number of transplants, the company believes is possible with the current human donor pool. However, over time, new innovative sources of organs will probably be used, for example, xenografts, et cetera. And for both machine perfusion and new sources of organs, Xvivo has a proven product pipeline. So this puts Xvivo in a unique position on the market today. And from the longer-term outlook, we jump over to the 2024 outlook, we have gone through most of it. So, this is more of a summary of what has been said before, but we will have a rather focus on key priorities. We have a huge market opportunity and now it's up to us to deliver on that. For the heart box, we will prepare for the European Australia launch, looking forward to ISHLT this year in April. And in terms of the U.S. trial, we will make sure that we deliver on time plan for that. The heart product, whatever we've done so far has delivered amazing clinical results and user experience. So, key here is that we replicate that in the U.S. as well. In terms of lungs, we want to maintain the global leadership and increased usage of our products, both to enable better patient outcomes and also better logistics for the lung transplant teams. And for liver and kidney number, key is to ramp up production of kits to meet the demand for the products. They have proven to be very good products and superior graft survival, 1-year survival. So now production is key. And in parallel, we will ramp up the sales force in the U.S. for the Kidney Assist Transport full launch. And lastly, we will -- and I think my main focus area this year will be the expansion in the U.S. in general, Organ Recovery Service, in particular, and also enabling a product service revenue model. We hear from [ Manacles ] that they want to have logistical help. And we have all the components. We just need to have a good model for it. So, we give them full support. And with that, thank you so much for listening to this presentation. And with that, we will open up the floor for questions.

[Operator Instructions] The next question comes from Ulrik Trattner from Carnegie.

I have a few and perhaps Christoffer Rosenblad if I can start off with you. You sound in your wording very muted on the outlook for the first 2 quarters of '24. As you are stating gradually develop our customer offering and stronger commercial organization, could you help us decipher what this actually means and what it entails? And why ramping up commercial activity would have a hampering factor on sales?

Thank you for the question, Ulrik. Very good question. To start with, it's in the U.S. and we can see that we are too few feet on the ground in the U.S. We have hired recently a lot of really good people. They need training. I believe that we will gradually see improved sales, both on lungs, on services, and combined offering during the year. I shouldn't say unexpected, but we see that having too few feet on the ground has an effect on sales. But that being said, we have started this year pretty good.

Are you looking into adding a substantial number of headcounts in the U.S. market for '24 and we should expect selling expenses to go up substantially during the year or what to expect here?

Compared to 2023, no, we have ever changed the headcount to different types of head count in some cases. Then gradually, we will increase, but not substantially. We will not add new on what we had, but we had to change a few of them in order to enable the product service offering.

And on service offering, the collaboration you have with MTG Aviation and you talked about in previous quarters about expanding the number of hubs in the U.S., where are we in terms of having those operational for the start of this year? And perhaps if you can give us some road map for how that's going to be expanded if we were to focus on services and the U.S. market?

I'm actually going to the U.S. on Monday, where we're going to discuss exactly this. The plan is that we have a couple of access to grow more organs, for example, where we are waiting clinical studies and regulatory approvals. The other access is, of course, where we have a very good coverage on the East Coast and to spread with our customers to the West Coast. And that's something, it's hard to say, I need to come back in next call more how the timeline looks like, but the interest is there. And the foundation for it is now there in terms of how we're going to do that. The other interesting access to grow on is, especially, in DCB Heart, the NRP opportunity, which we see grow very, very fast where we will also have an offering. And that, I think, can go faster. We ran a pilot last year and did a few cases. So, that can be also a very, very interesting opportunity to help the transplant team to enable more transplants.

Can you give some clarity on what you're doing in NRP and how that fits into your offering?

Yes. Basically, the NRP is that we are having a recovery service. So, what we do is that if we need to do NRP during the recovery service, we will add that as a service component to the full-service offering for actually very little added cost for that. So, before we did only organ recovery, DBD mainly, now we can also do DCD for the sites that want to do that.

And would these be provided by TransMedics or who will be the NRP provider here?

No, that will actually be us. So, we are doing the NRP ourselves with the help of, let's call it right now, standard equipment. So, just to mention that the DCD arm we have in the U.S. trial is first, we do NRP, and then we do the heart box. So, that will be a proof of concept in that trial that we can get better results if we do first NRP and then our heart box. And that's what we've seen in 4 signed studies we performed on them.

But your West Coast, are you still suffering from limitations of finding surgeons to take on new contracts? Or is that solved for now?

No, it is solved for now. I mean, good recovery surgeons is, of course, a scarce source. But we believe that we have a good offering for the surgeons to come on board, especially when more and more results from the heart trial will come out. We believe that we will be in a good position to attract the right type of recovery surgeons for our service offering.

And if I were to move to the Kidney assist Transport and liver, am I correct to assume that liver is also affected by the production limitation as well on the Kidney Assist Transport or which you expect? It sounds like you're saying that you still have a gradual ramp up in terms of production, but the big milestone is midyear this year until 2025 when you have like increase the capacity by 10x. Is that is that a fair assumption?

No, that is a fair assumption. And to be clear, we do see that we gradually get a little bit better quarter-over-quarter. So, we had higher sales in Q4 versus Q3, for example. So we are increasing the quantities Q-on-Q. So we see a gradual improvement. But as you stated, to get the lid off, so to say, we do need to see the first milestone for the kidney, which is the component, and that is expected to happen in June this year. So, hopefully, that when we see volumes in Q3 for kidney. And then end of the year, we will be up to full scale. So then, production will not hamper the, let's say, sales increase numbers of liver, then it's more back into feet on the ground and sales efforts, et cetera.

And you also mentioned MDR approval for the CAT device, how important is this MDR in this case?

I mean, in one sense, it's very important because it's a license to sell and to market the product. So it's, of course, very important. I think that the key here is that we got through that. MDR is a completely different role compared to the old MDD, which was quite easy to get through. The hurdle for MDR is a lot higher. So, I think it's also a quality stamp to both the product, the clinical data, and to our team and the effort they put in to get it approved here. So that will, of course, be important for the future that we have passed all those milestones and we now can focus on customer production and improving how the Kidney Assist Transport is used.

You mentioned 15 patients included in the study. I'm guessing that corresponds quite well with 15 transplants performed. Are we to assume then that you will add roughly at least SEK 4.5 million in sales from these 15 patients for Q1, given that you have reimbursement for these? Or are these deferred into later in the year? Or how should we calculate?

No. The assumption is, to some extent, correct. I know a few of them came in, can't remember the number right now, we need to take that. A few of them came in during Q4 and then a few will come in here during Q1. But it's a good.

Yes, I can add also that, we are building these for these transplants as soon as we can after they have occurred. So, there's no deferral. We are allowed to build the customers when they have done their procedures.

And then the last question on my end, and this might be for you, Nordstrom. Sales bonuses here, are they generally accrued during the year and paid out in Q4? Or is there something exceptional happening here for Q4?

Yes. So, standard procedure and normally during the year, we accrue for all bonuses month-by-month, assuming that we will reach our target set for the year. So, that's normally something that should not stick out in a specific quarter. In this case, it was additional bonus approved by the Board for operational milestones connected to heart trial project build, et cetera, and not sales-related, which we have not accrued for early in the year. So, that's why there was a hit in this quarter isolated.

The next question comes from Jakob Lembke from SEB.

My first question is on lung and machine perfusion. I mean you started the year quite well, I would say. But now we have sort of 2 quarters with a bit more slower growth. If we look more long term, I know you have this goal of doubling the adoption of lung machine perfusion. Just wondering how are you progressing toward this? And how will these sorts of hiccups or organizational changes impact that?

Thank you for the question. To be very clear, we truly believe that this is the right thing to do in order to fuel growth long term. We can now see that we lost a few feet on the ground, especially in the U.S., and that has hampered growth during the 2 quarters you mentioned. And it takes some time to get everybody trained and up and running. But I think we will definitely receive gradually through the year and increased uptake and increased sales in ELP quarter-on-quarter this year when we get everybody trained up and running, where we get a clearer product service revenue model in a few pockets this year. So, the right thing to do long term happens as a little bit short term.

And just a follow-up on these people on the ground, you say that you have lost them, what is the background to that really?

Key background is we had a few competencies that we needed to change to fit the new go-to-market model. And, of course, when you do that, you lose both the feet on the ground and the customer interactions on a daily basis and it takes time to train new people coming on board. So, that's the background.

Worth mentioning that we have a solid position in EVLP in the U.S., and we have, over the years, developed very strong relations and partnerships with key customers and those customers are growing and will continue to grow. They have the programs in place and efficiency in their infrastructure, et cetera. So, it's most likely more the hunting for new sales that might be impacted until we are fully up and running with new competencies.

Yes. And I also want to mention lastly, that we have a very good pipeline with interested customers. It's more our inability to act on that, which we will do as of now and see better and improved results.

Moving on then to liver, where it looks like momentum continues to be very strong. And you mentioning these production issues, just wondering when you look into sort of 2024, do you still feel that we can have the sort of gradual continued growth? Or is there any bigger sort of production capacity to be reached here?

I mean, for kidney, absolutely. So, going into Q3, my view is that it will look totally different. And we can actually already see now in January, and February that we see an improved situation on kidney. For liver, yes, we will continue to see a gradual uptake and we are improving every day actually on production. We have focused more on kidney. We see it now faster, the gradual uptake here already in January and February and we hope to see that very soon also in liver, it's something we work pretty much day and night on. For the key milestone, as I said, is end of Q2, we're going to see the real impact on kidney beginning Q3. Depending on summer months, we have to see how that translates into sales, but in terms of production. For liver, we see the big, big jump in terms of production, at least in end of this year, where we will have set up the full-scale production. So, that will be very important because that means that our development team and our operations team can focus more on the daily business and improving the products as well. So it has both that we get the right quantities but also that they can focus on being closer to the customer as well. And long story short, just to be very clear, when you run clinical trials, you have a clinical trial type of production and supply chain. And when you go large scale into production, normally, you want to do that seamlessly. Unfortunately, in our case, sales look up a little bit faster than what we could scale up production. And we try to scale that up with more people in the clean Group, but we ended up having untraded more people in clean room, and that led to the toxin. So, we had quite a high production volume, but you have to throw away half of it. So, just a true story behind that.

And then my next question is on the heart revenues in Q4. I'm just wondering what the split is between Australia, the U.S. and if there's anything in Europe?

I don't have the split, unfortunately, but the heart sales in Q4 was SEK 10 million versus full year of SEK 30 million. So, with that, you can, of course, see that in the beginning of the year, it was only Australia, but as the year has developed, we have also been able to include these sales in the U.S. heart trial as well.

And just a final question on services. It seems like the number of recoveries declined here quarter-over-quarter, while the revenue per recovery increased quite a bit. So, is there any abnormal things here? Or is this sort of a representative level for the future?

It's a good question. Good question. Thank you for asking. First of all, in terms of what we have done, which I'm very proud of, is that we have increased the profitability of this business area significantly. We are now on an EBITDA level on par with the group. And that means that despite, you're right, that the caseload was lower in Q4, we still have been able to improve our revenue per case. So, that is very good. It is still a business that despite covering 10% of all the traffic recoveries on the East Coast, it's still a few customers. And we had one customer with a high volume that simply hired their own procurement structure. And that can, of course, happen. It will look different from customers. So, that took a little hit in Q4. With that said, we are now in a position where we have a slight overcapacity in terms of surgical composite, meaning that we can take on new customers in the beginning of the year here and not necessarily need to hire more surgeons short term.

The next question comes from Johan Unnerus from Redeye.

A few add-ons. NRP is also interesting. You seem to have the tool. You have the service model by the look of things. Do you have any formal hurdles or approvals to process that part of the business?

Thank you. I mean if you take the hard product there, of course, to include that fully into the NRP system for our new heart box and the heart technology. Yes, we have the regulatory approval, and that was the great thing with the FDA that they said that because we actually only applied for DBD side and we also need the product for DCD. So there, the answer is yes. In terms of our service offering. There's no approval. It's more training. When we have an organic cover service, it's a very intimate business for a transplant team when somebody else is recovering your organ or doing an NRP on the organ that they're later going to be transplanted, is the patients, et cetera. So, it's more to build up that confidence with clinics that we can do this job if we specialize on it, we can do it better than anybody else in the U.S. So that's more the hurdle in any type of service business.

And not that you're in the business of providing any half-year outlook or forecast. But to add some flavor on the surprise today and the modest organic growth you reported, it's pretty clear that we can expect sort of a gradual improvement throughout '24 for recent capacity and support and also service support. What about the earlier part in Q2, should we expect sort of improved organic growth compared with Q4? Or could it be that Q4 is representative or any flavors on that?

Thank you, Johan. Great questions, and as will be a little bit speculative. But in general, if I remember correctly, Q1 last year has quite easy comparables. So, it was a good quarter, but I think Q4 2023 was a stronger quarter. So we would expect higher growth than this one organically in both quarters. We definitely plan for a lot higher growth than that. But then we have to see. I think key now for us is to get the U.S. sales force up and running as soon as possible. And I would say also the same is actually part of the truth for we have a lot of opportunities also on lung EVLP in Europe to get that up running and start running on those opportunities. And I believe that we, in parallel, we see a gradual improved supply chain on both liver and kidney products that will support growth to some extent. So, we both hope and plan for better than this quarter, especially on the Forex. Nordstrom, I don't know if you want to add, but in terms of services, you add contracts and they're normally yearly. So the swings will be less in terms of services if we put it that way.

And you already mentioned the commercial team, you changed the sort of go-to-market model. You alluded to the fact that you do have a healthy pipeline of prospects to execute on these is obviously very important. And it seems like a combination of -- that you also both changing the profile of the sales team or part of the sales team and you perhaps need to replace some and certainly add some? How much of a concern is this?

I mean the thing is that short term, it hurts, but long term, it's the right thing to do. And we are definitely a growing company. We see that we have a fantastic market opportunity where we feel, especially in the U.S., that we have everything pointing in the right direction in terms of the market right now. There is a huge need for increased transplants due to the high alternative cost of a transplant. And I just talked to one of our customers, and he said that this is probably the first time since Pearl Harbor. There were unanimous vote in both the Senate and the Congress, where everybody unanimously voted that we need to restructure the transplant system in the U.S. to enable more transplants. So, we see that, of course, and with us coming with new products in quite near future. I mean we're talking about kidney is the second half of this year and then part after that. We believe this is definitely the right thing to do. It might hurt a little bit short term, but we have to take the right decision for the long term.

And finally then, it's obviously the fact that the FDA has been very proactive on the heart side. And what about the liver side you published or press release to publication yesterday regarding the liver and even if the standard of care situation is slightly different, it's certainly a great need to improve the liver situation as well. I'm thinking about what to expect out of the protocol you will file later in '24. Can you include both efficacy and extended perfusion time?

The answer to that is that we are currently discussing that internally. And so, we don't have the answer right now to how we want the protocol to look like because, yes, we sent a press release yesterday, and we need some time to digest it internally to see what is beneficial. But that being said, when we talk to liver transplant surgeons in the U.S., that's one of the things they mentioned is definitely the logistical aspect of the transplant process. And it doesn't only apply to the liver, by the way. But talk to transplant just say, one of their dreams is really daytime surgery, and this could be a piece of the puzzle to enable daytime surgery.

The next question comes from Ulrik Trattner from Carnegie.

A quick follow-up question on my end. Compassionate use in Europe for the heart device. You mentioned it in passing. Is that something we can expect in the near or next few months? Or generally, how long does it take in order for you guys to get that approved?

We already have some approvals in Germany. We will also focus on France and Belgium. I heard good words from my CMO about both France and Belgium. So, I think that's what we will focus on. But it's actually already up and running in Germany.

And I'm guessing you want to have compassionate use approved ahead of the presentation in Prague in April?

Yes. I see we're actually going over time. If there is one last question, we can take that, but then I believe there will be probably other calls today.

There's one question on the chat that I can address, and it relates to our future R&D spend in clinical trials and what we can expect there. I guess my answer is that what we capitalize on over the balance sheet is priorly, our clinical trials. And we raised capital in the full SEK 440 million, which will be dedicated and will be enough for the U.S. trial for heart and liver and for the production setup project. And the production set up project will be concluded in the middle of 2025 with all costs and the clinical trials, obviously, will run over a few more years. But those SEK 440 million, that's probably what we should expect to be capitalized over the statutory period.

Thank you so much, Kristoffer Nordstrom, and thank you so much, everyone. With that last question, we conclude this meeting. And we look forward to meeting all of you on April 24 when we present Q1 results. Thank you.