Transcripts
Ambu A/S (AMBFF) Q2 2023 Earnings Call Transcript
Operator
[Operator Instructions]. And the first question comes from Christian Ryom from Danske Bank.
Christian Sørup Ryom
I have two, please. So the first one is to you, Thomas, and is regarding the gross margin outlook for the next couple of quarters. So can you help us a little bit with the pushes and pulls for the margin relative to this 55.8% that you delivered here in Q2?
And then the second question is with respect to your pulmonology sales in the quarter and whether the year-on-year growth in bronchoscopy sales can be attributed to a contribution from the aScope 5.
Britt Meelby Jensen
I think I can take the second question, but I think, Thomas, you can start with the first.
Thomas Frederik Schmidt
For the full year, as mentioned, as also in the assumptions around our guidance, we do expect that the gross margin will decline by roughly 2 percentage points when we compare it against last year. And a number of effects play into that, as mentioned already. Certainly, input cost is one of those when we compare against last year, Mexico ramp up, which we continue to also do, also plays into that. And then also, the margin. The mix, we further alluded also to that especially some of our newly launched products, of course, in the ramp up phase, also comes with lower margin compared to the remaining part of our business within Endoscopy Solutions.
On top of that, as you’ve also seen, and we’ve talked about in the Q2, we have also seen impact from indirect production costs also coming in. And that will certainly also continue as we continue to have full focus on reducing our inventories in the second half of this year. So that will also play into effect.
Christian Sørup Ryom
If I may just quickly follow up, so when we talk about Mexico ramp up and mix effect, is that expected to be an incremental headwind in the second half relative to the level that we’re seeing in Q2?
Thomas Frederik Schmidt
Yes. To some extent, yes. That’s in our planning for our expectations for the second half of this year.
Britt Meelby Jensen
So you can expect our gross margin to be roughly at the same level throughout Q3 and Q4. And then maybe to come in on the other question on pulmonology, so on bronchoscopy specifically, so still very much the vast majority of our bronchoscopes sales remains aScope 4. So, we do, of course, continue to see increasing revenue as we should with aScope 5. We continue to see an expansion of the customer base and also the number of customers rebuy. But, again, as we have talked a bit about before, it is a gradual uptake in the bronchoscopy suites where we have not been before where they have not used single use before. So this is of course – the sales cycles are taking some time. This is in line with what we also talked about it at the Capital Market Day, but it is a contributor to the growth. But we also, at the same time, have had a good quarter and a good half year on our aScope 4 business, which remains a focus area.
So, the overall take away from the bronchoscopy or the pulmonology business is that the bronchoscope sales is back to growth, I think that’s worth noting, a lot of that by strong aScope 4, is our completion of our portfolio with our aScope 5 smaller sizes and the VivaSight relaunch which should contribute to continued growth. And then it’s the video laryngoscope that we have in development that we have not talked about a launch date for it yet, but which is a high priority project.
I hope that answers your question, Christian.
Operator
The next question comes from Rickard Anderkrans from Handelsbanken.
Rickard Anderkrans
Two for me, please. First, if you can quantify the statement of increase in customer base and perhaps also quantify anything on the share of customers rebuying in the GI segment, you seem to highlight that things are moving a bit slower there. So it’ll be interesting to just to get a sense of the magnitude of the sort of sequential improvements and expansion there.
Britt Meelby Jensen
We don’t comment specifically on the customer base and number of customers. There’s some similarities when we look at the aScope 5 launch and also the gastroscope launch. The first one, which is very similar, is that we get very strong feedback from the customers on the product performance. So that is, of course, something that is very important because we can see that they like the product, it does the job for the procedures.
Then also, we continue to see quarter-over-quarter revenue growth also, as we would expect. And then secondly, I think it’s very important. Again, this is about – it’s a new customer group. That also means, when we look at the reported revenue on Endoscopy Solutions, excluding pulmonology, GI continues to be a smaller part of that revenue because it does take time for us to go in and get familiar with how we sell gastroscopes, very much in line with how it happened when we launched the aScope. It was a gradual uptake where it took us six years before we saw really a meaningful revenue. We don’t necessarily expect it to be that long, but we expect a continued positive trajectory.
I think the market is, in general, embracing single use endoscopes much better than we saw in the past, and that we do see a spill over and a familiarity in GI. Just coming back from the big endoscopy GI conference in Dublin a couple of weeks ago, it’s very clear that we have a well-established name and recognition among key opinion leaders and key gastroenterologists. So I’m very confident in our ability to deliver. And with the size of the GI market and the potential, we have to be there. As we have also talked about before, that launch phase is taking time and it does also take time to get the meaningful revenue that will move the needle.
So I hope that clarifies. And I know I’m not addressing your specific question for customer numbers.
Rickard Anderkrans
Second question, you seem to have quite tough comparables in both Anaesthesia and Patient Monitoring from looking at Q3 from last year. So should we expect negative organic growth in these segments in the next quarter? It just would be interesting to hear a little bit how we should think about the comparables just so we don’t get caught sort of wrong footed here moving into the next few quarters?
Britt Meelby Jensen
Yeah, no. Thanks for asking that. And I think it’s fair to assume that we will see the revenue for that part of the business remaining roughly. So, Anaesthesia, Patient Monitoring remaining roughly at the same level as we have seen in Q2. Again, back to that it is quite high comparable, strong comparable, strong quarters from last year.
Operator
And the next question comes from Martin Brenøe from Nordea.
Martin Brenøe
First question is regarding the flu. Can you maybe just give us a little bit of some qualitative numbers on how the flu impacted the quarter because it delivered positive growth on the bronchoscopy business despite the flu season being pushed from Q2 into Q1.
And just on the gastro, can you maybe just help us a little bit understanding? It’s a slow trajectory. But how slow are we talking about? Are you selling hundreds or thousands or tens of thousands would be very helpful to understand also.
Britt Meelby Jensen
If I start with the flu season, so as we talked about before, it did spike in Q1 as we previously talked about, and I think when we look at the flu numbers from Q2, we saw a fairly modest level, but still also – as we’ve seen in the earlier years, but overall a limited flu impact, I would say, when we look at the US market in the quarter. That came primarily in the first quarter of our fiscal year. And then we saw a little more flu in Europe in the quarter, but still not at any spike as we as we saw in Q1 in the US.
In terms of GI, my comments is not – it’s not – and I’m just judging from your question to say that this is an area that we are disappointed around that we don’t see a strong traction. It’s more to balance in terms of when we look at the bigger picture. And I’m not going to comment specifically on number of scopes that we are selling, but we are seeing a fairly satisfactory number when it comes to customers that are buying for the first time. We’re also seeing that customer base continuing to grow. We are also seeing the number of customers rebuying continuing. So we actually quite confident with the traction that we see.
As we went into this, I think we have had our learnings when we came out with the duodenoscope. The gastroscope is a very different story when it comes to the product performance that it’s working. So it’s for us a question of making sure that we continue to be out there, addressing the product with the resources that we have available. And that’s very clear, as you know, from last year. We had a couple of years back ramped up a lot when it came to our GI sales force. We brought that down. And now we are having a more balanced sales force addressing balancing across the different segments that we are in.
And then also being flexible. So we can go after the opportunities. There’s no doubt that we see this being a big market with high potential. Our focus when it comes to GI is very much on the gastroscope. And we have no competition in the segment at this moment. So we go as we have talked about before with a targeted approach of the segments where we see the biggest need and we learn from that and expand.
I am in general very positive about this. It’s just taking time to evolve. But as long as we’re on that continuous slope with increasing customers and increasing rebuying, which we are seeing, I’m very positive. At the endoscopy conference, we also showcased, of course, the product and also our gastro large that we have added to the portfolio with very strong feedback. So I am quite confident for the future for us in this area. And it remains important.
Martin Brenøe
Can I just squeeze one more question in just to you, Thomas. When I look at the margin guidance for the second half of the year, you’re already trending towards the high end of the guidance in the first half. In the second half, you expect to have a step up change in the overall growth of the company. You now say that you expect flat gross margin. So why don’t you expect any leverage on your OpEx in the second half of the year? Because that must be what should drive some margin equity – some margin expansion for the year.
Thomas Frederik Schmidt
First and foremost, when we do look at the margin, an therefore, of course, your comment relates to the EBIT margin, of course, it will be lower in the second half of the year. If you take the two quarters that we’re in, you can also see that the quarter one and quarter two, there’s a difference in the two quarters that we have reported up until now. So the continuation is impacted by, as I mentioned before, the gross margin. And a big part of that will also be that we further and continue will see impact also from indirect production costs when we are and will continue to reduce our inventories over the coming months and quarters. So that puts a bit of a pressure, if you will, on the gross margin.
And on the other hand, we will be working with OpEx, of course, but can’t compensate that in full for the remaining half of this year. So that’s why we expect that we see half year over half year slightly lower margin in the second half of the year.
Operator
The next question comes from Niels Granholm Leth from Carnegie.
Niels Granholm Leth
My first question is on your growth rates for the endoscopy, other categories, so the ENT, urology, et cetera. So the growth deceleration that we saw in this quarter, is that effectively explained by difficult comparatives to last year or why is it that growth rates keeps trending down in this segment?
My second question would be on the one-time cost that you incurred in administration costs. Could you provide a little bit more color on the level of those one-time costs?
And then a third question on potential one-time cost included in your net financials in the quarter.
Britt Meelby Jensen
I think the two last questions are for you, Thomas. Maybe I can start with the first one. When we look at the growth in Endoscopy Solutions excluding pulmonology, which I think was your question, we have a strong growth in the quarter of 36%. And as we say, it’s in particular we see the very strong growth coming out of the US. It’s on the urology business where we are seeing, with the cystoscope, both a continued expansion in terms of the customer base and also where we see the amount that our customers are buying is continuing to increase. I think that continued growth, even that we are expanding our base or percentage wise, that will, of course, not continue to be equally high. I think that that looks to us very promising.
A bit similar when it comes to ENT. We got the fees indication last year. So that’s where we continue to also see a strong growth in that area. And then we talked about GI before that is still a smaller part of that segment.
I would say, overall, I’m comfortable taking time, as we have talked about in the call today, but I think that’s how we will continue to expect the strong growth in this part of the business. And then, that combined with that we’re getting back to growth rates in pulmonology, I think puts us in a good position in Endoscopy Solutions, which is our main focus.
Thomas Frederik Schmidt
Niels, to your two questions, both to some extent, related to one-off costs, one being, as you asked around in our OpEx cost. And I assume you refer to the cost that relates to the restructuring that we did within the executive leadership team. It is exactly one-off costs, obviously not something that will reoccur in the second half of this year. But it’s also not a number and a figure that we will communicate. So I can’t talk and won’t talk too much more about that, other than to say, yes, it’s a one-off and it’s certainly not something that we expect in that nature to see, of course, due to the one-off nature.
In the net financials, we have also – yes, had some one-offs as we’ve obviously done our capital increase. And to the furthest point, we’ve used that to reduce our net debt situation. And that has, of course, also come with some one-offs in our net financials that we, on the other hand, will benefit from in the second half of this year. So, the net impact in Q2 was roughly on the net financials were around DKK 15 million that we then won’t be seeing and actually benefiting from in the second half of this year.
Niels Granholm Leth
Is the one-off DKK 15 million or is that number the run rate?
Thomas Frederik Schmidt
What sorry, again?
Niels Granholm Leth
So is the DKK 15 million the underlying run rate per quarter in net financials…?
Thomas Frederik Schmidt
That was the one-off. Yes.
Niels Granholm Leth
So, the underlying run rate for financials per quarter would be to the tune of DKK 10 million?
Thomas Frederik Schmidt
Correct.
Niels Granholm Leth
Can I just add one more question about your number of employees. Back in August last year, you announced a staff reduction of 200 people. But if you look at the number of employees, it’s now down from 5,100 to 4,300. So quite a bit more than the 200 you announced a year ago. What’s going on?
Britt Meelby Jensen
That’s a good question. So, basically, a lot of this is – the majority of our workforce is blue collar workers. And that’s where we have more flexibility. So when you look at the actual numbers and the reduction, a large part of that is blue collar workers that we have reduced. And that has simply been also a part of the inventory reduction. We had quite a number of products in inventory. And as we’re putting that down, we have slightly adjusted some of workforce.
And then I would also say we have also – we have not made more workforce cuts, but we have held back on refilling positions since last year in order also to manage the cost base. So these are some more recent the adjustments to the workforce. But the majority of these are the blue collar workers.
Niels Granholm Leth
So, you have effectively reduced the number of employees by 800 people.
Britt Meelby Jensen
Yeah, we were not exactly up at the 5,100, I believe. That number, it’s not a full 800 people reduction. We were closer around the 4,900. But it is true that we are down a couple of hundred when it comes to our blue collar workers, which again, as we are emptying some of our inventories, we will see a slight increase in that number again.
Niels Granholm Leth
So, you expect this number in this quarter to be the trough?
Britt Meelby Jensen
I think so. With the current plans we have, yes. And as we are reducing our inventories on some of these products with these finished goods, we will, of course, ramp up slightly again.
Operator
The next question comes from Yiwei Zhou from SEB.
Yiwei Zhou
Yiwei from SEB. I have three questions here. Firstly, just one follow-up on the EBIT margin guidance for second half. We understand the gross margin expectation. Just curious on your OpEx assumption where you have changed the assumption, talking about postponed investments in the second half. Could you maybe elaborate a bit on this? Is it in the sales organization or R&D? And what is the reason here for this?
Britt Meelby Jensen
I can take this. So, in terms of the postponed investments, it’s not so much on the commercial side, it’s mainly on the back office when it comes to innovation and operations that there are some costs that we have slightly postponed related to some clinical studies and so on.
Yiwei Zhou
Secondly, you mentioned now with the lower financial gearing that you will be able to invest in the attractive growth opportunities. Could you also elaborate a bit on this? I’m asking because this conflicts with the fact that you have just downsized the organization and cut down the R&D spending quite significantly. So, looking at your CapEx investment in the coming years, should we understand you are also now looking into some sort of bolt-on acquisitions?
Britt Meelby Jensen
That’s a good question. Thomas talked well about this. With the capital increase, of course, we have now brought our debt down to a very minimum level, which is good from the interest rate cost perspective. But more importantly, I would also say it gives us flexibility on the business that we’re able to invest in growth faster than we were otherwise. Having said that, I think it’s important for us to stay focused and committed on our transformation program. We have a clear plan to increase our profitability.
But, of course, we are a growth company. So that also means that we will and need to continue to look in investing for growth. But, again, striking that balance between increasing profitability.
It’s not that we have a strong focus on M&A right now, I believe, with the new products that we have just launched last year with the upcoming products that we have in pipeline and the transformation program. I think there’s enough for us to focus on. And it’s important that we still continue to be focused on delivering on the opportunities with that and focused on execution and delivering on our transformation.
Yiwei Zhou
Lastly, a question on the aScope 4. Followed Boston Scientific’s launch and its upgrade on the EXALT B, your peer, Verathon, recently launched the BFlex 2 and also claimed the main selling point being the stronger suction power than the market leading product. Do you still believe your aScope 4 can compete on this clinical performance? Or should we expect also a product upgrade from you?
Britt Meelby Jensen
I think definitely. I think we have a very competitive portfolio when it comes to bronchoscopes. The aScope 5 is clearly the best-in-class and the best product that is out there. So we have the full offering, I would say, is number one.
The choice for the customers where they need to use the best scope and go for single use, that’s where we have our aScope 5, which I don’t think that the BFlex 2 is near to compete against.
Then you can say our aScope 4, I see that remaining a market leading product. It’s true that there is competition coming in. And for us, we remain fully focused on delivering on our customer needs.
And of course also, as we have done previously, we continue to improve our product and also look at how is it that we can further strengthen our products to better deliver on the customer needs. I think that’s an ongoing basis. So that’s what we do on the bronchoscope specifically.
And then, of course, with the video laryngoscope, we will then have the full pulmonology offering where we are also looking at very much the full solution we are offering with the system and the bronchoscope and the video laryngoscope.
Operator
The next question comes from David Adlington from J.P. Morgan.
David Adlington
First one is on pricing. I just wondered if you could talk to the pricing environment across the three segments, and maybe more specifically Endoscopy, what you’re seeing on the on the broncho side?
Secondly, just on Anaesthesia and Patient Monitoring, I was wondering if you have any views into why you’re seeing such strong stocking and destocking in Anaesthesia, but lesser in Patient Monitoring?
Britt Meelby Jensen
On the pricing first, pricing is a key priority for us. And that goes across the full portfolio. It’s also on our Anaesthesia and Patient Monitoring where we do think we need to have prices that also reflects the desired profitability. And the same goes for our endoscope offerings. So, on the aScope 5, as we have previously communicated, we do have a price premium of 30% to 50%. We are also seeing that we are able to deliver on and get those prices for our aScope 5. When it comes to aScope 4, given the increased competition, it is of course something that we are close to. Competition, of course, also focuses on the prices. So that’s, of course, where we are more modest in our expectation for price increases compared to other parts of the portfolio.
For Anaesthesia and Patient Monitoring, maybe on this inventory thing, maybe just to clarify, this happened basically one year ago. And because the products in Anaesthesia are products that are saving lives, so quite instrumental for hospitals, and because we have a strong solid business of that in Europe as well, this is where we basically saw some of the stockpiling to make sure that the hospitals had those products in stock in the hospital. And this was also where we had some of the supply chain disruptions and some of the backlog that we cleared out around a year ago. So that explains why it’s hitting our Anaesthesia business more.
On the Patient Monitoring side, as I also alluded to, this is where we see a very good momentum when it comes to our US business, in particular on the cardiology side where we have had a very good quarter.
But, overall, I would say when it then comes to our pricing, maybe to wrap that up, overall, I do think that it’s important to note that we do, as we renew contracts, remain focused on pricing. But we do also, which I think was in your question, see the hospitals being under pressure on their own financial situations, which of course also makes these negotiations quite tough sometimes. But I think there is, in general, a good understanding on the other side of the table that we have had increases in our input prices that we also need to get price increases through.
David Adlington
Maybe just follow up, are you able to sort of quantify maybe across the entire portfolio, you’re seeing low-single digit, mid-single digit price increases?
Britt Meelby Jensen
I think we are not out talking about specifics on the price increases and how the ratio is, but it varies, of course, across the portfolio. But we do see, in some of the segments, successful price increases.
Operator
So, there are no further questions at this time, and I hand back to Britt Meelby Jensen for closing comments.
Britt Meelby Jensen
Thanks a lot. And we are also getting close to the hour here. So I would like to thank you all of you for attending the meeting this morning. Thanks also for the very good questions. And have a good day, everyone.