BICO Group AB
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Welcome to the BICO audiocast with teleconference Q1 2022. [Operator Instructions]
Today I'm pleased to present Erik Gatenholm, CEO. Please begin your meeting.
Thank you everyone for calling in. I'm excited to have you here. I'm excited to be with the team to report on our earnings for Q1, 2022. My name is Erik. I'm the President and CEO at BICO. I look forward to going through the earnings with you to ensure that we can report on our performance.
Next slide, please.
I'm not sure if we see slides. Next slide, please. Next slide please. Could you please go to previous slide and agenda? I think we'll proceed in that case. So thank you for -- there we go.
So the agenda. So, once again, thank you again for joining us. We appreciate you taking the time. Today, we will cover what BICO does in terms of being the future of life-saving treatments. We will go through our group overview, our commercial synergies, organic growth and profitability, our financial summary, the key takeaways for the first quarter, and then we will end with a Q&A session. Next slide, please.
I'd like to start by thanking the entire team for the tremendous efforts in Q1. It has truly been a great pleasure working with everyone, expanding our global market reach and continuing our growth story. We are on an exciting journey together to create the future life-saving treatments with our customers. So it's with great excitement and gratefulness I can report on our Q1 numbers.
Building on our organic revenue growth of 44% in 2021, which is above our intended target of 35%, we've continued this trend in 2022 by achieving 52% organic revenue growth in the first quarter. On top of robust sales, our adjusted EBITDA amounted to SEK 6 million, which corresponded to a margin of 1.3%.
Our gross profit in the first quarter amounted to SEK 352.6 million, which means a gross margin of 73.9%, reflecting a change in sales mix compared to the corresponding period last year. Our goal is positive EBITDA for the full year 2022, which we are on track to achieve. Next slide, please.
Starting with this Q1 report. We're committed to reporting according to our organizational structure and architecture. The Q1 reported first highlighting this performance and the results from each of the business areas that we have. The establishment of these business areas and the integration structure has been ongoing over the last couple of quarters, and we're excited to proceed with reporting on the progress with that.
It's especially exciting to see the strong organic growth within each of the business areas, as well as the contribution they do to the overall group organization. We're excited to continue to support these great companies and teams all around the world as we continue our integration strategy, and are ensuring that new businesses will join us in the strive for our mission. Next slide, please.
At this time, we're fully focused on integration, building a commercial success through technical and administrative synergies within and across the 3 business areas: Bioprinting, Biosciences and Bioautomation. In order to support our global integration efforts across business areas and ensure robust financial reporting process, we have strengthened the finance function, which we're very happy now to welcome a new Interim CFO, Mikael Engblom; VP of Finance, Tommy Niklasson; as well as Senior Vice President and Head of IR, Asa Hillsten.
Worth mentioning also is an example of the commercial synergy that we have established, and that has already started to show results in our simple, but powerful Lead Sharing portal, which has since September 2021 already generated over 100 leads shared between the business areas, and more than USD 1 million in revenue. Next slide, please.
As we continue to deliver on our growth strategy, we're also, of course, committed to deliver on our profitability target, and we have a strategy in place led by the right team and leadership to ensure that we will continue to move in the right direction.
In terms of commercial synergies, one of the highlights of the quarter is certainly the first sale of the C.STATION system to a European gene therapy company. The unique platform offers an automated workflow for a single-cell cloning of transfected cells to selecting high-producing clones and upscaling. It's a beautiful example of our convergence strategy, of combining some of the greatest technologies in the group that we offer, especially the automation software from our recently acquired Biosero. Next slide, please.
We continue to see strong demand for our products across all regions as well as product portfolios. Our technical teams have done a great job positioning the company's products well in line with customers' demands built today and the demands of tomorrow. With the recent partnerships with both Bruker as well as Thermo Fisher Scientific, we see strong interest for our omics offering, and our single-cell technologies are perfectly aligned and positioned to deliver on the customer needs in terms of sample preparation.
We continue to see publications being generated by highly regarded institutions, both highlighting the innovative level of our offerings as well as the value being generated by the use of our products. Next slide, please.
We're very excited to continue -- to show the strong organic growth for the quarter, and are thankful for the continued efforts our commercial teams are doing around the world. As previously mentioned, the organic growth for the group amounted to 52% and the total growth amounted to 268%.
During Q1, we attended one of the most important conferences together, the SLAS, a global laboratory automation conference, with 8 of our daughter companies who represented in a BICO conference exhibiting our broad bioconvergence products portfolio. Next slide, please.
We continued to see strong demand for our products and services from all around the world, and we're excited to even see strengthened demand from the U.S., our most important market. We're also seeing great uptick in demand for our systems and products in APAC. And during the quarter, we have made great progress in expansion in China, one of the most important markets in 2022 and beyond. Next slide, please.
Yes. So the -- I will take you through the key financials during the quarter. So organic growth was 52%, as Erik mentioned, and where the strengthening of the U.S. dollar against SEK contributed with approximately 5 percentage points of that growth. The EBITDA margin was minus 4.5 -- minus 4.1% reported in line with the previously announced preliminary results.
The Bioautomation business area contributed with an EBITDA of SEK 6.2 million, corresponding to a margin of 4.4%. The Biosciences business area contributed with an EBITDA of SEK 10.2 million, corresponding to a margin of 4.8%. And the third business area, Bioprinting, reported an EBITDA of minus SEK 4.9 million, corresponding to a margin of minus 4.0%. The adjusted EBITDA margin was 1.3%, and I will take you through the adjustments on the next page.
The cash flow from operating activities amounted to minus SEK 69.2 million during the quarter, of which minus SEK 58 million was attributed to inventory buildup during the quarter. This is planned and intends to reduce the risk of delivery disruptions and price adjustments that the group see with contractors -- subcontractors. Capital tied up in operating receivables decreased slightly during the quarter as a result of payments from the seasonally strong fourth quarter.
A few words on financial focus areas for 2022. Priority is to grow into the cost base during 2022 by combining the organic sales growth with cost control, for example, through a more cautious recruitment base. Another priority is to reduce accounts receivable, amongst others, through an improved collection process.
Furthermore, our focus area is to improve the internal reporting and financial planning. One important activity to achieve this is the implementation of a new ERP system that we are currently in the process of launching. Next page, please.
So the EBITDA was minus SEK 19 million. And as in the previous report, we presented an adjusted EBITDA to support clarity for the onetime effects. And the adjusted EBITDA was plus SEK 6 million. And the key adjustments done is the cost for the option program, and it is acquisition and integration costs as well as the cost for the new ERP system and rebranding. Next page, please.
Few words on the gross profit and margin. The gross profit was SEK 352 million compared to SEK 100 million in the same quarter last year, and this meant a gross margin of 73.9% compared to 77.3% in the first quarter last year. And the gross margin is slightly higher than the average for the 2021. And in the first quarter last year, the gross margin was higher due to a higher share of service revenues. Next page, please.
So the key takeaways. I would like to once again take the time to thank the entire team for their tremendous efforts in Q1. It has truly been a great pleasure working with everyone, expanding our global market reach and continue our growth story. We're also thankful for all the shareholders and investors who continue to support us on this journey.
The major key takeaways from Q1 is to continue to focus on our profitability and have a strong strategy in place. We're continuing the integration of acquisitions and creating commercial synergies within the business areas. We're advancing our commercial position, and we're continuing to deliver on the strong demand around the world. Next slide, please.
With that, I'd like to thank you for your time. I'd like to continue to reiterate our mission to reduce the organ shortage and speed up drug development by providing accessible life science solutions that combine biology and technology.
And with that, thank you for your time, and we look forward for your questions.
[Operator Instructions] And we currently have 2 people in the queue so far. The first is Ulrik Trattner at Carnegie.
Congratulations on a good report, and especially happy to have Mikael with us as well. I have a few questions, if I may. And if we can start off with the receivables and perhaps if we could dig a little bit deeper into what efforts are being done here to improve accounts receivable throughout the year? Is there any specific company or geographical area or a customer group that is delaying payments? And is there any seasonalities in terms of receivables in Q1 that we should not extrapolate going into Q2 and the rest of the year? That would be my first question.
Ulrik, Well, I mean, first off, we have the effect, of course, that the sales in the first quarter is lower in absolute terms compared to the fourth quarter. So we see a decline in accounts receivable as a consequence of that. So that's important to consider with the seasonality. And then when it comes to the day sales outstanding, we are looking to work with 2 different areas, and one is the terms with the customers. So we have reviewed the terms with the customers to see if we can have a quicker payment terms.
And the other area is the collection process, and working with reminders and collecting outstanding due invoices. That is the work that we're doing -- that we're in process of executing with all the subsidiaries. So that is something that we'll continue to work on during the coming periods.
And these collection processes, they have not been in place before?
Yes, they have been in place, but we are looking to strengthen them.
Next question is on the adjustments. And looking at these numbers, M&A and integration costs, yes, it is lower in Q1, but it should be lower year-on-year given the slowdown in a number of acquisitions. But on ERP and re-branding, have majority of the investments been taken throughout 2021 or how should we view those items?
Yes. The majority of the expenses for the ERP has been expensed, yes.
So we should then assume that these EO items should come down quite significantly year-over-year?
Yes.
Next question would be...
Sorry, it's also worth mentioning that the majority of the cost in that item is associated with the ERP.
And on supply chain, we have seen some disruptions around the world, obviously with quite some significant lockdowns in China, disruption from Russia and Ukraine. Are you seeing any delays or troubling sourcing components that should sort of affect demand? As well as looking at price increases, I know you were talking about price increases across the group for around 5% to 15%. Could you help us remind us what we should expect?
Yes. I mean, as all companies, we see a lot of challenges with supply chain, but we are working to mitigate that by increasing inventory levels, which you have seen during the quarter. And at the moment, as Erik mentioned, we are -- our operations are running smoothly. We are -- have the components that we need in order to support our customers. We have seen increased costs when it comes to raw material components, and we are increasing our prices to customers in order to mitigate that.
3 more questions, if I may. Group cost of SEK 31 million or sort of group cost affecting EBITDA by SEK 31 million, annualized SEK 130 million roughly, what should we expect in terms of group contribution on EBITDA or group function? Is that something that is growing, plan to be expanded? Or are we at a stable state?
Yes, I think we could expect a relatively stable state on that.
And next question would be more perhaps on what's happening in the organization. And if you can talk a little bit about the changes over the last few quarters in terms of integrating certain parts in certain companies. And I know that you have merged the sales force in certain regions. If you could give us some more clarification on what's being done in terms of integration, that would be very helpful.
I'll gladly shine some light on that, Ulrik. First of all, we're really excited to start reporting on the business area level to show the organic growth and results for each of the business areas. So I think that's going to provide even more transparency and clarity on the success for each of these business areas.
In terms of the commercial synergies, we're seeing the strongest synergies are happening within the business area. So for instance, the C.STATION and the commercial success around that, the combination of the Bioautomation business -- Bioautomation sales force, which is going to be better positioned to cater their customer demands and the needs out there, and many more exciting synergies as such.
Our focus right now is really on the commercial synergies and technological ones, so not necessarily on the intricate details of the operating synergies, but this is something that we will potentially look at a later stage. So primary focus commercial synergies, perhaps combining sales forces in different regions or global region, and combining technologies for the sake of expanding the product portfolio.
So last question on my end. I'm very happy to see you here, Mikael. But I know that you're still just the Interim CFO. So what would it take for you to become the permanent CFO of BICO Group?
Thank you, Ulrik. I'm very committed to execute on this interim assignment. And the key priorities of profitability and cash flow is what I'm focusing on. So I'm focusing on delivering on this assignment that I'm committed to.
We currently have one further person. [Operator Instructions] And our next person is Rickard Anderkrans of Handelsbanken.
So first one, you touched on it a little bit previously. How should we think about the cadence of improving cash flows throughout the quarters over 2022? Should we expect significant improvements already in Q2? Or can you please help us a little bit?
This is an ongoing process. And I mean, we target to improve the accounts receivables in relation to sales during the year, but we don't provide any forecast on exactly how this will play out during the year.
And I have a question for you, Mikael. I know it's still very early days, but what has been your key priorities coming into the organization? And can you share, I mean, your action plan for the coming months? It would be interesting to hear a bit more granularity, if you could.
Yes. I'm only been with the company for a couple of weeks, so what I'm trying to do is to meet as many people as possible, I'm trying to learn as much as possible. I mean the priorities are very clear. It's about profitability to ensure that those plans that we have in plan will be executed, and it's about profitable -- cash flow. So we've mentioned these initiatives on accounts receivable. And then we have -- we are working on strengthening the internal reporting and financial planning with forecast. So that is the third priority. So it's very clear that those are my priorities.
And it would be interesting to hear a little bit more high level on the status and priorities of some of the organizational changes in the company overall with staffing focuses, et cetera. How are you feeling about staff turnover levels and overall focus areas in terms of the organization?
Very good question, Rickard. And first of all, I think what has been the most important step for us in the last couple of quarters is to align the group level organization and the business areas to ensure, first of all, that we can continue to deliver on the ambitious growth targets that we have, as well as reaching the profitability targets that we have set in place.
With that being said, 2021 was a great year for us to acquire a lot of great companies, add a lot of technologies to the group. And as we've mentioned now during this earnings call, is really to focus on integration now. That also means that the business areas need to have what it takes, and have the structure and architecture to ensure that they will grow, and have the right person in the right place. The same applies to related to the group organization.
And our focus is to support the daughter companies, the business areas, ensure that we will continue to deliver the reporting and financial transparency to the market, and ensure that we continue to deliver value to our shareholders.
Just 2 more from my side. So firstly, how are the daughter companies and the clients and what's been the feedback so far on the increased focus on collection and cash, net working capital management et cetera? How -- what's been the feedback so far?
We are having very positive feedback and everyone is committed to lower the working capital and to work for these initiatives in accounts receivables. So it's only been positive feedback, and we are trying to improve new metrics and larger granularity, and that's all been received positively.
And just a final one from my side, if I may. So capital expenditure was rather high in the quarter. How should we think about CapEx going forward? Are there any specific items driving the CapEx that you would like to highlight?
Yes. On the intangible side, it's development projects, and those can, of course, vary over time, but we are seeing an increase in the first quarter compared to the fourth quarter as a result of more development projects. And on the tangible side, we are having investments in 2 new facilities. So therefore, the CapEx is higher as a result of those investments.
But on the sort of tangible CapEx side should probably level off then in the coming quarters or decrease, I guess?
Yes, after the investment in the facilities are completed.
Currently, there are no further questions at this time. So I'll hand back to our speakers.
Well, we do have a number of questions e-mailed to us.
And the first one is, the acquisition of Biosero allows you to offer quite automated solutions with tissue engineering from starting point to end. How do you see BICO's market position now in automated lab solutions in general and in automated solutions in the field of tissue engineering? Do you see there are some crucial missing parts to be acquired to further improve broad equation in tissue engineering workflow?
I can start addressing that. That's a good question. So first of all, the acquisition of Biosero was transformational for the BICO Group because it provides us finally with an automation platform and a software that can start to consolidate a lot of the technologies that we have previously acquired. It gives us the ability to go from offering single unit, instruments or products to offering major workflows and a more complete picture or a complete solution for our customers. So this has been a really important step for us. It's an important step into the future with the commercial agenda. From a technical perspective, Hector, I'll let you shine a little bit of light on that.
Absolutely. So, it's very unique sector by the way. This is a very unique workflow that we have been designing for quite a few years. And as you can see from the acquisition in 2021, we have added a lot of new products, including the latest acquisition from Allegro. Very unique technologies that will enable the tissue engineering workflows.
Today, we believe, we have a very competitive portfolio to start assembling these workflows. And these are things that we are already in discussions with big pharma, which have a very high interest, especially for 3D cell culture. So we're going to continue pushing on that, and we believe we are extremely well-positioned to be able to deliver on parallel solutions.
Next question we have is within commercial synergies. How much time do you estimate to take full synergy benefits to execute off acquisitions? Are there major new synergies, products coming up during this year and next year?
Very good question. Commercial synergies are typically the faster ones to start realizing, because those are more approaching new end users or existing end users with existing products or with new products. And I think that what we've seen at least from -- as an example, the C.STATION. We launched the C.STATION in 2021. This was a product that combined a lot of different technologies and platforms throughout the group, and we're already starting to see orders coming in, in Q1.
So this is really exciting. This is an example of the strong commercial synergy. We see these synergies throughout the group and between the business areas and within the business areas, and that's something that will continue to be one of our successful factors as a company moving forward.
As for added technologies and products that we would like to continue to provide or offer, we continue to have an M&A agenda. Even though that this year is focusing mainly on integration. Our M&A agenda is going to be primarily focusing on smaller bolt-on acquisitions that will enable our current companies in the group to be even more successful in the marketplace.
Thank you, Erik. We have a third one and it's within the area of investment willingness. How do you see investment willingness of your customer companies and academia towards new tissue engineering therapy solutions? How is it evolved during this year and how it is in the near future?
I think from an investment perspective, we are fully committed to the next-generation core industrial ecosystems that we started to mention already from Q4. And these ecosystems are going to be crucial in terms of reducing the organ shortage and speeding up drug development. Our part in this story is really to provide our customers with the greatest technologies that they need to be able to provide the life-saving treatments to patients around the world. So we're fully committed to that. We'll continue to invest in ensuring that our customers' needs are fully being satisfied. As for product and technologies, we will also ensure, of course, that the products and technologies that we do offer into the field, are of high quality and that they fully satisfy the needs of our users.
Last question. How is your IP situation? Have you managed to protect your important -- most important technical solution crucial for the company?
Yes, I can take that. Absolutely. So today, we have about 500 patents and patent pending applications. Granted patents and patent pending applications. Very strong portfolio that we have been developing over the past 6 years. We're covering all of our core technologies with this portfolio. And it's just a matter of time before we get more and more patents granted.
Thank you, Hector. That was the last question from the e-mail side. Thank you.
And with that, I would like to conclude the Q&A session. And I'd like to thank you for your attention today. Again, we're very excited to report the Q1 numbers. We are committed to our vision to create the future of life-saving treatments and reduce the organ shortage and speed up drug development with our exciting technologies.
So again, thank you so much for joining today, and we wish you a great day.
Thank you, Erik.