Swedencare AB (publ)

STO:SECARE

Earnings Call Analysis

Strong Q3 Growth Despite Challenges: Revenue, Margins, and Future Prospects

In Q3, the company achieved 9% organic growth, with a notable 30% surge in Europe, despite a decline in North America due to NaturVet struggles. The gross margin improved to 58%, while EBITDA reached SEK 136 million but faced a year-over-year margin decrease to 21.2%. For Q4, the team expects EBITDA margins to recover but remain below 25%. The firm aims to lower net debt from 2.2x to improve profitability while exploring significant growth in Amazon sales moving forward. Future plans include internalizing Amazon sales by 2026, aiming for solid growth amid ongoing marketing adjustments across regions.

A Robust Quarter Amid Challenges

In the latest earnings call for Q3 2024, Swedencare reported a commendable 9% organic growth amid challenging conditions. This growth was significantly influenced by a 3% negative currency impact from a weaker U.S. dollar. The company achieved record operating gross margins at 58%, up from 54% the previous year, demonstrating resilience even as gross profit was tempered by operational pressures in key regions like North America.

Segment Performance: North America vs. Europe

The North American segment faced considerable headwinds, particularly due to declines from NaturVet and Garmon, causing a modest 2% growth in the region. In contrast, Europe boasted a remarkable 30% growth, driven by robust performance across various entities. The U.S. production segment particularly excelled, posting an impressive 59% growth rate. Overall, the company is exhibiting strength in diverse geographic arenas, with focused strategies tailored to local nuances.

Marketing Investments: A Double-Edged Sword

An increase in marketing expenditure was cited as a focal point, intended to bolster sales, especially in the digital space. However, the higher spending, particularly in NaturVet for Amazon, has not yet yielded the anticipated sales boost. The company noted that this increased spending resulted in a 'double hit', as associated inventory reductions curtailed growth during the quarter. The management acknowledged the need for adjustments in marketing strategy to meet sales expectations while controlling costs better.

Cash Flow and Debt Management

Swedencare's operational cash flow demonstrated strength with SEK 125 million generated for the quarter, contributing to an overall cash position of SEK 193 million at the close of Q3. The net debt to EBITDA ratio improved significantly to 2.2 from 2.9 one year prior, illustrating effective debt management strategies. The company's efforts to decrease external debt by SEK 50 million is a positive signal for investors, reflecting prudent financial governance.

Guidance for Future Revenue Growth

Looking ahead, Swedencare anticipates improved performance for NaturVet in Q4, with expectations for notable growth as they begin direct operational management of Amazon sales from 2026. This transition is aimed at enhancing oversight, potentially leading to a more steady revenue stream. The management hinted at a stronger contribution from NaturVet going forward, with incremental improvements likely to align closely with overall growth trends observed in the business.

Strong Prospect in Pharmaceuticals and New Product Development

The calls also highlighted exciting growth prospects for Swedencare, particularly in pharmaceuticals and dental care products. The focus on proprietary products, coupled with innovation in generics, positions the company well for future expansion. The management emphasized that successful launches in areas such as ProDen PlaqueOff, which saw a remarkable 50% growth, underline the potential for diversified revenue sources that enhance profitability.

Sustainability Commitments and Future Readiness

On the sustainability front, Swedencare is actively working to incorporate recycled materials into products and hiring dedicated personnel for sustainability initiatives. They plan to unveil measurable sustainability goals in early 2025. This commitment to sustainability not only aligns with global trends but also enhances corporate responsibility, likely appealing to a growing segment of environmentally conscious investors.

Navigating Challenges: Setbacks and Recovery

Despite facing setbacks, especially due to notable weather disruptions affecting operations in Florida, the management remains confident of navigating challenges effectively. They reported minimal damage sustained during hurricanes, indicating strong operational resilience. A renewed focus on bolstering sales strategies across various channels signals a proactive approach to stabilization and growth, ensuring that the company is well-prepared for future challenges.

Summary: Towards a Promising 2025

In conclusion, while Swedencare experienced mixed results during Q3, the underlying dynamics suggest a path towards recovery and sustainable growth. With anticipated stabilization in marketing expenditures, innovative product lines, and a clearer control over key sales channels, the outlook for Q4 and beyond appears optimistic. Investors may find reassurance in the company’s strategic shifts and commitment to profitability as they approach 2025.

Earnings Call Transcript 2024-Q3

[Operator]

Hi, and welcome to the presentation of Swedencare's Q3 report, led by our CEO, Håkan Lagerberg; and CFO, Jenny Graflind. And we are pleased to have Production Manager, John Kane, joining us with the presentation during today's webinar. And as usual, we will have a Q&A after the presentation. [Operator Instructions].

Over to you, Jenny and Håkan.

[Hakan Lagerberg, executive]

Thank you very much. A warm welcome to everyone joining us today for the Q3 2024 reporting. Starting off, 9% organic growth, a bit lower than we want to be, and it was impacted by negative growth of Garmon and NaturVet. And as most of you know, that's the biggest entity of our group. So a big impact on us, but we still delivered 9% organic growth. And as I wrote in the report, the rest of the group together delivered 30% organic growth. So actually a fantastic quarter for many of our group companies.

Looking at the overall pet health market, solid growth in major markets where there are reports and a bit of a pickup in M&A activities compared to a year ago. And it's been -- I will come back for our case. We have ongoing discussions, but it is a bit challenging with multiples still in this industry. Where there's been most activities in M&A, not so surprising, has been in North America, U.S. predominantly, and that's also, as you know, the biggest markets in the world.

For us, looking at our channels, a very good bounce back for the veterinary sector. Veterinary sector has been a bit slower for us in the first half of the year and now coming back to really nice numbers in all markets, basically. Online still very strong and despite the effect the online sales on Amazon and NaturVet had on us in this quarter, we see a very strong growth on our online activities. Pet retail a bit slower, and that's for all markets, but still growth, but slower than the other 2.

Looking at our ESG initiatives. We've been working with some efforts to increase the recycled plastic content in our products, in our tops, basically. And we have had very good discussions with suppliers on both continents and also for our branded product, it's easy to take some big steps going forward here. But we've also had very fruitful discussions with our major contract manufacturing and private label partners. Also start -- made some life-cycle analysis on products that we have in the group and hired a sustainability-focused controller just joined us. So we are beefing up our capacity and our efforts. And we will, as we presented, Laszlo Varga call presented at our last call, we will be presenting our goals, sustainability goals in Q1 2025 that will be measurable.

Finally, as we presented before the Q2 reporting, we acquired MedVant, the Canadian veterinary distributor that joined the group as of 1st of August. And it has been a very smooth process getting the team join us and already seen some good collaborations between the group, as expected. It's been a partner of ours for some years, distributing our Rx Vitamin brand in Canada. So we knew the team very well. So no surprises there on the negative front, only on the upside.

So over to the numbers and Jenny.

[Jenny Graflind, executive]

Yes. Like Håkan said, we had another record quarter and 9% organic growth. There was a significantly weaker U.S. dollar, which impacted the growth with a 3% currency impact. Our operating gross margin increased with 40%. It's almost at 58%, and that's compared to 54% last year. Our EBITDA is SEK 136 million and a margin of 21.2%. That's 1.4 percentage points lower the margin than we had last year, but it's about the same value. We continue to decrease our net debt to EBITDA. It's now at 2.2 compared to 2.9, 1 year ago. And our operating cash flow was really strong for the quarter. We had SEK 125 million, and we have SEK 193 million of cash when we closed Q3.

Okay. Some highlights on the revenue, the gross margin and EBITDA. So the North American segment was down year-over-year and it was heavily impacted by NaturVet. But due to very strong growth in the U.S. Production segments, they grow about 59%, the North American region was at 2% growth. Europe, very good strong growth, 30%. In the rest of the world, we had a decline, and that's due to the fact that we had a material pharma delivery in Q3 last year. But the rest of the brands grew with about 10%.

Our gross margin is stable at 58% for the last 4 quarters, and that's in line with our expectations. In the quarter, there's been an increased spending in marketing, both in value and as a percentage of sales. The increase is the reason why we don't see an increase of the EBITDA margin, which this quarter is lower than last year, it's lower than previous quarters and is significantly lower compared to where we want to be.

The increased marketing spend is linked to the major digital platforms and there are several reasons why this has not had a positive impact on sales, and I will go through those. So the #1 is that we have increased spending in NaturVet for Amazon, and we can see that Amazon grew with 13% for the quarter. However, at the moment with Amazon, we work with partner, which has decreased their inventory. So our -- while the Amazon sales out the door grew, we have a decline in our sales compared to Q3 last year. So this increased marketing spend that we had this quarter basically had a double hit on us.

Second, in the U.K., we have taken over the Amazon sales in-house and that also means that we all do the marketing ourselves. And this is actually the first quarter we are really back with the sales volume. And thinking over the marketing, we need to tweak a little bit to make sure that we find the right levels. And third and last is also in the U.K., where we have increased the marketing spend for NutraVet. And this has not had the expected result we wanted on sales, mainly due to a slower veterinary channel. So this is the reason behind the lower EBITDA margin.

Let's go and talk about cash for a little bit. We had a positive change in working capital this quarter with SEK 22 million. We had lower inventory, lower receivables. In addition, we have paid the acquisition of MedVant, that was about SEK 28 million, and we have also been able to decrease our external debt with SEK 50 million. So we had a very good cash conversion, 93% for the quarter.

In addition to that, we have now about 80% of our U.S. cash is now included in our cash flow, and we have also initiated a cash flow in Europe. So this will continue to enable us to have a lower cash level. And then we can, just like we did this quarter, we can use our cash for investments and to decrease our debt instead. Our net debt-to-EBITDA continues to decrease. It's down 23% compared to 1 year ago, and we expect it to continue to decrease.

The first 9 months of the year, revenue is now close to SEK 1.9 billion, 10% growth, and that's including 1% acquired growth and negative 1% for exchange impact. EBITDA is at SEK 415 million, that's an increase of 15% compared to last year, and margin has also increased from 21.2% for the first 9 months to 22.2% this year. Rolling 12 months, nice trend. We are now at SEK 2.5 billion for the rolling 12 months and SEK 550 million in operating EBITDA.

Product split. As you can see, there's a small decrease of nutraceuticals, that's our largest category, and the reason behind that is the decrease of NaturVet, as we talked about. Pharma, still a small category, but very nice strong growth, and we continue to expect that to ramp up. Dental, also fantastic growth of 50%, this is mainly the product PlaqueOff and a few other dental products, but it's mainly for the PlaqueOff. And the main contributors here are the ProDen PlaqueOff powder and the soft chews, which are quite newly launched. However, it's quite nice to see that even the other dental products, so products that we produce to other partners, have had a strong growth. And that's positive to see that this important therapy area is growing.

If we look at some of our brands, Innovet stands out, that's our Italian entity, that market has been growing at a healthy 9%. However, we are growing much faster than the market. We have grown 22% of this in Italy, which is nice. The decrease that you can see in the private label, that's mainly due to this lost private label customers that we had at NaturVet, which we spoke about in the report. Riley's, it's the new acquisition that we completed in the beginning of the year, which continues to grow quarter by quarter.

[Hakan Lagerberg, executive]

Okay. Looking at the different regions that we have. As Jenny said, a very small increase of the sales in North America, and we all know after our presentation here, the main reason for that negative growth in Garmon and NaturVet, in other group companies had a strong quarter. I won't repeat all of the Amazon, the numbers that Jenny said, but what I would like to say is that concerning the private label customer, that was a big retail chain that completely closed down one brand, and we have the, let's say, last and the biggest order for 2023 was delivered in Q3 last year. And we are back on discussing with that partner and launch, they will most probably launch a completely new brand, and we are in discussions about that, but that will be for 2025.

Concerning the Amazon sales, we are now in agreement with our partners. So from 2026, we will be running it ourselves just like we do in the U.K. and like we do for a couple of brands with the Pet MD platform. So that means that we will get full top line sales and also more control of the spend and not only spend, but the activities that we do, but I would like to stress that we have a very good partnership currently, and we are very involved in the marketing, how it's been done and that's been really good this quarter to see that our new organization working with that together with our partner, has grown the Amazon sales for NaturVet by 13% this quarter.

In the veterinary channel, as I said, has been a really good comeback. It's both from production manufacturing, our major veterinary customers there, and also for our own brands. We finally see a good payback on the efforts we have with big partners. We have big, let's say, exclusive partnerships with MWI and Patterson for a couple of our brands, and we've seen good results with that in Q3. And one change that will be going forward is that we will be taking back the online efforts for those brands from Q4 this year, because that's one area where our partnership hasn't really delivered the way we wanted to. So we have agreed with our partners that we will take back the sales for online for both Stratford and Animal Pharm. So that's -- our team is very thrilled about that.

Online strong, Pet MD, ProDen PlaqueOff, Riley's. Riley's is a new category for us this year, has been delivering really well, and we continue to build out that organization as well. On the more negative note, but with a good ending was the 2 hurricanes that hit Florida in September and October, and we have a big operation in the Tampa area. They were hit by both hurricanes. And our manufacturing facilities in Jupiter with Vetio were hit by one of them, the last one in October, but fortunately, I can report that due to great leadership and team efforts, we managed to have minimal damage on our facilities. And more importantly, no people in our organization were hurt and we sold the most critical periods by, of course, closing down and making sure that everyone was safe and sound at their homes. So a good ending to a troublesome situation.

Okay. Looking at Europe, continues like they've done all year. Really, really strong growth, 30% growth in Q3, and they are now up to 23% of our total group revenue. Growth in all entities, except for NutraVet. As Jenny said, there was a bit softer due to my speculation, as I wrote in the report, is that where we've seen the -- a bit softer market has been from the bigger veterinary chains. And I think they are occupied with the ongoing antitrust investigation that is in the U.K., but that's my speculation that no one has wanted to tell us that. But what we can see at least is that the underlying demand in the pet health sector from pet owners is definitely not slowing down because our online efforts for other brands that we have in the group and also our online, we have our own D2C web shop for NutraVet, and that has been performing really, really well. So no real issues there.

Finally, as Jenny said also that we now see some really nice effects of the transformation that we did, bringing back the Amazon sales for predominantly ProDen PlaqueOff and some other brands from Amazon to fulfilled by Amazon. And that means that we get the top line sales and also we get more control of the marketing. And we just need to tweak it a bit from a bottom line perspective our marketing efforts, but we see a really, really good effect on the programs that we have launched. So the growth was really good in the quarter.

And mentioning some product launches, our Italian company, Innovet, has launched a completely new concept or revamped best-selling line in the joint category in Italy with really good results, and they have just started launching it. And as Jenny said, the Italian market is one of the markets where we get the best data from the animal health sector. And it's been an impressive growth this year in Italy as a whole market, 9% now in Q3. And Innovet delivered 22% in Italy and 17% counting all of the international actions as well. So been doing really, really well.

Rx, when it comes to e-com continues. We work more with influence and marketing for a couple of our brands, launching exclusive collaborations with Zooplus, as we've been discussing and presenting. So excited to see about that. We're actually shipping -- have been shipping products to Zooplus now in October, so it didn't affect the Q3, but the team here has been working hard with it. And overall, we just keep on, let's say, becoming better and better when it comes to online. So we're excited about that. And our, let's say, group team are helping out to more group companies than before. We have more capacity and also the interest from group companies to be getting some help is very good.

Net sales for rest of the world, not a small -- that's still a small portion of our sales, 2% of our sales, down 28%. But as Jenny said, it was an Asian pharma development project that was a multi-multimillion invoicing in Q3 last year. And those are -- I mean, lumpy projects, they are invoiced in certain milestones. So -- but looking at the rest of our international sales grew by 10% and the markets that did best was ProDen PlaqueOff, as usual, Rx Vitamins, NaturVet and NutraVet delivering growth to the group.

Looking at different regions in the world, Asia continues to be good, except for China, but I'm happy to say that we will ship an order again to China for ProDen PlaqueOff in Q4, so we have received that. So it's picking up again. But China is still slow, the sentiment in China is tough and we are preparing a couple of more brands to enter into China, but it's both due to regulatory. It takes time, but also from a marketing, let's say, timing perspective, we have chosen to be a bit more cautious with China, and that will probably be -- we won't be launching any new brands in China in Q4. It will be in 2025 when we feel it's the right timing to do it.

South America is continuing to deliver really well. Chile and Uruguay, Brazil and also Central America with Mexico really good growth and looking good going forward as well. And looking at the priorities 2024, no big difference from last time, basically, growth profitability and lowering debt level, that continues. So that's really -- we will -- we are really focused on ending on a good path for 2024. So we are very focused on delivering predominantly stronger profitability in '24 than -- in Q4 than Q3.

And also, as I said, looking at the -- we don't give, let's say, forecast for individual companies, but I can definitely say that the Amazon sales to our partner in Q4 will be stronger than in Q3. And what we've been working a lot with, not me that much, but the excellent team that we have in our NaturVet team, then been working really hard, as I presented previously that they are focusing entering the big-box retail 2025 and onwards. So we are in very final stages with a couple of important partners. And I will report to the market when that happens if in the Q4 report or whenever it happens, perhaps not as a single press release. But still, we will communicate what happens in this important channel for us.

And we were also -- I said that we were evaluating a move from external to internal concerning manufacturing online sales, utilize specifically the online sales using the Pet MD platform. And we are moving forward with that. So for a couple of brands that have been working either with a partner or some other setup, we will be utilizing in North America the Pet MD platform more for our, let's say, smaller brands. So excited about that.

Product launches and development. I will present in the Q4 reporting about all the product launches that we do because we do a lot every quarter, and that's perhaps something that the market doesn't really realize that we are very effective in launching new products and in launching new and innovative products to the market. So that will be a focus area in the next quarterly report. I will present a couple of new products that we have launched in the year 2024.

What we also have been focused a lot with the bigger customers, both pet retail and also the big-box retailers. It's really lifting the dialogue with them. We have been investing in research, on a customer, let's say, preferences and pet owner preferences and pet owner, let's say, the decision is to buy one product or one brand for another. And the long-term strategies, what the key opinion leaders and experts see in the future.

So we have been and are going to have in this end of the year, lots of, let's say, strategy and meetings together with the major players in the market, predominantly in North America. So that will lead both to, let's say, branded opportunities for us and also when it comes to advanced private label collaborations that we have a good dialogue and also present and decide on, let's say, longer-term plan for a brand, either it's our brand or private label. So it's more of a, let's say, 3-year strategy for product launches. So we are focusing into having a longer look at the market going forward.

Evaluating potentially closing on M&A opportunities. Nothing changed there. We have dialogues ongoing all the time. But it is still a bit of a challenge when it comes to valuation. The average, I just read a report this week, the average multiple on price to EBITDA had gone down to 17.4 in North America compared to 21.2 a year ago, but there were basically not that many deals done a year ago. So it's still an attractive industry, lots of activity, predominantly from the, I would guess that the majority, not only guess, I would say that the majority of the transaction being made is by players that has been a bit quicker entering -- reentering the market compared to industry players. And some have some challenges like we do when looking at the valuations and multiples on public companies in the sector compared to private.

A couple of years ago, it was very big difference between public and private in the way that the public created at a lot, lot, lot higher multiples. And now it's the other way around that -- but many private companies are being paid higher multiples than public companies being traded. So that is a bit of a challenge, but I would say we have ongoing discussions and expect us to be active in the coming years when it comes to M&A.

And now I'm happy to introduce John Kane, our Production Director for the group, joined Swedencare by the acquisition of Vetio in the summer of 2021. And John has been very important to our whole group when it comes to product development and manufacturing, and I'm very pleased to introduce him to you. John, over to you.

[John Kane, executive]

Thank you, Håkan. Good morning. As Håkan said, my name is John Kane. I'm the CEO of Vetio and group management responsible for production, been with Swedencare since July 1, 2021, with the acquisition of Vetio.

Next slide. As Håkan and Jenny said earlier, the production group has had a strong performance in Q3. Certainly, when you look at Q3 last year, obviously, there would be some smoothing around the quarters around this time last year, but still an overall really good trend upwards to the right. We -- this includes both internal and to internal Swedencare sister companies as well as external contract manufacturing revenue, which exceeds, and I'll get into that a little bit later, the split between internal versus external. This is really across all 4 production entities of Vetio, as I'll get into later. Really good momentum building off of pipeline wins this year. And next year, we'll be getting the full effect of that. So we expect some good momentum carry into next year.

So who is Vetio animal health. At a glance, unlike some of the other sister companies, we do not market products. We don't have our own brands. We are a contract development and manufacturing organization, and that's our focus. We are completely dedicated to animal health. We have customers around the world. We -- our legacy is really product development and research development.

We have, in each case, a strong development team, and then we build out facilities and manufacturing around those technologies and platforms. So we have customers around the world for product categories like pharmaceuticals. So these are veterinary drugs made up in our Montreal, Quebec facility, these can be tablets, soft chews based on our patented technology, which I'll get into later.

Nutritional supplements is an area that we are participating in 3 of the 4 operations, this is a very -- it's a growing category. It's the biggest category for Swedencare. It's a strong market. We expect to do very well in that market with our soft chew technology that we're currently building out in several of our locations and expanding. The topicals are liquid products, these are typically grooming and care products. We do have dental and oral care, but grooming, dermatology, things like that, in the U.S., we are the largest CMO for this category historically.

And then palatants, something you've heard about probably recently for us, we have -- these are flavor systems which enhance the palatability of drug products, supplement products. These are both solid dosage form products and liquid products and we have some proprietary technology formulations that we have submitted even to the FDA for a veterinary master file. So we have kind of proven technology around enhancement and palatability and then we have these dossiers on file for drug companies around the world that want to leverage these into their latest product development with all the information at their fingertips.

Globally, we've been expanding. When Vetio was acquired, we had 2 geographic locations. Montreal, which we call Vetio North; and Jupiter, Florida, Vetio South. And then with the acquisition of Custom Vet Products just about almost 2 years ago in the U.K., rebranded as Vetio about a year ago. And then the Waterford, Ireland historic Swedencare site, which will be rebranded as Vetio in early 2025. So 4 operations around the world, at the center of it all is our employees, our greatest asset. We're very proud of our cultural and gender diversity, as you can see. And with 229 employees, 62 of them are technical people, meaning scientists, engineers, the root of what we do is innovation and product development. So we have a strong team to drive that forward.

Another asset, which we hold dear is our intellectual property. We have patents around our soft chew, both formulation and process technology, this is a technology that was developed in Montreal. Starting about 10 years ago, we had filed 4 patents in 2018, have received, been awarded that patent globally, around the world, many jurisdictions, and have lots of activity in the drug development area, leveraging that IP. And then we were fortunate to take that IP into the nutritional supplement or nutraceutical category, both in Vetio South, Jupiter, and then leveraging it into our European and U.K. operations, as I'll talk about. So that technology is a platform technology cutting across both pharmaceuticals and nutritional supplements and it leverages, in most cases, our own palatant technology.

So there are a lot of synergies within those 2 technologies, which we call FlavorPal, the palatability expertise that we've had for years in formulating drugs for pets. As we know, pets unlike humans need something to taste good in order for them to take it. And our FlavorPal technology and brand has been strong, but really limited in terms of the number of products. So what we've done is we've expanded that, and I'll get into that a bit later.

As I said, we are global, both in operations, but more importantly, in terms of our customers. We have customers around the world. And for our Vetio North business alone, we do business with customers across the world on 5 continents. So we are growing our global reach and very proud to serve large pharma companies around the world as well as large animal health and pet brands.

We have a pretty even split, as you can see by channel. Historically, we've been larger on the veterinary channel working through the animal health companies for things like top the topical products. And then, of course, our drug products are all sold through the vet channel, but what's happened recently with our foray into supplements with Vetio South, and then the growing business in Vetio U.K., we're seeing more growth in the pet retail and online or pet specialty space. So it's a nice balance that we've achieved between those channels positioned well for growth.

And then on a global basis, we are just shy of 25% internal to sister companies within Swedencare. So when Vetio was acquired, we were already doing business with some of these companies. And essentially, now that we're all under the same parent company, we've intensified the efforts to look at in-sourcing where we can, where it makes sense.

We've accomplished a few significant products in 2023, but then in this year, we've converted some others that will see the full benefit next year. This number was probably under 20% when we add Swedencare Ireland or Vetio Ireland -- Vetio Europe, it pulls that up a bit. We do expect in both cases strong growth next year. So not sure how that will look next year, but it will be good growth in both cases. So that's the important thing.

Take a step back and talk about the industry we operate in. This is the global companion animal industry or pet industry. In animal health, as you probably well know, there's a whole another industry around food animal, livestock, large animal that we don't participate in. So that's probably equally large industry with different dynamics. But when you look at the markets we play in, it's veterinary pharmaceuticals and pet supplements, both very nice markets.

The vet pharmaceutical market is obviously more established. It's been around longer. Parasiticides make up -- flea, tick, heartworm type products make up nearly half of that market, strong growth across all of them, as you can see. Anti-infectives and others, we, out of Vetio North, we have development projects, multiple projects across all these categories. So this is a nice growing market. We're well-positioned for future growth.

And then in terms of pet supplements, this is a market that is very strong. You heard my colleagues, Geoff Granger and Laszlo Varga talk about in North America and in Europe the efforts that we have there, the positions we have. In North America, it's been a really strong growing market. Europe is behind, but growing very nicely as well. So we'll see continued momentum there.

And then as I said, One of our biggest initiatives is implementing increased Vetio soft chew to technology and capacity around the world. So when you add these up, this is a $10 billion available market at the customer level. And then when you look at on a manufacturing basis where we're focused as Vetio, that's a $2.5 billion market.

And we see the outsourcing trends are strong. So while it's about 50% outsourced now, we think that can continue to grow based on where our customers want to spend their dogs, where they want to invest their time. So in a $1.25 billion addressable market, lots of room for us to grow. We're very well positioned in both of these categories for strong growth going forward.

Touching on some of the trends why this is a good market for CDMOs and particularly Vetio. As I mentioned, there's tend to be an outsourcing trend. It's a reduction of fixed costs and to increase the flexibility to invest those resources into R&D, into new product launches. One of the things we've seen is some carve-outs from large animal health companies, carving out their manufacturing operations. so that they can focus, as I said, more on marketing and investment in research and development. And then there's also concerns from a pharmaceutical standpoint, particularly and making human and animal products in the same facility.

As you can imagine, some of the drugs that are used for pets are levers. They come from the human pharma space, but most of them are not. Parasiticides, anti-parasiticides are not things you'd want to cross-contaminate with other human pharma products. So from day one, Vetio was really a contract development company, meaning, as Håkan, some lumpiness in terms of a multimillion dollar development contract. But then we added the manufacturing up in Vetio North about 6 years ago and have a nice pipeline going in there. So we've been dedicated to animal health since the founding of Vetio North, but even recently through the manufacturing.

And we have -- we offer a full solution, meaning preformulation, formulation, complete analytical development, scale up and manufacturing. So we are a one-stop shop for our customers with regard to chemistry manufacturing controls on new drug developments and in these cases, in the other parts of the world, supplements.

Increased R&D spending. We still have -- obviously, we all know this is a great industry. There's a lot of interest in this industry. As we know, the largest companies are also seeking external innovation. The reason for this is they have certain fixed costs in R&D, but they can address all the unmet needs that are still out there. So what's happened is there's become a burgeoning start-up community, which we've tapped into very well because of our nimbleness, because of our scale on the one hand, but then our flexibility and speed and agility on the other hand, we've been able to tap into that. And we've seen very successful start-ups take new therapies to market with our help and then license them or sell them off to a large customer, a large animal health company.

And then finally, soft chew. This is very critical dosage form. We -- the intellectual property barrier for pharmaceuticals. Many years ago, when the large home health companies were bringing blockbuster, multi-API drugs to market, these were often in a soft chew format. And there was a pretty big landscape around intellectual property, which we were able to navigate with our own technology.

As I said earlier, this is a formulation and process technology. And we've been able to not only be successful in that with pharmaceuticals, which is the most stringent requirement, but we've leveraged that technology into nutritional supplements or nutraceuticals. This is a premium format. Pets obviously prefer the palatability, the texture, the aroma of a soft chew over a tablet. And we do tablets as well, of course. But we're able to take this technology. We see a really nice runway for this around the world.

Okay. So on a global level, touch on sort of a snapshot of each of the 4 entities, beginning with Vetio North and Canada. In 2024, year-to-date through September, we've experienced greater than 20% growth. We are -- as Håkan said, we had some lumpiness time to time on the development side, that shows really a lot of projects coming through and milestones achieved, which is a good thing. But we've implemented manufacturing to smooth that out and obviously, to fuel growth in the future. But we're happy to say that really, over the last year, we've built up our largest development pipeline ever.

So we -- when we built our facility in Montreal, we did that to capitalize on our own pipeline, of course, and now we've been able to grow that considerably. And in the case of soft chew, highest number of drug products using our soft chew technology.

With that, we've also launched a new -- 8 new flavor palatines this year with veterinary master files on file with FDA. So this was a huge compliment to the team in Vetio North. As I said earlier, we've leveraged the FlavorPal technology into some on-trend categories, products of nonanimal origin, hypoallergenic, things like that to make them more globally acceptable and for export/import.

And then we have, 2025, we expect and really going forward, at least 2 drug approvals a year leading to manufacturing in our plant. So with manufacturing starting for us in probably 5 years ago, we should be building up our -- the number of drug products that we are making nicely over the years with some nice volume products coming forward.

In Vetio South, again, 20% growth. This is our largest entity on a revenue basis and number of employees. Really what the effort this year was to really ramp up our supplement facility, which was new. We expanded in Vetio South, really entered that facility in 2022 and started ramping up production of soft chews for, first, the U.S. supplement market. And now we are supplying some customers overseas, while Vetio EU and Vetio U.K. ramp up their full capacity.

Again, a large development pipeline. This has been -- this has caused us to have to staff up to serve that, both in R&D and then in commercial project management. So we have a strong future in that space. And one of the other things we've done this year, both through the nutritional supplements, of course, but also in our liquid products, we've entered more pet specialty retail customers with some slowing in the vet channel that we saw over the last couple of years.

We did -- we focused a bit on the retail side and have achieved some wins there. So really, 2025 looks good for us. We feel good about going into the year across all 4 entities. And with Vetio EU, this is historically Swedencare Ireland, which is about 2/3 supplying internal Swedencare customers, achieved 15% growth year-to-date. As I said, this will be rebranded as Vetio EU, as we're making an investment right now, capital investment in Vetio soft chew technology, which the production area was completed during the quarter using originally the Custom Vet Products process. As I mentioned, that acquisition was made by Swedencare, 2 years ago, and David Ryder and his team have joined Vetio, and we have a really strong global cooperation and coordination around EU and North American customers.

So we're excited to be making soft chews now in Ireland. And then with the Vetio technology being ramped up sometime in Q1, late Q1, making the same technology that we use in Jupiter, the same technology we use in Montreal and Vetio U.K. So we're excited about that.

Vetio U.K., strongest growth. It's well over 100%. We expect that to be about 100% or more after Q4. We really have just capitalized on some nice project wins. We've staffed up there as well post-acquisition really in this last year to address commercial and project management. And we are undertaking right now another expansion in our Hastings facility.

This is a new facility. We had a facility in Hastings, and we've moved to a larger facility, which we are operating out of. But just like with Vetio EU, we are undergoing a Vetio soft chew technology scale up a little ahead of Ireland. And so we're pretty excited as we'll tour customers through that facility here soon and again, positioned for nice growth in 2025.

So what are the next 4 quarters look like? A lot of it is really executing on what's already in front of us, which is the best situation to be in, in business, really execute on the existing drug development pipeline. We are obviously out securing new drug development products, projects, but we're really going to focus on driving them across the finish line for approval and then really to continue to drive product placements in our growing line of FlavorPal palatants.

This has been an initiative, as I said, we started on the development side over a year ago to really create a portfolio that we could bring to both large and small customers. Of course, in our own, in the product developments that we control, where we're formulating the product, we're placing FlavorPal in those, but we're also selling it around the world. So the growing number of placements is going to drive revenue going forward.

With Vetio South, really, to support the growing global project pipeline with the U.S. technical team. So we have global customers, some of them were manufacturing for in Jupiter. And we're transitioning -- we'll be transitioning that over to the EU and U.K., that team is managing its own project pipeline but also working with the European folks to drive know-how and technology transfer to those regions.

And then with Vetio U.K. and Ireland being smaller entities, probably the largest opportunity for growth. And as we go into that European and U.K. market in a stronger way with more capacity, we really feel confident that we're just getting started with a lot of the global brands that we have.

So with that, thank you for having me here. I'd be happy to answer any questions. And as I said, we feel really good about 2025.

[Operator]

Thank you, John. And by that, we are open for questions. And the first one comes from Adela.

[Adela Dashian, analyst]

The first one actually relates to your production business, and maybe this is one for John specifically. But do you feel like, as you've said in this business, does that potentially result in added volatility in your overall group because of when the projects are timed and potential delays, et cetera, with larger projects as we've seen before? What's the view on that?

[Hakan Lagerberg, executive]

John, please go ahead. Yes.

[John Kane, executive]

Okay. Yes. I mean, I think as we're building capabilities across Vetio, as you heard, we're also leveraging that to manufacture for Swedencare. So one distinction, there's a benefit to Swedencare with us having increased capabilities and capacity.

One thing I do want to mention is that we do treat internal and external customers the same with regard to pricing and that sort of thing. So it's important. It maintains integrity for us as a CDMO to earn that trust and continue to grow. So I think what we see as we get bigger that the lumpiness will be less seen.

But from a drug development standpoint, that's where the biggest lumpiness is, and that's been historical. It's rightly pointed out. But with manufacturing that starts to smooth that out. So we feel good about how we are positioned across different markets, different channels. And then geographically, I think we've buffered ourselves from some of that volatility.

[Adela Dashian, analyst]

That makes sense. And then maybe one for Håkan. As you expand into the big-box retail, what does that mean in terms of competition? Is this a more competitive environment to be in than the other sales channels ?

[Hakan Lagerberg, executive]

No, I wouldn't say more competition. It's a market where that's growing really fast in the big-box retail, but not all old brands that we compete on within in retail are there yet. But on the other hand, you could say is that what we've experienced this year and also a bit last year, it is that, that some online brands have entered the pet retail space and the big-box retail space. So we have experienced more competition in the pet retail space. And now we're happy to join the big-box retail space and push some of the competition from us to them.

[Adela Dashian, analyst]

That makes sense. But is there a specific reason why you haven't been in the big-box retail previously?

[Hakan Lagerberg, executive]

Yes, it was a decision made, strategy-wise, to stay in the pet retail space. And that was, let's say, long-term plan even prior to Swedencare owning Garmon and timing is always, let's say, difficult to know when it's good to enter, but what we have seen, the possible fear that you might have is that you would lose out in the pet space, if you enter big-box retail. But we can definitely see by evidence now that our colleagues in the business that did enter big-box retail a couple of years ago, they are not performing any less [Audio Gap] be good for us as well.

[Operator]

Your next question comes from Rickard.

[Rickard Anderkrans, analyst]

So first one on operating leverage. So you delivered quite significant year-over-year improvement in gross margin, but the operating margin is down. You called out some higher OpEx and some double whammy there on the Amazon side. But should we assume a similar OpEx level going forward? And when do you expect to close in to the 25% EBITDA margin levels you sort of alluded to earlier this year? So I'll start there.

[Jenny Graflind, executive]

Well, no, I would expect higher operating margins in next quarter. Some of the things were double hit this quarter, for example, with Amazon with the NaturVet, when we invest that we did and get the sales. So that's going to change, I would say, next quarter.

And also, we are also tweaking a little bit on Amazon. This quarter was the first time in the U.K. where we made our marketing ourselves, and we have to make sure that we are following the right KPIs when it comes to marketing. So I think it will be tweaked a little bit in the coming quarters, and I think that the operating margin is going to go up compared to this quarter.

[Hakan Lagerberg, executive]

Yes. Also, if you split down, let's say, the Amazon spending and compared to other marketing, we do see leverage already when it comes to the other marketing spend.

[Jenny Graflind, executive]

Yes. The increase that we have seen for the last quarters and so on, it's all linked to marketing and mainly Amazon. So the rest of the external costs are kept there in good control. And I think that we are seeing good improvements compared to our KPIs, external cost to sales.

[Rickard Anderkrans, analyst]

So is it reasonable to assume a little bit of a decline then in absolute OpEx levels for Q4 since there was some tweaking and some one-offs, I guess, in the quarter here?

[Jenny Graflind, executive]

Yes, I expect definitely that the marketing is going to go down compared to sales in the next quarter.

[Rickard Anderkrans, analyst]

That's helpful. So you reported 21% decline in NaturVet. And just for clarity, could you break out sort of the Amazon impact in the quarter versus the retail customer shutting down the private label project? And what type of growth should we expect for NaturVet in Q4? Is it -- do you think you could get to double-digit growth for that brand? And just trying to get a sense a little bit of the trajectory with a lot of moving parts here.

[Hakan Lagerberg, executive]

Yes. Since being the size that Amazon is, it's very -- it's difficult to know the, let's say, the exact levels when it comes to forecasting because the majority of the sales -- not the majority, but the big part is really big customers where we're not -- they're not always filling their inventory levels according to out-the-door sales.

So NaturVet is a tough, let's say, entity for us to really have good, let's say, overview on the forecasting. But I can definitely say that when it comes to the Amazon sales, that will have to pick up and adjust to the out-the-door sales.

So there, for the Amazon part of the business, definitely expect good growth. For the others, it's yes, I can't really say I expect -- I mean, NaturVet to be or I know that nature will be a lot better than in Q3, but I can't promise double-digit growth for NaturVet. But definitely a big, big improvement and where we will see some big, let's say, incremental growth for NaturVet, it will be when we add new big customers. So that's the big opportunities for us.

[Rickard Anderkrans, analyst]

Perfect. And the final topic. You seem to have quite nice growth prospects for '25, both from big-box retailers as well as the manufacturing segment here. But can you talk a little bit about the margin contribution from these growth legs or initiatives? Will it be dilutive to sort of a 25% EBITDA margin level? Or could you put it in context on the margin contribution from those 2 growth vectors?

And also, if you could add what you expect to grow or what type of growth you can add from big-box retailers next year, just to get a sense of how much it impacts the group in terms of growth potential?

[Hakan Lagerberg, executive]

Yes. How much is difficult to say before we've really signed the contracts and know the timing of the launches. But we do not expect big-box retailer to dilute the margin for NaturVet. What we are negotiating and discussing is at good margin levels like we have in the pet retail space. So it wouldn't be dilutive based on this new category.

[Rickard Anderkrans, analyst]

Okay. And just a quick follow-up. Specifically, we're seeing quite an increase in potential for generics with some interesting patent cliffs coming up here. Maybe that's one for John, if you're still around, it would be interesting to hear a little bit on the potential or tailwinds you see from that?

[John Kane, executive]

Great question. Historically, the percent penetration of generics has been relatively low, but that you do see some blockbusters coming off a patent in the next coming years. Vetio, we work with both pioneer drug developers and people in the generic space. So we're well positioned across both. We have projects covering all of the major blockbusters.

[Rickard Anderkrans, analyst]

That's very interesting. And the margins of these type of projects, is it dilutive to the mix you normally have in Vetio and the CDMO business?

[John Kane, executive]

No, it's a good question. It will actually be a higher-margin business. The development business itself is very high margin because it's -- there's a lot of value that goes into it, a fixed cost structure and whatnot. But our development margins are strong.

And then manufacturing of drug products is higher than our gross profit margin across the group. So we expect when those hit manufacturing, that will be a very nice benefit to Vetio North.

[Operator]

Your next question comes from Johan.

[Johan Fred, analyst]

Firstly, on NaturVet and the direct relationship that you will take with Amazon. You state that this will translate in 2025 -- sorry, 2026. Is there any risk on 2025 sales maybe due to the partner being less inclined to push or market your products now that they know that they will lose the contract? Any color on this dynamic will be very helpful.

[Hakan Lagerberg, executive]

Yes, a great question. No, I wouldn't say that what it will do. Now this was, as you understand, we've had discussions and have had discussions with different scenarios, one being -- a couple of being short-term phaseout that would be more, let's say, more substantial change in the near time. And this alternative that we ended up with is what we call the long phaseout period.

So I would say it will -- how it's going to be paced out is still in discussions, but I wouldn't say that it would definitely not impact their will because they have a very good incentive how we split the cost and the structure for taking this collaboration is really based on the sales out-the-door in Amazon. So they are really motivated in working to the end. And there's nothing to say that we won't have some sort of collaboration with them going forward. We are very much synced in and part of the, let's say, marketing initiatives. And the innings that we decide, we share the cost for many of them. So I would say that I wouldn't be surprised if we have a more of a consultancy or some sort of partner collaboration in '26 as well with them.

But we will have the top line sales and we will have the full control of shipping into Amazon. So I don't expect any major impact in some certain quarter. Hopefully, we can make it very good transition, phasing out of inventory, et cetera, or if we buy back some at the end of '25. I don't know about that, but I don't expect it to really shouldn't impact us that much.

But let's say, let me come back with that. But overall sales going forward on Amazon in '25, we definitely expect that to out-the-door sales and also our sales will be stronger in '25 than in '24.

[Johan Fred, analyst]

Got it. Very clear. And on the private label contract that you lost during the quarter. You added some color, but do you mind, if you know, elaborate on the reasoning behind the customer choosing to close down the brand? And roughly, what's the impact on sales and earnings for NaturVet?

[Hakan Lagerberg, executive]

As I said, a big -- very big pet retail chain, they closed it down completely. So important to say that they didn't close down us and continue with the brand. I mean, they have their metrics on how their brands are performing. And looking at their own private labels compared to branded products, and I guess, they weren't happy with that.

But they have, as I said, they have reengaged in discussions and strategies for private label because it is important to have -- I think most of the other retailers have a private label within the supplementary side of the business. So the reasoning why they did it and the metrics, I don't really know because it was as shown, as I have said here, it was -- the largest order last year was in Q3, so we had comps. So it was definitely multi, I mean, year-on-year and several million dollars sales for us.

So it's -- hopefully, we will be able to say, inform about restarting a new brand together with that partner in 2025, but let's see what happens with that. But a big impact for us this quarter.

[Johan Fred, analyst]

Got it. And on NaturVet sales in Q4. Sales out-the-door was approximately 14% higher than last year. Now with the...

[Hakan Lagerberg, executive]

On Amazon. Sorry, on Amazon.

[Johan Fred, analyst]

Okay. Yes, Amazon sales. Yes, yes, yes, sorry. Is there any catch-up effect in Q4 from the lower sales in Q3? Or should we just expect it to go back to normal?

[Hakan Lagerberg, executive]

No, I would expect it more to go back to normal. But I can't really say. I don't have the, I mean, exact numbers of the inventory levels of our partner for Amazon. So let's see and what happens in Q4.

But I would say that the -- our sales to them will be more in line or a bit higher than what we are performing on Amazon in Q4 out-the-door. Then looking at for other brands, we have some new placings already in January, specifically with a couple of new ProDen PlaqueOff SKUs being supplied by NaturVet into a really big pet retailer and also adding some NaturVet SKUs that hasn't been there previously.

So I expect a -- compared to Q3, I expect -- I mean, NaturVet's brand doing okay. But I can't say that it won't be a catch-up effect.

[Johan Fred, analyst]

Okay. Got it. And could you quantify the channel split in the quarter? How much was online, how much was retail and how much was veterinary sales, please?

[Hakan Lagerberg, executive]

I don't have that here, but do you have?

[Jenny Graflind, executive]

No, I don't have that split. But we know that there was a stronger growth in the veterinary compared to pet, and online is also very strong. So I would say that the online continues to take market share of the whole group. So being at least 40%, I would say.

[Johan Fred, analyst]

Okay. Got it. And building on Rickard's question on the opportunity to enter the big-box retail channel. Firstly, you state that the channel is approximately the same size as the pet retail channels. Could you just remind us or quantify what that is?

[Hakan Lagerberg, executive]

Where do you have that. I don't have that number here. It's the -- let's see. I think -- no, let me come back with that one. I don't want to guess here. But it is the same size. You have that number in Geoff Granger's presentation. There, the split was between the channels when it comes to supplements and retail.

[Johan Fred, analyst]

Okay. Great. Great. Thank you. And timing-wise, for such an agreement, is this -- could we expect this to materialize in H1 '25? Or is this more tilted towards H2? Any indication there would be very helpful.

[Hakan Lagerberg, executive]

Yes, it's difficult to say because the reset is really, they don't always communicate. What we know is that we are in several discussions and negotiations with resets and -- but they never really tell us they won't tell the market, let's say, the reset dates. But normally, I would say, historically, it's been either just before summer or after summer.

[Johan Fred, analyst]

Okay. Yes, very helpful. Thank you. And a final question. What would -- if you were to speculate what would be the implication on sales on a, let's say, on a quarter basis roughly. Are we talking like SEK 50 million or SEK 250 million of such a contract?

[Hakan Lagerberg, executive]

One contract, I wouldn't say it would be -- I mean, SEK 50 million would be a really good contract.

[Operator]

Your next question comes from Adrian.

[Unknown Analyst]

Can you hear me?

[Hakan Lagerberg, executive]

Yes.

[Operator]

Yes.

[Unknown Analyst]

Perfect. Just some short questions for me. Just to touch again on Rickard's question. Could you give some more details on how you're expecting these marketing campaigns to develop maybe into 2025? Like one could assume that it takes more time to build up an online platform and brands, et cetera. So maybe should it not continue at elevated levels even in 2025?

[Hakan Lagerberg, executive]

We'll continue, definitely. We expect all of our initiatives to add, let's say, stronger growth than the market when it comes to all of our online initiatives, definitely.

[Unknown Analyst]

And regarding NaturVet once again, how many quarters are you expecting the drawback to remain for? When you look at rolling 12 months, I assume that year-over-year, we will have a negative effect on Q4 as well and maybe going into H1 2025?

[Hakan Lagerberg, executive]

We definitely expect the 2025, it will start delivering really nice growth when we will add the big-box retailers, and also more initiatives on the online sales as it didn't really contribute anything this quarter. It was negative in this quarter compared to the 13% out-the-door sales.

[Unknown Analyst]

Okay. And potentially closing M&A, you said, could you perhaps give some more details on that, like what sizes are you talking about? Is it similar to MedVant or can you give any color on that?

[Hakan Lagerberg, executive]

No, it's very, very difficult. We would -- no, MedVant was a small acquisition. So I would say, and those are always easier to find and to close. So I wouldn't say that. But we would be -- we would definitely be -- if you give me a question what I would prefer, then I would definitely prefer a bit bigger.

We are in a good position. We have a good organization for acquiring companies. We have a good organization for onboarding and good, let's say, success cases for being so active that we have been. So I would say I prefer bigger than smaller, but I can't say that we're you should expect bigger than smaller as the next closing. You never know.

[Unknown Analyst]

Okay. Just two short questions more, if I have time. So CapEx now is less than 2% of sales. Is that maybe lower than it historically and that it should be going forward as well?

[Jenny Graflind, executive]

Yes, we communicated. We did a lot of investments in '22 and also in '23, and that's why it panned out a little bit. We still have actually done investments. Like John was talking about, we are ramping up the soft chew production in both Ireland and in the U.K. So we are making that. But -- and I have communicated out that we want our CapEx to be below 3%, and that's where we are, so. And I don't expect it to increase more than 3% next year, either.

[Unknown Analyst]

Okay. Perfect. And then you also stated on the slide here that you are evaluating the cons and pros of moving from external to internal manufacturing and online sales. Could you maybe explain what the -- what you're evaluating exactly? Maybe I just missed that.

[Hakan Lagerberg, executive]

Sorry, no, no. It was more not really -- we definitely are focusing on taking external suppliers to manufacture internal. That's definitely just an ongoing process. What I meant with that one was more than what we are is utilizing the knowledge and competence that we now are, now that we have and have built up in our, let's say, Pet MD platform and also our now European e-comm team, that many of them are sitting here in Malmö and in the U.K. is just that we keep on, let's say, transferring brands into those platforms.

And also, not only internal actually. We'll also take on a couple of brands, external brands that we think are interesting and see what we can do with them on Amazon. For example, Riley's is a really good example on that. We took over their Amazon sales prior to us acquiring them. And we saw the potential that we were able to grow the sales a lot with our, let's say, programs that we have on Amazon and the confidence that we have. So that made us really confident in acquiring in Riley's. And what we've seen now is that it keeps on delivering. So that's a process that we have built up, and we will continue with that.

And that's also part of the very good, let's say, or to have when I discuss with smaller brands acquisitions, where we see that they are small now. But when we get more and more knowledge what we feel confident of what we can do with that brand going online, that is definitely a good input for us to have in the process of deciding if we are going to acquire or not.

[Operator]

Your next and final question comes from Christian.

[Christian Lee, analyst]

Yes. I have a short follow-up question regarding your operational EBITDA margin in the fourth quarter. You mentioned that you expected it to improve compared to the third quarter. Should we expect it to be aligned with what you had in the first half of this year or perhaps towards 25%?

[Jenny Graflind, executive]

It will be a bit stronger than where we are right now, maybe closer to maybe something in between what we had first half year and 25%. I don't think we're going to be at 25%. That's quite a big jump to where we are from right now, but it will be an improvement.

[Christian Lee, analyst]

All right. And given all the moving parts, do you expect the margin to be close to 25% next year?

[Hakan Lagerberg, executive]

We haven't received all of the budget for the group companies. But definitely, that we are very focused and want to deliver improved bottom line. So that's -- we're definitely working hard to improve the EBITDA levels.

[Operator]

That concludes our Q&A session. Back to you guys for any closing comments.

[Hakan Lagerberg, executive]

Thank you for the interest in participating in this revenue. And I apologize for the video. We didn't get that to work for Jenny and me. I don't know what happened. But really, really, a big thank you to all of you and to Jenny and John, doing a really good presentation and work, and looking forward to seeing you all in after Q4.

[Operator]

Thank you. Bye.

[Jenny Graflind, executive]

Bye-bye. Thanks.

[John Kane, executive]

Bye-bye.