Vitrolife AB

STO:VITR

Earnings Call Analysis

Vitrolife Q2 2024 Financial Growth and Strategic Advancements

In Q2 2024, Vitrolife increased its gross margin to 59.9%, driven by product mix and operational efficiencies, particularly in Genetics. Key financials include SEK 941 million in sales and a 34.7% EBITDA margin. Notable growth areas were the Technologies segment, which grew by 40%, driven by strong performance in North America and EMEA. Recent acquisition of eFertility aims to enhance the automated platform for IVF clinics. Geographically, the Americas saw 5% growth, EMEA 11%, and APAC faced a 5% decline. Moving forward, the company focuses on increasing shares in the U.S. and China, enhancing market share in Consumables, and accelerating growth in its genetics portfolio.

Significant Revenue Growth Amid Strategic Acquisitions

In the second quarter of 2024, Vitrolife Group achieved a total revenue of SEK 941 million, marking a 4% organic growth in local currency despite some headwinds in certain product areas, notably their genomic kits. A significant contributor to the growth was the Technologies segment, which experienced an impressive 40% increase, driven largely by strong demand in North America and notable performance in EMEA. Additionally, the acquisition of eFertility, completed in May, aligns with the company's strategic goal to enhance an integrated platform for IVF clinics worldwide.

Improving Margins and Operational Efficiency

Vitrolife reported a gross margin increase to 59.9%, attributed primarily to a favorable product mix and operational efficiencies across various business areas. The EBITDA reached SEK 327 million with a margin of 34.7%, demonstrating the impact of improved operational execution. Notably, the Genetics business area is returning to mid-single-digit growth, signaling operational improvements despite previous challenges faced from declining genomic kits.

Geographical Performance Highlights

In terms of geographical performance, sales in the Americas rose to SEK 316 million, growing at 5%, primarily driven by North America. The EMEA region recorded solid growth at 11%, contributing significantly to the overall performance. Conversely, the APAC region faced a decline of 5% mainly due to challenges in the genomic kits segment. This shift has resulted in EMEA now comprising 38% of total sales, with the Americas at 33% and APAC at 29%.

Strategic Focus for Future Growth

Looking ahead, Vitrolife has outlined five key priorities: enhancing share and penetration in the U.S. and China; increasing market share in Consumables, particularly in media; boosting utilization of time-lapse technologies; accelerating growth across the broader genetics portfolio; and driving operational excellence across all business areas. There is strong optimism for future growth, especially in the Consumables segment, with plans to improve market share in disposable devices like needles and pipettes.

Guidance and Future Expectations

While maintaining current margins may be challenging, the management expressed goals of retaining gross margins close to 60% throughout the year, although they expect some dilution from genomic kits. There's an expectation that the genetic services segment could see high single-digit growth in the second half of the year. The company also anticipates a stronger performance in the disposable devices category after addressing the phasing issues encountered in distributor orders.

Strategic Acquisitions and Market Positioning

The acquisition of eFertility is a pivotal part of Vitrolife's strategy to enhance its platform for IVF clinics. eFertility’s innovative witnessing system is crucial for increasing standardization and automation in IVF processes. The market penetration for witnessing systems is currently low, at around 10%, presenting a significant growth opportunity as Vitrolife rolls out this technology across regions, beginning in Europe.

Earnings Call Transcript 2024-Q2

[Operator]

Hello and welcome to the Vitrolife Group interim report Q2 2024.

My name is Laura, and I will be your coordinator for today's event. Please note this call is being recorded. [Operator Instructions]

I will now hand you over to your host, Patrik Tolf, to begin today's conference. Thank you.

[Patrik Tolf, executive]

Thank you. Good morning and welcome to the conference call for the interim report for the second quarter 2024 for the Vitrolife Group.

My name is Patrik Tolf, CFO for the Vitrolife Group.

And today is the 17th of July, and the time is now 10:00. We will, as always, do a presentation and thereafter open up for Q&A. You will find the presentation at our website, vitrolifegroup.com.

And I will now leave over the word to our CEO, Bronwyn Brophy.

[Bronwyn Brophy, executive]

Thank you, Patrik. Good morning, everyone, and thank you for dialing in.

I will now move you to the second page of the presentation and take you through the Q2 highlights for the Vitrolife Group.

So starting with our gross margin, you can see that we've increased gross margin to 59.9%. This is mainly as a result of product mix, but we also did have some operational efficiencies within our business area Genetics; EBITDA also proving as a consequence, coming in at 34.7%. In terms of growth, we'd like to highlight Technologies, which had a very strong quarter, 40% growth. This was driven by very high growth in North America but the EMEA region also performing strongly. And then finally, to highlight the acquisition of eFertility which we completed in May. This acquisition is a core element of our strategy in terms of building out an automated and integrated platform for IVF clinics globally.

Okay, so moving on then to the next page, and we will look at some of the key financials: so sales coming in at SEK 941 million for the quarter, an organic growth of 4% in local currency, better growth certainly despite the headwinds that we faced in our genomic kits business; gross margin, as I've already mentioned, coming in at 59.9% as a consequence of product mix but also those operational efficiencies that I mentioned; EBITDA, SEK 327 million for the quarter and 34.7% margin; cash flow also increasing to SEK 236 million; and net income, up to SEK 143 million. So you can see earnings per share also increasing there to SEK 1.06.

Okay, I will move you on now and we'll take a look at the sales and the growth per geographical segment.

So Americas. Bear in mind that this includes both North and South America. America had sales of SEK 316 million for the quarter, growing at 5%, with North America, it has to be said, being the main driver, delivering growth across all of the business areas, with the exception of genomic kits.

The EMEA region, sales of SEK 355 million for the quarter, growth of 11% in our largest region, the growth really coming from, well, across the board but Southwest Europe, Middle East performing particularly well. And you will see in the later slides strong performance, very strong performance, in Technologies in EMEA.

And then APAC region, sales of SEK 270 million in the quarter, a decline of 5%. This region is significantly impacted by the genomic kits and also a very strong quarter in 2023 as one of our key competitors exited the market. So you can see that we [ do a bit shift, have a quarter ] in our share of total sales, with EMEA leading now at 38%, Americas on 33% and APAC at 29%.

Okay, moving on then to the business areas, and we will start with the Consumables business area. So sales here of SEK 356 million. I think you can see, if you look at the bar chart here, that Q2 last year was exceptionally strong due to that competitor exiting the market. And we really benefited from that, mainly in APAC. So despite this, we did deliver double-digit growth in media in the U.S. and solid media growth in EMEA; APAC most definitely challenged with the comps in Consumables. And we did have a softer quarter in disposable devices in both EMEA and APAC. This is primarily due to the phasing of distributor orders. And actually again I would say there that APAC is the region most impacted. But strong performance in media, which is good to see; and very strong performance in Consumables across the board with 14% growth.

Okay, moving on then to the Technologies business area, a great quarter for this business area, sales of SEK 197 million and growth of 40%, terrific performance in Americas but also a very strong quarter in EMEA. So you can see Americas 174% growth off a lower base but EMEA up 50%. And we do have relatively high penetration of Time-lapse already across most of Europe in particular. APAC, 2%, a very strong quarter, again, last year in this region, but I would like to point out that China still managed to deliver high double-digit growth again in the quarter. So strong growth across the board. And we are certainly seeing accelerated adoption in Americas.

Okay, moving on then to our Genetics business area. So sales of SEK 388 million in the quarter, a decline of 7% in local currencies. Bear in mind that this Genetics business area is a combination of genetic services and genomic kits. And in fact, genetic services returned to mid-single-digit growth this quarter. However, genomic kits significantly impacted the top line growth. We are also starting to see some nice sales growth in tests like carrier screening. And from a regional perspective, our growth in genetic services is accelerating outside of the U.S., with EMEA growing high single digits. And we had multiple markets actually across the globe growing at double digits, so good to see that genetic services is back growing.

Okay, I'm now going to hand you over to Patrik, who will take you through the geographical segments.

[Patrik Tolf, executive]

Thank you, Bronwyn.

And moving on then to Slide #8, which is then the geographical segments, down then to market contribution. And just to repeat: As Bronwyn said here, the impact of the decline of the kit business has been the highest in Americas and APAC.

So despite the decline in sales, we have actually strengthened then the market contribution in all regions, with the most notably increase that you see in Americas, going then from 32.1%, up to 37.2%. And despite the decline in revenues that we had in APAC, we're actually even also there strengthening the market contribution to 46.7%. And here in this slide you can also then see the gross income, how that's distributed amongst the regions. And this also then tells you the importance then on the product mix and how that has impacted us throughout the quarter.

So moving on to the next slide to go through the highlights of the quarter. Again as we see, the net sales increased in -- 4% in SEK. And also then inorganic -- or organic growth in local currency is also 4%. And for this quarter, we have had a minimal impact on the currencies.

Moving on then to the gross income, which then increased to SEK 564 million, giving us then a stronger gross margin, up to 59.9%, which is an increase then of 5 -- 4 percent units compared to Q2 last year. We have talked about the impact then on the positive product mix. We have grown strongly then within business area Technologies, media. And then we are also returning then to growth in our genetic testing portfolio.

On operational excellence improvements. We have been talking and been focusing a lot on operational excellence over the past quarters. And now it's very inspiring to see that the changes and the focused work that we have been doing then within genetic services on operational excellence are starting to gain momentum, which we see then in the numbers here as well. So we have impressive improvements then within our genetic services business. And what we are doing there is, of course, efficiencies and process harmonizations across the lab, in combination with more efficient work with cost management to our suppliers.

All in all, this boils down to that we have also then increased our EBITDA to SEK 327 million, giving us then an EBITDA margin of 34.7%.

Moving on to the next slide, we then have the operating expenses that you can see are increasing then, compared to last year, with 8%. We are continuing then to invest into sales and marketing, with also then to increase our capabilities in key markets. You also see that our R&D expenses are slightly lower compared to the same quarter last year. The main driver behind that one are project phasing and also increased capitalization. Throughout the quarter, we have also then taken one-off costs that are relating then to restructuring and also acquisition-related costs. And this has also then impacted the tax rate that has been unusually high during this quarter.

So moving on to the next slide, where I will then summarize the financials here, again just to repeat: sales SEK 941 million, improving then the gross margin to 59.9%, giving then an EBITDA margin 34.7%. Net income is increasing, which gives us then a net income margin of 15.3%.

Earning per share are increasing to SEK 1.06. And again we are continuing to deliver good operating cash flow, increasing to SEK 236 million for the quarter. Net debt-to-EBITDA, 1x this quarter, slightly higher compared to what it was in Q1. And that is due to that we have used cash to fund the acquisitions that we have done throughout the quarter.

With those words, I'll leave it back to you, Bronwyn.

[Bronwyn Brophy, executive]

Thank you, Patrik.

So moving on then to the Corporate Strategy Vitrolife Group. And today, we'd like to spend a little bit more time on the progress, updating you on the progress, that we are making on the key strategic pillar of owning the platform connecting products and services with the recent acquisition of eFertility. So you'd like to move on to the next slide. I'll take you through, I guess, the rationale and the benefits of that acquisition to the Vitrolife Group.

So eFertility is -- it's an innovative system and software company transforming IVF clinic management. The company has both a witnessing system and an EUR (sic) [ EMR ] platform. We're interested in both, but definitely the witnessing system is a core part of that platform buildout.

So eWitness is an error prevention system that optimizes the workflow in the lab and provides data and reliable insights, tracking and tracing each and every action that takes place on the patient's IVF journey. We are currently rolling out eWitness in Europe. So the company is based in the Netherlands, so we're starting the rollout in Europe and we will follow with other regions next year. You can imagine how core this is to our strategy because our vision is to bring increased standardization and automation to IVF clinics, connect all of the products and services; and eWitness does exactly that. Just in terms of the market, there are 5,000 -- approximately 5,000 clinics worldwide and the current penetration of witnessing systems is approximately 10%, so we're very excited about this acquisition and expect to be able to drive growth in all regions going forward but, as I mentioned, starting in Europe.

So my final slide then before we hand over to Q&A. So what is the focus of the Vitrolife Group for the rest of the year? 5 key priorities here.

One, increase share and penetration in the U.S. and China. So I think you've seen from the quarterly results that we are finally starting to gain some nice traction in the U.S. We need to keep that going. We are investing in commercial capabilities, as Patrik mentioned. That's ongoing and we will continue to do that at a steady pace. We're also strengthening our relationships with the clinic chains, they're very important customers, through strategic account management.

Number two priority, increase market share in Consumables. We're seeing some very nice momentum in media. We have opportunities to take share. I think you can see from our quarterly results that we are doing that in multiple regions, and we need to continue to do that going forward. We believe we have an opportunity to increase our market share in disposable devices, most notably in needles and pipettes. And we're going to double down there in quarter 3 and quarter 4.

Accelerate penetration and utilization of time lapse. Another strong quarter in Technologies. What we are seeing is that customers very much appreciate the work as well as the clinical benefits, of course, but the workflow and automation benefits that time lapse brings to the [ core of the lab ]. We need to continue to build on this; and then, I think, very importantly, increased utilization per installed EmbryoScope. We don't just want to sell capital. We want to sell, of course, the EmbryoScope but also drive utilization, so that's a core element of our technology strategy.

Fourth priority, accelerate growth across the broader genetics portfolio. And this is what we're starting to see in quarter 2. So we have increased sales on carrier screening, on noninvasive tests. I would like to point out, though, that we are also increasing sales in our core PGTA business, but I think diversification is important so that we don't have an overreliance on any one test. So really leverage the full genetic services portfolio and then drive increased adoption outside of the U.S. You've seen that, this quarter, we have some nice growth in genetic services in EMEA, as an example, high single digits. So that's a core part of our strategy and also our focus going forward.

And then as Patrik mentioned, driving operational excellence across the company. We have improved on margins this quarter. We need to be able to fund our journey to accelerate our top line growth. And we believe that we have an opportunity to leverage synergies across the business areas, streamlining processes and systems going forward.

So thank you for your attention. And I will now hand over for Q&A.

[Operator]

[Operator Instructions] We will now take our first question from Sten Gustafsson of ABG Sundal Collier.

[Sten Gustafsson, analyst]

I was wondering if you could tell us the split there on the improvement in gross margin. How much of the uplift is coming from this improvement in operational excellence? And how much was product mix in Q2?

[Patrik Tolf, executive]

Thank you. The product mix again here. As we see throughout the quarter, we know that the kits business are declining. We know that we are growing then within the Technologies. We are also then making improvements within genetic services, so all the product mix from that perspective is positive from a margin side. On the, call it, cost side then, the main improvements, as we mentioned, have been done within the Genetics business area and then primarily then within the genetic services area here, as I mentioned before. So the main driver on the cost side is coming then out of genetic services business.

[Sten Gustafsson, analyst]

Okay. And in terms of the split, is it possible to quantify how much of the uplift is driven by these 2 factors?

[Patrik Tolf, executive]

Obviously we are fully aware of that one. We don't disclose that one in detail. I think, if you do a bit of math backwards and forwards, you can get some indication on that side, but the main driver is on the genetic services cost improvements for the quarter here, okay?

[Bronwyn Brophy, executive]

Yes. I would say that maybe -- without giving exact split. So I think on the gross margin the majority of the benefit is coming from the product mix. So we're growing in the highest-margin product area, okay? That's a fact. In terms of the operational excellence and the synergies that we are seeing there, the majority of that is coming from genetic service. So without giving exact numbers, does that help to answer your question?

[Sten Gustafsson, analyst]

Sure. I appreciate it.

[Bronwyn Brophy, executive]

Okay, thank you, Sten.

[Sten Gustafsson, analyst]

And the -- could you give us an update on the competitive landscape and potentially your market share there on the media business given what has happened over the past, yes, 3, 4 quarters?

[Bronwyn Brophy, executive]

Yes. So we actually don't have published publicly available market share data, unfortunately, in IVF or in reproductive health, but what I can tell you is, based on the growth rates that we're seeing, so our growth rates and also then the market growth rates, we are most definitely taking share in North America. Our growth is significantly above the market. We are taking share in multiple countries in EMEA. Again the growth there is significantly above the market. And in APAC, I would say that, in most countries in the APAC region, we are taking share. China, it's difficult to assess because, of course, last year, we had significant gains in this quarter with the exit of a competitor, but if you break it down below the regional level, I would argue that in most markets our growth is well above market growth rates, so we would be confident that we are taking share from our key competitor but also other competitors. So there's some nice traction in terms of media growth.

[Sten Gustafsson, analyst]

Yes, that sounds reasonable. My thinking was more of how much long -- I mean how long -- for how long can you outgrow the market, if you're taking over a significant portion of the business from your competitive -- or competitor, if you reached sort of a peak market share now? Or can this continue for several years, to outgrow the market?

[Bronwyn Brophy, executive]

Yes, yes. So there's always room to take market share, so I would argue that we still have plenty of runway to take market share. There are a number of factors influencing this particular one. First of all, the Vitrolife Group media is synonymous with very high quality. And that's really important always, okay, in relation to IVF procedures and outcomes, so that's one. Second is ability to meet the demand. So it's fine and dandy for -- to move competitive accounts over to the Vitrolife Group. We have to be able to supply. We had increased capacity in media over the past 12 months. And I mean that's a good thing, right, because we've been able to meet that demand. We still have capacity, so we expect to be able to continue to meet that demand going forward. And why would this not continue? This is a very core central product. There is a degree of differentiation in media, more than one might expect, so I would argue that we have high quality. We can meet demand. We have a degree of differentiation. We provide a lot of training and education when it comes to media, training for embryologists, training for people working in the lab, so our ambition has to be that we continue to take market share in media globally...

[Sten Gustafsson, analyst]

Very helpful. One final question and -- or maybe a clarification. In your -- and maybe this is for Patrik, but in the cash flow statement you have a line called cash flows from losing control of subsidiaries. I was just wondering if you could explain what that -- what you lost there.

[Patrik Tolf, executive]

Yes. That is relating then to the restructuring activities that we have done. And that is related then to various kind of sanctions that has been imposed by EU and operations in markets that we are not longer existing in here. So that's exiting from some key markets that we have been doing now as well. So that's the reason behind that.

[Operator]

And we will now take our next question from Rickard Anderkrans of Handelsbanken.

[Rickard Anderkrans, analyst]

So the first one, I would like to look a bit closer on some of the exceptional items or the standout pieces of the result here if you could quantify the U.S. large order in Technologies and if you could also maybe quantify the impact from the headwind of disposable devices in Consumables. And maybe if we should expect a bounce back there in Q3, just to understand the dynamics of the sort of distributor ordering on that one. I'll start there.

[Bronwyn Brophy, executive]

Sure. Thank you for the question, Rickard. So starting with the sizable order in the U.S. It's a large order. It's one of the largest orders that we have received in North America, but there were other large orders during the quarter. So just to clarify: The performance of Technologies in North America is not attributable solely to this large order. The reality is that EmbryoScope is growing across North America. So while we are -- we were delighted to get this order over the line and we're grateful for the support of EKN, there were multiple orders that came in for multiple systems in the U.S. This one just happened to be the largest. And this is an order that will come in tranches, so it doesn't all come in at once. It's going to come in, in a number of tranches. So delighted to get the order with a very important and strategic clinic chain, but it was one in a number of good results for Technologies and EmbryoScope in North America during the quarter.

And the second question then, Rickard, is on disposable devices. Yes, I guess, phasing is the key challenge here, so I just do want to point out on disposable devices we did have high single-digit growth in Americas. So we're taking share for disposable devices in North America. Less distributors there, so we didn't sort of see that impact. The main impact of disposable devices is in the APAC region. This is also the region where we have the -- those greatest reliance or highest number of large distributors, so we would have a more positive outlook in the second half of the year in terms of that business returning to growth and, as I said in the CEO comments and the quarterly report, most notably in pipettes and needles, where we do have a degree of differentiation. We have a particular needle which is quite unique, and doctors in particular like it a lot. So a phasing issue and expected to improve to a more positive trajectory in the second half of the year. So hopefully, Rickard, that gives you a little bit more color in terms of your question.

[Rickard Anderkrans, analyst]

Very clear. Secondly, on the gross margin, we saw a very nice expansion. Is this level of sort of 60% sustainable for the remainder of the year? Or maybe you could help us with some of the push and the pulls as we go into the second half.

[Bronwyn Brophy, executive]

Will I start, Patrik? And then...

[Patrik Tolf, executive]

Yes.

[Bronwyn Brophy, executive]

Yes. So yes, nice -- definitely a nice performance on the gross margin. As we mentioned, mix is playing a key role here. So growing very strongly in Technologies, which is a nice margin business for us; also growing nicely on media. So I guess, to summarize: We are growing in the areas with the highest margins, so that product mix really, really helps. The -- I do want to give a callout to the genetic services team in Valencia because there's been a lot of work going on there in terms of lab consolidation, rationalization, turnaround time, driving down the cost per sample. And that's an ongoing program. That doesn't happen in 1 quarter, okay? This is a journey that we're on in terms of increased efficiency, so I do think we will continue to see some benefit from that going forward. Can they maintain that level of magnitude? That would be challenging, okay, because they did some particularly nice work during this quarter that we benefited from, but operational efficiency is a journey. It shouldn't happen in 1 quarter.

That said, maintaining -- if you would allow me to round up by the 0.1, maintaining gross margins in the 60% level would be nice but would definitely be a little bit challenging. And then just in terms of the genomic kits business, that is our -- it's the lowest-margin business across the portfolio. We do expect to see a better performance from that business in the second half of the year, so that may have some dilutive effect on the margins. I don't know, Patrik, if there's anything I missed that you would add. So hopefully, Rickard, that answer satisfies your question.

[Rickard Anderkrans, analyst]

Very clear. And just a quick final one, if I could: So genetic services, you mentioned mid-single-digit growth in the quarter in totality. Is it reasonable to assume sort of high single-digit growth in genetic services second half? Just trying to get a sense of sort of where the trajectory moves as we move into the second half and just what type of growth rates we should be thinking there.

[Bronwyn Brophy, executive]

Yes. So Rickard, my philosophy is slow and steady wins the race, okay? So what are we seeing in genetic services? We are seeing North America returned to growth, okay? If we were seeing North America returning to growth, we're seeing genetic testing accelerating outside of the U.S. We are seeing tests outside of PGTA accelerating and penetration and adoption going up. So they are all some pretty nice tailwinds that we have. It's also important to bear in mind that, in quarter 1 and quarter 2 last year, we still had that -- we still hadn't suffered the effect of the insourcing, so growth -- we could reasonably expect growth rates in genetic services to slowly pick up in the second half of the year.

It is good to see the core PGTA business returning to growth. We do still see decline in parts of the portfolio and one test in particular, but overall the outlook for genetic services is starting to look more positive. I don't want to make promises around high single digits. I'm going to stick to the narrative that slow and steady wins the race here. And we -- our goal has and will always be to deliver steady profitable growth. We probably could accelerate the growth, but we don't want it to come at the cost of profits, so -- but a better outlook, I would summarize by saying without making any promises. Thank you, Rickard.

[Operator]

And we will now

[Audio Gap]

Patrik, you might want to check on your mute button, please.

[Patrik Ling, analyst]

Can you hear me?

[Patrik Tolf, executive]

Yes.

[Patrik Ling, analyst]

Yes. Great. Maybe I could start a little bit with your operating expenses if you can talk a little bit about what you see for the second half of this year, especially when it comes to sales and distribution that were a little bit higher than what I had expected. Is this a new level that we should expect going forward? Or were there anything specific or -- especially in the numbers for this quarter?

[Patrik Tolf, executive]

Yes, if I may start there on that topic. I mean, as we say here, we have then continued and we will continue to invest when it comes to sales and marketing activities. That's for sure, that we're going to continue to build up competence and capabilities within our sales and marketing. As well throughout the quarter here, as I mentioned, we have then taken a couple of costs that are more of one-off character here as well. So from that perspective, that is also then both within sales and marketing and admin. We have then taken one-off costs here as well. And we mentioned that in the report, that, that is approximately then SEK 15 million for the quarter. So obviously that will not be there going forward, but we will continue to invest when it comes to sales and marketing to continue to strengthen our position on that then. And also just to repeat on the R&D: Yes, we are continuing to focus more on R&D. And as projects are more and more phasing and doing progress, the key ones are for the next generation when it comes to time lapse, which we are focusing on as well; and obviously some of the genetic testing side as well. We are then starting to capitalize a bit here as well, so that means that the expense side of it goes down slightly, as you have seen also then here over the quarter, to this year compared to last year.

[Patrik Ling, analyst]

Good. Just to follow-up on that, is it possible to split the SEK 15 million between how much came into sales and distribution and how much came into admin for the quarter?

[Patrik Tolf, executive]

Yes. The main part of this increase throughout the quarter has been on sales and marketing.

[Bronwyn Brophy, executive]

Yes.

[Patrik Ling, analyst]

Okay, great. And the fact that you're capitalizing more, I noticed that your amortization and depreciation is up a little bit. Is that a new level that we should expect?

[Patrik Tolf, executive]

Yes, yes, something like that. It will probably go up slightly. I mean, if you compare this one this quarter compared to last year, it's slightly up, as I say, so I think you should expect that we are amortizing a bit more going forward here as well. And then keep in mind also that we have done then 2 acquisitions throughout the quarter. That will be amortization [ one ] as well.

[Patrik Ling, analyst]

Great. Last question, if I may. And Bronwyn, you talked about this large order on the U.S. market and that it comes in different tranches. Is it possible to say anything about timing of the future tranches? Is it something that will come in already in Q3, or is it a longer process?

[Bronwyn Brophy, executive]

Yes. So I would say part 1 or tranche 1 in Q2, but we will also see additional orders coming in, in Q3 and Q4. And maybe if I could just point out, it's actually U.S. and Canada. I don't want to let the poor Canadians down by not giving them a chance, right? So it's North America. It's the U.S. This particular chain is in both the U.S. and Canada, but yes, 3 -- I would argue, 3 main tranches that it will come in, in, Patrik, yes.

[Patrik Tolf, executive]

Yes.

[Operator]

And we will now take our next questions from Jakob Lembke of SEB.

[Jakob Lembke, analyst]

My first question is on the consumables, which I think did a very strong improvement here quarter-to-quarter. It would be interesting to hear. How much of this is seasonality? And how much of this is sort of these market share gains accelerating?

[Bronwyn Brophy, executive]

Yes -- Jakob, that's you, right? Sorry because our line blocked out a little bit. So I couldn't hear who the speaker was, but I think I'm identifying the voice as Jakob, right?

[Patrik Tolf, executive]

Yes.

[Bronwyn Brophy, executive]

Yes. So yes, Jakob, I would say on the Consumables side, to summarize, share gains in Americas, particularly North America; and also in several countries in EMEA; also several countries in APAC. So growing well above market in Pacific, in India, Southeast Asia. So most markets share gain on the media side; on the disposable devices, share gains in both North and South America, some gain in parts of -- in a couple of markets that we have in EMEA but challenge then on the distributor ordering side. So definitely the phasing, we believe, is impacting us on the disposable devices. I would point out, though, that, just in terms of consumable revenue, media is by far the larger part of the revenue when it comes to contribution to Consumables, so yes.

So how much of it is seasonality? That's a great question actually. We didn't see a summer dropoff during the quarter. We really didn't. It can happen at different times during the year. The ESHRE congress was quite late this year, Jakob. So that took place last year -- excuse me, last week, in Amsterdam, so I would expect that most of the labs were fully operational right up to the end of the quarter. It seems to be they're taking a slightly later summer holidays, so I don't see big seasonality factor at this point in time. Hopefully, that answers your question, Jakob.

[Jakob Lembke, analyst]

Yes. Just a short -- the follow-on, but if we look at North America, for example, would you say that these market share gains in media accelerated during Q2?

[Bronwyn Brophy, executive]

Yes, most definitely.

[Patrik Tolf, executive]

Yes, yes.

[Bronwyn Brophy, executive]

Yes, it accelerated. It takes a little bit of time for a clinic to change media providers. So switching is not that simple because the entire process has to be validated, so if somebody is to move to Vitrolife Group media, our media has to be fully validated by the lab. So it doesn't happen quickly. And we probably expected it to happen a little bit faster, but I think now we're seeing, once customers trials the media, validated the media and liked the media, they start to come over, so most definitely the share gain is accelerating in this quarter.

[Jakob Lembke, analyst]

Okay, great. And then moving on to Technologies and which was very strong in North America, as you said. It would be interesting to hear a bit about the sort of driving forces behind this. Is it more sort of the clinics demanding this? Or anything different you are doing internally selling this and so on?

[Bronwyn Brophy, executive]

Yes, fantastic question. So we're increasing our presence in the U.S., okay? We presented it as part of our corporate strategy. We want to double down in the largest IVF market in the world, so we're increasing our commercial presence. And we are increasing our focus on both capital sales and driving utilization of time lapse, fact; and that's definitely reaping benefits. I think the other thing that we're doing better that we probably haven't done up to now is really being able to prove the workflow benefits of time lapse. Embryos spend a significant amount of their time outside of the uterus in a time-lapse machine. I believe it's north of 90%, so customers are really starting to see the benefit to the clinic by not having to quite literally mind the embryos. And that's what happens with traditional incubators. So the workflow, the efficiency at a time of labor shortages in most of the Western world. So that is it's this is both a market factor but also the increased focus on driving capital sales, utilization.

And then I think, very importantly, we're also investing in clinical education, training. We don't sort of sell the EmbryoScope and walk away. We make sure that everybody is trained; understands; understands the benefits, time control, pressure, humidity, everything, all of the benefits that come from installing an EmbryoScope in the clinic. So we probably slightly changed our positioning in the U.S. to focus more on those areas, and the market is reacting particularly well to it, yes.

[Jakob Lembke, analyst]

Okay. And shortly before, you have talked about at -- the sort of pipeline being strong in Technologies. Is that still the case, or have you delivered a lot on -- of that already?

[Bronwyn Brophy, executive]

The pipeline. No, the pipeline continues to look good, okay? So we're putting a lot of emphasis on commercial excellence, pipeline, funnel, sales force, metrics; and a lot of focus going into that area. We've upped the ante. And no, the funnel looks good. The funnel looks good across most regions actually. I mean EMEA is not going to be able to maintain a 50% growth rate. That was a -- I know we're talking a lot about the Americas, but 50% growth in the market with the highest number of installed EmbryoScopes would -- could arguably be said to be an even better performance, so I think it would be tougher, EMEA to maintain those types of levels. The U.S. pipeline looks very good, as does APAC. I do want to call out China. China also had a very strong quarter in Time-lapse. The APAC numbers don't look as exciting because Japan and Pacific had a very strong quarter in Time-lapse last year, but China is still in very high double-digit growth on Time-lapse with a healthy-looking funnel.

So just to manage expectations. Maintaining 40% growth on Time-lapse, that's not going to be realistic. That would be a very, very tough ask, but I would summarize by saying, Jakob, that the funnel and the pipeline look very good. And we are rigorously monitoring and tracking it as well as the [ consumable ] revenue per installed EmbryoScope.

[Jakob Lembke, analyst]

Okay. And just finally, on genetic services, I know comps are a bit easier here in Q2, but to me it seems like there's quite a significant underlying improvement as well. Can you just talk about, yes, the sort of drivers behind that underlying improvement?

[Bronwyn Brophy, executive]

Yes. So you're correct. The comps were very tough for genetic services this quarter because, as I mentioned previously, we were already starting to be impacted by the insourcing issue. So we still had the bulk of that revenue in Q2. And actually, there a decline accelerated in the second half of the year, so the comps were challenging, yes. Underlying, good performance. Nice to see PGTA, the recovery in PGTA. I know there were concerns. Is this insourcing trend a one-way train? Well -- and we had always said no. I think we're being proven correct on that one because we do see the growth there. I think it's good to see as well, Jakob, the growth across the broader portfolio; carrier screening, some nice growth there. Also the noninvasive tests are doing well. That's good because we believe a lot in noninvasive going forward, certainly in the U.S. but also particularly outside of the U.S. So good to see the growth in the U.S.

EMEA. I have to call EMEA out here as well, high single-digit growth in genetic services, with several markets in double-digit territory. So that's good despite the comps. And then APAC, very strong performance in India, very strong performance in Southeast Asia, so yes, it's definitely looking better. I don't like to get too excited, Jakob. We have a phrase in Ireland, and I'm sure you have an equivalent one in Sweden. One swallow doesn't make a summer, but definitely the fundamentals are looking better in genetic services. And we are much happier with the quarter. And certainly, back to the tracking and the metrics, going forward, they look more positive.

[Jakob Lembke, analyst]

Okay. And it sounds like it's moving in the right direction then. That's all for me.

[Bronwyn Brophy, executive]

Yes.

[Operator]

And will now take our next question from Ulrik Trattner of Carnegie.

[Ulrik Trattner, analyst]

Great. And I will try to bore you and not asking the same question again, but I need to touch base on the market share gains, specifically in media and in the U.S. And you touched upon this. It takes some times for the IVF labs to validate your products and to run them in their labs. Are you expecting -- or out of the labs or lab change you were expecting to switch to your media, would you see that majority of the effects have already come into Q2? Or are there more to switch to Vitrolife products by second half of the year? That would be my first question.

[Bronwyn Brophy, executive]

Yes. So thank you, Ulrik. There should be more that we can convert to our media. And I think we should do that on the basis of high quality, on-time delivery and differentiation because I don't want us to be complacent as a company and assume that our competitor will always have those challenges. I would like the Vitrolife Group to win based on merit. And we do believe that we have the highest quality. We certainly have the most stringent quality controls, highest-quality media on the market, so we should believe in ourselves and back ourselves and continue to convert and take share in media in the coming quarters. I think there's plenty more clinics and chains out there that we can convert to our media.

[Ulrik Trattner, analyst]

Great. And I -- on the gross margin: And I know you talk a lot about product mix. And I fully understand that, as well as you're talking about gross margin improvements in Genetics, but you have historically talked about the opportunity to increase margins not only in these new segments of Vitrolife but also in Consumables, so where are we at on that currently?

[Patrik Tolf, executive]

I mean we are [ taking that improves ] as well, but the main driver for this quarter has been the ones that we have talked about now as well when it comes to genetic services particularly. But of course, it's to continue then to build up the scalability that we have in the manufacturing here as well. As we talked about previously, it's about increasing then capacity for media, as one example, as demand has increased, so we are continuing to work on that side and we will continue to do so even further on here as well. So all of that contributes as well, but the main driver for the quarter has been product mix and on the cost side then primarily out of genetic services.

[Bronwyn Brophy, executive]

Yes. I mean I think it's a great question, Ulrik. It needs to be across the board, okay? And it has been. I think that a key focus for our Consumables business has been capacity, and I'm glad we've been focusing on capacity. Had we not, we would not have been able to capture the share in media, but you are right. What are we doing there to improve margins? A lot of automation and investment in the Consumables business in the past 12 months; increased use of robotics in several of our manufacturing plants, which is important in a labor-constrained market, and so some improvements there. And I think, just across the Consumables portfolio, disposable devices as well. We've been looking to take out cost, scale, increase efficiencies there, so it is across the board. And also in Technologies too, right, healthy margins there, but there's always room for improvement. So I -- the programs are everywhere. They're in all of the business areas and in all of our manufacturing sites around the globe. So [ from Göteborg ] to San Diego.

[Ulrik Trattner, analyst]

Great. And if we were to switch over to Genetics. And you sound optimistic. I know slow and steady, but looking at sort of what you're stating in terms of growth across regions, it sounds very positive. And I also note that you talk a lot about carrier screening. And I heard of numerous presentation at ESHRE last week focusing on the progress of carrier screening. Is there a shift in the market currently towards those types of genetic tests? And as well, a change -- there must have been a change in the market dynamics and pricing of these tests, giving [indiscernible] leaving the industry. And if you can help me provide some granularity on that, that would be very helpful.

[Bronwyn Brophy, executive]

Yes. So you've done your homework, Ulrik. I wouldn't expect anything less. So yes. I mean carrier screening, the adoption of carrier screening, is growing rapidly. Fastest-growing region is Americas, but EMEA is also very, very high; a little bit less so in APAC, which you would expect, okay, for something like carrier screening. Noninvasive as well, right, so big, big emphasis on noninvasive. We've been investing, obviously, in that area. Adoption there is increasing pretty rapidly, mainly in Americas and in APAC, okay, so no surprises. I suppose that APAC is where growth of noninvasive tests are at their highest.

So I don't know. We say there are puts and takes almost every region, as I look at the 3 regions. And there are healthy pockets in carrier screening, in noninvasive. And then as I keep coming back to, right, let's not forget about the core. I mean PGTA well established in the U.S., not so well established outside of the U.S., but I think the rest of the world is looking at the U.S. success rates up and around the 50%, when the rest of the world is hovering in and around the 33% to 35%. And U.S. has a higher penetration of genetic testing, so then one could reasonably assume that the adoption rates outside of the U.S. for genetic testing is going to continue to increase, but yes, I don't want to be overly bullish. We have to make this happen. This is market development. It's classic market development. It's not -- taking share is one thing. Developing a market, training, gathering the clinical evidence, working on reimbursement, health economic data, that all takes time. And this is going to take time, and -- yes, but it's certainly looking better, Ulrik.

[Ulrik Trattner, analyst]

Great. And then the million dollar question, quite literally: Where are we at in terms of the progress of combining genetic tests and time lapse and for that data to mature and to be published? It sounds like a key component for some true deep penetration of time lapse in the U.S. market beyond the efficiency gains of the system.

[Bronwyn Brophy, executive]

Yes. So as we presented during our Capital Markets Day, key pillar of our strategy, to marry time lapse and genetic testing. It's a complex program. And we have our teams in Aarhus and Valencia working on that together. Difficult to give an exact time line. I -- my teams wouldn't even give me an exact time line on that particular one, but I can say that the program -- it's a program, not a project, given its magnitude, but the program is progressing well. Patrik mentioned the capitalization. We are increasing our spend in R&D. And most of that investment is going into the next-gen development which essentially marries the 2 technologies. I think what's also good to see, Ulrik, is that we're seeing now from the U.S., with the traction that we're gaining on EmbryoScope, is that it starts with EmbryoScope and genetic testing living side by side. We see them as complementary. We don't see them as competitive. U.S. is clearly starting to see that too. And that really helps to set the stage for the future platform of being able to do both. So it's going to take us time. I certainly don't want to overpromise on this one, but we are doubling down and making good progress.

[Ulrik Trattner, analyst]

Great. And it wouldn't be fair to not ask a question about the e-witnessing acquisition and the witnessing in general. So if you can highlight the difference between your witnessing system and the rest of the market. And in addition, I listened to a few testimonials in Europe. And they're talking about, [ say, being 0.3x sort of ] personnel converting to e-witnessing from manual. Is this the type of general time saving or efficiency gains that is expected? And in addition, 10% penetration, is it for general market? Where do you expect this to move within the next 5 years?

[Bronwyn Brophy, executive]

Yes. So yes, current rate stands at about 10% globally. There are regional differences, with the Western world slightly ahead. The key difference -- without going too technical, but the key difference between our system, I can say it's our system now, and other systems on the market is that we can offer both barcode and RFID. And the other key element here is integrations with EMRs, which is really complex because the EMRs in this space are very fragmented, much more fragmented than you would see in other areas of health care. The fantastic thing about eFertility is it -- we have the EMR platform in there. So the team that have come over as part of this acquisition have really high competence and knowledge when it comes to EMR, so that also gives us a boost, but all systems have their pros and cons. How rapidly will the adoption and the penetration take place? Well, that's on us, right? We as a company and our competitors as well need to be able to demonstrate with evidence the benefits of using a witnessing system. Of course, there are the emotional benefits of the tracking and tracing and the degree of comfort that gives to couples, but we need to be able to prove that with maths as well, to some of the points that you're bringing up there, Ulrik. What exactly is the time saving? What data exactly do we get from the system?

So it is early stage. We're only at 10% penetration in terms of the market, but that's what we need to do. We need to be able to bring the data, the evidence; demonstrate the efficiency; and train. You will have seen from our academy in [ Båstad ] [indiscernible] able to train people in the use of witnessing and the benefits. So we're very excited, but we have a lot of work to do when it comes to witnessing. But yes, that's the...

[Ulrik Trattner, analyst]

And do you dare to make an -- yes, great, but do you dare to make an assumption where sort of the general market in terms of the penetration of the witnessing system will move, in terms of are we supposed to believe that 30% to 50% of IVF clinics will most likely use a witnessing system within the next 5 years?

[Bronwyn Brophy, executive]

Yes, you're really tempting me to give you a number, but all I can say is you would reasonably expect the adoption rates to start accelerating. The reality is that, our witnessing system, apart from all of the benefits that we've just spoken about, I mean, at the end of the day, it also gives a huge peace of mind to the couple undergoing IVF that every step -- if we take it down to the micro level -- it's easy to get lost in the numbers and the penetration. If we take it down to the micro patient level, would a couple undergoing IVF prefer to go to a clinic where they know there is a witnessing system installed; and each and every step of their personal IVF journey is being tracked, traced and quality proofed? I would say yes. Of course, we would want that. And that then becomes a marketing tool for clinics, that, "We have witnessing. We track. We trace. And we barcode. In our case, we barcode, or we RFID. So I would be advocating to patients when they're choosing their clinic and they're choosing their doctor. "Look for a clinic that has a witnessing system," in terms of quality, traceability and workflow. So yes, I think we would like to be ambitious about the growth prospects, Ulrik.

I think we are up on time, so I would just like to thank you all for dialing in. Thank you for your great questions. And for those of you waiting to head off on your summer holidays, have a wonderful summer. And we look forward to speaking to you soon. Thank you very much.

[Patrik Tolf, executive]

Thank you.

[Operator]

Thank you. This concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.