Vitrolife AB
STO:VITR

Watchlist Manager
Vitrolife AB Logo
Vitrolife AB
STO:VITR
Watchlist
Price: 226.4 SEK -1.14% Market Closed
Market Cap: 30.7B SEK
Have any thoughts about
Vitrolife AB?
Write Note

Earnings Call Analysis

Q3-2023 Analysis
Vitrolife AB

Company Posts Mixed Growth, Margin Expansion

In the latest quarter, the company reported a modest growth, with total sales increasing by 6% in SEK and 2% in local currency, amounting to SEK 848 million. Organically, sales grew by 3%, while EMEA showcased a strong 14% local currency increase. Gross margin improved to 55.7%. Though EMEA and APAC saw organic growth in Genetic Services, the Americas declined due to a drop in ERA. Overall, the company's EBITDA margin rose to 33.9%, and the market contribution in EMEA significantly improved from 30% to roughly 40%. Notably, the company also continued to deliver strong operating cash flow of SEK 214 million for the quarter and reduced net debt-to-EBITDA to 1x.

Strengthened Margins Driven by Product and Market Mix

The company saw its gross margin rise to 55.7% during the quarter, primarily due to its product and market mix, indicating an effective strategy in aligning offerings with profitable segments.

Regional Performance Varied, with EMEA Leading Growth

While regional performance showed variation, EMEA stood out with a robust 14% growth in local currency. This was contrasted by a decline of 8% in the Americas, emphasizing differing regional dynamics and potential challenges in specific markets.

A Commanding Force in Media with Strong Growth

The company's GX-MEDIA achieved approval, bolstering its position as a global leader in media and experiencing double-digit growth, contributing significantly to the company's strength.

Steady Sales Growth with Positive Outlook in Some Regions

Quarterly sales reached SEK 848 million, marking a 6% increase year-over-year in SEK, with organic growth contributing 3%. The company experienced solid performance in regions like EMEA and APAC, though it faced challenges in the U.S..

Growing Consumables and Media Business

The consumables segment saw steady growth, with organic growth in local currencies of 8%. Investments in automation cater to strong demand in the media side of the business, highlighting the segment's vitality and expansion potential.

Technological Edge with Double-Digit Growth

Technology aspects of the business, particularly the embryoScope, returned to double-digit growth, indicating successful product development and market adoption, which is particularly notable in the APAC region.

Genetic Services Facing Mixed Results

Genetic Services saw organic growth decrease by 5%, with the decline in ERA tests in the Americas significantly impacting U.S. performance. However, EMEA and APAC regions performed well, compensating for some of the loss with 9% growth.

Operating Expenses and Cash Flow Management

The company managed to improve its operating margin and continues to deliver strong cash flow, achieving SEK 214 million this quarter. The efficient cash flow management has resulted in a net debt-to-EBITDA ratio of 1x.

Future Outlook and Strategy

The company plans to delve into its future vision and corporate strategy on the upcoming Capital Markets Day, emphasizing their role in innovation within the reproductive health industry.

Navigating Challenges and Seizing Opportunities

Despite facing challenges, including competition and regional disparities, the company is poised to leverage growth opportunities. With a strong emphasis on innovation and responding to market demands, it remains well-positioned to navigate the dynamic landscape of the industry.

Earnings Call Transcript

Earnings Call Transcript
2023-Q3

from 0
Operator

Hello and welcome to the interim report Q3 2023. My name is Caroline, and I will be your coordinator for today's event. [Operator Instructions] I will now hand over the call to your host, Mr. Patrik Tolf to begin today's conference. Thank you.

P
Patrik Tolf
executive

Thank you. Good morning, and welcome to the conference call for the interim report third quarter 2023 for the Vitrolife Group. Today is the 27th of October and the time is now 10:00. My name is Patrik Tolf, and I'm CFO for the Vitrolife Group. And I will now hand over the word to our CEO, Bronwyn Brophy.

B
Bronwyn Brophy
executive

Thank you, Patrik. Good morning, everyone. For those of you who haven't met me, my name is Bronwyn Brophy. I joined the Vitrolife Group on the 1st of August. So just coming up on my first 90 days with the company. I'm a medtech executive with 26 years' experience working in the healthcare and life sciences industry. So I spent quite a bit of my career working at Johnson & Johnson, at Medtronic and more recently at Thermo Fisher Scientific, where in fact, I was based out of Uppsala, Sweden.I thought it might be useful just to start by sharing some of my perspectives and observations coming into the industry and into the Vitrolife Group. So I'll start maybe by sharing some of the perspectives on the market. We're clearly operating in terms of reproductive health in a market that is growing, primarily due to increases in maternal age, but access to care does remain limited primarily due to affordability.We're seeing a lot of consolidations of clinics by the large chains. But I guess something that stood out to me as I traveled around the globe is that the procedures are still quite labor-intensive, making scalability a challenge. That in turn, brings, I believe, an opportunity to bring a lot more automation and digitalization to the workflow to support our customers. What we currently see is a heavy reliance on the expertise of individuals working in the clinics.Something quite unusual then that I haven't seen in most of the areas where I have worked in health care, and that is we see that standards of care can differ by region. In the context of reproductive health, as an example, we see a lot of genetic testing in the U.S., who does play quite a large role there. However, that's not the same in other areas of the globe.My conclusions on the Vitrolife Group, again, I'm only 90 days in, but I believe as a company, we're very well positioned within this growing market. So we're in a growing market, but we also have a lot of potential to develop that market.I believe our company provides best-in-class service. Our products are synonymous with quality. And everywhere I go around the globe people talk about in very positive terms, the support that we provide to our customers. I think our timelapse platform, EmbryoScope is a core source of differentiation for the Vitrolife Group, and this technology brings automation to the very core of the IVF clinic. And then I guess the other thing that stands out for me is the sheer breadth of our portfolio end-to-end from products to test to services, which allows us to address those different standards of care, which I have observed.So I will now move to Page 3 of the presentation and start with some of the Q3 highlights. We experienced improvement in our gross margin to 55.7% during the quarter, and this is primarily driven by product and market mix. Very strong growth in EMEA of 14% in local currency. We experienced this across the portfolio and across the region. So very nice to see this. And we had our GX-MEDIA, EMDR approved. It very much strengthens our position as a global leader in media. And in fact, during the quarter, we had double-digit growth in media again during this quarter. So very much a source of strength for the Vitrolife Group.I will now move us to Page 4 and take you through some of the numbers in more detail. I guess the key summary from this slide is that we did deliver profitable growth globally despite experiencing headwinds in the U.S. So sales for the quarter were SEK 848 million. That's an increase of 6% in SEK and an increase in organic growth of 3% during the quarter. I would like to point out that we do see quite a variation in regional performance with EMEA and APAC doing well, but we were challenged in the U.S.Coming on to margin, as I've already mentioned, we increased our margin to 55.7% and this is coming from, as I just mentioned, product and market mix. On EBITDA, EBITDA margin of 33.9%. The EBITDA margin is even stronger given nonrecurring SEK 24 million for the same quarter last year. So I would say good performance also on the EBITDA margin.And then just looking at the first 9 months of the year, EBITDA margin and cash flow, both performing well. If we look at our total sales of 2.6%, that's 10% increase in SEK and 5% in local currency. And if I could now ask you to move to Page 5 of the presentation, we will discuss the sales and growth down at the regional detail.Okay. So here, you can see the variation in regional performance that I have just discussed. So in Americas, we had an organic growth of minus 8% in EMEA, 14%. So very strong performance there and in APAC, 5%. The decline in the U.S., I would like to address that first, the decline here is related to a fall in sales of our ERA test, combined with the loss of PGT-A sales due to in-sourcing of testing by a large customer, which we mentioned in the previous quarter. So very much ERA and the in-sourcing of that particularly large chain impacting heavily on the Americas results.If I come to EMEA, we had a very strong performance in EMEA with all business areas performing well. In fact, we delivered 44% growth in technologies with strong demand across the region for EmbryoScope. APAC performance was 5%. In APAC, we had both our consumables and our Genetic Services performing well. In China, in fact, we delivered double-digit growth, so very strong performance yet again in China.Our challenge in APAC was on the technology side. And essentially, we had a very strong Q3 last year with multiple time-lapse installations, most notably in Japan, and this made the comparables on the technology side challenging. However, I would say that on the Genetic Services and consumables portfolio just to reiterate that we did perform well.In terms of the regional contribution, again, this is something that has jumped out at me as an incoming CEO, and that's the share of the total sales. So we do see a very healthy spread in terms of regional contribution with 33% coming from Americas, 37% from EMEA and 30% from APAC.I will now move to Slide 6 and take you through more details on our consumables business area. In consumables, I think we saw steady, I believe we saw steady and consistent growth across all regions. We delivered an organic growth in local currencies of 8%, 7% in Americas you can see, 7% in EMEA and 9% in APAC. We are taking share in media. I just want to point out that we are doing very well on the media side. We continue to take share, and we have invested in more automation in our media production in order to be able to meet demand because we do forecast continuing strong demand on the media side.I would like to call out Q2 of this year, which was particularly strong, and there may be questions in terms of our ability to maintain that momentum. Q2 was particularly strong because we saw a lot of pent-up demand, most notably in the APAC region and particularly in China, which led to a very strong quarter in Q2. We now see the growth normalizing, returning to more normalized levels. But at the same time, we do still see growth above market in the APAC region. So in summary, a steady and consistent performance across our consumables business area.I would now like to move you to Slide 7 of the presentation, where we will discuss the technologies business area. Good to see on the technology side that we are back in double-digit growth. So we saw organic growth here in local currencies of 14%. Americas performance was 5%; EMEA, 44% and APAC minus 8%. Timelapse brings a lot of automation to the core of the lab, and it is a key differentiator for the Vitrolife Group. So it is important that we continue to grow double digits in technology. We want to continue to do that and in fact, accelerate that trend.We see EMEA doing really well with new customer installations across multiple countries. And if I come to APAC we were challenged, as I mentioned, by the strong comparables in Q3 of last year. However, our pipeline for timelapse and EmbryoScope in Q4 in APAC is very strong. China, as I mentioned, is doing very well with timelapse, and we won a number of new tenders during the quarter. So again, back -- timelapse back in double-digit growth. We're seeing strong revenue on the capsule sales, but also our consumables service pull-through is performing very nicely.If I can now ask you to turn to Page 8 of the deck, where we will discuss the Genetic Services business area. So in Genetic Services, we had an organic growth in local currencies of minus 5%. EMEA and APAC both performing well with 9% growth in both EMEA and also, in fact, in APAC, but we experienced a decline in the Americas region of minus 15%. The U.S. performance was impacted by the decline in ERA, and we were also impacted, as I previously mentioned, by the in-sourcing of PGT-A. ERA just to put into context, is approximately 1/5 of the sales of Genetic Services. And I would like to address the actions that we are taking to remediate the decline that we are experiencing on ERA.So we are generating additional clinical evidence with the non-selection trial. We are also working on in-market use protocols with our customers and also improving on education for our users. And then finally and very importantly, we are reinforcing the intended use of the ERA test, which is in risk patients, repeated implantation failure patients.With these actions, it is our goal and our aim to mitigate against the decline that we are experiencing in ERA, both in the U.S., but we are also experiencing ERA decline in EMEA. EMEA and APAC then performing well despite the decline in ERA. And in fact, we saw double-digit growth for PGT-A in both EMEA and APAC. And what we are seeing across the Genetic Services portfolio is a steady increase in growth across the newer tests that we are bringing to market. We did announce at ESHRE that we've launched 8 new products. Some of these products are tests coming from the Genetic Services side of the portfolio. And I think our teams, our commercial teams across the globe are doing a very nice job at accelerating the growth of these tests and reducing our reliance on ERA, but also bringing more innovation very importantly to our customers.And with that, I would like to hand over to Patrik, who will take us through our geographical segments.

P
Patrik Tolf
executive

Thank you, Bronwyn. And moving then to the slide showing the geographical segments. And what you will see here on the slide, sales, gross income and the selling expenses and thereby also the market contribution per region. And this builds up to our gross income and gross income margin then of 55.7%. The gross impact -- the gross income per region is, of course, also impacted by the product mix, but this gives overall a good indication of our performance on that side. And following the growth in product mix for business areas, just that -- Bronwyn just presented, we see that starting with Americas and then compared to the contribution margin last year that we have decreased from just below 32% down to just below 26% in-market contribution on that side. Whilst we, on the other hand, then have strengthened the market contribution significantly than in EMEA from 30% to approximately 40%. And we are more or less flat or with a slight improvement than in APAC.So let's move to the next slide, where we will then see the consolidated numbers for the quarter. And just to repeat, the net sales then for the quarter was SEK 848 million, which is an increase of 6% in Swedish krona. We had a slightly lower currency impact during this quarter compared to previous quarters, taking out then the currency impact moving us then to the organic growth in local currencies and those were then 2% in total sales. But still, we had in previous years had sales of COVID and also discontinued business related to GPDx in China, which means that the comparable growth number is 3% for the group.Moving on then to the gross income. Margin, as I just said here, 55.7%, which is an increase compared to Q3 last year, and that is impacted positively by the product mix and also the efforts that we are doing then on the operational excellence.Moving then down to the EBITDA. We increased that one to SEK 287 million. That gives us a margin of 33.9%. And then compared to Q3 last year, where we also then had an extraordinary income during the quarter of SEK 24 million. So on the ongoing basis, this quarter was stronger than last year.So moving to the next slide, where we will look a bit more into the operating expenses and, you see that one increased with 5% in Swedish krona from EUR 274 million to EUR 289 million. But in local currencies, our operating expenses increased 2%.We have increased and continue then to marketing investments and marketing activities into key markets, and that represents an increase of 6% in local currencies. Admin is on the similar level in Swedish krona that's actually a slight decrease than in local currencies. We see also that R&D is going slightly lower during this quarter compared to last year, and that is due to project phasing and that is then a decrease of 6% in local currencies.And as I said, during Q3 last year, we had an extraordinary income that was related to VAT and insurance claim of SEK 24 million. So that comes here as you see as a negative operating expense, which is an operating income. So SEK 24 million compared to SEK 4 million during this quarter impacts, of course, the comp numbers.So moving then to the next slide, where we will then summarize the key financials. And to stress here is that we have continued then to strengthen the margins. We do that with good progress here, given also that we have had relatively lower growth. This shows also that we have done improvements in our operational excellence programs and going in the right way in those improvements. So we have then the adjusted gross margin where we take out in the amortization and for acquisition-related intangible assets of [ about 6% to 8% ].And here also, what I want to stress is that we continue then to deliver strong operating cash flow with SEK 214 million for this quarter, which then gives a year-to-date of SEK 586 million, which again focus operating cash flow brings us then down to the net debt-to-EBITDA, which is now 1x.So, with those words, I'll leave it back to you, Bronwyn.

B
Bronwyn Brophy
executive

Thank you, Patrik. So in terms of closing remarks, what do we need to do with the Vitrolife Group? We need to continue to drive profitable growth. How are we going to do that? One, by accelerating penetration of our timelapse globally. I think we have some very nice momentum there, particularly in EMEA, a very healthy pipeline in APAC and U.S., but we absolutely must need and will accelerate growth of that very critical and differentiated platform for us globally.We need to increase our share in consumables. We have a strong position on media. We need to continue to advance there across the globe. I think again, we have some very good momentum. As I've mentioned, we've invested in improved automation. So we do have ability to meet that increased demand. And it's a very important part of our consumables portfolio.We need to drive revenue of our newly launched products and tests. We have brought innovation to the market. This is a market that needs increased innovation, it's crying out for increased innovation, and we want to make sure that we increase the revenue contribution coming from the products that we have launched across all 3 business areas.Point #4, we must execute on our ERA remediation plan, both in the U.S. but also in EMEA. And as I laid out, there are 3 points to that plan, evidence generation, in-test protocols and very importantly segmentation and targeting, which is the indication for the ERA test is in risk patients. And then as Patrik has mentioned, I think the team, certainly, I see this coming in as a new CEO, I see the team has done a very nice job led by Patrik on the operational excellence. We need to maintain our focus there. It's very important that we diligently control our cost, look for efficiencies so that we can continue to invest in accelerating our top line and bringing new innovation to market.And then finally, just to say that we are planning to host a Capital Markets Day on the 12th of December. During the Capital Markets Day, we will share details on our future vision of the reproductive health industry, our corporate strategy, which we are currently working on and the role that we want to play in terms of bringing more innovation to the workflows of our customers to help them increase capacity and very importantly, then to increase access for treatment to patients. So we look forward to seeing some of you, hopefully, have some of you joining us at Capital Markets Day on the 12th of December.Thank you very much. I will now hand over to the moderator, who will open up the session for Q&A.

Operator

Sure. [Operator Instructions] We will take the first question from Jakob Lembke from SEB.

J
Jakob Lembke
analyst

I have a few questions, and I'll take them one by one. So starting on Genetic Services, it seems like it's quite healthy growth here in both EMEA and APAC. Do you feel like it's sort of starting to stabilize here and that you are able to continue to grow?

B
Bronwyn Brophy
executive

Yes, we're definitely seeing some stabilization. In fact, EMEA and APAC, both doing well. We believe both growing above market. Just on the PGT-A side, we're seeing very strong growth in EMEA and APAC. So clearly, in terms of that standard of care dynamic that I spoke about in my opening slide, it would certainly appear that Genetic Services is starting to gain some traction outside of the U.S.I think the other sign of health coming from the business is that the contribution from the different tests that we have in the portfolio is becoming more balanced. So we do have less reliance on ERA and slightly less reliance on PGT-A. So the newer tests that we're bringing to market are starting to increase in contribution.

J
Jakob Lembke
analyst

Okay. That's good to hear. And then on the ERA test, I think you said something about the development in EMEA, but I missed that, maybe you can repeat that. And then also, overall, how has the sales development been like throughout the quarter, if you see a stabilization or continue to decline more?

B
Bronwyn Brophy
executive

Yes. So again, thank you, Jakob. So ERA is declining in the U.S. It is a sharp decline. And hence, we're taking the measures which I've spoken about, we do see a decline in EMEA, not to the same extent, I would have to say. And we're not experiencing a decline in ERA in the APAC region. So really, the majority of the issue in relation to ERA is coming from the U.S.

J
Jakob Lembke
analyst

Okay. And then moving on to APAC. Just wondering sort of on China, where you see the market activity currently versus sort of normality. And then also a lot of other sectors are fighting headwinds from China right now. And I'm wondering if you see any concerns from that when we look forward.

B
Bronwyn Brophy
executive

Yes, I can take this one, Patrik. And then maybe if you want to add anything. So we're performing very well in China, Jakob, which I have to say, for me, coming into the Vitrolife Group, that's not something I experienced in other areas of health care. And certainly, it's not what I hear from some of my connections and other medical device companies and life science companies. But we are doing very, very well. In China, we had double-digit growth yet again during the quarter. We won a number of tenders for timelapse. Our consumables business is doing well. So I would say it's not that we're holding up well in China. We're doing particularly well. We believe this is sustainable.Our products and services have a great reputation in the market. Timelapse is very well received. We have an excellent team on the ground in China, which I think attests to the performance that we've been able to deliver quarter after quarter.So we are not experiencing the headwinds that other companies in the industry are seeing. I don't want to sound complacent. Of course, we have to be very alert to those challenges. But so far, we have been able to navigate anything that has come our way and being able to continue to deliver double-digit growth in the region.Patrik, I'm not sure if you have anything to add there.

P
Patrik Tolf
executive

Think you said it very well.

B
Bronwyn Brophy
executive

Thank you.

J
Jakob Lembke
analyst

Okay. And then on timelapse, you mentioned that you have a strong pipeline. So I'm wondering if there's anything in particular behind that sort of the iDAScore, for example, or anything else.

P
Patrik Tolf
executive

This also relates back to China, Jakob, as one say -- as one market, particularly because as we have said previously also, when we see recoveries coming back from COVID, you normally start often with consumable products and then comes more capital sales after that one. And we see that same thing in China now as well. We saw good growth in China for timelapse during the third quarter. And of course, there are a significant amount of outstanding tenders for the fourth quarter and a bit into the next year as well.So China is obviously one market where we do have a strong presence in already and a strong base and a lot of opportunities in China as well. And then, of course, if you go to Americas, there we also see increased activity on that side. Of course, as you know, there are a lot of customers in the U.S. that are working and focusing on biopsy, but we do think that we are getting the traction to get the focus on workflow, but we also see customers that really want to use both technologies and those techniques there as well. So we are getting into a good momentum when it comes to Americas going forward as well.

J
Jakob Lembke
analyst

And my final question is on sort of the Cooper-Cook deal, it seems like it has definitely fallen through now. So how do you see this impacting sort of the competitive dynamics going forward?

B
Bronwyn Brophy
executive

So, thank you Jakob. Yes, clearly, that deal has fallen apart never easy, I guess, for either party, but these things happen. I think for us, Cook has -- we have clearly already taken quite a bit of share in terms of the Cook Media business. So we've already, I guess, capitalized on that opportunity. Cook do still have a very strong performance and robust demand for their ETCs. And I expect that that demand will hold up for Cook going forward. They have an excellent reputation in terms of their transfer catheters. So my prediction would be that Cook will manage to hold firm with the products that they have remaining in that part of the portfolio.

Operator

We will take the next question from Ulrik Trattner from Carnegie.

U
Ulrik Trattner
analyst

Great. Welcome Bronwyn. A few questions from my end. Again, on China, and you're talking about -- and please correct me if I misunderstood this growth normalizing. Is this growth China were for APAC, because based on numbers and numbers throughout the last few quarters, it looks like China is far from its pre-COVID levels. And I was wondering the general take on my end would be that in APAC the reimbursement in Japan is now in comparables. So your take on where China is today in terms of its recovery from COVID? That would be my first question, please.

P
Patrik Tolf
executive

Okay. Thank you, Ulrik. -And I think it's more related to China, as you alluded to here. And obviously, we saw a strong pent-up demand starting, particularly than during the second quarter. It wasn't so much of that one during the first quarter. But we have seen, if anything, maybe the activity has been a bit hampered during the third quarter on that side. On the other hand, as I said previously, I mean, the time lapse equipment and the capital sales that's picking up on the other end. But of course, we also are strong in media when it comes to China. And of course, that stretch forward to start to build up that one, you have a bit of a stock for that one during the second quarter as well. But if anything, may be slightly slower than it was particularly than during the second quarter on that side as well.

U
Ulrik Trattner
analyst

But media on a short shelf life. So if the order stockings in -- from Q2 into Q3, we should see that lessen in terms of effect for Q4, right?

B
Bronwyn Brophy
executive

Absolutely. That's correct.

U
Ulrik Trattner
analyst

Second question on my end relates to EMEA and your performance and especially on timelapse. It looks stellar in the quarter, to be honest. And just a general question, if you're seeing a big shift in interest on timelapse due to the iDAScore or was it an unusual number of deliveries on orders in Q3?

B
Bronwyn Brophy
executive

I can take that one. Yes. So, thank you, Ulrik. So I think it's a number of factors. iDAScore certainly brings additional benefits. But I think it's more than that. I think it's the benefits that EmbryoScope brings to workflow. So we're clearly operating an environment with staffing issues, scalability issues and with timelapse, you not only have embryo valuation, but it also helps with automation in general in the lab. And I think our team have done a very nice job on the ground in EMEA in reinforcing that message.So really, what we're seeing in EMEA is we're seeing strong capital sales across multiple countries. Yes, doing well on iDAScore, but we're also starting to get a very nice pull-through in terms of the consumables revenue coming off of the timelapse system. So very, very strong performance, certainly in EMEA, which we would like and want to replicate in other geography. But it's really a combination, Ulrik.

U
Ulrik Trattner
analyst

And would you say that, obviously -- it sounds like or correct me if I'm mistaken what you just said. But, it looks like then EMEA clinics are now more focused on workflow than they've been before. I guess a manual workflow in lab has been the case for the last decades and then hampering factor, obviously, and nothing has really kicked off in terms of improving workflow. So is this a renewed focus among IVF clinics in EMEA to automate their workflow or start to automate your workflow, so to speak?

B
Bronwyn Brophy
executive

Yes. Maybe I could start on that one. Thank you, Ulrik. Maybe I'll start on this one and Patrik can chip in. No one is escaping the labor shortages in anywhere in the globe and in any industry. And I think IVF is no different. So there's clearly staffing shortages. And I think you're right. I think what we are starting to see and what we are benefiting from is people addressing those workflow challenges. I don't think it's the sole factor, but I certainly, from what I'm hearing from our teams and the time that I have spent in a number of labs now across the region is that the importance of workflow is definitely moving up the pecking order due to the staffing issues.Patrik, do you have anything else to add on that?

U
Ulrik Trattner
analyst

Perhaps you can pitch in on my next question, Patrik, then I looked at your contribution margin for EMEA and it looks like a big jump in margin from Q2. And it is a small portion of that relates to the gross margin. I'm guessing it's the newly introduced media in Europe. But can you give us some insight on what's happening on the contribution margin for that region. And I also noted a decline or a level of admin expenses that has dropped from Q2? And is this a new level that we should expect going forward?

P
Patrik Tolf
executive

Yes. So on the first question then on EMEA, I mean, we are growing across all the products here, as you know, and of course, the technologies growth in the third quarter was really strong on that side. So that certainly helps. But also, I would like to stress that we are growing strongly in Genetic Services as well, which certainly also helps and adds to the contribution margin in addition to, of course, consumable technologies on that side. So good growth across the region and for all the business areas. So a strong performance on that side.Going to your second point then when it comes to admin expenses on that side, of course, we are working with getting ourselves more integrated as the group. We are now soon 2 years down the line. We are making progress on that side as well. And these kind of levels are becoming a bit more normalized on that side as well. So, this is what we are working with, and this is part of the operational excellence focus that we are working on.

U
Ulrik Trattner
analyst

Great. And I think you were talking about genetics and a few questions on genetics. You must have lifted margins from Q2 here as well, seasonally, Q3 is a generally weak quarter earnings wise for Genetic Services. So can you talk a little bit about the margin trend for Genetic Services as well, is it possible, it would be helpful if you could give some quantification on how much ERA declined in the quarter. You talked about the recent trend.And also, you talked about the evidence generation when are we to expect new publications coming out. And if we were to summarize Genetic Services and you mentioned PGT-A growing in both EMEA and APAC, but these are rather small market for Genetic Services. But is it fair to assume that ERA is declining overall and globally by around 30%, EBITDA growing sort of in the low single digits and PGT-A by double digits.Actually, a lot of questions. I know hopefully you got them all.

P
Patrik Tolf
executive

Yes. Do you want to start with an overview there? Or should I go take it?

B
Bronwyn Brophy
executive

You start, and I will -- okay.

P
Patrik Tolf
executive

No, I think you're right, I mean ERA, as we know, I mean, it's -- as Bronwyn said, it's about 1/5 approximately of the revenues for Genetic Services, and that has declined significantly then during the quarter, and your numbers are not completely wrong. So that is right. But what we see also here, as Bronwyn said, I mean we are progressing with the other tests as well. The PGT-A is growing strongly, and that is also then in other markets, but U.S., where we are growing strongly in PGT-A and also on PGT-M and the assumptions that you made there is also a good assumption where we were all doing the second -- the third quarter as well.

B
Bronwyn Brophy
executive

Yes. Ulrik, maybe I could just add that you're correct in a lot of areas. So PGT-A in its totality is not very large in EMEA and APAC, but the growth is significant. We're talking north of 20% in both regions. The other area that I would highlight the other kind of bright spot in terms of Genetic Services on the CGT. So we're seeing, again, it's also low base, but really nice growth over 30% in EMEA and over 50% in APAC. So that's back to the point that Patrik and I were making around diversification of the revenue contribution across the Genetic Services portfolio.And then finally, if I could just address your question around the evidence generation, that is going to take time. The reality is when you conduct these non-selection studies, it's multiple centers, recruitment takes time. So how long is a piece of string? It's going to take us several quarters to be able to generate that evidence. That's the reality. And I think in the meantime, we need to continue with those other actions that we're already taking in terms of the remediation. But, adjusting for ERA, and obviously, I'm not being complacent. We need to address the ERA challenges, but if you do adjust for ERA, it is very nice growth in performance across the portfolio. I hope I've answered your questions.

U
Ulrik Trattner
analyst

Yes. Just a follow-up on that. The margins for Genetic Services much have lifted from Q2, and this is a seasonally weak quarter for Genetic Services. And are you still seeing price pressure across the genetic testing portfolio, are they abating or what are the margin improvement coming from?

P
Patrik Tolf
executive

I mean the improvement on margins, again, as I said, I mean, we are for Genetic Services, the total growth is a bit shy, as you know, on that side. And that is being offset then by the improvements that we have done in the operational excellence on that side. So it's good progress on that side. So not really such a big improvement on the margin side there, but good progress on the operational excellence, absolutely so.

B
Bronwyn Brophy
executive

Yes, just maybe one final point. So we do have improved margins on the newer tests. They're more differentiated. So we are able to charge a premium for those tests. And that is going some way towards helping the margin contribution of Genetic Services. And I would say then to Patrik's point, combining that with the operational excellence program that we've been doing. The Genetic Services business area have been doing a very stellar job in terms of controlling costs and trying to increase efficiency. So they have been very much playing their part in terms of contribution to the group in that regard.

U
Ulrik Trattner
analyst

Great. And should we conclude then that price pressure in this area, or only started to abate versus what we have seen in these quarters.

P
Patrik Tolf
executive

I mean, if you look on the, call it, standard PGT-A and particularly then in U.S., I mean, I wouldn't say that the trend has stopped dramatically on that side as well. I mean it's still continuous price pressure on that side when it comes to the standard PGT-A on that side, and we haven't seen that kind of price pressure in other markets for PGT-A, specifically on that side. But it's a bit too early to say that it has stalled or bottomed out on that side.

B
Bronwyn Brophy
executive

And maybe if I could just add. But on the ERA side, we clearly have our challenges, but we do expect ERA to come under pricing pressure because there are new competitors coming into the market with ERA tests. In fact, we -- so last week at ASRM, other competitors also have ERA offerings. So I think an additional challenge that we have to navigate on the ERA side is price pressure on that test due to the increased competition.

U
Ulrik Trattner
analyst

Great. A last question on my end, relating to clinical trials and including timelapse, I guess, I know that you've been working on improving clinical evidence for the timelapse and also potential trials, including a combination of genetic tests and timelapse. And are we at in regards to that.

B
Bronwyn Brophy
executive

I can start? Yes. So a lot of work going on in that area, Ulrik, and we're very excited, okay, because I think by without revealing all our future strategic plans, we believe that in timelapse, combined with the genetic testing portfolio, we have a significant opportunity to bring improved workflow standardization, digitalization, all of those good things to the lab. Evidence generation takes time. So the teams are working on it. I think we're also working on the technology readiness, okay? Because it's very important that we don't just bring products to market, but that we bring products, tests and services to market that are scalable.So I think we are currently addressing the technology readiness and also the evidence generation. I think it has to be both. But we are ramping up our efforts, I would say, in that area, which is what Patrik was alluding to when he was speaking about the R&D investments and phasing. So definitely more to come on that side. So you're on the money there, Ulrik.

Operator

Thank you. We will take the next question from line Suzanna Queckborner from SHB.

S
Suzanna Queckbörner
analyst

This is Suzanna Queckborner from Handelsbanken. I also have a couple of questions. I thought I'd start with timelapse. So particularly this quarter has been very strong in EMEA. However, you do mention this German lawsuit. Can you give us some insight into the magnitude of this lawsuit, particularly regarding the one patent that now has been stated as infringed. Will this impact your technology going forward? And especially in the context of you saying that you want to accelerate the trend in terms of double-digit growth. So that question, first of all.

P
Patrik Tolf
executive

Okay. Suzanna, thank you for that question. And as we write also in the report here, it's an indirect infringement during the other part of one patent, whilst one of them, there is no increment on that side. And as we also say that we are working on our procedure going forward. We do not, on the other hand, foresee any major impacts on that side. This is then related to the German market. But it's -- and of course, we have just that this will have no financial impact for this quarter on that side, and we are working closely on this specific topic. But it will not really have any major impact on our success going forward in EMEA.

S
Suzanna Queckbörner
analyst

Then going back to Genetic Services. Specifically with the ERA, you have addressed the major pushback or the major sales decline is in the U.S., but you're now also seeing it in EMEA. And I was wondering if you could sort of contextualize it. Would you say this is just the beginning of the EMEA decline? I'm thinking to the ESHRE guidelines on ERA? And do you see that accelerating going forward.

P
Patrik Tolf
executive

No, I think we saw a decline here, as we said previously, during the third quarter for some clinics in parts of EMEA as well. It's obviously hard to judge whether that will be a trend going forward. But of course, there is pressure on the ERA test on that side as well. But again, keep also in mind that, as you are very aware of when it comes to ESHRE that this one is also in their scale red, green and orange, it's an orange rated test as well, which is a good sign that it is obviously a test that can be used for patients as well. And -- but it's hard to say anything about the trend on that side at this stage.

B
Bronwyn Brophy
executive

Yes. Suzanna thank you for the question. And maybe if I could just add to Patrik's point, I think the decline that we're currently seeing in ERA in EMEA is mainly confined to 2 markets. We don't want to be complacent and feel that it's going to stay in those 2 markets. But for the moment, the vast majority of the decline is actually coming from one country in particular.So most of the rest of EMEA seems to be holding up and similarly for APAC. But it is difficult for us to predict Suzanna. Hope is not a strategy, so we have to be prepared to execute on the remediation plan that we have rolled out in the U.S., we're going to need to be doing the same in EMEA and ensuring that we reinforce the indication for use, obviously. Most of our customers are aware of the evidence generation and then the team is working very hard on education and in-test use protocol, patient education, et cetera.

S
Suzanna Queckbörner
analyst

Okay. And then to just follow up with the ERA. Can you say what share of the ERA or how much the ERA is down within Genetic Services compared to the peak ERA sales? And how much -- how you expect that to be going forward?

P
Patrik Tolf
executive

I mean, if you look, I mean, we have been seeing over the, say, last year, a slow decline in ERA over the quarters on that side. And then we have seen a sharp decline in the last quarters on that side. So it has been continuing to be a bit downward peaking on that. And as we have said about previously as well, I think now the levels of usage of ERA for the risk patients are basically where it should be on that side. So it's going on that right direction as well here.

S
Suzanna Queckbörner
analyst

Okay. And then my final question on Genetic Services. I was wondering earlier in the quarter, we saw the announcement that KKR was potentially going to acquire Eugin. Now Eugin is one of the largest -- or European or in EMEA chains. How do you expect that will impact Genetic Service specifically PGT-A in Europe?

B
Bronwyn Brophy
executive

Yes. So, Suzanna, I can maybe start and then if Patrik wants to pitch in. So clearly, when we see consolidation, and we do clearly see that the risk of PGT-A in-sourcing is almost -- is always there. I think we're uniquely positioned as a company in the sense that in the event that this happens, we do have the genomic kits that we have the opportunity, it's never a guarantee, but we have the opportunity of being able to provide the kits to the clinic or chain that in-sources in the event that they decide not to continue.So yes, the risk is there, but we do have the portfolio, thankfully, to be able to address that. And I think what we try to do is just stay ahead of that. We have very, very good relationships with most of the chains with all of the chains, I would say. So we're trying to work with our partners together on finding the optimum solution. It's very interesting on the PGT-A in-sourcing, because it's not a defined trend in one area. I've been digging quite deep on the numbers on this one. And yet to see in-sourcing, but you also see outsourcing. So it's not like the trend is all going in one direction. Is that fair to say, Patrik? Yes.

P
Patrik Tolf
executive

Yes. And just to add to it as well. I mean, obviously, now we have quite a broad portfolio for the Vitrolife Group as well, and it might be so that some, call it, basic things are in-sourced, if that makes sense from that perspective, but we have an additional portfolio, which we are continuing to strengthen. And it's also about adopting to focusing on workflow, workflow improvements on that side as well. So that's also where we have a strong position amongst the clinic focusing on standardization and focusing on optimizing the workflow on that perspective.

S
Suzanna Queckbörner
analyst

And then my final question is particularly on automation and standardization. So, Bronwyn in your introductory letter in the Q3 report, you made -- I mean, you referenced automation and digitalization. And I was wondering if this is beyond timelapse and iDAScore, if this is an area that you're interested in, in terms of M&A going forward. Sorry, acquisition.

B
Bronwyn Brophy
executive

You want a short answer or the long answer. The short answer is yes. So, Suzanna, what I see, and I've spent a lot of time now in the field with customers is this really is a need. And I think as industry and as a Vitrolife Group, we have an opportunity and almost an obligation to support our customers by bringing more automation to the workflow. It helps everybody. It helps the clinics and ultimately, it benefits patients, increased capacity. And as we work on access and affordability, we want to make sure that the capacity is there so we can ultimately help patients.So yes, absolutely, it does go beyond timelapse. We are developing some in-house solutions. And we are also looking at other options out in the marketplace that we believe we could combine very nicely, we dovetail very nicely with the plans that we are working on internally. But I don't see it as a big opportunity and almost an obligation of the industry to bring more workflow and automation to support our customers. So the short answer is yes. And I've just given you the long answer. Patrik, I don't know if anything you'd like to add on that one. Spot on, Suzanna. Thank you for the question.

Operator

We will take the next question from Johan Unnerus from Redeye.

J
Johan Unnerus
analyst

Great. Thank you for taking our questions, it's maybe a follow-up. Our impression is that the -- it's a great interest to see what the prospect to improve the outlook and the traction of, of course, ERA, which is more challenging and PGT-A, especially in the Americas. Our impression is that you're probably more likely in a better position to improve the support from PGT-A and what's the prospect of sort of upgrades and improving the offer on that side?

P
Patrik Tolf
executive

I mean as we saw and one that was one of the products that launched during -- actually during the summer was that we call smart PGT-A plus, 0which adds additional features to the call it, standard PGT-A. So that is one thing. We will, of course, continue to develop and strengthen our capabilities when it comes to PGT-A. This is one level. And of course, we are working on the next level as part of our R&D pipeline as well.So more to come on that side as well. And then we have the noninvasive solutions that we are currently working with as well, which, as you know, we all embrace on that side. So full focus on developing and continue to develop the PGT-A.

B
Bronwyn Brophy
executive

And maybe if -- thank you for the question. And perhaps if I could just add to that, and back to my earlier point, we are starting to see a lot of PGT-A traction. OUS, very high growth rates, yes, of a small base, but still some very nice traction there. So I think if we can combine the increased traction that we're getting on PGT-A with increasing the revenue from the more differentiated PGT-A Plus and the other PGT-A additions that we have in the pipeline should position us very nicely to be able to capitalize on that trend of increased testing.

J
Johan Unnerus
analyst

And not that you are in the business of giving a forecast on a quarterly basis, but can we expect to see an improved momentum near term on the PGT-A side in the Americas?

P
Patrik Tolf
executive

I mean, we do know that we have an underlying strong growth in the market on that side. We are focusing. We are in a good position to continue to leverage out the platform. That, of course, will be activities, and we have seen that one customer -- major customer has been phasing out during the third quarter. So that has had an impact for us during the third quarter. But there is a good opportunity and an underlying growth in the market for us as well.

J
Johan Unnerus
analyst

And then on the risk side, on the ERA, there is some increased competition as well. What about the risk of that sort of get into other regions?

P
Patrik Tolf
executive

I mean ERA, specifically, I mean, it's so that we are -- we were the first company out and basically call it the whole segment, we called ERA, although it's related to endometrial testing. We have one competitor that has an equivalent product called ERP. But we also see other competitors coming in with similar names and products. And that is, of course, a signal also that this is an attractive segment focusing on the risk patients. So absolutely a sign in a good way on that path.

B
Bronwyn Brophy
executive

Yes. I would add to Patrik's point, our competitors are global. So we can expect increased competition on ERA in all regions. Thank you for the question.

J
Johan Unnerus
analyst

And final question then, you're pretty clear in your ambition then to increase the support from new and newly launched products, perhaps you could provide some insight into that proportion of genetic solutions right now? I mean solutions that are sort of within 2 years old and maybe an outlook of what to expect going forward or maybe that's something we can expect more about on the 12th of December?

B
Bronwyn Brophy
executive

Do you want to go? We're both trying to answer this question. So maybe I can just give my -- again, I'm only here 90 days. I don't have all the answers but in a previous life, and we will absolutely share this, we'd be delighted to share this on our Capital Markets Day. In a previous life, we would have set targets of having 20% of our revenue coming from newly launched products and the definition of newly launched products would be within 3 years. So it would certainly be an ambitious target, but we can look at that as we work through our corporate strategy and key metrics, which we will share on Capital Markets Day. But thank you very much for the question.

J
Johan Unnerus
analyst

Given the pressure, I suppose this is even more important target to issue.

B
Bronwyn Brophy
executive

Yes, absolutely.

P
Patrik Tolf
executive

Yes. And we will have an opportunity to explain more on that when we see you on the 12th of December.

J
Johan Unnerus
analyst

Thank you.

P
Patrik Tolf
executive

Thank you. And I think we are running out of time now.

B
Bronwyn Brophy
executive

So thank you very much. I very much appreciated the questions and look forward to meeting you, getting to know you and talking to you in the coming days, weeks and months. Thank you very much from both Patrik and I and all of the team at the Vitrolife Group.

P
Patrik Tolf
executive

Thank you.

Operator

Thank you for joining today's call. You may now disconnect.

All Transcripts

Back to Top