BICO Group AB (publ) (BICO) Earnings Call Transcript

Hello, and thank you for taking the time today. I would like to warmly welcome you to BICO Group's Q2 earnings call. My name is Erik Gatenholm, President and CEO here at BICO. And today, I'm here with our interim CFO, Mikael Engblom. The purpose of this call is to present the full Q2 results and provide a business update for BICO Group. I would like to start by thanking the entire team for the continued strong efforts in Q2. It's been truly a great pleasure working with everyone serving our beloved customers around the world. We're on an exciting journey together to create the future of life-saving treatments with our customers, and we look forward to continuing to serve their laboratory and research needs in the areas of tissue engineering, selling development, multi-omics, and diagnostics. We will start today's session with a Q2 highlight described in the quarter in more detail, followed by financial performance review by Mikael, followed by a business area performance update, and finishing with the general outlook for the business. In Q2, we achieved revenue of SEK 537.6 million resulting in a total revenue growth of 83% and our organic growth of 7%. For the first half of the year, we achieved total revenue of SEK 1.014 billion, corresponding to total revenue growth of 140% and organic growth of 21%. Worldwide demand for BICO's products remained strong in the second quarter, reflected by higher order intake and continued interest in our expanding laboratory tools portfolio, especially through our bioprinting business area that achieved 47% organic growth, and biosciences business area that achieved 19% organic growth. Much of this success is thanks to automation, laboratory sample preparation tools, tissue engineering platforms, and workflow products that are tailored to some of the most complex customer applications in the world, meeting the needs of major players such as global pharma companies and health care providers. Something very important and worth mentioning is that we have seen several new exciting regenerative medicine applications nearing or initiating clinical trials. These new applications come from the development work where our technology platforms have been used, indicating a faster clinical approach for bioprinting technologies than initially anticipated. What we thought would take 10 years has, in fact, materialized in 5 to 6 years, showing a great clinical potential for bioprinting of human tissues worldwide. While the worldwide demand for our products remained strong throughout the quarter, we did see macroeconomical effects signaling potentially weaker markets ahead, triggering certain important organizational adjustments and actions. Mainly, we have started to implement improvements with our credit and accounts receivable processes and are working to strengthen our prepayment requirements for certain customer segments, favoring working capital. It's important to note that this has resulted in the rejection of several orders during the quarter. Another important action was the planning and implementation of a group-wide cost savings program targeting SEK 100 million in cost savings over a 12-month period. These cost savings are anticipated to materialize gradually over the rest of the year and to be in full effect from the first quarter 2023. As already mentioned in our first quarter, we have shifted our rapid M&A agenda to a stronger focus on commercial success and synergies within the business areas. This has resulted in an enhanced focus on integration of already acquired companies and strengthening of both internal control but also capitalization on commercial and technological synergies. This has shown great results in the launch and sale of new product lines such as the C.STATION, G.STATION, Selling One HD, and continued success with our Biosero Green Button Go automation software that was recently installed at what may be the largest automated cancer diagnostic system in the world. Now Mikael will tell you more about the financial performance during Q2.

Thank you. So let's start with the second quarter then. The total sales was 83% in the second quarter, and the organic growth was 7%. The EBITDA amounted to minus SEK 62.9 million and was charged with a one-off bad debt provision related to uncertain accounts receivables in 2 subsidiaries, which resulted in the EBITDA effect of minus SEK 44 million. The preliminary trading update released on July 15 stated that this item would be accounted for as a negative revenue. However, after a more detailed technical accounting assessment, this is instead accounted for as a cost of bad debt in the income statement. The adjusted EBITDA amounted to SEK 11.1 million, corresponding to a margin of 2.1%. The difference between the reported EBITDA and the adjusted EBITDA is related to this one-off credit on accounts receivable, option programs, and costs related to acquisitions and restructuring costs. The company recorded a net profit of SEK 43.1 million despite a negative EBITDA result. This was due to net positive currency effects in the financial items, mainly related to unrealized exchange rate effects on noncurrency-hedged intra-group loans in the parent company of SEK 243 million. Next page, please. So some comments on the first 6 months. Total growth was 140%, whereafter organic growth was 21%. The EBITDA amounted to minus SEK 82.3 million, and adjusted EBITDA amounted to SEK 17.1 million, corresponding to a margin of 1.7%. Next slide, please. Some words on the cash flow. During the second quarter, the cash flow including changes in short-term investments amounted to minus SEK 323 million. When adding the cash flow during the first quarter, the total cash flow during the first 6 months amounted to minus SEK 484 million. This results in that the total cash, including short-term investments amounts to SEK 991 million per June 30. Cash flow from operating activities for the quarter amounted to minus SEK 115 million, of which minus SEK 75 million consisted of changes in working capital. The changes in working capital were amongst others, related to increased inventory to support future growth and mitigation of supply chain risks and increased contract assets following an increased amount of ongoing large customer projects. Cash flow from investing activities was impacted by the acquisition of Allegro 3D and paid installment of contingent consideration totaling SEK 73 million in the second quarter. During the quarter, the group invested about SEK 60 million in intangible fixed assets, mainly attributed to product development of new products. Investments in tangible fixed assets amounted to SEK 78 million, of which SEK 42 million was due to buildings that CELLINK and Ginolis are constructing for their own operations in Berlin and Hulu. The remaining investments scheduled for these buildings are estimated at SEK 110 million for the remaining of this year and SEK 60 million for the next year. The negative cash flow this quarter and the first half year reflects our ambitious growth agenda, focusing on product development, expansion, and rapid increased sales. However, with the change in macro environment in terms of customer demand and financing, management has taken measures to strengthen cash flow with a view to self-finance the organic growth. In July, the company launched a cost reduction program, as Erik mentioned, that targets reducing expenses by SEK 100 million on a 12-month basis. This includes organizational restructuring and improved efficiencies. The cost reductions are expected to materialize gradually over the rest of the year and be a full effect from the first quarter 2023. Several cost reduction initiatives such as personnel cost reductions were executed this summer and the cost reduction program is on track, aiming to strengthen cash flow by increasing EBITDA and reducing capitalized development costs. The company is also currently working on reducing working capital, which has increased substantially over the last 12 months. This includes continuing to focus on accounts receivable, payment terms, and collection processes as well as optimizing inventory levels. The management is also addressing the cash flow from tangible investments by investigating financing opportunities for the ongoing facility investments in Germany and Finland. Next slide, please.

In the second quarter, the bioprinting business area reported net sales of SEK 153.7 million, representing 29% of total group sales. The organic growth was 47% and the segment generated an adjusted EBITDA of SEK 7.4 million, representing a margin of 4.8%. Reported EBITDA was negative SEK 14.4 million, corresponding to a margin of negative 9.4%. As mentioned earlier, the business area has seen significant market traction for its tissue engineering products offering. And one important example to highlight is the recent acquisition of Allegro 3D, resulting in the successful launch of the new light-based bioprinting platform, the bioNovaX. The bioNovaX platform accelerates research in biomimetic models, regenerative medicine, and disease modeling and interest in this system is so high that the business area will surpass the full-year sales targets well before year-end. The platform is complementary to our award-winning best-selling bioX platform, and we anticipate several synergistic customer cases to arise from the combination of both platforms. Another successful case worth mentioning, especially highlighting our ESG agenda and ability to reduce the use of animals and research is MatTek's delivery of our first batch of FP Airway Monkey. This quarter to the National Center of Advancing Translational Sciences, an arm of the National Institute of Health in the U.S., allowing them to translate their historical in vivo monkey data to in vitro human model. This helps enable a deeper understanding of SARS-COVID-2 infection in the human lung and the screening for antiviral therapeutics. The business area, Biosciences reported net sales of SEK 212 million, representing 39% of total group sales, and organic growth was 19%. The segment generated an adjusted EBITDA of SEK 23.5 million, representing a margin of 11.1%. Reported EBITDA was negative SEK 15 million, corresponding to a margin of negative 7.1%. Biosciences' latest acquisition, Biosero continues to develop according to plan, announcing a key patent underlying its Green Button Go laboratory automation scheduling software. As mentioned previously, we also recently installed at maybe the largest automated cancer diagnosis system in the world. This system runs test on patient samples that take multiple types of cancer through a single blood draw, contributing to early cancer detection and monitoring of patients' response to treatment. Now Biosero building a similar-sized system for another customer and another application. This clearly shows how BICO's Bioconvergence technologies are directly impacting the health care industry and patients around the world, something we pride ourselves in doing on a daily basis. In addition, Discover Echo continues to capitalize on its innovation within microscopy, where they have replaced traditional IPSs with high-resolution touch displays to allow easy viewing, manipulation of images, and collaboration. The microscopy market is stable and continues to show strong growth, catering both tech ademic segments as well as industrial customers. Echos ahead out of the plan for this year and has improved gross margins, making them a profitably growing anchor in the business. In the second quarter, bioautomation business area reported revenue of SEK 171.4 million, representing 32% of total group sales and organic growth was negative 17%. The segment generated an adjusted EBITDA of SEK 7.7 million, representing a margin of 4.5%. The reported EBITDA was SEK 2.9 million, corresponding to a margin of 1.7%. Within bioautomation, we see strong customer demand for our new innovative products and the earnings contribution from these launches. This is our most product launch-intensive year ever, especially for single cell handling instruments such as our cellenONE, consumables such as the cellenONE chip and proteoCHIP, and our services business. We expect the strong earnings contribution from this mix for the 2022 full year to compensate for the anticipated volume decline in custom biautomation instrumentation. Worth mentioning is that Cellenion signed an agreement with Bruker for co-distribution of a complete solution for single-cell proteomics and that integrates our cellenONE system and proteoCHIP consumable products for sample preparation with Brukers, timsTOF single-cell proteomics mass spectrometer for analysis. Order intake year-to-date more than doubled compared to last year for the system. And it's clear that the new rapidly growing field of single-cell proteomics is driving this growth, where we have a unique position and a value-adding features in USPs. Rather than using one system for single cell isolation and additional devices for sample preparation and incubation, our cellenONE device offers a unique and fully automated bioconvergence workflow in a single unit enclosure. And while the custom instrumentation performance in the business area was negatively affected by several internal and external factors, the strong performance of the QInstruments business and higher revenues, in particular for the BioShake product helped to offset the declines in our custom instrumentation revenues. The lower sales volumes and dampened sales development were mainly due to the lockdowns in China and disruptions to global supply chains, affecting our ability to manufacture and deliver systems. Looking ahead, we do see a macro economical effect signaling potentially weaker markets for certain product segments, triggering the previously mentioned important organizational adjustments and actions. With our cost reduction program delivering improved efficiencies and cash flow, we remain focused on maintaining our positive momentum. We remain committed to our strategy of achieving desirable organic growth while delivering a positive EBITDA. We're pushing technological advances with new products and more value-driving solutions in the pipeline that generate top-line growth and profitability. Based on years of research and development, we have tremendous product portfolio and services that contribute to the future of life-saving treatments that will impact patient lives for years to come. We are committed to building a long-term business based on customer demands and delivering value, focusing sustainable growth, improving efficiencies, and delivering first-in-class products and services to our customers. The measures we're taking are necessary to the continued success of the company and ultimately, to our mission to creating the future of life-saving treatments. I would like to once again take the time to thank the entire team for the tremendous efforts in Q2. It's been truly a great pleasure to work with everyone and expanding our global market reach and continuing our bioconvergence story. We're also thankful for all the shareholders and investors who continue to support us on this journey. We're committed to our vision and mission, which is to create the future of life-saving treatments by reducing the organ shortage and speed up drug development by providing accessible life science solutions that combine biology and technology. And with that, we would like to now welcome any questions and comments that you may have.

[Operator Instructions] Showing no questions, this concludes our question-and-answer session. I would like to turn the conference back over to Erik for any closing remarks.

Once again, we truly thank you for your time and your attention, and we wish you a great day. Thank you.