Ambu A/S (AMBU-B.CO), a leading medical device company, reported solid financial results in its Q4 earnings call for the fiscal year 2023-2024. CEO Britt Meelby Jensen and CFO Henrik Skak Bender presented a revenue growth of 10.6% for the quarter and 13.8% for the full year, with a strong performance in the Endoscopy segment. The company also highlighted its commitment to sustainability and operational efficiency, with all endoscope handles now made from bioplastic.
Key Takeaways
- Q4 revenue growth of 10.6% and full-year growth of 13.8%.
- Endoscopy segment revenue increased by 19.7% for the year.
- FDA clearance for aScope 5 Cysto HD and commercial launch of aScope 5 Uretero.
- Gross margin for Q4 improved to 58.9%.
- Proposed dividend distribution of DKK 102 million.
- Organic growth projection of 10% to 13% for fiscal year 2024-2025.
- Long-term financial target of a 20% EBIT margin.
- Development of the cholangioscope put on hold to prioritize other projects.
Company Outlook
- Ambu anticipates challenges related to lost exclusivity on some contracts.
- Focus on strengthening market position and expanding product offerings.
- Commitment to sustainability and operational efficiency.
- Organic growth of 10% to 13% projected for fiscal year 2024-2025.
- Endoscopy Solutions expected to grow over 15%.
- Mid-single-digit growth expected for Anaesthesia and Patient Monitoring (A&PM) despite competition risks.
Bearish Highlights
- Total (EPA:TTEF) impairment of DKK 327 million recorded for the GI segment.
- Longer-than-expected market penetration times for GI products.
- Paused development of the cholangioscope due to limited market need.
Bullish Highlights
- Strong growth in Endoscopy, particularly in pulmonology and urology.
- Positive outlook for the SureSight videolaryngoscope launch.
- New software enhancements for aView 2 Advance and aBox 2 platforms.
- Growth potential in ENT, urology, and GI segments.
Misses
- Weaker Q4 growth rate in pulmonology at 6% compared to previous year.
- Delays in market penetration for gastroenterology products.
Q&A Highlights
- Management clarified that there have been no changes to the commercial model or sales bonus structure.
- Goodwill is tested at the company level, with no current need for impairment.
- Flu seasons' impact on pulmonary sales is unpredictable and varies by geography.
Ambu's latest earnings call showcased a company confident in its growth trajectory and financial health. Despite some setbacks, the focus on innovation, sustainability, and market expansion underpins Ambu's positive outlook for the future. The company's approach to balancing organic growth with strategic investments and product development suggests a proactive stance in navigating the competitive landscape of the medical device industry.
Full transcript - None (AMBFF) Q4 2024:
Britt Meelby Jensen: Hello, everyone, and welcome to this call, where we from Ambu will present our Q4 and full year results from our fiscal year '23-'24. The agenda for today is that we will first present our results on the business and the financials, and then we will hand over to the operator to moderate the Q&A session. I'm Britt Meelby Jensen. I'm the CEO of Ambu. And with me today, I have Henrik Skak Bender, our CFO. So, let's dive into the results from our Q4 and the full year. In Q4, we delivered 10.6% revenue growth, split into 4.5% growth in -- organic revenue growth in Endoscopy and 4.3% in Anaesthesia and Patient Monitoring. In terms of profitability, we had an EBIT margin also amounting to 10.6%. And then, we had a positive cash flow of DKK98 million. For the full year, this means that in terms of revenue growth, we delivered 13.8%. And this was mainly driven by Endoscopy, where we grew 19.7%. So, this strong performance comes after a year where we have had a lot of momentum in the business at Ambu and where I'm grateful for the strong commitment and dedication by all the around 5,000 colleagues we have in Ambu worldwide who has made this happen, so we can present these results two years into our ZOOM IN strategy. So, talking about strategy, let's look at how we progressed on the strategic pillars in our ZOOM IN areas in the quarter. Starting by our solutions, we continued to make progress on expanding our offering, in particular in urology, where we had two main milestones in the quarter that we just ended. One was that we got the FDA clearance of our aScope 5 Cysto HD for our two technology platforms, aView 2 Advance and aBox 2. Also, we moved towards the end of the quarter into, what we call, a full commercial launch with our aScope 5 Uretero. I'll come back to some of this later. Our focus on strengthening our execution also continued. We have a number of transformation initiatives ongoing and will continue to make progress in this, and this is what has also resulted in the strong results when it comes to both our revenue growth and when it comes to our improved EBIT margin. On sustainability, this remains an area that we focus a lot on. And in the quarter, we received from the EcoVadis, which is a recognized measure for sustainability, we were happy to, for the first time, be on the radar and achieve the Committed badge from this organization. At the same time, a while ago, we introduced that we will convert all the handles for the full portfolio of endoscopes into bioplastic. And I'm actually happy to announce that this has now been completed. So now, all our endoscopes across all segments are manufactured with bioplastic in the handle. Then, on the culture and on the people side, which is our strongest asset, we continue to also improve in how we work in terms of delivering value to our customers, and also are very focused as we grow and expect to have strong growth in the years to come that we managed to have complexity reduced to a minimum so we can be flexible and act fast to the market conditions and customer demands. Let's look into the results in more detail. As I mentioned on the first slide, we grew 10.6% in the quarter, and what you see on the right side of the curve here is the rolling 12-months revenue, where you can also see a steady growth quarter-over-quarter, resulting in the 13.8% growth for the year. In the top corner, you can see that we now have Endoscopy in Q4 representing 59% of the total revenue and then the remaining around 40% on Anaesthesia and Patient Monitoring. If we look overall, the market [Technical Difficulty] growth that we see, meaning both the number of procedures that are done, the dynamics around single-use endoscopy continues to be stable and strong, and we do see that we are getting recognized for the benefits that we have on our endoscopes in that progression. Let's look into Anaesthesia and Patient Monitoring. There, we grew 5.3% in the quarter. And if we look at the full year, we delivered 6.1% growth. Again, as you see, with the rolling 12-months revenue, we see a solid quarter-over-quarter growth, resulting in this 6.1%. What drove the growth in Anaesthesia and Patient Monitoring is some [underlying] (ph) market growth that is also translated into volume growth for our business. But then a number of the -- or a couple of the percentage points growth that we see in this business has been driven by price increases that we have talked about in the previous quarters as well, where we had significant price increases on some selected product areas and contracts, which were successful and we didn't lose the value that we saw a risk of going into the year, but where we had decided to move ahead anyway, because we do want to ensure a certain level of profitability in this business area. Looking ahead, and I would like to flag that, I mean, despite the fact that we haven't necessarily lost a lot in the -- with the contracts that we have now, we have in some cases lost exclusivity. So, that means there can still, over the coming quarters, be some revenue lost as some customers may decide to try other products. But so far, this has not been seen to the extent that we saw a risk for one year ago when we talked about this. Let's move to Endoscopy Solutions. Here, we saw a growth of 14.5% in the quarter. And if we look at the full year, again, showing the 12-months rolling revenue, we grew 19.7%. If we look at the overall growth, it was in pulmonology, driven by the aScope 5. I'll come back to pulmonology in a second. ENT and urology, we saw solid continued double-digit growth, and we saw the same in gastroenterology, just coming from a lower base and driven by our aScope Gastro and our aScope Gastro Large. Let's dive into pulmonology and look a bit at some of the dynamics that we see in this segment. So, for the quarter, in pulmonology, we report 5.7% growth. What's important to note here is that we do, in our business, have some quarter-over-quarter variations when it comes to the actual percentage growth and in this case, in particular, because we had in Q4 last year, some large orders that grew a higher pulmonology revenue 12 months ago. When we look at the overall 12 months of the business and the full year, again, showing the rolling 12-months revenue, here you can see that we delivered overall 11.7% but also a continuous upward trend. We have to remember for this segment that where we typically see the highest revenue is in the first half of a fiscal year, so our reported Q1 and, in particular, our reported Q2, because it's normally associated with flu levels, where that has a positive effect, which is, of course, something that we cannot predict. But if we look at our overall business, you can say that aScope 5, as I alluded to before, was a key growth driver in the quarter and in the full fiscal year. We got, as the only bronchoscope, this transitional pass-through code with Medicare in the US, and we are happy to see that this continues to get interest and traction. However, it's difficult to exactly monitor the net effect from this. This is something that we have in total for 24 months, potential 36 months. So, this is something that continues, and we also see a continuous increase in the awareness level among our customers. If we look at the overall pulmonology segment, we continue to be very positive around the trends and also how we see both the underlying growth in terms of procedures, but also the conversion to single use, where we do also see in some markets competition and expect that to continue, which does have a positive effect on the total size of the single-use market as that accelerates also the conversion to single use. We also have in this fiscal year a new product that we will add to our pipeline, a videolaryngoscope named SureSight. That should also help strengthen our position in pulmonology and thereby accelerate growth as we look ahead. If we look a little into the portfolio, just for -- to put some comments on the full pulmonology portfolio, we now have and, in particular, with the upcoming launch, a comprehensive portfolio that should drive future growth. So, what you see on the slide here on the right side is the different segments that we serve. The intensive care units was where we started with our bronchoscope many years ago and where we started with a strong penetration. We then, a number of years ago, expanded into the OR and the surgery that is under general anaesthesia, where we also have seen a strong [Technical Difficulty] and today, has a solid penetration of single-use endoscopes. And then, when we launched aScope 5 Broncho, which has a superior functionality and a superior image quality, we were able to also serve the needs of the more complex procedures that are done mainly in the suites. The way procedures are done varies a little bit from country to country, but in general, we do see we have a portfolio that can meet the needs across all these segments, where the suites is where we by far are less -- lowest penetrated today and where we also see that we make progress, but still with a lot of potential to capture. On the right side of this picture, you see our portfolio. On the two sides, you see our aScope 4 and aScope 5, which comes in different sizes with a Broncho Sampler, which is the majority of our portfolio and revenue driver. We then at the lower end or below the system here, you see the product VivaSight, which is a product that is used for procedures requiring one lung ventilation primarily, which is also -- fits into the portfolio being integrated with our system. And then, we have on the top here our videolaryngoscope, which will come in two versions, both in a mobile connect version that will be used in intensive care and in ambulances when you need a fast view of -- for intubation or other procedures requiring that you need to view the upper airways. And then, we have also a solution that can -- that is fully integrated to our system and that will also be used in many cases together with a bronchoscope in the same procedure. So, what we do have here is a full system that is built on the same technology platform, be it the aView 2 Advance and also some of the products working on our aBox 2. And this is where we are continuing also to advance the functionality of these platforms, including adding new software that also serves the needs of our customers. So this platform and this portfolio actually makes us very confident when we look ahead that we have a solid position. We are leaders in pulmonology. And as we continuously expand our portfolio with products that also helps address a more comprehensive part of the needs of our customers, we are actually fully committed and also very optimistic around the future growth in pulmonology. Now, let's turn to the other part of our Endoscopy business. What we before referred to as Endoscopy excluding pulmonology, now we can call it urology, ENT and GI. These three areas combined grew in the quarter with 24.8%. If we look at the last 12 months, we saw a growth of 29.6%. And this means that we -- I mean, that this segment as we report on is close to being the same size as the pulmonology business. What we see in this segment is solid double-digit growth across both ENT, urology and GI. Let me double-click a bit on the two last segments, starting with urology. As I mentioned, we now have FDA approval of aScope 5 Cysto, which is a scope that has a better image quality than aScope 4 Cysto, which also -- which is what some doctors need, in particular, when they have to look for cancer screens and so on, where still aScope 4 Cysto is used, but there are some specific cases when aScope 5 is preferred by healthcare professionals. With this launch, it actually means that we have a full portfolio of two cystoscopes and also our ureteroscope, which we recently went from what we call our CMR process, where we do extensive clinical market release, so testing the product before we go into full commercial launch, which we did recently. So now, we have that full portfolio. And what we are excited about when it comes to the ureteroscope is that it's a significantly higher value scope compared to the cystoscopes. It's used for kidney stone removal and a number of other procedures. And the market has already partly converted to single-use. So, it's actually the first time that we are launching an endoscope into a market that is already partly converted to single-use and where we are not the first. That gives us some opportunities for faster uptake in the beginning and combined with the fact that we are well-known in urology among our customers and well-recognized for our cystoscope, it's perceived as attractive from a customer's perspective to have the full portfolio as many of our customers will use the different products at different times. So let me, before I hand over to Henrik, finish putting a few words around our GI portfolio. I'll let Henrik comment on the details on the impairment, but I want to leave you with one important message, which is that we, from a management perspective, are still very confident in the long -- mid- and long-term potential when it comes to gastroenterology. As many of you know, some years back, we invested heavily into R&D within GI, and bought in 2017, a company in Germany called Invendo. After that, we have had some great learnings and also some painful learnings in that it takes longer to penetrate this market than we anticipated. But today, we have a strong portfolio that we focus on with the gastroscopes, being aScope Gastro and aScope Gastro Large, the latter being approved in the US in the fiscal year that we just exited. These two products are marketed -- still with relatively limited commercial resources, but these are marketed, and where we have taken a slightly different approach, being more niche-based in the market. Then, we have two other products. We have the aScope Duodeno 2, which was approved in the '23-'24 fiscal year, both in US and Europe. Given our learnings from the first generation of our aScope Duodeno, we have been able to make a significant upgrade to the product, also based on the aBox 2 technology platform, which is much better suited for our endoscopes. And we are right now in clinical evaluation and have some strong feedback and momentum among our customers, but we are also taking time to make sure that we have that properly tested before we go in a broader commercial launch. Then, we have -- just over a year ago, we had our aScope Colon approved by the FDA. This was a product that we knew a couple of years back that was maybe not delivering fully on the needs of our customers when it came to the broader mass market of cancer screening. However, it has been very useful to have this approved and we have done selected testing with this product, deciding that because we have such a broad portfolio, with the current version, we are not planning to do any broad commercial launch, but we are planning instead to leverage some of the innovation we do in new technologies across the portfolio to make some improvements on the features of this product before we go commercial. So, this is well in line with the message that we had one year ago, but just want to reiterate this, as we have made progress on the GI portfolio in the year that we just exited and that we remain very positive around the mid- to long-term outlook for growth, because we see that some of the needs that we are fulfilling for our customers in the other segments are the exact same needs that we see among many customers in gastroenterology. With that, I'll hand over to you, Henrik, to go through the financials.
Henrik Skak Bender: Thank you, Britt. Thank you all for listening in. And I want to start where Britt also ended, saying that we are very happy with the financial year that just landed. We feel a very good result and a strong momentum also into next year. So, let's focus first on where we landed '23-'24, and then I will end my presentation talking a bit more on guidance and the further outlook. Starting with revenue, we landed on a revenue of 10.6% in organic growth for quarter four; 10.2% in reported currency, slightly negatively affected by currency, particularly the US dollar/DKK development. And on a full year, we landed on 13.8% organic growth, as Britt mentioned, mainly driven by ES at 19.7% and secondary by A&PM, also with a solid growth of 6.1%. Overall, we feel a very strong result for the year, a strong momentum in many ways, and also a strong momentum going into next year, even though quarter four was slightly lower, as Britt said, mainly because comparisons in Q4 last year had a few high-single orders at year-end last financial year, which we didn't have this year. In terms of earnings, we also feel we landed in a strong way in Q4 at 10.6% EBIT margin, slightly below Q2 and Q3, as also indicated in our last two quarterly updates, mainly driven by further investments in OpEx, which I will also come back to. Double-clicking then a bit further on gross margin, we landed at a gross margin of 58.9% in quarter four, bringing the full year gross margin just below 60% overall, again, we feel a very strong improvement. Quarter four alone was slightly negatively impacted by currency, but on many ways, otherwise, impacted positively versus last year by price increases in A&PM, the price increases we implemented in February and March, in particular, and the price increases which will continue to also have a positive impact, particularly in first half of '24-'25, which I'll come back to. Secondary, the fact that our Endoscopy business is now a bigger share of the total business and Endoscopy business has a higher gross margin. And lastly, that with higher sales, we've also been able to utilize our production footprint in a more efficient way. So, overall, we feel a good step towards increasing and strengthening our gross margin. Looking at the OpEx ratio to total OpEx cost to revenue, we landed at a slightly higher OpEx ratio in Q4 versus the two previous quarters at 48.3%, again, we feel a satisfactory result. We are seeing continued scale effects on OpEx in terms of administration costs, but we have continuously decided to invest in commercial resources and therefore, you're also seeing a step-up in our selling and distribution costs, which is basically us laying the foundation both for existing growth now, but particular, going forward with the upcoming product launches and with continuing momentum in the market, ensuring that we continue the push to sell more particular Endoscopy Solutions. Turning to cash flow, we also landed at a solid cash flow for Q4 at DKK98 million. Very similar to previous quarters, a strong EBITDA, a satisfactory development in net working capital. We did increase our inventories a bit, mainly related to supporting organic growth and also related to supporting our upcoming product launches. We had a slightly higher CapEx for the quarter, as also indicated in the last quarter. And therefore, we feel overall DKK98 million is a strong result, bringing the full year free cash flow to DKK524 million. Highlighting a bit more on the details of cash flow, our net working capital ratio is now just around 19% of rolling 12-months revenue. We feel a solid level, which ensures that we have the necessary inventory to support continued organic growth and also that we still balance the management of accounts receivables and payables in a reasonable way. As I mentioned before, also CapEx was slightly higher, again, as expected. Particularly, this is related to some of our R&D investments and was also planned for, and we expect this CapEx level will also be indicatively the CapEx level for next year. Then, I want to turn to two key items from our annual accounts before I look at guidance. The first one being the impairment. Britt mentioned our overall strategic view on the GI segment, and before going into all of the details, I just want to reconfirm the message from the annual report and that Britt provided now, which is our mid- to long-term view on the potential in GI remains very solid. We see it as a significant potential for the future. At the same time, it's also our responsibility to continue to view what is the overall balance of the potential and what is both the mid and long-term view, but also what is the short-term view. As Britt described, we have two products in the market right now commercially available, the Gastro and Gastro Large. We are clinically testing the Duodeno and we are doing selected testing on Colon. With this in mind and reflecting what we've learned so far in terms of how we launch products into this segment. We've clearly experienced a longer time to penetration than what was originally foreseen, particularly dating back to the original acquisition in Invendo. And with Colon and Duodeno still being tested, we've decided to make a strategic revaluation of our short-term potential, particularly related to the Colon and Duodeno products. That means that we booked a total impairment for quarter four of DKK327 million, next to a smaller adjustment also to our production line relating to these products, meaning that we are booking a total special item of DKK334 million. That, of course, is significant impact on our Q4 numbers alone. But still, if we turn to the balance sheet and look at our total intangible assets, excluding goodwill, GI overall, across Colon, Duodeno, and Gastro, still represents about a third of our total intangible assets, reemphasizing the fact that we fundamentally believe there's significant potential still within this segment on the mid to long-term. The second key item I want to point to is our dividend and financial policy. We had a very strong year in terms of growth, in terms of margin and, as I said, in particular in terms of cash flow. And with that in mind, we are happy to say that we, in alignment with the Board, are proposing a dividend distribution at a total of DKK102 million, corresponding to DKK0.38 per share. This reflects, we feel, a strong cash position and still leaves us with a very strong balance sheet even after this dividend distribution. In this connection, we've also with the Board discussed what should be our financial policy going forward and are proposing two adjustments. One, that previously we had a financial policy that on dividend suggested we would pay out 30% of our net profit after tax. We're now suggesting to update that to payout of up to 30% of net profit after tax. Secondary, we are also clarifying that this can be both in dividends, but also in share buyback. So, a combination of these two really being the way we would distribute cash back to investors. I still want to reemphasize that, for us, it's important to maintain a strong balance sheet and to also make sure that we keep a strong balance sheet that allows us to look for inorganic opportunities as they come along. Our overall growth strategy is organic and will remain organic. But with a strong balance sheet, we also have the opportunity to look for inorganic opportunities. And that, we will do under the guidance of a objective 2.4x -- or 2.5x, sorry, net interest-bearing debt divided by EBITDA. Gearing ratio that can -- we can allow to deviate on shorter-term potentials if we see opportunities, but still within the overall frame of a max gearing of 2.5x, net interest-bearing debt divided by EBITDA. Again, we feel this reflects an Ambu on the other side of a strong transformation with a strong cash flow and a strong balance sheet and, therefore, again now, with the ability to pay out dividend to investors. Lastly, I want to turn to our guidance for '24-'25 and also reflect on what that means in a slightly longer-term perspective. For '24-'25, we are now guiding a total organic growth of 10% to 13%. More specifically, within Endoscopy Solutions, we are guiding a plus 15% growth, driven both by in-market products, by continued solid momentum in pulmonology, by continued high momentum in urology and ENT, and also by our new product launches, as Britt referred to, particular, our ureteroscope, which we are already in the market with now, and our VL solution within the pulmonology segment, which we will launch during the financial year. Secondary, we are also expecting solid mid-single-digit growth in A&PM. This is going to be slightly different in first half versus second half, where the first half will still be positively impacted by the price increases that we implemented in February and March in the past financial year and which will still help us drive over and above normal market growth in this segment for the first six months, whereas the last six months are expected to be slightly lower. We maintain a cautious view on the segment, as Britt also said, balancing on one hand, that we see positive reception still on the price increases, but are also cautiously observing if any customers are moving away from our products and changing to alternative solutions, and thereby, that we might still see some risk, though, still smaller and smaller, for potential smaller volume losses within the segment. Overall, we feel this represents a strong momentum into next year. And as I'll get back to in a second, also on the next page, we feel also a very solid momentum, considering our long-term financial guidance. Looking at the EBIT margin, we communicated in Q3 that we have an ambition to stepwise towards our long-term ambition of reaching around 20% EBIT margin improve year-by-year. And therefore, we are now guiding an EBIT margin for the year of 12% to 14%, driven by both gross margin and operating leverage. As you noticed in our Q4, we had a slightly higher OpEx, particular investments in selling and distribution, preparing for our product launches and supporting our continued growth momentum, and the organic growth momentum remain our core focus. That said, we feel this represents a good step towards delivering on our long-term ambitions and we also feel this continues to solidify the fact that we're running a solid, strong company performance also when it comes to EBIT margin. Last but not least, on free cash flow, we are guiding plus DKK500 million in free cash flow, compared to this year's DKK524 million. This reflects a continued ambition of solid margins, but also an expectation that our CapEx investment will go slightly up in the year to come to support our investments both in R&D, but across our production footprint. Overall, we are very happy to provide this guidance and feel this really represents a strong guidance overall and a continued strong momentum. And on that note, I also want to end at reflecting on where are we, therefore, versus the financial ambitions that were presented and long-term targets that we presented at our last Capital Markets Day of a plus 10% overall growth, a 20% EBIT margin. And overall, we feel, reflecting back on '22-'23, now in the past, '23-'24, and on the guidance for '24-'25, that we are on a very solid momentum when it comes to total growth. We're on a solid momentum when it comes to our Endoscopy Solutions growth. We're pushing hard to also continuously drive that up. We are in a good place on A&PM, with much fewer losses on volumes, with solid price increases that will still help us in '24-'25. And lastly, we are also making good stepwise improvements on our EBIT margins next to ensuring that that solidifies a very strong cash flow and, therefore, a very strong balance sheet. Thank you very much. This represents our presentation for now. And with that, I'll hand it over to the operator and we will take questions.
Operator: We will now begin the question-and-answer session. (Operator Instructions) The first question comes from the line of Anchal Verma, JPMorgan. Please go ahead.
Anchal Verma: Hi, good morning. I have two questions on your guidance, please. I'll ask them one at a time. The first one is on your topline. Your Endoscopy guidance is for 15%-plus. I'm guessing this implies this is perhaps the tool for your guide. Could you elaborate on your assumptions here as on how much have you baked in from contributions from your new product launches, including the ureteroscope? And how are you thinking of the durability of Cysto and ENT growth and the competition in that category? And can you also be a bit more specific around the timelines for the videolaryngoscope launch?
Henrik Skak Bender: Yeah, I'm happy to start. So, on overall topline guidance and on the segment guidance of plus 15%, we're not commenting on our subsegment guidance, so what exactly that means for pulmonology on one hand and the urology, ENT, and GI segment separately. But overall, I think it's important to reiterate the new product launches will help momentum, but still only be smaller impacts for the year. The main impacts of these product launches will only be in the subsequent financial year, both for the Uretero, but in particular, of course, for our VL solution, which will only be launched during the financial year. In terms of the timeline, specifically for the Uretero launch, as Britt mentioned and I reiterated, we are commercially in the market with that product. It's fully approved. It's still in the early phases. The way that converts is that it's still in evaluation procedures with our customers at the hospitals before we see significant commercial uptick. So right now, we are in a number of evaluations. We're still seeing positive feedback for customers, which we're very happy with, and back to Britt's to point, we feel we have a very strong Uretero product, but in particular, a urology platform to offer to our customers. In terms of the other segments, we are seeing, I think if I heard your question right, competition, yes, but we overall, feel both within pulmonology, but also with urology and ENT, that we have a good competitive position and, therefore, this supports our plus 15% guidance for our overall Endoscopy Solutions segment for '24-'25.
Anchal Verma: Perfect. Thanks. And then just my second question was on margins. Your guidance remains wide with the lower end of the guide implying flat margins and the upper end showing significant improvement. What are the key moving parts for the bottom and top end of the guidance? Essentially, what is -- where is the biggest uncertainty? Is it at the topline or around the magnitude of OpEx step-up required for next year? And also, if you could -- I'm not sure if you'll be able to give any guidance, but I'll still try, if you could comment on the gross margin trajectory into next year? Thank you.
Henrik Skak Bender: So, we only comment on [Technical Difficulty] into the next financial year, but I will say what we also said in the last quarterly update in Q3, that we are still believing in our long-term financial target of 20%, subject to investment opportunities, but overall, 20% for our business. We feel that's the right level and we see a stepwise approach from where we are today towards that, where two-thirds of that will be driven by OpEx leverage and one-third of that being gross margin improvement. For the next year, more specifically, the range is driven by mainly two things. One, obviously, our organic growth. The organic growth level is very much still a driver of our margin expansion. And secondly, the speed by which we continuously invest in further organic growth. Therefore, the way you should also see it is that if we continue a very strong organic growth momentum, which is what we're seeing right now, we will also allow ourselves with this guidance to continuously invest in further organic growth initiatives, in particular in commercial resources to support the growth into '25-'26 and, ultimately, even further, also into '26-'27. In many ways, we're still on the early part of the curve of converting many of our segments. And we fundamentally believe, therefore, continuous investments in organic growth, particularly in our sales organization, in our commercial organization, are crucial to deliver on this organic growth potential.
Anchal Verma: Perfect. Thank you very much.
Operator: The next question comes from the line of Rickard Anderkrans, Handelsbanken. Please go ahead.
Rickard Anderkrans: Good morning, and thank you for taking my questions. Two for me, please. Given the exit rate on growth and margins in Q4 and more comparing -- sort of challenging set of comparables for next fiscal year, how conservative should we view the guidance here? I mean, last fiscal year, you clearly had quite nice headroom and -- to upgrade guidance, partly helped by price increases in Anaesthesia and Patient Monitoring business. But I guess, you're unlikely to have similar positive swing factor to the guidance this year or -- yeah, it would be interesting to hear a bit more on how we should view sort of the guidance dynamics here. Thank you.
Britt Meelby Jensen: I can maybe comment, and you can add then, Henrik.
Henrik Skak Bender: Sure. Absolutely.
Britt Meelby Jensen: Thanks for that question, Rickard. So, I mean -- overall, I mean, the guidance we put out is what we believe is no surprise, what is realistic for the year, you can say. If we look at the comparables, I mean, there's [Technical Difficulty] a strong year and we also expect that trajectory to continue. That's also back to the 10% to 13% and that we expect above 15% on the Endoscopy Solutions growth. So, coming out, if we look at Q4, which some of you have commented on, was a little weaker compared to the previous quarters in terms of growth rate. I think it's important to note that while our key focus is to run a sustainable, predictable growth business in terms of having a solid upward trending revenue, we do see some swings quarter-over-quarter related to some big orders that comes in one quarter to the next. So, I think it is still important to look at the overall, which is also why we decided to include the rolling revenue curve so you can see that trajectory that we are driving the business towards. If we look at then the revenue that we expect and focused on Endoscopy, we do think that the revenue will come from a good mix of solid continuous growth in terms of what we see of a continuous inflow of new customers and increasing revenue among existing customers. So, a good combination of that is what we saw last year, continuing into this year. And then we do have also some product launches, where, as Henrik mentioned, the ureteroscope launch is one that -- I mean, we just went into what we call our full commercial launch. So that is where we are very focused now and we will see that uptake. Again, I mean, a lot -- off to a very strong start, but a lot to learn as it is the first time we launch into a market that is already partly single use. And then, we will later in the year have the videolaryngoscope launched. And I think for that one, I mean one should expect not as big an impact as the Uretero, because it will only be a shorter amount of months. And as you also know from our product launches, typically, I mean, we don't see a hockey stick right after the product is launched, but typically, we have some softer months before we go into the full commercial stage, where customers try it out. So, I hope that gives some color. But overall, I mean, we do see a strong momentum in the business and we are very encouraged about the future outlook for the company.
Rickard Anderkrans: All right. Thank you. And the final question, a little bit following on, I guess. So, guiding for mid-single-digit growth in Anaesthesia and Patient Monitoring, helped by price increases in first half. So, what assumptions have you made in terms of potential loss of contract volumes for the year, if you've made any assumptions around that?
Britt Meelby Jensen: Yeah, I mean, I think it's fair to say that we look at some different scenarios, because, I mean as I mentioned when we were here last year we, I mean, we had a lot of unknowns in terms of how would the customers react in particular to some of the, I mean, strong price increases that we asked for in areas where we were not really or only limited profitable. So, we have seen that come through. And we will, as Henrik mentioned, in the first half see a continued momentum based on some of the price increases that -- some of the big ones came in February, March. I think it's hard to say. I mean, we -- I mean, we are trying to model like a bit of loss on some of the -- in some of the customers, where they will partially switch to some other competing products and then we'll have to see how it plays out whether -- this is [Technical Difficulty] risk to see with some customers and then with others, I mean, it may be bigger and then we may see customers growing. And I think that's -- again, it's a market characterized by limited competition, limited innovation of new products, and very strong loyalty among our customers. So, it's not a very dynamic market compared also to the endoscopy market. So that's why we feel quite comfortable saying mid-single digit also, because we are not bringing significant new innovation to the market in these segments that should accelerate our growth further.
Henrik Skak Bender: Exactly. So, to supplement, I think, and going back to your first question, our guidance philosophy remains still to ensure that we are -- we build trust and we are trustworthy in terms of delivering on our guidance. As Britt correctly said, that both for overall, but for A&PM, includes that we believe this is the right guidance for how we look at '24-'25. And specifically for A&PM, as Britt also said, that means that, Rickard, on potential volume losses, the guidance also allows for us to have certain volume losses, some that we are relatively sure might happen and others where we are less sure. So, yes, of course, if we have none of those, there might be a small upside. For us, it's also very important to communicate, as we did on the price increases, that what you'll see in the first half is still a continued effect from these price increases, which are not a recurring growth momentum. What you'll see in the second half is then more of what is the recurring A&PM growth momentum that we should also see going forward.
Rickard Anderkrans: That's very helpful. Thank you for taking my questions.
Operator: The next question comes from the line of Martin Brenoe from Nordea. Please go ahead.
Martin Brenoe: Hi, thank you very much for taking my questions, and congrats with the solid progress that you are continuously showing here. I would just maybe dig a little bit into the question that Rickard was also asking into, maybe just with a different angle here. Just to understand the exit rate here, you had 6% pulmonology organic growth. How should I see that in a broader context? Is this -- do I understand you correctly that this is mainly about some phasing and a little bit of tough comps and the run rate -- underlying run rate of pulmonology is more like around the 9%, 10%, with the Broncho 4, Broncho 5, and also the VivaSight, or is there any -- anything I misunderstood on that part? That would be the first question. And then, just to understand the Endoscopy Solutions organic growth guidance that you provide, you have a plus 15% and you are currently trending around 14.5%. Is that a step-up that you expect? Is that mainly going to come from pulmonology coming back to, let's say, the 9%, 10% organic growth, or is that based on an acceleration of the ENT, urology, and GI, where you've got product launches coming in? That would be my questions. Thank you.
Britt Meelby Jensen: Yeah, I can start and then you can continue. So, I think on the pulmonology -- and that's also why we try to spend a bit of time to also give some perspectives on the portfolio, because it -- I think when -- I mean, we at least do not put too much emphasis on the 5.7% in Q4, because that was somewhat expected in terms of the benchmark or the high comparable, sorry, from last year. So, I think what we do see is a continuous, I mean, positive upward pointing trend. We do not guide on specific percentages, but that is driven, by the portfolio with aScope 5 in particular generating more and more traction, and then the underlying aScope 4. And then, as we look ahead, because we are continuing to also be very focused on this segment in terms of commercial resources, in terms of expanding the portfolio, we are quite encouraged about that potential. Of course, we have been faced with competition, which has both driven the market to -- the single-use market to accelerate in growth and also -- of course, also, I mean, taking some of our aScope 4 business, which is a product that we have had in the market for years. So, as we have also communicated, we have the next generation in development, which is -- which has a little longer timelines than the videolaryngoscope. So in all, I think we are quite confident and we also believe that the videolaryngoscope is an attractive offering. That's the feedback we get from customers. Now that should help also, I mean, secure a solid growth rate in the pulmonology segment going forward, whatever that exact number is. I'll not comment on that. Then, we do see -- of course, also when we look at ENT, urology, and GI, we also continue to expect a high growth rate in these segments. Of course, I mean, you can see, as we penetrate the market and as the revenue base gets larger, that will, percentage-wise, I mean, be -- needless to say, hard and harder to achieve that actual percentage. But that's also where the new product launches will come in and help. And if we just take the urology market as an example, I mean, we are the only ones who are represented today in this cystoscope market, which is a -- on a price point, a lower price point compared to the Uretero, where we then have the Uretero, where there's a couple of players that actually has occupied that market where, I mean, overall, the size of that market, single-use, is probably slightly higher than the single-use cystoscope market right now. So, we do see strong potential also with the offering that we have and the feedback that we have on our ureteroscope. So, I think that combined makes us very comfortable around the future growth. Hence the plus 15%. The uncertainty is a little bit around how fast can we accelerate that -- the ureteroscope launch. Because we do know, I mean, partly, we should be helped by the fact that they are used to single use and that it's partly converted, but we still sometimes see procedures in the buying process with the hospitals taking several months. So that's, I mean, some of the dynamics that we are a little unsure of. I don't know if you have anything.
Henrik Skak Bender: So, I think the only thing I want to end that, I fully agree, I think is -- Martin, I think, for us, fundamentally, we are, as Britt said as a first comment, putting less emphasis on Q4, because I think from our chairs, if we look at the underlying momentum, there are some effects that drove the Q4 numbers alone, pulmonology, specifically ES overall, down. But if you look at the full year, the pulmonology growth was 11.7%. If you look at ES growth, it was 19.7%. So, I think in that sense, we feel we leave '23-'24 with a very solid momentum. That's also what we're seeing in the market, and that's what we're seeing continuing into this year, '24-'25. And just again, reiterating, the new product launches are very important for us. They drive long-term growth, but they're not a massive factor for growth in the '24-'25 guidance. So, it is really underlying organic growth, continued momentum in the single-use conversion, particularly in urology and ENT.
Martin Brenoe: Makes a ton of sense. Thank you, guys.
Operator: The next question comes from the line of Yiwei Zhou, SEB. Please go ahead.
Yiwei Zhou: Hi, thank you for taking my questions. I have three. I do one at a time. And firstly, I just want to follow up on the pulmonology growth here in the quarter. You mentioned that there was -- there were few large orders in Q4 last year, but was it a one-off order you received and should we expect similar large orders phasing into the coming quarters?
Britt Meelby Jensen: Yeah, I think maybe I can say that -- I mean, that was -- there were some one-off orders that I think you should not think about that these are not coming, but that these are more coming through a different order pattern that is more spread out quarter-over-quarter. And I think that's also back to our 11.7% full year pulmonology growth. I think that's the number that I think more illustrates the underlying trend and how we see the pulmonology market has developed in the previous year.
Yiwei Zhou: Okay. Thanks, Britt. I just want to also better understand here. So, what has triggered or driven the change in the order pattern here? Is it upon the customer request or you have changed your own commercial structure?
Britt Meelby Jensen: Yeah. So I think -- I mean, it's a little bit of a combination, I would say. But a lot -- I mean, we had in a number of cases a customer buying pattern, where they bought more in large -- some of the big customers bought more large orders and then they would place them, and then it would take some quarters before the next one. This is where we have had a focus, of course, in close collaboration with the customers to see how can we have an order pattern that more resembles the actual usage, because it -- I mean, it brings a lot of benefits for the customers in that they don't have large inventories for us in that we are better able to plan our manufacturing capacity and deliver. So that's really what is driving this and what is also driving -- I mean, back to the whole fundamental logic around driving sustainable predictable growth, where we don't have these big spikes that if you go some years back, we have had some of this as well. So, it's that more predictable growth that we are targeting, which is in our interest and in the customer's interest as well.
Henrik Skak Bender: And we've not made changes in our commercial model, Yiwei, just to be clear. I think someone had misunderstood that. We've not made change in our internal commercial model. The only commercial impact of this, of course, is when you have big single orders like we had in the past, you often have to get bigger rebates, which, obviously, you don't when it's more continuous flow. So, I think, for us, the commercial upside is it's more predictable and the margin on the individual order is more attractive.
Yiwei Zhou: Okay. So, this is nothing to do with any change in your bonus -- sales bonus structure or anything?
Henrik Skak Bender: No.
Britt Meelby Jensen: No, we have not changed anything on the sales bonus. And I think that's also something that is very important for us that we -- I mean, we set bonus targets and then the -- I mean, the sales reps continue to run, I mean, based on these, full speed and fully dedicated. So, we have not changed any of that.
Yiwei Zhou: Okay. Great. Clear. And next question is on the GI products. I can see you provided some revenue growth assumption for each product. And quite interesting that you also give the revenue CAGR. I was wondering if those numbers representative of the current gross run rate for each product or is just your own assumption and forecast?
Henrik Skak Bender: Great question. And you're referring to -- for everybody else listening in to -- in our annual accounts in our footnote to the -- or in our notes to the annual accounts on Note 3.2, there are certain specifications that illustrate the assumptions that have been put into this impairment test that we've done. And I think two key points on your question. One, these percentages do not represent exactly where we are on the individual products. On Gastro, the current growth rates are much higher than what you see in the footnote, because, obviously, the starting point is much lower today and, therefore, any marginal absolute growth will also be a higher percentage growth. They represent an average CAGR across the period of the -- across the relevant period for the product in question. And it is more to illustrate our view on the long term on the potential of these products, where you do see very high growth on both Colon and Duodeno. What you cannot see here is what we are assuming exactly in terms of launch year and impact, et cetera, because that's not a detail we provide here, but it does signify, over the full period of the product technology, what our average growth rate should be to -- so to say, to satisfy or to basically quantify the assumption we have behind what is left as an intangible asset for the product.
Yiwei Zhou: Okay, clear. And just one follow-up on the assumption for the gastroscope. I can see you did a headroom adjustment for the product, but then it's based on the same revenue CAGR assumption. What has driven the adjustments here? And I can see it's not impairment, it's actually plus.
Henrik Skak Bender: No, correct. So, what the node illustrates is that we actually have a headroom, we believe, when we look at our Gastro technology versus what we have in our annual accounts on the balance sheet, and the accounting rules are that you only do an impairment, obviously, if the number is lower than what you have book value. And therefore, we've made no adjustment to the Gastro numbers. Therefore, the book value remains unchanged. I think the Gastro number here is more a reflection of -- we continue to see this momentum, also considering where we are growth-wise right now, coming out of '23-'24 and going into '24-'25. So I think the way you should deduct or the reflection on the footnote here is actually more to say, on Gastro specifically, we believe we can comfortably support the balance sheet value we have, because right now, we see even with the current momentum that can confirm and support the balance sheet value we have for that technology specifically, whereas for Colon and Duodeno, as I said before, we had a slightly different conclusion, mainly because the growth assumptions on the short term are different than they were when we originally made the Invendo acquisition and, subsequently, did the R&D products internally. What you also note is that the growth percentage assumptions then are obviously high and, particular for Duodeno, much higher. Because still to support the book value that is required in terms of supporting the growth long term and, therefore, the value that is still left on Duodeno and Colon. And I think as a final note on this, without going into too many technicalities for us, this therefore really represents that we still have a very solid ambition for the mid and long-term across GI. And combined with that, this still represent, if you add up Colon, Duodeno, and Gastro together, a third of our intangible assets, excluding goodwill, we feel actually signifies the potential we still see mid to long term. It just takes longer to unlock that potential than what was originally assumed.
Yiwei Zhou: Great. Very helpful. And I would do the last question and I jump back to the queue. And regarding the cholangioscope, what triggered you to put the development of this product on hold? Is it sort of technology challenge or is -- this market segment is too small?
Britt Meelby Jensen: Yeah. I think it's fair to say that, I mean, this is a product that is used together with a duodenoscope in roughly 10% to 15% of the duodenoscope procedures. And given that the duodenoscope, I mean, it's just, I mean, approved now [Technical Difficulty] clinical evaluation, it was basically when we had to prioritize across our portfolio because of that dependency, and that it's not a specific need that you need to use our cholangioscope. We said let's pause that for now and then focus on some of the other projects. And then it -- I mean, we can reopen it at any day, but that's also why we thought it was fair then to make, I mean, the impairment of this product based on where it is.
Yiwei Zhou: Great. Thank you. I jump back to the queue.
Henrik Skak Bender: Thank you.
Operator: The last question comes from the line of Niels Granholm-Leth from Carnegie. Please go ahead.
Niels Granholm-Leth: Thank you. Firstly, an accounting question. Shouldn't you have written down goodwill rather than the value of acquired technologies and development costs? You're keeping the technology, but the lower revenue profile would then lower the terminal value, hence the goodwill value of Invendo Medical (TASE:PMCN). And the reason I'm asking is, obviously, that as you write down the value of acquired technologies and development cost, it would improve your future EBIT margin by, I guess, by 0.5 percentage point or so, which makes it easier for you to reach your 2028 EBIT margin. So, that would be my first question. And then secondly, do you still foresee a contribution from your duodenoscope or your colonoscope in your revenue before 2028? Thank you.
Britt Meelby Jensen: Yeah. I can take the last one. I think, for the colonoscope, I mean, we -- I mean, that is limited right now, given also, as I mentioned, we are not putting commercial resources behind at this stage and we are looking for, I mean, potentially applying some of the new technologies that we are developing for that product really to be one that we put more resources behind. So -- and then on the duodenoscope, I mean, we do -- based on the feedback we also get on the second generation, we do see potential in that when we look at the '27-'28 time horizon.
Henrik Skak Bender: Exactly. So I think that is also, Niels, what is reflected in the question we had before from Yiwei on the note in 3.2 in our annual accounts that you say with these growth assumptions across the period of the amortizable period for the technology, there will be an impact before '27-'28. We are not commenting on how big that will be, but obviously, with the size of Duodeno, the Duodeno product needs to have a bigger impact than the Colon product, which I think is clear. In terms of your first question, good question on accounting practice. The very short answer, Niels, is that the goodwill for Ambu, as is also stated in our accounting policies, is basically tested on a total Ambu company level. We consider Ambu one cash flow generating unit, so-called CGU. And that means that the goodwill both for Invendo for King Systems and the combination of the two is tested against the overall market value of Ambu, which clearly is, of course, much higher. And therefore, there's no impairment need on goodwill. You're right that there is a small positive impact from lower amortizations from this impairment on the GI technology. I think when we look at it in a longer term, it is still underlying smaller. But you are right that it will mean we have smaller amortizations for the coming years, because now we're taking a bigger impairment in Q4.
Niels Granholm-Leth: Great. And then just lastly, if I could ask, last year, you called out a positive effect from the high flu season in quarter one and quarter two. Can you just briefly talk about what is the importance of flu patients to your pulmo sales during the year?
Britt Meelby Jensen: Yeah, and this is a very good question, Niels, and to be fully transparent, also one that we don't have the exact -- we don't know exactly for sure how that relationship is. We do see -- and again, I mean, flu season, it's difficult to predict. And once we have it, it depends also on how many patients are actually hospitalized due to that. And in some countries, there is a higher tendency to use the bronchoscope for patients with a flu than in other countries. So, it is a little bit difficult to predict. It's obviously, mainly the ICU departments, where we see the increase in revenue. So, I think we -- as we are getting closer to this, the picture is quite fragmented across geographies. And then, adding on top of that, predicting how the flu season will pan out is -- and what the type and severity is challenging. But that's how it typically affect us, and why we can see overall that, I mean, when there is a flu season, that the ICU departments across many countries are increasing their order levels.
Niels Granholm-Leth: Okay. Thank you.
Operator: Time is up. So, I hand it back to you, Britt Jensen. Thank you.
Britt Meelby Jensen: Thank you very much, and I would like to thank everyone for good questions and for joining this morning's call. And I wish everyone a great rest of day.
Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
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