Earnings call transcript: Borg Diagnostics Q1 2025 sees margin gains amid sales dip

Borg Diagnostics reported a challenging yet strategically transformative first quarter of 2025, marked by a 23.6% year-over-year decline in sales to SEK 113 million. Despite this setback, the company achieved its highest adjusted EBIT margin since 2020 at 15.1%, reflecting significant operational improvements. According to InvestingPro data, the stock is currently trading below its Fair Value, with a market capitalization of $31.7 million. The company’s shares have seen a -16.77% return over the past year, though they’ve shown resilience with a 13.92% gain over the last six months.

Key Takeaways

• Sales decreased by 23.6% year-over-year, impacted by geopolitical challenges.
• Adjusted EBIT margin reached 15.1%, the highest since 2020.
• The company is implementing a technology partner strategy to enhance flexibility.
• Borg is transitioning to license manufacturing in India to mitigate geopolitical risks.
• The company aims for positive operating cash flow in the second half of 2025.

Company Performance

Borg Diagnostics’ performance in Q1 2025 was mixed, with significant sales declines attributed to geopolitical instability and restricted access to US dollars, particularly affecting the Middle East and Africa. However, the company has been proactive in improving its operational efficiency, as evidenced by the rise in adjusted EBIT margin and a strategic shift towards technology partnerships.

Financial Highlights

• Revenue: SEK 113 million, down 23.6% year-over-year
• Organic growth: -25.1%
• Adjusted gross margin: 47.4%, up from 46.2%
• Adjusted EBIT margin: 15.1%
• Cash position: SEK 38 million

Outlook & Guidance

Looking ahead, Borg Diagnostics expects Q2 to benefit from a backlog of orders from Q1. The company is focusing on stabilizing geopolitical market challenges and driving lean business operations. Key initiatives include expanding clinical chemistry distribution in the US by Q3 2025 and doubling sales of the M51 analyzer in 2025. InvestingPro data supports this optimistic outlook, with analysts forecasting positive EPS of $0.13 for FY2025. Get access to 12+ additional exclusive ProTips and comprehensive analysis through the Pro Research Report, available to InvestingPro subscribers.

Executive Commentary

CEO Torben Nielsen emphasized the company’s strategic shift, stating, "By leveraging this technology partner strategy, it gives us much more flexibility." He also highlighted the focus on operational efficiency, noting, "We will continue to execute on expanding our operating margin."

Risks and Challenges

• Geopolitical instability could continue to impact sales in certain regions.
• Restricted access to US dollars may delay payments and affect cash flow.
• Transitioning to a technology partner strategy involves execution risks.
• Market shifts from 3-part to 5-part hematology technology require adaptation.
• Supply chain disruptions could affect manufacturing and distribution.

Q&A

During the earnings call, analysts inquired about the impact of delayed orders, which Borg confirmed would ship in Q2. The company also clarified its technology partnership intellectual property ownership model and discussed changes in R&D capitalization, providing insights into its strategic priorities.

Full transcript - Boule Diagnostics AB (BOUL) Q1 2025:

Hoglundberg, CFO, Borg Diagnostics: Good morning, everybody, and welcome to the First Quarter’s Earnings call for Diagnostics. I’m Hoglundberg, CFO for Borg Diagnostics. And with me, I have our CEO, Torben Nielsen. After our presentation, we will open up for questions. But please also feel free to type questions in the chat field.

With that, I’m handing over to our CEO, Torben Nielsen.

Torben Nielsen, CEO, Borg Diagnostics: Yes. Thanks, Holger. And good morning to everyone and thank you for joining this Q1 earnings call for 2025. We’ll begin by taking a look at the highlights of the quarter. And overall, it was a bit of a mixed bag.

Despite a satisfactory order intake in the quarter, we were unable to complete many of our orders in time for Q1 close, which led to declining sales of both instruments and consumables. Due to the geopolitical instability and uncertainty about The U. S. Tariff policy, many of our core markets in The Middle East and Africa restricted local access to U. S.

Dollars, which led to delayed payments and ultimately delayed shipments of instruments and reagents. On top of that, we delivered an unusually big order of 600 instruments to India in Q1 of last year, which combined then led to an unfavorable year on year comparison of minus 25% total organic growth. This naturally looks dramatic. However, we’re encouraged by the fact that we begin q two with a larger than expected backlog of orders. On a positive note, our OEM business delivered seven percent organic growth in the quarter and we managed to both extend and expand one of our supply agreements with a leading global IVD company.

The quarter also saw significant improvements in operating margin driven by favorable mix and the full read through of all the restructuring activities we had in 2024. As communicated earlier, expanding our operating margin remains a top priority also in 2025 and we continue to execute on that priority. In Q1, we realized SEK13 million annualized spend reduction from rightsizing our R and D team in Sweden as a direct consequence of the BM950 project closedown. In addition, I’m excited to share that we, this month April, signed a new and expanded lease agreement for our second manufacturing site in Sponger, giving us the opportunity to consolidate our entire Swedish operations into one site and vacate the current head office. By doing so we optimize our footprint, we reduce our cost and we can design our workflows for optimal efficiency in accordance with lean principles.

We expect the site consolidation to begin in Q4 twenty twenty five. In Q1, we onboarded a new regional sales manager for Southeast Asia based in The Philippines. This was the first step in our strategic efforts to invest in organic growth by adding resources in the region, staying close to our customers and operate efficiently. In Q2, we will onboard another two sales representatives in The U. S.

To support our efforts there. In March, we announced the closure of the BM950 five part hematology analyzer project. The decision was taken due to newly identified technical issues that significantly impacted the project’s time to market and overall profitability. We concluded that we would not be able to bring the BM950 to the market fast enough to support the current demand and therefore we took the decision to close the project and adjust our portfolio strategy. For many years, have enjoyed successful collaboration with technology partners to supplement and strengthen our proprietary portfolio.

Moving forward, Goo will focus exclusively on collaboration with leading technology partners to build a competitive instrument portfolio that meets the evolving needs of our customers in a timely and more cost effective way, which is critical when wanting to stay relevant to our distribution partners and customers. In line with our new strategy and our strategic objective of building a better, stronger growth oriented portfolio, we have extended our technology partnership agreement for our current M51 five part hematology analyzer. This means that we have this solution available through 2027. And in addition we’re on track with the implementation of exclusive distribution agreement for the bioscientific clinical chemistry business in The US. We expect to begin the commercialization in Q3 twenty twenty five.

So what will the new portfolio strategy mean to the business? Here we’ve put together a simple graphic representation of how our instrument portfolio will develop over time. Our current portfolio is made up in large by instruments that we source through technology partners, and our new portfolio strategy should really be viewed as an evolution of the way we’ve been building up our portfolio in recent years. In our human portfolio, we have our own proprietary three part hematology platform marked in blue, and we have a five part hematology analyzer the M51 from a technology partner marked in green. We added the M51 five part analyzer in 2023 and we expect to double sales of this instrument in 2025.

In Q3 this year we will add chemistry in The US through our distribution agreement with Vital Scientific and we are actively engaging with both current and potential partners to explore options for our future portfolio enhancements. In our veterinary portfolio, we have our own proprietary four part analyzer and have supplemented with a five part hematology analyzer, the H50B, and a compact chemistry analyzer, C200, both from technology partners. Here we are currently actively evaluating a potential new hematology addition to our veterinary portfolio. By not engaging in own instrument development in the future, we benefit from being able to focus our resources much more and build the necessary capabilities required to test, validate, register and market new technologies fast. Through our partners, we have access to the most recent technological developments and can essentially operate at the speed of the market and do this at significantly lower cost.

Proprietary technology often provide a higher level of differentiation, which may give you a competitive advantage. However, given the competitive landscape in hematology and the speed of innovation we’ve seen in the recent decade, we believe that Gould will be in a better position to compete when deploying a technology partner strategy. With this strategy we can continue to leverage our strong distribution network, brand legacy and reputation of high quality of service as a competitive advantage when adding new products to our portfolio in the future. Taking a look at the Q1 financials, in summary we reported Q1 sales of SEK113 million down minus 23.6% and we had a 1.5% favorable currency impact leading to a total 25.1% negative organic growth. Adjusted gross profit was down at SEK53.7 million due to lower sales, but adjusted gross margin improved to 47.4%, up from 46.2 because of favorable mix and efficiency gains.

Despite declining sales, we achieved million in adjusted EBIT, mainly driven by savings from restructuring efforts in 2024 now fully materializing. And our adjusted operating margin reached 15.1%, up 2.2 points from 12.9. Cash flow from operating activities was minus SEK7.8 million negatively impacted by severance payments, increased inventory and receivables. And we closed the quarter with available liquidity of SEK 38,000,000. If we look at overall sales by quarter, Q1 was down minus 25% organically due to delayed shipments and unfavorable comparison to last year.

And from a geographical perspective, in Q1 it was also a little bit of a mixed bag. Southeast Asia was down primarily due to India. In India, we saw low sales compared to last year due to an unusually large instrument order and also a gradual transition to instrument license manufacturing. In Southeast Asia, as stated earlier, we onboarded a new regional sales manager based in The Philippines as part of our growth strategy. Africa and Middle East were down mainly due to delayed payments caused by in large restricted access to U.

S. Dollars. And U. S. And LATAM delivered a soft border.

In The U. S. We’ve had open territories and are now onboarding two new sales reps in Q2 to support our growth. Looking at our hematology business specifically, we had a soft quarter due to the delay of orders and tough year on year comparison. Sales declined by 31% and we only shipped five forty three instruments.

We closed Q1 with a higher than usual backlog which will benefit Q2. In Q4 twenty twenty four we started switching our instrument sales in India to a license model which will have negative impact on our top line of estimated SEK30 million in 2025 but with a positive margin impact. On the OEM side, we see continued good performance. We grew 7% organically and managed to extend and expand one of our supply agreements with a global IVD company. Our sales funnel continues to mature in line with our expectations.

With that, I’ll hand it over to you, Hagrid, to take a closer look at the financials.

Hoglundberg, CFO, Borg Diagnostics: Thank you, Torben. Starting with a financial summary of the quarter. We had a negative organic sales growth, as Torben stated, while we see our cost of sold goods decrease and gross margin improved to 47.4%, up from 46.2% last year. The improvement of the gross margin was mainly an impact of efficiency improvements, but I would say more so to a favorable mix of having less of sales of instruments in the quarter and a growing OEM business for us. Operating expenses adjusted for onetime items decreased to 21% from last year as we now see a clear result from our restructuring activities that was done throughout last year.

In Q1, we closed the development project BM950, and the closing and related restructuring costs to that project resulted in a onetime cost of million. In total, our adjusted operating profit for the quarter was SEK2 million below last year due to lower sales. However, our operating margin increased to 15.1%, which is our highest margin since 2020. Cash flow from operating activities was soft in the quarter, mainly due to high payments related to severance payments, but also inventory buildup in the quarter. Taking a look then on the margin in a longer trend, we have now seen our operating margin quarter over quarter improving over the last twelve consecutive quarters.

If we’re looking at the rolling twelve month chart, we can see that our margin have improved from 8% last year up to 11.8%. So an improvement of 3.8 percentage points from last year. And then looking on the profit in terms of value, we have seen the increasing margin also transferring over in an improving profitability and absolute value. And despite lower sales in the quarter, we continued at a good level. Taking a look on the adjusted cost breakdown as a percentage of sales, our cost of goods sold improved by 1.2%, so down to 52.6% as a result of favorable Selling expenses was in line with last year despite our lower sales, and that’s a result of reduction in number of headcounts and other saving initiatives that was implemented last year.

Administrative expenses in percentage of sales were slightly up compared to last year. R and D expenses increased 0.5% of sales. However, and D was down in costs, if we adjust to the closure of a development project. Just taking a stop there at R and D expenses. In R and D, in 2024, we spent SEK 115,000,000 on R and D, where we capitalized SEK 77,000,000.

Given the closure of a BM $9.50 project, the saving and the savings we have implemented in last year, the R and D spend is expected to go down with about 50% on annual basis, all else equal going forward. Some R and D resources that has been previously working on the project will be moving over the focus on OEM products as well as developing blood controls. And since we will not capitalize R and D going forward, the cost that is booked in the P and L is expected to increase somewhat. However, the spend from a cash perspective on R and D will decrease with about 50% on an annual basis going forward. In total, operating expenses decreased to 21% if we adjust for onetime items in the quarter.

Other operating income expenses were slightly negative due to currency impact in the quarter. Altogether, adjusted operating margin increased in a good way, up 2.2 percentage points compared If we take a look on the cash flow from operating activities, we see a lower quarter, that was to some extent expected due to the guidance we gave last quarter of having severance payments coming through in the quarter. We had about SEK8 million of this in the first quarter, and there also remains about million to be paid in Q2 and another NOK2 million to be paid in Q3. Taking a look then on our liquidity and credit facilities, we ended the quarter with a cash position of 20,000,000 and including an unused credit facility of 18,000,000 available liquidity for the company was SEK38 million.

To strengthen our liquidity, we took a loan in the April of SEK20 million. And despite remaining severance payments, our operating cash flow is expected to improve in the second quarter and we run the ambition to get operating cash flow into positive in the second half of twenty twenty five. With that, I’m leaving back to you, Torben.

Torben Nielsen, CEO, Borg Diagnostics: Thanks, Alger. So Q1 was another quarter focused on executing on our strategic priorities, and we continue to make progress. On the operating margin side, our focus is on ensuring that we operate both efficiently and effectively. In the wake of the BM950 project cancellation, we rightsized the R and D organization and we have initiated a site consolidation project, which will optimize our footprint in Sweden, further reduce our operating cost and design our workflows around lean principles. We’ve begun to focus our attention more on a growth agenda.

We added a regional sales manager for Southeast Asia based in The Philippines to accelerate sales in the region and to stay much closer to our distributors and customers. In The U. S, we’ve signed on two sales representatives who will onboard in Q2, and we are continuously evaluating other regions to assess the potential marketizational investment. Finally, we made the decision to close the BM950 project and focus our portfolio strategy on technology partners. We have safeguarded our five part human hematology business with a contract extension and we’re in the process of adding clinical chemistry to our portfolio in The U.

S, creating a more synergistic and higher growth offering. That completes our formal presentation. I’d like to thank all of you for your attention, and we will now open it up for questions.

Hoglundberg, CFO, Borg Diagnostics: We have a first question coming from Christian Lee. Christian, please unmute yourself and ask your question.

Christian Lee, Analyst: Yes. Good morning and thank you for taking my questions. You delivered only five five forty three instruments in q one. Would it be possible to disclose how many that were delayed due to the supply chain issues or quantify in terms of sales?

Torben Nielsen, CEO, Borg Diagnostics: I think that the way to look at it, Christian, is that we normally would sell roughly a thousand instruments per quarter on average. And we were satisfied with the order intake we did in Q1. And obviously, what we saw was a combination of orders being shifted from Q1 into Q2, but also this unusual high comparison with last year due to the order in India, where we had an overall instrument order intake of more than 1,300 units in total, but in India, specifically 600 units. So I don’t think we will quantify exactly how many instruments, but it’s fair to say that we we saw satisfactory order intake in q one.

Christian Lee, Analyst: Yeah. Okay. Do you expect to deliver the delayed order shipments into the second quarter?

Torben Nielsen, CEO, Borg Diagnostics: Yes. We expect that those orders that due to delayed payments and could not be shipped in time for the close of Q1, that those orders will be shipped into Q2 and executed on.

Christian Lee, Analyst: Okay, perfect. You also wrote in the report that you increased your license fees from India. Possible to disclose by how much?

Torben Nielsen, CEO, Borg Diagnostics: Hakur, do you have an estimation of specifically how much the license fee impact was in Q1?

Hoglundberg, CFO, Borg Diagnostics: No, we will not get a specific figure of it. What was increasing for us in the quarter was the license fees for reagents in India.

Christian Lee, Analyst: All right. Okay. My last question. How much did, M51 account for of total sales in 2024?

Torben Nielsen, CEO, Borg Diagnostics: In units?

Christian Lee, Analyst: In terms of sales, please.

Torben Nielsen, CEO, Borg Diagnostics: I think that the the best way to look at it sort of quantifiably, I want to say that the m 51 sales in 2024 was roughly 15% of our overall unit sales.

Christian Lee, Analyst: Okay. Thank you very much. That’s helpful.

Hoglundberg, CFO, Borg Diagnostics: Thank you, Christian. We have another question coming from Amir. Amir, please unmute yourself and raise your question.

Amir, Analyst: Good morning, guys. Can you hear me?

Hoglundberg, CFO, Borg Diagnostics: Yes. Excellent.

Amir, Analyst: So I have a few questions, but the first one on technology partners. I’m just trying to understand who owns the IP. Like, do you buy the IP, or do you lease it? And how does this affect the the margins, basically?

Torben Nielsen, CEO, Borg Diagnostics: Yeah. Thanks. That that’s a good question. No. We do not own the IP.

There are different setups related to technology partnership agreements. For some technology partners, we operate with instruments that we slightly modify to fit our specific needs, but the IP will still be owned by the original manufacturer. For other agreements, specifically Vital Scientific, this is a pure distribution agreement. We will not add our blue branding and basically take in the instrument as is. From a margin perspective, I will say that on the instrument side, given that this is a razor razorblade model, I don’t think we can say that the margin profile is significantly different to our own proprietary product portfolio.

So in that respect, the difference is not material.

Amir, Analyst: Okay. That makes sense. And do they get some sort of rev share on the consumables you sell on systems?

Torben Nielsen, CEO, Borg Diagnostics: They sell reagents to us. And, of course, they have their own they have their own margin on whatever they they sell to us, but it’s not as if we share any we don’t have any profit sharing as such with our partners.

Amir, Analyst: Okay. So so they license out the IP for the system. You don’t know you don’t own the IP. You pay a cost of sales for that. The margin doesn’t differ.

And then the part of consumables are meant more like you sell your own consumables on those machines. Right? Hence, they don’t get any part of the revenue.

Torben Nielsen, CEO, Borg Diagnostics: Well, in the current setup and with the current technology partners we have, we source reagents directly from the technology partners. In the future, that could be a hybrid model. We could decide to also manufacture on license to our own installed base. But the the structure we have today is that we basically just source the reagents directly from the technology partner, we sell it to our customers.

Amir, Analyst: Okay. Got it. Just a quick question on R and D. So, Holger, you said that you didn’t capitalize anything this quarter and that OpEx side will increase and the total will decrease with 50%. I’m just trying to understand, like, should we expect zero in CapEx going forward as well in Q1?

Hoglundberg, CFO, Borg Diagnostics: That be, I would say, normal CapEx related to investments in machineries and equipment. That would be, let’s say, continuing as usual. What will be that we will not have going forward is capitalization of R and D costs. So that part is going out.

Amir, Analyst: Got it. Okay. And then on Russia, so you’re incrementally writing down for each quarter. I’m just trying to understand what are these 5,000,000. Right?

So you wrote down everything related to Russia last year, but you still have an ongoing business. But where do these 5,000,000 come from? Is that 5,000,000 Or I’m just just trying to understand this.

Hoglundberg, CFO, Borg Diagnostics: Basically, what we do for Russia is that we we set down the asset value of our our Russian business to zero. And since that business is still ongoing, the value of a of the asset is changing quarter by quarter. And to keep it zero, we need to write down to zero. It could also be that we have taken too much, so it could be the other way around. So far, since the business is profitable, we have been to write down in both Q4 as well as in Q1.

So it’s basically an accounting element coming through that we valuing of assets to zero for Russian business.

Amir, Analyst: So it’s not NOK5 million of profit generated during q one and write it down related to Russia?

Hoglundberg, CFO, Borg Diagnostics: No. No. It’s just the valuation payment for oh, sorry. I’m in Russia.

Amir, Analyst: Okay. Got it. And just one more before I let people in. You wrote on the summary slide, 13,000,000 additional lower cost on annual basis. Is that part of the SEK 25,000,000 one off or is this a separate part and which cost category will it affect?

Hoglundberg, CFO, Borg Diagnostics: You mean the 13,000,000?

Amir, Analyst: Yeah.

Hoglundberg, CFO, Borg Diagnostics: That’s part of basically lowering R and D spend going forward since we closed the project.

Amir, Analyst: Okay. Excellent.

Hoglundberg, CFO, Borg Diagnostics: That’s part of that. We will have, basically, the spend of r and d going forward after now the closure of a project.

Amir, Analyst: Okay. Got it. Got it. Alright. I have a few more points, but I’m gonna go on mute.

I’ll let someone else in.

Hoglundberg, CFO, Borg Diagnostics: Thank you, Amir. I don’t see any more questions on the line. Sorry. Here we got one. Mikael, please unmute yourself and ask a question.

Can you hear me?

Torben Nielsen, CEO, Borg Diagnostics: Down and Yep.

Hoglundberg, CFO, Borg Diagnostics: Thanks. So the sales there were some sales delayed in q one, but you think that will occur in q two. So could we expect an unusually high sales then in q two, or will there be further delays down the road?

Torben Nielsen, CEO, Borg Diagnostics: That’s a good question. Obviously, we cannot speculate on the future. I think that what you can expect is that it will stabilize. Obviously, it’s our hope that the market will come down and that we will see that the banks in certain regions, specifically Africa, Middle East, that they will get better access to U. S.

Dollar currency. And that way that would take away some of the bottlenecks we’ve had in the payments and subsequently the shipment. So I think that what we expect is, of course, that we are coming into Q2 with a higher backlog than anticipated given the situation. And we also hopeful that sort of the geopolitical instability will stabilize and then take away some of the bottlenecks that we’ve seen in Q1.

Amir, Analyst: Okay. Thank you so much.

Hoglundberg, CFO, Borg Diagnostics: That’s all for me. Thank you, Michael. We don’t have any more questions in the queue. Sorry, we got one. Please go ahead, Samad.

Samad/Hans, Analyst: Hi. Just a question on your OpEx savings. So you have been doing a great job in cutting costs. I just want to understand from here on, do you expect any further cost reductions programs? Or are you happy now with your organization in terms of sales costs and admin costs and also R and D?

Torben Nielsen, CEO, Borg Diagnostics: I think that we have taken all the big decisions now. I think that the last big organizational adjustment we did in the wake of the cancellation of the BM950 project. Having said that, we will still be very focused on driving our business as lean as we possibly can. So we will be looking for making small adjustments along the way, but I don’t expect any big organizational restructure activities to take place in the coming quarters.

Samad/Hans, Analyst: Okay. And just on the R and D, just to clarify. Excluding the one off, it’s 7,400,000.0, if I’m not wrong now. You said you expect this to increase slightly from here. Can you tell us about how much you think R and D per quarter will amount to in cost because you’re not going to capitalize anymore?

Hoglundberg, CFO, Borg Diagnostics: We we we we hesitate from giving a specific forecast about the future. But mathematically, if we would have to spend ahead of January and you don’t capitalize anything, you will be left with 57,000,000, 50 8 million on annual basis, basically. And then that would be distributed over quarters.

Samad/Hans, Analyst: Okay. Perfect. And just to that, can you say something about how much EBIT you make in Russia on an annual basis?

Hoglundberg, CFO, Borg Diagnostics: We don’t comment specifically on the margins per country. We don’t report it basically that way. But for us, is a profitable market. It was about 7% of sales in 2024. I see a question in the queue on that one as well.

So in 2024, it was about 7% that was coming from Russia. And that’s a profitable business for

Samad/Hans, Analyst: Okay. Thank you.

Hoglundberg, CFO, Borg Diagnostics: Thank you. We have another question coming from Amir.

Amir, Analyst: Yes. So just following up on the Russia part. So I understand that you’re generating profit. I understand that you’re continuously doing write downs, but do you get any cash inflow from that profit, or is it completely restricted?

Hoglundberg, CFO, Borg Diagnostics: What we what we can do is basically that they are sourcing supplies from from from the group, and those, we can get paid for through third country. But, yes, we can access money. But it’s restricted, so it’s not not you can’t do direct transactions with Russia.

Amir, Analyst: So the money is still in Russia that you generate?

Hoglundberg, CFO, Borg Diagnostics: When when they’re sourcing, they they can they can pay, for what they’re sourcing. If it if because our products are not affected by any restrictions. So it’s not like we have been building up a massive amount of cash in Russia. That’s not the case. If I recall correctly, I think we had like 5,000,000 or something when we did the write down in 2024 in

Amir, Analyst: cash. Okay. Thanks. I think it’s just maybe a question for Torben. Very super high level question.

I don’t know if it’s a question, maybe a comment, but you know, a lot has happened with this company in the last twelve months. A lot of good job, like cutting costs.

Torben Nielsen, CEO, Borg Diagnostics: I think

Amir, Analyst: it was a good decision to cut the b m $9.50 as well given the history. Think as an investor, I’m just trying to understand how to position this company. Right? Are you going to be a pure distributor and hence say, you know, we should have put put a distributor multiple on that? And, you know, today, you’re even lower than distributor multiple.

Or are you a semi, like, some hybrid between distributor or and and own products? Just trying to

Christian Lee, Analyst: you know,

Amir, Analyst: I think this is, like, super important for for for us to understand what what kind of company is full, and that will make a huge difference on on the multiple we can pay.

Torben Nielsen, CEO, Borg Diagnostics: Yeah. I think that’s a really good question. I mean, obviously, we we are we’re still working through a lot of the strategic parts given the the decision to close down the BM nine fifty projects. However, I think high level, we should view pool having two major business legs. One being our instrument and reagent sales business and one being our OEM blood controls business.

If we look at the instrument reagent sales business, it is a bit of a hybrid today in that we have our own proprietary technology which we intend to keep. And then we bolt on with technology partners. We’re effectively strengthening our portfolio and making our value proposition much more appealing to our distributors today. If we think of our instrument and reagent sales business, one of our core strengths, which we may not have talked so much about in the past is really one, our reach. We have a very extremely good and well built out distribution network.

So we’re able to, you can say, access customers in a very efficient and effective way. And we can leverage that channel to bring new innovation to the market. And then we have our ability to manufacture reagents. We can manufacture reagents in region. We can also manufacture reagents from a centralized position, which gives us the opportunity to compete on cost.

And then of course we have the Bool legacy of having a very strong brand recognition in the regions in which we operate, where we are known for delivering very high quality and a very high level of service to our customers. And that combined I see as a strong vehicle for a technology partner strategy in which we use this vehicle basically just adding technology that fits our portfolio and solves a problem and meets the need of our customers. And we will continue to do so. And by leveraging this technology partner strategy, it gives us much more flexibility and we are able to pivot when we see the market change. We can stay you can stay recent, and we can stay on top and ahead of the technological developments.

So it will be a bit of a hybrid setup that side of the business. If we look at our OEM and blood controls business, that is, I want to say, more of a traditional business where we have and where we are strengthening our R and D capabilities to be able to develop a portfolio of high quality blood controls. We have unique capabilities today And I think it’s capabilities that have been underutilized and under leveraged up until now. And now we’re in the process of building up our portfolio strategy around blood controls and OEM reagent capabilities where we can expand beyond hematology but also offer OEM solutions and services to large multinational IBD companies beyond hematology. And that’s the work that we’ve started now that we have, you can say the resources to start branching out and be a little bit broader in where we invest and where we can spend resources going forward.

I hope that answers your question. We will in the coming quarters communicate much more about our future strategy. We also start communicating more about all the growth opportunities we see in our OEM business and in our blood controls business.

Amir, Analyst: Appreciate it, Torben. Thanks.

Hoglundberg, CFO, Borg Diagnostics: Thank you very much. We have another question coming in from Christian Lee. Please, Christian, go ahead.

Christian Lee, Analyst: Yes. Thank you. Just a follow-up on the number of units sold. You mentioned that you expected to double, the units, of m 51 in 2025 compared to the previous year. Right?

Torben Nielsen, CEO, Borg Diagnostics: Correct.

Christian Lee, Analyst: So if you delivered around 600 units in 2024, that would also imply that your three part instruments would decrease by 20% in 2025 if you would keep the total number of delivered units around 4,000 for the full year. What would be the the driver for decreasing by 20% in 2025? Is it the the transition to the license fee model in India, or are there any other factors?

Torben Nielsen, CEO, Borg Diagnostics: Well, would say that obviously high level your math is correct if your assumptions are correct. Of course, we don’t we will not communicate on our full year projections of total instrument sales. But I will say that naturally the drivers in the market is that we do see a continued switch in demand from three part to five part technology that is effectively driving more five part instrument sales. At the same time we also are ramping up our licensed manufacturing instrument license manufacturing for instruments in India, which you can say also will impact our overall unit sales negatively. However, in parallel with that, we focus a lot on trimming our organization and our strategy to be more of a razor razor blade model.

So being more aggressive in the market in an attempt to drive our installed base growth because that’s really what’s going to feed our future growth. So I say on one side we have the switch from three to five part technology and we have the strategic switch where we are now delivering instruments through a license agreement in India that is you could say negatively impacting the three part business. However, at the same time, we’re investing in better coverage, more sales reps in order to be able to, you can say, counter that negative impact and keep the momentum we have in the three part technology side. We are still we still probably have the best three part solution in the market and it’s highly recognized by our customers. And there are still pockets in the market that are under invested in hematology in general and we still have markets that has significant growth opportunity for three part technology.

And that’s what we are trying to tap into by investing more in expanding our sales reach and becoming much better at targeting these specific segments.

Christian Lee, Analyst: Okay. Thank you. That’s very clear. Thank you.

Hoglundberg, CFO, Borg Diagnostics: Thank you, Christian. I think we have come to the end. We have one last question. Sorry. Please go ahead, Hans.

Samad/Hans, Analyst: Just a detailed question on the cash flow before changes in net working capital. I understood you had SEK 8,000,000 of like severance payments. But if you compare this quarter to the last quarter, same year, it’s a huge difference in cash flow from operating cash flow before net working capital, even if you exclude this SEK 8,000,000 in severance payments. So I want to understand, is there any the difference, is it other type of one off costs you actually paid this quarter?

Hoglundberg, CFO, Borg Diagnostics: No. The two other main drivers would be that we increased the inventory in the quarter, partly due to what Torben have been describing before with delayed shipments of orders as well as we had an increase of receivables in the Yes,

Samad/Hans, Analyst: know, but I meant before net working capital. So you had this quarter minus SEK 1,000,000, and last year was SEK 25,000,000, but your adjusted EBIT was approximately the same number. So how come there’s a huge difference in those numbers before net working capital?

Hoglundberg, CFO, Borg Diagnostics: I will need to go get back to you on that question. We can follow-up separately, Samik. Thank you.

Samad/Hans, Analyst: Yes. Perfect. Thank you. That’s all. Thank you.

Hoglundberg, CFO, Borg Diagnostics: Thank you very much. With that, I thank everybody for calling in today and wishing everybody a great day.

Christian Lee, Analyst: Thank you.

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