Earnings call transcript: Bull Diagnostics Q4 2024 sees profit surge

Bull Diagnostics reported its fourth-quarter 2024 earnings, showcasing a significant improvement in profitability despite a slight decline in sales. Adjusted EBIT surged by 85.7% year-over-year, while the company’s stock price increased by 5.52% in early trading following the earnings release. According to InvestingPro analysis, the company currently appears undervalued, with a "GOOD" overall financial health rating despite recent challenges. The stock trades at $0.84, showing strong momentum with a 34% increase from its 52-week low.

Key Takeaways

• Adjusted EBIT increased by 85.7% year-over-year, indicating strong profitability.
• Sales declined by 3.3% year-over-year, with organic sales down 1.8%.
• The company launched a new manufacturing site in India and signed an exclusive distribution agreement with Vital Scientific.
• Stock price rose by 5.52% following the earnings announcement.

Company Performance

Bull Diagnostics demonstrated robust profitability improvements in the fourth quarter of 2024, even as overall sales experienced a slight decline. The adjusted EBIT reached $19.5 million, marking an 85.7% increase compared to the same period last year. InvestingPro data reveals that while the company maintains a healthy gross profit margin of 45.14%, analysts expect net income to decline this year. For deeper insights into Bull Diagnostics’ financial health and future prospects, including 6 key ProTips and comprehensive valuation metrics, explore InvestingPro’s detailed analysis. This improvement is attributed to strategic cost reductions and operational efficiencies. The company faced challenges in certain regions, notably Southeast Asia, due to competitive pressures from Chinese manufacturers. However, it saw strong growth in Latin America, Eastern Europe, and India.

Financial Highlights

• Q4 Sales: SEK 143.2 million, a 3.3% decline year-over-year.
• Organic Sales: Declined by 1.8%; adjusted for India license model, grew by 1.2%.
• Adjusted Gross Profit: $65.7 million, flat year-over-year.
• Adjusted Gross Margin: Improved to 45.9% from 44.5%.
• Adjusted EBIT: $19.5 million, an 85.7% increase year-over-year.
• Full Year Sales: SEK 559 million, a 0.6% organic decline.
• Full Year Adjusted EBIT: $64 million, a 63% increase.

Outlook & Guidance

Looking ahead, Bull Diagnostics aims to improve its profitability further, targeting a 15% operating margin. The company expects stable growth in its OEM business throughout 2025 and anticipates an additional SEK 20 million in U.S. revenue from its agreement with Vital Scientific. InvestingPro analysis indicates a strong free cash flow yield, though analysts maintain a neutral stance with a consensus recommendation of 2.0. The company’s beta of 0.45 suggests lower volatility compared to the broader market. Access the full Pro Research Report for comprehensive analysis of Bull Diagnostics’ growth potential and risk factors. However, it projects lower instrument sales due to the India license model and estimates R&D capitalization at around SEK 50 million.

Executive Commentary

"Q4 marks the culmination of a year of significant transformation," stated Torben Nielsen, CEO. He emphasized the company’s focus on improving profitability through process improvements and structural cost reductions. Additionally, Nielsen noted that the margin profile from the Vital Scientific agreement is comparable to existing operations.

Risks and Challenges

• Competitive pressures in Southeast Asia, particularly from Chinese manufacturers.
• Potential challenges in maintaining cost efficiencies amid restructuring efforts.
• Payment collection issues in the African market could impact cash flow.
• Lower instrument sales expected due to strategic shifts in the India market.

Q&A

During the earnings call, analysts inquired about the impact of sales mix on gross margins, with management confirming that ongoing R&D restructuring will reduce capitalization. Questions also addressed the development timeline for the five-part hematology system, to which the company provided no updated timeline. Concerns were raised regarding the challenges in the African market, particularly around payment collections.

Bull Diagnostics continues to navigate a complex market environment, balancing strategic growth initiatives with operational efficiencies to drive profitability.

Full transcript - Boule Diagnostics AB (BOUL) Q4 2024:

Holger Lambe, CFO, Bull Diagnostics: Good morning, everybody, and welcome to the fourth quarter’s earnings call for Bull Diagnostics. I’m Holger Lambe, CFO for Bull Diagnostics. With me, I have our CEO, Torben Nielsen. And after our presentations, we will open up for questions. Please also feel free to type questions in the chat field along the presentation.

With that, I’m handing over to our CEO, Torben. Thank you, Holger, and good morning to everybody on the call.

Torben Nielsen, CEO, Bull Diagnostics: Let’s begin by taking a look at the Q4 highlights. Overall, it was a stable quarter in which we delivered slightly below last year. Instrument unit sales closed slightly above last year. However, overall sales was negatively impacted by lower average selling price on our instruments. Consumable sales was, as expected, negatively impacted by the transition to a licensed manufacturing model in India.

This impact will further increase as we ramp up production in India for both consumables and now also instruments in 2025. OEM compensated partly for the lower sales and once again delivered a strong quarter. Our primary focus in 2024 has been on expanding our operating margins through structural cost reductions and fostering a culture of operational excellence. In Q4, we executed our third and most comprehensive restructuring round to date. This involved reorganizing our R and D team, streamlining operations and reducing overhead costs resulting in an annualized savings and spend of approximately SEK 18,000,000.

In the process, we established a new supply chain function, integrating purchasing, planning and order management to optimize our processes and enhance our customer service. In R and D, we restructured the team and put in place new leadership tasked with challenging the project plan and scope. And finally, we have transferred all product maintenance projects to a newly formed product engineering team in operations. We delivered significant improvements in both operating profit and margin and we begin to see the impact of all the initiatives we’ve taken to reduce cost and increase productivity. As a consequence of all these changes, we incurred higher restructuring costs, which adversely impacted our cash flow.

From a portfolio perspective, Q4 has also been very eventful. Our license instrument manufacturing site in India went live in Q4 as scheduled, and we booked our first instrument license revenue in the quarter. And finally, we’re very pleased to announce that Bool has entered a multi year exclusive distribution agreement with Vital Scientific for their clinical chemistry portfolio in The US. Vital Scientific is a leader in benchtop clinical chemistry solutions and they’ve been in The US market for more than twenty years. Like Buhl, Vital Scientific develops and manufactures high quality instrumentation for the decentralized segment.

This agreement represents an important step towards building a more diversified and synergistic portfolio that meets our customers’ needs. There is a strong synergistic fit with pool portfolio products. Our companies share similar customer target segments and a similar distribution model. Clinical chemistry is complementary to hematology, which will add value to our customers and also give us bundle opportunities. And we can leverage our current sales and service infrastructure in The US giving us some operational efficiency gains.

We’re excited about this future partnership and we anticipate the commercialization of this agreement to commence in the first half of the year and be fully implemented in the second half of twenty twenty five. When fully implemented, this will add approximately SEK20 million to our U. S. Revenue with a good margin profile. In summary, we’ve reported Q4 sales of SEK143.2 million down 3.3%, where of 1.5 was related to currency, leading to a negative 1.8% organic decline, which if we adjust for the India license model impact is equivalent to a 1.2% organic growth.

Adjusted gross profit was flat at $65,700,000 Adjusted gross margin improved to 45.9% from 44.5% as a consequence of favorable mix and efficiency gains. Adjusted EBIT significantly improved by 85.7% to $19,500,000 as a result of the improved gross profit and lower operating expenses. And adjusted operating margin reached 13.6%, up from 7.1 Cash flow from operating activities was SEK 15,100,000.0 and available liquidity at the end of the quarter was SEK 58,000,000. Looking at our full year performance, we reported sales of SEK $559,000,000, down 0.6% organically, which again, if we adjust for the India license model impact, is equivalent to a 4% organic growth. Adjusted gross profit increased by 2.2% to $250,000,000 Adjusted EBIT significantly improved by 63% to $64,000,000 and adjusted operating margin reached 11.4%, up 4.5 points.

Cash flow from operating activities closed at SEK 47,000,000. Taking a look at the overall sales by quarter, Q4 was down 1.8% organically. However, we closed 2024 more or less flat, declining 0.6% organically, which, as I stated earlier, equates to approximately 0.4% organic growth if we adjust for the India license model impact. Looking at sales growth by region in Q4, it was a bit of a mixed bag from a geographical perspective. We had good performance in Latin America, Eastern Europe and India.

In Southeast Asia, we continue to struggle due to competitive pressure from Chinese manufacturers and also local policies favoring local manufactured products. Africa, North America and Western Europe were challenged in the quarter. But specifically in Africa, we’ve been challenged with delayed payments blocking new orders. From a product mix perspective, OEM and consumableslicense revenue continue to outgrow our instrument revenue. Zooming in at our hematology business specifically, we had a soft quarter.

Sales declined by 11.9% for the quarter and full year closed 6.5% below last year. Adjusted for license revenue, Q4 closed at approximately negative 3.5%. Main detractors in the quarter was the geographical mix with proportionally higher sales in lower price markets. Instrument unit sales in Q4 totaled eleven forty four, which was 1% above last year, despite the fact that we activated our instrument license model in India. Reagents and controls business was down 13% for Q4 and flat for the full year.

In Q4, we started switching our instrument sales to India to a license model, which will have negative impact on our top line of estimated SEK 30,000,000 annually, but with a positive margin impact. On the OEM side, we see continued good performance. In Q4, sales grew 10% and full year, we’re growing 14%, which is very encouraging. From Q1 twenty twenty one to present, OEM has grown 162% and our funnel continues to grow and mature. When we look into beginning of twenty twenty five, we see a lower order pipeline in the beginning of the year, but for the full year, we expect the business to be stable.

And with that, I’ll hand it over to you, Holger, to take a closer look at the financials.

Holger Lambe, CFO, Bull Diagnostics: Thank you, Torben. Starting with the financial summary of the quarter then, we had a slightly negative organic sales as Torben mentioned. If you’re looking into the cost of sold goods, that decreased and adjusted gross margin improved for us up to 45.9% compared to 44.5% last year. And the positive change was mainly impacted from efficiency gains in the production, but more so from a conversion over to a license model for India. Operating expenses adjusted for the onetime items related to restructuring decreased to 19.4%.

This is mainly an effect of restructuring activities we have implemented throughout the last nine months in 2024. In Q4, we launched a second restructuring program and that will lower our annual spend of SEK 18,000,000. This is mainly related to the R and D and that will lower our capitalization of R and D activities throughout 2025. Altogether, that resulted in a significant decrease of our adjusted operating profit for the quarter and reached 13.6%. Cash flow from operating activities was a bit weaker in the quarter, mainly due to high payments for severance and restructuring payrolls.

If we’re looking on the full year, we had a slightly lower sales driven by FX and the changed business model in India impacted us negatively. From a profitability perspective, we have improved the gross profit with two percentage points and lowered our operating expenses with 11%, altogether, that lifting our operating margins back into double digit of 11.4% for the full year. If we then take a look on our operating margin on the longer trend, we can now see 11 consecutive quarters with improving margins. And our rolling 12 chart was up from 7.1% last year to 13.6 for 2024. If you’re looking how it’s converting into values, we see here an increase, a meaningful increase of 62% from last year’s 39,000,000 up to the $63,800,000 we had for $2,024,000,000 dollars If you’re looking into the details then of the cost in relations to sales, the cost of goods decreased 1.4%, mainly as a result of the change business model for India.

Selling expenses was below last year, and this is mainly a result of a reduction of headcounts and other saving activities that we implemented in Q2 and in Q3 ’twenty four. M and A strategic expenses was flat compared to last year. R and D expenses decreased 4.9% due to less consultants, but also partly due to the restructuring we did throughout Q4 of R and D organization. Total (EPA:TTEF) operating expenses was 6.2% lower compared to last year in relation to sales. And our operating income expenses were negatively mainly due to the fact that we had a negative currency impact from conversions from U.

S. Dollars to SEK. All in altogether, an improvement of profitability margin with 6.5%. Looking then on the cash flow chart, the cash flow was a bit softer in the quarter. And this is mainly due to severance payments we have for activities restructuring implemented in the second and in the third quarter, partly also due to activities done in the fourth quarter.

When we’re looking into 2025, we have about $6,000,000 in severance payments to do in the quarter. So cash flow is expected to be lower in the beginning of the year and then turn into more positive territory in the second half of twenty twenty five. If you compare our cash flow conversion with operating from operating activities with our EBITDA adjusted for the write downs we’ve done for Russia and intangible assets, the conversion rate reached 97% for the full year. Taking a look on the liquidity and credit facility, we ended the quarter with a cash position of $23,000,000 and including an additional unused credit facilities of SEK 35,000,000, taking us to available liquidity level of SEK 58,000,000. And we had a net cash EBIT of minus 0.2 times in the quarter end.

In the quarter, we also increased our revolving credit facility with USD 2,000,000.

Torben Nielsen, CEO, Bull Diagnostics: With that, I’m leaving back to Thor. Thanks, Algar. Q4 marks the culmination of a year of significant transformation. Our focus has been on executing on our three strategic priorities that we outlined in the second quarter of twenty twenty four. And during the recent three quarters we have successfully streamlined the organization and are now in a much better position to focus on our broader strategic priorities.

While the continued work around improving our profitability remains a top priority for 2025, we will also be making steps towards accelerating organic growth and building a stronger growth oriented portfolio. We’ve taken the first initial steps with our instrument license manufacturing in India and our distribution agreement with Vital Scientific in The U. S. Finally, to sum up our performance, I would say that it’s been a stable Q4 and a stable year. We’ve made significant improvements towards our financial target of reaching 15% operating margin.

We continue our efforts to improve our profitability through process improvement and reductions in structural cost. And finally, we’ll focus on relentless execution of our three strategic priorities. That concludes our presentation. Thank you for your attention and let’s open it up for Q and A.

Holger Lambe, CFO, Bull Diagnostics: So first question comes from Christian Lee. Please unmute yourself and ask the question.

Christian Lee, Analyst: Thank you. Good morning. I hope you can hear me. Hello. Can you hear me?

Holger Lambe, CFO, Bull Diagnostics: Christian, can you please repeat the question?

Christian Lee, Analyst: Can you hear me?

Torben Nielsen, CEO, Bull Diagnostics: I I can hear you, Christian. I don’t know.

Holger Lambe, CFO, Bull Diagnostics: We can hear you, Christian. Please come again. Sorry. Christian, will you please repeat your question? We have a son back here in the studio.

Okay. It sounds like we can’t hear Christian. Patrick, sorry, Filip Ekingen, you have raised your arm. Please Feel free to ask a question and unmute yourself.

Filip Ekingen, Analyst, Erbilcio: Thanks very much, Holger. This is Filip from Erbilcio. So I have a few questions here, maybe starting on costs. So the gross margin, what should we expect in terms of run rate for ’25? Is the adjusted gross margin for Q4 the best proxy going forward?

Or how should we think about that? Thanks.

Holger Lambe, CFO, Bull Diagnostics: So our gross margin is, I would say, pretty affected by the mix of sales we have, because we have pretty different margin profiles of the different businesses. Underlying, of course, the shift into a license module in India will work favorable for for a gross margin over time. It’s hard to give you an exact guidance for it, but underlying that would support the margin step by step to gross margin wise. But it’s still it will impact be impacted also by the mix.

Filip Ekingen, Analyst, Erbilcio: Roger, thank you. And on OpEx, clear improvements here year over year, what can you say about that? You took some additional restructuring costs now in Q4. Is that the last cost we can expect related to the restructuring or is there more to come?

Holger Lambe, CFO, Bull Diagnostics: We can’t it’s hard to say any predictions for future. If you’re looking into what we did in Q4, we made a significant restructuring of our R and D organization. But you should mostly see that as we it will be a lower capitalization of R and D going into ’twenty five because the organization will be the smaller and basically, also less lower investments into R and D. So less an impact on the cost than but, of course, on the cash flow side, it will have a positive impact.

Filip Ekingen, Analyst, Erbilcio: But on the improvements on the OpEx that that should kind of continue going forward or should we expect to return to higher OpEx levels in ’25?

Holger Lambe, CFO, Bull Diagnostics: I mean, in addition, what we’ve done throughout the year is to get the OpEx run rate lower. And that you see clearly for the full year. But I’d say and the reason is we did in the second and third quarter, which is a result of in the fourth quarter, that is, of course, to remain when we’re going into 2025. But activities we did in Q4 was mainly related to R and D and that will lower the capitalization of R and D spend.

Filip Ekingen, Analyst, Erbilcio: Borjota, thanks. Clear message here. And on sales, I have a question regarding the number of sold instruments. That seems to have been down year over year in Q3 and then flat now in Q4. Can you comment on that and give more color on it?

Torben Nielsen, CEO, Bull Diagnostics: I think that our performance in Q4 was in line with our expectations.

Holger Lambe, CFO, Bull Diagnostics: We see

Torben Nielsen, CEO, Bull Diagnostics: that in the market there is a continued shift towards five part technology. However, there’s still sufficient demand for our three part technology. So I think it was a stable performance we had in 2024.

Filip Ekingen, Analyst, Erbilcio: And on the lower selling price on the instruments, any comment on that?

Torben Nielsen, CEO, Bull Diagnostics: I think that what we are experiencing in the market is, of course, as a consequence of the market demand slowly shifting towards five part technology, that puts pressure on the general pricing for three part solutions. We saw that pressure in both in Q3 and in Q4, But that’s also coupled with the fact that we have taken a more aggressive approach in our sales. So, we’re sort of balancing the installed base growth objective with a slightly lower average selling price.

Filip Ekingen, Analyst, Erbilcio: Perfect. Thank you. And then finally, from me, any news on the development of the new five part system? Any updated timeline or anything of that sort?

Torben Nielsen, CEO, Bull Diagnostics: No, we’re not communicating any updated timeline. As we alluded to, we have done a rather significant restructure of our R and D department in Q4. It’s no secret that the BM950 project historically has suffered many delays. We’ve taken more of a proactive approach, changing the leadership, making sure that we get fresh eyes on the project. And as we stated here, right now, this team is reviewing the project plan and the scope, but for now, we are not communicating any changes to our plans.

Filip Ekingen, Analyst, Erbilcio: Perfect. That was all for me. Thank you very much, guys.

Holger Lambe, CFO, Bull Diagnostics: Thank you. Thank you, Philip. I see, Christian, you’re back, back on the call. Please unmute yourself and try again.

Christian Lee, Analyst: Yes. Good morning. I hope you can hear me now.

Holger Lambe, CFO, Bull Diagnostics: Yes. Lovely.

Christian Lee, Analyst: Okay. Great. Thank you. You mentioned that, capitalization of your expenses, in product development, would decrease in 2025. You have previously indicated that, the investments into the new platform, would amount to around 45 millions.

Are there any changes?

Holger Lambe, CFO, Bull Diagnostics: Given that the spend was a little bit lower in Q4 than we had guided for, it might be that NOK 45,000,000 is a few millions too low. So, yeah, 50 would probably be better proxy than something like

Christian Lee, Analyst: that. Okay. Thank you. And can you could you also talk about the distribution agreement with Vital Scientific? You you mentioned that, it will add sales of 20,000,000 when fully implemented with an attractive margin.

How will this impact the margins going forward?

Torben Nielsen, CEO, Bull Diagnostics: I’m not sure I understand the question. Could you rephrase the last bit, please?

Christian Lee, Analyst: Yeah. This agreement with Vital Scientific, will it have a positive impact on the margins or negative?

Torben Nielsen, CEO, Bull Diagnostics: I think that remains to be seen. I think that to give you a little bit more context on the vital business, it’s comprising of both sales and service. The first part that will be implemented will be the sales piece of the business and service will then follow in the later half of the year. I would say that the margin profile is comparable to the profile that we have here at GOL. So I would say from a percentage perspective, it will probably not change much, but it will add profitable revenue to our business.

Christian Lee, Analyst: Okay. Thank you. As you’re wrapping up the license sales in India for instruments as well, should we expect the instruments sales to decrease in 2025?

Holger Lambe, CFO, Bull Diagnostics: Yes. We are communicating Q4. We gave you an example if we let’s say we’d sell the same volume as in 2023 but with the license model instead it would probably have an impact on the top line of around 30,000,000 SEK. Okay.

Christian Lee, Analyst: So that includes both regions and instruments?

Holger Lambe, CFO, Bull Diagnostics: Yeah.

Christian Lee, Analyst: Okay. Thank you. That’s all for me.

Holger Lambe, CFO, Bull Diagnostics: What’s happening in 2024. But, yeah, that will continue also into 2025. Okay. Thank you. Okay.

Any more questions? Thank you, Christian. We have a question coming in from Richard. Richard, please unmute yourself and ask a question.

Mohammad Spanken, Analyst: Yes. Good morning. Thank you for taking my questions. Richard, I’m here. This is Mohammad Spanken.

Just two questions, please. So first, it would be interesting to hear an update on the five part system development, just essentially checking in a little bit on the timelines and the status of moving into sort of clinical validation steps moving forward. So, I’ll start there with maybe a bit of an update there.

Torben Nielsen, CEO, Bull Diagnostics: Yeah, thanks, Ricard. So, maybe just coming back to my previous statement here, we did a rather comprehensive restructure in this quarter of the R and D team and we put in place a new leadership. We asked the new leadership team to take a look at the current plan, the current scope of the project, to check if there are any, you can say, material changes or material risks that we should be aware of related to the project now that we have fresh eyes on the project. For now, we are still in the planning phase. We have not communicated any changes to the plans that we have communicated in the last earnings call.

So from that perspective, there’s really no change in the timing of the project as such.

Mohammad Spanken, Analyst: Okay, that’s great. And then I just noticed in the quarter, it seems to be quite a step up in sales in Russia, if I’m not mistaken. So any flavor on the driver of that, any stocking or any other dynamic to keep in mind? Just wanted to follow-up on that number. Thank you.

Torben Nielsen, CEO, Bull Diagnostics: No, I would say this is more a reflection of timing. I would say, generally speaking, Russia performed to our expectations for the year. So we were possibly a little back end loaded for the year, when it comes to Russia. So it was maybe more of a timing impact than anything else.

Mohammad Spanken, Analyst: Okay. And I noticed also in the CEO letter and the commentary previously, you mentioned sort of timing of orders or phasing of orders impacting the quarter overall, not specifically in that region. But could you add a comment on or elaborate a little bit on that comment just to put it in perspective?

Torben Nielsen, CEO, Bull Diagnostics: Yeah. I mean, we operate in various different geographies, but I will say that in Q4, we were challenged specifically in Africa where we were facing problems with receiving payments in time and that of course held back orders that will then be pushed into the following quarter. I would say that we’ve probably seen more challenges in Africa in Q4 relative to what we have seen in the previous three quarters. That could be, again, just a timing issue, but I think it’s something that impacted our quarter and close this year.

Mohammad Spanken, Analyst: Okay, that’s great. And any possibility to quantify roughly that magnitude of that delay or phasing?

Torben Nielsen, CEO, Bull Diagnostics: No, that would be difficult for us to quantify that. We would not want to give any forward looking statements here.

Mohammad Spanken, Analyst: Okay. That’s clear. Thanks for taking my questions.

Holger Lambe, CFO, Bull Diagnostics: Thank you. Thank you, Richard. I think we that was the last question we had on the call. And with that, I’m thanking everybody for participating and listening into the year end call for GUID Diagnostics. And I wish you all a great day.

Thank you very much. Thank you.

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