Earnings Call: Q3 2021

Oct 21, 2021

Earnings release

day, and welcome to the Via Maria Q3 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Frank Almond. Please go ahead, sir. Thank you, and good afternoon, and thank you for joining us to review Boumeiraud performance for this Q3 of 2021. As usual, I am online with Alexandre Marieux, Chairman and CEO as well as Guillaume Beurre, CFO. Before handing the call over to Alexandre for preliminary remarks, please note that this conference call will include forward looking statements. I would like to remind you of the usual disclaimers, saying that forward looking statements are based entirely or partially on assessments or judgments that may change or be modified due to uncertainties and risks related to the company's environment, notably rules described in the 2020 Universal Registration document, including but not limited to the economic conditions, financial exposure to currency exchange fluctuations, change in government policies or regulations, 3rd party investment policies, timing of the assets, length and severity of flu season and competition. Accordingly, we cannot give any assurance as to whether we will achieve those objectives. I also remind you that today's call is being recorded and that replay will be available on our website as soon as possible. I now hand over the call to Alexandre Marieux and then we will open the call to discussion and questions. Thank you, Frank, and good day to everyone. I will start by giving you an overview of the activity for the Q3 for BioMarriott. So in Q3, we recorded strong sales of €877,000,000 as compared to €789,000,000 last year, which represents a nice organic growth of 11.6%. This remarkable growth has been driven by the strong demand for respiratory panels in the U. S. And also by a solid momentum in all other applications with immunoassay growing at 7% and the double digit growth displayed in both microbiology and industrial applications. In Q3, looking at the molecular front, biophirofimori reagents have enjoyed a solid organic growth at plus 19%. And this growth is mainly coming from a higher than expected respiratory panel demand in the U. S. And linked to the delta variant and its associated spike of hospital admissions. The growth in molecular also been very solid in Asia Pacific and mainly coming from Japan. Worth to mention also as well that the non respiratory panel achieved a very robust growth at plus 17%. The installed base of Finl Ray continued to expand significantly. We have now more than 1200 units were deployed during the last quarter, bringing the total installed base to around 21,400 units. Looking at Immuno S. A, you have seen that it has anticipated growth of 7.3% at €120,000,000 compared to €111,000,000 in Q3 2020. The trends from a geographic point of view have been contrasted with a very solid performance in Asia Pacific, Africa and some countries also in the Middle East. While in the U. S, we still continue to see price and volume erosion on the PCT marker, creating a downward trend on the overall U. S. ImmunoSA performance. Immunoassay again, the control launch of TBIGA went smoothly and we moved to full commercial launch where we have the right regulatory requirements. We starting to see also a good start of the Vydas dengue test. Now let's switch to microbiology, which showed a very good performance with a double digit growth at 14% in Q3 to stand at €270,000,000 And I had been in the past, the growth was driven by our flagship ranges, Vytec and Bactiallat, with very consistent reagent growth contributions from all the regions, was maintaining performance in Asia Pacific, Latin America and Africa. Under the 9 months, the macroeconomic sales are growing versus pre pandemic levels by 8% like for like. Also the recent launch control launch of Vitek and S Prime went very well and we moved as well to a full commercial launch according to regulatory requirements, this to say mainly in Europe. Looking at the industry application, we keep on growing at the robust pace as it has been the case in the beginning of this year. The Q3 sales grew by more than 10%, fueled by both businesses in Pharma and Food. And from a regional point of view, we saw double digit growth in America and in Asia Pacific. And the microbiology line remained the key drivers associated also with a nice pickup of the molecular biology ranges in industry. I would like to conclude this short introduction on our annual perspectives. And as you know, within a volatile market, but also based on our year to date performance, we are raising our outlook for the year. We now expect the yearly sales to grow between 4% 7%. And also, we now expect the contributive operating results before non recurring items to exceed €700,000,000 Therefore, the 2021 performance will be remarkable. However, into the context, it cannot be projectable beyond at this stage. With this, I propose that we move on to the Q and A session. Thank you. We will take our first question from Hugo Solvay of Exane. Please go ahead. Hi, hello. Thank you for taking my questions. I have 3. First one on the assumptions behind your new guidance, which implied a massive iSingual to iTeams sales drop in Q4. Can you maybe share with us some of those the main moving parts that you have used to come up with this new guidance? 2nd, can you maybe help us understand a bit the dynamic for 2022? And would it be fair at this stage to assume that roughly 20% of your installed base will not be utilized at all next year? And 3rd, in China, can you maybe give us an update the value based purchasing programs? And is that impacting the dynamic in the regions that you see in pricing pressure? Thank you. Guillaume, you want to start on these assumptions? Yes. So assumptions for the new sales guidance, indeed, you're right, the guidance implies negative and pretty significantly negative Q4 versus Q4 2020, of course. So the first element of explanation is that the baseline, especially on the respiratory panel in Q4 2020 was extremely high with at that time a very high level of hospitalizations, especially in the U. S, but not only. So of course, as hospitalizations are going down in the U. S. And also some other countries are getting better, you can mention India, Japan, related to COVID. We don't expect the same results for the same level for Q4. 2nd element is, let's say, the lack of visibility for us on the, let's say, respiratory season or you should winter season, very difficult to predict what's going to be the pattern. We used pre pandemic to have a patterns of higher levels of sales in November, December to prepare winter season, especially for respiratory. Difficult to predict this year, so we actually are quite, let's say, cautious on this. And final element, important to note, we anticipate a lower quarter for Vydas in Q4. 2022? 2022, yes, it's a bit early to discuss about the dynamic for 2022. I think your question was on the Filmorhea installed base. No, it's too bit early to tell. Things will depend also on the when and the intensity of the flu season. It will be a key parameter. What we see today that there is more than one virus circulating, because we have seen also uptake of virus on the others, but still no through A through B to our knowledge. But we'll see. I hope what is important also to note, we keep on saying that. FINRA for us is also a new player. It's not only respiratory, gastrointestinal, meningitis, BCID, pneumonia and the rest. But too early to give you a dynamic for 2022. And as we said previously, the increase of the installed base for us, we believe it's a good base to grow also on other parameters. Your question on value based in China, I believe we my knowledge, we have an example in one region with 1 or 2 parameters. So that's something that we scrutinize. We are not today so much concerned with this with our ranges, but of course, we monitor this. The results, just to be clear with Anhui province, as you know, it's only one small province actually. And the results are not fully settled yet. I think the companies have responded, but the government, the local regional government has not yet exactly set how it will work based on the responses, who can participate, not at which price, etcetera. So not a lot of impact for us and not a lot of visibility how it will unfold exactly even in this province. Okay. Thank you. Just maybe a quick follow-up on my question around the installed base and its utilization for next year. In other words, is there a risk? Or do you foresee any risk that of a write off of parts of the installed base next year? No, we have to monitor. But for us, as mentioned, no, no, it will first depend on the situation. And I think to see that installed base keeps increasing for BioFire. For me, it's a good news. It's a good recognition of value of the syndromic testing. So we will monitor, of course, but not at this stage, no. And from financial point of view, if it was your question, no, we don't foresee a big risk of write off. The installed base, as you know, was around 70% or even 80% some quarters installed. So it means it's not ours. We can we have the right, of course, to get it back and to reuse for all the customers. So if the question was on the financial point of view in terms of write off, that's not something we foresee. Okay. Thank you very much. We'll take our next question from Maja Pataky of Kepler. Please go ahead. Yes, hi. Good afternoon and thanks for taking my question. I'm actually also going to try to get a question in on 2022. And I understand it's far too early to give us any indication on where your top line is going to go next year. But can you help us to can you help us understand how we should think about the cost base going into 2022, so we can actually come up with a reasonable assumption on the profit development given your massive increase in guidance for 2021. So please can you give us some legal blocks assuming your top line growth would be 0? So let's assume you're coming at 5% this year, flat revenues next year, more or less same business mix. What do we need to take into account from an operating cost perspective that comes on top so we can start to do the math ourselves? That will be my first question. 2nd question, you mentioned that you assume that immunoassay revenues are going to be significantly weaker in Q4. Is that due to the fact that you see something happening on the PTC side of the market? Or is it because you assume that COVID related tests are going to fall off or significantly come Q4 2021? Last question on the BioFire franchise. Can you tell us where you're seeing anything from a competitive standpoint that is cost pressure, genomics being more visible in the market or anything from that perspective? Thank you. So maybe we'll take the first one. I always take the last question. Regarding BioFire, no, nothing specific yet with GenMark being acquired by Roche in terms of market dynamics or price pressure. We saw we start to see some pressure, but I would say nothing significant regarding the range on the ASP, maybe a slight decrease, but nothing very, very much at this stage. So no way, it's not nothing to report there regarding the competition or potential uptake of the competition. We are growing and that's what we are looking at. On the other question? So cost base, so the firstly, the revised outlook for this year include of course, the uptake and the revised outlook for outlook for Sebit is first linked to the additional sales compared to our previous assumptions, but also to the fact that the cost upturn that we could have expected is not so strong yet at the end of this year than we would have thought. We start we restart some travels, some marketing activities, but it's still not very strong restart. We believe that it will be much stronger and that's what we expect for 2022. That's what we said earlier that the again, the cost base right now is at a low level and cannot be sustained at this low level. Again, in terms of Congress, marketing, travel cost, we should expect you should expect as well an upturn and a significant upturn on the cost base for 2022. Your initial question yes, please, Maja? Yes, I'm sorry. Did you I'm not quite sure whether I have that correctly on my mind, but I think that you said last year that the cost savings were amounting to around €70,000,000 So of course, that might have been a bit that might be now a bit more in 2022, but is there something like a catch up effect that we need to say, let's say, €70,000,000 plus 20% growth plus another €50,000,000 on top because you want to use the opportunity once you're back in the market to go and see as many people as possible? Or is it more like a gradual growth of the cost base that needs to be aligned to your top line growth? So just to come back on I think what you referred to is that I said as part of the H1 results that we had several tens of 1,000,000 of savings on the cost base linked to travel, marketing, Congress and even some small parts of R and D that could not, let's say, be executed as expected because clinical trials are delayed and things like that. So that's what you refer to. We didn't give a precise figure on the €70,000,000 you are referring to or maybe some is several tens of millions to really highlight is significant and that was just H1. So that's part of the upturn that needs to be expected for next year. And again, we expect this turn to fuel also the growth, the medium term growth for BioMarriott. On top of that, you should all keep in mind, of course, that the raw material environment is, of course, pretty complex. You see that everywhere and that we have to cope with some inflation of some raw material as well as let's say tensions on the labor markets in some regions, typically pretty strong in the U. S. With a lot of restart of moves in the labor market in the U. S. And as a consequence, yes, salary may be a pressure that we and we need to be competitive on that front as well. It's too early to say again. I'll try to give you some elements. We are right now looking at 2022 assumptions at our budget, yet too early to precisely quantify. Maybe I come back if you're on your additional question, which I think was on the immunoassays down in Q4. So just to mention that we have an FSCA on Vydas that needs to be, let's say, implemented and rolled out in Q4. It will have some revenue impact, but we have already included this in our guidance. So that's why I was commenting on this as part of our guidance. So nothing that is too difficult and we are confident that it will be, let's say, rolled out over Q4. Okay. Thank you very much. We'll take our next question from Scott Bardo of Berenberg. Please go ahead. Please go ahead. Your line is open. Thank you. Sorry, I was on mute. Can you hear me okay? Yes, Scott. Thanks very much guys. Yes, just a quick clarification as a first question please. Did you say that the non respiratory panels were growing 17%, 1 7% this quarter? Yes. Yes. So just on that point, because I read in your release that since the non respiratory panels were accelerating in growth, but as I look to your H1 performance, you grew 30% in non respiratory. So that seems actually some marked deceleration. I just wonder if you could help explain actually the sort of inter quarter dynamic, please, there. That would be helpful. The second question, again, a point of clarification, please. Is it possible to quantify how much of your immunoassay business you would deem as COVID related? I know that's not easy, but perhaps serology or some abnormal demand in certain COVID related markets, just to get a sense of the potential, say, vulnerability of that business if the world normalizes? And the third question, please. Obviously, we see some tremendous sort of upgrading in profitability this year. A little bit confused because you increased your top line guidance to basically where your top line guidance was at the beginning of the year, yet your profit guidance is materially above. And so I wanted to understand why that was. Is it just better gross margin or less ability to invest than you envisage at the start of the year? I just want to understand why the top line outlook is kind of similar, yet there is material difference in the profit outlook? Yes. It's again the to your last question, Scott, it's again the OpEx operational costs savings that are significantly above even what we would have expected at the beginning of the year, because again the business did not restart in terms of again travel, sales, marketing, Congress did not restart as we would have expected. So we are from a pure financial point of view, it's a good news for this year. From a business point of view, it's not so good not to be able to visit the customers that have customers' activities at the right level, which we intend to have next year. On your first point about non RP acceleration, so maybe it's the interpretation of acceleration, sorry for that. You are very on the figure. It was more 30% early in the year and definitely 17% in Q3. What we mean by acceleration is more the very strong dynamic. We do not mean any sequential quarter on quarter comparison, but we believe it's a very strong dynamic, significantly above 10%, 15% for these panels, which we think is a very good signal and a very good dynamic also for our range beyond the COVID times. ImmunoSA, COVID related. So as usual, is a good example. That's where I use this year massively for COVID patients, but we cannot say from our end which exact figure has been used for COVID. So on the serology, what is really COVID purely the serology parameters, I can give you the figure that we sold about €15,000,000 in the 1st 9 months. Then we have on top of that had tailwinds, sorry, so positive on other parameters that are pretty significant. That's very helpful. Thank you. And I guess just a couple of quick follow-up, if I may. You mentioned clearly that the several tens of 1,000,000 in H1 operating costs that you would have otherwise looked to do? Just so we're all roughly on the same page, are we right in saying that, that would be some triple digit €1,000,000 number on a full year basis? If you could confirm that, that would be helpful. Yes. We should be in that range, yes. Yes, understood. And lastly, obviously, it's an exciting prospect given your expanded installed base of BioFire instrument to really drive lots of uptake of your other panel. I know this is a big effort internally. So my question is, why do you think it's not growing above this sort of 17% level this quarter? Is it just a fluctuation? It feels to me that in the early stages of these products, they should be doing much better than that already. No, we believe it's a very good dynamic actually. It's pretty well spread over the different parameters. Last year was already a good base in Q3. We see a very growth. We also see and I think it's an important element. You remember that our strategy is actually cross selling and a menu player, Alexandre already highlighted earlier today. We see a good traction, a good dynamic on, let's say, yes, cross selling from 1 panel only customers to several panels. For example, it's more anecdotal, but in Q3, we've been able to add more than 100 customers to in the U. S. To one additional panel than they used to have or to buy. So we believe the dynamic is pretty good actually on the non RPE panels. That's very helpful guys. Thanks for the comments. We'll take our next question from Delphine Lalouais of Societe Generale. Please go ahead. Yes. Hi. Good afternoon, everybody. A quick question on my side. Can you I don't know if you do remember correctly, but last year, gross margin, we had a massive lift from H2 to I mean, from H1 to H2 linked to the productivity gain, linked to expansion of the line, linked, of course, with the COVID volumes. We are approaching of the year. We, at the end of the day, had 2 waves of COVID in the U. S. We had 1 in 2020. So can we expect the same level of margin lift just talking about the gross margin in H2 versus H1? And any reason why not? First question. 2nd question, dealing with the CapEx cycle. Just wondering where you are. I don't know, Alexander, if you do remember back in 2019, you say we target roughly 10% of revenue into CapEx. I was wondering if you stick with that figures and what's going to be the next wave of investments, where about? And finally, thirdly, regarding the BioFire and any change and especially to be back into the 'seventeen growth ex recipe panel. Just wondering if you have a breakdown, which is a bit different per region than the regular pattern you've seen since the beginning of the year. So meaning, do you sell more in Asia and Europe? Or is it still very, very much driven by the U. S? Thank you. Okay. I will start with the CapEx question. Yes, the around 10%, I believe is a good standard for us. But most of our investments are linked to capacity to cope with demand and future demand. And there was a big wave, as you mentioned, linked to capacity expansion in linked to Filmorhea. But we also have other engines, which are growing quite well. And as you know, we're also investing in China on some manufacturing activities. So yes, I believe to be around 10% is a good stand ratio for us linked to the volume production and the capacity increase we have to bring. You take the one. The first one was on the gross margin. So it's a bit precise, but I think that the trends on H2 should be quite similar to what we have seen for H1. Yes, with the mix that is what we are looking for. What we see for 4 H2, we should be on a pretty similar levels. The sub question was the growth on the non RP panels. But then again, we are quite satisfied with the current growth. I'd say, again, it's only it's No, no, no. It's not a question of being yes, yes, no. It's more a question of seeing, do you have more traction somewhere else than in the U. S? And do you manage to sell more in Europe, in Asia than you used to at the beginning of the year? So just willing to know if there is a bit more globalization of your business outside the U. S? The Q3 was very special because of course there was this COVID wave in the U. S. Yes. Of course the U. S. Wave was strong if we just look at the math. But beyond that, if we look at the business dynamics, now we saw, for example, a good dynamic on non RP in Europe this year and including recently. So that's why we are again quite pleased of the dynamic of non RP. Yes, I think Europe, Aspect, did very well also in RP and non RP. And then there's always the big effects of COVID. But to be frank, the signals go in the right direction, more sales, more instrument and more mix of panels. Okay. Thank you very much. Thank you. We will now take a follow-up question from Scott Bardo of Berenberg. Please go ahead. Yes, thanks very much guys. Just a couple of quick ones. So I'm picking up a little bit that in a sense in Q2 in North America was almost the feeling that COVID was going away. So there was quite some destocking of consumables, if you like, in the channel. I wonder whether you have any sense that this Q3 there has been a restocking. In a sense, hospitalizations in the U. S. Were not quite at the sort of historic peak level, yet you report a BioPharma number, which I think is a record in the quarter. So is there any stocking element that could unwind in your opinion that would be very helpful to get some perspectives there? And second question for me, please. So, Alexandre, I mean, the balance sheet, again, looking very strong. And I know you added some comments here in the last quarter. But now that you raised your expectation on profit, cash starts to accrue nicely. Has there been any movement at all in terms of potential targets or any progress in strategic thought for capital deployment? Thank you. Okay. Your first question is, is there stocking with our customers? Not so not obvious for me. I believe in Q3, at least in the U. S, it was very linked to the delta variant. And again, when we see more hospitalization, fumarate is very used and Sildomik is very useful in hospital settings. There might be preparation of a potential flu season, but to my knowledge or maybe also discussing with the team, I think it's overly significant on that front. Balance sheet, yes, good result, good performance. We remain active in terms of scouting opportunities linked to technologies. So these are things we are, let's say, we are used to do to monitor internally, but nothing, of course, as you understand, nothing specific to know that, but we remain active in the scaling technologies or companies, which would have a benefit for the patient, for the industrial applications. And we remain active in that space, but nothing special to report there. Very clear. And perhaps last one, if I may. I know the provincial tender in China is just one province and a few parameters and so forth. But has this in any way triggered a reassessment or you're accelerating plans to be a little bit more in China for China? Perhaps you could talk a little bit about your infrastructure, your domestic manufacturing capability in that region and whether you have any board or plans as a corporate to extend those? Yes, we have a strong first, China is important for us and this is 2nd subsidiary for BioMarriott in terms of sales. But we are quite active already. A we are present there commercially, but also now through R and D and manufacturing. As you remember, we have a to manage a majority stake in HIBORM, which is a Chinese IBD immunoassay company. So there, again, we have we are under manufacturing and capacity planning and we're currently building a site on this aspect. We are also delivering new plant to produce locally our non mature metals. So this is in line our long term view that we have for China. So we remain active there. I would say that it is and it will remain an area of focus for us. Very good. Thanks very much. That's all for me guys. Thank you. We will now take a follow-up question from Hugo Silvesque of Exane. Please go ahead. Just a quick follow-up on the gross margins. I recall that you had some automation works of airlines ongoing at Salt Lake. Can you update us on that and what's left to be done? Also when a positive impact from more automated lines could be felt on the gross margin, if any? Thank you. We too find Progressive Automation. We started from a full manual process several years ago. We have a kind of Phase 1 or Step 1 that's completed, but completed means validated needs to be deployed with additional once we have an automated machine, we need to have a second a third one, etcetera. So that's what we are deploying on Phase 1. And then we have kind of Phase 2 part of the process that we are in the process of fine tuning and validating that again we also need to be then deployed, let's say, line by line. So my point is that it's progressive. Actually, there are already impacts because some parts are already automated and are ramping up. So it will be over time, it's not going to be a cliff effect of automation. They are already impacting our margin this year. There will be some next year and over time. Okay. Thank you. And we now energy cost rise. You're fairly stable in terms of energy consumption and same as energy renewable usage, roughly in the range of the 13%, 14%. How far are you concerned? And infrastructure is being based. So do you have that in mind so far? And can we get your source on that, please? Thanks. No, we don't see that as a big issue or significant concern in our cost base. It's a definitely subject we are looking into in our CSR road map and our view to improve our environmental impact. We have significant plans to improve, let's say, renewable sources and energy concentration in the coming years. But in terms of cost, which I think was more your question, there are, let's say, other subjects of, let's say, material increases or raw material prices that are a bit more significant for us, yes. Okay. And do you see and if we stick with these raw materials or any materials that are needed for the production, do you see some scarcity? Do you see inventory being very low so far and having some concern even for the rest of the year? Yes. I think we like every industrial company on the planet, we see difficulties, maybe not at the level of the automotive right now, but It's tense, but managed. It's managed, exactly, but still tense. So, yes, tough for us. I think I mentioned last time and I can confirm for example the PCs, the computers that are used for our equipments, I'm not talking about the computers for employees, but for our systems are pretty tense in terms of supply. We get some, but not as much as we need to, etcetera. So that's an example. There are others. So as Alexandre just said, managed, but pretty tense. Okay. Okay. Thank you very much. There are no further phone questions at this time. I have one question from the website. Can you give a split of respiratory versus non respiratory panel in Q3 as you did in H1? Do you believe that utilization of new respiratory panels via test system should be similar in 2022 to 2021? Please give update on new panels, pneumonia and joint infection. Thank you for the question. So first on the respiratory non respiratory split. So in Q3, of course, with the U. S. Wave, the percentage of respiratory was very high at actually 75%. Year to date, it's over the 3 quarters, it's 70% for respiratory and 30% for non respiratory. In terms of updates, joint infection, I remind everyone has been filed with FDA. So we are looking for the let's say the final feedback and green light, not done yet. Pneumonia, I remind you was launched probably 2 years ago now and has a very good track. We are pleased with the way it goes with pneumonia. And I think the customer feedback are very good as well. So it's a progressive adoption as we said because it's a complex panel and probably involves changes in medical habits to use this information, but we are very pleased with the feedbacks and the adoption. Yes. Consumption per system in 2022 is again that's the difficult one, uncertainty on 2022. We'll come back to that early next year. Thank you. Okay. No further questions, I guess. We have one follow on question over the phone from Scott Bardo of Berenberg. Please go ahead. Thanks guys. I'm sorry I'm making a nuisance myself here. I just wonder if you can give us some sense here because of your Biofron installed base, which has clearly been very impressive expansion over the last 18 months. And I think you're calling these numbers you report on in terms of modules, the number of slots. Can you help us understand of this significant expansion that you have seen, essentially doubling really over the last 18 months, your number of slots. Can you give us some sense of how much of that comes from the Torch system, which has multiple slots and how much comes from single biopharm unit? I'm just trying to understand here in terms of, if you like, the amount of new machines out of that numbers you report. That would be helpful. So Torch is a big success and actually the vast majority of the increase since the last 18 months is really Torch. It's really a well adopted system. Toss starts with 2 and can go up to 12. You can also talk to Toss. Thank you very much. That's great. Thank you. Thank you. Okay. Okay. No more questions. There are no further questions over the phone. Okay. Well, thank you to all for your participation and for your questions. Our next formal release will be on March 2, 'twenty 2. We will webcast to present the annual full year results. By then, we may be at your disposal if you have any more questions, and we are looking forward to meeting you to the next time conferences or watch shows. Thank you very much. Have a good afternoon. Good morning. Bye bye. Thank you. That now concludes the call. Thank you for your participation. You may now disconnect.