Ladies and gentlemen, thank you for standing by. Welcome to the Vitrolife Interim Report, January to September 2018 conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, you will need to press star one in your telephone and wait for your name to be taken by an operator. I must advise you that this conference is being recorded today, Tuesday, the 6th of November, 2018. I would now like to hand the conference over to your first speaker today, Mr. Thomas Axelsson. Thank you. Please go ahead, sir.
Good morning, welcome to the Vitrolife Interim Report, January-September, as mentioned by the operator. Today, we will focus on the third quarter results. The speakers of today will be Mikael Engblom, the CFO of Vitrolife, and also myself, Thomas Axelsson, the CEO of Vitrolife. By that, please go into the presentation in page two. The summary of the third quarter is that it was a quarter with high profitability, and we have also, at the end of that quarter, beginning of the next quarter, strengthened the offer by a deal with Illumina. We will come back to those things. The sales within the quarter was SEK 284 million, and that is +15% then. In local currency, the organic growth, it was 7%. Our EBITDA operating margin was 43%.
As I mentioned before, we have also done a licensing and co-commercialization agreement with Illumina. Let's go into more details regarding the quarter in page number three. Start with the business units and the sales within the business units. Let's go from the right side and from the largest business unit, Media. It was a very, very good quarter. It is our largest segment, and it was a growth of 8% in local currency. What was great was that all regions showed a good growth, and also that we see later on that the growth is back on the media for sure in China. Let's go into the disposable devices. We have had some problems with the production the last couple of quarters. We are more or less out of that kind of production.
Due to this, we have invested more in our production of pipettes, consumable products, and also the consumables oocyte retrieval needles. The current situation with needles that we had some production problem with before, is that we are only running one production line, and that is good, and we are expecting good growth right now within the disposable devices. Total sales this quarter was SEK 39 million. Time-lapse positive numbers, 17% growth, and it was sales of SEK 69 million. It was overall a good month, the sales is between different kind of regions, and this quarter was good in North America. ART Equipment. ART Equipment was a negative growth of 30%. I would like to mention a couple of more things regarding ART Equipment.
What we have done within ART Equipment is that we have stopped selling all products from other suppliers, so we are not doing any kind of distribution. Due to that, we have increased the profitability, but we have decreased the sales. Currently, it is a good business within the range of Vitrolife and has a good profitability. However, we would like to see a better growth within that field. We have started activities together with sales and together with the business unit to improve the sales. Three things that will matter for the current sales growth within this unit is regulatory approvals. We are working with regulatory approvals for our new line, NaviLase, in China, in Russia, and in USA.
None of them has, up until this time, got the regulatory approval, so we can start selling that good product line. Okay, let's go to page number four. Looking into the markets, and same thing here, let's start from the right side. On the right side, we have Asia Pacific. It was zero growth, and the main reason for zero growth was that we, if in comparison numbers, we were selling a lot of Time-lapse there a year ago. Currently, it is good growth within our base business Media, and if I also look upon the market contribution, it is a stable territory, even after a situation where we have increased the sales force and also our technical support for the growth within hardware. The sales was SEK 38 million then.
If I go into the region that is Asia, within that region, our biggest territory is China, it was a positive growth of 3%. We have not yet seen any impact of the approval of the Time-lapse ESD. The Media growth is good, the product mix in that region is also a reason for the good EBITDA that we have. Sales was 84%, as I mentioned before. We have the biggest region, EMEA, sales of SEK 113 million. It was a quarter of quite good mix between all product ranges, we have a market contribution that is for sure increasing, market contribution in our definition, it is gross income minus selling expenses, and that was SEK 55 million compared to SEK 48 million last year.
That shows that we are building for expansion, that we are in absolute numbers, increasing sales and marketing in all regions. The positive and good trend shift is for the Americas, and it is especially for U.S. We have been waiting for the approval of the time-lapse equipment, ES Class, and that was approved, and we can see that it is picking up sales, and it was an increase of 31%. The market contribution, of course, due to scalability, was increasing a lot, a lot more than sales, from SEK 16 million-SEK 25 million, and the total sales within Arena was SEK 49 million.
I would like to mention a few things more regarding time-lapse and U.S., and is that in with the approval, regulatory approval of EmbryoScope+, also situation that it has been the big American Society for Reproductive Medicine, that big conference, we can see that it is a trend shift. I do believe there is a trend shift regarding the customer's view on time-lapse in U.S. The outcome is good sales. It is also looking quite positive regarding new orders from that territory. That's really good news regarding Americas. Let's go then on page number five. I will like to comment a couple of things regarding our investment to have an extension on our product portfolio.
We've been looking into ways of improving the clinical outcome and also helping the customers in different regions to support their ambition to reduce time to pregnancy. What we have seen is that we are lacking one area, and that has been the offering of pre-implantation genetic screening tools. By combining PGS, PGD with our Time-lapse offering, we believe that we will improve the clinic's selecting methods regarding viable embryos. That's the main reason why we have done this kind of investment, and we have started on a conversation agreement with Illumina. Initially, it is the distribution right for PGT kits in EMEA and Americas, and that will start in the beginning of next year. We also have an option in a specific that we are aiming to use later on.
The growth opportunities within this field is something that we do will happen also with some of the system of getting approvals for doing genetic testing. For instance, where I'm currently sitting in Sweden, it is not a situation where they can, within the IVF field, use pre-implantation genetic screening. That's the situation for many other countries. U.S., it is approved, in U.K., it is approved, and in many other countries. What we do foresee is a growth within this field, and with time-lapse, as I said before, we do believe that we can create a new generation of products. Our aim is to do product development and come up with a new kit for this field within a couple of years.
The upfront payment that we have done was $13 million. What we can see initially for 2019, it is going to be an expected revenue increase at around 10% and a slight increase of EBITDA of 3%-5%. We are already in this quarter four, that we are currently running, going to see a little bit of expenses that's going to be on the P&L. We are not yet having any sales for this field. By that, I would like to hand over to Mikael.
Yes, page number six, then, some comments on the financials during the third quarter. Gross margin was 66%, same as last year. Within gross margin, where it has been positively impacted by product mix as a consequence of a high share of Media, having the highest margins in the Group, and also had some positive currency effects. In the EBITDA, we increased from SEK 98 million- SEK 121 million. Of this increase, about SEK 11 million comes from currency effects. On the margin side, the EBITDA margin increased from 40%- 43%. Also here, we have a positive currency effect, together with some reduced cost for short-term incentive programs as a consequence of not achieving sales targets in those programs.
Net debt in relation to EBITDA was -1.1. We continue to see a strong cash flow, and we intend to use the available cash for value-adding acquisitions. Move to page seven, please, for the outlook. We continue to see long-term market growth in the region of 5%-10% in monetary terms. As before, we think that the growing middle class, the trend for parents to wait until they have children, and the social acceptance for IVF will drive this growth. We continue to focus on sales expansion. As Thomas mentioned, we have done capacity investment in our utility, the disposable devices business unit to enable further growth.
We also target to broadening the product offering, and that will be done both through product development and through acquisitions. As Thomas mentioned before, we intend to start distribution of our new PGT business in the first quarter next year. With that, operator, we are ready to take questions.
All right, ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star and one on your telephone keypad and wait for your name to be taken by an operator. If you wish to cancel your request, you can please press the hash key. Once again, star and one if you wish to ask a question. We have a few questions coming in. Please stand by while we compile the Q&A queue. This will only take a few moments. Thank you. Once again, ladies and gentlemen, star and one if you wish to ask a question. Your first question comes from the line of Patrick Ling. Your line is now open.
Good. Great, thank you. Just a first question when it comes to operating expenses, Thomas and Mikael, could you give us a feeling for how much the fact that you didn't reach all your sales goals, how much that did on your cost side? Because you mentioned that some of the sales bonuses wasn't paid out as expected during the quarter.
Yes, it was in the region of SEK 3 million,SEK 4 million.
That was recently, I mean, it had a real impact actually on the margin. Overall, I was a little bit surprised to see the operating cost in this quarter actually came down, despite the fact that you were growing. Should we see this as something that will revert in coming quarters, or is this some sort of new spend level that is sustainable for you?
I mean, as before, we see some variations in costs between quarters. The third quarter is a quarter that's impacted by vacation periods in Europe, and that typically has an impact on the cost levels. We have guided that we expect higher research and development costs in the future. That is still our view that that will materialize, but that will also vary over time.
Okay. Then the second question, when it comes to the Illumina transaction, you talked about an add-on payment of $3 million. Should we see that in the context that Thomas talked about, that in a couple of years' times, you will have your own test kit, this is in some way connected to launching your own proprietary test kits?
Yes. As there is in the agreement an option for Vitrolife to take on the sales distribution in Asia and Pacific as well, and that will be connected to new generation of our products.
Okay, great. Also, when it comes to the fourth quarter, if you could give us some, a little bit more clarity on the cost that you're expecting to have up front for the Illumina deal before it kicks in in early January.
Yes. I mean, the upfront payment, that's something that we will of course book against the balance sheet. And then we will have some costs hitting the P&L in the fourth quarter related to the preparations for the distribution that will start in the beginning of next year. But it will not be significant amounts, but there will be some cost that will impact negatively this year.
Okay, great. I'll jump back into the queue then. Thank you.
Thank you.
Your next question comes from the line of Sten Gustafsson. Please ask your question.
Yes, good morning, thanks for taking my questions. Two of them. First of all, on the ART business, you said that part of the reason why sales decline was related to the fact that you no longer sell other products. Could you share with us what the underlying sales development on that business is? That would be very helpful. Secondly, on Time-lapse, if you could talk about sort of the, where the growth is coming from. Is that from new installations, or is that replacements of previous installations? Also, if you could share with us what the install base is, that would be very helpful. Thank you.
I can start with the question on the ART then. As Thomas mentioned on the call, we have taken a conscious decision to reduce the sales of distribution products for other manufacturers within the business unit ART. That is an effect that we're seeing. Then we have expanded sales of the own products, consisting of, for example, microlaser systems. In this quarter, we had a relatively weak development also for the own products. The ambition over time is to grow the own products that we are focusing to expand.
Please go ahead, Stan.
Just, yes, quickly. On a sort of a nine month period, would you say that the, your own, laser product is growing slightly, or is it flattish, or how should we read this?
It has declined over nine-month period, but that has a lot to do with some large orders happening in the same period last year to China, which, as Thomas mentioned, don't have a regulatory approval for the new NaviLase product in China.
Okay. All right, thank you for clarification. Sorry, on the Time-lapse, yeah.
Quickly that is that just to fill in some more information regarding your question with Mikael said, is that, you know, that when you have a regulatory approval, the approval in China is lasting for a couple of years. You know, with the transaction, what we did and also with the upgrading of the product, the old product was approved, therefore, we have sales to China, that it was one of the biggest markets. We are in between this kind of approval. That's that's part of the slight decrease that Mikael mentioned regarding the lasers, the old kind of lasers. On the Time-lapse side, Stan, it is a completely different situation compared with ART.
It is that, our products are growing, and it is new installations. you know, the situation with time lapse, is that we are having hardware sales, and then, it is some consumables, and it is also, technical service and support. The growth that we are seeing is coming from the sales of new hardware, that later on, then will continue, of course, then to increase the, let's say, the base level of, revenue from technical service and revenue from consumables.
Thank you. Could you would you like to share with us what the installed base particularly in the U.S., then? That would be very helpful.
In U.S., we have had, you know, the EmbryoScope approved since 2013 or 2012 or something, when we were acquiring FertiliTech. The last couple of years, very few products has been sold. Now, with the approval of ESC, it is that product that the customers are looking into and hopefully will turn the market around. It has only been approved, you know, this quarter, so it is, it isn't so many units yet.
Okay. Thank you. Thank you.
There are no further question at this time. Please continue.
No more questions? Okay. In that case, thank you very much for listening in. Before we end, I would like to say that we will have a Capital Market Day in Gothenburg, Wednesday, the 21st of November. It's going to be in our office. If you are interested, please go to the Vitrolife website, and you can sign in if you would attend our Capital Market Day, the 21st of November. By that, thank you very much from Mikael and myself, and have a good day.
Thank you. That does conclude our conference for today. Thank you all for participating. You may all disconnect. Speakers, please stand by.