Earnings Transcript for AMBU-B.CO - Q1 Fiscal Year 2024

Britt Jensen: Good morning, everyone, and welcome to this Earnings Call this morning, where we will report on Ambu's First Quarter Results in our Fiscal Year 2023-2024. My name is Britt Meelby Jensen, and it's a pleasure for me to welcome our new CFO, Henrik Skak Bender, who joined us the 1st of January to lead our Finance, Legal and IT function as our Chief Financial Officer. For the agenda today, Henrik and I will first go through our financial results. I'll present the business update and hand over to Henrik for the financials and then we will finish the call with a Q&A session. So starting with the highlights of the business, we are off to a strong start for our first quarter this year with a 14% organic revenue growth hereof at 25% growth in our key business area, our Endoscopy Solutions area, compared to 3% in Endoscopy last year. This strong revenue growth is partly the reason why we also can report a strong EBIT margin before special items of 10% for the quarter compared to 6% last year. And then looking at our free cash flow, we report DKK135 million for the quarter, which is an improvement over last year's quarter of DKK309 million. So overall, we are very satisfied with the strong start to our fiscal year. Let's look into the progress that we've made on the different ZOOM IN areas in our strategy. So as usual, we report on these four different areas, and this quarter I'm happy to announce that we have had progress across all four areas. If we start looking at our solutions, the key events that we've had in the quarter has been in our urology business where we both had our ureteroscope aScope 5 approved in Europe end of November. It's still pending in the US. I'll come back to some details on this. And then we had also our aScope 5 Cysto, so our advanced cystoscope receiving European regulatory clearance. When it comes to our focus on excelling in execution, I'm also happy to announce that we continue to be on track on our plan with the transformation program to deliver improved efficiency and scalability. I'll let Henrik later in his presentation, comment on some of the plans and progress that we have in this area of our transformation program. Then looking at sustainability. This continues to be a key focus area for us across the business and we continue both on a corporate general level and also when it comes to our solutions to deliver strong progress, and I'll report on that a little later, where in the quarter that we report on, we set our net zero emission target for 2024 and we also had our short-term SBTi approved. Then the last area is around our people. This continues to be a key focus area and we are continuing to make progress in optimizing how we work within our values of the company that we launched last year. At the same time, it's also a pleasure to announce that we now have our executive leadership team, complete with Henrik joining January 2, and we have announced a few weeks ago that on February 1, we will have Rummana Hasan joining us as the Chief Marketing Director -- Chief Marketing Officer. Sorry. So with that to conclude this, represents solid continued progress across the four areas of our ZOOM IN strategy that we continue to be on track on delivering on. Let's look at some of the different business areas that we are in. Overall for the quarter, we delivered revenue of DKK1,254 billion, which represents a reported 14% growth, 25% in Endoscopy and 1% in Anesthesia and Patient Monitoring. This also means that for the quarter Endoscopy Solutions now represent 60% of the total revenue versus 40% for Anesthesia and Patient Monitoring. If we look into the different business areas, starting with Endoscopy Solutions, again, we grew 25% in this area and continue a quarter-over-quarter growth within Endoscopy Solutions. The growth is mainly driven by progress with our already marketed solutions in single-use market that continues to grow. If we look into the different components, starting with pulmonology, we had solid growth in pulmonology in the quarter but also bearing in mind here that we have relatively low comparables from last year where we were still through the normalization after COVID. Our ENT and urology areas continue solid double-digit growth due to both new customers and expansion of our presence within the existing hospitals that we are in. So overall, a very good momentum in our Endoscopy Solutions business. For Endoscopy, we report on pulmonology and we report on everything else, so excluding pulmonology. If we dive into the Pulmonology segment first, again, 18%, so a solid growth when we compare to the relatively low comparable from last quarter but still a quarter-over-quarter increase compared to the last couple of quarters. Last year, we had the normalization from COVID where we still had inventory in some hospitals that they had bought from the last wave of COVID that they didn't need. And this we are completely through now so we are looking at completely normalized data in this segment. What is also exciting in pulmonology is that we have a strong portfolio that we are continuing to advance. We still have strong progress on our most advanced solution our aScope 5 Broncho. In December, we could report that we had with the Center for Medicare & Medicaid Services, CMS in the US, we had been granted a special additional payment that I'll explain a little bit on later in this call. If we look at one of the factors that partly influenced the pulmonology sales that's flu levels. And just as a snapshot into how the flu season is looking and was looking in the previous quarter. What you see on the graph here is US numbers. The pattern, when we look at European data is quite similar. And what you can see is that if we look across a five year average, the flu levels in the quarter that we just exited were higher than what we have seen over the five years, past years in average. But if we look at last year, so where we're immediately comparing to, we can see that the levels last year was slightly higher. What you also see in the graph is that in the past couple of weeks, we track this on a weekly basis, the numbers have been going down. But again, it's very difficult to predict how will that move from here. In some years, as you can see in the graph, it goes back up and in other years it doesn't. So this is something that we follow and that typically impacts the revenue positively in the Q1 and Q2 of our financial years. If we go back to this status that we got the CMS that I alluded to, let me just explain a little bit what this is about. So CMS has granted as the only bronchoscope, we have been granted this TPT so the transitional pass-through payment. The reason why we have been granted this payment, which is in effect from January 1st this year is basically as CMS referred to, it's based on the evidence that our bronchoscope is a substantial clinical improvement over currently available options. This is very good news for us. It's something that will last at least 24 months, potentially expanded another year, where it basically means that we will, in terms of financials, that for the large part of the procedures being performed, the device cost should be covered by this additional payment by CMS. This is not something that we expect to have immediate financial impact. It's something we expect to see gradually, and it's a little difficult right now to fully estimate the financial impact. But it's something that we're, of course, following closely and we are making sure that this is as broadly known among our customers as possible. Now let's look at the part of our endoscopy business that is not pulmonology. Here, we saw an impressive 34% growth in the quarter and the main growth driver in this segment continues to be our ENT and urology offerings that continue to grow very strongly in quarter-over-quarter. When we look at the quarter, as I mentioned before, we have seen a strengthening of our urology offering with our Cysto high definition for the more advanced procedures and then also with our ureteroscope which received CE mark in Europe end of November. Let's look at the ureteroscope and how we see this new product. Basically, as I said, it was approved in Europe, it's not yet approved in the US. For Ambu, this is the first time that we launched a single-use endoscope into a market where we are not first movers. This is because this market has partly already been starting to transition into single-use. We have a very strong value proposition to our customers in this segment. The image quality is very high for our product that we launched to the customers. We are also launching this as part of our integrated urology platform. So basically with a system that can cater for our ureteroscope and cystoscope combined, and also that integrates on a number of parameters into the hospital systems. And then with our sustainability focus, it's also the first single-use ureteroscope that is made of bioplastic material in the handle. So on the right side on the graph here, what you see is where we are in the launch process. And just to recap one of our launch processes, because what happens when our product has been approved is that we, for the first time are able to test our product in real-life cases and in real-life patients. So this is a process that we refer to as our controlled market release, where we test the technical features and the quality of our product in a number of cases before we proceed into the launch phase. This is also why we refer to the launch phase of our product. That is a period of six months to 12 months that we are right in the middle of and why you should not expect any significant revenue from the urethroscope in this fiscal year '23-'24. So let me finish off by looking at the business area, Anesthesia and Patient Monitoring. In this area, we grew, when we look at organic growth, 1%, reported it was slightly less due to FX impact. The comparison from Q1 last year is slightly higher compared to where we are today due to the fact that we, by end of the last fiscal year, exited 40 markets to reduce complexity and increase focus. In these 40 markets, we had a rough revenue corresponding to DKK20 million, where the vast majority were Anesthesia and Patient Monitoring products. Also, what is a key focus in this business area is improving profitability. This is where we have a very strong focus on pricing, where we in some instances are taking quite significant price increases in order to also improve our profitability, and where we are also prepared to let go of some contracts and volume in some cases in order to strengthen profitability. This is something that we are in the middle of and where we still see a lot of opportunities to drive more price increases in the year that we are through now. Our contracts are typically anywhere from one year to three years. A large part of our business is contracted. So this is something that happens gradually and where once a contract is negotiated, it still takes some months before we have a full overview of the volume impact. So last but not least, before I hand over to Henrik, let me look at the sustainability progress that we have made in the past quarter. Sustainability is a core part of our strategy and something that is a key focus for us in management. This quarter, we not only finalized our plan and our commitment to be net zero emission by 2045, something that is also becoming a requirement for some of the big buyers and big customers. We are also very happy that we got our SBTi targets approved, our short-term targets where we basically have set an ambition for Scope 1 and 2 to reduce our emission by 35% by 2029 to 2030. When we look at our Scope 3 emission, which is a large part of our total emissions, we have set a target of 82% of suppliers to set science-based targets by fiscal year 2026-2027. So an area where we now have complete focus on delivering and progressing. Another key part of our sustainability focus is on our products and packaging and how we can also help our customers to operate more sustainable. We reported in the last quarter on our circular product with the bioplastic that we are on track to roll out and implement on all our endoscopes, which is happening gradually over this fiscal year. Then our focus is also on circular packaging and we are doing different pilots on recycling to also optimize that part. So overall, this concludes my section and I'm pleased to hand over to Henrik to go through our financials.

Henrik Skak Bender: Thank you very much, Britt. Thank you for the warm welcome. I've been with Ambu now for a month and had a chance to meet the organization. I look forward to now present the quarter one results and over the course of the next weeks and months, meet you, investors and analysts. Today, I will start out by talking about the key financials, then I'll talk a little bit about our transformation program and then end with some comments on our guidance. So starting with revenue, as Britt said, we had a very solid Q1, very solid start of the year. Overall revenue of DKK1,254 billion, corresponding to a 14% organic growth partly offset by negative FX effect, leaving us with an 11% overall reported growth. Next to all of the segment updates that Britt provided, looking from a geographical perspective, all of our three major regions grew, both in North America, UK -- North America, Europe and Rest of the World, US in particular, impacted obviously by the negative currency effects as that was mainly a negative effect from the USD DKK development during the year. Still, it's important to say, as Britt also noted when looking at the revenue growth, that we are looking at a comparable Q1 from last year where we had some effects with NHS reordering coming in this year and in particular within the pulmo segment, pulmonology a strong Q1 versus last year also because of a weaker Q1 last year. Looking at margin, we also posted a very solid EBIT margin at 10%, corresponding to a 4 percentage point increase versus last year. The majority of that driven by scale effects on our OpEx. In other words, we had a strong organic growth and managed to still invest in organization but drive a higher scale on our OpEx ratio. I'll come back and comment both on the gross margin and OpEx development on the following slides. Starting with gross margin, a slight increase in gross margin of about 0.4 percentage points, driven by a combination of a favorable product mix having our endoscopy business growing by 25% with a higher margin than our A&PM business growing by 1%, obviously driving up the gross margin. Offsetting that in part both FX effects but also still a higher than planned overhead cost in Mexico, driving down the margin partly, but still a very satisfactory result and a good step on the journey towards increasing our gross margin. Looking at OpEx, our OpEx ratio decreased by 3.6 percentage points, driven by a combination of the higher sales and still a prudent approach to how we manage our cost while investing in more resources into our commercial organization. The OpEx cost will still continue to be a focus area, both on one hand, to ensure that we can drive long-term organic growth, but also on the other hand, to ensure that we can deliver on our ambitions to scale OpEx cost more. In the quarter, we had a slight increase in management and administrative cost, mainly because of higher administrative costs. The rest developed as planned. Turning then to cash flow. As Britt said earlier, we had a strong cash flow for Q1, posted a DKK135 million, positive free cash flow, which is more than DKK300 million, better than the same quarter for last year. This is driven by in part obviously the improved earnings that I described before, but also a continued positive development on net working capital. If we double click on some of the key drivers, our net working capital ratio, which is total net working capital at the end of the quarter divided by the last 12 months rolling revenue, ended at 19%, slightly below our expectation level of around 20% that we have earlier communicated, and we are expecting to see a little bit of increase also relatively speaking in the quarters to come. So this is also driven by some one-off effects with slightly lower inventory, slightly lower AR than we would normally see. Next to that, our free cash flow was also positively impacted by lower CapEx ratio of revenue at 4%. Again, this is more timing. We're expecting this to pick up in the coming quarters, but with some of our key development projects only really starting up and scaling up now, it ended lower in the first quarter. So all in all, a very satisfactory development on our revenue line, on our margin, and in particular also on our cash flow. With that, let me turn a little bit to the transformation program. We've communicated earlier, back 1.5 years ago, initially when launching the ZOOM IN strategy, that there was initial phase of scoping, then a phase of quick wins, and then a phase running from this year and onwards, on building the foundation for the future. I'm happy to say overall that with what I've seen, I think a lot of great things have been done already. Still, I think from my perspective and from the management perspective, we have more to do on quick wins and therefore, we will still continue to initiate on quick wins for this year and driving up towards summer, while initiating the work that is required to build the foundation for the future. Speaking about the foundation for the future and coming back to our longer-term guidance, having been part of Ambu for a month now, I'm happy to confirm that we believe still in the long-term guidance and the potential of over time driving a 10% organic growth CAGR and driving towards a 20% EBIT margin with potential trade-offs in potential growth investments over time. We've talked a lot about growth and Britt has already mentioned some of them, so I will focus more now on some of the drivers for improved margin. We are still seeing a potential for driving a higher gross margin through better pricing. We talked about pricing in Anesthesia and Patient Monitoring, but also in our manufacturing and distribution footprint, we see potential for further improvements. Even more so, we see potential within our OpEx, but balancing it against on one hand investing in our commercial organization to drive organic growth, which will be a key focus also going forward, while really ensuring that we work more efficiently globally as one Ambu to drive growth while also increasing the margin. I, we are optimistic that we can still deliver on these going forward. And then lastly, let me comment on the guidance. We are maintaining our financial guidance for this financial year, i.e., a revenue growth -- organic growth in a range of 7% to 10%, an EBIT margin of 8% to 10%, and a free cash flow of DKK270 million plus. With a strong Q1 behind us, obviously, we are happy with how we've started the year, but still maintaining the guidance as we still continue to see some risks in terms of how the momentum will continue for the rest of the year, particularly on revenue. And therefore we are leaving the guidance unchanged, though still on a solid Q1. With that, I thank you for your attention and hand over for questions. So, handing over back to the operator.

Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Rickard Anderkrans from Handelsbanken. Please go ahead.

Rickard Anderkrans: All right. Good day, and thank you for taking my questions. So, first of all, on the quarter, could you please help us quantify the impact of the NHS reordering here in Q1, just so we get a sense of the tailwind from that one in Q1? Thank you.

Britt Jensen: So I can take that very briefly. So basically, we don't communicate on detailed customer revenue specifically, but we did have last year because NHS had a quite significant inventory, we were seeing a very low demand from NHS, where NHS are now back fully to a regular order pattern, where it's spread over, I mean, quarter-over-quarter. So what you saw a couple of years ago with a big spike, this is not what we are seeing anymore. It's more, I mean, regular corresponding to demand buying pattern that we see from NHS. So that has more normalized compared to what we saw during COVID.

Rickard Anderkrans: All right. Thank you. That's helpful. And just following up on Henrik's last comment here, you mentioned that even though you had a very strong Q1 on the growth compared to your outlook for the full year, you still sort of added the commentary that you see some risks and I guess some downsides to the momentum we saw here in Q1. Maybe if you could elaborate a bit more on those risks and, yeah, give us some more details on what the moving parts you're thinking about in particular. Thank you.

Britt Jensen: Thanks for that. And I think I'll let you do that, Henrik.

Henrik Skak Bender: I'll be happy to comment on that, Rickard. So I think we mainly see two areas of risks of potentially slowing down momentum. On one hand, as Britt also explained, within pulmonology, we've seen a very strong start of the year, in part because of this reordering pattern. We expect that to continue into the next quarter here, Q2, but might taper off in Q3 and Q4. So that's one specific area. The other specific area is within our Anesthesia and Patient Monitoring business, where, as Britt also mentioned, we are implementing price increases. This is happening gradually, and so far we are happy to see that we're seeing fewer volume losses than we expected. But with this gradual price increase still happening, we still see some risks that these volume losses might pick up. And therefore, the combination of these two things means that we keep our guidance as it is.

Rickard Anderkrans: All right. That's clear. Just a quick follow-up, if I could. Could you please quantify the price increases and sort of gross margin improvement in the core business, Anesthesia and Patient Monitoring now, after following these initiatives would be helpful to get some insights on the gross margin uplift and any quantification on the price there.

Henrik Skak Bender: I'm happy to take that also. So we don't go in details on the gross margin impact of it, but to give you a sense of the price increases, on an overall level, obviously, this is a mix of price increases on the individual contracts, on the country, and on the segment. We're seeing a solid single-digit growth in prices on a by-region level, netted out by then some of the volume losses we also described before. So I think the honest answer, we will only see the net effect of where we are and the continuous momentum when we're through the next two quarters, because then we will really see what will be the continuous buying pattern post having implementing these price increases.

Rickard Anderkrans: All right. Thank you for taking my questions.

Britt Jensen: Thank you.

Operator: Our next question comes from Christian Ryom from Danske Bank. Please go ahead.

Christian Ryom: Yes. Good morning, and thank you for taking my questions. I have a couple as well. The first one is on the aScope 5 Broncho, and whether you can talk a bit to how important that has been in the sequential growth development that we're seeing here from Q4 to Q1, I think revenues in the Endoscope Solutions business up by DKK25 million, or about 3%. To what extent that's being driven by new products or whether it's the existing portfolio? And then the second question I have is to the gross margin outlook and say, the main push and pulls we should be aware of for the next quarters relative to where you are here in Q1. Thank you.

Britt Jensen: Yeah. Thanks, Christian. I'll take the first one and hand over to Henrik for the second one. So we don't disclose the split between, I mean, the different components of our pulmonology revenue, as you know. But what I can say is that we have a good mix of growth in aScope 4 and aScope 5. So aScope 4, as you know, the comparables were also lower, but we see a good demand, partly also from the flu season that is picking up. And then when we look at aScope 5 in general, I mean, we are entering a new segment, the bronch suites with our aScope 5 that has been a process of establishing relationships into the suite. We are seeing good momentum in that and we're continuing to see a nice growth also of new customers and the pipeline looking promising. We're also seeing some demand in the ICU and OR where this was not originally positioned. So in general, we have quite a high comfort level between our aScope 5, but it's still a gradual improvement. So the split in the growth is between that and our aScope 4.

Christian Ryom: Okay. Thank you. [Multiple Speakers]

Henrik Skak Bender: Yeah, I’m happy to comment on the gross margin outlook, Christian. I think, as you know, we don't guide on gross margin, so I will not comment on the specific percentage levels, but just repeat what we communicated on Q1, being that the major driver behind this is really product mix. So this will be very much driven by how much will we continue to see growth in our Endoscopy Solutions and in particular, as Britt just explained, within pulmonology versus how much will our Anesthesia and Patient Monitoring business continue to grow. And that, we expect will be the main driver for either a uptick or downtick on gross margin for the rest of the year.

Christian Ryom: Okay. Thank you.

Operator: Our next question comes from Niels Granholm Leth from Carnegie. Please go ahead.

Niels Granholm Leth: Thank you for taking my questions. Henrik, welcome to Ambu. And perhaps you could provide us with a few examples of the quick wins that you talked about right before. And could you also just explain what you mean by potential trade-offs with growth investments that you also mentioned when you look at the strategy towards 2028? Thank you.

Henrik Skak Bender: Sure. Happy to, and thank you for the welcome. So let me start with the quick wins. I think there are a number of things that have been communicated already that we are still in execution mode on. I think the two major ones I will highlight is pricing. We highlighted it for Anesthesia and Patient Monitoring in particular, where prices are still being implemented and gradually implemented in the contracts. We still see more potential. And coming in from the outside, I certainly also still see more potential, and that's something we are going to work on both for this year, but also for the coming years. I think the other thing I will highlight is really this point of scale in OpEx where a number of initiatives, I will not go in details now, but are already in motion, both in ensuring we drive the right OpEx ratio short-term, but also in ensuring we laid the foundation for the future scale effects that we have as part of the plan and part of the long-term guidance. So really a continuation, and I would say in particular pricing as a key initiative as a concrete example. Next to that, you can also say one of the things we have done in the business that are now completed, just to mention one of the things that we're done with, you could say is that with the review that was undertaken on our distributor markets where we exited 40 markets that is now completed and as such behind us, obviously not in the comparison numbers, but in terms of how we've implemented it in the organization. Looking ahead and referring to the potential trade-offs, what I specifically was alluding to is that there will be a couple of considerations for long-term guidance in terms of our investments in the commercial organization. And that's also back to my comment on the -- of the full-year guidance for this year. We do see a need to continue to invest in our commercial organization and there is a ramp-up time from when you hire a person today, start delivering results. So that will mean that there will be gradual investments in absolute terms, particular on our commercial organization that we will need to do. Other long-term potential trade-offs is mainly if we along the way see potential growth opportunities in terms of investments to secure absolute EBIT improvement, something we also communicated at our Capital Market Day, and therefore it's more a matter of what will be the timing of such potential opportunities. It's still way too early days to be concrete on this, but that is specifically what I referred to.

Britt Jensen: Yeah. And maybe I can also add to that one, because this was also how we presented our long-term guidance at the Capital Market Day to highlight that around the 20% EBIT margin is where we believe that we as a company should be and what we should aim for. At the same time, because growth is our number one priority, because we are making our way into creating a new single-use endoscopy category, we wanted to make sure that we don't lock ourselves into delivering on a 20% margin if there are obvious growth opportunities that when we come to year five, can help us further accelerate growth in year six and year seven. So that's also part of the reason why we have this caveat that we are putting in. And then we have clear internal plans that we are tracking well against in how we in the five-year period will reach the 20%, which again, this is where we believe we need to be. But we are a growth company and we want to give ourselves flexibility to invest, which is also, or should also be in the interest of our creating shareholder value.

Niels Granholm Leth: Great. Thank you. And then just lastly, your R&D CapEx was unusually low in this quarter. Is this supposed to continue for the coming quarters?

Henrik Skak Bender: So I'm happy to comment. So I think the short answer is no, as I briefly comment. And then this was mainly driven by slower ramp-up of certain products and product development initiatives. So we are expecting this to trade up again towards the historical levels of more like 7% than -- or 6% to 7% than the 4% we had in the quarter.

Britt Jensen: And I think maybe also worth noting here that we invest mainly in R&D in the endoscopy area. And given that's well now around 60% of our revenue in the quarter, that also means that if you look at our R&D investments as a percentage of the endoscopy revenue, we are well above the 10%. So that also means that we are still quite confident in that we are investing into new innovation, which we also believe we should continue to do. But I agree with Henrik around that level of 7% is where we right now believe is the right place to be.

Niels Granholm Leth: Thank you.

Operator: Our next question comes from David Adlington from J.P. Morgan. Please go ahead.

David Adlington: Hey, guys. Thanks for taking the questions. Just one on freight, please. I just wondered how much freight was a tailwind possibly in the quarter to margins, and also how you think about freight rates evolving from here. Thank you.

Britt Jensen: Yes.

Henrik Skak Bender: I'm happy to take that. So freightways being a potential headwind or tailwind, I think two comments. One, of course, with the situation in Red Sea, there is increases on freight costs like-for-like, and that we are also seeing in the numbers. That said, as you will also see, our selling and distribution costs are actually down versus last year because we have had an explicit focus on a change in our distribution setup with more sea freight and less air freight. So in net-net, we're actually in absolute terms down on distribution costs versus last year and this moment. It's obviously something we are keeping a very close eye on also for the future and some of the areas where we might see a little bit of risk, also for the rest of the year with potential higher distribution costs given the world situation.

David Adlington: Are you able to quantify the potential headwinds in the rest of the year?

Henrik Skak Bender: We don't quantify that.

Britt Jensen: But you can say, of course, the setup we have now, where we are still ramping up in Mexico and where we from Mexico are supplying our US market, which is roughly half of the revenue. You can say that's of course where we then are less affected. And then, I mean, it's primarily Malaysia and then also China where we are supplying to Europe. That's of course the part that is the most affected.

David Adlington: Thank you.

Operator: [Operator Instructions] Our next question comes from Yiwei Zhou from SEB. Please go ahead.

Yiwei Zhou: Hi. It's Yiwei from SEB. Thank you for taking my question. I have three and I will take one at a time. First question is a follow-up on the aScope 5. Britt, you previously mentioned it has been the best launch in pulmonology. Could you comment if you see the pattern has continued?

Britt Jensen: Yeah. I mean, think we continue both when we look, I mean, at the continuous, I mean, acquisition of new customers and the growing revenue we have within, I mean, at the customer sites that we are at combined also with the pipeline. I think we are quite pleased about the traction and how we are moving forward. It's also very clear that we continue to have a very strong value proposition. I mean, we -- late in the last financial year we had the full complete range of all the different sizes approved. So that has of course also been something that we, I mean, that we are starting to see some increased interest from, as some customers were waiting for the full offering to start buying. So we are quite confident moving into this fiscal year and as we look ahead that this is continuing to have solid growth.

Yiwei Zhou: Great. And can I just also follow up on this in relation to NHS order? NHS has been a big acquirer of the aScope 4 and other pulmonology products. And could you say if aScope 5 Broncho has also been included in this order now?

Britt Jensen: We are not commenting on the specific products that specific customers are buying. But as I also said before, in general, also when it comes to pulmonology, I mean, we had the huge swings with NHS where they bought a huge amount that was on inventory and that has completely been cleared out now. So we are back to the normalized ordering pattern where we also have, I mean, compared to pre-COVID, a much more, I mean, spread over the quarters where they buy more in relation to the demand that they have, rather than that they sit on large inventories which was more the pattern of the past. But I cannot comment on the split of aScope 4 and aScope 5 on a specific customer.

Yiwei Zhou: Okay. Fair enough. And my next question is on the cash flow, maybe question to Henrik. Henrik also, welcome to you. So Q1, you already generated DKK135 million and it's already 50% of your free cash flow guidance. And you still have three quarters here. Is there any cost headwinds for you to generate less free cash flow in the coming quarters? You probably have mentioned the investment in the R&D will increase. Is there any other headwinds we should account for?

Henrik Skak Bender: Good question and fair given our strong start. So just reminding us all the guidance is plus DKK270 million. I think there are two main drivers behind why we are not changing the guidance there. One is, as you mentioned yourself, CapEx was low relative to revenue for the first quarter. As we said, we are expecting that to pick up and us for the full year and closer to what we have been historically with a disproportionate higher investment in endoscopy versus A&PM. So that's one driver. I think the other driver, which in absolute terms are probably even bigger here, is net working capital. So as I said in my update, both inventory levels were lower after Q1, and specifically our AR levels were lower than usual. And we are expecting those to move a bit more back towards the historical level of around a 20% versus our 12 months rolling revenue. So on both these two items, we expect over the next quarters to see a gradual move back and that will have a negative in those quarters cash flow effect. So that's why we are keeping the guidance.

Yiwei Zhou: Great. Very clear. Thank you. And my last question is on OpEx to sales ratio. I noticed there's been around 49% of sales over the three quarters, last three quarters. Is it possible to provide a guidance, [indiscernible] guidance for the coming quarters?

Henrik Skak Bender: We don't provide guidance on OpEx percentage levels. So I think the only thing I will comment is to say if we look at it long-term, as I showed on our long-term guidance, we are expecting to continue to see scale effects on OpEx and a gradual move further down to drive the increased EBIT margin target of reaching the 20% that we believe is the right level for Ambu in the long-term.

Yiwei Zhou: Okay. I'll jump back to queue. Thank you very much.

Henrik Skak Bender: Thank you.

Operator: We have a follow-up question from Niels Granholm from Carnegie. Please go ahead.

Niels Granholm Leth: Great. Thank you for this. Could you talk about if your volume growth in number of endoscopes shipped in the quarter was higher or in line with the organic growth recorded for the Endoscopy Solutions division? And then secondly, when it comes to your ureteroscope, there are already a couple of scopes on the market on TPT. Would you be able to utilize the same TPT code when your ureteroscope is cleared on the US market? And in connection with your ureteroscope launch, in the -- you would obviously have a broader assortment within urology. Would you expect a response from some of the bigger players in ureteroscopy, Boston, Steris, et cetera, to go into cystoscopy? Thank you.

Britt Jensen: Yeah, I think I can comment on this. So first of all, we don't provide -- I mean, I know we did in the past, but because that also caused a lot of confusion, we don't provide volume numbers on the different endoscopes also. Because, again, as you are well aware of the different values of the different scopes. So I cannot comment on the details on this. Then on this TPT code and your questions on urology. So we believe that we should be able to apply this TPT code when we have our ureteroscope approved. That's at least where we have some evidence and confirmation right now. So I think it's something that we are, of course, very excited about and believe we can leverage a little uncertain about the revenue impact. When it then comes to, I mean, the question on the cystoscope and what we expect. So if we look at the Ureteroscope segment, basically there are two main players in that segment that has a meaningful share today when we talk ureteroscopy, and that's Boston Scientific, and it's a Chinese player, [Pewson] (ph). What we do, and the dynamics are slightly different in US and Europe, where Boston has a significantly larger share in US and Pewson has a very limited share in US. And then it's a little the other way around in Europe. When we look at the cystoscopy, it's very clear. I mean, we were again here, the first with a cystoscope. We do see activity from some Chinese players to enter this market. We also saw an announcement last week that we are looking into where Boston made a collaboration with an Asian company on a cystoscope. We have very little information on that right now, as it only came out a couple of days ago. But I think for us, I mean, it's back to the point that, yes, I mean, we have come in and created an attractive, high-growing single-use category also here with our cystoscope. So, as we see in pulmonology, we are prepared, and we do expect competition also coming into this segment. I think we very much believe that our combination of having a strong value proposition with the cystoscope and ureteroscope being used on the same system being attractive. And this is for everything we see now, not the case with the collaboration that Boston has, because it's a very different supplier. So, in general, we are, of course, doing what we can never to underestimate competition, but at the same time, also build on the stronghold that we have in the market and again, continue to improve and expand our offering.

Niels Granholm Leth: Great. Thank you.

Operator: Ladies and gentlemen, this was our last question.

Britt Jensen: Thank you. Then I'd like to thank everyone for joining the call this morning. Thanks a lot for great questions, and have a good rest of day.

Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus call and thank you for participating in the conference. You may now disconnect your lines. Good bye.