U.S. Markets open in 3 hrs 20 mins

Edited Transcript of AMBU B.CO earnings conference call or presentation 22-Aug-19 8:00am GMT

Q3 2019 Ambu A/S Earnings Call

Ballerup Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Ambu A/S earnings conference call or presentation Thursday, August 22, 2019 at 8:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Juan-José Gonzalez

Ambu A/S - President & CEO

* Michael Højgaard

Ambu A/S - CFO, Executive VP of Global Finance, IT & IR and Member of Executive Board

* Nicolai Thomsen

Ambu A/S - IR Manager

================================================================================

Conference Call Participants

================================================================================

* Christian Sørup Ryom

Nordea Markets, Research Division - Senior Analyst

* Craig Mcdowell

JP Morgan Chase & Co, Research Division - Analyst

* Niels Granholm-Leth

Carnegie Investment Bank AB, Research Division - Co-head of Research of Denmark & Financial Analyst

* Peter Testa

One Investments S.A.G.L. - Analyst

* Thomas Schultz Bowers

Danske Bank Markets Equity Research - Analyst

* Vikram Kumar;Kuvari Partners;Chief Investment Officer

* Yiwei Zhou

SEB, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, welcome to the Ambu Q3 interim report 2018-'19. (Operator Instructions) Today, I am pleased to present Nicolai Thomsen. Please begin your meeting.

--------------------------------------------------------------------------------

Nicolai Thomsen, Ambu A/S - IR Manager [2]

--------------------------------------------------------------------------------

Thank you. Good morning, everyone, and welcome to the conference call for Ambu's Q3 2018 and '19 report. My name is Nicolai, and I am from the Investor Relations team. With me today here at the Ambu head office in Copenhagen, I have our new CEO, Juan-José Gonzalez; and our CFO, Michael Højgaard.

As you probably noticed, we, late night, sent out a company announcement regarding a decision to go 100% direct in the U.S. This is something that we have worked on for some time, and we are happy to finally have reached an agreement with the U.S. pulmonary distributor.

The agenda for this conference call is that we will go through a presentation, where we also will provide a business and financial update from our Q3. And furthermore, we will provide further strategic insights of the decision to go 100% direct in the U.S. You can follow the presentation live, and we have our Q&A session and the investor presentation. (Operator Instructions)

Now Juan-José Gonzalez, we're looking forward to having you here. A warm welcome to you.

--------------------------------------------------------------------------------

Juan-José Gonzalez, Ambu A/S - President & CEO [3]

--------------------------------------------------------------------------------

Thank you very much, Nicolai. Hello, everyone. I think I know most of you but certainly not all of you. This is my 100th day as the CEO and my first quarterly earnings call. It is really a pleasure to be here.

I -- for the ones that don't know me, I used to work for Johnson & Johnson. I worked operations for their Orthopaedics business, both in the U.S. and Europe, Middle East and Africa. I ran consumer businesses before. I used to work for McKinsey & Company and Procter & Gamble. I live and work across many countries around the world, and it's only a pleasure that I'm here in Denmark now.

Let me just start by giving you some reflections in terms of my first 100 days, and we are going to talk about the strategy and the financials. We have an exciting major investment to share with you today. But the most important thing about my first 100 days is my insights on the organization and the quality of our talent. I have had a chance to visit pretty much all markets that account for 90% of our sales. I've been in Italy, and I've been in Spain. I've been in the U.S., and I've been in Germany. I've had a chance to look at our plans for emerging markets and for Asia Pacific. I had a chance to look at our supply chain. And of course, I spent time with our R&D organization. And they all come from different backgrounds and countries, and they have different objectives, but they all share the same values and aspirations, which is to make Ambu one of the largest European medical device companies.

It's always difficult in financials and discussions of the strategy to really convey what makes Ambu a different company. But I have to say it is our talent and the quality of our organization and our history and our values. And I wanted to start our earnings call by expressing that.

Now one very big guide -- one very big insight for me is the acceleration of the trend, the movement from reusable to single-use. And I know a lot has been said regarding the benefits of single-use in terms of contamination. And it is true that this technology eliminates all risk of contamination. So if you are a patient with a compromised immune system, if you happen to have diabetes or are going through a cancer treatment, this is certainly the best option for you.

But what I have learned, and I think it's very clear as we enter into new markets, is that this is not just about contamination. This is about convenience and availability. This is about making sure that you have the ability to do endoscopy whenever and wherever you want to do it. This is also about economics. There is more and more studies that show the full course of reusable scopes and how single-use, in many cases, is actually more advantageous. That's why we believe that as we improve the technology, as we invest in innovation, as our camera and image resolution, as we're building artificial intelligence, as we make our single-use performance much better, all the benefits in terms of contamination, in terms of convenience and in terms of economics, we'll make the shift from reusable to single-use to accelerate. And that's what is the most exciting thing for us. This represents one of the biggest shifts within the medical device sector.

Now of course, the question is who is going to win as part of this shift? Who is going to emerge as main players within the single-use landscape? And when you look at that, I would say there are very few companies that have the competitive advantage that we have.

First of all, we have been in the single-use business for over 10 years now. We have a major infrastructure in R&D and innovation. We have 150 engineers internally. We have another 100 engineers working for technology companies in exclusive relationship with us. That basically means that we have the largest R&D organization in single-use. That basically means that we have the ability to develop multiple scopes at the same time. And more importantly, as we continue to invest and remain committed to innovation, that infrastructure will expand. We expect to have a cadence of innovation that is going to be very difficult for any other company to match.

And it is not only about that. As we enter into more segments, there is a positive effect when we go to a health care system in Germany or in the U.K. and we present ourselves to -- with offerings in pulmonology and ENT and urology and GI. We know that hospitals are looking for a few strategic partners. And in single-use, the fact that we will be the only ones that have the ability to provide that across multiple markets in endoscopy is a competitive advantage.

But it's not only that. We also have a high-quality, low-cost production center in Malaysia. That allows us not only to introduce advanced products but to do it at price points that are very difficult to match. We are able to do it at price points that actually accelerate the transition from reusable to single-use. ENT is a very good example of our ability to launch at very competitive prices and still enjoy high levels of profitability.

But it is not only that. We also have a dedicated sales force. And with the announcement today, that will be even more the case. The sale of single-use is a complex sell. It's not an easy one. You have to align not only the procurement office, but also the surgeon, also the processing department and the cleaning department. And that's why it's very difficult for a company to be able to get traction in single-use if they have a sales force that are selling many other products or they have a network of distributors. We believe, and that's basically what we have planned, is that in every market, a direct model outperforms a nondedicated one.

So it's a combination of our experience, of our R&D and innovation, of our broad portfolio offering, of our low-cost manufacturing and our dedicated sales force organization what make us very convinced that we are going to be one of the leading pure players in single-use endoscopy. And you don't need to believe that much to realize what does it mean for a company like Ambu. I get a lot of questions regarding what will be the size of Ambu. And I always go back to this point. Just 1 point of global market share doubles our Visualization business. And as you can imagine, we have a plan to gain more than 1 point. And that's why you hear us saying that we are on our way to be one of the largest European medical device companies, that as long as we invest on these competitive advantages, we will do very well.

Now in our last communication, I talked about what will be that 4 key priorities for next year. I talked about doubling our investments in terms of innovation. I spoke about our globalization and making sure that we have the best commercial infrastructure to get ready for all this innovation. We talked about enhancing our advantage in supply chain, around building commercial capabilities in terms of health care economics and clinical evidence and account management. And also, you heard me talking about talent and culture, around building our organizations, bringing new talent, especially talent with significant expertise in visualization. That is the agenda. All of our announcements and our initiatives are aligned with this agenda.

And if we start for innovation, let me just remind what will happen over the next 3 years. We are basically going to see a dramatic expansion and volume from pulmonology into ENT, into urology, into GI and basically take Ambu from a market of 3 million to 5 million to a market of 100 million. It is the most rapid expansion that a medical device company has experienced.

Now of course, we have been very successful in pulmonology. And the key question is, will the single-use concept have the same receptivity in other markets? So ENT was a very important test for us. If you look at ENT, the risk of contamination is much lower. There is still an issue of contamination, but that's not the main driver. This is a market 3 to 4x the size of pulmonology, and things like convenience and availability and economics, because of the higher volume, actually plays more of a factor. And we are just starting. I would say, it's very early results. But as you can see, if you compare when we entered into pulmonology with aScope 3 versus the speed that we are entering with ENT is significantly faster. It reflects that the market is larger. It reflects that we have better technology. It reflects that we also have more experience in terms of what it takes to introduce a single-use concept. But it also reflects how hospitals and surgeons see the single-use concept, see their value and embrace it. It's a very exciting start. And of course, we are going to see how we are doing. In a market like the U.S., to have 14 of the top 100 hospitals already buying ENT in the first week of launch, it does also show the speed of adoption. So overall, it's a very exciting start.

Now for any company to enter into a market which is 3 to 4x bigger and see this rapid uptake will be enough. But actually, that's not our agenda. If you look at our pipeline, next year, we are not only going to be building on ENT, we are going to enter into urology, a market which is also a significant size. Together with Cook Medical, we are going to enter into duodenoscopy. We are going to bring advanced technology and image resolution for our pulmonology business. It's going to be a very exciting agenda.

And by the way, it just reflects our strength in terms of innovation. Because every quarter, you will see us bringing new products and announcing new launches that will ensure that in every segment that we compete, we not only have one product but that we have a complete portfolio.

Now in the case of urology and our aView Advance monitor, we are on track for the launch, and we are going through all the key milestones that we need to be able to bring these products to life. But I know there is a lot of questions regarding duodenoscopy, and rightly so, because it's our first segment into GI. And GI is the largest opportunity that we have as a company. So we thought that we'll take a moment to give you a bit more details in terms of where we are.

So first of all, the project is on track. We have completed a number of functional tests that confirm that we have an optimal design. We have had several meetings together with Cook, with our KOLs, with their KOLs, testing and evaluating the product together. Tests are actually being done in models and animals in vivo in line with the regulated requirements. But in parallel, we are actually doing cadaver tests to validate the human anatomy. Actually, this week, we have our R&D team in the U.S., in hospitals going through the cadaver tests. And not only that, as soon as we get the FDA approval, we will also do human studies before the launch. Our objective is to make sure that our technology and approach is fully validated before we enter into the U.S. before September 2020. It is a launch that we and Cook are very confident is going to be very competitive. And it's going to be a good example that not only pulmonology and not only in ENT but also in GI, there is a role for single-use endoscopy.

Now as you can imagine, with all of this innovation, it has an implication in terms of our commercial infrastructure. They had [to give a way] to make sure that we have the right sales force in place across all of our key markets to make the best of all of this innovation. And that's, at the core, the announcement of today. And let me just give you a little bit of context.

In 2015, Ambu established a relationship with a distributor for the U.S. In 2015, we had a small U.S. organization, and it was important to get a distributor to help us get more coverage and reach. And since then, we have had a very productive relationship with them. They proved to be an effective and collaborative partner.

But one change that took place was that in 2017, we decided to start building a direct force, a dedicated sales force. So basically, the U.S. was [splitted] into -- the U.S. hospitals were splitted into 2 groups. 60% were under the direct force and 40% were under the distributor. That's around 1,300 accounts. And basically, what we have seen is that our direct force, every quarter since we went direct, outperformed the distributor and was growing 10% to 20% faster than -- 10% to 20% faster than them. And that represents a significant opportunity.

Now if you look at the strategic rationale, it's not just a matter of superior performance. There are very important considerations for us to do the change. Number one, the U.S. health care market is consolidating very rapidly. And you see the emergence of large IDNs and health care systems. And as these groups consolidate, it's very difficult to maintain a setup where some of the hospitals are direct and some of the hospitals are served through a distributor.

Now also what we have seen, especially since we launched into ENT, is the significant value of cross-selling. In our direct territories, our pulmonology reps have been able to leverage our relationships and presence in the hospitals to the right ENT, and they are able to do it faster than in the territories where we have a distributor.

Now we also have realized that when you have a direct model, you are able to penetrate GPOs and IDNs much faster. If you look at our time to launch for ENT, our direct territories move at a much faster pace than our distributors. And of course, it brings a lot of benefits in terms of combination for health care economics, clinical evidence and training.

So when you look at the superior performance, when you look at how the U.S. market is changing, when you look at the opportunity to cross-sell into ENT and Broncho suite and urology, when you look at the speed of penetration when you introduce an innovation, all those reasons basically indicate that the best thing we can do to get ready ahead of all these launches is to create a 100% dedicated sales force in what is our biggest market.

So we have a transition plan. We have a collaborative agreement with the distributor to transition these accounts. And by doing that, basically, our Visualization business will be under a direct model globally in 95% of our business, basically means that we will have a competitive advantage that no other single-use company has.

And of course, this is a major bet in the U.S., and it is a transformational bet. If you look at the number of reps and clinical consultants, that basically means that we are tripling in size. But it's not only just about that. We are also expanding our corporate account teams. We are also expanding our health care economics team, our marketing team to make sure that we have all the right skills and capabilities to penetrate GPOs and IDNs faster. As part of this, it will allow us to have dedicated sales support resources for Cook Medical to make sure that, that launch is also successful.

Now the U.S. accounts for more than half of our global sales and over the last quarter has been our #1 growth engine. But we achieved all of that with 40% of accounts under a distributor that was growing at a slower rate. That's why we are convinced that this is strategically and financially so attractive. So when you look at the return over this investment, the 3 basic assumptions are: We can, as we go direct, improve our selling price and contribution margin. In pulmonology, we can further penetrate the distributor accounts faster. We can enter into the Broncho suite faster. And we can cross-sell into ENT and the new segments more effectively.

Now from a cost point of view, basically, what we were paying to the distributor is going to go into the further expansion of our direct organization. So it's going to be neutral. But if you look at this, the investment to move to a 100% direct model is financially and strategically very attractive for Ambu. It basically means that we will be able to generate incremental accumulated sales of DKK 500 million over the next 5 years. It is an important day today that is one that reflects our confidence regarding our ability to bring our innovation to market, our confidence regarding the attractiveness of the single-use confidence -- or the single-use endoscopy and our confidence regarding what our direct sales force in the U.S. is going to be able to do.

Now it's not just about innovation and a commercial organization. We are also organizing ourselves to get ready for this expansion, whether you look at our marketing organization or adding the local organizations, where you look at health care economics or clinical evidence, we are basically organizing in verticals to make sure that there is clear focus behind our core business in Anaesthesia and Patient Monitoring and there is a clear focus behind our Visualization business. And within Visualization, that we have all the expertise we need in pulmonology and ENT and urology and GI.

As part of that, we are bringing talent from across the medical devices space. I have to say, for us, it's very encouraging when we see people from Boston Scientific and Olympus and PENTAX that actually come and join Ambu because they know the endoscopy space, and they know that there are some trends that can be stopped, there are some trends that are coming very fast. And one of the best things they can do for their careers is to join and help us to build what we believe will be the future of endoscopy.

So this is what I wanted to share with you in terms of the strategy. Hopefully, you realize this reflects the conviction of the leadership team and every employee in Ambu behind what we can do as a company.

Now this has some financial implications, and I'm going to pass it to Michael, our CFO, to give you a sense in terms of what does it mean.

--------------------------------------------------------------------------------

Michael Højgaard, Ambu A/S - CFO, Executive VP of Global Finance, IT & IR and Member of Executive Board [4]

--------------------------------------------------------------------------------

Thank you, Juan-José. Let me spend a few minutes going through our financial results and the outlook. In Q3, we had an organic growth of 10%. Our core business grew 1%, while our Visualization business grew 30%. The low core growth should be seen in relation to a strong first half, and this clearly illustrates the fluctuations we have quarter-by-quarter. Year-to-date, core business is up with 4%, which is at a satisfactory level.

Sales of single-use endoscopes in Q3 totaled 195,000 units, and that was 33% up relative to last year. Year-to-date, we have sold 525,000 units.

Our gross margin for the quarter was 56.4%. And adjusted for the write-downs that relate to the SC210, the margin was on par with Q3 last year of 59.6%. The EBIT margin before special items came out at 20.1%. And if -- and adjusted for one-offs, it ended at 22.1%.

Now let me go deeper into the sales highlights for the quarter. Overall, it's the Visualization business that contributes the bulk part of the growth. And geographically, 2/3 of the growth comes from the U.S. We have some tailwinds measured in DKK, where the growth end at 15% due to currency and the effects from the changed accounting standards for GPO fees. This is in line with previous quarters.

Measured in value, the picture is the same. It's the Visualization business in the U.S. that drives the value creation. This is an important observation, considering the significant investment we've just made in our commercial infrastructures in the U.S. The changes that we have announced today with regard to transitioning the distributor in the U.S. and the change in pricing policies will have significant impact to our growth in Q4, and I'll be coming back to this later in my presentation. However, the overall impact the changes would have were they cascaded backwards are not significant for neither Q3 this year nor the full financial year 2017-'18 as the effects to the organic growth, if we calculate it under these assumptions, would have been nil.

Now let me turn to the growth by geographies. North America grew 15%, and the sales momentum continued to be strong for Visualization in America, with 49%, while Anaesthesia and PMD was slow due to timing differences in purchase patterns.

Europe showed an organic growth of 5%. As regards to single-use endoscopes, the markets in Northern Europe are more mature than in the southern part of Europe. Therefore, we see higher penetration and lower growth in the Nordics, the U.K., Germany and France, whereas we see lower penetration and higher growth in Southern Europe. Organic growth in Rest of World came at 9%, and especially, the Core business performed very well.

In Q2, we started to obtain the price codes which are necessary for sale of endoscopes in China. And in Q3, we have seen good growth, albeit from low initial volumes. In Australia, the growth of Visualization reflects the fact that this market is more mature, whilst the growth in Anaesthesia has been strong.

Now we will move from the Q3 sales highlights for a more detailed financial update. The gross margin for Q3 was 56.4%, including the one-off write-downs. Comparable gross margin before these write-downs was 59.6%, which is on par with last year. The discontinuation of the SC210 does not trigger any impairment of technologies as we did not allocate value to the SC210 but rather to the aScope Colon.

Total capacity costs for the quarter were DKK 281 million and are thus up 12%, which reflects the continued investment made in the sales organization, the recognition of the GPO fees as well as a release of accruals regarding management long-term incentives due to the adjustment of the long-term financial guidance back in June.

EBIT before special items for Q3 came in at DKK 155 million, and the margin before special items was 20.1%. The reason for the increasing financial items are the adjustment made to the fair value of contingent earn-out payments relating back to the acquisition of Invendo.

To achieve the minimum threshold, the earn-out accumulated revenue from the sale of GI products in the period October '17 to October '21, it must be EUR 75 million. Based on the latest estimate, this revenue is not going to be achieved and the contingent earnout payment is therefore now valued at nil, which has led to a noncash financial income of DKK 187 million in this quarter. A net profit of DKK 216 million was the [asset] posted for the quarter.

Cash flow from operating activities totaled DKK 225 million for the quarter and DKK 381 million year-to-date. The last fluctuation between the quarters in H1 and H2 are in line with expectations, including the cash flow impact from transitioning the distributor that will happen in Q4. For the full year, total investments of approximately DKK 0.25 billion, million -- DKK 0.25 billion are expected, of which development costs will constitute about 70%.

When looking into the R&D spending, cash impacts from OpEx must be added, which, on a full year basis, our estimates should be around DKK 60 million and unchanged compared to last year. The increase in R&D activities relates entirely to more projects activities that go to the CapEx.

Free cash flow before acquisition totaled DKK 204 million year-to-date, corresponding to 9% of revenue. The working capital at the end of the quarter ended at 21%. Total net interest -- interest-bearing debt at the end of the quarter was DKK 1.1 billion, corresponding to 1.5x 12 months rolling EBITDA before special items.

Now let me talk a little bit about our guidance for the full year. We have revised our financial guidance because of the changes to the commercial infrastructures in the U.S. The changes relate primarily to our distributor within the pulmonary endoscopy, where we have decided to go direct and, to a minor extent, a change to our business practice of offering rebates within our Core business in the U.S. On the next slide, I will be coming back for more details about these changes. But first, let me explain the overall impact to our guidance.

This year, we revised the growth expectations from 14% to 15% now to down to 4% to 5%. And the EBIT margin before special items is changed from approximately 22% to now approximately 17%. The free cash flow, excluding acquisitions, is expected to be in the level of DKK 200 million as we take over inventories worth DKK 120 million, and we will pay 50% of the agreed compensation in Q4. The outlook for endoscopes to be sold this year is expected to be around 600,000 units.

For 2019-'20, we now expect to have an organic growth rate at somewhere between 16% to 22%. The low end of the interval is maintained, while the upper level is increased by 3 percentage points. The increase reflects that the revenue base for '18-'19 is reduced and, at the same time, we provide a slightly more conservative guidance. Within our Visualization business, the only assumption that has been changed relates to the going 100% direct for pulmonary endoscopy in the U.S., while assumptions regarding GI and ENT are unchanged.

As for units, we expect in '19-'20 to be able to sell around 900,000 endoscopes. Due to the significant expansion of the organization and the investments that are being planned, the guidance on EBIT and free cash flow will be available with the results for '18-'19 and announced on November 13 this year.

Let me now take you through the revenue impact from the change of the distributor set-up in the U.S. and the changed business practice. The agreement to end the partnership with the distributor was entered yesterday evening late and takes effect from October 1, 2019. On this stage, all business of the distributor will be transferred to Ambu, and Ambu will be invoicing the hospitals directly. This will bring additional approximately 30% extra value plus the incremental growth and the cross-sales that we will be able to create. Timing for the deal is ideal, considering the product launches that will take place within the next 1 to 2 years.

The overall strategic rationale is that Ambu's direct sales force in the long run will be more effective and therefore able to generate significant higher growth compared to selling via distribution as well as achieve further growth from cross-sell in ENT and urology. This is in line with the specialization of our direct sales force that we have implemented over the last years.

The transition is agreed amicably, and Ambu will, with the purpose to support a smooth migration, cancel already agreed sales orders for September this year and buy back existing inventories at our initial transfer price. This gives an impact to our fourth quarter that we estimate to be DKK 200 million and which is the main reason for the changed expectations for the growth.

The second change we have made is with regards to overall pricing policies in the U.S., where we will cease repay structures and increase prices. We estimate a lost revenue, on the short term, of DKK 50 million that we expect will even out over time and at better prices.

The total impact from the above is a reduction in revenue by DKK 250 million in Q4, while we reduced the current estimate for '18-'19 full year growth by approximately 10 percentage points to now 4% to 5% growth and which will make growth in our Q4 negative by up to 18%. Going forward, these changes will enable Ambu to achieve stronger growth at better prices as the margin and the rebates that are currently shared with distributors, to a large extent, can be added back to revenue. Our end customers using Ambu's products are not foreseen to be impacted by these changes.

Now let's take a look at the Endoscope unit sales. This year, we expect to sell approximately 600,000 units compared to previously 750,000 units. The decline of 150,000 units reflects the transitioning of the distributor, where we estimate to buy back approximately 95,000 units that represents the remaining inventory of the distributor.

In addition, we have canceled orders with the distributor that corresponds to 58,000 scopes that were expected to be delivered in September. This totals 150,000 units and represents the reason for the reduction in our full year estimates on units to be sold.

For Ambu, this is a very strategic move, and we expect the net present value of the transaction to be advantageous for our EBIT as we can grow volumes and value while gain cost scale compared to a distribution model where costs are fixed. We have, as explained, agreed to pay a compensation for early termination, and this compensation amounts to USD 20 million. Despite this is a very significant amount, we find the business case very attractive and believe it will enable us to further accelerate our growth for the years to come. The compensation would be accounted in the P&L within special items and is payable with 50% by end of Q4 and the remaining 50% in Q1 next year.

Next year, we now expect to reach around 900,000 endoscope units to be sold, meaning an increase by 300,000 scopes. Despite we are reducing the targets for units sold by 150,000 due to the changes described above, the target for 19' and 20' is to grow very significantly up to 50%.

With this financial overview, I would like to give the word back to you, Juan-José. Thank you.

--------------------------------------------------------------------------------

Juan-José Gonzalez, Ambu A/S - President & CEO [5]

--------------------------------------------------------------------------------

Thank you very much, Michael. So let me just finish this call by stressing what makes Ambu unique.

Number one, as a company, we pioneered the single-use disposable endoscopy.

Number two, we have significant market opportunities to increase penetration worldwide. Actually, if you look at our market opportunity, there are very few companies in medical devices that have something like that in front of them.

Number three, we have a competitive advantage in R&D and innovation and a competitive advantage that we are planning to strengthen even further.

Number four, we have a top-tier growth profile. Quarter 3 is our 11th quarter where we are growing double digits. And with this investment into the U.S., with the commercial infrastructure that we are building in our largest market, we plan to maintain our top-tier profile -- growth profile going forward.

And finally, and this is -- today is a very good example of that. We are in a robust financial position, and we have the financial flexibility to make all the investments we need to make to make sure we fulfill our aspirations. That's what makes Ambu unique, and that's why we are convinced that Ambu is going to be one of the next major European medical device companies.

So with that, why don't we move into the Q&A and open the line for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question is from Thomas Bowers from Danske Bank.

--------------------------------------------------------------------------------

Thomas Schultz Bowers, Danske Bank Markets Equity Research - Analyst [2]

--------------------------------------------------------------------------------

A couple of questions from me. Just on the termination of the TA deal here, I'm just still struggling a little bit to understand the timing of the termination since you basically have 0 sales to cover those regions right now, also with the launch of the ENT. So what exactly would you lose by waiting, let's say, 12 to 18 months until termination so that you actually have the 80 reps that you are increasing in the U.S. in place?

My second question is regarding the USD 20 million compensation. I'm just wondering if it reflects that Tri-anim and actually did live up to its sales targets. I have the understanding that you could terminate the deal actually anytime with 0 computations if you -- if Tri-anim did not live up to those sales targets.

And then also on Tri-anim, now that they have terminated -- you have terminated deal, are they actually free to go into another collaboration, for example, it could be Verathon?

--------------------------------------------------------------------------------

Juan-José Gonzalez, Ambu A/S - President & CEO [3]

--------------------------------------------------------------------------------

Thank you very much. So let me start with the question in terms of the timing and why do we think the best time to do it is now. And again, there are basically 3 major benefits for us if we go direct. Number one, we get a higher ASP and higher gross profit. Number two, we can penetrate the accounts at a much faster rate than the distributor within pulmonology. And number three, we can leverage our direct presence to more rapidly enter into new segments, in our case, into ENT and then the Broncho suite and then neurology. So actually, every month that you delay a transition or wait for a transition, you are actually capturing less value, both in terms of growth and profitability. Because we announced the expansion in the U.S. a few weeks ago, we are confident that by the time our direct force need to transition the accounts, we will have what is required to make sure that we have a successful transition. So that's basically the timing, the reason for the timing now.

In terms of the compensation, let me just say that Tri-anim has been a very good partner for us and they have fulfilled all their commitments. The compensation reflects our desire to terminate the contract earlier and to make sure that they support us for the transition. And I have to say, we are very satisfied with the terms of the agreement.

And finally, Tri-anim will have a noncompete for a period of time. And I would say that is important. But the most important thing is that a 100% dedicated model is superior to a distributor model or a model where you have a direct organization which is selling multiple products. And the reason why I say that is because we expect competitors to come into this market. This is one of the most attractive medical devices spaces, and they will come. And one of the reasons we are -- why it's important in our largest market to build this infrastructure is because it's going to be a competitive advantage as we enter into new markets and also as we compete vis-à-vis other players.

--------------------------------------------------------------------------------

Thomas Schultz Bowers, Danske Bank Markets Equity Research - Analyst [4]

--------------------------------------------------------------------------------

Great. And then maybe just one last question. Could you just say whether you have submitted the aScope Duo to the FDA for approval?

--------------------------------------------------------------------------------

Juan-José Gonzalez, Ambu A/S - President & CEO [5]

--------------------------------------------------------------------------------

Yes. I mean as I mentioned in my presentation, the aScope Duo is on track, and we expect to launch before September -- before September next year.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

And our next question is from Christian Sørup Ryom from Nordea Markets.

--------------------------------------------------------------------------------

Christian Sørup Ryom, Nordea Markets, Research Division - Senior Analyst [7]

--------------------------------------------------------------------------------

Three questions from me, please. So my first is to your sales here in the current quarter. Can you comment on your ENT sales and whether that -- what the amount of that was in the quarter, whether that accounted for the majority of the increase of 12,000 units over Q3?

And then my second question is to the inventory buyback that you are now launching with Tri-anim. The inventory buildup to these approximately 100,000 endoscopes has that been linear? Or has there been a stronger buildup maybe in the first half of this year?

And then my third and final question is to the revised expectations for the milestone payments under your Invendo acquisition. You mentioned that you have -- that you have revised expectations for milestones for gastro and -- or for the approval milestones. Is that only for the gastroscope? Or is it also -- have you also revised your expectations for the timing of the duodenoscope approval?

--------------------------------------------------------------------------------

Michael Højgaard, Ambu A/S - CFO, Executive VP of Global Finance, IT & IR and Member of Executive Board [8]

--------------------------------------------------------------------------------

Christian, this is Michael. Let me see if I can reply to your question. The first on the ENT, we try to illustrate the impact that we see here for the first 11, 12 weeks since we really started selling the ENT. So I prefer not to give details, but what we can see -- say and what we see is that it looks very much promising compared to where we're coming from with the aScope 3 back in 2013 -- back in 2015. That was when it was introduced in the U.S. So we're up 4 or 5x compared to the level that we saw at that time.

[Total] about the inventory. I think if you look over the contract period, the buildup has been pretty linear. And that was also what I was trying to do allude to under my presenting by saying that if you follow everything back here and just assume that the revised assumptions would be used, then the growth that we are seeing for this quarter as well as the growth that we saw for the entire last year would not change. So this is not something that is really significantly impacting the percentages that we're talking about, but it's more a strategic decision that we have decided.

--------------------------------------------------------------------------------

Christian Sørup Ryom, Nordea Markets, Research Division - Senior Analyst [9]

--------------------------------------------------------------------------------

Maybe just to clarify quickly. It didn't have any impact on the first half either? And is there [going] to be an impact on the first half...

--------------------------------------------------------------------------------

Michael Højgaard, Ambu A/S - CFO, Executive VP of Global Finance, IT & IR and Member of Executive Board [10]

--------------------------------------------------------------------------------

Of course it will have some impact on the first half, but it's very minor. So when we submit our full year, you will see that, that is the reset effects from that. But the overall impact of the inventory, you would be able to put out over, more or less, the 4 years.

With respect to the milestones, I think what you're alluding to is that we are saying that the milestone for duodeno is now reclassified from long to short term. Yes.

--------------------------------------------------------------------------------

Christian Sørup Ryom, Nordea Markets, Research Division - Senior Analyst [11]

--------------------------------------------------------------------------------

Yes. Actually, my question is to -- that you are saying that you have you have written down the fair value of the contingent -- or the fair value of the milestone payments for the gastroscope and the duodenoscope approvals by, I think, DKK 15 million. And my question is whether that relates only to the gastroscope or also to the duodenoscope?

--------------------------------------------------------------------------------

Michael Højgaard, Ambu A/S - CFO, Executive VP of Global Finance, IT & IR and Member of Executive Board [12]

--------------------------------------------------------------------------------

That relates only to the gastroscope.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

And our next question is from Peter Testa from One Investment.

--------------------------------------------------------------------------------

Peter Testa, One Investments S.A.G.L. - Analyst [14]

--------------------------------------------------------------------------------

Three questions, please. One is just on the 2021 target of units of 900,000, which I think compares to 1 million before. Is that a 10% reduction? I think I understand correctly that your distributor was about 20% of sales given the increased coverage was 75% to 95%. And so I'm just trying to understand a 10% reduction versus the 20% sales base? And maybe whether you can give some understanding as to how the unit reduction is restricted to pulmonary versus maybe a more positive view on ENT and other and how we can think about the ASP mix? That's the first question.

The second question was just on the gastro. You talked about going into human in vivo trials. Could you just give some understanding of what the process is for FDA agreement to this human in vivo trial? And maybe when you would expect to get that approval?

And the last question is just on -- actually, the other parts of the company where you talk about -- in the Anaesthesia price pressure. I was wondering if you could give some sense as to amount and when that happened. And maybe comments on Patient Monitoring & Diagnostics there as well.

--------------------------------------------------------------------------------

Juan-José Gonzalez, Ambu A/S - President & CEO [15]

--------------------------------------------------------------------------------

Sure. Thank you. So let me just start by the number of units. And probably the best way to look at it is in our previous guidance, we were indicating an increase in terms of the number of units of 250,000 to go from 750,000 to 1 million. Now what we are doing is we are increasing that guidance to 300,000 units to go from 600,000 to 900,000. The lower base just basically reflects to the adjustment in terms of the termination with the distributor and the correction in terms of their inventory. But that's, I would say, the best way to look at it.

Now of course, from an ASP and gross profit, this is very favorable. That basically means that in all the sales that were going through the distributor, now they are going to go at full ASP. And because of that, our GP is going to improve as well. Now as Visualization has a higher gross profit than Anaesthesia and Patient Monitoring, that will further compound the benefit of seeing our Visualization business becoming a larger percentage of the overall sales of the company.

Now in terms of the duodenoscope, basically, we are going to start as soon as we get the FDA approval. And there are basically a series of requirements that you need to fulfill with the FDA to be able to do it. This is not something that we need to do for the approval. It's something that we are just going to do to learn what is the best way to introduce this technology to the surgeon.

And then finally, in terms of Anaesthesia and Patient Monitoring, we are not saying that the pricing pressure is increasing or changing. What we are saying is that we use better analytics to look at the breakdown of different deals and try to determine whether some deals were necessary or not. And what we identified was an opportunity to stop certain deals and stop certain deals in terms of discounts, which basically means that those orders will come the following quarter at higher gross profit margins. And that's basically -- and that's basically what we are doing.

--------------------------------------------------------------------------------

Peter Testa, One Investments S.A.G.L. - Analyst [16]

--------------------------------------------------------------------------------

Okay. So if I could just clarify on the first question, please. I mean you're saying, your base of 600,000, of which 95,000 is buyback of inventory. So I presume your end market sales reflection is a higher base than the 600,000. So it still is a different rate of increase. And I was wondering, is that difference entirely related to pulmonary? And if so, given the context of the relative size of the distributor versus the change and whether there's also, underlying that, a -- because of the successful launch in ENT, a better view on ENT, better volumes for the '19-'20.

--------------------------------------------------------------------------------

Michael Højgaard, Ambu A/S - CFO, Executive VP of Global Finance, IT & IR and Member of Executive Board [17]

--------------------------------------------------------------------------------

I think the way that -- an alternative way to say it is that the underlying assumptions for the GI and the ENT are unchanged, and that was also what I tried to say in my presentation. So I think you should look at it in a way where that we have a very massive increase in volume to be showed next year from 600,000 to 900,000. That is a 50% increase, which is more than the 250,000 that we were planning before. So no matter how you turn it, we are having a more aggressive growth target next year compared to what we had.

--------------------------------------------------------------------------------

Juan-José Gonzalez, Ambu A/S - President & CEO [18]

--------------------------------------------------------------------------------

Yes. And just to clarify, the impact of ENT in quarter 3 is very, very small. Although we are excited with the speed of penetration, it is still marginal for Q3. So what you are seeing in Q3 is really the growth in pulmonology. And a 30% growth rate on top of very large growth rates the previous year, it just shows the significant potential that we still have in pulmonology.

Now as you can imagine, as we go direct in the distributor territories, that opportunity actually just increases because we know that there is also a difference in penetration between our direct and our distributor in the U.S. So we are as excited in pulmonology as we are in terms of with our opportunity in ENT, urology and duodenoscope.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

And our next question is from Niels Granholm-Leth from Carnegie.

--------------------------------------------------------------------------------

Niels Granholm-Leth, Carnegie Investment Bank AB, Research Division - Co-head of Research of Denmark & Financial Analyst [20]

--------------------------------------------------------------------------------

Yes. Two or 3 questions here from me, please. So the first question would be on the noncompete agreement you have made with Tri-anim. Could you tell us for how long this noncompete will run? This is obviously extremely important for us to understand because this is an open invitation for Tri-anim to start selling products from Mindhao or Axess Vision or Verathon or what have you. So this is almost like a patent expiry. So this is my first question.

My second question would be on your suspension of the EBIT margin in 2020. I presume that your floor guidance of at least 20% for next year doesn't stand any longer. So is it because of higher-than-anticipated costs for recruiting salespeople? Or is it because of the clinical study costs associated with the human trials for the duodenoscope? I guess you would capitalize quite a lot of those costs. So could you just elaborate a little bit of how your thinking is when it comes to the cost situation for next year?

--------------------------------------------------------------------------------

Juan-José Gonzalez, Ambu A/S - President & CEO [21]

--------------------------------------------------------------------------------

Yes. Thank you very much. So first of all, in terms of the noncompete, that's confidential. The only thing I can say is that we are confident with the timing for us to be able to build a transition and execute the things that we need to execute.

Now I have to say, we should all assume that there will be new competitors coming in, and whether they use one distributor or another, we expect [they are to be dealt]. The strategy that we are putting together is to make sure that we are able to compete effectively against anybody that comes in with superior innovation and with a commercial infrastructure that no company will be able to match.

Now in terms of EBITDA, at this point, we basically don't have a revised guidance. I don't think you should assume anything else than that. We are going through our budget process. And at the end of our fourth quarter, then we'll be able to provide clarity regarding what is going to be next year.

--------------------------------------------------------------------------------

Niels Granholm-Leth, Carnegie Investment Bank AB, Research Division - Co-head of Research of Denmark & Financial Analyst [22]

--------------------------------------------------------------------------------

Okay. And then just a final question, if I may. Do you keep any stock of aScopes in the Ambu group?

--------------------------------------------------------------------------------

Michael Højgaard, Ambu A/S - CFO, Executive VP of Global Finance, IT & IR and Member of Executive Board [23]

--------------------------------------------------------------------------------

No, Niels. We keep the stocks that are required to maintain the lead times that we have from the factory and into the U.S., so that runs very tight.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question is from Craig McDowell from JPMorgan.

--------------------------------------------------------------------------------

Craig Mcdowell, JP Morgan Chase & Co, Research Division - Analyst [25]

--------------------------------------------------------------------------------

Firstly, a clarification. And then a question follow-up. Apologies if I missed it, but I think Michael said in his presentation that shifting from a distribution to a direct model would lead to a 30% increase in value. Can you just confirm that figure? And that's obviously on a like-for-like unit basis. Is that correct?

--------------------------------------------------------------------------------

Michael Højgaard, Ambu A/S - CFO, Executive VP of Global Finance, IT & IR and Member of Executive Board [26]

--------------------------------------------------------------------------------

Yes. I think we have been open about that, Craig, that the prices are roughly 30% below. There's no news in that.

--------------------------------------------------------------------------------

Craig Mcdowell, JP Morgan Chase & Co, Research Division - Analyst [27]

--------------------------------------------------------------------------------

Perfect. And then just a follow-up. On stock levels at distributors, the disclosed level at Tri-anim of 95,000 units seems quite high when you consider total units guidance for the year. Can you confirm that you're comfortable with stock levels at all other distributors currently?

--------------------------------------------------------------------------------

Michael Højgaard, Ambu A/S - CFO, Executive VP of Global Finance, IT & IR and Member of Executive Board [28]

--------------------------------------------------------------------------------

Yes. I can confirm that. I can definitely confirm that. So I think this entire change is about growing the business further. And as we have discussed here, we believe that we can do so.

--------------------------------------------------------------------------------

Juan-José Gonzalez, Ambu A/S - President & CEO [29]

--------------------------------------------------------------------------------

I mean remember, we did change 95% of our global sales will be under a direct model. So actually, there is very little in terms of distributors for our Visualization business.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

And our next question is from Vikram Kumar from Kuvari Partners.

--------------------------------------------------------------------------------

Vikram Kumar;Kuvari Partners;Chief Investment Officer, [31]

--------------------------------------------------------------------------------

Just 2 questions to pick up on the theme of margin and 1 back on units, if I may. Just firstly on margin. Obviously, you referred 5 or 6 times to higher ASP and higher gross margin as a result of direct sales. Just on the point on EBIT margin, I'm just confused as to why, at this stage, we can't talk about the EBIT margin impact of it because obviously, we're in a place to make such a big strategic shift to taking control of distribution. I'm sure you've modeled out sales productivity and therefore sales recruitment costs, et cetera. You know your units because you've expressed it -- said that with 900,000 [tons]? What is it that you're missing in your costs, just the understanding of the new model, that could help you communicate now to us, at a time of uncertainty, what the EBIT margin profile of that new model looks like? What is it, the KPI that you or we are missing to be able to work that out? And I've got a follow-up on the units, please.

--------------------------------------------------------------------------------

Michael Højgaard, Ambu A/S - CFO, Executive VP of Global Finance, IT & IR and Member of Executive Board [32]

--------------------------------------------------------------------------------

I think the overall answer to that question is that it's not a specific thing that we are missing except that we want to run our normal ordinary budget process and have compliance throughout the entire system with the Board. So we're not sending the signal that we are having excess cost or something that we need to work on. We are simply just saying that we want to run our process, and we will give you that guidance when all the thoughts meet in Q4.

--------------------------------------------------------------------------------

Vikram Kumar;Kuvari Partners;Chief Investment Officer, [33]

--------------------------------------------------------------------------------

But then linking that to the units point, if that's the case, and I respect that, how can we be so confident that, with this new structure, that the sales productivity will drive and enable you to have 900,000 units? Because if we're unsure what that model looks like from a cost point of view, how can we be sure what the sales productivity will be off that new strategy? I mean these are, no doubt, new people. They take time to be recruited, time to be integrated. Many are selling a brand-new product because you've effectively been the only player in the market, so they haven't been coming -- they're not coming from somewhere else that has been selling to hospitals for the last 5 years. That inevitably will have a ramp-up and delay time. If we're not clear about the OpEx needed, the people and the OpEx needed, how can we be so clear that the numerator, the outcome of this, will be 900,000?

--------------------------------------------------------------------------------

Michael Højgaard, Ambu A/S - CFO, Executive VP of Global Finance, IT & IR and Member of Executive Board [34]

--------------------------------------------------------------------------------

I think you should see this in the context of the expansion that we talked about back in June where we are adding significant additional resources to Ambu. So we are in the midst of a process with a lot of changes to the way that we go to the market. So with that in mind, we feel very confident that we have the bandwidth to start off with this. But still, we have some internal processes that we want to go through before we are ready to share a revised data target this year.

--------------------------------------------------------------------------------

Juan-José Gonzalez, Ambu A/S - President & CEO [35]

--------------------------------------------------------------------------------

Yes. Again, if I may put -- if I may, just to give you a little bit more context. When you look at our 900,000 target for next year, the main drivers are penetration in pulmonology outside of the U.S., launch of ENT globally, launch into urology with the cystoscope, launch of our new monitor and a launch of our duodenoscope. And on top of that, in the U.S., it's a movement from a distributor to a direct model in 40% of the territories. So each of these initiatives have, of course, different estimates in terms of how much we are going to do. Now when you put all of them together, we are confident 900,000 is a realistic number for us as a company.

--------------------------------------------------------------------------------

Vikram Kumar;Kuvari Partners;Chief Investment Officer, [36]

--------------------------------------------------------------------------------

And just one very last -- one very last thing though. As you quite rightly said earlier, there's an increase in your delta year-on-year. You were previously expecting 1 million on 750,000, i.e., a delta of 250,000. Now 900,000, 600,000, so it's 300,000, which is 50%, I agree. Just to give me some sort of flavor of something that's gone on in the company with all this change that's causing you to have more confidence of your unit growth, your ability to sell extra units year-on-year, is it just so broad? Is there one product you think now commercializing quicker or earlier? What is it that's driving the ability to get 300,000 growth rather than, say, 250,000 or less as you didn't make the strategy change?

--------------------------------------------------------------------------------

Juan-José Gonzalez, Ambu A/S - President & CEO [37]

--------------------------------------------------------------------------------

Sure. I mean basically, what you are saying is 2 things. One is we are more confident regarding our innovation pipeline and our ability to bring all these products to market. That is an important driver.

The second thing is we are more encouraged by the initial results of our ENT launch and the level of acceptance.

And number three, we, just now, after running direct models and distributors across the world, that did change. Although, we will have to go through the transition during the first half of next year, will result on a faster growth in the second half. And I think when you put all of that together, 900,000, an increase of 50% that should be here, reflects our level of confidence regarding the acceleration of the company.

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

And our next question is from Yiwei Zhou from SEB.

--------------------------------------------------------------------------------

Yiwei Zhou, SEB, Research Division - Analyst [39]

--------------------------------------------------------------------------------

Most of the questions have been answered. But I still have one question here on the 2019-'20 guidance. I know there is a lot of moving parts here, but considering the revenue base for current year is lowered by 10 percentage points and whether you also lowered the unit sales for next year. But could you please clarify a bit here on the revenue, why the high end of the guidance has increased by 3 percentage points?

--------------------------------------------------------------------------------

Michael Højgaard, Ambu A/S - CFO, Executive VP of Global Finance, IT & IR and Member of Executive Board [40]

--------------------------------------------------------------------------------

Yes. I'm sure I can. So as you rightly say, we have decreased the base, which, of course, also leads to an opportunity to increase the upper level of the growth for next year. And at the same time, as we also clearly say in our reporting, we have also put some conservatism into it as we want to come up with a guidance that is -- that is the right one. So we feel very confident about the overall -- or by the overall interval of 22% next year, but also considering that it leaves a broad interval.

--------------------------------------------------------------------------------

Yiwei Zhou, SEB, Research Division - Analyst [41]

--------------------------------------------------------------------------------

And could you add a little bit of color on maybe other assumptions maybe you have, ASP change or product launch, timing, all this?

--------------------------------------------------------------------------------

Michael Højgaard, Ambu A/S - CFO, Executive VP of Global Finance, IT & IR and Member of Executive Board [42]

--------------------------------------------------------------------------------

There's no overall changes to launch times nor for price settings. The fundamental changes that are leading to this are the 2 changes we're talking about, primarily the change of the distributor in the U.S. and what that leads to, the aspirations for higher growth on the accounts that we are taking over and then the changes to the pricing structure that will have some negative impact this year but will come back next year and at better prices. And that's all what we have tried to bake in and then increase the interval.

--------------------------------------------------------------------------------

Operator [43]

--------------------------------------------------------------------------------

And our final question is from Peter Testa from One Investment.

--------------------------------------------------------------------------------

Peter Testa, One Investments S.A.G.L. - Analyst [44]

--------------------------------------------------------------------------------

I just had a couple more, please. Well, it's just on you mentioned you're ceasing rebate and increasing prices in other parts of the business. I was wondering if you could give some sort of idea of the sales base to this -- to which this applies and maybe some degree of magnitude?

Then on the agreements with Tri-anim. I understand it's confidential, but can you give some understanding as to whether this period is measured in years or months? Just to get some context.

And lastly, on the Cook Medical agreement. Did Cook Medical know that you were renegotiating with Tri-anim when you set up that agreement?

--------------------------------------------------------------------------------

Juan-José Gonzalez, Ambu A/S - President & CEO [45]

--------------------------------------------------------------------------------

Yes. So just -- let me just start with pricing for the Core business. And just to clarify, this is not a price increase. This is a reduction on the price discount. It's very selective, and I would say it's very small relative to the total sales of our Core business. We are just being more thoughtful and efficient in terms of giving discount when it is really necessary. So that's one thing.

The second thing is that in terms of the noncompete, that's just confidential. And on this, we have to respect the agreement we have with Tri-anim. What I can tell you is that we are confident with the period in terms of being able to transition our organization and being able to penetrate the accounts.

And finally, we have very good conversations with Cook Medical. They know that the launch into duodenoscopy is very important for us. And by the way, it's very important for them. And this is a partnership where both parties benefit. Cook Medical has significant expertise in duodenoscopy. They have a great reputation with key opinion leaders and organizations in the U.S. And of course, they have a portfolio of tools. But they don't have a single-use duodenoscope. And we have that, and also, we have a very good understanding in terms of what it takes to introduce that type of offerings to the hospital.

So we come together. I have to say, we are bringing the base of our combined assets and strengths to make sure that we are very successful in a segment where, as you know, the risk of contamination is very high and where, basically, you have all the ideal conditions for a single-use product.

--------------------------------------------------------------------------------

Peter Testa, One Investments S.A.G.L. - Analyst [46]

--------------------------------------------------------------------------------

Right. Okay. And if I must -- since I'm last in the queue, if I could ask just one other question, please. You noted that the impact of the increased price, the 30% increase in price on units sold, would offset roughly the cost of adding the sales force. Could you give some idea as to what timing that will -- or when that would happen? Because obviously, you have a change in costs build up over time and you have a change in pricing sort of immediate but a volume return over time. Is that something which should be for the full year of '19-'20? Sorry, 2020 -- yes, '19-'20 or '20-'21? Would it be a particular half, just to give us some understanding as to when you think the crossover point is?

--------------------------------------------------------------------------------

Michael Højgaard, Ambu A/S - CFO, Executive VP of Global Finance, IT & IR and Member of Executive Board [47]

--------------------------------------------------------------------------------

I think what you are going to see is that there will be a phasing in of costs. We are, right now, doing a lot of new hirings and rebuilding or expanding the sales organization in the U.S. There's a limit to how many people we can take in at a time. So there's going to be a slow buildup of resources in the U.S. for quite some months yet to go. We are -- we're still using out of the [$225 million] that we announced. And with this, there will be added more costs, and those people would be hired as we go along.

--------------------------------------------------------------------------------

Operator [48]

--------------------------------------------------------------------------------

And as there are no further questions, I will hand the word back to the speakers for any final comments.

--------------------------------------------------------------------------------

Juan-José Gonzalez, Ambu A/S - President & CEO [49]

--------------------------------------------------------------------------------

Thank you very much, and thank you for spending this morning. I have -- I hope all of you realize our level of commitment behind building the company and make the most of all the growth opportunities that we have in place.

Doing an investment like going 100% direct in what is our largest market is just a testament regarding how confident we are in terms of our innovation and in terms of our ability to accelerate our growth. It's something which should give you more confidence regarding what the future for Ambu is going to be. Thank you very much, and I look forward to see you soon.

--------------------------------------------------------------------------------

Operator [50]

--------------------------------------------------------------------------------

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.