Ambu A/S

CSE:AMBU B

Q1-2025 Earnings Call

[Britt Jensen, executive]

Hello, everyone, and welcome to this call where I, together with my colleague, Henrik Skak Bender, our CFO, I'm Britt Meelby Jensen, the CEO. And together, we will present the Q1 '24/'25 results from Ambu.

Let me start with the key messages from this first quarter, where we had a strong start to our '24-'25 financial year. We continued with very strong organic revenue growth, posting 19.5% growth and also an increase in our profitability with an EBIT margin of 16.1%. Looking at our key focus area, our Endoscopy Solutions, we saw a strong growth in both segments that we report on. Our Pulmonology business grew by 17.7% in the quarter, and we had a growth in Urology, ENT and GI combined of 23.9%.

Also, we continue to be highly focused on innovation, and this is where we were excited to announce the registration of our new airway management solution, SureSight, our video laryngoscopy solution that I'll come back and talk about later in this call.

And then last but not least, on the back of the top line results that we announced on January 9, we also upgraded our financial guidance for the year, which is now 11% to 14% in organic revenue growth and 13% to 15% EBIT margin before special items.

Let's look at a summary of our financial results. So the 19.5% organic revenue growth and the 16.1% EBIT margin translates into an overall growth in Endoscopy Solutions of 20.6%. And then on Anesthesia and Patient Monitoring, we grew 17.8% in the quarter. When we look at our free cash flow, we reported a DKK 60 million for the quarter, slightly lower than some of the previous quarters. Part of this driven by increase in our inventories as we are also preparing for some of the new product launches. But we also made a lot of progress on our strategy, which I'll briefly touch upon now.

As we communicated in our last call in November, we are ahead of plan when we look at our execution of our zoom-in strategy that we launched just over 2 years ago. Our focus on innovation continues to be strong, although if you look at our revenue across, it's vastly driven by products that have been in the market for a couple of years. But we did bring SureSight to registration, as I just mentioned. And then we're also continuing with our portfolio expansion in our Urology, both with aScope 5 Uretero and aScope 5 Cysto HD, strengthening this portfolio now having 3 scopes in the urology field.

Then when it comes to our execution, that continues to be a strong focus, and our EBIT margin not only doubled, but also increased more than 6 percentage points versus the first quarter last year. This is not only driven by the performance in the business and price increases, but it's also driven by continuous improvement in operational leverage, which is part of the transformation program that we launched together with our strategy that we are continuing to execute on to build a more scalable and efficient Ambu that is set up for strong future growth. Then sustainability remains a key focus area. We have the bioplastic being now implemented across the full endoscopy portfolio, and we continue to also make progress on a number of other initiatives.

Let me go into the different segments, starting by Anesthesia and Patient Monitoring. In the quarter, we grew by nothing less than 17.8%. If we look at this on a rolling organic growth -- rolling 12 months organic growth, the growth is now 10.1%, which is also higher than what you have seen in the past years. And a lot of this is driven by the initiative that we announced a couple of years ago with the zoom-in strategy that we are focusing on price increases. A lot of these price increases on some of the major contracts kicked in, in Q2 of last year. So this is what is fueling the growth in this quarter and will, after the quarter that we are in now level off. But in addition to the price increases, we also see strong volume growth along a lot of the subsegments. So a very healthy business in Anesthesia and Patient Monitoring.

If we then look to the 2 Endoscopy Solutions segments, starting with Pulmonology. This is also a segment where we had a strong growth in the quarter of 17.7%. If we double-click on this, there's a couple of factors impacting this growth, which has been higher than we have seen in the past couple of quarters. One is the timing of orders where we, in this business will see some timing that affects the growth rate in the individual quarters. And in this quarter, that contributed positively. Then we also have a slight positive effect from the flu levels. Now for us in the business, we clearly see a trend that when flu levels go up, it impacts this business positively. But it's difficult to get more specific around that because it depends on the buying patterns of our customers. But overall, we saw a slight effect in the previous quarter of this, although we do see a lot of the flu escalating in this quarter, where we also have a high comparable versus last year.

Then when we look at our aScope 5 Broncho, we continue to see a healthy growth of this -- with this product, in particular, in the U.S. market. So overall, if we zoom back and to understand the growth that we have in this business, which varies quite a lot quarter-over-quarter, I think it's -- the most meaningful number to actually look at when we understand this business is the rolling organic revenue growth, where in this -- after this quarter is at 11.7% for Pulmonology.

Now let's look at the rest of the Endoscopy segment. So this is Urology, ENT and GI, where we grew in the quarter by 23.9%. If we look at the 12-month rolling also for this segment, which is again a combination of these 3 areas, the growth is 27.1%. Double-clicking on the different subsegments, if we start with Urology, until now, the full growth has been driven by aScope 4 Cysto, the product that we launched around or just over 5 years ago, continuing to grow very strongly. We are still too early to see any meaningful revenue from aScope 5 Cysto HD and aScope 5 Uretero, although we are in the launch phase and progressing well for both of these products, which I will come back to.

If we look at ENT, we also continue to see a strong, solid double-digit growth. Here is our rhinolaryngoscope that has also been in the market for over 5 years. And then on GI, where we have fewer commercial resources focusing on this and focusing very specialized in selected niches, we also see a very strong double-digit growth, although from a lower base than the 2 other subsegments in this category. So if we look into the product launches, starting with our video laryngoscope.

This is a solution that we are very excited about bringing to market because not only is Pulmonology, our largest segment, but this clearly expands this market also tapping into the airway visualization with a product that has very clear synergies with both our aScope 4 Broncho and our aScope 5 Broncho. We are leaders in this market today, and we believe that this solution will help over the coming years to further strengthen our leadership position. The market that we are specifically addressing with the video laryngoscope is the endotracheal intubation market, where if we look at the U.S. alone, we have more than 15 million procedures being performed every year with a video laryngoscope.

If we look at the workflow and what we really help the customers with, we have an opportunity with our solution to simplify the workflow and also in combination with both aScope 4 Broncho and aScope 5 Broncho and even also with our other product for 1 and 2 lung ventilation, VivaSight, to be able to use the same system and the advanced software that we have with this solution. So we had this registered and started a couple of weeks ago with what we refer to as our controlled market release, where we basically, for the first time, go out and have the product being used in real-life settings by clinicians.

So far, we have been able to perform a 3-digit number of procedures with very strong results, both in terms of being able to address the specific needs that the clinicians have for these kinds of procedures and also based on their feedback comparing to the solutions that they have been used to using. So overall, we believe that this is a product that is well positioned for our overall pulmonology and airway visualization portfolio to drive growth for the next couple of years, although it will, as you see with our other products, be a slower start as we are still in the controlled market release phase moving in the near future into the actual commercial launch.

Then let me look at Urology. And as I mentioned before, so far, our Urology franchise and the great revenue increase we have had in Urology has been driven basically by one product, which is our aScope 4 Cysto. Now we have expanded the market opportunity by launching 2 new scopes, the aScope 5 Uretero and the aScope 5 Cysto HD, which are addressing a higher number of procedures and with the aScope 5 Uretero specific for kidney stone removal and other procedures and the aScope 5 Cysto HD also a premium product with a higher image quality, which both of them tap into markets with higher price levels than we see with the aScope 4 system. It's still early days in terms of meaningful revenue recognition, but we are actually very confident with the full solution that we are providing being able to come out with a complete system, leveraging the software and the digital platform with aView 2 Advance and aBox 2 for all these 3 scopes combined.

This also means that we are -- we remain the company with the largest endoscopy -- single-use endoscopy portfolio. Again, that is all based on the digital platform and software that we continue to advance and develop with a broad portfolio with different sizes in pulmonology, with now 3 scopes in Urology, we have 4 approved solutions in GI, and then we have 2 different versions of our rhinolaryngoscope launched.

So with this, I believe we are well positioned for the coming years to deliver on our targets, and I'm happy to hand over to Henrik to go through the details of our financials.

[Henrik Bender, executive]

Thank you, Britt. I'm happy to take you through the details of the financials. Before I do that, I just want to start with reiterating we believe we've come off to a very good start with Q1, and we were very happy, therefore, also to announce the guidance upgrade that we announced on the 9th of January. I'll come back and comment on the outlook for the full year at the end of my presentation.

If we start by looking at our revenue, as Britt mentioned in her presentation, we had an organic revenue growth in Q1 of 19.5%, adding to that, a positive currency effect, mainly driven by the U.S. dollar DKK, bringing the total reported growth to 20.4%. This was driven across all of our segments, as Britt also mentioned, both in Endoscopy Solutions with a strong overall growth of 20.6% and our Anesthesia patient monitoring business growing 17.8%. Furthermore, from a geographical perspective, we also had strong growth across both North America, Europe and Rest of World. So overall, a very strong start across the board.

Turning to EBIT and EBIT margin, a very solid EBIT margin expansion in our Q1 with a strong EBIT margin of 16.1%. If you look at the absolute EBIT, it's almost double versus the year before, landing at DKK 243 million for the first quarter of '24-'25 compared to an EBIT of DKK 126 million for the same quarter last year. In terms of the EBIT margin expansion, this is driven both by gross margin and by OpEx leverage, something that I will double-click on now. So double-clicking on gross margin, we landed at a gross margin of 61.3% in the quarter. This was driven mainly by 3 overall things. One, the price increases in Anesthesia and Patient Monitoring that are still helping drive up the gross margin within that subsegment. Those were mainly implemented in Q2 of the last financial year in February and March and are therefore still having full effect in this Q1 and will also have some effect in Q2 of this financial year, after which it will have a smaller effect in Q3 and Q4.

Besides Anesthesia and Patient Monitoring, we also see a continuation of a higher growth level in Endoscopy Solutions with a higher gross margin and therefore, overall also driving up the gross margin for our total business. Last but not least, we are still on a journey of increasing the utilization of our manufacturing sites, particularly the manufacturing site in Mexico. And therefore, also this overall growth is also driving up our production efficiencies across the whole manufacturing setup. So overall, a very strong gross margin development and still a good continuation of delivering on our long-term ambitions of staying above 60% on the gross margin.

Turning to OpEx. We had a very solid development also in the OpEx ratio, a drop of 3.7 percentage points versus the same quarter last year. This was a combination of several things, again. One, a strong operating leverage, particularly on our selling and distribution cost as well as our administration and management costs, basically enabling us to sell more products through the established setup we have already, even though we, in the first quarter and still for this financial year, are investing in more commercial resources across the board to help continue to drive organic growth and help continue to drive full effect of the new product launches. This is again also a journey that we are continuing and coming back to what we communicated also in Q3 and Q4 last year, a good continuation towards our long-term target of delivering an EBIT margin of 20% or around 20% in '27, '28.

Turning to cash flow. We had a solid cash flow in Q1 of DKK 69 million. Compared to the same quarter last year, a slightly lower cash flow. That was mainly driven by higher inventories. As Britt said, we have been preparing for product launches, and that has been driving up our inventories a bit. Secondly, we also have slightly higher CapEx costs for the quarter. And lastly, we also had higher tax payments for Q1, which is normal and should also be expected going forward.

So overall, we are satisfied with the cash flow for the first quarter and again, a continuation of the further deleveraging of our company and strengthening of our balance sheet. More specifically, if we look at the ratios, our net working capital ratio for the first quarter jumped up to around 22%, again, mainly driven by inventory, whereas our CapEx ratio against revenue for the quarter was a bit lower. Structurally, we still believe CapEx will be a bit higher going forward. So this is still a matter of finding the right level for the future, and we're still investing significantly in our business. But overall, very satisfactory development also on cash flow.

Then turning to guidance for the year. As Britt mentioned on her first page, we increased the guidance for the full year on the 9th of January. So our organic revenue guidance now is 11% to 14% compared to 10% to 13% before. Our EBIT margin is 13% to 15% compared to 12% to 14% before. Double-clicking on our organic growth, we maintained the view that our Endoscopy Solutions, we expect to grow plus 15% for the year. We feel we've come off to a strong start and particularly Pulmonology has shown great strength in first quarter. And we believe still in continued solid momentum for that segment for the rest of the quarters of the year.

On Anesthesia and Patient Monitoring, as we communicated in Q4, we did expect a strong Q1. This was even stronger than we had expected originally. And therefore, we adjusted this. So we are now expecting a mid- to high single-digit growth in Anesthesia and Patient Monitoring, where Q2 will still be a higher growth level versus Q3 and Q4, where we are expecting a lower growth level given the lower impact from price increases. Finally, we maintained our free cash flow guidance at DKK 500 million. We feel we're on a good track towards delivering on that and continuing the momentum of the journey of delivering strong cash flow also in this financial year.

That concludes the financial update. And as a last note, before I hand it back to the operator, I just also want to officially announce that we're having a Capital Markets Day and inviting all of you to join on the 1st of October at the Ambu headquarters in Ballerup. We look very much forward to, at that day to elaborate even more on the exciting future we have ahead of us on the market dynamics and also the demonstrations of some of our existing and coming products.

With that, I conclude my presentation and hand it back to the operator.

[Operator]

[Operator Instructions] The first question is from Anchal Verma, JPMorgan.

[Anchal Verma, analyst]

I've got 2, please. Firstly, could you please quantify the tailwind from the pulmonology order in Q1? Given the pullfold effect, should we expect a decent deceleration in Q2. And kind of feeding on from that, obviously, Q1 growth was very strong. How should we think of growth trajectory into Q2? Are there any phasing effects we need to be mindful of? And it would be helpful if you could share similar dynamics for the margins and what headwinds we need to think of? And why we -- why do you think we shouldn't extrapolate the Q1 margins going forward?

[Britt Jensen, executive]

Thanks a lot, Anchal. Maybe I should comment on Pulmonology and let Henrik take the second question.

So first on Pulmonology, I think, again, as you have also seen in the recent quarters, we have some fluctuation quarter-over-quarter in this segment. And this is also why we provide the rolling 12 months number to -- because that's really how we believe that you should look at our business. So I think it's fair to assume that when we look at it for this year that we should be able to deliver around double-digit growth for this quarter. Hence, I mean, if you do the math, you can calculate that you should not expect a continuation of the level of 17% in the other quarters.

As you also know, I mean, we have in the -- when we look at it numerically, we have in the first half of our financial year, a higher revenue typically than the last half due to the impact from flu, et cetera. But overall, we think it's fair to assume a growth in this segment around double digit.

[Henrik Bender, executive]

Exactly. And just to round off on Pulmonology, therefore, I think you should expect likely a slightly lower growth level in the next quarter, but still, we feel a strong growth overall for the year. And again, reminding you all, we had a similar discussion with a slightly different angle on Q4 where we had a slightly lower growth, now we have a higher growth. We're very focused on following the customer demands in this segment and not neither pulling in or pushing out orders.

In terms of margins, we obviously came off with a very strong start. What you should see our guidance reflecting is that we are still investing in the organization. We're still investing in commercial resources, and we want to make sure we maintain some wiggle room in that in terms of our guidance, so we can still continue to make those investments. Last but not least, our EBIT margin, of course, is also -- and margins overall are, of course, also affected by currency effects. This first quarter, we had a lot of positive currency effects. in our outlook for the year, we're still expecting that there could be slightly lower offsetting currency effects the other way. So that is also taken into consideration in terms of our full-year guidance.

[Anchal Verma, analyst]

Perfect. And probably just a follow-up on the legacy business, Anesthesia and Patient Monitoring. It seems that the contracts are stickier than expected and volumes are growing nicely. How should we think of the growth trajectory of this business going forward? Do you think there's upside risk to your 2% to 4% midterm sales growth target?

[Britt Jensen, executive]

I think maybe on the part on the customer stickiness. So again, as most of you will remember, we were more cautious 1, 1.5 years ago because we didn't know how the customers would react as we were increasing the prices quite aggressively on some of the specific contracts that were not profitable. What we have seen is that we have -- I mean, our -- we have good products, we have a high customer loyalty, also, our manufacturing costs are very competitive, so we have not really seen the losses that we were fearing. I think we also want to put a caveat that we can still see losses because typically, you -- it will take a couple of quarters before they actually start seeing the invoices and that they may go and look elsewhere. But again, it's not as significant as we had as a scenario a while back.

Looking ahead, again, we have taken some of the most significant price increases have already been executed and what Henrik also mentioned, I mean, they were done in Q2 last year. So that will -- I mean, we will run out of the growth upside from those. We are, of course, continuing to have price increases and have, I mean, the right price levels as a focus in the organization. So we are going to do that more than you have seen in the past. And then as you have also seen, we have had also some positive volume increases where we overall expect that this will come significantly down from where we are now, but probably not -- and in particular, not when we look at this fiscal year as far down as we had originally guided, which is also why we rephrased our guidance on 9th of January for this segment to mid- to high single-digit growth.

[Operator]

The next question is from Martin Brenoe, Nordea.

[Martin Brenoe, analyst]

Let me start out by saying congratulations with the results and the guidance upgrade. I think it's sometimes worth to stop and smell the roses a little bit here. Well done. I have a lot of questions. I'll start out with 3, if I may.

I suppose that you like to show the 12-month rolling average run rate as it's a bit more stable than the quarterly fluctuations. But the run rate of Urology, ENT, and GI has now decelerated 5 quarters in a row. So when do we actually expect that or when do you actually expect that to stabilize? And which level do you expect this to stabilize at when you start to see the new product launches coming in? That would be the first question, and then I'll take the other 2 questions afterwards.

[Britt Jensen, executive]

Yes. And thanks for that question, Martin. And you're right. And I think as I was also trying to emphasize in my presentation, if we look at Urology and ENT, basically what is driving -- what has driven the growth and what is still driving the growth is aScope 4 Cysto and aScope 4 Rhinolaryngo, which are products that were launched 5 and 6 years ago. So I think it's -- I mean I think it's only fair to -- that you see that the actual growth level as those franchises grow will decelerate percentage-wise a little bit. So I think we -- and then you can say -- we still continue to see, I mean, a nice growth coming both from increased volume with existing customers and also new customers.

So I think when we look at that underlying trend of both of these increasing, we feel quite confident. Of course, there's also some competition coming in. We still see most of the competition, in particular, we see new players entering the cystoscope market. But a lot of these are players coming from China where a few of them actually have a commercial infrastructure to sell their products. But in selected areas, it, of course, puts some pressure mainly on price. But we do actually think if we look ahead and why we are also continuing to invest in new innovation that we should get these -- get strong growth in these segments.

We don't guide specifically on these, but what we guide on is the long-term growth in the overall endoscopy solutions market where we are -- we remain confident that we will deliver on the long-term target of 15 to 20% CAGR. And a lot of this will also come from -- or an increasing amount will come from the new products that we are launching with aScope 5 Uretero and aScope 5 Cysto HD. And then we also have for later in pipeline, a new version of our Rhinolaryngoscope, which is going to be able to address an expanded amount of procedures than the existing product that is out there.

So overall, I think the innovation that we do in bringing more scopes out and also the innovation that we do on the software and systems, which should benefit the full portfolio makes us very confident that we will continue to, in the next couple of years, deliver strong growth in these subsegments.

[Martin Brenoe, analyst]

That's very clear. And then just to the second question, I'll follow up on the previous one on Anesthesia and Patient Monitoring. So when I hear what you're saying on that segment, the majority of the growth that you saw in Q1 was driven by ASP uplift. So that means that the ASP must be up like something like 10% or so year-over-year. And I understand that in looking forward, you'll get less impact from this ASP uplift as this sort of started to impact your Q2. But even so, when we go back to what you said last year, you probably had a low single-digit price increase in Q2 and then it gradually increased the ASP uplift. If my math is serving me correctly, that means that you will have a high single-digit ASP uplift in Q2 as well and then gradually come down.

So I'm just trying to understand the implicit guidance that you have for Anesthesia and Patient Monitoring, which is sort of 2% to 6% or so for the rest of the year organically. Is that because you are particularly prudent on this segment? Or is there anything that causes you to have a negative volume impact from this would be very helpful.

[Henrik Bender, executive]

Sure. I'm happy to comment. So I will not comment on the specific math of the price increases, but I think it's fair to confirm that the price increases are significant and are driving a significant part of the 17.8% growth you see in Q1 for this segment. Obviously, part of that price increase, you will also see in Q2, and therefore, Q2 will be higher. I think besides that, Martin, I think what is important to keep in mind is also, as we've communicated before, there are also some quarter-on-quarter fluctuations in terms of timings and the orders of this -- in this segment, one. And two, we are still also maintaining a prudent outlook on what are the volumes expectations we should have for this segment because we can still see some of the customers testing alternatives.

That also means, of course, that if all of the customers decide to not make any changes and stay with us, then there can still be a bit further upside on the segment. But we feel this is the prudent approach, assuming that we have a higher growth in Q2. And then after that, it drops more to the level we've been more used to for this segment for Q3 and Q4.

[Martin Brenoe, analyst]

That's very clear. And I'll just have a very brief last question, then I promise to jump back in the queue. On the video laryngoscope, I was a bit surprised to see the 15 million intubations that you mentioned just in the U.S. How many of those do you actually think are relevant to the SureSight, would be that question.

[Britt Jensen, executive]

Yes, exactly. And maybe I should -- I think I said that all of this 15 million was a video laryngoscope. I reflected that afterwards. That's not the case. But that is -- it's not all with a video laryngoscope, but it's all with laryngoscope. Some of them are not using the video part, although that this, in particular, also after COVID, this part is growing quite rapidly. So you should think about this market as a market that is split between the video ones and then the regular ones. I don't think we break it down further, and we are trying to validate some of these data that we get from approved sources to understand where is it that really our product can make a difference. So I think we'll come back and update you on that as we get closer to the market.

I will say, overall, if we also look at the product that is used, that is currently out there, the GlideScope, we -- I mean, we don't have precise estimates of that revenue. But what we are very excited about is that when we get the customer response and in the controlled market release that we are doing now that we see very strong and positive feedback and that we have some features that the customers really like. And then the whole combination with our portfolio where we have a comprehensive bronchoscopy portfolio, a leading position with both the aScope 4 Broncho and then with the strong momentum that we see in the U.S. on the aScope 5 Broncho, I think that whole portfolio being able to use all of it on the same system and I mean, sees simultaneously, I mean, the camera from the video laryngoscope and the bronchoscope at the same time is something that the customers are very excited about.

But again, also, we try to be cautious. I think otherwise, Henrik would correct me that -- and I think it's important to think about it like this, that how we typically have seen our launches is that we -- when it's approved, it does take a while before it really starts to show meaningful in the numbers, partly because we start with a controlled market release to make sure that we get results from real-life patient cases before we go into the actual commercial launch. And then once we go into the actual commercial launch, we see also our customers evaluating it. And then sometimes it has to go through their internal committees before it's -- they start to buy in higher volume. So these are the steps that typically happens in our selling processes that are important to have in mind.

[Operator]

The next question is from Niels Granholm-Leth, Carnegie.

[Niels Granholm-Leth, analyst]

First question on your aScope 5 launch. Perhaps you could give us a little bit color as to the proportion of aScopes, which are actually being shipped into the Bronch suite or consumed by the Bronch suite, which was the original intention of this important product launch. And also perhaps elaborate a little bit about the share of the Pulmonary revenue that actually comes from the aScope 5. And then secondly, could you talk a little bit more about the initial response to your ureteroscope launch?

[Britt Jensen, executive]

Yes. Thank you. So let's start with the aScope 5. I think we don't give out specific numbers as to the different customer groups. But I think as we have also alluded to before, and you're right by saying that we started out with this as a product that was targeting the suites. What we did found was that, I mean, this was not the place where we had the strong relationships. This was not where we were used to selling in. So we actually -- and then at the same time as that, our reps saw interest and traction in the ICU and to some extent, also OR. So that's really where you can say if we look at the revenue now, we have the majority of the products are being used outside the suite still today, but we still also see an increasing interest and penetration in the suites where sometimes it is the same doctor that overlaps in the 2. So we are still quite pleased with the product offering and how it's received.

In terms of share of revenue, we also do not give that out, but I can say that it's still -- the majority of the revenue is still coming from aScope 4 Broncho where we have also seen an overall revenue growth. Then on Uretero, so that product, we went into commercial launch was a couple of months back. And the main competition, as you remember, this is the first time we come out with a single-use endoscope where we are not the first product to be out there. So that's why we are able to directly compare both with the LithoVue from Boston Scientific. And then the other main product we see out there is from [ Fusion, ] a Chinese player. And then we see a couple of other Chinese players coming out with ureteroscopes.

Overall, we see a very strong response. And when we look at some of the customer feedback that we have and that is also quantified a clear preference in terms of image quality and in terms of a lot of the functions that we have available on the product. So we are super excited about that. And the fact also that the functionality we have of the software where we are also superior to some of the competition makes us very confident in this and also with the future uptake of this product. We are again also -- even though we are in what we call commercial launch of this phase, we are again also seeing the classical processes of evaluations and then, I mean, before they move in. So we -- it's still a lower part of the overall Urology revenue, but we see that increasing, and we are quite optimistic from what we have seen now that this is going to be an important product for our co -- of our Urology portfolio, sorry, in the next couple of years. So very excited, I would say.

[Henrik Bender, executive]

And perhaps just closing off, I think combining the 2 questions, Niels, I think what aScope 5 taught us in Pulmonology is the value of the portfolio, where aScope 5, clearly, as we are pointing out that it's more successful than we thought in the classical OR and ICU. It's really the value of the portfolio. And it's the same we're starting to see now with Uretero, with the Cysto and now with the Cysto HD in Urology, it's the value of the portfolio where we stand out from the rest completely with one portfolio, one system, one platform.

[Operator]

The next question is from Rickard Anderkrans, Handelsbanken.

[Rickard Anderkrans, analyst]

So in Anesthesia and Patient Monitoring, I just want to double check if there's any stocking or unusual purchasing patterns there? And maybe if you could remind us the reliance on large accounts, any particular large accounts? Or is it pretty diversified in the sort of customer base for those products?

[Henrik Bender, executive]

I can start. So obviously, we have a few bigger accounts across the globe, NHS in U.K., for example. But generally, they represent a smaller fraction of our global sales. So we are not dependent on single bigger customers. In U.S., we are on GPO contracts, but reality, it's the volume offtake by hospital that drives the demand even if you're on a bigger contract. So it's not single big orders from individual customers that are driving extra volume. What we have seen in the quarter is that we have had some positive competitive developments in some submarkets where competitors for one reason or the other, have been struggling with quality or pulling a little bit back in some subsegments, and that has helped us a little bit on volume.

How much of that will stick, we don't know yet. And still, we also have the dynamics, as we mentioned, where we see some of our hospitals testing alternative to ours because of the price increases. So it's the net of all of this that currently is also driving a bit above normal volume effects, not single big orders from any single big customers.

[Rickard Anderkrans, analyst]

All right. That's great. And the final question is continued good gross margin uplift trajectory. I was curious if you could comment a little bit on capacity utilization in the manufacturing, particularly perhaps in the Mexican plant. What are your expectations for '25 there? How much more can you get incrementally out of just purely sort of absorbing and sort of increasing utilization?

[Henrik Bender, executive]

Sure. So overall, we still have much more capacity. And for Mexico, specifically, I think I've said before in these quarterly updates, we're only getting close to 50% of what that factory could yield in terms of total capacity, and that's still the case. So we're still below 50% of the potential output of what an efficiently running factory should be yielding in terms of output. That said, of course, with geopolitical dynamics, we're also constantly observing what is the right mix in terms of production footprint across our 4 production sites and therefore, also cautious in terms of how we split the production volumes. And therefore, I'm also indirectly saying that what we actually have managed to do is to continuously also increase production efficiency in our Malaysian site, which even though it's the biggest and the most effective, we can still drive more efficiency even in that side.

And net-net of that means that at this stage, we're not concerned on capacity for the many years to come. For us, it's more a matter of how we run it more efficiently, how we manage it under the geopolitical conditions we are under rather than looking at how we expand capacity.

[Operator]

The next question is from Yiwei Zhou, SEB.

[Yiwei Zhou, analyst]

It's Yiwei from SEB. I have 3, and I'll do one at a time. First, I just want to follow up on the Pulmonology growth. So if we exclude all those quarterly fluctuations, based on my rough calculation that aScope 4 has also returned to quite strong growth. And if we compare it to the last 2 quarters, it seems that has been a big acceleration here. I was just curious that -- I mean, it is before your video laryngoscope launch. And what has driven the acceleration here? Could you please elaborate a bit?

[Britt Jensen, executive]

Yes. So it is -- thank you for the question, Yiwei. So it is, as you -- I mean, rightly say, it is also growth that we see with our aScope 4. And there are some -- I mean, some dynamics that are, as we also talk about some higher orders that are coming in. And it's not -- I mean, the simple fact you can say is that we continue to be competitive of our product out there. I mean it's a market that is still -- there's still a lot of growth perspectives in terms of converting from reusable to single-use. So I mean that market can easily continue its growth.

And that's -- I mean that's also -- I mean, what we see as an impact. And then you can say in -- overall, in general, if we look at EMEA as a separate region, there, we have -- the main competition we see is from players that are lower cost or not lower price, I would say, from China that we mainly see in some select tenders, but not that much who is then focused on the price. And then we see in the U.S., I think we are doing a very good job versus our main competitor with single-use, which is Verathon because we also have the strong portfolio and the combination of aScope 4 Broncho and aScope 5 Broncho. And then in anticipation of our Video Laryngoscope solution as well, we think we are in a good position with that full portfolio, but I cannot comment more on the details.

[Yiwei Zhou, analyst]

Okay. My question is more like why in this quarter, specifically, we sort of seeing the acceleration here. I understand all the fluctuations, the flu season, the large order phasing, and I understand all those. And just curious, are you start to sort of winning back some of the tenders here in Europe? Or is you're increasing the sales from your existing accounts? Or is it you've been investing in your sales force, which start to paying off and will enable you to gain more accounts?

[Britt Jensen, executive]

Sorry, sorry, I didn't fully answer comprehensively. So I think if we look at that, so there's not -- I mean, there is the part about timing of orders. And that's again why, as we talked about earlier that we try to give the rolling estimate because we -- I mean, that's how we look at it as being more accurate. And as Henrik was also alluding to, we had a lower growth in Q4, which was also partly lower because we had a strong comparison from the year before. And then it became higher. But as Henrik was also talking about before, we don't have any single big customer that is really driving a lot of the growth.

So how we -- some years ago had NHS that placed a big order, the order pattern from NHS today is much more spread out across quarters aligned with the usage that they have. So there has been, you can say, 17.7% is higher than what you would typically expect of growth. And that's also what we are trying to say, don't expect this to be the new level of growth. But I think it is these imbalances that we see between the quarters because also we don't -- I mean, we don't try to drive the demand from customers from one quarter to the other. I mean we sell when they need the product. So there can be a little bit of inventory at the hospital level that they buy a little more before year-end and so on. But there's no one significant part. It's spread out. And when we look at it in our books as well, it's also spread out nicely across our different markets and customer types, which is also what -- I mean, we are very pleased about because I think that also means that it's easier to run a healthy growing business.

[Henrik Bender, executive]

Absolutely. And perhaps just to specifically on the customer type, given your question also there, I think it's -- what we're really happy to see is that our existing customers are still buying more. So what we also talked about in the last 2 quarters of the continued conversion from reusable to single-use even in our core segments, the OR and the ICU, that's still a continuation and something we also see here in Q1, I think now a bit more than what you saw in Q4. But really, if we look at the rolling 12 months, that is what we see. So it is very much still existing customers. And then also that we are winning back some customers to Britt's point, that's a little bit more selective. So it's a smaller part of it. It is still existing customers buying more. That's the majority of the growth.

[Yiwei Zhou, analyst]

Then I'll move to the next question here on the ureteroscope. So it's been a few months since your commercial launch. And I was wondering, you mentioned you have pretty good feedback on the quality on the major quality software. But based on the feedback you have, I was wondering, have you heard that any customer giving pushback or indication on the pricing? And is the pricing a top priority for your customer? And has your view changed on your initial price indication?

[Britt Jensen, executive]

No, it's a good question. And I think that's also where I think it's helpful to look at the different -- of the different countries or continents, if you will, because we have -- I mean, if we look at the U.S. market that has a different structure, what -- I mean, what we clearly see is, I mean, by far, the market leader and where most of the single-use is -- I mean, the product that they use is the product from Boston Scientific, which is priced at a premium price relative, you can say, to some of the new players that are entering that are mainly of Chinese origin. Where we look at the dynamics in the European market, it's -- I mean, we have more -- we have Boston Scientific having a less dominant position. And then we see more competition from -- I mean, from low-priced Chinese players.

And I think it's important for us and our pricing policy is that, I mean, we want to be competitive in the market, but we also want to make sure that, I mean, the quality in the products that we bring that we set the price accordingly. And that can, of course, always be a little difficult. And that's also where in the initial launch phase, you need to test a little bit, I mean, how the pricing is and not fall for the temptation to go too low on price too fast. So I think it's fair to say where we have seen some price competitiveness, which is probably not surprising for you is in Europe, and that's coming from products that we also believe are not on par with the products that we are offering. So that's really some of what we are trying to get to the right level, but we are not by default lowering our price taking value out of the market with the solution that we have.

[Yiwei Zhou, analyst]

Okay. And then I also want to follow up on the ureteroscope here. What I heard in some of the countries, the hospitals and -- actually reuse the single-use ureteroscopes for multiple [indiscernible] patients. I mean, it doesn't make sense, but they still do it in reward. Is something you have seen?

[Britt Jensen, executive]

I mean I think I should say that also from a patient safety perspective, I mean, our products are fully sterilized, and we strongly recommend and market our products for single use because we -- I mean, again, that makes sure that a patient is always treated by a fully sterile product. Then you can say, I mean, what then the customers do and if they use it multiple times, I mean, that's clearly at the own risk of the hospital. I mean I think there are rumors going around always around this, and that may be the case. We have also heard similar rumors, not specifically related to our product.

But I think we -- I mean, we continue to also focus on marketing our product at the highest standards. And I think one of the benefits that you have with a single-use endoscope is that you can be sure that you always get treated as a patient with a 100% sterile product, which even the reusable after the reprocessing, they are not. I will say, though, that the rumors that we hear, they are not specifically related to the ureteroscope. So I think it's something that is -- I mean, is coming from all the different segments that we are in. So -- but again, I think that's something that is not something we recommend and would want to see.

[Henrik Bender, executive]

I think it's also fair to say it's also mainly in developing markets, less so in mature markets.

[Operator]

The next question from Delphine Le Louet, Bernstein.

[Delphine Le Louet, analyst]

Effectively, 3 questions on my side. The first one would deal with the gross margin breakup and regarding the improvement. Can you size probably the difference in between the mix of the price and the efficiency? The second question deals with the -- how should we think about the ramp-up in terms of the sales force and looking at the CapEx over the year '25. So if you could be more specific when it comes to sizing properly your sales force according to some of the indications.

And finally, the question is more broad and effectively, you alluded to that regarding the politics and specifically into the U.S. But I'd be pleased to get a wrap-up of what is the capacity that you have currently in Noblesville, what you're doing exactly, how you think about the future? How could we think about the U.S. market considering -- or can you talk about your scenario that you have put in place already very much of interest from my side.

[Britt Jensen, executive]

Thank you. And Henrik, do you want to take the first question?

[Henrik Bender, executive]

And I can certainly do that on gross margin, and then we can move on to sales force and the geopolitical view. So we don't split the impact of the gross margin expansion of 2.4% across the 3 levers. I think, obviously, price increases are right now one of the driving factors of that. So that's, if any, probably the main lever. I think what is also important to reiterate going back to what we also communicated in August in connection with Q3 and in November in connection with our Q4 is that we see a continuation of these initiatives still in particular, the endoscopy solutions growing faster than A & PM, helping our gross margin and production efficiencies still increasing, helping our gross margin being the levers that you will continue to see for the years to come.

So I think that's the short answer to what happened in Q1, but also what you expect going forward. Do you want to comment on sales force sizing or...

[Britt Jensen, executive]

Yes, I can do that. So maybe on the sales force sizing and Henrik has also alluded to this, and we have both prior -- we have -- I mean, gradually, we are expanding our sales force. And we are doing that because we see a potential. And as we have also seen a strong traction on our financial performance and our turnaround, this has been a key focus because growth is our #1 focus. And now we see plenty of opportunities as we are serving a broad number of segments for further expansion and where we could reach more of the high potential customers. So this is what we are gradually doing.

I mean, all the time balancing also that we want to have some level of profitability and then still to maximize growth. So you can expect us to continue stepwise to do this. We are doing it very gradually, so we continue to have it under control and also be able to efficiently leverage this from an organizational standpoint. So that's what you can expect. So you will not see what you saw some years ago. I think I should emphasize some big increases in specific segments. I think we have already taken some steps to increase our sales force overall in the main markets that we're in, and we will continue to do that.

Then on your other question on capacity and the U.S. situation and related to tariffs, which we also have spent a bit of time on. I think how to look at it from an Ambu perspective, I mean, we have our own scenarios of that we have worked with. And then we try to lean back and be very close to -- I mean, both our industry associations in the U.S. that are close to some of the decision-makers there and then the rest of the people in the industry. But 3 things to have in mind here is, number one, we have a very flexible setup with our manufacturing in U.S., Mexico, Malaysia and China. And we have -- with our ramp-up in Mexico, we have actually seen that we can very smooth transfer lines from one area to the other. So I mean, we have that flexibility, but it's not, I mean, a handle that we have pulled yet because we do need to get a full overview of the situation. And this is not something that we will do for a short-term thing. So I mean, we're really trying to understand, but that flexibility we have.

I think the second thing to have in mind is also when we look at the competitive landscape and our competitors, mean they're basically in the same situation or several -- I mean, in a worse situation than us. So I think how the market dynamics will be and our competitive position, I don't think we will -- I mean, there's a high risk that will be hit harder than most of our competition. And then I think the third very important thing is that when we look back when Trump was last in office, the medical products were exempted from tariffs. I mean now will that happen again? Nobody knows, but there could be a likelihood that products that are used for life-saving purposes that they will be exempted. And that's still something we'll have to see. But I think we are well prepared overall, and that's all we can do. We follow it very closely. And then we also focus on serving our customers, making sure that our products are available with the many customers that we have also in the U.S.

[Delphine Le Louet, analyst]

Okay. And you don't see -- I mean, just a follow-up from that. You don't see so far on your customer side any request or any inventory buildup in order to prevent any politic move fast move than anticipated?

[Britt Jensen, executive]

No. I mean it's not something that we have seen in any meaningful way. And I mean we have talked to, I mean, other companies, and I know some companies have been out saying that they have seen, I mean, some higher demand from customers stocking up. It's not something that has -- I mean, that we have heard a lot about. Has it happened in smaller scale here and there, that could very well be, but it's not like a bigger theme that we have picked up.

[Operator]

[Operator Instructions] We have a follow-up question from Martin Brenoe, Nordea.

[Martin Brenoe, analyst]

I know that time is running here, but just maybe one follow-up question. Thinking a little bit about the margins. How should we think about the trajectory from here? Because you had this quite strong margin here in Q1 and you guide basically for the margin to come down through the year. But how will the trajectory actually go? Should we expect in Q2 that you have the gross margin support as well and then that's slightly coming down and also some operating leverage in the beginning and then coming down in H2 as you invest gradually in the sales force? Or how should we think about that?

[Henrik Bender, executive]

Fair question. So we obviously don't guide on the margins by quarter. So I will not be completely transparent in terms of how we see it. But I think, Martin, it really comes back to what we said before. One, first and foremost, that we want to maintain the flexibility to make the right investments, the commercial investments we want to do. They take time and sometimes come in a little bit in phases and will also likely come in throughout Q2, Q3 and also Q4 for this financial year. I think besides that, on the gross margin side, obviously, it depends a little bit on how the Anesthesia and Patient Monitoring segment will develop for the rest of the year.

At this stage, we had a very good Q1, and we're also expecting the price increases to help us in Q2. But beyond that, it's mainly the endoscopy versus A&PM mix and the production efficiencies that are helping us on gross margin. I think, therefore, net-net of this, it really comes back to what we communicated back in Q3 and Q4 last year that the longer-term margin fluctuations will then mainly be on OpEx ratio, where we see the largest operating leverage potential as we go forward, but also where we are making selective investments, and that will drive some of the variance across the year. But I think the net sum of this is we feel we are off to a very good start.

I think as we said, we target to get from the 12% we ended last year at towards the 20% approximately that we are targeting in '27, '28 in steps, that means for this year, a good solid 2 percentage point step. That's right now in the middle of our guidance. So we feel we're on a good trajectory and still have the maneuverability to make the investments we think are right to support the business overall and particularly also support the product launches that we have ongoing right now.

[Operator]

The next question is from Tobias Nissen, Danske Bank.

[Tobias Nissen, analyst]

I have 2, fast one, if I may. Another one follow-up on the Urology portfolio. You had a very good launch with Cysto 4 and launching these 2 new products, Uretero and Cysto HD. Is it fair to assume any meaningful contribution in terms of sales this year going into the second half, given the strong overlap with customers you're already reaching with the Cysto 4 Scope. Another one just on guidance. You are guiding 15% growth for the Endoscope solution business. What are -- what's keeping you from lifting this given the strong start to the year? And what are the moving parts around this guidance?

[Britt Jensen, executive]

Yes. So I think on the Urology, I think it is part of the customers. I mean, there is a clear overlap in terms of having the products in the suite. Part of the customers are using, I mean, the cystoscope primarily and then slightly less, I mean, the ureteroscope and then part of them are using, and that's the new customers that we're addressing. The vast majority is Uretero and then some are cystoscope. So we still see a huge benefit of having that portfolio because they like to have both of them in the hospital or in the clinic. But we -- that's where we see some of -- I mean, the process is taking a little bit longer.

And again, I mean -- and this is very much what we have seen in other segments where we have launched. And we do think it will go slightly faster with the ureteroscope than we've seen in some of the other products. But still, I mean -- and it will add revenue this year, but not -- I mean, not that strong based on what we have seen in the past. So I think that's why we are -- I mean, we want to be clear on that. Then in terms of the guidance for this year, we do not guide 15%, we guide plus 15%, just to clarify that. And I think it is again because we see a strong Q1 that we have just had. And we expect also -- or we see later in the year, as we also said when we put out our guidance that the second half could be a softer year overall than the first half. So that's also why we feel it's a little too early to go out and guide anything else than the plus 15% that we have. But it is, as I alluded to, we do expect around double-digit growth on the Pulmonology. And then we do also expect continued strong growth on the other segment.

[Operator]

Ladies and gentlemen, that was the last question. I would like to turn the conference back over to Britt Meelby Jensen for closing remarks. Thank you.

[Britt Jensen, executive]

Thank you for that, operator, and thanks to everyone for a lot of very good questions today. So have a very nice rest of the day, and see you soon.