August 9, 2023
Olympus Corporation
1Q FY2024 Earnings Conference Q&A (Summary))(Disclaimer)
For your reference, please find an English translation of the question and answer session at theconference for financial results for the first quarter of the fiscal year ended March 31, 2024 below.
This transcript has been edited/modified from the original Q&A conversations for the sake of clarity.
This material contains forward-looking statements that reflect management's current views, plans,and expectations based on information available at the time of preparation. These forward-looking
statements are not guarantees of future performance and involve known and unknown risks,uncertainties, future business decisions, and other internal and external factors that may cause theCompany's actual results, performance, achievements, or financial position to be materially different
from any future results expressed or implied by these forward-looking statements.
Additionally, this information is subject to change without notice. Accordingly, other information should
be used in addition to this material when making investment decisions.
Olympus Corporation assumes no responsibility for any damage resulting from the use of this material.

[Q&A (Summary)]Q:

You mentioned that 1Q was a slow start compared to the internal plan. How much did revenue
and profit fall short of the plan, respectively, and what were the reasons for each?

A:

Revenue missed about 3% compared to the plan. That was due mainly to an opportunity loss insales stemming from product ship hold and parts supply shortages, which represented about 1.52% points out of the total miss of 3%. This was particularly noticeable in TSD, the growth of which
was inhibited by 3-4%. In addition, the accuracy of our quarterly internal planning was somewhatrelevant. For example, in the U.S., more customers refrained from purchasing in anticipation of theEVIS X1 launch than we expected. Also, in China, sales didn’t grow as fast as the increase inprocedure volume due to higher-than-expected customer inventories. COGS was in line withexpectations, while SGA exceeded the plan by about 4 billion yen. The breakdown is as follows.
Half of the excess was due to timing difference in expense recognition (upfront spending for someprojects). The remainder was due to the higher-than-expected number of QARA-related complainthandling cases, which led to a cost over-run.

Q:

Regarding TSD, Urology segment seems a bit weak. You mentioned that the reason was productship hold, but I would appreciate more details. Also, I would like to know more about the impactof the shipment restraint on business. In particular, I think Urology segment has been weaker thancompetitors in the past two or three quarters. What were the reasons for the weakness in the firstquarter?

A:

We talked about product ship hold and parts supply shortages. Those issues happened in major
products in Urology. There was an impact in Plasma (resection electrodes) and SOLTIVE, especiallyin Europe and the U.S. On the other hand, we see momentum in Australia, partially offsetting theheadwind.
Looking back on the past two to three quarters, there have been shipment restraint due tosupply shortages. We have seen a recovery in some products, but it has not been a full recovery
yet. We will continue to work with our suppliers to improve the situation. On the other hand,
shipments have not been able to keep up with growing demand in key areas, suggesting sales
growth in the future.

Q:

Why are shipments being suspended? When exactly do you expect a recovery? Has the impact insome major products been factored into this fiscal year's forecasts?

A:

There are several factors. One of the issues is related to supply chain and components, and it
would be difficult for us to see an improvement soon. There is a time lag before parts arrive at ourmanufacturing sites, and capacity is limited. We are trying to increase production volume as muchas possible in coordination with our manufacturing sites. In some cases, we also use contract
manufacturers as a countermeasure in cooperation with our suppliers. In terms of resolution time,
although we are striving to fulfill some back orders, it is difficult to tell you about the specifictiming for improvement since we are involved in multiple regions and products. Note that the ship
hold for “Plasma” electrodes has already been lifted, and we hope we continue to deliver smoothly
in the future. We expect a full recovery in the second quarter.

Q:I would like to ask your annual projection for the QARA cost for responding to the FDA Warning
Letters. How much is the full year forecast at this point? In addition to the QARA cost, how muchdo you estimate for the cost related to the efficiency improvement projects, in the first quarterand the full year forecast, respectively?

A:

The total remediation cost (the QARA cost for responding to the FDA Warning Letters) for thisfiscal year remains unchanged at 22 billion yen. Our views remain unchanged, while conducting
reviews and monitoring progress frequently. In the first quarter, about 5 billion yen was booked in
Other Expenses and several hundred million yen in SG&A. Progress is basically on-track. The
remainder of the budget (22 billion yen minus about 5 billion yen) will be allocated from thesecond through fourth quarters. Since progress of the SG&A part is slow, we expect that part toincrease in the remaining nine months.
For your information, we expect SG&A expenses (before FX adjustment) for the current fiscal year
to be about 30 billion yen higher than the previous year. Of this 30-billion-yen increase, 8.5 billion
yen has already been accrued in the first quarter, so we would say expenses are a little ahead ofschedule. The excess in the first quarter vs. our plan was about 4 billion yen (4%). Half of it (2billion yen) was due to a timing issue and will be absorbed in the remainder of the year, but theremaining 2 billion yen was a cost over-run vs. the plan. We plan to take actions to keep the fullyear increase in SG&A within our budget of about 30 billion yen (increase vs. the previous year).

Q:

GI endoscope business in North America declined compared to the previous year. I think risinginterest rates may have affected lease sales. Is the weakness due solely to customers refraining
from purchasing before EVIS X1’s launch, or is the decline also attributable to the overall capex
environment in the market?
A:

Although we are aware that hospital management is getting tougher and the capex environment
turned a bit negative, we still understand that the impact on our endoscope business remains
limited. Since we announced the launch of EVISX1 in North America at DDW in May, we have seencustomers refraining from purchasing.
Customers are excited about EVIS X1 very much, and the GI community is waiting for it. We havenot been affected too much from the pressure for capex environment.

Q:

You explained about ship hold and parts supply issues with a focus on Urology. As I heard that
there were also similar issues in Respiratory, I am curious about what the background is and what
products are affected. Also, there was a news release in July regarding the bronchoscopes withusing laser device. I wonder if this issue had an impact in the first quarter.

A:

In Respiratory, we have seen a series of issues such as ship hold for Veran-related products,shipment delay in bronchoscopes, and order backlog for Endo Therapy products. Ongoingsupply chain issues have also impacted the respiratory area, and backorders are piling up forneedle products. These issues are not happening in all product categories, but some products
related to EVIS X1, which has seen double-digit growth in the past, have been in this state ofconstraint for about a year. There have been some material-related issues, too, and we have talkedwith suppliers. The overall respiratory products are waiting for the launch of EVIS X1, and in someregions, this capital constraint is having an impact. In addition, some hospitals in Europe and Japanare slowing down their capital investments, which is also having an impact. Regarding thebronchoscopes with using laser device , we haven’t had a significant impact on the business so farand don’t expect it to have a major impact in the future.

Q:

You mentioned that revenue missed roughly 3% compared to the internal plan, out of which 1.5
to 2% points came from supply chain issues such as product ship hold and recalls. What otherfactors were attributable to the miss? You mentioned that TSD in China didn’t increase as much as
the number of procedures. Does that explain the reason? I would appreciate more details.

A:

Consolidated revenue growth of 1.5-2% was hampered mainly by ship hold and parts supply
shortages. The remaining factors were numerous, but to give you an example, there were moreU.S. customers refrained from purchasing than we thought. The customers’ inventories in China
were higher than expected, leading to a mismatch between procedure volume and our productshipments.

Q:

Do you think those various factors are likely to be resolved?

A:Measures are being taken for product ship hold. For example, we resumed shipping some products
by revising their instructions for use. We are taking countermeasures in many ways and can catch
up with the market. As for the U.S. customers’ behavior, we will try to recover in the second half
after launching EVIS X1. In China, as soon as customers’ inventories are consumed, we expect

stronger growth than in the first quarter as the number of procedures is increasing.
Q:

Is the ship hold problem due to structural issue at Olympus (changing the internal structure andraising standards and other hurdles in quality management system)?

A:

The difficult situation on the suppliers’ side has been impacting parts supply shortages. Regarding
QARA, we are checking various products and processes and focusing on patient safety with highstandards. In addition, we need to keep a close eye on compliance. We need to make sure that allprocesses and documentation are in place, and if there is a problem, we need to make ship holdfor the product until we take corrective actions, change the instruction for use, etc. We make surethat we meet the high standards of all regulatory agencies as well as patient safety levels.

Q:

How much did operating profit fall short of the internal plan? Do you have a breakdown for
ESD/TSD?

A:

Adjusted operating profit was about 9 billion yen lower than the plan. Regarding segment
breakdown, as SG&A allocations differ between a reporting basis and a managerial basis, we aregoing to refrain from commenting on details.

Q:I heard that the tender process in China is slow due to the anti-corruption campaign. Do you see
any impact? Please tell us about any changes in China.

A:We haven’t heard that the anti-corruption campaign is affecting our business so far, but we see
anti-corruption activities emerging around our ESD's capital business. So we are closely
monitoring this issue, as a similar event in China quite some time ago had an impact on ourbusiness for several months. Although China has shown significant growth compared to theprevious year, that was due to a low comparison because the previous year was affected bylockdowns. We will closely monitor the impact of anti-corruption in the coming months. We arealso closely working with our management in China to keep an eye on the impact of the absenceof the low interest rate policy on our business in the future. At this moment, it is still early toprovide further details.

Q:

Regarding weakening capex sentiment at hospitals, you mentioned that ESD has not been affectedmuch. But at the same time, you also mentioned that there is some impact in Japan and Europe.
Would you tell us about color of each region and whether they have been factored into yourforecasts?

A:

It is difficult to provide accurate numbers for each region. We see Europe experiencing a slightdecline in overall economic conditions, which is putting pressure on hospital budgets. In addition,
we benefitted from large investment projects in the U.K. and Russia in the previous year, and thus
we have a high comparison this year. In addition, there is a lingering impact from COVID. Although
the external environment in Europe and Japan is not very positive at present, it has been factored
into our plan. In the meantime, robust growth is expected in APAC and Latin America. Currently,
events such as ship hold, QARA-related responses, and geopolitical risks, are impacting ourbusiness, but those have been factored into our full year forecasts. However, it is difficult to provide
a regional breakdown.

Q:

You mentioned that adjusted operating profit was about 9 billion yen lower compared to the plan.
The breakdown is about 2 billion yen for QARA costs, about 2 billion yen for timing difference in
expense recognition. So, is the remaining 5 billion yen attributable to ship hold and supply chain
issues?

A:

Your understanding is correct.
(End)