Medacta Group S.A.

Good afternoon, this is the Chorus Call Conference Operator. Welcome and thank you for joining the Medacta First Half 2025 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Francesco Sicardi, CEO of Medacta. Please go ahead, sir.

Thank you very much, and good afternoon or good morning. Everybody, welcome to Medacta 2025 half-year results, conference call, and live webcast. The slides of today's presentation can be found on the Medacta Investor Relations website, along with the media releases. I would like to remind all participants that the presentation includes forward-looking statements which are subject to risk and uncertainties. And listeners and readers are therefore encouraged to refer to the disclaimer on slide two of today's presentation. And after those housekeeping remarks, I will now turn to slide four and start with the highlights of today's publication. We have already presented our top line H1 revenues, 344.1 million, corresponding to an increase in custom currency of 19.8%. Our adjusted EBDA margin for H1 in cost and currency reached 29.6%, which corresponds to a rise of 27.5% over last year period. The net profit for the period amounted to 60 million, a significant increase of 58% over H1 2024, And we confirm our outlook both for 2025 and our mid-term outlook. If we go on slide five, we can appreciate even more the considerable above-market revenue growth that Medact has been able to deliver over the last five years. This growth represents more than 4.5 times the market. So MEDAC is consistently delivering above-market revenue growth. on the next slide slide number six we can see why we are delivering those remarkable results and clearly the most important one is our ability to constantly innovate in a way that really impacts and improve patient outcome And at the same time, we are able to sustain the healthcare system in terms of providing solutions which are adoptable and sustainable. This innovation is sustained by education, medical education, fully personalized to our customers, the surgeons, so that they are able to adopt this innovation in a safe And the combination of great products with great service allows us to attract a lot of good and experienced salespeople. And this is the third pillar of our above-market growth story. And those are exactly the success factor behind our H1 results. If we move to slide number four, we can see again the split of our sales across our geographies, and I will not spend too much time as we presented those results already in July, but we can see a very, very good growth rate across all our geographies, Europe, US, Asia Pacific, and Latin America. If we then look at the split of our product mix, you can see again a very good performance across all our business lines. Our more mature and core product lines like HIPA grew around 11.5%, NISA almost 24%, extremities which include shoulder and sports medicine 44% and spine almost 19%. So we can see a very very good performance across all our business lines. Quickly an overview of how this performance compares with the market growth On the hip side, with a strong focus on anterior minimally invasive surgery, the growth corresponds to more, almost three times market growth. If we look at the knees on the next slide, number 10, we can see a growth focusing on kinematic alignment and the unique and first KA-optimized implant, the GMK Spherica, that allowed us to generate a growth which correspond to more than five times the market growth for the first semester. Spine, again, big focus on personalized technology, both through our Nexstar and MySpine, allowed us to grow five times faster than the market in a market that we know is very competitive and therefore a remarkable performance here as well. And then the extremities. Extremities, as I said before, they include shoulder arthroplasty and our sports medicine business line with a remarkable 44% year-over-year growth and, again, significantly above market growth. I would like now to introduce Corrado Forsetta, our CFO, to go over our P&L details. Please, Corrado.

Thank you, Francesco. Let's have now a look at our key financials. And I will start with this first slide where we see the gross profit that in the first semester this year reached the Euro 235 million compared to previous period of 190 million, representing an increase of 19%. The gross profit margin was 68.3%, pretty much in line with the previous year when it was 68.5%. Moving to the next one, here you see the adjusted ABDA margin represented by the red line. You see that this year, The adjusted EBDA margin at cost and currency reached 29.6% compared to 26.9% of the first semester 2024. And this represents an increase of 2.7% versus previous year. In Euro, the EBDA adjusted increased to Euro 98.8 million, representing an increase of more than 27% year over year. As we say, the acquisition of Parcus was a good achievement, also from an accounting perspective, and this is reflected into our unadjusted report at the BDA that was equal to 110.5 million, including a positive net one-off of 12 million coming from the badwill resulting from the acquisition of the Parcus compound. Moving to the next slide, here we see the net profit Before tax, the net profit was equal to 68.6 million compared to 44.7 of previous year. Thanks to this 12 million of positive from the acquisition, the effective tax rate was lower than the previous period. We registered 12.5% this semester compared to 15 roughly of the previous period in 2024. So, as a result, the net profit for the period was 60 million, or 17.4%, representing an increase of around 60% versus the previous period. Moving to the next one, here we see the CAPEX. As we said several times, in this business, growth means primarily new instruments and expansion of production capacity, And if you look at our cake, we see the usual big slice in that view represented by instruments, 36.2 million, representing by far the biggest chunk of our CAPEX. The second big chunk of CAPEX is represented by other tangible, where you can see there primarily the expansion of our buildings, production facilities, offices, and the logistics hub in Italy. And both instruments and are let's say driven, CapEx driven by growth representing more than 80% of our total capital. Research and development capitalized was equal to 5 million, more or less in line with the previous period. And today, this year, we have roughly 5.3 million, 5 million of CapEx in financial CAPEX, including the price paid for the acquisition of the company. Moving to the next one, we see the operating cash flow. So the cash flow generated by operating activities remains robust and sufficient to finance our investments. In particular, this semester, we registered 73 million compared to 42 of the previous period. explained basically by the expansion of our ABDA and some improvements in models and lower requirements of what we can expect. So this $73 million of cash flow generated was more than enough to finance all our capex that we just discussed and to generate a smaller positive free cash flow of $8 million in December. Moving to the last slide, you see here that thanks to the ability of the company to self-finance growth, the leverage remains very low. In the first semester of this year, it was 0.9 times the APDA. compared to roughly one time of full year 2024 and i would say pretty much in line with the average of the last five years where the value for the last five years the average is 0.95 times the adta i believe this is my last slide so now i'll hand it over to francesco for our final remarks

Thank you. Thank you, Corrado. I would like just to go over our outlook that, as I said before, has been confirmed. So for the 2025 outlook, Medacta is targeting a revenue growth in the range of 16% to 18% in constant currency. and then adjusted the BDA margin of around 28% before any currency effect. And this includes the recent Parco's acquisition, and it's subject to unforeseen events. In terms of mid-term outlook, the revenue compounded annual growth rate, the CAGR, for the period 2024-2027, income and currency is expected to be in the range of 10% to 14%, and an adjusted ABDA margin targeted to be around 28%. The last comment is on the TARIF, and that remains not impacted by the U.S. TARIF, but we will continue to monitor the development of this situation as it can be quite volatile. In conclusion, the key messages for this H1 call is to underline the significantly above-market growth of Medasta, 19.8% in cost and currency, which is the direct result of our strategy. Big focus on innovation, innovation that can deliver both in terms of improving patient outcome and make the healthcare system more sustainable. This innovation is well supported by medical education and personalized training of our customers, the surgeons, and a further expansion of sales reps and team all around the world. The expansion of ABDA margin was quite remarkable in H1, reaching in cost and currency 29.6%. And our aim continues to grow above the market for the foreseeable future as our mid-term guidance underlines. As usual, I would like to thank, in particular, all our employees for those fantastic results, but as well our clients, our suppliers, and our partners worldwide. Thank you very much for your attention. I think we can now open the Q&A, and both of us are available to address your questions.

Thank you. This is the Chorus Call Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star N1 on their touch-tone telephone. To remove yourself from the question queue, please press star N2. Please pick up the receiver when asking questions. Anyone who has a question may press star N1 at this time. First question is from Sam England, Derenberg.

Hi, guys. Thanks for taking the questions. And the first one, could you just give us a bit of a sense for the impact of geographic mix or margins in the first half? I think historically markets like the US and Australia have been higher margins. So just wondering if you saw a benefit there given the stronger growth than in Europe. And then looking ahead, do you think mix will be a tailwind on margins, given the growth GMK is driving for you, particularly in the US? And then the second one on here, just wondering if the momentum you saw in H1 has continued so far in H2. You're well above market in the first half, but comps obviously toughen up a bit as we move into H2. So I just wanted to get a sense for how you're thinking about growth there for the rest of the year. Thanks.

Yeah, I can maybe start with the second question. As you said, H2 last year was very, very strong. So we definitely have a tougher comp in H2. But at the same time, we still see a good momentum in terms of top line. And so that's the reason why we increased our guidance for the year. In terms of geomix, I think Corrado can give you a little bit more color.

Yeah, sure. Let's say normally we expect, depending on the level of the P&L, you can have positive or negative effect because when we speak about gross profit, average selling price minus industrial cost, of course, we say several times Australia by far, is the most profitable market, and then U.S., and then the other countries. And when we move down to the ABDA margin, this could change, and we have seen and we know that there are big variances in terms of ABDA margin between countries. In general terms, I would say that this period, this semester, given the, I would say, well-balanced growth of our regions, We have registered a very small, I would say, negligible effect on the geographic mix growth. So I think it is not worth mentioning. Okay, great. Thanks very much. Thank you, Sam. Thank you, Sam.

Next question is from Michel Buchler, ZKB.

Hello, thank you for taking my question. Good afternoon. So my question is the gross margin declined by around 20 basis points from last year. Was this mainly due to ethics effect? Thank you.

Yeah, sure. Basically, that is the effect that we have registered in the semester.

I would say this is the net effect of the effects. The effect was actually probably a little bit higher than that, but was compensated by a good economy of scale, as previously mentioned.

Next question is from Sandra Diecki, Octavian.

yes good afternoon and thank you for taking my question i also have one on the margin um in h1 your adjust dvda margin was very strong with the 29.6 percent in constant currencies yet for the full year you died for around 28 percent which implies quite a drop in the second half you mentioned relatively low sales and marketing costs in h1 but Maybe beyond higher Congress activity, where else should we expect increased investments in the second half that drives such a margin decline? And then I also have a question on the U.S. manufacturing. Back in April, before we were aware of the Nairobi Protocol, you mentioned that one way to deal with the tariffs is to expand the U.S. production. maybe also to increase the utilization of the parking facility in Florida, or even broadening your manufacturing footprint. Now, that you benefit from the tariff exemption, how do you view your U.S. manufacturing strategy now? Are you still considering expanding local production, perhaps for reasons beyond tariffs? Any thoughts on that would be very much appreciated.

Thank you. Okay, Sandra, let me take first your question about margins, and then Francesco will respond to your question on the U.S. manufacturing debt. So, the first method we said 29.6%, this was the EBITDA margin of H1 2025, and we are now targeting a full year 28%. So the first semester, there are several factors that we should take into account in order to understand the evolution of our ABDA margin. The first one is the acquisition of parcours. The first semester was only partially including this effect because the acquisition was completed, say, in April. So in the second semester, you will see a fuller effect of the dilution, which is bigger in the second semester than the first semester, because of timing, full effect versus a partial effect. A second effect that we normalize, it has nothing to do with, let's say, productivity or fixed cost. It's just an effect of seasonality of certain costs that we didn't receive in the first semester, but we expect to receive in the second semester. So we have booked them. And this is also a negative component in the second semester that we don't have in the first one. And then we always have, as we say several times, the third effect, which is the full effect in the second semester of the hirings that we had in the first semester. We hire people during the first six months that have a full cost effect in the second semester. So without being too much detailed, but if you take all these effects, let's call it time effect, out from the first semester, you go back to roughly 28%, which is our guidance for the full year, and which is more or less in line with the second semester profitability that we expect to reach.

Okay, and can you give us a hint on what's the dilutive impact of TORCOs on the full year margins?

No, let's say we don't disclose this, but let's say it is not that big. It's not a very big number. You can see that we are guiding anyway 28%, including this negative, so the number, the effect is not that big.

Okay, thank you.

Thank you.

And Sandra, thank you. We'll take on the second question about the U.S. plant. So you are correct, we do have a manufacturing plant currently focused 100% in sports medicine coming from the Parkus acquisition in Florida. This is a good asset to have in this moment because the situation remains uncertain. And even before we were talking about tariffs, we were studying the possibility mid-term to further expand our manufacturing in the U.S., For various reasons, the US represents 50% of the joint global market in value. It is almost 60% of the global market for sports medicine and spine. So if... As we are reaching our saturation capacity in Switzerland, and this saturation should basically hit in 28, 29, depending on our growth rate, we were already planning where to go next, and the U.S. was our natural target. answer to that and this is still our decision and this is something that we are starting to actively focus on because in order to let's say be ready in 2028 to 2029 you start to plan and build in the next couple of years at the latest. So you need to have a good plan, construction, permits, etc. So the US manufacturing remains definitely part of our future drugs plan.

Okay, thank you.

Thank you very much.

For any further questions, please press star N1 on your telephone. Mr. Sikadi, gentlemen, there are no more questions registered at this time.

Thank you very much, Dan, everybody for your participation. I would like once again to thank as well all our employees, customers, partners and suppliers for their support and look forward to speak with everybody soon for our full year results in a few months. Thank you very much.