Medistim ASA

Good morning, everybody, and welcome to Medistim's third quarter presentation for 2023. My name is Kari Krokstad, and together with CFO Thomas Jakobsen, we are here to take you through the results. So with this, let's move on and look at the highlights for the quarter. So the third quarter provides solid financial results for Medistim. And we are looking at revenues at 124.1 million NOX, a growth of 6.5% over the same quarter last year. And also an EBIT result of 33.5 million, which is a little bit lower than the same quarter last year, but still solid margin. If we look at the contribution from our own products and third-party products, we see that our own products this quarter is increasing by 5.4% in Norwegian currency, and the third-party products is actually delivering quite good growth at 13.9%. Within our own portfolio, it's very encouraging to see that the imaging sales is up for this quarter. We've seen a little bit of slowness there so far this year. So that's good to see that this is developing a little bit better. Flow sales is also up 3.9%. Vascular sales is up 7.7%. And also cardiac sales is up 4.9%. Of course, it's always very important for us to continue to follow the currency neutral results. And if we look at the Medistim sales in total, we are looking at a 3.1% decline for the quarter. For our own products, this decline is 5.6%. And here it's very important to note the large regional variations that we're looking at. So for America's currency neutral, it's down 10.3% for the quarter. And here the explanations is the same as we've seen across the year, that we see a little bit more slowness in the finalization of sales projects that we're working on. The pipeline is still very good. And we're also seeing less capital sales from the USA. So this is influencing the sales development for the year so far. I would like to just put into context the fact that we are comparing our US and America's numbers to very, very strong previous years. So in 2020, we had 22% currency neutral growth from America's. And in 2021, we had 28% growth. So we're also maybe normalizing a little bit from an extraordinary high growth in the territory. For EMEA, it's very encouraging to see that for the second quarter in a row, we are looking at very solid currency neutral growth, 32% this quarter. Previous quarter, we had 27% growth. So this is looking very solid. And it's also important to note that this growth is coming both from more direct markets, such as Germany and Spain, and also from several of the larger distributor markets. So it's really good performance across the board. Also, we see that imaging sales is providing growth in the EMEA region for the quarter. When it comes to Asia Pacific, this is, as we have reported, a territory where we are going through some significant change this year. So we've seen a very high sales increase actually in the first half of the year, which has been due to our previous distributor in the territory that has, well, in a change from a distributor sales set up to going direct ourselves. And of course, in this transition, it's very normal to see that the former distributor takes the opportunity to complete their sales projects and also then filling up the inventories in the sub distributors within the territory, and it's China in particular that we are talking about. So for this third quarter, we are seeing that inventories seems to be pretty much filled up and that influences the China sales, which is then also influencing the total Asia Pacific territory sales. So this was to be expected. It might be interesting also to note that regarding flow probes, we can see a 15% decline in number of flow probes sold for the quarter. This is following a very strong quarter, the second quarter. Again, related to this change and transition that we're going through in Asia-Pacific, they had or influenced a very high growth of flow probes sales in the second quarter. So now it's a bit down again due to Asia-Pacific. So in total, it's not really a big change with regard to volume sales inflow. When it comes to the EBIT, I already mentioned the result. The margin is being kept at a high level. Thomas will go more into the details with regard to the P&L and the expenses. I'd like to stress that Medistim is absolutely following our strategy of keeping very high activity in the market. We have been visiting our customers a lot, not only in Cardac, but as you are also aware, we are building a market presence in Vasker that requires a lot of activity out at the hospitals and also with regards to conferences and marketing activity. of course also the expense level is influenced by our going direct both in china and in canada in the period if we then take a look at the year-to-date september results again we're looking at strong financial results clearly helped by the favorable currency, reaching 390.7 million for the period, providing 11.6% growth. And here we see that own product sales is increasing by 12.9%, while third party of the three quarters is up 4.9%. And due to the good development we saw in imaging for the third quarter, now year to date, the imaging sales is reasonably flat with the previous year's period. Flow sales is good, up 19.7%, vascular sales is up 15.3% and cardiac is up 12.4% in Norwegian currency. Then when we are adjusting for the currency effects, we are looking at the total sales growth for Medistim at 1.2%. And our own products, the total growth was, well, a half percent. And again, differences between the regions here, Americas year to date, down 5.2%. But as I said, we are comparing to very, very strong historical numbers here. EMEA is up 13.5%, slow first quarter, very, very strong second and third quarters. And Asia Pacific down year to date 5.1%, very strong first half and then a little bit slower in the third quarter due to very little sales to China. Yeah. EBIT margin kept at a high level, 27.9% versus the 29.9% last year. And the explanations for the expenses is really similar to what I pointed out for the quarter. So I think with that, that gives us an idea of the main things that is influencing the numbers so far. And Thomas, let's go through the P&L.

Thank you, Kari. As usual, I will go straight to the P&L, and Kari will take you through sales numbers for geography and products later on. So I will go straight to the cost and the expenses. And based upon what Kari just told us, one should expect that the cost of goods sold or the gross margin was declining based on the fact that we were pretty flat on sales in the US and down in Asia and up on the third party products. But we have had a very strong quarter for Europe and especially our direct operations contributing positively on the gross margin plus favorable currency. And as a consequence, our cost of goods sold goes down and our gross margin is actually up from just under 80% to actually just around 80%, up 0.8% in total. So that's a good thing. Salary and social expenses are up. We have a full year effect of new employees affecting this. We also have introduced shift in the production during the year, which affects expenses. And last but not least, we're also establishing ourselves in new markets with a direct representation. So this obviously affects salary and social expenses as well. This is also the fact when we look at other operating expenses, Kari mentioned it, we have had extensive traveling related to and marketing activities also in this quarter, not just within cardiac, but also towards the vascular segment where we have very much focus these days. Again, establishing direct operation in Canada and China also affects other operating expenses because we did not have these subsidiaries last year and therefore the expenses is now in addition when we look at the third quarter numbers. Last but not least, I will also mention that we had some additional IT expenses related to software improvements and updates in this quarter as well. All in all, EBITDA ends at 38.8 million. That's slightly down from last year, which ended at 39.7. Depreciation is also a little bit lower than last year, and the depreciation is related to lease contracts, leased systems outplacements in the US, product development, and last but not least, IT infrastructure. All in all, operating profit ends at 33.5 million. That's half a million down from last year. But net finance is slightly positive. And last year, this was negative by 3.5 million. Net finance is mainly related to receivables. That is realized and unrealized gains on receivable positions at the end of the quarter. So all in all, we actually end up with a pre-tax profit, which is 3 million better than last year, and it ends at 33.6 million. Profit after tax ends at 26.1, which is up from last year's 24.6. If you then go to the year-to-date numbers, I'm not going to go through all of the expense lines because we have the same explanation, only larger numbers. But what I would like to point out is that when we look at salaries, social expenses and other operating expenses, We have negative currency effects here. Although we have help on the top line, we have negative currency effects on these expense lines. And it's totaling to 7 million NOX year-to-date September. Otherwise, even though the US has been a little soft this year and we have this transition period in APAC, we still deliver the best top line ever in Norwegian crowns. And we also deliver the best profit ever in the history of the company after the first three months of a year. So I just would like to point that out. If we then go to the balance sheet, we have intangible assets increasing, and that's mainly related to product development. Inventory is increasing, and we're now having a normal supply chain situation, I would say, and we are at comfortable levels when it comes to securing our critical components. Receivables are down. So with increased sale, we actually have been able to decrease customer receivables. So we have done a good job collecting our receivables during this third quarter. So we're down from 101 million by the beginning of the year and now we're just over 80 million. And we continue to improve our cash position after the dividend in May. So we now have a cash position which has improved and ends at 126.4 million. Equity and liability, we have no traditional interest-bearing debt from banks. So we're self-financed, although we do have long-term debt related to lease contracts. In total, the debt is just under 12 million, but the long-term debt related to these contracts is just over 4 million. Otherwise, we have a very strong balance sheet, of course, 80% equity, which is very solid. So with that, I leave the word again to Kari to talk more about sales and business segments update. Thank you.

Okay, then let's move on and take a look at the development of unit sales over imaging probes and systems. So as I started to mention, we are looking at the third quarter where the imaging part of the business is looking a bit stronger again, which we of course always love to see. And here we can see that we're selling 28 units this quarter compared to the 22 previous quarter last year. And we can see that this is more or less coming from the EMEA region. So this is helping the strong performance that we're currently seeing from that region. Also, we are seeing positive development on the unit cells of imaging probes, of course, following the system sales. When it comes to flow probes and systems in units, We can see that we are selling 10 less capital sales of flow systems in the quarter. And as I said, Asia-Pacific is really the region that is a bit down this quarter due to the change that we're doing in China. So Asia-Pacific is then down with seven systems for the quarter. If we summing up sales of both flow systems and flow and imaging systems sold as capital, we see a slight decline of four units this quarter, five units less for year to date. And looking at the development in number of flow probes sold, not a dramatic development here. We see very good probe sales both in Americas and in EMEA, but weaker growth in Asia Pacific for the quarter, again related to the change we are in the midst of in China. We also would like to make some comments with regard to the correlation between sales in real numbers and also discussing this in units and also currency effects and effects of the channels. So let's go through that. For Americas, we can see Norwegian Krone, it's pretty flat for the quarter, slow growth year to date. But we mentioned that there's a currency effect here. So taking that into account, the decline is 10.3% for the quarter and 5.2% year to date. And the decline is due to fewer capital sales of systems and imaging systems in particular, and that will have an effect. Asia Pacific, again, development that we're seeing for the quarter related to the transition that we're going through in China, going from a distributor sales model to establishing an own sales organization. EMEA, very strong quarter after week first quarter. And we can see that revenues were up by almost 50%. Currency neutral up by 32%. So really strong period here. Third party, as mentioned, very strong quarter, 13.9% growth and 4.9% year to date. So good solid performance from our third party business as well. When looking at the revenue performance by product category, We see that procedure revenues is growing slightly, 3.5% for the quarter, 12.6% year to date. And this is to be correlated with the number of procedures that increased at a lower pace, 1.4% for the quarter and 3.3% year to date. And it's the favorable currency that is explaining the difference. Flow probes mentioned 15.1% down in units for the quarter and still increasing or being pretty flat with the year to date. And increasing NOC that we're seeing is driven by the currents and also effects from the price increase that was implemented from January. Flow systems, the unit sales was down 28.6 for the quarter, down 2.8 year to date. And it's the high level of sales through the direct channel and also currency effects that explains the increase that we see in Norwegian currency for the quarter and year to date. Imaging systems and probes. We see that the unit sales for the quarter was up 27.3%. High level of sales through distributors explain the lower sales that we're seeing in Norwegian currency. And year to date, number of units were down 2.7%. Sales in NOC shows a decline. Yeah, implementing the strategy. This has very much been a business as usual quarter for Medistim. Of course, we are working on the changes that we are going through in some other territories, but nothing very extraordinary to report for the quarter. This is our growth strategy, so I will just take the opportunity to remind everybody about what our growth strategy really is. Of course, it's very much in the coronary bypass segment, the cardiac segment. It's important for us to take advantage of the large install base that we have with our flow systems in several markets. We're mentioning here Japan, the Nordic, Central Europe, and more markets where we have a very solid position, it's very important for us to convert this install base to a flow and imaging based portfolio. And we are doing that very much helped by the clinical data we generated from the request study that has proven to be a great driver for the growth and conversion that we're seeing into imaging. And we are also working diligently on the product development side to ensure that the usability and the ease of use of our products are maximized. So it's important to ease the conversion from flow to flow and imaging through product innovation and improvements on that side. When it comes to markets that are more in a developing phase, USA now with more than 30% market share, well, it's going towards a strong position, I would say. But here we are always positioning our products and solution based on the flow and imaging from day one. And we're seeing that we are getting good acceptance in the market for the combined solution. And although the imaging sales growth has been slower so far this year, we are seeing from all territories and the response we're receiving from customers that the preference among surgeons is definitely to go for the imaging component from day one. But it's the funding that is sometimes delaying that opportunity. We also offer an entry level solution for emerging price sensitive and high growth markets. India is one good example. And here we have, let's say, a stripped down version of the MiraQ, which is then positioned at the lower price point. And so far this year, Livanova is working a lot with demonstrations and evaluations and making some progress in the market. Not that much reflected in the sales yet, but we remain very optimistic and confident that this partnership will help us to build a position over time in important markets such as India. With regard to vascular surgery, we can see and I've reported that we are continuing to see growth in the vascular field, perhaps not to the same extent as we saw in the two previous years. Again, this is related to, for instance, the US development where we're seeing less capital sales and also less sales of imaging systems. And that will also influence the sale of the vascular portfolio as such. Expanding our direct market coverage. Yes, so far this year we go direct both in Canada and China and more countries will come also in the future. The one market that we always follow a little bit closer is the U.S. And today, the U.S. sales is actually accounting for about 50% of the sales of our own products. So clearly, this is a very important market for us. And based on the historic numbers, as you can see here today, or based on the 2022 numbers, we can claim to have more than 30% of the coverage procedures being performed in the U.S. as our share. Still, we know that we have a decline, now currency neutral for the quarter and year to date. Again, related to the lower capital sales. Number of procedures, and these numbers is a little bit different from the numbers we looked at previously. Here we are counting both procedures from the PPP, the paper procedure accounts, and also the lease accounts, and also from sales of capital probes. And here we see that flow probes are at the same level as last year for the quarter, a little bit down year to date. And imaging probes, on the other hand, a little bit down for the quarter and flat year to date. So more or less at the same level as last year, we could say. I mentioned the decline in capital sales, so nine units in Q3 compared to the 13 units sold in Q3 last year and 32 units sold so far this year compared to the 40 units sold last year. Last but not least, we are continuing to win new customers. And this is, of course, maybe the most important piece of data and information from the US. So seven new customers for Q3, 25 new customers so far this year. Thank you, everyone, for attending. And we will be back for the fourth quarter.