Embla Medical Hf S/Adr

Good morning and welcome to the AmpliMedical conference call where we will review the second quarter results for 2024. My name is Fred Solvason, President and CEO of AmpliMedical. Joining me today is our Chief Financial Officer, Artur Svensdottir, AmpliMedical's new Head of Investor Relations, Klaus Sindel, is also with us today, joining remotely from Copenhagen. Today we'll discuss the financial performance and progress we've made during the second half of 2024. The presentation should take roughly 10 to 15 minutes, after which there will be an opportunity to ask questions during a Q&A session. And if you turn to the next slide, please. We delivered our highest ever quarterly sales in the second quarter. Sales amounted to $217 million, and organic growth was 6%, and local currency growth was 9% when including acquisitions. Sales growth for the second quarter was driven by prosthetics and neuro-orthotics, and strong contribution from our patient care segment. Our rating and support business delivered more modest growth for the quarter, and we'll address the drivers for our sales performance in the coming slides. Our EBITDA margin came in strong for the quarter at 22%, supported by the cost reduction initiatives implemented in manufacturing during the first quarter, as well as positive product mix and scalability. And Artna will cover our financials in more details later on. We are executing well towards our growth 27 strategy, and in line with a good performance in the first half of the year, we are narrowing our full year guidance to 6% to 8% organic sales growth and EBITDA margin to around 20%. as we expect continued good progress for the remainder of the year. On our strategic initiatives, we're pleased to see good progress across several key topics. Earlier this year, we acquired Fuehring Gens, a leading maker of lower limb neuro-orthotic components. The acquisition is an important step in our growth journey and an expansion into the field of neuro-orthotics. a field we are excited about as we are broadening our ability to support individuals with a chronic mobility challenge. The integration of Pure & Gens is going according to plan, and we are pleased to see that both sales and profitability continue to be in line with our business case. And as planned, we are leveraging our sales infrastructure, starting in May, to bring the Pure & Gens products to even more patients, as well as introducing the also to new markets such as Australia. I'm also excited about our progress in R&D as we launched innovation this past quarter in both bionics and liners, which I will cover in more detail on the upcoming slides. A few days ago, we announced our intent to unite our network of patient care facilities under a new common brand identity called Formotion. The promotion brand will be introduced in stages beginning in selected regions in the United States and will eventually encompass the entire network of our global OMP patient care facilities currently operating under different brand names. This global network of OMP facilities will deliver comprehensive, modern and innovative care while celebrating the expertise and heritage unique to each and every location. Lastly, Medicare in the U.S. announced last week the finalized policy which will allow lower limb K2 amputees to get access to bionic prosthetic solutions. The implementation of the policy is planned to take effect as of 1st of September this year. We very much welcome this decision by Medicare, which we believe will hugely improve these individual's lives, helping them become more active and able to perform critical activities of daily living more independently. The extension of coverage will potentially lead to a meaningful expansion of the addressable market for bionics as Medicare so far has restricted access to high active amputees classified as functional level K3 and K4. In addition, the extended coverage may also grant the K2 amputees access to compatible high active K3 food solutions as a complement to the bionic knee when certain coverage criteria are met. In summary, the decision to grant lower limb K2 amputees access to bionics directly supports our overall strategic objective of bringing high-quality prosthetic devices to more amputees, creating value for both patients and healthcare systems. If you turn to the next slide, please, on the geographic performance. In the second quarter, we saw continued strong momentum in the EMEA region with 11% growth driven by prosthetics and neuro-orthotics, as well as a strong performance in our patient care sector. This is the fourth quarter out of five where we post double-digit growth in the EMEA region. Sales in APEC were strong with 9% organic growth. Growth was supported by all business segments, although reimbursement delays in Australia continued to somewhat impact sales during the second quarter. as was the case in the first quarter. We don't think that sales are lost for that reason, but rather they are pushed into the second half of the year. Lastly, sales in Americas continue to show general softness as in the first quarter of the year, although we had good growth in high-end solutions and key patient care locations, which however was offset by slower performance in other product categories and locations. It should also be noted that we have tough comparison from same period last year. And if you go to the next slide, please, some more information on our recent launches. As briefly mentioned in the highlights, we launched the exciting new innovation in the second quarter with two new bionic knees introduced to the market, as well as a new liner solution, the IceRush Seal-in-X blocking TI for more comfort and stability to users with lower limb amputations of all activity levels. On the bionics, we launched Navi, which is essentially a next-generation Rio Knee. The Navi is a fully waterproof bionic knee developed by Usher featuring a powerful actuator provided to support consistency for stair and van descents. Patients using the new Navi solution will enjoy strong support and enhanced mobility when they are walking, standing, or descending as this solution will provide safety and comfort in any terrain. The new Navi is currently in limited launch and we don't expect any meaningful contribution until early 2025 where the full launch is expected to kick in. In addition, we launched Icon by College Park. Icon is a versatile solution for low to high active activity users designed to be user-friendly for every step of the way, featuring responsive sensors, streamlined setup, and the intuitive Stripe Studio app. The knee is currently available in the US, and we expect to bring the knee to European markets later in the year. And if you turn to the next slide, please, for a little bit more details on our prosthetics and neuro-orthotics business. As previously communicated, our prosthetic segment was renamed to prosthetics and neural orthoptics last quarter to include sales from our Pure Engines acquisition. Organic growth for the segment amounted to 6% driven by increased sales and filling of high-end solutions. We would, however, like to note that this quarter is up against a strong comparable quarter in 2023, where organic growth in prosthetics amounted to 18%. We saw continued strong momentum in EMEA, driven by volume growth across key European countries, most notably in bionics. In the Americas, modest growth with some good performance in high-end solutions, partly offset by softness in other categories. In APAC, we posted good growth in Australia, although sales remained negatively impacted by reimbursement delays, while growth in Asia was more stable. As mentioned in the beginning, our new neuro-orthotics business delivered a strong performance through pure and dense with sales and integration well on track. Lastly, we saw Bionics as a whole continue to contribute strongly for the quarter. We go to the next slide, please, on bracing and support. Organic growth amounted to 2% in the quarter. Growth in EMEA was modest and, again, driven by good performance in high-end solutions such as Beyond Loader. APEC, good performance across markets and product categories, while sales in America were flatish, driven by growth in Canada, but offset by a softer performance in the U.S., partly due to some continued impact related to the changed healthcare cyber attack earlier this year, which impacted our customers' ability to process claims in the U.S. And then finally, next slide, please, on the patient care business, which delivered strong organic growth with 9%, for the quarter driven by strong contribution from EMEA across all major markets. We also saw solid performance in APAC and sales in Australia were good although we continue to see some impact on the previously mentioned delays in reimbursement approvals impacting the Australian market. Sales in the Americas were modest where we observed strong growth in certain locations locations were softer. This concludes the sales performance overview for the quarter, and I would like to hand it over to Artna to go through the financials in more detail. Artna, please.

Thank you, Svetlana. Cross-profit modeling was 64% in the second quarter, compared to 63% in the same period last year. The increase is partly resulting from cost reduction initiatives in manufacturing executed during the first quarter of the year. as well as positive product mix and scalability had a positive impact as well. We are happy with the progress in OPEX with 3% organic growth in the quarter relative to delivering organic sales growth of 6%. The lower OPEX growth is attributed to cost control but also less variable compensation in Americas in relation to soft sales performance in the region. With a strong gross profit margin and low OPEX growth, I'm pleased to report a strong EBITDA margin of 22%, or a 3 percentage point expansion from Q2 last year, despite the small currency headwind. Net profit ended at 20 million for the quarter, on 9% of sales, compared to 8% in Q2 last year. The effective tax rate remains around 24%. And if you would please turn to the next slide for status on our cash flow and leverage, please. During the second quarter, CAPEX spent was $11 million, or 5% of sales. The current level remains above a normalized level as we continue to invest in facility upgrades in key locations to support the company's growth. It is, however, expected that CAPEX will lower in the second half of the year as the current CAPEX expansion programs are expected to largely be concluded in the second half of the year. Pre-cash flow was stronger in the quarter and benefited from increased cash from operation and lower capital compared to the same period last year. Our current inventory level remains elevated due to build up of the new bionic solutions in preparation for launch. On the contrary, we are seeing inventory in our basing and support business continue to decline and it is in line with our expectation. For the second half of 2024, we expect cash flow to improve further operating profits are expected to increase and CAPEX to come down. On the leverage side it is worth mentioning the net interest bearing debt to EBITDA continues to be above our target range following the acquisition of EURJPY earlier this year. Leverage level has begun to decrease as our debt has reduced and we see stronger operating profits. Until we return to our communicated range of two to three times, our shared buyback program will remain on hold. With this, I will hand over to Sveit for his final remarks and comments on the guidance. Next slide, please.

Thank you, Artnav. As communicated in the beginning of this presentation, our guidance for the full year 2024 is narrowed in line with the good momentum and profitability recorded in the first half this year. The updated guidance for organic sales growth is now 6% to 8% from previously 5% to 8%, while EBITDA margin before special items has narrowed to around 20% from the previous 19% to 20%. For the remainder of the year, we expect continued strong performance in prosthetics and neuro-orthotics and patient care, as we have observed in EMEA to date, as well as we expect some of the reimbursement headwinds we have seen in Australia to ease. We expect increasing sales performance in bracing and support should market conditions in the Americas improve after the indirect impact from the changed healthcare cyber attack. Lastly, we continue to expect strong volume growth in addition to positive mix from functional trade-off in bionics, It should be emphasized that the new bionic products we launched in the quarter are not likely to contribute meaningfully until early 2025, as the initial launch will be carried out in a limited number of clinics to ensure a smooth launch and uptake. Neither have we assumed any meaningful impact on the new U.S. Medicare reform, which is expected to be implemented in September, as it will take time for the market to adapt to these changes. Regarding the EBITDA guidelines, EBITDA margins before special items are amounted to 19% for the first half of 2024. We would like to highlight that EBITDA margin is seasonally stronger in the second half of the year for our business. The full year EBITDA margin is expected to increase year over year following the cost reduction initiatives in manufacturing implemented during quarter one, in addition to impact from positive product mix scalability and cost control in OPEX. With this all your presentation is now concluded and we would like to open the call for questions and move to the last slide please operators. Thank you.