Embla Medical Hf S/Adr

And good morning and welcome to the EMPLA Medical Conference call where we will review the third quarter results for 2024. I'm Sett Solvasson, President and CEO of EMPLA Medical and joining me today here from Copenhagen is our Chief Financial Officer, Artna Svensdottir and EMPLA Medical's Head of Investor Relations, Klaus Sinders. Today we'll discuss the financial performance and progress we've made during the third quarter The presentation should take roughly 15 minutes, after which there will be an opportunity to ask questions during a Q&A session. If you go to the next slide, please. We continue to deliver solid growth. Organic sales growth was 7%, and local currency growth was 11%, including an impact from M&A and currency. We continue to see a strong momentum in EMEA, driven by prosthetics and neurophotics, as well as patient care. Our bracing and support business, however, delivered a more modest growth for the quarter. Our EBITDA margin came in strong at 22%, supported by the cost reduction initiatives implemented in our manufacturing operations during the first quarter, as well as positive product mix and cost control. Artna will go through our financials in more detail later. We are executing well on our growth 27 strategy and reiterate our four-year guidance of 6% to 8% organic sales growth and around 20% EBITDA margin before special items. We continue to execute on our strategic initiatives, and in the second quarter, we launched two new bionic knee solutions, Navi by Usher and Icon by College Path. Both solutions continue to be rolled out in selected markets during the year, and a full launch of both knee solutions is expected early 2025. I'm also encouraged to see the third generation of our naked prosthetics technology being launched during the third quarter. This generation features some significant enhancement to the finger and hand portfolio with improved durability and personalization. These upgrades were driven by customer feedback and demonstrate how quickly we're able to adapt to feedback from our markets and individuals that use our products. Nine months ago, we acquired Turing Gantt, a leading maker of lower limb neuro-orthotic components. The acquisition was an important step in our growth journey and an expansion into the field of neuro-orthotics, a field we are optimistic about as we are broadening our ability to support individuals with chronic mobility challenges. We are very pleased to see the integration of Eurigens going well. In the third quarter, the neuro-orthotics portfolio was rolled out in new markets such as the UK and Australia, and it's our plan to continue to leverage our commercial infrastructure in other markets to bring neuro-orthotic products to even more patients. As announced in July, it's our intent to unite our network of patient care facilities under a new brand identity called Formotion. The Formotion brand will be introduced gradually to the markets we operate in within patient care, and here during the third quarter, we rebranded our clinics in the Netherlands to Formotion, and additional markets will follow in quarter four. And ultimately, it's a goal that the Formotion brand will encompass the entire network of our global OMP patient care facilities as we move forward. In the US, Medicare has expanded access to advanced bionics for less mobile patients, so-called K2 patients, and the coverage expansion took effect 1st of September. I will go through some of the important key takeaways from the US Medicare expansion in the coming slides as we've received a lot of questions about this change. And then last but not least, the global team of our elite para-athletes who wear Usher prosthetics won 22 medals and set five new Paralympic records during the 2024 Paralympic Games in Paris. And it was great to see the fantastic performance from our team of athletes who dominated several categories while wearing our carbon fiber cheetah sport blades. And if you turn to the next slide, please, on the U.S. Medicare expansion, as earlier mentioned, as of September 1st, U.S. Medicare has expanded its coverage of microprocessor needs, in other words, bionic needs, to include K2 amputees. This is the most significant coverage expansion in lower extremity prosthetics we've seen over the last 25 years. For the first time, U.S. Medicare will now allow for less mobile patients with amputations above the knee to receive bionic knees. Substantial research has, over the years, supported that more advanced prosthetic devices such as bionics lead to significant clinical benefits for less mobile patients, including reduced risk of falling, improved mobility, and increased patient confidence while walking. In turn, healthcare costs or the cost burden should also decrease over time while quality of life should substantially increase. In addition, the extended coverage may also grant these functional level 2 MQTs access to a compatible high active food solution as a complement to the bionic knee when certain coverage criteria are met. And if you turn to the next slide, please. With Medicare's expansion of NPKs to less mobile K2 patients, we see a potential to grow over time as the number of patients that use advanced bionic solutions will increase. These functional level K2 amputees are typically patients characterized by being a limited community walker who can handle curbs, stairs, and uneven surfaces. Opposite, you have the K3 and K4 patients who today qualify for advanced prosthetic devices. These patients are often characterized by being more active beyond basic needs and can navigate most barriers unhindered. It's still too early for us to quantify the potential uptake and impact on, let's say, the market size as the new policy will not automatically create access for every person currently classified as a K2 amputee. Today, Medicare accounts for roughly 30% of the revenue of an average O&P patient care facility in the US with an annual coverage of bionic needs of roughly $100 million. While Medicare's coverage expansion does not, as previously As we've briefly talked about, does not automatically require other payers to follow suit. Historically, this has been the case with many of the commercial payers that have adopted Medicare's guidelines on coding and fees as a baseline for how they decide on coverage. From a claims perspective, we also know that the number of claims between the K-3 and K-2 patient populations is roughly the same today. However, in dollar value, the split is more like 90-10 since the more advanced prosthetic solutions have been restricted to the more active K-3 or K-4 functional level equities. If you then turn back to the quarter and go through the geographical overview of our performance, and if you go to the next slide, please, we continue to see strong momentum in EMEA, with 13 percent growth in the quarter. Growth in EMEA was driven by our prosthetics and neuro-orthotics, as well as our patient care segment. This is the fourth consecutive quarter we have posted double-digit growth in the region. Sales in APAC were solid for the quarter with 6% organic growth, mainly driven by our business in Australia, where we are starting to see an improvement in the reimbursement approvals, which have impacted sales in the first half of the year. Sales in Americas were soft in the quarter, although selected patient care markets in key product categories in prosthetics and neuro-orthotics demonstrated good growth, while we had soft sales in other categories and locations. As expected, we are yet to see any impact from the U.S. Medicare expanded coverage for K2 patients. If you turn to the next slide, please, on our prosthetics and neurothoracic segments, we delivered 9% organic growth for the coasters driven by Strong volume growth and increased fitting of high-end solutions. In EMEA, we saw continued strong momentum driven by, again, volume growth across all our major markets, and especially in bionics. In the Americas, sales remained somewhat soft, while sales in APAC were particularly strong in Australia, where we are seeing the reimbursement backlog impacting sales in the first half of the year, starting to gradually move back to normal. In the neuro-orthotics, we continue to see solid performance from Führer & Gantz, which we acquired earlier this year. And if you turn to the next slide, please, on bracing and support, this segment grew by 1% organically. Growth in this part of our business has, during the year, been impacted by somewhat challenging market dynamics in selected products, categories which has led to soft performance in both EMEA and Americas. In APAC, we continue to deliver a strong quarter mainly driven by our business in China as well as Australia and New Zealand delivered excellent growth in the region. And if you turn to the next slide, please, on patient care, our patient care business delivered strong organic growth in the quarter of 9% driven by strong patient volume growth and positive mix impact also especially in Europe and Australia. This now concludes our sales performance overview for the quarter, and I would like to hand it over to you, Arne, to go through the financials, please.

Thank you, Svet. If you please turn to the next slide for an overview of our financials. Gross profit margin was 63% in the third quarter compared to 62% in the same period last year. The increase is attributed to the cost reduction initiatives in manufacturing executed during the first quarter of the year, as well as positive product mix and increased manufacturing efficiency. We are pleased to see that OPEX growth continues to be well managed. In the third quarter, OPEX grew 4% organic relative to delivering organic sales growth of 7%. With an increase in gross profit margin and effective cost control in our OPEX, I'm pleased to report a strong EBITDA margin for the quarter of 22%, with a three percentage point expansion from the same period last year. Net profit grew 58% in the quarter and was 22 million or 10% of sales compared to 14 million or 10% of sales in the third quarter last year. Effective tax rate for the quarter was around 22%. If you can please turn to the next slide for the status on our cash flow and leverage. During the third quarter, CAPEX was $9 million, or 4% of sales. CAPEX has come down in quarter three relative to quarters in the first half of the year, as facility expansion programs to support our growth have largely been concluded. All things equal, CAPEX is expected to return to a more normalized level of 3% to 4% of sales in the coming period. In third quarter, we delivered strong free cash flow driven by solid cash generation from our operations. Additionally, positive effect from working capital and lower CapEx contributed to stronger cash flow. Inventories, however, remain somewhat elevated due to buildup of bionic solutions inventory as we are preparing for a full launch early next year. On the leverage, we see our net interest bearing debt to EBITDA ratio coming down, putting us back within our targeted range of two to three times EBITDA. Our share back program remains paused, and we will continue to re-evaluate the situation as leverage ratio continue to come down. With this overview, I will hand back to Sveit for his final remarks and comments around guidance.

Thank you, Arnav. Please turn to the next slide. In line with the strong performance we've seen to date, we reiterate our guidance for the full year at 6% to 8% organic sales growth and around 20% EBITDA margin before special items. The guidance does not assume any meaningful impact from the recently launched innovation, including the new bionic knee solutions, as these continue to be rolled out gradually in selected markets as part of our limited launch program. A full launch of NAVI and ICON is expected early 2025, as previously announced. Neither do we assume any meaningful impact for 2024 from the U.S. Medicare reform for extended coverage for K2 patients. With this overview, our presentation is now concluded, and we would like to open the call for questions. Operator, if you can please move to the next slide, and the Q&A can begin. Please, thank you.