Embla Medical Hf S/Adr

Welcome to this EMPLAIR Medical Full Year Results 2024 presentation. Today's call is being recorded. If you have any objections to this, please disconnect your line. All participants will be in a listen-only mode throughout the presentation, and afterwards, there will be a question and answer session. I would like to introduce CEO Svend Solvason and CFO Anna Svendsdottir. Please begin your presentation.

Thank you very much. Good morning and welcome to the AmpliMedical conference call where we will review the fourth course and full year results for 2024. I'm Fred Sjölvason, President and CEO of AmpliMedical. And joining me on today's call is our CFO Sven Stotte and AmpliMedical's Head of Investor Relations. The presentation should take approximately 20 minutes after which there will be an opportunity to ask questions during a Q&A session. If you can please go to the next slide. As we look back on an eventful 2024, what stands out is delivering on our relentless commitment to improving people's mobility. Our innovative product solutions and patient care has a positive impact on millions of individuals around the world. The past year was marked by several milestones as we continue to take steps on our journey to build a company that is focused on delivering products and service for individuals with a chronic as well as acute mobility need. This includes the establishment of Andromedical, starting to also unite our patient care facilities on the promotion brand and the acquisition of your engines, also to name a few. Additionally, we are seeing positive market trends such as expanded U.S. Medicare coverage for advanced bionic prosthetics for less mobile K2 amputees, bringing potential for improved quality of life for a large patient population. I'm also very happy with our progress within R&D as we launched several exciting innovations during COVID. the year, and these include, amongst others, the bionic knees icon and Navi. Lastly, I want to highlight the Paralympic Games in Paris. In the latter part of the summer here, a global team of elite para-athletes using their renowned prosthetics won 22 medals and set five new Paralympic records. And if you please turn to the next slide for an overview of some of the key highlights here in the fourth quarter. Throughout 2024, we have delivered solid organic sales growth with also increasing profitability. For the full year, our organic sales growth was 6%, driven by a strong performance in our mayor region, as well as the prosthetics, neuro-orthotics, and patient care segments. Growth in local currency was 9% when we reviewed the impact of the acquisition of Fiori Gens that we completed in the beginning of the year. The fourth quarter isolation grew slightly lower than the full year of 5% organic mainly due to a stronger comparable in our patient care business where we had somewhat of an extraordinary strong quarter in 2023. EBITDA margin before special items came in strong for the quarter at 21%, and for the full-year margin was 20%, up two percentage points from 2023. We continue to see positive effects from cost reduction initiatives implemented in manufacturing during quarter one, as well as positive contribution from product mix and cost control in our FD&M costs. In addition, here in COP24 we've delivered strong cash flow. We are receiving very good initial feedback on our recently launched bionic knee. The Nadi knee is receiving a very positive response as being a much smoother and reactive knee joint, while still offering a more stable and safer gait for amputees. Both Navi and Icon continue to be in limited launch, with full launch expected towards the latter half of the quarter, here in the beginning of the year. 12 months ago, as I mentioned earlier, we acquired Shuri Gens, which is a leading maker of lower limb neuro-optic components. The acquisition was an important step in our growth journey and expansion into the field of neuro-optics. a field we are optimistic about as we are, as a company, broadening our ability to support individuals with chronic mobility challenges. We're pleased to see good progress on the integration of current gants. In the fourth quarter, we have started to roll out the new orthotics portfolio in the US, France, and Switzerland, leveraging our commercial infrastructure in these markets to with the ultimate objective of bringing these solutions to more patients. On the patient care front, we announced our intent to unite our network of patient care facilities under a new common brand, Formotion. And Formotion brand continues to be introduced gradually to the markets we operate in within patient care. During the fourth quarter, we rebranded our clinics in Denmark and a few locations in the U.S., while Norway is on the agenda here close to one. And it's our expectation that we will complete the rebranding in most of our patient care locations this year. For 2025, we've issued new guidance of 5% to 8% organic sales growth, coupled with guidance of delivering a 20% to 21% EBITDA margin before specialized use. Lastly, in line with our capital structure and capital allocation policy, a new shared buyback program is to be initiated as planned, as we are back within our target range of two to three times net interest rate at the OED. And we expect to announce more details around this program as soon as possible. If you please turn to the next slide. Sales in Americas were strong in the quarter after a period of slower growth and tougher comparisons. The 7% growth in quarter 4 was driven by solid organic sales growth in our prosthetics and neuro-orthotics business as well as good growth in patient care. In bionics, we're seeing some initial traction during the limited launch period with our recently launched Navi and Icon bionic knees. In the EMEA region, the strong growth trajectory we've seen in the past quarters in this part of our business continued. Sales in our patient care business in the EMEA region were, however, soft in the quarter and mainly related to a strong comparable quarter in quarter four, 23, as I mentioned earlier, impacted the reported growth rate here in quarter four. And lastly, in APAC, we've seen a more Modest performance for the quarter prosthetics and neuro-orthoptics demonstrated good growth in the region, driven by Australia and New Zealand, which was partly offset by softer performance in some of our largest markets in the Asia region. If you please turn to the next slide on going deeper into the segments. starting with prosthetics and neural optics, we delivered 12% organic growth here in the quarter and 9% for the full year. In EMEA, we continue to see a strong momentum driven by a volume of growth across all major markets, including also good progress on bionics. In Americas, also across all major product categories, including bionics with some contribution, as I mentioned earlier, from Navi and Icon. In APAC, also good performance in our prosthetics and new orthotic segments. And as I mentioned earlier, a little slowdown in some of the Asia markets. And lastly, here, part of the new orthotic segment is our pure and dense business, which continues to deliver in line with our expectations, as the expectations we set when we did the acquisition a year ago. To turn to the next slide, please, on bracing, bracing and support sales grew by 2% organically in Q4 and 1% for the full year. Growth in our bracing and support business has been impacted by, I would say, somewhat of a challenging market dynamic in selected product categories, mainly in our Americas market. We have, however, seen positive signs with increased uptake during the fourth quarter, driven mainly by our away business in European markets. During most of 2014, growth in the Americas was impacted following the cyber attack at UnitedHealthcare in the early quarters of the year. That had a big impact on our customers' ability to process reimbursement claims. And APAC sales were strong in in particularly Australia and New Zealand, but as with prosthetics and neuroendotic soft in some of the large Asian markets. So the next slide, please. Sales in the patient care segment amounted to $80 million here in Kosovo, and our organic sales declined by 1%. For the school year, our organic sales growth was 5%. Looking at the regions, we delivered solid sales growth in Americas, mainly driven by good uptake and good volume development in key regions, but offset by softer sales in the May and APAC region, where, again, I'll refer to a particularly strong quarter in the comparable year last year. Now, 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. Please turn to the next slide for an overview of our financials. In Q4, the gross profit margin was 63% of sales, compared to 61% in Q4 2023. The 2% point gross profit margin Margin expansion for the quarter was supported by cost reduction initiatives in manufacturing, implemented during Q1 2024, in addition to positive product mix, scalability, and manufacturing efficiency. For the full year 2024, gross profit margin before special items was 63%, compared to 62% of sales in 2023. We are pleased to see that Opus growth continues to be well managed, In Q4, OPEX grew 5% organically, as we saw effective cost control and scalability in SG&A costs being partially offset by investment in R&D. Currencies impacted our EBITDA margin positively by roughly 40 basis points for the quarter. With an increase in gross profit margin and continued focus on effective cost control in our operational expenses, I'm pleased to report another strong quarter with our EBITDA margin reaching 21%, which is 3 percentage points after Q4 2023. For the full year 2024, our EBITDA margin before special items was 20% for sale compared to 18% in 2023, a 2 percentage point increase between years. The increase in our EBITDA margin was driven by chain drivers as for Q4. However, the currency impact, NAFTA hedging, was not so compared to 2023. Net profit came in at $19 million, or 8% of sales for the quarter, and was on par with Q4 2023. For the full year, net profit grew 70% and amounted to $69 million, or 8% of sales. compared to $59 million for 10% of sales in 2023. Net profits were positively impacted by strong growth in profit during the year, but negatively impacted by net financial items, driven by negative impacts on balanced items due to currency movements. Please turn to the next slide for a status on our cash flow and leverage. During the fourth quarter, CapEx was $8 million and below 4% of sales. CapEx has come down in the last couple of quarters relative to the first part of 2024, as facility expansion programs to support our growth have now been concluded. All things equal, CapEx is expected to return to a more normalized level of 3% to 4% of sales in the coming periods. In the fourth quarter, we continue to deliver strong cash flow, driven by solid cash generation from our operations. Additionally, positive effects come in promoting capital and lower capital contribution to stronger cash flow. Inventories remain slightly elevated following the buildup of new bionic solutions in preparation for full launch of our two bionics new solutions, as mentioned earlier. On the left, we see our net interest-bearing debt to EBITDA ratio returned to our targeted range of 2 to 3 times EBITDA. At the near end, our net interest-bearing debt to EBITDA before special items was 2.4 times. As announced by the second beginning of this call, we will initiate a new shareback program, and further details on the program will be communicated shortly. With this, I will hand over to you again.

Thank you. Please go to the next slide. On outlook, we came out of 2024 in a strong manner. We are pleased with the progress on our growth 2017 strategy and our ability to execute on our business targets and priorities. For 2025, we are issuing Guidelines where we expect organic sales growth to be in the range of 5% to 8%. In prosthetics and neurophotics, we expect to deliver continued strong performance across regions. Growth is expected to be supported by solid development in our core business, as well as we expect contributions from the launch of a new ionic niche, Navion Icon, from the latter half of this quarter, year quarter one. In addition, we expect a positive impact on the recent U.S. Medicare coverage expansion for K-2 patients. We expect the upgrades for K-2 patients to be selective here in the beginning as part of this will be gaining experience with taking K-2 patients and submitting reimbursement claims. On the neuro-orthotics, the ongoing rollout of the Pure Intense product portfolio into new markets is expected to contribute to our growth. leveraging our global commercial infrastructure and our promotion of the tennis court. In patient care, we expect good growth in line of market growth across regions, but solid volume growth, increased efficiency, and how we deliver patient care. But bearing in mind that there may or may be somewhat impacted by storm comparison in 2025 compared to 2024. Lastly, patient support is expected to grow approximately in line with market growth, with solid growth in key regions and product categories here in 2025. For 2025, all things equal, our EBITDA margin is expected to be in the range of 20% to 21% for the year. The EBITDA margin is expected to be positively impacted by Sales performance, a favorable product mix from high-end solutions, continued efficiency in manufacturing, and continued focus on cost control in STNA. Potential impact as a result of U.S. trade tariffs has not been reflected in the guidance due to the uncertainty around the situation. As this becomes clearer, we will provide more specific communication around potential impact to our business end. At the current foreign exchange rates, FX is expected to have a largely neutral impact on the EBITDA market compared to 2024, assuming all other factors remain constant. With this overview, our presentation is now concluded, and we would like to open the call for questions. Operator, please move to the next slide, and the Q&A can begin.

Thank you. If you wish to ask a question, please press five star on your telephone keypad. To withdraw your question again, please press five star once more. We will have a brief pause while questions are being registered. The first question is from the line of Yiwei Zhou from SEB. Please go ahead. Your line will now be unmuted.

Good morning, Svayn and Anna. Thank you for taking my question. I have three questions, and I'll do one at a time. Firstly, looking at the report, you mentioned there's competitive pressure in the support business in selected markets. Could you please elaborate a bit here what markets and the specific product category you see the competition? And I will do a follow-up after that.

Thanks for your question. A relatively large part of our basic business is in the United States, and that's where we record some competitive pressures. Specifically, you could say the high-volume, more commoditized product categories. But just also a reminder, the basis of competition in raising support is largely on being a complete provider. These are fundamental solutions in each and every healthcare system. And again, about being a complete provider of a quality product portfolio at a... at a competitive price point. But looking at last year, it's mainly in the United States. We have seen good performance and growth largely in line with market and all other major geographies, where specifically our osteoarthritis racing, which is growing mightily.

Okay. Could you confirm that it's not the premium segments where you have a strong position, you see increased competition, but it's only the commoditized low-end products?

I would say that it's more concentrated on, you could say, the high-volume, more simple products. That's fair to say.

Okay, cool. And in this context, anyone looking at the potential risk from the new tariffs, the US tariffs, do you think you have an advantage or disadvantage when compared to your main competitors here in the US? I mean, when you compare it to your production setup or supply chain?

Yeah, that's a great question. And first and foremost, there remains, as we all know, uncertainty on how and if and when tariffs will be implemented. But the main question will be around whether these changes will somehow restore relative competitiveness. or change relative competitiveness between the different players in the market. Many of the, or at least the larger bracing and support, our main competitors in bracing and support do also rely on supply chains in similar geographies. So our assumption is that these carriers will change the competitive landscape. But with that being said, smaller players that have . We don't expect this to fundamentally change their relative competitiveness.

Yeah, and do you have a knowledge about the production setup of your main competitors? I mean, we know you have the briefing support production in China and also Mexico where there's a lot of uncertainty.

Yes, we have some knowledge of that, of course, but I can say that it is not uncommon for companies in our industry and in many other similar healthcare verticals to rely on supply chains that are situated in Mexico as well as China and Southeast Asia.

Okay. Okay. Fair enough. Thanks. And my next question is on patient care. And you talk about in this quarter, the sales growth was impacted by timing between quarters. Could you elaborate a bit on this? Do you refer to the normal synology or is there anything else I have missed?

No, I think the main thing is that we And we did talk about this when we reported quarter four last year is that we had somewhat of a one-off positive effect from revenue recognition in one of our patient care programs. as it is here in Europe, that in fact that sort of boosted our growth here in Q4 last, or let's say in 23, so we're comparing to that quarter. There is maybe some element of more days being lost, productive days, due to how holidays fell this year towards the end of the year, but that is not a main thing. main factor and I don't expect any demand shifting into quarter one because of this. It's more this extraordinary comparison rather than anything else.

Okay. And could you remind me that what is the normal growth in the patient care? You talk about 2025, you expect to grow in line or higher than the market growth?

So what we have referred to as sort of the average market growth in patient care is sort of somewhere between 3% and 5% market growth rate.

Okay, great. Thank you. My last question is on the shear bar back program. You resumed the program at a leverage 2.4 times net death VBDH. But can we understand that you don't expect any acquisition in the near term? Given, I mean, you're talking two to three times, but I mean, two, four times is not that low, I would say. So now you're resuming here by a fast movement.

I wouldn't necessarily say that you should not expect M&A. We do have an M&A pipeline and we are looking at opportunities there. However, we've always said that we will manage our capital structure to stay within this range and look at ZipiFax to regulate that and we feel that now that we are now below the midpoint of the range that it's the right thing to do to re-initiate ZipiFax.

Okay. Fair enough. Thank you. I'll jump back to the queue.

The next question is from the line of Martin Brenner from Nordea. Please go ahead. Your line will now be unmuted.

Hi. Thank you very much for taking my questions, Anna and Sven, and congrats with the Q4 and the guidance here. Maybe just a question to the U.S. coverage expansion and how to think about it. I think one of your peers has been a bit upbeat about the near-term growth of the U.S. coverage expansion, and I'm just wondering how you see this coverage expansion. I see that you are seeing some patients are being rolled in, but how is it embedded to your guidance? That's sort of the first question, how its impact on your guidance. And the second question would be, as far as I understand, the product launches that you have now rolled out more or less fully is a major component or walk sort of hand in hand with the U.S. courage expansion. Can you maybe just tell us whether you were completely ready for this U.S. courage expansion compared to your peers or if you are a little bit behind your competitors from a product perspective and you need to do some catch up during 2025. That would be the first question from my side.

Hi, Martin. Thanks a lot for your question. I would say that this is developing in line with how we expected this to develop. What we feel from our customers is that they are cautious. Auparar, however, is starting to build a pipeline around potential candidates for fitting of bionics for K2 patients, and that is also the development within our own patient care. So we have always from the outset here said that this would happen gradually. And the most important thing to keep in mind is that now a much larger part of the patient population has access to better mobility devices. So you will see the average, you could say the average value of each device Each event, if you could say, in terms of this new fitting being of higher value, which is great for the patient, even though it's a more, you could say, costly event for payers. From the outset, it's still cost-effective over the long term, and that's the logic for why the system chose to go down that road. We have the products that are eligible, you could say, for... and fit the criteria that are set out as part of this reimbursement directive. So we are by all means ready and we have a large effort from our reimbursement team in the US that has been willing and proactively reaching out to customers to support their processes around reimbursement. But I think it's normal that our O&P community is cautious and is very, very responsible when it comes to how we adopt these new reimbursement protocols. And that we take it one step at a time. But so far, so good. But also, you mentioned how this ties back to guidance. I'll refer back to, you could say, our medium-term guidance that we laid out after Capital Markets Day, 5% to 7% growth. Now we're positioned again at 5% to 8%. So all is equal. What needs to happen for us to deliver at the upper end is, of course, this moving, let's say, that we have good progress on these changes in the U.S. as well as good progress with our new lead. newly launched products so I think that will be my answer and I would not like to comment too much on what our competitors are saying here That's very clear and very thorough thank you for that question and then just two more questions from my side I'll try to be brief here

on your capital allocation and the share buyback you're doing or is expecting to reinitiate shortly. Can you maybe just elaborate a little bit on what exactly is holding you back from just starting it now, given where you are? And secondly, I guess that you have quite a, as you also referred to in your prepared remarks, a quite solid cash flow bringing the debt levels down. sort of to a sensible level quite shortly. Are you ready or do you have more bandwidth also from an organizational perspective to start doing M&A again or are you still in the process of digesting FIRE and KENS at the moment?

We do have the internal bandwidth to continue our M&A strategy with these more medium-sized type of acquisition and being also open for the right opportunities around product and technology in line with, you could say, pure and grand naked prosthetics acquisitions we've done in the last decade. the last couple of years, but on the Shared Pipeline, we will announce that very shortly. There's nothing holding us back there and we should be announcing that in the next days.

Okay. That's very clear. And then just the last question from my side is also on the tariffs. When I sort of tried to calculate the exposure to Mexico. I got to sort of one-third approximately of your COGS base coming from Mexico. Is that fair to assume or is that too high?

That is too high. We would not like to maybe go into a specific split on our COGS down to locations, but that is too high. And our view on, for the time being, we are not ready to communicate too much around potential impact because there's just a lot of uncertainty on how these tariffs will, and if they will come into, now it's being delayed for a month, these Mexico tariffs, The China tariffs seem to be in place, the 10% on all product characters. But let's say when tariffs were impacted on China back in 2018, medical devices were exempt. We still don't fully see whether that is still the case or whether medical devices will be included. That is still to be seen. fully flushed out. So I would hesitate to comment too much on it simply because there is not, yeah, we don't know or we simply can't make up any reasonable assumptions for the time being.

Okay, that's very clear. I'll jump back in the queue. I've got a couple of more, but I'll let my peers also ask some questions. Thank you.

Thanks, Mark.

Thank you very much.

And next in queue, we have Tobias Nissen from Danske Bank. Please go ahead, Julijn. We'll now be unmuted.

Good morning. I also have two questions from my side. So we saw organic growth pick up in the U.S. with EMEA and Apex learning down here in Q4. What should we think about growth trajectory going forward? You obviously have new launches in the U.S. that will pick up here in 2025. And then a question on EBITDA margin and margins like in total we have gross margin being quite strong here in Q4. What are the moving parts for EBITDA margin and what should we take care of or notice here in 25? Thanks.

On the geographic split, yes, I mean if you look at 24, If we dial back 12 months, when we set guidance for 2024, we expected more, you could say, balance in the contribution between our two major regions, Europe and the U.S. The U.S. has been slower than what we anticipated, while Europe has been better. What we've also talked about is that 2023 was perhaps a year where we did release some pent up demand from all the turbulence we've had related to COVID in the prior year. So you could say that in the Americas, at least, we were battling a little bit strong comparison from 23. We do see these trend lines change here a bit towards the end of 24, where Americas is... is getting, you could say, more back on track while Europe is still strong, but with the exception of patient care here in quarter four, where we talked about the comparison So I think the way to think about 25 is that we would expect some more balanced contribution between the two regions and what we see here for 24. That is what I can say about that. Albert, do you want to comment on how to think about EBITDA margin for 25? the moving parts.

Generally speaking, we will obviously see some impact from price increases and payroll increases, but offset by continuous improvements being implemented in loan manufacturing sites. Also, acquisition can impact that as well, but overall, those are the big blocks in it.

Yeah, and it goes hand in hand with how top line develops, obviously, but as Asma mentioned, it's top line, it's product mix, it's continuous improvement on unit cost. and continuation in us managing our SG&A in line with our top-line developments. And these are similar factors as contributed to good progress on our EBITDA margin last year. And this was also a big topic for us here. When we set guidance for 2024, we were certain that we needed to take action also on our manufacturing or operational footprint where we had some access capacity again following the supply chain turbulence we've seen in 22 and 23. So we did that adjustment here in the beginning of the year and have seen these things come through and are just pleased to be able to add in the offer end of the guidance we set a year ago on EBITDA margin. And now we are signaling that we intend to take further steps to gradually improve our operating margins.

Eric, thanks.

Thanks, Tobias. Next in the queue, we have Nils Lid from Carnegie. Please go ahead. Your line will now be unmuted.

Thank you. Just a couple of questions here. So the growth acceleration you experienced in Americas in quarter four, was there any of this growth acceleration that could be attributed to the increased access for K2 patients. And my second question would be on your EBITDA margin guidance for 25 and the FX effect. So you're expecting a neutral FX effect, but the euro has come down and quite many emerging markets currencies have come down. So, could you just elaborate on the expected FX effect for 2025?

Thank you. Yes, Nils. Hi, thanks for your question. On the impact from the LTV change in the U.S., a very marginal effect here in quarter four. What this provided, you could say, a small boost, especially toward prosthetics. growth is that we are moving forward with this limited launch of the NAVI that will impact our growth positively here in Q4, but no meaningful impact from the LCT chance. Arne, can you comment on the effects, please?

The euro is down around Q4. Sorry, I missed the question. You were asking about

You're asking about the potential impact from effect changes on margin guidance for 2025.

Yes. For 2025. We're not expecting any material impact on the margin guidance for 2025. It's just...

Yeah, and if you look at quarter four here, the impact was neutral, which gives some indication as to how it's given the sort of development of the dollar versus euro. But just to sort of remind us about the main moving parts here, we generate a big part of our sales in costs and dollars We also have a reasonably sizable contribution from Euro-denominated currencies, but we do have, let's say, an unhatched position in the Euro market. Euro exposure because we have more sales and costs in Europe, but usually if the Icelandic krona, because we have 10% of our cost in Icelandic krona, but no income, usually if the Icelandic krona correlates largely with the euro versus the dollar, we have a natural hedge on about 70% of our costs and income. an income from a currency standpoint. Then there's a long list of different currencies for the remaining 30% of sales and cost that can cause some fluctuation, but at least looking at the cost of four here, that should give some indication as to how currency fluctuations could impact the full year 25.

And then just finally, what do you expect for networking capital in 2025?

It's going to be no material effect from Networking Capsule 2025.

So if you frame that into Networking Capsule through sales, how would you expect that to end?

So we've been seeing inventory coming down when it comes to as a percentage of sales in the last quarters. But as we are building up now inventory To launch NAVI and ICONI, it might be slightly elevated, but we do not expect that to be a material effect.

And for all the working capital items, Nilsson AI and AP, I wouldn't expect any material change just in relative terms, as you say.

You see that basically the seasonal change quarter on quarter as you see in the past.

Okay.

Thank you. Thank you. Next in the line we have Martin Brenner again from Nordea. Please go ahead. Your line will now be unmuted.

Thank you. I just have one follow-up. Some of the questions were already asked by my peers here, but maybe just one on the trajectory for 2025 with the snowball effect of the U.S. coverage expansion gradually, I guess, contributing more. and the comparison base gradually becoming easier through the year, would it be fair to assume that you will start in the lower end of the guidance or maybe slightly below the guidance and then accelerate through the year? Or how should we sort of see the trajectory of the run rate for 2025?

Hi Martin, I wouldn't want to come in too much or give too much detailed guidance on sort of quarter by quarter. We will be having a conversation here obviously every quarter on just how we're progressing with these LCP changes as well as these new product launches. But as always, let's say the relative performance year-over-year will be impacted by by how we did in the prior year. Please take that into consideration and I don't expect any material difference between quarters as I look at things now. If that helps.

That's very clear. Thank you very much.

As there are no further questions at this moment, I will head back to Sven Sulvason for any closing remarks.

Yes, thank you very much, Operator, and thanks, everyone, for listening in. If you have any further questions or would like to discuss the quarter of the year, please reach out to our investor relations team, and I wish you a great day. Thanks a lot.