Dynavox Group Ab

All right. Good morning, everyone, and a heartfelt welcome to this earnings call where we will cover the third quarter 2023, summarizing our business in July, August, and September of this year. I'm Fredrik Rubin. I am the CEO of Tobii Dynavox, and with me on this call, I also have our CFO.

Yeah, Linda Theibring, and I will cover the financials in more details.

Great. We're broadcasting this earnings call from our new head office here in central Stockholm to where we moved just a few weeks ago, which brings even more excitement to an already exciting development of our business, which, of course, we will cover in more detail during this call. So first, in our usual manner, we'll take you through some brief fundamentals about the company, and then we will summarize the main takeaways from the quarter. We will take a deeper dive into the financials. and thereafter we will open up for a Q&A session. And in the audience, you can submit questions during the live session in the chat function in Teams. We of course always welcome offline questions sent by email to the above email address of Linda. Right. All right. So I'm starting with a short summary on what Tobii Dynavox is about, and this may be a repetition for some, but still fundamental to really understand the company. First and most important is to reiterate our mission and vision, which I know is very dear to not only our roughly 650 colleagues around the world, but also to our ecosystems of partners and investors. And our vision is a world where everyone can communicate and we will contribute to this via focusing on our mission, which reads to empower people with disabilities to do what they once did or never thought possible. And this also summarizes two of our main user stories. The first one, they do what you once did that may refer to a person who led a normal life until a diagnosis such as ALS. which rendered her unable to control the body or communicate like before. The other part is the never thought possible, and that can refer to the child diagnosed at an early age with a condition such as autism, cerebral palsy, where thanks to our solutions, he can do much more than the world around him ever thought possible. And Brock The little boy in the picture to the right from Louisiana, USA, is one of our amazing young users diagnosed with nonverbal autism, and he's a great example of this. The market that we serve is hugely underserved. Some 50 million people have a condition so grave they simply cannot communicate unless they have a solution like ours. Every year, some 2 million people are being diagnosed, and yet we estimate that only about 2% of those are actually being helped, and the rest, they remain silent. The main reason for this spells a lack of awareness also among the professionals and the prescribers tasked to assist these users and in combination with a poor healthcare reimbursement system. We operate our company on a global footprint. Today, some three quarters of our business stems out of the US and largely because a reasonably well functioning funding system established some 20, 30 years ago. Our products are sold in about 65 markets around the world of which the US, Canada, UK, Ireland, Denmark, Sweden, Norway are the markets where we sell directly while the other markets are served by a network of some hundred plus reseller partners. Our staff is distributed in a similar way as the revenue, meaning that some 70 plus percent of our staff are based in North America with our US headquarters in Pittsburgh, Pennsylvania. And our second largest office is our headquarter here in Stockholm. But we have branch offices in several European countries as well as in Suzhou, China. And as of today, we're roughly 650 employees in total. During the quarter, and I'll come back to that, we added a new division to our team via the acquisition of Readapt, which also means that we welcome some 50 new colleagues, mainly based in Readapt's office in Kassel in central Germany. And with prior acquisitions, we have established or increased our presence specifically in Belgium, France, Ireland and Denmark. Tobii Dynavox, we provide a comprehensive portfolio of solutions ranging, if you start from the top on this slide, the content, such as the world's leading library of communication symbols, they're called PCS, and the leading solutions of off-the-shelf or custom-made synthetic voices of the highest quality with a large diversity in terms of languages, ages, and ethnicities. If we then go down one step, we have highly sophisticated communication software tailored towards the type of user, which can, of course, vary greatly based on the need. Further down, we develop and design devices with cutting edge technology and medically certified durability. That includes communication aid that you can control via eye tracking. And this category has then during the quarter being complemented by the leading product line of medically certified mounting solutions, which are critical to specifically users that communicate from a bed or a wheelchair. Further down, we have a services portfolio to help our users through the complexity of obtaining the device and getting funding. And last but not least, we're here to help our users, our therapists, our caregivers through the global teams of support resources. We operate this model globally, and it's important to note that each piece of this, of this pyramid here is critically important. Also significant differentiator for us, making us absolutely unique. Our go-to market is predominantly as prescribed aids. So some 90% of our revenue come from public or private insurance providers. And this also means that we have solid paying customers and we've always been resilient towards changes in the overall economic climate. But now we will go back to focusing on the main topic of the day, namely our earnings report for the third quarter 2023. So looking at the highlights first, we had another very solid quarter when it comes to revenue growth. The growth compared to the same quarter last year sums up to 33%. Adjusted for currency effects, the growth was 28%. And this basically continues the trend that we've seen for the past six quarters. And that's pretty strong. And during the quarter, we continue to report good growth across the board, basically in all geographies, all product segments and all user groups. We benefit from a market and an up-to-date, a market leading and up-to-date product portfolio continues improved with new products and features. We continue in the quarter to invest in sales and marketing, including furthering strengthening our US funding organization. And this is key to navigate each customer through the complexities of obtaining funding for their new communication aid through the public or private insurance systems. Our work to improve awareness and competence continues specifically among prescribers and professionals. And the value of being able to meet our customers in person is of major significance, both internally, but also within our teams, as well as with our customers. The North American market continues to show strong growth is the largest and most influential market, both for us and for the industry at large, but we have similar growth rates also in Europe and other countries. The strong momentum among younger user base continues such as children with autism that rely on our products and our symbol communication solutions. And in particular the software that is called the TD snap. We see a clear trend that the market where we sell directly, including the recently added Irish and Danish markets are the ones showing the strongest growth. The reason is primarily that we have a much better opportunity to effectively train and support the prescribers in those markets, while at the same time, we obviously get a deeper understanding of the local requirements, the processes, reimbursement systems, and so forth. Our OPEX levels do increase, but at the lower rate compared to our sales. In addition to acquisitions, we continue to invest in our staff, mainly then within sales and marketing, but we also invest in systems and tools to manage this fast growing business. We completed the acquisition of ReHadapt Engineering in Germany early in September, and I'd like just to come back and shed some more light on that acquisition. So the acquisition of our long-term partner ReHadapt, which we completed on September 1, complements in a very natural way our product portfolio, but it also strengthens our presence in the German market. The company is absolutely unique with their offering of high quality, medically certified mounting systems or mounts, as we typically refer to them as. A mounting solution is something that either we or our local dealers or the prescribing entity combine with a communication aid when these are fixed to, for example, a wheelchair or a bed. The acquisition means that we can create solutions that make it easier for our users to access and use their communication aids, but also improves our ability to better design and innovate further around the physical setup of each individual user. And Readapt will remain an independent subsidiary under its own brand, its own organization, and they will continue to serve the entire industry and all customer segments. And as mentioned, we welcome some 50 new colleagues, mainly in the Kassel office in Germany, but also a smaller team in the US. In 2022, ReaDapt had worldwide revenues of about 10 million euros and an EBIT margin of roughly 20%. And the sole seller and CEO, Uli Ehrlert, will remain in position with the company. Tobbe Randvox, we paid some 16.6 million euros upfront in cash with a potential earn out of up to three and a half million euros after 12 months based on the financial development of the company. And the deal was financed from our own cash and an extended credit facility with our bank. But Linda, over to you for some more financial details.

Yes, sir. Thank you, Fredrik. And I'm super happy to present our revenue for the quarter came in at 424 million SEK, a 33% year-on-year growth. And adjusted for the currency effects, the growth was 28%. M&A contributed with 3%, hence the organic growth was solid 25%. And this is continuing a trend for the past five quarters of the sixth quarter in a row. North America continues in strong growth, but this remains the case also for Europe and the rest of the world. And as Fredrik mentioned, we are seeing growth in not just regions, but also products and user groups. The gross margin ended up at 68%. The main factors behind the improvement are very close of the two percentage points were normalized components, shipping costs are lowering, and we see the sales price increase The price adjustments that we announced earlier in 2023 impacted the income statement with around 7%. We should also note that prior year's gross margin was positively impacted by foreign exchange and around one percentage point, what we call quantified as non-recurring. So EBIT for the quarter was 48 million SEC, 11.4% versus 7.8% last year, excluding non-recurring cost of 1 million SEC related to the acquisition of Readapt. EBIT was 49 million SEC and the margin 11.6%. Our OPEX increased by 18% organically, excluding the non-recurring items of 1 million. The OPEX increase mainly relates to staff increases in sales and marketing organization, new agreements regarding sales salaries and benefits that came into force April 1st. We've also invested in system and tools to manage the growth of the business and this will also contribute to the cost increase. The net R&D cost increased by 7 million SEK related to both normalized development cost but also increased depreciation. Depreciation increased mainly due to major product launches during the last 12 to 18 months. If we also look at the earnings per share, this has more than doubled versus last year, from 0.15 SEC per share prior year to 0.33 SEC this quarter. Cash flow after continuous investments was positive with 35 million SEC. Cash at hand ended up at 140 million SEC. Net debt was 663 million SEC. As communicated earlier, To finance acquisition of readapt, we have expanded our credit facility with an additional term loan from Swedbank of 100 billion SEK to a total facility of 800 billion. We have amortized our credit facility 13 million SEK in the quarter, and the total used credit facility and term loan at the end of the quarter was 745 million SEK, a net debt over the last 12 a month's EBITDA was 2.4 times, which is in the middle of the range of our financial target of the debt leverage between two and three times. And this is including the financing of real debt acquisition. That was a lot of numbers, Fredrik, back to you.

Great. Thank you, Linda. So before we open up for questions, I'd like to reiterate the main takeaways from the third quarter 2023. We continue to show solid growth, and this is a trend that started already in the beginning of 2022. In absolute terms, we grew revenue by 33% and adjusted for currencies, the growth was 28%. We continue to see revenue growth across all geographies and all product segments, and this is a clear trend. that markets where we, and this is also a clear trend, that markets where we sell directly to the end customers are the ones that actually shows the strongest growth. Our profitability continues to move upwards with price adjustments in effect, normalized costs, and an organization that scales better day by day. The price adjustments communicated earlier this year impacted the income statement by roughly 7% during the quarter, and we expect to see the full effect of that at the end of this year. The previously acquired companies contribute well and are developing favorably. And given the unprecedented growth that we are, we are accelerating our investment in systems and tools to ensure that we can cater for further growth and increase our scalability. We reiterate our long-term financial goals, which reads. To over time, we aim to maintain an annual growth adjusted for currencies in excess of 10%. And obviously this is a target where we currently overshoot with quite some margin. At the same time, we want to reach and maintain an EBIT margin of 15% or more. This quarter took another big step towards this and with continued growth, strong gross margin and OPEX levels that is a normalized, we remain confident that we will reach and maintain this. We want to maintain a net debt ratio over the last 12 months EBITDA of between two to three times. And the outcome, as Linda mentioned, in this quarter was 2.4. And once we have strengthened our balance sheet somewhat more, we will distribute dividend provided other more compelling alternatives such as acquisitions do not take preference. Okey-dokey. With that said, we are handing and welcoming into the studio here Christian Hall, who will take questions from the audience.

Hi, Christian. Hi, great to be here. Okay, so we have a couple of questions from Oskar Röntgvist at ABG Sunderkollier. And the first one is regarding how should we think about selling expenses as a percentage of sales going forward? It seems to have scaled pretty well this quarter. What is your your hiring plans like going forward. Linda.

Yes, I mean you should expect that this will continue to grow because we need to add more people to be able to continue our growth journey. But of course there are some scale effects that we would most likely see. Coming quarters as well.

OK, and regarding Frederick, you said the company is expected to reach an EBIT margin of at least 15% by the end of 2024 in an interview a couple of weeks ago. Can we assume that it is on an annual annualized basis and that it should be accomplished, excluding the barge in a creative readapt inclusion?

So I don't want to comment exactly on when and kind of we will reach certain numbers. But I think if you look at the trend that we're on and the trajectory, both in terms of revenue growth and margin expansion, we are taking quite some significant steps towards reaching our goal already now. So exactly when it will happen, I will remain silent on exactly answering that. But we feel quite confident about reaching these targets. And I think this past quarter shows that we have some fundamental proof behind those estimates.

Yeah. And a final question or a third question from Oscar. Can you remind us what Medicare usually benchmarks its price adjustments to? just normal inflation, I am thinking about the potential pricing support next year.

Yeah, we don't know is the short answer. This is a black box to us. It's obviously so that Medicare do have a price adjustment scheme that comes at the end of every calendar year. Historically, they've been quite small. So we were slightly taken by surprise by the size of it last year. But we frankly do not know exactly what fundamental KPI they may be looking at to base this going forward.

And then we have a question from Mats at Red Eye, Mats Hyttinge. Again, very strong growth. Elaborate how this happened and how sustainable versus your current targets. With a strong growth, can you deliver products in a timely manner to clients?

Good question. Thank you, Mats. We, I think COVID improved our ability to be more agile when it comes to production levels, understanding that both supply and demand can be a little bit flaky. So I actually feel quite confident about our ability to deliver products, even at these unprecedented growth volumes. And if you take the first part of the question, where it comes from, as I mentioned during the call, we see growth pretty much in every user group, every diagnosis, every product type, and more importantly, in every geographic market where we're present. So it's a very strong fundamental growth that we have a lot of eggs in our basket that we're delivering right now.

Thanks. And then we have a question regarding seasonality. And if you could elaborate a little bit about that.

Sure. So if you look at basically the revenue trends of this company, we have a fairly strong seasonality effect. And that stems largely out of the US where the first quarter is typically the weakest quarter. Quarter two and quarter three are somewhat better. And then the grand finale of fourth quarter is the strongest quarter. The reason for that stems out of the reimbursement system specifically in the U S where the so-called copay, the amount that the user or patient needs to pay out of pocket that resets on January one every year. So there's a big incentive for both prescriber and user to get as much prescriptions through the, um, and actually get delivery before the end of the year. With that said, we roughly have the same organization to deliver this. So this also stands that our profitability is then in an equal way the weakest in the fourth quarter and then typically the strongest in the fourth quarter. And this is a trend that we have seen for a decade. So it's something we can bank on.

Okay. That finalizes the questions. Thanks, everyone.

All right. Thank you, Christian. Thank you for those of you who had questions. Another quarter we are happy to take questions from you offline and some of you we do meet in person. So until next time, thank you for dialing in and have a great weekend because it's Friday.

Thank you.