OssDsign AB (publ)

Hello and welcome to today's webcast with Osterstein, where CEO Morten Henneveld and CFO Anders Svensson will present the Q4 report for 2024. After the presentation, there will be a Q&A, so if you have any questions, you can send them in via the form to the right. And with that said, I hand over the word to you guys. Thank you.

Thank you very much and good morning and welcome everyone. My name is Morten Henneveld. I'm the CEO of Osterstein. And as always, I have our CFO Anders Svensson with me today. Today we want to walk you through our fourth quarter and full year 2024 results. This report also marks the one year anniversary as a pure play of a biologics company. And I'm pleased to report that Ossesign continues to deliver sustained high growth, whilst at the same time significantly improving profitability and cash flow. The normal disclaimer, as always, If we move on to the highlights of the fourth quarter, this is very much in line also with the highlights of the year overall. Firstly, during the year and in particular in the second half, we've consistently proven that what we said a little more than a year ago when we made the announcement to become a pure play of a biologics company. And I think we've clearly demonstrated how attractive Orthobiologics is and that this business is highly scalable. Secondly, AusDesign is a high growth company and we continue to demonstrate high growth above a hundred percent. Third point, the fourth quarter also clearly shows the operating leverage in the company with a very high gross margin. and an even better cashflow result than the strong third quarter. We're also seeing a very strong improvement in the fundamentals in the company. Growth is driven by positive development in the underlying business, meaning broader access in the market and increasing customer base, and also higher usage among existing account. And last, but certainly not least, We are building, and in particular during 24, we've built a very solid repository of preclinical and real-world clinical evidence with numerous publications, and we'll come back to that a little later. And with that, I'll hand you over to Anders to walk you through the financial results for the fourth quarter and the fourth year.

Thank you, Morten. So just before we dig into the numbers we've mentioned, in our previous quarter presentations that since we no longer operate in the cranial space, we will only compare in 24 to previous periods of orthobiologic cells. But when it comes to gross margin, this cannot be separated out. We will therefore compare to the previous blended period. So as Morten mentioned, we continue to see high growth in the company during the quarter. We reported the growth of 54% compared to the same period last year. Now, the Q4 23 comparison period was substantially distorted by about 4.3 million in one-off orders to a single hospital system that actually moved facilities during that quarter. So adjusting for that one-off occurrence, the underlying Q4 growth was 84%. And the exchange rate impact in the quarter was negligible. Now, if we look at the full year 2024, we ended at almost 134 million, which corresponds to an impressive year-over-year growth of 107%. And on a reported basis, constant currency-wise, it was 108%. So as you see, again, a very negligible exchange rate effect. Now, as we've also said before, growth will not necessarily be linear. So it will more take the form of a staircase where we increase accounts and users in one quarter and then may slow down somewhat in the following quarter as we get those new customers up and running. And then it could increase again. And I appreciate that this is not actually what we've seen in the last two quarters, where we have continued a strong quarter-over-quarter increase. But we're, of course, very pleased with this development. We continue, however, to believe that the best way to look at the underlying momentum in the company is to look at the last 12 months or LTM run rate. This of course now aligns with the full year 2024. So as you can see for the fourth quarter, the strong trajectory continues and that's an excellent performance that we are really highly satisfied with. Moving to the gross margin then. Now in the quarter, it remained at a very high level, 96.8%, which is up some 24% against the blended rate in Q4 23. Continued improvements in production have again enabled the realization of production efficiencies. And in Q4, it was also supported by very favorable US dollar SEC exchange rate effects, which has brought the Q4 margin in line with the reported margin in Q3. For the full year, we've now delivered a gross margin of 95.4% against the 74.6% in 23. which is an increase of around 21 percentage points. Now, given the release of provisions from earlier quarters, the full year margin is a more reasonable reflection of the current underlying margin in the business. And it's also higher than the guidance that we've given of above 93% going forward. Moving to the cash flow. Cash flow from operating activities amounted to approximately minus 7 million for the quarter. And that's a really substantial improvement compared to 26.5 million negative in Q4 23. It's also even an improvement of the previous quarter in 24. Now improved operating leverage, as evident in the operating result, was an important driver behind this cash flow development, as was the positive working capital improvement. Now for the full year, cash flow from operating activities was minus 62 million compared to minus 95 million in 23, which is again, solid underlying improvement. And this is despite about minus 12 million outflows earlier in the year related to the non-recurring items from the discontinued cranial business end of 23. So adjusting for those outflows would bring the underlying cash flow from operations to around about 50 million. And as highlighted in previous quarters, the underlying network in capital development has actually trended positive all year, with the reported numbers in the first two quarters being distorted by these previous 23 mentioned effects from non-recurring items. In Q3, 24, we could see a more representative picture of the underlying performance starting to emerge, also in the reported numbers. Now, this development continued in Q4 with even better reported numbers. And in Q4 also, the receivables have returned to a more normalized development after the substantial improvements in earliest quarters. So all in all, we're very pleased with the underlying cash flow development. And I will now hand you back to Morten. Thank you, Anders.

I think when we look at 2024, the strong growth that we are reporting clearly confirms that despite a highly competitive market, there are vast growth opportunities and that we can take market share when coming to market with a state-of-the-art innovation that actually solves the clinical challenge. First, and as we also explained after our third quarter, OIST Design Catalyst represents state-of-the-art innovation when it comes to operating at nanoscale, where we have taken it all the way to the point where we are actually mimicking native human bone. This has long been the holy grail in the industry and we are offering just that. Osteosine catalyst simply looks and behaves like native human bone. Secondly, the core challenge for surgeon is to build endochondral bone in a vascular environments to ensure a bridging bone is formed and therefore achieve a successional fusion. Catalyst is the only synthetic bone graft to be combined with silicate substitutes. And similar, as we also explained after the Q3, to a supercharged engine in a car, silicates essentially supercharge bone formation. Catalyst therefore solves the vascular challenge by offering what we call a dual bone or pathway bone formation. It simply grows bone simultaneously from the outside in and the inside out, thereby generating better clinical outcomes. And last but certainly not least, OsteSign Catalyst is offering surgeons exceptional intraoperative handling qualities. It is easy to mix and mold. It's easy to place in the surgical site. And importantly, there is no irrigation, so it does not wash away or start running when being exposed to fluids. And importantly, there are no training needs for surgeons. They can take the product and use it immediately. So I hope... These three points makes it clear to everyone why Catalyst is so differentiated in the market, but also explains why the product has seen this uptake and why it resonates so well with so many surgeons already. Moving on to clinical, the company has already come a long way and is continuously adding clinical evidence to enhance the foundation of OsteSign Catalyst. We now have more than 10 clinical and preclinical white papers and peer-reviewed publications, and that means that we are rapidly building a robust repository of clinical evidence. This increase in clinical experience supports a strong safety and efficacy profile of OsterSign Catalyst and further strengthen our value proposition in interactions with surgeons and hospitals. And as previously communicated, the outcome from the first 100 patients from our prospective spinal fusion registry called Propel is expected to be published in the first half of 2025. With the company's growth trajectory during 2024, OsteSign is now positioned as a serious contender in the vast US orthobiologics market a very significant achievement given the short timeframe since launch. Over the last three years, we've gained broad access to hospitals and surgical centers, we've built a strong distributor network, and we've achieved full access to the U.S. military, covering both active personnel and veterans. And in 24, we also won the first large GPO contract, as you know. But simultaneously with this, the company has been transformed into a US centric organization and several functions have been moved now to the US during the year. And in addition to that, we've also formed new teams to support the commercialization, not least a new US based marketing team. So all in all, We've come a very long way. And whilst we are exceptionally pleased with the progress today, of course, we are even more focused on the more than 90% of the spine of the biologics market, which is still on tap and therefore represents a very significant growth opportunity in the years to come. And in addition to that, As we've also highlighted before, there are numerous growth opportunities in adjacent orthopedic segments where OsterSign Catalyst already has FDA clearance for use in which the company therefore can pursue if we want to without any further regulatory requirements. So as we sum up 2024, We also celebrate a one-year anniversary as a pure play of a biologics company. We can conclude that things are going well. The company is on a strong trajectory with strong fundamentals in place. Growth momentum is high, gross margin is high. We have a highly differentiated offering in the market that solves the core clinical challenges, and we are continuously building further clinical evidence to support this. We have an enormous untapped potential ahead of us and is therefore all about continuing to execute on the strategic priorities to build access and coverage in the US market, leverage the powerful catalyst technology to bring new products to the market, build more clinical evidence and gradually over time, expand into adjacent orthopedic segment. So with those words, I want to thank you all for listening. to the presentation and hand back to the operator who will handle questions.

Thank you so much for the presentation here. And as you mentioned, we will carry on now with the Q&A. So the first question is, can you tell us more about the dynamics and drivers of the sales in Q4?

Yeah, I think there's nothing out of the ordinary. This is a good old-school sales execution, I would say. It's driven by broader access in the market, so more approvals. It's driven by more new users, so an increase in customer base. But it's also driven by increased usage in the existing accounts. And I also just want to highlight the results should, of course, also be viewed in the context of the big storms that we had down in Florida where we saw elective stops for maybe one or even two weeks some places during the month of October. So it shows that we have gradually build a broader customer base, also geographical broader customer base, which basically makes us less vulnerable for events like the two hurricanes that we saw in Florida during October.

Thank you. How much of sales come from new customers in Q4?

Yeah, that's not something that we disclose, both because we don't want to disclose such operational items, but also because the definition just becomes very difficult, right? And a customer coming in in a given month technically is no longer a new customer in the next month. So we will not go into more detail on that question.

Thank you. Do you have any plans to change lists to Nasdaq Small Cap?

Good question. Listen, it's not something that we spend a lot of time considering. I think we are much more preoccupied with building and growing the business. That's important. If that makes sense over time to change listing, then of course, that's something we'll consider. But we are, as I said, a lot more preoccupied with building and growing the company.

Thank you. You're reporting an EBIT of minus 12.2 million, but it seems to be distorted by minus 2.2 million related to the increased provisions for Syracuse royalty payment. Can you explain this?

Okay, so when we bought Syracuse in 2020, there was a royalty agreement there, which says that we pay a certain percentage of our future sales until 2030. in royalty to the previous owners. We had to try to estimate how much that would be in the next 10 years. And every year we had to go and do a reality check and say, okay, what do we believe now? Is the provision going to be enough? And what we have found in the last few years is that we're selling better than we had thought. So the provision won't be enough. And therefore we have to increase the provision at year end, which then hits the result negative. So you could say that it's a, It's a positive sign, but it has a negative immediate effect in the P&L.

And I think that's also why we are saying, just to follow up on that, that this is a pure mathematical exercise, a balance sheet exercise, essentially. And it's only a positive thing, but it is more accurate if you want to look at the true underlying result to look at the minus 10 as opposed to the minus 12.2. Yeah.

Thank you. The next question here is, when you press release your strategic shift to autobiology in 2023, you wrote, based on the revised strategy of the science financial target is to reach sales of 150 to 200 million SEK in the medium term, at which point the company also expect to become cash flow positive. With the current revenue run, You are within the interval, but you're still cash flow negative. Have you revised the required level to reach a positive cash flow? And what is the new expected required level, if so?

That's not something that we'll go into detail at all. If at some point we are revising that, we will, of course, announcing it to the market.

Thank you. You have said earlier that you have approximately access to 10% of the market. Has this increased as you start Q1? How do you think this will progress during 2025?

Yeah, I mean, we've said we're approaching 10%. We haven't got quite to the 10% yet. We're still not at the 10% range. We are incredibly happy. It's a huge market. So 10% is a big numerical value in terms of potential. But yeah, We are approaching the 10%. We are not there. We still have more than 90% to capture.

Thanks. How will you be impacted if Trump put tariffs on Europe or the EU?

I don't think we'll be impacted very much. We don't debate this very much. We don't see it as a big issue for us. First of all, we have our production in the UK, which is outside the EU. So I don't think the Any EU tariffs will hurt us there. And we ship healthcare products. I don't think that's the ones it's going to target. And even if it does, and even if that impacts the UK as well, it's going to be a very, very small impact given our low COGS.

Thank you. Next question here. I am interested in competitive advantages in perspective of IPRS and patents. Could you tell something about them? How long they cover and so on?

Yeah, I think, I mean, we hold a number of patents, right? Technically, we also still hold patents on the previous green road technology. So I think people can go into detail. It's a little bit technical to go into here, given the amount of patents and IP we have. There are numerous there. And what I can say is that we are well covered into the 30s. So we feel good about it.

Thank you. How has 2025 started? Do you feel that the company is keeping its momentum regarding growth and sales?

Yeah, I mean, it's still early days. I don't think we'll talk too much about Q1 right now. But yeah, we are seeing a good continuous trend, as we've also said in the past.

That was all the questions we have received so far. So with that, I want to thank you for presenting and thank you also for listening and asking questions and have a good day.