Tobii Dynavox AB (publ)

Okay, good morning everyone and welcome to this earnings call. We will mainly cover the second quarter of 2024, summarizing our business in April, May, and June. I'm Fredrik Ruben, I'm the CEO of Dynabox Group, and with me I have.

Hello, I'm Linda Tibering. I'm the CFO of Dynabox Group, and I will cover the financials in more details.

Great. For those of you who have participated in these calls before, you will be familiar with the fact that we start with a quick recap about what Dynabox Group does. Then we will summarize the main takeaways from the quarter, and then we will dig deeper into the financials, and thereafter there will be a Q&A session. You can submit your questions during this live session in the chat function here in Teams, and we will of course always take offline questions sent by email to the above email address which is linda.tibering at dynaboxgroup.com. So a brief overview of Dynabox Group. First and foremost, it's important to reiterate our mission and our vision, which I know is very dear, not only to our roughly 700-plus colleagues around the world, but also our ecosystem of partners and investors. Our vision is a world where everyone can communicate. We 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, the 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. And the other section, the never thought possible, can refer to the child diagnosed at an early age with the conditions such as autism, cerebral palsy, where thanks to our solutions, he can do much more than the world around him ever thought possible. And on the picture here, you see Brock, he's from Louisiana, USA, he's one of our amazing young users diagnosed with nonverbal autism, and he's a great example of just that. The market that we service is hugely underserved. Some 50 million people have a condition so grave, they simply cannot communicate unless they have a solution like ours. And every year about 2 million people are being diagnosed, yet we estimate that only some 2% of those are actually being helped, and the rest literally remain silent. And the main reason for this is lack of awareness. So among the professionals and the prescribers tasked to assist these users, both poor healthcare systems and poor reimbursement systems have contributed to that. We operate with a global footprint. Today, some three quarters of our business stems out of the US, and that's largely because of a reasonably well-functioning funding system established some 20, 30 years ago. But our products are sold in about 65 countries around the world, of which US, Canada, UK, Ireland, Denmark, Sweden, Norway, there are markets where we sell directly, while the others are served by a network of some 100 plus reseller partners. Our staff is distributed in a similar way as our revenue, meaning some 70% of our staff are based in North America with our US headquarters in Pittsburgh, Pennsylvania. And our second largest office is our headquarter in Stockholm, but we have branch offices in several European countries, as well as in Suzhou in China. And as I mentioned, as of today, we are over 700 employees in total. Through predominantly acquisitions that happened in the past, we've also established presence specifically in Belgium, France, Germany, Ireland, and Denmark. And hopefully soon we will do that the same in Australia and New Zealand, more about that later. So we provide a comprehensive portfolio of solutions that range from, if you look on this picture, the content and the language systems, such as the world's leading library of communication symbols are called PCS. And the leading solution for off the shelf custom-made synthetic voices of the highest quality and with a large diversity of languages, ages, ethnicities, and so forth. Then we have highly sophisticated communication software, which is of course then tailored to the type of user. And that can vary greatly based on the needs of that individual. Then we develop and design devices with cutting edge technology and medically certified durability. And that includes communication aids controlled by eye tracking and accessories such as the Re-Adapt mounts. Move further along, we have a services portfolio to help our users through the complexity of obtaining and getting funding for solutions. And then last but not least, we are there to help our users, the therapists, the caregivers, through our global teams of support resources. And we operate this model globally. And it's important to note that each piece is critically important and also a significant differentiator for us making this absolutely unique. Our -to-market model is predominantly as prescribed aids. So some 90% of our revenue come from public or private insurance providers. This also means that we have a solid paying customer base and we have always been resilient towards changes in the overall economic climate. With that said, now we will go back to focusing on the main topic of today, namely our earnings report for the second quarter 2024. And if I'm looking a little bit at the highlights, we had yet another very solid quarter when it comes to revenue growth. The growth compared to the same quarter previous years sums up to 24% after adjusting for a one percentage point positive currency effect. And this continues the trend that we have seen now for the past eight quarters. During the second quarter, we continue to report good growth across the board among all geographies, all products and all user groups. And we benefit from a market leading and very -to-date product portfolio, which we continuously improve with new products and features. Our work to improve awareness and competence continues specifically among the prescribers and the professionals in our space. The North American market continues to grow strong. It's by far the largest and most influential market, both for us and for the entire industry, but we also have equally good growth rates also in Europe and in other countries. The strong momentum among the younger user base groups continues and that includes children with autism that rely on our simple communication solutions. And in particular, our software TD Snap and the non eye tracking touch controlled communication device and portfolio. Our OPEX levels increase, but this is a consequence of investments to secure our future growth and building the foundation for a much bigger company in the future. And we continue to invest in our staff, mainly within sales and marketing, as well as in backend systems and tools. We continue to improve our profitability at an even faster pace. Our operating profits increased by more than 80% in the quarter and our earnings per share more than doubled compared to the same quarter in 2023. A health economic study that we commissioned was published in May by the Swedish research firm, Augur, and it clearly confirms what we already knew, that assistive technology for communication has a major positive impact on people with disabilities and their families. On July 1, as you note here, we changed our company name to Dynavox Group AB, which was a planned move. And the purpose of the name change is to make it more clear to both the investor community, but as well as new talent in predominantly Sweden, that the company is separate from Tobii AB. And the name change only affects the group's parent company, the customer facing businesses will continue to use the same name as the commercial brands. And that includes Tobii Dynavox for communication aids, Acapella Group for synthetic voice solutions and Re-Adapt for mounting solutions. During the quarter, we entered into an agreement to acquire Link Assistive, and they are our long-standing reseller partner in Australia and New Zealand. And let me shed some more light on this acquisition. So the acquisition of Link Assistive in Australia and New Zealand will bring us closer to our customers in these markets and facilitate our work to support people with disabilities to communicate more effectively. Dynavox Group solutions comprise the majority of Link Assistive's current revenues. So our companies have a long-standing and close partnership. Australia is already one of the countries with the best reimbursement system for our type of assistive technology. But we are confident that even here, there is much more to be done. We have proven before that going direct in more markets enables much faster organic growth. And of course, we believe that this will be the case going forward here too. We expect to close the deal during the second half of 2024, and then we will welcome some 20 plus new colleagues to the company. Link Assistive's turnover in 23 was over 8 million Australian dollars with an adjusted EBIT margin of some 10%. And we are paying 8 million Australian dollars upfront in cash, but with a potential earn out of up to 5 million Australian dollars after two years based on the financial development of the company. If I also then just double-click a little bit on the health economic study that we commissioned that was published in May by the research firm, Algor. This study strongly confirms what we already knew, that assistive communication has a major positive impact on people with disabilities, but also the network of families around them. And the study shows that the quality of life is doubled for users who have a health economic status. They have a communication aid compared to life without one. And at the same time, the communication aids themselves pay for themselves three times over in economic terms for society. And we have learned that the fact that there's even a positive economic outcome, meaning a result above zero is extremely unusual in this type of study. So this is encouraging, and we are encouraged by this, and we will commission more similar studies in more markets and use this as an important tool to create, of course, more awareness, but also influence policy makers to improve funding for assistive communication. The full report can be downloaded under a website, which is spelled assistivecommunication.com. Now I hand over to Linda to take us a little deeper into the financials for the quarter.

Thank you, Fredrik. Just waiting, thank

you. So some Q2 financials. Revenue for the second quarter came in at 476 million SEC, a 24% -on-year growth after adjusting from currency effects. M&A contributed with 7%, hence the organic growth was 17%, continuing a good trend as the previous eight quarters. North America continue its strong growth but this remains the case also for Europe and the rest of the world. As we have talked about in prior quarters, we continue to see growth across all regions, products and user groups. The gross margin ended up at 69%, an increase of just over one percentage point. The improvement was mainly driven by currency and some positive impact of scale effects from the increased sales, while increased freight cost had some negative impact in the quarter. EBIT for the quarter was 53 million SEC, 11% versus .6% last year. Our OPEC increased by 11% organically. The OPEC increase mainly relates to staff increases. We added over a hundred additional FTEs including acquisitions. A majority of this were added in the sales and marketing organization in addition to revised salaries and benefits that came into force April 1st this year. We continue investing in systems and tools to manage the growing business and setting up for being able to handle a much bigger business in a company than today. This also contributed to the cost increase by approximately five million SEC. This is something we need to continue to invest to be able to manage the growth we see and to be able to scale the business. Operating expenses was affected by non-recurring costs, approximately two million SEC, mainly related to acquisition activities. The cost of our existing long-term incentive program was affected by the increase of the Tobit Dynamics share price during the quarter. The associated cost increased by approximately one million SEC. The net R&D cost increased by eight million SEC. And if you also look at the earnings per share, it more than doubled versus second quarter last year from 0.16 SEC per share to 0.34 SEC. So if we then talk balance sheet and cash flow, for the quarter cash flow after continuous investments was positive by 42 million SEC. Cash at hand ended up at 148 million SEC. NEPTEP was 562 million SEC. And we have amortized on credit facility with 15 million SEC in the quarter. The total use credit facility and term loan at the end of the quarter was 620 million SEC. The net debt over last 12 months, EBITDA was 1.5 times. That was the financials. Back to you, Fredrik, to conclude today's earnings call.

Great, thank you, Linda. So before we open up for questions, I'd like to reiterate some of the main takeaways from the second quarter of 2024. So first of all, we continue to show solid growth and that's a trend that we started in Q2, 2022. So over two years ago, we grew revenue by some 25% and we continue to see revenue growth across all geographies and all product segments. Our profitability continues to move upwards with an organization that scales better day by day and we more than double our earnings per share in the quarter. And the previously acquired companies contribute well and are developing favorably. And given the unprecedented growth, we continue our investment in systems and tools, preparing us for being able to successfully manage a future business that is much, much bigger than today. If you may recall, we revised our financial targets in February of this year and they were expressed with a time horizon of between three to four years. And there we said to average grow our revenue by 20% per year, if we adjust for currency effect, but they also include contributions from acquisitions. And as mentioned, we have for the past eight quarters proven that a growth of about 20% in local currencies means that we have found the revenue growth momentum to build on. The market that we serve remains hugely underserved and with the example of growth levers that we have spoken about today, so sales expansion, adding local presence, operational excellence and example of M&A, we are confident that we will continue to build on our growth journey. If we then stand look on profitability, we say that we will deliver an EBIT margin that reaches and exceeds 15%. And here again, we have proven to build a strong growth with incremental improvement in profitability over time. We need to continue to invest in future growth with improvements in scale. Examples of that is to continue to grow through better first that become more self-sufficient and more satisfied customers that lead to a higher degree of replacement sales. And the recipe is rather simple. If we continue our revenue growth, high and stable gross margin and a total operating expense increase that is lower than the pace of our revenue growth. Well, as a consequence, we see good opportunity to further leverage how revenue growth translates to reaching and exceeding an EBIT margin of 15%. Last but not least, and I will just cover this briefly, we did also update our dividend policy and given our attractive kind of cash profile and the growth opportunities that we need to maintain a capital structure that enables, of course, strategic flexibility to pursue growth investments, including future acquisitions, but it's still expected that we will generate excess cash and our policy is therefore to distribute at least 40% of the available net profits to shareholders via dividends or share repurchases or similar programs. All right, with that said, I am handing over the microphone to Christian Hall, who will take questions from the audience. Hi, Christian.

Hi, everyone. So we've received the questions so far from Daniel Juerberg at Handelsbank, thank you so much. And he writes, congrats to another solid report, impressive. I have a question on bolt-on acquisitions. Now the reseller in Australia and New Zealand, after Ireland and Denmark, you get closer to the customers, invest at low multiples and also can consume some channel margins. But are there any clear negatives to this strategy? Also, can you comment on the outlook of the strategy, i.e. the availability of potential targets?

Sure. Hi, Daniel. And thank you for the encouraging words. There is a clear negative piece when you make an acquisition is that you also bring on the cost because if you have a model where you're using distributors or resellers, obviously, they pay for the salaries of the staff and whatever in good days and bad days. So that's the clear negative part when you acquire your local resellers. But that, at least historically, and I'm confident that that will be the case here as well, will be easily outweighed by the fact that we control the narrative. First of all, we can build much, much better products because there is no filter between us and the market. It's our colleagues that gives the product team or marketing team or whatnot the input to make products that really fit that market. But also with the bigger machinery, we obviously have CRM systems. We have ways how to conduct and win economies of scale. So we can easily deploy more efforts into the market. And I think that the previous acquisitions we have done, as you mentioned, both Denmark and in Ireland has shown that that, yes, we do get additional revenue and gross margin and presence, but the real benefit of going directly to the market is the organic growth that happens after acquisition because we have an easier time just basically accelerating that local market. And to answer your second question about the outlook, first of all, we do see acquisitions as some sort of a sprinkle on the cake. It's not that our entire growth objective is reliant on the fact that we make acquisitions. So that means that we acquire companies when it makes sense, when we can agree on that the market profile, pricing, outlook, et cetera, makes sense. Then we're happy. And of course that the seller wants to sell. We have some hundred plus reseller partners currently in TobuDynavox. And of course there are other types of companies out there that could also fit this profile. So there is definitely opportunity to make further investments, but it's a sprinkle on the cake type of strategy. I hope that answered your question.

Okay, so we had another question related to the Australian market. If you could talk a little bit more about the market and the opportunities that you see going forward.

Sure, without going into too much detail, but the Australian market, even though Australia is split up in a number of states, they have a federal or a health insurance system and payment system called NDIS in Australia that applies the same rules regardless where you live. And this system is quite advanced and also has really captured the fact that assistive technology, not just communication, I should mention is typically a very good investment for society. So they've perfected the system. And I think that this is a market where you also have a reasonably high competence level among the prescribers, in our case, the speech language pathologists. But as said, even though that this is a market which by comparison to a lot of other countries is well functioning and good, there's a lot of things that could be much, much better. Hence we believe that the Australian market will continue to be one of the more important markets also for loan foreseeable future.

And then we have a question regarding Apple's announcement within eye tracking. How do you see that impacting, the potential impacting your business? Do you see any risks of increased pricing competition longer term?

The short answer is no. So first of all, if we reiterate what happened was that Apple made an announcement in conjunction with World Accessibility Awareness Day that in a future release of iOS and iPadOS, there will be some sort of support for doing eye tracking using a web camera, the built-in web camera that you have, for example, in the iPad. The feature has not yet been released, but there is beta versions out there. It's important to explain that Tobidynavox's communication aids and Apple's iPads, they don't compete with each other. In a lot of cases, Tobidynavox communication aid is an iPad, but we add technical accessories, peripherals, et cetera, we add software content, and then we handle the entire reimbursement system to making sure that what is perhaps inside of the device is an iPad or a Windows computer turns into a medically certified and prescribed communication aid. So if anything, I mean, creating more awareness, which is one of our bigger challenges, to have someone like Apple talk about the fact that we can use technology, that's great, but our products, they don't sell in the same market. As I mentioned in the beginning of this presentation, 90% of Tobidynavox's revenue comes from prescribed communication aid paid for by some sort of insurance company. That's not how you buy an iPad. We should also understand that the pricing power, et cetera, are typically quite unrelated because our products are prescribed. You go to a therapist, you get it prescribed as an aid. It's not something that you just go to Best Buy or Apple Store and buy and give your kid, and all of a sudden, he or she can talk. So it's two different worlds.

Okay, so that concludes the questions that we have received. So thank you so much for your questions and I hand over the word to you, Fredrik.

Okay, great. That was brief. Again, don't hesitate to reach out if you have more questions, of course, once you digest the full report, but otherwise, we conclude today's earnings call. We look forward to seeing you back again on October 23rd, where we will summarize our business in the third. Quarter of 2024. Thank you very much.