Tobii Dynavox AB (publ)

All right, good morning everyone and welcome to this earnings call. We will cover the first quarter summarizing our business in January, February and March of 2025. So I am Fredrik Ruben. I'm the CEO of Dynabox Group.

And hello, I'm Linda Tibering. I'm the CFO of Dynabox Group and I will cover the financials.

So for those of you who have participated in these calls before, you will be familiar with the fact that we will start with a quick recap of what Dynabox Group is about. We will then summarize the main takeaways from the quarter. We will then dive deeper into the financials and thereafter we will have a Q&A session and you will be able to submit your questions during this live session in the chat function here in Teams, but we of course always welcome offline questions sent by email to linda at linda.tibering at dynaboxgroup.com. All right. So if we start with the brief overview of Dynabox Group, we first and foremost, it's important to reiterate what our mission and our vision is, which I know is very dear not only to the roughly 900 plus colleagues around the world, but also to our ecosystem 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. So the first one is the do what you once did that could refer to a person who led a normal life until a diagnosis such as ALS, which rendered her unable to control her body or communicate like before. And the other story, the never thought possible that can refer to a 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 can see Christopher from California in the US is one of our amazing young users diagnosed with a nonverbal form of autism, and he's a great example of that. The market that we serve is is hugely underserved. It's estimated that some 50 million people have a condition so grave, they simply cannot communicate unless they have a solution like ours. And every year, some two million people are being diagnosed. And yet we estimate that only some two percent of those are actually being helped, which means that the rest, they remain silent. The main reasons for this felt lack of awareness, but also among the prescribers that are tasked to assist its users and in combination with poor health care reimbursement systems. We operate this business on 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 that was established some 20, 30 years ago. Our products are outside of that, sold in some 65 markets around the world, of which the US, Canada, UK, Ireland, Denmark, Sweden, Norway, Australia, New Zealand, and very soon France, 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 the revenue, meaning that some 60 percent or so of our staff are based in North America, with our US headquarters in Pittsburgh, in Pennsylvania. Our second largest office is here in Stockholm, which is also our headquarters, but we also have branch offices in several European countries, as well as in Suzhou, in China, Adelaide, Australia, as well, and some 900 employees in total. With prior acquisitions, we established or increased our presence specifically in Belgium, France, Germany, Ireland, Denmark, Australia, New Zealand, and again, most recently in France, but more about that later. We provide a comprehensive portfolio of solutions, which means that you range from the content and the language system, such as the world-leading library of communication symbols called PCS, and the leading solutions of -the-shelf or custom-made synthetic voices of the highest quality, with a large variety of diversity, languages, ages, and ethnicities. Highly sophisticated communication software is tailored to the type of user, which of course can vary greatly based on the needs. If we move on, we see the development of and we design devices with cutting-edge technology and medically certified durability, including, of course, communication aids controlled via eye tracking and accessories such as the ReHADAT mounts. If we move forward, we have services portfolios 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, and so forth, through our global team of support resources. We operate this model globally, and it's important to note that each piece on this picture is critically important and also a significant differentiator for us, making us absolutely unique. Our -to-market model is predominantly as prescribed aids, which means that some 90 percent of our revenue comes from either public or private insurance providers, but this also means that we have solid paying customers and we have always been resilient towards changes in the overall economic climate. But now we'll go back to focusing on the main topic of the day, namely our earnings report for the first quarter of 2025. So if we look at the highlights, we had a strong quarter when it comes to revenue growth. The growth compared to the same quarter previous years sums up to 34 percent after adjusting for currency effects. And this continues and actually further accelerates the trend that we now have seen for the 12th consecutive quarter in a row. The demand for our solutions remain high, proving the solidity of our underlying business, and the North American market continues to show strong growth. It is by far the largest and most influential market in our industry for us and other players. The strong momentum among the younger user base continues. Often those are children with autism diagnosis that rely on our simple communication solutions and in particular, a software called the TD Snap. The non and they are non eye tracking users. They typically control their devices using touch and their fingers. And that's the communication portfolio that grows the fastest. Our OPEC levels, they also increase, but this is a consequence of investment to secure future growth and building the foundation for becoming a much bigger company. So we continue to invest in our staff, mainly within sales and marketing, as well as in new backend systems and tools. In the past year, we have grown the team by some hundred and fifty new colleagues, where almost one hundred of them are within the global sales team. In the quarter, we made planned investments of a non recurring nature in new backend systems and tools, plus the earlier announced restructuring of our product development organization. And that equates to some 22 million SEC corresponding to almost four percentage points on EBIT. In spite of all these investments, we continue to improve our profits, our operating profits increased by 32 percent in the quarter. On April 8th, we announced that we have entered into an agreement to acquire our French longstanding reseller partner, Xenomi, which I will speak to more momentarily. But before doing that, one topic that is on everyone's mind these days centers around the macroeconomic climate and various policies, particularly in the US. And I'd like to bring some more clarity on how this affects us. So if I start with tariffs, so our overall exposure to import tariffs to the US is limited, since the tariffs are based on the cost of the material that is imported to the US. And for our products, the material cost represents only some 20 percent of the retail value. However, and more importantly, our products are generally classified as medical certified assistive technology devices, making them exempt completely from customs duties and tariffs under the so-called Nairobi protocol. Secondly, reimbursement policies. So as of today, there are no announced changes to the policies related to reimbursement of our products in our largest individual market, the US. However, obviously, we are monitoring this situation closely. And then lastly, currency exchange rates. So approximately 80 percent of Dynavox Group's revenue is billed and paid for in US dollars, which means our revenue does fluctuate with the SEC to US dollar exchange rate. However, since the majority of our costs of goods sold and approximately 60, 70 percent of our operating expenses are also in US dollars, this does create a natural hedge against currency fluctuations on our profit margin. So consequently, while our top line revenue may fluctuate, the impact on our EBIT margin is not significant. And on the topic of growth, on April 8th, we announced that we have entered into an agreement to acquire our longstanding French reselling partner, Zenomi. This acquisition supports our growth ambitions to give more people with disabilities a voice and brings us closer to our customers specifically than in France. Zenomi's revenue in 2024 was around five million euro. We pay five million euro to the to the current owner in cash at closing with a potential additional consideration after a period of two years. I personally very much look forward to welcoming some 20 new colleagues to Dynavox Group after the closing of this transaction, which is expected to be included during the coming six months. But now I hand over to you, Linda, to take us deeper into the financials. Yes,

thank you, Fredrik. So revenue for the first quarter came in at 581 million SEK, a 34 percent year on year growth after adjusting for currency effect. Recent acquisition contributed with one percent. Hence, the organic growth was a solid 33 percent. Continuous strong trend that we have seen for 12 consecutive quarters in a row. From a volume perspective, Q1 is normally our slowest quarter and Q4 our strongest. But note that this year Q1 is very, very close to Q4. North America continued strong growth, but this remains the case also for Europe and rest of the world. As we've talked about in prior quarters, we continue to see growth across regions, products and user growth. We continue to see the fastest growth, as Fredrik already mentioned, globally within the autism customer group. The gross margin ended up at 68 percent, an increase of 0.5 percentage point. This margin benefit primarily from slightly lower purchasing price from suppliers, but negatively impacted by adding more FTIs within our operation to meet our demand. The EBIT for the quarter grew by 32 percent to 43 million SEC and the EBIT margin was 7.3 percent. Our OPEC increased biologically 28 percent. The OPEC increased mainly the raise to staff increases and salary adjustment. We continue to grow our organization and the last 12 months we have added some hundred and fifty new colleagues worldwide, a majority within sales and marketing. During the quarter, we continue to invest in new systems and tools to strengthen our scalability to a cost of 14 million SEC, contributed approximately to the cost increase. Operating expense was also affected by non-recurring cost of approximately 8 million SEC, mainly related to our restructuring of our R&D department. The cost of a long term incentive program increased by 3 million SEC. This includes that 5 million relates to non-recurring costs of the R&D department. This includes the cost for historical incentive programs. Within other income and expenses, the exchange loss negatively impacted EBIT with 8 million SEC in the quarter and 10 million SEC versus last year. Net R&D cost increased by 20 million SEC, including the mentioned 8 million non-recurring restructuring cost versus last year. If we look at the earnings per share, it increased by 120 percent from 0.1 SEC per share to 0.23 SEC per share. For the quarter, cash flow after continuous investment was positive 27 million SEC. Cash at hand by the end of the quarter was 143 million SEC. Net debt was 710 million SEC. And the total use credit facility and term loan at the end of the quarter was 694 million SEC. Net debt over last 12 months, EBITDA was 1.6 times. Should we take the next step?

Sure, Linda. Thank you. So before we open up for the questions, I'd like to reiterate some of the main takeaway from the first quarter. So first of all, we continue to show strong growth. Again, a trend that started early spring of 2022 and has continued since. We grew revenue by 34 percent adjusted for currency. North America continues its strong growth, but it's also the case for Europe and the rest of the world. The strong momentum among the younger user base continues mainly among children and young users with autism. Our profitability continues to move upwards with an organization that scales better day by day, and yet we continue to make significant investments in new systems and in the organization that carries significant one time cost. But that, of course, will enable us to continue growing with quality. The one off cost for the new internal systems and the restructuring cost of our product development team alone represents some 22 million SEC or almost four percentage points on EBITDA in the quarter. The current uncertainties in the macroeconomic climate or made policy changes has not had any effect on our business, but we stay vigilant. Previously acquired companies contribute well, and we continue to complement our largely organic growth journey with additional acquisitions. And we look forward to closing the announced acquisition of our reselling partner, Senome in France. And given the continued sustainable growth, we continue to grow the team while investing in systems and tools to enable a future business that is much bigger than today. Our financial targets are expressed with the time horizon of three to four years, and that was just over a year ago that we launched them. The first target is to on average grow revenue by 20 percent per year, adjusted for currency effects, including contributions from acquisitions. And again, in local currencies, the first quarter for this year was 34 percent, which means that we have found revenue growth momentum to build on. The market we serve remains hugely underserved. And with the example of growth levels such as sales teams expansion, adding direct markets and operational excellence, we continue to build on our growth journey. The second target is to deliver an EBIT margin that reaches and exceeds 50 percent. So we have proven to build a strong growth with incremental improvement in profitability, and we need to continue to invest in the future growth with improvements in scale. And for us, the recipe is rather simple. Continue revenue growth, high and stable growth margins and total operating expenses over time that increases at a lower pace than revenue growth. That's when you get it. So as a consequence, we see good opportunity to further leverage how revenue growth translates to reaching and exceeding an EBIT margin of 15 percent. Last but not least, we have a dividend policy where we, of course, have an attractive cash flow profile. Given the growth opportunities, we need to maintain a capital structure that enables strategic flexibility to pursue growth investments, including more or additional acquisitions. But it's still expected to over time generate excess cash in our policies, therefore to distribute at least 40 percent of available net profits to shareholders via dividends, share repurchase or similar programs, when so allows and when we deem that it's the right prioritization. With that said, I'm moving a little bit to the left and instead inviting our colleague Elisabeth Mansi, our corporate communications director, who will help us to moderate and enable us to take questions from the audience. Hey, Elisabeth. Hello.

Hi. So, yes, we do have some questions here from the audience. So I will start with one from Oscar and Chris at ABG, who's asking, do you believe that larger than 30 percent growth is sustainable or more like a one off?

It's a good question, Oscar. We are, of course, super pleased with the exceptionally strong growth that we saw in the quarter. We feel that a lot of the investments we have done in awareness, education, product launches and so forth is starting to pay off. We're not in a position where we're changing our long term financial targets, but as you can notice, it's a particularly strong growth and it feels solid. Do you want to add something to that, Linda?

No, I think we see no change in the demand. We've seen this historically as well. So good momentum.

So Jessica Grunewald at Redeye was also asking a little bit about the strong organic growth. And is it more volume driven or ASP mix driven?

What we do see is that the segment that grows the fastest is what I mentioned, the younger users typically with autism diagnosis, and they do not use eye tracking products. They use hand held, typically touch control products. So there is a slight shift in volume where the touch devices grow. But the good part of the story is that we have almost identical EBIT margin or gross margin, regardless the type of product that we sell. So for us, it really doesn't matter. But it's definitely a volume growth situation that we're experiencing. Yeah,

the ASP is almost half in average for a touch device versus night tracking, which means the quantity continues to grow even stronger.

And Jakob Lemke had a similar question there also about the key reason behind acceleration in Q1 and wondering if we have activated many more prescribers or if there has been any product launches, etc. So

the product launches, which partly is the case, was something that we launched a new set of touch products. But as I also mentioned, it's the software TD Snap, which is the symbol communication software that is really starting to gain momentum. There is never any radical shifts in this market. Everything is kind of incremental improvement. So I think what we are seeing is absolutely more prescribers becoming more successful with the products, products that obviously really work, more successful users, and hopefully that will create a snowball effect. And our best response to why the market is growing is pretty much that there's nothing radical that has happened like a specific product launch or a change to reimbursement. But

we've also during, I mean, since a long way back, invested in our sales and marketing organization. And this is also paying off. Yeah.

So Jakob Lemke also wonders, given the faster sales growth, do you believe the EBIT margin target is reachable already this year? Pass.

I think we have expressed the target of 15 percent or more. And I think it's important to reiterate that or more part of that. On a three to four year horizon, and that was a year ago. We obviously feel strongly that it's obtainable. And I think the numbers speak for themselves. But at the same time, we are investing in the infrastructure and in the company to make sure that we can be a much, much, much bigger company for many, many years to come. And a more sustainable company. And a more sustainable company.

So going back a little bit then to the demand level as well, have we seen any change in order patterns post Q1, Jessica, as Rueda is wondering? So

post Q1, I think the only comment I have that is that we see no changes since there are no radical shifts in reimbursement, etc. We continue to see similar patterns that we've seen historically. And so there are no changes.

Then if we move a little bit to another question that we have gotten here also from Jessica at Rueda, can you provide more detail on the Nairobi protocol exemption status? And are there any scenarios where this could change or be challenged?

If I start at the end, if a protocol can be changed or challenged, I think nobody has the crystal ball exactly what decisions. But I think this is the Nairobi protocol stems actually from decisions made already in the 1950s, which basically talks to the fact that certain products, specifically that deals with people with disabilities, and in that case you have wheelchairs, prosthetics, etc., are exempt from taxes. And a lot of countries has adopted that. I think there are this speaks more to the nature of our business. We are working in a space which is not necessarily consumer goods or car parts or whatever. We're dealing with a different custom group. Our products are covered by the tax exemption or the tariff exemption under the Nairobi protocol. Could this change? Sure, it could, but there are no indications of that being done right now. And again, we are not the only company that imports under the Nairobi protocol. It applies to every assistive technology company, more or less.

So Daniel Djurberg is following up on that as well, asking about the Medicare and Medicaid and if we see that there will be any potential changes to that and how that situation is unfolding.

The short answer, Daniel, is no. There are no suggestions on the table. There are no discussions. And maybe more importantly, there are no policy changes that has been presented yet. Should that happen? It's, of course, difficult to predict, but as of right now, the answer is no.

Very good. Let's see, we have some more questions here about the ERP investment. So Oskar Rönnqvist at ABG is wondering when are the ERP investments going to fade? And is the normal admin cost level 90 million seke lower? If you then add 14 million from ERP and 5 million from LTI.

So before Linda answers this question, I would just explain to everyone. ERP refers to our back end systems to make sure that we are a more digitized and faster moving company. And how about the spending?

I mean, this is, as many one knows, it's a super big project and we are in the face of rolling it out during 2025. This will take time until we will see a slowdown on this. It's probably going to take 12 to 18 months until we see any changes to it. And this is something that is going to be continued improvement as our business.

The whole point is obviously that we will become a better scaling, faster running company because we have fantastic back end systems.

Good. I think let's see if we had something more on the ERP. Actually, I think there was a long question here that I just need to get a little bit more into, but the question was around the cash flow for the one-offs. Let's see where I had that one. Yes, I think it was Daniel who was asking, Daniel, you buy. So can you give some input on how the well, the NRI for the quarter totaling sick 22 million. Can you give some input on how these have impacted cash flow in the quarter so far? Are there some provisions with later payments?

And

also, should we expect this quarter non-recurring to recur already in Q2? Or have you done full provisions for coming quarters as well in these 8 million sick and 14 million sick?

Let's divide them up. So if majority of the non-recurring costs we have actually paid for, when it comes to some of the restructuring costs in the product and development organization, it will impact the cash flow later on. I expect that when it comes to product and development, this will continue. We've talked about this earlier for the full year of 2025 before we are through the whole transformation and ERP is also already mentioned. This will continue for the coming 12 months.

Good. There is a question also from Jacob Ljamke here who's asking, when you look at the reimbursement activities, sales funnels, etc., do you have visibility that similar strong momentum could persist the coming quarters?

We see no changes in the demand, in kind of in the outlook or in the past. So I think we are chugging along, as they say in the American.

Good. And he's also wondering, what would you say is the main reasons behind the success you are seeing in autism segment?

Oh, this is a long answer. It's a very good question, however. I think you can start on one end where the diagnosis of autism and perhaps some of the stigma around children or younger adults, which are nonverbal due to an autism diagnosis, is starting to actually fade off at least a little bit, meaning that the disability or the impairment of not being able to communicate because of an autism diagnosis, there's more and more awareness and knowledge around the world that this can be compensated for. And the solution to that, both in terms of behaviour and face to face communication, spells AAC, augmentative and alternative communication. And that's what we do. But it's a slow moving train because what it really requires is awareness and maybe more importantly, competence among the prescribers, often speech, language, pathologists, special ed teachers, but also some cases, parents and caregivers. So I think we do see that the quality snowball effect that you see, you know, a successful user, a successful prescriber does create the momentum where there will be more successful users and more successful prescribers. And of course, our relentless effort to in a large scale educate them, because our colleagues are typically largely speech, language, pathologists themselves. And they basically introduce the concept and ensure that their peers are successful using this. That is the momentum that we're experiencing. It's very difficult to put the KPI on exactly which initiative had which consequence. But we do definitely feel stronger and stronger tailwind here.

Good. Jakob Lemke is also asking what will be the sales contribution from the Senome acquisition? Linda?

Yeah, the sales contribution since majority of their products is on our products, we expect about 40 percent of the revenue is actually contributed

to our revenue. We have a question from Johnny who is just asking to reconfirm, has the Nairobi exception been confirmed by the authorities?

We are importing under the Nairobi protocol today.

Good. Let's see, I think the last question here then will be from Jakob Lemke as well, who's wondering in which cost line is the eight million restructuring costs in Q1 reported within R&D? Good. I think that was all the questions. If I have missed anything, then please post it again. But I think we have answered all of them.

Yeah. Thank you for posting those questions and thank you for the engagement and thank you for participating on this call. This concludes the call for today. We look forward to seeing you all back on July 18, because that's when we're going to summarize our business in the second quarter of 2025. So thank you very much and bye bye.

Thank you. Bye.