ADDvise Group AB (publ) (ADDVA) Earnings Call Transcript & Summary

Welcome to ADDvise Group Q3 2024 (sic) [ 2025 ] Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Staffan Torstensson; and CFO, Johan Irwe. Please go ahead.

Thank you, operator, and good afternoon to all of you. Our performance in the third quarter clearly reflects the impact of our ongoing efficiency initiatives, including the improved capital structure finalized during the first half of this year. Cash flow and earnings were in line with our expectations. The top line growth was somewhat soft in the quarter, mainly due to a single large order of lab equipment to Eli Lilly worth SEK 23 million, which was invoiced in Q3 2024. Despite that, we saw strong momentum in our healthcare consumables and clinical trials business. We continue to see healthy demand for medical equipment across Europe as well as in North and South America. From a global perspective, 2025 has so far been turbulent, with friction in world trade and ongoing geopolitical tensions. We are closely monitoring these developments, but chose to focus on things we can influence. And that is why we continue to work hard every day to create value for our customers and shareholders as efficiently as possible. We are also experiencing headwinds from strengthening of the Swedish krona, which has impacted both our top line and earnings through translation effects. Looking ahead, our focus remains clear. Strong and growing cash flow generated by our existing group companies enable us to acquire additional cash flow and drive long-term shareholder value. With that, let's take a closer look at our Q3 results. Our net sales came in at SEK 363 million, which took us to a year-over-year decline of 4.8% adjusted for FX and minus 10%, including FX. Our order intake in the quarter declined by 17% or 12% FX adjusted, mainly due to the large order from Saab in Q3 2024, and that order was SEK 32.5 million. The year-to-date figure is also impacted by the larger clean rooms orders we received last year. Within the Lab segment, order intake for the quarter showed healthy growth of roughly 14%. But the year-to-date figure were heavily affected by last year's record clean orders, the largest ever within the business area. We will continue to see some volatility in order intakes given the project nature of these larger orders. However, excluding the impact of Eli Lilly and the clean room orders, our year-to-date order intake showed slightly growth. It is also important to note that order intake is not a relevant leading indicator for most of our businesses since we deliver continuously against order rather than building backlog. EBITDA came in at SEK 56 million, in line with last year, which takes us to a margin of 60%, stronger than Q3 last year, where we reached roughly 14%. Looking at the cash flow from operation, it came in strong at SEK 35 million. A big contributor was lower financing expenses, SEK 21 million versus SEK 44 million for Q3 last year. Net leverage for the end of the period was 3.2x, an increase from 3x last quarter, mainly affected by paid earn-outs. Adjusted net profit came in at SEK 19 million compared to minus SEK 5 million in Q3 last year. And again, lower financial costs, lower tax and increased operational efficiency were the drivers. Coming into the commercial and operational highlights of this quarter. We saw balanced business momentum in both Healthcare and Lab during the quarter. We continue to focus on efficiency initiatives to make sure that we are maximizing our potential to drive value. EBITDA and EBITDA margin improved year-over-year to -- the margin came in at 15.5% compared to the 13.7%. Main drivers are product mix and efficiency improvements. Managing working capital is one of our top priorities. During the quarter, we saw a healthy increase in cash flow compared to the same quarter last year. As mentioned before, lower financial expenses, lower tax payments and moderate working capital build, which came in at SEK 5.5 million, and that was the main drivers. In terms of geography, approximately half or 47% of our sales in the quarter came from U.S. or North America, and our second largest market is Europe and the third is South America. Looking at our sales by product category, the top 3 for the quarter are laboratory equipment 36% and medical consumables 37% and medical equipment 22%. High activity in medical equipment and continued good balanced demand in clinical trials. Lab equipment is, as mentioned earlier, affected by tough comparables due to the sale of EUR 2.1 million to Eli Lilly in Q3 last year. Splitting the group into Healthcare and Lab. And looking at Healthcare, our sales came in at SEK 234 million in the quarter. Organic growth are close to flat. It was 0.2% FX adjusted and minus 6.2% nonadjusted. Looking at the year-to-date figure, we saw an organic decrease of minus 1.4% and adjusted for FX is a growth of 4.2%. The Lab segment reported sales of SEK 129 million for the quarter. Organic sales came in at minus 16.2% and FX adjusted, we ended up at minus 12.7%. Looking at profit margins, Healthcare came in at 16% EBITDA margin and Lab at 17.2% in the quarter isolated. Looking at net sales by geography for the Healthcare segment, North America is continuing to be a key market with approximately 60% of sales and will continue to be so for a long time. Europe has a good development. In the Lab segment, Europe is the largest market followed by U.S. We remain focused on profitable growth, stable returns and maintaining well-balanced debt levels. A strong emphasis is placed on EBITDA growth and return on capital employed as our key financial performance indicators. Long-term EBITDA growth will be driven by a combination of organic expansion and strategic acquisitions. Our long-term target is to double EBITDA every 5 years. We are committed to maintaining a maximum net debt-to-EBITDA -- EBITDA, it should be ratio of 3x. While a dividend remains part of our long-term financial framework, distributions will be considered only once all other long-term financial targets are met at a sustainable and appropriate level. I'm now handing over to Johan to take you through the group's financial performance.

Thank you, Staffan, and good afternoon all. I'm happy to be here today and take you through the figures for the third quarter of 2025. EBITA, which is ADDvise's main metric for measuring profit gives a fair view of the financial performance of our companies. EBITA is defined as operating profit before amortization, impairment, expenses and revaluations related to acquisitions as well as nonrecurring items. And just as a reminder, EBITA is our key metric from this year, 2025, and figures in this graph have been historically adjusted with the new definition. And EBITA in the third quarter amounted to SEK 56 million, which corresponds to a margin of 15.5%. EBITA has improved by SEK 1 million compared to the same period last year, and EBITA margin has improved to 15.5% compared to 13.7% last year. And I'm happy to see that profit is increasing despite the currency headwinds from both U.S. dollars and Brazilian reais. And this is thanks to all of our companies working hard every day to improve operational efficiency with focus on profit, profitability and cash flow, which is the key to our long-term performance. As we have pointed out in earlier reports, 2024 faced tough comparables from 2023. The individual quarters of 2024 should be considered normal level of profits, which means that from Q4 2024 and onwards, we see normalized levels of sales and profitability on a rolling 12 months basis. And for the last 12 months, EBITA amounts to SEK 268 million, which corresponds to a margin of 16.5%. Moving on to cash flow and capital efficiency. And here, when we talk about cash generation, we look at the underlying cash flow generated by our businesses with deductions from changes in working capital as well as depreciation and investments in our asset base, including lease payments. In the third quarter, we see a moderate working capital build of SEK 5.5 million, mainly driven by accounts receivable increase. Working capital efficiency and optimization is and will always be a key focus area for us and our companies. Depreciation includes depreciation on fixed assets as well as on right-of-use assets related to leases. And the net between depreciation, leases and investments is SEK 2.3 million, indicating a lower new investments compared to depreciation on existing assets, mainly driven by lower investments this year in production efficiency in South America and as well as clinical trial business compared to last year. Total cash generation from operations in the quarter was SEK 53 million. Relative to an EBITA of SEK 56 million, we consider this a solid and satisfactory level of cash generation in the quarter and a testament of our never-ending focus on cash flow. Return on capital employed, which measures profitability and how efficient we use our capital was 12% in the quarter. And this is one of our long-term financial targets where the long-term goal is 15% return on capital employed. Moving on to the financial position. Here, our long-term target is 3x net debt over EBITDA and net leverage at the end of Q3 was 3.2x EBITDA. The new capital structure means a significantly lower financing costs, which improves operating cash flow and reduces net leverage over time. Total financing expenses in Q3 was SEK 21 million compared to SEK 44 million last year. In this quarter, this effect was met by earn-out transactions. And the rights issue from the first half of this year added SEK 457 million before transaction costs to the company. It also included warrants that could potentially add SEK 114 million to the company or up to a maximum SEK 172 million in Q1 2026 if all the warrants are fully exercised. Available liquidity is good. Cash at the end of the quarter was SEK 131 million with an additional SEK 114 million available in unused credit facilities. And this was all for me. I will now hand over to Staffan for some closing remarks.

Thank you, Johan. I will summarize and give you our takeaways from this quarter before we open up for questions. We delivered solid cash generation in the third quarter. Organic sales declined by 4.8%, FX adjusted, mainly due to the larger Eli Lilly order in Q3 2024. But EBITA still improved despite FX headwinds, supported by operational efficiency and a stronger product mix. This was also the first quarter with the full effect of our improved capital structure, resulting in roughly 50% lower financial expenses. On the M&A side, we continue to evaluate interesting opportunities, including bolt-on acquisitions. There is no rush. It has to be right. With a solid foundation and a clear strategy focused on efficiency, financial discipline and growing -- growth through organic and acquisitions, we are well positioned to deliver sustainable value for our clients and shareholders. Thank you for joining today, and we open up for questions.

[Operator Instructions].

It's Peter. Maybe I could ask you a question on -- you haven't seen any -- or you haven't actually sent out any releases on any large orders. Can you maybe talk a bit about -- is there -- have you seen any change in the market? Or are you still out there trying to compete for those larger ones?

Thank you, Peter. No, I guess we will continue to take larger orders. But I guess that it is extremely important that it should be on good terms for us. But there is no strategy shift that we say no thanks or that we are not going for the typical larger orders are how we define them. So I guess from my perspective, I will continue to see. But, of course, as you have reflected over, we haven't been -- we haven't closed any such orders the last quarters. But we -- hopefully, we will release some in the coming quarters.

Do you have a value when you will release orders?

Yes, about EUR 1 million we release.

Could I maybe also ask a few questions regarding the earn-out. The lion's share of it, is it going to be paid out now in Q4 or Q1? And then maybe in your bond prospectus, it's mentioned that you are also -- I should say, you're not in the agreement of part of the earn-out. Can you maybe say what has happened?

I guess when it comes to CliniChain and the earn-out, there is a legal process ongoing. And the dispute is clear that we think the calculation should be in one way and the counterparty in another. So that process will have its own, I mean, workflow. So I can't comment more in details on that one. But it's correct that we have our latest acquisitions that we have, we have earn-outs that will be based on 2025, meaning that we will hopefully pay them in full during the beginning of next year.

Okay. Maybe just a final question. The cost reductions you have carried through during the last quarters, is all -- can all -- they all impact in the Q3 numbers? Or is there anything more to come?

Most is affecting in Q3, but it's a continuing process. I mean, we are very, very focused on all costs that we have should bring value.

[Operator Instructions] The next question comes from Philip Ekengren from ABG Sundal Collier.

Sorry if I missed this earlier, but could you just remind me, do we have any kind of comparables in Q4 last year that we should keep in mind when setting numbers for Q4 this year? Anything we should keep in mind?

Not when it comes to bigger orders, of course, I mean, the Q4 quarter last year was a strong quarter. But seasonal-wise all -- I mean, Q4 is a strong quarter, and we're expecting a strong quarter for this year as well.

Perfect. Sounds good. And kind of with that in mind, how should we think about margins going into Q4? I appreciate you don't want to guide on that specifically, but just can you talk us through what you're seeing in the market, what you're seeing in terms of how the businesses are performing? What are you seeing in terms of your cost reduction programs and whatnot?

I think it's important for me, it's the trend. That's one thing. So we have always pushed for higher margins. However, I mean, it's extremely tough to give -- I mean, to give you a clear guidance on that one. So I mean, the trend is there. And I mean commenting on Healthcare versus Lab in this quarter is clearly that -- I mean, Healthcare was doing a good work and Lab was a bit on the soft side, even though that it's -- I mean, it's based on the comparables there, so...

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you all, and have a good afternoon and talk to you next quarter. Thank you. Bye-bye.