Medacta Group SA (MOVE) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Medacta First Half 2026 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Francesco Siccardi, CEO of Medacta. Please go ahead, sir.

Thank you very much, and good afternoon or good morning. Welcome to Medacta H1 2026 Results Conference Call. So the slides of today's presentation can be found on the Medacta Investor Relations website along with the media release. I would like to remind all participants that the presentation includes forward-looking statements, which are subject to risks and uncertainties. Listeners and readers are therefore encouraged to refer to the disclaimer on Slide 2 of today's presentation. And after those housekeeping remarks, I will now turn to Slide #4 and start with the highlights of today's publication. As already reported, Medacta grew almost 10% in constant currency in H1, reaching EUR 368 million in terms of revenues. We managed to report an adjusted EBITDA margin of 27.8% in constant currency or 26.5% reported equivalent to adjusted EBITDA of EUR 97 million. The net profit for the period reached EUR 42 million or 11.4% of revenue, and we are confirming both our 2026 outlook and our midterm outlook. If we turn to the same page, this is just to remind everybody how Medacta has been able to continue to deliver significantly above market growth. Our success relies on differentiating innovation that are really improving patient outcome. And at the same time, they are sustainable under an health care system point of view. Those innovations are introduced in the market with a very strong focus on medical education. So training of surgeons all over the world that are able to acquire the knowledge necessary to use these new techniques, new technologies, new products through our medical education. And then, of course, we needed to constantly expand our sales force globally across all our business lines in order to reach as many customers as possible on a global scale. If we go to the Slide #6, we have already reported our geo mix sales. We have been able to grow double digit across 3 out of 4 regions, in EMEA at 10%, in APAC at 13.1% and Latin America, 16.4%, while North America differently from the other periods grew around 7%. This changed a bit our geo mix. And as you will see, this will have an impact on some of our margins. Extremities, almost 16% and Spine, 4.5%. The product mix as well did change a little bit. And as we will hear later, this has an impact as well, mainly on the gross profit. If we go a little bit into the details, our performance in Hip continues to be significantly above market, probably around 2x. We continue to focus on our minimally invasive solutions. And we have introduced in the first half of the year, our enabling technology, NextAR Hip in the U.S. and Australia, which is in limited market release, while we are in a full market release for our new triple taper stem Mfinity, which is starting to gain momentum in the U.S. and more recently in Japan. On Slide #9, we can follow our consistent expansion on the Knee portfolio, almost 11% in H1 2026. This is driven by our focus on kinematic alignment and the unique implant we have in the market, specifically designed for kinematic alignment, the GMK SpheriKA, which is clearly driving our growth and becoming our most important Knee product in a relatively short period of time. Here as well, we are more than 2x faster than the market in this segment. In Spine, we did grow single digit, 4.5%. We have redesigned a bit our strategy mainly in the U.S. market, focusing much more on enabling technology, which is now representing around 50% of our Spine revenues in the U.S., meaning 50% of our Spine products are implanted with the support of enabling technology, and we are going more direct and more in -- with exclusive agents in that segment. We continue to have a very strong performance in EMEA as well in Spine, followed by both Latin America and Asia Pacific, and this remains well above market growth in the first half of 2026. If we now move to the Extremities segment, almost 16% year-over-year growth for H1. We have introduced here as well additional technology elements together with our NextAR Shoulder application, we have introduced the revision shoulder arthroplasty first in the U.S. and now is going to expand outside of the U.S. And this technology is supported by a new AI-based MyShoulder Planner, which helps surgeons to carefully plan their products, their procedures and hopefully deliver a better care for their patients. On the Sportsmed side, which is the other element together with the shoulder arthroplasty part of the Extremity segment of Medacta, we launched SecureFix, which is an all-inside meniscal repair system for Knee Sports Medicine, which is very well appreciated by our customers and is a clear driver for our Knee Sportsmed portfolio. Here as well, we have a growth rate which is more than 2x the market year-over-year. I would now like to ask our CFO, Corrado Farsetta, to go over line by line of our P&L and comments on the marginalities.

Thank you, Francesco, and good afternoon, everyone. Let me now walk you through our financial performance in the first semester, and let's start with the gross profit slide. In H1, the gross profit was EUR 240 million, increasing from EUR 233 million of the previous year. On sales, the GP margin in the first semester was 65.2% compared to 68.3% of the previous year, representing a reduction of about 3%. This reduction is attributable to 3 main factors. The first one is an adverse FX impact of 1.3%. The second one is a price erosion of about 0.5%. Those 2, let's say, coming from the market totaling 1.8% of this 3% reduction are, as I said, taken [indiscernible]. There is a third element, which is strictly related to the top line performance in terms of geographic mix and product mix, as just discussed by Francesco, which is affecting our GP of another 1.3%. And this is primarily attributable, as we have seen to lower sales in the U.S. market to a higher top line coming from our new business Sports Medicine, and also given a lower-than-expected top line also to a higher D&A ratio of coming primarily from our instruments that are in the market. This is important because those 2, the 2 elements coming from the market are taken. The second one are strictly related to our, say, top line performance. Moving to the EBITDA margin slide. What you see here is, as always, there are 2 lines. The yellow line is representing the evolution of our EBITDA margin in reported currency. And the red line is showing the EBITDA margin at constant currency. So you see that net from the 1.3% FX effect, there is a 0.9% reduction on the previous semester, which is primarily coming from the GP erosion that we have just discussed, only partially offset by a limited operating leverage due to volumes and also the ability of the company to keep our costs under control. Moving to the net profit slide. The net profit in the first semester amounted to about EUR 42 million compared to EUR 60 million of the previous year. In order to comment comparable numbers, we should read last year net profit at EUR 46 million net from the one-off positive purchase gain coming from the acquisition of the company last year, so EUR 46 million comparing to EUR 49 million, which is coming from EUR 42 million reported plus about EUR 7 million of negative FX effect. So the net adjusted and comparable is EUR 49 million versus EUR 46 million. Moving to the slide of the operating cash flow. The number -- the operating cash flow in the semester was about EUR 56 million, down from EUR 73 million of the previous year, and this is representing, of course, the performance just discussed of our EBITDA, but also a higher net working capital needs that were basically needed to replenish the implant safety inventory after the super strong performance of last year and the preparation of the necessary, let's say, inventory level to enter the Indian market in the second half of the year. We will discuss very soon in the next slide, the investing activities, EUR 74 million, and this resulted into a negative free cash flow of EUR 18.6 million. Moving to the Slide 21 -- sorry, CapEx, Slide 17, yes. This is the usual pie of our CapEx. As always, Instruments for EUR 42 million represented the biggest chunk of our investment, but it's important to notice that our Tangible now are EUR 22 million, and this is a number which is reflecting the embed the big amount of investments that we have to do in order to expand our production capacity to produce our office and facilities to accommodate, let's say, the future production machines and employees that we have in our pipeline. The rest are more or less in line with the previous year, Research & Development, EUR 8 million, and Other, EUR 2 million, for a total of EUR 74 million. Moving to the CapEx for growth, instruments plus other intangibles. This chart summarizes the evolution of CapEx on sales over the last 3 semesters. 3 lines, the yellow line is representing CapEx for Other tangible that are primarily land, buildings and production capacity. The light yellow line is representing Instruments on sales. And the blue line is on top is the total of the 2. As you see, the percentage on sales of our Instruments is pretty stable, around 10.5% to 11.9%. This fluctuation is basically driven by 2 main factors. The first one is the acceleration of top line. And the second one is also the planning and delivery phase in our business, which basically means to place orders ahead of time in the order of 9 to 12 months. So it is feasible to adjust, but it's not necessarily possible to do it in the first semester or in the same year. So this explains these fluctuations. The other one is, as we said, representing the expansion in our land and buildings and the expansion of production capacity. So 17.5% is without -- just to be clear, without the R&D investments that we have seen in the previous slide. Moving to the last slide of my presentation. The leverage, net debt on adjusted EBITDA was 1.2x, very low, compared to 0.9x of the full year last year. I think that, that concludes my part of the presentation, and I'll now hand over to Francesco, who will take you through the outlook session and some final remarks. Thank you.

Thank you, Corrado. Yes. So we mentioned at the beginning, Medacta is confirming its outlook for 2026 with revenue growth in the range of 10% to 14% and an expansion of the adjusted EBITDA margin of around 50 basis points versus prior year in constant currency. At the same time, we confirm our midterm outlook, which brings our revenue compound annual growth rate in constant currency between 12% and 15% with a gradual improvement of the adjusted EBITDA compared versus 2025, again, in constant currency and subject to unforeseen events. And Medacta remains not impacted by the U.S. tariffs, and we'll continue to monitor this development. Which are the key messages. The key messages is that Medacta is able to continue to develop and to grow at an above-market rate for H1 2026. This is the result of our differentiating innovation, medical education and constant expansion of our sales reps and teams. We have been able to continue to deliver a high adjusted EBITDA margin of approximately 28% in constant currency. And accelerating U.S. development and expansion as we have announced the acquisition of the first large piece of land in Tennessee, where we are going to develop our new U.S. headquarters and manufacturing activity for the U.S. market. And our aim continues to be to outgrow the market in a significant way for the years to come. Thank you very much for your attention. And once again, thanks to all our employees, clients, suppliers and partners worldwide for the excellent period. Thank you very much.

[Operator Instructions] The first question is from Sam England with Berenberg.

Can you just give us a bit of a sense of what you've seen in the U.S. joint market so far in Q3? I think one of your competitors commented at a conference yesterday that the markets remained quite soft this quarter. So I wondered if that's what you're seeing as well. And to what extent you think you can offset any market weakness with innovation and share gains in the second half? And then secondly, your EBITDA margin now implies a bit of a step-up in margins in the second half of this year. So can you just walk through the drivers that you see to get you to hit that level in the second half? And do you expect any of the gross margin pressures that you called out to ease as we move into the second half so you can hit that guidance?

Yes. Thank you, Sam. So in the U.S., we have seen, of course, H1 market. Now everybody reported the numbers, which is quite a bit lower than the previous years in terms of market growth. we have seen probably a 3% U.S. market growth versus an expected 5%, 5.5%. Q3, we have started to see, at least on our end, some of the Medacta-specific factors to be reduced, especially the Spine dilution in the U.S. Spine segment, which is heading in the right direction. We have seen a good reacceleration on the Hip side, but this was very much linked to our introduction of this triple taper stem. So we remain very confident on our ability to accelerate quite a bit in the U.S. specifically as well, which was the biggest gap we had and the biggest surprise we had in H1. It's fair to remind maybe everybody that last year, Medacta USA did an exceptionally strong H1. So we have a different comparable in H2, both in the U.S. and at company level. So definitely, we see a better chance to accelerate in the second half, including in the U.S., and that's true outside of the U.S. as well. On the EBITDA margin, I think it's pretty much linked as well to what we just discussed. So we were aiming in terms of growth a bit higher. We did generate cost in the first half of the year in order to achieve a higher growth rate in terms of people structure, et cetera. This did not fully materialize in certain region, in particular, we mentioned the U.S. growing single digit, which is a very big surprise for us. And of course, we have quite a bit of leverages to adjust our cost increase. So we did reduce our cost increase to the level of revenues we are seeing at the moment. So we are confident that if revenues develop in the way we now see and expect to continue, we are going to be able to basically hit the targets we have in mind. We had a little bit, again, of external factors, headwinds, in particular, some fuel surcharge, so hitting our variable transportation cost that this is something we cannot control. And I think the fuel this morning is again at some record highs. So this will not help. But let's say, outside of external factors, basically the contribution coming from a strong top line acceleration, which is what we expect should help us to increase leverage on our cost and therefore, expand our marginality.

The next question comes from Michelle Büchler with ZKB.

You noted a notable softening within Medacta existing customers in the U.S. and the general market slowdown. Could you maybe comment on that a bit more, like how much was coming from existing customers and how much is coming from new customers?

Yes. So this is -- it was quite an interesting dynamic because we have seen a very successful and continued pickup of new customers. In terms of number of customers, we are almost as strong as the previous year, where as we discussed before, we had a record year, which means our offering, our products, our ability to attract new customers and to hire new salespeople remains pretty much intact. While we have seen for different reasons, mainly base attrition to existing customers, either doing less than the previous year, moving more business from hospital to ambulatory surgery centers. And this is a more profitable business for them. And so therefore, they are happy with potentially a lower volume. And maybe we are present working with them in an ASC and not in a hospital. What else we have seen, we've seen some, of course, reduction on the Spine side, which was again more Medacta-specific thing linked to our decision to refocus on more profitable Spine business and not growing at any cost and refocusing mainly on our specialty products, as we said, technologies and sales through technology that is specific for the Spine.

Okay. And if I may, a follow-up question. You mentioned in the first half strikes in Europe. Do you still see that for the second half? Or is that over?

Yes. So unfortunately, it's not over. And we're talking now specifically about Spain, which is one of our fastest-growing markets in Europe, which is still growing despite the fact that the Spanish market in the first half is almost down 20% due to those strikes in the public market. So they have announced that those strikes will potentially continue, but it's really unknown. There are some regions which are not taking part of those strikes anymore. And as you know, Spain is a federal state. So the regions are very, very autonomous. And we will have to see. It is very challenging for us to forecast Spain. I just actually had a meeting this morning with our Spain General Manager, and that's a little bit an unknown situation. Medacta is doing very, very well despite this very strong headwind and would have been a record year in Spain for us without. But still, Spain is affected by those strikes, while we did not see any other strike outside of Spain, which was the case in H1 with France, for example. So outside of Spain is more normal.

Perfect. And maybe last question from my side. Do you have the approval for the first product in India already?

We did actually a few weeks ago, we just got approval for our Knees, which is the most strategic product and most important in terms of market potential in India. We would start to ship finally those goods that have been sitting on our shelf because every week could have been the week of green light, and we should start to see some action already in September.

The next question comes from Graham Doyle with UBS.

Just 2, please, one for Francesco and one for Corrado. Francesco, on the top line, so when I look at the midpoint of the guidance, I think it's something like 14% growth in the second half, which is about 4 percentage points more than H1. But just when I look at my math, so in H2, you've got an extra trading day. It seems like U.S. demand probably gets a little bit better as sort of insurance normalizes and you get through deductibles. Presumably, there's some pent-up European demand from strikes. And then you've got the improving Spine piece as well. So I mean is it still reasonable to think of like the midpoint or better is actually still possible for the full year, i.e., because of these tailwinds, you could do something like a 14% in the second half? And then Corrado, just a quick one on depreciation. There's nothing happening. You're not accelerating depreciation on instruments or anything. It's just a case of there's a greater share of instruments out there. Just to double check how that calculation is.

Thank you, Graham. So concerning the top line, there are all the elements you mentioned, plus, of course, India, Q4 is only Q4, and that's 100% growth. There are a few other elements. You mentioned Spine. There are some price cuts that came into force, for example, in France, which is our most important market in September last year. So by September, this price deduction would be not there anymore. It was around 3% in certain products. So it's quite significant. Then there are still, of course, some variables like we mentioned Spain and the strike, the Spine reaccelerating in the U.S. So is it easy to do -- to achieve the mid portion of the guidance? I would say, is not, but is it possible? I would say it is possible. But probably is more likely to be slightly below the midline given the fact that we have 4 months to go. But we remain positive. I mean we're always very ambitious at Medacta. I think to grow even 10% to 12% in the current environment is phenomenal and would probably be close to 3% above 3x the market, which is remarkable. But we always target very, very high numbers. And I always prefer to be slightly disappointed on a very good performance than being happy because we did 6%. So that is a little bit on the sales. I hope I addressed your question. Otherwise, just let me know. I ask Corrado to address the other one.

Yes. Graham, so yes, I confirm we didn't change any accounting treatment of our CapEx. What we have seen in the first semester is a pure arithmetical result coming from lower-than-expected top line and the same amount of instruments and D&A that are still in the market regardless of the level of top line reached in a certain semester. So just a pure arithmetical calculation, nothing else.

But if I can comment on that, Graham, of course, very often in business, revenues fix a lot of problems. So as we can control our new instrument sets that we put in the market, we did put in the market a higher number of instruments based on higher expectation. We can pull back on some incremental instruments in the second half of the year so that we can potentially improve the ratio of CapEx to sales. And therefore, you would see a GP improvement in potentially second half provided, of course, the revenues reach the levels we expect, which is quite likely. But those are all effects linked to an unexpected softening. So you put resources, net working capital, instruments, people, then you're slightly behind. You see this phenomenon in H1. You try to adjust it immediately. In H2, most of it, you can manage it. Some of it you can't and then you have a little deterioration. But H1 was probably our worst semester in the last 5 years after COVID. So -- and we were comparing it with the best semester of Medacta history, which was probably H1 2025.

That's super clear. Maybe a cheeky follow-up, which is if you look at some of your big peers like J&J, whether it's their Spine or Smith & Nephew kind of reevaluation of ortho, there's clearly a lot of disruption, which you have thought would be quite good for you guys in terms of market share gains and being able to invest and kind of work closer with surgeons. But is there any logic in -- if an interesting product or facility was to come up as part of that disruption in terms of M&A kind of bolt-on size, does that make sense? Or is organic still the best way of thinking about product development or filling in gaps for you guys?