Dynavox Group AB (publ) (DYVOX) Earnings Call Transcript & Summary

All right. Good morning. It's 9:00. Welcome to this earnings call where we will cover the second quarter in 2026, summarizing our business in April, May and June. And I am Fredrik Ruben. I'm the CEO of Dynavox Group.

Hello. I'm Linda Tybring, and I'm the CFO of Dynavox Group, and I will cover the financials in more detail.

Great. So for those of you who have participated in these calls before, you will be familiar with that we will start with a quick recap about what Dynavox Group does. Then we will summarize the main takeaways from the quarter. Linda will, as she said, dive deeper into the financials, and we'll thereafter have a Q&A session. And you can submit questions during the Q&A session in the Q&A function in Teams or you can ask them live by raising your hand in teams and unmute yourself and then we invite you to speak. And we, of course, always welcome offline questions sent by e-mail to the above e-mail address, which is linda.tybring@dynavoxgroup.com. But let's start with a brief overview of Dynavox Group. So first and most important is to reiterate our mission and our vision, which I know is very dear not only to our now over 1,000 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 that we will -- We are empowering people with disabilities to do what they once did or never thought possible. And this also summarizes 2 of our main user stories. The first one, the do what you once did, that may be the 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 one, the never thought possible that can refer to the child diagnosed at a very early age with a condition such as autism or cerebral palsy, where thanks to our solutions, she can do much more than the world around her ever thought possible. And on the picture here to the right, you see Linea, a 12-year-old girl from Gothenburg in Sweden. She was diagnosed with cerebral palsy, and she is a great example of this. And some may know that Linea was the keynote speaker at the Women in Tech Conference here in Stockholm earlier this spring with our colleague, Grit. And thanks to our solutions, she was able to fulfill one of her dreams was to give a lecture about assisted communication in front of thousands of people. And Linea has been a user of our products since she was about 2 years old. The market that we serve 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, and 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 spells lack of awareness, also among the professionals and the prescribers that are tasked to assist these users, combined with a poor health care reimbursement system. We operate with a global footprint. Today, almost 3/4 of our business stands out of the U.S., largely because of a reasonably well-functioning funding system established some 20, 30 years ago. Our comprehensive solutions are sold in more than 65 markets around the world, of which 12 are markets where we sell directly, while the others are served by a network of some 100-plus reseller partners. Our own staff is distributed in a similar way as the revenue, meaning some 50% of our staff are based in North America with our U.S. headquarters in Pittsburgh in Pennsylvania. And our second largest office is our headquarter here in Stockholm, but we have branch offices in several European countries as well as in Suzhou, China, Adelaide, Australia. And as of today, we are a little bit more than 1,000 employees in total. We provide what we refer to as a comprehensive portfolio of solutions, and they range from the content and the language system such as the world's leading library of communication symbols, they're called PCS symbols and a leading solution for off-the-shelf or custom-made synthetic voices of the highest quality with a large diversity in terms of languages, ages, ethnicities and so forth. Moving on, we also make highly sophisticated communication software that is then tailored to the type of user, which can vary greatly based on the needs of him or her. We develop and design devices, hardware with cutting-edge technology and medically certified durability, including communication aids that can be controlled via eye tracking, but also accessories such as the Rehadapt mounts. We have a services portfolio to help our users through the complexity of obtaining and getting funding for their solution. And last but not least, we are there to help our users, the therapists, the caregivers and everyone through our global teams of support resources. We operate this model on globally, and it's important to note that each piece in this is critically important and also a significant differentiator for us, making us absolutely unique. Our go-to-market model is predominantly as prescribed aids. That means some 90% of our revenue comes from either public or private insurance providers. But this also means that we have solid paying customers, but also have been resilient towards changes in the overall economic climate. But now we will go back to focusing on the main topic of today, namely our earnings report for the second quarter 2026. If we look at the highlights, we delivered a solid year-on-year revenue growth in the second quarter. Revenue grew globally by 16% after adjusting for currency effect compared to the same quarter last year. And if we recall, last year's growth was an exceptional 38%. The demand for our solutions remains high, proving the solidity of our underlying business. And we see a robust underlying growth across all markets where we operate. The revenue in North America benefited partly from delayed orders from Q1. However, this positive effect was offset by what we see as overall longer prescription processes compared to before. So the consequence of that is that it leads to longer handling times, but there's not less opportunity out there, and there is no deteriorated policies or reimbursement, just longer lead times. And in the light of that, it is reassuring that the operating profit more than doubled compared with the same quarter last year and came in at SEK 105 million, a 137% increase to be precise. The global rollout of our new ERP system that has been long in the making is now successfully concluded for all our main legal entities. In Europe, we continue to strengthen our local presence and our commercial execution. And on April 1, we completed the acquisition of our Italian reselling partner, SR Labs Healthcare, and we welcomed new colleagues to the team. A new health economic study focusing on the U.S. was released, and that shows that high-tech assisted communication solutions like ours significantly improves quality of life for people with disabilities while delivering clear economic benefits to society. In summary, quality of life for users improves by 65% and pays for itself more than 3x over. And this study confirms what previous has also been seen in similar studies conducted in Sweden and in Germany. During the quarter, we filed a lawsuit in the U.S. against AbelNet. Our objective here is to protect our intellectual property and to address alleged practices that, in our view, risks confusion around delivery, support and reimbursement of assisted communication technology. And then last but not least, we announced in the quarter that Jacob Thordenberg has been appointed the new CFO for Dynavox Group, and Jacob will join in September this year. Linda, who you will meet soon, will remain in her role until Jacob joins and will then be available until January 2027, the latest, to ensure smooth handover and support his onboarding. So now I hand over to Linda to make -- take us deeper into the financials.

Thank you, Fredrik. Let's take a closer look at Q2 financials. Revenue for the second quarter came in at SEK 670 million, a 16% year-on-year growth after adjusting for currency effects. Recent acquisitions contributed with 4% and the organic growth was 13%. Currency fluctuations had 5% negative impact on revenue. Sales continue to grow across all markets. In North America, as Fredrik already mentioned, we recovered part of the delayed orders from the first quarter. However, the positive effect was offset by overall more drawn out prescription processes compared to before. This is partly driven by a higher number of users changing insurance provider at the beginning of the year, resulting in additional administration, and we continue to navigate the complexity and bureaucracy of reimbursement processes, which remain a recurring feature of our markets and a headwind during the quarter. The gross margin ended up at 70%, an increase of 2.6 percentage points. Gross margin benefited from favorable currency effect of close to 1 percentage point and lower freight costs. This was partly offset by higher component costs. EBIT increased by 137% to SEK 105 million, corresponding to an operating margin of 15.7%. Currency adjusted EBIT growth was 145%. Our OpEx increased by 5% organically. The OpEx increase relates mainly to continued investments in sales and marketing staff, but also within our IT organization. During the quarter, we continued to invest in our systems and tools, including our new ERP platform to strengthen scalability. And now we have successfully rolled out the new ERP in all our main legal entities. These nonrecurring investments totaled to SEK 6 million, a decrease of SEK 12 million year-on-year. Acquisitions contributed with SEK 17 million increase of operating expenses versus prior year. We saw a decline of our long-term incentive program cost of SEK 12 million year-on-year, driven by the share price development. Costs for research and development after capitalization and amortization decreased by SEK 17 million compared to the same quarter last year, mainly driven by higher costs in prior year related to the organizational restructuring. Higher capitalization related to launch of new product and lower amortization contributed further. If we look at the basic earnings per share, it totaled to SEK 0.7 per share to be compared to last year's SEK 0.27 per share, which is a 150% improvement. For the quarter, cash flow after continuous investment was positive with SEK 67 million. It's encouraging to see that our work on improving processes and operations have had a positive impact on cash flow compared to last year. We also paid a dividend of SEK 53 million during the quarter to our shareholders. Cash at hand by the end of the quarter was SEK 223 million, and net debt was SEK 882 million. The total unused credit facility at the end of the quarter was SEK 300 million. The net debt over last 12 months EBITDA was 1.6x. So Fredrik, back to you to conclude today's earnings call.

All right. Great. Thank you, Linda. So to summarize before opening up for questions, I'd like to reiterate some of the main takeaways and bring further nuance to our performance and our outlook. We continue our strong growth trajectory, a trend that started early spring of 2022, so almost 4 years ago. We grew revenue by 16% adjusted for currency, and that should be seen in the light of a 30% -- 38% growth in the comparable quarter last year, making the comps quite challenging, and yet we beat that with quite a margin. Sales continued to grow in the quarter across all our markets. In North America, we benefited from deferred orders from Q1, but that was counted by overall longer prescription lead times. This slows down handling times and delays revenue, but it does not deteriorate reimbursement or long-term opportunity. And these types of complexities are quite well-known characteristics of the market in which we operate. Our profitability improved notably, reflecting strong operating leverage while the prior investment-related costs continued to taper off. And all in all, our EBIT improved by 137%. Not only was the reported earnings encouraging, we delivered a strong cash flow, further underscoring the improved operational efficiency, which we have put a lot of energy into and cash flow after continuous investment increased by 167%. We continue to expand our direct market presence by closing the acquisition of our Italian reseller partner, SR Labs Healthcare. We continue to monitor all macroeconomic and policy changes development closely. But as of today, there have been no changes, or alternations to reimbursement or governing laws, but we, of course, see increasing administration and prescription timelines. And while currency effects and the broader macroeconomic environment can create volatility, we are well positioned to continue to deliver on long-term sustainable growth in what we see as a severely underpenetrated market while advancing our mission to provide life-changing solutions to those who need them the most. We reiterate our long-term financial targets when it comes to growth to, on average, grow revenue by 20% per year adjusted for currency effects, including contributions from acquisitions. In local currencies, the second quarter this year's growth was 16%, which means we continue on the growth trajectory, but also in the light of last year's exceptional growth. And the market that we serve remains hugely underserved, but also quite immature. And with the example of growth levers such as sales team expansion, adding direct markets and operational excellence, we continue to build on our growth journey and remain confident in our ability to continue delivering on our ambitious plans. If we move over to profitability to -- where the goal is to deliver an annual EBIT margin that reaches and exceeds 15% -- we feel that we have proven to build strong growth with incremental improvement in profitability. We need to continue to invest in future growth with improvements in scale, which we have. And the recipe is rather simple, continued revenue growth, high and stable gross margins and total operating expenses that increases at a lower pace than revenue growth. And as a consequence, we see good opportunity to further leverage how revenue growth translates to reaching and exceeding a full year EBIT margin of 15%. And this quarter is a clear evidence of our ability to deliver on this. And then on dividends, we have an attractive cash flow profile. And given the growth opportunities, we, of course, need to maintain a capital structure that enables strategic flexibility to pursue growth investment, and that, of course, includes acquisitions. But it's still expected to, over time, generate excess cash and our policy is, therefore, to distribute at least 40% of the available net profits to our shareholders via dividends or share repurchases or similar programs when so allows and when we deem that it's the right prioritization. And 2026 was the first year where we started to pay dividends and given our ability to translate revenue into cash flow, as was also proven in this quarter, we remain confident in our ability to deliver on this target too going forward. Okey-dokey, with that said, we are inviting our Corporate Communications Director, Elisabeth Manzi, who will help to moderate and enable us to take questions from you.

Yes. Thank you so much, Fredrik. And we do have a couple of people who have raised their hands. [Operator Instructions] So first one out is Daniel Djurberg. [Operator Instructions] Daniel?

Congrats to solid numbers, good cash flow and gross margin, et cetera. My first question would be a little bit on this comment on the reimbursement, longer times and so on. And Linda, you talked about -- but should we expect this to ease off anything or get worst? Or is it like Linda said that it's mostly when they are changing financing that this occur? Just some more insights?

I can give some more practical flavor of what this actually means in practice. So now we're more or less only talking about the U.S. So at the beginning of every new year, that's when people change insurance providers. And we see that there is a slight increase for whichever reason this year. When you change insurance providers, it's quite often so that you also have to change therapist because your former therapist was maybe associated with a different payer and now since you shifted payer, you will have a new therapist. And as you can then maybe understand, the lead times increase. I'm not saying that you start from scratch, but there is a little bit of a rework. This is one explanatory factor of why we see that it's not like the reimbursement is taking longer. It's the entire prescription time line that we notably see is longer this year than before. I would say that the trend or this function is not new to us. We're quite used to handling this, but it is longer. To say -- to give some sort of outlook on when this will taper off or how fast things will go, I cannot tell. We hear anecdotally that waiting times to get an appointment with a new prescriber or therapist, speech language pathologists, for example, in the U.S. are quite long. So it's we hear 30 or 90 days wait until you can get an appointment. And of course, if you start from 0, that will take longer time. But that is the practical consequence, but it's hard to tell exactly when or if it will taper off. But there is no fundamental change to neither number of users or reimbursement.

So in a full, it will be annualized at least Q2 '27 given that the longer the impact you saw.

Your guess is as good as mine here.

Yes, I would see. May I ask you about the cost for the AbelNet lawsuit in Q2 and also go ahead, if we should expect this to be a substantial amount in the OpEx side here. And if you will comment on that as an NRI or not?

It's not substantial at all. It will be a small part of our OpEx.

That's good to know.

I think what we said in some prior calls, this should not influence our long-term guidance. This is within, like Linda said, within our financial envelope.

Super. And now when you see net debt coming down here to 1.6x rolling EBITDA, any comments on M&A and what you have thinking there because the 20% growth target is, I guess, with some minor M&A as well included.

Yes. I still think it should be seen that our play is largely organic. We sometimes use the word that M&A is sprinkling on the cake. If you look historically, it's been low single-digit percentage points of our growth that has been related to M&A. Also, when you make the types of acquisitions that we have made more recently, meaning that we buy our own resellers or distributors, the addition is actually quite small because in actual -- in currency or in money, the only difference when you buy a reseller is the difference from what we sold to that reseller and what that reseller sold to the market. So M&A is not a fundamental part of our kind of overall growth story. It is organic.

Perfect. And finally, I just want to thank you, Linda, so much for a great work done and good collaboration and the best wishes ahead. Have a great summer, both of you.

Yes. Thank you so much, Daniel. It's been a pleasure.

Thank you, Daniel. And we will now invite Filip Wetterqvist to ask questions. Filip you might want to turn on your sound?

There we go. And there we have the camera as well. Perfect. All right. Just coming back on the prescription lead times. I assume this was an effect you saw in Q1 as well. I mean you talked a lot about the weather being a big effect in Q1, but I would assume this is an effect as well looking back at that quarter.

Correct. And not to kind of say an excuse, it is sometimes difficult for us to understand why a certain therapist's meeting with the user was delayed or deferred. Whether it was weather, whether it was a new therapy since we are not part of that part of the journey. But you're absolutely right. There could have been some effects. That being said, when we interviewed both our own reps and prescribers in the market, the weather effect that we experienced in Q1 was quite extraordinary and was definitely a big contributing factor.

But should we view this as more like revenue as being deferred and not lost with these like longer lead times?

Yes. But it wouldn't be right of us to kind of try to quantify the time line for that. But since there are -- again, if you just look objectively, there is no changes to reimbursement. The laws haven't changed. There is obviously no less prescribers and no less users. This should be caught up eventually.

Yes. And then you talked in the Q1 presentation about March being back to historic growth levels, which I assume is 20% to 30% and then we see a slower growth than that here in Q2. So can we then assume that March was just like it picked up because of the lost revenue in January and February, so you got that in March. So it was an effect of that or...

I don't have an exact number, but you're probably right. There's an element of what was lost due to weather or what was lost due to changes in insurance coverage also in March because as you noted, we did see a strong momentum in March and kind of that -- I mean, we do have a slight increase in growth Q2 versus Q1, even though it's merely 1 percentage point, but there are such fluctuations. We have -- I mean, if you recall, we have a fairly clear seasonality pattern. Q1 is our weakest, Q2 slightly better, Q3 slightly better and Q4 slightly better. Interestingly enough, we have within each quarter also a similar trend where the first month of the quarter is typically more shaky or weaker and then you have a little bit more of a push through at the end of the quarter.

And then you reiterated in the report your growth, 20% FX-adjusted growth target. Do you see that as still possible for '26, given that we are some 5 percentage points below in H1? Or do you more view it as a long-term target?

I think we should read it exactly how it's spelled out that it's a long term and that it's on average per year. We didn't say that every year or every quarter or shorter periods. That being said, we remain confident because if you go up in the helicopter a little bit, looking at the market, what we offer, how we do it to be able to deliver an annual growth of 20% is something we feel that we both have the capability and the demand is out there.

And then just one last quarter -- one last question. The number of employees increased quite a lot this quarter, about 5% quarter-over-quarter or 50 people. Do you expect to keep this hiring pace throughout the year? Or should we expect it to slow? Or how should we look at that?

Linda, you may want to answer that.

Yes. I think you should remember that we also acquired a company in the quarter as well. So that kind of brings additional people into it. So I think that's the explanation.

Other than that, the main focus areas where we add headcount is within our market-facing roles, so reps out in the field, et cetera. We expect that specifically given the investment in organization and back-end system that the rest of the organization, if you will, should scale much better.

Thank you, Filip. And next in line is Jakob Lembke.

My first question is, I guess I'm repeating the other ones, but on this drawn out prescription processes, I just want to be clear and understand that is this something that has increased compared to Q1? And also if that means then that the growth for Q2 is lower than what you ended Q1 with in March, which you said was strong.

That's a very good question. If I can dare to answer that question on gut feeling, I think you are all right. I mean we do see that the reimbursement processes have been drawn out. There is definitely so that for the people who did not change insurance provider that had their processes started, say, November or December, of course, there was no change to that. But when you have a larger population changing insurance prescriber -- provider and then adding to that you also change therapist, I would say it's likely to say that it was longer in Q2 than it was at least before. And whether that was exclusively in Q1 or not, I don't know. I also want to reiterate what I think I answered before is that the funding process, the process for once you say -- once the prescriber says, yes, this patient is suitable for one of the products until he or she actually receives it. That process hasn't slowed down. It's more on kind of what happens before that, that has been slower, which is also slightly more outside of our control, to be fair.

Okay. Then I'm also wondering if you have any sense of how much of the weather-related deferred sales that were recouped in the quarter and how much is left to recoup?

No.

Okay. Then I'm moving on to a question on your thoughts on, I guess, investments in sales and marketing. I guess last year, you probably took a quite a big leap in the sort of sales efficiency in the U.S. But given the slower growth here in Q1 or in H1, I guess that has taken a step back now. So given this, I'm just wondering on your thoughts in continuing to recruit for sales and marketing. It seems like you're continuing to recruit quite fast.

We are. And then we should also know that it's not like we -- the hiring process is exactly even across the year. If we look back at last year, we did add a fairly significant amount of reps during the end of last year. And of course, that means that those new people are not fully up to speed yet. They're not kind of up and running. And we should probably start to see efficiencies from that happening pretty much now, if you will. But other than that, our recipe hasn't changed that the best way for us to educate and build the market is by having more people typically with a clinical background themselves, but they represent us, work for us out in the market. And so far, we see that -- what do you say, Linda, what is the average kind of how long does it take to have a rep be up and running?

Yes, we said that it's about 6 months until they are profitable. And after 12 months, they need to perform according to the set KPIs that we have.

But we see no shift in that. So -- but that -- now we're looking at kind of a global level. We are quite detailed on this. We analyze every region, every state, every market where we see that is there incremental benefit of splitting territories and adding more reps? Or should we kind of pause for now? And that's something we do on a daily basis.

Okay. And if I may follow up, given that you have recruited quite a lot of sort of salespeople here in recent quarters, do you expect to see a benefit to growth from this in the second half of the year?

Absolutely. Otherwise, we wouldn't do it.

Good. Then on the gross margin, which is quite strong here in Q2. Well, first of all, do you think that this is a level you can remain at going forward? And also, yes, if you think you will have any material impact from the price increases that Apple announced here during the quarter?

Yes. I think -- I mean, first of all, we had a positive impact on FX this quarter, almost 1 percentage point, which we cannot account for in the coming quarters. We are seeing increase both on other components and the iPad or Apple cost. We think from a rolling 12 perspective, it's slightly below 1 percentage point going forward that we might have impact on gross margin.

Good. And then finally, I have a question. I've heard some reports that your competitors -- or you have a competitor that's being favored because they are able to get their devices out faster to the users. And I guess the question is just if you are agreeing with this and also if you have any plans to mitigate this?

This is a big topic. And I think this is partly associated with the lawsuit that we issued earlier in the year. And our focus is to, a, of course, make sure that the therapists and the prescribers that work with our patients are competent in doing what they do, that the products that we deliver are of the highest possible quality, both in terms of kind of actual quality and also how they function, ensuring that the users are successful. And then, of course, that everything is done with a minimum of delay. We can always become better. I do see, however, that reimbursement systems are very complex material to handle and making sure that you stay within the boundaries of what is legal, what is according to the policies is critically important if you want to maintain a high-quality business. So we believe that we can probably do things better. But when we see that there are players who take shortcuts, of course, we should see is this something we can improve on? Or is there other reasons? And I think this is actually related to the lawsuit that was announced. There is more material and quite good infographics on our website that you can click on in the press release related to the -- and then you can get more flavor on that, why this is not a super simple topic to answer. But we want to make sure that we are top notch.

And if I may follow up then on the lawsuit, what's the feedback been from users and also the therapists from the lawsuit?

I don't know. I think it is probably all over the place. This is a market with extremely high ethical and moral standards. Almost everyone that works in this space do it because they want to make a difference. They want to make an improvement to the users and the families around them. I think doing things right is a fundamental part of how everybody in this space want to operate. And that is also the majority of the feedback that we're hearing on making sure that we also do things right also legally and procedurally.

And supporting the customers is very important for us.

Yes.

Thank you, Jakob. We do have a question from the audience in the chat as well. So from someone who hasn't posted the name, but education is your bread and butter in many ways. Can I get an estimate on how many clinicians you train every -- each year and how many sessions you conduct annually? How does that compare historically, for example, 5 years ago?

Okay. I cannot give exact numbers, but I can describe the process and also how we operate. So the model, which we -- that was a strategy, I think we implemented in 2017 or so. So that's more than 5 years ago, was minted training is the new selling, which means that our salespeople, if you will, they are not salespeople in the sense that they go up and kind of close orders. They are typically almost exclusively clinicians themselves who have been operating for many, many years with the patient groups. And now rather than working with individual patients, they work to educate the prescribers who in their turn work with patients. This means that the only thing our field reps do is to be out there and educate. That's what they fill 5 workdays a week with along with, of course, supporting. And we have, over the past couple of years, increased our field sales staff by, what you say, Linda, 20% or so annually?

Yes.

Which, of course, means if you have 20% more feet on the ground and they're continuing to train more, that's probably a number. In addition to that, e-learning, all types of new technologies, how we can conduct training without necessarily sitting in a car, driving for hours, et cetera, but getting scale for that has obviously improved. So the -- in real terms, number of prescribers touched every year, et cetera, is growing even faster than that. But that's what we do. answered to some degree.

I think it did. We will bring in someone who has raised their hand. So Nikola Kalanoski. If you are still on the call and would you like to unmute?