EL.En. S.p.A. ($ELN)

Good afternoon to everyone, and welcome to El.En's. First Quarter 2026 Financial Results Conference Call. Today's call will be recorded, and there will be an opportunity for questions at the end of the call. With us on the call are Andrea Cangioli, El.En's. CEO; and Enrico Romagnoli, El.En's. Chief Financial Officer and Investor Relator Manager. Before we begin, please note that there are management remarks during the conference call regarding future expectations, trends, prospects and forward-looking statements. Certain statements in this call, including those addressing the company's briefs, blends, objectives, estimates or expectations of possible future results or events are forward-looking statements. Forward-looking statements involve known or unknown risks, including the general economic and business conditions in the industry in which we operate. This statement may be affected if our assumptions turn out to be inaccurate. Consequently, no forward-looking statements can be guaranteed and actual future results, performance or achievements may vary materially from those expressed or implied by such forward-looking statements. The company undertakes no obligation to update the contents on all the forward-looking statements to reflect events or circumstances that may arise after the date hereof. [Operator Instructions] But at this time, I want to give the floor to Enrico Romagnoli. Please go ahead, Andrea.

Thank you, Nicola. Thanks [indiscernible] for your introduction, and good morning -- good afternoon, everyone, and thank you for joining us today to discuss the financial results for the El.En. Group for first quarter ending March 31, 2026. Enrico Romagnoli will be on the call with me, as Nicola anticipated. As we look back at the first 3 months of the year, it is clear that the El.En. group continues to navigate a complex global landscape with resilience and unchanged commitment to our core mission, leverage our technological leadership in both the medical and the industrial sectors to drive value for our partners worldwide and subsequently, for our shareholders. We were pleased with our financial results, and I want to thank our global team of engineers, clinicians and staff to their dedication to the success of our group. Turning to our consolidated financial performance for Q1 2026. We achieved total revenues of roughly EUR 145 million, up 3.3% compared to Q1 of the previous year. This performance reflected the excellent performance of the medical sector, which was up 9.3% in revenues and in fact, more than 10% on an organic base neutralizing the effect of the exit of our Japanese subsidiary with us, overcoming the slowdown in the industrial sector, which was down in sales by 11.4%, mainly due to the cutting segment, which was down by 15.5% in the quarter. The quarter also displayed an improvement in P&L efficiency based both on marginality on sales and on leverage, leading to EUR 19.8 million in EBIT with an EBIT margin of 13.6%. It's more than 1 point up on Q1 2025, but also -- and this was an excellent achievement due to the weak seasonality of the first quarter, also up sequentially on the last quarter of 2024, '25 on the EBIT margin performance. As leverage is given by volume and margin on sale depends upon the quality of the sales mix, I would like to provide you with some color on the matter. Volume increase came from the medical business only, and this contributed to the overall margin for major mathematical results as margins are higher in Medical than in Industrial. It's roughly 48% in Medical versus 38% in Industrial. Within the respective sectors, margins were stable to a high level in Medical, but they materially improved in Industrial from 34% of Q1 2025 and 28% of Q4 2025, up to 38% in this first quarter. So it is important to point out that under the sales margin profile, we had a positive contribution by the Industrial sector as well. Margin improvement in the segment is the corner store of the path towards a return of the segment to a stronger profitability. Sales have been lagging in this quarter in the Industrial sector. But under the margin point of view, we are on the right way, and we expect stronger quarters ahead also on the sales volume side. Grown to this trend like in the sales mix under the product and the geography profile for both sectors. In industrial, geography is a prominent margin driver with Europe, the U.S. and Brazil being the most attractive markets, margin-wise. Q4 2025 had recorded the highest rate of sales in Italy and a negligible sales volume in the U.S. and Brazil and subsequently showed a very low gross margin in sales. Q1 2026 witnessed a return to a decent sales volume in Europe and in the U.S. and accordingly, a decrease in the total share of sales in Italy. The effect on margin was evident. The weak sales performance in Brazil was in this quarter the missing piece that didn't allow to convert the material margins improvement in the volume effect sufficient to better cover the expenses from operations. In Industrial, as quarterly sales volume in the cutting segment declined, higher-margin variance sales in the marketing and laser sources segment increased the way, therefore, increasing the segment margin. Medical maintained its gross margin levels, confirming a sales mix which privileged within a static devices, antiaging treatments versus hair removal and confirm the material contribution of the surgical business, both for system sales and consumable sales as the volume of [indiscernible] sold in the quarter exceeded once again the EUR 10 million threshold. On the top is currently the trend is devised in our product range, a system which successfully captures the requirements of the demand in medical aesthetics, especially focusing on skin tightening and skin firming. Our Coolwaves, microwave technology enables minimally invasive and extremely effective procedures with effects are evident, but are also respectful of the appearance of the patient, mild improvements that do not distort the expression patients want to improve their appearance, but are not willing anymore to accept that their efforts are too evident. They want their status to be maintained without being noticed too much. By the way, on [indiscernible] block, we are expecting an unprecedented number of limitations being introduced on the market. And we are delivering a notable effort, both on the marketing and commercial side and on the legal side to protect the uniqueness of our flagship device. On the innovation side, our key success factor and main competitive weapon, we continue to dedicate significant resources in terms of management, manpower, investments that enable our R&D teams to maintain their excellent productivity level. Coming out this year, we have new products in aesthetics for pigmented lesions and hair removal and improved capabilities for our skin tightening devices. In surgery, a new laser in the wavelet ranks of the blue is due for release within the end of the year, while in urology, a new high-powered volume BPH system is almost ready to its launch for its launch. In the Industrial sector, laser cutting systems are improved, especially for the large-sized high-power system dedicated to steel construction, but also the offer of laser marking is continuously updated with new wavelength and special mission mods, which allow [indiscernible] to be more and more innovative and more and more matched to the needs of a diversified set of customers, application segments and industries. A brief mention of the unprecedented first quarter improvement of the net financial position. We were up EUR 1.5 million in the quarter, the first quarter that historically is a cash absorber. Enrico will give you the details. I can now make a comment that CapEx was lower in Q1 '26 than in Q1 '25 as expected to date on a yearly basis as well -- as expected to date and as expected on a yearly case as well. We though approval during last week, a fairly sizable investment for a new building here within the Calenzano plant that will be mainly dedicated to marketing support areas for welcoming potential customer, both in person and with the most recent technologies for effective remote meetings. The order of magnitude of the investment is around EUR 5 million. It will change the outlook of our cash flow statement, but it will bring 2026 CapEx closer or equal to the order of magnitude we had in 2025. I would also like to give you an update on certain possible M&A activities I outlined in other meetings and calls. On [indiscernible] new subsidiary in the U.S. for the Medical Surgical business is now operational. And with the seasonal general manager, we are hopeful of being able to rapidly capture the market and the customer base that was previously covered through a distributor. The launch of the company didn't exactly follow the plan and also with transition with the former distributor required an initial investment smaller than budgeted. Quanta's management is following closely the development of the company, and we will update you on the performance of this new sub of Quanta System. Also in the physiotherapy segment, we are working to an agreement with our U.S. distributor with the goal of a closer cooperation and subsequently, an increase in the performance of this market segment, one of the most fruitful among the businesses of ASA, the company based in Vicenza, which is dedicated to this market segment. Concerning other M&A activities in the Industrial and Medical sector involving on one side that is the cutting business and the distribution of medical laser systems in selected countries on the other one, I have nothing notable to report about the fact that the group is considering the possibility of evaluating certain options in regard. During the quarter, the group continued and further consolidated its sustainability activities, which are also included among the performance indicators relevant to management's inserting systems. Implementation of the 2023-2027 sustainability plan continued with overall progress in line with and in some areas, exceeding the defined objectives, particularly for initiatives to transition to renewable energy sources. The plan continues to focus on strategic issues, such as fitment change, circular economy, promoting our responsible supply chain, developing human capital and supporting local communities, confirming the group's commitment to a sustainable development model, which is fully integrated into business processes. As we anticipated in the press release we issued to disclose the news, we are sharing today in more detail with respect of the resignation that our General Manager, Mr. Paolo Savane, formally submitted for personal reasons on April 30. Dr. [indiscernible] served in his capacity in this capacity since 2017 and his impact on our group has been profound. Under his leadership, we have seen an solidified its position as a global leader, especially in the medical sector, the focus of yield management activity. I obviously did it already in person. But today, on behalf of the Board of Directors, I want to formally thank Paolo for his exceptional professionalism and the significant contribution he has made to our growth under several profile, including the strengthening of our management structure over the last 7 years. We wish him nothing but the best in his future endeavors. In addition to saying that we are not aware of any reason, if not strictly personal, that led Paulo to the decision to resign and that we are on excellent term with him. I want to emphasize certain key points regarding the transition phase we are facing. In terms of operational continuity, thanks to the robust management structure, Dr. Salvane had to put in place, we are fortunate to have an incredibly talented and professional management team because of the strength of this team, we do not expect any impact on our day-to-day efficiency or operational continuity. Concerning our strategic targets, our commitment to our goals remain unchanged. There are no changes in our targets, short and midterm. We are moving forward with the same momentum and focus that we began the year with. Concerning the next steps, the executive management shared with the Board of Directors its view on the new management structure. We confirm there are currently no plans to appoint a replacement for the general manager position. In fact, also thanks to the contribution made by the General Manager, [indiscernible], the existing management expertise and synergies allow the company to waive a direct replacement at this time. The company can effectively rely on selected executive roles already in place across various business areas, which are complementary to one other. Ultimate coordination will remain under the responsibility of the Executive Directors, namely the President and the Managing Director. At this time, I'm giving the floor to Enrico for the comments -- detailed comments on the financials.

Thank you, Andrea. Good morning, everybody. I briefly comment on the first quarter financial results. In the first quarter, the group recorded a 3.3% increase in revenue, reaching EUR 145.6 million compared to the EUR 140.9 million as last year. And the performance -- the mainly performance was achieved by the Medical sector when industrial showing a decrease of around 11%. On a like-for-like basis, the growth in the Medical sector revenues would have been even higher, reaching nearly 11% as with us, consolidated until the end of February 2025, contributed approximately for EUR 1.5 million to the medical service revenue in the prior period. In 2026, the weakness of U.S. dollar in Medical but also Indusrial had a cumulative negative impact on the growth of sales of minus 1.6% for an amount of EUR 2.3 million. In terms of gross margin, it was EUR 67.2 million up approximately 7% compared to the EUR 62.9 million on March 2025 with an increase in margin that went from 44.7% to 46.1% in the first quarter 2026. Although the Medical sector achieved the highest sales margin, the improvement in sales margin in the quarter has been released also to the industrial sector despite a reduction in turnover, the sets mix in Industrial was more favorable, both geographically with a lower incidence of the highly competitive Italian market and in terms of prototype thanks to the reduction in the weight of the larger cutting segment, which [indiscernible] lower margin than larger [indiscernible] and the larger market. Operation expenses increased in value and an impact on our sales, mainly in G&A, plus 6%, including travel and IT costs and sales and marketing activities, plus 12%, mainly for trade [indiscernible]. Staff cost increased to an increase in head count on March 2026. The employees were 1,428 when on March 2025, they were 1,383, plus 45 units in Italy and Europe, in Medical and Industrial. EBITDA was EUR 23.7 million, up 9% on the EUR 21.7 million of last quarter. EBIT recorded a positive result of EUR 19.8 million, up 14% compared to the EUR 17.4 million in the prior year. This increase reflects both the improvement in gross margin and a lower impact on sales of depreciation, amortization and other provision, mainly due to a reduction in bad debt provision. The main reduction relates to Asclepion and with ASA, which were consolidated until February 2025, the impact on with us on EBIT 2025 was negative for EUR 0.65 million. Financial Management recorded a gain of EUR 0.8 million compared to a loss of EUR 1.1 million in the previous year. The exchange rate differences went from a loss of approximately EUR 1.5 million recorded in the first quarter 2025 to a profit of EUR 0.6 million recorded in the first quarter 2026. The contribution of associated companies included in other expenses was negative for EUR 0.7 million due mainly to with ASA and Penta Laser Zhejiang, minus EUR 0.2 million each. The two companies was -- the 2 companies -- the majority stake of these 2 company was sold during 2025. Celesta, on the other hand, recorded a positive contribution of EUR 95,000 An additional impairment was recognized by El.En. through a 50% write-down in -- of stakes in [indiscernible] International for EUR 0.4 million. And finally, the pretax was positive for EUR 20 million, up from the EUR 16.3 million on March 2025. Moving now to the analysis of the cash flow. The net financial position increased by EUR 1.5 million in the quarter from EUR 172.2 million as of December '25 to EUR 173.7 million on March. And the increase in net working capital absorbed EUR 9 million while around EUR 5 million was absorbed by changes in other assets and liabilities, including the higher advances paid to supplier lower than asset received from customer and an increase in [indiscernible] receivable from the tax authorities. Cash absorption for working capital was therefore lower than that recorded in the first quarter of 2025. And capital expenditure amounted to EUR 4 million, also lower than the investment did in the first quarter 2025. On May '27, a dividend of EUR 0.25 per share will be paid for a total consideration of EUR 20 million. For the breakdown by business, the revenue increase across all medical Applications segment and the aesthetics segment performed strongly, plus 10%, driven by the [indiscernible] system despite a weakness in the high removal. Surgical application remained strong, while physiotherapy system showed a recovery and medical service revenue includes sales of services and consumables generated up to the installation of system increase of 8% and approximately 50% of the medical service revenue related to sterile optical fiber used in surgical application. The deconsolidation of [indiscernible], the Japanese company resulted in inorganic revenue decline for the Service segment and consequently, organic growth in this segment, excluding with us from the sales of 2025 was approximately an increase of 16% -- 16% in the quarter. In the Industrial sector, the quarterly revenue declined by 11%, with the decrease affecting system sales across all application segments, except for the restoration. Post sales and components on the other hand, performed very positively, increasing both in absolute terms and as a share of total revenue. for the breakdown by area. The European market were the main driver of revenue growth during the quarter across both application segment in both sectors in the Italian market recorded a decline, while the rest of the world performance was positive in the medical sector and down in the industrial sector. In Italy, the weaker performance in the Medical segment was mainly driven by professional status, for which recovery is expected following the launch of the new hair removal system. In the Industrial sector, an unfavorable environment continues to affect the manufacturing industry and machine tools in particular also due to the ongoing uncertainty surrounding tax incentives for investment. These measures are now being defined on a multiyear basis, which should provide a more stable framework for customers' investment decision. The decline in industrial sales in the rest of the world is mainly attributable to the weak performance of Cutlite do Brasil, the company distributing our laser cutting system in Brazil. The growth in the industrial market in the medical sector remain solid also in non-European countries, driven in particular by the Far East. Andrea, if you want, you can go ahead with the guidance.

Thank you, Enrico. So looking ahead to the remainder of 2026, we remain cautiously optimistic. While we are mindful of macroeconomic headwinds and supply chain complexities, [Technical Difficulty] Where did that sorry, I mean while we are mindful of macroeconomic headwinds and supply chain complexities, our order book remains healthy, and our pipeline is robust. Q1 2026 has provided a solid foundation for the year, and we can, therefore, confirm the guidance we released a couple of months ago that we target a consolidated revenue growth of about 5% and that, as we did in Q1 2026, we count on improving our EBIT margin on a yearly basis as well. Thank you for listening to our prepared comments. I believe that we are ready for your questions now.

[Operator Instructions]

Andrea to speak first, is the first on the list here. Andrea Bonfa?

Okay, Andrea, go on because we do not have any [indiscernible] Andrea?

Now so I have been accessed to the audio Andrea. Very quickly, my curiosity is on these numbers, the first quarter number. What's the impact on the procurement of RAM? And what's the visibility on that particular aspect or point?

There is no impact. We are paying our rent memories a little bit more but the effect of the ramp a single component is not material. At this point, we see a longer lead time, but we do not see a shortage hitting us and the increase of the cost of memories will increase, for sure, the cost of our products, but also given the amount, the volumes we are planning to manufacture in this moment, such increases in costs are offset by improved efficiencies under other point of view. And so we have no impact on our gross margin, no material impact at least.

And now we have Carlo Maritano.

I have three questions. The first one is on the guidance. So if I remember well, on the previous call, you indicated an expected growth of 5%, and that was broadly based on similar contribution from both divisions. So I was wondering how the first quarter is changing this picture. So the 5% now is, I'd imagine, more skewed towards the medical, but correct me if I'm wrong. The second question is on the Industrial segment. So I was wondering whether the weakness in the segment is also driven by any accounting reasons or maybe orders that were not accounted by the end of the first quarter that would delay -- will be delayed in the second quarter has happened in the past. And the final question is on Middle East. I was wondering if you could give an update on how the business in the region is progressing if there are cancellation of order postponement or is the stabilization of the situation is causing no particular probles [indiscernible].

To the first question, the answer is we confirm the guidance, and we confirm a contribution from both sectors. The first segment is very short, very short valuation period for a business like industrial, even though I'm an answer -- and I am answering to your second question, there are no material cutoff changes in this quarter. There are certain slowdowns in deliveries and in compensation of orders, for instance, in Brazil that we expect and we count on being recovered throughout the year. So even if we didn't -- we can confirm that we expect growth from both segments at the end of the year. Concerning the Middle East situation, there is not much of an effect in this quarter. Ironically, the sales were missing in Middle East are mostly hitting the hair removal segment, which is the lowest margin bearing sale segment. And so when we are putting up with sales in other areas and other disciplines, we replace the lower-margin bearing sales with higher margin bearing, which is accretive to the results. For the moment, there are certain countries we can in the area which continue to work well like Egypt, other countries, where we are registering a very strong slowdown like the Saudi Arabia and Iraq, in particular, overall. So we are seeing a slowdown, but overall, in these months, we have always seen that sales traction in other areas of the world is offsetting the slowdown we are seeing in the Middle East area.

Carlo, do you have another question? It's a wrap for you.

Yes, yes, it's enough.

Okay. We have no more question. Do you have a -- I want to ask to the investors if they have any other question for the management? No. We have no more question at this moment, but I would like to ask once again, if there is some other questions. No. Okay. Okay. No problem, sorry. Ladies and gentlemen, the conference is now over. Before closing concluding this call, I would like extend one final invitation to the [indiscernible] show in Samarate, which will take place on May 28 next week and for which many of you have already registered to attend. We currently have 22 investors registered for the event. Tomorrow, we will send out the final invitation and anyone wishing to participate will be able to register directly through our platform or send me an e-mail requesting registration. If you have inquiries in the future, please do not hesitate to contact Enrico Romagnoli who will be happy to assist you. Thank you for attending this conference, and we hope to have you all again next time. Goodbye, everybody.

Thank you.

Bye.