Embla Medical hf. (EMBLA) Earnings Call Transcript & Summary

At this time, I would like to welcome everyone to this Embla Medical Q2 2026 Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. [Operator Instructions] I would like to introduce President and CEO, Sveinn Solvason and CFO, Arna Sveinsdottir. Sveinn, over to you.

Thank you very much. Good morning, and welcome to Embla Medical's conference call to review our second quarter 2026 results. I'm Sveinn Solvason, President and CEO of Embla Medical. Joining me today are our Chief Financial Officer, Arna Sveinsdottir; and our Head of Investor Relations, Klaus Sindahl. Presentation will take approximately 15 minutes, followed by a Q&A session. If you please turn to the next slide. The first half of 2026 was strong. We delivered good organic growth and increased profitability and solid free cash flow. Sales in the second quarter were $259 million, corresponding to 11% reported growth and 6% organic growth. Prosthetics and neuro orthotics continued to do very well with double-digit growth in the quarter. This was driven by strong execution, good volume growth in mainly EMEA and APAC and contributions from recently launched products. Bracing and Supports grew at a more modest pace and patient care declined, but we're seeing very encouraging progress. EBITDA margin was strong at 22% for the quarter. This was supported by the good performance in prosthetics and neurotics continued cost discipline and a net U.S. tariff refund of around $3 million. Net profit was strong increasing by 39%, and this was mainly due to, yes, strong operating results and favorable movements in net financial expenses. During the second quarter, we completed the ForMotion brand rollout in patient care. All patient care facilities have now moved to the ForMotion brand. This is an important milestone in our patient care transformation as it brings our global clinic network together under 1 patient-centered brand. And in patient care, as mentioned earlier, we continue to see progress. However, quarter 2 sales were below our expectations, especially in EMEA, and I'll come back to patient care in more detail later in the presentation. I also wanted to highlight the good progress we made in R&D during the quarter where we launched 6 new products. Furthermore, we're also progressing as planned with our first dedicated microprocessor knee for less mobile users generally referred to as K2 users. We have now assembled a fully integrated system prototype, which will be used for upcoming verification and validation work, and we remain on track for launch in late 2027. Lastly, we completed our $10 million share buyback program last week. And yesterday, we started a new program of a similar size. Could you please turn to the next slide. Over the past 5 years, we've invested close to $200 million in R&D and innovation. As the business grows, we expect to invest more while keeping a clear focus on attractive returns. On this slide, you can see some of our key product launches from recent years. They show the strength of our innovation capabilities and our consistent launch track record. We always track the impact of innovation through a metric we call R&D impact. It measures the share of annual sales generated by product launches through R&D over the last 5 years. In recent years, R&D impact has increased from around 15% to more than 25%. We want to increase this further by focusing our portfolio on the greatest unmet needs for the patients that we strive to serve as best we possibly can. Go to the next slide, please. EMEA and APAC were the main drivers of sales growth in the quarter, supported by strong prosthetics and neuro orthotics performance in both established as well as new markets, including Ukraine. In the Americas, overall growth was more modest, but we are beginning to see prosthetics and neuro orthotics gain momentum. We'll now go through each segment in more detail. If you turn to the next slide, please. Prosthetics and neuro orthotics grew 12% organically in the quarter. In EMEA, we continued to see very strong momentum. This was driven by mainly prosthetics in key European markets as well as newer markets and again, including Ukraine. Growth was supported by strong volumes and broad demand across key product categories, including Bionics. And the recently acquired Streifeneder business also made a solid contribution. In the U.S., prosthetics growth has also started to pick up. This was supported by our core portfolio and continued momentum in bionics. Neuro orthotics performed well in EMEA and continued -- and we continue to build momentum in the U.S. with strong growth, but from a very low base. And we expect more meaningful contribution over time as the rollout of our first bionic knee joint expands. Lastly, APAC delivered another strong quarter with 9% growth. In Australia -- led the region with we have broad strength across product categories and solid growth in the rest of Asia. If you turn to the next slide, please. Sales in Bracing and supports grew 1% in the second quarter. EMEA declined mainly due to tough competition and changing market dynamics. We had a successful launch of the new OA Move brace and the Formfit Walker boot but they were not enough to offset the decline in the region. In the Americas, sales growth in bracing was solid, driven by higher volumes and broad demand across core products. APAC also performed well, especially Australia and New Zealand. If you go to the next slide, please. Sales in Patient Care declined 2% in the second quarter. Over the last 18 months, we've been focused on building and integrating a global patient care business. Our strategic priorities are centered around enabling our clinical workforce to provide excellent patient care as well as standardization in ways of working, ultimately building scalable systems and processes. We see consistent progress towards normalization of our top line growth. Americas region has now shown quarter-over-quarter increase in operating results for the last 3 consecutive quarters. APAC remained stable while the shortfall in top line led to 2 markets in Europe, Sweden and France. In Sweden, we are seeing the effects of a challenging market situation. While in France, we are working through integration-related topics in an overall healthy market. We remain committed to our strategic priorities in patient care and expect sales performance to get better over the coming periods and gradually return to growth broadly in line with the O&P industry. That concludes my overview of the quarter, and I will now hand over to Arna to take us through the financials in more detail. Arna, please. And go to the next slide, please, also.

Yes. Now we go to the next slide for the overall financials. In the second quarter, gross profit margin was 63% compared to 62% in quarter 2 2025. The margin benefited from strong sales in prosthetic and neuro orthotics and net U.S. tariff refunds of $3 million. For the first half, the gross profit margin was on par with the same period last year. OpEx were $243 million or 47% of sales compared to 48% of sales in quarter 2 2025. Organic OpEx growth was 5% and reflecting our continued focus on cost control. As a result, EBITDA margin was 22% for the quarter, 1 percentage point above last year. This was supported by strong performance in prosthetics and neuro orthotics and the tariff refunds. For the first half, the EBITDA margin is 10% or on par with the same period last year. I'm pleased with our net profit performance in the quarter, which increased by 39%. This was driven by higher operating results and favorable changes in net financial expenses mainly due to lower net exchange differences compared to last year. If you please turn to the next slide for a status on our cash flow and leverage. In the second quarter, CapEx was $6 million or around 2% of sales, and this was below our guided range of 3% to 4% of sales. Compared to quarter 2 2025, CapEx was lower, mainly due to timing of investments. For the rest of the year, we still expect CapEx to be at a normal level of 3% to 4% of sales. Free cash flow was strong at $31 million in the quarter compared to $12 million in the same period last year. Free cash flow benefited from strong operating results, lower net working capital than in the comparable quarter as well as modest CapEx. That concludes the financial overview, and I will now hand back to Sveinn for closing remarks and guidance.

Thank you, Arna. Please turn to the next slide. Based on our first half performance and our expectation for stronger growth in the second half, we are narrowing our full year organic sales growth guidance to 5% to 7%. Previously, the range was 5% to 8%. And we reiterate our EBITDA margin guidance of 20% to 22%. This concludes our presentation. We would now like to open the call for questions. Operator, please move to the next slide, and the Q&A can begin.

[Operator Instructions] Our first question comes from the line of Jesper Ingildsen from DNB Carnegie.

I have a few questions. Maybe just starting out on the profitability. $3 million benefit from tariffs here in Q2. Just trying to understand if that's all you expect for this financial year or we could see more coming in H2? And also just trying to understand like the building blocks for the uptick in the market in the second half that's implied by your maintained guidance for the EBITDA margin at least. Just how much of that is contingent on further tariff refunds. Then secondly, in Patient Care, as you pointed out, it has now been 18 months with the restructuring here, which has been, to some extent, a drag to growth. It does seem like both in Q1 and also now in Q2 is more related to Europe, and you actually are starting to see some improvements, particularly in the Americas, which although has been the key drag. Just if you could give any sort of indication to how strong Patient Care is in Americas at this point in time. Just to understand if when the headwinds in Europe goes away, what this would mean to the underlying growth momentum here?

Jesper, thanks for your questions. First, on the margin regarding the tariffs, the net impact here in the first half of the year is $3 million. We might get another $1 million, but that's on we're -- yes, there's some uncertainty around that. So it's not going to be a material factor when we look at margin in the second half of the year. When it comes to our guidance, it's important to keep in mind that seasonally the second half of the year is stronger for our business, and we get more operating leverage in both our product business, but especially in our Patient Care business. That is kind of the main driver, if you will, for why we expect, yes, margin to be higher here in the second half. I mean, there are also minor kind of cost topics like we're still spending a little bit of money on the brand rollout here in the first half of the year, things like that, which we don't expect here in the second half. But the big picture is kind of the -- yes, higher operating leverage due to the seasonality in the underlying business. But overall, we're quite pleased with the margin development and our ability to maintain the cost line in an inflationary environment like we are currently experiencing. On the Patient Care side, this is a big topic for us here in quarter 2. It is clear that we are disappointed with our patient-care results here in Q2. Just if we take a step back, we have, as I mentioned earlier, been taking measured steps here over the last 18 months to really build a global integrated patient care business on the back of several acquisitions made in most of our key markets here over the last decade. We have around 200 clinics. The operating results in each and every one of these clinics will be dependent on their ability to drive patient volumes, utilize their capacity effectively and maintain the right level of fixed costs. If you look across our portfolio, we've seen very healthy progress in the right direction for always an increasing number of our clinics. And as you mentioned, the big progress here is that we -- the Americas has been our -- perhaps our biggest challenge because this is where we have has -- or have sort of made multiple acquisitions and have had a fragmented platform, and we are now seeing quarter-over-quarter sort of improvement in results for 3 quarters in a row. In -- EMEA has been where we've not performed as we expected in the beginning of the year. And this is mainly related to 2 markets. In Sweden, it's more a market related topic. Sweden is the only market where we have tenders, you win some, you lose some. We are currently in a period where we are kind of phasing out of some tenders while we have on others, which will kick in later. So there's a little bit of impact of that. And then in France, it is yes, taking simply more time than we had expected to see the results of the initiatives we are focused on to normalize that business. So we are behind, but working really hard to get back to consistent growth in line with the overall O&P industry. Hope that answers your question, Jesper.

Next up is Martin Brenoe from Nordea.

Sorry, I was muted. Can you hear me?

Yes.

Sorry about that. Sveinn and Arna, thank you for this presentation that you gave. Maybe just starting point. I think it's super interesting that you show a bit more color on the R&D side. Can you elaborate a bit on what happened from '24 to '25 in terms of a steep acceleration in terms of the new product sort of contribution in your prosthetics business? And why all of a sudden has increased so much, whether it's old products sort of that was 4 years old. That turned out to be 5 years or the year after or if it's a new product that has been having a steep uptake, that's the first question. Then I'll take the second one afterwards.

Yes. Thank you, Martin. On the -- It's always been a core focus for our company to make investments in innovation with the ultimate objective of improving the lives of people with chronic mobility challenges. And making the right choices in R&D is not always -- it's always a trade-off. And what we see here over the last years is where we have positive impact is always when we have big new product launches on the Bionic side. The -- we had the NAVii knee, we have the Icon knee, we have -- from College Park, we also have very solid introductions in the carbon fiber foot range, the Pro-Flex Terra in particular, where we once again have demonstrated our ability to provide differentiation in the feet market and demonstrate our strength in the feet market. So Martin, ultimately, it's a result of the choices that we have made and that has resulted in, again, high-quality products and our ability to generate healthy demand for these products. And going forward, it's ultimately our goal to continue to invest and to grow our R&D investment over time, at least in line with our sales growth. And then for some periods at a higher rate than our organic sales growth. So we still have plenty to do on the R&D front and remain committed to our innovation efforts.

And just a quick follow-up because I think that we have discussed organic R&D versus acquired R&D? And in the end, you get the same net result from this graph that we show here on Slide 3. But just to understand, if we were to split this out on acquired innovation versus your own innovation, how would that look like?

The vast majority is our own innovation. I mean sort of there's obviously some impact from Fior & Gentz and College Park. If that's what you're referring to. But the vast majority of our generated sales are in our legacy lower limb prosthetics business that is providing the balance on these metrics.

Okay. And then just my second question would be on Americas and U.S. Can you elaborate a little bit on when you think that you will be back on sort of a more market growth track in the U.S.? Is it sort of already here in H2. Can you maybe provide a little bit of data points on what's going on in terms of any regional differences or any product differences or any sort of segment differences that makes you come out a little bit soft on the Americas side, still after having done a lot of work in the U.S.

Yes. That's a good question. I mean, it is -- I mean, looking here into the second half of the year, We -- our expectation is for a stronger second half across all 3 business areas. And in our core prosthetics business, supported by our ongoing efforts to kind of refocus our commercial efforts. In addition to more impact from neuro orthotics. It's encouraging to see our sales beginning to gain some traction on the neuro orthotic side and growing from a low base in the U.S. So that's a little bit on the prosthetics. And neuro also, we see good progress on our bracing business. here towards the latter half of quarter 2 and expect that to continue into the second half of the year. And then as I mentioned earlier, our Americas patient care business has continue to show sort of gradual quarter-over-quarter movement in the right direction, and we continue to expect that here in the second half of the year also. So yes, across our 3 business areas, we remain optimistic here going into the second half of the year.

Okay. But is it fair to say that before we should expect you to take market shares from, let's say, Hanger and maybe especially Ottobock you would need to have the K2 products ready, which will only be in late 2027 because until then, you'll miss out on a significant part of the market growth. Would that be a fair assumption? Or is that a bit too harsh?

Yes. Well, Martin, I think as what we've talked about sort of -- we have a super solid bionic range. We have the NAVii, we have the RHEO, we have the Icon. These products are eligible for reimbursement under the expanded reimbursement code in the U.S. and we'll have the vast majority of these K2 patients. But there is a patient cohort where we would benefit from having a dedicated low active product. And we are encouraged with the progress we are seeing on the development front for a low active knee. But whether we are -- I don't believe we're losing market share in the U.S., but we would certainly benefit from having that particular product to strengthen our range.

Okay. Maybe just one final question and then I'll jump back in the queue. Just we had a presentation here in the house recently, which were from a humanoid distributor in Europe and that you will call out as potential long-term winner of this humanoid segment as you are probably one of the most advanced companies within robotics and especially with the hands have a special unique knowledge. And I was just wondering if you can put a few words on the long-term prospects of humanoids and whether that is something that you could see more partnerships as we see this segment is potentially a fast-growing segment over the next 5, 10 years.

Yes. Thanks, Martin. That's an interesting theme in itself, and I can provide kind of some high level [indiscernible]. I mean, first and foremost, we are one of the companies globally that has the most kind of intellectual property or build up knowledge around how to apply devices to the human body to enhance mobility levels. We have lots of engineering knowledge, lots of robotic knowledge, lots of knowledge around the whole software side. So this is a super interesting theme. And yes, potentially, there are opportunities for collaborations and then this can theoretically be a growth theme of some sort for our organization. But for now, I wouldn't kind of want to be more specific around that. But this is certainly something that we are following extremely closely.

Our next question will be from the line of Tobias Nissen from Danske Bank.

Just have a few questions. Let's start out with Patient Care. With the promotion rollout now being complete. Like what are actually -- if you can say a little bit more what act going on beneath the line, also in terms of like productivity and profitability. Mainly seeing improvements here. And then the revenue, what you can say, the volumes are a bit lagging or how should we actually see this that there will come with the say, sort of delay perhaps a bit more on at what changes here in the second half of the year. I know you pointed to in the second half is usually the strongest for you. But kind of patient care actually moved back to like market-like growth at the end of the second half of the year? Or is this mostly like a '27 story. That will be my first question.

Tobias. thanks for the -- thanks for the question. And again, going back to patient care. I risk kind of maybe repeating some of my earlier comments. But at the end of the day, our goal in patient care is to deliver great care for the patients that rely on our services. When it comes to the financial performance, we have 200 clinics. Each and every one of those clinics, the net financial results will be a result of their ability to drive patient intake, productivity as in patient visits per CPO, which is kind of the general industry benchmark for productivity and then ultimately, the fixed cost line. We have been driving very focused initiatives to address this at a high level, these key levers, if you will, any retail health care franchise. And if I approach the situation from, again, the geographic standpoint, we see our efforts yielding positive results in the Americas market, where we have -- which is the region where we have made kind of a lot of, you could say, small- or medium-sized acquisitions. And this was also the region which -- where we were especially challenged here throughout 2025. So it's very encouraging to see that our efforts are moving our results in the right direction. Same for APAC, but where our results differ from what we had expected is mainly Europe where we have been stable historically. However, it's our kind of challenge is related to 2 specific markets. In Sweden, it is more kind of a market issue. It's the only country where we have tenders. You win some, you lose some now. We are kind of going through areas where we have lost some tenders, but -- and have also won some, but those we won't kick in until at the very end of the year. So that's a little bit of a specific situation. While in France, we are -- our main effort has been on the patient intake side. and productivity side, and we are simply not seeing as fast of a progress as what we had anticipated. We have a great business in France, a super strong team with that a lot. This was kind of the last big entity where we integrated where we implemented the brand and have been simplifying that business. But we have to acknowledge that the impact of our initiatives is slower than what we had anticipated. So Overall, we still believe that we are focusing on the main initiatives. We have a great patient care franchise with lots of opportunity to grow and to increase productivity and to ultimately just provide great care because that's our goal. So -- but at the same time, I'm not going to tiptoe around it. We are disappointed with not seeing more traction on the top line, but we'll get there.

Okay. And perhaps just to touch on the narrowing of the top line guidance, the 5% to 7% and 8% at the top. What's actually driving this? Is this the soft you can say, patient care here in the first half of the year? Or is there something else related to this and market product need to happen in the second half of the year to reach that 7%.