EQL Pharma AB (publ) (EQL) Earnings Call Transcript & Summary

[Foreign Language]. I just want to ask if there are any non-Swedish speakers in the call, so we should do it in English or if I can do it in Swedish. Yes, we have non-Swedish speakers. Okay. Understood. Then we do it in English. So warm welcome Okay. So warmly welcome here to the Q4 investor call. The intention today is to do like normal. I will take you through the quarter high level, the different movements in the business here and in the business development and looking a little bit ahead. And then as usual, opening up for questions in the end. [Operator Instructions]. So if we start by looking at the financials for the quarter here, it was a really solid sales growth here of 45%, taking revenue to a little bit north of SEK 130 million compared to SEK 78 million last year. And that is a fantastic sales growth that we are very happy with, taking the full year growth here to around 40% and thereby enabling us to complete successfully the 5-year plan here, which we had, which was to grow on average by 40% as a CAGR growth from 2020 to '24-'25 and having an EBITDA margin in the last quarter of at least 25%. And the sales growth was driven by the new launches in the quarter and launches that were carried out earlier in the year that were not in the Q4 in last year. The gross margins were 41%, and they are still negatively affected by this Red Sea situation, the blockage of the Suez Canal. Now I've seen in the last couple of days here that it seems the American President is very positive at least that the Houthis rebels are surrendering, but this needs further independent verification, then it needs to be risk analyzed by the shipping companies and then implemented. So it is still -- let's say that we are carefully optimistic here, but it still remains a couple of steps to be seen here before we can declare that situation as passed. The EBIT, the operating profit after depreciation and amortization, increased by an impressive 174% here to SEK 23 million. Then I think we should also bear in mind that the comparison quarter here of 8.4 was a relatively -- let's say, a relatively kind comparison quarter. Going into next year here, we have more difficult comparison quarters, but we are obviously very happy to be able to show such a solid profit growth. The EBITDA margin was 25% or SEK 28 million compared to 14% in the same quarter last year. We were able to achieve that by working actively here on cost control, while at the same time, launching products with a high contribution margin here in the quarter. The growth outlook for the upcoming financial year is around 30%. And if we would reach that, we would then have marked a good start to reach our new 5-year goals, which are to grow 30% year-on-year up until '28-'29. We'll come back to those a little later. The leverage ratio, something that we will start reporting here and talk about, is 3.5x pro forma restated EBITDA. So in the quarter here, we successfully placed a bond, which is, by the way, trading very good here in the secondary markets, meaning that credit investors have a positive view on our company, I would say. And we raised this bond of SEK 350 million to be able to finalize the Medilink acquisition. And it was heavily oversubscribed and it was closed on STIBOR 90 days interest plus 400 basis points. So it was a very successful bond placement. And to the bond investors and to the credit investors, the leverage ratio here is very important. So we will start reporting that and talking about it more going forward. We have stated in our 5-year goals that we want to have a leverage ratio that does not exceed 4.0 at any time. So let's say, a peak leverage of 4.0, and we want to steer the business towards 2.5. I expect in the short run, I do expect the leverage ratio to be sort of around 3.5 and 4 here, until we really start consolidating the cash flows from the acquisition. We also have a very intense CapEx year ahead of us. But already during the autumn here, I expect the leverage ratio to start coming down a little bit and then moving towards our target of 2.5. And the way we would then view acquisitions would be that as long as the leverage ratio is closer to 4 than closer to 2.5, we are not actively seeking new debt finance acquisitions. We are rather focusing on managing the leverage ratio here and taking responsibility for that. But when we will see it sustainably going down, we will start thinking about new acquisitions, of course. Looking at the business development in the quarter, I am extremely satisfied with the quarter. We added a record number of 11 products to the pipeline. And this is a mix of development products and licensed products, but it's a majority, 8 or 7, I think, development products. And the reason why we had sort of a catch-up effect here or a chunk of products in 1 quarter was that we have been, for a longer period, carrying out a tender of new development candidates. And one, let's say, wave in that tender was closed in the quarter. So we were able to sign those and start those products, which we are extremely happy about, of course. We also signed our first sales deal outside of Europe, and this is a deal for Mellozzan with the company Pharmalink for the GCC region, so this is a Gulf Corporation countries. So it's basically the Arab Peninsula minus Yemen. And that is a very nice market, and Pharmalink is a very well-renowned company there. And in this case, EQL will be MA holder and Pharmalink will be distributor. So that means that we will actually be the holder of the MA and thus the assets in a region outside of Europe, which, in my mind, is a significant step for us here. Memprex procedures ongoing in Germany and France with the ambition to launch during this financial year and launch preparation for U.K. also with the ambition to launch here in the first half of this upcoming financial year. I also want to say regarding the EBITDA margin. So the target here for us was to reach 25% or above in the final quarter of the final year. And that was managed here by delivering 25%. To me, that is a very important milestone to the company because it sort of breaks a glass ceiling for us. It shows us that when we do everything right, we are able to reach that level. And bear in mind here that the goal in the upcoming 5-year plan is to perform sustainably at this level. That is the first goal. Once we have managed to show that we can do that, then the secondary goal towards the second half of the period is to stabilize EBITDA margin above 25% and then we will have to come back a little bit more regarding exactly what that will be. It is difficult to judge at this point. But right now, the full focus is to be able to be sustainably at 25%. Operations and sort of other topics. We have a very high focus on our pipeline right now, and that is because we are still in a position with adding products to the pipeline can help us positively in this upcoming 5-year period. So we want to give ourselves, of course, as good conditions as possible to deliver on that plan. Also, we are in a position where if we want to be able to keep being a fast-growing company, even after that period, we need to start adding products in our new business unit, Special Generics; and outside of Nordics, of course. So we're working very intensively with that so that we can keep on being a fast grower for many, many years to come. We are also focusing -- we are always focusing, of course, on the progress of our projects. But going into this new 5-year period now, we are investing more heavily in operational resources to really, really be able to meet all the time plans here and to be able to increase our success rates in projects from 70% to maybe 85% or 90%, which will be a very important step here in reaching our new 5-year goals. We are also working continuously here by strengthening the organization and optimizing OpEx over sales. So we're still having areas where I believe that cost can be optimized, not necessarily by reducing the number of people, but by minimizing the amount of consultants, working risk adjusted so that we sort of decide where to focus, et cetera, et cetera. We have now a Bangalore office with 9 brilliant colleagues working in QA, regulatory and project management. We also have started to recruit colleagues in Eastern Europe and we have colleagues in Nordics, of course. So we are expanding and optimizing our organization here. So the goal in this 5-year plan was reached or actually even a little bit exceeded. This is a very nice picture, I think. I might even put it on my wall at home. Very happy about this. This is our growth monument. But what can look big from one perspective can look small from another perspective. So looking into what we have set out to achieve here. All of a sudden, the bars look a little bit smaller, and it -- I mean any sane person would have a respect for this journey, but I believe that we are very well positioned here to keep on this very, very nice growth trajectory, considering our very strong pipeline, considering our fast-growing branded products, considering our new business unit and considering that we will, in due time, have the opportunity to complete more acquisitions here. Looking at the portfolio and the pipeline. The portfolio has expanded from 40 to 46 products here. So we launched 6 products in the quarter. Four of those products were the Medilink products and 2 of them were retail products for the Swedish and the Danish market here, so let's say, normal EQL products. The pipeline is 44 products, where 28 are in development, 8 are in review phase with authorities and 8 are in the launch phase. And down below here, you can see the expected -- as of now, the expected timing of the launches throughout the coming years here. And for the upcoming year or actually the current year '25-'26, the expected amount of launches remains at 6. But this is moving material here. So bear that in mind that it can depend on project plans and authority decisions and so on and so forth. So the table here is to the best of our knowledge at any given time. Here, I also wanted to give a little bit of a status update on our geographical expansion. So what you see in front of you is a map of the world, obviously. And the green marked territories are territories where EQL, either by itself or by strategic partners, are already in commercial phase and selling products. The blue areas here are countries where we are in the process of doing so, in most cases that we are in a regulatory phase and waiting for approvals. And orange territory is added since last quarter. So I think I will come back to this picture from time to time to be able to very illustratively here follow our progress out into wider geographies. In the quarter, we presented our new ambitions for the coming 5 years here or actually coming 4 years. But to keep -- so to straighten out some confusion there, it is 5 measure points since it starts with the year '24-'25 and ends with '28-'29, but it's actually 4 full years. So I understand that, that can be a little confusing, but I will refer to it as our 5-year plan, even though it is 4 full financial years. And what did we then set out to do? We have the aim to grow our sales by on average 30% in the period, taking us to a little bit north of SEK 1 billion in sales. And that sales growth will come majority from launching pipeline products, so pipeline products basically becoming portfolio products. Those are the 44 products in our pipeline. Growing and expanding our strategic key products, Mellozzan and Memprex; adding business from our new business unit, Special Generics, which is basically non-interchangeable generics, whether for one or another reason is no interchangeability; and thirdly, when it makes sense and when there is leverage space acquisitions. Regarding profitability and EBITDA margin, our target is to -- in the initial part of the period, in the first half of the period, to stabilize EBITDA margin on 25% to set up the business so that we can show that we can sustainably be on that level. After that is proven, then we take 2 deep breaths and then we have as a secondary goal to, in the second half of the period, stabilize EBITDA margin above 25%. And above 25%, that can mean -- as somebody stated out here, that could mean 27% or 32% or whichever number that is bigger than 25%. And the simple answer is that we also don't know at this point what is realistic. We know that it is realistic to aim to stabilize it above 25%, but exactly at what level we will have to come back with. Regarding gearing, since we now have bond investors as well as equity investors, we have a target to steer the leverage ratio towards 2.5x EBITDA with an additional rule to never go above 4.0. So we can have a peak leverage of 4.0, and that is mainly then in close association with an acquisition. So let's say, 9 to 12 months post an acquisition, I would expect the leverage to be, let's say, in the higher regions or closer to 4.0. And once an acquisition is integrated and consolidated and some time has passed, I would expect it to be a little closer to 2.5. So that is the area that we will sort of be in between there. That was everything I wanted to show. So I stop sharing my screen, and we open up for questions here.

[Operator Instructions]. No questions. I can't believe it. Is it because it was such a good quarter?

So I have a question. I'm wondering how you look at the number of current employees for the future with the expansion in mind? And I also wonder what's your view on the COVID-19 sales, the tests, further along the line? Are they still going to be pretty low or how do you look at it?

Okay. Thank you. If we start with the number of colleagues here, it's a very good question because it points out the fact that to be able to really leverage from this business model, we need to make our platform scalable. And I think that we have a couple of quarters, we have sort of been through an inflection phase here because profit is growing much faster than sales, and that is to me a sign that the additional contribution margin added from new products is not eaten up by additional OpEx. But obviously, we will need to add on more colleagues as we grow on the one hand, to be able to handle our growing portfolio; on the other hand, to be able to, in a responsible manner, have a forceful progress in our pipeline. Having said that, we are constantly looking at the smartest way to do things. If we're looking in the rearview mirror a little bit, very high focus in the last couple of quarters has been to deliver on the past 5-year plan. Now I can proudly say that we have done so. And then I think that in my mind, that we have deserved a little space to, let's say, experiment with the optimal setup going forward. So we're spending a lot of time now looking at different setup for regulatory and QA, for example, which are -- and logistics, which are big costs for us. We have colleagues working from Nordics, colleagues working in Eastern Europe, colleagues working in India. We are experimenting with this, let's say, OpEx base and trying to optimize it as we go along. And I hope that we will find the best setup here going forward. I hope that answers the first question regarding the colleagues. If not, just let me know.

Yes.

Good. The second question regarding COVID-19 tests, I mean, that all depends on virus spread in the society. And in the financial second quarter here of last year, there was a little bit of virus spread. And as a result of that, we had a couple of million sales on COVID tests. We expected a peak in Q3 and/or Q4 sort of November, December, January, but there was no such peak. So my conclusion is simply that nobody knows when there is a virus spread. What I can say is that when and if there is a virus spread, we still have inventory to be able to sell, and we have a setup where we are able to sort of order new goods and we have customers internationally that we can export to, but we're trying to keep those inventories as lean as possible here to not carry any scrapping risk. So I mean, short and simple answer is that I don't expect it to be a major part of sales. I would sort of stay with my old estimation here of SEK 5 million to SEK 15 million per year as an estimate. No more questions. I think we have to conclude, Anna, that when we deliver fantastic quarters, the amount of questions is much less then, of course. So we learn from that me and Anna here and keep delivering quarters like this. In case there are no further questions, thank you very much for joining here. Wish you all a lovely Thursday. We have Thursday today and a nice weekend once you get to a weekend. And see you again next quarter. Thank you, [ Christer ]. Bye, everybody.