Medacta Group SA (MOVE.SW) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Medacta Group's First Half 2025 Preliminary Unaudited Revenue Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Francesco Siccardi, CEO of Medacta Group. Please go ahead, sir.

Thank you. Thank you very much, and welcome, everybody, to this conference call. I'm here with Corrado Farsetta, our CFO, and Anja Pomrehn, Investor Relations. And we can probably start on Slide #4 where we see the relevant numbers. In terms of top line, we reached EUR 344 million, which represents almost 20% growth in constant currency, or 19.2% in local currency. I'm very pleased, of course, with top line growth. And this is very much linked to the core pillars of our growth, which remain always the same. So first mover innovation [indiscernible] thinking innovations, which is the core of who Medacta is. This innovation is very well supported by our medical education and personalized training of our customers, surgeons worldwide. And this resulted as well in both a short term 2025 full year guidance upgrade and midterm guidance upgrade as well. If we move to Slide #5 we can see how this first semester of 2025 represented further acceleration [indiscernible] already very sustained between H1 '21 and H1 2025. So, as I said, almost 20% in constant currency. This represents a very good performance which is between 4% and 5% higher than growth, market growth. If we go to Slide #6, we can see the 3 pillars of our growth, the 2 I mentioned before. So the out-of-the-box innovation, which is actually very relevant across all our core lines. Those innovation are well supported by our medical education programs. And at the same time, thanks to this success, I would say, both in terms of products and services, we are constantly expanding our sales team. And as a consequence, of course we need to expand our operations all over the world. So those are the three core pillars of our growth and all are relevant for our both short-term and midterm growth. If we move to Slide #7, we can see the geographical split of our 20% growth. And very pleased with the overall performance across all geographies. We had an exceptional growth in the past in Europe. So it was difficult to continue to keep up with the space, but with almost 16% growth. The EMEA region, which is almost 50% of Medacta geographical split [indiscernible] quite a bit at 21.5%. This is basically the U.S. market. And Asia Pacific as well, more than 25% growth, mainly driven by the very strong performance in Australia and in Japan. And then the smallest segment, the Latin America where we are expanding very rapidly, almost 48%. So this is the geographical split. And as you can see, it's very strong performance across all geographies. So we have very well distributed growth across those regions. If we move to Slide #8, we can see the same 20% growth split across the product lines. And our Hip portfolio grew more than 11%, 11.5%, very good performance in more of a Medacta mature market. The Knee is close to 24% in H1. Extremities 44%, and Spine close to 19%. So once again, extremely pleased with the performance across all the key product lines within Medacta portfolio. Maybe digging a little bit more into the details on the product portfolio, if we analyze on Slide 9, the double digit growth in Hips, we can mainly attribute this growth to our continued focus on Anterior Minimally Invasive Surgery, which remains a very attractive platform across all our geographies. And in particular of course in our ambulatory surgery segment within the U.S. But at the same time, we've seen another strong acceleration in both [indiscernible] the performance as well. This 11-plus percent growth represent almost 3x the market growth we expect for 2025 full year. So, again, very pleased with this performance. On slide 10, we can see the notable expansion we have in Knees. And this is very much linked to the overall ecosystem we created around Kinematic Alignment, which is based on our GMK SpheriKA, our new and first KA-optimized implant. It's a very unique design with some features that are unique at the moment in the market. And it is sustained, not only of course by the originality of the implant design, but as well by technology. So our digital platform accounts for almost 40% of our GMK implanted or knees implanted worldwide, and single use instruments. And most important, of course, our medical education associated with this innovative and personalized technique, which is delivering a very good clinical benefit which is becoming more and more well sustained by the scientific literature which is coming out from different sources worldwide. If we move then to the next slide, the next vertical is Spine, almost 19% year-over-year growth. As we know, Spine is a very, very competitive market with a lot of players, a lot of focus only Spine players. So to outgrow the market more than 5x is definitely a very good performance. We rely on our technology here again, our MySolution ecosystem where with both the MySpine, the 3D printed guides, and the NextAR Spine modules which are clearly driving our success and our ability to be different and add value to our customers through our technologies. And we're very pleased. And this was a very important confirmation that our strategy is actually well-perceived by our customers worldwide. So we had a very good success in EMEA, in APAC, and we are accelerating quite a bit in the U.S. So we are very pleased with that line as well. Last but not least, with this 44% year-over-year growth is our Extremities segment. This includes both our shoulder arthroplasty as well as our sports medicine segment. The sports medicine of course profited from our very recent acquisition. We mentioned 1.2% of our 20% growth at group level was associated with the Parcus acquisition. This is a U.S.-based company that Medacta acquired late in March. And this excellent acceleration of course is partially driven as well by this contribution. But the core and organic growth remains close to basically 35% year-over-year. So very, very good performance. And testament that the combination of both our arthroplasty with NextAR continues to drive significant market share gain, and our sports medicine strategy starts to gain momentum as well. And this is something we expect to continue in the next semester. If we move to the Slide 13, we can see a little bit more in details the outlook upgrade, both for 2025 and for the midterm outlook. So for 2025, we have increased our revenue growth guidance from 13% to 15% range now to 16% to 18% in constant currency. And at the same time, given the extra marginality and contribution margin associated with this acceleration, we can forecast an adjusted EBITDA margin of around 28% while previously was 27%. So this is of course before any currency effect. It did not include the recent Parcus acquisition. And of course, if something changes drastically, it is -- remains subject to unforeseen events. At the same time, we have seen, as I mentioned to you, that some of the verticals are extremely well-accepted in all the geographies. So we feel we are able to upgrade our midterm outlook as well. And in terms of top line, the constant currency revenue growth is expected now to be in a slightly higher and larger range. So low double digit to low teens, so 10% to 14%. And the adjusted EBITDA margin targeted will be around the one of 2025, so 28%. And this is, I think, an important update for all of us. So the key messages for us for after this first semester 2025 is that Medacta continues to surprise even ourself in terms of the ability to achieve a very, very strong revenue growth close to 20% in constant currency in this H1. This is absolutely linked to the significant innovation that Medacta is introducing in the market. It does introduce it in a very responsible way and effective way through medical education. And this attracts not only new surgeons but as well constantly new salespeople that are expanding our ability to reach the large markets that are still underpenetrated by Medacta. Probably our Knee portfolio or Hip portfolio, which is the largest market share we have is now touching maybe [indiscernible] global market share. So there is still quite a lot of room for growth both in our core lines and even more so in our smaller lines like spine, shoulder, and sports medicine. So our aim, given this success and the ability to further penetrate the market, is to continue to grow significantly above the market for the quarters, semesters and years to come. Last but not least, I think especially after such a strong performance I would like really to thank all our employees which are going through some growth-related pain, our clients, our suppliers, and [indiscernible] worldwide that are absolutely critical to sustain such a considerable growth. So that's all from my side and will be happy to take any questions.

[Operator Instructions] The first question is from Dylan van Haaften of Stifel.

Congrats on a really solid result. So a couple from my side. So maybe first for you, Francesco. So if we look at the guide, clearly for first half is a very strong result, and the guidance uplift of 300 basis points reflect that. But if we look at the second half, outside of sort of a slightly tougher comp in large joint, how should we be thinking about sequential trends into the second half? And then I've got two follow ups.

Yes. As you said, last year semester was exceptionally strong, especially in the last month of the semester across multiple lines. And if you wanted the very strong result in H1 is somehow a consequence of this acceleration. So we have a very, I would say, a more difficult comp in H2 2025. At the same time, we remain very positive about the trend and the momentum, but a little bit cautious simply because the past performance is not the always the great or the best indicator of future performance, we all know. And so I think 16% to 18% is an exceptional performance in orthopedics as a full year performance. And I think if we can achieve that, I think we will be definitely extremely, extremely pleased. Can we do a little bit more? I am not sure. That's the guidance we are confident on at the moment. And as I said, I think this is extremely aggressive. I remember at the beginning of this year, 13% to 15% was considered quite aggressive by some investors and myself. So now we're just very pleased with the results and we feel comfortable in adding some top line guidance for 2025 in a very aggressive way.

Perfect. And then maybe moving on to Knee, if we look at the composition of the growth, so how much of that growth is trade-ups from sort of converted kinematic surgeons? Guys that have used the previous iteration of the SpheriKA. And so how many are these new surgeons essentially starting up? That'd be very interesting to know.

Yes, I would say that the growth you see is 99% driven by new surgeons because the pricing premium of GMK SpheriKA over GMK is relatively, it's not significant at all. So this is clearly driven by new surgeons acquisition by far. And I think in H1 you will see on the CapEx side. So the instruments that have been introduced in the market have been significant as well, is absolutely driven by new customer acquisition.

Very clear. And then my final question is just on the EBITDA guide. I know this is a top line print, so I hope you forgive me, but since you upped the guide I'll try anyway. So could you just quantify, not talking about the actual EBITDA number which will come later, but can you just quantify the effective tariff impact you guys have sort of seen per quarter or per semester? And also, help me understand, because I mean, at the face of it, with the FX headwinds and the tariffs, you'd expect maybe to be -- there to be some margin pressure, and you guys are increasing the guide on the adjusted level. So I just want to understand what is kind of driving that. And if you could just help us quantify, just so we can put that into our models for the second half as well.

Yes, I think it is very important to state that all Medacta products at the moment are not impacted by tariffs. So under the Nairobi Protocol, Medacta products are tariff-exempt. But this remains a very important aspect. We've seen some comments and some analysts still ranking Medacta within companies at risk for tariffs. I don't understand it why. But so far we have not been impacted. And the Nairobi Protocol under which Medacta products should not be exposed to tariffs at the moment are somehow of course helping us to further expand our margins. We can go more in details of course in our full year or media results, but that is, I think, a very important clarification point that I'm happy to address. So I forgive you for your question. Actually I thank you for that.

Perfect. So just maybe just one more clarification question. So just on Extremities, could you tell us what the Parcus contribution was and effectively what the pure organic component was in Extremities?

Yes, so if you take the top line, which is 344%, so 1.2% of our growth was associated with the acquisition. So it's basically, let's say, let's call it EUR 3.5 million, EUR 3.6 million. If you now go and look at the Extremities growth, you can see the growth rate. So it probably would've been 35%, 36% pure organic. And this is a combination of our core Medacta Sportsmed products, but the vast majority of it is our Medacta Shoulder arthroplasty system.

The next question is from Sam England of Berenberg.

So the first one's just on Hip, growth obviously stepped up pretty notably in 2024, so just trying to understand if there was any particular geography that performed better than expected here, or whether you did anything particularly notable around sales and marketing to drive the acceleration. And then I suppose, did sort of ASC shift in the U.S. also benefit in Hip as well, given that you called out demand for minimally invasive surgery as a driver in Hip. And then the second question is just around the decision to upgrade the midterm revenue guidance. I was just wondering whether it was sort of confidence in any particular vertical for the medium term that's changed, or whether it's just the generally strong momentum you're seeing in all product categories that led you to upgrade that guidance.

Yes. So I think we went back to the foundational success of our Hips in many of the new or existing geographies, I would say. So we simply realized that we stopped to sell our core products. And while there are still significant segment of the market which are extremely interested, so if we think about Japan or Australia where Medacta has been somehow selling [indiscernible] so many years, we thought the momentum [indiscernible] we simply restart [indiscernible]. And we are seeing there is still tremendous appetite for the introduction of anterior approach. The same applies to the U.S. with the ASCs, to the European markets, especially in certain areas. If we think about the U.K. or Spain, Medacta is growing faster, but from a smaller base. So they've been much less exposed to anterior approach, and it's a much smaller segment of the market. So there's still a lot of appetite for the Hip as well. So it's not really a [indiscernible] change in the product. It's just a revamping of what we know has been working and this provided a very good [indiscernible] new products as well coming on the Hip side, but I think we can maybe comment about it [indiscernible] September, October once more news about new product introduction will be released. The ambulatory surgery centers in the U.S. are clearly further expanded. So this a trend that [indiscernible] we are offering there. We are introducing more services in order to help surgeons to drive efficiencies from the 6,000-plus existing ASCs in the U.S. We have seen other companies are focusing more on helping surgeons to build new ones, which is something we do as well. But I think it's much faster and much less capital intensive to help surgeons to further accelerate in a profitable way the transition from hospital to ASCs, and that's where we see a lot of momentum. I believe [indiscernible] your 2 first question, Sam, I don't know if you wanted to -- for me to point out area.

The next question is from Aisyah Noor of Morgan Stanley.

My first one is a little bit similar to Sam's last question. So it's on the midterm guidance upgrade. It wasn't that long ago that you presented to us your 2027 targets. And I remember back at your full year results, you had anticipated a bit of a slowdown going forward. So just curious what changed between now and September to give you this confidence on the durability of your growth? Is it the customer feedback, surge in win rates? If you could quantify any metrics that you're seeing today that leads you to believe the 14% or the top end of that growth rate is achievable out to 2027? Could it include acquisitions, for example? So that's my first question. My second question, also on the midterm guide, maybe for Corrado. You didn't mention anything on CapEx. Can you just confirm this is unchanged from your prior kind of 5-year average around EUR 300 million? And how are you thinking about the capacity requirements to fund this growth between Switzerland and the U.S.? And then the third question is on Spine and the 19% growth, which is clearly significantly above market. We know that the market is not growing this fast. So what are you seeing -- what is it about your product portfolio that's resonating with your customers? And where are you taking market share? Is it from traditional procedures or perhaps other augmented reality solutions?

Yes. Thank you, Ayesha. I would say what we have done -- I will take the midterm guidance and the Spine question. I will leave to Corrado the CapEx one, otherwise he is going to relax too much. So the midterm guidance, what we have done is basically based on 2 aspects. We have seen a significant acceleration in the top line. So 10%, 12% was probably correct and very much in line with this 13%, 15%. And we all know that the larger a company becomes, the more challenging is to keep up with the same percentages. At the same time, if we now have a top line, which is between 16% and 18%, there is no reason why we should see this momentum slowing down significantly from this rate down to 10% to 12%. So we felt it was more in line with what we see in the market. Some of the products which are extremely successful in some geographies are not even introduced or available in other geographies simply because of regulatory reason. If we think about the Knee, just to name one of the key verticals of Medacta, we just got it cleared in Japan. So we start from scratch there. And it's not yet cleared in Australia. Those are 2 examples of where we think and we believe we can [indiscernible] new geographies, the same type of strong momentum we have seen in other markets such as Europe and the U.S. where we have already launched. We know that our pipeline as well remains strong with some significant add-ons across several verticals, the knees on the technology side, the hips with new implants, new technologies. So we're talking about 2 to 3 years, '25, '26, '27 where we had some good confirmation that our innovation is very well perceived. And we hope and we believe we can continue to see an accelerated growth. So we felt comfortable in increasing the top line range. And of course, we do expect maybe a higher top line in '26 and maybe tapering down in '27. But personally, frankly, I was expecting a slowdown since many, many years, and we are not slowing down, so it's not a problem, very happy with. The Spine. Spine is another vertical which is doing extremely well, as you said, in a very competitive market that is not growing as fast. Pricing pressure, a lot of competition. I think what is really differentiating Medacta is the combination between implants and technologies, which puts Medacta in a different category despite our size. So we are one of the, let's say, maybe 10 companies that are able to provide implants and technologies at the same time. And this is absolutely critical to differentiate yourself. You enter with NextAR with the optimized rod solution, and then this results in a pull-through across all the product lines. We have some bundled programs which are happy, but it all goes back to the foundational pillars of the growth of Medacta, which is out-of-the-box innovation when it comes to products, meaningful innovation, especially in spine is -- it's not always the case. But if you have meaningful innovation sustained by good medical education, then the results follow. And then, of course, to sustain this growth, the CapEx must follow. But here is maybe when Corrado can give you a little bit of guidance on the ratios between growth and CapEx.

Yes, sure. Thank you, Francesco. Ayesha, this is Corrado speaking. So you're right, we didn't touch the CapEx, but basically we don't guide on CapEx. But what I can say is that the ratio that we mentioned several times in the past, which is basically EUR 1 of additional revenue, EUR 1 of CapEx, is more or less confirmed. There could be some variability in these numbers driven by exceptional investments, for example, now with the buildings, with the expansion of our production facilities. But basically this is a ratio that it is confirmed. As always, the biggest chunk of our CapEx is composed by instruments. And as Francesco said, since we are having a lot of new surgeons, you will see again a big number in terms of CapEx for new instruments. This is basically confirmed. And we expect this not to change over the next years. Back to the point that the ability of the company to fund this CapEx, I would say, definitely yes. The cash flow generated from our operating activities is really robust. And if you take the numbers also of the past, you will see that we are able to self-finance all the investments we need to sustain even this very strong growth rate. So this is more or less the, let's say, the ordinary picture. The leverage is very low. So even in a case where we would be not able -- and it is not the case, but not able to finance the CapEx amount with the cash flow from operating activities, the very low leverage will give us, in any case, room to expand the debt and again, to finance this CapEx. But this is not the case, and we don't think it's the case for the -- will be the case for the next years.

The next question is from Daniel Jelovcan of ZKB.

Two questions. The first one is focused on the Hip. So you didn't mention -- you mentioned outstanding growth in North America and APAC. So obviously, the question is EMEA was obviously below that. Was there any reason? Or it's just because probably your market share in Hip is already significantly stronger than in other regions? And then when I look at the results of Stryker, which is probably the gold standard, but I mean, they grew 14.1% in the first quarter in hips in constant currencies, and [indiscernible] report tonight second quarter, don't misunderstand, but they are much bigger and you grew 11.5%, which is also much better than the market. But the question is, could you grow more like Stryker with your size? Or I mean, I think you know how I mean the question. First one.

Yes. Thank you for the question, Daniel. I think I will be happy to grow as much as Stryker in the Hip organically. I don't believe it was fully organic [Audio Gap] comment eventually on that number. But I believe Stryker is a very good company. They're doing an excellent job, and they are definitely significantly smaller in hips versus knees. And I believe their programs of bundling as much as they can is helping them. They're doing a great job. And that's what it is. I don't mind how they grow, I do care about how we grow, and we're very happy about this 11-point-something percent. If you look at Johnson & Johnson, which is another very large, very competitive company, they had significantly growth in Q2. We will see, actually tomorrow, I believe in the next days, everybody else will publish their own results, and we will be able to compare. But I'm sure that we are taking significantly -- significant market share. And I am even more confident that with the new products and new technologies that we are introducing on the Hip side, we can even further accelerate our market penetration in U.S., in Australia, in Japan and as well in Europe, where you correctly said we have already a very significant market share in certain markets. We are around 20% in Switzerland. We're #1 in Austria. We have more than 10% in France. So of course, to keep up with those rates in Europe is a little bit more challenging, but we're very happy with the overall results.

And last question, do you know your Medicare exposure indirectly, of course, in the U.S.? How many patients are reimbursed by Medicare? Or is that a number [indiscernible] you don't have, but probably you have, but that would be interesting, especially when the blonde gentleman in Washington is doing another move.

Yes. Yes. So the -- let's say, Medacta patient population reflects the one of the U.S. market in the orthopedic space, I would say it's probably around 70% Medicare, 30% private. And this is the market, and the same applies to Medacta.

And is there any risk of cut? I mean, it's politically very difficult, I guess, but yes, I mean, how would you react?

I would say with the current president, there are many risks. And we will handle those situation as soon as they come. I would say when there are problems, there are always opportunities. Cuts in the Medicare hospital base will potentially create further acceleration in the ASC segment. The hospital will probably start to look more and more about efficiencies and offers that are sustainable under an health care system point of view, which is exactly our view. And we know we are extremely successful in very difficult markets like many European markets, and we know we can be extremely competitive, actually even more competitive than our larger U.S.-based company. So we will adjust faster and better if it comes. So I'm really not particularly concerned about any potential change. And as you said, this is always a big challenge when there are cuts in the health care system under a political point of view. So we will see what can [indiscernible].

Congrats as well to this great semester.

The next question is from Graham Doyle of UBS.

Can I just ask one question on the tariff point. It's quite an interesting point you make on Nairobi. I've just spoken with the other ortho peers, and they're not -- they're assuming they're not exempt, and but that might be on slightly like older information. So have you got legal clarification that's the case? And is that the way you fully expect to be for the remainder of this year? It would be good to get a little bit of a better understanding on that, please.

Yes. So -- yes, the [indiscernible].

Sorry, the line is quite bad. I don't know if you could -- we can't hear you.

You hear me well?

I think we can hear you. You're just cutting in and out a little bit.

Yes. So I was saying we just -- we received 2 independent [indiscernible] products within [indiscernible] in the U.S. Go ahead.

Sorry, Francesca, I think I'm getting from a couple of other people as well. I think you keep cutting in and out on your line. It's okay. I can speak to you after the call. That might be easier.

Francesco, can you repeat, please? Can you repeat once more the answer, please? The line was cut for some reason.

Yes. Anja, your line is good, yes.

So maybe, Anja, you can repeat, or Corrado. I mean [indiscernible] the situation, so.

Yes. Basically, we had just a confirmation from 2 independent law firms in the U.S., and they both confirm that our products are definitely falling into the categories treated and mentioned in the Nairobi Protocol. This is something which is clearly, I would say, understood and accepted in this sector. This is our understanding. But we are 100% sure that our products are not subject to tariffs.

Okay. No, that's very clear. As I say we might hear more from the other companies over the next few days and next week. It's just that there -- certainly the previous guidance that they have out is assuming that they are not exempt. So it's good you got that independent clarification.

[Operator Instructions] Mr. Siccardi, there are no more questions registered at this time.

Thank you then, everybody, for your time, and I look forward to speak to you all in September for our midyear results. Thanks a lot, everybody, and enjoy the summer.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.