Medacta Group SA (MOVE) Earnings Call Transcript & Summary

First of all, we apologize for the technical problems we have seen today on the platform. We were hoping to be able to host it on time. And I'm glad we managed to recover still today. So I'm here today with Corrado Farsetta and Gianna La Rana. We can go through the very good and strong results we reported in H1 2022. We can see the highlights of the semester starting with 19% growth in terms of revenues reported, which is 14.6% at constant currency. This growth was driven by a significant new customer acquisition, sales force expansion and new product introduction, especially in the first months of the year in Australia and in the U.S. We still had some headwind coming from the dynamic restrictions and hospital staffing shortages. We wanted to highlight here as well that Medacta is truly generating significant growth. So compared to prepandemic level, H1 2019, Medacta grew 36.5% at constant currency, which is a CAGR of almost 11%. A very important milestone, this semester was the achievement of 100 NextAR platforms in the market. We had the success in the launch of the first full market release application, the NextAR shoulder, while the knee and spine are still in the limited market release. We have been able to continue our expansion in terms of marketing and medical education programs with the network of reference centers active worldwide, which is now more than 500 centers helping us. The expansion of our sales force, which is one of the key pillars of our growth continued and this happened across all the geographies and all our business lines. The contribution of each product line was quite interesting with a very strong performance of our core Hip and Knee portfolio. The Hip grew 11.1%, the Knee 16%. Both Hip and Knees are still following our core strategy in terms of product strategy, AMIS for the Hip and kinematic alignment, single-use instrumentation and GMK Sphere for the Knee. On the extremity, so both Shoulder and Sports Medicine, the growth was a very strong 35%, and on the Spine around 16%. If we move to the geographical area, we can see that Europe did perform extremely well with a growth of around 22%. While as I was saying before, North America and APAC were most impacted by especially quarter 1 headwind linked to pandemic restrictions, especially in Australia. The first 3 months were really, really heavily impacted, which resulted in a growth for Asia Pacific of 3.7% while North America was around 11%. The rest of the world did perform very well with almost 32% growth. This has changed slightly our geographic mix moving from North America and Asia Pacific more in to the European regions. Again, we wanted to highlight how the different lines did perform in the last 3 years, so prepandemic and current growth, showing that we are really delivering a significant growth well beyond mere recovery. So it's now 2 years in a row that we are surpassing prepandemic level in a very significant way. A quick update on the NextAR surgical platform, which is part of our MySolutions Ecosystem. We have reached almost 1,000 -- actually, we passed the 1,000 NextAR surgeries across all the application we have in knees, in spine and in shoulder. And we felt comfortable in fully releasing the shoulder application in the later months of the H1. We expect to have other application in full market release phase in the second part of this year. In June 2022, we reached an important regulatory milestone with the full approval in Japan of all the current applications, so both knee, shoulder and spine. And just as a reminder for those not familiar with the platform, the NextAR is really a very, very flexible platform technology covering hip, knee -- sorry, knee, shoulder and spine down the road, hip and [ new knees ] with a very limited capital investment and single-use instrumentation. So it really provides a different angle when it comes to technology. In terms of outlook, we see a very positive development of our top line. That's why we wanted to confirm our guidance and actually guide on the high -- upper end of our guidance, which is, at the moment, between EUR 400 million and EUR 414 million at constant currency. And at the same time, linked to the faster growth, to the current macroeconomic situation with inflation, with the geopolitical impacting energy, et cetera, we feel that our profitability should be in the lower end of our guidance at constant currency. This, I believe, was my last slide, and I'm not sure, Gianna, if we are going to be able to handle a question from our guests.

Yes, we can. [Operator Instructions] We have already the first question from Thando Skosana.

Can you hear me?

Yes.

Fantastic. Thando here from UBS. I just had 2 questions, please. Just on the FY '22 guidance. Obviously, you've delivered exceptional growth in H1. And then also on top of that, you've got some tailwinds coming for you guys in H2. You've got a weaker comp. And then just looking at your revenues, you're more weighted to the second half. I'm just curious why -- I'm just curious on the cautionary statement around your guidance. And then my second question is just on margins. I do understand this is a revenue update call, but I was just curious how should we think about gross profit margins and also EBITDA margins in the first and second half just given the growth you've seen now.

Thank you, Thando. So the -- as you might know, there are some markets that just recently introduced a price review. One is Australia, where we were expecting a significant recovery from the H1. Now this will come in volume at a slightly lower price. We do have some, let's say, caution approach to other aspects of the business. We are all listening to the potential negative impact of a global recession, which might impact some of our U.S. recovery. So there are some elements in the current world that are not all positive, and we prefer, especially at this point in time, to remain cautious. And we believe we are already delivering at the top end of our guidance. And it is already a very, very strong performance, especially because as we wanted to point out, Medacta is not recovering. It's really grabbing market share in a very aggressive way and it's not a given that we continue month-after-month after month to do that. So we just wanted to be cautious. On the margins, as you correctly said, we will have an additional call beginning of September when we will go into the details of how the margins have been impacted and how potentially will evolve. But I might ask if you don't mind, Corrado, to give a little bit of color on what we see and how you should see as well the impact of revenues on our profitability. Corrado?

Yes. Sure. Thank you, Francesco. So even if it's too early to talk about P&L, as you said, we don't have the numbers yet, but I can add some qualitative comments about the marginality. I would say the first one is about the geographic mix. From an average selling price perspective, the growth mix in this semester was less favorable than in previous period given the strong acceleration in Europe, 22%, compared to APAC, which was only 4% for the reason that we already explained. We know that Australia is one of the highest priced market. And say, with the limited growth in that country, the key offsetting factor against price erosion, which is still in a market will not show the positive effect that we normally see when the growth rate in those countries like Australia and U.S. are stronger. So that's the first comment I would say. The second comment regards the inflationary cost. We are not an exception in the market, and we are already registering significant increases in transport costs. And sooner or later, we will also see the effects on price increases in raw materials and services. And third, the strong revaluation of the U.S. dollar and Swiss francs and euro generated a positive effect on the top line. We have seen that more than 4%, but also a negative effect on the cost side, of course. So we expect that this pure translational, because it's just a translational effect into balance sheet, which is in euro, will be a negative effect as well. So in general, what I can say, Thando, is that it is not unreasonable to expect these 3 elements to offset, at least in part, the positive effect from the big jump in revenue that we have just discussed and to move toward the lower end of the guidance in terms of EBITDA margin as we said. Of course, we'll be more precise when the numbers will be ready and available to be discussed.

We have now Christoph Gretler from Credit Suisse. Chris, can you hear me? Otherwise, we have questions from David Adlington from JPMorgan.

Can you hear me?

Yes. You're good.

Perfect. Yes, just 2 questions, please. So I just wondered if you had any particular idea that you're taking most share from particularly hips and knees and what's driving that? And secondly, just a technical one, in terms of the FX impact on the margin for the full year, that would be useful.

Thank you, David. So in terms of market share, it varies quite a bit from region to region. I would say, out of the 4 big guys, probably the only one where we take a little bit less is Stryker, especially on the knee side. We are getting some customers on the hip side, on the shoulder side. They're still dealing with the Tornier, Wright Medical integration. So there are always bits and pieces they might lose. And in terms of Hip and Knees, I would say everybody, Zimmer Biomet, Smith & Nephew probably more than JNJ and Stryker. It varies a little bit. In terms of FX, I might again ask Corrado to comment.

Yes, sure. David, so again, we don't have the numbers today, so it's difficult to say what would be the precise effect. But basically, that is driven by an increase in top line euro -- U.S. dollars and Swiss francs. But the balance sheet in Swiss franc is less, say, big in the top line and more in the cost side. So basically, that's why we could -- I would expect to have a limited effect on the gross margin and the bigger effect on the fixed cost side. I would be surprised to see an effect which is more than 1%. But of course, now it's still difficult to be more precise than that.

Let's try here with Chris.

Yes. I think now it should be better.

Yes. Thank you.

My first question was also on FX, but there is no possibility to quantify at this stage, not the margin effect. But I heard you, I think, probably kind of as good as it gets. The second question was on Europe. That was a very remarkable performance. Could you maybe elaborate a bit more in which countries you managed to achieve such a strong growth? And what were the driver also maybe by product franchises?

Yes. Thank you, Chris. Thank you for the question. I was very impressed with the European performance as well. I think this is directly correlated with our ability to continue to generate sales leads during the pandemic. We know in orthopedics, there is always a ramp and customers take many months before they really trust the product. So the effect we see now is probably coming from the very, very good level of activity we maintained during the pandemic and the reorganization of the marketing, medical education in 2020, 2021. We did see it across all the regions. So Germany did grow extremely well in the core market, hip and knees, shoulder in particular. All the major markets, so Germany, Italy, France and Spain are growing very rapidly. U.K. is still a relatively small market, but we are growing there significantly as well starting from a very small base. And Switzerland as well in the new lines did perform pretty well. But I was extremely pleased to see that in the core products of hip and knees in Europe where, in certain markets, we do have already, let's say, a significant market share. We were able to deliver double-digit growth, and this is very good, and we expect this to continue for a bit. So that's even more positive.

Yes. That's great to hear. And maybe the last question on NextAR. I mean these 100 systems that you mentioned to have placed in the market, could you maybe specify in what indication they are?

Yes. I would say, just to give you a qualitative idea, the number of units we had in knees and in spine did not change because they are still in limited market release. So we have just increased significantly the shoulder, and there will be more in the second half on the shoulder. And hopefully, as planned and as announced, we will start to see the release on spine and knees. I would say, probably roughly today, 50% of those are shoulder and more to come.

And geographically, could you also maybe comment where you have most of this system placed?

So it's -- at the moment, the system is cleared basically just in Europe and U.S. with more or less the same geographic split that sales have. We have just received clearance in Japan. And as you might know, we still don't sell shoulder in Australia because the implant per se still is under a regulatory approval process. So the APAC is not contributing at the moment on the NextAR at all, I would say.

[Operator Instructions] There are no more questions, Francesco.

Thank you, Gianna. Once again, thank you all for adjusting your busy schedule to participate to this call. We really appreciate it. Once again, we apologize for the inconvenience, which was completely out of our control. I wish a good weekend to everybody and look forward to the next call early in September to update you on the full P&L. Thank you very much and enjoy the weekend.