Medacta Group SA (MOVE) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Medacta Group 2024 Full Year Unaudited Revenue Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Francesco Siccardi, CEO of Medacta Group.

Thank you. Thank you very much, and welcome from my side as well to full year 2024 revenue results. I will be here with Corrado Farsetta as well, our CFO. Let's move to the usual disclaimer. Please read it. And let's go through the slides. I'm on Slide #4 with the highlights of 2024. We reported EUR 590.6 million in full year 2024 revenue, a growth of 16.2% in constant currency. A very good performance, which was supported across all our product lines by the out-of-the-box innovation that we launched throughout 2024. As you know, '24 has been Medacta's 25th anniversary. We invested heavily in medical education associated with this event. And this resulted in a very, very good amount of surgeons attending our medical education event. And in order to support our growth, we have further increased our team by roughly 180 new employees. If we go on the Slide #5, we wanted to point out how 2024 has been a very strong year with a 16.2% growth, but this is a pattern that we have seen now for 4 years in a row with a CAGR between 2020 and 2024 of over 18.1%. This growth is the result of our innovative products, very strong focus on the medical education associated with the introduction of this innovation in the market, a stronger clinical evidence that is coming up to support our claim, and of course, a constant sales force expansion. If we focus back on 2024, the geographic split is here on Slide 6. Both Europe and North America performed extremely well at 16.5% in constant currency. Asia Pacific 14.5% and the growing, Latin American presence at 22.5%. The current split is more or less in line with our historical split with Europe accounting for a little bit less than half of our revenues, North America 30%, Asia Pacific 20% and Latin America at 2%. Under a product mix point of view on Slide 7, you see the contribution of the different product lines. The Hip grew 8.3%, Knees at almost 22%, exceptional performance together with the Extremities at close to 39%, Spine 13.5%. And you see that 2024 basically aligned the contribution of Hip and Knees roughly 41%, 42% each and Spine and Extremities 9% and 8% respectively. Moving on the Hip. The performance of the Hip, again, has been remarkable over the last years. We have a CAGR of almost 13%. 2024 with 8.3% growth rate represents a market growth rate which is roughly more than the double of the market, still heavily focusing on anterior minimally invasive surgery and the expansion of this fantastic technique across all the geographies; a technique, by the way, which is extremely, extremely useful in the ambulatory surgery center market in the U.S., but of course, not only. On Slide #9, you see the incredible growth that we experienced over the last few years in Knees with a CAGR of 22.1%, which is basically the same growth rate we had in 2024. We have, as we said, 21.9%, so 22%. This is more than 3x the market. And it is heavily associated with Medacta focus on the Kinematic Alignment. This personalized technique that is really changing the way Knees are performed in the world. And we started to explore this segment almost 10 years ago. We did our homework. We did a lot of research. We identified the opportunities in order to further improve. And last year, we fully launched the first implant, GMK SpheriKA, designed specifically for Kinematic Alignment. And this has a very strong rationale, stronger and stronger data and this is probably the reason of our success in the Knees at the moment. If we move to the Slide #10, we are talking about Spine here, another very good performance, a CAGR of 17.1% between '20 and '24. A good performance this year as well, 13.4%, probably again, another growth rate which is 3x the market. Medacta is changing rapidly in Spine from selling -- focusing on implants to selling mainly implants through technology. The NextAR Spine, the Rod Optimizer have been introduced in the market successfully last year. And we believe this could continue to drive differentiation in the very competitive Spine market. We're very happy about the results in Spine as well. Extremities, exceptional growth rate, smaller base, but it starts to be relevant. 36.5% CAGR in the last 4 years, almost 39% growth in 2024. And this is associated with the combination of a very, very strong product range in terms of implants, and NextAR as a key differentiator for Medacta, helping surgeons in complex cases in achieving their 3-dimensional planning with surgical navigation solution. Very innovative, very simple to use and this is definitely behind the success of our shoulder portfolio. The last Slide, #12, the key takeaway messages for 2024. Exceptional performance in terms of top-line growth associated with those innovative and differentiating products. All the innovation has been well supported by our more education program, which is a unique way to support new product introduction to try really to help the surgeons to understand the benefits, make sure they are supported during the learning curve associated with adopting innovation. Patients are protected, thanks to Medacta's support in the medical education. And this allows many, many surgeons to embrace innovation in a very safe way. And this attracts as well a lot of salespeople. And that allows us to cover more and more territories because Medacta is growing fast, but the available market on a global scale remains significant. So we hope to continue to be able to outgrow the market in the near future for many years to come. This was my last slide. And I'm happy to move to the Q&A session.

[Operator Instructions] The first question is from Aisyah Noor of Morgan Stanley.

I have 2, please. The first one is on the Spine business following the recent launch of your NextAR and Rod Optimizer. Any feeling so far as to how the growth could look like for 2025, either in terms of account wins, sales contribution? Just to get a feeling for how is it going and what are your ambitions for this launch for 2025? And then the second one is just some deal action or acquisitions recently in the orthopedic space in Spine and foot and ankle. Any thoughts on how much of an opportunity this could be for you, either in account wins or sales force expansion?

Yes. Thank you, Aisyah, for the question. So both related to Spine, I guess. The acquisition you're referring to is probably the divestiture of Stryker Spine. In general, every time there are M&As, there are always opportunities to grab unhappy surgeon or unhappy sales force. This case, I think it's going to be similar. And we will always grab opportunities to expand our sales force, especially in the U.S., Stryker Spine was very present and this could help us. It could help us even more because of NextAR and Rod Optimizer. I am right now in New York City. We just had our national sales meeting, including our Spine team. They were extremely excited about the potential of NextAR and Rod Optimizer, especially the Rod Optimizer doesn't require any imaging. And so it's a very, very good solution for ASCs in Spine as well. It's very unique. And we believe based on the early feedback we received in the U.S. and in Japan, the product is not yet cleared in Europe, we will focus heavily on this technology to drive our presence and have a pull-through on the implant side.

The next question is from Dylan van Haaften of Stifel.

And maybe just tagging on to the Spine question earlier, could you just reflect in telling us like how far along you guys are in the direct strategy? And how we should kind of envisage what kind of timeline that shift fully takes place given some of the things that have happened over the past few months? And then I've got a follow-up on SpheriKA.

Yes. On the -- so the direct market strategy is something that we started many years ago on the joint side. And in order to do that, you have to have a relatively large portfolio and a differentiating product range. Just to give you an idea, today on the joint side in the U.S., we have basically a 50-50 split between agents and direct. In Spine, we were 100% agents because of the product range and the differentiating products. And now we started in 2024 to go direct as well. But we remain very opportunistic. There are lot of good agents in the market and there are a lot of opportunities to go direct. We are not forcing one strategy over the other. Whenever it's possible, and we do find people that have a more direct background, now we have the ability to execute on that as well. And this will be more or less the direction we're going to take in Spine moving forward and is exactly what we did in joint. And so we're going to probably end up in a 50-50 split as well in the next couple of years in Spine. We're very happy about 2024 results in the direct market as well. And we will continue to explore for sure.

Excellent. And just on SpheriKA, I'm just going to assume that part of what I think is behind the strong momentum has been the growth in SpheriKA. Is there anything you can tell us about how the follow-through should be into next year in terms of any statistics on adoption or what percentage of growth year-over-year SpheriKA contributes in Knee? And how we should be thinking about next year's growth? Should that be stronger or should that see a more normalized trajectory also considering the fact that we might have had a bit of a tailwind with the 25th anniversary?

Yes. I would say, SpheriKA is the vast majority of our growth in Knees with only the geographical exception of APAC simply because SpheriKA is not yet cleared in Australia and in Japan. But the growth we've seen in Europe and in the U.S. in Knees is 100% SpheriKA. We believe that the medical education activities will continue very strong in 2025. We had already a very good meeting in January in Europe with almost 200 surgeons just focusing on Knees. We have another one coming up in the U.S. So I think the momentum associated with the medical education activities will continue in 2025. The base is becoming bigger every year. So to keep up with the same percentage growth I think is going to be challenging, but we will provide more color on 2025 guidance in March when we will report full year and profitability.

Excellent. And just one more. I'm not sure if you guys have addressed this one yet, but obviously, with sort of tariffs and your current manufacturing base in Switzerland, if tariffs would be a factor, would you be able to push those through or are there any ways where you -- how would you adapt to tariffs if they would emerge?

So first of all, I don't expect tariffs to be applied on medical devices. This did not happen last time President Trump was in charge. The U.S. is a very big exporter of medical devices and I don't see it coming. But if it does come, there are some countermeasures that could heavily reduce the impact of tariffs on our P&L in the short-term. And then, of course, in the long-term, that is growing fast. We have constantly to adjust our manufacturing capacity. We have ongoing expansion plans in Switzerland. And we had already plans to expand outside of Switzerland, most likely in the U.S. If this would be potentially accelerated, we are potentially ready to consider that as well. But there are some immediate short-term ways to reduce very significantly the impact on the P&L.

And those countermeasures, would that be, for instance, stocking in the U.S. ahead of time?

This is a possibility, for example. There are other aspects associated with the fact that many of our variable costs are linked to net sell price. So all the net selling price are removing any excise tax or tariff. It was the case, you might remember years ago when the medical device tax was introduced to finance the so-called Obamacare. It was around 2.5% of the selling price. Tariff would be potentially 10% of import price, which is basically a 5% of final selling price impact. So that's what we are talking about. And there are incentive variables, royalties that could be offset partially by this cost. And so we are finalizing the calculation. But I don't see this as a major problem in a high probability that it happens. There are short-term countermeasures and mid-term countermeasures that are possible, of course.

The next question is from Sandra Dietschy of Octavian.

My first one is on North America. What drove the significant acceleration in the second half? Could you provide some insight into which segments contributed most or if there are any exceptional factors played a role? And given this momentum in the U.S., would you expect the U.S. to outperform Europe this year? And then I have a follow-up on the Knee segment. You mentioned that all geographic regions contributed to the growth. But can you qualitatively compare the performance between Europe and the U.S.? Is the uptake of -- is it similar or do you see significant differences?

So the performance in North America in the second half was very, very strong, slightly stronger than what we were expecting. It was mainly driven by new products in the shoulder. For example, we introduced the GRS Shoulder, which is a very important component to have -- to cover certain indication on the reverse shoulder, which we were missing. And this boosted our sales very significantly. The Knees, of course, and the big investments in terms of medical education, cadaver labs, courses in order to explain how this Kinematic Alignment works, which are the benefits. And what has been extremely interesting is that the vast majority of this acceleration was linked to a faster than anticipated conversion of new customers. And it is, of course, very, very positive because it means you have a significant carryover business coming in 2025. So we don't talk about '25 yet. But when you have an organic growth linked to a lot of new customers coming on board, it helps to create momentum for the quarters and years to come. The difference between Europe and U.S. was minimal this year. As you have seen, the numbers are identical. It's funny. Usually, let's say, pre-COVID, U.S. has always been stronger than Europe. Immediate post-COVID, Europe had an explosion, mainly linked to the supply chain issues and regaining momentum of our competitors that was completely missing. So I hope to continue to see Europe and U.S. perform in the same way, especially this way is so positive in terms of growth rate. There are a big difference in terms of market share. We have a much smaller market share in the U.S. In Europe, there are countries where our market share is already very big. We are maybe #1 or #2. And so to grow at this pace in Europe in the mid-term will be more challenging, especially in the Hip and Knee line. But we have the new lines of shoulder, sports medicine, Spine, and frankly, Knees as well, we have a long run. So in general, I would say, we could and we should expect the U.S. to outgrow Europe simply because of available market.

The next question is from Sam England of Berenberg.

First one is just another one on SpheriKA. I think back at the first half results, you talked about how the marketing investment you've put in had expanded the pipeline of interested surgeons for GMK SpheriKA. So I just wondered if you could give us a sense for, I suppose, how much of that pipeline came through in H2? How much the pipeline grew during the second half? And then where it sort of sat today to give us a sense of the momentum you have headed into '25? And then the second one, just more broadly on the U.S. Can you give us a sense of what growth looked like for you in the ASC channel versus the hospital channel? And any sort of qualitative comments you can give on growth in the ASC channel in the second half of the year?

Yes. The pipeline for SpheriKA remains very, very solid. So as I was saying, we had a lot of events in the second half of the year as well last year. We had to put up additional medical education events because the demand was strong. And we do have a very solid pipeline of medical education opportunities, visitation, cadaver labs ongoing for Q1, Q2, Q3 and Q4 '25. So there is a tremendous demand. Surgeons, they understand the potential. They want to know more. And when they see it, I think the beauty of this technique and with this implant is that it's a relatively simple technique to pick-up and you see the results pretty fast. And the rationale and the data are strong. And so we remain very, very positive on the pipeline. And talking about the second question, the ASC and the hospital, the beauty of this technique is that you can do it with technology, you can do it with NextAR, you can do it with the PSI, but you can do it in a very, very, very effective way with classical instruments as well, which means in a very cost-effective way in an ASC. We are coupling our offering on the Knee side, on the ASC with our single-use instruments as well. So I think we have a very, very competitive solution when it comes to Knees. Our growth is significantly higher in ASCs because of that and as well simply because the gate keepers in an ASC are mainly the surgeons, while in the bigger hospital organization, it takes much longer. You have to go through the bureaucracy associated with the hospital. They have big vetting committee. So it's just taking longer. So this is one of the reasons why as well our growth rate is so much higher in ASC. I think we are now close to 60% of our revenues in ASCs. But I have to say I'm very pleased as well to see Medacta entering in many academic centers. And this is very important because that's where the next generation of surgeons are coming through. And it shows as well that Medacta is a credible partner when it comes to innovation for those very well-established academic center, the Mayo Clinic, the HSS, Harvard and so on and so forth. So I'm very proud of what the team is doing.

[Operator Instructions] The next question is from Daniel Jelovcan of ZKB.

Just to go back to the Spine market, I mean, of course, you cannot speak for Stryker, but I was really astonished why they exit this segment. Of course, it seems [ Knee ] is a difficult segment, but what is your view in general? Of course, I understand your innovation within Spine, but it would be nice to have your view on the spine market in general.

Yes. As you said, you should ask Stryker. It's difficult to understand. But I can tell you one thing. Spine is a very different market compared to joint. You have a pace of innovation, which is definitely faster. And if you're not a focused group of people in Spine, you become obsolete very fast. And I see the large organization struggling quite a bit with Spine because of that. And you remember, Zimmer did the same. So now Stryker. But if you look at the performance of even a Johnson & Johnson in Spine is less good than in other segments of their business. So I think that you really need to have a full focus dedication on innovation in Spine because of the pace of innovation itself. And this might be the reason why some of the very large organization they struggle a little bit more and then they decide to exit because their growth rate there is below the growth rate of the company.

Okay. And so -- I guess, it's not really related. I mean, I remember a decade ago, the U.S. market was 70% of the global Spine market, which is a very high percentage. And a lot of people at that time said that the U.S. will go more into conservative treatments like whatever. Is that maybe another element or...

I would say, it was 70% because the prices were crazy high. So the prices did come down. They're still very, very healthy margins. I still see a lot of opportunities in developing products for the surgical treatment of Spine. The market is still growing low-single-digit, but it is growing. So I don't think the market is shrinking and that's the reason why companies are exiting. Actually on the contrary, there are very, very nice interesting opportunities in Spine that a company like Stryker could have capitalized on, like for example, endoscopic spine, they have all the equipment they need to do it. So I was surprised as well. But again, I think they have managed their company in a very good way. I just don't understand and maybe they are much smarter than all of us and they are right.

Mr. Siccardi, there are no more questions registered at this time.

Thank you then. Thank you, everybody, for participating. I look forward to our 25th of March full year 2024 results call. And once again, I would really like to thank all our employees, all our customers that believed in our products and medical education, all our partners that are supporting our growth. And thank you. See you again soon. Thanks a lot.

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