Medacta Group SA ($MOVE)

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Medacta Full Year 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Francesco Siccardi, CEO of Medacta. Please go ahead, sir.

Thank you. Thank you very much, and good afternoon, or good morning. Welcome to Medacta Full Year 2025 Results Conference Call. The slides of today's presentation can be found on the Medacta Investor Relations website, along with the media release. I would like to remind all participants that the presentation includes forward-looking statements, which are subject to risks and uncertainties. Listeners and readers are therefore encouraged to refer to the disclaimer on Slide 2 of today's presentation. So after those remarks, I will now turn to Slide #4 of the presentation with the highlights of today's publication. We did report already our revenues, EUR 684 million with 18.5% growth in constant currency. The EBITDA margin in constant currency hit 29% and 27.9% in euro with an increase of 19.1% year-over-year. Medacta's net profit increased as well 31% year-over-year to EUR 95.5 million. And the Board of Directors is proposing a dividend per share of CHF 1.1 with an increase of almost 60% year-over-year. We did comment already on the top line revenues. So I will fly through the next slides relatively quickly. As we said, 18.5% in constant currency in 2025. Now bringing our CAGR for the last 4 years, 2021 to 2025 period at 17.4%, a very, very strong performance, significantly outgrowing the market more than 4x. If we move to Slide #6, we just reiterate again, which are the key pillars of our above-market growth. We clearly focus on differentiating innovation with the aim of really impacting and improving patient outcomes in a health care sustainable way. We support the introduction of this innovation in the market with a strong focus on medical education and training for surgeons worldwide. And as we need to expand our sales force in different geographies, the constant hire of new talents across all the different business lines and the different geographies. If we move to Slide #7, we can repeat again the growth rate we experienced in the different geographies. We did grow 15.2% in the EMEA region, 19% in North America, 23% in Asia Pacific and 42% in Latin America. We move then to the business line growth contribution on Slide #8. Our Hip grew almost 12%, Knee slightly above 20%, Extremities at 46% and Spine at 12%, all those growth rates are in constant currencies. To be noted that the Knee business line surpassed the Hip business line for the first time in 2025, Knee representing 42% of our revenues, Hip 40%; Extremities 10%; and Spine 8%. Digging a little bit into the different business line. The hip definitely benefit from our focus on minimally invasive procedures, in particular, Anterior Minimal Invasive Surgery, which has been our flag products for many years now and is now reinforced by additional platforms introduced into the market. And on the next slide, #10. We can see the very strong performance of our Knee, growing at almost 21%, clearly benefiting from Medacta focus and the introduction of the concept of kinematic alignment, Medacta has definitely been the first company to push this concept in the market, and we are today still the only company with a dedicated and specifically design Knee, the GMK SpheriKA, which is clearly pushing our sales in a very significant way. If we move on Slide 11, we can see our performance in Spine, slightly above 12%. And here as well, we focus on innovative products, mainly associated with our MySolution platform. And the focus is clearly on personalized medicine with techniques and technologies like the NextAR Spine or the Rod Optimizer. Last but not least, our Extremities business line on Page 12 with a very good 46.2% growth year-over-year. We did benefit as well from last year acquisition in the Sports Medicine sector with the Parcus move and the constant expansion of our Shoulder Arthroplasty platform associated with our NextAR technology as well. I would now ask Corrado Farsetta to go into the margins and into the P&L. Thank you.

Thank you, Francesco. Moving to Slide 14. Yes. Let me now review the financial figures of 2025. And the gross profit increased by almost 15% to EUR 459 million, reflecting the strong growth in revenues. Operationally, we continue to deliver efficiency improvement, supporting the resilience of our margins, which remained solid at more than 67% despite a negative FX impact of more than 1%. Moving to Slide 15. Here, you can see 3 lines. As usual, the gray line shows the long-term trend of our profitability, excluding translational effects since 2019. The yellow line represents our reported EBITDA margin, and the red line shows the EBITDA margin in constant currency for the year, which is then comparable with 2024 performance. As shown by the red line, in 2025, the adjusted EBITDA margin reached 29% in constant currency with an expansion of about 2% versus prior year, confirming the continued improvements in profitability and the strong operating leverage of this year and in general of the company over the years. Despite the negative FX impact of around 1.1%, the reported EBITDA margin was about 28%, expanding by 0.8% versus prior year. More broadly, looking at the long-term trend based on 2019 FX rate, which is the gray line, our adjusted EBITDA margin highlights the structural and significant margin expansion achieved in recent years. Moving to Slide 16. Here, we see the net profit for the period reached EUR 95.5 million compared to EUR 73 million last year, which is an increase of more than 30% year-on-year. And this includes also the one-off effect related to the acquisition completed at the beginning of 2025. Moving to Slide 17. The strong growth of the company has required and continues to require additional instruments, facilities and production capacity. And this is where our investments are focused. Total CapEx amounted to EUR 137 million last year, mainly related to instruments, as always, EUR 78 million, land, buildings and production capacity, EUR 35 million and research and development for EUR 15 million. Investments in facilities and production capacity reported under other tangibles include the expansion of our production site here in Rancate and new fully automated warehouse and logistics hub in Italy. Moving to Slide 18. You can see here our robust cash flow generation. In 2025, the cash flow from operating activities reached EUR 153 million, reflecting the strong profitability and the solid cash generation of the business, thanks to focus on the effective usage of all our assets. This allowed us to largely self-finance our investment program for EUR 137 million, as just discussed. And as a result, the free cash flow increased to EUR 16 million in 2025. Moving to Slide 19. Our balance sheet, as you see, remains very solid with the leverage in 2025 down to 0.88x the EBITDA of the company. Over the past 5 years, you see the red line is the average ratio, which was around 0.94, confirming our disciplined financial profile and the strong capacity to support our growth. The last slide from my side is the dividend per share as Francesco said, the Board is going to propose a dividend of CHF 1.1 per share, representing an increase of about 60% compared to the prior year. And with this, I will now hand over to Francesco for the outlook, 2026 and midterm and some final remarks.

Thank you, Corrado. The outlook is reported on Page 22 of our presentation. For 2026, Medacta is targeting a revenue growth in the range of 10% to 14% in constant currency and an expansion of the adjusted EBITDA margin of around 50 basis points versus prior year, which we closed at 27.9% in constant currency, subject to unforeseen events. We did expand our midterm outlook as well. And the revenue compound annual growth rate for the period 2024-2027 in constant currency is expected to range now between 12% and 15%, with a gradual improvement in constant currency and subject to unforeseen events. We just reiterate as well, the situation in terms of tariffs. Medacta remains not impacted by the U.S. tariffs, and we continue, of course, to monitor the development of this situation together with the rest of the global world. Last point on Slide 23. My key messages is to highlight once again the excellent and continued above-market growth of 18.5% in constant currency year-over-year. This results from our strong focus on differentiating innovations that really have an impact and improve patient outcomes and health care sustainability. This innovation is sustained by medical education and personalized training for surgeons, which allows us as well to expand our sales reps and team across the different geographies and across the different business lines. The effect of this expansion and careful execution is that we can maintain very strong financials. We have seen a very strong soar of our profitability, operating cash flow and dividend. The expansion of the adjusted EBITDA while growing at this pace is really extraordinary. The record net profit of EUR 95.5 million, which represent now 14% of revenue. An increase of our operating cash flow by more than 42% to more than EUR 150 million. And as we said before, a proposed dividend increase of almost 60% to CHF 1.1 per share. And our goal, which is reflected in our short and midterm guidance is to continue to outgrow the market for the foreseeable future. I would like to thank for this excellent performance, once again, all our employees worldwide, of course, all our customers that continue to believe in our products, all of our suppliers and partners worldwide. Thank you. Thank you, really, to all of you for the support. I think it's now may be time for Q&A.

[Operator Instructions] The first question comes from Sam England of Berenberg.

And the first one, can you just provide some color on what's changed over the past few months to support the increase in the midterm revenue guide? I suppose in particular, which segments or geographies are now expected to perform better than your previous expectations to support the raise? And then also around the midterm guide, you're now guiding to a gradual improvement in margins. So can you talk about the shift in messaging there and why you're expecting margins to expand? I think previously, when you talked about it, you said you'd rather reinvest in the business to drive growth as opposed to letting margins expand. So is there a shift in focus implied there? So a little bit of color around that would be good as well.

Thank you, Sam. So we have -- I will take the second question on the marginality expansion. We have seen that under an operational point of view, we can really achieve what we want to achieve in terms of growth with, at the same time, the ability to slightly expand margins. We were maybe a little bit cautious when we provided the previous guidance, and we wanted to have a little bit of space to operate, but we believe we can achieve our midterm top line guidance, while at the same time, expanding margins. This means that we did identify, for example, some important synergies, stronger synergies between Shoulder and Sports Medicine and Joint and Sports Medicine, both in terms of medical education, in terms of sales force, in terms of marketing. And those are not only positive under a practical point of view, but they do actually have an impact under a P&L point of view. I would maybe like to ask Corrado to take on the midterm CAGR because it's probably more mathematical than anything else given our past performance.

Yes, sure. So basically, the revision of the guidance, the CAGR is the result of the super strong performance in 2025. The guidance that we gave for 2016 -- 2017, sorry -- 2026, sorry again. And for 2027, it's just the -- okay, we believe that the picture, the framework is not going to change. So basically, based on our 3-year plan, the result of the top line expansion in 2027 will be then based on this CAGR -- 3-year CAGR between 12% and 15%. So it's just an arithmetical calculation, taking into account that 2025 was already achieved. The guidance for 2026 was given. So the result based on what we see in the future, it should be between 12% and 15%. This is what we think is just an arithmetical update.

The next question is from Ed Hall of Stifel.

A couple from me. Just firstly, on the profitability, and I appreciate you don't break it out in terms of subsegments, but is it still fair to assume that the smaller units, Extremities and Spine are operating at negative margin? And if that is the case, when do you expect these to turn positive? That would be my first question, and then I'll follow up afterwards.

Yes, I can take this, of course, under a qualitative point of view, Spine is not a negative contributor. It is dilutive versus the core business, if you consider Hip and Knees, but it's not negative and actually is improving year-over-year. So that is maybe another element I should have mentioned before talking about margin expansions. The Extremities is -- we basically have two product lines within extremities. It is one, which is the Shoulder Arthroplasty, which is extremely positive in terms of contribution margin. And then we have a Sports Medicine, which is in an earlier stage, and it does require probably more dedicated sales force. And I mentioned that there are some synergies, but it's definitely still negative, and it will remain negative, although reducing the negative profitability year-over-year while we scale this business. So it is still fair to say that the smaller business line are dilutive, but Spine is not negative. And within Extremities, only Sports Medicine is still negative, but it is very small.

Perfect. That's really clear. And then just another question on sort of CapEx expectations for this year, given a lot of the expansion that you've done in your facilities in Switzerland is coming to an end. I'm curious as what that would look like as things stand today.

Yes. I don't think -- and frankly, actually, I hope it will not come to an end because it will mean that we are significantly slowing down. As you know, the CapEx we are referring to, both manufacturing capacity and instruments are growth-related CapEx. So we have quite ambitious plans ahead of us for the next 5 to 7 years. We definitely need to continue to finish at least our expansion plans here in Europe. We will continue to feed the market with instruments associated with new customers generation. We do have new products launching expected in the second half, end of the year. So we don't expect at all a decrease in our required CapEx. We might have a little bit more color in the future, in the next maybe early call at the end of H1 to share with the market a little bit more details of what we expect to do in the upcoming years in terms of CapEx needs and opportunities. We see a lot of opportunities, and we are very happy actually to invest in our growth. We have a very good, in our opinion, return on invested capital, and we are not afraid to invest in our future.

The next question comes from Sandra Dietschy of Octavian.

Yes. I have also a few, maybe I'll take them one by one. Sorry to follow up again on the margin topic. But given what you just mentioned, is it fair to say that kind of the majority of the improvement is coming from scaling up the currently dilutive segment like the Spine and Sports Medicine? Or do you also expect margins in the core Hip and Knee business to improve from the current levels?

So thank you, Sandra, for the question. We actually see both effects. We definitely have still margin improvements on the core business of Medacta, the Hip and Knee. We do see as well as I was mentioning, a less dilutive effect from Spine. Shoulder is definitely continued to expand as well. It's a marginality. And from those core business, we can now finance fully our Sports Med. So it's both the effect of decreasing dilution of the smaller lines and still significant expansion on the core Hip and Knee side, both under a manufacturing and operational point of view, vertical integration point of view in manufacturing still and some leverages because we still have some markets like U.K., Spain, Italy, Germany, where we are growing very, very fast, and therefore, we can see some leverage on the fixed cost and improve marginality at country level.

Okay. Super. Then one on your U.S. business. Now excluding the impact from Parcus, I estimate that organic growth in the U.S. was in the mid-teens range last year and that was certainly supported by your strong exposure also to the ambulatory surgical centers. Now you previously indicated that this ASC segment could grow around 25% annually that you have some 40% of your U.S. business is already generated through this channel. Now just from this tailwind from the ASC segment alone, that should make it relatively straightforward to sustain a mid-teens growth in the U.S. Is that the correct way to look at it? Or are there any factors that could make it more challenging to have such a growth level going forward?

Yes. Unfortunately, it's a little bit more challenging than just automatically following the market trend simply because of sales force expansion. So without sales force, you cannot capture this transition from hospital to ASCs. We have been actually further expanding our percentage of revenues in ASC versus hospital in the U.S. We are around now 45% compared to previous year, and we expect this to continue to be the case. But you really need to think about sales force expansion as a key necessary driver for our growth in the U.S. We are covering between 2% and 3% market share in the U.S. We need boots on the ground to really spread Medacta message and cover surgeons that are transitioning from hospital to ASCs. But as well, we are starting, for example, to work with prominent academic centers, large hospitals. So it's all about distribution. I think we have very good products across the different business lines that prove their ability to improve patient outcome, but we need salespeople and sales force. And that's the constant game for us across the different geographies and in particular, in the U.S., hiring and hiring and hiring good talent salespeople, which are happy to jump on board and sell our product ranges.

Perfect. Appreciate the details. And then I have a very quick one for Corrado on the tax rate. As it was just last year, a little bit higher than what I had expected. Can you help us what's a good tax rate level to assume going forward for Medacta Group?

Yes, sure. Sandra. So let's say, the increase in 2025 is attributable to some, let's say, transfer price optimization policy that we have implemented at group level, which means that basically some of our tax assets that we accrued in the past have been now released in 2025. And given the higher tax rate in the other countries, this has generated an increase in the average group tax rate in 2025. This can be considered as a, let's say, a one-off effect because it's not that we are going to review again significantly our policy, but this was what has happened in 2025. For 2026 and 2027, I think that we should go down to 16% more or less, we should be confirmed for the next 3 years. The other change that we are still not able to judge in terms of let's say, impact on our tax rate is the application of Pillar 2 from 2028. It is not feasible because today it's not still 100% clear how this will be implemented in Switzerland. We don't think it's going to significantly change the tax rate from 2028 onward. But I would say that definitely 2026 and 2027, we should go back to 16% more or less.

The next question comes from Michelle Büchler of Zürcher Kantonalbank.

I have a question on geographic expansion. Could you give us some more color on the efficiency gains we can expect from the Italy facility? And also, I saw you mentioned a new subsidiary in India. Do you have plans on expanding to India?

Yes, I can take this question on the -- I guess you are referring to our new operation facility, the distribution center in the southern part of Europe. This distribution center would potentially have a decrease in some of our shipping costs for southern part of Europe and a decrease as well in net working capital in stock that is currently distributed across different warehouses in the southern part of Europe, Italy, Spain, Switzerland, Austria, et cetera. We will be able to concentrate most of the stock in one location, reducing net working capital requirements and at the same time, as I said, potentially reducing our shipping cost. So we will probably see an impact more in '27 than in '26, but it's definitely something that will help us to improve and constantly increase our margins. So that's a good thing. Regarding India, if I address your first point, India will be, of course, a new venture. We are starting from scratch. Our products are not yet cleared under a regulatory point of view. It might happen every -- any day now, any week, any -- but you never know with the regulatory, you can wait another quarter or maybe it's tomorrow. In any case, we are ready. We have prepared the market. We have hired some key people. We lined up distributors. We started already to train surgeons on cadaver labs, and we can expect a good start. We have seen a very good appetite for our products in the Indian market, which is a rapidly growing market, probably around 10% to 12% per year growth. Prices are okay in line with some of the European markets. So we can definitely start to compete, and we are ready to roll off.

The next question is from Graham Doyle of UBS.

And just one for Francesco and then a couple of quick ones for Corrado. Francesco, just on Knee, it's been incredibly strong. And we are seeing some launches from some of the bigger competitors over the course of this year. Do you think that there are more kind of catch-up launches and you're still ahead? And is there anything in the pipeline on Knee that makes you quite excited in terms of your own development? And then just quickly, Corrado, on the guidance. So the midterm guidance around EBITDA, nice to see that sequential improvement. But would you expect EBIT margins to improve, so after accounting for D&A? And then is it fair when I look at the top line guidance, when we just work out the math that we should expect something like 10% growth in 2027, if you hit the midpoint.

And thank you, Graham, for the question. Just to make sure I address your first question on the Knee correctly, which are the launches you would like me to comment about and to position our Knee versus our competitors? Just to make sure we have seen the same thing.

So there's a couple of things from Stryker here, and we're seeing a new platform from Smith & Nephew. So as with the landmark piece, is one that's a little interesting. It's not -- it doesn't look to be quite the same as what you guys have. It looks slightly different and maybe not as much functionality. But just to get a sense of how far you think the gap is between what you guys currently offer and where the competition is? And also generally, what are you working on next because you have led the way.

Yes. So if we talk about Stryker, they have been presenting the last academy a couple of weeks ago, an expansion of their portfolio, which brings them in par with what Zimmer and DePuy, and Smith & Nephew already did 3, 4 years ago with their medial congruent insert. That is what they are about to launch and frankly, it was about time, because they were the last, let's say, to join the club of the medial constrained liners, which are still quite a bit different compared to our first-generation Ball-in-Socket design, which was Sphere and still a generation behind compared to SpheriKA which has been further adapted in its shape of the patellofemoral joint. So some elements of the components of the design, which have been clearly adapted to kinematic alignment. So at the moment, we know they are starting to work on -- and they understand that they need to redesign their knees. And I believe this will give us at least another 3 to 4 years, especially in Europe even longer of a window where we think we can definitely show how our different design is superior. So talking about the future, we are working on our future generation of products as well across Knee portfolio, technology portfolio, Hip portfolio, and we definitely look forward to come out with the next improvement, hopefully, when our competitors will try to catch up in 3, 4 years. But as we all know, innovation is a very dynamic definition. If you stop to innovate, you become a commodity and an older product relatively soon. So we cannot stay still and we are already very, very active in developing the next generation. I hope I addressed your question, and I would then leave the floor to Corrado.

Yes. Yes, sure. So let's speak a bit about the midterm guidance. So we wanted to update both top line, of course, and the EBITDA margin. I will start from the top line again. As you know, we have done 18.5% in 2025, which means that we have also guided for 2026, 10%, 14%. So let's say, the following scenarios. If we say that we perform 10% in 2026 and 10% in 2027, then the midterm would result into something in the region of 12% in the 3-year plan, in the 3 period. If we perform 14% in 2027 and 14%, high end of the guidance in 2027, then you will finish to 15% more or less. So that's why we updated the range in the way we have said before. So basically, I believe that something in the region between, say, 12% and 15% is what we really expect based on the results and the guidance on 2026. Speaking about the EBITDA margin expansion. If you remember, we guided in 2024 to be stable at 2024 EBITDA margin. Then last year, we updated the guidance. We increased this to 28%, which was already an expansion. Now based on this year, very good performance, we decided to update and guide again to further expansion in the coming years because there is, let's say, more or less 0.5 point coming in 2026 and something similar in the region of 0.5 point again in 2027. So what we could see is an expansion of this size between 2026 and 2027. We didn't want to give a precise number because we believe that in this case, the constant currency is difficult to apply because we are basing our calculations on 2024 currency rates, which we understand is difficult for you to follow. That's why we guided as a gradual expansion in 2026 and '27.

Just -- it was very clear on the revenue, so that's super helpful. Just on the margin, what I meant was more -- it totally makes sense that EBITDA margins expand, but EBIT, so after you account for the cost of depreciation and amortization, would you expect EBIT margins to expand as well?

I would keep something similar in terms of expansion. So more or less, the same expansion of the EBITDA margin, you could use the some expansion for the EBIT margin. More or less, we believe that the D&A should stay more or less in line with this year over the next years. So that's why I believe that the EBIT expansion should be aligned with the EBITDA margin expansion.

[Operator Instructions] The next question is a follow-up from Ed Hall of Stifel.

It was just a question on this year's guidance of 10% to 14% in constant currency. If I do the math on last year's absolute revenue that you added on a constant currency level, it was around EUR 100 million to EUR 110 million. Now if we look at this guidance for this year, the absolute number added, is a bit of a step change down. So I was curious as to what are the reasons for that? Is there a layer of conservatism in there? Is there product launches from competitors that you're taking into account? Or is there something that I am missing on that analysis? Any clarity there would be amazing.

I think that to give for granted that every year, you can add EUR 100 million just because you did it the previous year. It's a little bit simplistic. So as I said, we do have really to find and to feed sales force expansion, and that's a constant effort. So it's always a challenge to find those people at the speed we want. We think that 10% to 14% remains very challenging. We do not expect, frankly, the market to continue to be that strong. We have seen some markets as well with some price reduction that has been announced in France, in Belgium, in Japan. So you have to consider that as well. So there are some elements that call for a little bit of cautious. And I think 10%, 14% remains a very substantial growth rate, especially again, compared to the market and to our peers. Can we do better? I think it's very challenging to do better, but we have been positively surprised ourselves in the last 5 years. But I'm happy to be surprised by our performance every year, frankly. But this is a number that we think is solid. It's challenging. It's difficult. It's a battle every day to go and take market share. And we are ready to fight this battle, of course, but we don't give it for granted. So the past year performance is not predictive of the future year performance, as you well know. Sorry, Ed, just another point. There was an acquisition as well last year. So let's consider that as well when you look at the absolute numbers.

That was the last question. Gentlemen, back to you for any closing remarks you may have.

No, I would like, once again, to really thank our team across the globe, our customers, suppliers and partners because it's always tough to grow at this pace, and we try to do it in a very diligent way, which is even tougher. So congratulations to all our team members worldwide and a big thank you for all our customers and suppliers. Thanks a lot. Thank you for your attention and speak to you soon.

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