Medartis Holding AG (MED) Earnings Call Transcript & Summary

Good morning or evening, ladies and gentlemen, and welcome to this audio webcast on the Medartis 2021 Full Year Results. We appreciate that you have taken the time to dial in despite the turbulent markets, but we believe we have exciting news to present. I'm joined by our CEO, Christoph Bronnimann; and our CFO, Dirk Kirsten. We will use the presentation slide deck, which was published this morning on our website together with our press release and our annual report. In particular, I would like to draw your attention to the disclaimer on Slide 2, which also applies to forward-looking statements made in this webcast. On the following slide, you can see today's agenda. At the end of the presentation, we look forward to answering all your questions. And with this, I would like to hand over to Christoph for his opening remarks and the key highlights of 2021.

Good morning, ladies and gentlemen. Thank you very much for joining us this morning for the full year 2021 results presentation. I'm very delighted to report that our top line, our sales, has amounted to CHF 159.9 million, where we have been able to maintain the strong growth momentum of the first half throughout the entire year despite a COVID-related slowdown at the very end of last year. The revenue growth amounted to 24.8 percentage points, which is on the basis of constant exchange rates versus prior year. All regions have significantly contributed and grew more than 20%, especially EMEA contributed almost half of the total growth, and the Latin American region was the fastest growing at 47%. Our EBITDA margin was 17.2%, which was driven by the gross margin expansion and OpEx leverage, and both the sales and profitability exceeded internal expectations and our guidance. Our headcount rose by 7.5% versus prior year to a total end-year of 684, where we have mainly added new jobs in the sales but also in the development, innovation and department. The second half of 2021, we reported CHF 84.4 million sales, a further acceleration versus the H1 of 2021, where we have reported CHF 75.5 million of sales. So, we were able to continue the momentum, the strong momentum that we have started last year despite a higher comparison basis of 15 percentage points in the second half of last year. The full year performance was contributed and driven by all the regions and all the business units. The EMEA region growing at 21.5%; the U.S., especially, maintained the momentum and grew at 28.9%; LatAm, I already mentioned, at 47%; and also Asia Pacific maintained 21.6% despite the lockdown mainly in the second half year of Australia. Our strongest business segment, the upper extremities, grew at 22%; lower extremities at 28%; and CMF with 35%, exceeded our expectations. In the second half of last year, we have started to expand the sales force in the U.S. significantly with investments in direct reps, but also onboarding indirect and distributorship and invested and continue to invest in training and education. The KeriMedical portfolio, which was launched in the U.K., Germany and Austria last year, has already contributed significantly to the growth and business development in our strongest segments in hand and wrist, and especially the strong performance by the Touch prosthesis, which is for the treatment of the CMC osteoarthritis, has exceeded our expectations in numbers of customers that we have been able to convert and gain with this new prosthesis. We have also started our culture journey, which is what we believe the foundation of a high-performance culture and secure our success in the medium to long term. The average surgical case load was slightly above 90% despite the slowdown towards the very end of the year, and we continue to assume that we will see a normalization of the caseloads in the coming months. This morning, we have also announced the acquisition of Nextremity Solutions, which is an important acquisition for us. Nextremity Solution is a privately held R&D and manufacturing company, which is based in Warsaw, Indiana. NSI is a great strategic and also cultural fit to Medartis, and we are now combining our sales organization with a highly-reputed R&D and manufacturing company, which is specialized in the extremities. This acquisition provides a significant growth opportunities, and this is why we believe it is an acquisition as a catalyst for our U.S. business, and in the second step also for the worldwide markets. Let me explain why we believe it provides access, it is a catalyst for our business. It provides access through a highly dedicated and experienced R&D team in the space of extremities, with strong relationships to U.S. design surgeons and industry thought leaders, a complementary product pipeline complementary to the plates and screws portfolio that we already have. It gives us access to IP portfolio and Nextremity has a proven track record with more than 120 patents, a vast product knowledge and [Technical difficulty] expandable production base, which allows us to accommodate future -- capacity for future growth. It will allow us to accelerate the U.S. business, especially in the fast-growing lower extremities, will establish the R&D center, and allow us to broaden our portfolio, especially in the lower, but later also in the upper extremities, and it will also allow us to address the local U.S. market needs. The addition of Nextremity will also have an impact on our headcount. We will add 87 new employees through Nextremity Solution, which will bring our total up to 771 employees right now. With those opening comments, I would like to hand it over to Dick Kirsten, our CFO, for the financial and business review.

Thank you, Christoph, and Good morning, everybody, also from my side. Let me quickly lead you through our top line development as well as the P&L for the year 2021. As Christoph has mentioned, we have grown strongly in all regions. EMEA, where we have a strong market position, grew 22% at CER; Asia, the same level; Latin America grew massively with 47% versus a weak 2020; and we are specifically proud that the U.S. is growing almost 30% and that our dedicated growth strategy and related investments are bearing its first fruits. In EMEA, all big 3 countries, Germany, France and the U.K., grew strongly, especially after the normalization of the pandemic in summer 2021. Germany and also Austria have additionally benefited from the launch of KeriMedical products in the hand and wrist business. Our newly-built subsidiary in Spain was successfully launched and shows promising run rates towards the end of the year. We also saw good growth for most EMEA distributor markets. In the U.S., we achieved almost CHF 31 million, which is about 29% up versus prior year. This growth was in line with our expectations. Our U.S. organization has further strengthened its team and also launched the U.S. IBRA Chapter. We are converting and growing customers with our own sales force, but also with so-called independent distributors. If you include their manpower as well, more than 160 extremity experts are now selling Medartis' products across the U.S. We will continue to increase this number, especially in the context of the announced NSI acquisition. APAC was difficult in H2, but generated year-on-year growth of about 22%. Medartis' largest regional market, Australia, was heavily affected by the pandemic during the entire second half of '21. We observed the situation very carefully now. As business activities are starting again, we are confident that our very experienced and strong team can accelerate run rate significantly again during 2022. Japan had a good finish in H2 after being affected by COVID in H1. The combined direct and indirect business grew more than 35% year-on-year. China is still small in absolute levels and thus contributes only little to the overall regional sales, and our distributor market showed good growth through the entire region. The region with the largest year-on-year growth was LatAm, mainly driven by Brazil. As you may remember, this region has been heavily affected by the pandemic in the year before. However, after vaccination rates increased and business activities recovered, our team was able to materialize significant growth in H2, which leads to overall growth of 47% at CER for the full year. Also let me make a couple of remarks on segment growth. Our largest business is with about 70% still the upper extremity business. This will change, especially in the U.S. after the announced NSI acquisition. We will specifically strengthen our foot and ankle business, which is a more elective business than the trauma case-driven upper extremity business. This is also reflected in the respective growth rates for '21; upper extremities grew 22%, lower extremities grew about 28% and our CMF business even grew 36% after we've introduced our Modus 2 new generation in various countries. In this segment, we've also systematically launched our CMX digital services, which are allowing very reliable treatment planning and surgical outcome. Now moving to P&L, a couple of points here as well. Starting with gross margin on Page 14. We were able to increase it, although our product mix has slightly dilutive impact. When we say more lower extremities, CMF or Keri, margins are lower than in other business segments. We can compensate this effect by growing faster in countries with above-average gross margins, such as the U.S. or Australia. However, due to the lower growth of Australia in H2, the so-called country mix effect did not fully make up for the negative product mix gross margin effect. The overall gross margin improvement was mainly driven by efficiency gains in our production. For the full year '21, we show a margin of almost 84%. Moving to Page 15 of our presentation on the cost side, the operating leverage, which is expressed by the OpEx to sales ratio, has started to improve our margin. While after the pandemic, we have significantly increased our customer activities again, as a percentage of sales, our costs have been slightly decreased. G&A has increased in absolute terms after including some larger projects, such as the MDR implementation, the creation of a European logistic hub and related IT and logistic costs. Also the launch of the Spanish subsidiary has led to some cost increases in this line. R&D includes also spending for IBRA, for which we launched a new U.S. chapter. It furthermore reflects the full development pipeline with various product launches to come in the future. In our sales and marketing figures, we included also about CHF 5 million of commissions to distributors, which have been formally deducted from gross sales. We have reviewed this together with our auditors during 2021 and agreed to move these costs from discounts into OpEx. This reclassification increases the OpEx sales ratio technically for about 280 basis points. We will further improve our underlying OpEx efficiency continuously. Coming to EBITDA margin on Page 16, this has now improved to 17.2%. Our slide shows that the impact from the above mentioned reclassification of commissions. On a like-for-like basis, the EBITDA margin was circa 15% in 2020, and it has now been improved about 230 basis points through 2021. The maybe surprising FX support came from a temporary rise of the U.S. dollar from [ 0.88 towards 0.94 ] in H1 '21. This is where we generated the largest sales growth on a year-on-year basis. The euro weakening only started in October-November '21, but it is expected to have an impact on margins in '22, especially if the Ukraine crisis will remain longer. On Page 70 -- 17, sorry, you see that our net profit increased from a small loss in 2020 towards about CHF 7 million profit in '21. The improvement comes mainly from operating performance, while at the same time, an improvement of the financial result was compensated by tax expenses after tax income in 2020. My last page summarizes our solid cash position. Our operating cash return ratio increased to 13% in '21. We have continued to invest in implants and instrument sets in all of our growth markets. This is to fuel further growth. As you can see, cash was unchanged versus prior year and reflects 28% of our total balance sheet. This also gives us high strategic flexibility for acquisitions such as the today-announced NSI transaction or any future acquisitions to come. Now with that, let me hand back to Christoph again.

Thank you, Dirk. Let me comment on our strategy and the key priorities going forward for this year. Our strategy remains unchanged. We are playing in a fast-growing extremities market, which is still very attractive, which is mainly driven also by favorable demographics. Our key priorities for '22 remain very consistent: focus on the U.S. business, especially in light of the NSI acquisition, take the U.S. business to the next level; second priority, continue to accelerate and broaden our innovation pipeline in terms of technology, but also geography; and the third priority, evolving our corporate culture, as culture will play a foundational effect on our mid- to long-term success. On the U.S. market, there are 2 focus areas. First one is the expansion of the existing business, and the second one is start with the integration and the preparation for the launch of the pipeline of NSI. On the existing business expansion, we have initiated a significant sales force expansion in the second half of last year, where we are planning to double the sales force by the end of this year and then also continue to expand until tripling in the year 2024. This also, of course, comes with the anticipated and planned launches of key technologies acquired by NSI. We also continued to invest in training and education, especially the IBRA Chapter, which is now established in the U.S., we continue to onboard new faculties and also using KOLs, local and also on the global level in clinical research and technology validation. We will continue to invest in training/education and also in additional IBRA course offerings in the U.S. but also on a worldwide basis. The second focus points for the U.S. team is the integration of NSI/product development. The R&D center will be integrated and will be an additional center in addition to our Basel R&D center with the core competency on plates and screws. We see significant synergies between the NSI R&D and the Basel R&D centers, especially getting access to key technologies in the lower extremity that will play a significant role in the growth opportunities. We are happy that we will be able to leverage the strength of 2 dedicated and innovation-driven companies going forward in the extremities market. Let me comment further why we see an acceleration of the U.S. growth through the acquisition of Nextremity. There is 5 reasons to it. First one, Nextremity strengthens our U.S. business through an experienced team with strong relationship to U.S. key opinion leaders and also design surgeons, and there is a strong cultural fit between both companies. We gain access to product pipeline, which is highly complementary to the plates and screws portfolio of Medartis, and it also includes key technologies that fill a gap in our lower extremity portfolio. With the launch of those technologies, we believe we will add an additional sales potential of around CHF 150 million 5 years after launch, which will be in the year 2028. It also provides cross-selling opportunities. Giving surgeons a choice between plates and screws and other technologies for indications, it expands the indications that we can cover, and it also provides a potential to launch those technologies in a second stage in a worldwide market. And last but not least, with the U.S. manufacturing site, which is in the size of 6,500 square meters at brand new facility, we will have access to sufficient capacity to accommodate future growth. If we compare both companies, Medartis and Nextremity Solutions side-by-side, you will see how complementary both companies are. While Medartis has a reach in 50 countries on an international basis, Nextremity Solution is dedicated to the U.S. market where we see the biggest growth opportunity. There are a dedicated development and commercialization organization with a focus and a huge experience in extremities. Nextremity Solutions does not have any sales, so we can ideally combine their R&D and manufacturing site with our sales organization. This is also why we continue to expand and have decided to accelerate the expansion of our sales force. The DNA of both companies is very similar. Medartis is a technology and innovation-driven company dedicated to the extremities with strong surgeon relationships outside of the U.S., while an extremity solution brings not only a track record of new technology development, but also a huge network of design surgeons and key opinion leaders and has more than 300 years of industry experience in the R&D in trauma to build on. In product development, we will gain access to more than 120 patents. And with a new R&D center now in Warsaw, we will be able to address U.S.-specific market needs, but we will also be able to leverage the technology competence that we have here in Basel with Warsaw, and then the third step, even with the competence that we gain access to with the minority investment in KeriMedical last year in Geneva. Also manufacturing, I mentioned, we'll now have sufficient capacity to accommodate for future growth. Let me quickly give you an overview of why we see such a big opportunity, especially in the lower extremity market in the U.S. The U.S. extremity market covers about 50% to 60% of the global market. So, we're looking into about a roughly $2 billion U.S. foot and ankle market. Medartis has been strong from a portfolio perspective in the fracture fixation, which is the lowest segment with plates and screws. The hallux valgus and bunions are sometimes treated also with our screws and plates, but Nextremity technologies will give us now access to a much larger part of the hallux valgus market and also of the flatfoot, PCFD and hammertoe market. So, those are the 3 main indications where we'll be targeting our portfolio in the lower extremities. So, with those comments, I would like to hand back to Dirk to give you more details on the transaction.

Thank you, Christoph. So, first of all, let me summarize the transaction terms. The total purchase consideration for NSI is up to $70 million. However, only $40 million will be paid upfront, the remaining $30 million are subject to timely delivery of product launches and the achievement of top line targets until 2025. For key employees and top management of NSI, we have structured equity incentive programs, which are partially linked to their ongoing employment with Medartis, but also partially linked to the achievement of top line according to a commonly agreed business plan. The structuring of the acquisition reduces the risk of overpaying for acquisitions of new technologies, but it gives also an attractive upside to the shareholders of NSI. The financial impacts of the acquisition can be summarized as follows: First of all, we expect substantial incremental sales to be generated from the new product launches. Our expectation is that from '28, about $150 million additional sales can be achieved on top of the strong growth which we anyway foresee to come from our already existing U.S. business. These product launches and resulting sales are planned for Q1 2023. NSI has a product development pipeline, which is ready to commercialize, already within the next 1 to 3 years. Following the acquisition, we have decided to further invest into our U.S. commercial platform. Next to sales and marketing, we will build up dedicated training education for lower extremities, but also invest into further product development, our infrastructure and supply chain and expand the existing manufacturing to support global growth. The acquisition itself and the mentioned investments will lead to a temporary margin dilution in the next few years. Afterwards, we are confident to return back to at least current margins or above, but on a clearly higher absolute level. The transaction is expected to be completed during H1 this year. It does not require any anti-trust or other approvals. We plan to integrate NSI into our existing Medartis processes and the infrastructure, for example, in IT or supply chain, and this is planned to be until the year-end. Management from both teams is highly synergetic and has complementary skills. We believe that the very entrepreneurial spirit of NSI will be a strong added value for our entire group, not only in R&D. Regarding financing, as mentioned before, as of 31st December, we carried CHF 82 million in our balance sheet, thus, we can fund the acquisition fully out of existing cash. Future milestone payments are in line with expected cash flow generation and additional external financing might be considered opportunistically also to remain high strategic flexibility for future transactions. Now with that, let me hand back to Christoph and the outlook for 2022.

Thank you, Dirk. For the full year guidance, in 2022, bearing any unforeseen circumstances, also, the timing of a full recovery from the pandemic is still uncertain in some geographies, we have seen a slowdown, but we will believe and we assume that those markets will come back to more normal business conditions in the coming months. Based on these assumptions and excluding the NSI acquisition and currency effects, Medartis anticipates organic sales growth at constant exchange rate of around 20% in '22, and an improvement of the underlying EBITDA margin of approximately 1 percentage point. The new NSI pipeline products are projected to generate annual sales of around CHF 150 million in 5 years after the initial launch. For 2022, the planned investments in connection with the NSI acquisition will temporarily reduce the EBITDA margin by 5 to 6 percentage points. After '22, profitability will improve. And from '25 onwards, the acquisition will be accretive in the company's profitability. Okay. With this, I would like to hand it over back to Fabian.

Thank you, Christoph, thank you, Dirk, for the presentation. This concludes our presentation. As customary, we will first answer the question from the phone bridge, and then hopefully seamlessly move to the questions in the webcast. To anonymously pose a question, please use the Q&A field in the lower-right corner. So, Sandra, operator, please, can we have the first question from the phone?

The first question comes from Dylan van Haaften from Bryan Garnier.

Congrats on beating on organic growth, very strong stuff. Just a question in terms of extremity. Could you help us understand, first, what the earnouts are based on? Second, if you believe your portfolio is, let's say, "complete" in the lower extremity segment? And then the third one, just help me understand in terms of if all the products will be launched in '23 and how the extremity cost base will evolve, let's say, over the next 2 years?

What was -- it was difficult to understand.

Yes. Dylan, your voice was a bit was low, a bit. So, I'll just repeat the questions, if I can. So, the earnouts, what are the earnouts of an extremity for the $40 million? What are they based upon? And then the second question is, if -- and Dylan, please correct me if I'm not giving you -- repeating not correctly, is the portfolio in lower extremity post an extremity now complete or is there still some gaps open? And the third question was on the products in '23, so if all coming at the same time, how the cost base will evolve?

That's perfect. Sorry.

Dylan, I'll take the one on the earnout. As I've said, we do pay $40 million upfront, and then the total combined milestone payment and earnout is $30 million. Now from that, the majority is linked to the timely delivery of product launches. So, what we've done together with NSI has agreed on a business plan with the milestones when the [ switch ] product will come, when it'll be launched, and if we can make that, they're getting a milestone payment for each of these launches, number one. On top of that, we're looking at sales and also the achievement of a commonly defined and agreed business plan. And hopefully, we'll be able to achieve the sales start, which we've defined in '25, and then this would also give them some additional upside. So, that would be the question on the earnout, hopefully.

Okay. On the completion of the portfolio, I think it closes significant gaps that we currently have, as we -- as our portfolio, as you remember, consists of plates and screws, which is mainly focused on the correction and fixation of bone osteotomies or fractures. Now, adding the technologies of NSI will broaden the indications, especially in the hallux valgus, in the flatfoot/hindfoot corrections, which will allow instrumentations and technology that simplify those procedures, increase the accuracy and the outcome for the patient, and also gives the surgeon a choice of treatment. So, with this acquisition, we broaden the number of indications that we can cover. But to be honest, complete, we will never be complete. There will always be an evolution in how indications are treated, how accuracy, especially, in osteotomies and revision is made, but it will give us a significant increase now in the indications that we can cover. On the launches, we will certainly not launch all the products at the same time. First of all, the launches will be scattered out through -- we will start in '23, and we are planning to launch the projects -- the key projects which are in the pipeline now, beginning '23 throughout the year, but it also will take into '24 and '25. So, it will be a scattered launch, because you also -- once you launch products, you also need to make sure that the sales force gets the education and the focus, so the dilution of the sales by launching too many products at the same time would be detrimental.

Excellent. That answers my questions on extremity. Just one more question on market trends. So, am I correct in asserting that trauma is more or less sort of back to normal in terms of case volumes, maybe more or less between sort of 5% of where we were in 2019 and there's still quite substantial pent-up demand in CMF? And could you maybe help me understand sort of how that compares to sort of 2019 pre-COVID? How much you're still feeling from COVID impact to your business, specifically the elective segment?

Well, I think overall caseload is estimated slightly above 90%, which is trauma. You're right, trauma is -- has to be treated. There is very little trauma cases delayed. I think what also plays into a reduction of the trauma cases, especially during the lockdown is the reduced mobility and leisure activities of the patients. So, this is why we have also seen a reduction in trauma cases overall. As lockdown measures has been lifted throughout the year, the caseload in trauma has been probably close to normal. The elective procedures are the ones that have been postponed or stopped or reduced twofold to reduce and maintain capacity in the ORs and in the nursing staff in the hospitals to treat COVID patients. And second, it was also reluctance of the patients to undergo nonessential elective surgery. I think those are 2 effects that we're overlaying. So, in the last year, we have not experienced a coordinated lockdown like in 2020. But as an example, Australia, which has been an enormous growth momentum until mid of last year of growing even above 40%, Australia has gone into a quasi lockdown beginning of July, August, which is basically still ongoing today. Now, all the elective procedures in Australia have been put on hold, they're now coming back on as we speak. In the middle of February, they have started. So, we will see and we expect the pent-up demand in electric procedures in Australia this year.

Operator, can we have the next question, please?

The next question comes from Daniel Jelovcan from Mirabaud.

Also 3 questions from my side. The first one is from NSI. So, it must be logical that we can expect an FDA approval later this year when you launch in Q1 2023, that's quite obvious, I guess. And in what area will that be? Will it already be a major launch in hallux valgus or bunions, or will it cover a smaller indication? Maybe I'll take just one after the other.

Thank you for your question. All products are 510(k) or require 510(k) approval, so there's a regulatory -- the normal regulatory pathway in the U.S. The first products are submitted and will receive FDA approval on time. And the first 2 launches will be key technologies in the area of hallux valgus, you're right, and the second one will be in the correction of flatfoot, mid and hindfoot corrections.

And are that launches, let's say, in the single-digit million potential, or how do we -- can we imagine that?

Any launch as an uptake, which normally you plan for about 2 to 3 years to get the momentum and to get the run rate to the levels which we expect. All in all, what we expect from the launches from NSI to deliver an additional CHF 150 million 5 years after launch. Starting in '23, ending in '28, there's an additional CHF 150 million expected from the NSI pipeline, which is now currently to be prepared for launch. But it's [indiscernible].

It's a hockey stick.

That's the other extreme. Hopefully, it goes fast and not just [indiscernible].

Understood. And the second question, it's quite an unusual setup of this NSI. I mean a young company, no sales, but already an own manufacturing setup, which is obviously good for you, but why have they chosen this setup? And also related to this, I mean, in the end, you saved some CapEx, I guess, to establish your U.S. operation, now you have it. So, how much CapEx actually did you saved kind of...?

Well, let me answer the following. It is a very good setup that fits perfectly to us as Medartis as it is very synergistically. So, we have the sales organization built with our portfolio. Now we get the fully dedicated R&D and manufacturing sites to it. So that basically allows us now to build a full-fledged medical device company in the largest U.S. orthopedic and extremity market. I think that was very -- that's very fortunate. Second, back to the roots of NSI. NSI has always been dedicated to extremities. They have a passion for innovating and delivering commercializable solutions. Their focus was on the pure innovation and development of system, which they have sold to the industry as like a third-party development suite or boutique, if you will. About a year ago, they have decided to do an integration and also add manufacturing and acquired Lakeland, which was a manufacturing site in Warsaw. And they're now offering, besides the development, also the manufacturing as a third-party manufacturer. So, that was the setup that we looked at. We came to the conclusion that not only the pipeline and the technologies are a great fit, but it always gives us an opportunity to build the second production site next to Basel or in addition to Basel. So, overall, you can also take into account, of course, that would we have to build a manufacturing site of our own, that would be probably in a very similar investment range as NSI now is.

Okay. And last question...

Daniel, can I just interrupt because there was also a question from -- on the webcast exactly on the same topic on CapEx. Can I just bring that in? Because it fits very well now here. Could you give us a sense how the CapEx will develop in the coming years, if possible?

Yes. I think we need to differentiate. When we talk about CapEx, there're 2 elements about CapEx. The one is what we put into manufacturing, which in the past, we've been extremely efficient here in Basel to develop that. And then what we also have in CapEx is what we call the set investments and the instruments. And in line with the growth, also opening new countries, coming up with new products, this CapEx has been the majority of our total CapEx. Now having said that, if you go back to Page, I think it was 19 in our presentation, that was about CHF 15 million, which we spent, you may want to take that as a percentage of growth, then also multiply that with whatever the growth expectation for the next years, and probably that gives you a good indication. When we talk about NSI and their manufacturing, however, for the coming product launches, we will need to expand. We will need to invest into further machines, into the infrastructure there. So, there will be also a little bit of CapEx to come. And we see this also impacting the gross margin for the next 2, 3 years before the gross margin can then even become stronger than what it is today. But we're also going here through a slight dip. Does that answer your question, Dani?

Yes. Excellent. And the small third question is, who was the owner? Just management, or was there private equity involved?

The owner was a group of surgeons who had founded the company some years ago then brought in a relatively broad number of investors from the industry being very close to management. Of course, management has also invested. So, we have about -- I would say about 60% to 70%, which are what I would call the founders, management and friends and family. And we also do have a couple of other investors, which I would more categorize as financial investors or retail investors who also own. Overall, the company has more than 140 shareholders. So, it's a quite diversified captive. But the company really was developed, founded and driven and really brought to where they are right now by the founders and by all the surgeons who saw the need for the products and wanted to support that.

Thank you, Dirk, for your answer. Can we have the next question from the telephone line, please?

The next question comes from Chris Gretler from Credit Suisse.

I also wanted to come back to this acquisition. So, I understand correctly, this is essentially a contract development and manufacturing company in orthopedic and extremities. So, basically, could you elaborate what is actually the current sales base? And if I look back, as you mentioned, there was work for the industry. So, how does this work now? Does this company get [ worthy ] for these [ paths ] to work? And how that is structured as well? And going forward, is there some commitments to other parties in the industry? I guess, this company has been having contract with other potential customers and done some development work for them. Could you maybe elaborate on this topic, please?

I'm happy to comment on the question. So, Nextremity has distribution agreement for some of the technologies, not all of them, some of the technologies that they have developed and sold to third parties. So, over time, we will certainly assure and hold up to the distribution agreements, which are in place. But over the midterm, we'll certainly strive to use the capacity for ourselves.

Chris, I'll add to that, because you asked specifically for that. It's a privately held company that's never announced any sales figures publicly, and that's the reason why we're also not doing this at this point of time. Sorry.

Yes, I understand, obviously. I mean, it looks like no product on the market, but still will have sales. So, it will be for us interesting to know what kind of sales assumption we have to put in. And on the cost base, can I just kind of proportionately kind of calculate cost per employee from your end and then kind of translate to Nextremity to get a sense about -- or is there something else to consider?

You mean cost savings? Did I understand that correctly?

No, the cost base, I mean the 87 people.

Well, a lot of the 87 people is in manufacturing and production. We do have a highly experienced R&D team. We have some other functions in regulatory QA and we have management there. So, I think Christoph said it before, this transaction is highly synergetic. We have a high interest to maintain these people or to even build up the team there. So, I wouldn't expect any cost savings or anything from the transaction...

I was talking about the cost base...

If you look at the -- say again.

I was talking about the cost base. How much -- what's the cost base of these 87 people?

We haven't disclosed that, Christoph.

That's why I'm asking, maybe you could disclose it in the form of this call maybe, but I understand you don't want to disclose it.

Christoph, I'll give you a hint. And the hint would be if you look at what the margin dilution, the expected margin dilution for 2022 will be, we said 550 to 600 basis points, something like this, and you calculate it with the overall sales expectation for 2022, you probably get to a number which is in the area of about CHF 10 million. That more than answers your question.

Yes. Actually, this brings me to another question. On the sales force expansion, you mentioned, I think, as part of your prepared comments, and I thought that's correctly that you are planning to double this and then to triple this by '24. And if I look at your slide -- sorry, this slide -- kind of the number of salespeople, I think that goes from 160 to 210...

It's on Slide 22.

Is that basically -- I know that's direct and indirect -- could you maybe just explain kind of these 2 comments and the slide.

Yes, we have a hybrid salesforce. That means we employ direct sales reps that we normally keep in high-value territories, which is more or less most of the time, it's urban regions in the U.S. and they complement the salesforce with independent distributors. And we had a total salesforce at the end of 2020 in the range of 100 to -- 80 to 100 sales reps, all in total direct and indirect. Now as we scale, it is much more economical and also faster to scale using independent distributors, especially as we build the lower extremities business, especially as we expand our upper extremities business. So, what we have started now is an acceleration adding independent distributors in the second half of last year, which we ended with roughly about 160 sales reps direct and indirect in combination end of last year. So, for this year, we will continue to add selected direct reps, but also independent distributors. So, that will bring us to roughly about 210. Now, we need to make sure we can train them, that we get the sets to them in the course of the year, so that we are prepared for the launches then beginning of '23. So, with the launches expected in addition to what we have in our pipeline through Nextremity, we will continue to expand the salesforce, with up to, what we believe, the right number would be as of today with about 300 reps by the end of '24. That is about the plan aligned with the launches through NSI.

Okay. I understand the tripling refer to 2020. Okay. And the other question is just around these products. Is there a technological advantage or what kind of is the, let's say, the unique selling point of these new products, you mentioned in hammertoe, flatfoot, et cetera, and hallux valgus in order to gain share? I guess there are some existing already product on the market. And so maybe if you could elaborate on that.

Certainly, there'll be implants, but it's also when I speak of technologies, it also includes the instrumentation. So, the approach, the view that we take is on the entire procedure. So, we want to give technology in the hands of the surgeons that he can make those procedures very repetitive and very efficient. So, those are procedures, especially in the lower extremities that are performed by podiatric surgeons, by orthopedic surgeons, and most of them are getting more and more into ASCs. So, the idea, the requirements there are highly efficient, standardized with a good outcome. That means by simplifying the procedure, by giving instrumentation that makes the procedure, especially in osteotomies, where you do a correction of the access and the rotation is repetitive and predictable that makes the difference at the end for the patient, for the outcome. So, the key is not only a plate or a screw or an intraosseous compression device to fix the bone, but also to give a simple-to-use instrumentation that allows the surgeon to make the correction exactly as he planned. And that's where we believe -- what we say, that's the differentiation, not only the implants, but also the instrumentation. That's why I'm speaking of key technologies.

Okay. I got it. And the implants are reasonably kind of dedicated to the instrument, and also I cannot use just some other implants within your instrument potentially?

No, that's exactly the compatibility. So, if you look at some of the instruments, they perfectly match with our plates and screws. For example, if you look at the Lapidus procedure, which is a correction for the treatment of hallux valgus, we already have a Lapidus plate, and we also have screws. So, that gives the surgeon the option to use screws-only or in combination with the plate. But some surgeons prefer to use a staple, for example, a nitinol staple or they may use an intraosseous compression device. So, those instrumentations are compatible. And besides the plates and screws, we're also getting product or implants that allow the same to achieve the same as by using plates and screws. So, this gives the surgeon not only a simplified, standardized procedure, but it also gives them a choice in the implants that he wants to use in order to hold that compression.

The next question comes from Edouard Riva from ZKB.

It would be mostly about net working capital. Remarked on the report that in particularly payables and receivables were multiplied by 2, but still kind of similar. Could you give a brush-up on an idea how will -- how this will evolve in the future?

A question for Dirk.

It's -- yes, I can take it. On the receivables side, we are happy to support the growth of some countries, especially in the new countries. You've heard we've invested a lot in the set and the investments there, also for instruments for getting the implants, especially also in the U.S. And it also means that we've supported it from accounts receivable perspective. Same thing, for example, in Latin America. Same thing also in some parts of Europe, especially also during the crisis in corona. So having said that, we're more looking at the credit quality of our receivables, which is outstanding good. Don't have any credit risk there, any material credit risk there. And we're happy to support some of the growth in the countries, especially in the young countries and the new countries also with putting working capital in it. It goes along with inventory, which is also sometimes kept locally. We've also implemented the European hub through the -- following the MDR. So that has increased a little bit the inventory level. Overall, we would keep it at the levels which we are as a percentage of sales. But for example, when we now launch a couple of new products, it also means that we have to increase our inventory levels again in the U.S. that will slightly have an increase on the overall working capital. It's a very balanced approach on the credit side looking at the receivables, which is a very good thing and then also on the inventory side. Does that answer your question?

Yes, indeed. And could you do a last mention of the payables as well?

Payables is very volatile. I wouldn't spend too much time on this one. It's also sometimes including tax payables, other payables to third parties. So, this number is a little bit volatile. It depends on when we buy into our inventory. So, I wouldn't pay too much attention into the volatility, which is, of course, that number. There's nothing specific in this number.

I think we have time for one more question.

Okay, sir. The last question for today's call is from Daniel Jelovcan from Mirabaud.

Yes. Sorry, again me. Just on NSI, is that also -- is there also a potential that you can leverage that to EMEA? Or is -- or the European surgeons have different philosophy?

Very good question, Daniel. Thank you. Yes, in the second step, we will globalize or bring those technologies in other markets as well. We will certainly have to get it through the regulatory pathway of MDR, that will take some time. There are some technologies which are probably more like for the U.S. market as they may have a different philosophy, but there are technologies that we certainly will globalize as well. Does that answer the question?

So, operator, if we don't have any questions, then we will -- is this the case, or is there anybody in the queue?

For now, no more questions, sir.

Perfect. We just reached a full hour. We would like to thank you very much for your excellent questions and your interest, of course. Before we terminate this webcast, let me draw your attention to our annual report on Slide 33, which contains our first-time sustainability chapter and our update on our vision and mission statement. Our upcoming investor events are listed on Page -- or Slide 34, and our AGM is due on April 6. We, of course, would like to see at one of these events. But, for now, I wish you a pleasant good day and goodbye.

Thank you very much for your time and dialing in. Have a great day.

Thank you.