Medical Developments International Limited (MVP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Medical Developments International FY '26 Full Year Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Brent MacGregor, CEO. Please go ahead.

Thank you very much. Good morning, everyone. Welcome to today's investor briefing for our FY '26 full year results. I am Brent MacGregor, I'm the CEO, and I'm joined today by Anita James, our Chief Financial Officer. So today, I'm going to share with you an overview of our results and the company's key achievements in the year and take you through our priorities for FY '27. Anita will speak to the financials in more detail, after which I will give some closing remarks. And then as usual, we'll have plenty of time for questions at the end of the presentation. So on that note, why don't we jump to Slide 4, and I'll walk you through the key messages we want to convey today. So in short, our strategy to grow Penthrox, it continues to gain momentum. And as evidenced by our results in FY '26, where we made some great progress. We delivered a solid financial performance with very strong cash flow generation and earnings in both our Pain Management and Penthrox and in our respiratory segments were materially improved. And in that regard, free cash flow landed at $4.2 million. So Penthrox in-market demand, it continues to grow, and it continues to grow across all of our jurisdictions. But we achieved some really significant milestones in FY '26. A significant one in Europe was achieving the approval for the expansion of the Penthrox indication to children from 6 years of age, where it was prior, it was 18 years of age. The most recent approval was the second biggest market for us, which was the U.K., and that came in June. And speaking of which our partners in the U.K. and in the other European markets have now launched their commercial plans to unlock growth in what is now a broader addressable market. So we are delighted by this approval, which frankly has been some years in the making. Now in Australia, we completed a health economic study. It's been mentioned before, and I hasten to add, it was published yesterday. And it demonstrates that Penthrox use in hospital emergency departments enables a whole of department cost and operational saving compared to the standard of care. And this is important data that will support our commercial value proposition going forward. And we expect this momentum to continue with higher Penthrox demand in the year ahead. Now, if we move to Slide 5, this is the usual slide, which is meant to show -- give us the headline results for the year. And what are those results? We landed our group revenue at $42.6 million, which was a growth over prior year of 9%. And this was driven by a strong performance in the pain management side, which was up 21%. Frankly, this more than offset the impact of what was ultimately soft demand in our Respiratory segment, where the revenues were down 15%. Having said all that, EBIT and NPAT were both improved. And a particular note, as I mentioned, was the free cash flow, which at $4.2 million was $5.8 million higher than FY '25. So this is a strong result for the year that has ultimately increased our cash balances to over $21 million. Now we move to Slide 6. And Slide 6 is meant to walk you through the strategy milestones that we achieved during the year. So as you know, our key priority is to accelerate volume growth for Penthrox while continuing to improve our margins. So we're really proud of the progress we made in FY '26 on several big initiatives that we expect to support increased adoption in our Penthrox business going forward. Now this included a few things. The pediatric label expansion, I mentioned that earlier, which broadens the addressable market and strengthens the platform for future growth in Europe. The publication of the pediatric study data, we were always calling that MAGPIE. That is what supported the label expansion. This publication strengthens our clinical evidence and our pediatric positioning. The health economic study that I just demonstrating the cost and operational savings of Penthrox in a hospital ED setting, which supports the broader value proposition. Again, that's the publication that just came out yesterday. And we continue with real-world evidence generation, including several studies assessing the benefits of Penthrox in the emergency setting. Lastly, I would add the extension of the PBS eligibility here in Australia for eligibility for Penthrox to nurse practitioners. That was to physicians. Now it includes nurse practitioners. So this is all in addition to the ongoing efforts of our commercial and medical teams who continue to work ceaselessly to strengthen clinical engagement and to support increased adoption. And part of this effort includes representation at key scientific congresses throughout the year like the Australasian College for Emergency Medicine, the Council for Ambulance Authorities and the Australian College of Nurse Practitioners to name a few. Now look, we've said this before, and I'll say it again, we recognize that changing long-held behaviors in favor of a well-regarded product like Penthrox. It's taken time and it takes targeted effort. And so when I look at that and against that backdrop and looking back at FY '26, I'm really encouraged by the progress we're making. Now in terms of margins, we implemented several targeted initiatives here as well. So in July last year, we increased Penthrox pricing in Australia to those customers that had not received a price increase in FY '25. And this delivered a $1 million benefit to our earnings for the year. Now in other markets, we continue to implement pricing strategies that enable us to have a routine pass-through of inflationary movements as the opportunities arise. We can't do it everywhere, but where we can, we do it. In Europe, we finalized our transition of supply in France and in Switzerland to new partners. So just a reminder, our partner in France is Ethypharm. Our partner in Switzerland is Labatec. And both those partners made encouraging progress in in-market sales since taking on the marketing and sales of Penthrox in FY '26. Now having said that, while our margins in these countries are now lower insofar as we now go through partners, this transition is enabling us to reduce our cost to serve those markets and is expected to accelerate product penetration in those markets over time. Finally, from a margin perspective, pricing in our U.S. respiratory business was increased, and this was done to help mitigate the impact of the tariff regime that was affecting our business there. Now speaking of the respiratory business, as I mentioned at the start, the year was not without challenge. Our business faced a number of market headwinds resulting in softer demand, particularly in the U.S. But despite all of that backdrop, we have reported higher earnings in this segment versus prior year. So overall, a strong year that has yielded very encouraging progress in our strategy and our overall business. Now on that note, let me move to Slide 7. These are our priorities for FY '27. Firstly, we're going to continue to work on initiatives to accelerate penetration of Penthrox in our existing markets. Now this includes, of course, working with our partners to help unlock value from the pediatric label in Europe, leveraging the health economic analysis to drive faster adoption through our commercial strategies and continuing to work on generating real-world evidence. Now this growing bank of evidence will be critical to influencing that behavioral change and product adoption that I've mentioned before. Now secondly, we're going to start to work on strategies to grow Penthrox in new markets and segments. Now with several key milestones achieved in FY '26, we believe we have the capacity and the confidence to push our boundaries further in FY '27. So our ambitions now turn to disciplined growth in new markets and segments, and I'll provide a little further color on the following slide. And then finally, maybe it goes without saying, but we say it anyway, we're going to continue to work to enhance margins and deliver operational efficiencies over the year. Okay. So let's go to Slide 8, and this is a bit more of a drill down on those priorities I was mentioning. So as I mentioned, we're going to continue our efforts to accelerate Penthrox growth globally. And this is going to include a few things. We're going to look at targeted entry into select new markets with a primary focus in Europe initially. We're going to do an evaluation of the potential to further expand the indication in Europe to procedures. just expanded the indication to pediatric age. We're going to look at further expanding into procedural setting. And then we're going to do an initial assessment of growth potential in regions outside of Europe. So our learnings and our experience, the real-world evidence and data generated -- it has applicability in all global markets, particularly in the hospital segment. What we have seen is there's relatively speaking, a common adoption rationale for Penthrox in hospitals globally and particularly when supported by a pediatric indication, which we now have. Now to deliver value from geographic expansion, that requires a few things, very thoughtful market selection, identification, of course, of an ideal partner and a go-to-market strategy with that partner that is deemed to be efficient and timely. Now we have existing regulatory approvals in select markets, the decentralized procedure, the DCP framework in Europe, established partnerships. And through all of that backdrop, that may offer efficient market entry and potentially accelerated penetration when we determine those markets that we want to pursue. Now while opportunities that can leverage our existing platform and relationships will be prioritized, as I mentioned, evaluation of new market expansion opportunities and new partnerships will remain a focus. So we're going to keep you updated on progress in the year ahead. So on that note, let me hand over to Anita, and she's going to walk you through our results of the past year in more detail. Anita?

Thank you, Brent, and good morning, everyone. The results we've released today reflect good momentum in our Penthrox strategy. The financial results are pleasing. Despite some headwinds in our Respiratory segment, we have reported improvements in most metrics. On our top line, we delivered 9% growth with revenue at $42.6 million. Pain Management was up 21%, mitigating the impact of lower revenues in the Respiratory segment, which was down 15%. Overhead cost management was strong. While we had some adverse impact from FX, EBIT and NPAT were both improved on the prior year. Moving ahead to Slide 11 and our Pain Management segment. Revenue for this segment was up 21% with higher volumes and improved pricing in Australia. In Europe, revenue was up 12% to $9 million. This included growth in in-market volumes of 18% a timing benefit of $1.2 million relating to partner stocking in the period, offset by lower transfer prices in France and Switzerland following transition from direct supply. End market volumes were higher in every market. Volume in the U.K. and Ireland was up 20%, France was up 11% and the Nordic region was up 19%. In Australia, revenue was up 16% to $17.9 million. Volume was stronger, up 9%, with the hospital segment up 28% and the ambulance segment modestly improved. The Victorian government's decision to make Penthrox free for IUD procedures within its women's health hubs also positively impacted demand. Average selling prices in Australia were improved with the pass-through of FY '25 PBS pricing to the remainder of the market, delivering a $1 million benefit to revenue and earnings. In Rest of World markets, revenue was up strongly at $4.1 million. This included higher underlying demand of 13% and a favorable timing benefit of $1.1 million from changes in partner stock holdings. Segment EBIT was strongly improved at $9.4 million, reflecting net volume and pricing benefits and disciplined cost management. Overall, a very pleasing result. Our Respiratory segment on Slide 12 had a challenging year. Revenues here were down 15% with the benefit of higher pricing in the U.S. more than offset by softer demand in most markets. Pleasingly, we were able to respond to softer demand and adjust our costs and stock levels accordingly. This, plus a refund of U.S. tariffs lifted earnings higher than the prior year, which was a great result. Moving now to Slide 13 and the key changes to EBIT in the year. The strong contribution to earnings of our Penthrox strategy is clear on the chart. Higher in-market demand for Penthrox in all markets delivered an improvement to earnings of $1.8 million. This was the benefit from underlying growth in use of Penthrox. In the year, we also received a benefit from an increase in partner stock holdings. While this resulted in a $1.1 million benefit to earnings in FY '26, it is unlikely to repeat in FY '27. Higher average Penthrox pricing, mostly in Australia improved earnings by $1.1 million. Offsetting these benefits was the impact of lower transfer prices in Europe following transition to partner supply of $1.4 million and the impact of lower demand in our Respiratory segment of $500,000. Other cost and revenue changes increased earnings by $700,000. This included the refund of U.S. tariffs of around $400,000, reduced commercial investment in the U.S. respiratory business and lower amortization, which more than offset higher investment on Penthrox commercial initiatives and inflationary impacts. The net change in foreign exchange gains and losses in the period was $2.5 million. We had a loss of $0.9 million in FY '26 compared to a gain of $1.6 million in the prior year. Excluding the FX in both years, EBIT was improved $2.8 million, a great result. Moving now to Slide 14 and cash. We are very proud to report free cash flow for FY '26 of $4.2 million, $5.8 million improved on the prior year. Operating cash flow was strong at $5.8 million, up from a breakeven result in the prior year. This included an improvement in our underlying cash earnings of around $1 million and favorable changes in working capital of $5.2 million. This included a reduction in working capital of $2.2 million in FY '26 compared to an increase of $3 million in the prior year. The reduction in working capital in FY '26 relates to timing of sales to our international partners and a reduction in inventory needs in our Respiratory segment due to softer demand. Our working capital metrics are strong and are where we expect them to be. So we do not expect a similar improvement in working capital to benefit cash flow in the year ahead. CapEx in the year was slightly lower and cash at the end of the period was $21.4 million. Disciplined financial management and improved operational performance over the last 2 years has strengthened our balance sheet. With confidence in the underlying business and greater understanding of our growth opportunities, the company is assessing a range of capital management alternatives to maximize long-term shareholder value. This will include investments in our manufacturing facilities to support our growth ambitions in addition to the expansion opportunities that Brent has spoken to. That concludes my comments on the financials. I will now hand over to Brent to close.

Thanks, Anita. So we move to the final slide, Slide 15. So just to conclude, once again, we're proud of our progress in FY '26. We delivered a solid, strong financial performance, and we've made meaningful progress in our strategy. And this progress provides a strong foundation for future growth. So looking ahead, accelerating Penthrox adoption remains key. So in FY '27, we expect higher end market demand for Penthrox, certainly supported by the pediatric indication in Europe as well as the recently published health economic data that I mentioned. We intend to see stable demand in the respiratory segment in FY '27. At the same time, we're going to have a nonrecurrence of Penthrox inventory stocking benefits that we reported that occurred in the first quarter of FY '26. We're also going to have in FY '27 an amortization expense of approximately $1 million, and that's related to the capitalized registration costs for the European pediatric indication. I think the last point I would make as well, the impact to earnings of Middle East supply chain disruption on one hand, U.S. tariffs on the other remains a level of uncertainty for us. And needless to say, we are going to continue to be monitoring both of those aspects as we go through the year. So that's the close. I want to thank you all for coming on the call today. Now let's open the floor for questions.

[Operator Instructions] Your first question comes from Michael Hollewand from Hollewand Consulting Associates who asks, given the publication of the health economic study in Australia, are any researchers in Europe expressing interest in testing the findings in a UKI or French -- France setting to see if the economics translate to that setting?

Yes, it's a good question. We certainly anticipate this is what can follow on when we talk about real-world evidence generation. So the quick answer is, at this point, we don't have that expression of interest yet. By the same token, our partners are well aware of the study. Our partners are being provided with the study. Sorry, I just lost the question on the screen. Our partners are being provided with the study, and we anticipate and expect that there will be further real-world evidence generation that will occur in those markets. The last point I'll make on that question, though, is we intend in FY '27 to generate real-world evidence here in Australia to continue the trajectory of that study. So the study has been completed. As you'll know, when you see it, very credible, very highly reputable authors of the study as well. And we intend to pull that through and to partner with hospitals here in Australia to translate those study results into real-world evidence here, too. So in addition to working with our partners to generate that interest there, we are moving forward with generating that real-world evidence here.

Michael also asks, you don't break out Australian Penthrox volumes between paramedicine and hospital setting, but can you give some indication of the hospital volumes just so we can understand the significance of the volume growth rate?

Yes. Look, the hospital growth has come from a small base because, as you know, the majority of Penthrox usage in Australia has historically been the ambulance services, and it continues to be that. And so we continue to work closely with all the ambulance services to ensure a continuing support on the manner by which they use Penthrox and have these Penthrox for a number of years. The hospital setting, we grew to 48,000 units in the hospital setting in FY '26. So that's what the growth rate was predicated on. So it is a smaller -- from a smaller base, but we're very pleased with the growth rate that we generated in the hospital setting, and we intend to continue on that trajectory going forward.

The next question comes from Andrew Tan from Bell Potter, who asks, what are the possible initiatives under consideration for capital management? Is there a view on what proportion of the $21.4 million of net cash is surplus to your requirements?

Yes, Andrew, I'll take that one. Good question. Really, in order of priority, we obviously need to invest in the business and our manufacturing capacity, particularly to support our growth ambitions. So that's priority #1. Number two is the growth opportunities that Brent spoke to, which includes both geographic expansion and the indication expansion opportunity in Europe, both of which may require capital, and they are continuing to be assessed. Within the geographic remit, obviously, there is the U.S. remains there for the company. I will hasten to add, though, that our focus is very much on, on closer and less risky expansion opportunities, but reassessing the U.S. at the appropriate time is obviously something the company will look to do. Outside of that, and once we've assessed that, if there is capital surplus to requirements, we'll obviously look at whether that's appropriate to return to shareholders if that delivers the greatest value.

Your next question comes from Matthew Cook from Cashbook and Journal who asks, can you please provide a breakdown of the costs that are included in the other overhead segment and explain the large increase year-on-year. Given the significant size of this cost base relative to segment operating earnings, has the company given consideration to realizing this value by selling the business to a third party who could take advantage of synergies by eliminating these overheads?