Medistim ASA (MEDI) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Second Quarter and First Half 2025 Financial Results Presentations from Medistim. My name is Kari Krogstad, and as usual, I'm joined by my good colleague, CFO, Thomas Jakobsen. And together, we will take you through the results. And just before we dive into the highlights, we like to start by reminding everyone our track record. This is a great reminder of our goal and ambition, which has been and still is to deliver profitable and growth consistently over time. So we can see quarter variations, but our track record shows that we have succeeded to deliver on this promise over the years. But now let's look at the second quarter and the second quarter highlights. So I'm very happy and proud to being able to present the second best quarter both for sales and EBIT, and it's actually only beaten by the first quarter this year. So we're seeing revenue performance at NOK 169.1 million, which is 16.7% growth over the same quarter last year. And as this slide shows, there is only a slight currency effect here. So if you look at the currency-neutral sales development, the total sales is up 15.7%. And as always, we are extremely satisfied to see that it's our own products that are providing and really delivering this great growth. So own product sales, currency neutral, is up 18.2%. Looking closer at the regions, AMERICAS, as we can see, very, very strong performance this quarter, 32.9% currency-neutral growth. And AMERICAS are actually accounting for more than 80% of the total nominal revenue increase for this quarter. So that speaks to the importance of this region. Asia Pacific also providing great growth this quarter, up 22.9%. And here is definitely China, which is back on track and really driving this growth. But interestingly, we're also seeing some good developments in India, which is a very interesting long-term market for us. We will revert to that. EMEA this quarter is down by 3.6%, although the direct markets in these regions are performing very good. Third party, up 3.3% after a very, very strong first quarter. And when we look closer into the cost side of things, we will see that we have a 20% increase in salary and social expenses for the quarter. This is related to the investments that we're making in the commercial organization, both in terms of head count and also, of course, increased commission payouts in relation to the high revenue. Still, we are delivering an operating profit of NOK 54.1 million, growing 31% over the same quarter last year and also then helping us achieve a very strong EBIT margin at 32% this quarter. This is, of course, also very much driven by the product mix. A lot of growth from our own products is securing this high margin. In the second quarter, we also made the dividend payout of NOK 6 per share, a total of NOK 109.6 million. So great quarter. That makes the first half of 2025 the best first half we have ever delivered. So in the first half, we are seeing NOK 350.6 million in revenue, that is 25.8% growth. We see again very slim currency effect here. So adjusting for this currency, the total sales is up 24.7%. Own products, performing great, 25.4% in total. And we see that AMERICAS again is really the strongest growth driver here, up 33.7%. But also Asia Pacific, driven by China. Finally, we're getting out of this transition period with the field inventories in the local distributors in China. So getting out of that, we're seeing that the growth is returning. EMEA, as I mentioned, a little bit down for the quarter, but for the first half, we are up by 7.1%. And also when it comes to the third party, we saw a very modest growth of 3% for the second quarter, but we had a tremendous 41% growth in the first quarter. So that means that halfway through the year is at 21.4% growth for third-party products. Operating profit NOK 113.3 million, up 55% over last year, also creating this very strong EBIT margin of 32.3% in the first half. I think the biggest piece of news that we have really communicated through this year is the strengthening of our commercial operations, and I will refer to this towards the end of the presentation. So with that introduction, we will go through the numbers in more detail by Thomas.

Thank you, Kari. I will take us through the financials, as usual. We will come back to revenue split per region and per product, so I will not comment that further here. But I need to mention and Kari touched upon it, that the reason for the improved gross margin is not related to cost saving of material, but the product mix. We sell more of our own products where we have the increase and especially in high-margin markets like the U.S.A. and we had less increase in third-party products. And therefore, we experienced an improved gross margin from 80% to 81.9%. Salary and social expenses, yes, we have strengthened our commercial team, but we also have a very solid performance in AMERICAS and especially in the U.S.A., which then drives the commission expense for our sales team, obviously. But we also have other adjustments this year compared to last year and also some salary adjustments, which is a yearly thing. Other operating expenses increases and this is due to increased travel activity related to our commercial team. They are out visiting customers, supporting them, closing sales, so forth. So we are much more -- having much more customer time out there and that drives expenses. But all in all, this is a positive effect. We see an increased EBITDA from NOK 47.7 million to NOK 60.5 million and an EBITDA percent increase, almost 3%, ending at 35.8%. Depreciation is at the same level as last year, and our operating profit ends at NOK 54.1 million up over 50%, as Kari mentioned, from last year and an improved margin from 28.5% to 32%. So very strong EBIT margin above 30%. Net finance is positive. We have -- this is mainly related to currency, either realized gains or losses -- or unrealized gains and losses. In total, a net positive effect of NOK 2.2 million. This leaves us with a profit before tax at NOK 56.3 million and profit after tax at NOK 42.9 million, up considerably compared to last year. Then for the first half, again, the same explanations to many of the items. Although third-party products actually increased more than 20% in the first half, we have even stronger growth in sales of our own products, so that again drives the gross margin to a higher level and it's increasing from 80.6% to 82.5%. Salary and social expenses, again, same explanation as for the quarter, but I would also like to add that we made additional accruals for annual bonuses since we now have excellent performance in the first half. We also looked at goals for the year in total and then also made accruals for those bonus that are related to annual goals. And since we are -- it's looking good that we are going to achieve this for the first half, we made a portion of that as an accrual in the accounts by the end of the first half. Other operating expenses, travel is the driver, but we also have expenses related to our important project, the PATENT project this year, which we did not have last year. So those are the 2 main reasons for the cost increase there. Operating profit before depreciation and amortization ends at NOK 125.2 million, up from NOK 86.1 million last year and a solid improvement in the percentage EBITDA from 30.9% to 35.7%. Depreciation, a little bit lower than last year. That means some of the projects have already been depreciated. Operating profit ends at NOK 113.3 million, which is up more than 50% with the top line increases 25%. Operating profit increase is more than 50%, and that's what we'd like to see. EBIT percentage, 32.3%, up from 26.3% last year. Net finance for the first half is actually negative -- slightly negative NOK 250,000. Profit before tax ends at NOK 113.1 million and profit after tax is at NOK 86.4 million versus NOK 59.1 million last year. So a solid growth on the bottom line. To the balance sheet. Fixed asset and intangible assets in total, same level as we entered the year in, but we do have an increase in intangible assets, which means that we are working on developing our own products, which are placed in the balance sheet. And the fixed assets is being reduced, which means that we have less investments in fixed assets that we now are depreciating. Inventory levels are again a little bit up, but now we have really honored all those purchase orders that we had to place during the period of supply chain issues. So most of those are delivered. So we would expect to sell from inventory going forward. And therefore, we would expect also entering into 2026 that inventory levels will decrease since we now have -- don't need to place purchase orders on the major components to our products. Customer receivables increases due to higher sales, which is natural. And yes, we have a solid cash position, almost at the same level as last year, but keep in mind that we actually paid a dividend that was almost NOK 30 million higher this year compared to last year. So we are recovering quite fast when it comes to the cash position. Equity. Total equity is more than 70% even after the NOK 110 million -- or NOK 109 million dividend payment in May. We have no interest-bearing debt, that means bank debt towards the banks that we pay interest on. We do have long-term debts related to lease obligations and deferred income divided in long term and short term. So obviously, the short term is within 1 year and the long term is longer than 1 year. And that's why we have a long-term liability in the balance sheet. Key figures. Earnings per share, solid improvement as we would expect when we have solid development -- or strong development in operating profit and profit after tax. Cash flow. Even though we have a profit of more than NOK 100 million, the cash from operation ends at NOK 56.5 million. The main reason for that is prepayment of tax of NOK 28 million and we also have a change in working capital. And even though we have an increase in inventory, the main driver for the change in working capital is actually customer receivables, which increases with NOK 28 million. Investments ends at NOK 12.5 million. Mainly the majority of that is related to the development of our own products. Cash from financing, obviously, dividend is the largest payout, but we also purchased our own shares in this period to honor a share program for management and key personnel in Medistim. And we also have the lease obligations, which also is reported under cash from financing, giving us a net negative cash from financing at NOK 126.8 million. So net change in cash of NOK 82 million. We end the first half at NOK 96.3 million in cash. And with that, I give word further on to Kari. Thank you.

Yes. So let's make a round trip looking at the various products. So as usual, starting with the high-value, higher-priced Flow-and-Imaging systems and looking at the unit sales development. We are seeing a very strong quarter from AMERICAS, which are selling 8 units more compared to the same period last year. But EMEA and Asia Pacific is slightly down, and that means that the net effect this quarter is 1 more Flow-and-Imaging system compared to the same period. I think it's valuable to highlight also that for the first half, we are actually selling 12 more units of this Flow-and-Imaging system compared to the first half '24. Imaging probes, we are selling 7 more than Q2 last year, up 23%. AMERICAS and EMEA is up. Asia Pacific slightly down on the imaging side. Year-to-date, we are selling 20 more units this year compared to the first half last year. Flow-only systems in units, we see that we are up by 6 units. AMERICAS up 2 units, Asia Pacific up by 7 units. And we're seeing a little bit softness from EMEA this quarter, and it's due to less sales through our distributor sales network. Again, year-to-date or the first half, we are selling 13 more Flow units this year compared to last year . When it comes to the number of flow probes sold in units, we see that the sales is up by 15.6% and it's up in all regions, although slightly for the quarter in EMEA. And year-to-date, we are seeing a 17% increase in number of flow probes. So this is a very solid evidence that there is new customers coming in buying the first probe packages, but also that we had good utilization on the installed base. Looking a bit further into the regions and AMERICAS, as highlighted. NOK 78.9 million in sales in the second quarter. Currency-neutral, very strong growth of almost 33%. And we can see that it's the total number of systems sold as capital that is really driving this. And we also see that the majority of these systems are Flow-and-Imaging systems. So that, of course, drives revenue. It's a direct market, it's highly priced and it's a majority of Flow-and-Imaging systems. So that all contributes to the great results. It's also great to see that our new direct market, Canada, is continuing to contribute to AMERICAS' good performance, growing 13.7% this quarter. Latin America is a very small portion of the AMERICAS sales, and this quarter it's a little softer than normal. Looking a little bit further into some details here, we can see in the table on the top here the number of capital units sold in U.S.A. So we can clearly see that we have sold more Flow systems and also more Flow-and-Imaging systems both for the quarter and for the first half. And we can see that the majority of systems sold is really on the Flow-and-Imaging side. So this is driving the revenue, as mentioned. It's also interesting to see that the growth in flow probes to capital customers, which we see in the second table here at almost 50% growth, this is, of course, driving the total number of procedures that we are counting as well, and this is a great development. I just wanted to remind us that this is also driven by these initial probe packages that goes out to new customers. So it's not equal to utilization, but we are looking at these numbers as an estimate for utilization. And we can see that this is going in the right direction, definitely. Also very nice to see and credit to the U.S. team that we are seeing 7 new customers for the quarter and actually 19 new customers achieved so far this year. When it comes to the Asia Pacific region, as already mentioned, it is China who is really coming back. When we entered this year, we see that China is normalizing after this transition period. We've talked a lot about that. We went direct. And the distributor -- local distributor network in China was sort of filled up with products. So it was hard for Medistim to start selling in the first phase here. So '23 and '24 were challenging years. Now in '25, we see that we are recovering from this period, and the sales is back to normal. So very strong growth in the second quarter from China, up 75%. When it comes to Japan, we see for the quarter it was at the same level as last year, but we do see some growth in the first half from Japan. So a little bit better than we have seen in last year and the previous quarters. It's also interesting to see that our sales to India is picking up. So this quarter, we sold for NOK 1.9 million and NOK 4 million in the first half. Of course, these are very modest numbers. But it's a very important strategic market for Medistim, as we've talked about many times. And we have worked together with LivaNova for a longer period in order to really establish a pipeline of projects and potential customers. And in this first half of the year, we're seeing that this is starting to pay off. So it will be very interesting to see whether we are able to continue this good trend in the second half, and of course, further on. When it comes to EMEA, NOK 42.8 million in sales, slight downward trend for the quarter. But as already mentioned, we are growing in the first half. What is always very positive to notice is that the direct markets, which are Spain, Germany, Scandinavia, are still growing and then not completely making up for the downward result for the quarter from our distributors. But it really points to the importance of Medistim's strategy, which is to go direct in more markets over time. Third-party products. We started in the first quarter with a tremendous 41% growth. This is very unusual for the third-party portfolio, but this was driven by equipping some new hospitals in Norway. So we're back to a more modest growth this quarter, but still, of course, for the first half it's looking really, really nice with 21.4% growth. And we are carrying a highly diversified product portfolio in this part of our business. And so far, it's Mentor, Icare and A.M.I., which are the biggest contributors. Ophthalmology, the ophthalmology portfolio, is the one that has contributed the most to the growth in the first half. And this is summarizing the various geographical performances, and I don't think I will go through this in any detail. Taking a look at how we're doing when we're splitting our own product sales into sales to cardiac surgeons and to vascular surgeons, we see that both portfolios are doing nicely, both for the quarter and also for the first half. But it's always very important for us to see that the vascular products are actually growing more than the average here and more than cardiac. Of course, it's growing from a much smaller sales and we are investing a lot of efforts in order to develop this market. So it's very important that we are seeing a result from this. 41% growth in Vascular in the second quarter and 43% in the first half, that speaks to a very good development in Vascular. Also, when it comes to the split between Flow-only products and Flow-and-Imaging products, it is, of course, important for us to see that the Imaging product portfolio is continuing to grow. Today, the Flow products is making up the majority of the sales revenues from our own products, around 70%, and around 30% of the revenues is coming from the Imaging products. But we know that we have a huge potential in converting the installed base on Flow-Only to Flow-and-Imaging. So to monitor progress and success in this portfolio is very, very important. And then we also remember that we had a challenging period for the Imaging sales in 2023 and '24, very much related to a challenging macroeconomic environment. But we saw that towards the end of '24, and then into this year, the Imaging portfolio is coming back strongly, growing 37% in this quarter and 60% in the first half. So this is also very much in line with our own expectations. And the feedback we get from the market and from potential new customers that the interest in Imaging remains very strong. When we look at the recurring sales versus capital revenues, we are seeing that we have very strong capital sales in the second quarter. So the share of recurring revenues are a bit lower for the quarter. We are at 66% compared to 73% in the second quarter last year. For the last 12 months period, we see that recurring revenue is at 70%, which is about the same level as last year. So that was a deeper dive into some details on product performance. And then just some further comments with regard to our strategy and what we are working hard on there. So our strategy, very briefly, is adapted to the various positions we have in the various markets. So we have strong Medistim markets where we had a high share in the CABG field. And here, of course, the main strategy is to convert the Flow-only to Flow-and-Imaging. And then in developing markets where we have a lower position, it is really to grow this adoption through clinical marketing, education and also through the product innovation to make our products as easy to use and adopt as possible. When it comes to some more price-sensitive markets such as India, we have also made it our strategy to being able to provide entry-level solutions in these markets. Vascular surgery, a very important future growth area for the company. And we are very focused there in our strong CABG markets to make sure that this is going to be the next lever for growth. But also in the developing markets, we are pushing these products forward. And finally, and as mentioned before, very important for us to continue to expand our direct market coverage. I stated in January that due to the fact that 2025 started with a launch of the INTUI software platform for the Cardiac segment and also that we started to embark on the journey for a clinical study in peripheral bypass to really support our Vascular segment, this would be a perfect time for us to strengthen our commercial efforts. And as talked about previously, we did make some changes to our commercial operations from January onwards. We got appointed a new Chief Commercial Officer. We had a new leader for the AMERICAS sales region. And we've also strengthened and expanded sales teams, especially in the AMERICAS with a few more heads and this will continue into the next year as well. So this is not, of course, only a matter of putting more people in place, but it's also making sure that we are sharing best practices across regions. We have put more emphasis on training and support to our sales teams. And we are really seeing results from these endeavors already. So we entered the year with our slogan, One team. Bold moves and Excellence redefined. We feel that we are making good progress on all of this. And with that, I think we are ready to take some questions.

Yes. And we have quite a few coming in. The first one is on AMERICAS. The growth of more than 30% in AMERICAS is impressive. Can you elaborate on this development? Do you attribute the growth to your product offering, market conditions, new management in the region? Or is it down to other elements?

It's probably a good mix of the things that you are mentioning. Of course, we should keep in mind that the quarters that we are comparing with are softer than -- we were not happy with the first and second quarter in '24 with our sales. At the same time, we have seen tremendous progress in the first half. We have seen that we are winning more customers. We are able to close more capital deals. We're also able to convince our prospects to actually invest in their flow and imaging systems, which is the higher value. So clearly, we are succeeding with our strategy here. So I think it's a combination. We have a great leadership team in place. We have strengthened the team, as I've already mentioned. I think that also the focus that also Thomas, I think, mentioned that more expectations with regard to spending more time face-to-face with our customers, doing more clinical evaluations, those are all very important factors in order to succeed in this space. So I guess, yes, it's a combination of all of that.

Yes. Thank you. What is the weighted average age of the installed base? Just trying to get a sense of the cohorts in place and when old systems would need to be upgraded. Of the 3,700 installed base, how many are still in use?

That's a difficult question, but most of them, I would say.

When we estimate this, we are actually looking at what we estimate as those being active. So when we say and report, I think in the latest report now, 3,850 systems active, those are system installed base. That's those who are active because we, over the years, sold more than that number of systems. And also we see that, on average, a system is used around 100 times during a year. So that's how we kind of calculate how many systems that are active based upon our probe sales. So those we report as 3,850 systems are the active ones that we estimate. And the lifetime of that system can vary. We've seen on the shorter term, more like 5 years, but we've also seen some of these systems lasting up to 10 years.

Thank you. The next one is on the inventory. I appreciate the need for an inventory buffer to ensure deliverability. But looking past that, your balance sheet looks highly conservative. Why not lever the balance sheet a bit to fund M&A and/or new buybacks or similar?

When it comes to our inventory, I mean, we do have the regulatory issues that forces us to make sure we have all the components that we need because if we miss one component, we can't sell our product, and that will be a catastrophe for Medistim. And all those orders, as I mentioned, they have been honored. And going forward, we will sell from inventory. That means the most critical components that we have to secure, which are Medistim-based and it has to go through another regulatory process if we change them, those are secured for a couple of years ahead. So we don't have to place order on those components and products in the near future. Therefore, we expect an inventory decrease. That's the answer to the inventory question. When it comes to M&A, we have been looking at M&A earlier, and we also had a project on that last year really looking into what could be Medistim's opportunities. And yes, what we found was that a lot of opportunities there, but the conclusion for Medistim was that we do have so much opportunity within our own products and own markets that in order for us to focus on the potential that we actually have, we should really focus on the Medistim products and going forward with -- rather going direct in other markets and do product developments on our own products. Maybe you want to add something to that, Kari.

Yes. And of course, M&A will never be out of the picture. We will always scan the market and be open for opportunities, but it's not a proactive strategy. As you say, we feel that we have a lower risk opportunity with our organic growth strategy and so much to grow from there. But we are following the market. I think also with regard to financing M&A opportunity, we're not seeing that as a problem. I mean, we do have a very solid finance base. It would not be a problem for us to raise the money.

And the Board also has authority to issue shares if the right opportunity is there. And I can also add that what we've seen so far, we're afraid that an M&A would actually distract the opportunity that we have within the markets we're already in.

Thank you. Could you comment on your leg stimulator you showed at UCSF Vascular Symposium. Is this a new product? Or does it simplify your sales process or both?

That's interesting that someone has picked up on our new leg that we are actually using for demonstrating how to use our probes in vascular surgery. So it's -- we should have our marketing team really here to explain this, but it's something that we are using for demonstrations. For now, we are using it at conferences, but it has proven to be a very effective tool to actually having vascular surgeons come and understand better how they can utilize our flow probes. So it's a tool that we are planning to use more in the future, and it's created some interesting attention out there. It's not a product, it's something we use for demonstrations.