Medistim ASA (MEDI) Earnings Call Transcript & Summary

Very good morning, everyone, and welcome to Medistim Second Quarter and First Half 2026 Financial Results Presentation. My name is Kari Krogstad; and together with CFO, Thomas Jakobsen, we are here to go through the results. As always, we like to just remind ourselves about Medistim track record. And we are looking back on decades of growth, both in sales and in operating profit. And that has been our promise to our shareholders to deliver constant profitable growth also going forward. If you look at just the recent period from '21 to '25, we are looking to a 13% annual realized growth in sales. So definitely a strong track record to look back on. So with that, we are entering into the second quarter. The second quarter last year was a strong comparable. And we're seeing that we are beating it with high margin and also setting new records for both sales and EBIT. So this is definitely strong performance. As we can see, we are delivering another record quarter with sales reaching NOK 202 million. We can see here also that due to the strong Norwegian currency versus euros and dollars, we have a negative currency effect here. And adjusting for this, we are actually looking at currency neutral sales development for total sales, up 27.5%. So a very good development. Our own products are growing by 33.6% currency neutral. And we can see that all the sales regions are really contributing nicely to this result. Americas is up 46.3%, EMEA is up 19.4% and Asia Pacific, up 22.4%. The third-party products is down 7%. We're also setting then a new record for quarterly operating profit, delivering NOK 65.3 million in EBIT this quarter. This gives an EBIT margin on the high side at 32.3%, very much driven by the strong sales development of our own products. We will see also that this is the first quarter where we are delivering sales through our direct operations in Japan. Looking back at month of May, we paid out a dividend of NOK 8 per share, totaling NOK 146.3 million. And the Board will also propose to the general meeting to authorize a distribution of quarterly dividends going forward. Moving on to looking at highlights for the first half. So this is continue to be very strong numbers. It's a record first half year. The first time we are surpassing NOK 400 million in sales revenues. And again, we had this negative currency effect. And adjusting for this, we're looking at currency-neutral sales development in total at 23.4%. Again, it's really our own products that are driving this in total, up 31.8%. And again, all regions are contributing very positively. America, 37%; EMEA, up 16%; Asia Pacific, up 43.7%. And the third-party products in the first half is down 19.9%. And we will remember that we had an extraordinary sale in the first quarter last year, equipping new hospitals in Norway so it was not anticipated to being able to repeat that strong sales for the third parties in the first -- or in this year. We are looking then at very strong first half performance, operating profit reaching a new record of NOK 122.4 million. And again, EBIT margin is on the high side at 30.3%. You will also note that there is a substantial increase in operating expenses. This is reflecting higher commercial activity. So both more people working in the field and also seeking to spend more time with customers and other marketing activities. We also have now a team of 10 people working for us in Japan, which we didn't have at the same period last year. And also, we see some one-off expenses, which is due to ongoing IT system migration to the cloud. So with that, as an introduction, we will take a closer look at the financial statements and get back to some further details later on.

Good morning, everyone, and I will, as usual, take us through the financials for the first -- sorry, first half and the second quarter for Medistim -- looking at the P&L for the quarter, Kari will go through revenue, more detail when it comes to geographic split and split of units. But again, this is another record quarter for Medistim with revenue more than NOK 200 million for a quarter. Our gross margin ends at 82.2%. That's an improvement from last year, NOK 81.9 million, and that is despite the fact that on the cost of material, we have expensed NOK 5 million in tariffs related to the U.S. In the second quarter last year, tariff was introduced, but Medistim shipped all the goods that we have available before the tariff was active, which then led to that, Medistim did not pay any tariffs in 2020 before the fourth quarter last year. And I will have some comments -- more comments on that later on. But anyway, salary and source expenses increases with NOK 4 million. NOK 2 million of this is related to general adjustments from NOK 25 million to NOK 26 million. But the additional NOK 2 million is related to our direct operation that we have established in Japan. This is a quarter with a lot of activities and other operating expenses increases from NOK 30 million to NOK 42 million. And there are some main reasons for that. The IT project that Kari mentioned is actually to take all of our systems to the cloud is expensed in this quarter with around NOK 3 million. In addition, our direct operation in Japan, we had expenses, other operating expenses amounting to NOK 1.6 million. Patent study, we talked about before. And in this quarter, we expensed around NOK 3 million related to that study. And last but not least, we're also having a high level of commercial activities like traveling and exhibition participation and so forth amounting to more than NOK 2 million for the quarter. So all in all, a very high activity level -- activity level. Operating profit EBITDA ends at NOK 71.3 million versus NOK 60.5 million last year. an EBITDA percentage at almost the same as last year, 35.3% versus 35.8% last year. Depreciation, no major changes, same level as last year and our EBIT for the quarter ends at 32.3% versus 32% last year. Again, I'd just remind everyone about the tariff expense this quarter of NOK 5 million. Net finance ends a positive at NOK 3.6 million, and this is currency related, converting U.S. dollars and euros to Norwegian krones. Profit before tax ends at NOK 68.9 million. That's up 22% compared to last year, and profit after tax ends at NOK 52.2 million versus NOK 42.9 million last year. If you then look at year-to-date or the first half for '26, a new record for Medistim, revenue ending at NOK 403.7 million. Gross margin is down from NOK 82.5 million to NOK 80.9 million. Again, here is a tariff expense on the cost of material of NOK 10 million. Salaried social expenses and other operating expenses has more or less the same explanations as for the quarter, only larger numbers. So I don't go into that detail. However, under other operating expenses, we -- I just want to remind that we had in the first quarter an agent commission of around NOK 2.5 million. EBITDA ends for the first half at NOK 134.6 million versus NOK 125.2 million last year. Depreciation at the same level, more or less, a little bit higher than last year, but not by much. And operating profit ends at NOK 122.4 million versus NOK 113.3 million last year and EBIT margin of 30.3%. And Net finance negative for the first half, again, related to currency. And profit before tax ends at NOK 120.4 million and profit after tax at NOK 92.5 million. Last comment I want to make for the P&L is related to the tariff, U.S. tariff that was on the full deemed now fall in the U.S. And you probably heard about companies that get refund for this unlawful tariff. And to our understanding that the U.S. customs are now gradually refunding this month by month. And the last that we heard is that they refunded as of July 2025. As I mentioned earlier, Medicine did not pay any tariff before the fourth quarter 2025. And as we speak, we are working on documenting and putting all the paperwork together in order to file a refund for the tariff that we paid in the fourth quarter of 2025. This amounts to USD 760,000 and that is not reflected in these financials that we now are presenting to you. So this will be an upside when we get the refund. If I look at the balance sheet, intangible assets increases, and this is mainly because of our development projects ongoing and the automated production project and also our software project related to IT, but also the IT project related to taking our systems to the cloud. No investments in fixed assets this year and therefore, a decline. Inventory levels are -- has gradually been reduced quarter-by-quarter when -- after our peak in the first half of '25 and ends at NOK 156.5 million. However, we will continue to keep high inventory levels, both because of critical components that we need to have security stock of and also if there are end of life on components that we are dependent on before we can get new regulatory approvals. Accounts receivable are increasing, and that is because we also have a very strong sales, so that's a natural increase, and it also increases our working capital. Cash ends at NOK 100 million, and that is after paying NOK 146.3 million in dividend in May. And as Kari mentioned, the Board is now proposing that they are authorized to pay a quarterly dividend, and we will have to come back on that later on. And Yes, we will comment on that when we send out -- there will also be sent out a notice to the -- with a general meeting to give the Board this authorization. Equity and liability, strong balance sheet, more than 70% equity, no interest-bearing bank debt. The long-term liability is related to extended warranties and lease obligations that we have. Key figures. Earnings per share followed obviously, the increase in profits. So we have a strong development here in the second quarter. And by the first half, we have earnings per share of just over NOK 5 per share. Cash flow. Cash from operation suffers a bit from the increase in change in working capital, as you can see, both for the quarter and for the first half. And the main reason is explained by the increase in accounts receivables. Investments is our development projects and the IT projects we talked about and cash from financing is negative with NOK 152 million, where the majority is dividend, and the remaining is payment of our lease obligations. Net cash is negative in the first half, or NOK 112 million, and cash ends at NOK 100 million by the end of the first half, an improvement from last year's NOK 96.3 million. And with that, I leave the word to Kari. Thank you.

Yes. So let's take a look further into the details of the markets and product segments. And starting with looking at how we're doing on the Flow and Imaging Systems sales in units. Of course, this is a very important product for us is the higher value and also higher priced product. We can see that we're delivering a total of 22 systems this quarter on the same level as this quarter last year. and very important for us to see that we are at this level in total. Funny enough, each region is actually delivering exactly the same number of units as this quarter last year. When it comes then to the imaging probes in units, we are 2 units down this quarter. Of course, there are quarterly variations, as we can see, this graph is also depicting Americas this quarter is up by 5 units, while EMEA is down by 5 units and Asia Pacific is also down by 2 units. Looking at the flow only systems in units. We are 3 units down. Americas delivered at the same level as last year. EMEA is also at the same level with 12 units and we see this quarter particularly strong contributions from the distributors in EMEA. This is also something we see varying from quarter-to-quarter. Sometimes, the direct market is sort of the stronger part and sometimes the distributors are the ones that are growing the most. Asia Pacific, down 3 units for the quarter. And we can note that we had a very strong first quarter in terms of number of units for Asia Pacific. So I wouldn't be very worried about this. Looking at Flow probes in unit, which is, of course, a good indicator of both utilization and sales in general of the new equipment. We see a good development of 16.5% growth in this quarter. Americas as a region is delivering the same level in number of as last year. but I should already now note that U.S.A. is definitely showing an increase in number of flow probes, and we will see that reflected in the number of procedures in a little while. It is Canada and South America that is having a lower number of probes this quarter and Americas then ends up at the same level as last year. EMEA very strong, up 22.5% and Asia Pacific also up 20.6%. Yes. So looking further into the Americas region. So delivering NOK 103.7 million, so more than 50% of the total for revenues in Medicine for the quarter. Currency neutral, as already mentioned, up 46% for the quarter. I just mentioned that the total units of Flow probes and systems sold for the region are at the same level as last year. And the revenue growth that we will see from the probes and systems are then driven by price increase. We will also note that there is good growth in number of flow procedures to lease and PPP accounts and also the imaging pro unit sales is up. Sales in Canada increased 19%. So this is more driven by systems than probes. And further detail on the unit sales development in U.S.A. in isolation. Already mentioned, the flat development on the system sales for the quarter, we're actually down 2% for the first half, and these are lease out placements that we did last year that we're not repeating this year, but the number of capital sales of systems is the same. When we're looking at number of procedures from the various components here, we see really good and strong development all over. We see, especially, as I mentioned, flow probes which was flat for Americas, it's definitely growing from the -- for the U.S., and this is reflected in actually 20,739 procedures coming from this capital probe phase for the quarter. And that gives the 28.6% growth. And you can also see for the first half, very strong development in number of procedures from capital probe sales, 32.1%. Also worth noticing imaging probes to capital customers also definitely going in the right direction, 10% growth for the quarter, 12.5% growth in the first half. Asia Pacific, NOK 26 million in the quarter. currency neutral. This translates to 22.4% growth. And we are, of course, following the development in China very closely, where we have been direct now for a couple of years, up 15.9% for the quarter and reaching NOK 14.8 million. So very good quarter and then also a strong first half for China. We just always want to remind that still we are selling through local subsidiaries and agents, and this will sometimes end up with some quarterly variations. So there will be some inconsistency in the developments over the quarter. Japan, we established our own team and the subsidiary in Japan in the end of the first quarter. And now in the second quarter, this is the first time we're actually delivering sales through this organization. It is quite modest for the first quarter. This is just representing probe sales, and we are now working in the field to build the pipeline to replace old systems out in Japan. We know we have a very high penetration rate there and also working in the vascular side to establish new customer opportunities. I also note that other Asian distributors have a strong quarter, growing 28% and then delivering NOK 8 million in sales. The EMEA region delivers NOK 48.9 million in the quarter. This is currently neutral, 19.4% growth. As I alluded to earlier, it is really the distributors that are providing the highest growth this quarter. Actually, we're growing 59% currency neutral. While the direct markets are relatively at the same level as last year. And this is also something we have noted over time that we have this variations from quarter-to-quarter, whether it's the direct markets or the distributors that are really driving the development in EMEA. We can just also keep in mind that the direct markets account for about 55% of the revenues in EMEA and distributors around 45%. So both sales channels are, of course, important. When it comes to the third-party products, I already mentioned this. So 7% down for this quarter. It was a tougher first quarter here. So at the first half of the year are then looking at the 19.9% decline so far this year. And I saying that with a very, very strong first quarter in 2025. Summarized, we are looking at -- and this is in Norwegian currencies are not currency adjusted. We look at the Americas region, 31.4% growth for the quarter, 23.2% for the half year. Asia Pacific, up 17.5% for the quarter, up 37.3% for the first half. EMEA up 14.3% for the quarter and 11.3% for the first half. So strong performance from all regions and bringing us to the total of 19.5% growth for the quarter and 15.1% for the first half. Here, we can see that the Cardiac Surgery segment is really driving the growth, both for the quarter and for the first half. very strong performance of our cardiac product portfolio. When it comes to the Vascular, we will remember that in first quarter, we reported 1% increase in vascular sales and now in the second quarter, we are looking at 9.3% decline. And this is definitely weaker than we've seen in the recent years. You will remember that we have had 20% and 30% growth in the vascular product portfolio in recent years. And what we're seeing right now is not reflecting a shift in the underlying demand. It's rather a temporary product mix effect. And I'll try to explain this because this Ultimate systems that we are providing is delivering both the cardiac and the vascular applications. And we sell this as sort of a broad-based package and enabling the hospitals to use our technology, both in the cardiac department and in the vascular department. Now it's the fact that we have launched a new into software and currently, it's only available on the cardiac systems. So that has led to a lower number of ultimate system sales and a higher level of cardiac system sales. For instance, in the U.S. in the first half, we have sold 5 less Ultimates and 8 more cardiac systems. And then also reflecting around the high price of the ultimate system of around USD 220,000, -- of course, a shift like that has an impact on the revenues. And it's also important to just remember that the revenues from the ultimate sales is allocated and 50% to Cardiac and 50% to vascular. So this is the product mix effect that is driving this sort of negative development for the vascular sales reporting that we are seeing right now. We will continue to see this, we believe, until we are launching the Intu software also making available for the Vascular and the Ultimate systems. And that's planned to happen at least in the first half of next year as early as possible, of course. When it comes to the split between flow products and imaging products, we see that the flow products are continuing to develop very nicely, both for the quarter and for the first half. Our imaging products are also really going in a nice direction. We will remember that the imaging products has shown high growth for a number of years but had a dip in 2023 and '24 in the tougher macroeconomic circumstance that we saw. This came back really nicely in 2025, and we also see continued strong performance in first half of '26. So -- this is good to see. We have never lost confidence in our imaging portfolio. We always experience really high interest from new users in that technology. So we're continuing to be optimistic for it going forward. Yes. The component of recurring revenues versus capital revenue. Here, we continue to see really high contribution from the recurring products. So that means capital probes and PPP cards and lease contracts. And the last 12 months period is showing a 70% part of recurring sales. So quite in line with historical performance. So that's a review of details when it comes to performance for the quarter and for the first half. And I would like to comment a little bit about sort of our outlook going forward. This is our simplified description of our growth strategy, and we can see that we are targeting the CABG market, the vascular surgery market in this are also the transplant procedures and other open surgery, which is connected to CABG, you could say. Today, I would like to point to the size of the annual revenue opportunity here, NOK 7 billion in total opportunity. And remembering our sales performance last year in 2025, we reached about NOK 700 million. So meaning that the are addressing only 10% of the estimated market opportunity. So highlighting then the significant runway for continued growth. If we're also looking at market penetration in terms of procedure shared and start discussing the CABG market. We've always taken a deliberate conservative view of the global CABG market, and we don't want to exaggerate the size. So we always said it's more than NOK 700,000 -- and although we can actually find data to say that perhaps this market is about 800,000 and 900,000 procedures. But the sources are not always that reliable. So we've kept it are very conservative at 700,000. And that would mean that we're currently serving around 40% of these procedures with our flow technology. That also means that there's, of course, a big incremental opportunity to convert these flow only users to flow and imaging users. When it comes to the vascular market, we're looking at a total of up to 1.3 million procedures annually. And based on last year's number of probes sold, we can estimate that we are serving somewhere between 5% and 6% of this total market. So of course, at the completely different level compared to CABG, but definitely showing that we're making progress in this market and that it represents a big growth opportunity for us going forward. Based on this, I just mentioned in my introduction, the 13% annualized sales growth that we have shown over the past 5 years. We can also think back on the 6 record quarters that we've just reported on. And with this big growth opportunity that I've just described. I will like to sort of update our long-term outlook for our business. And as part of our annual strategy review with the Board in June, we have updated our view on this. Our revised plan indicates that we are expecting to see actually a higher growth trajectory than achieved over the past 5 years and that it should definitely be possible to deliver continued margin expansion in this scenario. And that also means that based on this outlook, we expect to reach our first milestone of NOK 1 billion in annual revenue in just a couple of years. And our confidence is supported not only by sort of past success, but the continued expansion and increasing effectiveness of our sales organization. Of course, we have gone direct in more countries. We have invested in broadening the sales force, and we are prepared to continue to expand our direct sales forces and continuing also to work on the effectiveness part of this. Together with the upcoming launches, as I just mentioned,MiraQ Ultimate, MiraQ Vascular coming now in Tui sometime next year. And also in this period, we will see the report out of large important trials such as the patent for peripheral bypass and Smart low, the randomized clinical trial for CABG. Of course, all long-term projections are subject to uncertainties, so we would like to highlight that. But again, we feel it's right to share our positive view on our future here. So with that, as a final statement, I guess we will open up for questions.

Yes. And we have quite a few questions today. The Americas region is again showing impressive growth. As the capital sale is quite similar to previous quarters, a lot of the growth come from procedure sale and price increases. How do you think this will develop in the future?

The capital sales and the comparable from last year is very strong. So in a sense, it's encouraging that we are at least at the same level. However, I think going forward, -- we will continue to see that the growth and the growth driver in the U.S. will still be on the capital side and not on the procedure side. So -- and we've seen that over the past 5, 6, 7 quarters, that the main driver for the growth is increased capital sales of flow and Imaging Systems and what follows with probes and imaging probes. So going forward, I would still say that I would expect higher growth on capital than on procedures.

Another 1 on the U.S. market here. Pricing, can you quantify the -- and this is on one-offs. Can you quantify the amount of one-off costs you took in the quarter, for example, what is the underlying EBIT?

Cost is related to what I mentioned with the IT project, taking our systems to the cloud. that was around NOK 3 million for the second quarter, and we are expecting to go live in the fourth quarter this year. We also have the painting expense. That is, to what extent 1 of the patent study will still be ongoing, but it's not part of our ordinary operational expenses as such. So even though it will continue going forward, it will be an end to it in '27, '28 -- so that is, in that sense, a one-off. And when it comes to the operating expenses related to Japan, that will be definitely continue to be ongoing going forward, although we had some additional expenses when we are establishing ourselves, but I would say maybe around NOK 0.5 million there is additional expenses. And then that is in 1 way a one-off, but we will still continue to build the Japanese organization, so to say exactly what other operating expenses will be there. It's a bit hard to predict going forward. So I think that is my answer to that.

Thank you. Another 1 on the U.S. here. The U.S. is showing very strong momentum for you. Is it anything temporary that we should be mindful of when looking at the pipeline and what is your U.S. team communicating back to you? How would you describe the outlook? I think you touched on it.

So I mean just looking back at the and so far in '26, there has been consistent, very positive, strong performance from our U.S. team. And also, historically, we shouldn't forget that going back, U.S.A. has been the growth driver for Medistim in many years. And then things goes a little bit up and down, but it's definitely come back very strongly in '25 and so far in '26. As mentioned before, we have made changes to the organization in the U.S., and we have made changes to compensation plans. We haven't set other and stricter expectations when it comes to field time and face time with customers. We have also invested in much higher quality training programs for our sales force. So we are definitely supporting them in a better way than before. So I think there is a logical explanations as to why we are seeing increased performance. Of course, pricing and I would say, having the courage to actually work actively with pricing is also a positive contributor here. And going forward, we are not guiding, but -- but our pipelines are looking good when it comes to the deal pipeline.

Yes. And 1 on pricing. Can you quantify the effect of the price increases for the flow and imaging products?

We see in the second quarter, the increase in revenue since we had the same level of number of units sold, that in itself is related to price increases. If we look at the underlying growth, the way we look at it, the total growth in the U.S. for the quarter carries neutral was 46%. And Around 9% of that is volume growth, and the rest is pricing. So the pricing is quite impactful.

Good. Then it's a question on Japan. How has the direct operation in Japan developed so far?

Well, I think the priority for our team has to build the team and to adjust the team and making sure that we have the right people in the various roles and their priority then has been, of course, to present themselves to the market and the customers and really start building direct relationships with the users. As we know, we have more than 90% penetration in the Japanese market for CABG and the Flow technology. So there's a lot of customers there. There's a lot of hospitals. There's a lot of connections to be made and that has been our priority so far. And I think I mentioned that the model sales we saw in the second quarter, that's based on probe sales to our current customers. But we are also, of course, building the pipeline for replacement sales of systems and also we're working to establish a business with the vascular, which has not been really entertained at all so far by our former distributor. And we are then expecting to see a more positive, of course, development in -- from a sales perspective in the second half. What else? I think I can report that from the users and the customer side, the feedback we're receiving is that we feel very welcome by the surgical community that Medistim manufacturer and owner of the technologies are present in the market. So that has certainly been a very positive effect. And then I guess I should mention that we are not expecting to see any problems similar to what we saw in China when we went direct in China. As you will remember, we had some stalling effects in China due to the former distributor than selling a lot of products into the local distribution chain, through the local distributors in China. This is not happening in Japan. We had a much shorter transition period, and there has not been any such sort of end of life type of buildup. So that's a positive aspect that we should also keep in mind.

Thank you. What is the rationale for changing to quarterly dividend distributions?

Well, we have over several quarters now shown solid results and also very good cash flow. So I guess this is kind of a gesture to our shareholders that instead of paying it annually, we will look at a quarterly payout. And also, what's the reasoning behind it is that instead of Medistim collecting cash at bank interest, we would rather distribute that excess cash that the company is generating to the shareholders and then they can reinvest or whatever they -- how they want to utilize that excess cash to the best for themselves rather than Medistim have it sitting in the bank account.