OssDsign AB (publ) (OSSD) Earnings Call Transcript & Summary

Hello, and welcome to OssDsign Q2 presentation. My name is Elberlder. I work here at DNB Carnegie, and I will be moderating today's presentation. I'm joined here by Mark Waugh, the CEO of OssDsign; and Anders Svensson, the CFO. I will now leave the word to OssDsign's team for their presentation.

Thank you. Good morning, everyone. This is Mark Waugh. I'm the CEO of OssDsign. And if you're new to our quarterly calls, I'll mention again that I joined the company in January of this year. I also have our CFO, Anders Svensson, with me today. and we're going to walk you through our second quarter 2026 results. As always, when we do these presentations, the normal disclaimer. Moving into our Q2 2026 highlights. For the quarter, OssDsign sales of SEK 37.8 million or approximately USD were essentially flat versus Q1 sales performance, and that was in line with my prior guidance. On a year-over-year comparable basis, Q2 translated to a 16% decline in constant currency terms, although that was on a very challenging comparable, driven by some large bulk orders occurring in the last day of that same 2025 period. Gross margin and EBIT both improved for the quarter versus Q1. And I'll let Anders cover the details on those after I finish with these highlights. And the science behind Catalyst and the results we continue to publish remain strong. I've mentioned before that our preclinical and our clinical data were 2 of the biggest reasons I joined the company. We continue to share that data with our customers during the Southern -- most Spine and the International Society free. Additionally, on June 3, OssDsign shared the publication of a new scientific article in the Journal of Bone and Mineral Research, or JBMR. This was a preclinical study that evaluated of design catalyst as a stand-alone bone graft in trauma versus an earlier generation bone graft. And I'm pleased to tell you that the results showed significantly more bone formation with OssDsign catalyst at earlier time points as well as clear evidence that the graft is remodeled over time or in other words, broken down and replaced by bone growth in the body. This study and others continue to support the outstanding performance of fourth-generation enosynthetic bone grafts catalyst. Next, some additional significant organization updates. On June 25, we announced Adam McAllister as OssDsign's new VP of Sales, Adam is an experienced medical device sales leader with a great track record of leading teams to achieve above-market performance in his previous roles. He's quickly getting up to speed, working closely with our regional sales teams. And regarding those teams, our new Area Sales Director for the East also started on August 10. That role had been vacant since May, and we screened and interviewed a number of candidates, and I'm very pleased with who we are able to hire for this important position. And I know she's going to be a great asset for our sales team. Overall, since January, when I joined the company, we've replaced more than 50% to design's commercial team. I've mentioned before that our path to doubling the size of our team, which is a goal set forth by my processor. Would not be a linear progression, and we'd see some turnover alongside the additions we're making. The changes we made have better positioned us for commercial execution going forward. We'll continue to add members to the team and I don't see an immediate ceiling on that as long as our hiring both supports and delivers on our commitments to growth. I also want to let you know that I'm personally involved in our hiring process for the commercial team members because it's important to me that we're hiring the right people, both professionally and from a cultural fit perspective. Finally, regarding organization, I mentioned in our release that since February, our entire team's incentive structures are aligned to growth. That's another important dynamic that ensures our reward structure is tied to our shareholders' expectations. And before I hand things over to Anders, I'll reiterate that I still believe we can achieve the goals put forth last year as part of our design scale to profit strategy. The market is highly competitive design catalyst is as well. And as you can see, we're making aggressive changes to return our sales trajectory [indiscernible] Victory to strong growth. I'm also pleased with the progress we've made on our next product release Catalyst. I'll have more to communicate next quarter on this launch, but things are moving forward quite nicely since our last release call. I'll now hand you over to Anders, who's going to walk you through the financial results this quarter in more detail. Anders?

Thank you, Mark. Now as Mark mentioned, in Q2, we saw a decrease in sales compared to the second quarter of 25%. In SEK, we reported 37.8 million in sales. That's compared to $46.5 million last year, which translates to an 18.7% decrease. As you can see here in the growth chart, we still experienced some U.S. dollar headwind on sales, but considerably less than we did in previous quarters. . So the actual underlying decrease, as Mark mentioned, is 16% for the quarter. You may also remember that our Q2 '25 sales were inflated by some last day orders, which would explain roughly half of that organic decrease. Still, we acknowledge that there's room for improvement, and we're working hard to achieve that. Now when we presented our Q1 results, we guided that Q2 sales were expected to come in around the same level as Q1. And as you can see in the growth chart here, we actually grew by 2.4% quarter-over-quarter. But as you can also see, the growth was entirely exchange rate driven. So in fact, Q2 sales did come in at the same level as Q1 as per our guidance. Moving to the LTM chart. You've heard us say so many times now that growth is not going to be linear over time, more likely take the form of a staircase. And I guess, the current LTM slide is case in point, with the decreasing last 12 months run rate presenting as our current sales platform. The latest 12-month period sales are 7% higher than the 12-month period leading up to Q2 2025, which, of course, is an increase, but much less of an increase than we've seen in previous observations. As stated earlier, our sales reorganization, which is still ongoing, has been quite extensive, and we expect those efforts to start delivering improved commercial momentum later in the year. On the gross margin, 92.1% and was an improvement over the 91.6% in the first quarter but clearly below the 96.8%, very high margin reported in Q2 last year. Now there are so many factors that impact gross margin I can't go into detail on all of those. But suffice to say that the main drivers behind our current gross margin development is product and customer mix. As was the case in Q1, but with very different mix effects. There are still some exchange rate-related production cost effects from when the dollar peaked in early '25, but the main current driver is mix. And with that, I'll hand you back to Mark.

Thanks, Anders. Although catalyst has only been in this space for about 4 years, we've built a strong body of evidence I'm pleased to tell you that we now have 19 preclinical and clinical publications in white papers and a world-class registry that contains an always growing number of patients. OssDsign has consistently been reporting both high fusion rates and fast bone formation with Catalyst. This demonstrates rapid progression to fusion. The Boden model, a highly regarded preclinical model showed 100% fusion for Catalyst, and our TOP Fusion study also showed 100% fusion again at 2 years. Speaking of the world-class registry, I mentioned, our PROPEL registry showed catalyst with an 88.4% fusion in a highly complex real-world patient population. When we see other products marketing their products fusion rates, those rates are often among patients with multiple exclusion criteria. And in this industry, this is basically filtering out the risky, less likely to fuse patients for a clinical study. Comorbidities such as high BMI, smoking, osteoporosis or other issues such as failed prior surgeries and more. This means that some of the competing data out there is not showing what the real-world performance of product is. We include all kinds of challenging patients in OssDsign's CATALYST registry and our reported results. This is why you and our customers will continue to hear us say, real-world data, real-world results. These ongoing investments in clinical data are a key part of our strategy. And before we wrap things up and take questions, I will quickly reiterate our scale to profit strategy, which OssDsign's shared in Q3 of 2025. Again, there's 4 pillars in this strategy. First, accelerating access and coverage within the U.S. market. We are still working to double our U.S. sales force. We are very close. But as I discussed, we've made some changes in our organization. We are absolutely stepping up on our marketing efforts, especially from an awareness perspective, and I look forward to seeing some of the things we have planned to continue to roll out this year. As I've mentioned previously, we are starting to see uptake in the foot and ankle segment of the market as well. Second, expanding our product portfolio and indications. I mentioned the MIS solution for Catalyst and our hydrophilic strip product is also progressing. We said this before, but we will be seeking another indication for catalyst this year. Third, to continue investing in and building a leading repository of clinical evidence. I already covered our PROPEL registry. Our Level 1 randomized controlled trial is moving forward according to plan. and we will continue to strengthen OssDsign's reputation as a differentiated top-tier biologics company with very compelling clinical evidence to support catalyst. And finally, the fourth pillar is the scale production and to add a U.S. production footprint. We are working to implement a more scalable, more cost-efficient production process and to bolster our existing production. The good news is we believe we've identified a way to do this in a very cost-efficient manner. I want to close our call today by reiterating what I said during our Q1 release regarding transparency. I've committed to transparency with this team and to our shareholders, and I'm not in any way communicating to you today with some sort of a mission accomplished attitude or victory lap kind of messaging. However, I am pleased so far with the transformation we're undergoing. We delivered a Q2 sales result that was in line with our guidance, slightly improved our gross margin and did a large amount of fundamental commercial restructuring while delivering improvements to our adjusted EBIT. We have not usually provided specific guidance but did so last quarter. As we communicated within our release for this quarter, we do expect some headwinds in Q3 solely based on what we historically experienced given U.S. vacations or holiday seasonality and during both July and August. However, I still have confidence that the changes we've made and the foundation we've laid will translate into tangible results later this year, and I still look forward to reporting on that. I want to thank you for joining our call today. And I will now hand it back to the operator, who will handle the questions.

[Operator Instructions] But maybe we can begin a little bit on these contract renegotiations. You mentioned in the report that you're seeing progress there on that matter. Can you give us some more kind of indications on how 1 should think and how far you resolve these matters and if it will continue to affect your business in H2.

Sure. I think the takeaways on that are, given the size and scale of our company, there were a couple of larger IDNs sort of that we were in renegotiations with. And I'm pleased to say that 1 of those has resolved, and we're now on a 3-year contract with them going forward. And the other one, unfortunately, is not yet resolved. We're still working through the details on that. We continue to do cases in many of their facilities. But these things often take quite amount of time. And so hopefully, I'll have an update on that on a future call.

Great. You mentioned the MIS option for Catalyst. And you will give an update here in the next quarters. But can you also comment a little bit on the hydrophilic trip? How is the development been going for that release? And what are your internal kind of expectations on what that will be able to unlock versus what you're currently able to offer?

Yes, thanks. So we view Catalyst underlying technology as sort of a platform. And so anything we do is within the frame of reference of that being a line extension and sort of taking that technology and putting it into other uses. And that's really what that strip is all about. That project is also progressing quite nicely. We are -- we have completed some initial preclinical animal studies. We are in the process right now of basically investigating that data with great rigor and looking at the pros and cons and the outcomes in each of those animal studies. That will move forward much more quickly once we get past the preclinical phase, but I can't really commit the timing on that until I see what the results of all that is.

But in terms of kind of positioning the company, against IDNs and hospitals and surgeons alike. What are your kind of internal expectations on how much more of a market can you kind of unlock with this product? Will it be like 1/3 of the market? Or what should once expectations be on what it enables you to do?

Yes. I think I would temper that just a bit, not because it's not a great product or project in both cases for both the strip and the MIS, but Catalyst itself has such a huge opportunity ahead of it in the market in the U.S. But I will say this, when it comes to these kinds of line extensions, that are not fundamental brand new products, but again, leveraging that Catalyst core technology and people having the expectation that it will deliver on the clinical performance. What it does is allows us to use a U.S. saying to kind of keep the Fox out of the henhouse. I don't know if that translates well to things in Sweden. But it's always good to have those kinds of ancillary line extension type products so that if a surgeon does prefer to use a strip in those kinds of cases, they don't have to call on one of our competitors, and we're giving them an opportunity to speak to one of our customers. But on the other side of that coin, it does allow us to penetrate accounts where maybe somebody prefers to use the strip for many of their cases, but we don't have that technology yet. So we have the putty right now, but we could go in and say, "Hey, we have this strip now. Can we have that conversation again." So that's what it really means for us.

Great. And in terms of kind of sales hiring activity for the sales force, how far along have you gone now? Or do you feel that you've kind of hit a plateau that you're satisfied with for the coming foreseeable future? Or are you continuously kind of adding more? And how much more should we kind of think that you would like to add to the organization.