Sisram Medical Ltd (1696) Earnings Call Transcript & Summary

So let's start. Good morning, good afternoon and good evening, everyone. Thank you for joining us on Sisram's 2024 Annual Results Conference Call. This is [ Yu Bo ] from CICC Healthcare Research team. My colleague, [ Chen Shi ] and I will host this call together. Today, we are honored to have Sisram's whole management team online to share with us their views on 2024 financial results. They are Chairman, Mr. Yi Liu; CEO, Mr. Lior Dayan; CFO, Mr. Jiahong Li; Board Secretary, Ms. Qianli Fang. Sisram has already released its 2024 financial results on the Hong Kong Stock Exchange last night. Despite the various uncertainties in the macro environment, we are pleased to see that the company's energy-based medical device business has stabilized. Moreover, 2025 marks the first year of commercialization for their 2 major injectable products, Daxxify and Profhilo in China. I believe our investors are very interested in the latest developments. Without further ado, I will now hand over the floor to management team. [indiscernible], please.

Thank you, everyone, for joining us. Today, we will share updates for the Sisram performance in 2024 and discuss our financial performance and outlook. As a global consumer wellness group, Sisram has always stuck to the global development logic driven by the 2 pillars, products and the market. In terms of business development, we continue to enrich our wellness ecosystem to create a comprehensive professional and diversified product portfolio. In the past year, both of our core business, energy-based device and our key developing business, double injectables have made some achievements, which we will share with all of you. For marketing expansion, Sisram keep strengthening its global direct sales layout and successfully established direct sales offices in many countries around the world. In the future, we will accelerate our development strategy of global localization through the model of integration of production, research and marketing. So we know in the past year with the stable environment of the economic and macroeconomy, system management team and the Board try our best to keep our business stable and also make some preparation for our strategic business action plans. So, in Sisram, I want to thank for our incredible team, partners and investors. So let me invite our CEO, Lior Dayan, Sisram CEO to share updates for the year of 2024. And then later, we can to make more communication. Thank you, everyone. Lior, please?

Yes. Thank you very much, Chairman Yi Liu, and thank you, everyone, for joining our call today as we are reviewing Sisram Medical achievements in 2024 and discuss our opportunities ahead. The last year demonstrated a unique resilience and strategic health of Sisram Medical, which strength our ambitious with our growing strategy, building around 5 strategic pillars, which I will quickly describe. The number one is establishing an extensive portfolio of best-in-class EBD for Medical Aesthetics. Sisram Medical is a dominant leader across all major segments of Medical Aesthetics, utilizing our high-end energy-based devices. During '24, we continue to push boundaries even further with the launch of the next generation of our flagship devices. The first is the Alma Harmony. Following its record-breaking adoption in North American markets, we expanded its global launch with overwhelming success, making it the best product launch in Alma history. In addition, that launch has driven the performance of the entire Harmony family. The second launch was Soprano Titanium with its special edition. The fastest and most effective laser hair removal device in this industry was well received with strong market adoption, solidifying Sisram Medical's leadership in this category. Moreover, after the significant investment, Sisram Quality Management System and some of our flagship EBDs, Alma Harmony and Alma Hybrid has been successfully audited and have been found compliant to the European MDR requirements. This important certification ahead of most players in the Medical Aesthetics arena solidifies our unique leadership position within this industry. Number two is expanding beyond energy-based devices with unique portfolio of injectables and complementary solutions. Injectables remain a strategic pillar in our ecosystem and long-term growth driver. This year, we further strengthen our offering in this segment with additional products to be launched exclusively, in additional territories. Daxxify by REVANCE, long-lasting botulinum toxin to be available in Mainland China, Hong Kong and Macau. Second, Profhilo by IBSA Derma, high-end biostimulator, including the new Profhilo structure available in key Asia Pacific markets; number three, Revanesse by Prollenium, FDA-approved dermal fillers launched in the United Kingdom and other key markets. And then also number four, Hallura, introducing an innovative hyaluronic acid-based biostimulator technology in selected strategic regions. These partnerships demonstrate Sisram Medical unique capabilities in partnering with established and emerging innovators of injectables and building commercialization capabilities across various territories. Moreover, we've launched Alma IQ in North America, a revolutionary skin analysis and consultation solution that is going to transform patients' journeys, enabling personalized and data-driven treatment plans for patients. We've seen rapid adoption of Alma IQ and optimistic for its planned expansion in the rest of the world. Number three in our strategy is growing globally and closer to our customers. In 2024, we've made significant progress in the expansion of our globally direct presence. We successfully launched Alma Thailand, our seventh subsidiary in Asia Pacific, solidifying our leadership in fast-growing Southeast Asian markets. This follows continued expansion and maturity of our direct offices, which have contributed to the enhanced efficiency and profitability. Overall, the rapid expansion of our direct operation has increased the share of revenue from the direct sales to 87%, up from the 78%, which we had a year before. Our geography, diversity and double-digit growth in direct offices allow Sisram Medical to navigate the economic challenges that particularly impact the North America and Latin American markets in our industry. Number four in the strategy would be agile and innovative value creation system. In 2024, we continue to scale our production capabilities and operated normally despite geopolitical challenges. We've also implemented advanced IT platforms to enhance our efficiencies, both in the back end and the interfaces with customers. And #5 part of the strategy is the brand equity and engagement. Our partnership with global icon Kate Hudson has significantly elevated Alma's brand recognition, reaching over 300 million consumers worldwide and generating extensive engagement across digital platforms. Our flagship event, Alma Academy delivered groundbreaking success, leading to all-time records of sales, enhancing our brand equity. Looking forward to 2025. As we enter this year, we are confident in the opportunities ahead. Market conditions are showing early signs of stabilization with recent interest rate adjustments providing a positive outlook. Our key growth drivers include the highly anticipated Alma Harmony and the Alma IQ in the international markets and the commercialization of our portfolio of injectables. In addition, we're going to introduce to the market a new AI-based personalized skincare solution that will redefine post-treatment care, empowering practitioners and consumers with cutting-edge medical-grade skincare. Moreover, we will continue to scale our global presence and increase operational activity efficiency. I want to express my gratitude to the global team for their dedication and unwavering commitment to our vision. To our shareholders, thank you for your confidence and support. We remain focused on delivering sustainable growth and creating long-term value for all our stakeholders. With that, I'll now turn the call over to our CFO, Mr. Jiahong Li, for a detailed financial review. Thank you.

Thank you, Lior, and thanks, everyone, for joining our call today. For the year ended December 31, 2024, we reported revenue of $349.1 million, representing a slight decline of 2.8% compared to the previous year. Despite this decrease of our global presence, and a diverse market presence contributed nearly 20% of the revenue increase in our direct offices across APAC, Europe and the Middle East and Africa. As a result, direct revenue increased to 87% compared to 78% in 2023, emphasizing the continued expansion of our business outside North America. Our gross profit margin also increased by 1 percentage point, reaching 62.1%. Net profit for the period decreased by 12.6% compared to 2023. The decrease in net profitability margin was mostly due to the growth in operating expenses driven by the scale-up of our new direct offices. This was partially offset by gross profit percentage increase, as we talked about earlier, we ended the period with a cash and cash equivalents of $17.1 million, maintaining a strong financial position. Geographically, revenue from international markets, excluding North America, totaled $211.7 million, reflecting a 4.6% increase compared to 2023. This growth emphasizes the importance of our expanded global footprint and the direct market strategy. If you look at the revenue breakdown by segment, our Medical Aesthetics products segment remained the largest contributor, generating USD 308.9 million in 2024 or 88.5% of the total revenue. One of the key highlights of the year was the successful launch of Alma Harmony. We also talked about it, our new multi-platform system, which become one of the most successful product launch in Sisram history. Beyond Alma Harmony, we also launched Alma IQ, AI-powered skin analysis and consultation solution in North America, a special addition of Soprano Titanium introduced globally. These record-breaking launches see immediate market adoption, demonstrating our strong brand equity and the high level of customer confidence in our product portfolio. To conclude, while we faced macroeconomic headwinds throughout 2024 that impacted our industry, our strong brand, strategic investments, product innovation, global presence and operational efficiency position us well for sustainable growth in the years to come. Yes, this is pretty much about the financials. Thank you.

Thank you, Ms. Li and Lior and Ms. Liu for a very detailed presentation. [Operator Instructions] So I think first question please [indiscernible].

I am [indiscernible] Securities. I have several questions here. Firstly, could you please answer why did the revenue in North America decrease? And what will we do in North America as it is a big contributor for the performance?

Yes, of course, I can address that. So basically, North America, majority of the business today is the EBD, the energy-based device. Capital equipment in America, most of the business is being based on leasing. And over here, because of the high level of interest rates, we see a trend that actually starts not in '24, it actually started in '23 with very high interest rates created a burden on a few aspects. One, doctors find it more difficult to get a leasing approved. And then also -- and then the cycle of closing the deal takes a little bit of a time. The other thing is the fact that doctors are getting slow approvals, you won't be able to exercise deals in the pace that we had before and from a speed perspective, but also the cost of the product is more expensive. And so they have more dilemma there. And that's where we have a pressure to give a discount, which normally we do not give discount. You can see that the gross margin in general of the company actually sustained and even got even slightly better. The reason for that is because of the introduction of new technologies. And that was one of the reasons that the company managed to see a drop in the business of the top line, not in the same pace as some of the peers in North America, in the United States of the EBD because we did introduce new technologies. And when you introduce a new technology, there is incentive for those that can afford to acquire technology even during financial headwinds, we have an advantage there. So comparing to the competition, that's one of the reasons we did better even just in North America. So this is just to answer your question. This is -- we are a little bit, as I said in my statement, more optimistic because the interest rate in America over the last few months has started to go down. And this is taking off some of the burden regarding closing deals in a faster pace. And maybe the last point I can add that you can see that in the end of the year, the momentum after the launch of Alma IQ and Alma Harmony, the combination of the diagnostic tool together with the Alma Harmony laser, we see a higher demand of new orders, which became a backlog to be fulfilled in 2025. So this is the most accurate picture of the situation in North America.

We hope everything will get better soon. And the second question is any expectation of sales of Daxxify in 2025, the size and the structure of injectable team in China? What's your background of the team?

Okay. So Daxxify in China is something that we are getting ready while REVANCE is also on their end getting ready regarding supply. This is a process that takes time. The Daxxify product is a drug. It has very special conditions of how to handle and coming into China. and sold in China. And this is what we're doing right now and building that capability. The fact that Sisram is part of the Fosun family, it's a big advantage. Fosun Pharma capabilities is a big advantage that we plan to utilize regarding how we're going to operate within China. Right now, the team that we have is mainly senior clinical high-level marketing teams that basically is getting -- is going to have set the operation to be up and running towards the second half of '25 once we have a clear confirmation on availability of enough inventory to come -- to be available to customers. It's very important that we have inventory that we'll be able to deliver. Now we have one of the advantages that Sisram is the one to sell Daxxify together with Alma lasers, that's a big advantage because it has a benefit from a clinical aspect as well from the business aspect. And that's one of the areas that the teams are now working on of a plan of how to address it properly into the market.

Okay. Next one [indiscernible].

I'm [indiscernible] Securities. So I have 2 questions. So the first is also regarding the profit margin. So we are not seeing the major expansion in sales channels in 2024, but our profit margin are still under pressure. And we are also seeing a onetime income from the JuveStar investment. So can you maybe briefly explain what is about this JuveStar investment? And can we expect the rebound of profit margin in 2025 or maybe next year -- that's my first question.

Yes. Lior, I will take this question. So actually, JuveStar is a company we have invested in China as a minority shareholder. So last year, this company actually got additional investment for a third party, which is also a very strong financial background. And by investing in this JuveStar, this new investor, they also bought some shares from us. That's why we got some earning on our P&L. It's around $3.4 million on the impact on the P&L. I think if we leave this deal aside, like leave the impact aside, I think in general, for our EBD products, we still maintain very stable profitability because we are doing a lot of new investment, let's say, for the injectables and also for the new skin care infrastructure. So they did have some OpEx on the P&L. But just for the core business stand-alone, I think 2024 is still very stable in EBD. And besides that, I think for 2025, we are expecting for the new subsidiaries that Lior mentioned, that's the U.K. and Dubai and also South Korea, sorry, and Japan, I think they are all in the materialized stage. In this way, we are expecting actually the profitability will be better also compared to the last year for those subsidiaries in order to show the good performance for the company in the EBD business. Of course, company will still balance the EBD business and also the investment in our new initiatives like Daxxify and the Profhilo and later on the integrated solution. I think the management are confident in the future development for the company. Yes.

Thank you. Yes. That's very clear. And my second question is about the global EBD market. So we are seeing the slowdown in revenue growth either in North America also in our companies and also our performance in Japan and Korea, there may be also a slowdown in growth in 2024. So the global EBD industry and growth slow down to like a single-digit growth? Or can we still expect a high single or maybe still low double growth in [indiscernible]? That's my second question.

Thank you. I think I still believe that it's important to show that, in general, the whole aesthetic segment of this wellness industry has a strong potential growth. It is true that within the different segments, EBD, injectables, skin care injectable is the part which has the strongest growth, it's true. But EBD in general was always somewhere around the 6% to 8%. But it's on a global level. In the past, China was a very, very strong leading player and will be also in the future. Once some of the financial, local parameters will change. And we're getting ready to that with our preparation, as we spoke before, with the readiness with Daxxify, the readiness with the approval of the Profhilo down the road and all the portfolio that the lasers that we have. On the other side, in America, being a leader over there, adding the AI and the skin care unique tailored solution, we'll speak about that in the 2025 results. We believe we'll be able to control very well the global brand. So the strategy that you can see we're talking about is about combination, taking the benefit of the clinical, but also business aspect between the EBD, the skin care, the injectable and also diagnostics. The Alma IQ and this will give a lot of value to the clinics. And we know the number of clinics that came into this segment in the last few years, especially after COVID is very high in a very fast way and they try to go inside this business. And it's our responsibility as an industry to give them support and value and help them grow. And with them, we will grow as well. So this whole combination, driving patients into the clinics, Kate Hudson brand ambassador really, really helped in Western markets because of attention to the procedures of Alma.

Okay. Next [indiscernible].

I've got 2 questions here. The first one is regarding Europe. I noticed there was deceleration in Europe in the second half. So any headwinds in Europe and what's our outlook for Europe in 2025. And my second question is regarding the adjusted net profit margin. Do we have any outlook for the net margin in 2025? And any initiatives or potential for the margin expansion?

About. Let's start first with the Europe operation. I think Europe, the major impact in Europe, I think, would be the still tension that we see the geopolitical extension that has an impact and pressure on not just on Ukraine and Russia, we know there is an impact on Germany, for example. And that creates a burden on clinics that would like to open, and we could see this. Now I think also we should be aware to the fact that we signed the contract with an injectable, the North American injectable company named Prollenium and we're going to distribute their injectables beside our lasers. And that will be happening in Germany, Switzerland, Austria and also the United Kingdom. It's going to be a very big advantage. There are no players that can combine these type of technologies into the clinics so that will be, I guess, 1 of the big advantages going forward specifically for Europe margins. We don't -- we won't be able to give right now a clear forecast but I want to be more clear about the fact that we drive our profit from the EBITDA side of the business, because of the technologies that we introduced, as I mentioned before, they allow us to keep a high gross margin, allow us to drive the profit into incubation such as like building the teams of injectables such as launching the new tailored solution skin care with AI technology. And this puts us in the ballpark of a profitable business. Normally, over the last 3 years, it was in the ballpark of a 10% net profit as a target because sometimes there are fluctuations in the business and you need to have that profit. So we see ourselves as very realistic in control company that knows to utilize the profit that we generate from one part of the business and execute and spend the money on where the strategy is. And this is what we are doing over the last few years and reported on that.

That's very helpful.

You're welcome sir.

Next one is [indiscernible].

I have 2 questions here. First one is regarding Revanesse so how much revenue brought by the long-acting products in 2024 as we understand the product is approved in the second half of the year. And just curious how much you will contribute to the performance in the future, what's your commercial plan? My second question is regarding our injectables portfolio. So we have a really comprehensive inject portfolios here, including Daxxify, Profhilo, the Revanesse and Hallura and so on. And just curious about it when it comes to deploying our sales resources or other corporate resources, what's the cadence of deploying those resources? And what's the plan for the future in injectable business?

Warren, thank you for these questions. So specifically for Revanesse from Prollenium, the U.S.-approved hyaluronic acid product. We actually only started to have a functional team really at the end of 2024. It was about recruiting the sales rep in Germany and the DACH market. And we also moved the Prollenium team, which was existing in the United Kingdom to join our team. So they are now employees of Alma and this also happened only in the last quarter of '24. So not much of revenue yet we reported in '24 on that specific product line. And we're now in the process of building the same team in Australia for Prollenium. We have more potential with other markets, but we're trying to be very careful that, mainly because of financial stretch, building a team takes resources. And following the last question, for example, to be able to keep profitable results with a minimum net profit, we want to be careful with expansion there. Now to your questions about regarding the different type of injectables that we have, at the moment we are utilizing the channel that we have in front of the doctor, the most expensive part of the doctor has in his clinic is the laser. It costs more than $100,000 or sometimes $150,000 and we have a very strong long-term relationship with them. Now if we have unique products like bio remodeling that with like Profhilo or Daxxify with the neurotoxin or unique next-generation hyaluronic acid bio remodeling products like Hallura, which is still a startup, but we can see very good feedback from the studies they have done and physicians that we are -- we know them for many years from the laser business. This allows us to incubate small startups with unique patents on such products like Hallura so right now, this is only the beginning. We hope to keep the gate open and see which technologies can fit to our offering to our doctors on the injectable side. So basically, the injectables is a product that can stand for itself for enough revenue, but also combine very, very well from a clinical aspect with our lasers. And that's kind of a hint to where we are going to take things, this is the concept of combination therapy.

Next, Nate, please.

This is Nate from UBS. I have 2 questions. The first is, I guess, your view on revenue and earnings outlook in the next 2 to 3 years. Revenue has not been growing in the past few years and margins a bit declining. I just wanted to understand when do you see what the inflection point potentially for revenue to go back to say a double-digit growth trajectories and what's going to be the growth algo behind that? And I know you commented a bit on margins already, but do you still see margin to improve, say, from 7% to 8% in 2024, back to, say, low teens that we used to enjoy in the next few years, especially we already have 90% sales contribution from our direct sales model and also very promising injectable portfolio is about to launch in China market.

Nate. Yes. I think when we -- we're, of course, not giving a forecast for the coming years. But if I try to analyze and share kind of our thoughts about the industry and specifically how we look at things, we work within the space. And if there are headwinds from economical aspects and major regions and every region has its different aspect. I mean, you cannot compare the financial economical aspects in North America to China. It's different or Latin America, it's a different challenge. And within that frame, we maneuver with our technologies, and we maneuver with our channels. One of the things -- and I think from our results when compared to the peers, just EBD peers, you can see that I would say we maneuver relatively okay compared to the others. You probably know the results of Allergan and which is also reflecting adjustment to what's happening in the market. But what is more important to share here, Nate, is the fact that over the last few years, we took a very important strategic decision to be direct in 12 markets. And being direct means not -- of course, you are facing the customer. You're also in control of your operation. There are areas sometimes that you want to be taking more of an investment to take more control in market share. And there are areas that you know you can cut down operation because the situation in a given market is not in a good shape, and we have to be careful. So I think -- very difficult to predict where the world economy would go and how consumers would have an impact, but there is very clear that the wellness industry is somewhere that people want to go and invest because all of us want to feel and take care of ourselves. So now our job is to introduce the best technologies possible and give the best service possible because at the end of the day, when we want to expand into further and larger audience, their knowledge about the technology is limited, of course, if we were talking about bigger and bigger numbers so they need to trust our brand. And this is all that we are trying to do altogether, advanced technologies, strong channel and support and sustain a strong brand, which you can trust. And that's why it gives us that kind of a sense of control that we expect to overachieve any player in the market regarding growth. Even if the market is going down because of the economy, still be a healthy, sustainable economical company.

Very clear. Very exciting developments. My second question is on competition. I just wanted to understand in general for our EBD business, are we gaining or losing market share in key markets like U.S. and China? I just want to get a sense of market share improvements. And in China, for instance, are we facing competition from local companies or brands which say compete against us through like low prices.

Okay. Nate, yes. That one is also different, of course, in every market. So I think that I would argue that even if you just take revenue on the public companies, you would see that our market share is growing. I think this is for North America. Regarding Mainland China, I think it's important to note and remember, local competition in China exists from day 1. When we sell in Mainland China, and we are by far the leader player in China, but still, the potential in China is huge. The question is how well you manage your business and how well -- how deep you go inside into the market? Because selling technology, which is advanced technology to an organization that doesn't have the right operation to sustain education to the staff, to deal with managing the complexity of the fast pace of demand and so on, we have to be very careful in how we support accounts that we come inside. And so we are very careful in that level, taking consideration, collection, taking consideration being able to have a solid, healthy accounts receivable, which we have over the last, I mean the fact we are active in China more than 20 -- almost 25 years, give us that experience which, of course, being back with a solid name of Fosun as part of Fosun family. So we are a leader in this market, and there are smaller players but the most important part, I believe, would be the brand and the brand in front of our customers, the B2B. And we're also testing our presence in front of the consumers. And actually, in China, we got the strongest results on a B2C level, which is important.

Our team also have 2 questions for the management team. So first one, I know Lior and the management team has already talked a lot about the potential product launch and interest rate decrease. And also, we know the very major launches of injectables in China also the ramp-up in Japan and Thailand since we have a direct sales team there. So my question is how should we expect the sales growth in different regions this year. Maybe can you share some colors on the ballpark numbers or maybe just the trend, please?

Yes. So this is -- as I mentioned we are giving a forecast right now because it's still uncertain exactly what will be the situation with the interest rate, whether they will continue to come down. But rightfully, you said, and I agree, and we would agree that every -- not only every region has a different expectation, every office would have a different expectation because we expect at this stage, all of our new offices at this stage after year #3, for example, to be profitable. And so this is very, very important to say. I think markets -- Western markets are easier to predict like North America or the United Kingdom, markets which are more conservative, we need to be careful with them like the DACH market. But remember that we also expect the first year of business of injectables, like we've talked before, such as the Prollenium product such as Hallura, in some of the markets, and this should give us some extra potential. So -- and of course, the fact that we launched new products -- 3 major launches like during 2024, more fruit would come in '25. So we have a lot of potential to play with. Always we talk about upside, sometimes we are surprised by downside. We like a political thing that might happen in Latin America that every other year we might face. But that's the benefit that we have at Sisram, we are active in 100 countries, and we can play with this.

And the next question comes from my colleague [indiscernible].

This is [indiscernible] CICC health care team. I just want to ask one quick question about [indiscernible]. I was wondering if they meet the performance target, how much should we pay to them.

Sure, sure, sure.

So the acquisition was closed in 2023. And the first period as we disclosed in the under annual results, business development section, we have paid for the first period consideration which is around RMB 12.5 million. So I think the second period will be starting 2024 July 1 until 2025 June 30, that's the second period. And the third period, as we disclosed in the announcement will be on another following years. So I think for the first period, they have overachieved the performance, both in the top line and the bottom line, like EBITDA and we are aiming for the second period, yes, that's the goal for the company also for the order management, yes. And we will disclose once each period was -- will be finished, and we'll disclose how much money we pay for the consideration. Yes, they will still -- there are still going to be 2 payments in the following years. Yes.

Okay. Very helpful. No more questions, and thank you. Yes, it's almost an hour so thank the management team for your time and also thank the investors for taking the time to join our call. We are looking forward to hear more good news from Sisram. So that concludes our call today. Thank you.

Thank you.

Thank you. Have a nice day. Yes, have a nice evening.