Stille AB (STIL) Earnings Call Transcript & Summary

Welcome to the conference call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead.

Good afternoon, everyone, and thank you for joining Stille's quarterly conference call for Q3. My name is Ulrik Berthelsen, and I am the Group CEO of the Stille Group. I'm joined today by our Group CFO, Niklas Tyren, who will take you through the financial overview shortly. I will start with the key highlights for the quarter and provide an update on the development of the business. So overall, we are very pleased with the third quarter. We delivered another quarter of strong profitable growth and a very strong cash flow. Revenue increased to SEK 171 million, corresponding to a total growth of 23% and organic growth of 17%. Rolling 12-month sales exceeded SEK 700 million for the first time ever. Profitability also continued to improve. EBITDA before nonrecurring items increased by 29% to SEK 34 million, and the EBIT margin before nonrecurring items increased to 14.4% from 12.5% last year. Cash flow from operating activities more than tripled to SEK 34 million from SEK 10 million last year. In Surgical Instruments, organic growth was 19%. Better product availability allowed us to shorten delivery times and reduce back orders. Underlying demand remains strong, but reported growth does benefit from delivering previous back orders. Surgical Tables grew by 9% following the record second quarter with continued robust demand for both imagiQ3 Legacy and Medstone. For the first 9 months, organic growth was 20%. The EBITDA margin before nonrecurring items was 20.3% and earnings per share more than doubled. So to summarize, Q3 shows continued strong demand, better delivery performance and an improved financial position. Let me briefly elaborate a bit more on the operational progress behind the quarter. In July, we said that our priority for the second half was to continue improving delivery performance, and I'm pleased to say that we made significant progress in the third quarter. Within Surgical Instruments, more effective supplier management and increased production, particularly at S&T in Switzerland, allowed us to shorten delivery times and reduce back order levels. This matters beyond the quarter. Better product availability strengthens confidence among our customers as well as partners in our ability to deliver, and that helps to stimulate future demand. We are not done yet though. Delivery performance remains a key priority for us, and we will continue to work on supplier management and production capacity to make sure that we scale our supply for future growth. In Surgical Tables, demand remained robust after the record second quarter, supported by both the imagiQ3 Legacy and Medstone. For the first 9 months, Table sales are up around 30% versus 2025. On the commercial side, we are increasing the pace of our activities through our direct sales teams as well as our partners around the world, leveraging the full portfolio of the Stille Group. So in summary, operations and the commercial side are moving in the right direction, and that is what we see reflected in the numbers. With that, I will hand over to Niklas, who will take you through the financials in more details.

Thank you, Ulrik. If we start looking at the revenue, we -- the revenue in the quarter was SEK 170.6 million, an increase of 22.9% compared with the same period last year. Organic growth was 16.5%. Surgical Holdings contributed further with SEK 8.9 million in the quarter of acquired revenue. This is lower than in the previous quarters because Surgical Holdings was acquired during Q3 last year. So the acquisition impact from that is limited to the month of July. Currency translation had a positive impact of SEK 2.1 million on revenue. And in constant currencies, the total growth was 21.5% and organic growth was 15.2%. As Ulrik mentioned, we surpassed on a rolling 12-month basis, SEK 700 million for the first time, reaching SEK 711.4 million at the end of Q3. If we move on to earnings, starting looking at the gross margins, they improved to 49.9% compared to 48.8% last year. And excluding Surgical Holdings, the acquisition impact of Surgical Holdings, gross margin was 50.5%. This improvement was mainly driven by positive mix impacts. EBITDA before nonrecurring items increased by 29% to SEK 33.7 million, and the margin increased by 0.9 percentage points to 19.7%. EBIT before nonrecurring items increased by 42% to SEK 24.5 million, and the margin improved by 1.9 percentage points to 14.4%. Excluding the acquisition effect, the EBITDA margin improved by 1.3 and the EBIT margin by 2.3 percentage points. Operating expenses increased by around 20%, slightly below sales growth, reflecting the larger group and continued investment in our organization, but nevertheless, leveraging the cost -- the higher sales to improve the margins. Currency translation had a negative impact of SEK 0.4 million on EBIT before nonrecurring items. And this quarter merits a little bit closer look on nonrecurring items as they occurred both in this year and last year in the quarter. Starting with this year, nonrecurring items were a net positive of SEK 4 million, consisting of tariff refunds of SEK 5.2 million and partly offset by SEK 1.2 million of costs related to organizational restructuring. Last year, nonrecurring items were a negative SEK 7.1 million relating to transaction costs for the Surgical Holdings acquisition. So reported EBIT after nonrecurring items was SEK 28.5 million in '26 and SEK 10.2 million in '25. Looking a bit closer on the segments. Surgical Instrument sales increased by 27% to SEK 133.8 million with organic growth of 18.9%. EBIT before nonrecurring items increased by 21% to SEK 20.4 million. The reported EBIT margin was 15.3% compared to 16% last year, mainly reflecting the incorporation of Surgical Holdings and adverse currency translation impact. Excluding the acquisition effect, the margin was broadly stable down 0.2 percentage points, which is explained by above-mentioned currency translation. Surgical Tables sales increased by 9% to SEK 36.8 million and EBIT before nonrecurring items increased to SEK 4.1 million from SEK 0.5 million last year, and the margin improved from 11.2 -- sorry, improved to 11.2% from 1.5% last year. And for the first 9 months, the Tables EBIT margin was 11.8% compared with 3.8% last year. If we look at the cash flow and financial position, cash flow in the quarter was strong. Cash flow from operating activities was SEK 34 million compared with SEK 10.2 million in Q3 of '25. The improvement was driven by higher earnings with working capital broadly neutral in the quarter. For the first 9 months of '26, operating cash flow was SEK 91.2 million compared to SEK 39.5 million last year. Cash and cash equivalents were SEK 170.7 million at the end of the quarter, and we had a net cash position of SEK 6.6 million. Net debt to EBITDA was a negative 0.4%, and the equity to assets ratio was 69.2%. In summary, overall, the third quarter combined strong organic growth, improved profitability and a very good cash generation. For the first 9 months, revenue has increased by 35 -- 37%, EBITDA before nonrecurring items has increased by 44% and operating cash flow has more than doubled. And with that, I hand back over to you, Ulrik.

Thank you, Niklas. So to conclude, Q3 was another strong quarter. We continue to grow organically, improve margins and cash flow and made clear progress on delivery performance. Looking ahead, our priorities are to scale instrument supply to support our continued growth, strengthen commercial execution and customer access and leverage the strong imagiQ3 momentum to gain further market share. We will continue to develop the group's capabilities and infrastructure required for the future. With a net cash position, strengthened margins and improving delivery performance still is in a very strong position to take the next step, both organically and through selective acquisitions. With that, we are happy to take your questions.

[Operator Instructions] The next question comes from Christian Lee from Pareto Securities.

I will take them one by one. Could you please give us a status on the supply situation? Are you now back to normal?

Thank you very much for your question, Christian. In terms of the supply chain situation, we have made a significant progress during the quarter. As we have talked about continuously during 2026, we expect a gradual decrease in back order level. And the following Q3, we still remain with elevated back order levels. It has been reduced during the quarter, and we expect to see a further reduction during Q4 as well.

Okay. Great. Could you please talk about how demand for instruments look right now? You have said it remains strong. Would you say that it is in line with your long-term growth target?

When we look at the instrument demand all the way back from 2025, when we talked about it, we have been pleased with the underlying demand, and that has continued during the third quarter. So the challenges we've had in the past has really been the supply side. Again, good progress on that front, and this is also something we believe is very crucial for supporting the future demand on the instrument side that we can deliver on time. So strong development on demand and again, good progress on the delivery situation.

Okay. But could you please elaborate a little bit on what is driving demand for both instruments and tables right now? Is it specifically your products that are benefiting? Or is it more market driven?

So I think it's a combination of both. We see on the table side, if I start with that, there is a effect of investments happening in the care setting. So for example, in the U.S., we are seeing ambulatory surgery centers, office-based labs and so on increasing. We're also seeing infrastructure programs, as we alluded to during the second quarter, for example, in Central and Eastern Europe, that is helping to drive growth. But clearly, when you look at the growth we've had for tables during the first 9 months, we are taking market share from what we see and that is driven by a very strong product. We came out with imagiQ3 at the very, very end of 2024. And this is where we can see now with a strong commercial execution, good product delivery and a strong product that, that is really helping us to drive growth. In terms of Surgical Instruments, I would say it is a combination. We are very proud of the portfolio of products we have. There is an underlying growth in the market, but that is more sort of mid-single-digit growth on instruments, driven by increasing population, better access to health care and so on. What we see as a good demand for the products we have due to the quality and the specialized nature of these.

Excellent. Very clarifying. My last question is regarding the EBIT margin for instruments that was slightly down year-over-year in the third quarter. Was it purely a mix effect? Or I'm wondering why you're not seeing a positive scale effect which sales up 27% year-over-year?

This is a dear topic for most of our calls with the margin. But let's start having a look at the reported numbers, as we -- as you referred. First of all, there is the impact from the Surgical Holdings acquisition, which explains the larger part of the deviation versus last year. And the remaining is explained by currency translation. So excluding both of those effects, margins are basically -- they are flat or stable with last year. As you also mentioned and that we have talked about before, margins are impacted by a number of different mix impacts. It is product mix. It is a market mix depending on which market we sell, margins will behave -- will look differently. And also depending on the sales channel, margins will also look differently. Selling through a distributor has on margin profile and going direct has a different margin profile on both gross margin and EBIT margin. So we are always going to strive at improving efficiency in our operations and improve the margin and the leverage that we can get out of the growth that we see. That being said, we are looking at sales of being the main driver of bottom line growth rather than a margin optimization approach, so to speak, if that helps.

Okay. But could you help me understand the margin development for the Instruments. During the 2 last quarters, EBIT margin has been around 15%. But in the previous 2 quarters in the fourth quarter and the first quarter of this year, the EBIT margin was around 18%. So how should we consider the underlying EBIT margin for Instruments going forward?

It's always -- I mean I would say that overall, in general, looking at the year-to-date margin profile is rather reflective of where we are and where we stand. Isolated quarter can have quite a lot of impact from the mix impacts that I mentioned. Over time, that will even out. So that's the way I would look at it.

The next question comes from Phillip [indiscernible] from SB1 Markets.

A couple of questions from me. I take them one by one. The first one on Instruments. Could you give us some color on the performance across your portfolio between still S&T, Surgical Holdings and [indiscernible]? So maybe give us just some color on the development between the brands?

Sure. We -- thank you for the questions, Philip. As you know, we don't disclose the details of the individual brands in terms of the exact revenue. That being said, to give you a little bit of color on it, I would say that when it comes to feeling on the cardiothoracic side, [indiscernible] as well as SS&C on the microsurgery. Both of those brands are performing very, very strongly in the instrument side at the moment. And I think that is a testament to the premium instruments we have in surgical niches that look very good, combined also with an improved delivery situation, making these highly specialized products available to surgeons around the world. So those are probably the 2 that I would highlight again as being showing a very positive performance.

All right. That's clear. And then on the tariff refund, you received SEK 5.2 million, does that cover all tariffs you have paid since the new tariffs were introduced last year? Or was it just a small part of it?

It's a part of what we expect to see or expect to recover. I would guesstimate it at around 60 -- around 60% of what we would expect to see.

So we can assume some more refunds in Q4 as well though?

That is our target to be able to recover that. And obviously, it is always going to depend on the administration in the U.S. when you actually get the refunds back and if they're approved.