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Earnings Call Analysis
Q2-2024 Analysis
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In the second quarter of 2024, Embla Medical achieved its highest ever quarterly sales of $217 million, reflecting a solid organic growth of 6%. When factoring in acquisitions, local currency growth reached 9%. This success was largely attributed to strong performances in the Prosthetics and Neuro Orthotics sectors, accompanied by significant contributions from the Patient Care segment. Despite healthy growth, the Bracing & Supports business showed more modest results, which will be addressed in the company's ongoing strategies.
The company's EBITDA margin surged to an impressive 22%, a three percentage point improvement from the same quarter last year. This enhancement was fueled by effective cost-reduction initiatives in manufacturing, a favorable product mix, and scalability benefits. Looking forward, Embla Medical provided a narrowed guidance for full-year 2024 organic sales growth at 6% to 8%, slightly up from the previous range, alongside expectations for an EBITDA margin stabilizing at around 20%.
The acquisition of FIOR & GENTZ, a key player in neuro orthotics, underpins Embla's commitment to expanding its product offerings. The integration process is on track, with performance aligning with initial business cases. The company is also tapping into its sales infrastructure in regions such as EMEA to extend FIOR & GENTZ products into new markets, including Australia. Moreover, innovative launches in bionics and liners add to the company’s appeal among patients with mobility challenges.
Embla Medical recently announced plans to unify its patient care facilities under a new brand identity, ForMotion. This strategic shift aims to enhance recognition and operational efficiency across its global network. The transition is slated for a phased rollout, expanding from select regions in the U.S. to the international market. This brand consolidation, while incurring some costs, is not expected to significantly impact the company’s financial outlook.
A pivotal development for the company is the U.S. Medicare's finalized policy allowing K2 amputees access to bionic prosthetics, effective September 1, 2024. This reform opens substantial market opportunities, as historically, Medicare has limited coverage primarily to higher-functioning amputees (K3 and K4). The anticipated market expansion could lead to significant revenue growth, although its impact has not yet been factored into guidance for this year.
In terms of geography, the EMEA region exhibited remarkable growth of 11%, buoyed by the Prosthetics and Neuro Orthotics sectors, marking the fourth quarter of five where the area achieved double-digit growth. Meanwhile, APAC sales were healthy at 9% organic growth, despite facing some challenges in Australia due to reimbursement delays. The Americas segment, however, showed softer performance owing to tough comparative figures from the previous year; nonetheless, high-end solutions continued to perform well.
Throughout the remainder of 2024, Embla Medical projects a robust performance, particularly in Prosthetics, Neuro Orthotics, and Patient Care sectors. The company anticipates resolving some reimbursement hurdles in Australia, and is prepared for improved sale dynamics as market conditions stabilize in the Americas post-cyberattack impacts. Additionally, capital expenditure is forecasted to decline in the second half of the year, contributing further to cash flow improvements and net working capital efficiency.
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Good day, and thank you for standing by. Welcome to the Embla Medical Q2 2024 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sveinn Solvason, CEO. Please go ahead.
Thank you, operator. Good morning, and welcome to the Embla Medical conference call where we will review the second quarter results for 2024. My name is Sveinn Solvason, President and CEO of Embla Medical. Joining me today is our Chief Financial Officer, Arna Sveinsdottir; Embla Medical's new Head of Investor Relations, Klaus Sindahl is also with us today, joining remotely from Copenhagen.
Today, we'll discuss the financial performance and progress we've made during the second half of 2024. The presentation should take roughly 10 to 15 minutes, after which there will be an opportunity to ask questions during a Q&A session.
And if you turn to the next slide, please. We delivered our highest ever quarterly sales in the second quarter. Sales amounted to $217 million, and organic growth was 6%, and local currency growth was 9% when including acquisitions. Sales growth for the second quarter was driven by Prosthetics and Neuro Orthotics, and strong contribution from our Patient Care segment. Our Bracing & Supports business delivered more modest growth for the quarter, and we'll address the drivers for our performance or sales performance in the coming slides.
Our EBITDA margin came in strong for the quarter at 22%, supported by the cost reduction initiatives implemented in manufacturing during the first quarter as well as positive product mix and scalability. And Arna will cover our financials in more details later on. We are executing well towards our Growth’27 strategy and in line with a good performance in the first half of the year, we are narrowing our full year guidance to 6% to 8% organic sales growth and EBITDA margin to around 20%, as we expect continued good progress for the remainder of the year.
On our strategic initiatives, we're pleased to see good progress across several key topics. Earlier this year, we acquired FIOR & GENTZ, a leading maker of lower limb neuro orthotics components. The acquisition is an important step in our growth journey and expansion into the field of neuro orthotics. I feel we are excited about as we are broadening our ability to support individuals with the chronic mobility challenges. The integration FIOR & GENTZ is going according to plan, and we are pleased to see that both sales and profitability continue to be in line with our business case.
And as planned, we are leveraging our sales infrastructure in -- starting in EMEA to bring the FIOR & GENTZ products to even more patients as well as introducing the products also to new markets, such as Australia. I'm also excited about our progress in R&D as we launched innovation this past quarter in both bionics and liners, which I will cover in more detail on the upcoming slides.
A few days ago, we announced our intent to unite our network of patient care facilities on to a new common brand identity called ForMotion. The ForMotion brand will be introduced in stages beginning in selected regions in the United States and will eventually encompass the entire network of our global O&P patient care facilities, currently operating under different brand names. This global network of O&P facilities will deliver comprehensive, modern and innovative care while celebrating the expertise and heritage unique to each and every location.
Lastly, Medicare in the U.S. announced last week the finalized policy, which will allow lower limb K2 amputees to get access to bionic prosthetic solutions. The implementation of the policy is planned to take effect as of 1st of September this year. We very much welcome this decision by Medicare, which we believe will hugely improve these individual slides helping them become more active and able to perform critical activities of daily living more independently. The extension of coverage will potentially lead to a meaningful expansion of the addressable market for bionics as Medicare so far has restricted access to high active amputees classified as functional level K3 and K4. In addition to the extent that coverage may also grant the K2 amputees access to compatible high active K3 foot solutions as a complement to the bionic knee with certain -- or when certain coverage criteria are met.
In summary, the decision to grant lower limb K2 amputees access to bionics directly supports our broad strategic objective of bringing high-quality prosthetic devices to more amputees, creating value for both patients and health care systems.
If we turn to the next slide, please, on the geographic performance. In the second quarter, we saw continued strong momentum in the EMEA region with 11% growth driven by Prosthetics and Neuro Orthotics as well as a strong performance in our Patient Care segment. This is the fourth quarter out of 5, where we post double-digit growth in the EMEA region. Sales in APAC were strong with 9% organic growth. Growth was supported by all business segments, although reimbursement delays in Australia continued to somewhat impact sales during the second quarter as was the case in the first quarter. We don't think that sales are lost for that reason, but rather, they are pushed into the second half of the year. Lastly, sales in Americas continue to show general softness as in the first quarter of the year, although we had good growth in high-end solutions and key Patient Care locations, which, however, was offset by slower performance in other product categories and locations.
It should also be noted that we have tough comparison from same period last year.
And if you go to the next slide, please, on -- some more information on our recent launches. As briefly mentioned in the highlights, we launched exciting new innovation in the second quarter with 2 new bionic knees introduced to the market as well as a new liner solution, they are Iceross Seal-In X Locking TF for more comfort and stability to users with lower limb amputations of all activity levels. On the bionics, we launched NAVii, which is essentially a next-generation Rheo Knee. The NAVii is a fully waterproof bionic knee developed by Össur featuring a powerful actuator provided to support consistency for stair and ramp descends. Patients using the new NAVii solution will enjoy a strong support and enhanced mobility when they are walking, standing or descending as this solution will provide safety and comfort in any terrain. The new NAVii is currently in limited launch, and we don't expect any meaningful contribution until early 2025, where the full launch is expected to kick in.
In addition, we launched Icon by college Park. Icon is a versatile solution for low to high activity users, designed to be user friendly for every step of the way, featuring responsive sensors, streamlined setup and the intuitive Stride Studio app. The knee is currently available in the U.S., and we expect to bring the knee to European markets later in the year.
And if you turn to the next slide, please, for a little bit more details on our Prosthetics & Neuro Orthotics business. As previously communicated, our Prosthetics segment was renamed to Prosthetics & Neuro Orthotics last quarter to include sales from our FIOR & GENTZ acquisition. Organic growth for the segment amounted to 6%, driven by increased sales and selling of high-end solutions. We would, however, like to note that this quarter is up against a strong comparable quarter in 2023, where organic growth in Prosthetics amounted to 18%. We saw continued strong momentum in EMEA, driven by volume growth across key European countries, most notably in Bionics. In the Americas, modest growth with some good performance in high-end solutions, partially offset by softness in other categories. In APAC, we posted good growth in Australia, although sales remained negatively impacted by reimbursement delays, while growth in Asia was more stable. As mentioned in the beginning, our new neuro orthotics business delivered a strong performance through FIOR & GENTZ with sales and integration well on track.
Lastly, we saw Bionics as a whole continued to contribute strongly for the quarter.
We go to the next slide, please, on Bracing & Supports. Organic growth amounted to 2% in the quarter. Growth in EMEA was modest, and again, driven by good performance in high-end solutions, such as the Unloader. APAC, good performance across markets and product categories, while sales in Americas were flattish, driven by growth in Canada, but offset by a softer performance in the U.S., partly due to some continued impact related to a Change Healthcare cyberattack earlier this year, which impacted our customers' ability to process claims in the U.S.
And then finally, next slide, please, on the Patient Care business, which delivered strong organic growth with 9% for the quarter, driven by strong contribution from EMEA across all major markets. And we also saw solid performance in APAC. And sales in Australia were good, although we continue to see some impact on the previously mentioned delays in reimbursement approvals impacting the Australian market. Sales in the Americas were modest where we observed strong growth in certain locations, while other locations were softer.
This concludes the sales performance already for the quarter. And I would like to hand it over to Arna through the financials in more detail. Arna, please?
Thank you, Sveinn. Gross profit margin was 64% in the second quarter compared to 63% in the same period last year. The increase is partly resulting from cost reduction initiatives in manufacturing, executed during the first quarter of the year, as well as positive product mix and scalability had a positive impact as well. We are happy with the progress on OpEx with 3% organic growth in the quarter relative to delivering organic sales growth of 6%. The lower OpEx growth is attributed to cost control with also less variable compensation in Americas in relation to soft sales performance in the region. With a strong gross profit margin and low OpEx growth, I'm pleased to report a strong EBITDA margin of 22% or a 3 percentage point expansion from Q2 last year despite a small currency headwind. Net profit ended at $20 million for the quarter or 9% of sales compared to 8% in quarter 2 last year. The effective tax rate remains around 24%.
And if you would please turn to the next slide for status on our cash flow levels, please. During the second quarter, CapEx spend was $11 million or 5% of sales. The current level remains above a normalized level as we continue to invest in facility upgrades in key locations to support the company's growth. It is, however, expected that CapEx will lower in the second half of the year as the current CapEx expansion programs are expected to largely be concluded in the second half of the year. Free cash flow was stronger in the quarter and benefited from increased costs from operations and lower CapEx compared to the same period last year. Our current inventory level remains elevated due to buildup of the new bionic solutions in preparation for launch. On the contrary, we are seeing inventory in our Bracing & Supports business continue to decline and it is in line with our expectation. For the second half of 2024, we expect cash flow to improve further as operating profits are expected to increase and CapEx to come down.
On the leverage side, it is worth mentioning the net interest-bearing debt to EBITDA continues to be above our target range following the acquisition of FIOR & GENTZ earlier this year. Leverage level l has begun to decrease as our debt has reduced, and we see stronger operating profit. Until we will return to our -- communicated range of 2 to 3x, our share buyback program will remain on hold. With this, I hand over to Sveinn for final remarks and comment on the guidance. Next slide, please.
Thank you, Arna. As communicated in the beginning of this presentation, our guidance for the full year 2024 is narrowed in line with the good momentum and profitability recorded in the first half this year. The updated guidance for organic sales growth is now 6% to 8% from previously 5% to 8%, while EBITDA margin before special items has narrowed to around 20% from the previous year 19% to 20%.
For the remainder of the year, we expect continued strong performance in Prosthetics and Neuro Orthotics and Patient Care as we have observed in EMEA to date as well as we expect some of the reimbursement headwinds we have seen in Australia to ease. We expect increasing sales performance in Bracing & Supports should market provisions in the Americas improved after the indirect impact from the Change Healthcare cyberattack.
Lastly, we continue to expect strong volume growth in addition to positive mix from functional trade-off in bionics. It should be emphasized that the new bionic products we launched in the quarter are not likely to contribute meaningfully until early '25 as the initial launch will be carried out in a limited number of clinics to ensure a smooth launch and uptake. Neither have we assumed any meaningful impact on the new U.S. Medicare reform, which is expected to be implemented in September as it will take time for the market to adapt to these changes.
Regarding the EBITDA guidance, EBITDA margin before special items amounted to 19% for the first half of 2024. We would like to highlight that EBITDA margin is seasonally stronger in the second half of the year for our business. The full year EBITDA margin is expected to increase year-over-year following cost reduction initiatives in manufacturing implemented during quarter 1 in addition to impact from positive product mix, scalability and cost control in OpEx.
With this overview, our presentation is now concluded, and we would like to open the call for questions and move to the last slide, please, operator. Thank you.
[Operator Instructions] We will now take the first question from the line of Christian Ryom from Danske Bank.
I have 3, please. First two on the top line and then one on gross margins. So first on Australia, can you help us with a rough sense of your estimate of the impact of these reimbursement delays? How much of that impacted your growth for, say, the APAC region over the last couple of quarters? And do you expect that to be fully recouped? Or do you think that there is slightly some of that, that will be lost? And then the second question also to the top line is whether you could help us with a sense of the growth rate that you've seen for the FIOR & GENTZ business, whether that's been in line with what you reported for the business at the time of the acquisition and in Q1, or whether there has been any significant movement in either direction? And then the third and final question is on the gross margin. And a question on whether you can help us with getting a sense for the bridge -- for the drivers of the gross margin from Q1 to Q2. So I think when you adjust for special items in Q1, the gross margin is up by close to 2.5 percentage points from Q1 to Q2. How much of that is, say, can be attributed to the savings initiatives that you've done, how much of that is scale and how much of that is mix? That's my questions.
Christian, thanks for the questions. On the first one, you could assume that Australia is around 1/3 of our APAC business approximately. And if we look back over the last years, this region or the Australia region has performed well on the back of changes that were implemented, well, now years ago to the NDIS system or the reimbursement system in Australia that allows for faster access to faster mobility solutions, partly also similar to the change we will now observe in the U.S., where the public reimbursement system has recognized the benefit of paying for or funding high-quality mobility solutions for the benefit of patients and simply for cost efficiency also. So this region, Australia has delivered quite stable double-digit growth where here in the first half of the year or in quarter 1, we see some decline. We're back on a growth track here in quarter 2 and should also recuperate some of the lost sales in the first half of the year and the second half of the year. I hope that gives you a little bit of assumptions to work with.
It does.
Perfect. On the on the FIOR & GENTZ status, the FIOR & GENTZ business is performing very well. We did communicate as when we acquired the business here in quarter 1 that we expect our business case was largely based on driving at least double-digit growth. And that is what we observed here in the first half of the year even slightly above our expectations. And we continue to work on bringing these solutions to other markets, leveraging our commercial infrastructure.
And gross profit margin?
On the gross profit margin, if we adjust for the special items here in quarter 1, our year-to-date gross profit margin is at 63% compared to 62% same period last year. And what is driving the higher gross profit margin is a combination of a few things. It is, obviously, these cost reduction initiatives that we implemented in quarter 1. It is product mix. It is also just a faster [ rhythm ] and increased productivity. We have talked about, let's say, over the last couple of years, post-COVID, the impact we've had from supply chain complication on our productivity and rhythm in our manufacturing organization, we are now gradually moving -- getting back to pre-COVID levels in that regard. So it is a combination of these drivers. Yes, I hope that gives you a little bit of color. And also, just a reminder on the impact on the cost reduction initiatives, it's about $5 million to $6 million on a full year basis.
Yes, great. And maybe just a quick question for clarification. The gross margin implications of faster growth in the Patient Care business, is that is generally a high -- that's generally accretive to the group gross margin? Or how should we think about that?
No, it's not -- I wouldn't say that's a big impact, Christian -- maybe slight positive impact or not a major driver.
We will now take the next question from the line of Niels Granholm-Leth from Carnegie.
Could you talk about potential cost related to uniting your network under your new ForMotion brand in the second half and going into next year? Secondly, you have now recorded soft revenue growth in Americas actually across all 3 segments in the past couple of quarters. Could you talk about if you're seeing any general softness in the U.S. market? Or is it solely due to difficult comparatives? And then lastly, on the new Medicare reimbursement system or opportunity, would you be able to be more specific as regards to the effect on your business going forward now that the paper seems to be -- seems to come through.
Thanks a lot, Niels for the questions. On the ForMotion brand rollout, this is a big milestone for us to decide to consolidate onto one brand identity. And it's also a signal that we do see further or benefit from taking another step to be more, let's say, global in approach to patient care and leverage some of the network effects there are from operating a global patient care business. We have not factored in any major investments in this regard. There will, of course, be some costs related to branding and those sort of initiatives, but nothing that will have a major impact on the big picture as such.
With regards to the U.S., it is good to remember that quarter 2 last year, we grew 11% organically, and in quarter 1, 9%. So we're up against tough comparison. With that being said, the growth in the U.S. has been slower than what we had anticipated in the beginning of the year. Nothing has fundamentally changed as such. Reimbursement levels are stable. And we continue to sort of see opportunity in the market and especially now with this change around the LCD and that leads me to the last question. This is a major change, these reimbursement changes. And the biggest change we have seen in our industry with regards to public payers' willingness to invest in good mobility solutions for decades. And it underpins one of the main assumptions that we have made as a company with regards to going -- goes back to our philosophy in investing in innovation to drive increased mobility levels and -- or pushing for more access for more entities to get access to faster mobility solutions. And this is -- and let's say, Medicare has recognized these health economic benefits that come with best-in-bionic solutions to amputees. Now with regards to the more detailed impact, what we -- the data that we have in front of us is that about half of the claims that Medicare, or let's say, half of the volume that goes through Medicare is K2 patients, while the vast majority of cost is related to the K3 or K4 population. So as we move forward, the addressable market will obviously expand. And also worth noting that Medicare has also granted access to higher activity level foot solutions that to go with now -- go with -- let's say, go with bionic knee solutions. So it is our expectation that the market will expand as a result of this decision. We have not included in our guidance any meaningful impact from this change here in the last, let's say, in the 4 months from when this will be implemented here in the remainder of the year. But it's likely to have a small positive impact.
Great. Could you perhaps just briefly talk about if you have planned for any initiatives to raise awareness about this reimbursement opportunity among end users in the U.S.?
There is -- there has been quite some interest, obviously, about this change in the U.S., and our customers are -- getting ready to be able to serve the K2 population with -- in line with these changes. And this touches on another much growth theme in our industry, in general, is that patients are more influential in terms of what solutions are ultimately chosen and are much more or have much more ability to understand what options are out there. So that is -- and that will apply here in this case as well. Patients will be aware of this and, let's say, have on our opinion on what sort of solutions they will opt for.
[Operator Instructions] We will now take the next question -- from the line of Martin Brenoe from Nordea.
I just have 2 questions, and then I'll jump back in the queue. The first one will be also on the LCD. I think you said something interesting, which was that when Australia changed their reimbursement system, which were sort of the same as what we are seeing in the U.S., now that led to sort of double-digit growth. Is that fair to say that with this also being the same sort of mechanics in the U.S. that this is also what we should expect going forward in the U.S.? That's the first question. And the second question is sort of on the patient care side. Can you maybe just give a little bit of context how this fits into what you were saying at the Capital Markets Day in terms of uniting your retail network. And how you can lift profitability from that? Just how -- what does this actually mean in terms of profitability, how you work as to cross-sell, et cetera, et cetera? And [indiscernible] of course. Can you maybe just put a few words on that, that would be very helpful.
Martin, thanks a lot. Yes, I mean, the comparison to Australia is just a good one. I don't want to confirm or comment on what the growth rate in the U.S. will be. But the reason I mentioned that as an example, is that what we've seen in that market is that as -- because remember, our business is about -- most of our business is about serving an existing amputee population that is out there that consistently need to maintain, upgrade and renew their mobility devices. So what happened when the NDIS system changed in Australia, as patients come in for maintenance upgrades and renewals, they all is equal, they have access to faster mobility solutions. And the same will now happen in the U.S. So the patient population will gradually get access to faster mobility solutions. And that is good for patients, and that is good for payers. So that is just -- it's important to think about it like that, that it is -- yes, it's gradually, the patient population will have access to faster mobility solutions. Going back to the Patient Care business and also our Capital Markets Day and strategically how it all comes together. We in its most simple form, our Growth'27 strategy is about deriving the benefits from operating a basically integrated business that is serving individuals with chronic mobility challenges. We are operating our product business which has -- where the goal is to obviously grow our market share and get as many people as possible using our mobility solutions, but on the patient care side is to deliver best-in-class patient care. And being strong on in these 2 areas is you could say, mutually reinforcing with regards to our strategic direction. If we're strong on the patient care side, all else equal, it makes us a better enabler us to be a better partner for clinical customers and as well as we're stronger on the patient care side, we are -- sorry, on the product side, it could be a faster patient care provider. So taking this step with ForMotion is that it's another step in our maturity journey where we see opportunities to leverage the network effect of operating a global patient care business. At the end of the day with our goal to just offer best-in-class patient care.
Makes a lot of sense. Just one quick follow-up and then I'll jump back, sorry. The new product launch here, the NAVii bionic knee. Is that product launch and the timing of it anyhow related to the LCD being finalized here. Is there any sort of read across from that?
No, not as such. I mean, these -- I mean both of these development initiatives were in the pipeline before we got news of the LCD change as such. But it obviously strengthens our position to address the increased demand that there will be for these types of solutions that we now have a much broader bionics portfolio and more alternatives basically.
[Operator Instructions] We will now take the next question from the line of Niels Granholm-Leth from Carnegie.
Just a quick housekeeping question. Your net financial expenses were pretty high in this quarter. Could you talk about any unusual items affecting this quarter and how we should look at the net financial items for the next couple of quarters?
Net interest expenses. So net interest expenses, you can see it -- I expect it to be similar in the current quarter. Increase in interest expenses is by acquisition of FIOR & GENTZ, increased our borrowings. But we're also seeing the interest rates coming down a bit if you compared to last year. So the interest rate -- interest cost is fairly stable from last year as well. But we use this quarter as a base for coming quarters.
Great. And then just on your net working capital, how would you expect this to develop in the next couple of quarters?
So the net working capital, we will see CapEx going down as we are finalizing those big projects, facility projects we've been working on for a while now. They will come to end in the second half of the quarter. So I expect the CapEx to come down and stay within the margin, improving our net working capital. We also expect that in relation to -- as our second half is more profitable, free cash flow from operation will also increase. So overall, net working capital is helping in net cash flow in the second half.
And this would also maybe just advice to sort of look at seasonal movements from prior years. So regarding just the major working capital components on AR in particular. AP is not such a big topic for us, but the inventory has been somewhat stable and DSO in general, stable.
We will now take the next question. From the line of Yiwei Zhou from SEB.
I don't know why, but my line queue was not open, and the question is not taken. But I have 4 questions here. Firstly, and regarding this U.S. CMS change. The -- it was said in the press release saying there is -- the clinician must use knees with integrated [indiscernible] recovery. Do you see this as a limitation to your bionic knee products or rather opportunity for you to take market share from your main competitors? And I'll do one question at a time.
Good, you've got through. Sorry about the technical complications. All our knees have some sort of recovery. So therefore, eligible for -- on this new LCD change. So we don't have any issue in that regard, and this should have a very competitive portfolio.
Could you maybe also comment on the competitors' portfolio, a bit more color?
Yes. Sorry, about that now into deep water in terms of the details, the technical specifications around all our -- all our competitors, but the major competitors will have -- assume -- the same -- in a similar situation.
Okay. And then secondly, a follow-up question on the FIOR & GENTZ. You have comment on the current growth trajectory in line with your initial expectation. But then could you also maybe comment on the synergies. What we understand is that FIOR & GENTZ is mainly a local player in Germany. But with your global sales network, what are the initiatives you have taken to expand outside the German market? Or any synergies do you foresee in the second half or maybe in 2025?
Yes. The logic for why we acquired FIOR & GENTZ was that -- that's a -- first and foremost, that this patients that need these types of solutions, they also are in very many cases, referred to orthopedic and prosthetic clinics, which is our core customer group, if you will, in addition to obviously our own patient care network. Also, when it comes to the mobility problems that we are able to solve with the FIOR & GENTZ solutions, they are in many ways similar to, let's say, a mobility problem as a result of limb loss. These are obviously chronic mobility challenges and the -- even though for, let's say, this neurological mobility-related complications, the limb is still there, but the muscular function has lost for a variety of reasons. So from a biomechanical standpoint, the -- let's say, the mobility problem we are solving is very similar. And it also goes back to our intent to position the company to serve, let's say, mobility or chronic mobility challenges in a broader context. Now FIOR & GENTZ has built an exceptional portfolio of components that can be used to build these types of solutions. They have -- principally, their businesses has been in Germany, 70% of their sales are in Germany, that's what we communicated when we acquired the business. And our integration efforts have largely been around the commercial side of the business. This is not a cost synergy case. This is, first and foremost, a case where we are leveraging our global relationships with orthopedic and prosthetic clinics that are serving individuals with these types of chronic mobility challenges, and we are going, let's say, we have done a lots of training here in the first half of the year and are preparing to go direct in a handful of European markets here in the second half of the year, and we also are establishing this business in -- more formally in Australia. And we are happy to have FIOR & GENTZ now part of the Embla Medical family and this is an area where we will invest and will be -- where we intend to bring these solutions to more patients.
Great. Very helpful. And then my next question is on the gross margin improvement. So you previously mentioned that it would be $6 million annual savings. And have you seen sort of full effect and materialized in the quarter here? I mean $1.5 million, roughly.
Yes. I mean I think we said in quarter 1 that it would be $4 million to $5 million for this financial calendar year, but on a full year basis, $5 million to $6 million. I mean, gross profit margin can fluctuate from quarter to quarter. I mean quarter 1 is always a little bit lower just given that it's a smaller quarter, less operating leverage. So I would encourage you to look at it over a slightly longer period. But, let's say, the trend is still consistent with what we have assumed. And -- meaning that we have benefit from these costs initiatives that we have taken. We have a positive impact from simply just more productivity. And also -- yes, both in our manufacturing business and also in our patient care business. So we are largely moving in line with how we expected.
Okay. And lastly, Arna mentioned the OpEx increased only 3% organically. But what we understand is that you also pay lower variable compensation to your U.S. office because of the current performance. I was wondering if you can sort of indicate that on the normal level in the U.S., what would be the OpEx increase in the quarter on the -- also on the constant currency basis?
Yes, I mean the sort of -- yes, we highlight obviously that variable composition is not where it was in the U.S. last year, given just the high growth we generated in the region last year. So that has some impact on our cost growth here in the quarter. I would -- I will say that OpEx will be a little higher here in the second half of the year. But again, trying to point back to big picture, we -- it is still our expectation that we have some operating -- positive impact from operating leverage on a full year basis and what that means essentially that we expect to have lower OpEx growth than our top line sales growth, just to give you something to work with there.
Now we're going to take our next question. And the next question comes from the line of Niels Granholm-Leth from Carnegie.
I have already asked my questions.
Dear speakers, there are no further questions. And I would like now to hand the conference over to your speaker, Sveinn Solvason for any closing remarks.
Thank you all for joining us this morning. If you have any follow-up questions or topics, please reach out to our Investor Relations team. And then I would just like to thank you again, and have a nice day.
This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.