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Welcome to this Embla Medical Full Year Results 2024 Presentation. Today's call is being recorded. If you have any objections to this, please disconnect your line. [Operator Instructions] I would like to introduce CEO, Sveinn Solvason; and CFO, Arna Sveinsdottir. Please begin your presentation.

Thank you very much. Good morning and welcome to the Embla Medical conference call where we will review the fourth quarter and full year results for 2024. I'm Sveinn Solvason, President and CEO of Embla Medical. And joining me on today's call is our CFO, Arna Sveinsdottir; and Embla Medical's Head of Investor Relations, Lara Luovigsdottir. The presentation should take approximately 20 minutes, after which there will be an opportunity to ask questions during a Q&A session.

If we can please go to the next slide. As we look back on an eventful 2024, what stands out is delivering on our relentless commitment to improving people's mobility. Our innovative product solutions and Patient Care had a positive impact on millions of individuals around the world. The past year was marked by several milestones as we continue to take steps on our journey to build a company that is focused on delivering products and service for individuals with a chronic as well as acute mobility need. This includes the establishment of Embla Medical starting to also unite our Patient Care facilities under the ForMotion brand and the acquisition of Fior & Gentz also to name a few. Additionally, we are seeing positive market trends such as the expanded U.S. Medicare coverage for advanced bionic prosthetics for less mobile K2 amputees bringing potential for improved quality of life for a large patient population.

I'm also very happy with our progress within R&D as we launched several exciting innovations during the year and these include, amongst others, the bionic knees Icon and NAVii. Lastly, I want to highlight the Paralympic Games in Paris in the latter part of the summer. Here a global team of elite para athletes using Össur renowned prosthetics won 22 metals and set 5 new Paralympic records. And if you please turn to the next slide for an overview of some of the key highlights here in the fourth quarter. Throughout 2024, we have delivered solid organic sales growth with also increase in profitability. For the full year, our organic sales growth was 6% driven by a strong performance in our EMEA region as well as the Prosthetics & Neuro Orthotics and Patient Care segments. Growth in local currency was 9% when we include the impact of the acquisition of Fior & Gentz that we completed in the beginning of the year.

The fourth quarter sales grew slightly lower than the full year of 5% organic mainly due to a stronger comparable in our Patient Care business where we had somewhat of an extraordinary strong quarter in 2023. EBITDA margin before special items came in strong for the quarter at 21% and for the full year margin was 20%, up 2 percentage points from 2023. We continue to see positive effects from the cost reduction initiatives implemented in manufacturing during quarter 1 as well as positive contribution from product mix and cost control in our SG&A costs. In addition, here in quarter 4 we delivered strong cash flow. We are receiving very good initial feedback on our recently launched bionic knees. The NAVii Knee is receiving very positive response as being a much smoother and reactive knee joint while still offering a more stable and safer knee for amputees.

Both NAVii and Icon continue to be in limited launch with full launch expected towards the latter half of the quarter here in the beginning of the year. 12 months ago, as I mentioned earlier, we acquired Fior & Gentz, which is a leading maker of lower limb neuro orthotic components. The acquisition was an important step in our growth journey and an expansion into the field of neuro orthotics, a field we are optimistic about as we are as a company broadening our ability to support individuals with chronic mobility challenges. We are pleased to see good progress on the integration of Fior & Gentz. In the fourth quarter, we started to roll out the neuro orthotics portfolio in the U.S., France and Switzerland leveraging our commercial infrastructure in these markets with the ultimate objective of bringing these solutions to more patients.

On the Patient Care front, we announced our intent to unite our network of Patient Care facilities under a new common brand ForMotion and ForMotion brand continues to be introduced gradually into markets we operate in within Patient Care. During the fourth quarter, we rebranded our clinics in Denmark and a few locations in the U.S. while Norway is on the agenda here in quarter 1 and it's our expectation that we will complete the rebranding in most of our Patient Care locations this year. For 2025, we've issued new guidance of 5% to 8% organic sales growth coupled with guidance of delivering a 20% to 21% EBITDA margin before special items. Lastly, in line with our capital structure and capital allocation policy, a new share buyback program is to be initiated as planned as we are back within our target range of 2x to 3x net interest-bearing debt to EBITDA and we expect to announce more details around this program as soon as possible.

If you please turn to the next slide. Sales in Americas were strong in the fourth quarter after a period of slower growth and tougher comparisons. The 7% growth in quarter 4 was driven by solid organic sales growth in our Prosthetics & Neuro Orthotics business as well as good growth in Patient Care. In bionics, we're seeing some initial traction during the limited launch period with our recently launched NAVii and Icon bionic knees. In the EMEA region, the strong growth trajectory we've seen in the past quarters in this part of our business continued. Sales in our Patient Care business in the EMEA region were, however, soft in the quarter and mainly related to a strong comparable quarter in quarter 4 '23, as I mentioned earlier, impacted the reported growth rate here in quarter 4.

And lastly, in APAC, we've seen a more modest performance for the quarter. Prosthetics & Neuro Orthotics demonstrated good growth in the region driven by Australia and New Zealand, which was partly offset by softer performance in some of our largest markets in the Asia region. If you please turn to the next slide on going deeper into the segments. Starting with Prosthetics & Neuro Orthotics, we delivered 12% organic growth here in the quarter and 9% for the full year. In EMEA, we continued to see a strong momentum driven by volume growth across all major markets including also good progress on bionics. In Americas, also across all major product categories including bionics with some contribution, as I mentioned earlier, from NAVii and Icon. In APAC, also good performance in our Prosthetics & Neuro Orthotics segments and, as I mentioned earlier, a little slowdown in some of the biggest Asia markets.

And lastly here part of the Neuro Orthotics segment is our Fior & Gentz business, which continues to deliver in line with our expectation as the expectations we set when we did the acquisition a year ago. If you turn to the next slide, please, on Bracing. Bracing & Supports sales grew by 2% organically in quarter 4 and 1% for the full year. Growth in our Bracing & Supports business has been impacted by, I would say, somewhat of a challenging market dynamic in selected product categories mainly in our Americas market. We have, however, seen positive signs with increased uptake during the fourth quarter driven mainly by our [ OE ] business in European markets. During most of '24, growth in the Americas was impacted following the cyber attack at United Healthcare in the early quarters of the year. That had a big impact on our customers' ability to process reimbursement claims.

In APAC, sales were strong in particularly Australia and New Zealand, but as with Prosthetics & Neuro Orthotics soft in some of the large Asian markets. Go to the next slide, please. Sales in the Patient Care segment amounted to $80 million in quarter 4 and our organic sales declined by 1%. For the full year, organic sales growth was 5%. Looking at the regions. We delivered solid sales growth in Americas mainly driven by the good uptake and good volume development in key regions, but offset by softer sales in EMEA and APAC region where I can now refer to a particularly strong quarter in the comparable year last year.

This concludes the sales performance overview for the quarter and I would like to hand it over to Arna to go through the financials in more detail. Arna, please.

Thank you, Sveinn. Please turn to the next slide for an overview of our financials. In quarter 4, the gross profit margin was 63% of sales compared to 61% in quarter 4 2023. The 2 percentage point gross profit margin expansion for the quarter was supported by cost reduction initiatives in manufacturing implemented during Q1 2024 in addition to positive product mix, scalability and manufacturing efficiency. For the full year 2024, gross profit margin before special items was 63% compared to 62% of sales in 2023. We are pleased to see that OpEx growth continues to be well managed. In Q4, OpEx grew 5% organically as we saw effective cost control and scalability in SG&A costs being partially offset by investment in R&D. Currencies impacted our EBITDA margin positively by roughly 40 basis points for the quarter.

With an increase in gross profit margin and continued focus on effective cost control in our operational expenses, I'm pleased to report another strong quarter with our EBITDA margin reaching 21%, which is 3 percentage points up from Q4 2023. For the full year 2024, our EBITDA margin before special items was 20% of sales compared to 18% in 2023, a 2 percentage point increase between years. The increase in our EBITDA margin was driven by same drivers as for quarter 4. However, the currency impact net of hedging was neutral compared to 2023. Net profit came in at $19 million or 8% of sales for the quarter and was on par with Q4 2023. For the full year, net profit grew 70% and amounted to $69 million or 8% of sales compared to $59 million or 7% of sales in 2023.

Net profit were positively impacted by stronger operating profit during the year, but negatively impacted by net financial items driven by negative impact on balance sheet items due to currency movements. If you please turn to the next slide for a status on our cash flow and leverage. During the fourth quarter, CapEx was $8 million and below 4% of sales. CapEx has come down in the last couple of quarters relative to the first part of 2024 as facility expansion programs to support our growth have now been concluded. All things equal, CapEx is expected to return to more normalized level of 3% to 4% of sales in the coming periods. In the fourth quarter, we continued to deliver strong cash flow driven by solid cash generation from our operations.

Additionally, positive effect coming from working capital and lower CapEx contribution to stronger cash flow. Inventories remained slightly elevated following the buildup of new bionic solutions in preparation for full launch of our two bionics new solution Sveinn mentioned earlier. On the leverage, we see our net interest-bearing debt-to-EBITDA ratio return to our targeted range of 2x to 3x EBITDA. And at year-end, our net interest-bearing debt-to-EBITDA before special items was 2.4x. As announced also in the beginning of this call, we will initiate a new share buy program and further details on the program will be communicated shortly.

And with this overview of the financials, I hand over to you again.

Thank you, Arna. And please go to the next slide. On outlook, we came out of 2024 in a strong manner and we are pleased with the progress on our Growth'27 strategy and our ability to execute on our ambitious targets and priorities. For 2025, we are issuing guidance where we expect organic sales growth to be in the range of 5% to 8%. In Prosthetics & Neuro Orthotics, we expect to deliver continued strong performance across regions. Growth is expected to be supported by solid development in our core business as well as we expect contributions from the launch of our new bionic knees NAVii and Icon from the latter half of this quarter here in quarter 1. In addition, we expect a positive impact from the recent U.S. Medicare coverage expansion for K2 patients.

We expect the upgrades for K2 patients to be selective here in the beginning as Prosthetics will be gaining experience with K2 patients and submitting reimbursement claims. On the Neuro Orthotics, the ongoing rollout of the Fior & Gentz product portfolio into new markets is expected to contribute to our growth leveraging our global commercial infrastructure and our ForMotion in O&P footprint. In Patient Care, we expect good growth in line or above market growth across regions with solid volume growth, increased efficiency in how we deliver patient care. But bearing in mind that EMEA may be somewhat impacted by a strong comparison in '25 compared to '24. Lastly, patient support is expected to grow approximately in line with market growth with solid growth in key regions and product categories here in 2025.

For 2025 all things equal, our EBITDA margin is expected to be in the range of 20% to 21% for the year. EBITDA margin is expected to be positively impacted by our sales performance, a favorable product mix from high end solutions, continued efficiency in manufacturing and continued focus on cost control in SG&A. Potential impact as a result of U.S. trade tariffs has not been reflected in the guidance due to the uncertainty around the situation. As this becomes clearer, we will provide more specific communication around potential impact to our business and its relevant guidance. At current foreign exchange rates, FX is expected to have a largely neutral impact on the EBITDA margin compared to 2024 assuming all other factors remain constant.

With this overview, our presentation is now concluded and we would like to open the call for questions. Operator, please move to the next slide and the Q&A can begin.

[Operator Instructions] The first question is from the line of Yiwei Zhou from SEB.

I have 3 questions and I'll do one at a time. Firstly, looking through the report, you mentioned there's competitive pressure in the Bracing & Supports business in selected markets. Could you please elaborate a bit here what markets and the specific product category you see the competition? And I would do a follow-up after that.

Wei, thanks for your question. Relatively a large part of our patient business is in the United States and that's where we record some competitive pressure in specifically you could say the high volume, more commoditized product categories. But just also a reminder, the basis of competition in Bracing & Supports is largely in being a complete provider. These are fundamental solutions in the health care systems and it is again about being a complete provider of a quality product portfolio at a competitive price point. But looking at last year, it's mainly in the United States. We have good performance and growth largely in line with market in all other major geographies for specifically our osteoarthritis bracing, which is growing nicely.

Okay. Could you confirm that is not the premium segment where you have a strong position, you see increased competition but it's only the commoditized low-end products?

I would say that, that is more concentrated on, you could say, the high volume more simple products. That's fair to say.

Okay. And in this context, anyone looking at the potential risk from the new U.S. tariffs, do you think you have an advantage or disadvantage when compared to your main competitors here in the U.S. I mean, when you compare to your production setup or supply chain?

Yes, that's a great question. And first and foremost, there remains, as we all know, uncertainty on how and if and when tariffs will be implemented. But the main question will be around whether these changes will somehow distort the relative competitiveness or change relative competitiveness between the different players in the market. Many of or at least the larger Bracing & Supports -- our main competitors in Bracing & Supports do also rely on supply chains in similar geographies. So our assumption is that these tariffs will change the competitive landscape. But with that being said, players that might have a relative advantage, but we don't expect this to fundamentally change the relative competitiveness.

Yes. And do you have a knowledge about the production setup of your main competitors? I mean we know you have the Bracing & Supports production in China and also in Mexico where there's a lot of uncertainty.

Yes, we have some knowledge of that of course. But I can say that it is not uncommon for companies in our industry and in many other similar health care verticals to rely on supply chains that are situated in Mexico as well as in China and Southeast Asia.

Okay. Fair enough. And my next question is on Patient Care and you talked about in this quarter the sales growth was impacted by a timing between quarters. Could you elaborate a bit on this? Do you refer to the normal seasonality or is there anything else where I have missed?

No, I think the main thing is that we -- and we did talk about this when we reported quarter 4 last year is that we had somewhat of a one-off positive effect from revenue recognition in one of our Patient Care entities here in Europe that sort of boosted our growth in quarter 4 let's say in '23. So we're comparing to that quarter. There is maybe some element of more days being lost, productive days due to how holidays fell this year towards the end of the year, but that is not a main factor and I don't expect any demand shifting into quarter 1 because of this. It's more this extraordinary comparison rather than anything else.

Okay. And could you remind me that what is the normal growth in the Patient Care you talk about for 2025, you expect to grow in line or higher than the market growth?

So what we have referred to as sort of the average market growth in Patient Care is sort of somewhere between 3% and 5% market growth rate.

Okay. Great. My last question is on the share buyback program. You resumed the program at a leverage of 2.4x net debt-to-EBITDA. But can we understand that you don't expect any acquisition in the near term? Given I mean you're talking 2x to 3x, but I mean 2.4x is not that low I would say. So now you're resuming the share buyback program.

I wouldn't necessarily say that we should not expect M&A. We do have an M&A pipeline and we are looking at opportunities there. However, we've always said that we will manage our capital structure to stay within this range and look at share buybacks to regulate that. And we feel that now that we are now below the midpoint of the range, that it's the right thing to do to reinitiate share buybacks.

The next question is from the line of Martin Brenoe from Nordea.

Congrats with the Q4 and the guidance here. Maybe just a question to the U.S. coverage expansion and how to think about it. I think one of your peers have been a bit upbeat about the near-term growth of the U.S. coverage expansion and I'm just wondering how you see this coverage expansion. I see that you are seeing some patients are being brought in, but how is it embedded to your guidance? That's sort of the first question how it's impact on your guidance? And the second question would be as far as I understand, the product launches that you have now rolled out more or less fully is a major component or work sort of hand-in-hand with the U.S. coverage expansion. Can you maybe just tell us whether you were completely ready for this U.S. coverage expansion compared to your peers or if you are a little bit behind your competitors from a product perspective and you need to do some catch-up during 2025? That would be the first question from my side.

Martin, thanks a lot for your question. On the [ LCP ], I would say that this is developing in line with how we expected this to develop. What we feel from our customers is that they are cautious. They, however, are starting to build a pipeline around potential candidates for fitting of bionics for K2 patients and that is also the development within our own Patient Care. So we have always from the outset here said that this would happen gradually and the most important thing to keep in mind is that now a much larger part of the patient population has access to better mobility devices. So you will see, you could say, the average value of each event if you could say in terms of this new fitting being of higher value, which is great for the patient even though it's a more costly event for payers. From the outset, it's still cost effective over the long term and that's the logic for why the system chose to go down that road. We have the products that are eligible you could say and fit the criteria that are set out as part of this reimbursement directive.

So we are by all means ready and we have a large effort from our reimbursement team in the U.S. that has been willing and proactively reaching out to customers to support their processes around reimbursement. But I think it's normal that the O&P community is cautious and as well is very, very responsible when it comes to how we adopt this new reimbursement protocols and that we take it one step at a time. But so far, so good. But also you mentioned how does this tie back to guidance. I refer back to our medium-term guidance that we laid out at the Capital Markets Day, 5% to 7% growth. Now we're positioning the guidance 5% to 8%. So all else equal, what needs to happen for us to deliver at the upper end is of course this moving, let's say, that we have a good progress on these changes in the U.S. as well as good progress with our newly launched products. And so I think that will be my answer. And I would not like to comment too much on what our competitors are saying.

That's very clear and very thorough. And then just 2 more questions from my side. I'll try to be brief here. On your capital allocation and the share buyback you're doing or expecting to re-initiate shortly. Can you maybe just elaborate a little bit on what exactly is holding you back from just starting it now given where you are? And secondly, I guess that you have, as you also referred to in your prepared remarks, a quite solid cash flow bringing the debt levels sort of to a sensible level quite shortly. Are you ready or do you have more bandwidth also from an organizational perspective to start doing M&A again or are you still in the process of digesting Fior & Gentz at the moment?

We do have the internal bandwidth to continue our M&A strategy with the small and medium-sized type of acquisition and being also open for the right opportunities around product and technology in line with, you could say, Fior & Gentz or maybe prosthetics acquisitions we've done in the last couple of years. But on the share buybacks, I mean we will announce that very, very shortly. There's nothing holding us back there and we should be announcing that just in the next days.

Okay. That's very clear. And then just the last question from my side is also on the tariffs. When I sort of try to calculate the exposure to Mexico, I got to sort of 1/3 approximately of your COGS base coming from Mexico. Is that fair to assume or is that too high?

That is too high. We would not like to maybe go into a specific split on our COGS down to locations, but that is too high. And our view for the time being, we are not ready to communicate too much around potential impact because there's just a lot of uncertainty on how these tariffs will and if they will come in. Now it's being delayed for a month these Mexico tariffs. The China tariffs seem to be in place, the 10% on all product categories. But let's say when tariffs were impacted on China back in '18, medical devices were exempt. We still don't fully see whether that is still the case or whether medical devices will be included. That is still to be fully flushed out. So I would hesitate to comment too much on it simply because there is not -- yes, we don't know or we simply can't make up any reasonable assumptions for the time being.

And next in queue we have Tobias Nissen from Danske Bank.

I also have 2 questions from my side. So we saw organic growth pickup in the U.S. with EMEA and APAC slowing down here in Q4. What should we think about growth trajectory going forward? You obviously have new launches in the U.S. that will pick up here in '25. And then a question on EBITDA margin and margins like in total, we have gross margin being quite strong here in Q4. What are the moving parts for EBITDA margin and what should we take care of or notice here in '25?

On the geographic split, yes, I mean if you look at '24 or if we dial back 12 months. When we set guidance for '24, we expected more you could say balance in the contribution between our 2 major regions, Europe and the U.S. U.S. has been slower than what we anticipated while Europe has been better. What we've also talked about is that '23 was perhaps a year where we did release some pent-up demand from all the turbulence we've had related to COVID in the prior year. So you could say that in the Americas at least we were battling a little bit strong comparison from '23. We do see these trend lines change here a bit towards the end of '24 where Americas is getting, you could say, more back on track while Europe is still strong, but with the exception of Patient Care here in quarter 4 where we talked about the comparison issue. So I think the way to think about '25 is that we would expect some more balanced contribution between the 2 regions and what we see here for '24. That is what I can say about that. Arna, do you want to comment on how to think about EBITDA margin for '25, the moving parts?

I think generally speaking in EBITDA is that we will always see some impact from price increases and payroll increases, but offset by continuous improvement being implemented in our manufacturing side. Also acquisition can impact that as well. But overall, those are the big blocks in EBITDA.

Yes. And it goes hand-in-hand with how our top line develops obviously. But as Arna mentioned; it's top line, it's product mix, it's continuous improvement on our unit cost and continuation in us managing our SG&A in line with our top line development. And these are similar factors as contributed to good progress on our EBITDA margin last year and this was also a big topic for us here. When we set guidance for '24, we were firm that we needed to take action also on manufacturing or operational footprint where we had some excess capacity again following the supply chain turbulence we've seen in '22 and '23. So we did that adjustment here in the beginning of the year and have seen these things come through and are just pleased to be able to end in the upper end of the guidance we set a year ago on EBITDA margin and now we are signaling that we intend to take further steps to gradually improve our operating margins.

Next in the queue, we have Niels Leth from Carnegie.

Just a couple of questions here. So the growth acceleration you experienced in Americas in quarter 4, was there any of this growth acceleration that could be attributed to the increased access for K2 patients? And my second question would be on your EBITDA margin guidance for '25 and the FX effect. So you're expecting a neutral FX effect, but the euro has come down and quite many emerging market currencies have come down. So could you just elaborate on the expected FX effect for '25?

Niels, thanks for your question. On the impact from the LCP change in the U.S., very marginal effect here in quarter 4. What did provide, you could say, a small boost especially for our Prosthetics growth is that we are moving forward with this limited launch of NAVii that still impacted our growth positively here in quarter 4, but no meaningful impact from the LCP change. Arna, can you comment on the FX, please?

The euro-U.S. dollar is down around -- sorry, I misinterpreted the question. You're asking about?

You're asking the potential impact from FX changes on margin guidance for '25.

Yes.

For 2025, we're not expecting any material impact on the margin guidance for 2025.

Yes. And if you look at quarter 4 here, the impact was neutral, which gives some indication as to how given the sort of development of the dollar versus euro. But just to sort of remind us about the main moving parts here. We generate a big part of our sales and costs in dollars. We also have a reasonably sizable contribution from euro denominated currencies, but we do have, let's say, an unhedged position in the euro exposure because we have more sales and cost in euros. But usually if the Icelandic krona -- because we have 10% of our cost in Icelandic krona, but no income. Usually if the Icelandic krona correlates largely with the euro versus the dollar, we have a natural hedge on about 70% of our cost and income from a currency standpoint. Then there's a long list of different currencies for the remaining 30% of sales and costs that can cause some fluctuation. But at least looking at quarter 4 here, that should give some indication as to how currency fluctuations could impact the full year '25.

And then just finally, what do you expect for net working capital in '25?

There's going to be no material effect from net working capital in 2025.

So if you frame that into net working capital to sales, how would you expect that to end?

So we've been seeing inventory coming down when it comes to as a percentage of sales in the last quarters. But as we are building up now inventory to launch Navii and Icon knee, it might be slightly elevated, but we do not expect that to be a material effect though.

And for other working capital items and AP, I wouldn't expect any material change just in relative terms versus sales.

Just see there's a seasonal change quarter-on-quarter as we've seen in the past.

Next in the line we have Martin Brenoe again from Nordea.

I just have one follow-up. Some of the questions were already asked by my peers here. But maybe just one on the trajectory for 2025. With the snowball effect of the U.S. coverage expansion gradually I guess contributing more and the comparison base gradually becoming easier through the year, would it be fair to assume that you will start in the low end of the guidance or maybe slightly below the guidance and then accelerate through the year or how should we sort of see the trajectory of the run rate for 2025?

I wouldn't want to comment too much or give too much detailed guidance on sort of quarter by quarter. And we will be having a conversation obviously every quarter on just how we're progressing with the LCP changes as well as the new product launches. But as always, let's say the relative performance year-over-year will be impacted by how we did in the prior year. And so yes, please take that into consideration and I don't expect any material difference between quarters as I look at things now. If that answers you.

As there are no further questions at this moment, I will hand it back to Sveinn Sölvason for any closing remarks.

Yes. Thank you very much, operator, and thanks, everyone, for listening in. If you have any further questions or would like to discuss the quarter or the year, please reach out to our Investor Relations team. And I wish you a great day. Thanks a lot.