Tobii Dynavox AB

STO:TDVOX

Earnings Call Analysis

Solid Growth and Profitability Uplift

The company celebrated a robust financial quarter, with revenue surging by 31% year-on-year to SEK 473 million, bolstered by a healthy 24% organic growth and a hefty 69% gross margin, a 4 percentage point improvement over previous figures, mainly due to price increases. Earnings before interest and taxes (EBIT) nearly doubled from last year, reaching SEK 155 million (9.6% margin), as operating expenses (OpEx) grew organically by 17%. Net debt over the last 12 months EBITDA fell to 1.9x, slightly under the targeted range of 2-3x. Looking ahead, the firm confirms its ambitious targets, aiming for annual currency-adjusted growth above 10% and a consistent EBIT margin of 15% or more, suggesting dividends may be considered once the balance sheet strengthens further.

Solid Revenue Growth Amidst Economic Resilience

During the fourth quarter of 2023, the company celebrated a robust performance, with revenue ramping up to SEK 473 million, indicating a significant year-on-year growth of 31%, and 30% when adjusted for currency effects. This positive trend wasn't a stroke of luck but part of a consistent pattern, echoing the strong quarters since Q2 2022. The full-year figures echoed this success, revealing a top-line growth with sales surging by 33% and adjusting to an organic growth of 20% when normalized for currency volatility. Acquisitions, like that of Rehadapt, played a non-negligible role, contributing 7% to this growth.

Expanding Global Footprint and Team Integration

The company made a strategic move by acquiring Rehadapt, which resulted in a 50 staff expansion primarily situated in Germany. This addition boosts the company's already diverse international presence, with direct sales operations in North America, accounting for over 70% of the staff, as well as the U.K., Scandinavia, and a growing footprint in China.

Unique Diversified Product Portfolio

Tobii Dynavox, the company's specialized division, offers a unique mix of solutions – from world-leading communication libraries and personalized synthetic voices to advanced communication devices and steadfast global support. This comprehensive and differentiated approach to product and service offering remains a core competitive advantage.

Financial Resilience Demonstrated Through Profitability and Dividend Prospects

The company has showcased resilience against the broader economic climate, largely due to its revenue predominantly coming from prescribed aids paid by public or private insurers. This resulted in a promising growth trajectory, with operating profit and earnings per share significantly outpacing the previous year's numbers. The EBIT margin saw a healthy boost from 6.8% to 9.6%, and earnings per share nearly tripled from SEK 0.16 to SEK 0.46. Looking forward, they also expressed a commitment to starting dividend distributions once the balance sheet strengthens further, although acquisition opportunities may take precedence.

Investment in Growth and Efficiency Amidst Increased Expenses

Operational expenses did see an uptick, primarily due to staff increases, particularly in sales and marketing, which amounted to an 18% rise. The company also invested in systems and tools to manage this growth, indicating a strategic focus on scalable solutions and efficient operations to accommodate the accelerating demand.

Leveraging Price Adjustments and Ramping Up Scalability

The company's executive team highlighted strategic price adjustments and normalized operational costs as key factors contributing to the increase in profitability. Continuous investments in infrastructure to support their scalability ambitions are points of focus, ensuring they are well-positioned to harness further growth. The gross margin stood firm at 68%, ameliorated by 3 percentage points due to sales price increases and moderated component and shipping costs.

Reiterating Long-Term Financial Goals and Managing Net Debt

Confidence was expressed in the company's trajectory towards achieving its long-term financial goals, which include annual growth exceeding 10% and an EBIT margin of 15% or more. The quarter's result showcased an EBIT margin step towards this goal, with net debt EBITDA at 1.9x, trending slightly below the target range of 2 to 3x. The management intends to retain a strong balance sheet while also allocating resources for potential dividends and strategic acquisitions.

Earnings Call Transcript 2023-Q4

[Fredrik Ruben, executive]

All right. Good morning, and welcome to this earnings call where we will cover the fourth quarter 2023, summarizing our business in October, November and December, as well as some comments regarding the full year 2023. So I'm Fredrik Ruben, I am the CEO of Tobii Dynavox.

[Linda Tybring, executive]

And I'm Linda Tybring, the CFO of Tobii Dynavox and I will cover the financials in more detail.

[Fredrik Ruben, executive]

However, we will first, in our usual manner, take you through some brief fundamentals about the company. Then we will summarize the main takeaways from the quarter, and we'll have a deeper dive into the financials, and thereafter, there will be a Q&A session. And you can submit questions during the live session in the chat function here in Teams, but we, of course, always welcome offline questions, and you send them by e-mail in the most easiest way to Linda's -- e-mail is address is [e-mail].

All right. So starting with a short summary of what Tobii Dynavox is about. And this may be a repetition for some, but it's still fundamental to really understand the company. First and foremost, it's important to reiterate that our mission and our vision, which I know is very dear not only to our roughly 700-plus colleagues around the world, but also to our ecosystem of partners and investors. And our vision is a world where everyone can communicate. And we contribute to this via focusing on our mission, which leads to empower people with disabilities to do what they once did or never thought possible. And this also summarizes 2 of our main user stories. The first 1 the do what you once did, let me refer to the person who had a normal life until a diagnosis such as ALS which render her unable to control the body or communicate like before. The other half, the never thought possible can refer to the child diagnosed at a very early age with the conditions such as autism or cerebral palsy, where thanks to our solutions, he can do much more than the world around him ever thought possible. And on the picture here to the right, you see Brock, he's from Louisiana, USA. He's 1 of our amazing young user diagnosed with nonverbal autism, and he's a great example of this.

The market that we serve is hugely underserved. Some 50 million people have a condition so great, they simply cannot communicate unless they have a solution like ours. And every year, about 2 million people are being diagnosed and yet we estimate that only some 2% of those are actually being helped. And the rest, they remain silent. The main reason for this bells lack of awareness, also among the professionals and the prescribers to ask to assist these users and combined with a poor health care reimbursement system. Tobii Dynavox, we operate with a global footprint. Today, some 3/4 of our business stands out of the U.S., largely because of a reasonably well functioning funding system, which was established some 20 to 30 years ago. However, our products are sold in about 65 markets around the world, of which the U.S., Canada, U.K., Ireland, Denmark, Sweden and Norway are markets where we sell directly while the other remaining markets are served by a network of some 100-plus reseller partners. Our staff is distributed in a similar way as our revenue. That means that some 70-plus percent of our staff are based in North America with our U.S. headquarters in Pittsburgh, Pennsylvania. Our second largest office is the headquarter here in Stockholm but we have branch offices in several European countries as well as in [ Sudo ], China. And as of today, we are about 700 employees in total.

In September of last year, we added a new division to our team via the acquisition of Rehadapt, which also means that we welcome some 50 new colleagues, mainly based in the readapt office in Kassel, Germany. And with prior acquisitions, we have then established or increased our presence in markets such as Belgium, France, Ireland and Denmark.

Tobii Dynavox, we provide a comprehensive portfolio of solution. And that ranges, if you look at this slide, on the top, the content, such as the world's leading library of communications in [ bolster ], they're called PCS but also leading solutions of off-the-shelf or custom made synthetic voices of the highest quality, quality with a large diversity of languages, ages, ethnicities.

If we then go further down, we have highly sophisticated communications software tailored to the type of user, which can, of course, vary greatly depending on the need. Further down, we develop and design devices with cutting-edge technology and medically certified durability, including communication needs that controlled via eye tracking and accessories such as the Rehadapt modes. Further on, we have a services portfolio to help our users through the complexities of obtaining and getting funding for solutions. And then last but not least, we are there to help our users therapies, caregivers through the global teams of support resources. And we operate this model globally. And it's important to note that each piece of this list is critically important and also a significant differentiator for us, making us absolutely unique.

Our go-to-market model is predominantly as prescribed aids and some 90% of our revenue, hence, comes from public or private insurance providers. But this also means that we have solid paying customers and have always been very resilient towards changes in the overall economic climate.

All right. But now we will go back at focusing on the main topic of today, namely our earnings report for the fourth quarter of 2023 as well as some comments on the full year 2023.

So if I summarize some of the highlights, we had another very, very strong quarter when it comes to revenue growth. The growth compared to the same quarter previous year sums up to 31%. And adjusted for currency effects, it was 30%. And this basically continues the trend that we have seen for the past 7 quarters since the second quarter of 2022. Furthermore, during the fourth quarter, we continued to report good growth across the board in all geographies, all product groups and also user groups. And we do really benefit from a market-leading and up-to-date product portfolio, which we continuously improve with new products and new features. Our work to improve awareness and competence continue, specifically among the prescribers and the professional. In North America, the North America market continues to show strong growth It's, by far, the largest and most influential market, both for us and for our entire industry, but we have actually equally good growth rates also in, for example, Europe and other countries.

The strong momentum among younger -- the younger user base continues and that includes the children, for example, with autism who rely typically on our symbol communication solutions. And in particular, we have a software here called TD Snap. Our OpEx levels do increase, but at a lower rate compared to the sales increase. In addition to acquisitions, we continue to invest in our staff mainly within sales and marketing, but we also invest in systems and tools. We continue to improve our profitability at an even faster pace. So our operating profit in the quarter more than doubled and our earnings per share increased by 163% compared to the same quarter in 2022.

If we then look at the full year 2023, we can conclude that it was a solid regarding our top line growth with sales up by 33%. And if we adjust that in local currencies, that growth was 27%. Our profitability improved significantly in the full year, 88% better than the prior year, with earnings per share more than doubled, and this really proves the case that our business is now really starting to scale quite well. The fundamental factor behind this is, again, the hugely underserved potential in the market. Our attractive customer offering, which continues to strengthen through significant product launches, but also -- was also a key growth driver as well as successful acquisitions, such as the addition of our long-standing German partner, Rehadapt. And that is now a fully owned subsidiary of Tobii Dynavox since some time last fall.

One more factor behind our growth, but also as an important factor to ensure that the growth can sustain are our continued and significant investments within our sales and marketing organization but also in systems, tools, processes to secure that we can continue to grow and further scaling.

Linda, let us take us over a little bit more deeper into the financials.

[Linda Tybring, executive]

Yes. Thank you, Fredrik. So first, the Q4 financials. Revenue for the quarter came in at SEK 473 million, a 31% year-on-year growth, excluding currency, 30%. M&A contributed with some 6% and hence, the organic growth was a solid 24%. And we continued the trend as we have previously done in the 6 quarters. North America continued strong growth, but this remains with also Europe and the rest of the world. And as we already said, we continue to see growth across all regions, products and user groups. The gross margin ended up at 69%. The main factor behind the improvement of 4 percentage points were sales price increases that we announced earlier in the year. The price adjustment announced impacted the income fully in the quarter. We should note that prior year gross margin was negatively impacted by onetime charges of about SEK 5 million, corresponding to 2 percentage points on the gross margin.

If we then go to the EBIT for the quarter was SEK 56 million, 11.9% versus 6.8% last year. Our OpEx increased by 18% organically. The OpEx increase mainly related to staff increase. We have added some 120 FTEs included in acquisitions. A majority of this added in the sales and marketing organization in addition to new agreements including salaries and benefits that came into force in April 1. And invested in systems and tools and manage a growing business, which also contributed to the cost increase. And this is something we need to continue to invest with to be able to manage the growth with it. The cost of our long-term incentive progress was affected by the increase in the Tobii Dynavox share price during the quarter. The cost increased approximately by SEK 6 million. Net R&D cost was stable, it increased with SEK 1 million. If we also look at the earnings per share, it increased almost threefold versus last year from SEK 0.16 per share prior year to SEK 0.46 per -- this quarter, sorry.

So if we then go to the full year of 2023, revenue for the year came in at just above SEK 1.6 billion, a 33% year-on-year growth. Excluding currency effects, it was 27%. Acquisition contributed to 7% and the organic growth was 20%. And repeating myself, North America continued to its strong growth. Europe and the Rest of the World also grew strongly. And as Fredrik already mentioned, we see strong growth across the board in not just region, but also products and user group. We also see a trend where markets where we go direct grew slightly stronger. The gross margin ended up at 68%, an improvement of 3 percentage points. Main drivers of the improvement were sales price increase as well as more normalized component and shipping costs.

So EBIT for 2023 was SEK 155 million or 9.6% versus 6.8% last year. Our OpEx increased organically with 17% versus prior year. The OpEx increase mainly relates to staff increase in sales and marketing organization and new agreements regarding salaries and benefits that was into force, April 1. We invested in systems and tools to manage a growing business, which also contributed to cost increase. Part of the previous year also had a lower cost due to lower level of activity related to the pandemic. And the net effect for the R&D spend increased with SEK 25 million, mainly driven by normal less development costs and increased depreciation. We are very happy with our revenue growth and even stronger improvement on our profitability with an almost double EBIT and more than doubled earnings per share compared to 2022, a really proof of how our business is when revenue grows.

So if you then jump to cash flow. For the quarter, cash flow after continuous investment was positive SEK 63 million, cash at hand ended up at the quarter of SEK 161 million. Net debt, SEK 612 million and we have amortized our credit facility with SEK 21 million in the quarter. The total used credit facility and term loan at the end of the quarter was SEK 678 million. And net debt over the last 12 months, EBITDA was 1.9x, which is slightly lower than our financial target of that level between 2 and 3x.

So Fredrik, should we conclude the earnings call?

[Fredrik Ruben, executive]

Sure. Thanks, Linda. So before we open up to questions, I'd like to reiterate the main takeaways from the fourth quarter of 2023. We continue to show solid growth, a trend that we started already in the second quarter of 2022. And in absolute terms, we grew the revenue by 31%. And if we adjust for local currency, the growth was 30%. We continue to see revenue growth across all geographies and across all product segments. And our profitability continues to move upwards with price adjustments in effect, normalized cost and an organization that simply scales better day by day rendering an almost tripled earnings per share. The previously acquired companies contribute well and where they are developing favorably. And with the unprecedented growth, we are accelerating our investments in systems and tools to ensure that we can get here for further growth and increase scalability also going forward. We reiterate our long-term financial goals which, as a matter of repetition reads to over time, maintain an annual growth adjusted for currencies in excess of 10%, and this is obviously a target we can overshoot with quite some margin. We want to reach and maintain an EBIT margin of 15% or more. And this quarter took another significant step towards this with continued growth, strong gross margin and OpEx levels that are normalized we remain confident that we will reach and maintain this scope. We want to maintain a net debt ratio over the last 12 months EBITDA of between 2 to 3x, and the outcome in this quarter was actually 1.9x, so slightly below that range. And once we have strengthened our balance sheet a lot more, we will distribute the dividend provided other more compelling alternatives, such as acquisitions do not take preference.

With that said, I would like to invite Christian [ Hal ] in a normal fashion to this call. And please, Christian, do you have any questions from the audience?

[Unknown Attendee]

Well, yes, the first 1 comes from [ Daniel Gilbert ] at Handelsbanken. Congrats to strong numbers. Focusing on Rehadapt, the question now. Can you comment on the performance, growth and margins from this unit and how to look at it in 2024, including seasonality? Also, in retrospect, can you give us a ballpark how the Medicare price increase supported quarter-by-quarter since the impact came gradually? This is to help us understand the tailwind year-on-year in Q1 to Q3 2024.

[Fredrik Ruben, executive]

Sure. I'll start with Rehadapt and maybe, Linda, you can take the price increases. So Rehadapt is a company that we have partnered with for a long time. And in fact, Tobii Dynavox is Rehadapt's by our largest customer. We see Rehadapt numbers in our books on -- starting from September of last year. So it's still a fairly short period. I think we expressed roughly the -- both the revenue range and the profitability range in the press release on the acquisition and nothing has changed. This -- they are basically performing exactly according to plan. There aren't that big seasonality effect and we should also understand that Rehadapt as a company the impact specifically given the fact that we are their largest customer, it's not a significant impact on the total P&L of Tobii Dynavox. But the short answer is according to plan and then basically, according to what we communicated in [ coaction ] with the acquisition. Price increase.

[Linda Tybring, executive]

Price increase. I mean, as we have talked about before, it will gradually come over a quarter. So what happened during 2023 was that in Q1, we had hardly no impact. In Q2, we had a couple of percentage points. In Q3, it was slightly above half of the price increase, and now we have full force in Q4.

[Fredrik Ruben, executive]

And that will basically continue now with the new price increases. That's how they are implemented. So Linda, is that a good...

[Linda Tybring, executive]

Yes. That's good.

[Unknown Attendee]

Okay. So we have a question from Oscar Ronnkvist at ABG. You have earlier talked about fixed OpEx stabilizing, but have kept rising. This is, of course, partly due to Rehadapt and LTIs, et cetera, but you explained the OpEx increase to be a result of the need to expand the business to meet demand, for instance, on business solutions among others? Do you see demand developing stronger than you had previously expected? And what is your visibility going forward?

[Fredrik Ruben, executive]

I can start. Yes, demand is obviously developing more favorably than we had anticipated in the past. And we want to make sure that we don't jinx this. We want to make sure that we can continue to deliver on this. That means that in the same way as we develop -- as we invest in more sales and marketing resources, we have to invest in the back end. And these are systems and tools, ERP systems, HR systems, et cetera, and also to make sure that we build a solid foundation for the company. Hence, it's probably correct that it's developing slightly more favorable, but we also want to make sure that this doesn't stop because of things that we kind of -- that we don't destroy anything internally. So that's the short answer. I don't know if Linda, you want to add something on the...

[Linda Tybring, executive]

No, I think that -- we will continue to see this going forward since -- I mean, we are growing much faster than we anticipated also initially. So that's why we need to take the step to be able to even more grow in the future. Or scale.

[Fredrik Ruben, executive]

Solid foundation.

[Unknown Attendee]

Yes. Okay. Great. Actually, those were all the questions.

[Linda Tybring, executive]

That's good.

[Fredrik Ruben, executive]

Fantastic. All right. We will, in 2 weeks, roughly, invite everyone to a Capital Markets Day, which we have -- which you can find information about on our website and you can sign up. This will -- event will be in person only, but of course, the material and the recording will be published on our website in arrears. And this, again, will be on the 21st of February here in Stockholm. And I think that's a great opportunity for us to dig a little bit deeper into what we do, but obviously, have more in-depth Q&A and maybe everybody can try out some products. You have more questions?

[Unknown Attendee]

Yes, we received another question from Daniel at Handelsbanken. Strong gross margin in the quarter of 69% and also full year of 68%. Any comments on outlook pros and cons, for example, shipment costs, et cetera?

[Fredrik Ruben, executive]

Gross margin.

[Linda Tybring, executive]

Gross margin, I mean it's stable like now since almost the full 2023. So we see normalized cost, we are able to ship by boat, et cetera. So we will gradually continue to improve our gross margin over time. Now when Medicare also has increased prices, and we will see that during the 2024 as well.

[Fredrik Ruben, executive]

I can guess that there is a little bit of a question regarding shipment costs regarding some of the political economic things happening around the world. Reiterating it again, 3/4 of our business stems out of the U.S. where -- and production of our products typically happen somewhere in Southeast Asia, so they don't pass through this West Canal, for example. This is always unpredictable. But as of now, we see no significant impact on the way we operate our business.

All right. If there were no more questions -- again, thank you, was it Daniel, for that question. Concluding again, thank you for listening into this call. We will issue a new quarterly report, and we will have in a similar fashion, an earnings call after that in April. But for now, thank you, everybody, for listening in, and have a great continuation of this Thursday.

[Linda Tybring, executive]

Thank you.

[Fredrik Ruben, executive]

Thank you.