Medartis Holding AG

SIX:MED

Q2-2025 Earnings Call

[Fabian Hildbrand, executive]

Good morning, and welcome to Medartis Half Year Results Conference. Thank you for joining us today on a busy day. We will be referencing the presentation slides published this morning on our website. I would equally encourage you to review our comprehensive half year report, which contains the complete financial statements as well as additional details on recent business combinations.

I'm pleased to introduce Matthias Schupp, our CEO, who is presenting for the second time results and is the first time on his own guidance. And Dirk Kirsten, who is familiar to most of you from previous calls.

Before we begin, please note 2 important points. First, as always, we would like to draw your attention to the disclaimer, which you see on Slide 2 here, especially for forward-looking statements. And then we would also encourage you to submit questions. You can do -- either do that in writing via the Q&A field that should be available to everyone on the desktop, the ones who are using Android, but not the ones who use mobile iPhone. And then as alternative, raise your hand, then we will call you up. And once it's your turn, we would then appreciate if you could unmute yourself. And if preferred, you can also activate your camera on.

And with this, I would like to hand over to our CEO for his opening remarks and the highlights both the first half. Matthias, please.

[Matthias Schupp, executive]

Yes. Good morning also from my side, from sunny Basel. This time a Teams' call. I really hope we see each other next year in March again face-to-face. I enjoy this much more. I think the sunshine corresponds with our results. I'm very happy with the performance. We show an organic revenue growth of 15.3%. Our total sales in the first half reached CHF 123 million, including already May and June, NeoOrtho, which we consolidate since May. And Brazil, strong with the value segment, I come to this later. Organic growth exceeded expectations and the upper end of the guidance range.

And this is confirming what I said to you in March that when you ask me about the guidance, that we would like to deliver on what we promised. NeoOrtho integration is on plan. I'm very happy how this, we call it, Cold Fusion project, is running in Brazil. I'm there next week, and we will take already the first structural changes to bring the teams together, so everything on track to move end of January next year, beginning of February into the new facilities.

We will have a back office consolidation and then in the new facility also, our new production site for NeoOrtho in Curitiba. Curitiba is at the south of Brazil, an hour away from Sao Paulo, an hour from Rio de Janeiro. It is also important, and I would like to reconfirm this, that with the value and premium segment in the future, we will have 2 focuses in Brazil and in Latin America where we maintain a commercial team focused on premium Medartis and a separate commercial team focused on value. But whatever is behind the scenes, back office, of course, we have a lot of synergies.

Just coming back from a town hall yesterday with the KeriMedical team. We finished now. We closed the acquisition last Friday. This is not part of our first half year, but it's very important that we are now with the FDA readiness, with the FDA approval, ready to launch in the U.S. We acquired the remaining 53% and we are now preparing the market entry in the U.S., means our team is already in place. Our dedicated Keri team for the TOUCH launch this year. We mainly focus starting end of September on education activities, continue education activities.

And then I expect the real launch and the real first sales beginning of next year. The guidance for the rest of this year, for the second half, we raised to 14% to 16% based on what we have achieved in the first half, but also based on how July and August is coming in. I think we are seeing a satisfying positive trend. And we maintain our EBITDA items unchanged despite the U.S. tariffs. And now the tariffs, this is the buzzword over the last few weeks, especially.

Let me give you some clarity on this, and I would like to be as transparent as possible with you because the question will come later anyway. We did not expect 39%. I think nobody expected this. On the other hand, it is what it is. And me and my team, we only can act on what is happening, what we have in our hands. We will have for 2026, a high single-digit million impact when it comes to the tariffs to the U.S. And I would like to divide this in 3 parts.

1/3, we will mitigate with price increases, which we have already started beginning of this year in the U.S. You know that in the U.S., you have contracts with hospitals, with insurance companies. So around 60% of our business in the U.S. is under contracts. We had a huge opportunity with the change in the U.S., having now more focused in upper extremities that we got new contracts, so we established already new prices. And this is ongoing for 2026 because those contracts normally have a run time of 2 to 3 years.

1/3 is our production ramp-up in the U.S. You maybe remember in March, I already explained to you that we took the decision already end of last year to use our Warsaw facility without knowing yet the tariff impact to produce in the future in the U.S. for the U.S. demand. This was at the end, the good decision. And what we are doing currently is we are speeding up with this ramp-up of the production. I estimate that by beginning of 2027, let's say, in the first half of 2027, 80% of the U.S. demand will be produced in the U.S.

By end of 2026, we will already produce 60% of our U.S. demand. A side note, Keri TOUCH is coming from France, produced in France. So it's not applying the 39% tariffs, only 15% tariff. And the third part of the impact, especially for next year, we will have a general cost mitigation in headquarter in other regions. But here also, it is very important that when we speak about cost mitigation, we will not stop the positive credit in our regions. We will further invest in our sales teams. We will further invest in expansion when it comes now to the TOUCH loans in the U.S. We will not kill this momentum.

The impact for this year, for the remaining 4.5 months, since the 39% are in place, Dirk will explain later. But you can imagine, as we maintain unchanged our EBITDA guidance, we are in a position to manage this impact for this year as well. People are important. Human capital is important, and I'm very happy to announce 2 important EMB changes. One is Marc Ammann, already 17 years with a company appointed EVP and R&D and innovation. He is an internal successor. This is also very important that somebody stepped up in the EMB.

And I'm totally happy, especially with this agility, knowing the orthopedic industry, giving our innovation a new drive, focusing on digitalization, Marc now part of my EMB. And normally, it's ladies first. Now it's the second part is Caroline because she's a newcomer. She joined us as the Chief Human Resource Officer, our CHRO, bringing over 2 decades of experience coming from one of the top banks. But before long years, the CHRO of Google, Switzerland. Before this GE. So she brings everything to drive also together with my EMB, our culture forward, and I'm very happy that my EMB is now completed.

And this -- I speak about the one team approach, a team make dreams reality. You see in this chart as well how KeriMedical is incorporated in this management. You know that, that I will come back later to this. We maintain KeriMedical as a stand-alone company inside the Medartis Group. But the 2 founders, Dougal and Bernard, they maintained their seats in the Board of KeriMedical, and they are now forming an Advisory Board, very close with me. I have the General Manager of KeriMedical, Julie reporting to me, my [ EMG ]. This is the level below the EMB and also our VP, who is responsible for the commercial activities of Keri worldwide, former team member of Medartis, sitting here in Basel is also part of the EMG.

So you see here, my team is complete. And also on the chart, you see that as I told you already in March, yes, I'm taking care about our value expansion in Latin America because this is very close to my heart, and I know NeoOrtho very well. But the daily work is done by Frederico, he is our transition manager and reporting to me for the NeoOrtho transition and our Cold Fusion project.

When we look -- and Dirk will go in a little bit to the detailed figures, but let me focus on the growth of our regions. EMEA continues a strong momentum with 16% growth, very, very good. I'm very happy with the team. Those are very mature markets, especially in Germany and Switzerland, and we continue to grow. Also fueled in Germany, in Switzerland, in Austria, and in the U.K. by Keri TOUCH, but very strong sales. I'm absolutely pleased with the U.S. performance with a 16.2% growth. Well, remember, we changed in the first 5 months, 20 out of 57 distributors in the U.S. We are now finished. There is one change ongoing in Florida, in southern part of Florida, in the Miami area, but this is not a huge impact.

But having 20 distributors changed out of 57, growing 16.2%, yes, I could not be more happy, honestly. And now we see the team is complete. The distributors are complete. We have a clear focus on Upper Extremities. We are focusing on what matters, and I see this continuing. And yes, I can tell you, expectation for the U.S. in the future is, of course, growing close or over 20%. So we are on a good way, very well done.

APAC region, back to growth. You might remember our biggest country in Asia, Australia had some price cut impacts. We still suffered a little bit from it in the first half year. But despite this together with the Japanese business, we are growing 14.9%. Japan coming in better, especially in CMF, fantastic growth, but also in our lower extremity business. We are still a little bit suffering in Japan in our upper extremity business. This is not good, and this will be attacked.

But also to be very honest and transparent with you, my head space in the first 9 months was not necessarily Japan. It was U.S., it was Brazil, it was EMEA and KeriMedical. And now I'm very close to our Japanese team. We will tackle this. We have more opportunities in the future. But overall, APAC, Australia and the rest of the business in Japan, very well on track.

Latin America. If you see the figure here, not on track yet, better than last year, but this is not good enough. Working on this, especially our premium business, the Medartis business. If you would include NeoOrtho, it's clearly double-digit growth, more than double-digit growth in Lat Am, but it's for Medartis, not good enough. We had some problems, especially in Brazil with some insurance companies ongoing.

We are solving this. We have new entries also to those partners through our NeoOrtho partnership. They are much better established in Brazil. And we had some distributor changes in Mexico. So revamping this again, so a lot better than last year but not good enough to get this together. But overall, very happy with the first half year and I told my teams it's also a moment to celebrate with them.

When we look into our segments, the Upper Extremities, and this is the main focus, especially hand and wrist, driven by TOUCH, but as well with dorsal olecranon, this elbow implant, with product launches, with strong growth in mature market, but also driven by strong growth with Upper Extremities in the U.S., our biggest business. Then we have our TOUCH now, especially in the markets in Europe, what I already mentioned to you. We have the NX Nail. This is a product we are distributing in the U.S. with strong growth. Our screws portfolio, our unique screws with very dynamic growth. We have a stand-alone future in the market.

Our CMX is digital personalized solution business, is becoming stronger and stronger, and we are expanding in this area, and we are also analyzing to have CMX planners outside Basel. It's becoming bigger. You cannot do this only in Basel. We need to see also next steps if we will start to have a CMX business and the planning business in the U.S. And CMF, our strategy from head to toe, CMF that had our legacy. You might say 10.3%, this is not very much, but this is based on a very strong MODUS 2 launch last year in the same period of first half year, where we sold a lot of sets. So this had an impact. So I see the CMF business, which much more growth momentum coming in, in the second half and especially next year.

And with this, I would like to hand over to my CFO, Dirk, and he will provide you with the financial details, and I come back later. Dirk, please.

[Dirk Kirsten, executive]

Thank you, Matthias, and good morning also from my side. I'm going to lead you through the financial slides right now. Starting with Page 11. We summarize the key P&L items for the first half of the year, we reported a core gross margin of almost 81% with a 17.8% core EBITDA margin. And for those of you who are interested also a core EBIT margin of 8.5%. Now while the gross margin came slightly down versus previous year, the EBITDA margin slightly increased, and that was despite FX and also what I call the Trump customs or the Trump tariffs, mainly due to operating leverage and also continued cost consciousness.

Our cash flow was flat for the first 6 months of the year, and the group carried about CHF 121 million cash at the end of June with that one also being well prepared for the upcoming KeriMedical acquisition, which we then announced just a couple of weeks later and which now is going through the cash flow.

I'm moving to Page 12. And here, you see the gross margin. And the first impact factor, first of all, was FX. We're just talking a little bit about FX because I know that is a huge interest for all of you. The impact on top line was more than 300 basis points. The impact on gross margin was 50 basis points. And when you come down to EBITDA and to EBIT, the impact is even 140, 150 basis points.

So you see that the impact from FX in the first 6 months, especially after the Trump announcement, the tariff announcement, which also weakened the market, the U.S. dollar coming down, Australian dollar coming down, some other currencies coming down, had a huge impact on our P&L. The good news is that we were able to compensate that on an EBITDA level. I'm going to show you in a couple of minutes.

Now what is important is that the factors which we can drive, the U.S. -- where the U.S. tariffs, we cannot really drive, but they had an impact of 0.5%, I'm coming to that later again. Our business mix includes KeriMedical, and I need to explain that to you currently or in the past, we were selling KeriMedical as a distributor. So as a distributor, normally you have lower margins. In the future, this will change and we can consolidate the entire margin of KeriMedical into our own P&L.

So the impact which you see here of 80 basis points negative reflects an enormous growth of KeriMedical in the first half of the year, the dilution which comes from that on a gross margin basis, but you will also see that on an EBITDA margin, it is different. It's even accretive. But in the gross margin here, we have to report it. There were a couple of other factors important for you. Our core gross margin is still 81%, which we believe we can also hold and we are taking measures, especially also on the tariffs to protect it as much as possible.

Now talking about the tariffs, I think Matthias -- Page 13, by the way. Matthias has already spoken about that. So I'm not going into the details. But of course, what we've done, we reviewed our transfer pricing very, very short term, that was already in May. Matthias mentioned that we are looking at price increases wherever they are possible on a selected basis and that without killing the momentum, very important for us, and also to remain competitive. And of course, we look at our cost basis, be it in manufacturing, be it through the entire organization.

But also, as Matthias has said, we're not killing the growth. So very selectively, we look at -- we focus the spending along where the biggest growth areas is, especially on Keri, we have a dedicated growth investments. Now to support the launch in the U.S. of TOUCH and there we will not make any compromises. Overall, we believe that we can compensate some of that impact from Trump. We've calculated it for the second half of the year. We believe the impact will be gross about 120 basis points, which is on top of the 50, which I mentioned before.

But we also benefit from the positive effect now from the 2 acquisitions, both KeriMedical and also NeoOrtho, have an EBITDA margin, which is accretive to our own. And when you look at that, there is the positive impact, which comes from the full acquisition of KeriMedical, also the gross margin, which I mentioned before, plus also the EBITDA impact, which is positive. So we hope that we can compensate most of the negative Trump impact by the measures, which we've mentioned.

And of course, what Matthias has said, in the midterm, we are ramping up. It's already starting right now. We're ramping up the manufacturing in the U.S. We had planned that anyway, will be now faster. And with that one, we can reduce the volume which we're shipping from Switzerland into the U.S. and with that one, also the tariffs, which we have to pay for Mr. Trump. So this is at least the short term and the midterm strategy, and we hope that we can compensate most of it with a combination of the measures.

Now talking about the EBITDA on Page 14, you see the positive -- the negative gross margin effect, but you see also the positive OpEx ratio effect. And let me just come on this one because there have been many questions in the past. With increasing size, and we're now going above -- clearly above CHF 200 million sales for the full year, that should also be the operating leverage. And we have always said that, and we see it also coming. We're trying to manage our costs tightly. But also, as Matthias has said, we continue investing into where the growth is.

So when you look at the allocation of the increase of the OpEx, most of that has been done in the regions. There has been also additional spending for training and education for R&D, which all drives the growth. And with all other functions, we're trying to remain as flattish as possible. I mentioned here NeoOrtho is accretive. Now you will understand that for consolidating it only for 2 months' time, it is not material at this point of time. But what I would expect is that when we come back for the full year reporting, there is a positive impact from NeoOrtho and also from KeriMedical, which so far was an associated risk item, which will now be fully compensated into our P&L.

Now the message here also should be 140 basis points up on a CER basis, but a hit of FX or from FX of 140 basis points. So what it says is that, in fact, in the first half of the year, we fully compensated FX on that level, the FX impact as we also compensated with the cost savings, especially the Trump effect. This is what we're proud of.

Now moving ahead, I've seen it already in the press, a big surprise on the finance side. I need to explain it to you. We had more than CHF 5.2 million unrealized losses, that's very important, unrealized noncash losses in FX. This came from the Australian dollar. This came from the U.S. dollar, most importantly in some other currencies. Where does it come from? When we sell products into the organization, we normally have a loan or an accounts receivable, which is in our books.

And if I have $100, which go into the U.S. and the dollar comes down 12%, this is what it did or the Australian dollar even 20% almost in the worst time, then I have to revalue these internal loans and that creates an FX loss, which is unrealized. It can also revert. We're managing this carefully, but we are putting cash impacts over P&L impacts. Otherwise, we could hedge it, but then we have a cash outcome outflow. And for that reason, we remain it as it is with the potential also that there will be an upside potential in the second half of the year.

The result is a slightly negative net income. I wouldn't overemphasize this too much on an EPS basis, it is surprising for you, but it comes mainly from the FX and then also additional financing costs, which we have since the convertible last year, which is about CHF 3 million.

Now last page will then be on cash. Cash was flattish versus last year. When you look at the absolute figures in the report, we've been very disciplined in managing some of the working capital position, the inventory, excluding the acquired inventory from the ortho, but our own business has been managed very tight. The same thing is also due for accounts receivables. We had a swing in accounts payables, if you want to look at the details, but overall, it was more or less flattish.

At the end of June, we carried CHF 121 million -- almost CHF 121 million in our balance sheet. That money is now being used for KeriMedical. In fact, it has already been partially used for KeriMedical. But we remain our financial flexibility because we've renegotiated some bank loans; with that one, have additional financial headroom, which is about CHF 50 million going forward. And with that one, we're very confident we can finance everything, which is the ongoing business. And by the way, we also expect that our own cash flow is increasing and getting stronger. So as a result of that, we are extremely confident with the cash level, which we have, including the bank loans.

That being said, I hand back to Matthias. Thank you.

[Matthias Schupp, executive]

Yes. Thank you very much, Dirk. Now a little bit some follow-ups on the strategy and on our strategic priorities. It remains unchanged since beginning of the year, literally from head to toe. But let's start with the Medartis Group to bring in our newly acquired businesses. And this is one of my biggest learnings in my professional career. Never change a winning team, never try to change their culture, maintain the spirit and the innovation drive of those teams and let them do and let them continue to work independently and not try to include this in your company by dividing the areas and establishing reporting lines.

And therefore, I maintain KeriMedical totally, and I said it already, separate as part of the Medartis Group, and this will give us the innovation power. This will maintain the agility of this company and this go-to-market and this very good marketing and education approach. The same, of course, we will do with NeoOrtho and even further in NeoOrtho, we will integrate our Medartis organization because we only can win with the benefits we are getting together.

Now our 6 strategic priorities are unchanged. I see a very solid and good progress over the first, yes, 7 months. They are in place now. We see now in the next chart some examples and some highlights how we are continuing and each of this strategy priorities has their own owner. But please allow me 30 seconds to come back on this customers centricity. Everything and now my organization understood it worldwide, all what we do, we have to do for our customers.

If we do not act and what our customers are expecting from us, it sounds simple, but it is not as simple. We have no right to win. And this is supported by a fundamental high-performance culture, and we are doing good inroads now with our high-performance cultural workshops with our cultural learnings. And I'm very happy to welcome 100 of our top leaders worldwide in September for the first time for our Medartis management meeting and the whole meeting, which will be our kickoff of the budget process 2026, but at the same time, will be embedded in our culture so that we have live -- to have to live this culture together.

Let's start with the first priority, our U.S. growth progressing to plan. The figures demonstrate this. Very happy, as I said. I think the underperforming and nonexclusive distribution partners are exchanged. There was one big surprise. This was the change in Florida, which was not planned, but happened. And sometimes when doors are closing, new doors are opening and you see new opportunities. And what we figured out in the last 2 months is that we have a huge opportunity to grow much faster and much more focused in the Florida region than what we have done in the past with only 1 distributor. We now changed to 4 distributors in this big Florida territory.

We are focusing on training and education. This is very important. This is especially important for the Keri launch. And we have now created together with our new U.S. President, our sixth sales region to have a focused approach. And especially when we speak about Florida, again, this is one of our top regions and has now their own regional sales manager because Florida, and you might recall this from my -- from the March call, is one of the key regions also for the TOUCH launch.

Speaking about TOUCH, we have a controlled rollout plan defined. We will focus on education. This education process has already started beginning of the year when 45 surgeons from the U.S. were trained by KeriMedical in their infrastructure in Europe, in France, but also together with some universities in Switzerland and in Belgium. So we will continue. We will retrain those key opinion leaders and prepare everything for an education-based launch in the U.S. We need to be very careful, and you might call it slow, but we are very careful that we are selling TOUCH in the first moment only to train surgeons to get the positive momentum into the U.S.

The reimbursement study started. We will have our first reimbursement code by end of the year, beginning in January to start selling the TOUCH prosthesis in January to the market. The sales this year, the TOUCH prosthesis is now shipped to the U.S., will arrive in September out of customs. So we will start with education approach in October. The sales this year are not very, very big. So we are really focusing on education. And we will also use the Keri facilities for onboarding of new key opinion leaders, but planning to have our own education center next year also in the Florida region to not travel every time with the surgeons over to Europe.

So U.S., I would say, promising, confirming the trust we showed in them and confirming this speed, this agility, this bold thinking from the new management in the U.S. KeriMedical, I spoke a lot about it. The growth momentum continues, especially in the EMEA region. You will ask me every time for detailed figures. I give you one figure that maybe in the most mature market, which is France, where KeriMedical is already many, many years in the market, we still see high double teens growth. This shows how dynamic this opportunity is; of course, much accelerated in countries where we have a new launch like the U.K., but like Germany really accelerating and this will -- this momentum will further continue.

Just discussed it yesterday because we leave the team in place, which was so successful over the last years. And this means also that we have dedicated Keri teams field expert, but also sales for the Keri TOUCH prosthesis and not mixing this up in a Russian salad with the rest of our teams, really focusing and getting most out of it. On the other hand, yes, we know that the prosthesis is a new procedure in the U.S.. And therefore, we are dedicating -- analyzing our future key opinion leaders in the U.S., driving it by new surgeons, young generation of surgeons, well established in the U.S.

And therefore, we are so optimistic with the Keri continued growth in our countries where we are in EMEA, but also the new launch. We are also in parallel starting registration processes. So Keri TOUCH will come to Brazil and will come to Japan as well. We estimate 1 year more or less for registration. So the U.S. and Australian market launches are underway. I already spoke about this. Nothing new on this chart. I don't need to read the chart for you, and I already spoke about the 45 KOLs.

Maybe one word to our key opinion leaders. When we started the training, we decided together with KeriMedical to train 45 KOLs to have at least 25 KOLs active afterwards in the market. And the big surprise was that the 45 KOLs are totally flashed, all of them bought in Keri, all of them are waiting now for the TOUCH prosthesis arriving in the U.S. and doing the first cases. So we have 30 U.S. reference centers now in some 2 surgeons, 2 KOLs are working to start the first surgeries.

So on one hand, you can say, yes, those surgeons have already patients waiting to get the prosthesis. But then again, when they do the first touch prosthesis, you have a ramp-up phase. And we are calculating with this ramp-up. So it will start with the first prosthesis this year. And then next year, we will start continuous training. And we are planning to train around 300 surgeons per year in the U.S.

NeoOrtho acquisition, this is our value segment completed in May and the integration on plan. The integration is our Cold Fusion project. I think I explained already most of this. HR strategy is clearly focusing on maintaining our key talents out of both companies, aligning leadership structures. We will also continue -- already continue with this. The production facility is on time. It's very fast advancing. We are also lucky with the weather in Curitiba currently. It's winter time, but not as much rain as in the past. So we are totally in time that the facility is ready in December, and we can move in, in February.

We see also that NeoOrtho has an accelerated sales momentum much faster than Medartis. This shows again how promising this value strategy is; and especially in CMF, the growth was outstanding in the first half year. This team is really doing a great job. The premium and value brand positioning maintained -- will be maintained separately. Our focus when it comes to the sales channel is separate. We will not give, for example, NeoOrtho and Medartis together to one distributor because then they are mixing up everything, and we will lose the momentum.

Value is not cheap and premium has an additional service to offer. So we separate this, but everything back, not visible to the customers in the backseats, back office, marketing, education. Here, we have HR, finance team, production, we are working with one team. Closing important portfolio gaps. I mentioned already the dorsal olecranon system for the elbow. This is a new launch, which happened throughout the first half of this year for elbow, very well accepted.

We have in the U.S. for the elbow, the Avenger radial head system, which provides the U.S. surgeons interoperative flexibility between arthroplasty and blade fixation. We see an increasing momentum. I was not quite sure, honestly, how Avenger radial head will really move and push our Medartis portfolio for the elbow, but we see that now the surgeon has the full solutions on the table when it goes to the ER, OR and this helps. So both launches, very successful, combined with our Hand 2 launch.

Yes, our outlook for 2025, let's say, for the second half or for the remaining of 2025. We are raising our guidance to core sales of growth of 14% to 16%. Again, remember, we deliver on what we promise, and we maintain our high teens rate when it comes to core EBITDA margin. And I think Dirk gave already the explanations to you.

And now we are happy and curious to take your questions. And with this, I hand over to Fabian. Thank you very much.

[Fabian Hildbrand, executive]

Excellent, Matthias. With that optimistic outlook, we will go seamlessly into the Q&A session. We welcome your active participation. [Operator Instructions] And with that, we will start with the first person, Sandra Dietschy from Octavian.

[Sandra Dietschy, analyst]

I have 3. So the first one is on the U.S. market. You reported very solid growth in the first half, showing that the optimization of the distributor networks works well. So what impact do you expect from this to have on the U.S. growth rate in the second half and maybe also in 2026? You mentioned your ambition of U.S. growing more than 20%. I assume this is rather a midterm target and not an ambition for the second half, but clarification there would be helpful.

And then second question on the gross margin. Could you clarify what's the expected gross margin of KeriMedical? I recognize that converting the distributor margin to a full manufacturing margin is a tailwind. But should we expect that the KeriMedical underlying gross margin is still dilutive and maybe could also the touch manufacturing ramp-up in the U.S. weigh on the margin. So I just try to better understand how we should think about the consolidated gross margin once NeoOrtho and KeriMedical are fully integrated?

And if I may, a third one, it's on KeriMedical acquisition. Here, I would be eager to hear some more details on the earn-out structure, specifically what performance metrics the earnouts are tied to. I assume that at least one is linked to commercial sales. And also what revenue potential you see for Keri TOUCH in the U.S. during the initial years, i.e., 2026 and 2027. That would be all very helpful.

[Matthias Schupp, executive]

Yes, Sandra. Thank you very much for your question, and we will answer the 3 questions. No worries. Let me start with the U.S. market, solid growth. Yes, the 20% and then above 20%, this was a target I already gave in March. This is more for starting 2026. I would expect the U.S. growth above 16%, clearly 16%, continuing growing faster than the second half. We have seen this already in July and August. I'm cautious because I mentioned Florida is the biggest region. We had one distributor for 17 years working in the Florida region, so -- and it was not expected. It was not our plan to change him, but it happened.

So no problem because we need exclusivity, the main reason. And then this had an impact over the last 2 months. But overall, we are heading towards the 20%. And U.S. is part of my -- of raising my guidance or our guidance now because very, very well underway. Before I hand over to Dirk regarding the gross margin to Keri, just to clarify, we are not planning yet to produce TOUCH in the U.S. I understood that you mentioned TOUCH production in the U.S. Anyway, TOUCH is produced in France. We have only 15% tariff. It's not so easy to produce the TOUCH prosthesis.

So we are really focusing now in the ramp-up to the U.S., our Medartis portfolio. And before I hand over to Dirk, just the earn-out. Yes, there is one earn-out based on the next 2 years, '26, '27 sales performance in the U.S. Though this has to happen, there was another earnout is with the study, with the reimbursement study. This is really well underway. And of course, there was another earn-out, and this is the one we already mentioned, which is fulfilled, which is identification and training of the key opinion leaders. And now for the rest of the answers, I hand over to Dirk.

[Sandra Dietschy, analyst]

Just on the gross margin, I meant that there might be a dilution from the ramp-up of the touch for the U.S., not that you manufacture in the U.S., but maybe that's within the question on the gross margin for Dirk.

[Dirk Kirsten, executive]

Sandra, first of all, currently, the gross margin is accretive to our business. We are currently doing the IFRS conversion. The numbers which we know, which we've also looked at in the due diligence earlier was clearly an indication that it's accretive to our own margin with and without the Trump effect here. Also here, we can work a little bit with transfer pricing and other things. But here, you should expect that the margin is accretive. It looks slightly different when you talk about NeoOrtho. Remember, this is the value strategy. So the value strategy you sell at much lower prices, which it's normal that we start with a lower gross margin.

What is -- however, the fact is that when you put it down on an EBITDA level, the cost structure is much leaner than our cost structure is, which is also typical for a value player. And that means that the EBITDA margin is accretive. But you're right, we are talking about 65% gross margin for NeoOrtho and the more NeoOrtho we do, of course, there is an impact. If you look at it on a relative size basis; however, it's still a small company. And for that reason, we've been also confident to hold our guidance.

[Matthias Schupp, executive]

Sandra, I forgot one answer to you. You asked the expectation of Keri sales.

[Sandra Dietschy, analyst]

Exactly.

[Matthias Schupp, executive]

This is a very tricky question, and I've read already some projections from your side. You are getting close. Let me explain you over the next 5 years because we have a 5 years plan. We have around -- in the U.S., we have around 150,000 procedures. We expect that we can catch at least 10% of these, 15,000 procedures in 2030. It is a slower ramp-up because education takes time, and we need to be very careful as it is a new procedure in the U.S. to get a momentum and positive comments from the surgeons. Therefore, we spend time on education and not just pushing the cases through, especially 2026.

And then for us, the example is Europe, example is France, Belgium, Germany, how this ramp-up works. And there is a math behind. We plan to train at least 300 surgeons a year on the TOUCH. And then you know exactly they are doing 1, 2 cases and they wait another month, they are doing the next 2, 3 cases. And so it's coming up, and in the meantime, we have surgeons, they are doing 10 cases per week. So this is a little bit what we are expecting over the next 5 years with TOUCH in the U.S., but 10% should be absolutely possible.

[Fabian Hildbrand, executive]

Very clear, Matthias. I hope Sandra, you're happy with the answer. We move to Daniel Jelovcan from Zürcher Kantonalbank.

[Daniel Jelovcan, analyst]

So 3 questions from my side as well. The first one, looking at Asia Pacific, I don't really understand the composite of that growth. Because in Australia, you had the 2% sales growth because of the expected price cut. In Japan, you said you had some issues in the -- not your upper extremities, but you still recorded a very -- quite a strong decent 15% organic growth. So I wonder, I mean, and there are not that many countries left in the region to my knowledge. So just to get a bit more flesh on the bone. Maybe I just ask one by the other.

[Matthias Schupp, executive]

Okay, Daniel. Yes, I can answer you. Look, APAC, it depends a little bit how you look at it, growing on a low base. Japan, super growth with CMF. We doubled the business in the first half year with CMF. We have a separate distribution business in Japan, only focused on CMF. We are very strong on Lower Extremities. Also to recall, Lower Extremities started already 2 years ago to go direct in Japan before we moved from the upper extremity distributor also to direct. We are suffering at the same time in Japan with our upper extremity business because our former distributor became now a competitor to us. It is what it is, but the rest is growing very strong.

Australia, super effort. Surprised us a bit. We saw that the first half year will be a bit more impacted by the price cuts still. And then, Daniel, remember, we have also distributors in other countries in the APAC area. We have a distribution management sitting in Singapore, but the direct countries with the Medartis organization is Japan and Australia. And this explains a little bit the growth momentum for our APAC region. But still work to do. There is more in, especially if we get Japan under control fully.

[Daniel Jelovcan, analyst]

Okay. Good to hear. Second question, just thinking about the Keri TOUCH in France, where it's, as you said, probably the most mature -- I mean, mature in [ epistrophe ], of course, market. How about the penetration just of the TOUCH prostheses in France, just to get an idea about the further upside versus current methodologies?

[Matthias Schupp, executive]

Yes, Daniel, good question. In France, this is the most mature market for TOUCH. This is their home market. This is their home game. They are rugby players, the Keri team. They have 85% of market share. And even in -- with 85% of market share in the high teens growing still. And this growth is continuing month by month this year because they are really doing patient activities. There is a strong momentum in acquiring new patients, patients asking for it.

We have seen in France because it's a showcase, a good learning base for us. We have seen in France, patients, they get the right sum done. And then 5 months later, they come back to the doctor and say, I need my left sum as well done. So it's really the standard and dominating the market.

[Dirk Kirsten, executive]

And maybe, Daniel, if I can add from my side, we showed in the past, we haven't updated that slide for this presentation, but I'm sure we will in the future as well. So we showed you a penetration chart for the main countries where Keri is active. And France is about at 60% level, depending a little bit on what kind of data, how you take into consideration. That's about 3x higher than Germany is as of end of 2024, and it's about 30x higher than the one of the U.K. So in the U.K., we are only at the beginning. Germany, some leeway. And as Matthias mentioned also in France, the Keri TOUCH becomes more and more the gold standard in the treatment protocol.

[Matthias Schupp, executive]

Yes. And just to add, Daniel, this shows us also that it needs time. In Germany, now 2 years in the market, France over 10 years in the market, you see this difference. And once you have your surgeon network working and then it's really advancing fast.

[Fabian Hildbrand, executive]

Then maybe your third question.

[Daniel Jelovcan, analyst]

Yes, Fabian and Matthias. And the third question is probably I haven't understood it correctly before I had some issues, but the tariffs, you said in '26, 1/3 is mitigated with price increases, 1/3 with the production setup in the U.S. And the other 1/3, I wasn't sure what it was.

[Dirk Kirsten, executive]

Dani, I'll take this, Dirk speaking. Yes, it's true. Matthias also spoke about the ramp-up in the U.S., which is now accelerating. We had planned it anyway. You're absolutely right with the price increases, which we're doing on an ongoing basis, where we have opportunities and where new contracts are coming up. What he did not mention was the cost side on the one hand. We are very cost disciplined. We've looked but also on structuring it, on transfer pricing, these things.

And then I said also earlier during the presentation that with the acquisition of NeoOrtho and Keri in the second half of the year, we have 2 companies, which are accretive on an EBITDA level at least, and that should also work to hold the margin for the second half of the year. So it's not so much a gross margin comment, it's more a comment on EBITDA margin.

[Daniel Jelovcan, analyst]

And the EBITDA margin in '26, everything should be recovered from tariffs? Or didn't you comment on that? I'm not sure.

[Dirk Kirsten, executive]

I'm not saying everything, I have to manage your expectation yet, but we are very ambitious to compensate for as much as possible. And that's the reason why we also reconfirmed the margin guidance in the high teens.

[Fabian Hildbrand, executive]

Good. Perfect. Then Daniel, I mean you can always rejoin the queue if you want. The next question is from [indiscernible] from UBS.

[Unknown Analyst]

First one would be around exit rates that you saw in July, August. Maybe you can comment a bit about that. Did -- continue equally strong? What about the U.S.? And particularly in the U.S., did you see any pullback maybe once the 39% of tariff were announced?

[Matthias Schupp, executive]

Okay. if I understood you well, [ Leone ], it is July, August. Well, happy, it continued. So it was definitely not a push to have a good half year closing in June. The momentum continued in July, a strong July, a good August. We are now mid-month, so still not finished. So I'm happy, yes, confirmed that we had to raise the guidance. No problem on this. And then in the U.S., what was the question again, please?

[Unknown Analyst]

Also, how did you see exit rates there? How was the dynamic? Was it like some particular dynamic change once the tariffs were announced.

[Matthias Schupp, executive]

No.

[Unknown Analyst]

Yes, I understand. Okay.

[Matthias Schupp, executive]

Honestly, not. I think in the U.S., we see the momentum gaining speed month by month, very positive. And as stronger as the team becomes because in many regions, we have a new team, so there are only -- also a few months in the market. And no reaction, I think seen any impact in the U.S. after the tariffs were announced, no.

[Unknown Analyst]

Okay. And then another tariff-related question would be, we heard some other orthopedic companies talking about the Nairobi protocol and saying that they could leverage that to get exemptions for their exports into the U.S. Is that also something that you could possibly do? Or is that something that does not apply to your particular import?

[Matthias Schupp, executive]

I can hand it over to Dirk, but we are not doing those [indiscernible] strategies. I think very transparent way forward. There are protocols and whatever. We have to face it, and it's not planned to adapt it here. Dirk?

[Dirk Kirsten, executive]

No, we can't apply. It doesn't apply for us. They double check those. From a legal perspective, it's just not possible to apply for us at the moment.

[Unknown Analyst]

Yes. Okay. And then one last question around the guidance that you raised. Can you explain again, I just missed that. Why did you stick to your EBITDA guidance and left it unchanged, mostly because of tariffs and FX? Or is there another rationale that we should understand?

[Matthias Schupp, executive]

Exactly. It's a nice try. No, exactly, exactly. This is the reason. First of all, and Dirk will answer you based on figures, but deliver what you promise. This counts also in the second half. And we might have some further FX impact. And also, of course, we are trying to mitigate fully the tariffs. But imagine, it just happened. We have the 39% impacting 4.5 years, and our ramp-up is only speeding up now, not yet.

[Dirk Kirsten, executive]

Yes. Leone, I don't know whether you recall, I presented earlier 120 basis points, which we expect to come for the second half of the year on top of the 50, which we've seen. We're confident we can compensate through the measures, which have been mentioned various times. We have -- we're a little bit lucky that now at the right time, the 2 acquisitions come in and to get accretion from those and through the full P&L. And we were also doing a little bit of structuring. We couldn't do the Nairobi, but we weren't just sitting there. In May, we also reviewed our transfer prices and tried to optimize it within the limits which we have.

So putting that all together, -- now I know that you have this implicit question what's going on with FX in the second half of the year. Our assumption was just that it's not getting worse, but it's not getting much better. Currently, we're seeing even though it's getting a little bit better, just wanted to not just -- so if we are a little bit lucky, we can hold that also from an FX perspective.

[Fabian Hildbrand, executive]

Just as a reminder, our guidance on EBITDA is on a constant exchange rate level. That doesn't mean that we don't manage currencies, but it's not included in the official value. The next question will be from Dylan van Haaften from Stifel.

[Dylan van Haaften, analyst]

So just another one on the touch rollout. So -- can you just reflect and tell us how we should think about year 1 volumes? Should we think about the targeted doctors doing double-digit amounts of cases? And maybe also can we reflect on when coding should come in? Is there existing coding you can be using? And what's kind of the price level we should be thinking out relative to Europe?

And maybe one additional one to that. Is there any data releases planned around the Keri launch in the U.S.? Because I know there's a -- I think there's a hand conference or there was one recently. Is there any conference activities planned for the next 12 months where we could also maybe see launch -- yes, talks about the launch.

[Matthias Schupp, executive]

Yes, Dylan, how are you doing? Well, yes, TOUCH, yes, we are going to all the bigger congresses. We have now upcoming in November ASH this time in Canada, not in the U.S. TOUCH will be there. But again, TOUCH is this education-based approach. So you can speak about it in a conference, you can speak about it in the Congress, but still you catch the conscience more in your education center and in your [indiscernible]. The volumes for the first year, this is a very good question.

Look, I told you, we have already 45 surgeons trained. We will train another 300 next year throughout the year. So let's say, we have 2, 3 courses, education courses per month. So this is coming in step by step. Yes, then you can calculate a little bit. So those surgeons who are already trained, they will do a first 1, 2, 3 TOUCH prosthesis. Then normally, they wait a few weeks and they do the next 3, 4 touch prosthesis. So this is how this ramps up. Fabian, what would you say?

[Fabian Hildbrand, executive]

No, you're absolutely right. I mean, in communication, you're tempted to give you high numbers. In Investor Relations, you're tempted to be realistic in order to get that -- you get your forecast right. We've seen in Germany, especially people that have -- that work on a private basis, and I would refer now to the U.S. context to the ASCs. They also see this as a differentiating factor to normal hospitals and to have a pull-in of patients. And so the 200 is clearly the iceberg.

[Dylan van Haaften, analyst]

200 what?

[Fabian Hildbrand, executive]

The 200 cases per year per surgeon.

[Matthias Schupp, executive]

Yes, I would say. Roughly above -- I give you -- I should you know a number, roughly above 1,000 TOUCH prosthesis next year, more or less. But it can be more, it can be less. It depends how we start. And the price -- it's also a good question. We are finally -- I'm doing all my calculations based on around USD 4,000. But we are still waiting for the final reimbursement code 4, 5, which we receive by end of this year, beginning January. So -- but my assumptions are 4,000, 4,500 more or less.

[Dylan van Haaften, analyst]

Perfect. And maybe one follow-up just on the penetration numbers you mentioned, Matthias. I think -- are we thinking about this as a replacement of LRTI? Because I had a chance to speak to one of the docs that uses it. And I think he's basically said that dual articulating is basically something that's changed the market and people are doing LRTI less and using a prosthetic approach more. And I think you said a number of 150,000 and then targeting around 50,000 in 5 years, something like that. That is a replacement right now. That is not from the market.

[Matthias Schupp, executive]

This is a replacement. Yes, definitely. It's a new procedure. It is much better. I'm not a surgeon, but it's much better for the patient. I spoke with surgeons and patients in Europe. And patient recovery time is much faster. Patients are back to normal speed after 6 weeks, whereas with the existing method, you are running around for months to recover. So it's a change in the procedure, and this makes it so challenging in the U.S. And this makes it also clear where our focus is on the young generation, young surgeons, to get them in into this because not very -- I'm not very optimistic that the old ones will change their procedure.

They are working for over 15, 20 years with. And then once the TOUCH prosthesis, this is what we see in France now, is established in the market after a few years, you get this mouth to mouth, you get the patient's voice and you get really patients asking for it. And then you start also to really doing some patient campaigns. But this is kicking in, in the U.S. only after a few years, not at the beginning. At the beginning, full focus is on surgeon training.

[Fabian Hildbrand, executive]

And we have a follow-up question from Sandra Dietschy from Octavian.

[Sandra Dietschy, analyst]

Yes I have 2 other questions. So the first one is on the portfolio. Regarding your CMF portfolio, is the U.S. launch still on track for the end of this year? And how do you see your growth prospects in this segment? Maybe you can also comment on potential gaps you have in that portfolio? And then I have another one on the U.S. and on access to hospital systems. Like there are many large hospital networks, as you know, in the U.S. How would you assess your access to these networks? Has that also improved over the last months?

[Matthias Schupp, executive]

Yes, Sandra, good question on the portfolio CMF. We are waiting for FDA clearance by end of this year for the U.S. We will not launch in 2026 because we need to focus on Keri. I mentioned this already in March. This is maybe one of the big learnings in the U.S. from the past, really do the things right and focus on it and do not get distracted. Therefore, it's also not part of our planning for the U.S. We reserve a launch for maybe later. We will see this. Our CMF portfolio is getting some innovations, is quite advancing, especially on the digital side, we are competitive.

We did a good analysis, especially with MODUS 2. We have a good system. And this is also shown in countries like Japan or in Europe, very, very, very good, but not yet a focus in the U.S. I would overwhelm the organization there. This is not possible. And U.S. hospitals access, yes, this is becoming better and better. I mentioned it at the beginning. We have already 62% of our sales are under contracts. We will get new contracts for bigger corporations when we launch TOUCH now, it's very interesting for them. We got better inroads once we had focused access with our upper extremities.

Remember, in the past, we were defocused. We focused on foot, and we let a little bit go on the upper extremities. So all this changed and will further change into the future. And do not forget, Sandra, also a very important group in the U.S. is the ambulance centers. And this is growing more and more, not the big hospitals, but the ambulance centers. And this is important for us for TOUCH, as TOUCH is a typical ambulant procedure where patients are stepping in, getting the procedure half an hour and going home.

[Fabian Hildbrand, executive]

Good. Perfect. With that, we're going to close this out for today. Thank you very much for your excellent question and your interest in Medartis. This is not over. The Medartis story continues, and it also continues on the road. So on Slide 28, you see our IR activities for the remainder of the year. You also see the brokers' name. So if you're interested to meet us, please call your sales representative, and we're happy to arrange a meeting with you guys.

And with that, yes, hope to see you again, and we wish you an excellent day and the rest of the day.

[Matthias Schupp, executive]

Yes, super. Thank you very much.

[Dirk Kirsten, executive]

Thank you.