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All right. So good morning, everyone. Welcome to this earnings call where we will cover the first quarter 2023 summarizing our business in January, February and March of this year. And I'm going to kick to next slide. So I'm Fredrik Ruben, I am the CEO of Tobii Dynavox.
And I'm Linda Tybring, the CFO of Tobii Dynavox.
And like I said, we will cover the first quarter of 2023. But first, we will take you some brief fundamentals about the company. We will summarize the main takeaways from the quarter and then we will dive a little bit deeper into the financials and thereafter, there will be a Q&A session and you can submit questions live in this session in the chat function in Teams. We of course always welcome offline questions and you can direct them to Linda's email that you see here on the screen. So as I said before, we dive deeper into the first quarter of 2023. I'd like to make a short summary about what Tobii Dynavox is about. This may be repetition for some, but it's still fundamental to really understand the company and our business. First and foremost, very important for us to reiterate our mission and vision, which I know is very dear not only to our roughly 600 colleagues around the world, but also to our ecosystems of partners and investors.Our vision is a world where everyone can communicate and we will contribute to this via focusing on our mission, which reads to empower people with disabilities to do what they once did or never thought possible. And in this story, you basically have 2 of our main user stories embedded. The first one is do what you once did and that may be the person who led a normal life until a diagnosis such as ALS, which rendered her unable to control the body or communicate like before. The other story is that never thought possible and that can refer to the child diagnosed at an early age with conditions such as autism, cerebral palsy or like where thanks to our solutions, she can do much more than the world around her ever thought possible. And we have on the picture here to the right Delaina Parrish from Florida. She was born with cerebral palsy and she is a great example of exactly that. If we look at the market that we serve, it's hugely underserved.Some 50 million people have a condition so grave, they simply cannot communicate unless they have a solution like ours. And every year some 2 million people are being diagnosed yet it's estimated that only 2% of those are actually being helped, the rest remain silent. And the main reason for this spells lack of awareness also among the professionals and the prescribers task to assist these users and in combination with typically a poor health care reimbursement system. We operate with a global footprint. Today, some 3/4 of our business stems out of the U.S. and largely because of a reasonably well functioning funding system established some 20, 30 years ago. Our products are, however, also sold and available in some 65 markets around the world. Our staff is distributed in a similar way as our revenue so that means some 70% of our staff are based in North America with our U.S. headquarters in Pittsburgh, Pennsylvania. Our second largest office is our headquarter here in Stockholm, but we have branch offices in several European countries as well as in Suzhou in China.As of today again, we have some 600 employees in total. With the recent acquisitions, we now also have established or increased our presence specifically in Belgium, in France, in Ireland and in Denmark in addition to a smaller number of remote employees, primarily in Central Europe. Tobii Dynavox provides a comprehensive portfolio of solutions and that ranges, as you can see on the list on this picture if we start from the top, the content such as the world leading library of communication symbols that are called PCS and synthetic voices. Specifically, the voices is a component that we now have in-house through the acquisition, which we closed last year, of Acapela Group. It's the world's leading provider of naturally sounding and diverse synthetic voices. If we then go down, we have highly sophisticated communication software, which is tailored to the type of user and that can of course vary greatly based on the needs.If we then further go down, we develop and design devices and hardware with cutting-edge technology that is typically medically certified and is very, very durable and that includes then communication aids that you control using eye tracking. We have a services portfolio to help our users through the complexity of obtaining and getting funding for a device. And then last, but least, we are there to help our users, the therapists, the caregivers through a global team of support resources. And like I said, we operate this model globally and it's important to note that each piece of this or each layer here is critically important and also significant differentiator for us, making us absolutely unique as a company. Our go-to-market model is predominantly as prescribed aid. Some 90% of our revenue stems out of public or private insurance provider and this also means that we have solid paying customers. And we have always historically and still been very resilient towards changes in the overall economic climate.In addition to that, our market is as mentioned severely underpenetrated. But now we'll get back to the main topic of today, which is the earnings report for the first quarter of 2023. So if I look at the highlights, we had another very strong quarter when it comes to revenue development. The revenue growth compared to the same quarter last year sums up to 36% partly boosted by foreign exchange and a strong performance by our recent acquisitions. And the organic growth was 15%, which continues basically on the same trend that we saw starting in the second quarter of last year and continued throughout 2022. During the first quarter, which is seasonally our weakest quarter, we continue to report good growth across the board in different geographies, in different products and across various user groups. So we feel that the strength of an up-to-date product portfolio is continuously improved with new products and features.We launched several new products quite recently in the end of 2022. We'll continue to grow our sales and marketing organizations, including furthering strengthening our U.S. funding organization and this is key to navigate each customer through the complexities of obtaining funding for their new communication aid through public or private insurance systems. Our work to improve awareness and competence continue specifically among prescribers and professionals. The value of being able to meet every person again typically face-to-face is of major significance for us both internally within the company, but also with our customers obviously. The North American market, our biggest market, continues to show strong growth. This is the largest and most influential market in our industry both for us and for everyone else. But it's also good that we continue to see the trend that the growth rates also in Europe and other countries are pretty much on the same levels.If there is 1 trend worth singling out is that we now have particularly good momentum among conditions that are children or conditions that have a younger user base. A good example of that is autism and they rely typically heavily on our symbol communication solutions and in particular our software called TD Snap. Our OpEx levels are higher than a year-ago, but this has to be seen in the light that a year-ago we still had the pandemic that impacted our business and we have made since significant investments in our staff again mainly within sales and marketing. Going forward, comparisons will be easier since the impact on OpEx created by the pandemic kind of faded out a year-ago and since then, it's been more or less business as usual. We closed 3 acquisitions during 2022 and it's also very encouraging to see that all of them are developing very well both commercially as well as operationally and integration wise.The largest acquisition that we did was Acapela Group that I mentioned before. They have headquarters in Belgium. They have rendered significant momentum and attention to its world leading synthetic voice portfolio. But not only the significant catalog of high quality synthetic voices in many languages and variants, but also the solution called my-own-voice, which enables people with only a few small voice recordings to create a naturally sounding synthetic voice that they can do on their own based on their own voice, which can then at a later stage perhaps be used on a communication device. This was much picked up by the news outlet Voice of America in an interview with one of our users, his aide and with the Acapela Group CEO, Remy Cadic. And I would like to play a little video for you to see that interview, which hopefully gives you a good flavor.[Presentation]Great. So with that, it's time for us to go over to cover the financials in more detail. Linda?
Thank you, Fredrik. That video was great. I know I'm not objective, that's pretty cool. So Q1 financials. Revenue for the quarter came in at SEK335 million, 36% year-on-year growth. Currency impacted positively with 11%, M&A contributed with 9% and the organic growth was a solid 15%. We continued the trend from previous 4 quarters. The underlying growth mainly adjusted for certain positive effects of delivery and logistics delay during comparative quarter was approximately 19%. North America continues to show strong growth and we continue to see the growth in Europe and rest of the world as we started to see during Q4 2022. The gross margin ended up at 36% -- sorry 66%. That would be bad. The main factors behind the improvement of over 2 percentage points were scale effects due to increased sales, no surcharges on components and lower shipping cost.The price increases that Medicare indicated in December didn't impact materially. As we mentioned earlier, this will gradually improve our gross margin over the coming quarters. We have only a limited impact from FX movements on EBIT, but around 80% of our revenue is in U.S. dollars and we have almost the same percentage on cost in U.S. dollars. But we will have fluctuations on revenue from FX movement and some short-term timing effects on gross margin and EBIT. So EBIT for the quarter was SEK21 million or 6.3% versus 7% last year. Our OpEx increased organically with 14% versus prior year. The comparative period last year had lower cost due to lower level of activity due to the pandemic with lower cost related to travel and events and hopefully, that is now an end.Increased OpEx also relates to salary increases and hiring more people, primarily in sales and marketing organization. Net effect of R&D spend increased with SEK11 million mainly driven by normalized development cost. We also have increased depreciation relating to major product launches during the last 12 to 18 months. Cash flow after continuous investments was positive SEK17 million. Cash at hand was SEK99 million. Net debt was SEK505 million and net debt over last 12 months EBITDA was 2.3x in absolute terms, in line with our financial target. We have amortized our credit facility with SEK19 million in the quarter and the total used credit facility at the end of the quarter was SEK553 million.So back to you, Fredrik.
Great. Thank you, Linda. So before we open up for questions, I'd like to reiterate some of the main takeaways from the first quarter of 2023. So we continue our record strong growth, a trend again that was started already in the second quarter of 2022 and has continued throughout the year. In absolute terms, we grew our revenue by 36%. If we adjust for currencies, our growth was 25%. And again if we in addition to that adjust for the made acquisitions, the organic growth was 15%. We see revenue growth across all geographies and all product segments. And in particular among the younger demographics of our users with conditions such as autism that rely on symbol communication, the growth was in particular strong. The acquired companies contribute well and they continue to develop favorably. We now see no impact from the pandemic neither negative nor positive. The company's gross margin and OpEx levels are now largely normalized.And we reiterate our long-term financial goals, which reads to over time maintain an annual growth adjusted for currencies in excess of 10%. This is quite obviously a target that we currently overshoot. But we also want to reach and maintain an EBIT margin of 15% or more. And here we still have some more ground to cover. But with continued growth, strong gross margin and OpEx levels that are now normalized, we remain confident that we will reach this. We want to maintain a net debt ratio over the last 12 months EBITDA of between 2x and 3x and the outcome in the quarter was in the lower half of that range at 2.3x. And once we have referred to as landed in our split from Tobii and we have consolidated our balance sheet somewhat, we will distribute dividend to our shareholders provided other more compelling alternatives such as acquisitions for example don't take preference. And for reference, these targets are expressed with roughly a time horizon of 2 years.So that's all we had from a presentation perspective. We're now handing over and welcoming [ Cristian Hal ] to us here in the room to take questions from the audience. Cristian?
So we have a couple of questions here to start with. We start with [ Daniel Djurberg ] at Handelsbanken. And he says you give a positive picture on the uptake of better awareness and the reimbursement systems in Europe. Can you give some more insight and examples on this?
Yes. If we start with the awareness part, we have a quite interesting time behind us where the big issue, as mentioned, is that the lack of awareness is of course high among the general public, but even also among the prescribers; these are speech language pathologists, occupational therapists, et cetera. So these are the professionals that work with our products. During 2 some years where we had the pandemic, they of course have been largely hindered to meet with their clients and users. Instead we and many with us have focused a lot on educating these. So we've had webinars, a lot of training has happened online. And I think it's fair to say that after the pandemic, a lot of these professionals, they come back into the field with a much better competence level knowledge, et cetera. So I think it's starting to pay off really the relentless efforts about educating also the prescribers about this.Then there was a second part of Daniel's question, which relates to the reimbursement systems, et cetera and here we gradually see dramatic changes where it kind of goes from bad to good, et cetera. It's typically incremental improvements where certain conditions are getting a better reimbursement level. I would say 1 condition that has been in the spotlight for quite some time now is ALS where we have seen significant improvement specifically in the U.S. over the past years. But now we see that the reimbursement systems are not only having better reimbursement levels, but they are also faster. These conditions have a fast progression at times, hence getting funding and reimbursement and getting our products faster is equally important as getting it in the first place. France is a good example. There we have seen incremental improvements. But there are no major kind of game changers in any particular market in this quarter, but that's also rarely the case.
Okay. And then Daniel asks, he says some SEK4 million in negative net between capitalization and amortization of development cost in the quarter. Should we expect a similar level going forward or net closer to 0?
Linda?
Yes. I mean the net effect of R&D development is actually SEK11 million in the quarter. But of course depreciation and capitalization can differ from quarter-to-quarter, it depends a little bit when we launch products for example. But we will -- over time this will most likely balance depending on the life cycle of our product.
Yes. So over time think about it as 0, but in individual quarters we might have quite significant differences such as in this quarter.
And another question from Daniel. Looking at the number of FTEs totaling 582, how many of the uptake year-on-year came from acquisitions?
Those are some 60-ish.
Slightly less.
And it continues how to think about the number of employees going forward in 2023? What kind of average salary increase should we pencil in from the Q2 to Q4?
I mean over time what we have said is that we need to continue to increase sales and marketing to be able to grow so we will add people there. When it comes to salary, we think that like a lot of other markets is between 3% and 4% salary increases is what we are assuming.
I think it could be added to that that we've grown quite a lot over the past 12 to 24 months. When we add new staff, obviously kind of the inflation and salary increases, they happen naturally because we hire a new person. So some of these inflation-related salary increases is actually already behind us. And then to Linda's point, somewhere around 4% on average across the team. That's roughly where we see it. No dramatic changes.
And the final question from Daniel regarding Acapela. The profitability contribution during the quarter and the performance versus initial ambitions, how about earnouts in the 2023, 2024 time frame? And that's the question.
There are no earnouts related to the financial execution or any earnout by the way for that deal. So the good performance that we see is going to be unaffected.
And it's performing according to expectation?
Very much so, yes.
Okay. And then a question from Mats Hyttinge at Redeye. Expand on the underlying factors behind the improved gross margin?
Yes. So I mean as we have talked about almost during all quarters in 2022, we've been hit by a lot of extra charges that we needed. But when we made sure to have high levels of inventory to distribute to our customers, we needed to buy some of those components really at a high price. Now we see that we are starting to get new inventory into our office and are able to ship to a lower or more normalized cost. So that is a big effect. We are also starting to see that we are able to ship a lot of our products on boat rather than putting it on express all the time and there's also some components of scale effect. So that's what we're seeing there in this quarter.
Like I mentioned, the effects from the pandemic; some of them negative, some of them positive; are largely behind us. This is a very normalized quarter that we have behind us right now.
Then we have a question from an anonymous asker. How much of revenue growth in North America was related to price increases versus volume?
Hardly none. We haven't seen that effect yet. As I said earlier in the call, it will gradually come over the coming quarters.
Okay. Now I see it was [indiscernible] at Kepler Cheuvreux who asked that question. And then a question from Mikael Laseen at Carnegie. How much was sales in Q1 affected by Medicare's reimbursements increase of about 9% and you answered that?
Yes, I answered that.
And how has the reimbursement increase so far spread to other insurers and organizations in the U.S.? And he also asks why do other country sales decline year-on-year to SEK14 million?
If we start with the other insurance in U.S., it will automatically be that Medicare is the lead indicator if you look at like that and then the other insurance company will follow. But we need to do a process with adding an appendix to our contract to increase those prices and that will take some administration time, but they will follow.
And we have that, this is a process that we do every year. There is nothing unusual in 2023 on this. It's a process, hence we feel very confident that again, like Linda said, throughout the coming few quarters we will have 100% kind of pull-through on that. So that at some time during the second half of the year, we will operate across the board across all insurance providers at these increased levels.
And he also asked other countries the sales decline, how should we think about the outlook for this region?
That one I actually need to think about. I need to investigate and I can get back to him.
And then he also asked about Acapela, the company's revenue model if you can talk about that and key customers sales drivers and operating margins?
Sure. I can talk about that. So Acapela, again their core business are synthetic voices. 50% of their business relates to communication aids and assistive technology. Hence one of the clients, if you say, is Tobii Dynavox, but also our industry peers. 50% of their client base are in other verticals. That could be in public transportation, the voice that tells the next station or information to passengers in the local language, et cetera; it could be the voice that you have in the artificial intelligence interface in your car; it could be the voice that responds to you when you're in communication with a call center, et cetera. The business model: first of all, it's a licensed/software type of business model. There are no physical goods, et cetera. A large portion of the business is on a recurring business model so either transactional based on use or it's a subscription type of model. It's the majority of the business. Now there are some oneoff deals made for localization or specific adaptations, there are also some grants, et cetera, that come in from time to time. But largely it's a licensed business model and to a large degree on a recurring model.
Okay. And then we have a question from [indiscernible] from Mandatum. Could you elaborate more -- could you be more specific about the effect of new product launches on top line?
We operate in an industry where new product launches very rarely have any type of immediate effect. Our products are prescribed. It's not like there is a launch and we have a queue of customers standing at an outlet, et cetera. So new products always have a very, very gradual impact on our sales. In fact there have even historically been that it's been negative because it's taken some time for prescribers to get their head around what does this mean and kind of almost puts a pause on the market. The types of products that we have done in the past year has largely been software titles, which typically removes this risk of having some negative impact on a product launch, but rather just simply makes the product portfolio better. So when Tobii Dynavox launches a product, it's always the effect could be delayed by a year or such before tenders have picked it up, before prescribers are kind of familiar with them and we see prescriptions starting for that kind of product. So product launches is a nonevent for us when it comes to top line impact in the short run.
Then we have a couple of questions from Oscar at ABG. Sorry if you need to repeat yourself as I came in a bit late. Can you talk about the gross margin run rate on current component prices and freight rates? And do you expect R&D and admin to be stable now?
Let's summarize the gross margin. The gross margin effect that we see in the quarter is mainly driven by that we don't have the extra surcharges on components. We have shipped much more things with boat and we see some scale effect. So we see that this is a much normalized level. When it comes to R&D level, we still see that R&D will in comparison to revenue come down, but we still need to hire some more people. We have had challenge over the past year to find staff there. Administration should be on the level where we see. So now we're starting to see some of the scale effects that we have had in conjunction with the separation from Tobii.
And then we have a final question as it looks right now, the final question from Oscar. How large share of the volumes have you raised prices on?
I would say it's a majority of our products.
Yes. So we have raised the prices on pretty much every product in every region. The effect so the actual invoices that go out has not happened largely in the U.S., which is our biggest market, that's still to come. But there are no product segments, et cetera, that are exempt from the price increases either stipulated by Medicare or when we have ourselves increased the prices. So it's across the line.
Yes. And you can also add like for example in Europe, we have tenders and those will take time until we are able to update something.
Correct. There's some delay, but again we have increased pricing across the board basically.
So that concludes all the questions.
Good questions. Thank you.
Absolutely. I love to see the interest. As always and mentioned before, don't hesitate to reach out to any one of us if you need further clarifications. Otherwise, we conclude this webcast right now and wish everybody a great remainder of the day. Thank you.