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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
All right. Good morning, everyone. Welcome to this earnings call where we will cover the fourth quarter of 2022, summarizing our business in October, November and December. And I'm Fredrik Ruben. I'm the CEO of Tobii Dynavox.
And I'm Linda Tybring, I'm the CFO of Tobii Dynavox.
So in this earnings call for the fourth quarter of 2022, we will first take you through some brief fundamentals about the company. We will summarize the main takeaways from the quarter. We will dive a little bit deeper into the financials, obviously. And thereafter, we will open up for a Q&A session. And you can submit questions during the live session in the chat function that you see on your screen. But we, of course, always welcome off-line questions sent by e-mail to the above e-mail address, which is linda.tybring@tobiidynavox.com.
All right. So before we dive deeper into the fourth quarter of 2022, I'd like to make a short summary about what Tobii Dynavox is about. This may be a repetition for some, but still fundamental to really understand the company. So first and foremost and most importantly is to reiterate our mission, what our company -- which I know -- our vision for the company, which I know is very dear not only to the roughly 600 employees of Tobii Dynavox but also to our ecosystem of partners and investors.
Our vision is a world where everyone can communicate, and we will contribute to this by focusing on our mission, which leads to empower people with disabilities to do what they once did or never thought possible. This also summarizes 2 of our main user stories. So if we start with do what you once did, that may refer to 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.
And the other story that never thought possible can refer to the child diagnosed at an early age with the condition such as autism or cerebral palsy, where, thanks to our solutions, she can do much more than the world around her ever thought possible. And on the picture here, see Delaina Parrish from Florida. She was born with cerebral palsy, and she is a great example of exactly that.
The market we serve is hugely underserved. Some 50 million people on the face of this earth have a condition so grave, they simply cannot communicate unless they have a solution like ours. Every year, about 2 million people are being diagnosed yet only about 2% of those are actually being helped. The rest remain silent. The main reasons for this spells lack of awareness also among the professionals and the prescribers task to assist these users, combined with poor health care reimbursement systems.
We operate with a global footprint. But today, some 3/4 of our business stems out of the U.S., and that is largely because of a reasonably well functioning funding system in the U.S. established some 20 to 30 years ago. Our products are, however, sold in some 65 markets around the world. And our staff is distributed in a similar way as our revenue. 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 here in Stockholm, but we also have branch offices in several European countries as well as Suzhou in China.
By the end of 2022, we employed a total of 575 full-time equivalents. With the recent acquisitions, we now also have established or increased our presence, specifically in Belgium, France, Ireland and Denmark, in addition to a smaller number of remote employees in primarily Central Europe. Tobii Dynavox will provide a comprehensive portfolio of solutions ranging from, if we start from the top here, the content, such as the world's leading library of communication symbols called PCS but also synthetic voices. Specifically, the voices are components that we now have as an in-house resource through the 2022 acquisition of Acapella Group, which is the world's leading provider of naturally sounding and diverse synthetic voices.
If we then go down, we have highly sophisticated communications software tailored towards the type of user, and that obviously can vary greatly based on needs. Further down, we developed and designed devices with cutting-edge technology and typically medically certified durability, including communication aids controlled via eye tracking. We have a services portfolio to help our users through the complexity of obtaining and getting funding for our solutions. And last but not least, we are there to help users, therapists, caregivers, et cetera, through our global teams of support resources.
We operate this model globally. And it's important to know that each piece is critically important, also a significant differentiator for us, making us absolutely unique. Tobii Dynavox's go-to-market model is predominantly as prescribed aids and some 90% of our revenue comes from public or private insurance providers. This also means that we have a very solid paying base of paying customers and have always been resilient towards changes in the overall economic climate. And in addition to that, our market is extremely underpenetrated.
But now we will go back to focus on the main topic of today, obviously, the earnings report for the fourth quarter of 2022 and a summary of the full year 2022. So if I would look at the highlights from the quarter, we had another solid quarter when it comes to revenue development. The revenue growth compared to the same quarter of last year sums up to plus 48%. That is partly boosted by foreign exchange and a strong performance by our acquisitions. So the underlying organic growth was 18%, and that continues the same trend that we saw both in Q2 and Q3 of 2022.
We feel the strength of an updated product portfolio, a continuous improved with new products and features. And during the quarter, we have launched 2 key software applications that strengthens our eye-controlled flagship product, the I-Series. And they are in early November, we launched a software called TD Browse. It's a custom-built browser for I-Series users that allow them to easily browse the Internet using only their eyes. Most of us take access to web for granted. And with the launch of TD Browse, people with disabilities can become much more involved. The product has been very well received by our users.
And then in December, we launched a TD Phone app, which enables I-Series users to control a phone using their eyes, both for making calls and sending and receiving texts. This functionality has been long awaited for among our customers. In addition to that, we continue to grow our sales and marketing organization, including further strengthening our U.S. funding organization. It's key to navigate each customer through the complexities of obtaining funding for the new communication aid through public or private insurance systems.
Our relentless work to improve awareness and competence continue, specifically among prescribers and professionals. And the value of being able to meet in person again after again is of major significance, both internally within our teams, obviously, in the company, but of course, as well with our customers. The majority of our growth continues to come from North America, which is also the largest and most [ in-fashion ] market in our industry. However, in the fourth quarter, it's also very satisfying to see that Europe and other markets returned into good growth, and that is breaking the previous trend related to lingering effects from the pandemic.
Our margin continues to be negatively impacted by higher-than-normal component costs, but we see clear improvements when it comes to component prices, which will help us in the longer term. We have mitigated high freight costs and high freight rates by increasing the share of products transported by boat. And we currently have adequate stock levels of all our main product lines. Our OpEx levels are higher than a year ago, but this must be seen in the light that previous year's lockdowns, et cetera, the split to become a stand-alone company and significant investments in our staff. And we see that the OpEx levels will plateau from this level going forward.
If we still instead look at the full year of 2022, we can conclude that it was a solid year regarding our top line growth. The organic growth ended up at 16% and the total revenue growth was an exceptional 40% then in addition to that boosted by FX and acquisitions. The fundamental factor behind this is, again, the hugely underserved potential in the market that we serve, but also our attractive customer offering, which we continue to strengthen through significant product launches. We -- that was also a key driver for -- as well as acquisitions.
Additionally, our strong market position and infrastructure in the U.S. combined with significant investments within sales and marketing led the ground for our growth. In 2022, we dedicated considerable efforts on putting the structure and procedures in place that are required as an independent, publicly-listed company. And we're now entering a phase where we dedicate even greater focus on our business as well as our users.
Before we dive deeper into the financials, I'd like to paint a little bit bigger picture on the growth of North America. Why is our North American market performance so strong? Well, the good news here is that it's not a single contributing factor. It's a summary series of positive trends. First of all, the pandemic did hamper the ability for some of our user group to meet with professionals and be evaluated for communication aid. And with the pandemic behind us, the pent-up demand does render some growth and is now starting to be served.
We have invested, as mentioned significantly in our infrastructure and IT-related sales, and this is now starting to pay off. We added 40 people to our sales and [ funding ] team in '22 alone. We developed and perfected our training efforts, and we have training more prescribers and received even higher customer satisfaction. And in the U.S. alone, some 60,000 professionals participated in our training efforts in 2022.
The funding infrastructure continues to gradually improve. The pandemic actually had some positive effects as it removed some previous hinders such as mandatory face-to-face meetings and some paper-based prescription processes. And lastly, Tobii Dynavox product portfolio development was never actually halted during the pandemic. We have now a very attractive and up-to-date offering, finding its way to new and existing customers.
If I look ahead a little bit, we will continue to invest in our sales and marketing efforts. The market is still largely un-penetrated even in our best performing markets. Some of the product releases are quite recent, and we expect further market uptick going forward, example being the newly released software, as I mentioned, TD Browse for Internet browsing processing and TD Phone for making calls and sending and receiving text.
For users with ALS, which is a reasonably large user group of ours, the recent advancement in research has rendered a few treatments which slows down the progression of this disease. This leads to the people diagnosed with ALS to live longer and hence have longer and more benefit of our products. In the U.S., the U.S. federal insurance provider, Medicare, which represents some 20% of our U.S. sales, but they are also the entity that sets the reimbursement levels for other U.S. insurance providers, they increased their 2023 reimbursement level by just over 9%. This will be gradually implemented across all providers during 2023 and will, of course, then strengthen both our revenue and our gross margin. So we believe that the pent-up demand effects from the pandemic will continue boosting our sales for the foreseeable future.
With that said, I would like to hand over to Linda to cover the financials.
Thank you, Fredrik. Here we go. Okay. So revenue for the quarter came in at SEK 362 million, 48% year-on-year growth. And currency impacted positively with 20%. M&A contributed with 9% and the organic growth was a solid 80%, continuing the trend from second and third quarter. North America continued to show strong growth and momentum. Europe and the rest of the world returned to good growth, as Fredrik talked about earlier. The gross margin ended up at 65%, still impacted by high component charges.
Component prices have now normalized, but we have high inventory level, as we've talked about earlier quarters, and this will improve our gross margin gradually during the coming quarters. The price levels of freight are still high, but we have increased the share of shipping transports, hence keeping costs down. The price increase that Fredrik mentioned regarding Medicare has -- that will help our gross margin improve during 2023. We have only a limited impact from FX movements on our EBIT. Around 80% of our revenue is in U.S. dollars, and we have almost the same percentage of cost in U.S. dollars. This -- but this will have fluctuation on the revenue, FX movement and some short-term timing effects both on our gross margin and EBIT.
So EBIT for the quarter was SEK 25 million or 6.8% versus 5.4% last year. Our OpEx increased organically with 12% versus last year. The comparative period last year had lower cost due to low level of activity due to the pandemic with lower costs related to travel events. The cost development in the quarter came in at a more normalized level after the pandemic. We've traveled more. We have a lot of meetings with our staff, for example. We increased OpEx also related to higher salaries, but also hiring more people, primarily in sales and marketing organization, and with the central functions as a consequence of the transition to an independent company. The net effect of R&D spend increased with SEK 15 million, mainly driven by normalized developmental costs but also having increased depreciation related to major product launches during the last 12 months.
So if we then talk about the full year 2022 financials. Revenue for the year came in just above SEK 1.2 billion, a 40% year-on-year growth. Currency impacted positively with 18%. Acquisitions contributed 6%, but still a very strong organic growth with 16%. North America showed strong growth, while Europe was hampered by some lingering effects from the pandemic during large part of last year, but the trend was, however, broken during the fourth quarter. We should have in mind that the beginning of 2022 was locked as related to the Omicron variant of COVID across the globe.
The gross margin ended up at 65%, negatively impacted by higher-than-normal components and freight costs. But if we adjust for this more temporary cost, the underlying gross margin ended up at close to 67%. And EBIT for 2022 was SEK 82 million or 6.8% versus 6.9% last year. Our OpEx increased organically with 14% versus prior year. The previous year had lower cost due to a low level of activity related to the pandemic and cost development in 2022 came in at a more normalized level after the pandemic. As we have also said in the quarter, the increased OpEx relates mainly hiring more people, primarily in sales and marketing organization and within central function as a consequence of the transition of us being an independent company.
Net effective R&D spend increased with SEK 36 million, mainly driven by normalized development costs and increased depreciation. So as you understand, we are very happy with our growth. We still have some improvements to make when it comes to our EBIT, but we remain confident that we will reach our 15% EBIT target. As mentioned earlier, reaching our EBIT target will come gradually and the basic 3 main drivers are: first of all, continue to grow our revenue; have a more normalized gross margin and normalized component cost and freight; and then gradually, we will improve gross margin related to the price increase, specifically in North America. And then, of course, our OpEx then grows slower pace than our sales.
Talking about the balance sheet and cash flow. Cash flow after continuous investments was positive with SEK 41 million in the quarter. The positive effect of working capital in the quarter is mainly driven by reduced inventories, although they're still quite high as we strive to secure timely and on-time deliveries to our customers. Cash at hand was SEK 107 million. Net debt was SEK 522 million, and net debt over last 12 months EBITDA was 2.5x in absolute terms.
In the beginning of the quarter, we signed a new refinance agreement with Swedbank, with the same facility levels as earlier of SEK 700 million. We are very proud to say that this [ lowest ] customer is a social loan by the bank, confirming that we truly contribute to better society through building the S in ESG. We have amortized by SEK 34 million in the quarter, and the total used credit facility at the end of the year was SEK 573 million. So Fredrik, back to you and conclude the quarter.
Thank you, Linda. So before opening up for questions, I'd like to reiterate the main takeaways from the fourth quarter of 2022. Firstly, we again saw very strong organic growth of 18% with strong performance across the board. Similar to the previous quarters, North America continues to show solid growth, but Europe and other countries reversed the trend from previous quarters and now also returned to good growth.
Our margins were still affected by high component and freight charges, but the component prices have come down, and this will boost our earnings coming quarters. The strong U.S. dollar has a limited impact on our bottom line earnings since also a large portion of our revenue are in U.S. dollars, but it does impact our top line sales. We're happy with still another record quarter for the revenue, well above our long-term growth target of 10% per year. At the same time, we still have work to do before we reach our 15% EBIT margin target. That target, however, is both realistic and remains intact.
In the U.S., Medicare has announced that it's increasing the reimbursement rate for our products for 2023 by just over 9%. Medicare accounts for some 25% of our sales in the U.S. and also set the standard for the reimbursement rates for the rest of the insurance companies in the country. The new level will be gradually phased in during 2023. And this, combined with the likelihood of decreased component prices and shipping costs in the near future, makes us optimistic about the profitability trend going forward.
And just to reiterate our long-term financial targets. Over time, we aim to maintain an annual growth on excess of 10% adjusted for currencies. We want to reach and maintain an EBIT margin of 15% or more. We want to maintain a net debt ratio over the last 12 months EBITDA of 2 to 3x. The outcome in 2022 was right in the middle of that range at 2.5. And once we have landed in our recent splits from Tobii and consolidated our balance sheet somewhat, we will distribute a dividend, provided other more compelling alternatives, such as acquisitions, do not take preference and our long-term financial targets are roughly on a 2-year time horizon.
With that said, we are handing over the microphone to [ Christian Hal ] and joining us here in the studio who will take questions from the audience. Okay, [ Christian ].
Thank you. Okay. So we have a couple of questions here. We'll start with Jon Berggren, Kepler Cheuvreux. So profit was impacted by certain onetime costs during the quarter for a total of approximately SEK 7 million. Can you elaborate on what these costs were?
There were some costs related to our gross margin, impacted from...
Onetime license, yes.
Yes, onetime license. That's good. Sorry. And so we won't see that in the coming quarters.
Okay. And a connected question to that from Mikael Laseen regarding the -- you had some other costs as well during the quarter of a more transitory effect. Could you say what they were? And when do you expect them to be more normalized?
I assume you relate to the more temporary component cost. That would probably take another quarter until we actually will see less of those. Because of the impact -- the timing effect that we have since we have so high inventory levels, it will take some time until we have distributed those costs out of our inventories.
There are some effects which are in a way, more operational in nature, but still abnormally high. And the reason for that is quite simple. We have been operating now for a couple of years with largely locked down organization. And in the fourth quarter, we had finally the opportunity to gather our staff in staff meetings, et cetera. And we had also a pent-up demand in customer meetings, trade shows, et cetera. So that was on an artificially high level to kind of almost compensate for previous couple of years with lockdowns.
And as I mentioned before, we see that the OpEx level will plateau. We don't see -- we will not see the same type of OpEx hike going forward.
Okay. So -- and Oscar Ronnkvist had a question connected to that, what you said last year as well that how we should view OpEx levels going forward. Should we see Q4 R&D and admin levels as reasonable run rates? And that sales and marketing expenses should keep rising alongside the potential top line growth?
Yes. What we have said is that sales and marketing will continue to grow relative to our revenue growth, but we are now at a more normalized level when it comes to our administration and R&D spend.
Okay. How should we think about the margin impact from Medicare's price increases? This is a question from Mikael Laseen of Carnegie. How will the price increase impact cost of goods sold and operating OpEx during '23?
So since Medicare is 25% of our revenue, and -- in the U.S., sorry, and all the both public and private insurance company in the U.S. will follow their directives, but that will take some time because we need to renegotiate some of this contract during the period. But it's an indication that we are able to increase prices even for them. So this will probably take between 6 to 9 months until we are starting to see full effect of this.
But there is, on the other hand, I say I think the question there's no OpEx increase related to that. So once those price increases have been fully operationalized, and that obviously will have a positive impact both on our top line as well as our gross margin.
Okay. So another question from Mikael, so Mikael Laseen. You target growth -- you target gross sales about 10% and reaching at least 15% EBIT margin in a couple of years, suggests that OpEx must be quite stable from the current run rate. Is this a correct assumption? Or do you see a need to strengthen the organization further to drive growth and capitalize on the AC markets?
So we believe that, as we alluded to, that we will continue to invest in, first and foremost, our sales organization. This is still a largely underpenetrated market, and we believe that more effort on increasing people, feet on the ground, more evaluations, meetings is something which is good for business and obviously great for our users as well. Whereas the spend on research and development, the spend on administration and back-end functions more or less as you say, Mikael, is plateauing from these levels, obviously, adjusted for KPIs and salary increases. But we believe that we have the right-sized organization right now to continue the growth.
Okay. And a question regarding the growth prospects for '23. How do you view the growth prospects in North America and the rest of the world, including Europe, of course? Are the prospects roughly the same? Or will North America continue to outgrow the rest?
Well, first of all, we had a very, very strong 2022. So the comparison numbers will be tougher to beat. We hopefully won't have another pandemic hampering our ability to do business, et cetera. With that said, we are also quite confident that the need for our product remains the same. We don't believe that if there ever was a pent-up demand effect in our current sales that, that has, by no means, started to flatten out. So. We are confident about where we go, but we won't kind of allude more into exactly how many percentage growth, et cetera, that we believe going forward. But we do stand by our long-term financial targets, which obviously says that we want to grow revenue in excess of 10%.
And a follow up on the Medicare subject. When do you expect a full impact on the Medicare-related price increases? And how significant will the impact be in the first half of this year?
I think, Linda, you alluded -- during the second half of the year, that's when we will see the full impact. And I would say that it's probably a quite linear implementation of those price increases between now and then.
Okay. I'll just check if we have any further questions. I think that was actually the last question.
Great.
Thank you.
So thank you, everyone, for dialing in to this earnings call. As many people know, don't hesitate to reach out to us. We'd be happy to answer questions and straighten out any question marks. If not before, we will see each other in 3 months from now. Thank you.
Thank you.