Earnings Call: Q1 2021

May 14, 2021

Good afternoon or good morning to everyone and welcome to Helane's first Q Financial Results of 2021 conference call. Today's call will be recorded and so will be an opportunity for questions at the end of the conference call. With me on the call are Andrea Tangioli, Allianz Managing Director and Enric Romagnoli, Allianz's Chief Financial Officer and Investor Relations. Before we begin, please note that there is a remark management makes on the conference call about future expectations, plans and prospects and forward looking statements. Certain statements in this call, including those addressing The company's belief, plans, objectives, estimates or expectations of possible future results or events are forward looking statements. Forward looking statements. Smith. For one of these statements involve known or unknown risks, including general economic and business conditions and the condition in the history We operate and may be affected should our assumption turn out to be inaccurate. Consequently, no forward looking statements can be guaranteed and actual future results, Performance or achievements may vary materially from those expressed or implied by such forward looking statements. The company undertakes no obligation about the company nor to update the forward looking statements to reflect events or circumstances that may arise after the date period. But at this time, I want to turn the call to Andreas Angioli. Please go enter, Andreas. Thank you, Janka, Thank you everybody for joining this call. We are holding up to the release of the Q1 financial report In 2021. As usual, I'll provide you with an update on the most relevant themes of the quarter And then Enrico will guide you through the details of our financial performance. Before beginning with my comments, I'd like to mention 2 very significant events that Took place in the very last days, a very joyful one. Elan just overcame its 40 years of life milestone. It's quite an age for a high-tech company. We are a technology based fast growing company with a deep heritage. A range, Kofi, means that our knowledge, technology and organization are based on very, very solid plan. Sad side of this celebration and also reason why there was no celebration is that one of the founders of the land, Leonardo Matoski passed away just a few days before the anniversary. I know that many of you met Leonardo in person and were, as all of us, Fascinated by his vast knowledge and his ability to transfer it to his students as well as within our organization. We'll miss him a lot And we'll need his insight and we'll have of him a thankful memory. In correspondence with these two events, a celebration of the past and the loss of 1 of the strongest contributor to this past, I'd like to further comment that while our organization has deep roots in value technologies know how that make it what it is today, At the same time, it is very flexible, very proactive, adapting itself and renovating its Structures and function to the needs of the current and future time. And I believe this is also a good key to reading the current 4 months of the group in which needless to say we are extremely of which excuse me, needless to say we are extremely satisfied. The pandemic hits our markets and our facilities with an unprecedented blow early in 2020 in China, Later on in Italy and in the rest of the world. Our operation displayed an outstanding reaction to the adverse conditions, An excellent response in terms of commitment of all our functions and all our employees in putting the company back on the growth and profitability path where it was smoothly running before the pandemic flow. And the group was on such an ascending path due to a mid and Long term planning that from 2017 on redesign the approach to several activities, backing up All the needed inputs, the requirements in terms of expansion of the R and D capabilities, operational and logistics factors, which are allowing our current brilliant results. As you know, we are still far from having a normal day to day and business life. COVID limitation are still quite strict in Italy and elsewhere. Though the pressure is being gradually lifted and hopefully we're on the right Thanks to vaccines that were not in the picture at the beginning of last summer when we had the same host With no expectation that we have today, we now really hope to be closer to the end. And let me again express My satisfaction in appreciation for the way our organization reacted to all the inconveniences led by the pandemic. EUR 116,000,000 in revenue for the Q1 is a record figure And EBIT so close to €13,000,000 more than 11% on revenue is a record achievement for our Q1 as well. I'd like to remind that for all our markets, the Q1 is seasonally weak. Since it follows the end of the year, when capital Vehicle investors typically anticipate purchases due to tax reasons and also due to the holidays at the beginning of January in Italy and the New Year break in China. Comparison with the Q1 of 2020 is highlighting Phenomenal revenue increase, but we are comparing with a quarter when our production sites and activities were down in China for more than 2 months. Industrial manufacturing was slowed down in Italy by traveling in vacation and eventually halted in March and the same happened to medical and aesthetic center activities. This is also the reason why gross margin of revenue appears to decrease so sharply in 2021, but it's Predominantly a mixed effect. Since Q1 2020, sales in China in metal casting, typically high volume and low margin, were extremely low, therefore allowing the higher margins of the other segments to dominate in the total margin. In terms of sequential comparison to Q4 2020 performance, revenue is lower in Q1 2021 due to the reason I just mentioned of seasonality. Moreover, in China, Q4 was somehow exceptional Since it was also gathering pent up demand coming from the 1st month of the year, marking the fast recovery of the Chinese economy. Profitability increased due, 1st of all, to increase margins, both in the medical and in the industrial sector And also due to the one time expenses related to the employee's cost, which totaled up more than EUR 2,000,000 in Q4 2020. The most relevant of which was the stock based compensation allowed to certain employees in China. The very high sales volumes was joined in Q1 2021 by a very high level of ordered bookings. As we mentioned in the press release, our backlog is at its highest level ever, substantially over the board in terms of geography and market The very good news here is that all this booking wealth is coming in without extensive support of international travel, congresses and fairs, which especially in the American business are very significant lines within sales and marketing expenses. Japan and China were the only countries where we could attend trade 1st in person in the last month, of Of course, on a local buy, credit and without any international service. We therefore have a very And momentum going into the Q2 and we also expect leverage effect to play a significant role in the next quarter. Now a few words on the main trends that we experienced in this quarter. Demand in laser metal cutting systems remains strong in China and in Italy and in their export markets. The underlying drivers of such demand growth are the decrease in the cost of the laser sources and the concurrent increase in maximum available laser power. This is increasing the technical abilities of the system On one side, allowing them to perform application that laser simply could not perform well enough before. And at the same time, on the other side, It decreases the price of the laser systems allowing more and more customers to afford a high powered laser systems for their own business. The market is therefore growing, as you can see from our results, and growing very fast. Our results are paired by other competitors benefiting from this trend, making the segment extremely Fast growing, but also quite competitive. Andrea, sorry, sorry. But several one is the High teens on the SACHEREA. Yes, it is the keyboard. The first one is typing on the keyboard, please turn off. Yes, because it's not I see. Sorry. Okay. Let's see if it goes away. So I would say we I talked about industrial laser cutting And now about aesthetic. Demand for aesthetic applications was also very strong, led by our innovation and product releases in hair removal and Releases in hair removal and body contouring application. The static segment quickly gained traction in the cost Pandemic transition, gathering demand also as a reaction to the limitation as willingness to invest on physical wellness and appearance. Demand for surgical application is expected to recover throughout the year as it is still suffering from the focusing of hospital and national System structures on the COVID pandemic. The segment was also affected in the quarter by an issue in the optical Fiber production process that affected sales in Q1 as reflected in the decrease in the period of medical service sales, which includes consumables like optical fiber. This issue will be overcome in the Q2 when regular flow of optical fiber sales for urology is expected. Finally, the Q1 was an excellent quarter for physiotherapy back to revenue and profitability levels typical of ASSA, Our company charged for this segment before the pandemic. We need to highlight increasing difficulties within with our supply chain. Shortage of metals, optoelectronics and electronic components down to wood and Arctic is making very difficult to timely feed our production lines with the appropriate component. This is causing some efficiency problem in the production processes, Increase of purchasing costs on several components and the need to increase our inventory of parts in order to prevent the further lengthening of lease lead time. Our level of attention on accurate programming of the purchasing process is very high, but in the period we cannot count as much as we've grown in the past on a reactive and flexible supply chain. To wrap up all these comments, we can summarize saying that the pace you are able to keep today is in line with what we had expected prior to the COVID impact, What we had expected for today prior to the COVID impact. Having reached the sales volumes level Contingently without the need of certain extensive sales and marketing expense, profitability is even higher than we were expecting, let's say, 2 years ago. Now I turn to Enrico for the comment on the financial. Thank you. Thank you, Andrea. In the Q1 of 2021, Continuity, at the end of 2020, the growth progression of the group continued after the parenthesis due to the Effect of COVID, the level of turnover and profitability back in line with the forecast outlined before the pandemic. In Q1, there was an increase of 59.5 percent and we reached at November over €116,000,000 The gross margins stood at €43,600,000 An increase of 38.5 percent compared to the Q1 of last year, thanks to the significant increase in turnover. The comparison with the Q1 of last year shows a market decline in sales margin, 43.2% last year, 37.5% This quarter should not be through food because the sales mix in 2020 is already said by Andrea was markedly different with almost CO6 in China in the industrial sector characterized with high volumes with margin lower than the group average. Instead, the 37.5 percent gross margin impact on sales is an excellent result if it was compared to the Q4 2020 Well, the profitability was up 33.8 percent and it is due to the improvement in margin in both sectors And it contributes significantly to the operating profitability in the quarter. The operating costs amounted to €8,800,000 and are substantially unchanged compared to March 2020. The impact on turnover on the other hand decreased from 4% on March 2020 to 7.6% on March 2021. The activities of this cost aggregate are the savings in commercial expenses almost minus 3% compared to the Q1 of last year, such as international travel and trade fair in Congress, in particular, in the medical sector. The only trade fairs We were able to attend in this period, but held in China for the metal laser cutting sector and in Japan for the beauty treatment equipment sector. Stat cost equal to EUR 19,200,000 are up compared to the EUR 15,600,000 Of March 2020, but with a lower impact on turnover decreasing from 31.5% to 16.6% Of March 2021. EBITDA was EUR 15,600,000, more than double compared to the EUR 7,000,000 of last year with an impact on sales of 13% compared to the 9.7%. Amortization and adaracrual show a slight increase, but their incidence turnover drops from 3.5% to 2.3%. And in Q1 2021, the total amount of fixed cost As operating costs, tough costs and depreciation showed an increase of almost 14% and the impact mostly Reduced from 37% to 26%. Thanks to the increase in gross margin and the reduction Okay. Impact of fixed costs. The operating result marks a positive balance near to €13,000,000 With a strong increase compared to the EUR 4,500,000 for the Q3 of 2020. And with an incidence on turnover increasing to 11.1% from 6.2% in the same period of last year. This is a record result for a 1st quarter usually characterized by sales volume below the annual average and therefore not able to fully benefit from the operating leverage. The tax result was EUR 14,000,000 with a positive effect of ForEx, mainly due to the U. S. Dollar, which appreciated against the euro in the period. Net financial position had an increase of approximately EUR EUR 7,000,000 in the period from EUR 69,200,000 of AUR on December 2020 to €75,380,000 on March 2021. Operating cash flow covered the physiological increase in working capital associated with the growing fees and with those deriving from fixed investment. The capital increase collected by the company due to the Please rise, stop option assigned. The employees amounting to EUR 3,200,000 in the 3 months that contributed to the improvement of the financial position. Part of the liquidity will be used for the payment of the dividend of EUR 0 point €4 per share the next May 26. Looking to the So no, we're break down by business. The overall growth of close to the 60% is much stronger in the industrial sector that was almost stopped in the Q1 of 2020. In the medical sector, which in 2021 accounted 57% of the group turnover. The lockdown's restriction have had more the retainerous effect on the surgical segmented them on the hours due to the difficulty to accessing hospitals and the focus of hospital activities on COVID treatment. We hope to be able to recover in the coming quarters. The decrease in turnover in medical services service derives from a temporary difficulty recorded in the production of Stericycle fiber as already saved by Andeja. The jump in the sales So our static segment has a very significant value, which is one which is only partially diluted in comparison with the first Quarter of 2020 hit by the pandemic and it is based on the solid growth, in particular, in eye removal And more importantly application, thanks to an offer of innovative system that are able to meet The needs of the demand that Australia post for the 1st week of the pandemic has gradually returned to In the industrial sector, the comparison with the Q1 of 2021 is not a significant benchmark, In particular, for the cutting segment, where about a few thirds of the activities are carried out in China. However, it should noted this should not be tracked from the exceptional performance highlighted by the cutting sector, which is working at a very high rates. These are the production and sales volume for which the production capacity has been increased The important investment now used in an increasing manner, also allowing the beneficial effect of the operating leverage of the income statement. The trend was also very positive for the other main segments such as masking and laser solutions, a record recovery from the last year. In the end, looking at distribution of revenue by geographical areas, we can see the return of the weight of sales in Italy around 30% of the total sales. In Medical sector, we had a strong increase in all the areas of activities with a jump of Italy So 70% that was partially hit by COVID lockdown in Q1 2020, Well, the sales of international markets did not decline significantly in the Q1 of 2020. In the after sector, the most market increase in Pernovo were recorded in China, which probably didn't work in the Q1 of 2020 in China. In the Q1, we achieved the €28,000,000 of turnover one last year, only €7,000,000 was realized. And also, we had a good performance in Italy, thanks to capitalized pent up that was hit in the second half of March of Q1 of 2020. Andrea, please go ahead. To close our presentation with the guidance, as you know, we have Always been very cautious in guiding you to the expected financial results. As I mentioned before, in this year, we are contingently Experiencing an extraordinary level of orders booking, a good level of good gross margin on sales and a material saving in sales and marketing expense. We are living in a very unstable environment. We adapted very well to this phase of a pandemic. And it's hard, but it's hard to tell now how the post pandemic politics and policies will impact on us and on our market. For the time being, assuming we can roughly maintain the pace we recently reached, which is possible. The €500,000,000 of euros consolidated revenues is an actually achievable target. At the same time and under the same assumptions, maintaining an EBIT margin Around 10% is something we could definitely achieve in 2021. We are done with the Presentation, I believe we are now ready for your question. Hello, do you hear me? Okay. Sorry, because I'm with the phone because I wasn't able to connect with Zoom. I'm sorry. Congratulations for the results. First of all, really, really strong. I have a few questions, if I may. The first one is if you can provide a sort of comment on current trading for the Q2. You mentioned some factors, Scott, if you can summarize. And the second question is about If you can again repeat the underlying assumptions In your guidance for the second half and especially in terms of price and volumes, if you can provide us an idea of what you are assuming? And then if you can provide a comment on the recently announced Transaction takeover in the U. S. On the Soliton that seems to be in an area Of business similar to yours, if you can comment on this transaction. And finally, last question, If you can update us on possible M and A activity this year, also reading across with this transaction. Thank you. Okay. I hope I remember everything. QQ expectation, As I was saying, Q1 is typically one of the weakest quarter of the year. We are getting into Q2 with a good volume of orders. Therefore, we expect Q2 revenues to be Q1 revenues. And this, of course, assuming that one of the items I mentioned during the call We'll not affect that. I mean, the production problems due to supply chain issue. The assumptions I made when outlining €500,000,000 revenue guidance and around more of 10% EBIT margin guidance are That the environment doesn't quickly change in its determinants that are currently allowing us to do very well in terms of sales on our market and at the same time inhibit us from traveling and therefore allow us to save a lot in sales and marketing expense. Those assumptions are, let's say, critical in terms of marginality, Because as Enrico mentioned during his documents when he's exposed vision, We are saving a few percentage points on revenue currently In sales and marketing expenses that we are not bearing as compared to what was our sales and marketing life prior to the pandemic. And of course, another assumption Of this guidance is that increased volumes in 3rd quarters should improve also our leverage effect. Last question was M and A. There's no Based on M and A, in this moment, we are looking around. But as I always said, and I think that the results are Every time confirming it, our most important M and A is investing in ourselves. We are growing at a pace which is double digits, but more of the 20s than on the 10s. Due to the investment that we are making on our Sales on the articulated structure that we have and this is today our main goal, continue to run The structure, which is itself quite complex and to bring it to the That's efficiency in terms of sales growth and also profit growth. For what concerns the Soliton deal, it has been extremely surprising. Actually, Soliton has always been extremely Pricing for us, even prior to getting bought by Allergan because Allergan paid 25% more Then the market price, so USD415,000,000 compared to the roughly USD400 and change Of course, the market price the day before the agreement was announced. But we are talking of a non revenue company. And sincerely, we are very curious to see and to know How well this Shockwave technology will be able to reshape the body shaping the market? Excuse me for The word, the repetition. They claim they have a breakthrough Technology for body shaping. They claim this technology will reshape the market. We know the technology, so we don't know how and we have been selling shockwave systems for cellulite and body contouring over the time. It seems like they found a very significant ecological combination or maybe Simply, Algonquin will be able to find a very effective market combination in order to sell these technologies. I don't have any other comments. We'll have to see and we'll let you know if this technology will actually come a threat On our market, a threat for our market positions that we expect to grow in the Body contouring in the body contouring book. Andrea, we have a Question from Marco Riva. Go on, Mr. Riva, please. Okay. Thanks. It's written on the chart, but it's okay. It was regarding raw Material, which is the impact you can expect and in term of supplies, in term of Supplies in most time. And second one, how this element could influence on the on your expectation you show a few minutes ago? Thanks. The issue is the following. Each laser is made of hundreds of components. There are optical components, metal components, machine parts, electrical components, LCD displays. And there are several of these components which currently is experiencing, let's say, a sort of shortage. For instance, LCD displays, LCD displays, we use LCD display, you need one for every machine we manufacture. Now in order to get them, I believe we are getting into deliveries over 18 or 20 weeks. We were used to have 8 weeks. Plastic parts, we We are having problems in having the raw material that allows our plastic parts Printers to purchase appropriate volumes of plastics for manufacturing our parts, And we are not a huge manufacturer. We are at the very end a small manufacturer. Metal parts, the cost is increasing. There is not one single component which is giving us troubles. We're having troubles In several segments. Maybe the most significant trouble we have today is in laser lens. In all lens, we use At least one lens for every solid space laser system. Laser lens is another item which is very difficult to source in this moment. The guidance is factoring in that we will continue not to be perfect in our production I mean that we will not be 100% efficient as we would. So we will not be 100% productive as we would, But it's not factoring in any disaster scenario like you have seen on certain car manufacturers that had to stop production for A week or 2 weeks due to the misspent of certain critical components. As of today, As I mentioned, we work closely trying to fill the gaps, But it has been a very difficult period. Moreover, finally, there have been 2 events which are negatively affecting Supplies, one is the sewage channel block, which Slow down several deliveries coming from Far East and I mean delayed several deliveries. And the other one is the Brexit, which indirectly has put more stress on the Italian Custom offices, which are very slow in adapting to this new volume of work, which is Now falling on them and we had several problems. Nothing again huge, but a few weeks of delay Of goods that were stuck in the customs rather than coming directly from the UK as they were coming before. Thanks. You're welcome. I kindly ask you to introduce yourself before asking your questions. Jan. Any other questions? Yes, Steve. Salukhesi, ADS Consulting. Could you please give us some comments on the next step on the dermatologic product So the rheumatologic treatment, sorry, in U. S. A. And in Europe And some update on the commercialization of MonaLisa touch. That's the first question. Another question is just a curiosity. If there is any impact on the temporary closing of the stake extended meeting in April? Thank you very much. Let's start going over. ACME. ACME, we finally sold the first units. They should be there will be sold for revenue in the Q2. Again, here we know that the sales EBITDA currently is not expected to be moving and to be really starting until The United States doesn't get the FDA clearance because we will be able to sell a few units in Europe, we know, But it will be a few units and the big flash for this unit is expected only after the FDA clearance and the full marketing And the full marketing, let's say, exports will be displayed in the United States. We do not have a date yet. We hope that enrolling of patients and also execution of the Treatment, which are part of the clinical study, which is needed in order to get the FDA clearance, we'll be able to move quickly, but We are not thinking of anything falling in year 2021. For our concerns, Monalisa Patch, Sure. Sales this morning, Natasha. We're decent. As you know, everything is tied to a very Expensive multiyear clinical studies to be performed in the United States. We are reaching an agreement. We do not have the official Announced, yes, but we hope to reach finally the agreement with Cygnus, which is our exclusive distributor for the United States and for other For a few other counties worldwide to share the cost of this multi year and multimillion program In order to be able to sell Maripatouch back again in 3 years from now. In the meantime, For all the markets but the U. S, we are launching a new release of The CO2 laser, which is used for the MonaLisa Touch application, the name is MonaLisa Glide is actually a laser with similar performance in a new more Attractive boxes with a more attractive guided user interface and with an option to use a second wavelength, which could be used effectively in order to improve the effectiveness of the treatment. This is for And Mona is attached. And then the third question was It was about the temperatures in the second half of twenty twenty, if there is any impact. We are having A very good year in Estates in Italy. You know Esteloz, the company that is based here in Florence, close Well, I mean, together in the same buildings had a very good beginning of the year. Even though In some areas and during the in the red and orange areas, the shops were closed. Demand was very, very high due to our offer, which is really the cost Of all the offer in the Medical Study segment, both in for medical for hair removal application where we have top level Hair removal lasers, the medium start from a collection. We have also an entry level air removal laser system called Prime, which is extremely interesting, and we have at least 3 technologies Effective on body shaping, we have the ICON, which is mechanical methods. We have the Estar, which is Body shaping system deriving from super luminescent led mattresses and we have the high intensity magnetic fields having good traction in the 1st few months. So the aesthetic market, both in the professional aesthetic And also in the medical aspect has been extremely, extremely buoyant in this first Month of the year, both in terms of sales and in terms of order bookings that I was saying before. Thank you. Another question? We have Andrea? Hello. Good afternoon to everybody. Hope you can hear me. Yes? Okay. Thank you for taking my question. Andre, I got one question, especially for the Performance of the Medical Aesthetical in the sense that the previous quarter, the Q4 2020 quarter was affected by lockdowns across Europe and the world. But More or less the situation was about the same in the Q1. So how much I mean how can we explain this kind of performance From the medical and the medical sector. Is that an anticipation from, let's say, operator from your clients of the, let's say, Openings to be, let's say, achieved in the following quarter? Or how can you Claim this kind of performance. So is this kind of pent up demand, which was not expressed before? I mean, just an idea because if these are the kind of trends You are showing in a quarter which was heavily affected by lockdowns, especially in Europe, I would say. I would dare to say that the following quarter should be by far stronger even for next year. This I mean it It should bode well for next year performance. Thank you very much. Thanks, Andrea. It's hard to make projections, Especially long term projects. I can tell you that what we have seen in this quarter is high demand Internationally. We did very well in U. S. We did very well in the Middle East. I mean, we did decently in Italy and in Europe, but it was especially from the international markets That we received very strong demand. And we believe in this case, we are getting to the A level of demand can be a little bit less, can be a little bit more that we were programming because in several countries like the United States, Notwithstanding the pandemic situation and limitation, people have learned to live with it And so are acting almost like if the pandemic wasn't there, at least in terms of purchasing. Moreover, I believe in the aesthetic, there has been a rebound in terms of demand, which I mean, this is what we feel. When people The very end users, not our customers, the users, the clients, the ones that buy the services from the doctors that buy That's a system from us. Are willing to spend more in this specific phase for their body wellness and their aesthetic Because it's a reaction to the stress of the pandemic and it also is a way of spending their excess money because There are several layers, social layers, which maintain their revenue, But decreased their expenses due to the possibility to party and possibility To travel and the possibility to dress up. And so they have more Money safe to spend on their volume. So we have something which could be contingent. I used the word contingent several Thanks for doing my presentation. At the same time, this contingency is pumping us where we were more or less expecting to be When we're thinking about 2021 in 2019. If this contingency will Continue in something stable, we hope, and I think it will be at least for the very next month. And then as usual, what is going to happen 6 months from now is beyond The visibility of our order bookings and it's only based on assumption, which I mean, what they are, we believe that we can achieve the results I mentioned. But of course, none of our results is based on solid order backlog. Okay. Thank you very much. If I may ask a follow-up question on the, let's say, Acne new machine And for the U. S. Clearance, what's the timing for it as of today, The timing is expected the expected timing as of today is something in between the Last month of 2021 or but more likely at this point to be in the 1st month of 2022. Okay. Thank you very much, Ingenio. You're welcome. Okay. No questions? So if there are no more questions, we finish this conference. And if you are Please do not hesitate to contact Enrico Romagnoli. He will be happy or Andre Candielli. He will be happy to answer your question if you I have some more questions to investigate. Thank you for attending this conference and we hope to have you all at the next occasion. Good afternoon to everybody. Thank you. Thank you and good afternoon.