Welcome to today's presentation. We have the pleasure to present Embla Medical. To help us through today's presentation, we are joined by Sveinn Sölvason, President and CEO. You can see here on the front page, it's the first quarter's results and a little bit of update on how everything is going. This is, of course, the main topic for today's event. As always, you can ask questions in the box down below. I will ask the questions in the end. I think we will take a pretty short presentation, and then we will try and get through all the many, many questions everybody has out there through some questioning. For now, I'll hand the call over to you, Sveinn.
Thank you very much, Michael. Thanks for having us here today, and thanks everyone for dialing in. I was going to go through the big picture here after the first quarter for Embla Medical. We have had a reasonably good start, I would say, to the year; we are growing 4% in local currency, 4% organic sales growth after, I would say, somewhat of a strong end to the quarter. Our EBITDA margin is also up by one percentage point compared to the same quarter last year. When you look at our reported US dollar growth, that's only 1% because we are comparing to a period where the dollar was stronger here in quarter one over the same period last year. Actually, here as of April, the dollar has depreciated, so it's kind of turned around.
Yeah, as everybody is aware of, there's been some fluctuations in the dollar exchange rate. When it comes to our progress on the operational and strategic side, I'm pleased to report that we have a new leader for our R&D, important R&D work. András Róka joins us from McKinsey. He's been with McKinsey, previously a partner with McKinsey. He comes with lots of experience to advance our important innovation work. On that note, we also moved from what have been limited launch; our Novi and Icon knees are now moving into more full launch, and we have received some very positive feedback on these products.
On the neuroorthotics front, we acquired Fior & Gentz now a year ago in the beginning of quarter one last year, and we're one year into our integration efforts, and we continue to move forward on plan and starting to introduce or continue to introduce Fior & Gentz's products in new markets leveraging our infrastructure. On the patient care side, also a new leadership with Conal Harte taking the Executive Vice President role previously, managing our European patient care business, having previously been in various roles within our organization. We continue to also move forward on the rebranding front, where we are rebranding all our regional clinics into ForMotion, and that is all on plan. With regard to guidance, we are reiterating our guidance. Even though quarter one started out a bit slowly, we still maintain our 5%-8% organic sales growth and 19-20% EBITDA margin.
There's been a lot of talk about tariffs. Our financial results for 2025 will be impacted by tariffs, but because of uncertainty and frequent changes around how these tariffs will actually all play out, we are not putting out a specific number as to the tariffs. There will be some impact for us on the full year. That's clear as we've already started to pay tariffs on imported products from China into the United States. Finally, we reiterated our share buyback program. Just a few notes on the geographical dimension. If you look at EMEA and APAC, EMEA continues to deliver solid growth, yeah, 7% growth here when comparing to a very, very strong growth in quarter 1 '24. So pleased with that.
Also on the APAC front, 30% growth where we are comparing also to weak performance from quarter one last year where we had particularly big impact from slowness around the reimbursement approval process in Australia. That is now back on track, and that catch-up effect or that normalization, if you will, is a substantial part of the growth here in quarter one as we continue to see a challenging environment in China, which is one of the other main markets in the APAC region. The Americas was declined here in quarter one compared to, yeah, coming out of a strong quarter four. This is mainly we see moderate growth across our product businesses while our patient care business was down. Yeah, it was a reason for our decline. Region.
Patient volumes can fluctuate, and also with some uncertainty in the overall environment in the U.S., patients are likely, when they're able to, maybe postpone treatment as there is some participation of patients in the overall cost of each and every healthcare event. That is one of the things that is impacting patient volumes here in quarter one. Also some slowness around reimbursement approvals, particularly with the VA system in the United States. We still keep our plans for Americas for the full year despite a slow start here in quarter one. I'm going to skip over the detailed business area slides. Just a few words on cash flow, which was strong here in quarter one.
It is seasonally low always in the beginning of the year, but good compared to prior period, especially as our CapEx has come down in line with our expectations and our leverage is bang on in the middle of our range also after we have reinitiated our share buyback program here in the quarter. Michael, I think I'll pause here just so we have enough time for questions.
There was a question. This low number of patients that you mentioned in your reporting, what is the case? You mentioned a little bit about that there's a small copay, but I think I have also heard you say around 90% of yours is reimbursed. Is the economic situation really so that they postpone it? Secondly, maybe is there other reasons? Thirdly, I think I've also heard a little bit about weather-related that the people who are not so mobile or a bit of the older generation hasn't actually went out to do the stuff that they need to do, but it's expected to return. Can you talk a little bit about this copay, whether that really can have that influence and how long they can postpone it? Maybe the weather also has had some.
I know you should never use the weather as an excuse, but.
No, that's a good point. I mean, sometimes, of course, it can happen that you have periods of difficult circumstances in some states where you have harsh winter conditions that can have an impact on capacity and patient volumes year over year. We have had some of that in the U.S. here in quarter one, but it's not that I would claim that as a main reason. Going back to the way the healthcare system in the United States works, first and foremost, there's no change in what is being paid for. Reimbursement is still there, and even we have more reimbursement tailwind than headwind going back to what we've discussed a few times in this call, just the expanded reimbursement for low active amputees.
However, what we have seen in the US over the last couple of years is kind of some fluctuations within the year and patients being more willing to incur healthcare costs later in the year when they have better transparency on what their full year cost will be. We have seen over the last couple of years this trend of more volumes shifting towards the latter half of the year. I mean, the patients are still there. The underlying maintenance need and an upgrade need and new patients, none of those patterns have changed from one quarter to the other. We believe that this is a fluctuation and that we're not changed. As of now, we're not changing our outlook for the year. Yeah, I think that's the best answer that I can give.
Maybe for us to understand on the outside, who luckily does not have this, if you postpone it, which you can do if you feel a little bit of pressure or want to know your income and so on, how big are the drawbacks? You know, I mean, will you start feeling less comfortable with your leg if you do not go? Because I think a lot of your business is recurring business, right? People are going to the service and getting a new prosthetic sometimes, but a lot of it is this so I do not know whether you can describe it that you can postpone it if you feel that you are not comfortable right now, but you will start feeling some kind of a discomfort if you do not go to the normal checkups. How do we understand this area?
Yeah, I would say it obviously depends a lot, sort of case by case. The reason people come in for maintaining their mobility solutions can be both just wear and tear. Just based on activity levels, you have parts of the prosthetic solution. For example, the liners that usually people will use one to two pairs of liners per year. There can be volume fluctuations in terms of just which can impact kind of how well the socket fits because the socket is always the customized part that needs to be tailor-made to each and every individual. For all of us, volume changes can occur in both directions, so that can lead to the need for new sockets. We typically claim that like the feet joints or knee joints should be changed every three to four years.
There are a lot of reasons why people are coming in for maintenance, upgrades, renewals. In many cases, these things can be postponed even if you have some mild discomfort. Of course, it makes a lot of sense to come in and maintain and have properly functioning mobility devices just to maintain your overall health and overall mobility level. This is by no means optimal. I would say that the vast majority of those individuals that are dependent on these solutions will come and keep their prosthetic solutions well maintained and up to date.
Perfect. There is a question also, it is cut down by the American health authorities, you know, the FDA cut downs. Has that some kind of impact on the short term? The question is also here, do you fear it could have some impact on reimbursement under the new rules, which maybe needs a little bit more working to do? It is more a discussion which patients should fit and not fit. Is there some kind of a fear that I already seen some effect that maybe reimbursements are not being processed? How about the outlook for the better reimbursement rules, meaning that you could target a larger population?
I think the outlook for the expanded Medicare coverage remains the same. We see patients, low active patients, being fit with Bionic knees, both with our clinical customers and within our own patient care network. I do not believe that we will see any changes in that regard. It is developing as we expect it to, slow and gradual. Remember, our clinical customers take the risk, if you will, on ultimately payments being approved by the system. They acquire the components, they incur the work. There is some hesitance in terms of being first movers in this field. People will want to see some accumulated experience with these new reimbursement protocols, and that is gradually being generated.
With regards to the broader picture in U.S. healthcare, no changes have been discussed or suggested that will impact the patient groups that we are focused on in the United States. There has been some talk around some reform around Medicaid, which obviously covers some of our ultimate patients. None of that has been formalized, and we do not expect care for amputees to be taken down. That is not something we expect.
Perfect. We can't get around it, the tariffs. Why are tariffs only affecting bracing as the first question? Is the other part exempt or your main part predominantly bracing if I read your report correctly?
There are agreements in place where the United States is also part of those agreements that stipulate that products that are needed to serve individuals with a long-term disability of some sort or mobility challenge of some sort, and not just mobility, but also other long-term kind of conditions, that those products are exempt from tariffs. That will be the case for the vast majority of our prosthetic products, which are to a large extent manufactured in Iceland and partly also in Mexico. The main effect that we see from tariffs today are products that we source from third-party vendors in Asia, mainly China, and sell into the United States. We have been transparent about our supply chain strategy and setup for bracing and support, which is mainly using our own manufacturing facility in Mexico. These partnerships in Asia, again, mainly China.
We will see an impact from tariffs. Again, we have not communicated any specific impact because both the direct and indirect impacts are still to be seen. There has been a lot of fluctuation in these tariff rates. We are still observing and will not, in the short term at least, put any estimate out there in terms of direct impact. Of course, it will impact financial performance in some shape this year.
If I calculate it correct, 17% is bracing. How much of that is US? Is that a large portion of bracing?
Yeah, we've communicated that it is a large part of our bracing business. It is basically these two main pillars, US and Europe, and then a small bracing business in the APAC region. Yes, these tariffs will impact a substantial part of our overall bracing business.
Which is around 17%.
Yeah, which is around 17%. Yeah. It is not such that it will have fundamentally changed our business. With a structural cost change like that, we will see some short-term impact, of course. What we have also said is that we believe we will be in a position to largely mitigate these extra costs, keeping everything else constant, meaning either to utilize our own manufacturing facility in China or to do other changes in our supply chain. That requires some visibility with regards to how tariffs will develop in other jurisdictions. We are now closely observing and evaluating what options we have and what actions are the appropriate ones to take once we have better transparency on how this will all develop.
When you get better transparency and everybody hopes we will get that, how quickly can you adopt that? I guess it's a long-term relationship. You have a lot of your suppliers and so on. I guess you are not fast to jump the gun if the tariffs are changing. A roughly timeline, you can adopt maybe some changes and move it to less hit or maybe not hit at all tariff areas.
Yeah, that's a great question. I mean, we have done this many times before, shift products from either different suppliers or between our own manufacturing to external partners. It will depend on product complexity, risk, volume, etc. I think it's fair to assume that moving a specific category will take anywhere between 12 and 18 months. Therefore, again, we believe that whatever structural cost change will come as a result of these tariffs in the short term, we can mitigate a large part of that in the medium, long term, whatever assumptions you apply to those timelines.
Yeah, yeah. Perfect. There is a question. How much revenue can you directly attribute to the war in Ukraine and Gaza? Do you anticipate these markets will grow for Embla in 2025? Do we have any real direct impact or is it not markets that you actually are exposed to?
I will say, yes, we do have some exposure to these situations. We are a supplier of products in Ukraine. We did step away from supplying prosthetic components to Russia just at the beginning of the invasion into Ukraine. We communicated at that time that that was roughly 1% of our sales. We are now supplying clinics in Ukraine with components. That is growth, if you will, compared to prior years, but it is not fundamentally changing or driving, you could say, our performance in the Europe region. It is still growth, obviously, due to a very difficult cost. We are a supplier to clinics in Ukraine, first and foremost.
Okay. What do you expect to improve during the year from 4% year-on-year growth in Q1 potential to the top end of your growth guidance range, 8%? What is it you hope are seeing and seeing a possibility for changing during the year and improving?
Yeah. I mean, when we set guidance, our assumptions were that our prosthetics and neuroorthotics business would deliver strong growth rates driven by just, again, the structural growth drivers in our prosthetics business and having new important product launches like the Icon and the Novi and the Pro-Flex Torsion new mechanical foot. Just continued good progress on the neuroorthotic side that we would see very healthy organic growth rates in that part of our business and that our bracing business and our patient care business would largely grow in line with market growth in these jurisdictions. What we see here in quarter one is that we are well on track on the prosthetics and neuroorthotic side, but have started the year slower in bracing and patient care. There's only been one quarter.
We still believe that this is our range for the year and have decided not to make any changes. It goes without saying that we need the other two business areas to perform better to deliver within our then here in quarter one. That is obviously our assumption since we still maintain our guidance.
Perfect. Do we expect to increase the share buyback program if you do not do any M&A? Is the current market situation giving you any new M&A possibilities or is it actually closing some because there is so much uncertainty on the tariff side that you would like that closed? If you do not do it, could you increase your share buyback program? Secondly, a new situation, at least lower prices a lot on stock markets. I do not know whether it has hit the private market yet, but maybe also a little bit uncertainty on the business model. Share buyback and a little bit on the M&A opportunities.
On the M&A side, we continue to work on and develop our M&A pipeline along three main M&A themes. One being acquiring product technology where we can leverage our global commercial infrastructure to bring these products to more patients. A good example of that is the acquisition of Naked Prosthetics and mechanical fingers that we completed a couple of years ago. Also, even though the neuroorthotics acquisition was slightly different as we're moving into another chronic mobility field, again, somewhere on acquisition where we are leveraging our global infrastructure. This is an important theme for us. Another important theme is to selectively acquire patient care in markets where we're already active or potentially new markets. The third theme would be market access from the product side where we have historically made acquisitions of distribution partners that operate in attractive markets.
We continue to look at opportunity in all these three themes. You are correct in the sense that with more uncertainty, sometimes in the overall economic situation, it can sometimes be hard to match expectations in terms of valuation. That is clear. Then tying it back to share buybacks, we will use share buybacks to calibrate our capital structure. In the absence of M&A opportunities, we will evaluate the opportunity to do more share buybacks. That is how we will do it going forward. Keep net debt to EBITDA between 2-3 times. Our preference is to make investments to grow our business. In the absence of those opportunities, we will deploy or utilize share buybacks to regulate our capital structure.
I guess it is the M&A side that is the unknown and the potential because if I understand you right, you have been through a heavy investment program and that is going a little bit down and you're also guiding for better profitability. I guess the M&A side is the uncertain. Is that correctly understood? You don't have any big organic investments.
There is always kind of uncertainty with regards to timelines and ability to close on certain projects. Our appetite and willingness has not decreased or anything like that. I guess what I am saying is that there can be some fluctuations. The share buyback mechanism is a tool to regulate capital structure.
Perfect. Before I leave you, Sveinn, I'll ask the question I always end with. What do you see as the biggest risk right now on reaching the guidance? When you wake up, you can only mention one thing. I know it's hard. For the first time, I think I will not hear actually tariffs because it seems you have that managed. I know everybody will be impacted, but maybe it's not tariff or maybe I'm jumping in front of you and it is tariff. If you should mention one risk right now in reaching the guidance, what is that in your mind?
First and foremost, I always remind myself and everyone that wants to listen that we are in a market where there's a lot of need for our products and solutions. That is why, despite all this noise around us, around geopolitics, tariffs, increased economic uncertainty, that will impact us as other international companies. The fact remains that the utilization and access to good mobility devices is low. That is what we remain just laser-focused on, meeting that need. When it comes to our short-term financial performance on growth and margins, if you look at just the slide we previously looked at when it comes to geographic contribution, a big part of our business is the Americas and the vast majority of that is in the US. We have started the year slower in the US than what we had anticipated.
It is our assumption that we will still have a reasonably good year in the U.S., but there can be scenarios where that will not be the case. As always, because of just the relative share of U.S. sales, we need the U.S. to do well for us, for our average growth to be where we need it to be.
Check. Thank you, Sveinn, for taking us through your result and answering the questions and getting a good look through maybe some of the risks out there. Thank you to you, Sveinn, and thank you for everybody listening.
Thank you so much for having me. Have a nice day.