Hey, good morning. Hello, everyone. Welcome to this earnings call for the first quarter of 2022 for Tobii Dynavox. This is our second earnings call and second earnings report since the separation from Tobii, and listing Tobii Dynavox on Nasdaq Stockholm on December 9th last year. I'm Fredrik Ruben. I'm the CEO of Tobii Dynavox.
I'm Linda Tybring, the CFO of Tobii Dynavox.
Great.
Let's get started.
Let's get started. Before we dive a little bit deeper into the first quarter of 2022, which is obviously the topic for today's call, I'd like to make a very brief summary on about what Tobii Dynavox is about, specifically for those of you who are somewhat new to the company.
Whenever I do that, it's super important for me to reiterate that what our mission is all about. I know that this mission is super dear to myself and roughly our 500 colleagues around the world, but also to the ecosystems of partners, investors, and a lot more around us. Our mission reads to empower people with disabilities to do what they once did or never thought possible. That in itself summarizes two of our main user stories in the company.
The do what you once did refers to, for example, the person who's led a normal life until the day he or she was diagnosed with, for example, ALS, rendering her unable to control her body, communicate like before, et cetera. The second story refers to the never thought possible.
That could, for example, be the child diagnosed at an early age with a condition such as autism, cerebral palsy, and others, which thanks to our solution, she can do much more than the world around her maybe thought possible.
We have on the picture here, Delaina Parrish, one of our super users from Florida, USA, born with cerebral palsy, and she's doing exactly a lot of the things that probably many people around her said never thought possible. Tobii Dynavox serves a market that is hugely underserved.
There are some 50 million people on the face of this earth that currently has a condition so grave that they simply cannot communicate unless they have solutions such as Tobii Dynavox's. Every year, some 2 million people are being diagnosed with these types of conditions, and yet still, the estimate is that less than 2% of those are actually being helped. The rest remain silent.
The main reasons for this huge discrepancy spells lack of awareness also among the professionals, the people that work with and prescribe these types of products, as well as poor implementation and poor existence of healthcare reimbursement systems in most markets around the world. Tobii Dynavox, we operate on a global footprint. However, from a revenue perspective, some three quarters of our revenue and our business stems out of the U.S.
That is largely because the US has a reasonably well-functioning, funding system for the types of products that Tobii Dynavox works with, and that was established, some 20 years ago. Outside of the US, our products are available in some 65 countries or markets around the world. Tobii Dynavox is also not just about products and hardware.
It's super important that everybody understand that we have a very comprehensive portfolio of solutions that we provide to our users, which stems from left to right on this picture, on the content. In our world, that means Picture Communication Symbols, so symbols that basically replaces or is the first start before you reach literacy. It could also be synthetic voices to be part of your personality, which, largely comes from also the acquisition we made, just recently.
If we move to the right, we obviously have highly sophisticated communication software, typically tailored to the type of condition and the type of user. That software is then typically run on cutting-edge devices and technologies. They're almost in every case medically certified, very durable to last throughout the day, and it includes of course technology and solutions that has eye tracking, but not exclusively, and we'll talk about that a little bit later today.
We have an extensive services portfolio to help our users and prescribers through the complexities of obtaining a device and getting funding for the types of solutions that Tobii Dynavox provides. Last, but maybe most important, a vast ecosystem of services and support worldwide to help users, caregivers, parents, professionals, et cetera, to be and become successful with our products.
That's a little bit of a super snapshot, super short snapshot of what Tobii Dynavox does. If you then instead focus on the past quarter, which means the quarter of the calendar year, which is our reporting cycle, so January until March of 2022, just little bit stopping on the highlights, and then me and Linda will dig a little bit deeper into the details of this.
We can conclude yet another very eventful quarter, which most importantly, also bodes really well for the future. As noted also in our previous communication and earnings report in the fourth quarter, we saw and felt the resurrection of the COVID pandemic quite vividly. With the advent of the Omicron variant.
That meant again that societies started to lock down, infection rates went up, and we were again significantly hampered in our ability to access our users and our prescribers, et cetera. This obviously affects our business negatively, and it was quite notable in the beginning of this quarter, predominantly in January and February.
However, as the pandemic declined, and we saw that society started to open up, so did our business. Hence, we felt a considerable tailwind by the latter half of the quarter, rendering in totality a solid 9% organic growth overall throughout the quarter, despite a very slow start of the year. The growth that we felt has been led predominantly by our North American business, which obviously is a fairly big part of what we do.
At the same time during the quarter, we finally received regulatory clearance for the acquisition of the Belgian-headquartered Acapela Group, our long-standing partner in synthetic voices, which means that all the outstanding conditions to close the deal have been met, and we are formally closing this transaction this Friday on April 29th, when Acapela will be an integrated part and fully owned by Tobii Dynavox.
Also during the quarter, we have continued our investments in new groundbreaking technologies and solutions, and we launched a completely revamped device called the TD I-110, which is a leading communication aid for people who do not need eye tracking, who can use their limbs or fingers to control a device using predominantly touch. This product is targeted specifically then towards users who have less severe motor impairments.
That includes conditions such as autism, aphasia, and a number of different conditions, rendering them unable to effectively communicate verbally. We're quite excited about, obviously. After, right after the quarter on April 1, we also announced the acquisition of our Irish reselling partner, Safe Care Technologies, which will now enable us to come even closer and serve our customers in the Irish market.
Both now the acquisition of Acapela Group, and the acquisition of Safe Care Technologies are great examples also how our M&A strategy complements our organic growth with a series of well-thought-out complementary products or local reach, to complement Tobii Dynavox business. Again, a quite eventful quarter.
The device I mentioned before, the TD I-110, it's important to note that Tobii Dynavox is not just about eye-tracking control devices. To give some background about that, if you specifically look at the condition of autism, some 40% of people with autism are non-verbal according to the US CDC, and hence would obviously benefit greatly from a communication aid.
Our product, the TD I-110, typically in combination with our software, TD Snap, is a medically certified touch-based communication aids that fits these types of individuals. The product, as we can imagine, accompanies the user everywhere they go, in school, outside, in the office or where around.
It's quite important that it's an ultra-rugged device that can sustain water and bumps and whatnot, but also need to have the performance to last throughout the day to make sure that you are able to communicate wherever and whenever you are. It's also important to note that from a company perspective, the non-eye-tracking, so touch-controlled communication aids is actually the type of product that Tobii Dynavox sells in the largest volumes. Now, Linda, you will walk us through financials and hand over the control of the slides here to you.
Thank you. The number part. Revenue for the quarter came in at SEK 246 million, a 19% growth. Of that, currency impacted positively with almost 10 percentage points, and the organic growth was 9% compared to last year.
As Fredrik mentioned earlier, the beginning of the quarter experienced really headwind due to COVID and Omicron, but the end of quarter really picked up strongly, specifically in North America. With a 9% growth, we are very close to our financial target. We were also able to ship majority of the backlog that we had end of Q4. The gross margin ended up at 64%, remained at the same level as the fourth quarter, but three percentage points lower than prior year.
It was, as we talked about in the Q4, impacted negatively by some one-timers, but mainly impacted by increased costs of components and freight related to the pandemic, but also in the situation in the world at the moment. If we adjust for the one-timers and the temporary COVID effect, our underlying gross margin was almost at 66%, which would have meant SEK 4 million in improved EBIT.
Talking about the EBIT. EBIT for the quarter was SEK 17 million, or 7%. 2 percentage point improvement versus Q4, and 7 percentage points lower than prior year. Our OPEX increased with around 9% versus prior year, but remember that prior year had artificially lower costs related to the pandemic, both with not being able to travel and no events, et cetera, and now the world is starting to pick up again.
Since we were able to lower our backlog by the end of the quarter versus end of Q4, we improved our EBIT with around SEK 5 million. The net effect of R&D spend increased with SEK 3 million, and this is mainly driven by increased depreciation, and the effect of this is primarily that we had major product launches both in Q4 and Q1 this year.
EBIT margin, as I said, ended up at 7%, but highly impacted by the pandemic. If we adjust for some one-timers and short-term pandemic effect, the underlying EBIT is estimated around 9%, but this of course is still not in line with our financial target of 15% or more. Some balance sheet and cash flow. Cash flow after continuous investment was -SEK 28 million.
The negative effect of working capital is mainly driven by increased inventory levels to secure for continued low predictability in supply chain. It has been a conscious decision to increase our inventory level given the uncertainty in the global supply chain system.
At the same time, we now feel that we are at ease with our ability to deliver on made orders going forward, which we think is super critical. Cash at hand was SEK 167 million. Net debt over last 12 months, EBITDA was 3x. This is within the target span. That was the financial, Fredrik. Let's go back to you and do some conclusions.
Yeah. Thank you, Linda. Again, if I summarize this quarter, we are obviously still impacted by the pandemic. We definitely start to see the growth specifically at the end of this quarter and specifically in our North America business, which is the majority of what we do.
We launched two new products over the past two quarters, the TD I-110 that I mentioned before, but also the Apple-based TD Pilot in the fourth quarter, which makes us well-positioned for future growth.
We have, as shown by these events, had good progress on mergers and acquisitions, and we have obviously high attention on the supply chain situation, but we are in a much better position than compared one or two years back.
With that said, if we would talk a little bit on how we run the company, well, we stay vigilant on additional impact by either the pandemic or the unrest related to the war and Russia's invasion of Ukraine. Short-term, our focus is to grasp the opportunity when societies are opening up, servicing the pent-up demand of users have been kept away from our products, but of course, the fact that the world as such is opening up.
We are focusing a lot on growth. That also means growing our team and our reach so that more people can get access and made aware of our products. Awareness is still one of the main issues and hurdles, but also focus areas because if there continues to be a huge unmet demand for our solutions.
With that, we reiterate our long-term financial targets, and they read that we want to, over time, to have a growth in excess of 10% if we adjust for currency, but we want to do that profitably with an EBIT margin of 15% or more.
We're gonna maintain a certain debt leverage of the company, which we have set to target to be 2.5 times the last 12 months EBITDA ±0.5, and a dividend policy that basically spells out that for now until we have built up the right balance sheet, the board has decided to wait with dividends, but eventually once that has been sorted out, also Tobii Dynavox should be a dividend-paying company.
With that, we're inviting Christian here to the studio, and you have gathered questions from the audience and from the world out there, and please shoot, and hopefully me and Linda can give some reasonably good and clarifying answers to that.
First, a question relating to the I-110. Could you indicate how important it is in terms of your total revenues, and how do you view the potential impact on sales and margins from the new release going forward?
Yeah. The I110 as a product is an upgrade of an existing product, the former version of the I110, which again is our top-selling, both in terms of volume and revenue when it comes to non-eye-tracking types of products. It's also, if you look at the incidence and prevalence rates of users out there, people who need eye-tracking out of those 50 million people I mentioned, they actually represent only some 8%-10%.
This is also from a target audience perspective, a significantly important product for us. Roughly we say that some 50% of our revenue stems out of eye-tracking enabled products, which makes mathematically that some 50% comes from others, and I110 is a critical product in that portfolio. We believe that the enhancements to the product, they're quite tangible.
It's more durable, which obviously is important, so it doesn't break. It lasts longer, it's faster, and basically does everything that our current top-selling product does, but much, much better. Incremental growth is what to be expected from that.
Okay, regarding TD Pilot, how did TD Pilot impact sales now in Q1? Is it addressing a new user category, or is it any new user categories, or is it mainly replacing existing sales? And finally, when is it reasonable to expect the full revenue impact from TD Pilot?
Yeah. First of all, if we go back in the helicopter a little bit and see how our products are sold, they are sold through prescribed channels, which means whenever a product that is, you know, very different from previous generations or just somewhat different from previous generations, there is a little bit of a lag in both in terms of educating the market, educating the prescribers, and in certain cases, we need to get tenders and approvals for new products.
We normally, and we have seen throughout the years, that whenever a new product has been launched, it takes 3, 6, 9, sometimes 12 months before it actually starts to get momentum. I believe if you specifically look at the I-110. Sorry, at the TD Pilot, which we launched in November of last year, the market reception has been fantastic.
The number of user videos and social media posts about users who are now able to do what they never did before, or just saying it simply works, is overwhelming. From a revenue perspective, my expectations is that the real impact of the TD Pilot is still somewhat ahead of us.
Assumption may be this summer or so, but we definitely see that part of the growth that we experienced in the quarter stems from the TD Pilot. It's difficult to say whether that is replacing sales for example, the I-Series or if that is incremental sales, and maybe the verdict is still out there, but I think it will be a mix. I don't know, Linda, do you have any other view into sales of TD Pilot?
I would say that we haven't seen the effect of comparison between.
Yeah
the TD Pilot and I-Series. Of course, we see subsequent improvement.
Yes
month-over-month, Georg.
Okay, a question on China. How do you view the Chinese market's potential, long-term, of course, and the timing of it becoming a significant portion of your revenues? What does the deal with Sogou mean for your revenues medium term?
The prevalence and incidence rates for the conditions that Tobii Dynavox's products serve sees no borders. Typically, there are, from a pure population perspective, percentage-wise, as many people in China as there is in Norway. Of course, China, with a population of well over 1 billion people, means that there's an even greater opportunity in the Chinese market.
Having said that, we also see that the infrastructure and awareness in the Chinese market is even lower than some other markets. The Chinese market is a huge opportunity, but it will take time. The Chinese government issued, not too long ago, a new five-year plan, where specifically stating that people with disabilities is an untapped potential for Chinese society.
Yet in the shorter term, I think we can all understand by the fact that, and also what we both read in the news, but more importantly, what we feel from our team in China, that the Chinese society right now is suffering a lot from the pandemic and lockdowns.
We believe a lot in the Chinese market and Mandarin as a language, which is obviously spoken way outside of the Chinese borders. It's a strategic market for us. We have significant presence in China. My bet is that in a longer period, five-plus years, China will actually be a significant contributor also to the P&L of Tobii Dynavox.
We got some questions from Daniel Djurberg from Handelsbanken. I'll start with the first one, strength in the latter part of the quarter in the US, I guess this has increased Q2. Also, please comment on funnel.
We probably won't say that much about Q2 because we're only 27 days into it. I think that Daniel Djurberg's observation is correct. I mean, if we do see a better traction in the latter part of the quarter, that gives us confidence going forward. When we look at funnels, we see that the increases in new submissions, new request to start the funding process, which sometimes could take months, is also on a positive trajectory.
We do feel quite confident about the future going forward. We don't know exactly what will happen to the pandemic. I would say that that is the main cloud that could actually alter that direction. There is a good confidence in the US market. I don't know, Linda Tybring, if you wanna add to that.
No, I totally agree with you. We really see the big shift at the end, in the middle of the quarter in Q1 and then continue.
Yeah. I mean, the US society is starting to open up. It's even our feeling that the US society is actually returning to some sort of normalcy a little bit faster than some specifically European countries. This has been reflected in that the driver for our growth in the first quarter has been the US.
Okay, another question regarding Acapela Group from Daniel Djurberg. Can you comment on the financial outcome last year and just to help in terms of projections for the coming quarters?
Well, the only thing that we so far has communicated is the revenue is around SEK 50 million, and the EBIT is in line or above 13%.
Mm-hmm. Mm-hmm.
That is what we can anticipate going forward as well.
Okay, that was all the questions.
Great.
Thank you.
Thank you everyone for either dialing in live or watching this webcast in arrears. We pride ourselves with being accessible, and that's something we wanna stick to. Please don't hesitate to reach out if you want to learn more or have specific questions also during and between these types of webcasts. With that said, have a great remainder of the week. Thank you.
Thank you.