Okay. Good morning, everyone, and welcome to this earnings call, where we will cover the second quarter 2022, summarizing our business in the month of April, May and June for Tobii Dynavox. I'm Fredrik Ruben, and need the next slide. I'm the CEO of Tobii Dynavox.
I'm Linda Tybring. I'm the CFO of Tobii Dynavox.
In this call, we will cover the second quarter of 2022, but first we'll take you through some brief fundamentals about the company, summarize the main takeaways from the quarter. We will obviously dive deeper into the financials and thereafter there will be a Q&A session. We have received questions prior to the call. You can also submit questions through email to Linda's email, which you can see on the slide here. All right. But again, before digging deeper into the financials of the second quarter, I'd like to make a summary of what Tobii Dynavox is about.
First and foremost, this is important for not only us but also investors and the ecosystems and partners around us, is to reiterate our mission, which reads, "To empower people with disabilities to do what they once did or never thought possible." This mission statement summarizes two main user stories. The do what you once did, that may be the person who led a normal life until a diagnosis such as ALS, which rendered her unable to control her body and limbs or communicate like before. The other story is the never thought possible. That's the child that is being diagnosed at an early age with a condition such as autism, cerebral palsy, where thanks to our solutions, she can do much more than the world around her ever thought possible. On the picture here, you see Delaina Parrish from Florida.
She was born with cerebral palsy, and she's a great example of exactly this. The market that Tobii Dynavox serves 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, some two million people are being diagnosed, but only about 2% of them are actually being helped and the rest remain silent. The main reasons for this is lack awareness also among the professionals, the prescribers, but also poor healthcare and reimbursement systems in most countries in the world. We operate with a global footprint. Today, some three-quarters of our business stems out of the U.S. and North America, and largely because of a reasonably well-functioning and established funding system, which was founded some 20 years ago.
Our products are sold in some 65 markets around the world. Our staff is distributed in a similar way as the revenue, meaning that some 75% of our staff are also based in North America with our U.S. headquarters in Pittsburgh, Pennsylvania. Our second largest office is our headquarter here in Danderyd, outside of Stockholm. We also have branch offices in several European countries as well as in Suzhou in China. At this point, we employ a total of roughly 550 employees. With the recent acquisitions, which we'll talk a little bit more about, we have also established or increased our presence, specifically in Belgium, France, Ireland, and Denmark, in addition to smaller number of remote employees, primarily in Central Europe. Tobii Dynavox provides a comprehensive portfolio of solutions.
If you look at this picture from left to right, we start with the content, where Tobii Dynavox has the leading library of communication symbols, but also synthetic voices. Specifically, the voices is a new component that we now have in-house, through the acquisition of Acapela Group. If we then move to the right, we take this content and develop a highly sophisticated communication software tailored to the type of users. During the quarter that has passed, we have both expanded the number of languages in our symbol communication software called TD Snap, but also enhanced our software for literacy users, in the software TD Talk, and we will also cover that a little bit more in detail. We then build the devices with cutting-edge technology. They are typically medically certified, including communication aids that can be controlled using your eyes.
We have a comprehensive services portfolio to help our users through the often complex journey of obtaining a device and getting it prescribed. Last but not least, we are there to help our users, therapists, caregivers, et cetera, with a worldwide support network. Tobii Dynavox's go-to-market model is predominantly as prescribed aids. 90% of our revenue comes from some sort of public or private insurance provider. This also means that we have solid paying customers, and we are quite resilient towards changes in the overall economic climate. In addition to that, our market is extremely underpenetrated. That was a quick recap about Tobii Dynavox, and now we will go back and focus on the past three months.
If I start with some of the highlights of the quarter, we saw a very strong and solid sales growth in the quarter. In total, our revenue grew by a staggering 75% compared to the same quarter, 2021. However, this comparison must be seen in the light of a rather problematic Q2 last year. We had severe supply chain disruptions and last year, and we also now have favorable currency impact. Still, if we adjust for both currency and last year's backlog effects, the underlying revenue growth was a solid 23%. We saw growth in all major regions, but in particular, our North American region was the clear locomotive for this quarter.
One of the reasons is that we see a faster pickup from the pandemic in the U.S. compared to Europe, mainly due to longer lead times from assessment to prescription and funding and delivery in non-U.S. markets. In the same way, we saw that the first quarter, our margins were heavily impacted by the abnormally high component and freight charges. These are burdensome, but also largely of a temporary nature while we feel that this is less concerning long term.
In June, we also launched a very important product launch around the concept of voice banking, which essentially means that, with the use of Acapela's artificial intelligence solutions, we can offer a user to make a recording, of your own voice and thereby create a synthetic version of that person's own voice, which is then being used in our leading communication software for literate users, TD Talk. A common user group for this use case are people diagnosed with ALS, who eventually, in many cases, lose their own voice as the condition progresses. We've also been very active in, on the M&A field. We have closed two acquisitions in the quarter. That was first the Belgian Acapela Group and then Irish Safe Care Technologies. We also announced a deal, where we acquire all the assets and operations from our Danish reseller, ASK.
That deal was then eventually closed on first of July. These three acquisitions have some varying rationale. One of our objectives is to grow or complement our product portfolio towards the existing markets that we serve. The acquisition of Acapela is a great example of where we bring a solution that is closely tied and integrated to our offering, namely the synthetic voices, and thus enable our teams to work much closer and innovate at a much faster pace. It's also a great company with very solid financials, hence also adding to our overall critical mass and financials. That's one type. The other type, or the other objective is to grow our geographic reach and to come closer to the prescribers, the users, and the legislators in specific markets and region.
In some cases, when we have seen that removing that one layer enables us to better serve the local market. The acquisitions of both Safe Care Technologies in Ireland and ASK in Denmark are two good examples of such. If I look back into the history of Tobii Dynavox, our entry into our currently largest market and best-performing market in this quarter, the U.S., that actually stands out as two acquisitions made a number of years ago. It is, however, important to note that acquisitions should only be seen as a sprinkle on the cake or such in our future growth, which is largely based on organic growth and a much improved penetration of this hugely underserved market. With that said, I'd like to hand over the microphone to Linda for a moment to talk us through the financials.
Okay. Thank you, Fredrik. So as Fredrik already mentioned, revenue for the quarter came in at SEK 288 million. It's a 75% year-on-year growth. Currency impacted positively with around 20%, and organic growth was 40%. M&A contributed with almost 6%. It is, however, super important to have in mind that last year we had a very high backlog, and with backlog, we means orders not shipped due to the supply problems. Main part of this backlog was shipped in Q3 2021. If we adjust for last year's numbers, with the backlog occurred in the quarter, our underlying organic growth is still about 23%. This means also that Q3 of last year, more than 20% of our revenue was related to the backlog coming from Q2.
This becomes very clear if you look at the dotted red lines in the screen. The gross margin. Sorry, I would also mention that North America, we have a strong growth and really start to see business picking up in the other markets as well. The rest of the market, we are growing, but we see our sales cycle is a bit longer, and we hope therefore to see sales pick up more in the coming quarters. Gross margin of 64% remain at the same level as last quarters, but as prior quarters, still impacted negatively by the one-timers, but mainly impacted by the increased cost of components and freight related to pandemic, but also the situation in the world. Freight cost has continued to be more than double versus prior year.
If we adjust for temporary effects, our underlying gross margin was almost 66%, which would have meant SEK 3 million-SEK 4 million in improved EBIT. Since we now have a high level of inventory, the positive signs that we see in the supply chain and on components will not have an impact on our gross margin most likely this year. At the same time, we see a clear improvement on our component supply and cost coming forward. Looking at the EBIT for the quarter, it was SEK 16 million and 6%, a significant improvement versus prior year. Last year's number was impacted by the push revenue from Q2 to Q3 that we just talked about on the revenue side. Our OpEx increased organically with around 15% versus prior year. Prior year had artificially low cost related to pandemic.
We didn't travel, and we didn't have that many events. We also increased costs related to being a standalone company. This is also important, and this is in line with our expectations. We also see higher salaries. As many other company, we have been a bit challenged with recruitments, and therefore, we have to bring in more interim consultants short term. We expect this to continue the coming quarter. We are also starting to strengthen our organization, specifically adding more resources into sales and marketing to continue our growth journey. As we have mentioned earlier, we need to be more feet on the ground to be able to grow. The net effect on R&D spend increased with SEK 8 million , mainly driven by increased depreciation related to major product launches during both end of 2021, but also beginning of 2022.
It also relates to that we have acquired technology from already mentioned M&As. EBIT ended up at 6%. We got some tailwinds from currency, but negatively impacted by components, freight, depreciation, and some M&A one-time costs. Talking about the balance sheet and cash flow, cash flow after continuous investment was -SEK 27 million. The negative effect that we have in the working capital is mainly driven by the increased inventory levels to secure a continued low predictability in supply chain, but also sales starting to pick up, so we see a higher outstanding receivables. As we said last quarter, it is a cautious decision to increase inventory levels given the uncertainty in the global supply chain. At the same time, we now feel more at ease with our ability to deliver and meet orders going forward.
This will start to balance out going forward. Cash at hand ended up at SEK 160 million. Net debt was SEK 553 million. During the quarter, we closed the two acquisitions and paid this in cash of SEK 107 million. To finance part of this, we have used our revolving credit facility and lend additionally SEK 54 million. Net debt of last 12 months EBITDA was 2.9 x. This is within our target span, but also note that if we would add our acquired company's last 12 months EBITDA, net leverage would be around 2.7 x. Back to you to conclude today's earnings call, Fredrik.
Great. Thanks, Linda. Before we open up for questions, I'd like to reiterate some of the main takeaways for the second quarter of 2022. We saw very strong sales development, a 75% year-on-year growth. It's important to note that the year-on-year comparison is affected by last year's supply disruptions. However, if we also adjust for that, the underlying growth was a solid 23%. We had a clear rebound from the pandemic and in Q2 2021, and compared to Q2 2021, and in particular, North America is the locomotive in this quarter. We experience continued extreme surcharges on select components and freight. We have built up solid inventory levels to secure undisrupted deliveries, but also this has happened at quite high costs.
We see clear signs of normalizing component costs, but this will take time. We closed and announced no less than three strategic acquisitions during the quarter. In these uncertain times, I would like to reiterate the fact that the overall economic climate has no or little impact to our business since our products are prescribed. In addition to that, the market is significantly underpenetrated. If anything, an economic downturn would, to some degree, help us when it comes to attracting top talents, which is important for our growth. Based on this, we see no change in our outlook or long-term financial targets. To reiterate our long-term financial targets, which for clarity, has the time horizon of 2-3 years. Over time, we aim to maintain an annual growth in excess of 10%, adjusted for currencies.
Here, we clearly overperformed this quarter. We want to reach and maintain an EBIT margin of 15% or more. We still have some way to go there, but with a normalized gross margin, the anticipated economies of scale we have in our model, we remain confident that this is the level we should reach and maintain long term. We want to maintain a net debt ratio over the last 12 months EBITDA of 2x-3x . The absolute outcome was 2.9x, which means we are within that range. Specifically, if you add the run rate of the newly made acquisitions, it's more like 2.7x.
Once we have landed in our recent split from Tobii, we have built up our balance sheet and the likes, dividends will happen, provided other more compelling alternatives, such as M&A takes preference. With that said, I'd like to invite Christian Hall to the call and for you to run us through the questions that have popped in from the audience.
Okay. Just let me remind you that you can email questions in to the address that we said. The first question is regarding your revenues in the quarter and regarding Europe and the rest of the world outside of North America, first of all. How did the aftermath of the pandemic impact you more specifically? What were the specific hampering factors? When do you expect Europe and the rest of the world outside North America to be back on a more normalized revenue level and growth rate?
Sure. Again, if we look at the audience we're serving, that's people with disabilities, which, you know, by definition almost has been seen as risk groups in the pandemic. Physical meetings is for certain user groups quite important. Specifically if you think about children with autism or other intellectual disabilities, where a Zoom call or the likes doesn't really make it. Our ability to simply meet with our users and our prescribers' ability to meet with their patients has been quite hampered. This was a factor of the pandemic and which was of course mitigated with various kinds of quite often innovative solutions, but of course, digital meetings. When the pandemic started to wind down, we also saw exactly the trend that we were anticipating. These meetings started to happen.
We see that North America is ahead of the curve. The society seemed to have opened up slightly faster, and specifically during this quarter, we have seen a significant uptake among the user groups of children with autism, which again speaks exactly to the thinking we had before. The reason why we don't see that the rest of the world is picking up as fast is simply because in many countries outside of the U.S., the process from doing an assessment, getting a prescription, getting through the funding system, and eventually getting a device is simply longer. We estimate that to be around 6-12 months, and if you then think about that the last wave of the pandemic was over sometime in March, well, we can do the mathematics.
That is probably gonna take somewhere into the early four before we see some sort of catch-up effect. It's important to say we see growth pretty much in every user group, every device category, in every market.
Regarding North America and the sales and marketing there, is it completely normalized now, or do you still see room for a potential for improvement in terms of the negative impact from the pandemic?
We feel that we still have a fairly big pent-up demand that hasn't been served. That's a demand that has, of course, grown over the course of the pandemic. Remember, our market also continues to grow throughout. I don't believe we have a fully normalized situation in the U.S. I don't think we will come back to operating the way we did two or three years ago. We're still. We definitely still have both a pent-up demand and some more juice to squeeze out of the North American market.
We have a couple of questions from Daniel Djurberg at Handelsbanken. Now, the first one: Was the 23% underlying growth measured at constant currencies?
Yes. FX adjusted.
Yes. The SEK 2 million EBIT and SEK 10 million revenue in Acapela, that's the contribution that is shown for the quarter for Acapela. Is this a good proxy going forward as well?
Yeah. What we have said that they had tracked about 10%, EBIT, and this is what we expect going forward as well.
Okay. Now about the gross margin. When is it reasonable to believe that the gross margin could reach more normal levels?
I mean, we start to see, as I mentioned already, that the components cost is actually coming down, and we don't have that type of surcharges any longer. Due to the inventory levels that we have now, we still live with that cost for the coming year, we expect. We start to see an improvement most likely at beginning of next year. When it comes to freight, that's probably gonna take longer. It depends on the world around us.
We should, however, note that we have other means to improve the gross margin. One such thing is, of course, that, as everyone else, the cost or the prices for our products will start to come up also in some of the regulated markets. We have other initiatives such as with a more predictable supply chain. We don't have to use as expensive freight methods, including doing surface shipping, or such of our products.
Okay. Regarding the EBIT margin, obviously there is a big step from the 6% this quarter up to 15%. If you could please be a bit more specific on the main drivers to reach 15%. Obviously, scalability is one, and what is the reasonable timeframe to reach 15%?
To reiterate what Fredrik said, our long-term financial targets are spanned over 2-3 years, and this will gradually improve over that time period. There are a couple of things that will happen over time, and the first thing we already mentioned, that is gross margin. We will be able to, even though moderate, improve our prices to our users, but we will also get rid of the freight cost and the component levels that we have had now for the past quarters. We also will have a more normalized OpEx, and that is related to the separation. I mean, we have added some cost in conjunction with the separation, but that will not continue to grow. So it is still according to our expectations, the OpEx related to the separation. Of course, we have-
We will be able to further grow, and we have some scalability in our some of the fixed costs that we have. That will help us get there.
I think it's also important to note that this is the levels that we're performing at is exactly according to plan. There is no surprise or kind of disappointment in that. We of course would like to see the gross margins to be better, et cetera. This is according to the plan, and we also have to understand that if you look back a few years, we have been operating at the 15%+ EBIT margin, and nothing fundamental has changed. We're selling. We're the same go-to market model, we have the same type of customers, same type of products. There is no fundamental change in our entire you know business operation that would prevent us to reach those levels.
We have a question regarding TD Pilot, the product that you launched in November, I think it was. How did it impact sales in the second quarter, and what is a reasonable timeframe to expect full revenue impact from it?
Yeah. The TD Pilot is an eye-controlled communication aid, quite similar to the I-Series that you saw in the picture of the Delaina Parrish, et cetera. Unlike the I-Series, the TD Pilot is based on Apple's operating system, iPadOS, and hence the familiarity with that environment, et cetera. It's still a medically certified, prescribed product, which is sold at the same tier of price points as previous models. The market reception for the TD Pilot is very positive. "It just works," is probably one of the most common, feedback we get, check for yourself on social media or the likes.
The TD Pilot, however, as being a prescribed product, also comes with a delay. The product cannot be assessed and tried out on a patient until it's actually physically delivered, and then you start the funding process. In some markets, it actually needs to be added to tenders, etc. There is a six to eight, you know, depending on which market, month delay before it actually start to ship. Those months have passed now. We definitely see exactly the trend that we anticipated, that the TD Pilot is gaining quite a lot of momentum, and we are confident still, as we said, since the launch of this product, that this will be one of the main contributors to our growth going forward. All good, but the dynamics of the market makes it less instant.
Regarding M&A and the pipeline for M&A, is there something you can say about the pipeline regarding future M&As?
It's important again, M&A is sprinkle on the cake. The two main scenarios is either to add or complement our existing portfolio, similar to what we did with the acquisition of the synthetic voice company Acapela, or to improve our reach, our actual geographic reach into certain markets. It will be a sprinkle on the cake. We will have gradual and I would say, sporadic, acquisitions, and they're typically not massive in terms of size. We have constant discussions and obviously with a more active M&A agenda, which we have proven in the quarter, there is more inbounds starting to happen. We shouldn't see Tobii Dynavox as an M&A engine and the types of acquisitions that we've seen now is probably a high level of activity compared to what we can expect going forward.
Okay. That was the final question.
Great. All right. Thank you everyone for having dialed into this call. Again, this recording will be available on our investor website. We are always there to answer questions, so don't hesitate to reach out. With that, for those of you who are enjoying the sunny weather outside, please go back and do that. For the rest of us, see you in one quarter. Thank you.
Thank you.