All right. Good morning, everyone, and welcome to this earnings call. We will cover the first quarter, summarizing our business in January, February, and March of 2025. I am Fredrik Ruben. I'm the CEO of Dynavox Group.
Hello, I'm Linda Tybring. I'm the CFO of Dynavox Group, and I will cover the financials.
For those of you who have participated in these calls before, you will be familiar with the fact that we will start with a quick recap of what Dynavox Group is about. We will then summarize the main takeaways from the quarter. We will then dive deeper into the financials, and thereafter, we will have a Q&A session. You will be able to submit your questions during this live session in the chat function here in Teams. We, of course, always welcome offline questions sent by email to linda@linda.tybring@dynavoxgroup.com.
Yep.
All right. If we start with the brief overview of Dynavox Group, first and foremost, it's important to reiterate what our mission and our vision is, which I know is very dear, not only to the roughly 900+ colleagues around the world, but also to our ecosystem of partners and investors. Our vision is a world where everyone can communicate. We will contribute to this via focusing on our mission, which reads to empower people with disabilities to do what they once did or never thought possible. This also summarizes two of our main user stories. The first one is the "Do What You Once Did" that could refer to a person who led a normal life until a diagnosis such as ALS, which rendered her unable to control her body or communicate like before.
The other story, the "Never Thought Possible," that can refer to a child diagnosed at an early age with a condition such as autism, cerebral palsy, where, thanks to our solutions, he can do much more than the world around him ever thought possible. On the picture here, you can see Christopher from California in the U.S. He is one of our amazing young users diagnosed with a nonverbal form of autism, and he is a great example of that. The market that we service is hugely underserved. It is estimated that some 50 million people have a condition so grave they simply cannot communicate unless they have a solution like ours. Every year, some 2 million people are being diagnosed, and yet we estimate that only some 2% of those are actually being helped, which means that the rest, they remain silent.
The main reasons for this spell lack of awareness, but also among the professionals and the prescribers that are tasked to assist these users and in combination with poor healthcare reimbursement systems. We operate this business on a global footprint. Today, some three-quarters of our business stems out of the U.S., and that's largely because of a reasonably well-functioning funding system that was established some 20, 30 years ago. Our products are outside of that, sold in some 65 markets around the world, of which the U.S., Canada, U.K., Ireland, Denmark, Sweden, Norway, Australia, New Zealand, and very soon France are markets where we sell directly, while the others are served by a network of some 100+ reseller partners.
Our staff is distributed in a similar way as the revenue, meaning that some 60% or so of our staff are based in North America, with our U.S. headquarters in Pittsburgh in Pennsylvania. Our second-largest office is here in Stockholm, which is also our headquarter, but we also have branch offices in several European countries, as well as in Suzhou in China, Adelaide, Australia as well, and some 900 employees in total. With prior acquisitions, we established or increased our presence specifically in Belgium, France, Germany, Ireland, Denmark, Australia, New Zealand, and again, most recently in France, but more about that later.
We provide a comprehensive portfolio of solutions, which means that you range from the content and the language systems, such as the world-leading library of communication symbols called PCS, and the leading solutions of off-the-shelf or custom-made synthetic voices of the highest quality, with a large variety of diversity languages, ages, and ethnicities. Highly sophisticated communication software is tailored to the type of user, which, of course, can vary greatly based on the needs. If we move on, we see the development of and we design devices with cutting-edge technology and medically certified durability, including, of course, communication aids controlled via eye tracking and accessories such as the Rehadapt mounts. If we move forward, we have a services portfolio to help our users through the complexity of obtaining and getting funding for solutions.
Last but not least, we are there to help our users, the therapists, the caregivers, and so forth through our global teams of support resources. We operate this model globally, and it is important to note that each piece on this picture is critically important and also a significant differentiator for us, making us absolutely unique. Our go-to-market model is predominantly as prescribed aids, which means that some 90% of our revenue comes from either public or private insurance providers. This also means that we have solid paying customers, and we have always been resilient towards changes in the overall economic climate. Now we will go back to focusing on the main topic of today, namely our earnings report for the first quarter of 2025. If we look at the highlights, we had a strong quarter when it comes to revenue growth.
The growth compared to the same quarter previous years sums up to 34% after adjusting for currency effects. This continues and actually further accelerates the trend that we now have seen for the 12th consecutive quarter in a row. The demand for our solutions remained high, proving the solidity of our underlying business, and the North American market continues to show strong growth. It is by far the largest and most influential market in our industry for us and other players. The strong momentum among the younger user base continues. Often those are children with autism diagnoses that rely on our simple communication solutions, in particular, a software called TD Snap. They are non-eye tracking users. They typically control their devices using touch and their fingers, and that is the communication portfolio that grows the fastest.
Our OpEx levels, they also increase, but this is a consequence of investments to secure future growth and building the foundation for becoming a much bigger company. We continue to invest in our staff, mainly within sales and marketing, as well as in new back-end systems and tools. In the past year, we have grown the team by some 150 new colleagues, where almost 100 of them are within the global sales team. In the quarter, we made planned investments of a non-recurring nature in new back-end systems and tools, plus the earlier announced restructuring of our product development organization. That equates to some SEK 22 million, corresponding to almost 4 percentage points on EBIT. In spite of all these investments, we continue to improve our profits. Our operating profits increased by 32% in the quarter.
On April 8th, we announced that we have entered into an agreement to acquire our French long-standing reseller partner, Cenomy, which I will speak to more momentarily. Before doing that, one topic that is on everyone's mind these days centers around the macroeconomic climate and various policies, particularly in the U.S. I'd like to bring some more clarity on how this affects us. If I start with tariffs, our overall exposure to import tariffs to the U.S. is limited since the tariffs are based on the cost of the material that is imported to the U.S. For our products, the material cost represents only some 20% of the retail value. However, and more importantly, our products are generally classified as medical-certified assistive technology devices, making them exempt completely from customs duties and tariffs under the so-called Nairobi Protocol. Secondly, reimbursement policies.
As of today, there are no announced changes to the policies related to reimbursement of our products in our largest individual market, the U.S. However, obviously, we are monitoring this situation closely. Lastly, currency exchange rates. Approximately 80% of Dynavox Group's revenue is billed and paid for in U.S. dollars, which means our revenue does fluctuate with the SEK to U.S. dollar exchange rate. However, since the majority of our cost of goods sold and approximately 60%-70% of our operating expenses are also in U.S. dollars, this does create a natural hedge against currency fluctuations on our profit margin. Consequently, while our top-line revenue may fluctuate, the impact on our EBIT margin is not significant. On the topic of growth, on April 8th, we announced that we have entered into an agreement to acquire our long-standing French reselling partner, Cenomy.
This acquisition supports our growth ambitions to give more people with disabilities a voice and brings us closer to our customers specifically in France. Cenomy's revenue in 2024 was around EUR 5 million. We pay EUR 5 million to the current owner in cash at closing, with a potential additional consideration after a period of two years. I personally very much look forward to welcoming some 20 new colleagues to Dynavox Group after the closing of this transaction, which is expected to be concluded during the coming six months. Now I hand over to you, Linda, to take us deeper into the financials.
Yes, thank you, Fredrik. Revenue for the first quarter came in at SEK 581 million, a 34% year-on-year growth after adjusting for currency effect. Recent acquisition contributed with 1%. Hence, the organic growth was a solid 33%, continuing a strong trend that we have seen for 12 consecutive quarters in a row. From a volume perspective, Q1 is normally our slowest quarter and Q4 our strongest. Note that this year, Q1 is very, very close to Q4. North America continued strong growth, but this remains the case also for Europe and the rest of the world. As we've talked about in prior quarters, we continue to see growth across regions, products, and user groups. We continue to see the fastest growth, as Fredrik already mentioned, globally within the autism customer group. The gross margin ended up at 68%, an increase of 0.5 percentage points.
This margin benefited primarily from slightly lower purchasing prices from suppliers, but negatively impacted by adding more FTEs within our operation to meet our demand. The EBIT for the quarter grew by 32% to SEK 43 million, and the EBIT margin was 7.3%. Our OpEx increased organically by 28%. The OpEx increase mainly relates to staff increases and salary adjustment. We continue to grow our organization, and the last 12 months, we have added some 150 new colleagues worldwide, a majority within sales and marketing. During the quarter, we continued to invest in new systems and tools to strengthen our scalability to a cost of SEK 14 million, contributed approximately SEK 2 million to the cost increase. Operating expenses were also affected by non-recurring costs of approximately SEK 8 million, mainly related to our restructuring of our R&D department.
The cost of a long-term incentive program increased by SEK 3 million. This includes that SEK 5 million relates to non-recurring costs for historical incentive programs. Within other incoming expenses, the exchange loss negatively impacted EBIT with SEK 8 million in the quarter and SEK 10 million versus last year. Net R&D cost increased by SEK 20 million, including the mentioned SEK 8 million non-recurring restructuring cost versus last year. If we look at the earnings per share, it increased by 120% from SEK 0.10 per share to SEK 0.23 per share. For the quarter, cash flow after continuous investment was positive SEK 27 million. Cash at hand by the end of the quarter was SEK 143 million. Net debt was SEK 710 million, and the total used credit facility and term loan at the end of the quarter was SEK 694 million.
Net debt over the last 12 months' EBITDA was 1.6x . Should we take the next step?
Sure, Linda, thank you. Before we open up for the questions, I'd like to reiterate some of the main takeaways from the first quarter. First of all, we continue to show strong growth, again, a trend that started early spring of 2022 and has continued since. We grew revenue by 34% adjusted for currency. North America continues its strong growth, but it's also the case for Europe and the rest of the world. The strong momentum among the younger user base continues, mainly among children and young users with autism. Our profitability continues to move upwards with an organization that scales better day by day, and yet we continue to make significant investments in new systems and in the organization that carries significant one-time costs, but that, of course, will enable us to continue growing with quality.
The one-off cost for the new internal systems and the restructuring cost of our product development team alone represents some SEK 22 million, or almost 4 percentage points on EBIT in the quarter. The current uncertainties in the macroeconomic climate or made policy changes have not had any effect on our business, but we stay vigilant. Previously acquired companies contribute well, and we continue to complement our largely organic growth journey with additional acquisitions, and we look forward to closing the announced acquisition of our reselling partner, Cenomy, in France. Given the continued sustainable growth, we continue to grow the team while investing in systems and tools to enable a future business that is much bigger than today. Our financial targets are expressed with a time horizon of three to four years, and it was just over a year ago that we launched them.
The first target is to, on average, grow revenue by 20% per year, adjusted for currency effects, including contributions from acquisitions. In local currencies, the first quarter for this year was 34%, which means that we have found revenue growth momentum to build on. The market we serve remains hugely underserved. With the example of growth levers such as sales teams expansion, adding direct markets, and operational excellence, we continue to build on our growth journey. The second target is to deliver an EBIT margin that reaches and exceeds 15%. We have proven to build a strong growth with incremental improvement in profitability, and we need to continue to invest in the future growth with improvements in scale.
For us, the recipe is rather simple: continue revenue growth, high and stable gross margins, and total operating expenses over time that increases at a lower pace than revenue growth. That is when you get it. As a consequence, we see good opportunity to further leverage how revenue growth translates to reaching and exceeding an EBIT margin of 15%. Last but not least, we have a dividend policy where we, of course, have an attractive cash flow profile. Given the growth opportunities, we need to maintain a capital structure that enables strategic flexibility to pursue growth investments, including more or additional acquisitions. It is still expected to over time generate excess cash in our policies, therefore to distribute at least 40% of available net profits to shareholders via dividends, share repurchase, or similar programs when so allows and when we deem that it is the right prioritization.
With that said, I'm moving a little bit to the left and instead inviting our colleague, Elisabeth Manzi, our Corporate Communications Director, who will help us to moderate and enable us to take questions from the audience. Hey, Elisabeth.
Hello, hi. Yes, we do have some questions here from the audience. I will start with one from Oskar Rönnqvist at ABG, who's asking, do you believe that larger than 30% growth is sustainable or more like a one-off?
It's a good question, Oskar. We are, of course, super pleased with the exceptionally strong growth that we saw in the quarter. We feel that a lot of the investments we have done in awareness, education, product launches, and so forth is starting to pay off. We're not in a position where we're changing our long-term financial targets, but as you can notice, it's a particularly strong growth and it feels solid. I don't know if you want to add something to that, Linda.
No, I think we see no change in the demand. We have seen this historically as well. Good momentum.
Jessica Grunewald at Redeye was also asking a little bit about the strong organic growth. Is it more volume-driven or ASP mix-driven?
What we do see is that the segment that grows the fastest is what I mentioned, the younger users, typically with autism diagnosis, and they do not use eye tracking products. They use handheld, typically touch control products. There is a slight shift in volume where the touch devices grow, but the good part of the story is that we have almost identical EBIT margin or gross margin regardless of the type of product that we sell. For us, it really doesn't matter, but it's definitely a volume growth situation that we're experiencing.
Yeah, I would say the ASP is almost half in average for a touch device versus an eye tracking, which means the quantity continues to grow even stronger.
Yeah.
Jakob Lemke had a similar question there also about the key reason behind acceleration in Q1 and wondering if we have activated many more prescribers or if there has been any product launches, etc.
The product launches, which partly is the case, was something that we launched a new set of touch AC products, but as I also mentioned, it's the software TD Snap, which is the symbol communication software that is really starting to gain momentum. There are never any radical shifts in this market. Everything is kind of incremental improvement. I think what we are seeing is absolutely more prescribers becoming more at ease with the products, products that obviously really work, more successful users, and hopefully that will create a snowball effect. Our best response to why the market is growing is pretty much that. There's nothing radical that has happened like a specific product launch or a change to reimbursement.
We have also, during, I mean, since a long way back, invested in our sales and marketing organization, and this is also paying off.
Jakob Lemke also wonders, given the fast sales growth, do you believe the EBIT margin target is reachable already this year?
I think we expressed the target of 15% or more, and I think it's important to reiterate the or more part of that on a three to four-year horizon, and that was a year ago. We obviously feel strongly that it's obtainable, and I think the numbers speak for themselves. At the same time, we are investing in the infrastructure and in the company to make sure that we can be a much, much, much bigger company for many, many years to come.
A more sustainable company.
A more sustainable company, yeah.
Going back a little bit then to the demand level as well, have we seen any change in order patterns post Q1? Jessica at Redeye is wondering.
Post Q1, I think the only comment I have is that we see no changes. Since there are no radical shifts in reimbursement, etc., we continue to see similar patterns that we've seen historically. There are no changes, basically.
If we move a little bit to another question that we have gotten here also from Jessica at Redeye, can you provide more detail on the Nairobi Protocol exemption status? Are there any scenarios where this could change or be challenged?
If I start at the end, if a protocol can be changed or challenged, I think nobody has the crystal ball exactly what decisions. I think this is the Nairobi Protocol stems actually from decisions made already in the 1950s, which basically talks to the fact that certain products, specifically that deal with people with disabilities, and in that case, you have wheelchairs, prosthetics, etc., are exempt from taxes, and a lot of countries have adopted that. I think this speaks more to the nature of our business. We are working in a space which is not necessarily consumer goods or car parts or whatever. We are dealing with a different customer group. Our products are covered by the tax exemption or the tariff exemption under the Nairobi Protocol. Could this change? Sure, it could, but there are no indications of that being done right now.
We are not the only company that imports under the Nairobi Protocol. It applies to every assistive technology company, more or less.
Daniel Djurberg is following up on that as well, asking about the Medicare and Medicaid and if we see that there will be any potential changes to that and how that situation is unfolding.
The short answer, Daniel, is no. There are no suggestions on the table. There are no discussions, and maybe more importantly, there are no policy changes that have been presented yet. Should that happen, it's of course difficult to predict, but as of right now, the answer is no.
Very good. Let's see, we have some more questions here about the ERP investment. Oskar Rönnqvist at ABG is wondering, when are the ERP investments going to fade? Is the normal admin cost level SEK 90 million lower if you then add SEK 14 million from ERP and SEK 5 million from LTI?
Before Linda answers this question, I would just explain to everyone, ERP refers to our backend systems to make sure that we are a more digitized and faster-moving company. How about the spend, Linda?
I mean, this is, as many know, it's a super big project, and we are in the phase of rolling it out during 2025. This will take time until we will see a slowdown on this. It's probably going to take 12-18 months until we see any changes to it. This is something that is going to be continued improvement as our business, I would say.
The whole point is obviously that we will become a better scaling, faster-running company because we have fantastic backend systems.
Good. I think, let's see if we had something more on the ERP. Yeah, actually, I think there was a long question here that I just need to get a little bit more into. The question was around the cash flow for the one-offs. Let's see where I had that one. Yes, I think it was Daniel who was asking, Daniel Djurberg. Can you give some input on how the, well, the NRI for the quarter totaling SEK 24 million? Can you give some input on how these have impacted cash flow in the quarter so far? Are there some provisions with later payments? Also, should we expect this quarter non-recurring to recur already into Q2? Or have you done full provisions for coming quarters as well in these SEK 8 million and SEK 14 million?
Let's divide them up. If we have a majority of the non-recurring costs, we have actually paid for, when it comes to some of the restructuring costs in the product and development organization, it will impact the cash flow later on. I expect that when it comes to product and development, this will continue. We've talked about this earlier for the full year of 2025 before we are through the whole transformation. The ERP is also, I already mentioned, this will continue for the coming 12 months.
Good. There is a question also from Jakob Lemke here who's asking, when you look at the reimbursement activities, sales funnels, etc., do you have visibility that similar strong momentum could persist the coming quarters?
We see no changes.
In demand.
In the outlook or in the past. I think we are chugging along, as they say in America.
Good. He is also wondering, what would you say is the main reasons behind the success you are seeing in the autism segment?
Oh, this is a long answer. It's a very good question, however. I think you can start on one end where the diagnosis of autism and perhaps some of the stigma around children or younger adults, which are non-verbal due to an autism diagnosis, is starting to actually fade off at least a little bit, meaning that the disability or the impairment of not being able to communicate because of an autism diagnosis, there is more and more awareness and knowledge around the world that this can be compensated for. The solution to that, both in terms of behavior and face-to-face communication, spells AAC, augmentative and alternative communication, and that's what we do. It's a slow-moving train because what it really requires is awareness and maybe more importantly, competence among the prescribers, often speech-language pathologists, special ed teachers, but also in some cases, parents and caregivers.
I think we do see that the, call it a snowball effect, that you see, you know, a successful user, a successful prescriber does create the momentum where there will be more successful users and more successful prescribers. Of course, our relentless effort to, in a large scale, educate them because our colleagues are typically largely speech-language pathologists themselves, and they basically introduce the concept and ensure that their peers are successful using this. That is the momentum that we're experiencing. It's very difficult to put a KPI on exactly which initiative had which consequence, but we do definitely feel a stronger and stronger tailwind here.
Good. Jakob Lemke is also asking, what will be the sales contribution from the Cenomy acquisition?
Linda.
Yeah, the sales contribution, since the majority of their products is on our products, we expect about 40% of the revenue is actually contributed to our revenue.
We have a question from Johnny who was just asking to reconfirm, has the Nairobi exception been confirmed by the authorities?
We are importing under the Nairobi Protocol today.
Good. Let's see, I think the last question here then will be from Jakob Lemke as well, who's wondering, in which cost line is the SEK 8 million restructuring cost in Q1 reported?
Within R&D.
Good. I think that was all the questions. If I have missed anything, then please post it again, but I think we have answered all of them.
Or reach out to me.
Yeah. Thank you for posting those questions, and thank you for the engagement, and thank you for participating on this call. This concludes the earnings call for today. We look forward to seeing you all back on July 18 because that's when we're going to summarize our business in the second quarter of 2025. Thank you very much, and bye-bye.
Thank you. Bye.