All right. Good morning, everyone. Welcome to this earnings call, where we'll cover the fourth quarter of 2022, summarizing our business in October, November, and December. I'm Fredrik Ruben. I'm the CEO of Tobii Dynavox.
I'm Linda Tybring. I'm the CFO of Tobii Dynavox.
In this earnings call for the Q4 of 2022, we will first take you through some brief fundamentals about the company. We will summarize the main takeaways from the quarter. We will dive a little bit deeper into the financials, obviously, and thereafter we will open up for a Q&A session. You can submit questions during the live session in the chat function that you see on your screen. We of course always welcome offline questions sent by email to the above email address, which is lindatybring@tobiidynavox.com. All right. Before we dive deeper into the Q4 of 2022, I'd like to make a short summary about what Tobii Dynavox is about. This may be a repetition for some, but still fundamental to really understand the company.
First and foremost, and most importantly, it's to reiterate our mission. Our vision for the company, which I know is very dear, not only to the roughly 600 employees of Tobii Dynavox, but also to our ecosystems of partners and investors. Our vision is a world where everyone can communicate, and 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. If we start with, do what you once did, that may refer to the person who led a normal life until a diagnosis such as ALS, which rendered her unable to control the body or communicate like before.
The other story, the never thought possible, can refer to the child diagnosed at an early age with a condition such as autism or 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 is a great example of exactly that. The market we serve 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, about two million people are being diagnosed, yet only about 2% of those are actually being helped. The rest remain silent.
The main reasons for this spells lack of awareness, also among the professionals and the prescribers tasked to assist these users, combined with poor healthcare reimbursement systems. We operate with a global footprint, today some Q3 of our business stems out of the U.S., and that is largely because of a reasonably well-functioning funding system in the U.S., established some 20-30 years ago. Our products are, however, sold in some 65 markets around the world, our staff is distributed in a similar way as our revenue. That means some 70% of our staff are based in North America, with our U.S. headquarters in Pittsburgh, Pennsylvania. Our second largest office is here in Stockholm, we also have branch offices in several European countries, as well as Suzhou in China.
By the end of 2022, we employed a total of 575 full-time equivalents. With the recent acquisitions, we now also have established or increased our presence specifically in Belgium, France, Ireland, and Denmark, in addition to a smaller number of remote employees in primarily Central Europe. At Tobii Dynavox, we provide a comprehensive portfolio of solutions ranging from, if we start from the top here, the content, such as the world's leading library of communication symbols, they're called PCS, but also synthetic voices. Specifically, the voices are components that we now have as an in-house resource through the 2022 acquisition of Acapela Group, which is the world's leading provider of naturally sounding and diverse synthetic voices. If we then go down, we have highly sophisticated communication software tailored towards the type of user, and that obviously can vary greatly based on needs.
Further down, we develop and design devices with cutting-edge technology and typically medically certified durability, including communication aids controlled via eye tracking. We have a services portfolio to help our users through the complexity of obtaining and getting funding for our solutions. Last but not least, we are there to help users, therapists, caregivers, et cetera, through our global teams of support resources. We operate this model globally, and it's important to know that each piece is critically important, also a significant differentiator for us, making us absolutely unique. Tobii Dynavox's go-to-market model is predominantly as prescribed aids, and some 90% of our revenue comes from public or private insurance providers. This also means that we have a very solid paying base of paying customers and have always been resilient towards changes in the overall economic climate.
In addition to that, our market is extremely under-penetrated. Now we will go back to focus on the main topic of today, obviously, the earnings report for the fourth quarter of 2022, and a summary of the full year 2022. If I would look at the highlights from the quarter, we had another solid quarter when it comes to revenue development. The revenue growth compared to the same quarter of last year sums up to +48%. That is partly boosted by foreign exchange and a strong performance by our acquisitions, the underlying organic growth was 18%. That continues the same trend that we saw both in Q2 and Q3 of 2022. We feel the strength of an up-to-date product portfolio continues improved with new products and features.
During the quarter, we have launched two key software applications that strengthens our eye-controlled flagship product, the I-Series. In early November, we launched a software called TD Browse. It's a custom-built browser for I-Series users that allow them to easily browse the internet using only their eyes. Most of us take access to web for granted, and with the launch of TD Browse, people with disabilities can become much more involved. The product has been very well received by our users. In December, we launched a TD Phone app, which enables I-Series users to control a phone using their eyes, both for making calls and sending and receiving texts. This functionality has been long awaited for among our customers. In addition to that, we continue to grow our sales and marketing organization, including further strengthening our US funding organization.
It's key to navigate each customer through the complexities of obtaining funding for their new communication aid through public or private insurance systems. Our relentless work to improve awareness and competence continue, specifically among prescribers and professionals. The value of being able to meet in person again after again, is of major significance, both internally within our teams, obviously in the company, but of course, as well with our customers. The majority of our growth continues to come from North America, which is also the largest and most influential market in our industry. However, in the fourth quarter, it's also very satisfying to see that Europe and other markets return into good growth. That is breaking the previous trend related to lingering effects from the pandemic.
Our margin continues to be negatively impacted by higher than normal component costs. We see clear improvements when it comes to component prices, which will help us in the longer term. We have mitigated high freight costs and high freight rates by increasing the share of products transported by boat. We currently have adequate stock levels of all our main product lines. Our OPEX levels are higher than a year ago. This must be seen in the light that previous year's lockdowns, et cetera, the split to become a stand-alone company and significant investments in our staff. We see that the OPEX levels will plateau from this level going forward. If we instead look at the full year of 2022, we can conclude that it was a solid year regarding our top line growth.
The organic growth ended up at 16%, and the total revenue growth was an exceptional 40% then, in addition to that, boosted by FX and acquisitions. The fundamental factor behind this is again, the hugely underserved potential in the market that we serve, but also our attractive customer offering, which we continue to strengthen through significant product launches. that was also a key driver for sales as well as acquisitions. Additionally, our strong market position and infrastructure in the US, combined with significant investments within sales and marketing, laid the ground for our growth. In 2022, we dedicated considerable efforts on putting the structure and procedures in place that are required as an independent publicly listed company. We're now entering a phase where we dedicate even greater focus on our business as well as our users.
Before we dive deeper into the financials, I'd like to paint a little bit bigger picture on the growth of North America. Why is our North American market performance so strong? Well, the good news here is that it's not a single contributing factor. It's a summary of series of positive trends. First of all, the pandemic did hamper the ability for some of our user groups to meet with professionals and be evaluated for communication aid. With the pandemic behind us, the pent-up demand does render some growth and is now starting to be served. We have invested, as mentioned, significantly in our infrastructure and our team related to sales, and this is now starting to pay off. We added 40 people to our to our sales and funding team in 2022 alone.
We developed and perfected our training efforts, we have training more prescribers and received even higher customer satisfaction. In the U.S. alone, some 60,000 professionals participated in our training efforts in 2022. The funding infrastructure continues to gradually improve. The pandemic actually had some positive effects, as it removed some previous hinders, such as mandatory face-to-face meetings and some paper-based prescription processes. Lastly, Tobii Dynavox product portfolio development was never actually halted during the pandemic. We have now a very attractive and up-to-date offering finding its way to new and existing customers. If I look ahead a little bit, we will continue to invest in our sales and marketing efforts. The market is still largely unpenetrated, even in our best performing markets. Some of the product releases are quite recent, we expect further market uptake going forward.
Example being the newly released software, as I mentioned, TD Browse for internet browsing, and TD Phone for making calls, and sending and receiving texts. For users with ALS, which is a reasonably large user group of ours, the recent advancement in research has rendered a few treatments which slows down the progression of this disease. This leads to that people diagnosed with ALS to live longer, and hence have longer and more benefit of our products. In the US, the US federal insurance provider, Medicare, which represents some 20% of our US sales, but they're also the entity that sets the reimbursement levels for other US insurance providers, they increased their 2023 reimbursement level by just over 9%.
This will be gradually implemented across all providers during 2023, and will of course then strengthen both our revenue and our gross margin. We believe that the pent-up demand effects from the pandemic will continue boosting our sales for the foreseeable future. With that said, I would like to hand over to Linda to cover the financials.
Thank you, Fredrik. Okay.
There we go.
There we go. Okay. Our revenue for the quarter came in at SEK 362 million, 48% year-on-year growth. Currency impacted positively with 20%. M&A contributed with 9%, and the organic growth was a solid 80%, continuing the trend from second and third quarter. North America continued to show strong growth and momentum. Europe and the rest of the world returned to good growth, as Fredrik talked about earlier. The gross margin ended up at 65%, still impacted by high component charges. Component prices have now normalized, but we have high inventory level, as we have talked about earlier quarters. This will improve our gross margin gradually during the coming quarters. The price levels of freights are still high, but we have increased the share of shipping transports, hence keeping costs down.
The price increase that Fredrik mentioned regarding Medicare has, that will help our gross margin improve during 2023. We have only a limited impact from FX movements on our EBIT. Around 80% of our revenue is in US dollars, we have almost the same percentage of cost in US dollars. This will have fluctuation on the revenue, FX movements, and some short-term timing effects both on our gross margin and EBIT. EBIT for the quarter was 25 million SEK, or 6.8%, versus 5.4% last year. Our OPEX increased organically with 12% versus last year. The comparative period last year had lower costs due to low level of activity due to the pandemic, with lower costs related to travel events. The cost development in the quarter came in at a more normalized level after the pandemic.
We have traveled more. We have had lot of meetings with our staff, for example. We increased OPEX also related to higher salaries, but also hiring more people, primarily in sales and marketing organization, and with the central functions as a consequence of the transition to an independent company. The net effect of R&D spend increased with SEK 15 million, mainly driven by normalized development of cost, but also had an increased depreciation related to major product launches during the last 12 months. If we talk about the full year 2022 financials, revenue for the year came in just above SEK 1.2 billion, a 40% year-on-year growth. Currency impacted positively with 18%. Acquisitions contributed to 6%, still a very strong organic growth with 16%.
North America showed strong growth, while Europe was hampered by some lingering effects from the pandemic during large part of last year. The trend was, however, broken during the fourth quarter. We should have in mind that the beginning of 2022 was lockdowns related to the Omicron variant of COVID across the global. The gross margin ended up at 65%, negatively impacted by higher than normal components and freight costs. If adjusted for this more temporary cost, the underlying gross margin ended up at close to 67%. The EBIT for 2022 was 82 million SEK, or 6.8%, versus 6.9% last year. Our OPEX increased organically with 14% versus prior year. The previous year had lower costs due to a low level of activity related to the pandemic, and cost development in 2022 came in at a more normalized level after the pandemic.
As we have also said in the quarter, the increased OPEX relates mainly hiring more people, primarily in sales and marketing organization, and within central function as a consequence of the transition of us being an independent company. Net effect of R&D spend increased with SEK 36 million, mainly driven by normalized development cost and increased depreciation. As you understand, we are very happy with our growth. We still have some improvements to make when it comes to our EBIT. We remain confident that we will reach our 15% EBIT target. As mentioned earlier, reaching our EBIT target will come gradually, and the basic three main drivers are, first of all, continue to grow our revenue, have a more normalized gross margin, and normalized component cost and freight, and then gradually, we will improve gross margin related to the price increase, specifically in North America.
Of course, our OPEX then grows slower pace than our sales. Talking about the balance sheet and the cash flow. Cash flow after continuous investments was positive with SEK 41 million in the quarter. The positive effect of working capital in the quarter is mainly driven by the reduced inventories, although they're still quite high as we strive to secure timely and on-time deliveries to our customers. Cash at hand was SEK 107 million. Net debt was SEK 522 million, and net debt over last 12 months EBITDA was 2.5 times in absolute terms. In the beginning of the quarter, we signed a new refinance agreement with Swedbank with the same facility levels as earlier of SEK 700 million.
We're very proud to say that this loan is classified as a social loan by the bank, confirming that we truly contribute to a better society through being the S in ESG. We are amortized by 34 million SEK in the quarter, and the total used credit facility at the end of the year was 573 million SEK. Fredrik, back to you, and conclude the quarter.
Thanks, Linda. Before opening up for questions, I'd like to reiterate the main takeaways from the Q4 of 2022. Firstly, we again saw very strong organic growth of 18% with strong performance across the board. Similar to the previous quarters, North America continues to show solid growth, but Europe and other countries reversed the trend from previous quarters and now also return to good growth. Our margins were still affected by high component and freight charges, but the component prices have come down, and this will boost our earnings coming quarters. The strong US dollar has a limited impact on our bottom line earnings, since also a large portion of our revenue are in US dollars, but it does impact our top-line sales. We're happy with still another record quarter for the revenue, well above our long-term growth target of 10% per year.
At the same time, we still have work to do before we reach our 15% EBIT margin target. That target, however, is both realistic and remains intact. In the U.S., Medicare has announced that it's increasing the reimbursement rate for our products for 2023 by just over 9%. Medicare accounts for some 25% of our sales in the U.S. and also sets the standard for the reimbursement rates for the rest of the insurance companies in the country. The new level will be gradually phased in during 2023, and this, combined with the likelihood of decreased component prices and shipping costs in the near future, makes us optimistic about the profitability trend going forward. Just to reiterate our long-term financial targets, over time, we aim to maintain an annual growth on excess of 10% adjusted for currencies.
We want to reach and maintain an EBIT margin of 15% or more. We want to maintain a net debt ratio over the last 12 months EBITDA of 2-3x. The outcome in 2022 was right in the middle of that range at 2.5. Once we have landed in our recent splits from Tobii and consolidated our balance sheet somewhat, we will distribute a dividend, provided other more compelling alternatives, such as acquisitions, do not take preference, and our long-term financial targets are roughly on a two-year time horizon. With that said, we're handing over the microphone to Christian Hall and joining us here in the studio, who will take questions from the audience.
Okay. Thank you.
Hi, Christian.
Thank you. We have a couple of questions here. We start with Jonberg again, Kepler Cheuvreux. Profit was impacted by certain one-time costs during the quarter for a total of approximately SEK 7 million. Can you elaborate on what these costs were?
There were some costs related to our gross margin, impacted from.
One-time licenses.
Yeah, one-time licenses. That's good. Sorry. We won't see that coming quarters.
Okay. A, a connected question to that from Michaela Sen regarding the, you had some other costs as well during the quarter, more of a transitory effect. Could you say what they were? When do you expect them to be more normalized?
I assume you relate to the more temporary component cost. That will probably take another quarter until we actually will see less of those. Because of the impact, the timing effect that we have, since we have so high inventory levels, it will take some times until we have distributed those costs out of our inventories.
There are some effects which are, yeah, in a way, more operational in nature, but still abnormally high. The reason for that is quite simple. We have been operating now for a couple of years with a largely locked down organization. In the fourth quarter, we had finally the opportunity to gather our staff in staff meetings, et cetera. We had also a pent-up demand in customer meetings, trade shows, et cetera. That was on an artificially high level to kind of almost compensate for previous couple of years with lockdowns. As I mentioned before, we see that OpEx level will plateau. We will not see the same type of OpEx hike going forward.
Okay, Oscar Enquist had a question connected to that, what you said last there as well, that how we should view OpEx levels going forward. Should we seek Q4 R&D and admin levels as reasonable run rates? Let's say some marketing expenses should keep rising alongside the potential top-line growth.
What we have said is that sales and marketing will continue to grow related to our revenue growth, but we are now at a more normalized level when it comes to our administration and our investment.
Okay. How should we think about the margin impact from Medicare's price increases? This is a question from Miguel Lasen at Carnegie. How will the price increase impact cost of goods sold and operating OPEX during 2023?
Since Medicare is 25% of our revenue.
In the U.S.
... in the U.S., sorry, and all the both public and private insurance company in the U.S. will follow their directives. That will take some time because we need to renegotiate some of this contract during the period. It's an indication that we're able to increase prices even for them. This will probably take between six-nine months until we are starting to see full effect of this.
There is, on the other hand, as I think the question alluded, there's no OPEX increase related.
No
to that. Once those price increases have been fully operationalized, that obviously will have a positive impact both on our top line as well as our gross margin.
Yes.
Another question from Miguel as well, Miguel Lasen. Your target of growth, your target growth sale is about 10% and reaching at least 15% EBIT margin in a couple of years suggests that OPEX must be quite stable from the current run rate. Is this a correct assumption, or do you see a need to strengthen the organization further to drive growth and capitalize on the AAC markets?
We believe that, as we alluded to, that we will continue to invest in, first and foremost, our sales organization. This is still a largely under-penetrated market, and we believe that more effort on increasing people, you know, feet on the ground, more evaluations meetings, is something which is good for business and obviously great for our users as well. The spend on R&D, the spend on administration and back end functions, more or less as you say, Miguel, is plateauing from these levels, obviously adjusted for KPIs and, you know, salary increases. We believe that we have the right sized organization right now to continue the growth.
Okay. A question regarding the growth prospects for 2023. How do you view the growth prospects in North America and the rest of the world, including Europe of course? Are the prospects roughly the same, or will North America continue to outgrow the rest?
Well, first of all, we had a very, very strong 2022, so the comparison numbers will be tougher to beat. We hopefully won't have another pandemic hampering our ability to do business, et cetera. With that said, we are also quite confident that the need for our product remains the same. We don't believe that if there ever was a pent-up demand effect in our current sales, that has by no means started to flatten out. We're confident about where we go, but we won't kind of allude more into exactly how many % growth, et cetera, that we believe going forward. We do stand by our long-term financial targets, which obviously says that we want to grow revenue in excess of 10%.
A follow-up on the Medicare subject. When do you expect the full impact from the Medicare-related price increases, and how significant will the impact be in the first half of this year?
I think, Linda, you alluded. During the second half of the year, that's when we will see the full impact. I would say that it's probably a quite linear implementation of those price increases between now and then.
Okay. I'll just check if we have any further questions. No, I think that was actually the last question. Great.
Good. Thank you.
Thank you everyone for dialing into this earnings call. As many people know, don't hesitate to reach out to us. We'll be happy to answer questions and straighten out any question marks. If not before, we will see each other in three months from now. Thank you.
Thank you.