All right, good morning, everyone. Welcome to this earnings call, where we will cover the first quarter 2023, summarizing our business in January, February, and March of this year. I'm gonna click to the next slide. I'm Fredrik Ruben. I am the CEO of Tobii Dynavox.
I'm Linda Tybring, the CFO of Tobii Dynavox.
Like I said, we will cover the first quarter of 2023. First, we will take you some brief fundamentals about the company. We will summarize the main takeaways from the quarter, and then we will dive a little bit deeper into the financials, and thereafter, there will be a Q&A session. You can submit questions live in this session in the chat function in Teams. We of course always welcome offline questions, you can direct them to in Linda's email that you see here on the screen. All right. As I said, before we dive deeper into the first quarter of 2023, I'd like to make a short summary about what Tobii Dynavox is about. This may be repetition for some, but it's still fundamental to really understand the company and our business.
First and foremost, in... very important for us to reiterate our mission and vision, which I know is very dear, not only to our roughly 600 colleagues around the world, 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." In this story, you basically have two of our main user stories embedded. The first one is, 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 the body or communicate like before.
The other story is the never thought possible, and that can refer to the child diagnosed at an early age with a condition such as autism, cerebral palsy, or like, where thanks to our solutions, she can do much more than the world around her ever thought possible. We have on the picture here to the right, Delaina Parrish from Florida. She was born with cerebral palsy, and she is a great example of exactly that. If we look at the market that we served, it's hugely underserved. 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, yet it's estimated that only 2% of those are actually being helped. The rest remain silent.
The main reason for this spells lack of awareness, also among the professionals and the prescribers tasked to assist these users, and in combination with typically a poor healthcare reimbursement system. We operate with a global footprint. Today, some three-quarters of our business stems out of the U.S., and largely because of a reasonably well-functioning funding system established some 20, 30 years ago. Our products are, however, also sold and available in some 65 markets around the world. Our staff is distributed in a similar way as our revenue, so 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 our headquarter here in Stockholm. We have branch offices in several European countries as well as in Suzhou in China.
As of today, again, we are some 600 employees in total. With the recent acquisitions, we are now also have established or increased our presence specifically in Belgium, in France, in Ireland, and in Denmark, in addition to a smaller number of remote employees, primarily in Central Europe. Tobii Dynavox provides a comprehensive portfolio of solutions, that ranges, as you can see on the list on this picture, if we start from the top, the content, such as the world-leading library of communication symbols, they're called PCS, and synthetic voices. Specifically, the voices is a component that we now have in-house through the acquisition, which we closed last year, of Acapela Group. It's the world's leading provider of naturally sounding and diverse synthetic voices.
If we then go down, we have highly sophisticated communication software, which is tailored to the type of user, and that can, of course, vary greatly based on the needs. If we then further go down, we develop and design devices and hardware with cutting-edge technology that is typically medically certified and is very, very durable, and that includes the communication aids that you controlled using eye tracking. We have services, a services portfolio to help our users through the complexity of obtaining and getting funding for a device. Last but not least, we are there to help our users, the therapists, the caregivers, through a global team of support resources.
Like I said, we operate this model globally, and it's important to note that each piece of this, each layer here is critically important and also significant differentiator for us, making us absolutely unique as a company. Our go-to-market model is predominantly as prescribed aids. Some 90% of our revenue stems out of public or private insurance provider, and this also means that we have solid paying customers, and we have always historically and still been very resilient towards changes in the overall economic climate. In addition to that, our market is, as mentioned, severely under-penetrated. Now we'll get back to the main topic of today, which is the earnings report for the first quarter of 2023. If I look at the highlights, we had another very strong quarter when it comes to revenue development.
The revenue growth compared to the same quarter last year sums up to 36%, partly boosted by foreign exchange and a strong performance by our recent acquisitions. The organic growth was 15%, which continues basically on the same trend that we saw starting in the second quarter of last year and continued throughout 2022. During the first quarter, which is seasonally our weakest quarter, we continued to report good growth across the board in different geographies and different products and across various user groups. We feel that the strength of an up-to-date product portfolio is continuously improved with new products and features. We launched several new products quite recently in the end of 2022.
We continue to grow our sales and marketing organizations, including furthering strengthening our U.S. funding organization. This is key to navigate each customer through the complexities of obtaining funding for their new communication aid through public or private insurance systems. Our work to improve awareness and competence continue, specifically among prescribers and professionals. The value of being able to meet every person again, typically face-to-face, is of major significance for us, both internally within the company, but also with our customers, obviously. The North American market, our biggest market, continues to show strong growth. This is the largest and most influential market in our industry, both for us and for everyone else.
It's also good that we continue to see the trend that the growth rates also in Europe and other countries are pretty much on the same levels. If there is one trend worth singling out, is that we now have particularly good momentum among conditions that are children or conditions that have a younger user base. A good example of that is autism, and they rely typically heavily on our simple communication solutions and, in particular, our software called TD Snap. Our OpEx levels are higher than a year ago, but this has to be seen in the light that a year ago we still had the pandemic that impacted our business, and we have made since significant investments in our staff, again, mainly within sales and marketing.
Going forward, comparisons will be easier since the impact on OpEx created by the pandemic kind of faded out a year ago, and since then, it's been more or less business as usual. We closed three acquisitions during 2022, and it's also very encouraging to see that all of them are developing very well, both commercially as well as operationally and integration-wise. The largest acquisition that we did was Acapela Group that I mentioned before. They have headquarters in Belgium. They have rendered significant momentum and attention to its world-leading synthetic voice portfolio.
Not only the significant catalog of high-quality synthetic voices in many languages and variants, but also the solution called My Own Voice, which enables people with only a few small voice recordings to create a naturally sounding synthetic voice that they can do on their own based on their own voice, which can then, at a later stage, perhaps be used on a communication device. This was among much picked up by the news outlet Voice of America in an interview with one of our users, his aide, and with the Acapela Group CEO, Rémi Cadic. I would like to play a little video to, for you to see that interview, which hopefully gives you a good flavor.
It's amazing. I love it. When Bradley Heaven talks, it sounds like this. Kind of. Ha ha. Heaven has cerebral palsy and is non-verbal. He uses an eye-tracking device to communicate his thoughts. Until recently, the digital voice that spoke for him sounded pretty digital. A company called Acapela Group has come up with a way to turn his voice from this... It's really cool and unique ... into this.
It's really cool.
The Belgium-based company creates personalized digital voices for those experiencing speech impairment or voice loss. For those affected, it's a more human way to express themselves.
The key point here is the identity of the person. We want to help the person to be himself or herself in the daily life.
Acapela Group's My Own Voice is a voice banking service that allows a customer to bank or save their voice for future use. Users record themselves reading 50 different sentences, or if they can't speak, enlist a friend or family member to be their voice. The technology uses algorithms and artificial intelligence.
That's just based on 50 synthesis then we can create a new synthetic voice.
The resulting synthetic voice is more personalized and can be used with various assistive devices. Daniel O'Connor, Heaven's aide, friend, and business partner, recorded his voice for Heaven to use. He says the process was easy
The first thing Brad said to me is, "Hey, let's order some coffee, and don't worry, it's my treat." He used my voice to say that
Experts say this technology could be meaningful for users.
There are individuals whose speech is beginning to change, and by their own admission, it may not be the way they used to sound, but to them, it is who they are.
Banking a voice to strengthen one's sense of identity. Tina Trinh, VOA News, Las Vegas
Great. With that, it's time for us to go over to cover the financials in more detail. Linda
Thank you, Fredrik. That video was great. It's. I know I'm not objective. That's pretty cool. Q1 financials. Revenue for the quarter came in at SEK 335 million , at 36% year-on-year growth. Currency impacted positively with 11%. M&A contributed with 9%. The organic growth was a solid 15%. We continue the trend from previous four quarters. The underlying growth, mainly adjusted for certain positive effects of delivery and logistics delay during comparative quarter, was approximately 19%. North America continues to show strong growth. We continue to see the growth in Europe and rest of the world as we started to see during Q4 2022. The gross margin ended up at 36%.
66%.
Sorry.
Sorry.
66%. That would be bad. The main factors behind the improvement of over 2 percentage points were scale effects due to increased sales, no surcharges on components, and lower shipping costs. The price increase that Medicare indicated in December didn't impact materially. As we mentioned earlier, this will gradually improve our gross margin over the coming quarters. We have only a limited impact from FX movement on EBIT, but around 80% of our revenue is in U.S. dollars, and we have almost the same percentage on cost in U.S. dollars. We will have fluctuations on revenue from FX movement and some short-term timing effects on gross margin and EBIT. EBIT for the quarter was SEK 21 million SEK, or 6.3%, versus 7% last year. Our OpEx increased organically with 14% versus prior year.
The comparative period last year had lower costs due to lower level of activity due to the pandemic, with lower costs related to travel and events. Hopefully that is now an end. Increased OpEx also relates to salary increases and hiring more people, primarily in sales and marketing organization. Net effect of R&D spend increased with SEK 11 million, mainly driven by normalized development costs. We also have increased depreciation relating to major product launches during the last 12 to 18 months. Cash flow after continuous investments was positive, SEK 17 million. Cash at hand was SEK 99 million. Net debt was SEK 505 million. Net debt over last 12 months EBITA was 2.3x in absolute terms, in line with our financial targets.
We have amortized our credit facility with SEK 19 million in the quarter, and the total used credit facility at the end of the quarter was SEK 553 million. Back to you, Fredrik.
Great. Thank you, Linda. Before we open up for questions, I'd like to reiterate some of the main takeaways from the first quarter of 2023. We continue our record strong growth, a trend again that was started already in the second quarter of 2022 and has continued throughout the year. In absolute terms, we grew our revenue by 36%. If we adjust for currencies, our growth was 25%. Again, if we, in addition to that, adjust for the made acquisitions, the organic growth was 15%. We see revenue growth across all geographies and all product segments, and we in particular, among the younger demographics of our users with conditions such as autism that rely on symbol communication, the growth was in particular strong. The acquired companies contribute well, and they continue to develop favorably.
We now see no impact from the pandemic, neither negative nor positive. The company's gross margin and OpEx levels are now largely normalized. We reiterate our long-term financial goals, which reads, "To over time maintain an annual growth, adjusted for currencies, in excess of 10%." This is quite obviously a target that we currently overshoot. We also want to reach and maintain an EBIT margin of 15% or more, and here we still have some more ground to cover. With continued growth, strong gross margin, and OpEx levels that are now normalized, we remain confident that we will reach this.
We want to maintain a net debt ratio over the last 12 months, EBITA of between 2x and 3 x, and the outcome in the quarter was in the lower half of that range at 2.3x. Once we have referred to as landed in our split from Tobii and we have consolidated our balance sheet somewhat, we will distribute dividend to our shareholders provided other more compelling alternatives such as acquisitions, for example, don't take preference. For reference, these targets are expressed with roughly a time horizon of two years. That's all we had from a presentation perspective. We're now handing over and welcoming Christian Hall to us here in the room to take questions from the audience. Hi, Christian.
Hi. Hi. We have a couple of questions here to start with. We start with Daniel Djurberg at Handelsbanken. He says, "Good morning. You give a positive picture on the uptake of better awareness and the reimbursement systems in Europe. Can you give some more insight and examples on this?
Yes. Hi, Daniel. Yes. If we start with the awareness part, we have a quite interesting time behind us where the big issue, as mentioned, is that the lack of awareness is, of course, high among the general public, but even was also among the prescribers. They are speech-language pathologists, occupational therapists, et cetera. These are the professionals that work with our products. During the two some years where we had the pandemic, they of course, have been largely hindered to meet with their clients and users. Instead, we, and many with us have focused a lot on educating this. We've had webinars, a lot of training has happened online.
I think it's fair to say that after the pandemic, a lot of these professionals, they come back into the field with a much better competence level, knowledge, et cetera. I think it's starting to pay off really the relentless efforts about educating also the prescribers about this. There was a second part of Daniel's questions which relates to the reimbursement systems, et cetera. Here we rarely see dramatic changes where it kind of goes from bad to good, et cetera. It's typically incremental improvements where certain conditions are getting a better reimbursement level. I would say one condition that has been in the spotlight for quite some time now is ALS, where we have seen significant improvements specifically in the U.S. over the past years.
Now we see that the reimbursement systems are not only having better reimbursement levels, but they are also faster. These conditions have a fast progression at times, hence getting funding and reimbursement and getting our products faster is equally important as getting it in the first place. France is a good example there. We have seen incremental improvements, but there are no major kind of game changers in any particular market in this quarter, but that's also rarely the case.
Okay. Daniel asks, he says, "Some 4 SEK million in negative net between capitalization and amortization or development costs in the quarter. Should we expect a similar level going forward or net closer to zero?"
Linda?
Yes. I mean, the net effect of R&D development is actually SEK 11 million in the quarter. Of course, the depreciation in capitalization can differ from quarter to quarter. It depends a little bit when we launch products, for example. We will over time, this will most likely balance depending on the life cycle of our product.
Yeah. over time, think about it as zero, but in individual quarters, we might have quite significant differences such as in this quarter.
Yeah.
Yeah.
Another question from Daniel: Looking at the number of FTEs totaling 582, how many of the uptake, year-on-year came from acquisitions?
Those are some 60-ish.
Yeah. Yeah.
How do you—
Slightly, slightly less.
Yes.
Yeah.
Yeah.
He continues, "how to think about the number of employees going forward in 2023? What kind of average salary increase should we pencil in from the Q2 to Q4?"
I mean, over time, what we have said is that we need to continue to increase sales and marketing to be able to grow. We will add people there. When it comes to salary, we think that the, like a lot of other markets, it's between 3% and 4% salary increases is what we are assuming.
I think it's, it could be added to that we've had, we've grown quite a lot over the past, you know, 12 to 24 months. When we add new staff, obviously, kind of the inflation and salary increases, they happen naturally because we hire a new person. Some of these, inflation-related salary increases is actually already behind us. Then to Linda's point, somewhere around 4% on average across the team. That's roughly where we see it. No dramatic changes.
The final question from Daniel regarding Acapela: The profitability contribution during the quarter and the performance versus initial ambitions. How about earn-outs in the 2023, 2024 time frame? That's the question.
There are no earn-outs related, to, the financial execution or any earn-out, by the way, for that, deal. The good performance that we see is gonna be unaffected.
It's performing according to expectations.
Very much so, yes.
Okay, a question from Mats Hyttinge at Redeye: Expand on the underlying factors behind the improved gross margin.
I mean, as we have talked about almost during the whole, all quarters in 2022, we've been hit by a lot of extra charges that we need to, but when we made sure to have high levels of inventory to distribute to our customers, we needed to buy some of those components really at a high price. We see that we are starting to get new inventory into our office and are able to ship to a lower or more normalized cost. That is a big effect. We are also starting to see that we are able to ship a lot of our products on boat rather than putting it on express all the time. There's also some component of scale effect. That's what we see in this quarter.
Like I mentioned, the effects from the pandemic, some of them, you know, negative, some of them positive are largely behind us. This is a very normalized quarter that we have behind us right now.
We have a question from an anonymous asker: How much of revenue growth in North America was related to price increases versus volume?
Hardly none. That, we haven't seen that effect yet. That will, as I said earlier in the call, it will gradually come over the coming quarters.
Okay. Now I see it was Jon Berggren at Kepler Cheuvreux who asked that question. Then a question from Mikael Lassen at Carnegie: How much was sales in Q1 affected by Medicare's reimbursements increase of about 9% on you?
Yeah, I said that.
Yeah. How has the reimbursement increase so far spread to other insurers and organizations in the U.S.? He also asked: Why do other countries' sales decline year- on- year to $14 million?
If we start with the other insurance in the U.S., it will automatically be that Medicare is the lead indicator if you look at it like that. The other insurance company will follow. We need to do a process with, you know, adding an appendix to our contract to increase those prices. That will take some time, some administration time, but they will follow.
We have that. This is a process that we do every year.
Yeah.
There is nothing unusual in 2023 on this. It's a process, hence we feel very confident that again, like Linda said, throughout the coming few quarters, we will have 100% kind of pull through on that. That, at some time during the second half of the years, we will operate across the board, across all insurance providers at these increased levels.
Yeah.
He also asked, other countries, the sales decline, how should we think about the outlook for this region?
That one I actually need to think about that.
I'm, yeah.
Yeah. I need to investigate that and I can get back to him.
Yeah.
Mm.
He also asked about the Acapela, the company's revenue model, if you can talk about that, and key customers, sales drivers, and operating margins.
Sure. I can talk about that. Acapela, again, their core business are synthetic voices. 50% of their business relates to communication aids and assistive technology, hence one of the clients, if you say, is Tobii Dynavox, but also our industry peers. 50% of their client base are in other verticals. That could be in public transportation, you know, the voice that tells the next station or information to passengers in the local language, et cetera. It could be the voice that you have in the artificial intelligence interface in your car. It could be the voice that responds to you when you're in communication with the call centers, et cetera. The business model, first of all, it's a license slash software type of business model. There are no physical goods, et cetera.
A large portion of the business is on a recurring business model. Either transactional, you know, based on use, or it's a subscription type of model. It's the majority of the business. There are some one-off deals made for localization or specific adaptations. There are also some grants, et cetera, that come in from time to time. Largely, it's a licensed business model and to a large degree on a recurring model.
Okay, we have a question from Jukka Järvelä from Mandatum: Could you be more specific about the effect of new product launches on top line?
We operate in an industry where new product launches very rarely have any type of immediate effect. Our products are prescribed. It's not like there is a, you know, a launch, and we have a queue of customers standing at an outlet, et cetera. New products always have a very, very gradual impact on our sales. In fact, there have even historically been that it's been negative because it's taken some time for prescribers to get their head around, what does this mean, and kind of almost puts a pause on the market. The types of products that we have done in the past year has largely been software titles, which typically removes this risk of, you know, having some negative impact on a product launch, but rather just simply makes the product portfolio better.
When Tobii Dynavox launches a product, it's always the effect could be delayed, you know, by a year or such before tenders have picked it up before prescribers are kind of familiar with them, and, you know, we see prescriptions starting for that kind of product. It's, product launches is a non-event for us when it comes to top line impact in the short run.
We have a couple of questions from Oscar at ABG. Good morning. Sorry if you need to repeat yourself as I came in a bit late. Can you talk about the gross margin run rate on current component prices and freight rates? Do you expect R&D and admin to be stable now?
Yeah. Let's summarize the gross margin. The gross margin effect that we see in the quarter is mainly driven by that we don't have the extra surcharges on components. We have shipped much more things with boat, and we see some scale effect. We see that this is a much normalized level. When it comes to R&D level, we still see that R&D will, in comparison to revenue, come down, but we still need to hire some more people. We have had challenge over the past year to find staff there. Administration should be on the level where we see. Now we're starting to see some of the scale effects that we have had in conjunction with the separation from Tobii.
We have a final question, and as it looks right now, the final question from Oscar: How large share of the volumes have you raised prices on?
Oh, it's a great question, Oscar.
I would say the majority of our products.
Yes. We have raised the prices on pretty much every product in every region. The effect, so the actual invoices that go out has not happened, largely in the U.S., which is our biggest market. That's still to come. There are no product segments, et cetera, that are exempt from the price increases, either stipulated by Medicare or when we have ourselves, increase the prices. It's across the line.
Yeah. You can also add, like for example, in Europe, we have tenders, and those will take time until we're able to update some of them.
Yeah. Correct. Yeah. There's some delay but again, we have increased pricing across the board, basically.
That concludes all the questions.
Okay. Good.
Great.
Great questions. Thank you.
Absolutely. Love to see the interest. As always, and mentioned before, don't hesitate to reach out to any one of us if you need further clarifications. Otherwise, we conclude this webcast right now and wish everybody a great remainder of the day. Thank you.
Thank you.