Afternoon. This is the Chorus Call Conference Operator. Welcome. Thank you for joining the Medacta Full Year 2022 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Francesco Siccardi, CEO of Medacta. Please go ahead, sir.
Good morning. Good afternoon, everybody. Welcome to full year 2022 financial results for Medacta. I'm here today with our CFO, Corrado Farsetta, and we will go over the details of last year results. If we go on the key financial figures, we have already reported our revenues, which hit EUR 437.1 million, with a constant currency growth of 15% and over 20% reported. This is close to 37% growth in constant currency compared to the pandemic 2019 levels. In terms of Adjusted EBITDA, we did surpass EUR 120 million, 27.6% Adjusted EBITDA margin.
The board of director will propose a distribution of CHF 0.546 per share to the AGM later in April. I commented on the next slide already on the revenues and on the EBITDA. The profit for the year was equal to EUR 46.2 million or 10.6% on revenues. We had an adjusted free cash flow of EUR 21.6 million. In terms of revenues, it is important, and we wanted to repeat here the different geographic mix that we experienced in 2022. This will have a consequence on our PNL later in Corrado's comments. Europe did perform extremely well with a top line growth of over 17%, 17.6%.
North America was up 11.5%, and Asia Pacific 11.2%. Both of those regions were impacted, especially Australia in the APAC segment, by COVID, throughout 2022, until the last months of last year, with a strong re-acceleration only in the last couple of months. While the US market was negatively impacted by many staffing issues at the beginning of 2022. The rest of the world, our main distributor market grew significantly as well over 38.7%. You see the effect on our top line revenues.
In terms of product line, we have seen a very strong growth across all our business line, with a particular spike on knees associated with our kinematic alignment offering and our very unique ball and socket design, the GMK Sphere, which helped to grow the line by over 18% in constant currency.
Hips was very strong at 9.2%. Extremities are close to 39%, and spine over 19% in constant currency. Before giving to Corrado the presentation, I would like just to underline once again the total company growth in 2022 compared to 2019 was close to 37% in constant currency.
This is again, for us, very important, when compared to the market, which is barely in line with 2019 numbers, a few percentages point up compared to the pre-pandemic level. Corrado, please if we can take over to go through the PNL.
Thank you, Francesco. Let's now have a look at our performance from a financial standpoint. I will start from the gross profit. As we said, the evolution in 2022 of the gross profit is primarily attributable to 2 main effects, which are geographic mix growth, which is half of this total effect, and price erosion.
As to the geographic mix, we say the accelerating growth in Europe and the below average performance in APAC and USA. As to selling price, I would like to mention the price cuts that have been applied in Japan and Australia.
On the positive side, in the GP line, I would say that the excellence in manufacturing along with the strong control of our supply chain allowed to improve the overall industrial efficiency while keeping up with the growth, which is a challenge, given the size of the growth. Moving down to fixed cost lines, they were 54.1% of our revenue.
Let me just point out a couple of effects. The first one is a negative translation effect on fixed costs, which is around 0.5% negative. The second effect in this line is the inflation on transport costs and travels for another half percentage point.
Net from these effects that are totaling roughly 1%, OpEx as a percentage of revenue were lower than last year by 0.5%. This is the result of an overall leverage of our fixed costs, mainly driven by the additional revenue generated in the year. Just a couple of more detailed comments on our fixed cost lines.
Research and development line, you see there is an increase. This is primarily coming from the strong acceleration that we had in research and development closing projects in 2021 that we had to do in order to meet the MDR regulations deadlines. These have generated an increase, an incremental level of depreciation in 2022.
Sales and marketing, since our key focus is and remains growth, the sales and marketing co-costs grew in line with revenue as a result of the important expansion of our direct sales force all around the world. I would say, a almost full recovery of sales and marketing activities and events in presence.
As a result of what we just said, the EBITDA adjusted was 27.6%, equal to 28.1% at cost and currency, given the 0.6% of negative translation effect in our balance sheet in 2022. Moving down, we see the adjusted EBIT was around EUR 69 million. Moving down on financial results, I would like to mention the effect of the unrealized losses on our accounts receivable in US dollar.
They are, again, accounts receivable in US dollar intercompany between Medacta, the headquarters and Medacta USA. Given the evolution of the US dollar, we had an extraordinary amount of roughly $3.4 million in 2022, which was not there in 2021, and this explains almost entirely the increase.
The rest of the financial costs are in line with previous year. I would like also to comment now the income tax line, where in 2022, we have seen that now we are back to roughly 15.5% as effective tax rate, which is in line with the long-term tax rate, while we benefited in 2021 from extraordinary one-off effects that reduced the tax in 2021.
If we have a look at our profit for the year for 2022, which was EUR 46.2 million, I think that we should normalize in order to have a correct understanding of this number. I think that we have to reduce the 2021 to EUR 47 million to normalize from the extraordinary positive effect on tax that we had last year for roughly EUR 4.4 million.
I would increase the 2022 to EUR 49.5 million in order to eliminate the FX effect on our financial results. Net from those effects, the EBIT, let's say the profit for the year would be EUR 47 last year, EUR 49.5 this year. We are moving down to the investments chart.
We are very efficient and disciplined in managing our investments, 15% of growth requires a big effort in terms of new instruments and new areas to accommodate increasing productive capacity.
Now you see in this number, in 2022, we had EUR 45 million of new instruments put in the market to feed new customers and EUR 12 million of additional machines for expansion of our production capacity and the acquisition of the land in Castel San Pietro in order to accommodate the future needs of space for production and logistics. The total investments in 2022 was EUR 65 million. The positive free cash flow, despite this very high level of investment, was equal to EUR 84 million.
That should be adjusted by some, let's say, abnormal expense, say, cash payments that are not referring to 2022, in particular the acquisition of the land and the payment of legal assessment coming from the past. Net from this adjustment, the adjusted free cash flow would be roughly EUR 22 million. I think that this was my last slide.
Sorry, sorry. There is another one, right? The net financial debt, you see last year was EUR 94 million. In 2022, we closed at EUR 111 million. The leverage is in line with last year result, 0.9%, despite the very high level of investments. This is my last slide, so back to you, Francesco, to comment on.
Thank you, Corrado. Yeah, we just provide an outlook for 2023. We are targeting at constant currency revenue in the range of EUR 480 million-EUR 495 million. An Adjusted EBITDA margin in line, largely in line with 2022. Of course, those numbers are subject to any unforeseen events moving forward. I would like to give back now to the operator to manage the Q&A session.
Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receivers when asking questions. Anyone who has a question may press star and one at this time. The first question is from Sandra Dietschy with Octavian. Please go ahead.
Yes, good afternoon, thank you for taking my question. The first one is back to the geographic mix. You mentioned on the performance of the high price markets, US and Australia last year, which has obviously put pressure on your margin. Can you disclose the impact this had on the margin?
Is around 100 basis points headwind from the negative geographic mix a reasonable assumption? Do you expect this to revert to a tailwind this year? I would also have a product question on the NextAR. Are you still the only one offering such a solution in the market, or have you seen any competitor also tapping into the field of AR supported surgery? My understanding is that you also sell this to customers that already have robotic. Is it at the customer side really a decision between a robotic versus AR? Thank you.
Thank you, Sandra. Corrado speaking. Back to your first question. The effect in 2022 of the geographic mix, we don't disclose the precise number, but I would say that half of the reduction you see in the GP is attributable to this change in growth mix. The assumption you made is correct.
Perfect. Thank you.
I can maybe touch on the same question on how we see the future in 2023. We expect, of course, a normalization in Australia, and we have seen this happening already in the last months of 2022, and this continued in the beginning of 2023. At the same time, we have been surprised last year by a very strong result in Europe, and we continue to see a very strong result in Europe.
We expect that the geographic mix will not go back as fast as we were expecting maybe in the middle of last year in 2023. This is not too bad because it's coming from a very strong growth that we've continued to see on the European market.
U.S. as well is expected to accelerate a little bit more. The overall geographic mix would potentially improve, but not as fast as we were expecting before last year. The second question was around the NextAR. Medacta has been the first company really launching an augmented reality platform.
We probably can say that we are still the only one that has a platform technology, which means application that are ranging from knees, shoulder and spine with of course, more application in the pipeline. We did see in the spine a couple of additional companies that either have only navigation platform. Actually, both of them have only navigation platform, and then they have association with implant manufacturers.
There we've seen a couple of small companies coming out in this field. We have seen some augmented reality platform, sorry, application in the hip, very small startups. We have seen Novus as well introducing an augmented reality knee application. I'm completely sure there will be more.
Each of those platform have different hardware, different pros and cons. It's, although it's the same space, the application is still very, very different from company to company. And the last question was about the customers. Very often there is a big, big difference in terms of-
Capital investment and as well in terms of cost per case. We have seen, both, of course, hospitals and Ambulatory Surgery Centers that go for our solution. Hospitals that already have invested in robotic application, and they seek for alternative technologies in order to continue to provide the best, or the newest possible technology and at the same time lower their cost per case.
It's not an alternative to, but, this is why I think is we are in a very good spot by offering an alternative to robotic rather than another robotic platform, because it would be unlikely that a hospital would buy two robots.
Very clear. Thank you so much.
Thank you, Sandra.
The next question is from Thando Skosana with UBS. Please go ahead.
Hi, everyone. Thando here from UBS. I've got 2 question, please. Just on the 2023 margin guidance, I wondered if you could quantify the margin headwinds and tailwinds that you expect this year, just in terms of wage inflation, inventory and the like.
Maybe if you could just comment, you know, given current effect rates, what the effects impacts would be in 2023. My second question is just around Italy. There's been some changes happening there. I just wanted to get a sense of your thoughts on what's happening there and how that's going to impact you going forward. Thank you.
Okay. Hi, Thando. This is Corrado. As to the guidance in 2023, I think it is not easy to make a precise, of course, quantification of several effects that we are already seeing in our numbers. Basically, there are positive effects coming less than expected in terms of effects from the geographic mix evolution.
There is a for sure positive effect coming from the incremental volumes of revenue, which will expand, let's say, our leverage on the existing fixed cost structure. On the other side, we are investing in growth and sales for expansion, so this will push our fixed costs up. The inflation, we are, let's say we will see, we expect to have two main areas of impact from inflation. The first one is transport, which we already had in 2022, and raw materials.
Transport are already in our numbers. We expect a slight reduction in 2023, but not a dramatic improvement compared to last year, to previous year. The cost of goods, we expect to see an increase because in 2022 we benefited from let's say a softening effect from our existing level of inventory.
In 2023, we will see on the cost, on the goods that we are going to sell in the market, the effect on the increased raw material cost. We have some project to offset this negative effect also in industrial area. We think that, at EBITDA level, we wanted to be a bit cautious because of the evolution of the situation in the world, the increase of our growth rate year-over-year. We wanted to stay in line with what we, as a guidance, with what we registered in 2022.
I can take over maybe on the Italian situation with the so-called payback initiative, which is something, let's say, very far from being clear and clarified, and it would take probably several years as there will be a lot of, let's say, appeals from companies on those, on those loans basically, and the application.
We do not expect moving forward a significant impact. We will book our revenues in the future in Italy considering already a potential request to reduce revenues in certain regions where the budget has reached the regional limitation. We did book some reserves in terms of worst case scenario, but it will probably take several years before this will be fully clarified. It is definitely something we were surprised to learn. It is a way to manage healthcare expenditure that is unique to say the least.
Great. Thank you.
The next question is from Christoph Gretler with Credit Suisse. Please go ahead.
Thank you, operator. Good afternoon, Francesco, Corrado. I have a few question, you know. You know, in particular kind of I was wondering, you know, just on the phasing this year. You know, if you could comment, you know, if we should expect, you know, somewhat stronger second half, in particular, given Australia, for example, also. Maybe if you could comment on that.
Also, you know, if I look at your guidance, you know, range, you know, if you could maybe elaborate, you know, what would be the assumption for the lower and the upper end of the range? Second question, which is with respect to CapEx, you know, if you can provide any guidance on that, you know, what you would expect, you know, this year to look like, you know, on the, you know, kind of, physical and then side and then on the instrument side. Thanks.
Yeah. In terms of phasing, it is as usual, once again, H1 last year was probably softer because of the effects we mentioned before. Definitely in terms of percentage growth, we should see a tailwind in the first half. In the second half, for the US was better.
The Australia was still struggling in the quarter three with a strong acceleration in quarter four. It is probably, hopefully one of the last year where the seasonality would be somehow abnormal if you compare it to 2022. In terms of guidance, I think we really had a cautious approach in terms of both top line and in terms of EBITDA. There are a lot of variables.
We have still several markets where the staffing issue at hospital level, especially I would say in the U.S., remain a variable that is out of our control. In the key markets, I would say this is becoming less of an issue, but in the metropolitan areas in the, in the U.S., it is something that is still affecting some of the big hospitals, but much less in the ASCs.
This is probably one of the variables that could push towards our lower end of the guidance. On the other side, of course, if this headwind will stop, we would probably be closer to the top end of our guidance in terms of top line revenues. CapEx, maybe I will ask Corrado to comment.
I just would like to mention as usual, that you should always calculate our CapEx as a % of our growth, not as a % of our revenues. If you look at our CapEx to growth last year, you, and you do probably a proportional calculation for the expected growth this year, you will not make a major mistake.
Hi, Chris. This is Corrado. CapEx, I think that if you look at our 2022 breakdown, instruments are expected to be more or less in line because they are, let's say, asked by the growth. They are constantly put into the market according to the new customers that we expect to have, that we have already in pipeline.
Research and development should be more or less in line as it was in the past, also for the other minor area of investment. We are not giving guidance. What can be, say, a spike in investments, we expect it, is the evolution of land and buildings. We'll start, as we say, we'll be acquiring the land. We will start the completion of the areas, productive areas, the area Mercato, Castel San Pietro.
That will be a so-called extraordinary investment that is not in line with the past, but which will be in any case needed, to, as we said before, accommodate the future growth of the company. I would split investments into two areas. Let's call ordinary growth or better, short-term growth and long-term growth. The short-term is constantly as a % repeating year-over-year, and the long-term are spiked from time to time.
Okay. Got it. Thanks a lot and see you on Monday, I think.
Yes. Pleasure.
The next question is from David Adlington with JPMorgan. Please go ahead.
Hey, guys. Thanks for taking the questions. Again, some clarification please around CapEx would be helpful. I think I got the instrument sets probably be about another EUR 45 million again this year, but any further help in terms of quantifying how much you're gonna be spending on the additional costs around on buildings, I think would be useful. Then following on from that, just wondering if you could have some guidance also on depreciation for this coming year, as well as financial items. Thank you.
Hi, this is Corrado. I would say CapEx should not be very different from this year because as we said, there are already some extraordinary investments in terms of land and buildings. Those will be, as we said, completion of offices and production sites. I would take the same percentage of revenue just to be on safe side.
Depreciation and amortization, this year we have seen an increase compared to last year. I would take the percentage of this year as a base because we have seen an acceleration of depreciation and amortization coming from the closing of some R&D projects. The rest will be more or less in line with what's expected. I would take the 2022 percentage as a basis also for the future, for 2023, more or less.
When you say percentage, you mean as a percentage of sales?
Right. Yes.
Financial costs?
Sorry, say again.
Financial costs for 2022?
Oh, financial costs. Yeah, sure. Again, the part that you have in 2021, which is comparable to 2022, let's say, is half of the cost you see this year as a financial result. Roughly EUR 3 million, EUR 3 million and a half will be taking into consideration the increase of the interest rate. That could be a reasonable target for 2022. Assuming that the evolution of US dollar and other currency will stay basically at more or less in line with 2022. Basically this will not take into consideration FX effect in 2023.
Understood. Thank you.
Welcome.
The next question is from Anja Poropat with Mirabaud Securities. Please go ahead.
Yes. Hello. Thank you for taking my question. You mentioned that you are expecting to obtain product registration for FasFix in the current year. Could you kindly provide a sort of in terms of the timing, when during the year you expect this registration? Obviously when you will launch it. The second question to FasFix, which markets will you release or launch this product? That would be my first question.
The FasFix is part of our initial introduction within the sports medicine segment, which is reported under the extremities. Is going to have an impact in the U.S. and in Australia. I wouldn't say that this would be a key product for us simply because we will typically have a limited market release at the beginning, so it will not be material in terms of expected revenues in 2023.
It is part of our effort. It is finally will start to generate revenues in 2023 as part of our initial market penetration within the sports medicine arthroscopic market. It would be most likely something you would see in the second half of the year.
Okay, thank you. My second question would also relate to Asia Pacific. You elaborated a bit on Australia. Could you kindly say a few words how the development in Japan was towards the end of last year, that is the fourth quarter, and how sort of it started to de-develop in the first months of this year? Thank you.
Yeah. In general, our Japanese experience is very, very consistent, very strong, I would say, across all our business line. Last year we have been introducing successfully our shoulder product portfolio, for example, in Japan, which is to be considered an add-on compared to hip, knees, hand, and spine. We had, let's say a very good year across all the business line in Japan, and this trend continues in the beginning of this year as well. The, let's say the negative, or headwind we had in the APAC was 100% Australian based.
Okay. Thank you very much.
You're welcome, Anya.
The next question is from Robert Davis with Morgan Stanley. Please go ahead.
Yes, thank you for taking my questions. One was just if you could give us a little bit more color on your expectations around the growth by business line through 2023. The second question I had was just on the kinematic knee product.
Do you see any significant competitors or people trying to move in on that space and, you know, kind of put copycat products out into the market? I just wanted to get an update on the competitive position there. The final one was just on terms of the level of normalization you're seeing around the elective procedure levels and any areas of the world where you're still seeing sort of lower volumes because of COVID disruptions, either to patients or to the actual surgeons. Thank you.
Yeah. In terms of business line 2023, more or less, we expect the same product mix with the knees staying ahead of hips and of course spine and extremities to continue to be relatively faster than the other two more established business lines. I wouldn't expect a significant change compared to this year in terms of product mix. Of course, everything a little bit slower as per our top line revenue guidance. When it comes to kinematic alignment, we have been promoting this special technique with a special implant for almost 10 years now.
Yes, I would say most of the larger competitors, including Johnson & Johnson, Zimmer Biomet and Smith & Nephew, they have or they are introducing some implant which somehow try to follow our step, but they have not done, if you want, the full exercise of changing their femoral components as we did 10 years ago.
There are still very significant limitations that we are pointing out to the market that still keeps us a step ahead compared to what they have been doing in the last couple of years. This when it comes to implant. On top of that, you have to change the way the implants are implanted.
I would say today, probably only Stryker is somehow moving in our direction with what they are currently calling functional alignment, which is a hybrid technique which moves from the standard way the knees were implanted for 50 years towards where we have been in the last 5 to 6 years with this kinematic alignment.
At the same time, they are the only company that never really improved their knee implant. We are still in a very, very competitive advanced situation. As we announced, we are preparing incremental steps to do to separate ourselves even more in this very interesting new area of knee replacement in terms of implant techniques and technologies.
I'm very confident on the knee side, we will have still a little bit of separation when it comes to competitive edge. Last question was around COVID and headwinds, et cetera. I mentioned before when I tried to highlight what could correspond to the lower end of our top-line guidance and the upper end of the top-line guidance. We still see some staffing issues, especially in the U.S. We see much less of a headwind in most of the other markets. There are still some headwinds, I would say, in the U.K. market, but we have much less exposure there.
Outside of this, it's probably fair to say that we could expect the markets good to be back to normal with a little bit hopefully of tailwind in Australia, where they are able to recover some of the waiting list patients that they have built up during last year, thanks to those public to private initiatives which are up and running as we speak in Australia, already from last month of 2022 and still continuing at the beginning of 2023. This is on some tailwind that we could hopefully consider for the rest of 2023 in certain markets.
Mm-hmm. That's great. Thank you.
Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Once again, if you wish to ask a question, please press star and one on your telephone. Mr. Siccardi, there are no more questions registered at this time.
That's a very good news. Thank you very much. I would like to thank, all, the participants. Before closing the call, once again, I would like, to really thank, all our customers, all our partners, and all our employees that, really made an excellent, 2022 possible. Thank you very much, and look forward to the next call.
Ladies and gentlemen, thank you for joining. The conference is now concluded.