Earnings Call: Q4 2025

May 8, 2025

Summary

FY2025 delivered record sales and profits, with growth across core and newer businesses. FY2026 guidance targets further gains, while raised FY2028 goals reflect structural-heart entry and global expansion.

Hello, everyone. Thank you for joining Japan Lifeline's financial results briefing for FY 2025. I am Takeyoshi Egawa, CFO and Head of Corporate Management Group. Before we begin reviewing our financial results, I want to express my sincere gratitude to our employees throughout the company. The impressive results we are sharing today reflect their exceptional dedication, creativity, and perseverance. Despite facing industry headwinds, they have consistently provided superior value to both our customers and investors. Their collective efforts have been instrumental in our success. Now, let's proceed with the financial presentation. On page 2, today's presentation will cover four main topics: FY 2025 results, FY 2026 forecast, medium-term plan progress. On page 4, we achieved record highs in all categories, including sales, operating profit, and net profit. Net sales reached JPY 56.61 billion, up 10.2% year-over-year. Operating profit was JPY 12.32 billion, up 13.2%. Net profit was JPY 9.31 billion, up 24%. Looking at external factors, the number of atrial fibrillation procedures increased by approximately 10% compared to the prior year. On the negative side, we experienced a decrease in selling prices due to the revision of reimbursement prices in June 2024. Regarding internal factors, our core product lineup performed well, and our new business areas, such as neurovascular and gastrointestinal, grew by 73%. We also recorded a one-time benefit from the booking of deferred tax assets. On the negative side, there was an increase in SG&A expenses, including one-time costs, such as allowance for doubtful accounts. The combined result of these factors led to our double-digit growth in both sales and profits. On page 5, having explained key metrics of P&L, I am touching on margins here. Gross profit margin improved by 10 basis points to 60.4%, despite the negative impact of reimbursement price revisions, thanks to cost reductions in our in-house products and a decrease in inventory disposal and valuation losses by approximately JPY 119 million compared to the prior year. For net profit, we benefited from tax credits and the recording of deferred tax assets. As a result, our net profit margin improved to 16.5%, a 190 basis point increase year-over-year, with an effective tax rate of just 22.5%. The proprietary sales mix decreased by 140 basis points, primarily due to the expansion of purchased products in the neurovascular field and hemostasis devices. Our international sales mix improved by 50 basis points to 1.9% this fiscal year. As a result, our EPS reached JPY 131.43, an increase of JPY 32.70, up 33% year-over-year. The share buyback from our founder in May last year also contributed to this significant increase in EPS. On page 6, operating profit increased from JPY 10.89 billion to JPY 12.32 billion, up 13.2%. Breaking down this change, we had a positive impact of JPY 3.20 billion from sales and gross profit, and a negative impact of JPY 1.76 billion from increased SG&A expenses. Regarding the positive impact from sales and profit, our core product group, which includes our defibrillation catheter, frozen elephant trunk, hemostasis device, and S-ICD, contributed JPY 2.24 billion through increased sales. The growth in neurovascular and gastrointestinal sales volume added JPY 645 million, and other products contributed JPY 632 million through solid performance. On the negative side, the impact of selling price decline had JPY 748 million. Reimbursement price revisions contributed to a decline of JPY 490 million. Changes in wholesale prices to distributors and commission payments for hospital group purchasing programs had further impact there. Cost improvements and other factors contributed a positive JPY 425 million. Regarding SG&A expenses, we recorded one-time costs of JPY 188 million for allowance for doubtful accounts due to a customer's suspension of bill payments. Additionally, we had JPY 148 million in miscellaneous income in the previous year related to inventory transfers that did not recur this year. The JPY 1.43 billion increase in SG&A expenses consisted mainly of JPY 492 million in R&D expenses, JPY 401 million in personnel expenses, JPY 355 million in sales-related expenses, and JPY 161 million in depreciation. The increase in depreciation was primarily related to our new core system, SAP, which began operation in November 2023. On page 9, sales increased from JPY 51.38 billion to JPY 56.61 billion, representing a 10.2% growth. Breaking this down by segment, our existing businesses, primarily cardiac-related, grew by JPY 4.16 billion. Our new business areas, neurovascular and gastrointestinal, increased by JPY 1.34 billion, while discontinued operations, specifically coronary interventions, decreased by JPY 285 million. EP/Ablation performed particularly well with double-digit growth, with strong performance across cardiac, neurovascular, and gastrointestinal segments. On page 10, cardiac rhythm management sales were JPY 13.26 billion, a slight decrease of 1.7% year-over-year. Within this segment, S-ICD showed double-digit growth, but this was offset by the weaker performance of pacemakers. S-ICD sales increased by 12.4% year-over-year. We conducted numerous implantation training sessions for physicians, which helped us acquire new cases. Our estimated market share for S-ICD and traditional TV-ICD combined reached approximately 40%, making us the market leader among competitors. Pacemaker sales decreased by 14%, significantly impacted by competitors' leadless products and the reimbursement price revision of approximately 13%. In terms of market conditions, a competitor began selling a new ICD in March, which is expected to have some impact on our products going forward. On page 11, EP/Ablation reached JPY 27.84 billion, a strong 14.8% increase year-over-year. From a market perspective, the number of atrial fibrillation cases increased by approximately 10%, exceeding our initial expectation of 8% growth. The adoption of PFA has also accelerated, with an estimated 35% of all cases now being treated with PFA. Our core defibrillation catheter achieved 8.7% sales growth, maintaining an estimated market share of 96%, which represents a 100 basis point recovery from Q3. We have maintained this share by leveraging our unique IVC and lumen models. Despite PFA's market penetration, the need for defibrillation catheter continues, and we expect sales to increase with the growing number of procedures. Hemostasis devices achieved a 4.7% sequential increase. We have nearly reached our target of introducing these devices to 400 facilities. Esophageal monitoring catheters decreased by 1.2%. With the proliferation of PFA since November last year, Q4 saw a substantial 33.8% decrease. On page 12, cardiovascular products reached JPY 12.20 billion, a 7% increase year-over-year. Our core product, the frozen elephant trunk, grew by 9.6%, with an estimated market share of 91% as of March. We have focused on expanding sales of our integrated type of frozen elephant trunk and have now resolved previous inventory shortages of certain sizes, positioning us for a market share recovery. Abdominal stent grafts increased by 5.3%. On page 13, our neurovascular segment doubled to JPY 1.84 billion year-over-year. The stent retriever launched in Q2 has been expanding to more facilities, and with our acute ischemic stroke product lineup now comprehensive, we expect to see increasing sales synergies going forward. Embolic coils grew 1.6 times the prior year, with new thin models and abdominal models performing well. Thrombus aspiration catheters for stroke treatment grew 2.3 times the prior year, accelerated by combined use with stent retrievers. Stent retriever sales in Q4 were 1.5 times higher than the previous quarter, with facility contracts expanding, suggesting strong future growth. On page 14, excluding discontinued coronary interventions, gastrointestinal products grew to JPY 1.34 billion, a 45.3% increase year-over-year. We have steadily expanded sales, particularly in biliary products. Biliary tube stents grew 1.4 times the prior year. We also launched biliary dilation balloons in Q4 and contrast catheter. In liver products, we made a bulk sale of liver cancer ablation product inventory to Terumo in Q4, resulting in a 23% sales increase. We began a sales partnership with them from April this year. In GI tract products, colonic stents increased by 22.6%, and gastroduodenal stents grew 2.2 times. The significant growth in gastroduodenal stents followed the launch of an improved product after last year's voluntary recall. From page 16 and onward, I will be talking about guidance for FY 2026. We expect continued growth in both sales and profits, aiming to set new record highs. We forecast sales of JPY 59.30 billion, a 4.8% increase year-over-year; operating profit of JPY 12.90 billion, a 4.7% increase; and net profit of JPY 9.35 billion, a 0.3% increase. Regarding external factors, we expect atrial fibrillation cases to continue increasing by more than 10% year-over-year. We have factored in some decrease in certain EP/Ablation products due to competitors' PFA market penetration. For internal factors, our core product group is expected to remain strong, and our new business areas are projected to grow by 30% in aggregate. The modest growth in net profit compared to operating profit is due to the one-time deferred tax asset of JPY 351 million recorded in the previous fiscal year. Our organic growth rate is around 4.7%, in line with our operating profit growth. On page 17, having explained key metrics of P&L, I am touching on margins here. We project a 70-basis-point decrease in gross profit margin. This is mainly due to production adjustments for certain products, specifically the frozen elephant trunk, and the end of the RF needle sales support period in December 2025, which will result in lost income for the subsequent three months. On the other hand, SG&A expenses will grow at a slower rate than sales due to the absence of previous one-time costs. This will allow us to maintain our operating profit margin at the same level of 21.8%. We expect our net profit margin to decrease from 16.5% to 15.8%, a 70-basis-point decline, due to the absence of the previous year's deferred tax assets. Our effective tax rate is expected to return to a normal level of approximately 27.5%. The proprietary sales mix is expected to be 58.1%, a 70-basis-point increase, primarily due to the increased sales mix in EP/Ablation and cardiovascular segments. Our international sales mix is projected to reach 2.1%, a 20-basis-point improvement. EPS is forecast at JPY 133.30, a slight increase of JPY 1.87 year-over-year. On page 18, we are forecasting FY 2026 sales of JPY 59.3 billion, up 4.8% year-over-year. Both existing and new product lines are expected to perform well, driving continued top-line growth. I am going to add some more color by each segment from the subsequent slides. On page 19, we expect cardiac rhythm management sales of JPY 13.23 billion, a slight 0.3% decrease year-over-year. While our existing products face some challenges, we plan to offset this by entering the lead management market. We forecast a 3%-4% decrease in S-ICD sales. Although new cases remain strong, we are entering a period with fewer replacement cases. We also expect some impact from the launch of competitors' new products. Pacemaker sales are projected to decrease by 8% due to the continued impact of competitors' leadless products. To counter these negative factors, we will launch a lead management product in Q1. This is an exclusive distribution agreement with Philips, and we expect to capture more than half of the approximately JPY 700 million market, which should offset much of the decline in our other products. On page 20, we forecast EP/Ablation sales of JPY 29.14 billion, a 4.7% increase year-over-year. Despite the shift towards PFA, our core products are expected to grow. We anticipate atrial fibrillation cases to continue increasing by approximately 10% year-over-year again. We project competitors' PFA penetration to increase from the current 35% to approximately 40%-50% by March 2026. Our defibrillation catheter sales are expected to increase by 8%-9%, driven by volume growth from increasing case numbers. We aim to maintain our current market share of around 95%. Hemostasis devices are forecast to grow by about 20%. With our approach to high-volume facilities now complete, we will extend our reach to facilities with fewer cases. Esophageal monitoring catheters are expected to decrease by more than 30% due to PFA impact. RF needle sales support will end in December, resulting in a loss of three months of revenue, approximately one-quarter of the annual JPY 600 million. We are developing our own product in this area and will make an announcement separately in the near future. On page 21, we project cardiovascular sales of JPY 12.65 billion, a 3.6% increase. Frozen elephant trunk is expected to maintain solid growth. Assuming market growth of 5%-9%, we aim for 8%-9% growth in frozen elephant trunk by capturing market growth and recovering market share. We target 10% growth for our atrial septal defect, or ASD, treatment devices. In 2025, the certification criteria for ASD treatment facilities will be relaxed, potentially increasing the number of facilities from about 90 to around 120. This will lead to medium-term case growth, an area we plan to focus on going forward. Abdominal stent grafts are expected to show modest growth as we market our two distinctive product lines, AFX and ALTO, with AFX strengthened by additional sizes. On page 22, we forecast neurovascular sales of JPY 2.26 billion, a 22.7% increase. With our product lineup for acute ischemic stroke now nearly complete, following the introduction of stent retrievers, we are entering a phase of market penetration for these flagship products. We expect 10% growth in embolic coils. While the overall market is shifting toward flow diverters, we aim to grow by expanding into non-neuro departments, such as cardiovascular surgery and interventional radiology, where these coils can be used. Aspiration catheters for stroke are projected to grow by 30%. For stent retrievers, we will continue expanding our facility base. We are addressing the current product's limitation of lacking a radiopaque marker with a new product plan for Q2. Therefore, significant expansion is expected from Q2 onward. On page 23, we forecast gastrointestinal product sales of JPY 1.89 billion, a 40.9% increase. Having transferred our liver product line to Terumo, we will concentrate our sales resources on biliary and pancreatic products. With many products launched in the previous fiscal year, we aim to strengthen each one to achieve solid growth. We expect our biliary tube stents to continue their strong growth at 25%-30% again. We will achieve this through new models and leveraging clinical evidence in our sales approach. Accelerating biliary dilation balloon sales is also a key priority for this fiscal year. Additionally, we will enhance our brand value in the GI space by penetrating the market with our distinctive products, such as guide wires, gastroduodenal stents, and contrast catheters. On page 24, there is a short notice regarding treasury share. In May 2025, we will cancel 4.45 million of our 5.66 million treasury shares. The proportion of treasury shares to total issued shares will decrease from 7.5% before cancellation to 1.7% afterward. After cancellation, the number of outstanding shares, excluding treasury shares, is expected to be 70.09 million shares. On page 25, our dividend forecast for FY 2026 is JPY 54 per share, an increase of JPY 1 year-over-year, with a payout ratio of 40.5%. On page 28 and onward, I will explain our progress and modification to the medium-term strategy. Overall, our plan has been proceeding well, with performance exceeding expectations due to favorable business conditions and successful implementation of key initiatives. Initially, we projected sales of around JPY 51 billion for FY 2025, but we achieved JPY 56.6 billion instead. We are essentially one year ahead of our original plan. Not only sales, but also operating profit, EPS, and ROIC have exceeded our targets. On page 29, we review the three key initiatives outlined in our medium-term management plan. Expansion of new business areas, continuous introduction of competitive products, and strengthening capital efficiency-focused management. I will explain the details in the following slides. On page 30, our medium-term plan set a target of JPY 8 billion in sales from new therapeutic areas, specifically neuro and GI, by FY 2028. As of FY 2025, we have reached JPY 3.2 billion. For neurovascular products, our strategy was to quickly build a portfolio using procured products. We have nearly completed our stroke product line up, introducing an aspiration catheter in FY 2024 and a stent retriever in FY 2025. Sales are progressing about 20% ahead of our original plan. For GI products, we have pursued in-house product development, timely introducing biliary products with our tube stent becoming a flagship product. However, there has been some delay compared to the plan, mainly due to the voluntary recall of our gastroduodenal stent in 2023. We have since relaunched an improved version of the product in FY 2025. We still believe our target of JPY 3.5 billion by FY 2028 is achievable and will work toward catch-up. On page 31, both reinforcing our top profit-contributing products and introducing major new products have progressed well, exceeding expectations. Market growth has also been favorable, with these products serving as powerful drivers of our performance. Our defibrillation catheter has maintained over 95% market share despite having two competitors. We have also introduced an IVC type model adapted to the new PFA treatment trend, helping to defend our market position. Our hemostasis device has achieved cumulative sales of 100,000 units just over a year after its launch in prior year, now used in approximately 30% of all AF cases. We have already completed introduction to about half of the targeted 800 facilities nationwide. The frozen elephant trunk has maintained over 90% market share despite competitor entry. The market itself is expanding by about 10%, especially among younger surgeons. We have also introduced large-diameter, long-size versions of our four-branched frozen elephant trunk to address previous inventory shortages, enhancing our competitive position going forward. On page 32, we have grown from FY 2023, that is pre-medium-term plan, to JPY 56.6 billion in FY 2025, exceeding our original forecast of JPY 51 billion by JPY 5.6 billion. Our original plan actually projected a slight decrease from the base year's JPY 51.7 billion, primarily due to anticipated decline in RF needle sales, with an impact of approximately JPY 3.6 billion. However, the increase in case numbers and successful competitive measures resulted in strong growth in EP/Ablation, which was the main factor in our over-performance. New business areas in neuro and GI also progressed well, contributing to the sales increase. On page 33, operating profit margin, EPS, and ROIC have all progressed well. EPS, in particular, grew by 33%, significantly outpacing our operating profit growth of 13.2%. This was partly due to our share buyback of 8 million shares, approximately JPY 8.5 billion, conducted from FY 2024 to 2025. ROIC for FY 2025 was 13.7%, exceeding our target of 12% and providing a spread of 570 basis points over our estimated cost of capital of 8%. On page 35, as we enter further growth, we are revising our medium-term management plan targets upward. With two exceptional years behind us, we expect continued steady growth in both existing and new businesses. Additionally, we are adding new strategies not included in the original plan, namely entry into the structural heart therapeutic area and full-scale global expansion of our proprietary products. Also, we will strengthen balance sheet management to maintain high ROIC and aim for continuous EPS growth. As capital requirements increase, we will consider using financial leverage when necessary to pursue a growth-oriented capital policy. On page 36, these are our revised medium-term targets for FY 2028. Firstly, net sales from JPY 63 billion to JPY 70 billion. That is a JPY 7 billion increase. Secondly, revenue from new therapeutic areas from JPY 8 billion to JPY 11 billion, a JPY 3 billion increase. This is included in the JPY 7 billion increase just mentioned above. Thirdly, operating profit margin, maintained at 20%, no change from the initial target. Fourthly, EPS from JPY 120 to JPY 145, representing a JPY 25 increase. Finally, ROIC from 12% to 13%, a 100 basis point increase. These upward revisions include raising our case number growth assumption from 6% to 9% and anticipating growth in global sales. The increase in new business area sales reflects our planned introduction of transcatheter aortic valve implantation, or TAVI. The higher ROIC target is based on improvements in gross profit margin and inventory efficiency. On page 37, our business landscape is shown on a high level. A key risk is the impact of PFA penetration on some of our products. PFA represents a major game change in EP/Ablation, and as we currently do not have PFA products, this may present headwinds for us in the coming years. However, this is of course an opportunity as well, and we are developing competitive PFA products with a partner. Other opportunities include entry into the structural heart therapeutic field, OEM expansion leveraging our catheter technology, and development of overseas markets. On page 38, alongside our existing strategies shown in blue, we are adding four new strategies in red. Number one, structural heart therapeutic area entry starting FY 2027. Number two, PFA joint development with CardioFocus. Number three, full-scale global expansion. Lastly, OEM development. Today, I will explain the first three strategies in detail. On page 39, we are entering the structural heart therapeutic area through our partnership with Meril Life Sciences to market TAVI products. Structural heart therapeutic area refers to conditions affecting the structure of the heart walls or valves, for which minimally invasive catheter treatments are now widely used. We are targeting the valve disease segment with transcatheter bioprosthetic valves in a market exceeding JPY 100 billion. Though distributing purchased products, we expect margins significantly higher than our typical 40%. Product strengths include precise valve placement and unique intermediate sizes for better patient matching. Launch is scheduled for the second half FY 2027. On page 40, our CardioFocus partnership combines our catheter technology with their generator technology and PFA clinical experience for competitive global products. Here, we have two schemes. First, for CardioFocus' QuickShot, we will jointly develop and manufacture catheters for OEM export. CardioFocus handles generator while we have exclusive distribution in Japan, Korea, and Taiwan. Second, we will develop our own branded catheters with jointly developed generator. We will have exclusive sales rights outside the U.S. and Europe, while CardioFocus gets priority negotiation rights. The market potential is huge, JPY 60 billion-JPY 80 billion in Japan and $70 billion-$120 billion globally, with only three to four competitors playing in the market. Key milestones include QuickShot OEM supply in 2027, domestic approval of sales, and our own branded product, domestic sales, and export. On page 41, our global strategy is shown in summary. In a big picture, our long-term goal is to increase international sales mix to 30% level. For medium-term, through FY 2028, we are establishing our Middle East and Asia presence, exporting our products to a dozen countries accepting Japanese approvals through local distributors. We are strengthening our quality systems for U.S., European requirements, and planning manufacturing capacity expansion. Long term, we will target U.S. and European markets with our defibrillation catheter and frozen elephant trunk, where we have dominant Japanese market share. A key challenge here is that these procedures are not yet common overseas. We will leverage prominent Japanese physicians as KOLs to promote techniques internationally, developing markets alongside procedural education. On page 43 and onward, we would like to talk about our financial strategy. To enhance shareholder value, we will optimize cash allocation in line with strategic priorities and growth opportunities based on financial position. Here, we have shown an image of cash flow for the three years going forward. We are strengthening growth investment for our global strategy. Operating cash flow should fund most needs, with borrowing available as well for larger requirements. Our shareholder return policy remains unchanged. For growth, we anticipate JPY 7 billion-JPY 8 billion in SG&A and inventory over three years for clinical trials, regulatory applications, and R&D expenses. Capital growth investments of JPY 7 billion-JPY 12 billion will cover manufacturing expansion, overseas startup investments, building IT infrastructure, and potential M&A. Facility renewals are estimated at JPY 6 billion. We plan JPY 12 billion-JPY 15 billion for shareholder returns, maintaining our higher of 40% payout or 5% DOE policy with additional dividends or buybacks based on profit levels and stock price. On page 44, this is our way of maximizing value creation. We highly regard sustained ROIC and EPS growth as key to drive shareholder value in the long run. As for ROIC improvement, we execute appropriate cash allocation, as already mentioned, and strictly monitor new investments and development projects while conducting better management of inventory and assets. Thus, we are aiming to maintain 13% ROIC for the medium term. Turning to EPS, we are going to execute each business strategy and continue dialogue with investors to realize fair market valuation. We are also going to leverage performance-based incentives to solidify all the initiatives. On page 45, we are estimating our cost of capital at standard of 8%. In consideration, we factored in a mid-small-cap liquidity premium as our stock's average daily trading volume is around JPY 200 million. Aligning our view with investor dialogue, we reaffirmed our cost of capital at 8%. On page 46, to maintain and enhance our 13.7% ROIC, we're focusing on both operating margin and capital turnover. Our gross margin is currently 60.4%. Despite potential decline from purchased product growth, we aim to maintain gross margin at 57%-59% range through high-margin purchased products, supplier relationship strengthening, cost reduction, and higher international sales. Our inventory turnover is currently 283 days, higher than industry peers. We target 250 days with stability through comprehensive supply chain reforms, reducing sterilization expiry, disposal, and improving logistics efficiency. On page 47, as we are revising FY 2028 targets, we're raising our five-year return target from JPY 25 billion to JPY 27 billion-JPY 30 billion. We've already implemented JPY 15 billion over two years and plan JPY 12 billion-JPY 15 billion for the remaining three years. On page 48, on the last slide, we conclude our presentation with our take on our stock price. Basically, we see EPS growth as foundational for stock price improvement on which we must focus. In addition to that, we think it is important to keep close dialogue with investors to set a sensible goal of P/E and realize it. As an aspiring global medical device manufacturer or global medtech company, we aim for above average market valuation. For market average, I refer to 10 peer Japanese medical device companies that extend their products or services internationally. Currently, our stock price at approximately JPY 1,500, our P/E is 11-12 times, and P/B just under two times. While our P/B is good, our P/E is low as the market is beginning to recognize our transition from flat to growth. As we transition to a global medtech company, we target a long-term P/E above 20 times and P/B of three times based on such Japanese peer companies' averages, which are 22.9 times P/E, 2.6 times P/B. To wrap up as a closing remark, we will implement our medium to long-term vision, strengthen IR activities for appropriate market valuation, and leverage a systematic approach such as performance-based incentives to advance our value creation. This concludes my presentation. Thank you.