Ottobock SE & Co. KGaA (OBCK) Earnings Call Transcript

Good morning, and a warm welcome to today's conference call of Ottobock SE & Co. KGaA, following the publication of the financial figures for the first 9 months 2025. The CEO, Oliver Jakobi; and the CFO, Dr. Arne Kreitz, will speak in a moment and will guide you through the presentation and the results. After the presentation, we will move on to the Q&A session. [Operator Instructions] We are looking forward to the presentation. And with this, I hand over to Oliver Jakobi.

Yes. Good morning also from our side. So we are here sitting in Duderstadt, in the headquarter. And I'm happy to present our first 9 months update. Yes, we are looking back to a very successful 9 months in 2025 and with all our strategic core initiatives on track, product launches and several acquisitions took place and are kicking off. The strong core revenue growth continued in Q3 and leading to a year-to-date growth of 13.6%, respectively, 11.5% organic growth. This strong sales performance is reflected also in our profitability. So we have a substantial improvement of 3 percentage points in the underlying core EBITDA. That means a margin expansion to 24.3%. This all leads to our guidance for 2025, which is narrowed to the upper half of 9% to 12%, a core underlying EBITDA margin of 25% to 26%, which is confirmed. At a glance, our numbers. So the core revenue is EUR 1.158 billion, 13.6% growth. Underlying EBITDA of EUR 281 million and the EBITDA margin of 24.3% and also a very positive free cash flow development, a growth of 55%. In 2025, we launched several new products. So we have in the upper limb field, we launched a new platform with a new control system, MyoPlus and terminal device platform, which allows all our upper limb products to be combinable with each other and switch. So this is something we were looking forward very much, and this was launched mid of the year, and we do see quite a good track on this new technology. In the lower limb prosthetic field, we launched the Taleo Adapt, which is a hydraulic ankle system, especially designed for certain markets. First of all, the U.S. market where certain reimbursement is in place. And also here, we have a lot of traction. Overall, we can see that especially in the foot segment, we are growing over market. So with 20% year-to-date growth rate, meaning we are gaining market share there. In the neuro-orthotic field, we have the C-Brace Interim launched, which means we are coming closer to the rehabilitation phase. We're coming closer to hospitals. That also means it's a higher conversion rate from people suffering from incomplete spinal cord injuries or stroke patients, which normally during the rehabilitation phase, very often put in a wheelchair. So we have now the chance to mobilize them from day 1, which gives us access to a much bigger patient pool. The New Exopulse Suit generation, 9.5 is just launched now. So we are now busy with sending out the new fit kits. There's an improved operational function. So we can install it better, more per individual to certain patient groups. And also here, we do see -- we do expect access to larger patient population. On the exoskeleton side, so we came out with the first powered exoskeleton and which is very well accepted. So we sold the first experience packages already to our key customers and had a very positive feedback from the market side. Ongoing, of course, there are always product refinements, there are product updates. This is something what we are continuously doing and will continue also in the future. On the M&A side, so we invested in 2 technologies. So Romedis, it's a technology especially designed for markets where we do have a lot of skilled labor. So very often either emerging markets or markets where an extraordinary volume has to be handled with existing infrastructure. So it enables CPOs or clinicians relatively fast and easy with a guaranteed quality outcome to fit patients with lower limb prosthetics. Ortho Access is a technology in France, which has a certain reimbursement code. So also here, it's a new technology for lower limb prosthetics, how they are fitted to the patient. On the B2C side, we managed to get 2 acquisitions completed, one in Belgium with MATTON and one in Australia, Northern Prosthetics, both were very good strategic fits regionally wise, but also from the portfolio which we are serving. And our venture investments, ONWARD Medical, we -- it was in October, but already done. We increased our stake in ONWARD Medical. Then we have Musclemetrix and BionicSkins. These are 2 spin-offs of MIT and Phantom Neuro, an Austin-based company. All these venture investments are in new technologies. So we are working towards the human-machine interface and having here now several options in order to be here frontrunner in new technologies. On the noncore portfolio, so we divested already last year A4 Access, a DME business, Cascade Orthopedic Supply, it's a distribution business in the U.S. and Active Life, California-based patient care entity. Where we are still ongoing is our Human Mobility business or the wheelchair business. We are in negotiations, ongoing negotiations with certain candidates. And next year, we also will go further. It's a smaller part of our business, the Ottobock Orthopedic Service, the billing service in the U.S., which we also will divest. So that's so far from the business highlights. I would now hand over to Arne Kreitz for the financial update.

Thank you, Oliver. Yes, I would like to guide us now through a little bit more in detail through the financials. And Oliver already gave us an overview on the key financials. Just a quick recap. So very strong growth on the core revenue side with all in 13.5%, which is driven by 11.5% organic growth rate. Then we have 3% impact from M&A activities, negative 0.9% from FX impacts, so that's the bridge from the 11.5% to 13.6%. Underlying core EBITDA, we are looking into an increase of 3 percentage points in the profitability in absolute terms, EUR 64 million additional EBITDA compared to last year. So very strong improvement in performance. And we are also seeing a very strong free cash flow performance. So an absolute increase of EUR 61 million. In relative terms, 55% of an increase. So that means strong performance on the EBITDA side is also translating into cash. I come to that in more detail on the next slides. Going deeper into the revenue side, breaking the revenue into our segments across the regions. On the EMEA side, we're looking at an organic growth rate of 9.7%, very consistent development also compared to last year. And the drivers are, as already discussed for the half year financials, it's the innovations penetrating into the markets. It's new reimbursements that we have achieved like C-Brace reimbursement in France, and we are seeing continued impact of spike events. For example, Ukraine volumes we see are picking up. And that's why EMEA is our largest region. It's an absolute contribution of EUR 97 million in additional revenue, and that's all reflected in the 9.7% organic growth rate. Americas, very strong pickup, and we're looking into 16% of organic growth rate, driven by strong performance on the B2B side. Again, innovations getting into the market, new reimbursements achieved on the Kenevo side, we're seeing volumes doubling on that end. And we are also seeing a strong catch-up on the patient care side in the U.S. As you might recall, we had a bit of a slower start at the beginning of the year. And have been -- given the outlook that we're expecting a catch-up in the course of the year, and we have been clearly seeing that in the third quarter with a growth rate, which is, I think, in the area of 25%. So very strong catch-up on the patient care side, and that all leads to a 16% organic growth rate in Americas. Same picture in APAC, we're looking at 16.5% organic growth driven by innovations getting into the developed markets like Australia and Japan, also positive development on the reimbursement side in those 2 markets. But we're also seeing catch-up and a buildup really of markets in the emerging markets. India is continuing to have a strong performance and that all reflects into the 16.5%. So consistent strong growth across the regions. It's not the one driver. It's not the one market, very consistent across the markets. Looking into the revenue split across the B2B and B2C business. We are seeing strong performance on the B2B side with 17.1% organic growth. That's consistent throughout the year. I repeat myself, driven by innovations getting into the markets. X4 is penetrating really well, but also the new reimbursements like K2 reimbursement in the U.S. market, C-Brace reimbursement in the U.S. market is continuing to be strong. France, we see first impacts of C-Brace reimbursement, Japan also. So very, very strong growth on the B2B side. And on the B2C side, we're looking into 4.7% [indiscernible] growth. And here, I'd like to recap that at the mid of the year, we've been standing at 2.9% of organic growth rate on the Patient Care side. So you can see that Q3 has across Patient Care been very strong. And it's also consistent to what we have been given as an explanation, slower start to the year, but we're expecting positive momentum throughout the year, and that's what we're seeing on the Patient Care side. Underlying core EBITDA in more detail, really the overview, we're looking into 24.3% overall profitability. What you can see across the regions is that we're seeing a nice catch-up of profitability across markets. And you can also see that the profitability has become much more consistent throughout the markets. So we're looking into 24.4% in EMEA, 23.5% in Americas, 25.7% in APAC. So also here, we had given you the outlook that we're expecting that profitabilities will normalize across markets as also America is really catching up on the B2B side, but also on the Patient Care side. And that's reflected in this consistent picture across the regional profitability. Underlying drivers are also consistent throughout the year. We're looking into a strong gross profit development, which is driven by mix effects. As higher components are driving the sales, they are higher in the relative gross margin. And that's why that is cutting through. We are seeing an underproportionate growth on the material cost side, so also contributing to a better gross margin. And we're seeing scale-up effects basically throughout the entire organization. This high growth, specifically on the B2B side, leads to scale-up effects, which we are seeing on personnel cost side, on the OpEx side, and that is driving profitability. And last but not least, we're also continuing to see that the efficiency measures that we're driving are giving us benefits. Shared services in Bulgaria, and we're continuing to ramp up. Our manufacturing site in Bulgaria, and we're continuing to ramp up and that continuously is also benefiting on the profitability side. Adjusted net income, also very positive. You might have seen that on the underlying core EBITDA side, we are looking at an absolute increase of EUR 64 million. And those EUR 64 million are more or less translating into additional adjusted net income. So additional adjusted net income in absolute terms is EUR 53 million. So that means the key driver is really the additional EBITDA that we're generating. And we're seeing benefits on the interest side. So the lower net debt levels in combination with lowering interest rates are having positive benefits while we are looking at slightly higher tax payments because of the better performance of the business. But all in all, if I'm looking into how the EBITDA result is cutting through into the net income, we are looking into a very good translation. One word on the adjustments, just as a recap, key adjustment items are really the cost of the IPO, which is a special item for this year and the management participation program, which kind of runs until the IPO. So that is an effect which is sizable. And then the second impact is the impairment of EUR 31 million on our Human Mobility business. You might recall, we've been putting it as an asset held for sale in year 2025, and that's why that had an implication of an impairment of EUR 31 million. It's not new, but those 2 effects are the key drivers of the difference between adjusted net income and the final net income. Cash flow, very strong. We're looking into an operating cash flow improvement of EUR 72 million. So even stronger than what we've been seeing on the EBITDA side. That's driven by the fact that in the EBITDA, there are some provisions included. The higher sales are leading to higher warranty provisions. We partly have higher bonus provisions because of the better performance of the business than planned in the budget. And that's why higher bonus provisions, leading to an even higher operating cash flow than what we've seen on the EBITDA side, which is then on the free cash flow side counterbalanced by CapEx investments, but they are also fully in line to what we have been communicating. So R&D capitalization is at EUR 30.5 million for the first 9 months, and that is in line with what we have been communicating previously. And finally, look into the leverage development. And here, we wanted to give you a bit the longer-term trending also. You can see the very continuous improvement on the leverage side. Now at the end of September, looking at 2.8 turns. We have been given the guidance to 2.5 turns. So that is unchanged and probably we'll be ending slightly better. But the overall trend driven by a reduction of the net debt level with the free cash flow that we're generating, we're now in the position that the net debt levels are starting to actively reduce, while at the same time, the EBITDA is continuing to go up, and that's the underlying driver of the strong reduction on the leverage side. So very healthy development. And that leads me to the guidance update for 2025, driven by the strong top line performance that we've been seeing in the first 9 months. We are narrowing our guidance to the upper half of the previously given guidance. That means for the all-in core revenue growth, we're expecting 11.5% to 13%. For the organic core revenue growth, we're expecting 10.5% to 12%. So that means we are very confident that the strong revenue growth that we've been seeing will also continue in Q4, although we have to say Q4 last year has also been having a good performance. So that's why we're narrowing the guidance to the upper end of our previously given guidance. Underlying core EBITDA margin is confirmed at 25% to 26% and that's it in summary. And with that, I'd like to open the round for questions.

[Operator Instructions] And we're going to start with [ Richard Fulton ].

I'll start with 3, please. So the first one, I was wondering if you're able to quantify how much of the 13% organic growth in EMEA year-to-date has been driven by spike events? That's the first one. Second one, one area of the business, which was a little bit softer through H1 was the Patient Care business in North America. I was wondering if you could update us on how trends progressed through Q3? And my third question, I was wondering if you could share any early thoughts on 2026, how we should think about key drivers for growth, main headwinds and tailwinds for margin expansion? And I guess, overall, is there any reason why 2026 should deviate from the midterm targets you outlined at the IPO?

Okay. Maybe we start with the last one. So look, when new products or new reimbursements are in place, it doesn't mean that we are switching from day 1, all existing patients on the new technology on new products. So this is only either new fittings or patients when they are due to a refitting. So therefore, the penetration of the new products, new reimbursement opportunities is taking place over several years. So therefore, we do see also for '26 continuously growing expansion there. But why we had a lower year-over-year growth for next year because we had a very strong year 2025. So we are growing on on a different level. So the additional revenue growth will be probably not at the same level like 2025. Then the question -- the first one was regarding spike events.

Yes, it's in the area of 2.5% to 3%. I think you referenced the EMEA region, right? So it's 2.5% to 3% of the EMEA growth, which is driven by spike events. And then the second question was, I think, on Patient Care North America performance. And I think I mentioned it already, we're seeing a strong catch-up on the North America Patient Care performance within Q3, the growth has been above 25% organically. Q2 has already been strong, but we're really seeing a nice catch-up and gain of market share and now finalizing the integration. So that means, all in all, in the U.S., we're looking into a year-to-date Patient Care growth of more than 8%. So as I said, it's a combination of the normal market growth and the catch-up after the integration that we've been running through in the last 2 years.

Plus we installed a new CRM system, and we are generating really a lot of leads. So this is also something which is fueling the pipeline.

Thank you so much, Richard, for the questions. And also thank you so much to the management for answering the question. We have another question or a couple more questions from the analyst [ Hugo Sorbet ]. You should be able to speak now freely.