Sisram Medical Ltd (1696) Earnings Call Transcript

So good afternoon and good evening, and thank you, everyone, for joining us today. Welcome to Sisram Medical's First Half 2025 Earnings Call. This is [indiscernible] from Citic Securities. And joining me today is our Chief Analyst, Yifan Du. So now I would like to introduce our speakers on the call. So with us today on the line are Mr. Yi Liu, Sisram's Chairman; Mr. Lior Dayan, Sisram's Chief Executive Officer; and Mr. Jiahong Li, Sisram's CFO; and then Ms. Qianli Fang, Sisram's Secretary of the Board. So management will start with an overview of the business development for the first half year of 2025. And following the prepared remarks, we will open the call for a Q&A session. With that, I would like to turn the call over to Mr. Lior, Sisram's Chief Executive Officer. Please go ahead. Thank you.

Good morning, everybody. Thank you for joining our call today. I'm happy to provide an update on the ongoing success during the first half of 2025, which has marked a pivotal step in our evolution from an energy-based leader to a true holistic ecosystem partner in medical aesthetics. Today, we are proud to be actually the only one player integrating energy-based devices, injectables, advanced skin imaging and personalized skin care into one synergistic ecosystem, fully supported by a robust operational infrastructure. This unique business model position us to deliver comprehensive end-to-end solutions for aesthetic care providers worldwide, setting a new standard of care that is smarter, more personalized and ultimately more valuable for patients. This ecosystem serves also as a powerful business tool for clinics, enhancing patient retention and maximizing lifetime value. A key milestone supporting this vision was a successful North American launch of the Universkin by Alma, the world's first AI-assisted skincare system. Bringing personalization to the forefront of patient care, Alma's intelligent new system powered by proprietary analysis software acts as a virtual AI assistant for the modern clinic. In less than a minute, it performs a smart skin analysis and generates a personalized skincare formulation on site tailored to each patient's unique profile and concerns. This groundbreaking solution seamlessly extends the impact of aesthetic care beyond clinic and into each patient's routine, enabling clinics to deepen engagement, strengthen retention and maximize lifetime value. In parallel, we saw strong global momentum for our Alma IQ, our next-generation intelligent skin analysis platform. Integrated seamlessly with our premium and energy-based devices, Alma IQ enhances diagnostic accuracy, improves treatment planning and enriches the entire patient experience. Beyond technologies, we've also made meaningful progress in building the commercialization infrastructure for our injectables portfolio in key regions, ensuring successful market entry and scaling across key markets. As part of this expansion, we continue advancing our partnership with Hallura, an innovative injectable featuring a first-of-its-kind combination of hyaluronic acid and biostimulator compounds. This reflects Sisram role as a leading platform for bringing next-generation aesthetic innovations to the market. Looking ahead, we're also laying a groundwork for highly anticipated launch of DAXXIFY, the world's first peptide-powered botulinum toxin in Mainland China. This includes building a dedicated salesforce and finalizing go-to-market preparations to ensure a successful introduction in the months ahead. Meanwhile, our core energy-based devices segment continues to deliver robust performance, driven by the sustained success of Alma Harmony and Alma Hybrid. Both platforms continue to exceed expectations with better-than-expected performance and market demand, reinforcing our position as a global leader in advanced aesthetics and medical solutions. Alma Harmony today, Alma's most popular platform is an innovative multi-application system designed to treat a wide range of skin conditions across diverse patient profiles. It continues to break new order records and generate a strong halo effect across our broader product portfolio. With Alma Hybrid, our award-winning platform designed for elite medical aesthetics practitioners also maintained strong momentum, delivering double-digit growth for the third consecutive year. The group performance for the first half of 2025 includes revenue of $165.5 million, which decreased about 1.9% compared to the corresponding period. The overall decrease was primarily attributed to the challenging market conditions of high interest rates and weakened consumer spending in North America. Amid macroeconomic headwinds, Sisram continued to demonstrate exceptional resilience supported by our diverse geographic presence, robust product portfolio and strong brand equity. During this time, our international sales channels grew by 7.1% year-over-year. Notably, our performance in Asia Pacific region, a strategic growth engine for Sisram stood out, delivering double-digit growth of 17.6%, driven by sustained momentum in Thailand and Korea as well as strong contributions from our injectables portfolio. Alma Thailand launched last year continues on a strong growth path and is now emerging as a strategic hub for our injectables business across Southeast Asia. Our 12 direct operations worldwide provide us with business superiority in key regions, robust market access and the ability to execute our strategy effectively on global scale. This unmatched presence enables us to offset regional challenges and confidently invest in growth initiatives while maintaining our solid position in the industry. Sisram is entering the second half of the year with a strong momentum, driven by sustained consumer confidence and growing demand for our recent launches. With geopolitical headwinds beginning to ease, we are regaining pace in regions where certain activities have previously delayed. Combined with year-over-year increase in new order volumes, we expect a stronger performance in the second half of 2025 in terms of both revenue and net income. Looking ahead, we will strategically focus on strengthening corporate leadership in Asia Pacific and North America, our key growth engines. In North America, momentum is fueled by the successful launch of Universkin by Alma and continued strong demand for Sisram energy-based device medical solutions. In the Asia Pacific markets, we anticipate major milestones in the injectable segment, including the highly anticipated launch of DAXXIFY, offers peptide-powered botulinum toxin in Mainland China, actively advance the launch and market ramp-up of the 2 energy-based devices in China, further strengthening its competitive position in the premium aesthetic segment. We will also prioritize accelerating sales of Revanesse, dermal filler collection across the United Kingdom, Ireland, Germany, Austria and Switzerland, Australia and of course, New Zealand as well expanding our flagship biostimulator Profhilo in China, Hong Kong, Thailand, India and Israel. In parallel, we advanced the commercialization of Hallura in Israel and other strategic regions. Lastly, Sisram continue expanding its unique wellness ecosystem by deepening its high-value synergistic offerings committed to helping clinics build close relationship with end consumers through various channels and technologies we are to launch. In line with this commitment, we will continue providing dedicated support to ensure the ongoing success and operational excellence of our partners. As always, I want to thank our global team for their continued excellence and our shareholders for their trust as we shape the future of aesthetics and move forward together on this journey. Now I would like to hand over to speak to Mr. Jiahong Li, our CFO.

Thank you, Lior, and good day, everyone. For the first half of 2025, we delivered revenue of $165.5 million, representing a slight decline of 1.9% compared to the previous year. Part of June revenue was delayed due to shipment constraints caused by regional tensions. Still international markets grew by 7.1% year-over-year, partially offsetting the ongoing challenges in North America. This shows the momentum in our international expansion and the strength of our direct market strategy. Growth in international markets was mainly driven by our core medical energy-based devices segment, supported by continued execution of our strategic initiatives, including AI-powered diagnostics tools based treatments and injectables. Our performance in APAC was another bright spot. Revenue in the region rose 17.6% led by particularly strong performance in Thailand and South Korea. Gross profit margin came in at 60%, down 2.4 percentage points year-over-year. This was mainly due to product mix shift towards professional high-end products with higher material cost given the best-in-class specifications as well as a lower revenue contribution from North America. Adjusted net profit was $12 million, down 28.1% year-over-year. We ended the period with $60.1 million cash and cash equivalent, maintaining a strong financial position. By segment, medical aesthetics product remain our largest revenue contributor, generating $137.7 million or 83.2% of the total revenue. Injectables increased 280.1% to $14.4 million, representing 8.7% of the total revenue compared to just about 2.7% a year ago. This is pretty much a 6% increase. This growth was broad-based across all markets where we operate in injectables, showing the success of our strategy and the expansion of our direct sales network. On the operations side, we focused on optimizing production to meet diverse global demand. Despite the geographic tensions in June, we safeguarded our assets, ensured business continuity and show resilience and adaptability. Looking ahead, we are preparing for the launch of 2 flagship EBD products and DAXXIFY in Mainland China and expanding our AI-powered combination therapy globally. In short, the first half of 2025 demonstrated our ability to perform in a challenging environment. With North Africa remains under pressure, growth in APAC and also international markets combined with disciplined execution and innovative product launches proves the strength of our business model. We remain committed to sustainable growth, operational efficiency and long-term shareholder value. Thank you.

Okay. Thank you, Mr. Li. So we are ready for the Q&A section. [Operator Instructions] Okay. So first, I would like to start with 2 questions [indiscernible] question first. So the first is regarding the APAC area. So we see the APAC area achieved the highest growth rate among the global regions. So what is the main reason and driver for the good performance? And if we break down by countries, like for Thailand and Korea, how did you achieve the high growth? And for Japan, how is the progress of our new direct sales channel construction in that area? So that's my first question.

Thank you very much for that question. Let me pick that one. So first of all, it's true. I mean, most of the growth we saw in countries like Thailand and Korea, as mentioned. Each country has different reasons for that growth. Thailand is with the introduction over there with Profhilo, significant growth, very good preparation has been done towards the launch of Profhilo and came out with a very, very strong penetration to this market. This is the beginning. And then, of course, regarding Korea, which is a direct operation, which is existing within our portfolio of direct offices for the last few years, we started the concept of lifting using titanium, and it's coming across very, very well in Asia. And I think that was the second growth, which really created a big change in demand that you're reflecting. About Japan, Japan is really still in early stages. We're still in the penetration level and building that force in this great nation, which has a lot of potential down the road.

Yes. Okay. That's very clear. And my second question is regarding our direct sales. So in first -- as of the first half of this year, what is the proportion of our direct sales? And in other markets, is there any other markets that we are still going to develop as a direct office? That's my second question.

So about the ratio of direct operation versus indirect operation, we are talking about 85% of the business was towards direct operation. It was a slightly decrease from the period before because there was a shift of fulfillment revenue that came to distributors versus what we had in North America. We can touch base later on one of the questions, I guess, would be about the North American operation. But that's kind of the reason for the shift. We expect the ratio of direct business to grow back again as North America business would be expected to grow down the road. Then you had another question about other direct operations. We do not see right now in the near future, the reason to go into other new direct operations. The current 12 direct operations that we have, together with additional more than 80 indirect countries give us a very good hold of the global markets. That's a very, very important advantage that the company has working in different geographies. Our work right now is to establish and execute our ecosystem into the direct markets we're active at to the full max potential, giving full value to the clinics. And to some degree, we're also doing that in indirect markets like Alma IQ, which was introduced in already several of the international markets, which were not direct. So the 12 direct offices that we have is what we're going to be utilizing within the near future.

Okay. I will open question for our investors. Okay. So our first question is from Mr. Dai from CMSHK.

Okay. So I have 2 questions. First, on the North America performance. So what are the main reasons for the decrease in the region? And did you see any sign of weak consumer spending? And what are the actions in the second half of 2025, we can see or may get a stronger result? That's my first question. And second question is on margin. We noted the year-on-year contraction in the gross margin. Could you please quantify the main contributors to this pressure? More specifically, we'd like to be interested in the impact of product mix shift perhaps towards more system versus consumables or the effect of pricing and promotional activities in key markets? Or any headwinds from input cost inflation or logistics? And looking ahead, do you see this as a new run rate for gross margin? Or do you anticipate some normalization in the second half?

Warren, thank you very much for your question. Definitely a very important part that is going to be riding this session. North America has a significant and very important part of our business. In general, in this industry, North America takes a very important place in this space, from revenue, from profit and also from brand. It is true that 2 elements have played a role in this space that had an impact on business in general. One would be the high level of interest rate that hasn't been going down yet. By the way, not only in the U.S. and also in other markets, but definitely, in the U.S., you can see also an impact on consumer spending. And the outcome of this has a few aspects. One is a slowdown of closing a deal or maybe before you could close a deal within 2 weeks. Here, you have a longer process where the account can get approval for getting the loan or the leasing, some may not get approved. And so that's a cycle that is taking a bit longer. Then there are potentially concern regarding consumer demand, like metrics, global metrics micro are showing kind of a degrade of that. So this is kind of one of the reasons we could see a delay in order processing. The way for us to deal with that as a technology company is by being able to introduce new technologies. For those that can afford to acquire and buy equipment during this time, having a distinguished technology, for example, Alma Hybrid, for example, Alma Harmony or Alma IQ, the new diagnostic tool. And later on, when we're going to speak about H2, the introduction of the Universkin with AI, these are kind of the tools that give us the approach to be able to maintain our position in the market and still overcome challenges of the financials I described. So this is one very important point. About your question regarding the gross margin, one of the shifts that we had to deal with is with the current existing backlog that we had, once we saw that we had a delay in closing deals because all the elements I described, we shifted to push some of the backlog that we had to distributors' orders. Distributor orders normally would have a little bit less gross margin, but this is really temporary, again, because, as I mentioned, regarding the U.S.-specific situation. Also margin-wise, we had another trend happening, which is a good trend, but normally, it's being balanced with various of product combination. Following the launch of Alma Harmony, which is a very sophisticated device, more expensive, but also cost-wise, together with the Alma Hybrid, once the mix of these specific products that normally would go to professionals, derms or plastic surgeons, they would have a slightly lower gross margin compared to maybe traditional radiofrequency devices which normally would have a higher gross margin. So this is -- again, this is on a specific given time frame. And once as we believe the economical macro structure will change, we will be in a different position up and ready.

So our next question is from UBS, Mr. Joe.

This is Nate from UBS. I also have 2 questions. Firstly, is really on Profhilo. I think we had a good success in Thailand in the first half. So we're really looking forward to its launch in China. So just wondering what is the current progress in terms of registration and also in terms of the launching time line? And second question is we did see the lawsuit between Revanesse and Allergan about the patent. Could you also share a bit more on -- will it have been any influence on our launch of DAXXIFY in China?

Sure, Nate. Thank you for the question. I'll start and pass on to Mr. Li. He could elaborate about the status of the study and also DAXXIFY. Specifically for Thailand, Thailand wasn't -- actually, it's not the first market we're launching Profhilo. So we are pretty much experienced and specifically in Asian markets, Asian skin. The interaction of Profhilo with Asian skin is super, super unique. We had great success coming in Hong Kong, taking major market share, but not only in Hong Kong, also in India. And then coming to Thailand, after a couple of years of experience, helped us to really launch that in a very, very professional fashion and therefore, the results. I would like to give Qianli the ability to address the other parts of your question regarding the study and also DAXXIFY.