Earnings call transcript: Embla Medical sees solid Q2 2025 growth amid strategic investments

Embla Medical reported a 7% revenue increase in the second quarter of 2025, driven by strategic investments and product innovations. With a market capitalization of $2.05 billion and trailing twelve-month EBITDA of $141.75 million, the company maintains a strong market position. Despite a slight decline in EBITDA margin compared to the previous year, the company narrowed its organic sales growth guidance. The stock price declined by 2.21% following the earnings announcement, reflecting investor caution amid mixed market signals. According to InvestingPro analysis, the company’s shares are currently trading below their Fair Value, suggesting potential upside opportunity.

Key Takeaways

• Revenue grew by 7% in Q2, bolstered by strategic investments.
• EBITDA margin decreased slightly to 21% from 22% last year.
• Organic sales growth guidance narrowed to 5-6%.
• Stock price fell by 2.21% post-earnings announcement.

Company Performance

Embla Medical demonstrated solid performance in Q2 2025, achieving a 7% increase in revenue, with 5% of this growth being organic. The company continues to expand its global reach through strategic investments, including a significant investment in Streifeneder ortho.production. The U.S. healthcare market is showing signs of recovery, contributing to a 3% growth in the Americas. InvestingPro data reveals the company maintains an impressive gross profit margin of 62.7% and has earned a "GREAT" Financial Health Score of 3.0 out of 4.0, indicating robust operational efficiency. Discover more insights with InvestingPro’s comprehensive analysis of 1,400+ US stocks.

Financial Highlights

• Revenue: Increased by 7% in U.S. dollars.
• EBITDA Margin: 21% in Q2, down from 22% in the previous year.
• First 6 months EBITDA Margin: 20%, up by 1 percentage point from 2024.

Outlook & Guidance

Embla Medical anticipates higher growth in the second half of 2025, with stronger patient volumes expected in Q3 and Q4. The company is monitoring potential Medicaid changes, which could impact patient access. Medium-term organic growth is targeted at 5-7%. With a beta of 0.58, the stock shows lower volatility compared to the broader market, while maintaining a healthy current ratio of 1.79. InvestingPro subscribers have access to additional key metrics and ProTips that could help evaluate the company’s growth potential more effectively.

Executive Commentary

CEO Sveinn Sölvason emphasized the company’s growth potential, stating, "We believe we have plenty of opportunity to grow our business and reach more patients that need good mobility devices." He also noted the importance of cost discipline during periods of lower growth expectations.

Risks and Challenges

• Potential Medicaid changes could impact patient access and volumes.
• Market uncertainty in the U.S. could affect future growth.
• Tariffs have a minimal impact but could affect the Bracing & Supports segment.

Q&A

Analysts raised concerns about the potential impact of U.S. market uncertainty on patient volumes. The strategic investment in Streifeneder was discussed, with management clarifying it is not a full acquisition. The minimal impact of tariffs on the Bracing & Supports segment was also addressed.

Embla Medical’s Q2 2025 performance highlights its strategic focus on growth and innovation, even as it navigates market uncertainties and regulatory changes.

Full transcript - Embla Medical hf (EMBLA) Q2 2025:

Mikael, Moderator/Host: Welcome to today’s event where we have the pleasure to present Empla Medical. To help us through today’s presentation we are joined by CEO Sveinn Sölvason today. The topic for today Q2 2025 we will go through the result. You will make a short presentation and then I think we will try and go through the main objectives and the big picture to a lot of questions. As always you can ask questions in the box down below. Do it during the presentation, but we will take the main part of the questions in the end. For now I’ll hand the call over to you Sveinn.

Sveinn Sölvason, CEO, Embla Medical: Thank you very much Mikael and hi everyone. Thanks for your interest in Embla Medical and for being with us here today. I was going to go through just a handful of slides to paint the big picture and then we’ll go directly into Q and A. We just reported this morning our Q2 performance and year to date performance and overall quarter two was a good quarter for Embla Medical. We generated 7% growth in U.S. dollars of which 5% organic. We do get a positive impact from the fact that as we report in dollars and the dollar has depreciated all our non-dollar sales are now worth more in dollars. You could say 7% U.S. dollar growth. Our EBITDA margin is 21% here in quarter two compared to 22% in same quarter last year.

If we look at the first six months of the year we’re at 20%, up 1 percentage point compared to the first half of 2024. We have also in relation to reporting here our Q2 figures narrowed our organic sales growth guidance from previously 5% to 8% to now 5% to 6% and our margin guidance is unchanged. As always this was an eventful quarter for Embla Medical. Even though this did not happen in quarter two, we did announce last week an investment into Streifeneder ortho.production which is a company that has prosthetics and orthopedic materials and most of the sales are in Germany but also sales in and through distribution in a global context. This is a very good step for us. I’ll say a few more words on that on the next slide. Also good news on our Fior & Gentz business which we acquired last year.

Here in quarter two an announcement of Fior & Gentz being awarded a new L code meaning that the neurohydraulic knee joint can now be reimbursed in the U.S. which is a major milestone for us. Also on the patient care front we continue to roll out our new ForMotion brand and we’ve now introduced ForMotion in over half of our patient care franchise. We were happy to be recognized by Forbes magazine as one of the leading companies when it comes to accessibility as well as receiving the Iceland Presidential Export Awards recognizing our global impact. Just a few more words on the Streifeneder investment. Streifeneder is a family owned business and just to make that clear we are only making an investment in their product business. Streifeneder also has a patient care business in Germany that remains with the Streifeneder Group and not part of our investment here.

The entity we’ve made an investment in has around €25 million in sales, employing around 100 people, strong in the German OMP market. This investment enables us to be a more complete provider in a global context for OMP clinics, meaning we now materially strengthen our offering in the value segment of the market and are also able to offer our clinical customers material and equipment that is used for fabricating OMP solutions. This is very much complementary to our competitive position in the market and very much in line with our Growth 27 strategy. Just a few words also on regional performance, starting with EMEA, which continues to deliver solid high single-digit organic growth rates. Americas moved forward here in quarter two compared to quarter one, where we were down 1%. We are now growing 3% in the Americas region.

Finally, APAC showed solid growth in Australia and New Zealand but less contribution from our Asian markets, in particular China. Still, there is a strong outlook for this region going into the second half of the year. Michael, I think I’ll just pause here to make sure we have ample time for questions.

Yeah, perfect. Let’s start with some of on the Streifeneder. Why are you only buying a majority share in Streifeneder? Is it not hard to get the synergies you want if you don’t own the full businesses in Fior & Gentz? I know what is possible and maybe what is not possible and maybe getting it to run. Any thoughts? Can you get the synergies if you only own this majority share? Is there maybe other thoughts about Streifeneder than when you bought Fior & Gentz?

As you mentioned, Michael, different situations call for different structures. In this case, this was what we agreed with the sellers, that it would make most sense for us to take a first step as a majority investor in this business. We have a very clear plan for how we both create certain synergies, as well as how we leverage our global reach to drive sales of these Streifeneder ortho.production products and solutions. This 51% investment achieves these goals here in the short to medium term. We will continue to invest and develop the partnership with the Streifeneder family, and we see significant opportunities to bring their product range to a broader set of customers. That’s our focus here at the initial stage of the partnership.

There are not so many cost synergies. It’s simply like if you want Fior & Gentz to take their products out in a wider range.

That’s correct.

You mentioned they already had distribution agreements around the world, so I didn’t know whether you could leverage. Sure. Is it your patient care you can really leverage here? They also have not only products but also all the materials that is used there. Is that here where you can really leverage some synergies?

Absolutely. It helps our patient care business, but also our, yes, they have certain distribution agreement outside of Europe, but we will bring a much broader access, you could say, for the Streifeneder ortho.production product range, which will in particular strengthen our position in private pay markets where price is often a bigger topic. This will substantially increase our ability to reach more patients in markets where, in private pay markets.

It is the lower part of the market that this is covering where you are not so strong. That’s where it made a strategic fit that you might not have as many products in these categories. Is that how we should.

That’s fair. You could say that our Usher businesses, you could say, are more premium in many ways. While we now have the Streifeneder ortho.production portfolio and essentially also the College Park portfolio, which will position us stronger in the value segment of the market.

To close that, will this purchase change anything to your current share buybacks? If I understand correctly, it’s shares. It’s shares you are giving from your company, so I guess your leverage is staying the same. I don’t guess it will change anything in your share buyback.

No, we should not expect any changes to our share buyback program as a result of this investment.

As a question, as I understood, you said it is still too fluent and I understand that totally to give any impact or a final figure on the impact of the tariffs with the U.S. There is a question here. Does it have any impact on you, whether Europe and U.S. get an agreement or the 50% goes into, you know, what everybody is up in the air on your product category? Just to understand, is the Europe and U.S., is that the important one? Are your product categories still exempted from?

For the.

For the most.

Our prosthetics and neuro orthotics business we believe is exempt of or is exempt from tariffs to a very large extent. There are some few exceptions around certain components and maintenance components which fall outside of that definition. We believe that the vast majority of our prosthetics and neuro orthotics business will be exempt from tariffs. For us at the moment, the main impact financially is the tariff rate that will exist on imports from China into the U.S. where we have quite a substantial part of our bracing manufacturing with third party vendors in China and Southeast Asia for that sake, that manufacture products for us that we sell into the U.S. market. That is still the area where we would see most impact here short term around these tariffs.

The reason we’re not being more specific about the impact is simply because these tariff rates have been subject to frequent changes. As we mentioned on the call this morning, we are already incurring cost relating to these tariffs and expect more cost here in the second half of the year than in the first half of the year.

Perfect. Yeah. Just to finalize it, to make it totally understandable, I guess nothing has really changed for you because China has actually been closed. I know it’s the top for certain, but that is the main impact. We talk a lot about pharma. You are not hit by that as I understand it still with disabilities. Actually it hasn’t changed that much since last time we spoke.

No, no, it is still China. Yeah.

I think you mentioned an amount for Q2 and I know that’s only a short term period and it will be a little bit higher. Did I hear correctly you mentioned around $0.5 million or something like that and your bid that was 47? I guess maybe we talk a little bit too much about tariffs in your company, is that correct?

I think that’s fair to say, Michael, that it sometimes becomes a very big topic. Obviously, when tariffs were set at 145%, if I remember correctly, that would have been proportionately a bigger impact. Now tariffs have come down again to around the 30% range, so it’s all relative. We believe also that our competitors are in a similar position as such, so it will impact the whole industry in a way. However, what has not been or we’ll need to see how it plays out is that this would just raise cost overall in the U.S. healthcare system, which is already strained on cost, and it remains to be seen how all this extra cost will be absorbed ultimately. This is still a bit, yeah, remains to be seen.

Yeah, it’s still your belief that it’s the smaller part of your business.

Yes, absolutely, it’s, I mean it’s impacting Bracing & Supports, which is 17% of our business. Half of that business is in the U.S., so yes, it will impact our numbers, but it’s not such that it will totally change our financial profile even in an aggressive tariff scenario.

Regarding the guidance, you had around, I guess, 4.5%, you say 4% organic growth in each one, but that must be some because you’re five and four. So it must be 4.5%. Yeah, going to five and maybe six in the top end of the guidance. Does something in the market need to change to the better for you to reach the top of this guidance? Is there something you need the market to change, or is it manageable in the current market conditions to reach the top end of the guidance?

As always, when we set guidance in the beginning of the year at 5% to 8%, we go into the year with a certain set of assumptions based on the trends we see in our business, based on, in many years, very dependent on obviously our product pipeline, etc. What we see now after having been through half of the year is that in some areas we’re better than planning, in some areas we’re behind our plans. The main variance from a regional perspective is the Americas. We’re doing well in Europe, we’re doing well in APAC, and from a business area standpoint, it’s mainly, you could say, our prosthetics and neuro orthotics business which is definitely delivering on planning, but we’re behind where we thought we’d be in both bracing and patient care.

If we look at the rest of the year, we are expecting higher average growth in the second half of the year than we’ve generated in the first half of the year. We believe that the Americas region as a whole will contribute more to our growth. The reason we are saying that is that we believe that patient volumes will be stronger in the second half of the year. Speaking in simple terms, the way healthcare works to a large extent in the U.S. is that there’s always some co participation in overall healthcare cost, and in an environment of uncertainty, all else equal, people will have more certainty on their healthcare cost the further they are into the year.

We expect, and we’ve actually seen here in recent years, that we’ve seen patient volumes shifting more towards the latter half of the year when there’s more certainty on out-of-pocket costs. We believe that the second half we will have more activity in our clinics, which will ultimately also be the case with our independent clinical customers and therefore contribute to a stronger performance here in the remaining six months.

If I understand you correctly, you have actually seen the trend lines move a little bit up in the latter part of this quarter. Was that correct? That is your assumptions on.

If we look at the regional performance as I went through on this slide here, we see America’s region declining here in quarter one, but we are growing three to. If you just look at these figures, you see some indication that the market is moving closer to where it should be.

It is always helpful to see if something should get better. What was then wrong, and we talked about it before we went on, I know it’s hard. That’s just been the general uncertainty that has hit people. You know, your patients’ out-of-pocket cost. All the talks about what is going to change in the U.S. system, is that your field, and that is what has impacted the market growth, and thereby it’s the market that has been a little bit down, now recovering a little bit. It’s not you who has lost momentum compared to your competitors. Is that correct? Is that how you see the situation?

Going back to just our core purpose and what we deliver on a day-to-day basis in our business is that we are serving a patient population that consistently needs to maintain, upgrade, renew their mobility devices, and that demand has not changed. There are even aspects like the expanded coverage for low active patients that, all else equal, should lead to more, you could say, business growth in the OMP industry as general, and we have clear feedback from also our Patient Care network that the uncertainty in the overall environment in the U.S. and also what we see very clearly, slower reimbursement approval processes, also in relation to all these changes that have been implemented with the Veteran Affairs and the cost initiatives that have been run by the current U.S. government. These things have caused short-term disturbance.

What we have seen here in quarter two is that we see gradually more activity in our clinics.

Perfect. There’s a question here. Sorry, I need to find that. The new budget law in the U.S., will that have any effect on your patient group? I read somewhere where Medicaid and maybe the lower income, which unfortunately often is someone with a disability, might be hit somehow in the new budget. I know it’s very early, but I was seeing any indications there that there is any change downwards due to the new budget bill.

That’s a great question. This new legislation is that there is likely to be a cost in the Medicaid piece of the overall healthcare system in the U.S. over the next 10 years. Medicaid. We estimate that Medicaid is the ultimate payer for around 10% of the patient population that we serve in our own clinics. Typically though, these patients will not necessarily receive the high end solutions. Medicare pays on average or on average provides, let’s say, access to less advanced solutions. We will have to monitor how this all will impact the market. On the other hand, you see the system sending very clear signals that they are willing to invest in good quality mobility solutions with the expanded coverage for K2 patients. Also with this new reimbursement code for neuro orthotics. It’s kind of mixed. Mixed bag if you will. Our overall take though on the U.S.

system is that we believe we have plenty of opportunity to grow our business and reach more patients that need good mobility devices.

The new reimbursement, the change reimbursement that is going to counter some of that potential effect, if I understand you, is that that.

could be one scenario. Yes, if we have, I mean there are certain indications that you will have that again as was the case before the Obamacare Affordable Care Act was rolled out. You had a population that was simply without any medical insurance. If I understand these changes correctly, there will again be a population which will be without healthcare coverage. If there is something else that comes instead or there is another path for these individuals to maintain their devices or get access to funding, we will need to see how that goes.

There’s a very specific question. I don’t know if you want to answer. How was purchase price finally decided for the 51% of Streifeneder ortho.production? Will this be made public? You know, kind of a multiple or something like that? Or is that.

I can give some context. We are paying the vast majority of the purchase price here with the share issuance, so that gives some indication of the valuation for the 51% share. There is a minor cash component as well. As always, we determine valuation in these cases based on our ability to deliver an acceptable return on the invested capital that is deployed. It is an agreement with sellers that we are not disclosing the purchase price here. I can say that from our standpoint we have paid a very fair valuation.

On the margin side, I saw you didn’t mention anything about that. Is that a little bit below or on par with your own margins? That is kind of also an indication on the purchase price. How should we see that business over there? Is it a little bit lower margin business with all?

Yeah, it’s a little bit lower and we said on the call this morning that it’s slightly margin-dilutive, maybe to the tune of 20 basis points here in the short term. In the medium term, we expect this business to generate a margin that is on par with at least the average margins in our overall portfolio.

Perfect. Then a little bit up in the bigger picture again, you know, some of your good margin development was cost containment. I think analysts always need to ask how long can you do that without that impacting your long term growth abilities? A little bit of thoughts about that because I thought that there’s a big reimbursement change in the U.S., meaning you should train your customers to use that. You also have a lot of product launches that I think it’s tracking good, but you could always put more selling, not pressure, but selling. Focus on that. A little bit the thoughts about using cost containment maybe in a period where you are where you should push for higher growth in the future. Any thoughts about how long you can keep those cost containment without hurting your long term growth?

If we look at the three business areas we operate today, prosthetics and neuro orthotics, patient care, and bracing. In both patient care and bracing, we’re behind on our top line goals for the year, and we’ve taken action to adjust our cost base in relation to a new top line estimate for the year. That’s the main area where we see where we are. You could say adjusting our cost base. However, on the prosthetics and neuro orthotics side, where we do generate a very healthy, almost double-digit organic growth rate here in the quarter, we are making investments, we continue to make investment to grow that business.

With that still being said, from a profit contribution standpoint, that part of our business is contributing very nice profit growth, which is compensating for the negative impact we get from especially the patient care business, which has a larger component of fixed cost. This has therefore a bigger profit impact when we don’t generate healthy top line growth. It’s a little bit different themes per business areas, but right now we don’t believe that we are diminishing our future growth potential. We are simply exerting just a very high level of cost discipline to make sure we manage through a period with lower growth than we expect long term, and especially patient care.

A little bit up in the helicopter, the bracing and supports and the patient care, anything structural change, something that could affect your abilities to generate your goals for the medium term, goals for organic growth, I think 5 to 7%. Any thoughts about is there anything structural there or are you still seeing it as temporarily and not thereby affecting your potential to grow your medium term targets?

If you look at the patient care business, that is ultimately just the same value chain as within a prosthetics and neuro orthotics business. It’s servicing patients that have a chronic long-term mobility challenge, and there are no structural changes as such. We continue to see very, very solid potential in that whole value chain. That’s why we are both, you could say, a product provider as well as a service company that is building a global presence with the ultimate goal of seeing and reaching as many people as possible that need good mobility devices. It’s worth keeping in mind that the relative utilization of good mobility devices remains very low also in mature healthcare systems. We have plenty of work to do in that part of our business. The bracing business is subject to a little bit different kind of dynamics.

I think the biggest difference is obviously that these are products that are used for a limited period of time, except for maybe our osteoarthritis bracing, which is a very, very strong offering for individuals with knee arthritis as an alternative to knee replacement surgery. The biggest part of our business is acute care, meaning you have an injury or an elective surgery and you need to recover, and then you will not need the product again. What drives the underlying demand for these products are demographics, our activity levels, and these are fundamental solutions in each and every healthcare system. The structural drivers are there, but with bracing, the nature of the business is such that it will be more price competitive, but the volume growth drivers are intact.

What we did talk about here in quarter two also is that there’s a new round of competitive bidding in the U.S. where Medicare and Medicaid are driving certain initiatives to lower cost for what they believe to be just off-the-shelf standard components. We’ve been through another round historically of competitive bidding, which did impact our business, although less than what we had anticipated. We still need to see how this round will develop. We just go back to the fact that we believe that we have at least a competitive cost structure and that we are just well positioned to deal with these changes as we have a holistic, broad offering covering essentially all pricing needs for our provider customers.

Second to last question, the view on Fior & Gentz, you mentioned that they have gotten a new reimbursement code. Is that the first time they get access to the U.S. market? Sometimes, under a small headline, there can be actually a large impact. Can you maybe elaborate a little bit on whether that actually could be a substantial impact? I know not tomorrow, but in the future.

Yeah, I mean the reason we made the investment to acquire Fior & Gentz was that we believe that this is a patient population that we should and can serve better. Fior & Gentz has mainly built their business around the German market and in certain European jurisdictions. Just as a reminder, serving people that have lost the ability to use the muscles in the lower part of the body as a result of stroke, cerebral palsy, and some neurological complications. Now reimbursement is generally healthy in some of the main European markets, but reimbursement levels are very low in the U.S. and generally these types of devices are fairly low end. Now with this new L code we see a signal and you could say confirmation from Medicare that they understand the health economic benefits of providing these types of solutions for this patient cohort.

We are extremely happy that we have now taken this step and we see big potential in the U.S. Longer term this will have not a significant impact here in the short term, but in the medium, long term, this is just a start of really building this neuro orthotics business also in the United States, which is the biggest healthcare market globally.

As always, the final question, and I know it’s not a nice subject, but your outlook, expectation for the Ukrainian market. We have had this subject up a couple of times. Whether that unfortunate voice is impacting your growth expectation or something like that. A little bit about that, yes.

We are one of the big global companies in this industry, and we have made a big effort in Ukraine both in terms of training new prosthetists and finding ways to get amputees using adequate prosthetic solutions. The biggest challenge in Ukraine from a prosthetic standpoint has been simply the lack of, or simply not enough experience in the whole value chain to fit the number of people that now need prosthetics. That’s going to take years. We are certainly making as much of an effort as we can to contribute and help. We’ve donated lots of both time, especially effort around education, to educate and bring new prosthetists into the field. This will be a market for us going forward.

I don’t expect this to necessarily change the big picture for us as a company, but it’s certainly a situation where we are focused on contributing as well as possible.

Perfect. I think that was all the questions we had from the audience and from Eastman. Thank you for taking us through your results and answering questions. May everybody have a nice day.

Thank you very much, everyone. Have a nice day.

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