Earnings call transcript: VasterSign reports strong Q4 2024 growth

VasterSign reported robust financial results for Q4 2024, showcasing significant growth and strategic advancements. The company’s revenue reached €134 million, marking a 107% year-over-year increase. According to InvestingPro data, VasterSign has maintained impressive growth momentum with a 31.31% revenue increase over the last twelve months. The company’s efforts to expand its U.S. market presence and introduce innovative products contributed to its impressive performance. The stock currently trades at $1.12, near its 52-week high, reflecting strong investor confidence.

Key Takeaways

• VasterSign’s Q4 2024 revenue increased by 107% year-over-year.
• The company reported a gross margin improvement to 96.8%.
• Significant progress was made in U.S. market access and product innovation.

Company Performance

VasterSign demonstrated strong performance in Q4 2024, driven by a 107% increase in revenue compared to the same period last year. This growth was supported by strategic initiatives focused on expanding the company’s presence in the U.S. orthobiologics market. InvestingPro analysis indicates the company maintains an impressive gross profit margin of 88.64% and a strong financial health score rated as "GOOD." The launch of new products, such as the Ostezine Catalyst, further bolstered VasterSign’s competitive position. For deeper insights into VasterSign’s valuation and growth potential, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.

Financial Highlights

• Revenue: €134 million, up 107% year-over-year.
• Gross Margin: 96.8% in Q4, a significant increase from the previous year’s 74.6%.
• Cash Flow from Operations: Improved to -SEK 7 million from -SEK 26.5 million in Q4 2023.

Outlook & Guidance

VasterSign remains focused on executing its strategic priorities, including building U.S. market access and leveraging its Catalyst technology. With a current ratio of 5.95, the company maintains strong liquidity to support its expansion plans. The company anticipates a non-linear growth trajectory, characterized by a "staircase" model, as it continues to expand its market presence. InvestingPro subscribers can access additional financial health metrics and growth indicators through the platform’s advanced analytics tools.

Executive Commentary

CEO Morten Henneveld emphasized the company’s commitment to building clinical evidence and capturing untapped market potential. "We are continuously building further clinical evidence to support this," he stated, highlighting VasterSign’s focus on expanding its market share.

Risks and Challenges

• Market Saturation: As VasterSign expands its U.S. presence, it faces potential challenges in capturing market share from established competitors.
• Regulatory Changes: Possible EU tariffs could impact the company’s operations, although current concerns are minimal.
• Patent Protection: While secured into the 2030s, any changes in patent laws could affect VasterSign’s competitive edge.

Q&A

During the earnings call, analysts inquired about the drivers behind VasterSign’s sales growth, which were attributed to broader market access and an expanding customer base. The company also addressed concerns regarding potential EU tariffs and confirmed increased provisions for Cyrokos royalty payments.

Full transcript - OssDsign AB (OSSD) Q4 2024:

Webcast Moderator: Hello, and welcome to today’s webcast with Oste Sain, where CEO, Morten Henneveld and CFO, Anders Svensson, will present the Q4 report for 2024. After the presentation, there will be a Q and A. So if you have any questions, you can send them in via the form to the right. And with that said, I hand over the word to you guys.

Morten Henneveld, CEO, VasterSign: Thank you. Thank you very much, and good morning, and welcome, everyone. My name is Morten Hineveld. I’m the CEO of VasterSign. And as always, I have our CFO, Anders Sven, with me today.

Today, we want to walk you through our Q4 and full year 2024 results. This report also marks the 1 year anniversary as a pure play of a biologics company. And I’m pleased to report that Oxisign continues to deliver sustained high growth, whilst at the same time significantly improving profitability and cash flow. The normal disclaimer as always. If we move on to the highlights of the Q4, this is very much in line also with the highlights of the year overall.

Firstly, during the year and in particular in the second half, we’ve consistently proven that what we said a little more than a year ago when we made the announcement to become a pure play Orthobiologics company. And I think we’ve clearly demonstrated how attractive Orthobiologics is and that this business is highly scalable. Secondly, Ostezine is a high growth company and we continue to demonstrate high growth above 100%. 3rd point, the 4th quarter also clearly shows the operating leverage in the company with a very high gross margin and an even better cash flow result than the strong Q3. We’re also seeing a very strong improvement in the fundamentals in the company.

Growth is driven by positive development in the underlying business, meaning broader access in the market and increasing customer base and also higher usage among existing account. And last but certainly not least, we are building and in particular during 2024, we’ve built a very solid repository of preclinical and real world clinical evidence with numerous publications and we’ll come back to that a little later. And with that, I’ll hand you over to Anders to walk you through the financial results for the Q4 and the full year.

Anders Svensson, CFO, VasterSign: Thank you, Morten. So just before we dig into the numbers, we’ve mentioned in our previous quarter presentations that since we no longer operate in the cranial space, we will only compare in 2024 to previous periods of orthobiologics sales. But when it comes to gross margin, this cannot be separated out. We will therefore compare to the previous blended period. So as Morten mentioned, we continue to see high growth in the company during the quarter.

We reported a growth of 54% compared to the same period last year. Now the Q4 ’twenty three comparison period was substantially distorted by about €4,300,000 in 1 off orders to a single hospital system that actually moved facilities during that quarter. So adjusting for that one off occurrence, the underlying Q4 growth was 84%, and the exchange rate impact in the quarter was negligible. Now if we look at the full year 2024, we ended at almost €134,000,000 which corresponds to an impressive year over year growth of 107%. And on a reported basis, constant currency wise, it was 108%.

So as you see, again, a very negligible exchange rate effect. Now as we’ve also said before, growth will not necessarily be linear. So we will more it will more take the form of a staircase where we increase accounts and uses in 1 quarter and then may slow down somewhat in the following quarter as we get those new customers up and running, and then it could increase again. And I appreciate that this is not actually what we’ve seen in the last two quarters, where we have continued a strong quarter over quarter increase. But we’re, of course, very pleased with this development.

We continue, however, to believe that the best way to look at the underlying momentum in the company is to look at the last 12 months or LTM run rate. This, of course, now aligns with the full year 2024. So as you can see, for the Q4, the strong trajectory continues. That’s an excellent performance that we are really highly satisfied with. Moving to the gross margin then.

Now in the quarter, it remained at a very high level, 96.8%, which is up some 24% against the blended rate in Q4 ’twenty three. Continued improvements in production have again enabled the realization of production efficiencies. And in Q4, it was also supported by very favorable U. S. Dollar SEK exchange rate effects, which has brought the Q4 margin in line with the reported margin in Q3.

For the full year, we’ve now delivered a gross margin of 95.4% against the 74.6% in 2023, which is an increase of around 21 percentage points. Now given the release of provisions from earlier quarters, the full year margin is a more reasonable reflection of the current underlying margin in the business, and it’s also higher than the guidance that we’ve given of above 93% going forward. Moving to the cash flow. Cash flow from operating activities amounted to approximately minus SEK 7,000,000 for the quarter, and that’s a really substantial improvement compared to SEK 26,500,000 negative in Q4 ’twenty three. It’s also even an improvement over the previous quarter in ’twenty four.

Now improved operating leverage, as evident in the operating result, was an important driver behind this cash flow development as was the positive working capital improvement. Now for the full year, cash flow from operating activities was minus SEK62 1,000,000 compared to minus SEK95 1,000,000 in 2023, which is again solid underlying improvement. And this is despite about minus €12,000,000 outflows earlier in the year related to the non recurring items from the discontinued cranial business end of 2023. So adjusting for those outflows would bring the underlying cash flow from operations to roundabout €50,000,000 And as highlighted in previous quarters, the underlying net working capital development has actually trended positive all year, with the reported numbers in the first two quarters being distorted by these previous 23 mentioned effects from nonrecurring items. In Q3 ’twenty four, we could see a more representative picture of the underlying performance starting to emerge also in the reported numbers.

Now this development continued in Q4 with even better reported numbers. And in Q4 also, the receivables have returned to a more normalized development after the substantial improvements in earliest quarters. So all in all, we’re very pleased with the underlying cash flow development. And I will now hand you back to Morten.

Morten Henneveld, CEO, VasterSign: Thank you, Anders. I think when we look at 2024, the strong growth that we are reporting clearly confirms that despite a highly competitive market, there are vast growth opportunities and that we can take market share when coming to market with a state of the art innovation that actually solves the clinical challenge. 1st, and as we also explained after our Q3, our design catalyst represents state of the art innovation when it comes to operating at nanoscale, where we have taken it all the way to the point where we are actually mimicking native human bone. This has long been the Holy Grail in the industry and we are offering just that. Ostezine Catalyst simply looks and behaves like native human bone.

Secondly, the core challenge for Surgeon is to build into contract bone in a vascular environment to ensure a bridging bone is formed and therefore achieve a successful fusion. Catalyst is the only synthetic bone graft to be combined with silicate substitutes. And similar, as we also explained after the Q3 to a supercharged engine in a car, silicates essentially supercharged bone formation. Catalyst therefore solves the avascular challenge by offering what we call a dual pathway bone formation. It simply grows bone simultaneously from the outside in and the inside out, thereby generating better clinical outcomes.

And last but certainly not least, Ostezine Catalyst is offering surgeons exceptional intraoperative handling qualities. It is easy to mix and mold. It’s easy to place in the surgical side. And importantly, there is no irrigation, so it does not wash away or start running when being exposed to fluids. And importantly, there are no training needs for surgeons.

They can take the product and use it immediately. So I hope these three points makes it clear to everyone why Catalyst is so differentiated in the market, but also explains why the product has seen this uptake and why it resonates so well with so many surgeons already. Moving on to clinical. The company has already come a long way and is continuously adding clinical evidence to enhance the foundation of Ostezine Catalyst. We now have more than 10 clinical and preclinical white papers and peer reviewed publications and that means that we are rapidly building a robust repository of clinical evidence.

This increase in clinical experience supports a strong safety and efficacy profile of Ostezine Catalyst and further strengthen our value proposition in interactions with surgeons and hospitals. And as previously communicated, the outcome from the first 100 patients from our prospective spinal fusion registry called PROPEL is expected to be published in the first half of twenty twenty five. With the company’s growth trajectory during 2024, Ostezine is now positioned as a serious contender in the vast U. S. Orthobiologics market, a very significant achievement given the short time frame since launch.

Over the last 3 years, we’ve gained broad access to hospitals and surgical centers. We’ve built a strong distributor network and we’ve achieved full access to the U. S. Military covering both active personnel and veterans. And in 2024, we also won the 1st large GPO contract, as you know.

But simultaneously with this, the company has been transformed into a U. S. Centric organization and several functions have been moved now to the U. S. During the year.

And in addition to that, we’ve also formed new teams to support the commercialization, not least a new U. S.-based marketing team. So all in all, we’ve come a very long way. And whilst we are exceptionally pleased with the progress today, of course, we are even more focused on the more than 90% of the spine of the biologics market, which is still untapped and therefore represents a very significant growth opportunity in the years to come. And in addition to that, as we’ve also highlighted before, there are numerous growth opportunities in adjacent orthopedic segments where OxyContin Catalyst already has FDA clearance for use and which the company therefore can pursue if we want to without any further regulatory requirements.

So as we sum up 2024, we also celebrate a 1 year anniversary as a pure play of a biologics company, we can conclude that things are going well. The company is on a strong trajectory with strong fundamentals in place. Growth momentum is high, gross margin is high, we have a highly differentiated offering in the market that solves the core clinical challenges, and we are continuously building further clinical evidence to support this. We have an enormous untapped potential ahead of us and is therefore all about continuing to execute on the strategic priorities to build access and coverage in the U. S.

Market, leverage the powerful Catalyst technology to bring new products to the market, build more clinical evidence and gradually over time expand into adjacent orthopedic segment. So with those words, I want to thank you all for listening to the presentation and hand back to the operator who will handle questions.

Webcast Moderator: Thank you so much for the presentation, Gerd. And as you mentioned, we will carry on now with Q and A. So the first question is, can you tell us more about the dynamics and drivers of the sales in Q4?

Morten Henneveld, CEO, VasterSign: Yes, I think there’s nothing out of the ordinary. This is good old school sales execution, I would say. It’s driven by broad access in the market, so more approvals. It’s driven by more new users, so an increasing customer base. But it’s also driven by increased usage in the existing accounts.

And I also just want to highlight the results should, of course, also be viewed in the context of the big storms that we had down in Florida, where we saw elective stops for maybe 1 or even 2 weeks some places during the month of October. So it shows that we have gradually built a broader customer base, also geographical broader customer base, which basically makes us less vulnerable for events like the 2 hurricanes that we saw Florida during October.

Webcast Moderator: Thank you. How much of sales come from new customers in Q4?

Morten Henneveld, CEO, VasterSign: Yes. That’s not something that we disclose, both because we don’t want to disclose such operational items, but also because the definition just becomes very difficult, right? And a customer coming in, in a given month technically is no longer a new customer in the month in the next month. So we will not go into more detail on that question.

Webcast Moderator: Thank you. Do you have any plans to change lease to Nasdaq Small Cap?

Morten Henneveld, CEO, VasterSign: Good question. Listen, it’s not something that we spend a lot of time considering. I think we are much more preoccupied with building and growing the business. That’s important. If that become if that makes sense over time to change listing, then of course, that’s something we’ll consider.

But we are, as I said, a lot more preoccupied with building and growing the company.

Webcast Moderator: Thank you. You’re reporting an EBIT of minus SEK 12,200,000, but it seems to be distorted by minus SEK 2,200,000 related to increased provisions for Cyrokos royalty payment. Can you explain this?

Anders Svensson, CFO, VasterSign: Okay. So when we bought Cyrokos in 2020, there was a royalty agreement there, which says that we pay a certain percentage of our future sales until 2,030 in royalty to the previous owners. We had to try to estimate how much that would be in the next 10 years. And every year, we had to go and do a reality check and say, okay, what do we believe now? Is the provision going to be enough?

And what we have found in the last few years is that we’re selling better than we had thought. So the provision won’t be enough. And therefore, we have to increase the provision at year end, which then hits the result negative. So you could say that it’s a positive sign, but it has a negative immediate effect in the P and L.

Morten Henneveld, CEO, VasterSign: And I think that’s also why we are saying just to follow-up on that, that this is a pure mathematical exercise, balance sheet exercise essentially, and it’s only a positive thing. But it is more accurate, if you want to look at the true underlying result to look at the minus 10% as opposed to the minus 12.2%.

Webcast Moderator: Thank you. The next question here is, when you press release your strategic shift to Autobiologics in 2023, you wrote, based on the revised strategy of the science, financial target is to reach sales of SEK150 1,000,000 to SEK200 1,000,000 in the medium term, at which point the company also expect to become cash positive cash flow positive. With the current revenue run, you are within the interval, but you’re still cash flow negative. Have you revised the required level to reach a positive cash flow? And what is the new expected required level, if so?

Morten Henneveld, CEO, VasterSign: That’s not something that we’ll go into detail at all. If at some point, we are revising that, we will, of course, announcing it to the market.

Webcast Moderator: Thank you. You have said earlier that you have approximately access to 10% of the market. Has this increased as you start Q1? How do you think this would progress during 20 25?

Morten Henneveld, CEO, VasterSign: Yes. I mean, we’ve said we are approaching 10%. We haven’t got quite to the 10% yet. We’re still not at the 10% range. We are incredibly happy.

It’s a huge market, so 10% is a big numerical value in terms of potential. But we are approaching the 10%. We are not there. We still have more than 90% to capture.

Webcast Moderator: Thanks. How will you be impacted if Trump put tariffs on Europe or the EU? Well, I

Anders Svensson, CFO, VasterSign: don’t think we’ll be impacted very much. We don’t debate this very much because we don’t see it as a big issue for us. First of all, we are we have our production in the U. K, which is outside the EU. So I don’t think that any EU tariffs will hurt us there.

And we ship health care products, so I don’t think that’s the ones it’s going to target. And even if it does and even if that impacts U. K. As well, it’s going to be a very, very small impact given our low COGS.

Webcast Moderator: Thank you. Next (LON:NXT) question here. I am interested in competitive advantages in prospective IPRS and patents. Could you tell us something about them? How long they cover and so on?

Morten Henneveld, CEO, VasterSign: Yes. I think I mean, we hold a number of patents, right? Technically, we also still hold patents on the previous green node technology. So I think people can go into detail. It’s a little bit technical to go into here given the amount of patents and IP we have.

There are numerous there and we are what I can say is that we are well covered into the 30s. So we feel good about it.

Webcast Moderator: Thank you. How has 2025 started? Do you feel that the company is keeping its momentum regarding growth and sales?

Morten Henneveld, CEO, VasterSign: Yes. I mean, it’s still early days. I don’t think we’ll talk too much about Q1 right now. But yes, we are we’re seeing a good continuous trend, as we’ve also said in the past.

Webcast Moderator: That was all the questions we have received so far. So with that, I want to thank you for presenting and thank you also for listening in and asking questions and have a good day.

Anders Svensson, CFO, VasterSign: Thank you,

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