Stille (Stockholm:STIL) Q3 2026 Earnings Call

0:00 Welcome to the conference call. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now I will hand the conference over to the speakers. Please go ahead. Good afternoon, everyone, and thank you for joining STILIS quarterly conference call for Q3. My name is Ulbricht Bertelsen and I am the Group CEO of the Steely Group. I'm joined today by our Group CFO, Niklas Thurén, who will take you through the financial overview shortly. I will start with the key highlights for the quarter and provide an update on the development of the business.

0:49 So overall, we are very pleased with the third quarter. We delivered another quarter of strong, profitable growth. and a very strong cash flow. Revenue increased to 171 million sec, corresponding to a total growth of 23% and organic growth of 17%. Rolling 12-month sales exceeded 700 million sec for the first time ever. Profitability also continued to improve. EBITDA before non-recurring items increased by 29% to 34 million SEC, and the EBIT margin before non-recurring items increased to 14.4% from 12.5% last year.

1:41 Cash flow from operating activities more than tripled to 34 million SEC from 10 million SEC last year. In surgical instruments, organic growth was 19%. Better product availability allowed us to shorten delivery times and reduce back orders. Underlying demand remains strong, but reported growth does benefit from delivering previous back orders. Certical tables grew by 9% following the record second quarter, with continued robust demand for both Imagic 3 Legacy and MedStone. For the first nine months, organic growth was 20%.

2:27 The bid-down margin before non-recurring items was 20.3%, and earnings per share more than doubled. So to summarize, Q3 shows continued strong demand, better delivery performance, and an improved financial position. Let me briefly elaborate a bit more on the operational progress behind the quarter. In July, we said that our priority for the second half was to continue improving delivery performance, and I'm pleased to say that we made significant progress in the third quarter. Within surgical instruments, more effective supply management and increased production, particularly at S&T in Switzerland, allowed us to shorten delivery times and reduce back-order levels.

3:20 This matters beyond the quarter. Better product availability strengthens confidence among our customers as well as partners in our ability to deliver and that helps to stimulate for future demand. We are not done yet though. Delivery performance remains a key priority for us and we will continue to work on supply management and production capacity to make sure that we scale our supply for future growth. In surgical tables, demand remained robust after the record second quarter, supported by both the Magic 3 Legacy and MedStone.

4:06 For the first nine months, table sales are up around 30% versus 2025. On the commercial side, we are increasing the pace of our activities through our direct sales teams, as well as our partners around the world, leveraging the full portfolio of the Stigl Group. So in summary, operations and the commercial side are moving in the right direction, and that is what we see reflected in the numbers. With that, I will hand over to Niklas, who will take you through the financials in more details. Thank you, Ulrik. If we start looking at the revenue, the revenue in the quarter was 170.6 million SEK, an increase of 22.9% compared with the same period last year.

5:05 Organic growth was 16.5%. Surgical holdings contributed further with 8.9 million SEC in the quarter of acquired revenue. This is lower than in the previous quarters because Surgical Holdings was acquired during Q3 last year. So the acquisition impact from that is limited to the month of July. Currency translation had a positive impact of 2.1 million SEC on revenue. and in constant currencies the total growth was 21.5% and organic growth was 15.2%. And as Ulrik mentioned, we surpassed on a rolling 12-month basis 700 million SEK for the first time, reaching 711.4 million SEK at the end of Q3.

5:53 If we move on to earnings, Starting looking at the gross margins, they improved to 49.9% compared to 48.8% last year. And excluding surgical holdings, the acquisition impact of surgical holdings gross margin was 50.5%. And this improvement was mainly driven by positive mix impacts. EBITDA before non-recurring items increased by 29% to 33.7 million sec, and the margin increased by 0.9 percentage points to 19.7%.

6:44 EBIT before non-recurring items increased by 42% to 24.5 million sec, and the margin improved by 1.9 percentage points to 14.4%. Excluding the acquisition effect, the EBITDA margin improved by 1.3 and the EBIT margin by 2.3 percentage points. Operating expenses increased by around 20%, slightly below sales growth, reflecting the larger group and continued investment in our organization, but nevertheless leveraging the higher sales to improve the margins.

7:37 Currency translation had a negative impact of 0.4 million SEC on EBIT before non-recurring items. And this quarter merits a little bit closer look on non-recurring items as they occurred both in this year and last year in the quarter. Starting with this year, non-recurring items were a net positive of 4 million SEC consisting of tariff refunds of 5.2 million SEC and partly offset by 1.2 million SEC of costs related to organizational restructuring. Last year, non-recurring items were a negative 7.1 million SEC relating to transaction costs for the surgical holdings acquisition.

8:28 So reported EBIT after non-recurring items was 28.5 million SEC in 26 and 10.2 million SEC in 25. Looking a bit closer on the segments, surgical instrument sales increased by 27% to 133.8 million SEC with organic growth of 18.9%. EBIT before non-recurring items increased by 21% to 20.4 million SEC. And the reported EBIT margin was 15.3% compared to 16% last year, mainly reflecting the Auckland Corporation of Surgical Holdings and adverse currency translation impact. Excluding the acquisition effect, the margin was broadly stable down 0.2 percentage points, which is by above mentioned currency translation.

9:28 Surgical tables sales increased by 9% to 36.8 million SEK and EBIT before non-recurring items increased to 4.1 million SEK from 0.5 million SEK last year. And the margin improved from 11.2, sorry, improved to 11.2 from 1.5% last year. And for the first nine months, the table's EBIT margin was 11.8% compared with 3.8% last year. If we look at the cash flow and financial position, cash flow in the quarter was strong.

10:15 Cash flow from operating activities was 34 million SEK compared with 10.2 million SEC in Q3 of 25. The improvement was driven by higher earnings with working capital broadly neutral in the quarter. For the first nine months of 26, operating cash flow was 91.2 million SEC compared to 39.5 million SEC last year. Cash and cash equivalents were 170.7 million SEC at the end of the quarter, and we had a net cash position of 60.6 million SEC. Net debt to EBITDA was a negative 0.4, and the equity to assets ratio was 69.2%. In summary, overall, the third quarter combined strong organic growth improved profitability and a very good cash generation.

11:22 For the first nine months, revenue has increased by 37%, EBITDA before non-recurring items has increased by 44%, and operating cash flow has more than doubled. And with that, I hand back over to you, Ulrik. Thank you, Niklas. So to conclude, Q3 was another strong point. We continue to grow organically, improve margins and cash flow, and make clear progress on delivery performance. Looking ahead, our priorities are to scale instrument supply to support our continued growth, strengthen commercial execution and customer access, and leverage the strong IMAGIC3 momentum to gain further market share.

12:16 We will continue to develop the group's capabilities and infrastructure required for the future. With a net cash position, strengthened margins, and improving delivery performance, Stele is in a very strong position to take the next step, both organically and through selective acquisitions. With that, we are happy to take your questions. If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Christian Lee from Pareto Securities.

13:07 Please go ahead. Thank you for taking my questions. I will take them one by one. Could you please give us a status on the supply situation? Are you now back to normal? Thank you very much for your question, Christian. In terms of the supply chain situation, we have made significant progress during the quarter. As we have talked about continuously during 2026, we expect a gradual decrease in backorder level and the following Q3, we still remain with elevated backorder levels.

13:55 It has been reduced during the quarter and we expect to see a further reduction during Q4 as well. Okay, great. Thank you very much. Could you please talk about how the demand for instruments looks right now? You have said it remains strong. Would you say that it is in line with your long-term growth target? When we look at the instrument demand all the way back from 2025, when we talked about it, we have been pleased with the underlying demand and that has continued during the third quarter.

14:41 So the challenges we've had in the past has really been the supply side. Again, good progress on that front. And this is also something we believe is very crucial for supporting the future demand on the instrument side that we can deliver on time. So strong development on demand and again, good progress on the delivery situation. Okay, thank you. Could you please elaborate a little bit on what is driving demand for both instruments and tables right now. Is it specifically your products that are benefiting or is it more market driven? So I think it's a combination of both. We see on the table side, if I start with that, there is a in effect of investments happening in the care settings.

15:43 So, for example, in the US, we are seeing ambulatory surgery centers, office-based labs and so on increasing. We're also seeing infrastructure programs, as we alluded to during the second quarter, for example, in Central and Eastern Europe. That is helping to drive growth. But clearly, when you look at the growth we've had for tables during the first nine months, We are taking market share from what we see, and that is driven by a very strong product. We came out with Imagic 3 at the very end of 2024, and this is where we can see now with a strong commercial execution, good product delivery, and a strong product that that is really helping us to drive growth.

16:32 In terms of surgical instruments, I would say it is a combination. We are very proud of the portfolio products we have. There is an underlying growth in the market, but that is more sort of a mid-single digital growth on instruments. driven by increasing population, better access to health care and so on. What we see is a good demand for the products we have due to the quality and the specialized nature of these. Excellent. Thank you. Very clarifying. My last question is regarding the EBIT margin for instruments that was slightly down year-over-year in the third quarter.

17:22 Was it a purely mixed effect, or I'm wondering why you're not seeing a positive scale effect, which scales up, sales up 27% year-over-year? This is a dear topic for most of our calls with a margin, but let's start having a look at the reported numbers as you referred. First of all, there is the impact from the surgical holdings acquisition, which explains the larger part of the deviation versus last year. and the remaining is explained by currency translation. So excluding both of those effects, margins are basically, they are flat or stable with last year.

18:23 As you also mentioned and that we have talked about before, margins are impacted by a number of different mix impacts. It is product mix. It is market mix. Depending on which market we sell, margins will behave, will look differently. And also depending on the sales channel, margins will also look differently. selling through a distributor has one margin profile and going direct has a different margin profile on both gross margin and an EBIT margin.

19:12 So we are always going to strive at improving efficiency in our operations and improve the the margin and the leverage that we can get out of the growth that we see. That being said, we are looking at sales of being the main driver of bottom line growth rather than a margin optimization approach, so to speak, if that helps. Okay, thank you. But could you help me understand the margin development for the instruments?

19:59 During the two last quarters, EBIT margin has been around 15%. But in the previous two quarters, in the fourth quarter and the first quarter of this year, the EBIT margin was around 18%. So how should we consider the underlying EBIT margin for instruments going forward? It's always, I mean, I would say that overall in general, looking at the year to date margin profile is rather reflective of where we are and where we stand. Isolated quarter can have quite a lot of impact from the mix impacts that I mentioned.

20:46 Over time, that will even out. So that's the way I would look at it. OK, that's clear. Thank you very much. The next question comes from Philip Wetterquist from SB1 Markets. Please go ahead. Good morning Ulrik and Niklas. A couple of questions from me. I take them one by one. The first one on instruments. Could you give us some color on the performance across your portfolio between Still S&T, Circa Holdings and Feeling? So maybe, yeah, give us just some color on the development between the brands would be very helpful.

21:37 Sure. Thank you for the questions, Philip. As you know, we don't disclose the details of the individual brands in terms of the exact revenue. That being said, to give you a little bit of color on it, I would say that when it comes to feeling on the cardiothoracic side, neuro and spine, as well as SS&T on the microsurgery, Both of those brands are performing very, very strongly in the instrument side at the moment. And I think that is a testament to the premium instruments we have in surgical niches that look very good, combined also with an improved delivery situation, making these highly specialized products available to surgeons around the world. Those are probably two that I would highlight again as being showing a very positive performance.

22:46 All right, that's clear. Thank you. And then on the tariff refund, you received 5.2 million. Does that cover all tariffs you have paid since the new tariffs were introduced last year or was it just a small part of it? It's a part of what we expect to see or expect to recover. I would guesstimate it around 60% of what we would expect to see. So we can assume some more refunds in Q4 as well?

23:34 That is our target to be able to recover that and obviously it is always going to depend on the administration in the US when you actually get the refunds back and if they're approved. All right, that's clear. and then elaborate a little bit on the gross margin you talked about it a little bit but on our numbers the gross margin appears to be down a little bit more than 200 basis points year-over-year when I exclude the surgical holdings and the tariff refund and we had some positive effects in the quarter so is this mainly a mixed effect that you have seen stronger sales in tables or What are the main drivers behind the declining in the underlying gross margin?

24:29 Sorry, you were talking about the year to date gross margin or? No, in the quarter. So if you compare Q3 to Q3, I think it was down 200 basis points when excluding tariffs and the surgical holdings acquisition. Okay, let me clarify then that the tariffs are, we don't gross report on the tariffs. The non-recurring items is the only place in the P&L that they appear. So they are not included in the gross profit. So it's a net reporting of the tariffs. They don't appear, they are not in gross profit.

25:22 So the 5.2 is a net effect and not the gross refund, so it's... No, what I'm saying... No, let me try to be clear. Instead of, you could report it, you could include the tariffs in the gross margin in this instance, and then take it back out in non-recurring. That's not the way we do it. We report the full impact of the tariff refunds on a separate reporting line, which is named non-recurring items. Okay, yeah, no, I understand. That's clear. Thank you. All right. And then last question, if I may, on your organic growth target. Do you see 10% year over year as realistic? I mean, the markets you are in are growing probably mid single digits, which means you have to take quite a substantial market share to achieve this year over year. But do you view this as a realistic target?

26:32 Thank you, Philip, for the question. It is, of course, an ambitious target. It's part of our long-term guidance to deliver plus 10% organic growth. We do see that as a realistic target, and that comes back to the market share position that we have on the global market. We are still a relatively small business in the overall scheme of surgical instruments. and we believe with a strong execution across this, then we will be able to take market share continuously over the coming years.

27:18 That is also why you hear me talk about the commercial execution, supporting our partners, strengthening our direct teams. We believe we have a very competitive portfolio, but a very uneven market share when you look at it kind of on the global markets. And that is why we think that despite a mid-single digit market growth, that we can outperform that and continue to take share in the market. All right. Yep. That's all for me. Thank you. Thank you very much. The next question comes from Oscar Bergman from Redeye. Please go ahead. Hello, Ulrik and Niklas. Thanks for taking my questions.

28:03 I have a few. Maybe you've already sort of touched upon them, but we'll see if you can provide any additional information. First off, and I'll take them one by one, but first off, I'm wondering if you can shed some more light on how much of the growth in surgical instruments were driven by, well, fulfillment of previous backwaters and how you view the underlying demand going into Q4? Yeah, so thank you for the question, Oscar. This is something we've been asked and been discussing sort of on a continuous basis. We have not disclosed our backorder levels simply because we don't think that this is a long-term situation where we should have, and therefore also we do not disclose the a specific organic sales growth in the quarter, what came from back order fulfillment, what came from orders coming in. That being said, we are pleased with the underlying development in the business.

29:05 We see a solid momentum. We see a lot of opportunity also. And I would say one of the things that really stands out for me is that when I speak to our customers, when I speak to our partners around the world, they are starting to really see the difference that we are making on the supply side. And of course, as I alluded to earlier on, this basically means that people will get even more keen to be promoting our products actively. Our customers will have more confidence in our ability to deliver. So unfortunately, again, can't be more specific on the exact split, but we are confident in the underlying demand and really pleased on the progress we're making on the delivery situation.

29:50 all right thanks and if we turn our heads to uh surgical tables you have delivered two strong quarters in a row just wondering if you can provide any sort of outlook for uh 2027 so we don't provide the specific outlooks on uh on individual segments no you know year by year outlook we have the three uh targets that would communicate the publicly on our organic growth target plus 10%, our EVDA margin of 25, and our leverage of less than 3 net that will be done. When it comes specifically to tables, I would say I'm extremely pleased with the effort from the team and from our partners in really seizing the opportunity we have with the Magic 3. We have seen very, very strong demand throughout the year. And really going back to Q3 in 2025, we started to see very, very strong development.

30:54 As I've talked about before, this of course is a different business than the instrument business. It's capital equipment. These tables last a long time. And that also means that the development is a little bit more lumpy. When you look at the growth we've had in 26, that has clearly been extraordinary. I mean, we're talking about very, very high numbers of growth of around 30% versus 2025. That is clearly not a growth you should just sort of extrapolate going into 27. We think we're in a very strong position to continue to take market share. But again, as we discussed earlier on the market growth for instruments, clearly the market for tables is not growing at 30%. So we're happy with the position we have. We believe we can continue to grow in this segment, but the 30% next year might be a stretch.

31:53 Thanks. I've been talking to some investors that all have the same sort of thesis. It's not a big part of the case, of course, but some investors are asking about the table segment and what could perhaps make you consider seriously considering divesting the table segment. I mean, what would have to happen in the business for you to potentially divest that part? Tables is an important part of who we are and it's an important part of the business. It's 23% of the revenue year to date, so it's an important leg of the business. Over the past five years, the business has changed quite a lot.

32:42 It used to be the biggest segment, now it's a big segment, but an important segment. And of course, as the business evolves, we will continue to look at the composition we have. But we're very pleased with the performance of this segment and see this as being an integral part of who the group is. Okay, thanks. I just have a final question, and that's in regards to acquisitions. I'm just wondering which geographies you find most attractive and how you view the US as a hunting ground for companies to buy, basically. M&A is something that is very high on a lot of questions we get asked by investors and analysts.

33:30 It is an important part of our agenda. We have an active acquisition agenda and continue to look for opportunities that we can believe or that we can see at the value to the group as a whole. When we talk about the US market, this is the largest market for surgical instruments in the world, the largest market also for tables, very, very attractive. In terms of M&A, there definitely are a number of interesting opportunities in the US market. But I would say when you look at them purely in terms of numbers, you will find more in Western Europe. And that comes back to that there are simply more companies both on the on the branded side as well as on the manufacturing side in Europe than what you will find in North America.

34:26 We see good performance in the U.S. in the organic side, but on the inorganic side, I would say U.S. is high in our radar and so is Western Europe. Hi, just a follow-up question, or maybe not a question, maybe more of an observation, but I suspect the price tag would be higher than the seven or eight times EBITDA you purchased so far in Western Europe. If you were to buy it in the US, I mean. I think I will avoid speculating too much, John. I think that comes a lot down to the specific nature of the targets that we are evaluating. Okay, great. Thanks. Have a great Friday. Thank you very much. We had a couple of other things.

35:12 I think it's just worth maybe commenting on one question we've gotten in terms of the inventory position, just how that has evolved. It did increase slightly during the quarter. I'm thinking, Niklas, maybe you want to just add a couple of comments on that. Yes, I can. And as we have also talked about before, Our main focus is really on ensuring that we can deliver according to our customers demand. We are therefore have been and on a case by case basis, we'll continue to invest in inventory if that means that we can get the products to our customer in a fast and orderly fashion. And that's something that we've also done in the third quarter, specifically for S&P, which helped us actually deliver these good sales growth numbers for the quarter.

36:24 Overall on working capital, the net impact of the movements in working capital is fairly neutral. So meaning that Even if we invest in inventory, when we are able to sell the products, we will also build up receivables. We will have a neutral cash position because we deliver to our customer. Super. I believe that is all the questions we have. So thank you very much for taking the time to listen in to our quarterly conference call. Thank you very much and have a nice weekend.