Revenio Group Oyj

OMXH:REG1V

Earnings Call Transcript 2023-Q1

[Jouni Toijala, executive]

Good afternoon, and welcome to Revenio Group Q1 Earnings Call. My name is Jouni Toijala. And as always, we have Robin Pulkkinen, our CFO, in the call as well. Plan for today is to go through the highlights of the quarter, then -- I'm going to cover that 1, then we have Robin covering in more detail the financial part plus the current shareholder structure, and then the reiteration of the financial guidance. But let's start with the highlights of the quarter.So we saw very strong growth in sales and especially in North America, U.K., Germany, Finland, Italy, and Australia. And if coming back to Q1 growth drivers, so tonometers, including the probes, started to grow in a double-digit manner and they're the leaders from the product perspective where actually IC200 and then the HOME2. Then exactly as in the earlier quarters, so we achieved very strong sales from the retinal imaging devices. And again the same trend continued. So the EIDON product family sold really well during the Q1 plus of course the DRSplus. Then we have been able to move forward related the iCare ILLUME screening solutions. So we installed on the production use more systems during the Q1 plus then we also established new pilots as well during the Q1, so also the ILLUME solution is moving forward as planned.From the market conditions, uncertainties point of view, not too much change on here. What we saw during the Q1 is that the component situations is now slightly better than in the end of the Q4. Then a bit on the client side, we are seeing a bit more cautious decision making. Our view is that it's because of the cost inflation, but otherwise things are more or less looking the same as in Q4.Then going through a bit more through the numbers. So Robin is going to cover numbers in more detail, but a couple of highlights here. So net sales EUR23.2 million, so that's up from the last year EUR20.2 million, so up roughly 15%. Then the EBIT pro forma EUR6.2 million, 10.9% growth. And if we look the Q1 '22, so we are slightly below. So out from the net sales, the EBIT was -- operating profit was 26.6%, and there's a couple of reasons for that 1. So product mix was having an impact to the gross margin and then a bit of a currency fluctuation in the numbers as well, but Robin is going to cover those in more detail. Then earnings per share came down slightly. So that was due to the financial costs and tax rate items. So Robin is going to cover those ones in a bit more detail as well.But I think at this stage, Robin, over to you.

[Robin Pulkkinen, executive]

Thanks, Jouni. So Jouni mentioned, 15% growth roughly in the first quarter, not that much FX impact. So basically, the FX-adjusted growth was 15.2%. Looking at the profitability level, EBIT came down less than 1% like the EBIT percent compared to last year. The biggest reasons are basically the gross margin where the product mix and FX had an impact. But then when you look at operating expenses, basically, last year our operating expenses were 41% of sales and this year they were 40% of sales, so we caught back a bit of that loss that we did in the gross margin and then back in the operating expense and ended up 26.6%.The earnings per share came down, like Jouni mentioned. The financial expenses in Q1 were roughly EUR700,000 up or little bit below that from last year. That's mostly unrealized FX impact. Of course, the interest were slightly up, but also the interest income was up, so those more or less net off each other, so more or less the whole thing is from unrealized FX from currencies we have in the balance sheet, so U.S. dollar and Australian dollar being the biggest part.In addition, also, taxes that we paid were up EUR380,000, more related to which legal entities we actually had the profits coming in, in the quarter. So in Q1, we had more profits coming in from Italy where the tax rate is slightly higher than Finland, 27.9% versus 20% in Finland. Net gearing, I'll cover in the next slide a bit more. Equity ratio is slightly down. Here it's important to keep in mind that this year our AGM was in Q1, so the dividends were posted of the balance sheet or the equity side to the liability side at the end of the quarter, while last year our AGM was in Q2. So the dividends were still in equity at the end of Q1 last year.Cash flow from operations up by EUR0.5 million. On the cash flow side, the beginning of the year is typically the worst quarter for us. We pay out all our annual short- and long-term incentives for the whole company and as well the tax payments were quite high in the first quarter.Looking more on the graphical view. So net sales developed really well in the first quarter. Looking at FX, last year, we had very positive tailwind from the FX. I think all the signs, at least what we see now, are giving the hint that the tailwind will not be as strong this year. So last year, the FX impact was roughly EUR6 million. So now that most likely we will not see that positive support this year, at least not in Q1.The adjusted operating profit or actually still in the revenue, looking at the trend line, so you can see the first quarter typically drops below the trend line. So it typically is the slowest quarter from the sales point of view for us. And then we'll go into the -- towards the end of the year, then we're going to start to pick up and ending up the year with above the trend line. The Q2 is interesting, so looking at the earlier years, we've been close or slightly below the trend line. Last year we were slightly above mostly due to FX. But anyway, the last year number is very challenging, puts the bar really high for us where to target then and try to get to this year.The operating profit, also like we've talked before, it's very scalable business model. So when the top line goes up, the profitability follows. So the operating expense are pretty fixed. On the cash flow here, you can see the first quarter typically is on average, if you look at the past years, it's been close to 0. Now we're slightly positive this year. Like mentioned, this short-term and long-term incentives and the taxes are paid out and then, of course, the lower top line and bottom line in the first quarter are the reasons behind this typical trend. The equity ratio is still really strong, the balance sheet is in a really good solid condition. It did come down slightly like I mentioned earlier due to the AGM taking place in a different quarter than last year. The dividend of EUR0.36 was paid in April. So basically, even though the AGM was in Q1, it didn't leave our balance sheet until Q2.On the shareholder side, no big changes. Basically, the top 7 are still the same. The foreign ownership has gone up slightly, but in the bigger picture really no major changes in the first quarter in the ownership. The guidance for '23 Revenio Group's exchange rate adjusted net sales are estimated to grow strongly from the previous year and profitability, excluding nonrecurring items, is estimated to remain at a good level.That's it.

[Jouni Toijala, executive]

Thank you, Robin. I think we are ready for the questions, please.

[Operator]

[Operator Instructions] The next question comes from Nikko Ruokangas from SEB.

[Nikko Ruokangas, analyst]

Hello, this is Nikko Ruokangas from SEB. I have a couple ones. First of all, you mentioned that your clients have been slightly more cautious with decision making. So how much has this been visible in your numbers and do you expect this impact to be higher going forward?

[Jouni Toijala, executive]

Not visible currently. So I think that's the case. So we haven't seen an impact on that 1 on numbers yet.

[Nikko Ruokangas, analyst]

All right, all right. But you are a little bit cautious going forward.

[Jouni Toijala, executive]

Sorry, Nikko, can you repeat?

[Nikko Ruokangas, analyst]

No, I was just mentioning that, but you are a bit more cautious now going forward than earlier.

[Jouni Toijala, executive]

Not yet, but I think that at least we have noticed that the people are thinking and the clients are thinking more carefully to where they put the money, as you can see from the Q1 numbers, so the impact is not visible yet on the numbers.

[Nikko Ruokangas, analyst]

Yes, understand. Then on the cost side, so as your imaging sales is gaining more and more share of the total revenue, so how much have you been able to decrease the gap between profitabilities of imaging and tonometers? Is that still wide?

[Robin Pulkkinen, executive]

So when we released the new products, the build stays the same, so we don't do much physical changes to the products as we move forward. So the biggest changes in the prices are when we launch new products, like the DRSplus like was discussed before. It was lower price to manufacture, higher price to sell. Then there are, for example, the ultrawide field lenses and the modules that we sell that are addons to the existing hardware, which are then again higher gross margin products for us compared to the devices. So there are improvements. Of course, the tonometer, it's quite simple product from a hardware cost point of view. So it's not that difficult and complex to manufacture compared to the imaging. So I don't think we'll, I don't know, but probably never going to be as profitable on the imaging devices, than the tonometry at least, as the price levels stay at the similar level. I don't know, Jouni, what you think. This is much more expensive components in the imaging devices than tonometry.

[Jouni Toijala, executive]

Yes, I agree.

[Nikko Ruokangas, analyst]

All right. Then 1 more question from me. So your operating costs were [ wide ] at Q3 level from last year now in Q1? So I guess you have salary in place in your expectations, but can you discuss a bit more about the other cost increases you're expecting this year?

[Robin Pulkkinen, executive]

Yes, timing things, for example, clinical trials that are not really easy to forecast or say when it's going to take place. So those are one-off costs we didn't have much in Q1. And then the salary increases, for example, are not taking place in Q1 numbers yet, so that's going to be more visible in the Q2.

[Operator]

The next question comes from Daniel Lepisto from Danske Bank.

[Daniel Lepistö, analyst]

It's Daniel Lepisto from Danske Bank. So if we still go back on the cautiousness you mentioned that you have sensed from your customers during this quarter, so are we talking about maybe hospitals and GP side or maybe these optical chains you have also in your customer portfolio?

[Jouni Toijala, executive]

I think that it's in a way slightly general and not too much cautious, but I think everybody is now thinking that when and where to put the money. So I wouldn't too much perhaps highlight on too much causes of concern here. But generally, people are evaluating that where they put their money. So I think that was the comment because of the higher inflation.

[Daniel Lepistö, analyst]

Okay, but are you seeing any sort of a relative difference between maybe these more defensive hospital customers or these maybe more cyclical optical chains?

[Jouni Toijala, executive]

No. And still I want to emphasize that we haven't saw any dependence on the Q1 demand on this 1.

[Daniel Lepistö, analyst]

All right, that's very clear. Maybe if we could discuss the gross margin headwinds you saw in the Q1 a bit more. I guess there was impact from the sales mix, but also from the less favorable FX you had now in Q1. So could you elaborate a bit more on these topics?

[Robin Pulkkinen, executive]

The imaging product line is growing faster than the tonometry, and it has slightly lower gross margin. So that's the biggest impact there. And then FX is the other 1. So the FX impacts on the top line were higher last year than this year, so that's the other driver. But the product mix is the biggest change there?

[Daniel Lepistö, analyst]

All right, okay. And maybe about the exchange rates, as we saw in the report, now the tailwind has turned into a small headwind already in Q1. And you discussed already during the call, I guess we should start to be seeing even bigger headwind now in Q2 and Q3 especially. Are you planning to take any actions on this 1, or should we expect to see this margin mix -- maybe margin pressure also in coming quarters coming from this less favorable FX?

[Robin Pulkkinen, executive]

At this point, still with the Board, we will discuss this area there and we have not decided on any hedging on the currencies.

[Daniel Lepistö, analyst]

So, we should be a bit more careful in terms of looking at the margins we saw last year, especially in those Q2 and Q3, now that the currencies have turned against you this year.

[Robin Pulkkinen, executive]

Yes, yes. If they had to turn. I think last year -- can't remember right now where the Q1 ended in, but the exchange rate came down quickly after Q1, if I recall right, last year. So by the summer time it was closer to par or parity almost, if I recall right. So the change last year was really fast in the first half euro to dollar?

[Daniel Lepistö, analyst]

Yes, that's clear. My final question is about the tonometer patents that are actually expiring this year globally. So can you remind us when exactly are the patents gone and is it early this year or maybe later this year? Can you elaborate on this?

[Jouni Toijala, executive]

Yes, it was mid of this year and it's the first patent, so-called TAO1 design patent. So we have other patent families as well, which are still valid, like the probe [ monetization ] and eye detection for HOME2 and so forth. So it doesn't give full view [indiscernible] patents are expired because of 1 patent family is expiring, and we have quite many others which are still valid as well.

[Daniel Lepistö, analyst]

All right. But I guess nevertheless, there is a risk of competing rebound technology maybe being the first generation, global this year...

[Jouni Toijala, executive]

Yes, I think that's -- Daniel, yes, that's true. So, if somebody would like to come into the market with the product like TAO1 used to be, so they have the freedom to operate, so that's true. And we haven't heard now. So no news yet on the [ Reichert ]. So we know that they are coming, but they don't have the FDA approval yet and no entry to the Europe either to the human side. So that's the latest status.

[Daniel Lepistö, analyst]

Okay. My final question would be, have you sensed any or heard any rumors about any other competitors maybe looking to get rebound devices on the market outside the U.S?

[Jouni Toijala, executive]

Not yet. There's Chinese copies, but they have been on the market for really, really long time, but nothing else, except [ Reichert ] now.

[Operator]

The next question comes from Pia Rosqvist-Heinsalmi from Carnegie Investment Bank.

[Pia Rosqvist-Heinsalmi, analyst]

This is Pia calling from Carnegie. I've got a couple of questions, and I come back to this slightly maybe softer outlook from your clients. So can you describe the trading conditions now in early Q2? We have 1 month behind us. So how has your clients ordered devices?

[Jouni Toijala, executive]

I think that's forward-looking, but as I said in the earlier question, so we haven't seen any weaker demand during the Q1 and house is in order on that sense. So that's where do we stand as of today. And sticking with the guidance, of course, so that's the other thing, yes.

[Pia Rosqvist-Heinsalmi, analyst]

And still, can you remind us on your inventories. What kind of inventories do you have for imaging devices? Is the inventories larger than for tonometers?

[Jouni Toijala, executive]

It's pretty similar. I think we have like, depending a bit when you look at it, but two to three months inventory on average on our products.

[Pia Rosqvist-Heinsalmi, analyst]

Okay. Then I have got a question regarding the earnings growth. So now in Q1 we saw a slower earnings growth compared to the sales growth and I think we saw a very similar trend in Q1 last year and then we saw a recovery and more normal operating leverage. So now with your comments in mind, should we expect a slower earnings growth now in the upcoming quarters as well?

[Jouni Toijala, executive]

I think the EUR6 million tailwind I would be really careful to assume that that would continue. It doesn't look like it will. So that, of course, had a big impact on last year numbers. But I think -- in general, I don't think we have, other than the guidance, comments on the organic sales towards the end of the year.

[Pia Rosqvist-Heinsalmi, analyst]

All right. And maybe finally, any specific worries or challenges for 2023 you would like to highlight to us?

[Jouni Toijala, executive]

Not at this stage at least. Any anything, Robin, you would like to add on that 1.

[Robin Pulkkinen, executive]

No, no. Just the currencies, have to keep a close eye on them because our U.S. dollar exposure is so high, so.

[Operator]

[Operator Instructions] The next question comes from Nikko Ruokangas from SEB.

[Nikko Ruokangas, analyst]

This is Nikko Ruokangas from SEB, again. I have 1 additional question. In your Q4 call, you mentioned that you are focusing on perimeters this year. So can you describe a little bit how are you progressing with this 1?

[Jouni Toijala, executive]

That's linking to the certain R&D activities what we have on the pipeline. And if we go back the end of '21 and mid of '21 when we launched the EIDON Ultra-Widefield lens for the EIDON family. So we did the strategic decision for second half '21 and then for the year '22 that we focus and we push globally the EIDON and the EIDON Ultra-Widefield and that has been successful. So now it's a bit same kind of a thing. So we are now putting a bit more effort on the compass perimeter for this year and perhaps bringing some new goodies and functionalities to it, so that's the reference what we made during the Q4.

[Nikko Ruokangas, analyst]

Alright. And do you feel that you have been successful in the Q1 now?

[Jouni Toijala, executive]

So that's linking to what's on the pipeline, so not fully yet, Nikko.

[Nikko Ruokangas, analyst]

Yes, I understand. So we'll wait for that to realize. That's all.

[Operator]

There are no more questions at the time. So I hand the conference back to the speakers for any closing comments.

[Robin Pulkkinen, executive]

Excellent, I think we are done. Have an excellent forthcoming summer and see you next time during the early August. Thank you very much for participating.

[Jouni Toijala, executive]

Thank you.