Revenio Group Oyj

OMXH:REG1V

Earnings Call Transcript 2022-Q2

[Jouni Toijala, executive]

Good afternoon from Sunny and Warm Helsinki. My name is Jouni Toijala, and I'm the Group CEO of Revenio. And then next to me, we also have our CFO, Robin Pulkkinen in the call. So really warm welcome to Q2 first half earnings call.

The plan is to go through the following things. So I'm going to start with the business highlights of the quarter and for the first half, then Robin is going to do a deep dive to numbers, go through the current shareholder structure and then go through the guidance at the end. And the plan is to leave as much as we can time also for the questions.

So if looking at the highlights for the quarter. So the Q2 was a very strong quarter for us. So if you look the top 20 countries where we operate. So 17 out of 20 were actually growing. And the 15 out of those 20 top countries, we're actually growing in a double-digit manner. Then if looking the tonometers, intraocular pressure measurement devices and then the imaging devices. So both product lines were actually growing really well.

So as I said, U.S. growing well, key European biggest countries growing really well. Then also, I think the highlight was also the Latin America. So they started to recover after the COVID. And this applies both for tonometer side of the business plus the retinal imaging devices. Then in addition to the normal business, what we have, so device business. So we also launched the iCare ILLUME platform for diabetic retinopathy screening. So the package includes the DRSplus device. So we updated the software functionality for the device so that with the single button press the DRSplus imaging device is taking the image, sending that one to the ILLUME cloud software. And then from there, it's automatically images are transferred to the third-party AI software, which is Tirana as we speak today and then we get the results back to the ILLUME cloud software. And this software solution is based on the Oculo platform assets, which we acquired a bit more than a year ago.

Then if looking at the current market conditions and uncertainties. So as said already during the Q1 earnings call. So we have stopped all the business for Russia and Belarus and the stopping here means that we have actually terminated all distribution contracts. So it's a full-on exit out from these markets. And then a couple of uncertainties. The components, of course, they have been there for the longer time. So according to our view. Still the Q3 is going to be a struggle in terms of the component.

So we have weekly challenges related to the components, but we haven't had any impact to deliveries during the Q2. So in that sense, everything is okay, but it requires a lot of planning, a lot of men and women hours to sort out the challenges week by week. But we have a view that because of the overall economic slowdown, it seems to be like perhaps during the Q4, Q1 next year also the component situation is going to be easing up.

But let's go through the first half numbers in a bit more detail. So net sales grew 25.1% up to the EUR 44.6 million. So that was a good first half for us. And then I think we have to remember that we also had a backup from the U.S. dollar. So if we look at the currency-adjusted growth of net sales in January to June. So the number was 17.6%. And if looking from the absolute euro terms, so the first half backup in the sales was roughly EUR 2.9 million, so EUR 2.9 million from the strong U.S. dollars. And if you look the impact to the EBIT line, so which was EUR 12.7 million, so roughly 60% out from EUR 2.9 million then falls down to the EBIT line. So also on the profit side, we got nice lift up due to the U.S. dollars. Then Robin is going to go more detailed, the cash flow and the other key financials. So over to you, Robin.

[Robin Pulkkinen, executive]

Thank you, Jouni. So like Jouni mentioned that it's -- we're extremely happy to be able to present these numbers for the second quarter, in sales is actually the best quarter ever, as a company -- as a medical technology company for us, supported by the strong FX, of course, but basically comparing to even last year, in the first half last year, our growth was more than 40% for the first half. So being able to report again and for the second quarter, actually last year, the FX-adjusted growth was 43%. So being able to report 30% growth again quarter-over-quarter, year-over-year is extremely good.

So 25.1% to EUR 44.4 million growth in the first half, also the dollar has an impact on the gross margin. It is actually slightly better what we maybe thought even ourselves when we started this year. So a lot of our sales are in dollars. And of course, our manufacturing costs are in euros. So that all plays into the gross margin as well. So the gross margin improvement for the second quarter actually went from 69.1% to 71.3%. So 2.2% improvement year-over-year, and much of that is actually dollar supported, but also a very good product mix and actually, we -- our manufacturing costs also, we've been able to control those quite well and actually even improve them in some products.

Our operating profit, EUR 12.7 million, up by 40% for the first half. And if we -- just as a reminder, last year, we acquired Oculo. So for Q1 last year, we did book roughly EUR 700,000 of acquisition-related onetime costs, which we have adjusted here out. So on the adjusted EBIT line, you can see the comparable number being instead of EUR 9 million, EUR 9.7 million. And there are -- compared to the adjusted comparable number, our EBIT still grew this year more than 30%. And then also, as a reminder, last year, we -- the Oculo acquisition took place on end of April. So basically, I think it was April 28, so basically, our costs for the comparable period does not include the Oculo team costs roughly for the first 4 months. So those costs, obviously, are actually a lot more than the acquisition costs. So that's also something to be kept in mind.

EPS improvement very much in line with the EBIT. Net gearing better than last year, I'll actually cover that a bit more in the next slide. And then the average employee number also going up a bit, but there also the comparable period, does it include the whole Oculo team for the full quarter. So it's an average number, something that's one of the bigger areas of where we got the number or the growth for the employees.

So like I mentioned, the quarter, really strong EUR 24.4 million. It's the best quarter in the recent or midterm history of the company. Not going back -- not stating back to the early 2000s as I would have to go and check what those were there. But as I said, medical technology company, it's definitely the best quarter on top line. We've had very good sales in all key regions, all key products, double-digit growth. And kind of here, you can see it a bit longer-term trend line. So our business is a bit seasonal. So typically, the end of the year and the Q4 is the best quarter in every year. It's more Europe and Asia Pacific, it's more stable throughout the year, but especially in the U.S., the end of the year tends to be quite good.

Also, our business is very scalable. As we've mentioned many times. You can see when the top line goes up, the profitability goes up on the right side. So the blue line is over here. Also, you can see the EBIT profitability being more stabilized now. So in 2020, when the corona broke out, the OpEx freezed like in many other companies, traveling went to 0, trade shows were 0. Everything basically stopped. Marketing was low. So the profitability did go exceptionally high in Q4 2020. But basically, since then, when things have become more normalized, we've been able to stabilize also the profitability. But you can see as the top line grows, the profitability grows with it.

And also for the software solutions, we expect the cash flow from that business still to be negative for this and the next year. Our cash flow, similar seasonality a bit there. So we typically pay or always pay our incentives out in the first quarter. So that kind of is a big impact there on the operating cash flow. And then as we go into the other quarters of the year, the second half typically is the stronger time where we collect the cash and make more cash from the operations.

Equity ratio has been trending up slowly. So basically, we're now closer to 70% versus 60% a couple of years back. And then the net gearing, we're now at 7%. So orange line on the right-hand graph, you can see as it goes up and down, what it does basically, there's certain logic behind it. So when you look at 2020, when corona broke out, our AGM was pushed out to June. Dividends were paid out in Q2 when the net gearing goes up, we collect the cash or kind of build up the cash balance in the bank for the rest of the year. Q1 '21 paid dividends in Q1. Q2, we acquired Oculo with cash reserves. So the net gearing goes up. Then again, we build up the cash in the bank and then Q1 this year, nothing special there. But then Q2, the dividend payout of roughly EUR 9 million we had in the quarter. We actually brought up the net gearing up to 7%.

So our interest-bearing debt versus cash, the balance there. I think it's roughly EUR 5.5 million. We have more debt than cash. Main shareholders, nothing really has changed on the top 10 list. Demant from Denmark is still the largest owner. They've actually increased their ownership during this year a little bit from -- I think it was just over 12% at the start of the year. For the Q2, the bigger change, I guess, in ownership was that the foreign ownership went up roughly 1%, the shares went to Sweden, France, mostly. And U.S., over the couple of last years, the U.S. ownership has increased. So maybe if you go back a couple of years, that's maybe together with the Demant coming in as an owner. Those are probably the bigger changes over the last 3 years. So U.S. ownership tend to -- used to be quite small like 3 years back.

And then the guidance, we expect our exchange rate adjusted net sales to grow strongly from the previous year and profitability, excluding nonrecurring items, as estimated, to remain at a good level. And here, just as a reminder, so the sales are the FX adjusted, not the reported sales.

[Jouni Toijala, executive]

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

[Operator]

[Operator Instructions] Our first question comes from the line of Daniel Lepistö from Danske Bank.

[Daniel Lepistö, analyst]

It's Daniel Lepistö from Danske Bank. I have just a couple of questions. So First of all, you know that the company shortages did not impact your delivery capability in Q2. So is this something that has notably benefited you this year in terms of closing more sales or getting more customer interest as you have actually been able to keep delivering your products quite nicely.

[Jouni Toijala, executive]

Daniel, I can pick that one up. It's Jouni here. So we have heard the couple of clients -- sorry, not the clients, but a couple of competitors what we are having. So they have had difficulties to deliver. And the delivery times are longer than what we are having. So our view is that perhaps at least slightly, we have been able to benefit from that one.

[Daniel Lepistö, analyst]

You said that the tonometer demand was very strong again in several different regions. So what's your view on the current total market opportunity with tonometers and the sort of competition in this segment? I'm thinking about the fact that the rebound technology should kind of soon be the globally leading one if you keep growing as you have.

[Jouni Toijala, executive]

So how we basically see this one. So we have been indicating that the tonometers including the probe, so that's roughly USD 200 million market. Last time when we checked our market share, so it was way over 30%, but less than 35%. So our view is that we have been able to grow quite significantly the market share during the first half as the overall tonometer market based on our data is growing only 2% to 3%. So that's definitely growing.

And now, of course, interesting to see when we get the latest analyst reports then during the late -- kind of later in the '22. But anything, Robin, add on that one. So I think that's for sure that we have been able to gain the market share.

[Robin Pulkkinen, executive]

I think the tonometer market share, I would expect it to be quite close to the air puff, NCT technologies already. So -- but the market studies are on their way. I think we're going to receive them in a few weeks, if I recall right. So we'll know more.

[Jouni Toijala, executive]

And then Daniel is coming back to the second part of the question related to the competition. So we haven't still got any rebound competitors in the human side. So we were -- as in earlier calls, we expected to have the competition already end of last year than we were expecting to have a competition in the USA during the May time frame, but the probable competitors who have indicated and announced that they are coming on the rebound tonometry side, starting from the USA for the human side. So there's no clearance from the FDA for those devices yet. So that's where do we stand today.

[Daniel Lepistö, analyst]

All right. That's very helpful. I think my final question is that can you sort of quantify the impact of these price hikes you mentioned and the volume growth behind the Q2 sales growth?

[Jouni Toijala, executive]

Sorry, Daniel, can you repeat the question? Line was a bit breaking down towards us here. Sorry for asking.

[Daniel Lepistö, analyst]

Yes, absolutely. Can you give us the impact behind the price hikes and the volume growth for this Q2 sales growth?

[Robin Pulkkinen, executive]

I don't really disclose that in detail, but we have given price rises for 3% last year November and then again 4% in...

[Jouni Toijala, executive]

Beginning of May.

[Robin Pulkkinen, executive]

In May. But obviously, the unit growth wasn't as much as the dollar growth because the FX also has a big play there.

[Operator]

And the next question comes from the line of Pia Rosqvist from Carnegie.

[Pia Rosqvist-Heinsalmi, analyst]

Yes. Jouni and Robin, congratulations on a really strong report. On the super strong growth now in the second quarter, do you see any -- or do you hear any signs or any messages in terms of pent-up demand still after COVID? Or would you describe that the current demand situation is really its normal replacement demand and new sales?

[Jouni Toijala, executive]

So I would say -- now Robin, please help me if I'm not getting this one right. But if looking now, I go through the geography by geography. So if looking the USA, looking the key European countries, looking the APAC, so I would say that mostly, there's not too much pent-up demand. So if we go certain Asian countries, which have been in a lockdown, so I would say that there's slightly the pent-up demand. Then if we go for the Latin America, so that was during the Q2, that was quite nice surprise. So they started to be more up and running.

So if you look the growth percentages, for example, in Latin America, so they were quite high. And I would consider that at least partly that's pent-up demand. But that's my understanding. But Robin, anything to add?

[Robin Pulkkinen, executive]

Yes, in the big picture, I think it doesn't have a big impact, that part. So I think we're not much pent-up demand anymore left in the pipe as more business as usual in other key markets, I guess, right?

[Pia Rosqvist-Heinsalmi, analyst]

Okay. So really U.S. and Europe, they -- the strong demand is really -- it's really new sales and nothing left from the COVID.

[Jouni Toijala, executive]

Yes, and replacement, so new and then replacement.

[Pia Rosqvist-Heinsalmi, analyst]

Yes. All right. Good. Then I noted that you did not repeat earlier comments. I think it was from Q1 that in the coming years, you believe that the retinal imaging devices would grow faster than the tonometer business. Am I correct here that you've removed the phrase? And if so, does this signal that something has happened with the tonometer market for you to remove this comment?

[Robin Pulkkinen, executive]

No, I don't think, it's just maybe having a bit new message in the report is the reason for removing that. So I think in the big picture, I think that's still true.

[Jouni Toijala, executive]

Yes, yes. So if looking to Q2, so I think it's fair to say that both were growing really well. And if comparing those 2 product segment. So the fundus imaging side, the growth was higher than the tonometer so...

[Pia Rosqvist-Heinsalmi, analyst]

Okay. All right, clear. And then if I can continue on the tonometer side. So just to understand, can you share any information on which part of the tonometers are growing? I mean probes, are they doing better than before? Or is HOME2 gaining more tailwind or what's happening within tonometers?

[Robin Pulkkinen, executive]

Maybe I'll take that one. All the key products like we stated are doing really well. So the probes and tonometers on the imaging side, the same thing. So not really anything special there. I think the HOME2, in general, like Jouni, I think you mentioned this in the report, we said that the -- it's been really well received in the U.S., especially the Bluetooth connection has been a really breakthrough into the -- and really important addition for the doctors. So it does look very promising. And it is like we had earlier said that it is the fastest-growing single product for us. So we're very happy to see that the development has been like it has been and looking really closely how it continues from here on, but everything looks good now on the HOME2.

[Pia Rosqvist-Heinsalmi, analyst]

Good. And then still to clarify. So these were the device-driven sales. But how about software? Can you say anything about software sales in the quarter? I'm thinking here about Oculo. So are you able to sell the product? Is it gaining traction?

[Jouni Toijala, executive]

So we have been putting now a lot of effort to the ILLUME. So if looking back times about a year ago, so we made a decision to focus on the diabetic retinopathy platform development with the Oculo team using the Oculo platform assets. So we have been now really heavily working in order to get the first end-to-end solution out. So meaning the new software for DRSplus, then Oculo platform-based ILLUME platform and then all the AI player components and now entering up to the piloting work for those in order to guarantee that in the coming quarters, we actually have a product to market fit.

Then when it comes to the existing Oculo business. So that's as it stands and we have been able to grow that one in Australia and New Zealand, but that's not visible in a big picture as such. And then when it comes to the strategy, so the cornerstone of our strategy is to have a profitable growth. So what comes to the investment to the Oculo and the software in general. So we have a certain kind of a bucket of money or how would I say it? So certain team size that we are carefully looking at so that we don't overspend and overinvest on the software platform development side, so that we are able to provide the profitable growth.

And then if the team is limited, so if we have to pivot, so then we actually with the same team, we do pivoting in terms of the software business and in terms of the development side. And now the focus is in delivering and getting the market traction for ILLUME and the diabetic retinopathy screening platform and enhancing that one. So that's where the focus has been now the last 3 quarters. And now we have a product -- first end-to-end product out and now heading for the pilots as we speak. Sorry for the long answer, Pia, but that's the full picture, where do we stand.

[Pia Rosqvist-Heinsalmi, analyst]

No. Thanks for the clarification. Then to the imaging devices. So it seems that you are really -- I mean, you are enjoying good demand for DRSplus and the Ultra-Widefield lens as you've discussed earlier, but what about the other products within the imaging segment? What can you do to speed up growth also in those?

[Jouni Toijala, executive]

So if looking at the first half, Q2, in general. So DRSplus selling really well, the EIDON Ultra-Widefield selling well, but we also have the EIDON FA and AX. So those have been selling as well. But then just why we put into the report the Ultra-Widefield. So that's now kind of a door opener for us because we haven't had a product before on an Ultra-Widefield segment. So that's the reason why we have highlighted that one as kind of a growth spearhead for us in addition to the DRSplus. But other EIDONs have been selling also really well.

We have been able to grow that side of the business. Then if looking the perimeter, so the COMPASS, so the perimeter business that's growing as well. But then in terms of the volume on the perimeter side, so that's a way smaller. But we have a high percentages on the perimetry side, but it's a tougher market and the volumes are smaller than on the DRSplus and on the EIDON Family side.

[Pia Rosqvist-Heinsalmi, analyst]

Okay, clear. Then my final comment. The -- I think Daniel asked about market share situation in tonometers and the line broke up there a bit at least for me. So Robin, could you please reiterate your comments about your estimate about your market share in tonometers?

[Robin Pulkkinen, executive]

We haven't had any new information for the last year, but looking at our sales percentages and the market growth in general. So the tonometer market growing roughly 2% to 3%. So obviously, we're growing double digits. So we are taking share and kind of I would expect us to be quite close to the NCT market share. So they used to be the dominant, so still we are to back there 40% market share, we were 2 years ago like below 30%. So I think last year, we went to roughly 33%, 34%. And I think now we probably should be quite close. My guesstimate would be.

[Operator]

And we have one more question from the line of Nikko Ruokangas from SEB.

[Nikko Ruokangas, analyst]

I hope you can hear me. I could continue with the AI team a little bit and your comments that the DRSplus was growing very strong. So even though you wouldn't have sold any -- or provided any AI solutions yet. So do you think that the potential to offer that in the future will boost demand for [indiscernible] and devices already now in Q2 or this year?

[Jouni Toijala, executive]

I would perhaps say so that if first thinking the dynamics and the strategy on the AI and in the context of DRSplus, so that's following. So we have 2 streams ongoing. So the first one is to guarantee that DRSplus, of course, the EIDONs, so they are compatible and especially going to be approved in coming quarters, at least in the USA, so that the device plus third-party AI algorithm, so that's working together. So in the Europe, the process goes so that it's okay if the DRSplus is having a regulatory approval and the AI algorithm is having a regulatory approval. So then you can use them.

If you go to the U.S. under the FDA, so they should be approved as a package. And so our strategy is following. So we want to guarantee that our devices are working with the third-party AI algorithms. So that's goal number one. Then the second one is that we want to guarantee that the DRSplus plus the ILLUME plus the third-party AI algorithm is approved by 1 package, so that we are able to actually sell that package. And that's the second track that -- which we are advancing.

And then if looking now in the future. So our view is that DRSplus, as it's fully automated, so you just press a button, and it can access to the -- through the small pupil. It can access through the cataract and so forth. It's really easy to use and fully automatic. So in the coming quarters, in coming years, that's an excellent tool for different type of fundus imaging-based screening applications. So that's -- so we are at least in-house. We are believing that one, and we have first signs of that one being true as well. So that's shortly the case and the strategy, how do we want to play.

[Nikko Ruokangas, analyst]

All right. Then I have another question still a little bit on the [indiscernible]. So you had quite a big impact from FX as discussed earlier, and you told earlier also that you have strong growth across DRS and in Europe and in the U.S. But thinking about that strong impact from FX, so did you have exceptionally high share from the USA as compared to other quarters, and you had so do you think that is continuing?

[Robin Pulkkinen, executive]

No, it was quite typical. Nothing special on the kind of sales split between regions. So nothing there that would explain it.

[Operator]

And as there are no further questions, I'll hand it back to the speakers.

[Jouni Toijala, executive]

Okay. Great. Thank you very much for the interest. Thank you for your time. And I think it's now certain the shorter period when we meet next. So we come back after the Q3. So looking forward to that one. And have a good rest of the summer. Thank you.

[Robin Pulkkinen, executive]

Thank you.