Revenio Group Oyj

OMXH:REG1V

Earnings Call Analysis

Strong Sales Growth and Financial Stability

In Q2, the company's net sales increased by 14.2% to EUR 25.4 million, benefiting from strong performances in both the U.S. and EMEA regions. Fundus imaging devices and tonometers were top sellers, with new product launches like the iCare tonometer PRO showing promising sales. Operating profit rose by 12.6% to EUR 5.3 million. The company maintains its full-year guidance of 5% to 10% revenue growth. Despite personnel and clinical trial costs, cash flow was excellent at EUR 11 million for H1, and the equity ratio is strong at nearly 75%. The EBITDA for H1 also saw a boost to EUR 13.3 million.

Strong Financial Performance in Q2

In the second quarter, Revenio Group reported net sales of EUR 25.4 million, reflecting a robust year-on-year growth of 14.2%. When adjusting for currency fluctuations, the growth is approximately 13.5%, supported by favorable movements in the U.S. dollar. Operating profit stood at EUR 5.3 million with a margin of 20.6%, a notable increase of 12.6% from the previous year.

Healthy Cash Flow and Profitability Metrics

The EBITDA level showed promising growth at 25.6%, with net cash from operations reaching EUR 6.5 million. Earnings per share improved to EUR 0.155. For the first half of the year, total net sales were EUR 49.1 million, which accounts for a 7.9% rise on a currency-adjusted basis. Despite these positive figures, the adjusted EBIT for the first six months fell slightly to EUR 10.4 million.

Segmental Insights and Product Performance

The company's sales trajectory was particularly strong across several segments. Fundus imaging devices and tonometers are leading the charge, with significant sales growth noted for the IC200, DRSplus, and EIDON product families. Additionally, the newly launched iCare tonometer PRO is gaining traction. The fundus perimetry product, COMPASS, has also shown promising growth.

Guidance and Revenue Projections

Looking ahead, management has maintained their revenue guidance for the year, projecting a growth range of 5% to 10%. This reflects an optimistic outlook, especially given the strong performance in Q2. The management anticipates a continued upward trend in sales through the second half of the year, particularly benefiting from seasonal trends historically observed in Q4.

Clinical Trials and Regulatory Approvals

The company is preparing for the FDA submission of their ILLUME product in the second half of 2025, which could pave the way for significant market opportunities in the U.S. However, clinical trial costs between EUR 1.5 million and EUR 2 million are expected this year, which might impact profitability into the latter half. There is strategic emphasis on aligning their devices with AI platforms, a move designed to enhance compatibility and broaden market access.

Challenges and Competitive Landscape

Despite the promising figures, the company faced challenges, particularly with the write-off of EUR 730,000 related to non-strategic capitalizations concerning Ventica. Competition, particularly in the U.S. tonometers market, has intensified, yet has not adversely affected sales thus far. The company emphasizes that their growth is not driven by pricing strategies, maintaining margins while expanding market share.

Shareholder Update and Dividend Policy

The balance sheet remains robust, approaching an equity ratio of 75% with net gearing below zero. A dividend of EUR 0.38 was distributed, reflecting a payout ratio slightly above 50%. Long-term shareholder solidity is reflected with minor changes in the top ownership structure, led by William Demant with increased foreign ownership.

Earnings Call Transcript 2024-Q2

[Jouni Toijala, executive]

Good afternoon from [ sunny ] [ Helsinki ], and welcome to Revenio Group earnings call. My name is Jouni Toijala, I'm the Group CEO, and with me we have here as well our Group CFO, Robin Pulkkinen.

Today, we are going to go through the highlights of the Q2. So I'm going to go through those. Then Robin is going to cover the financials and the shareholder structure change, plus the financial guidance.

So let's jump to the Q2. So good second quarter for us, exactly according to the plan. Net sales, EUR 25.4 million, so up 14.2% from the last year Q2. And the currency adjusted growth was 13.5%. So we got a bit of a tailwind from the U.S. dollar.

Operating profit, EUR 5.3 million, 20.6% from the net sales, up 12.6%. We had the write-off regarding [ to ] Ventica here. So Robin is going to go through the adjusted numbers a bit more in detail.

EBITDA, really good level, so up 25.6% and as well as in the Q1, so Q2 net cash from operations was extremely good, so EUR 6.5 million and earnings per share up to [ 0.155% ].

If looking at the whole first half, so net sales, EUR 49.1 million. It's an increase of 7.9% on currency adjusted terms, 6.1%. EBIT, EUR 10.4 million, slightly down from the last year. EBITDA up to the EUR 13.3 million. And net cash flow extremely good, so from EUR 0.1 million to EUR 11.2 million, and of course, reflecting then [ to ] slightly increased earnings per share.

Then, if we go back to the business highlights for the second quarter 2024, so the sales development in the second quarter of the year was strong, and sales growth in the U.S., strong. And if we go for the Europe, Middle East, Africa and APAC, so the sales growth was very strong.

If you look at the segments a bit more carefully. So sales of the fundus imaging devices, that was very strong. Also, tonometers were developing and selling strongly during the Q2.

Then if we go further into the devices which were leading the sales, so IC200, including the probes sold particularly well. Then DRSplus, plus the EIDON family was selling really well as well.

And then, if you recall back to the Q4 last year, so we also updated the new software version for our fundus perimetry called COMPASS. So we saw nice growth percentages on the fundus perimetry side as well.

Then, we launched a new product called iCare tonometer [ PRO ]. So that was launched during the Q2 and sales is picking up nicely on that one as well.

And I let Robin to go through the financial part and also cover in more detail the Ventica. So over to you, Robin.

[Robin Pulkkinen, executive]

Thank you, Jouni. So Jouni covered slightly the numbers there earlier -- in the earlier slides, maybe I'll give some more color here. So the sales up 14.2% in the second quarter. When going down in the second line, look at the gross margin, actually very much in line with the top line growth. So both growing for the full first 6 months in the second quarter in line with the top line and gross margin also being very much in the similar level than it was last year. So there's actually very little surprises there on the margin side.

We did have -- so, Jouni mentioned about the write-offs. So during the quarter, we did write down for all the non-strategic capitalizations that we had in the balance sheet, mostly related to Ventica, and that was EUR 730,000.

So looking at the operating income, operating profit, the adjusted numbers and maybe a better line to look at if you want to get the pure business view, how the performance has been. [ Coincidentally ] also last year in the same quarter, we had the EUR 800,000 onetime project costs that had an impact on the numbers then. So both of those numbers have been adjusted on the adjusted profit -- operating profit line.

So EUR 6 million for the second quarter and EUR 5.5 million for the '23 Q2. Growth approximately 9% and for the whole year -- for whole first 6 months, there's a small decline still on the adjusted EBIT number. I'll go through the other numbers in the later slides in more detail.

So basically, a good quarter, very much like I think we and the market expected. So we've also said earlier that we -- going into the year, Q1 and Q4 were challenging from a comparable point of view. And then Q2, Q3, were the months -- or quarters where we saw that there is a potential for better growth.

So basically, looking at the numbers, how that came in, it was very much according to our initial and internal thinking also, how we thought the year would be going. So year-to-date so far, going as planned.

FX-adjusted growth, 13.5%, like Jouni mentioned, and also nice to see that the Q2 top line also coming back to the -- closer to the trend line. Q2 often has been actually below the trend line in the earlier years as well, '22 being one year where that was not the case. So exceptionally good year '22 standing out here also in the graph.

So looking at the profitability also with a bit of a longer tail. Now going back [ up ] from EUR 5.1 million to EUR 6 million in the second quarter. And basically, typically, looking at back in the earlier years, the second quarter is always stronger or has been stronger than the first quarter for us from a profit point of view. Last year was an exception there, so you can see here also that last year the Q2 was kind of a soft from a performance point of view.

So this year, just as a reminder, the cost side for us, the personnel expenses are expected to grow this year mainly due to the fact that for the '23 performance there was very little bonus accruals in the numbers. So hopefully, this year, we will deliver as we planned and have guided. So most likely, those costs would go up.

And also, we do have the -- like we mentioned earlier, the EUR 1.5 million to EUR 2 million clinical trial costs planned this year. It's still a bit open how that's going to play in the second half. There was very little in Q2, quite a bit in Q1. So towards the end of the year, probably we will have some costs hitting our numbers on the clinical trials. But those plans are still a bit open, and we don't have full visibility into yet how that's going to play out in the coming months.

Cash flow, excellent, looking at last year Q1, [ EUR 0.3 million ], or EUR 300,000 positive. Q2 was negative actually. This year we're above EUR 11 million for the same 2 quarters. There's basically a few reasons. Looking at last year -- Typically in Q1, the incentive payments are paid out for the whole company. So that typically brings down the Q1 number. This year there was a lot lower payments related to those.

Also, the working capital has been improved. The Q2 peer results or net income was higher than the comparable period playing into there. But maybe one -- just a reminder from last year, the Q2 '23 cash flow was impacted also by the Italian subsidiary income tax payments. So the tax system is a bit different there, and we did have some payments in related to the earlier years, so not '23 payments, but for '22 also that hit the Q2 numbers last year. But overall, very good, if not record, good first half for cash flow.

Balance sheet remains to get stronger and stronger over the last quarters, approaching 75% equity ratio, net gearing below 0. We paid out the dividend. So based on the AGM on 4th of April, the dividend of EUR 0.38 was paid out. The dividend payout ratio was slightly above 50%, and also that kind of is one of the reasons why the equity ratio has continued to grow.

Shareholders, not much change here. William Demant bought some more shares, not a lot. But basically, the foreign ownership has grown by 0.7% or 0.8% from Q1 -- end of Q1. First 5 companies owners are in the same order and the same companies than Q1, a little bit different order on the -- from 6 to 10, but the ownerships there are also on a very similar level. And there's only one clear major shareholder being William Demant and then the ownership splits into a lot smaller pieces after that.

Our guidance remains the same. So revenue group exchange rate, adjusted net sales are estimated to grow 5% to 10% from the previous year, and profitability excluding non-recurring items is estimated to remain at a good level.

[Jouni Toijala, executive]

Great. Thank you, Robin. I think it's time for the questions, please.

[Operator]

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

[Nikko Ruokangas, analyst]

I have couple of questions and starting with -- you mentioned in the report that you have seen increasing momentum in [ equity-driven ] clients, even though they have not realized larger orders yet. So at what level is this segment now compared to for example 2 years back? And when do you expect those larger deliveries to realize?

[Jouni Toijala, executive]

So thanks for the question. If you first go 1 year back, so it was in a total standstill, and if you go 2 years back, they were quite active. And what's the difference now compared to the last year? So it's a two-fold. So they are more active on putting the RFIs and RFQs out. And then they have been started to order smaller, [ or way ] smaller amounts, so rolling out [ way ] smaller amounts that they used to be 2 years ago, but slightly higher than 1 year ago. And that's a current status where we are. So activity is definitely not in the level that it used to be 2 years ago, but way better activity than 1 year ago.

[Nikko Ruokangas, analyst]

All right. So that is not only expecting the growth in Q2 then?

[Jouni Toijala, executive]

Yes, that -- if you were thinking that much, so that's fully correct. So we were able to grow the business strongly in the U.S. and then very strongly in the Europe, Middle East, Africa and APAC.

[Nikko Ruokangas, analyst]

Then if you look at the demand environment in Q3, as you have now entered Q3 and compared it to Q2, so has there been any changes, or how do you look at the environment for H2?

[Jouni Toijala, executive]

We are executing according to the plan. So of course, it's only the 1 month gone what comes to the Q3. But it's going according to the plan we set for the first quarter, for the second quarter and for the third quarter. So executing as we planned, so no hiccups so far for the Q3 or -- anything, Robin, to add?

[Robin Pulkkinen, executive]

Yes, variation is big between single months, so it's difficult to say how the second half will be going. But yes, no kind of -- no reason to be kind of alarmed from our end at least. So everything seems to be going pretty much like planned, like Jouni said.

[Nikko Ruokangas, analyst]

Okay. Then a question regarding competition in tonometers, so will you say that so far no reasons to be alarmed, but have you felt your sales or competition -- competitive position has been pressured by increased competition? And have you seen increased price competition on that front?

[Jouni Toijala, executive]

I think it's good to structure this one perhaps in 2 ways. So -- and perhaps looking even from the product perspective. So on the tonometer side, we haven't seen any sign that competition is having an impact to the sales in Europe, because the competition has been on the tonometry side already 2 years. So no impact Q1, no impact Q2. Then if we go for the U.S., we go for the tonometery side. So we have now had the competition full on during the Q2.

So as you can see from the numbers, so no impact to the Q2 numbers. Competition is pricing more aggressively than we are pricing. But so far, as I said, and as we can see from the numbers, so no impact in the U.S.A. as well.

Then when it comes to the fundus imaging set up, exactly the same than Q1. So fundus imaging products, and then also the fundus perimetry called COMPASS. So we have been able to grow the business quite nicely also during the Q2, so no change on that front.

And as you can see from the growth margin, so we haven't been getting the growth via lowering the prices. I think that's fair to say, Robin.

[Nikko Ruokangas, analyst]

Yes, I understand. Then one last from me. You mentioned about the FDA costs and that [ there ] weren't that much in Q2. So were there any -- these related costs in Q2? And then how much there is left for H2? And do you expect, for example, the operating cost level in Q3 to be higher than in Q2?

[Jouni Toijala, executive]

There's very little -- I don't have the exact number, around EUR 100,000 is probably a pretty accurate number, how much there was. But we are still working on the exact schedule with the clinical research companies. So it's impossible to give an exact split yet. It also depends a lot how they get the patients in, which is almost impossible to forecast accurately. So sometimes it's easier, sometimes it takes a longer time, but we will advise as we move forward during the year how those are playing out. But so far, the schedule is not fixed yet exactly for the second half.

[Nikko Ruokangas, analyst]

All right. But we are [ talking ] some plus EUR 1 million to be expected still to realize?

[Jouni Toijala, executive]

Potentially, or then it's very close to the year-end, it could be January also. Hard to say exactly then how the schedule plays out, but around there. Maybe that's a good working number and then we will correct if it changes.

[Operator]

The next question comes from Jack Reynolds Clark from RBC Capital Markets.

[Jack Reynolds-Clark, analyst]

I had 2 questions, please. So starting with revenue growth. So you talked about strength across fundus and tonometers. I was wondering if you could give kind of a rough kind of quantification of the growth between those 2 segments? And then can I get a bit of color around kind of the contribution to growth from iCare alone and HOME2 in Europe?

[Jouni Toijala, executive]

Should I start, Robin, and then you can continue. So if we start from the fundus imaging, so growth on the fundus imaging was very strong. So we have internal guidelines, but they're very strong, and strong means -- but hopefully, that gives some light anyway. So on the fundus imaging side, the growth was very strong, and if you look the products which were selling well, so DRSplus, selling well, EIDON family selling well. And then in that package, we also calculate the COMPASS fundus perimetry. So compared to the last year, so we have had really good growth on the fundus perimetry side as well.

Then if we look the tonometer side, so the IC200 including the probes were the growth leaders on that front. And of course, the solution package, now I'm referring to DRSplus, plus the ILLUME, plus Thirona Retina AI. So we were able to get many new clients in Europe on that front, but then -- because of the base business, so now referring to the fundus imaging tonometery, and perimetry business grew so much.

So I would say yet that the ILLUME as such is not contributing in terms of the -- compared to the growth of tonometry and fundus imaging, so not contributing too much yet, but steadily growing. And then if you look at the HOME, so HOME growth a bit like before. So also moving forward, growing. But then the base business -- the way bigger base business has been growing extremely well, so it kind of undermines the smaller segments under. But Robin, any -- would you like to add anything?

[Robin Pulkkinen, executive]

No, I think it was a good answer.

[Jack Reynolds-Clark, analyst]

And then my second question is just on guidance for the full year. So does the kind of the strength that you've had in Q2 kind of imply that the upper end of that 5% to 10% revenue growth guidance range could be more achievable for the full year? And then could you kind of share any detail about what kind of good profitability looks like?

[Robin Pulkkinen, executive]

That's similar that Jouni was referring to on the top line growth. Unfortunately, we haven't opened our objectives. Basically, it's -- well, we said it's good now. And we've said, yes -- it's been good for many years. So it's a quite wide range, but I can't give exact number what the range is. It's something we used internally, only which we haven't opened.

[Jack Reynolds-Clark, analyst]

Yes, fair enough. I still thought I would try anyway. And then my third question is around the FDA trial for ILLUME. So could you share kind of the feedback that I think you would do to get just after the previous call? And are you still expecting marketing approval in H2 of 2025?

[Jouni Toijala, executive]

Yes, so if recapping the -- our strategy related to the retina screening in the U.S.A. So it's two-fold. So the number -- one part of it is that we want to guarantee with many AI players that our DRSplus fundus imaging device works with all the AI -- dominant AI platforms. So that track has been going a long time. And hopefully, we are going to see some movement on that one, hopefully during the Q1 2025, but it's a slightly black box for us because we are not applying for the FDA approval. So it's not too sure, but we are transparently going that one again through in our next earnings call.

And then second part of the strategy is to apply the FDA approval for ILLUME, DRSplus, plus Thirona Retina AI, and we are going to submit that application by ourselves. And there, the schedule is still the same, so working towards the second half 2025.

[Operator]

The next question comes from Joni Sandvall from Nordea.

[Joni Sandvall, analyst]

Maybe still question on the margins. I know that this could be a tough one, but is this -- now you are just shy of 23% on EBIT margin level -- not just EBIT margin level. So is this a good level, or should we expect a normal seasonal pick up in -- during the H2 on margins?

[Robin Pulkkinen, executive]

If you look at the objectives we use, then yes, it's on a good level. But basically, the business is very scalable. So assuming that second half, I think, has always been better than the first half, that would kind of lead you to assume that the profitability would also be higher, especially like Q4 is typically -- would be probably 30%, 40% of our EBIT in Q4. I don't have the exact number, but it's a big part of the whole year profits that we make typically in the last quarter.

[Joni Sandvall, analyst]

Then you had now the TONOVET Pro launch during the Q2. If we are excluding the MAIA microperimeter, how many new product launches should we expect during the H2?

[Jouni Toijala, executive]

That's an interesting question. So unfortunately, Joni, very good question, but not able to answer to that one. So let's keep our eyes and ears open and then let's do the counting when we go towards the end of first half. Good question. I would be really happy to answer, but unfortunately, I can't. But let's keep our eyes and ears open for that.

[Joni Sandvall, analyst]

Okay. And then maybe second tough one, the EUR 8 million accounting and liability that you have in your books. And I know that it's -- you are aiming to give some info during Q3, but any news on this front?

[Jouni Toijala, executive]

Yes. I think that we are coming back at the latest on October related to that one, so when we are coming with the Q3 earnings release. So that's the -- kind of the back side of the comps. So we come back as soon as we know, and we're hoping to inform. Anything, Robin, to add on that one?

[Robin Pulkkinen, executive]

No, no. I think you said on the books contingent, but it's actually off the book. So it's not in the balance sheet like...

[Joni Sandvall, analyst]

Yes. Then maybe a question about the larger German deal that you had in '23. Can you give any color on these deliveries and possible split, how those have been affecting now Q2? And should we expect still positive impact from here in H2?

[Jouni Toijala, executive]

We have been steadily delivering. So of course, the one part of the growth of that deal has been visible on the first half. But I mean, it's only the one part of the growth. So hopefully looking that we are going to be still having deliveries during the second half, and even '25, but that's the status currently. So just to mention that it's only the one part of coming growth because there's a growth from U.S., growth from APAC and of course, a European deal. So -- but it's going according to the set plan, so no surprises on that one.

[Joni Sandvall, analyst]

Okay. Maybe one technical question for Robin about tax rate, what should we expect in '24 and going forward?

[Robin Pulkkinen, executive]

That's a good question. Basically, I'd say that the -- we're doing some IP rearrangements within the group between legal entities, which will enable us to take use of all the costs across the company also, in taxation, if it makes sense. So in my view, in the next coming years, the kind of the group income tax rate should go slightly down. Maybe -- I don't have the exact number. [indiscernible] depends on also the road map that we have, but 0% to 3%, 0% to 1.5% down would be my estimate at this time.

[Joni Sandvall, analyst]

Okay. That's clear. Last one from me. Any news on the M&A front, so how does your pipeline look on that front?

[Jouni Toijala, executive]

Actively still working on it. There's still slight differences of the view when it comes to the [ valuation ]. So I think that still is a bit of an issue. So if we compare us to be almost all the other players. So I think almost everybody is reporting declined sales and quite low profitability or even breakeven or even negative EBIT and still thinking that the valuation should be the same. So I think that has been still bit of a challenge, but we are working with Robin and with the team on that front as well. Anything to add, Robin?

[Robin Pulkkinen, executive]

No.

[Operator]

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

[Pia Rosqvist-Heinsalmi, analyst]

A couple of questions still left for me. First of all, going back to last year, and the trouble or the standstill you experienced with this private equity-driven optician [ chains ]. I would like to understand this segment in the U.S., does it consist of many -- Do we talk about many private equity-driven optician [ chains ], or do we talk about a few which is causing this trouble or caused the trouble for you with stalling sales?

[Jouni Toijala, executive]

Maybe I'll take that one. So in the U.S., it's not one. It's maybe -- definitely more than a few. I don't know, we own maybe 4 or 5 chains basically.

[Pia Rosqvist-Heinsalmi, analyst]

All right. Then I had the questions regarding the clinicals trial spending for Q3 and Q4, I think you answered that already. Good. I think that's actually all for me.

[Operator]

The next question comes from Daniel Lepisto from Danske Bank.

[Daniel Lepistö, analyst]

I have just one question from my side. Thinking about the sort of a proportion of recurring revenues you have in your business, meaning the probes software and the AI, so has this sort of a proportion increased compared to maybe 1 year or 2 ago? Or has this sort of devices has still [indiscernible] on the stack of these recurring revenues?

[Robin Pulkkinen, executive]

Yes, I think the probes, of course, the massive majority of the recurring revenues at this time that we have. It has been like going back years and years at kind of when we only had tonometers, it was something that -- when I started 9 years ago, it was like 23%, 24% of the sales, and it kind of continued to grow roughly to take up 2% more every year. So it was 24% to 26% to 28% of the total. Until -- all the way until today, the probes actually have been growing very strongly for years also after we stopped reporting. I can't give you exact number how much the total share of [ that ] recurring is, but it continues to increase.

[Operator]

The next question comes from Nikko Ruokangas from SEB.

[Nikko Ruokangas, analyst]

This is Nikko Ruokangas again, I have one additional question and related to Ventica write-down. So as you now write it down, so has there been running any costs related to that, which should now [ release ] costs, or does it affect the P&L side anyhow?

[Robin Pulkkinen, executive]

Some minor costs for like maintaining the patents, for example, we will probably still continue. It's a valuable technology, when we -- hopefully, at one point we will still find a new home for that. So it's not like we totally threw it to the garbage. So we'll keep the patents alive still and see if we can find alternatives for the business to move forward somewhere else.

[Jouni Toijala, executive]

And we still have a couple of extremely good clinical studies ongoing, which are going to report really good results. That's our view, but those are not generating too much costs, so we only help to provide the devices, and that's it, but not having a P&L impact at all.

It seems to be that we are done for today. Thank you for participation. Thank you for the great questions. And let's come back when we have a Q3 wrapped up. So thank you. Have a good early autumn. Thank you. Bye.