Revenio Group Oyj

OMXH:REG1V

Earnings Call Transcript 2021-Q3

[Jouni Toijala, Chief Executive Officer]

Good afternoon from sunny Finland, and welcome to Revenio Group Q3 Earnings Call.My name is Jouni Toijala and I am the CEO of Revenio Group. And with me here today, we also have Robin Pulkkinen, who is our group CFO. I'm going to start, first, by going through the Q3 highlights; and then Robin is going to go more detailed to the finances.So Q3. So an excellent quarter for us; net sales EUR 19.4 million, up to -- 22.7%. And what was really going strongly was the sales on fundus imaging side. So we managed to sell really well across all the markets, especially in Europe and in the United States. And it should be also noted that tonometer demand continued to grow well as well.Then if looking the profitability. So EBIT number in good shape, so EUR 5.9 million. Of course, the percentages here are looking significantly higher than the last year. And I think that it should be noted clearly that in last year comparable numbers we had a 9 -- EUR 1.9 million Cutica impairment, so please note that one, yes.Then the cash flow. So EUR 5.8 million, slightly down from last year. And there were a couple of things which were impacting to this one. So first, the Oculo development activities reduced the cash flow, comparable cash flow; and then also changes in working capital. And this is due to the investments, what we have been putting in to actually increase the stock level because of the kind of a bit more riskier situation related to the components. And I think this is a familiar information for all.So if looking a bit more deeper to the growth drivers. So imaging devices, especially the DRSplus; plus the new product, so-called EIDON ultra-widefield. So they're selling really well across the markets. Then we have been also seeing now, Q3, that -- the investments done towards the digital marketing, towards the brand; and then the channel integration after the Centervue acquisition. So those have been successful activities during the Q3.Then if looking the data. So I think the good question is that is all of this growth pent-up demand or not. And the answer is that we actually have been able to grow actual market share by a couple of percentages both in imaging devices and also in tonometer side. So from the product portfolio of -- product quality, product performance point of view, the offering, what we now have on the table for sales -- so it's actually looking really good, but with these words, I'll let Robin to go a bit more detailed through the finances. And then we have questions after that one.So over to you, Robin.

[Robin Pulkkinen, Chief Financial Officer]

Thank you, Jouni.If we want to switch the slide, one more. There we go. Thank you.So net sales, like Jouni went through, EUR 19.4 million, up 22.7%. And for year-to-date, we reached EUR 55 million in sales, up by roughly 33%. The FX has not played a very critical role for the year-to-date numbers, so FX-adjusted growth roughly 34% year-over-year.On this slide, we have some of the adjusted numbers also presented. So if I go quickly through what we've adjusted here. Basically, for the current reported quarter, there actually is no adjustments, but for the Q3 last year, what Jouni also covered is that the Cutica write-down or impairment of EUR 1.9 million has been added to the comparable EBIT number here. And then for the full year numbers, we've added in the Oculo onetime transaction cost for -- that was paid out in the first half. So EUR 0.7 million has been added to the EBITDA line and the EBIT line for this year, yes. And then for last year, the same Cutica impairment has been added to the EBIT line.So something to take a note back from here, for example, the adjusted EBIT, EBITDA. We actually have been able to maintain the same level than last year, so 32.4%. Basically the EBITDA has been growing as -- in par with the top line; and the same for EBIT, actually a slight improvement. So the adjusted EBIT, 28.5% compared to the 27.6% last year and 37% improvement.And [ some look into ] Q4. We mentioned this earlier. The second half last year was extremely good, looking at the first 9 months last year, our organic growth. So currency-adjusted growth last year for the first 9 months, 22%. And then we look at the comparable Q4, the growth was currently-adjusted 36%. So the Q4 growth last year was half -- 50% faster -- half faster than kind of the first 9 months of the year. For this year, our growth for the first 9 months, like we said earlier, it's been currency adjusted, 34%, so going into Q4, we're coming against some really tough comparable numbers. Also, for last year, to keep in mind that we have the contingent [ accrual ] release that was related to the Centervue transaction. So the -- last year, the comparable numbers also include the EUR 1 million other income that kind of flowed straight to the bottom line.Some of the key figures on a more graphic way. So no major changes in Q3 in the big picture. The cash is up EUR 4.4 million from Q2, so end of Q3, we had EUR 16.5 million in the bank. At the same time, the net gearing went from almost 15% down to 11.2%. And also the equity ratio improved during the quarter from 57%, a little bit over 57%, to 64%, yes. So basically our balance sheet remains very strong and, along with the other growth opportunities, the -- gives us the opportunity to also look at the options of inorganic growth going forward.On the ownership side, there has actually been some more -- bigger changes in the kind of the largest owner. So William Demant, they have increased their ownership. They roughly bought -- or invested worth 20 million into the Revenio share. So on the top owner list, that's the biggest change worth mentioning. So the William Demant ownership went from -- I think it was a little bit below 11% to -- now it's 12.3%.And the guidance. No changes to the guidance since August. So the guidance still is that Revenio Group's exchange rate-adjusted net sales are estimated to grow very strongly from the previous year. And profitability is to remain at a good level without nonrecurring items. And the COVID pandemic continues to cause uncertainty related to the markets. So the guidance remains as it's been earlier.And that's it from the financials side. And I think we'll go now to the questions.

[Jouni Toijala, Chief Executive Officer]

Yes. Thank you, Robin. So let's open the floor for the questions.

[Operator]

[Operator Instructions] We have one, first question from Mr. Sami Sarkamies from Nordea Markets.

[Sami Sarkamies, Senior Analyst of TMT]

I have actually a couple, but let's take them one by one. Starting from tonometers, where you're saying that you grew sales in the third quarter, can you elaborate on the growth rate? I mean, for example, how does that compare against growth rates you had in the first half of the year? And then on Q4, do you think you'll be able to grow tonometer sales in Q4 relative to last year?

[Robin Pulkkinen, Chief Financial Officer]

Sure. I will try to take that. So if I recall right, our first half growth this year was over 40%, FX adjusted. So I think it was like almost 45%, so of course, the comparables for the first half this year was a lot easier. So kind of, the COVID pandemic, we kind of -- ourselves hit the bottom April 2020. It's been getting better since then. So the growth this year was really strong in the first half. Now we're about -- still above 20% for the FX adjusted. So even last year, Q3, if I recall right, it was roughly 17% growth, so it's still in a very good level. And then of course, when you go into Q4, the comparable number is very big. So in the big picture, we do see that there is room for growth for the tonometer and the imaging business. In the short term in the next 1 or 2 years, I would think the imaging devices probably have a better chance of faster growth compared to tonometers, but kind of in the big picture the tonometers also continue to grow. But I can't really comment on a single quarter right now for the growth expectation for Q4.

[Sami Sarkamies, Senior Analyst of TMT]

Okay. And are you able to compare growth rates during this year within tonometers and fundus imaging that -- what sort of differential are we talking about?

[Robin Pulkkinen, Chief Financial Officer]

I think that, if looking the fundus imaging -- so that's really growing a lot. So we are not talking about the 10%. We are not talking about the 20%. We are not talking even a 30%. So they are on the different growth path; and that's partly explained, of course, the market share. And then we had -- on the tonometer side, during the COVID, we really had a huge spike. So I think that's explaining. So on the tonometer side, we have returned pretty much the regular growth rate that -- if you go back into the years. So I think that we have returned to the kind of a normal growth pace on the tonometer side. And then if we look in the fundus imaging -- so we honestly see -- we are seeing a really, really strong growth on the fundus imaging. [ And that is due to the good ] products. And we are really gaining the market share as well on that side.

[Sami Sarkamies, Senior Analyst of TMT]

Okay. And then I think you mentioned that in both tonometers and imaging you've been able to gain market share a couple of percentage points. Was that over the past year? I just wanted to verify the time frame.

[Robin Pulkkinen, Chief Financial Officer]

Yes. I think it's about 1.5 years time when we -- so when we updated the strategy a bit more than a year ago. So we crunched the numbers, then we crunched the numbers about 2 weeks ago again. So we have been able to grow quite well on both sides also from the market share perspective.

[Sami Sarkamies, Senior Analyst of TMT]

Okay. And moving on to sort of your cost level: Are you now sort of proceeding at full speed related to all activities? Or will we still see sort of costs rising in the coming quarters as you're sort of starting some of the activities that may have been on hold during COVID-19?

[Jouni Toijala, Chief Executive Officer]

I think Robin might go perhaps in details, but what we see currently perhaps are 2 buckets. So the trade shows are back. So we had a first trade show here in the -- in Europe about 3 weeks ago, so beginning of October. Then also we still see that we have to invest on the software solutions side. So we are going to hire the people also for the Oculo team when going forward next year. So I think that's also in line what we -- have been communicated, but do you want to kind of comment on the overall cost level, Robin?

[Robin Pulkkinen, Chief Financial Officer]

Yes. I think the changes in future costs is related a lot to the changes in the head count. So we are still kind of going through the planning phase, but it's clear that the head count is probably going to be higher this time next year than it is today. Also travel is still very limited. And now we're just kind of getting back into the trade shows, so I think there is the kind of -- the base level might still go up a little bit, but kind of I think the bigger change is related to the capital allocation and what the investments we decide to do next year. So nothing significant, I think, but yes, the head count. It's a lot tied to the head count, where we end up for the future.

[Sami Sarkamies, Senior Analyst of TMT]

Okay. And my final question will be on kind of potential divestments of Cutica and Ventica that you are sort of reminding in the report. It seems that you have made some sort of progress here, so are we sort of getting closer to some sort of announcements? And can you please explain what kind of deal structures you may be looking for these sort of noncore assets?

[Jouni Toijala, Chief Executive Officer]

Sure. Let's first start with Cutica. So we [ start the ] end of image collection. So we have been running the clinical trials in order to get enough images, and that has been a bit delayed. So we were estimating to finalize the Cutica image collection about summertime, but due to the COVID -- so that's a bit more delayed. And after we have that one closed up, so -- then we can test the AI algorithms. So I think we are wiser towards the end of the year, early Q1, related to that one. Then discussions related to Ventica because that's more mature: So there discussions have been ongoing, but we don't have anything to announce Q4 on that one. So the work is still ongoing, but the strategy is still very clear. Capital allocations are still very clear, so -- and really the key message is that we are going to be fully focused on the [ eye care ] market. And the capital allocations are following that one as well, so we are not currently investing more money to the Cutica and Ventica and -- rather now trying to find an option of -- kind of optimal solutions to find a good home for them, whatever is the model.

[Sami Sarkamies, Senior Analyst of TMT]

Great. That's very clear. I don't have any further questions, yes.

[Jouni Toijala, Chief Executive Officer]

Thank you for the good questions.

[Operator]

Next question is from Mr. Daniel Lepistö from Danske Bank.

[Daniel Lepistö, Analyst]

So I have a couple of questions. So basically, first of all, could you give some more color on the current challenges with component availability and pricing? So as you kind of said previously, you have somewhat increased inventories, but maybe if the situation persists, do you see the kind of issue being more of, yes, availability related to these components or the pricing related to these components? So will this be more of a top line or profitability issue, and how do you see this?

[Jouni Toijala, Chief Executive Officer]

So let's start first with the cost. So that's a silver clear. And we have already faced that one, that the prices are coming up. And we have been, of course, following that one, but the prices are definitely going to go up. And there we have already done some price increases, planning to do more, so that's partly covered on that one. And then of course, it comes in a way to the bit more bigger package that how big part of the sales price is actually the bill of material and so forth. And what's then going to be the impact for the gross margin and so forth? But the prices are coming up and we are then transferring partly, definitely, those also to the sales prices.Then the second thing is really the availability, yes. So what makes it a bit complex? So we should actually -- as we speak today. So we should have a clear view. What do we sell after 1 year? What do we sell after 1.5 years? So we are doing the commitments. We are doing the forecasts about the sales booking, the components. So that, of course, is not optimal because the crystal ball should be quite good in order to be able to do that one efficiently. And we have been tackling that one to make a -- commitments towards our suppliers, increased a bit the stock level. And so far, so good. So no hassles. So we have been able to deliver the products that -- what we have got from the orders point of view, but this is -- to be clear: So this is developing weekly basis. And our operations team is working really hard on solve these issues, but so far, it's okay. But yes, it's a tough place to get everything balanced.

[Daniel Lepistö, Analyst]

All right. So my other question is that when thinking about this excellent fundus imaging device demand. Have there been kind of any indications that there could be any restrictions to access hospitals, what was -- the issue during the pandemic, especially in the U.S.? So has there been any issues?

[Jouni Toijala, Chief Executive Officer]

No, no. U.S., Europe is okay. Then we have had still, because of the COVID, some restrictions ongoing in certain [ APAC ] countries, but that's easening up a bit. So when discussing with sales across the global distributors -- so there's no red flags on the COVID as we speak, and that's a good news, of course. So the U.S. has been going really well even during the COVID times.

[Daniel Lepistö, Analyst]

All right. That's great to hear. So okay, my next question is that -- related to the market share kind of estimates you just gave and said that you have grown a couple of percentage points in the fundus imaging and in the tonometer markets. So as I recall correct, you -- last time you updated this figure, it was that you had like a 5% market share in the fundus imaging device market. So does this mean that you are still below 10% here? Or...

[Jouni Toijala, Chief Executive Officer]

Yes, yes, definitely below 10%. So closer to 5% then -- or kind of almost in the middle, but we have been -- clearly been able to -- now to gain the market share. And I think what's good to remember here, that the -- based on our calculations. So the overall market for fundus imaging is roughly USD 0.5 billion, and we still have a single-digit market share on that one which is growing quite aggressively. So the overall fundus imaging market is [ going ] single digit less than the 5%, definitely. And we have been really able to gain the market share. So on that perspective, it really looks good.

[Daniel Lepistö, Analyst]

I see, yes, yes. So okay. I think maybe one question, if you can answer, the tonometer installed base. You were kind of updating us a couple of years ago. It was like 80,000, 82,000 devices in [ 2018 ]. Do you have any updated figure on this tonometer installed base?

[Robin Pulkkinen, Chief Financial Officer]

I think -- I don't have an exact number, but I think it's over 100,000 at this time. It was still kind of my understanding, but yes, I don't have an exact number to give.

[Daniel Lepistö, Analyst]

All right, that's fair. Maybe my last question is about basically the Q4 and Q4 demand, as it has been your strongest quarter. So maybe you answered this partly already, but how will you, would you compare it to kind of the last year's Q4 which was kind of exceptional in terms of demand?

[Robin Pulkkinen, Chief Financial Officer]

Yes, Q4 is always our strongest quarter traditionally. A lot of that -- actually, looking at APAC and EMEA, it's more flat, but especially U.S. is kind of very Q4 oriented. It seems like they -- my understanding is that they try to spend the remainder of their budget at the last week of December, often. So the last week of the year is often the best, which is also keeping us a bit nervous where we end up at the end of the year typically, but kind of the growth, of course, year-over-year should be kind of -- that should be kind of -- even though it's best quarter, the growth should be similar, hopefully, throughout the year. Now it's been really difficult 2 years because there has been such big movements and changes between quarters. So looking at the comparable number being growing half faster than the whole year last year, that -- kind of it puts that number very tough for us for this year. So of course, we will do our best, but I can't really comment what we think we are going to be. But it's probably the toughest quarter for this year in the comparable side -- or it is. Not probably, but it is.

[Daniel Lepistö, Analyst]

Yes, yes, yes. Fair enough. So that was all for me.

[Operator]

Next question is from [ Mr. Joaquim Holen ] from Inderes.

[Juha Kinnunen, Equity Strategist and Analyst]

This is Juha from Inderes. Most of my questions have been asked, but perhaps one more about the cost inflation and pricing. So could you elaborate a little bit about your pricing strategy? Because are you using kind of an idea where you are in a material state that you are raising prices more aggressively? And perhaps sometimes with the new products you are trying to gain market share and pricing them very affordable. Or do you use it kind of like a same gross margin target for everything?

[Jouni Toijala, Chief Executive Officer]

Yes. It -- so I don't fully go to the details of the pricing, price -- our pricing strategy or policy, but the first thing is, of course, to understand that -- what, if you think, the value that the device brings. And then how do you position that one in a, yes, specific market compared to the other products which are there? So it should be priced based on the -- in a way, on the value that -- what it brings. And if, for example, as an example, taking the value of rebound tonometry and then doing a cost-plus pricing so that you'll take a bill of material [ you -- just at the margin ]. So I think we, Revenio, would be totally different company if the pricing would have been done in that way. So I think this is more or less the best answer that -- what I can give, so -- in a way, in a nutshell. So we look the -- at the end user prices. We look at the value and the uniqueness, what the devices can bring; and then we price accordingly. And now if thinking the price increases, what we are implementing related to the -- yes, as an example, the increase on the component prices. So then that's top of the existing pricing strategy, what we have put for the devices. Anything, Robin? Would you like to add something? Or did I miss anything?

[Robin Pulkkinen, Chief Financial Officer]

Yes. I guess it depends on country and customers just like -- as an example: Our probe costs more for the customer than the whole measuring eye pressure in India costs. So it's almost impossible to get the same price in the U.S. than in India, for example, with the whole -- the single probe costs more what the doctor can charge a customer. So this is an example.

[Juha Kinnunen, Equity Strategist and Analyst]

All right. And do you see any problems with taking the costs and higher costs than putting them in the price? Is there some segment that is definitely so price sensitive that you have to lower your gross margin basically?

[Jouni Toijala, Chief Executive Officer]

I think that the -- looking now the cost increases related to components. So that's a universal challenge. And I see that, all our competitors and the players across the industry. So they are definitely going to move, yes, also the price increases related to the components to the end user prices. So I think that's going to be the case.

[Juha Kinnunen, Equity Strategist and Analyst]

So it shouldn't be a problem.

[Jouni Toijala, Chief Executive Officer]

No.

[Robin Pulkkinen, Chief Financial Officer]

No.

[Juha Kinnunen, Equity Strategist and Analyst]

All right, one last question that is very simple, but you probably won't disclose it. But let's try. What percentages of your sales currently comes from home products?

[Robin Pulkkinen, Chief Financial Officer]

Yes, we haven't really -- yes. We have kind of stopped giving the share even between the imaging and tonometers, so I can't really comment that one.

[Jouni Toijala, Chief Executive Officer]

It -- that's a good try, Juha, so...

[Robin Pulkkinen, Chief Financial Officer]

[ Let's say ] it grows fast. [ Let me say ] it's growing fast. So the home tonometers is the fastest -- faster-growing area in the tonometer business for us.

[Operator]

Next question is from Madam Pia Rosqvist from Carnegie.

[Pia Rosqvist-Heinsalmi]

Yes. This is Pia Rosqvist from Carnegie. I'm wondering about the share of consumables as a share of total sales. Can you give an update on how much of your sales today is so-called recurring revenue?

[Robin Pulkkinen, Chief Financial Officer]

So if you -- so we can't give the -- again either exact percentage, but kind of when -- 7 years ago, I think the probes were roughly maybe 1/4 of our total sales when we only had tonometer business. And kind of it had been growing 1.5% to 2% a year, the share of the probe sales. So I think that trend gives maybe then some tools to do an estimate where it might be today. So every year, the probes have been growing faster than the tonometer sales.

[Pia Rosqvist-Heinsalmi]

Okay. And this trend has continued this year, so probes are accelerating faster than the so-called [ basic ] devices.

[Robin Pulkkinen, Chief Financial Officer]

Now it's a bit tricky year because, last year, we also had extremely good probe sales because -- the COVID and the kind of the hygienic reasons. So it's maybe not a perfect year to look at, but kind of in the ballpark -- in a bigger picture, I think they have been growing faster, yes.

[Pia Rosqvist-Heinsalmi]

Okay, okay, good. Then the imaging sales must have been really strong. Are there any more sizable orders? Or would you describe the sales growth as broad without any particular larger orders included?

[Jouni Toijala, Chief Executive Officer]

I think if looking really the -- across all the regions and looking the -- more or less the kind of top 20 countries. So we have been actually managing to sell well broadly. Of course, there are smaller and the bigger deals, but I think there's no any kind of really, really big highlights on really big one-off deals. So yes, the -- if looking overall. So the fundus imaging product portfolio is in good shape and it's competitive and it's young. So DRSplus was out about 1.5 years ago, so really in the early phases of the product life cycle. Then we have a EIDON family. So it's a bit more older, but then we have a really good update, which is the EIDON ultra-widefield lens. And that's only a quarter old. So we saw the first sales during the Q3 for the EIDON ultra-widefield. So nothing special to mention on the big one-offs.

[Pia Rosqvist-Heinsalmi]

Okay. Then on the home device products and HOME2, what kind of plans do you have to -- I mean, yes, understandably. And you also said that home sales is -- it's growing really strongly, but what kind of initiatives are you running? And how do you present the home device at trade fairs, et cetera? I mean, how are you working to speed up the home sales even more? Or are you very happy with the growth rate currently?

[Jouni Toijala, Chief Executive Officer]

So if looking the percentages that -- how much it's growing. So it's one of the fastest-growing device categories what we have. And then of course, the question is that it's still a reasonably small amount of the overall business because the overall business is -- as an example, in this quarter grew really strongly. So I think that's good to keep in mind. Then if looking the HOME2: So the next key step for us is to go and get it approved, yes, in the U.S.A. So get the FDA approval. So that's, of course, the step 1 to start scaling the HOME2. Then also what we have to see is still perhaps the business model that -- and the channel that -- are we getting the maximum performance out from the existing sales channel? So meaning the distributors. So that's perhaps one thing that -- what we have to look at a bit more detailed when going forward.

[Pia Rosqvist-Heinsalmi]

Okay. Then maybe finally, what are your biggest concerns today regarding the coronavirus pandemic? I mean, looking at your sales numbers, you have performed really well. And as such, the pandemic burdened the imaging sales last year, but as of today, are you really concerned that the pandemic still might affect your sales development?

[Jouni Toijala, Chief Executive Officer]

So if really discussing with the sales, discussing with the distributors. So from the U.S.A., I -- we don't hear too much concerns related to the COVID-19. Then in the Europe it's the same. Then of course, now is the question is -- the good question is that are you again getting more infections but no red flags. And then related to the APAC, as an example, Australia is a big market for us. So they are now easing up the COVID-related restrictions, so that's helping us up there. And then the same applies for the certain countries in APAC. So really currently no red flags, but of course, this is a bit of a moving target, so let's hope that the situation remains the same and remains to be better like it has been during the Q3.

[Operator]

We have no other questions. Back to you for the conclusion.

[Jouni Toijala, Chief Executive Officer]

So hey. If there's no other questions. So I think we are done for today. So really thank you for your time. And I think, the next time, yes, we are then having a yearly reporting earnings call, which is going to be then early February.So thank you very much for your time and the interest.

[Robin Pulkkinen, Chief Financial Officer]

Thank you.