Revenio Group Oyj (REG1V) Earnings Call Transcript & Summary

[Audio Gap]2020 Earnings Release Call. My name is Robin Pulkkinen, and I'm the CFO for Revenio group. I'm joined by Jouni Toijala, our CEO. We plan to run you through the presentation where Jouni will go through the business summary, followed by my section where we run through the numbers. And after this, you will have a chance for any questions you may have. With these opening remarks, I will hand it over to Jouni.

Hey, welcome. Good afternoon, everybody. My name is Jouni Toijala, and I'm the CEO of Revenio Group. So let's start by going through the effects of the COVID-19 pandemic for the Revenio Group during 2020. So we could divide last year in 3 different sections: So the first section is the time before the lockdown, and then the lockdown period and then, the life after the lockdown and the recovery period for us. So if you go for the early 2020, so January, February, our biggest concern was, is the supply chain going to be impacted by the COVID-19. That went really well. So we didn't have any disruptions to supply chain, no electronics, no plastic part coming from the China and so forth. So the supply chain was in really good shape, and it has been in good shape for the whole time. Then if we go to March, we go to April, we go to the May timeframe, so that was the hardest period for us. And in a way, that was double sided. So the tonometers, we're selling actually really well because of the COVID-19 and the hygienic requirements. But then we had really difficulties on the imaging product side because of the lockdowns, and sales team was not able to see the clients. We were not able to deliver or install the devices. And then if we go for the Q3, Q4, so we saw bit by bit then recovery also in terms of the imaging devices. But let's jump in more detail to the Q4 performance. So net sales, strong growth there. So we ended up to EUR 19.7 million with roughly 32% year-on-year growth, and the EBITDA was EUR 8.3 million. And the growth was quite significant, so plus 43.7%. And during the Q4, we also issued a positive profit warning concerning the July and December, and the big reason for that was that the -- we were expecting much more kind of a modest growth, especially in the U.S.A. for the second half, but it turned out to be that the -- actually, U.S. business was growing really fast for us in terms of the tonometers plus the probes. And we also saw, on the imaging side, that Q4 was stronger than the Q3. And then the overall, we could say that the second half was a way stronger also in an imaging side compared to the first half 2020. And because of the growth, we were also scaling up the production also on the probe side. So these were the highlights for the Q4. And if we are looking at the overall performance of the year 2020, so really the hardest time for us was the April, May timeframe and especially, on the imaging device side. And then gradually, we have been seeing that the Q3, strong pull from clients in the tonometer and the probe side. Same for the Q4. And also, increasingly, we have seen that the imaging product sales is rebounding in the levels of the pre-COVID during the Q4 2020. So that's where do we stand today. And I let now Robin to go through in more detail, the key financials for year 2020.

Thank you, Jouni. So like Jouni mentioned, our sales performance was, in these conditions, extremely good, especially the second half and the Q4 closing with 31.7% growth. And that's the reported number, of course. So the FX was giving us some headwind. So the currency-adjusted growth was almost 36% for the fourth quarter. In this table, you can see, there is some adjustment lines for the EBIT and EBITDA. Those are actually helping us to adjust the numbers to more at level where we can really compare apples-to-apples. So there is some onetime items in the reported numbers, which kind of mixed the picture a little bit. So what we've adjusted for the comparing -- so the reference period, meaning 2019, is that we've taken out the onetime kind of incentive fee-related transaction costs. And for this year, we've adjusted the Cutica write-down. And then when you look at these adjusted EBIT line, for example, for the full year, we've actually been able to grow over 24% the EBIT level. And then also the profitability has grown. And the same thing goes for the EBITDA line, 24.8% growth and also 35.5% out of the revenue, and also the profitability has increased during the COVID year. What we've done here is, we have not let any people go. We have cut no running legs in the company. Actually, we've had continued hiring some more people during the year. We continued all the R&D development projects we had planned originally. So we haven't cut anything from the day-to-day business and the future investments we have been doing. The area where our spending has been a bit lower is the travel, trade shows and marketing-related cost for some part. And of course, maybe there are some people that we planned originally to hire more, which we didn't feel. So we did hire, but necessarily not all the positions that we originally thought. If you look at the Q4 numbers, I noticed that many of the analysts have already picked that there also was some onetime revenue or other income from the CenterVue transaction related. So actually, we had a similar 1 million item also in last year Q4. So last year, there was a 1 million adjustment to the original purchase price of CenterVue. And this year, there was some contingent considerations, which we had accrued in the balance sheet, which never took place. So we're able to release that accrual, and then now it's also sitting in the other income. So basically, in both years, we had that same EUR 1 million impact. What's quite extraordinary is that when you look at the full first half versus the second half, and especially, the growth. So if you remember, we acquired CenterVue in the end of April 2019. So for the first half of this year, we had 4 months of unorganic growth from the CenterVue business, and our currency adjusted growth for the first half was 25.5%. It's actually a little bit less than the reported growth. When you compare that to the second half, where we truly -- we had CenterVue in both year numbers for the full year, the second half reported growth 21.4% with currency adjustment 26.6% is actually stronger. So we are able to grow in the second half. Currency adjusted over 1% more than in the first half. And even in the first half, we still had the 4 extra months from the unorganic growth compared to CenterVue acquisition. So a very, very strong second half for the year. Here are some of the key figures in their development. So of course, COVID caused uncertainty during the year, and it actually still continues to do so when we go into the new year. Our balance sheet has remained very strong. Also, our cash position has been improving. So our operating cash flow grew by 23%, was over EUR 15 million. Basically, we have more cash on the balance sheet than we have interest-bearing debt. So our net gearing is actually back to negative after one positive year after the CenterVue acquisitions. So basically, we're in a very strong financial position also from a balance sheet point of view, and it's an important item that we'd like to keep it that way because we -- like I mentioned earlier, we also continue to consider inorganic growth opportunities if they emerge when we move forward. Shareholders and share, our ownership table. Basically, there's been actually a lot of turnover over the year. So the Revenio share liquidity has been really high. There is almost EUR 0.5 billion of turnover over the year comparing to EUR 125 million in 2019. So the turnover actually went up 260% year-over-year. And actually, the number of shares, even so we have 54% of the shares traded during the year compared to prior years when it has been a lot lower. So in 2019, 22.5% of our shares were traded. Some of the big owners of William Demant has become the largest owner. They flagged that they went above 10% ownership in June. Also another flagging on the ownership list is the Capital Group, which fell below 5% in October. Some of the new larger investors on the list. You can see Columbia Threadneedle, #3; TIN Funds, #9; BlackRock and Artisan Partners, 14 and 16. Our nominee registered owners account to approximately a little bit over 42% at the moment, and the private individuals still hold about 40%. Our number of shareholders went up significantly during the year. So last year, we had about 12,400 shareholders. Today, at the end of the last year, we had 20,200. So there is a big growth in the number of owners we have. Share price development. I'm sure everyone on this call knows how it's been performing. We started the year at 26.25, closed at 50.3. For the full year, 91.6% increase in the share price. If you look at the drop in March for the COVID pandemic hit really hard, there was a drop from the opening kind of share price of 26.25, it actually dropped 30% to the lowest point at 18.48. From that low point, it's gone up about 175% to where it closed year, and the market cap for the year-end was EUR 1.34 billion. Our financial guidance. So the COVID pandemic continues to cause uncertainty related to the markets. Revenio Group's exchange rate, adjusted net sales are estimated to grow strongly from the previous year, and profitability is to remain at a good level without nonrecurring items. The Board has proposed that dividend of EUR 0.32 to be paid to be -- to the shareholders. That represents a 63% payout ratio. So also kind of going back to the comment earlier on maintaining a strong balance sheet also for future opportunities that they relay, but that's it from the numbers point. Thank you. If there are any questions, we would be happy to answer.

[Operator Instructions] Our first question comes from the line of Julius Rapeli from SEB.

Congrats on the great report once again. I have a couple of questions. Firstly, starting, is it anyhow possible you could provide some help for us on the split between tonometry and imaging sales now in Q4 and for the full year?

We haven't -- Julius, it's Jouni here. So we haven't, of course, fully disclosed the detailed numbers about the division between the tonometry and imaging. But I think it's fair to say that if you look at the first half 2020, so tonometer sales, we were up, but the imaging sales was significantly down compared to 2019. And then if you look the -- on -- especially on the imaging side, Q3, so we started to see the rebound compared to 2019, but it was still a bit under. And then the Q4, we started to be on the same level. So there is a clear rebound now what we saw during the Q4 also on the imaging side. And now let's have a see how it's going to go through during the Q1. But these are, in a way, the levels that we are able to disclose because we don't disclose the exact split between the tonometer business and imaging business.

All right. Perfect. That's very helpful. Yes. Maybe if I can have another question as well. On the gross margins, I mean you had seen -- your gross margin is still at relatively good levels in Q4, but slightly down from previous quarters. Was this due to the change in mix from increased sales in imaging devices? And just thinking sort of -- how should we think into anyone on respect of the gross margins?

Yes. I think -- this is Robin, Julius. Basically, Jouni mentioned, the imaging has been gaining and improving throughout the whole year, basically since April. So April was a really bad month, tonometers and imaging point of view. But basically, since then, it's been recovering. And of course, Q4 is a very strong month also for the imaging or kind of back to normal month for the imaging devices. So that also plays into the gross margin, but also, we did have some larger deals or not specifically large deals, but some quite nice orders on some of the older devices, which have lower gross margins, so which also played a little bit into the overall number for the company.

And the next question comes from the line of Pauli Lohi from Nordea.

Pauli Lohi from Nordea. I would have a couple of questions. First of all, about fixed costs in Q4. I think the cost recovered a bit sequentially after Q2 and Q3 costs being down a lot year-on-year. Do you see that you still got benefit from COVID-19 that there were less travel and marketing expenses?

Yes. Those costs haven't rebounded at a full level. So they are, and most likely, would remain below normal, of course, for even the first half, at least for this year. So that is not the case for Q4. There were some certain larger projects that closed and also some conversation items that were a bit higher than in the earlier quarters. But basically, there will be general spending in travel and trade shows, for example, is still quite low most likely for the beginning of this year. So we haven't really started traveling heavily in the company.

Okay. If we exclude the COVID-related or travel-related costs, what kind of outlook you would have for the fixed cost in the coming 1 to 2 years?

So I think the -- we plan to hire more people. So that is in the plan. Of course, we're now following carefully how the pandemic continues or develops. So even in the Board level, we have kind of -- we haven't really made a full decision on all the investments for the full year necessarily. So we're kind of keeping a close eye on how the pandemic develops. But the plan is, if the word returns back to normal at some stage, of course, we plan to continue to grow aggressively.

Okay. And then one more question about imaging. You commented that the demand was actually almost normal in Q4. Was that very clearly about the new product, DRSplus, or do you see kind of broad-based demand increase and maybe pent-up demand of the pandemic like in all products?

Yes. So if we look at the second half 2020 and the Q4, so we -- there were quite high demand, of course, for the DRSplus because it's a quite unique product. It has true color confocal, which is really affecting to the image quality. And it's in a reasonable price point compared to the competitor. So we have had constantly quite high demand for that product. Then also so-called EIDON family. So that was selling really well. And then we managed to clear a bit of older DRSs actually from the stock during the Q4. So that was really good. And we basically see also for the ongoing basis that there is continued -- continuing to be the demand for the EIDON family and for the DRSplus. So those have been selling pretty well.

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

It's Pia from Carnegie. On tonometers and the exceptionally strong growth you saw in 2020, you have disclosed, of course, that part of the reason is strong growth in U.S. and you also received some larger orders. But now looking into 2021, particularly for tonometers, can you describe the growth elements? Are there any particular elements driving growth on top of the very strong growth you saw in 2020, please?

Pia, Jouni here. So I think that what has been the trend here is actually around the hygienic requirements and the easiness of the use. And I think that's -- according to our understanding, that's going to continue still when going forward. So I think there is definitely a trend now regarding the rebound tonometric and related clinical workflow that it's quite easy to handle the increased hygienic requirement. So you only just change a probe and that's it when you change the patient. And I think this has been the trend already during the Q2, which was driving an -- in a way, our growth and the resilience during the Q2. Still on the Q3, Q4. And I think that's, in a way, one single -- if I had to point out one point, that would be what's the -- perhaps, the growth driver also for 2021. And then that, of course, impacted to the use of probes during 2020. And our assumption is that it's also going to impact the probe usage during '21. Anything, Robin, to add on here?

Yes. And I think -- of course, we hope that the imaging also continues on the trend it's been, but it's hard to say. It's more delicate what comes to any changes in the pandemic situation clearly, so we need to keep a close eye on how that develops.

Okay. And if I can continue then, still on tonometers. Can you help us understand how much of the demand is so-called replacement demand? Or is still most of your sales kind of new sales?

Sorry, Pia, I don't have a full answer on that one. So I would assume that the products, what we have sold. So there is still TA01s, which they have been there for a long time. So they are still working. And then I kind of have a feeling that there's also now a trend that we are taking market share from the Goldmans and from the , i.e., the Airbus . So -- but I don't have a kind of full figures, but we have been gaining market share from others, that's for sure. Anything, Robin, to add?

We have ongoing replacement campaigns in the U.S., for example, which is the biggest market for us. So there we do get some tonometers back. It's a vast majority, of course, is new customer sales. But the good thing about the replacement kind of offers we have out also is we get a lot of competing technologies, which we replaced with our dock of instruments. So it's kind of working nicely there. But basically, it's still the big volume in new customer sales.