Revenio Group Oyj (REG1V) Earnings Call Transcript & Summary

Good afternoon from snowy Finland, and welcome to Revenio Group earnings call. My name is Jouni Toijala, and I'm the CEO of Revenio Group. And with me today we also have here our Group CFO, Robin Pulkkinen. I'm going to start to go through by -- going through the Q4 highlights and also 2021 highlights. After that, Robin is going to go through a bit more details on financials and then we are going to end up with the Q&A. So Q4 was a record quarter for us. Net sales totaled EUR 23.8 million, it's an increase of 20.7%, and it's a really good result compared to really tough comparison from the last quarter from the last year. Operating profit was EUR 7.1 million, which is 29.9% of the net sales. This also includes roughly EUR 0.6 million impairment related to the Cutica. The cash flow was very strong during the Q4, resulting at the EUR 11 million, and that's up from EUR 6.2 million from last year. And the EPS was good, slightly below the last year. So if going full year numbers for the 2021, so net sales totaled EUR 78.8 million. So that's an increase of 29%. Operating profit was EUR 22.1 million, 28.1% from the net sales. That's also a good increase. Then if you look at the adjusted numbers and adjusted EBITDA, so we had the acquisition costs related to Oculo, EUR 1.7 million and then the Cutica impairment EUR 0.6 million. So adjusted EBIT was EUR 23.4 million. Then if we go to the cash side, so the cash generated from operating activities was also up from EUR 15.2 million to the EUR 21.5 million and the EPS went up from EUR 0.505 to the EUR 0.652. So in a nutshell, extremely good year for us. So if looking bit behind the numbers, so what was the reason behind the good numbers. So we were successful on the sales and marketing side. So the sales activities, digital marketing activities, we're going really well during the 2021. Then if looking at the product side of the business, so we saw the same trend during the Q4 what we saw in the Q3. So the imaging sales was extremely strong for us. Tonometers were growing as well, but not as rapid pace as the imaging side of the product. But if looking the tonometer side, it's worthwhile of noticing that actually we did over 30 million patient measurements during 2021. So that's a lot. Then we also managed to gain new openings. So we managed to start getting the footholds from the larger optical retail chains and the global customer accounts, which was really good, and that really happened also during the Q4. Then almost the whole year, we also struggled with the component shortages, but we were able to tackle the issues as they arise really well with our manufacturing partners and with our operations department. But we really see that it's going to be challenging times also on the component side during 2023. So a couple of highlights also from the product perspective. So we launched -- on March 2021, we launched a next-generation HOME2 device with the related mobile phone applications plus the cloud software and we also received after the 2021, so about 2 weeks ago, we also got the FDA approval for the HOME2 device. Then on the April 2021, we acquired Australian software company called Oculo, and that gave us access to the software and solution market, which is going to be important growth area for us in the future. Then on the imaging product side, we also launched the EIDON Ultra-Widefield lens for our EIDON family, and that has been well received among our clients. So also a strong year from the product perspective. But with these words, I give the floor to Robin.

Thank you, Jouni. So let's go a bit more through numbers. Jouni covered some of these already, but basically, the net sales, EUR 23.8 million for the last quarter with a growth of over 20%. And here I also want to highlight what Jouni also covered a bit that the comparison number from 2020 already included a growth of -- organic growth of more than 35%. So the comparables we started off this last quarter was really tough and still we were able to grow more than 20%. For the full year, EUR 78.8 million growth and almost 30% growth with the EUR 78.8 million in sales. We have the EBITDA numbers here and also the adjusted EBITDA numbers. So looking at the last quarter, basically there is no adjustment for the EBITDA line for the last quarter of last year. So EUR 8.6 million, 36% of sales with a growth of 3.2%. That's basically the same also for the adjusted line. For the EBITDA for the full year, EUR 25.7 million, which is 32.7% of sales with a growth of 18.6%. And here, you can actually see on the adjusted EBITDA line that we've added back the EUR 0.7 million of the Oculo transaction costs on the adjusted line where we get to the EUR 26.4 million in EBITDA, 33.5% of sales and with a growth of almost 22% year-over-year. On the EBIT side, 7.1% for the last quarter. It's a bit down from last year, but here also the Cutica write-off was -- or the impairment was playing a key factor. So basically when you add back the EUR 0.6 million to the EBIT for the last quarter, we get to EUR 7.7 million, which is 32.6% of sales and up a little bit more than 1% year-over-year. Last year also, as some remember, our other income was extremely large. There was roughly a little bit over EUR 1 million contingent consideration release from the CenterVue acquisition. So that also played into the profitability of the comparable numbers. Also this year, we did have some EUR 800,000 of other income, which consisted of different R&D tax credits in the U.S. and Australia and Italy also in Finland. But also there were some other kind of COVID-related income, which is more related to the kind of sustainable management of the pandemic within the company. On the EBIT for the full year, EUR 22.1 million, that's basically 28.1%. So the reported EBIT percent is actually the same in 2020 and 2021. When we do the adjusted -- look at the adjusted line, we basically added back the EUR 0.7 million acquisition costs and EUR 0.6 million impairment of Cutica to the '21 numbers where we get to EUR 23.4 million, which is almost 30% of sales. And for the comparable numbers, you can see it going from EUR 17.1 million to EUR 19.1 million. There in Q3 2020, if some remember, we actually did have an impairment on the Cutica as well, which amounted for EUR 1.9 million. So that's basically the adjustment for the comparable EBIT line. EPS, EUR 0.65 for the full year. The board is proposing a dividend of EUR 0.34 at the AGM. That's basically a little bit more than 50% payout ratio for last year. And then let's turn to the next slide. Some of the other key figures. We've shown this slide earlier. So basically, having the equity ratio is still very strong, actually improved year-over-year. If you look at the history a bit more in 2019, that was the time where we bought -- acquired CenterVue. And basically, the equity funding and the bank loans did have an impact on the balance sheet. So the end balance of the balance sheet went from below EUR 20 million to over EUR 100 million. So the whole structure changed a lot. So that actually is the key driver of the bigger difference or change in the 2019 numbers. And then looking at this year, we actually did add in Oculo to the numbers, but basically it doesn't really show too much in the graphs here. Looking at kind of the net gearing, basically, it is still -- the cash flow for the full year was really good, like Jouni mentioned. And the kind of the net gearing after the Oculo transaction was actually more than 20% positive. So considering that we're back to negative, it's quite a good end result considering that the cash balance is basically close to the same where it was a year ago. Meanwhile, we paid more loans in '21 than '20. We paid more dividend in '21 than 2020. We paid for the Oculo transaction over EUR 11 million in cash for the shares of the company. And also, we've continued to develop the software development, software solutions with the Oculo team, and we funded that for pretty much the whole year. And like we've said earlier, that's been cash flow negative for a couple of years. So basically, still we're ending at almost the same cash balance where we were a year ago. So kind of the cash flow has been extremely good for us. Also, some of you probably have noticed, the balance sheet has a quite large short-term liability, which is related to our bank loan that was repayable at the September-October time frame this year. That's actually been renegotiated after the close of the change of the year. So still in the financials, the year-end financials because the paperwork was not done, it shows as a short-term liability. But in reality, that payment schedule has been pushed out. So we continue to pay down EUR 1,050,000 per quarter for that loan. Some of the main shareholders, basically, December was the first month in the history of the company where the foreign ownership actually went above 50%. So it's the first time ever. The Finnish owners have always been more than 50%. But like we know, starting in 2015, the foreign ownership was somewhere around 5%, and it has been going up quite rapidly from there. And now we're actually -- the foreign ownership is more than 50%. Some of the bigger trends, I guess, in the changes for the last 12 months is that the larger American institutions have come on the list. They've increased their ownership. William Demant has remained the major owner for our company. So basically, Demant is a Danish-based company. So Finnish ownership around 50%; American about 16%, 17%; Danish about 14%; Swedish ownership about 7% and then it drops quite a bit before the next larger countries. And the financial guidance for this year, we expect our exchange rate adjusted net sales to grow strongly from the previous year and profitability excluding non-recurring items is estimated to remain at a good level.

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

[Operator Instructions] The first question we've received is from Daniel Lepisto, Danske Bank.

It's Daniel Lepisto from Danske Bank, and I actually have a couple of questions. So First of all, you gave out the nice number of over 30 million measurements made with the tonometers last year, and you mentioned that the process have been continuing strong. So has there been any change on the number of measurements performed per device on average during the pandemic or has the kind of growing installed base of the tonometers driven the impressive number here?

So we have seen a couple of things happening. So we have been able to grow the installed base of the devices during the pandemic. And then in the certain regions, if we go as an example to certain countries in Southeast Asia, so they were, in some cases, reusing the probes. So I think that those things have been also now driving the probe sales as well. So there's not so much reuse.

And my second question is about the DRSplus. And maybe just if you can give some color that why is the device showing -- or how is the device showing this kind of very strong demand? And if you can just kind of give some more information that if this device is comparable to that all of the other traditional fundus cameras on the market or does it have some specific niche value proposition that it does very well?

So if now taking perhaps a bit more broader spin at first and then I come down to your detailed question. So if you look now the trend what we have had already many, many quarters is that the whole imaging portfolio which we have, so it means EIDON family. So we have 3 devices there, EIDON AF, FA and normal EIDON. So those are the 3 ones, and then we have the DRSplus. So throughout all the quarters, so the demand has been strong and we have been able to get the market share from the competitors throughout all the devices. So I think that's good to know. And then if we go for the DRSplus, so that's a unique device in that very specific product category and price points. So we use so-called TrueColor Confocal and it's fully automated. So it's a single button press and you get extremely high-quality images in a really fast manner. And that's a unique technology packaged with the great usability in that very specific price point. Hopefully, that answered the question.

Absolutely. My third question is about iCare HOME, and as you mentioned that you successfully received approval from the FDA. So have you started the marketing U.S. based marketing already? And what sort of feedback you have received? And what kind of demand would you expect from the U.S.?

So the FDA rules and regulations are quite tight. So after getting the FDA approval, so then if we play by the book, so then we are ready and then we have a permission to actually start marketing and selling. So we have done preparatory activities and now moving into the implementation. And really, the reason is that no chance to market and no chance to sell before the FDA approval and not even market. So that's the status. And based on the current feedback, so the device usability plus then the new supported iOS versions of the application, so that's -- we envision that that's going to be well received also in the U.S.A. as in Europe.

And my final question is about the kind of the overall product pipeline you have. So how is your product development pipeline looking like? So anything on the tonometer side or imaging devices parameters or you have something new coming?

I think if you look now the performance of the company in the past years and look how important it is really to have a competitive product and where you can actually now see this one especially this year is that we have been traditionally investing roughly 10% to the R&D. And if you look what's going to be the R&D investment this year, so it's going to be more than 10%. 2-thirds of that, one is going to the device side of the R&D. So in a long run, keeping the tonometer product line competitive and keeping the imaging product line competitive. So 2-thirds of the R&D investments are going to go there. And then one-third is going to go to Oculo and related software solutions where the plan is to combine devices plus the software assets what we are having. So I don't want to go in the details of what's in the pipeline, but there's things in the pipeline and the R&D teams are working really hard to get the -- and keep the road maps competitive and products competitive in years to come.

The next question is from Sami Sarkamies, Nordea Markets.

Firstly, starting from tonometers, could you elaborate on the growth rate you did experience in Q4? And then regarding the outlook for this year, you're expecting the growth rate to return to pre-pandemic levels. Would this imply roughly 13% to 15% growth that was the Group organic growth in 2018, '19 before the pandemic?

Maybe I'll start with that one. So the corona pandemic has been really -- put our numbers in a funny format in a way that 2020 our tonometer sales took off really, really well for the second half of the year especially because of the hygienic benefits it had over the competitive technologies. So basically, going into the last quarter of '21, the tonometer business was facing extremely tough comparables, while the imaging business has been picking up all the way from early 2020. So kind of that's been more linear compared to tonometer. So the imaging devices obviously grew extremely fast for the last quarter, but also the tonometer business was doing really well, significantly faster than the market in general. But I guess for this year's 2020 growth, I'm not sure we want to disclose an exact percentages what we think where it's going to kind of end up, but we'll stick to the guidance there.

And secondly on the margin guidance where you're expecting profitability to remain at a good level. If we look at last year, there was some margin pressure, about 1 percentage point. Are you assuming a margin recovery this year or is it so that the step-up in growth investments like R&D and sales and marketing will actually sort of trigger similar margins to what you had last year?

So the guidance for the full year last year was for the profitability was the exact same that the guidance is for 2020. So basically, there's a big impact of course. The R&D investments are going to be bigger this year. We have some bigger projects in the more kind of money-eating phase this year, but not all that's going through the P&L. But kind of even with that, I think it's a big -- the profitability is also dependent a lot where do we sell them, what products are selling, what the mix is. So in the U.S. where we sell straight to the end users, our margins are better. So it's also critical how the sales split goes between the kind of the U.S. versus the rest of the world. But kind of in general, the guidance for the profitability is the same than it was for '21.

And can you elaborate on what sort of operating expense increases you're planning in sales and marketing? I mean, thinking about the Oculo launch in the U.S., think about the iCare HOME2 launch in the U.S. So I mean how material investments you will be making this year?