Revenio Group Oyj (REG1V) Earnings Call Transcript & Summary

Good afternoon, and welcome to Revenio Group Q3 earnings call. My name is Jouni Toijala. I'm the group CEO. And with me here today, we have also our group CFO, Robin Pulkkinen . The plan for today is following. So I'm going to go through the business highlights of the quarter. Then we have got a lot of questions related to sustainability. So we released the sustainability report part of the '21 reporting package. But I'm going to give a short update on the recent developments on that one as well. And then Robin is going to go through the financials and then shareholder structure as of today and then reiterate the financial guidance. But let's go to the highlights of the quarter. So Q3, a very strong reported growth followed by the strong profitability and especially the cash generation. So demand for the both product groups continued to be at a high level. A couple of highlights. Australia, growing really well, same for Japan, same for Germany. Also India and Korea were among the top formants countries during the Q3. Then if you look at the product portfolio, so actually same story in Q1 and Q2. So DRS was selling really well. EIDON family selling well. So all the models, actually, so basically on ANAF, and FA. And I would say even that the FA was clear highlight, so especially the EIDON FA was selling really well during the Q3. Then we have been continuing receiving a good feedback from the iCare HOME to. So that has exceeded our own internal expectations also on the sales side, which is really good. And in addition to the usability, we have also received a good feedback related to the device durability. And why this is important because from a business model point of view, of course, the clients are able to do one time by for the device. But the rental model where you actually rent the device for a couple of weeks and then return it and then the device goes again to another client. So that has gained importance on a kind of business model side as well. So that's a good -- that we have received a good feedback related to durability as well. Then we have been going to the market. So we had a couple of big events across the globe. So especially the ESCRS here in Europe, so good feedback and good attention related to the Elon platform. So we have now quite many pilots going on and more in a pipeline. So good feedback related to the Elon as well. Then related to market conditions and uncertainties. So I think everybody is as in earlier quarters paying attention to the electronic components. So that remains still challenging. We haven't had any challenges on delivering the products, but it's still causing a hassle on 2 fronts. So of course, the increasing cost pressures on the cost of goods sold point of view. And then also, we have been constantly preparing that if there's a component shortages. So should we have plan Bs and plan Cs related to the actual design. So that has been being a constant impact on the component side as well. Then if we come and go to the visibility of the coming quarters. So Robin, of course, is going to reiterate the current guidance. So that has not changed. But of course, if you look at the geopolitical situation and then possible slowdown down of the economy in coming months. So I think it's fair to say that the market is at least pretty turbulent when going forward. But let's switch gears and go through the numbers. So the reported net sales at plus EUR 24.1 million, 24.6%, up from last year. And then strong EBIT performance, so EUR 7.7 million up from last year, 28.9%. And I think it's fair to say, as in Q2. So also Q3, we got a strong backwind from the U.S. dollar exchange rate. So the currency adjusted growth rate was 12.2%. So we got roughly EUR 2.5 million back wind related to the exchange rate. Cash flow, very strong. So that's really good. So that is money which sits in the bank account, so EUR 7.1 million, up from EUR 5.8 million last year. But Robin is going to go a bit more detail the numbers in his pipe. Then related to sustainability and the ESG. So we have got many, many questions related to this one, plenty of questions from analysts, plenty of questions from our existing shareholders. So I'll spend a bit of time on this one. So United Nations has declared the commitment division for everyone by 2030. And this resolution was adopted by all, so meaning all 193 countries in 2021. And the objective of this is to tackle the prevent double side loss as part of the UN sustainable development goals. And already years ago, we have selected 8 different buckets from UN sustainable development goals. And then we further group them into 4 different buckets. And the first one is that our goal is to improve the quality of life by the products and services, what we offer to our clients and patients. And why this is important. So if we think the mortality rate, so this is a study coming from the land global health reputable study from the last year. So mild vision impairment increases more to liberate by 29% and steadier vision impairment increases mortality rate by 89%. So I think that's the basis where everything starts. That's the basis why we come to the work every morning. So we aspire to keep the one world visible for all. And this is a basis why we believe that we improve the quality of life. Then if we go back to the strategy. So one of the key cornerstones had continued profitable growth and the logic here is that our aim is to grow together with our partners, with our stakeholders and bring the value throughout the whole supply chain as well. And then if we can grow in a profitable manner, all our business partners are able to do the same. So then we are able to invest money to the continuous development of processes, the products so that they are going to be more sustainable in a long run. And then also, we are able to better monitor also the whole supply chain. And that, in the end, is going to then lead to the much more better environment. Then last but definitely not least, so we have a strong commitment to the responsibility and transparency. Whether is it related to the code of contract, whether is it related to the -- all the quality related items. So concrete things after the '21 ESG report. So sustainability is a key part of our operations. It's a key part of our strategy. And I think the good illustration of that one is that already this year, so starting from this year, the total leadership team have had the sustainability ESG-related items in a short-term target setting that's, of course, going to continue next year. Then we have been conducting 2 independent sustainability-related studies. First one is the EcoVadis. So we run that one during the reporting period here in Finland. So we achieved the silver level status on there. So room for improvement, but we are on the top 75% of the companies and the plan is to extend that study to the other locations as well. Then we have been working with the Upright in order to understand the revenue business impact to society, knowledge, human health and the environment -- and there, the net impact ratio was 68%. And just to give a kind of a benchmark for that one. So the NASDAQ Helsinki main list index is minus 21%. So definitely still plenty of work to be done on the ESG side for us, but I hope that everybody understands and perhaps here's a bit more light that this is core of our strategy and core on our operations as well when going forward. And the next report is going to be released part of the '22 yearly reporting package. But with these words, I hand over to the Robin to go a bit more detail through the financial part.

Thank you, Jouni. Can jump to the next one. There we go. So like Jouni, already covered a bit the Q3 numbers, the full year so far, we've been really happy with the performance. So the reported growth roughly 25%, reaching EUR 68.7 million. Looking now we've done earlier, so 21% for the first 3 quarters are FX-adjusted growth for -- so basically, for the comparable period, our FX adjusted growth was 34%. So we have been going against really tough comparables and still performing really well. We know that the FX has helped us a lot. So for the whole beginning of the year, the FX impact has been some EUR 5.4 million. Even though it's FX, it still is real money. It hits our bank account every month. So basically, -- it is not just something that makes the numbers look nice also actually, in reality, flows through to the balance sheet and the cash. Profitability and gross margin at a really good level. So the FX also -- so roughly half of our sales, just a reminder, is U.S. dollar-based. We do have also costs in U.S. dollars. So all the FX doesn't flow through to the bottom line. So some of the gross margin or the cost of sales group that has some dollar-based costs like the commissions in the U.S. and some of the components in our product are U.S. dollar priced, but also some of the operating expenses are in dollars. But basically, more than half of that FX actually does flow through the P&L. The gross margin actually up 1.6% from last year is also having a positive support from the FX. Operating profit, EUR 7.7 million for the last quarter or the Q3. That's up roughly 29%. And then looking at the full year, we have also the adjusted operating profit here. So for just a reminder, we acquired the Okolo business last year in April. So for that, we've adjusted for the full year numbers, the EUR 0.7 million of acquisition-related costs. So the comparable number, not being the EUR 15 million reported, about EUR 15.7 million against our year-to-date 20.3 billion. So the adjusted comparable number, adjusted operating profit actually is up roughly 28.3%. EPS, EUR 0.61 full last year was roughly EUR 0.65. So we're some 6%, 7% behind the full last year EPS after 3 quarters. Net gearing also back to below 0. Equity ratio really strong. So the balance sheet has remained at a really good and strong level. We basically hired some 30 people during the quarter compared to the year a year earlier. Some of the historical views. So you can see our net sales has performed over the last quarter. So our top line does have certain seasonality. So typically, we start lower, ending up with the stronger Q4, not hinting what is going to be this year, but historically, Q4 has been the best quarter for us. And then you can also see on the profitability graph on the right. So you can see the operating profit going up very much with the hand-in-hand with the top line. So our business model is very scalable. So the operating expenses is 60% salaries. We have been hiring a lot of people over the years. But basically, the model is very scalable as it goes and you can see it as well in the operating profit and how that actually flows through to the profitability line as well. Next, cash flow. Also following a typical trend. So our -- we start the year off typically quite low. It's related to us paying out our bonus payments or LTI and STI target settings and the payments are annual paid for most majority of the employees in the company. And also taxes go up in the first quarter. But basically, then throughout the year, we hopefully improve also and that's been the trend because the Q1 is the worst and then it starts to get better towards the end of the year. So far, this year has been following a quite typical trend. And then I think this -- also, the working capital actually did go up a bit last quarter, but basically, we'll make sure we work hard to make sure that actually TIN accounts receivable will be able to get that down by the end of the year. But there are certain drivers behind that, which is not a surprise to us that it did go up. On the equity ratio, you can see it's actually at its strongest level it's been since the acquisition of Centervue. We used to have really strong equity ratios back in the day when we only had the tanometer business but since the acquisition and the balance sheet changing dramatically, this is actually as good as it's been since 2019. The net gearing also actually below 0 now. So if you look at the prior years, the net gearing has been actually 6.7% in 2020 more than 11% in '21 and now it's minus 1.1%. So how it works is basically the dividends fully the net gearing up. And then Q2 last year, we also acquired Okolo with the cash reserves. So the net carrying went up to 20%. And now basically, it's been Q2 this year, we paid dividends, and now it's been actually just coming down again when our building our cash reserves. Some of the main shareholders, nothing much changed here. William Demant, the largest owner, has actually continued to buy some more shares. They were closer to actually exactly 15%, if I recall, right after Q2. So they bought some 0.4 or so percent of the company shares during the last quarter. Finland ownership, Finnish ownership is still the majority, but the nominee register and the foreign ownership has continued and does continue still to grow. So the foreign ownership, I think it was still end of last year, Finnish ownership was more than 50%. And this year, the foreign ownership has grown to become larger than the Finnish ownership. The guidance like Jouni mentioned hasn't changed. Our exchange rate adjusted net sales are estimated to grow strongly from the previous year, and profitability, excluding nonrecurring items, is estimated to remain at a good level. And here on the right, you can see some of the longer trend looking back how the company has performed.

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

Thank you, sir.

Ladies and gentlemen[Operator Instructions]. Line is open, you'll get a prompt saline is open and just please introduce yourself and your company before asking your question. With the first question now, one, please.

It's Daniel Lepistö from Danske Bank. I have a couple of questions. The first is about growth. So looking at this currency adjusted growth of 12% during the quarter, it seems to be the slowest we have seen in past few years even. So I guess my question is that are you happy with this current level, maybe reflecting your current guidance of seeking strong growth? And is this level of growth strong enough, are you looking forward?

Yes, I think this is Robin. I can try to answer. So looking at historically how the organic growth has been cleaning out, if I remember the CMD, which we had, we're looking back from 2016 towards 2020, our kind of organic growth back then has been is 13%, 14% roughly when you clear out the acquisitions. So the Corona time has made our numbers act quite strangely. So like you remember 2020, the tonometer groups grow really strongly. The imaging group products had been growing strongly since then and still had continued throughout last year. Last year, our organic growth was 34% for the first 3 quarters, which is -- if you look at the comparable we're looking at from this year, it's 34% growth compared to basically the historical 13%, 14%. So it is comparables are tough, but I think our target is to be at a higher growth level in the longer term. So one quarter is not really there is quite a short term or kind of a time window to do any longer judgments. I would still like to state that the guidance remains the same for the rest of the year.

All right. Yes. Maybe to ask yes, maybe to ask further on that one. Can you estimate a bit how -- what's the impact on the sort of new volumes sold in terms of tonometers or the imaging devices because you made some price hikes earlier this year. Can you give any sort of clarification on this one?

The volumes units haven't grown as much because of the FX. So kind of you can see that we reported, right? So the reported growth is higher than the unit growth because of the FX. So it acts pretty similarly than the FX adjusted.

All right thanks. And maybe the second question is about your current customer base and this sort of economic slowdown and recession, we are heading globally. So how resilient do you see your current customer base in terms of their investment decisions and activity if we are heading towards this global slowdown.

I might try to answer this one. I think we have 2 things here. So the first one is the kind of a higher level macro spin on this one. So that's for sure that there's going to be more patients who are going to need care. And then there's going to be pressure on the eye care specialists to treat them in the coming quarters. So that's a clear sign. So at least the patients are not going to vanish anywhere rather they are, there's going to be more patients coming in to have clear. Then the second thing is that the medical industry, that's quite defensive. And if we then come back to our business. So our view is that, of course, if something, I mean, really goes haywire on the geopolitical situation. So I think we are not the immune either to that one. But then if looking the 2 main client basis what we have. So at least if looking the Q3 and going into Q4, so the ophthalmology practices. So they are feeling the pressure of patients coming in. Then in our scenarios, of course, we are slightly concerned at how the optometry side is going to go. So if costs are going to go up on the energy, if they are going to go up on the food so are they going to be as many people going in and buy new spectacle or spending money on the optometric side of the business, and then that might lead to the weaker investment willingness also for the devices and for the software. So I think that's one aspect in an overall equation, but at least so far, the feedback is that we haven't seen the slowdown at least not yet, but remains to be seen. We don't have a kind of full solid crystal ball on that one. I think that applies for all of us. Anything remaining to add on that one.

No, I think historically, the medical technology or the health side of industry in general, hasn't been that or kind of impacted that much by the economic slowdowns. So there are meaning other industries that are swinging up and down more. So the demand, at least for us has historically shown to be quite stable even in rough times.

All right. That's helpful. Maybe if I continue on that one, the tenet side, which you mentioned, that could be a potential concern. Any estimate how big a portion this is from your current customer base?

I mean, we don't have a full visibility on that one. So we have a visibility in the U.S., more visibility in the U.S.A., but then when we work through our distributors. So actually, we don't have the detailed data on that one. So sorry for that one, but that's the case.

All right. My final question is about that you note in the report that Timo has received some excellent feedback. So when do we get to see some numerical highlights or some sales performance or any market estimates for this great product.

I think we -- currently, we don't release any numbers on any product sales units. So we haven't really decided or discussed either when or how would we open up a bit more how the HOME2 is doing. But at least I don't see that happening any of the near next year, next year quarters, at least my estimate would be, but it's maybe something we really haven't decided it either...

Okay. That's all from my side.

Ladies and gentlemen. [Operator Instructions]

This is Nikko Ruokangas from SEB. I hope you can hear me. So I'll have a little bit continuing on the topic that Daniel asked about the volumes and like organic growth rates. So can you a little open up the growth rate differences between tanometer and imaging in Q3 where there are huge differences in the growth rates.

There were both product lines we're doing really well, so very strong growth. So I think the imaging debt did actually a little bit better. But basically, I think the tonometers in general have been performing really well this year. And then looking at the Corona times, it's been growing really fast. Looking at the end of 2019 and then going into the Corona pandemic, it's actually performed really well and still has continued to do so this year. But so as the imaging. So we really haven't had any weak areas in our portfolio. I think the tanometer side, we can do better. But basically, the imaging and tanometry are doing really well.

Understood. So are there notable differences how much the price increases and FX help the sales growth between your different areas?