Revenio Group Oyj (REG1V) Earnings Call Transcript & Summary

Good afternoon, everybody. My name is Jouni Toijala. I'm the group CEO for Revenio. Welcome to Q4 earnings call. With me we have here as well our Group CFO, Robin Pulkkinen. Agenda for today is following. So I'll start by going through the business highlights of the quarter, so Q4 plus for the full 2022. Then Robin is going to do a bit more deeper dive for numbers. So Robin is going to go through the P&L, balance sheet, also shareholder structure, and then we finish up with the financial guidance for this year and, of course, with the Q&A. So let's move to the highlights of the year. So very, very strong finish for the year '22. So if we go back to Q4, so imaging devices selling extremely well, especially in the USA. And if you go back to the earlier calls, what we have said earlier is that if the fundus imaging market is roughly USD 500 million, especially in the USA, we have still plenty of room to grow as we are ballpark of 5% market share in the USA, so still plenty of room to grow. And the Q4 was extremely strong on the imaging side in the USA. That said, also the tonometers were growing in the USA as well in the Europe, Middle East, and Africa region. Then good news from the iCare ILLUME. So if you go back to the Q2 last year, so we launched the new iCare ILLUME platform for the retina screening. So that included the DRSplus, plus the ILLUME, plus third-party AI algorithm. So we have been now doing quite many pilots during the second half of '22, and we have managed to close now also the first clients during the Q4, and now the deliveries are ongoing. Then also if looking at the December last year, so I'm especially happy about the operations team and our manufacturing partners and their ability actually to ship everything. So we got really a lot of orders still in December, even between the Christmas and the New Year. And we were actually able to deliver all orders last year, so that's really good. Then if going to the market conditions. So overall, not too many red flags currently related to the overall iCare market but, of course, some uncertainties related to geopolitical situation plus the cost inflation. But otherwise, if looking at the overall iCare market, so that seems to be steady. If moving to the Q4 numbers. So Robin is going to go these ones through in more detail. But net sales totaled EUR 28.3 million. So that's an increase of 18.8%. And if we take the currency adjusted growth, so that was 16.1%. And if we go back to the earlier quarters, so we had a big tailwind from the U.S. dollar-euro exchange rate, so the tailwind was 5.4 -- so EUR 5.4 million in the first 3 quarters, but that started to settle down a bit. So we got the tailwind from the FX only EUR 600,000 during the Q4. Operating profit up 31.3%, so euro terms EUR 9.3 million. And then I have to remind you that 2021 Q4 we had this EUR 600,000 impairment related to Cutica, so that's good to keep in mind. EBITDA grew 19.4%. Good cash flow, again, during the Q4 and leading to the EPS of EUR 0.214. Then moving to the -- out from Q4 to the full year of '22. So net sales EUR 97 million, so EUR 3 million shy of EUR 100 million, increase of 23.1%. And if you take the currency-adjusted number, so growth rate was 16.4%. Operating profit grew up 34.3%, leading to the EUR 29.7 million. And here I have to remind you as well that if you take a full year of '21, we had the Oculo nonrecurring acquisition cost in plus the EUR 600,000 Cutica impairment. So let's keep that one in mind. EBITDA grew 28.7%. Cash flow was up to EUR 23.2 million out from EUR 21.5 million and EPS a bit more than EUR 0.80, so extremely good year for us. If recapping couple of business highlights from the last year. So first, I really have to start from the sales. So if you look at the diagnostic device market in general, so that's growing roughly less than 5%. So it's less than 5%. And if you look our growth, so we were growing roughly 4x compared to the market. So that's really good. And reason for that one is that we are having a really competitive imaging portfolio. So here I'm referring to the EIDON family plus also DRSplus. Then tonometers growth was good also on the tonometer side. Then we launched the new HOME2. We got the FDA approval earlier about one year ago. Then also this year -- sorry, last year, November, so 2022 November, we actually got the ic200 registrations also for China. So tonometers have been growing well last year. Then we launched the iCare ILLUME solution, and now we are starting the first commercial deliveries as well. Then really the highlight, which I mentioned already on the Q4 side, but we have been able to deliver really well during the last year. And this is not really the self-evident thing. So the manufacturing partners, operations department, they have been doing the excellent work in order to be able to ship all the orders. Then we have been really active on the ESG side doing the EcoVadis surveys, Upright surveys, and now part of the '22 package, we are going to then launch the new ESG report as well. Then let's -- before going to the numbers, so a couple of words related to organization change. So we changed the organization about a week ago. And the goal here was to build more product and customer-led organization, and we did 4 changes. First change was that we decided to bring all product management activities, all marketing activities and brand activities in a one unit. Tomi Karvo is going to lead this unit. Then we had the R&D in 2 different places inside the organization, so we actually brought all the R&D resources under 1 unit. So we took the hardware, embedded software, plus all the cloud R&D under 1 unit. So that's a really good thing. Giuliano Barbaro is still going to run that one until the end of June. Then the third change what we did so, we didn't have strategy and business development function in a group level, so we established that unit and Kate Taylor is going to run that one. And then last, but definitely not least, John Floyd, John is going to lead the global sales. So John has been working for us already 13 years. So he was the first person in the USA. So he has been building from the scratch roughly USD 50 million business for us in the USA. So John is now going to be part of the leadership team and bringing all the client insights what he is having also into the group level, so that's extremely good news. That's about the changes in general and the highlights for the Q4 and 2022. Over to you, Robin. So let's go through the financials next.

Thanks, Jouni. So excellent year, excellent finish for the year. Like Jouni mentioned, Jouni went through the sales a bit here. So for the full year, EUR 3 million shy of EUR 100 million, 23% growth. Like Jouni said, the FX had a really big [ playback ] win for us for the first 3 quarters. But now for the last quarter, like you can see, the reported and organic growth are not that far apart any longer, so that has been slowing down. Gross margin improvement also very positive. There has been price increases, but so there has been also component cost increases. Overall, our gross margin, almost EUR 70 million for the year, improvement from 70.8% to almost 72%. And then if you look at the operating expense, it's roughly 1% lower from the revenue last year compared to the year before. But then if you take out the Oculo acquisition costs from the comparable number, the operating cost share part from the revenue is pretty much the similar level that it was earlier. So, the adjusted operating profit, if you look at that, going up roughly a percentage, it's mostly driven by the gross margin going up. So we have also the EBITDA and the EBIT, actually looking at the adjusted EBIT here. So we did, just as a reminder, for '21, there's a $0.7 million of Oculo transaction fees as well as the EUR 0.6 million for the Cutica write-down for Q4 '21, which we've adjusted here out in the adjusted EBIT line. So basically, here, when you look for the full year, for last year, just as a reminder, there's no adjustment for last year numbers. Only '21 numbers have been adjusted. So the EBIT for the full year, almost EUR 30 million, up 26.8% and then 30.6% of revenue compared to just under 30% in '21. EPS was EUR 0.818 for the year. Net gearing, also the balance sheet in a really strong condition. The net gearing has gone down to minus 13%. Equity ratio record high since the acquisition of CenterVue, almost 67%. Cash flow, very good for year, and then the headcount has gone up over the year, and now we're average Q4 headcount 205 people. On the P&L, some of you have already been noticing that there's been -- the financial expenses are quite high. So there's roughly EUR 700,000 of dollar-based exchange loss from the balances that we have on the bank account. So if you look at Q3, the euro-U.S. dollar exchange rate was EUR 0.97 roughly. And end of Q4, it's basically 10% higher, so EUR 1.07. So out of reevaluating those cash reserves in dollars, that's the reason behind the cost. Also, of course, the bank loan interest rates have gone up and those interest rates have also increased during the quarter. Next, so the sales for a few years back, the trend there is very similar what we're used to seeing, the Q4 has been the best quarter for us as long as I've been in the company at least for the last 7 years. It's more U.S. based, so the rest of the world is more flat, but especially in the U.S., there's quite a bit of seasonality. And here also, just mentioning, for the full year, there's roughly EUR 6 million of FX gains that we have in the P&L or the top line. Just on the FX, as half of our business is in dollars, the '22 average euro-USD was USD 1.05, and in '21, it was USD 1.18. So that gives an idea why there's so much FX gains. And looking at where we are now, we finished -- started last year in USD 1.13, so January '22, USD 1.13. And we're now moving around USD 1.07, USD 1.08. So looking at the revenue in dollars in this first quarter is probably going to be a little bit FX gain also there when starting this year. But then '22 came down pretty fast. So I think that if the exchange rate stays where it is now, it's probably going to go down the gains towards the end of the year. The operating profit similar when you look at the revenue. The business model is very scalable for us. So when you have strong revenues, you have strong profits. Looking at the profitability level from the earlier years, just the 2020 when the COVID -- in the start of the COVID, the OpEx and expenses and everybody was sitting home, no travel, no tradeshows, the costs were pretty low, so the profitability levels back then were quite extraordinary and nothing -- something that you could be -- should be too worried that why are we lower than there because basically there was nothing much other costs and salaries and R&D fees. Cash flow. Here also a very familiar trend. We always start the year off a bit softer. All our group-wide compensation systems are paid out in the first quarter, which always draws down the cash flow there. Also, it's typically the weakest quarter of the year in revenue and profitability. So we start off normally pretty soft, and we end up with a strong finish for the year. During the whole year, the cash reserves increased by EUR 7 million roughly. So we did pay out dividend last year, roughly EUR 9 million. The dividend payout for what the Board is most likely going to propose to the AGM is going to be the EUR 0.36, which is basically EUR 9.6 million being paid out. So the cash balance at the end of the year, EUR 32 million, and that's up by EUR 7 million from a year back. Equity ratio, very strong, a record high for the last year. So if you recall, before the CenterVue acquisition, it was higher. The whole balance sheet looked very different back then. So since the 2019, it's the highest it's been. And the net gearing also highly negative. Our cash reserves are roughly EUR 12 million, I think, higher than the interest-bearing debt that we have on the balance sheet. So a very strong position. Shareholders, there actually hasn't been much change in Q3, small ones. Small ones, the foreign ownership is actually -- it's 53.41% now. It was 53.63%, so just 2 decimals lower actually now. But the changes or the names on the top 10 list is the exact same. There's one change, so Vanguard and Columbia -- no Vanguard and Capital Group switched places. So Capital Group sold a little bit, Vanguard and Demant have been increasing their ownership. Other than that, it's pretty stable for the last 3 months. In our guidance, Revenio Group's 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. That's it for me.

Yes, that's it. Thank you, Robin. So let's move for the Q&A.

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

This is Nikko Ruokangas from SEB. I could first ask a question regarding the guidance. So could you discuss about your profitability guidance. I think that it implies weakening EBIT margin. I understand that FX tailwind has turned. But on the other hand, your business model is scalable. And so the profitability should improve with increasing sales. So could discuss logic behind a little bit behind this and whether it is your expectation that the EBIT margin is weakening is more related to not growing fast enough or that your costs are increasing?

Well, it's a very thin line with the guidance where we are at the moment. Our internal plans is -- our view of the year is from the guidance that we don't expect things to move or change a lot. There was a lot of discussion on the Board, whether we should be giving more brackets for the profitability and growth. I think the guidance is given like it is now here, but there is discussion that we might become -- be more specific as the year progresses, but we haven't really decided on that. So we'll start off with here, and we'll see what the discussions come up in the Q1 or Q2 reports, whether we specify it more. But for now, we start with this.

All right. Understand. Then regarding your outlook between different product segments. So you discussed that the fundus imaging has been growing fast, but also, for example, tonometers were doing well. So do you expect this same kind of development to continue and where is the growth rates, for example, in fundus imaging at the same level than in Q1 to Q3 last year?

I will perhaps start answering to this one by going through the market sizes first and then I think that brings the light. So if we think first the fundus imaging, so that's roughly EUR 0.5 billion market growing less than 5%, based on our understanding. Then we have a EUR 200 million market and that's the tonometer market, including the [ probes ], excluding the home, and that's growing roughly 1% to 2% per annum. So if we think, first, the market shares, we think the overall market size, so it's a quite natural thing that we see higher growth on the fundus imaging side because the market is way bigger. We are -- global market share for us in the fundus imaging is between 5% and 10%, and we are taking the share all the time. So it's pretty natural that's growing faster than tonometers. That said, so we are still, of course, looking to grow on the tonometer side as well during the '23. But just in terms of the market size and market share, so the growth is going to be more aggressive on the fundus imaging side.

Yes, understood. So the progress will be roughly similar going forward according to your expectations.

Yes.

Yes. Then one last question for me about the multinational clinical research contract, that brought revenues in Q4, so how significant was it in Q4 and is this expected to continue in Q1?

It's not continuing -- I think there's nothing undelivered anymore. So it's finished now after Q4. It's a nice addition, but it's not like a game-changing part of the revenue. I think it was a nice deal for us, but we haven't really specified exactly how much it is, but it's nothing that we should expect a huge drop because of that. There's always bigger deals. Every year there's been something almost for the last years that come in. So hopefully, we'll just try to find another big deal this year.

The next question comes from Daniel Lepisto from Danske Bank.

It's Daniel Lepisto from Danske Bank. I have couple of questions. First is also a question regarding the guidance, but I guess instead regarding the growth part. So as we know, you raised your estimates prior to the results from the strong growth in 2022 to the 16% currency-adjusted growth. So does this directly mean that the current guidance you issued for 2023, the strong currency-adjusted sales growth means up to 15% or 16% growth since it seems to be the limit where you saw it necessary to issue a profit warning?

Yes, I think you have a good justification for that argument. I can't really comment on the exact percentages, unfortunately.

Okay. So maybe if I continue on the topic as you discussed about the headwinds, you will be getting from the currencies, I assume that the reported growth should be even below the figure are referenced.

Well, it's hard to say how the currencies go. If we continue where we are now, I think we're going to have FX gain, at least for -- there's also -- there's many parts that fall under the FX impact on the P&L. But the biggest is the year-over-year FX comparison. So it looks still positive for us for the start of the year, but it's really hard to forecast how that's going to change. Some say it's going to go back to parity or some say it's going to go to 1.2 almost depending on who you talk.

Yes, I get it. I guess the second question is about the cost outlook in 2023 in general, I guess, in terms of these other operating expenses like R&D and traveling and so on, but also salary inflation. And can you give us a little explanation about the Q4 employee costs, which seems to be almost flat year-on-year despite almost 20 more employees during the period?

For the flat, there's, of course, been some adjustments on the -- what we do for the variable pay for the year. So those always I can't exactly tell you what that impact was right now for the Q4. But in general, I think the hiring for this year is we're starting off a bit slower at least. We're waiting to see how the market and the geographical uncertainties develop. So we're most likely at least starting off a bit more careful with adding new headcount at this time compared to the last couple years. So we're having a look, and we're quite satisfied how we are staffed at the moment. There are some additions to the R&D side. But other than that, it's quite limited that we have open positions in the coming months.

Right, Robin. So in terms of the salary inflation, so we budgeted 5%, right?

We budgeted 5%. We haven't really -- nothing actually has come through yet, so we're going into that discussion now. The increases are probably going to take place in our end March-April timeframe. But overall, the budget we've internally budgeted 5%. Seems like the union agreements in Finland, at least are a bit below that, but then certain markets like the U.S., I think there's higher pressure also for increases, as the job market is quite tight there.

And then I think, Daniel, if I recall right, so you had the R&D question as well. So the plan is to keep almost about the same R&D spend out from revenue, so roughly 10% -- less than 10% actually goes through the P&L. And then if you take the P&L -- out of the P&L impact to the balance sheet related to activation, so that's bit more than 10%, and logic is exactly the same than last year. So 2/3 out from those investments are going to the device side, 1/3 to the software. So right, Robin, so this is from the R&D cost perspective, that's the ballpark. And I think the gross investment or the balance sheet items might be actually a bit lower even this year than last year, but there were certain prototypes and things that came in, which were quite expensive last year.

Okay. That's very helpful. I guess my final question is about the iCare HOME2. So can you remind us about the potential plan to seek this reimbursement coverage for this device in the U.S.? Is this process underway? Or have you looked into it?