Revenio Group Oyj (REG1V) Earnings Call Transcript & Summary

Good afternoon, and welcome to Revenio Group Q4 2023 Earnings Call. My name is Jouni Toijala, Group CEO, and with me here today, we also have our CFO, Robin Pulkkinen. Agenda for today is that I'll start by going through the highlights of Q4, including the short summary of financials, then also the same for 2023. So overall business highlights plus high-level financial performance. Then Robin is going to do the deep dive to the numbers. And then we are going to go through the changes in shareholder structure plus the financial guidance for 2024. So let's start with the Q4 business highlights. So the quarter went exactly as we expected it to go. So if we first start from tonometer side of the business, so strong sales for IC200, including the probes. Imaging device sales, especially DRSplus, EIDON family with the ultra-widefield function, sales growth was strong for Q4. And then if you look the overall progress on the screening side of the business, so referring to iCare ILLUME, so also good take-up on the iCare ILLUME side. And if looking the gross margin, looking the EBIT, so good performance also on profitability level. So if you look the numbers. So net sales up 3.5% -- sorry, 3.1% up to the EUR 29.1 million. Robin is going to cover the currency exchange rate part. But for the Q4, not major impact on that one. EBIT, EUR 9.5 million, up 1.6%. And then cash flow slightly or quite significantly lower compared to the previous year, but we closed a couple of big deals. So this is due to the account receivables. So Robin is going to cover on that one. So nothing to be worried about. EPS up to 2. -- sorry, EUR 0.27, up from EUR 0.21. So if moving back to full launch, 2023. So a couple of highlights here. So as you recall, we renewed the organizational structure, February 1st, 2023. So that has been a good decision for us, and everything is up and running really well. So if you remember, we structured the sales out from the product management and marketing, then we included our product management organization functions in one organization, same for the R&D. So that change has been going really well. Then on the screening side, we have been launching a new disease mode to the ILLUME. So now we have the AMD. We have also glaucoma in, then we closed the OpthAI partnership for the ILLUME, and then also a new product releases, couple of those. So IC200 Quick Measure, then we also launched new software version for the Compass perimeters. And the sales of the Compass picked up quite well also during the Q4. Then on the positive note, end of last year, we also received the regulatory approval for DRSplus in China. So we have been applying that one for a really, really long time. But finally, we got everything sorted out a bit before the Christmas. So that's a really good thing. Then a couple of big deals during the end of Q4, one in Germany, and one in the U.S.A. related to the DRSplus and also in the U.S.A., also the IC200. And then as of end of November, we also kept the CMD and gave guidance for the long-term growth target, plus then we updated slightly the strategy. In terms of the numbers, so net sales for the full year, EUR 96.6 million, slightly down. If you take the currency-adjusted numbers, so we had the growth at 2.2%. And then EBIT down then from EUR 29.7 million to EUR 26.3 million, so roughly 10% or a bit more than 10%. Robin is going to cover the cash flow part, and the overall earnings per share, EUR 0.7 was down from EUR 0.8 million. But with these words, over to you, Robin.

Thank you, Jouni. So a bit more details on the numbers, like Jouni covered, 3.1% growth in the last quarter of the year. There was no FX impact on the last quarter. But for the whole year, looking at the whole year sales, almost at the same level as last year. Our reported sales is actually down by 0.4%. Also, the gross margin rather stable within the quarter and the full year, well, actually, the whole year is down 1.3%. But when you look at the FX impact during the last couple of years, there -- actually, last year, the FX, there was a headwind for EUR 1.6 million for us compared to '22, there's a tailwind for EUR 6 million. So it's actually a quite big impact on our numbers. In the last quarter, we didn't have any nonrecurring costs. But for the whole year, we incurred EUR 1 million nonrecurring costs for certain onetime projects. So when you look at the quarterly numbers, the reported and the adjusted are the same numbers. But for the whole year, the adjusted EBIT is actually EUR 27.3 million and 28.3% of sales. The EBIT percentage is down 2.3%. That if you look at the gross margin, it's down 1.3%. The biggest part of that is actually the gross margin that has brought down the profitability, also then the OpEx is impacting 41%. So the year-end was extremely good. Considering that like we've discussed earlier, we didn't have the micro perimeter products in our portfolio this year. So we ran out of stock, and we'd be kind of catching up that gap in Q3 and Q4, looking at the trend line. The Q1 and Q4 are pretty much on the trend line like we've seen in the earlier years. But like we know the second and third quarter were below the trend, and that has been the challenge for us for the whole year. The Q4 sales performance is actually quite good when you leave out the micro perimeter. So there was double-digit growth for the main products that we had in the portfolio that we could sell. It's double-digit, actually closer to 15% than 10%. So a quite good finish for the year. Also, the profitability for the last quarter was the highest we've had so far, EUR 9.5 million, basically 1/3 of the -- more than 1/3 of the profitability for the whole year was generated in the last quarter. There are a few reasons basically the sales mix, but also the operating costs increased during the whole year quite moderately. So for the whole year, our OpEx is up 3.3% year-over-year. So there you can see the scalable business model going also the other direction, not only when we grow, but also when we have had a tougher time on the top line, we've also have been able to scale the costs. Most of that is actually, like we've discussed earlier, the variable bonus payments are quite low for last year. So that is one driver for the higher profitability. Looking at this year, maybe that's something that if we assume that we keep our guidance, the bonus pool is definitely going to be a lot bigger than last year. But also, like we've discussed earlier, the DRSplus plus ILLUME, FDA, clinical trials are ongoing. We have the new MAIA coming out with the clinical trials. So we're going to have some more clinical trial costs in our P&L this year, which is something just to keep in mind going forward. So it's something that actually goes through the P&L, and we don't put it on the balance sheet. So it's going to be impacting the profitability this year. But the good thing is it's onetime costs. So they will go away then the following year. Cash flow. So the Q4 wasn't as good as you would have assumed. But of course, it's maybe a good reason for that. So we did have a really good end of the year. The AR increased significantly. So due to these larger deals and overall, we have finished extremely well. And then, of course, the Q4 sales is significantly higher than the Q3 sales. So the AR did go up, and that's the main reason why the operating cash flow was lower on Q4. For the whole year, we also -- the working capital changes and then the certain tax payments in Q2 that were partly related to earlier years was the other reason why the operating cash flow didn't develop as favorably as we've seen before. But I'm sure Q1, hopefully, will be -- then maybe have turn to the other direction when we collect the money that is outstanding. Balance sheet remains very strong. The equity ratio is, again, at its highest it's been. So 72.7%, net gearing minus 3.6%. So we have EUR 21.5 million in the bank at the end of the year, and then interest-bearing debt of a little bit under EUR 18 million. So the kind of net debt position is minus EUR 3.6 million that we have at the end of the year. The Board will propose to be AGM that we will pay a dividend of EUR 0.38 per share, that roughly adds up to slightly above EUR 10 million. On the shareholders, there is actually very little changes. Surprisingly, it's not often that it's so stable. Basically, the Finnish ownership has gone down 0.4%. And basically, all the 10 names on the list are pretty much all the same, but maybe 1 or 2 have changed positions or places. So nothing much to report here. And then for the guidance, Revenio Group's exchange rate adjusted, net sales are estimated to grow 5% to 10% from the previous year, and profitability, excluding nonrecurring items, is estimated to remain at a good level.

And then we're good for questions. Yes. Thank you, Robin. Let's move to the question part.

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

I have a couple of questions. I'll go one by one. So first of all, your sales growth improved from Q2 and Q3 quite much. So you earlier had a slower demand from PE-driven optometry clients. So this sales come back? Or did your sales improve in other segments?

Nikko, thank you for the questions. We were able to find a new client, so optometry, and in general, ophthalmology. So that was the reason for the growth.

All right. And overall, if we think about your development so Q4 has been traditionally quite big quarter to you. So how do you see that market in Q4 and maybe going to '24? So did you see the market improving? Or was this improvement in your sales growth only gaining market share?

So if we go back to last year, so the Q2 was the most difficult for us. And then we were started to be able to turn the dial during the Q3. And then, as you can see, of course, during the Q4. And if we look the regions, so the U.S.A. selling well, and then the Europe selling and growing pretty well, APAC more or less stable. So I think that it's -- there has been a positive improvement also on kind of from the overall -- from the market perspective in general, I think. But I mean, we have really good products, which are extremely competitive. So I think that has helped us a lot during the Q4. But do you have anything to add, Robin, on this one?

Yes, I think April was the most challenging month probably ever for the company last year. So I think since then, the development has been positive quarter after quarter and month after month. So of course, going into this year, I think the comparables for Q1 are quite challenging, but we're quite optimistic that the Q2 and Q3, we should be reaching nice growth levels again and for the whole year to reach the guidance of 5% to 10%. So I think the sales team is also fully behind that guidance.

All right. I understand. So would you describe that the market environment is currently at least a little bit easier compared to maybe 6 months ago?

I would say certainly more favorable than Q2 last year.

Okay. Then about some bigger deals you mentioned about. So could you indicate at least some kind of ballpark that how big impact did this have in Q4? And how much should we expect '24 and '25?

So we had -- yes, there were a couple of deals that size are the 7 digits, but still a lot lower than the MAIA deal the year earlier, so nothing to compare to that. But the good thing is that they're not fully delivered. So we're going to be delivering against those agreements, hopefully, for this year and maybe even next year, but we don't have any kind of solid orders yet for the year, but there's a good outlook that they should continue at what level and at what stage is still open.

Yes. I understand. Then on the costs. So you mentioned about the clinical trials that will lead to increased costs this year. So how much clinical trials were there in '23, I mean, how much more is there coming now in '24?

There was very little last year. So we're talking about, in percentage, it's a huge increase, but we're talking about probably above EUR 1 million -- EUR 1.5 million to EUR 2 million, if I had to guess, somewhere around there. So it's more than a EUR 1.5 million increase.

Okay. So EUR 1.5 million increase in '24?

Yes, yes. But then not everything is it done. We don't know all the details for all the MAIA trials, for example. But that's if you have to forecast or model something, if you use EUR 1.5 million to EUR 1.8 million or EUR 2 million, somewhere around there probably is going to be the cost increase.

And I think the one concrete addition compared to the normal run rate is the FDA approval and the clinical studies for DRSplus, plus the ILLUME plus the AI. So that's roughly a bit more than EUR 1 million or between EUR 1 million and EUR 1.5 million. Sorry, Nikko, going back. So of course, that's kind of a one-off, so not visible than 2025.

Yes, yes, I understand. And then one final for me. So you say that there were a good pickup in ILLUME sales. So is it at any kind of significant level that we could see that in your sales in Q4 already?

I would say that the percentages are looking good, but we start from so small base. So on that front, not moving the needle. But the trend is looking good and the level of interest is looking good. And I think this applies in general for the screening-related cases because if we go for these bigger DRSplus deals, so they actually went to the screening and not in a way, in the traditional use cases where our clients are using our devices. So we have a competitive product, which is DRSplus for the forthcoming screening-related client cases. So that's a really good thing, and we are happy for that.

The next question comes from Daniel Lepistö from Danske Bank.

I have a few questions as well. Maybe going back to the discussion on the margins and the margin guidance. You note that this would be remaining on a good level. But maybe still going back to the topic on the clinical trial costs, I guess you said that there would be a EUR 1.5 million or EUR 2 million headwind from these trials this year. So I guess, quite a quick and dirty look on the sort of cost base and so on with the bonuses as well coming this year, I guess, margin expansion with even 5% to 10% sales growth, it could be quite a tough ask. Or what's your view on this?

Yes, it's hard to cover for one-off costs. It's -- we don't have any specific rabbits in the hat to cover for those. So it's really something that is going to hit this year, the profitability, and we didn't have it last year. But we typically have clinical costs on and off, like for the earlier releases as well. So this is part of the business. And if you want to do deals or business in the U.S., we need to do the trials. So there's not really much we can do about it. Of course, helping the long-term growth. So that's for sure. [ It won't help ] this year sales, not really, but it's a cost or investment for the future growth.

Yes, absolutely. Maybe then on the sort of product launches, maybe on the micro perimeter, can you remind when in exactly this year you're looking to launch the new product?

For microperimetry, MAIA, the new version of that when we are shooting for Q4 on that one.

Okay. So that won't have any sort of additional contribution to the growth outlook, if it's only for the Q4 or?

Let's have a see on that one because we -- so if we would have a product, so we would have basically orders put in. So we are -- the goal is actually to have something to ship already during the Q4. So and start collecting orders in some stage, for sure.

Okay. That's clear. Maybe on the sort of the next topic, I guess, on the FDA approval for the ILLUME and the, I guess, [indiscernible] AI, assume this is the combination you will take to get the FDA approval on the sort of first track you have discussed. So what's the sort of status on that one as you will be doing clinical trials and so on, I guess, any sort of news on that this year would be a quite kind of tight schedule?

You are full on money on that one. So clinical trials. So we have been working on the presub for FDA already. So good shape on that one. Then we have, based on the feedback when we receive it, so we have to run the clinical studies and then do the application based on the clinical study results. So for sure, I'm pretty sure that we don't have the approval for 2024. So it's going to be first half 2025 earliest, hopefully, Q1, but remains to be seen.

All right. That's clear. I guess my final question maybe on the HOME2 product, you know that, okay, you submitted some applications for the reimbursement on plan schedule. What's the sort of next step here? When are you expecting to get a sort of answer and so whether you will get the full or partial reimbursement for the product?

Yes. So the procedure goes so with all the glaucoma specialists in the U.S.A., we did the documentation we passed the application on time for so-called HCPCS, which is the Health Care Common Procedure Coding, so that goes to the so-called CMS, which is the centers of Medicare and Medicaid. So the documentation is in. And then we are waiting to feedback early Q4 from the CMS are the codes going to be received or not. And then at the same time and after that, one then we start the discussions between the payers or the insurance companies and so forth. So hopefully, we are wiser on Q4 related to coach and then the final reimbursement early at 2025. So that's a schedule and procedure how it goes.

The next question comes from Pia Rosqvist-Heinsalmi from Carnegie Investment Bank.

I've still got a couple of clarifying questions. First, with regards to your guide -- sales guidance for 2024. Earlier, you talked about a week H1. But is my understanding now correct that you're no longer referring to a week Q1 other than saying that the Q1 comparables were hard?