Revenio Group Oyj (REG1V) Earnings Call Transcript & Summary

Good afternoon, and welcome to Revenio Group Q3 Earnings Call. My name is Jouni Toijala, and I'm the Group CEO, and we have here as well Robin Pulkkinen, our CFO. Today, I'm going to start by going through the highlights for the Q3. So a bit of a numbers, then highlights from the business and products. Then Robin is going to go through in more detail the financials and then finish up with the shareholders and reiterate the financial guidance. So let's jump to the Q3. So a good quarter in terms of the organic sales growth for us. Net sales, EUR 23.9 million, an increase of 8.9% from the last year, which was EUR 22 million. And it should be noted that we got quite a lot of currency headwind from the U.S. dollar-euro exchange rate. So if you look the growth from the currency adjusted point of view, so July, September, Q3 growth was actually 15.1%. Operating profit, 23% from the net sales, so EUR 5.5 million, down from EUR 6 million last year. And here, perhaps couple of comments related to profitability. So we got the headwind -- FX headwind, roughly EUR 0.9 million. So roughly a bit more than 50% actually goes through the EBIT line as well. And then this was really a good quarter for us when it comes to the launching the new products. So we have a new tonometer. Now out ST500, then we have the TONOVET Pro, also new tonometer. So we have been spending quite a lot of additional marketing money for the global launches for these products. But Robin is going to cover in more detail the cost side in his presentation. Net cash flow from operations, EUR 2.9 million, down from EUR 5.6 million. But if we then look the whole January to September highlights from the number perspective, so extremely strong cash flow. If you look at the first 9 quarters, so EUR 14.1 million, up from EUR 5.6 million. And if we look at the sales growth for the first 9 months, so we are currently on 8.2%. And if looking it from the guidance perspective, so currency adjusted growth on the sales side is 8.9%. But if jumping then next to the business highlights for the Q3 2024. So extremely good quarter from us -- from the product perspective, from regulatory approval perspective and a couple of comments related to that one. So if looking at the sales in general, so the sales of fundus imaging devices saw double-digit growth year-on-year. And again, the main growth products were EIDON family and then also the DRSplus. Then from the tonometer side, a good quarter as well. iCare HOME, again, was actually the one of the highest growing device from the tonometer and also from the imaging product portfolio point of view. IC200 growing well. And then also the newly launched TONOVET Pro getting extremely good traction. And of course, probes have been showing particularly strong performance in terms of the growth as well. Then positive news from China. So we got the approval for EIDON. In China, also the IC200 quick measure tonometer feature, of course, together with the hardware was then approved and got the marketing authorization in China. So actually really good news. So these are tending to take time. So as an example, on the EIDON case, we started the project already almost 3 years ago, and these are really taking a time. So now we have a really good product portfolio available in China. So that's DRSplus, that's EIDON plus then the tonometers as well. So that's extremely good news for the future. Then news also during the Q3 from the AI perspective. So we acquired a Dutch company called Thirona Retina. And the logic there was to get the assets on the AI platform. So we have been working with Thirona for a long time in the context of retina screening, so meaning together with [ ILLUME ] and DRSplus. What this enables for us is that, now we own their assets. We have a freedom to decide the business model, have a better margin. And in this context, nothing is going to change. So we are going to work with other AI players, plus we are going to guarantee that the support from the Thirona Retina is going to continue also for other players like Topcon, like Canon, et cetera, with whom they are working. So there's no plan to change this one at all. Then in addition to having and using Thirona Retina on a clinical decision support perspective, the other logic for the acquisition was that increasingly -- AI is increasingly also gaining importance inside the device and in the different functions of the device. So now we have skills and capabilities also in-house for that one and for the future development for the devices. Then not so good news from the CMS perspective, i.e., the reimbursement code for the hardware for the HOME2. So the decision was not to grant the durable medical equipment reimbursement code for iCare HOME2. And the reason was that you already have a good set of the codes, which you are able to use and your doctors are able to use. So the codes currently are code for training, then also code for then renting the device out and also code for telehealth and remote monitoring and the analysis of the data. So that was the logic. So what does that mean for us? So we are going to continue the work around those codes. And still one thing to remind everybody that if you look to Q3, so HOME2 was the highest growing product segment for us. Then we launched also during the Q3 iCare ST500 slit lamp-mounted tonometer. And this is actually the continuation of the things what we said 2021 April in our CMD. And I'm sure somebody remembers from the call audience that we said that the goal in a long run on tonometry side for us is to make rebound technology as a golden standard for tonometry, which is currently the Goldmann tonometer, which is more than 70 years old. So this is now also partly answer for that one. So what we are going to gain from the slit lamp-mounted tonometer is that we haven't had fully blown product portfolio for all patient workflows. So the patients which are going to go through the slit lamp investigation. So mainly Goldmann tonometer have been used in order to measure the IOP. So now we have a product for that one, it's fully complementing our other rebound tonometers, IC100 and IC200 and HOME. Then another important part is that if you think the Goldmann as a method of measuring the IOP, so it's not fully reliable. So if you measure the patient at the clinic with the Goldmann tonometer and then as an example, with iCare HOME2 at home. So you get non-reliable measurements in most of the cases or at least not repeatable if you use the Goldmann. So now we have clinical proof that actually the whole platform, whether you measure the IOP with IC100, IC200, HOME2 or with ST500, so they are fully repeatable. They are fully comparable. So it's going to improve then the patient care from that perspective. So really good. And then perhaps thirdly, I have to mention that this is not only the ST500. So what is inside the device, it's totally new. So we have a totally new hardware platform inside the device, which we are going to use in the forthcoming new tonometers in years to come. So very significant product for us if we think it from the long-term perspective. Then we got also the timing right. So product is good to go. So we have orders already in, we are able to produce, we are able to ship. And then we have -- same time, we have FDA clearance, plus we have the CE mark for the device. So from that perspective, really good news and good to go. So let's switch the gears and move to the financial side. So over to you, Robin.

Thanks, Jouni. So going through a bit more in detail. Like Jouni mentioned, the sales were growing organically quite well. We're quite actually satisfied with the top line. Unfortunately, things that we couldn't control were the FX side, which did hit us quite hard during the quarter. It kind of shows on the top line. So the FX adjusted growth was more than 6% more than the reported growth. And due to our cost structure, a lot of that FX hits the gross margin line, which is the main driver for the gross margin to drop below 70% in the quarter and also to the EBITDA and EBIT line. We did have some one-off costs during the quarter like we did in the comparable quarter, but they're quite minor. So you do have the operating profit here and the adjusted operating profit, but there's not a huge difference between those lines, but it's showed separately here as there were certain one-off costs, which are adjusted. So year-to-date, EUR 73 million in sales, and that growth is 8.2%, FX adjusted 8.9%. Showing a bit more history, so on the top line, the quarterly fluctuations. Looking at the last quarter, we would have been probably pretty close to the trend line without the FX impact. But it seems like the FX has come down a lot since the end of the quarter. So end of September, peaked pretty high, and now it's down multiple percentages again. So interesting to see how it plays out now during Q4 and what the impact will be. But if it goes down, it should have a positive impact on the Q4 numbers. So profitability, slightly down. So the one big driver is the FX, which we've been talking here. But also we did have direct costs also that increased. Jouni mentioned the marketing costs. So those together with the personnel costs kind of accounted to roughly 85% of the cost increase year-over-year. And on the personnel side, you might remember from last year, we had very minimal bonus payout. So the accrual levels are higher now for this year as we are within the guidance and holding to the guidance for the whole year. So that's one of the major part of the cost increase together with the marketing, which was actually quite significant. The clinical trials, we didn't have a notable impact on during the third quarter. We're still looking and working with the FDA to understand the scope of the trials. And hopefully, those will start to run again during this quarter, so Q4, but they haven't yet started. So I guess that's still to be worked out how that's going to play. So year-to-date net cash flow, it's actually on a record level. So looking at -- it's actually quite interesting when you look at the net profit for the first 9 months, we're actually exact same net profit than last year during the first 9 months, but our cash flow from operations is up 150%. That improvement is mostly coming from working capital. So a more effective management of the working capital and also a little bit lower paid taxes. But the working capital, basically [ AR, AP ] inventory is the major player there. And then, of course, the beginning of the year, bonus payments were pretty low, which is one reason for the first quarter to be quite good. Balance sheet continues to be strong and get stronger. So the total balance sheet value went up slightly from EUR 128 million to EUR 132 million year-over-year. On the asset side, the Thirona acquisition shows on the flip side of the coin, the cash is down slightly, equity up also and the short- and long-term liabilities slightly down. So typically, looking at the net gearing for our company, the dividend payouts bring up the number. So during the second quarter and then third, fourth and first quarter, we build up the cash reserves. Now in Q3, we did pay out for the Thirona, but basically, looking into Q4, we would be pretty fair to expect that line to turn down again for the next report. On the shareholder side, there's not many changes. We have 23,324 shareholders at the end of the quarter. The Finnish ownership actually went down roughly from 49% to 47.7%. And on the top owner list, there's not really any changes. So the #8 has dropped to #11, but that's like the only change in the top 10 list. And then the country split here. So Denmark equals almost fully demand. And then we have Sweden over 10%; U.S., 8.3%; and France, 4.3% ownership. And the guidance, Revenio Group's exchange rate adjusted net sales are estimated to grow 5% to 10% from the previous year and profitability, excluding non-recurring items is estimated to remain at a good level. So basically, when you do the math, we expect to celebrate our first EUR 100 million a year sometime during this quarter now. So hopefully, it's sooner than later. But to keep the guidance means that we have to go over EUR 100 million in sales this Q4.

Excellent. Thank you, Robin. It's time for the questions, please.

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

This is Nikko Ruokangas from SEB. I have a couple of questions. And starting with that, you said that the investments by PE-driven opticians continue to move slowly and the slight positive momentum seen during H1 has not yet materialized in large orders. So have you still seen the positive momentum despite not larger orders yet? And then on the other hand, when do you expect the orders starting to materialize?

So the status -- so status pretty much the same as before. So we are getting orders, but not these big orders or not on the big chunks, but I mean, here and there and so in that sense, remains to be the same. And then, of course, the question mark is that when it's going to turn. So I don't have a full question -- sorry, I don't have a full answer to that one yet. So -- but I mean, the sentiment has been the same and orders popping in, but not kind of a huge chunks that it used to be earlier. So in that sense, status is the same.

All right. I understand. Any other changes to your -- how do you view your outlook compared to Q2 report?

I mean, no, no. So exactly the same logic. So if we look what we have been communicating, so Q1, more or less on the par for the previous year, Q2, good growth, Q3, good growth. And then again, when we go towards the Q4, so as we have said earlier, so the most of the growth for the -- if you look the whole full year is coming from the Q2 and Q3. But anything, Robin, you would like to add on that?

Yes. I think the Q4 comparables were challenging like Q1 and kind of -- I think the year has played out very much like we've been discussing all year along. So already in Q1, we assumed Q2 and Q3 to bring the biggest growth and then Q4 is a more challenging quarter for us and I think the situation has played out pretty much what we expected it to do.

Yes. I understand. Then I would like to again ask a question regarding competition, which has been discussed quite many times, but has [indiscernible] become more visible competitor to you in tonometers either in Europe or the U.S.? And has the competitive situation affected your pricing?

So we have been now very active on a couple of trade shows where the [indiscernible] has been in, so ESCRS, AAO about 2 weeks ago. So I mean, no impact to the sales, no impact to our pricing. So they have been surprisingly quiet still. And if you look our tonometer growth and the probe growth so far so good, but as before, so remaining humble and vigilant from that perspective, but status is exactly the same that it was during the Q2.

I understand. Then on the FDA costs, so you say that there were not much in Q3. So how much are there still left? And then does it mean the delay -- or does it mean delay in the process that the trials are not currently ongoing?

I could answer to that one. So we have done 2 presubs for the FDA. So let's -- before perhaps I go there. So let's understand what has been going if we think the FDA costs in general. So we have had products in a pipeline. So ST500 generating the FDA costs. So of course, those are kind of gone -- clinical studies gone. We have clearance from FDA. Then we have been working on the clinical studies related to MAIA, MAIA3 next-generation MAIA. So those costs have been coming in. And then what comes to the ILLUME, Thirona Retina AI and then DRSplus. So there, we have been doing now the presubs in order to get the scope of the clinical studies right. And we have done 2 presubs now, and now we have the FDA approval and still going the feedback through. And really, the logic is that we don't want to hurry and we want to get it right. So it would be shame that we do long clinical study, pay EUR 1 million to EUR 1.5 million and then the FDA comes and say, hey, you didn't take this small part into account, and then we should run the clinical studies again. So this is where do we stand now. So we haven't yet started the clinical studies, and we haven't started taking the patients in yet because we want to be sure that everything goes as it should be towards the FDA so that we meet all the requirements. So that's the current status.

Okay. So that will still bring another EUR 1 million to EUR 1.5 million of costs during Q4 and H1?

We did have some in the Q1. But the scope and the number of patients needed, I don't think any of that is yet locked. And if you still need to adjust the or do a new pre-submission, that would mean that probably there won't be any cost in Q4 either. But we don't know yet for sure. So we're talking with FDA and try to understand and make sure that whatever studies we start, they meet all the requirements needed to get the approval.

The next question comes from Daniel Lepisto from Danske Bank.

It's Daniel Lepisto from Danske Bank. I have a couple of questions, maybe continuing on the PE-funded opticians and your note of there being no larger orders yet. But I guess looking at the organic growth on FX-adjusted basis accelerating quarter-on-quarter, it seems that you are still doing quite good business. So who are these customer segments now that are driving this growth at the moment?

It's the standard segment, so optometry, ophthalmology. And then we have been able to get constantly every quarter the new deals for the ILLUME package. And with the ILLUME package, I mean DRSplus plus the ILLUME plus the AI. And the tendency is that we tend to sell those packages outside of our traditional customer segments, i.e., optometry and ophthalmology, of course, part to the optometry, but that has been also the new segment for us this year where we have been able to sell. But we have been, as said earlier, so we have found the new clients and the new growth from the optometry ophthalmology and then as an example, from the diabetic clinics in Europe.

Okay. I mean, can you give us any sort of growth contribution of the ILLUME because it certainly sounds that it has been -- it has started to become a bigger contribution for your growth compared to maybe some time ago?

No, I think the traction is good. We have a lot of users coming on the platform and a lot of reports being run. But revenue wise, it doesn't yet move the ILLUME part, but the hardware sales, those are kind of recognized and as they're being delivered. So those are kind of, in a way, you could say hardware sales, but it's fully related to the software being part of it. But the ILLUME revenue, of course, is a recurring revenue stream that then starts to play a more bigger role in the coming years.

All right. Yes, I understand. Good clarification. I guess the second topic on the ST500 and the launch, thinking about the discussion on the Goldmann or the GAT technology. I recall that the Goldmann technology used to be like 20% of the total market. And I guess this is now sort of a portion that you can target quite well with this new solution. So is this market share estimate still valid? And are you sort of more confident on capturing more sort of global tonometer market share looking at the following year -- coming years?

I think the Goldmann is actually more like, I'd say, if we're 35, then Goldmann and Air-Puff is probably both in the 30s range also. So basically, it's a pretty big market, then we didn't have really anything to offer to the slit lamp-mounted Goldmann to replace that. So now it's the first time we're able to sell to that segment. So definitely, there is good potential. And actually, the product has been received very well also in the U.S. and Europe. And then the trade shows we had the AAO and ESCRS in Barcelona. I think the product drew a lot of attention also within the slit lamp manufacturers. So it's interesting to see how all that's going to play out.

I guess the final question, maybe still on the new products or product refreshments on the microperimeter, you -- I guess you noticed that there will be first commercial deliveries in early '25. So can you clarify here, you already have a functioning product and that is approved or do you have any sort of already sales pipeline for this product? Or is this just your expectations that there will be deliveries?

So a couple of things there. So we have done -- so one of the most important thing what we have passed already many months ago is to guarantee that if we measure a patient with the next-generation MAIAs or the new MAIA, we get exactly the same results compared to the old MAIA. So that's done, and we have done the clinical studies in order to prove that one. So that's the first hurdle, which we have already passed. Then we already have a working device, which is -- and so the software is pretty mature. So we have a working device here at our office. So from that perspective, we are in good shape. And of course, then the third thing is that we have to get the regulatory approvals. And current goal is that we would be able to start taking the orders in and start being able to move the business forward towards the first half of next year and hopefully Q1. So that's where we currently stand. So nothing has changed on that perspective, and it looks good that we are able to keep the Q1 time line from that perspective that we are able to start commercial deliveries. And regarding to the pipeline -- sorry, Daniel still, so regarding to the pipeline, so that has been the unfortunate case that we -- so I mean, we would have been able to sell devices if we would have had the device. So we have the demand for the device as soon as we can get it out. So that's a good thing.

The next question comes from Jack Reynolds-Clark from RBC Capital Markets.

I had a bit of technical issues so far on the call. So apologies if -- hopefully you can hear me now. And apologies if the question I'm going to ask has already been answered. But I had a question on the HOME2 device. So what was the reasoning that CMS gave behind the decision not to reimburse HOME2 separately? And then on the existing codes, how generous are these, how accessible are these? And kind of how much incremental sales investment do you think is required to grow HOME2 in the U.S. now that these codes aren't going to be available for use separately?

So I start, first the reason. So they said that you already have a codes in use, and I'm answering to the second question as well. So they said that you have already training codes in use. So according to my recollection, it's roughly USD 20 or USD 19 then if renting the device, so that's roughly USD 50 and then analysis and monitoring, that's USD 130 and then you have to analyze the data, follow up and have a verbal conversation and so forth. So there's a pretty good set of the codes, which doctors are able to bill already. So that was a logic from the CMS, why not to give the DME, so durable medical equipment code. And then in terms of the sales effort and increasing the sales effort, so we go and continue to work as we have been before. So if -- as an example, thinking in the last month or 2 weeks ago, we had AAO or ESCRS. So we have had the key opinion leaders talking on the stand, Ike Ahmed who is considered to be the one of the gurus on glaucoma management in the U.S.A. So he was talking to other doctors during the AAO then [indiscernible] during the ESCRS. So we continue according to the same, spend as before to sell and to promote the iCare HOME too. And as I said, so it was the highest growth device for us in terms of the percentages during the Q3.