10/20/2021

speaker
Jouni Toijala
CEO

Good afternoon from sunny Finland, and welcome to Revenue Group Q3 earnings call. My name is Jouni Toijala, and I'm the CEO of Revenue Group, and with me here today, we also have Robin Pulkkinen, who is our Group CFO. I'm going to start first by going through the Q3 highlights, and then Robin is going to go more detailed to the financiers. So, Q3. So, an excellent quarter for us. Net sales 19.4 million euros, up to 22.7%. And what was really going strongly was the sales on fundus imaging side. So we managed to sell really well across all the markets, especially in Europe and in the United States. And it should be also noted that the Tonomir demand continued to grow well as well. Then if looking the profitability, so EBIT number in good shape, so 5.9 million euros. Of course, the percentages here are looking significantly higher than last year, and I think that it should be noted clearly that in last year's comparable numbers, we had 1.9 million cuticle impairment. So, please note that one. Then the cash flow, so 5.8 million, slightly down from last year, and there were a couple of things which were impacting to this one. So first the Okulo development activities reduced the comparable cash flow, and then also changes in working capital. And this is due to the investments that we have been putting in to actually increase the stock level because of the kind of a bit more riskier situation related to the components. And I think this is a familiar information for all. So if looking a bit more deeper to the growth drivers, so Imaging devices, especially the DRS Plus, plus the new product, so-called ADON ultrawide field. So they were selling really well across the markets. Then we have been also seeing now Q3 that the investments done towards the digital marketing, towards the brand. And then the channel integration after the Centerville acquisition, so those have been successful activities during the Q3. Then if looking at the data, so I think the good question is that is all of this growth pent up demand or not? And the answer is that we actually have been able to grow. actual market share by a couple of percentages, both in imaging devices and also in tonometer side. So from the product portfolio, product quality, product performance point of view, the offering what we now have on the table for sales, so it's actually looking really good. But with these words, I let Robin to go a bit more detailed through the finances, and then we have questions after that one. So over to you, Robin.

speaker
Robin Pulkkinen
Group CFO

Thank you, Joni. If you want to switch the slide. One more. There we go. Thank you. So net sales, like you only went through, 19.4 million, up 22.7%. And for year-to-date, we reached 55 million euros in sales, up by roughly 33%. The FX has not played a very critical role for year-to-date numbers, so FX adjusted growth roughly 34% year-over-year. On the slide, we have some of the adjusted numbers also presented. So, if I go quickly through what we've adjusted here, basically for the current reported quarter, there actually is no adjustments. But for the Q3 last year, what Jouni also covered is that the Kuttika rata or impairment of 1.9 million has been added to the comparable EBIT number here. And then for the full year numbers, we've added in the Ocula one-time transaction cost that was paid out in the first half. So 0.7 million has been added to the EBITDA line and the EBIT line for this year. And then for last year, the same Kutika impairment has been added to the EBIT line. So something to take a note back from here, for example, the adjusted EBIT, EBITDA, we actually have been able to maintain the same level than last year, so 32.4%. Basically, the EBITDA has been growing in par with the top line. And same for EBIT, actually a slight improvement. So the adjusted EBIT, 28.5% compared to the 27.6% last year and 37% improvement. So I'm going to look into Q4. We mentioned this earlier. The second half last year was extremely good. Looking at the first nine months last year, our organic growth, so currency adjusted growth last year for the first nine months, 22%. And then we look at the comparable Q4. The growth was currency adjusted 36%. So the Q4 growth last year was half, 50% faster, half faster than kind of the first nine months of the year. For this year, our growth for the first nine months, like we said earlier, it's been currency adjusted 34%. So going into Q4, we are coming against some really tough comparable numbers. Also, for last year, to keep in mind that we have the contingent accrual release that was related to the Centerville transaction. So the last year, the comparable numbers also include the 1 million euro other income that kind of flows straight to the bottom line. Some of the key figures on a more graphic way. So no major changes in Q3 in the big picture. The cash is up 4.4 million from Q2. So end of Q3, we had 16.5 million euros in the bank. At the same time, the net gearing went from almost 15 down to 11.2 million. and also the equity ratio improved during the quarter from 57, a little bit over 57, to 64%. So basically our balance sheet remains very strong, and along with the other growth opportunities, it gives us the opportunity to also look at the options of inorganic growth going forward. On the ownership side, there has actually been some... more bigger changes in the kind of the largest owner. So the William Demant, they have increased their ownership. They roughly bought or invested worth 20 million into the revenue share. So on the top owner list, that's the biggest change worth mentioning. So the William Demant ownership went from, I think it was a little bit below 11% to now it's 12.3%. And the guidance, no changes to the guidance since August. So the guidance still is that the revenue groups exchange rate adjusted net sales are estimated to grow very strongly from the previous year and profitability is to remain at a good level without non-recurring items. And the COVID pandemic continues to cause uncertainty related to the markets. So the guidance remains as it's been earlier. And that's it from the financial side.

speaker
Jouni Toijala
CEO

I think we'll go now to the questions. Yep. Thank you, Robin. So let's open the floor for the questions.

speaker
Operator
Conference Operator

Thank you, sir. Ladies and gentlemen, if you wish to ask a question, you may press 01 on your telephone keypad. So it's 01 on your telephone keypad. We have one first question from Mr. Sami Sakamir from Mordea Market. Sir, please go ahead.

speaker
Sami Sakamir
Analyst, Mordea Market

Hi, thanks for taking my question. I have actually a couple, but let's take them one by one. Starting from tonometers, were you saying that you grew sales in the third quarter? Can you elaborate on the growth rate? I mean, for example, how does that compare against growth rates you had in the first half of the year? And then on Q4, do you think you'll be able to grow tonometer sales in Q4 relative to last year?

speaker
Robin Pulkkinen
Group CFO

Sure, I'll try to take that. So if I recall right, our first half growth this year was over 40% FX adjusted. So I think it's like almost 45%. So of course, the comparables for the first half this year was a lot easier. So kind of... The COVID pandemic, our sales hit the bottom April 2020, and it's been getting better since then. So the growth this year was really strong in the first half. Now we're still above 20 for the FX adjusted. So even last year, Q3, if I recall right, it was roughly 17% growth. So it's still... in a very good level. And then, of course, when you go into Q4, the comparable number is very big. So in the big picture, we do see that there's room for growth for the tonometer and the imaging business in the short term. In the next one or two years, I would think the imaging devices probably have a better chance of faster growth compared to tonometers. But kind of in the big picture, the tonometers also continue to grow. But I can't really comment on a single quarter right now for the growth expectation for Q4.

speaker
Sami Sakamir
Analyst, Mordea Market

Okay, thanks. Are you able to compare growth rates during this year within tonometers and fantasy imaging? What sort of differential are we talking about?

speaker
Jouni Toijala
CEO

I think that if looking at the fund's imaging, so that's really growing a lot. So we are not talking about the 10%. We are not talking about the 20%. We are not talking even the 30%. So they are on the different growth path. And that's partly explained, of course, the market share. And then we had on the tonometer side during the COVID, we really had a huge spike. So, I think that's explaining. So, on the tonometer side, we have returned pretty much the regular growth rate that if you go back into the years. So, I think that we have returned to the kind of a normal growth base on the tonometer side. And then if you're looking at the fundus imaging, so we honestly see, we are seeing a really, really strong growth on the fundus imaging. And that's due to the good products. And we are really gaining the market share as well on that side.

speaker
Sami Sakamir
Analyst, Mordea Market

Okay. And then I think you mentioned that in both tonometers and imaging, you've been able to gain market share a couple of percentage points. What was that over the past year? Just wanted to verify the timeframe.

speaker
Jouni Toijala
CEO

I think it's about the one and a half years time when we, so when we updated the strategy a bit more than a year ago, so we crunched the numbers, then we crunched the numbers about two weeks ago. Again, so we have been able to grow quite well on the both sides, also from the market perspective.

speaker
Sami Sakamir
Analyst, Mordea Market

Okay, and moving on to sort of your cost level, are you now sort of proceeding at full speed related to all activities? Or will we still see sort of costs rising in the coming quarters as you sort of starting some of the activities that may have been on hold during COVID-19?

speaker
Jouni Toijala
CEO

I think Robin might go perhaps to details, but what we see currently, perhaps two buckets. So the trade shows are back. So we had a first trade show here in Europe. about three weeks ago, so beginning of October. Then also, we still see that we have to invest on the software solution side. So, we are going to hire the people also for the Okulo team when going forward next year. So, I think that's also in the line what we have been communicating. But do you want to comment on the overall cost level, Robin? Yeah, I think the...

speaker
Robin Pulkkinen
Group CFO

Changes in future cost is related a lot to the changes in the headcount. So we're still kind of going through the planning phase, but it's clear that the headcount is probably going to be higher this time next year than it is today. Also, travel is still very limited. and now we're just kind of getting back into the trade shows so so i think there's the kind of the base level might still go up a little bit but uh but kind of i think the bigger changes related to the the capital allocation and what the investments we decided to do next year uh so so nothing nothing significant uh i think but but yeah the headcount it's a lot tied to the headcount where we end up for the future okay thanks and uh my final question would be on uh

speaker
Sami Sakamir
Analyst, Mordea Market

potential divestments of Kutica and Vendica that you are sort of reminding in the report. It seems that you have made some sort of progress here. So are we sort of getting closer to some sort of announcements and can you please explain what kind of deal structures you may be looking for these sort of non-core assets?

speaker
Jouni Toijala
CEO

So let's first start with Kutika. So we start to be end of image collection, so we have been running the clinical trials in order to get enough images, and that has been a bit delayed, so we were estimating to finalize the Cutica image collection about the summer time, but due to the COVID, so that's a bit more delayed, and after we have that one closed up, so then we can test the AI. algorithm, so I think we are wiser towards the end of the year, early Q1 related to that one. Then discussions related to Ventica, because that's more mature, so their discussions have been ongoing, but we don't have anything to announce Q4 on that one, so the work is still ongoing. But the strategy is silver clear, capital allocations are silver clear, So, and really the key message is that we are going to be fully focused on the eye care market, and the capital allocations are following that one as well, so we are not currently investing more money to the kutikää and ventikää, and rather now trying to find an optional kind of optimal solutions to find a good home for them, whatever is the model.

speaker
Sami Sakamir
Analyst, Mordea Market

Okay, thanks. That's very clear. I don't have any further questions.

speaker
Jouni Toijala
CEO

Thank you for the good questions.

speaker
Operator
Conference Operator

Thank you. The next question is from Mr. Daniel Leiste from Bank for Bank Therapies. Go ahead.

speaker
Daniel Leiste
Analyst, Bank for Bank Therapies

Thank you. So I have a couple of questions. So basically, first of all, could you give some more color on the current challenges with the component availability and pricing? So as you kind of said previously, you have somewhat increased inventories, but Maybe if the situation persists, do you see the kind of issue being more of the availability related to these components or the pricing related to these components? So, will this be more of a top-line or profitability issue, and how do you see this?

speaker
Jouni Toijala
CEO

So, let's start first with the cost. So, that's a silver clear, and we have already faced that one, that the prices are coming up, and we have been of course, following that one, but the prices are definitely going to go up. And there we have already done some price increases, planning to do more, so that's partly covered on that one. And then, of course, it comes in a way to the a bit more bigger package that how big part of the sales price is actually the bill of material and so forth, and what's then going to be the impact for the gross margin and so forth. But the prices are coming up and we are then transferring partly, definitely those also to the sales prices. Then the second thing is really the availability. So, what makes it a bit complex, so we should actually, as we speak today, so we should have a clear view, what do we sell? After one year, what do we sell after one and a half years? So we are... We are doing the commitments, we are doing the forecasts about the sales, booking the components, so that of course is not optimal because the crystal ball should be quite good in order to be able to do that one efficiently, and we have been tackling that one to make a commitment to watch our suppliers increase the stock level, and so far so good, so no hassle, so we have been able to deliver the products that what we have got from the orders point of view, but this is to be clear. So this is developing a weekly basis and our operations team is working really hard on solve this issues, but so far it's okay, but it's a tough place to get everything balanced.

speaker
Daniel Leiste
Analyst, Bank for Bank Therapies

All right, thanks. So my other question is that when thinking about this, you know, excellent fantasy imaging device demand, have there been kind of any indications that there could be any restrictions to access hospitals? What was the issue during the pandemic, especially in the US? So has there been any issues?

speaker
Jouni Toijala
CEO

No, US, Europe is okay. Then we have had still, because of the COVID, some restrictions on going in certain countries, but that's easing up a bit. So when discussing with sales across the global distributors, so there's no red flags on the COVID as we speak. And that's a good news, of course. So the US has been going really well, even during the COVID times.

speaker
Daniel Leiste
Analyst, Bank for Bank Therapies

All right, that's great to hear. So, okay, my next question is related to the market share kind of estimates you just gave and said that you have grown a couple of percentage points in the funders imaging and in the tonometer market. So as I recall, last time you updated this figure, it was that you had like 5% market share in the fantasy imaging device market. So, does this mean that you are still below 10% here?

speaker
Jouni Toijala
CEO

Yeah, definitely below 10, so closer to 5 than 10, or kind of almost in the middle. But we have clearly been able to now gain the market share. And I think what's good to remember here, based on our calculations, so the... Overall market for fine-dose imaging is roughly half a billion USD, and we still have a single-digit market share on that one, which is growing quite aggressively. So the overall fine-dose imaging market is going single-digit less than the 5% definitely, and we're really able to gain the market share. So on that perspective, it really looks good.

speaker
Daniel Leiste
Analyst, Bank for Bank Therapies

Yeah, yeah. so oh okay maybe maybe one question if you can answer uh the tonometer installed base you you were kind of updating us a couple a couple of years ago it was like 80 82 000 devices in 2018. do you have any any up updated figure on on this you know tonometer installed best

speaker
Robin Pulkkinen
Group CFO

I think, I don't have an exact number, but I think it's over 100,000 at this time. It was still kind of my understanding. But yeah, I don't have an exact number to give.

speaker
Daniel Leiste
Analyst, Bank for Bank Therapies

All right. That's fair. Maybe my last question is about basically the Q4. Q4 and Q4 demand, it has been your strongest order. Maybe you answered this partly already, but how would you compare it to the last year's Q4, which was kind of exceptional in terms of demand?

speaker
Robin Pulkkinen
Group CFO

Yeah, Q4 is always our strongest quarter traditionally. A lot of that, actually looking at APAC and EMEA, it's more flat. But especially US is kind of very Q4 oriented, seems like they... My understanding is that they try to spend the remainder of their budget at the last week of December often. So the last week of the year is often the best, which is also keeping us a bit nervous where we end up at the end of the year, typically. But kind of... The growth, of course, year over year should be kind of, that should be kind of, even though it's the best quarter, the growth should be similar, hopefully, throughout the year. Now it's been really difficult two years because there's been such big movements and changes between quarters. So looking at the comparable number being growing half faster than the whole year last year. That kind of puts that number very tough for us for this year. So, of course, we're doing our best, but I can't really comment what we think we're going to be. But it's probably the toughest quarter for this year in the comparable side. Or it is. Not probably, but it is.

speaker
Daniel Leiste
Analyst, Bank for Bank Therapies

Yeah, fair enough. So, that was all from me. Thank you for the answers.

speaker
Jouni Toijala
CEO

Thanks, Daniel.

speaker
Operator
Conference Operator

Thank you. The next question is from Mr Joakim Hollen from Interes. Jeremy, go ahead.

speaker
Joakim Hollen
Analyst, Interes

Hello, gentlemen. This is Joakim from Interes. Most of my questions have been asked, but perhaps one more about the cost inflation and pricing. Could you elaborate a little bit about your pricing strategy? Because are you using kind of an idea where you are in a mature state that you are raising prices more aggressively and perhaps sometimes with the new products you are trying to gain market share and pricing them very affordable? Or do you use it kind of like the same cross-margin target for everything?

speaker
Jouni Toijala
CEO

So I don't fully go to the details of the pricing, our pricing strategy or policy, but the first thing is, of course, to understand that what's, if you think, the value that the device brings, and then how do you position that one in a specific market, compared to the other products which are there. So, it should be priced based in a way on the value that what it brings. And if, for example, as an example, taking the value of rebound tonometry and then doing a cost plus pricing so that you take a bill of material, you just add the margin. So I think the revenue would be totally different company if the pricing would have been done in that way. So I think this is more or less the best answer that what what i can can give so in a way in a nutshell so so we look the the end user prices we look the value and the uniqueness what the devices can bring and and and then we price accordingly and now if thinking the uh the price increases what we are implementing related to the, as an example, the increase on the component prices, so then that's top of the existing pricing strategy what we have put for the devices. Anything, Robin, would you like to add something, or did I miss anything?

speaker
Robin Pulkkinen
Group CFO

Yeah, I guess it depends on country and customers. Just as an example, our probe costs more for the customer than the whole measuring eye pressure in India costs. So it's almost impossible to get the same price in the US than in India, for example, if the whole...

speaker
Joakim Hollen
Analyst, Interes

the single probe costs more what the doctor can charge the customer so this is that example all right do you see any problems with taking the cost higher cost and putting them in the price is there some segment that is definitely so price sensitive that you have to lower your gross margin basically

speaker
Jouni Toijala
CEO

I think that if looking now the cost increases related components, so that's a universal challenge. And I see that all our competitors and the players across the industry, so they are definitely going to move also the price increases related to the components to the end user prices. I think that's going to be the case.

speaker
Joakim Hollen
Analyst, Interes

So it shouldn't be a problem. No. All right. One last question that is very simple, but you probably won't disclose it, but let's try. What percentage of your sales currently comes from home products?

speaker
Robin Pulkkinen
Group CFO

Yeah, we haven't really... have kind of stopped giving the share even between the imaging and tonometers so i can't really comment that one it does a good try you hot so it's the it grows fast it's growing fast uh so the the home tonometers is the fast fastest faster growing area in the tonometer business for us all right thank you very much

speaker
Operator
Conference Operator

Thank you. The next question is from Pia Rooskist from Carnegie. Please go ahead.

speaker
Pia Rooskist
Analyst, Carnegie

Hello, this is Pia Rooskist from Carnegie. I'm wondering about the share of consumables as a share of total sales. Can you give an update on how much of your sales today is so-called recurring revenue?

speaker
Robin Pulkkinen
Group CFO

So we can't give there again either exact percentage, but kind of when seven years ago, I think the probes were roughly maybe one quarter of our total sales when we only had tonometer business. And it kind of had been growing one and a half to two percent a year, the share of the probe sales. So I think that trend gives maybe then some some tools to do an estimate where it might be today so every year the probes have been growing faster than the tonometer cells okay and this trend has continued uh this year so probes are accelerating faster than than the so-called basic devices now it's a bit tricky year because last year we also had extremely good probe sales because the covet and the the kind of the hygienic reasons so it's maybe not a perfect perfect year to look at but but kind of um in in the ballpark in a bigger picture i think the the they have been growing faster yes okay okay good then the imaging sales uh yeah must have been been really strong are there any

speaker
Pia Rooskist
Analyst, Carnegie

more sizable orders or would you describe the sales group as broad without any particular larger orders included?

speaker
Jouni Toijala
CEO

I think if looking really across all the regions and looking at the more or less top 20 countries, so we have been actually managing to sell well broadly. Of course, there are smaller and bigger deals, but I think there's no no any kind of really, really big highlights on really big one-off deals. So, if looking overall, so the Fundus Imaging product portfolio is in good shape and it's competitive and it's young. So, DRS Plus was out about one and a half years ago. So, really in the early phases of the product life cycle, then we have a ADON family, so it's a bit more older, but then we have a really good update, which is the ADON ultrawide field lens, and that's only a quarter old. So we saw the first sales during the Q3 for the ADON ultrawide field. So nothing special to mention on the big one-offs.

speaker
Pia Rooskist
Analyst, Carnegie

Okay, thank you. Then on the home device product and home too, what kind of plans do you have to, I mean, understandably and you also said that home sales is growing really strongly, but what kind of initiatives are you running and how do you present the home device at trades, fairs, etc. I mean, how are you working to speed up the home sales even more, or are you very happy with the growth rates currently?

speaker
Jouni Toijala
CEO

So, if looking the percentages, that how much it's growing, so it's one of the fastest growing device categories what we have. And then, of course, The question is that it's still a reasonably small amount of the overall business, because the overall businesses, as an example, in this quarter grew really strongly. So I think that's good to keep in mind. Then if looking at the Home 2, so the next key step for us is to go and get it approved in the USA, so get the FDA approval. So that's, of course, the step. step one to start scaling the home too. Then also what we have to see is still perhaps the business model that and the channel that are we getting the maximum performance out from the existing sales channels so meaning the distributors so that's perhaps one thing that what we have to look at a bit more detailed when going forward.

speaker
Pia Rooskist
Analyst, Carnegie

Okay, thank you. Then maybe finally, what are your biggest concerns today regarding the coronavirus pandemic? I mean, looking at your sales numbers, you have performed really well and as such the pandemic burdened the imaging sales last year. But as of today, are you really concerned that the pandemic still might affect your sales development?

speaker
Jouni Toijala
CEO

So if really discussing with the sales, discussing with the distributors, so from the USA, we don't hear too much concerns related to the COVID-19. Then in Europe it's the same. Then of course now the good question is that are we again getting more infections but no red flags? And then related to the APAC, as an example, Australia is a big market for us, so they are now easing up the COVID-related restrictions, so that's helping us us up there, and then same applies for the certain countries in APEC. So really currently no red flags, but of course, this is a bit of a moving target. So let's hope that the situation remains the same and remains to be better like it has been during the Q3.

speaker
Pia Rooskist
Analyst, Carnegie

Okay, good. Thank you. That's all for me.

speaker
Operator
Conference Operator

Thank you, madam. We have no other questions. Back to you for the conclusion.

speaker
Jouni Toijala
CEO

So, hey, if there's no other questions, so I think we are done for today. So really, thank you for your time. And I think the next time we are then having a yearly reporting earnings call, which is going to be then early February. So thank you very much for your time and the interest. Thank you.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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