2/9/2022

speaker
Jouni Toijala
CEO of Revenue Group

Finland and welcome to Revenue Group earnings call. My name is Jouni Toijala and I'm the CEO of Revenue Group and with me today we also have here our Group CFO Robin Pulkkinen. I'm going to start to go through by going through the Q4 highlights and also 2021 highlights. After that, Robin is going to go through a bit more details on financials, and then we are going to end up with the Q&A. So Q4 was a record quarter for us. Net sales totaled 23.8 million euros. It's an increase of 20.7%. And it's a really good result compared to really tough comparison from the last quarter from the last year. Operating profit was 7.1 million euros, which is 29.9% of the net sales. This also includes roughly 0.6 million impairment related to the kutika. The cash flow was very strong during the Q4, resulting at the 11 million euros, and that's up from 6.2 million euros from last year. And the EPS was good slightly below the last year. So if going full year numbers for the 2021, so net sales totaled 78.8 million euros. So that's an increase of 29%. Operating profit was 22.1 million. 28.1% from the net sales, that's also a good increase. Then if you look at the adjusted numbers and adjusted EBITDA, so we had the acquisition costs related to Okulo 1.7 million and then the Kutica impairment 0.6 million euros, so adjusted EBIT was 23.4 million euros. Then if we go to the cash side, so the cash generated from operating activities was also up from 15.2 million to the 21.5 million and the EPS went up from 0.505 to the 0.652. So in nutshell, extremely good year for us. So if looking bit behind the numbers, so what was the reason behind the good numbers? So we were successful on the sales and marketing side. So the sales activities, digital marketing activities, We're going really well during 2021. Then if looking at the product side of the business, so we saw the same trend during the Q4, what we saw in the Q3. So the imaging sales was extremely strong for us. Tonometers were growing as well, but not as rapidly. base as the imaging side of the product. But if looking the tonometer side, so it's worthwhile of noticing that actually we did over 30 million patient measurements during 2021. So that's a lot. Then we also managed to gain new openings, so we managed to start getting the footholds from the larger optical retail chains and the global customer accounts, which was really good. really happened also during the Q4. Then almost the whole year, we also struggled with the component shortages, but we were able to tackle the issues as they arised really well with our manufacturing partners and with our operations department. But we really see that it's going to be challenging times also on the component side during 2023. So a couple of highlights also from the product perspective. So we launched on March 2021, we launched a new generation Home 2 device with the related mobile phone applications plus the cloud software, and we also received After the 2021, so about two weeks ago, we also got the FDA approval for the Home2 device. Then on the April 2021, we acquired Australian software company called Okulo, and that gave us access to the software and solution market, which is going to be important growth area for us in the future. Then on the imaging product side, we also launched the ADON ultrawide field lens for our ADON family, and that has been well received among our clients. So also a strong year from the product perspective. But with these words, I give a floor to Robin,

speaker
Robin Pulkkinen
Group CFO of Revenue Group

Thank you, Jouni. So, let's go a bit more through the numbers. Jouni covered some of these already. But basically, the net sales, 23.8 million for the last quarter, and with a growth of over 20%. And here I also want to highlight what Jouni also covered a bit, that the comparison number from 2020 already included an organic growth of more than 35%. So the comparables we started off this last quarter was really tough, and still we were able to grow more than 20%. For the full year, 78.8 million growth and almost 30% growth with the 78.8 million in sales. We have the EBITDA numbers here. And also the adjusted EBITDA numbers. So looking at the last quarter, basically there is no adjustment for the EBITDA line for the last quarter of last year. So 8.6 million, 36% of sales with a growth of 3.2%. That's basically the same also for the adjusted line. For the EBITDA for the full year, 25.7 million, which is 32.7% of sales. with a growth of 18.6. And here, you can actually see on the adjusted EBITDA line that we've added back the 0.7 million of the Okula transaction costs on the adjusted line, where we get to 26.4 million in EBITDA, 33.5 percent of sales, and with a growth of almost 22 percent year over year. On the EBIT side, 7.1% for the last quarter. It's a bit down from last year. But here also the Kutica write-off was already, the impairment was playing a key factor. So basically when you add back the 0.6 million to the EBIT for last quarter, we get to 7.7 million, which is 32.6% of sales and up a little bit more than 1% year over year. Last year also, as some of you remember, our other income was extremely large. There was roughly a little bit over a $1 million contingent consideration released from the Centerville acquisition. So that also played into the profitability of the comparable numbers. Also this year, we did have some 800,000 of other income, which consisted of different R&D tax credits in the US and Australia and Italy, also in Finland. But also there was some other kind of COVID-related income, which is more related to the kind of sustainable management of the pandemic within the company. On the EBIT for the full year, 22.1 million. It's basically 28.1%, so the reported EBIT percent is actually the same in 2020 and 2021. When we look at the adjusted line, we've basically added back the 0.7 million acquisition costs and the 0.6 million impairment of kutika to the 21 numbers, where we get to 23.4 million, which is almost 30% of sales. And for the comparable numbers, you can see it going from 17.1 to 19.1. There in Q3 2020, if some remember, we actually did have an impairment on the kutika as well, which amounted for 1.9 million. So that's basically the adjustment for the comparable EBIT line. EPS, 0.65 cents for the full year. The board is proposing a dividend of 34 cents to the AGM. That's basically a little bit more than 50 percent payout ratio for last year. And then, yeah, let's jump to the next slide. Some of the other key figures, we've shown this slide earlier. So, basically, having the equity ratio is still very strong, actually improved year over year. If you look at the history a bit more, in 2019, that was the time where we bought acquired Centerview. And basically, the equity funding and the bank loans did have an impact on the balance sheet. So, the end balance of the balance sheet went from below 20 million to over 100 million. So, the whole structure changed a lot. So, that actually is the key driver of the bigger difference or change in the 2019 numbers. And then, looking at this year, we actually did add in Okulo to the numbers, but basically, it doesn't really show too much in the graphs here. Looking at kind of the net gearing, basically, still the cash flow for the full year was really good, like Jooni mentioned, and the kind of the net gearing after the Okula transaction was actually more than 20% positive. So considering that we're back to negative, it's quite a good end result, considering that the cash balance is basically close to the same where it was a year ago. Meanwhile, we'd paid more loans in 21 than 20. We paid more dividend in 21 than 2020. We paid for the Okkula transaction over 11 million in cash for the shares of the company. And also we've continued to develop the software solutions with the Ocola team, and we funded that for pretty much the whole year. And like we've said earlier, that's been cash flow negative for a couple of years. So basically still we're ending at almost at the same cash balance where we were a year ago. So kind of the cash flow has been extremely good for us. Also, some of you probably have noticed the balance sheet. has a quite large short-term liability, which is related to our bank loan that was repayable at the September-October timeframe this year. That's actually been renegotiated after the close or change of the year. So still in the financials, the year-end financials, because the paperwork was not done, it shows a short-term liability. But in reality, that that payment schedule has been pushed out. So we continue to pay down $1,050,000 per quarter for that loan. Yeah, and the next one. Some of the main shareholders basically December was the first month in the history of the company where the foreign ownership actually went above 50%. So it's the first time ever. The Finnish owners have always been more than 50%, but like we know, starting in 2015, the foreign ownership was somewhere around 5%, and it has been going up. quite rapidly from there, and now we're actually, the foreign ownership is more than 50%. Some of the bigger trends, I guess, in the changes for the last 12 months is that the larger American institutions have come on the list. They've increased their ownership. William de Montt has remained the major owner for our company. So basically, Demand is a Danish-based company, so Finnish ownership around 50%, American about 16-17%, Danish about 14%, Swedish ownership about 7%, and then it drops quite a bit before the next larger countries. And the financial guidance for this year, we expect our exchange rate adjusted net sales to grow strongly from the previous year, and profitability excluding non-recurring items is estimated to remain at a good level.

speaker
Jouni Toijala
CEO of Revenue Group

Thank you, Robin. I think it's time for questions, so please.

speaker
Operator
Conference Operator

Thank you. Then we will now begin the question and answer session. If you have a question for our speakers, please press 0 and 1 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 0 and 2 to cancel. There will be a brief pause while questions are being registered. The first question we've received is from Daniel Labster, Danske Bank. The line is now open. Please go ahead.

speaker
Daniel Labster
Analyst, Danske Bank

Thanks. So it's Daniel Labster from Danske Bank, and I actually have a couple of questions. First of all, you give out a nice number of over 30 million measurements with the tonometers last year, and you mentioned that the probes have been continuing strong. So has there been any change on the number of measurements performed per device on average during the pandemic, or has the kind of growing installed base of the tonometers driven the impressive number here?

speaker
Jouni Toijala
CEO of Revenue Group

We have seen a couple of things happening. So we have been able to grow the installed base of the devices during the pandemic, and then in the certain regions, if we go as an example to certain countries in Southeast Asia, so they were in some cases reusing the probes. So I think that

speaker
Daniel Labster
Analyst, Danske Bank

uh those uh things uh have been also now now driving uh the the the probe sales as well so that there's not so much reuse okay thanks uh then my second question is about the drs plus and uh maybe just uh if you can give some color that uh why is the device showing or how is the device showing this kind of strawberry strong demands this long and uh if you can just uh kind of give me some more information that if this device is, you know, comparable to all of the other traditional funders cameras on the market, or does it have some specific niche value proposition that it does very well?

speaker
Jouni Toijala
CEO of Revenue Group

Yep, yep. So if now taking perhaps a bit more broader spin at first, and then I come down to your detailed question. So if we look now, the trend what we have had already many, many quarters, is that the whole imaging portfolio which we have, so it means ADON family, so we have three devices, they're ADON AFFA and and the AFA and normal ADON. So, those are the three ones, and then we have the DRS+. So, throughout all the quarters, the demand has been strong, and we have been able to get the market share from the competitors throughout all the devices. So I think that's good to know. And then if we go for the DRS Plus, so that's a unique device in that very specific product category and price point. So we use so-called Rucolor Confocal and it's fully automated. So it's a single button press and you get extremely high quality images. in a really fast manner. And that's a unique technology package with great usability in that very specific price point. Hopefully that answered the question. Yeah, absolutely. Thanks.

speaker
Daniel Labster
Analyst, Danske Bank

My third question is about darker home. And as you mentioned that you successfully received approval from the FDA. So have you started the US-based marketing already, and what sort of feedback you have received, and what kind of demand would you expect from the US?

speaker
Jouni Toijala
CEO of Revenue Group

Yep. So the FDA rules and regulations are quite tight. So after getting the FDA approval, so then if we play by the book, so then we are ready, and then we have a permission actually to start marketing and selling. So we have done preparatory activities and now moving into the implementation. And really the reason is that no chance to market and no chance to sell before the FDA approval and not even market. So that's the status and based on the current feedback, so the device usability plus then the new supported iOS versions of the application. So we envision that that's going to be well received also in the USA as in Europe.

speaker
Daniel Labster
Analyst, Danske Bank

All right, thanks. And my final question is about the kind of the overall product pipeline you have. So how is your product development pipeline looking like? So anything for the tonometer side or imaging device, devices, parameters, or you have something new coming?

speaker
Jouni Toijala
CEO of Revenue Group

I think if we look now the performance of the company in the past years, and we look how important it is really to have competitive products, and where you can actually now see this one, especially this year, is that we have been traditionally investing roughly 10% to the R&D. And if we look at what's going to be the R&D investment this year, so it's going to be more than 10%. Two thirds of that one is going to the device side of the R&D. So in the long run, keeping the tonometer product line competitive and keeping the imaging product line competitive. So two thirds of the R&D investments are going to go there. And then one third is going to go to Okulo and related software solutions, where the plan is to combine devices plus the software assets that we are having. So I don't want to go in the details of what's in a pipeline, but there's things in a pipeline and the R&D teams are working really hard to get the and keep the roadmaps competitive and the products competitive in years to come. Great. That's great to hear.

speaker
Daniel Labster
Analyst, Danske Bank

So, that's all from me. Thanks for the answers. Thank you.

speaker
Operator
Conference Operator

Thanks, Daniel. The next question is from Sami Sakamis for DLMarket. The line is now open. Please, go ahead.

speaker
Sami Sakamis
Analyst, DLMarket

Hi. Firstly, starting from tonometers, could you elaborate on the growth rate you did experience in Q4. And then regarding the outlook for this year, you're expecting the growth rate to return to pre-pandemic levels. Would this imply roughly 13-15% growth? That was the group organic growth in 2018-19 before the pandemic.

speaker
Robin Pulkkinen
Group CFO of Revenue Group

Maybe I'll start with that one. Corona pandemic has really put our numbers in a funny format in a way that 2020 our tonometer sales took off really, really well for the second half of the year, especially because of the hygienic benefits it had over the competitive technologies. So basically, going into the last quarter of 21, the tonometer business was facing extremely tough comparables, while the imaging business has been picking up all the way from early 2020, so kind of that's been more linear compared to tonometers. So the imaging devices obviously grew extremely fast for the last quarter, but also the tonometer business was doing really well, significantly faster than the market in general. But I guess for this year's 2020 growth, I'm not sure we want to disclose any exact percentages, what we think where it's going to kind of end up, but we'll stick to the guidance there.

speaker
Sami Sakamis
Analyst, DLMarket

Okay. And then, and secondly, on the margin guidance, where you're expecting profitability to remain at the good level, if you look at last year, you know, there was some margin pressure about one percentage point. Are you assuming to see a margin recovery this year or is it so that step up in growth investments like R&D and sales and marketing will actually sort of trigger similar margins to what you had last year?

speaker
Robin Pulkkinen
Group CFO of Revenue Group

So yeah, the guidance for the full year last year for the profitability was the exact same that the guidance is for 2020. So basically, there's a big impact. Of course, the R&D investments are going to be a bit bigger this year. We have some bigger projects in the more kind of money-eating phase this year, but not all that's going through the P&L. But kind of even with that, I think it's a big impact. the profitability is also dependent a lot, where do we sell them, what products are selling, what the mix is. So in the US where we sell straight to the end users, our margins are better. So it's also critical how this sales split goes between the US versus the rest of the world. But kind of in general, the guidance for the profitability is the same than it was for 21.

speaker
Sami Sakamis
Analyst, DLMarket

And can you elaborate on what sort of operating expense increases, you're planning in sales and marketing. I mean, thinking about, you know, the Okulo launch in the US, think about, you know, the iCare Home 2 launch in the US. So I mean, how material, you know, investments you will be making this year?

speaker
Jouni Toijala
CEO of Revenue Group

Hard to come up with the exact numbers, but I think that there's a couple of buckets here. So we saw already traveling increasing during the Q4. We also saw a bit more higher expense going to the trade shows. And then, of course, in order to get the launch activities well running in the USA for home too, then same for Okulo, it's of course eating money and we have to make an investment for that one. But then if comparing that one as an example to 2021, where we launched the home, when we launched the Aden ultrawide field, so there's a constant run rate of cost budget related to sales and marketing, which in a way, always is there because we launch the devices, we market the devices all the time and we have been having an investment second half of 2020 and during the 2021 also for digital marketing. So we have been increasing that part as well. So in a way it's hard to give an exact guidance because there's always quite big amount of money going regularly in every year to the sales and marketing.

speaker
Sami Sakamis
Analyst, DLMarket

Okay, thanks. I don't have any further questions.

speaker
Jouni Toijala
CEO of Revenue Group

Thanks, Sami.

speaker
Operator
Conference Operator

The next question is from Pia Rosequist, Carnegie. The line is now open, please go ahead.

speaker
Pia Rosequist
Analyst, Carnegie

Yes, hello, thank you. It's Pia Rosequist from Carnegie. I have a few questions. First of all, it's encouraging to hear that you've been successful with the larger optical chains. etc. during last year. How big a share of sales now comes from optical chains and larger direct customers?

speaker
Jouni Toijala
CEO of Revenue Group

That's a harder thing. thing to say, because we do certain sales directly by ourselves, then of course, distributors are selling to the optical chains. So I would perhaps say that it's increasing, and then also the optical chains are then becoming also more sophisticated from the eye examination point of view. So it's also in the future going to going to be important for us in addition to the address of the ophthalmologist and the clinics, also the optometrist side of the business. So, sorry, I don't have an exact number because we don't fully know because of the setup related to the distributors as well.

speaker
Pia Rosequist
Analyst, Carnegie

okay okay thanks uh then um uh discussing inflation you say the supply chain issues continue and we of course see inflation as a theme also spreading uh but you say or at least i get the impression from your report that you are confident that you can continue to push these inflationary pressures into your end prices? Am I correct here in my reading?

speaker
Jouni Toijala
CEO of Revenue Group

That's more difficult to answer, so if you look at the normal, consumer price index, so then if we start to compare that one to the raw materials and the component prices in general, so those are not fully comparable. So what we did right last year, so already on a springtime 2021, so we did actually huge component commitments, huge commitments to our manufacturing partners to actually order the devices like the DRS Pluses like the Aidons, so we really made a commitment that whether we are going to sell them or not, so we anyway have to buy them and get them into a stock. So that has helped us also to manage the cost side of the things, but this is actually, if we go to our manufacturing partners or we go to our operations team, so this is daily, or if not daily, at least weekly, paddle that what kind of components where we are able to source, what's the price and so forth. So far, we have been able to tackle the thing extremely well. And we can see that one from the cross-matching from the Q4. So that was in good level, even better than the last year. But the honest answer is that we try to do our best to get the components, and we are trying to do our best to keep the costs down. And we are envisioning that we have to increase the prices most probably this year as well. We did the increase on Q4 last year. The component thing is not going to be easing up, at least in the near future. That's for sure.

speaker
Pia Rosequist
Analyst, Carnegie

Okay. And then to costs still, if I may ask, Robin, can you remind us how much of your R&D costs are capitalized? And maybe particularly this year, if you are increasing R&D costs, how much do you plan to capitalize on these increased investments?

speaker
Robin Pulkkinen
Group CFO of Revenue Group

The capitalization is not significant. We do have some projects in Italy and Finland that we do capitalize. All the labor basically in the Finnish projects have gone through the P&L. For next year, there are Jone Peter Reistadler, Some larger projects that there are items that we need to acquire from outside also prototypes and stuff so so the kind of investments going on the balance sheet are going to be in the in the some some few millions i'd say.

speaker
Pia Rosequist
Analyst, Carnegie

Okay. Good, thank you. Then if I may go back a couple of steps to the time when you acquired Ocula. I think at that time you said that you expect investments in this software platform to burden your profitability by three to four percentage points in 2021. I don't think this was visible or you performed much better than your initial thoughts. So how would you do? What are the main drivers behind that change? Is it purely sales mix and better gross margins? Or what's the largest factors?

speaker
Robin Pulkkinen
Group CFO of Revenue Group

The cost of Okulo was actually in the between three and 4%. So the kind of the performance of the company did make up for the for it to be hidden in the numbers, I guess, more or less. So we did actually incur a lot of cost with the Okolo group during last year. So it's a kind of a mix of everything. I think one big item is the US has been doing extremely well. And kind of which is also a key player for the gross margin piece. So kind of We get basically almost roughly double the ASP in the US, while we do, of course, have some costs there, and we do pay commissions for the sales reps, but still it's kind of bringing more bucks to the bottom line than distribution sales.

speaker
Jouni Toijala
CEO of Revenue Group

I think Robin is on the money with that one. So if you look the time at the acquisition, so I think that we were not fully envisioning how aggressively the imaging sales would grow in the USA. So if we look at the overall growth rate of the imaging product market, so it's less than 5%, roughly 4%, 3.9 or so. So we have been growing extremely fast. there compared to the market, and especially in the USA. And in the USA, our market share of the US imaging business is less than 5%, so there's still a lot to take. So I think we were not as optimistic about the imaging sales growth, which then impacted to the better cross-marching of what we were. kind of envisioning, so I think exactly what Robin said.

speaker
Pia Rosequist
Analyst, Carnegie

Okay, good. And then jumping still a bit backwards and forwards, so to Q4 and the other operating income you recognized, that seems a bit odd. I mean, shouldn't that have been recognized as a non-recurring item or yeah in my eyes it seems quite non-recurring.

speaker
Robin Pulkkinen
Group CFO of Revenue Group

Yeah well the we didn't report the last year either as non-recurring so we're talking about non-recurring costs versus income but kind of those are those are not they haven't been categorized in the non-recurring bucket in our in the vaihtoehtoiset tunnusluvut. What is it now in English? Either, basically.

speaker
Pia Rosequist
Analyst, Carnegie

The comparables.

speaker
Robin Pulkkinen
Group CFO of Revenue Group

Yeah, exactly.

speaker
Pia Rosequist
Analyst, Carnegie

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

speaker
Jouni Toijala
CEO of Revenue Group

Thank you, Pia. Any other questions?

speaker
Operator
Conference Operator

No, there are no further questions at this time. I hand back to you.

speaker
Jouni Toijala
CEO of Revenue Group

Okay, I think we are done, so thank you for joining. Have an excellent springtime, and we come back to the earnings call in April then. Thank you all. 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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