Revenio Group Oyj

Good afternoon and welcome to revenue group Q3 earnings call. My name is Jouni Toijala. I'm the group CEO and with me here today, we have also our group CFO, Robin Pulkkinen. The plan for today is following. So I'm going to go through the business highlights of the quarter. Then we have got a lot of questions related to sustainability. So we released the sustainability report, part of the 21 reporting package. But I'm going to give a short update on the recent developments on that one as well. And then Robin is going to go through the financials and then shareholder structure as of today, and then reiterate the financial guidance. But let's go to the highlights of the quarter. So Q3, a very strong reported growth. Followed by the strong profitability and especially the cash generation. So demand for the both product groups continue to be at a high level. A couple of highlights. Australia growing really well. Same for Japan. Same for Germany. Also India and Korea were among the top performance countries during the Q3. Then if you look at the product portfolio, so actually same story on Q1 and Q2. So DRS Plus was selling really well. AIDON family. selling well, so all the models actually, so basic ADON, ADON AF, and FA. And I would say even that the FA, it was clear highlight, so especially the ADON FA was selling really well during the Q3. Then we have been continuing receiving a good feedback from the iCare Home 2. So that has exceeded our own internal expectations also on the sales side, which is really good. And in addition to the usability, we have also received a good feedback related to the device durability. And why this is important? Because from the business model point of view, of course, the clients are able to do one time buy for the device but the rental model where you actually rent the device for a couple of weeks and then return it and then the device goes again to another client so that has gained importance on a kind of business model side as well so that's a good that we have received a good feedback related to durability as well. Then we have been Going to the market, we had a couple of big events across the globe, especially the ESCRS here in Europe, so good feedback and good attention related to the Illum platform. We have now quite many pilots going on and more in a pipeline, so good feedback related to the Illum as well. Then related to market conditions and uncertainty, so I think everybody is, as in earlier quarters, paying attention to the electronic components, so that remains still challenging. We haven't had any challenges on delivering the products, but it's still causing causing a hassle on two fronts, of course, the increasing cost pressures on the cost of goods sold point of view, and then also we have been constantly preparing that if there's a component shortage, so should we have Plan Bs and Plan Cs related to the actual design, so that has been a constant impact on the component side as well. Then, if we come and go to the visibility of the coming quarter, so Robin, of course, is going to reiterate the current guidance, so that has not changed, but of course, if you look at the geopolitical situation and then possible slowdown of the economy in coming months, so I think it's fair to say that the market is at least pretty turbulent when going forward. But let's switch gears and go through the numbers. So the reported net sales at 24.1 million, 24.6% up from last year, and then strong EBIT performance, so 7.7 million up from last year, 28.9%. And I think it's fair to say, as in Q2, so also Q3, we got a strong backwind from the US dollar exchange rate. So the currency adjusted growth rate was 12.2%. So we got roughly 2.5 million euros backwind related to the exchange rate. Cash flow very strong, so that's really good. So that is money which sits in the bank account. So 7.1 million up from 5.8 million last year. But Robin is going to go a bit more detail the numbers in his part. Then related to sustainability and the ESG. So we have got many, many questions related to this one. Plenty of questions from analysts, plenty of questions from our existing analysts. shareholders, so I'll spend a bit time on this one. So United Nations has declared the commitment to vision for everyone by 2030. And this resolution was adopted by all, so meaning all 193 countries in 2021. And the objective of this is to tackle the preventable site loss as part of the UN sustainable development goals. And already years ago, we have selected eight different buckets from UN Sustainable Development Goals. And then we further group them into four different buckets. And the first one is that our goal is to improve the quality of life by the products and services what we offer to our clients and patients. And why this is important, so if we think the mortality rate, so this is a study coming from the Lancet Global Health reputable study from the last year, so mild vision impairment increases mortality rate by 29%, and the severe vision impairment increases mortality rate by 89%. So I think that's the basis where everything starts. That's the basis of why we come to the work every morning. So we aspire to keep the wonderful world visible for all. And this is the basis why we believe that we improve the quality of life. Then if we go back to the strategy, so one of the key cornerstones had continued profitable growth. And the logic here is that our aim is to grow together with our partners, with our stakeholders, and bring the value throughout the whole supply chain as well. And then if we can grow in a profitable manner, all our business partners are able to do the same. So then we are able to invest money to the continuous development of processes, the product, so that they are going to be more sustainable in the long run. And then also we are able to better monitor also the whole supply chain, and that in the end is going to then lead to the much more better environment. Then last, but definitely not least, so we have a strong commitment to the responsibility and transparency, whether it is related to the code of contract, whether it is related to all the equality-related items. So, concrete things after the 21 ESG report. Sustainability is a key part of our operations. It's a key part of our strategy. I think the good illustration of that one is that already this year, so starting from this year, the total leadership team have had the sustainability ESG related items in a short term target setting. That's, of course, going to continue. next year. Then we have been conducting two independent sustainability-related studies. First one is the EcoVadis, so we run that one during the reporting period here in Finland, so we achieve the silver level status on there, so room for improvement, but we are on the top 75% of the companies, and the plan is to extend that study to the other locations as well. Then we have been working with the upright in order to understand the revenue of business impact to society, knowledge, human health, and the environment. And there the net impact ratio was 68 percent. And just to give a kind of a benchmark for that one. So the Nasdaq Helsinki main list index is minus 21. So definitely still plenty of work to be done on the ESG side for us. But I hope that everybody understands and perhaps hears a bit more light that this is core of our strategy and core on our operations as well when going forward. And the next report is going to be released as part of the 22-year reporting package. But with these words, I hand over to Robin to go a bit more detailed through the financial part.

Thank you, Jouni. You can jump to the next one. There we go. So, like Joni already covered a bit, the Q3 numbers, the full year so far, we've been really happy with the performance. So, the reported growth roughly 25%, reaching 68.7 million. Looking how we've done earlier, so 21 for the first three quarters are FX-adjusted growth, so basically for the comparable period. our FX adjusted growth was 34%. So we have been going against really tough comparables and still performing really well. We know that the FX has helped us a lot. So for the whole beginning of the year, the FX impact has been some 5.4 million euros. Even though it's FX, it still is real money. It hits our bank account every month. So basically, It is not just something that makes the numbers look nice. It also actually in reality flows through to the balance sheet and the cash. Profitability and gross margin at a really good level. So the FX also, so roughly half of our sales, just a reminder, is US dollar based. We do have also costs in US dollars, so all the FX doesn't flow through to the bottom line. So some of the gross margin or the cost of sales group that has some dollar based costs like the commissions in the US and some of the components in our product are US dollar priced, but also some of the operating expenses are in dollars, but basically more than half of that FX actually does flow through the P&L. The gross margin actually up 1.6% from last year is also having a positive support from the FX. Operating profit 7.7 million for the last quarter or the Q3. That's up roughly 29%. And then looking at the full year, we have also the adjusted operating profit here. So for just a reminder, we acquired the Okulo business last year in April. For that, we've adjusted for the full year numbers, the 0.7 million acquisition related costs. So the comparable number, not being the 15 million reported, but 15.7 against our year to date 20.3. So the adjusted comparable number, adjusted operating profit actually is up roughly 28.3%. EPS, 60, 61 cents. Full last year was roughly 65 cents. So we're some six, seven percent behind the full last year EPS after three quarters. Net gearing also back to below zero. Equity ratio really strong. So the balance sheet has remained at a really good and strong level. We basically hired some 30 people during the quarter compared to the year earlier. Some of the historical views. So you can see our net sales, how it's performed over the last quarter. So our top line does have certain seasonality. So typically we start lower, ending up with the stronger Q4. Not hinting what it's going to be this year, but historically Q4 has been the best quarter for us. And that you can also see on the profitability graph on the right. So you can see the operating profit going up very much with the hand in hand with the top line. So our business model is very scalable. So the operating expenses is 60% salaries. We have been hiring a lot of people over the years, but basically The model is very scalable as it goes, and you can see it as well in the operating profit and how that actually flows through to the profitability line as well. Next. Cash flow. Also following a typical trend, so we start the year off typically quite low. It's related to us paying out our bonus payments or the LTI and STI target settings and the payments are annual paid for the majority of the employees in the company. And also taxes go out in the first quarter. But basically then throughout the year, we hopefully improve also. And that's been the trend typically. So the Q1 is the worst and then it starts to get better towards the end of the year. So far this year has been following a quite typical trend. And then I think this also the working capital actually did go up a bit last quarter, but basically will continue. We'll work hard to make sure that actually in the accounts receivable, we'll be able to get that down by the end of the year. But there are certain drivers behind that, which it's not a surprise to us that it did go up. On the equity ratio, you can see it's actually at its strongest level it's been since the acquisition of Centerview. We used to have really strong equity ratios back in the day when we only had the tonometer business, but since the acquisition and the balance sheet changing dramatically, this is actually as good as it's been since 2019. The net gearing also actually below zero now. So if you look at the prior years, the net gearing has been actually 6.7% in 2020, more than 11% in 21, and now it's minus 1.1. So how it works is basically the dividends pull the net gearing up. And then Q2 last year, we also acquired Okula with the cash reserves. So the net gearing went up to 20. And now basically it's been Q2 this year, we paid dividends, and now it's been actually just coming down again when we're building our cash reserves. Some of the main shareholders, nothing much changed here. William Demant, the largest owner, has actually continued to buy some more shares. They were closer to actually exactly 15% if I recall right after Q2. So they bought some 0.4 or so percent of the company shares during the last quarter. Finland ownership, Finnish ownership is still the majority, but the nominee register and the foreign ownership has and has continued and does continue still to grow. So the foreign ownership, I think it was still in the last year, Finnish ownership was more than 50%. And this year, the foreign ownership has grown to become larger than the Finnish ownership. The guidance, like Jooni mentioned, hasn't changed. Our exchange rate adjusted net sales are estimated to grow strongly from the previous year, and profitability excluding non-recurring items is estimated to remain at a good level. And here on the right, you can see some of the longer trend, looking back how the companies performed.

Thank you, Robin. I think we are ready for the questions, please.

Thank you much, sir. Ladies and gentlemen, if you've dialed in and you have any audio questions, please press star one on your telephone keypad. Please also ensure mute function is not activated unless it's reach equipment. Once again, ladies and gentlemen, please press star one as a question. Once your line is open, you will get a prompt saying that your line is open. And just please introduce yourself and your company before asking your question. We'll take our first question now. One more, please.

Hi, it's Daniel Lepista from Danske Bank. I have a couple of questions. The first is about growth. So looking at this currency adjusted growth of 12% during the quarter, it seems to be the slowest we have seen in past few years even. So I guess my question is that, are you happy with this current level, maybe reflecting to your current guidance of seeking strong growth? And is this level of growth strong enough for you looking forward? Thanks.

Yeah, I think this is Robin. I can try to answer. So looking at historically how the growth, organic growth has been, cleaning out, if I remember, the CMD, which we had, we're looking back from 2016 towards 2020. Our kind of organic growth back then has been 13%, 14% roughly when we clear out the acquisitions. So the Corona time has made our numbers act quite strangely. So like you remember, 2020, the tonometer groups grow really strongly. The imaging group had been, products had been growing strongly since then and still had continued throughout last year. Last year, our organic growth was 34% for the first three quarters, which is, If you look at the comparable we're looking at from this year, it's 34% growth compared to basically the historical 13, 14%. Comparables are tough, but I think our target is to be at a higher growth level in the longer term. One quarter is quite a short term or kind of a time window to do any longer judgments.

I would still like to state that the guidance remains the same, so... For the rest of the year.

All right, thanks. Yeah, yeah. Maybe to ask... Yeah, maybe to ask further on that one. Can you estimate a bit what's the impact on the sort of new volumes sold in terms of tonometers or the imaging devices because you made some price hikes earlier this year. Can you give any sort of clarification on this one?

Yeah, the volumes, units haven't grown as much because of the FX. So kind of you can see that the reported, right? So the reported growth is higher than the unit growth because of the FX. So it acts pretty similarly than the FX adjusted.

All right, thanks. And maybe the second question is about your current customer base and this sort of economic slowdown and recession we are heading globally. So how resilient do you see your current customer base in terms of their investment decisions and activity if we are heading towards this global slowdown?

I might try to answer this one. I think we have two things here. So the first one is the kind of a higher level macro spin on this one. So that's for sure that there's going to be more patients who are going to need care. And then there's going to be pressure on the eye care specialists to treat them in the coming quarters. So that's a clear answer. So at least the patients are not going to vanish anywhere. Rather, there's going to be more patients coming in to have care. Then the second thing is that the medical industry, that's quite defensive. And if we then come back to our business. So our view is that, of course, if something really goes haywire on the geopolitical situation, so I think we are not immune either to that one. But then if looking at the two main clients, basis what we have so at least if looking the Q3 and going into the Q4 so the ophthalmology practices so they are feeling the pressure of patients coming in then in our scenarios of course we are slightly concerned that how the optometry side is going to go so if costs are going to go up on the energy if they are going to go up on the food, so are there going to be as many people going in and buy new spectacles or spending money on the optometry side of the business, and then that might lead to the weaker investment willingness also for the devices and for the software. So I think that's one aspect in an overall equation, but at least so far the feedback is that we haven't seen the slowdown, at least not yet, but remains to be seen. We don't have a full solid crystal ball on that one, I think that applies for all of us. Anything, Romin, to add on that one?

No, I think historically the medical technology or the health side of industry in general hasn't been that immune or kind of impacted that much by the economic slowdowns. So there are many other industries that are swinging up and down more. So the demand, at least for us, has historically shown to be quite stable, even in rough times.

All right, that's helpful. Maybe if I continue on that one, the optometric side, which you mentioned, that could be a potential concern. Any estimate how big of a portion this is from your current customer base?

I mean, we don't... The answer is that we don't have full visibility on that one. We have more visibility in the USA, but when we work through our distributors, we don't have the detailed data on that one. Sorry for that one, but that's the case.

All right. My final question is about... You know in the report that Home2 has received some excellent feedback. When do we get to see some numerical highlights or some sales performance or any market size estimates for this great product?

I think currently we don't release any numbers on any product sales units. We haven't really decided or discussed either when or how would we. open up a bit more how the home two is doing but at least I don't see that happening any of the near next year or next year quarters at least my estimate would be but it's maybe something we really haven't decided it either.

Okay that's all from my side thank you.

Thank you Mr. Ladies and gentlemen, once again, if you have any questions, please press star one. And also, please, when you get the tone, saying your line is open, please introduce yourself.

Hello, this is Nick from SCB. I hope you can hear me. So I'll have a little bit continuing on the topic that Daniel asked about volumes and, like, organic growth rates. So can you a little bit open up the growth rate differences between tonometers and fantasy machines in Q3, where there are huge differences in the growth rates?

Both product lines were doing really well, so very strong growth. So I think the imaging did actually a little bit better. But basically, I think the tonometers in general have been performing really well this year. And then looking at the corona times, it's been growing really fast. Looking at the end of 2019 and then going into the corona pandemic, it's actually performed really well and still has continued to do so this year. But so has the imaging, so we really haven't had any weak areas in our portfolio. I think the perimetry side we could do better, but basically the imaging and the tonometry are doing really well.

I understand. So are there notable differences how much the price increases and effects help the sales growth between your different areas?

I don't have that detail right now available to answer that very well. Or do you, Joni?

No, I think from the price increase point of view, we increased the prices 21%, 3%, and then beginning of May, 4% this year. And that was across the whole portfolio.

but I don't really have the split effects related to that, so hard to answer from right now.

All right, I understand. Then about the illume, you mentioned about it in the report that you have a customer pilot starting, so have you received any further feeling about when will this be earnings generating for you?

So I would say so on and kind of a restate what we discussed also during the Q2. So we are estimating that because of having a screening solution and being able to bid for the screening cases, so we are estimating that next year we are able to get more DRS plus sales related to the screening cases. And then I think that still holds, even that there's a lot of discussions, there's a lot of interest related to Illume as a platform. So I think this applies for all AI players in general. the amount of the money comes from the software business models and the pricing, so that's still work under development for the whole industry, so we are not forecasting to have too much money coming next year on the software side, but from the device side related to screening, yes, so there's growth coming.

All right, I understand. I understand. Then one last question for me. Could you talk about how much solar inflation are you seeing, and do you see that accelerating next year?

This year we've been going... Our increases around this year have been pretty much the union increases in Finland. Italy maybe 3%, US 4%. Next year we are estimating or kind of planning ourselves that the globally roughly 5% placeholder, but I think that's still to be seen. But that's what we are kind of expecting at this moment.

All right, that's clear. That's all from me, so thank you.

Thank you, thank you.

Thank you very much. Ladies and gentlemen, once again, if you have any questions or follow-up questions, please press star one. We'll now take our next question.

Hi, this is Pia Rosquist from Carnegie. I've got three questions. So, first of all, this autumn, the traditional trade fairs have started both in Europe and in the U.S., and you've been present in these. Have you seen the interest from those trade fairs turn into orders or into sales yet? What kind of activity levels did you see and could we expect a boost in sales from that?

So I may pick up high, Pia. I was in ESCRS. That was held in Milan. So a lot of people and I mean a lot of traction in our site. So that was really good. I think that we don't have clear data that how much out from that one is fully turning to the sales, but at least related to Ilum. So on that side, we have had after that one, many continuation discussions. And then if we talk about the Europe, so we can see the sales realizing through the distributors then. So it's slightly hard to full on say that what came out from the exhibition and and whatnot, but that one, I must say that it was, there were a lot of people, so it was really good. Then we were also in AAO, so I was personally present in AAO in Chicago. So I would say that in the trade shows in the USA, trade shows have been now active, I think. The number of participants, it's not as, as big amount as before the COVID, but then there's more quality clients coming in. So there's not too much people who just pop in. And from the AEAO, so we managed to close pretty well deals on the tonometer side and then also on the imaging side. So because we work directly, so there we have much more better visibility.

Oh, that sounds encouraging. Then in the report, I think you mentioned something about the multi-national clinical research trial in the third quarter. So just a clarification, is this something you have recognized revenues for in third quarter, or is it something we should expect to be gradually converted into revenues over the next quarters?

This is Robin. So yes, we signed it and closed the deal in Q3. We did do some deliveries, but there are still deliveries to be done in the coming quarters. But it's not a multi-year distribution of revenue, so rather the next coming quarters.

Okay. And when you mention it separately, can you give some kind of indication of what size this trial is in terms of revenues?

Well, we haven't disclosed the size or the price value for the deal. We're actually quite tightly tied with the NDAs on the contract.

Okay, but is it like it's still multi-million?

Yeah, it's more than a million, yes. We wouldn't probably mention it otherwise.

Okay. All right. And then looking at your balance sheet and your cash position, so it really allows more MTA. So would you say you are any closer to finding a suitable partner or acquisition candidate or is this, as you said earlier, a moving target and work in progress?

So I might pick up this one. It's Jooni. So we actually have been constantly working. So I think it's fair to say that nothing is not going to close this year, but I think that we have been working on that topic and that's on our agenda. So, but I mean, nothing further to comment on that one. But it's, as I said earlier, in earlier quarters, so that's definitely an area at which we are looking in.

All right, good. That's all from me. Thank you.

Thank you very much, Ben. Ladies and gentlemen, as a final reminder, if you have any questions, please press star one at this time. Gentlemen, we do not appear to have any further questions.

Okay. Hey, thank you, everyone. Thank you for your participation and interest. And have an extremely good autumn and the forthcoming holiday period. Thank you very much and see you next time. It's February 23. Bye. Bye-bye. Thank you.