Revenio Group Oyj

Good afternoon, everybody. My name is Jouni Toijala. I'm the Group CEO for Revenio. Welcome to Q4 earnings call. With me, we have here as well our Group CFO, Robin Pulkkinen. Agenda for today is following. So I'll start by going through the business highlights of the quarter. So Q4 plus for the full 2022. Then Robin is going to do a bit more deeper dive for numbers. So Robin is going to go through the BNL balance sheet, also the shareholder structure, and then we finish up with the financial guidance for this year, and of course with the Q&A. So let's move to the highlights of the year. So very, very strong finish for the year 22. So if you go back to Q4, so imaging devices selling extremely well, especially in the USA. And if you go back to the earlier calls, what we have said earlier is that if the fundus imaging market is roughly 500 million, especially in the USA, we have still plenty of room to grow, as we are part of 5% market share in the USA. So still plenty of room to grow, and the Q4 was extremely strong on the imaging side in the USA. That said, also the tonometers were growing in the USA as well in Europe, Middle East and Africa. region. Then good news from the iCare iLoom. So if you go back to the Q2 last year, so we launched the new iCare iLoom platform for the retinal screening. So that included the DRS plus, plus the iLoom plus third-party AI algorithm. So we have been now doing quite many pilots during the second half of 22. And we have managed to close now also the first clients during the Q4 and now the deliveries are ongoing. Then also if looking the December last year, so I'm especially happy about the operations team and our manufacturing partners and their ability actually to ship everything. So we got really a lot of orders still on December, even between the Christmas and the New Year, and we were actually able to deliver all orders last year, so that's really good. Then if going to the market conditions, so overall, not too many red flags currently related to overall IK market, but of course, some uncertainties related to geopolitical situation plus the cost inflation. But otherwise, I mean, if looking at the overall IK market, so that seems to be steady. If moving to the Q4 numbers, so Robin is going to go these ones through in more detail, but net sales totaled 28.3 million, so that's an increase of 18.8%. And if we take the currency adjusted growth, so that was 16%. point one percent. And if you go back to the earlier quarters, so we had a big tailwind from the US dollar euro exchange rate. So so the tailwind was five point four. So five point four million euros in the first three quarters. But that started to settle down a bit, so we got the tailwind from the FX only 600K during the Q4. Operating profit up 31.3%, so Euro terms 9.3 million. And then I have to remind you that 2021 Q4, we had the 600,000 impairment related to Kutica, so that's good to keep in mind. Epida grew 19.4%, good cash flow again during the Q4, and leading to the EPS of 21.4 euro cents. Then moving out from Q4 to the full year of 22, so... Net sales, 97 million, so 3 million shy of 100 million, increase of 23.1%. And if we take the currency adjusted number, so growth rate was 16.4%. Operating profit grew up 34.3%, leading to the 29.7 million euros. And here I have to remind you as well that if you take a full year, so 21, we had the Okulo non-recurring acquisition costs in plus the 600K Kutika impairment. So let's keep that one in mind. Epida grew 28.7%. Cash flow was up to 23.2 million out from 21.5 and EPS a bit more than 80 euro cents. So extremely good year for us. Recapping a couple of business highlights from the last year. So first, I really have to start from the sales. So if you look at the diagnostic device market in general, that's growing roughly less than 5%. So it's less than 5%. And if you look at our growth, we were growing roughly 4x compared to the market, so that's really good. And the reason for that one is that we are having a really competitive imaging portfolio. So here I'm referring to the ADON family, plus also DRS+. Then tonometers, growth was good also on the tonometer side. Then we launched the new home too, we got the FDA approval. earlier, about one year ago. Then also this year, or sorry, last year, November, so 20, 22 November, we actually got the IC200 registrations also for China. So tonometers have been growing well last year. Then we launched the IK Reloom solution, and now we are starting the first commercial deliveries as well. Then really the highlight, which I mentioned already on the Q4 side, but we have been able to deliver really well during the last year. And this is not really the self-evident thing. So the manufacturing partners, operations department, they have been doing the excellent work in order to be able to ship all the orders. Then we have been really active on the ESG side, doing the EcoVadis surveys, upright surveys, and now part of the 22 package, we are going to then launch the new ESG report as well. Then let's, before going to the numbers, so a couple of words related to organization change. So we changed the organization about a week ago, and the goal here was to build more product and customer led organization. And we did four changes. First change was that we decided to bring all product management activities, all marketing activities and brand activities in a one unit. Tomi Karvo is going to lead this unit. Then we had the R&D in two different places inside the organization. So we actually bought all the R&D resources under one unit. So we took the hardware embedded software plus all the cloud R&D under one unit. So that's a really good I think Giuliano Barbaro is still going to run that one until the end of June. Then the third change that we did, so we didn't have a strategy and business development function in a group level. So we established that unit and Kate Taylor is going to run that one. And then last, but definitely not least, John Floyd, John is going to lead the global sales. So John has been working for us already 13 years. So he was the first person in the USA. So he has been building from the scratch, roughly 50 million USD business for us in the USA. So John is now going to be part of the leadership team and bringing all the client insights, what he's having also into the group level, so that's extremely good news. But that's about the changes in general and the highlights for the Q4 and 2022. Over to you, Robin, so let's go through the financials next.

Thanks, Jouni. So, excellent year, excellent finish for the year. Like Jouni mentioned, Jouni went through the sales a bit here, so for the full year, 3 million shy of 100 million, 23% growth. Like Joni said, the FX had a really big playback win for us for the first three quarters, but now for the last quarter, like you can see, the reported and organic growth are not that far apart any longer. So that has been slowing down. Gross margin improvement also very positive. There has been price increases, but so there has been also component cost increases. Overall, our gross margin, almost 70 million for the year, improvement from 70.8 to almost 72%. And then if you look at the operating expense, it's roughly 1% lower from the revenue last year compared to the year before, but then if you take out the Oculo acquisition costs, From the comparable number, the operating cost share part from the revenue is pretty much the similar level that it was earlier. So the adjusted operating profit, if you look at that going up roughly a percentage, it's mostly driven by the gross margin going up. So we have also the EBITDA and the EBIT, actually looking at the adjusted EBIT here. So we did, just as a reminder, for 21, there's 0.7 million of Okulo transaction fees, as well as the 0.6 million for the Kutika right down for Q4 21, which we've adjusted here out in the adjusted EBIT line. So basically here, when you look for the full year, For last year, just as a reminder, there's no adjustment for last year numbers. Only 21 numbers are being adjusted. So the EBIT for the full year, almost 30 million, up 26.8%, and then 30.6% of revenue compared to just under 30% in 21. EPS 81.8 cents for the year. Net gearing also the balance sheet in a really strong condition. The net gearing has gone down to minus 13. equity ratio record high since the acquisition of Centerview, almost 67%. Cash flow very good for a year, and then the headcount has gone up over the year, and now we're average Q4 headcount 205 people. On the P&L, some of you have already been noticing that there's been the financial expenses are quite high. So there's roughly 700,000 of kind of dollar-based exchange loss from the balances that we have on the bank account. So if you look at Q3, the Euro-US dollar exchange rate was 0.97 roughly. And end of Q4, it's basically 10% higher, so 1.07. So out of revaluating those cash reserves in dollars, that's the reason behind the cost. Also, of course, the bank loan interest rates have gone up, and those interest rates have also increased during the quarter. Next. So the sales for a few years back, the trend is very similar to what we're used to seeing. The Q4 has been the best quarter for us, as long as I've been in the company, at least for the last seven years. It's kind of more US based, so the rest of the world is more flat, but especially in the US, there's quite a bit of seasonality. And here also just mentioning for the full year, there's roughly 6 million of FX gains that we have in the P&L or the top line. Just on the FX, as half of our business is in dollars, the 22 average euro USD was 1.05, and in 21 it was 1.18. So that kind of gives an idea why there's so much FX gains. And looking at where we are now, we finished, started last year in 1.13. So January 22, 1.13. And we're now moving around 1.07, 1.08. So looking at the revenue in dollars in this first quarter is probably going to be a little bit FX gain also there when starting this year. But then 22 came down pretty fast, so I think that if the exchange rate stays where it is now, it's probably going to go down the gains towards the end of the year. The operating profit, similar when you look at the revenue, the business model is very scalable for us. So when you have strong revenues, you have strong profits. Looking at the profitability level from the earlier years, just the 2020 with the COVID year, in the start of the COVID, OPEX and expenses and everybody was sitting home, no travel, no trade shows. The costs were pretty low, so the profitability levels back then were quite extraordinary. And nothing, something that you could be, should be too worried that why are we lower than there, because basically there was nothing much other cost than salaries and kind of R&D fees. Cash flow. Here also a very familiar trend. We always start the year off a bit softer. All our group-wide compensation systems are paid out in the first quarter, which always draws down the cash flow there. Also, it's typically the weakest quarter of the year in revenue and profitability. So we start off normally pretty soft and we end up with a strong finish for the year. For the whole year, the cash reserves increased by 7 million roughly. So we did pay out dividend last year, roughly 9 million. The dividend payout for what the board is most likely going to propose to the AGM is going to be the 36 cents, which means basically 9.6 million being paid out. So the cash balance at the end of the year, 32 million. And that's up by 7 million for a year back. Equity ratio, very strong, record high for last year. So if you recall, before the Centerville acquisition, it was higher. But the whole balance sheet looked very different back then. So since the 2019, it's the highest it's been. And the net gearing also highly negative. Our kind of cash reserves are Roughly 12 million, I think, higher than the interest-bearing debt that we have on the balance sheet. So very strong position. Shareholders, there actually hasn't been much change in Q3, small ones. So the foreign ownership is actually 53.41 now. It was 53.63, so just two decimals. lower actually now what the changes are the names on the top 10 list is exact same there's one change so Vanguard and Columbia no Vanguard and Capital Group switched places so Capital Group sold a little bit Vanguard and Demand have been increasing their ownership other than that it's pretty stable for the last three months In our guidance, revenue groups 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. That's it for me.

Yeah, that's it. Thank you, Robin. So let's move for the Q&A.

please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Niko Ruakangas from SEB. Please go ahead.

Hello, this is Niko Ruakangas from SEB. I could first ask a question regarding the guidance. So could you discuss about your profitability guidance? I think that it implies weakening EBIT margin. I understand that the FX tailwind has turned, but on the other hand, your business model is scalable, and so the profitability should improve with increasing sales. So could you discuss logic behind this and whether it is that your expectation that the EBIT margin is weakening is more related to not growing fast enough or that your costs are increasing?

Well, it's a very thin line with the guidance where we are at the moment. Our kind of internal plans is our kind of view of the year is like from the guidance that we don't expect things to move or change a lot. There was a lot of discussion on the board whether we should be giving more kind of brackets for the profitability and growth. I think the The guidance is given like it is now here, but there is discussion that we might be more specific as the year progresses, but we haven't really decided on that. So we'll start off with here, and we'll see what the discussions come up with in the Q1 or Q2 reports, whether we specify it more. But for now, we'll start with this.

All right. I understand. uh then recording your outlook between different product segments so so you discussed that the finance imaging has been growing fast but also for example ton of readers were doing well so so do you expect this same kind of development to continue and and where the uh where the growth rates for example in funders imaging at the same level than in q1 to q3 last year

I would perhaps start answering to this one by going through the market sizes first, and then I think that brings light. So if we think first, the fund is imaging, so that's roughly half a billion market growing less than 5%, based on our understanding. Then we have a 200 million market. And that's a tonometer market, including the probes, excluding the home. And that's growing roughly one to 2% per annum. So if we think first the market shares, we think the overall market size. So it's a quite natural thing. that we see higher growth on the fundus imaging side, because the market is way bigger. Global market share for us in the fundus imaging is between 5% and 10%, and we are taking the share all the time. So, I mean, it's pretty natural that that's growing faster than the tonometers. That said, So we are still, of course, looking to grow on the tonometer side as well during the 23, but just in terms of the market size and market share, so the growth is going to be more aggressive on the fund's imaging side.

Yeah, I understand. So the growth rate will be roughly similar going forward, according to your expectations. Yes. Then one last question from me about the multinational clinical research contract that brought revenues in Q4. How significant was it in Q4 and is this expected to continue in Q1?

It's not continuing. I think there's nothing undelivered anymore. It's finished now after Q4. It's a nice addition, but it's not like a game-changing part of the revenue. I think it was a nice deal for us, but we haven't really specified exactly how much it is. But it's nothing that we should expect a huge drop because of that. There's always bigger deals. Every year there's been something almost for the last years that come in. So hopefully we'll just try to find another big deal this year.

All right, understood. Thanks for me. I'll leave room for other questions.

Thank you, Nikko.

The next question comes from Daniel Lepistö from Danske Bank. Please go ahead.

Hi, thanks. It's Daniel Lepistö from Danske Bank. I have a couple of questions. My first is also a question regarding the guidance, but I guess instead regarding the growth part. So, as we know, you raised your estimates prior to the results from the strong growth in 2022 to the 16% currency-adjusted growth. So, does this directly mean that the current guidance you issued for 2023, the strong currency-adjusted sales growth, means up to 15% or 16% growth, since it seems to be the limit where you saw it necessary to issue a proper warning? Thank you.

Yeah, I think you have a good kind of justification for that argument. I can't really comment on the exact percentages, unfortunately.

Okay, so maybe if I continue on the topic, as you discussed about the headwind you will be getting from the currencies, I assume that the reported growth should be even below the figure I referenced.

Well, it's hard to say how the currencies go. If we continue where we are now, I think we're going to have FX gain, at least for... There's many parts that fall under the FX impact on the P&L, but the biggest is the year-over-year FX comparison, so it looks still positive for us for the start of the year, but it's really hard to forecast how that's going to change. Some say it's going to go back to parity or some say it's going to go to 1.2, almost depending on who you talk to.

Yeah, I get it. I guess the second question is about the sort of cost outlook in 2023 in general. I guess in terms of these other operating expenses like R&D and traveling and so on, but also salary inflation. And can you give us a little explanation about the Q4 employee costs, which seems to be almost flat year on year, despite almost 20 more employees during the period?

For the flat, there's of course been some adjustments on what we do for the variable pay for the year. So those always, I can't exactly tell you what that impact was right now for the Q4. But in general, I think the hiring for this year is we're starting off a bit slower, at least. We're kind of waiting to see how the market and the geographical uncertainties develop. So we're kind of most likely at least starting off a bit more careful with adding new headcount at this time compared to the last couple of years. So we're kind of having a look and we're kind of quite satisfied with how we are staffed at the moment. There are some additions to the R&D side. But other than that, it's quite limited that we have open positions in the coming months.

Right, Robin, so in terms of the salary inflation, so we budgeted 5%, right?

We budgeted 5%. Nothing actually has come through yet, so we're kind of going into that discussion now. The increases are probably going to take place in our end March-April timeframe. But overall, the budget, we kind of internally budgeted 5%. It seems like the union agreements in Finland at least are a bit below that. But then certain markets like the US, I think there's higher pressure also for increases. The job market is quite tight there.

And then I think, Daniel, if I recall right, so you had the R&D question as well. So the plan is to keep... almost about the same R&D spend out from revenue, so roughly 10%, less than 10% actually goes through the P&L, and then if you take the P&L out of the P&L, impact to the balance sheet related to activation, so that's a bit more than 10%, and logic is exactly the same than last year, so two-thirds out from those investments are going to the device side one third to the software. So right, Robin, so this is from the R&D cost perspective, that's the ballpark.

And I think the gross investment or the balance sheet items might be actually a bit lower even this year than last year, because there was certain prototypes and things that came in which were quite expensive last year.

Okay, that's very helpful. I guess my final question is about the IKEA Home 2. So can you remind us about the potential plans to seek this reimbursement coverage for this device in the US? Is this process underway or have you looked into it?

Yeah, so we are working on that one. I wouldn't hold my breath still this year, so working on it. But I would assume that nothing is going to happen this year, so it's a bit like the FDA. So I think the same applies for the reimbursement, so it might take a longer time, but we have a clear plan for it. But that's where we stand now.

Okay, that's very clear.

That's all from my side. Thank you. Hey, thank you, Daniel.

The next question comes from Pia Rosquist-Heinzalmi from Carnegie Investment Bank. Please go ahead.

Hi, this is Pia Rosquist from Carnegie. Thanks for taking my questions. I have a few. Maybe first of all, I pay attention to your comments regarding future growth, where you say you aim to continue to accelerate growth. So at this point, can you in any way single out the drivers behind this ambition? And again, I'm reflecting upon the very strong growth we saw last year and also in the previous years, driven by the corona boost.

So, when we have been talking about the acceleration of the growth, so we made this claim about two years ago in the CMD, and how we stated it out was that the kind of average growth has been roughly 13 percent so we said that we are going to accelerate that growth and and meaning closer to the the 14 to 15 percent i think we we have been able to do that one and if now looking the whole a year so that was 16.4 currency adjusted so we have been actually even able to grow a bit more faster that we stated two years ago so just kind of to be clear that that when we said that we accelerate the growth, so it was related to this historical roughly 13 percent growth. And then the reasons that why we said that one two years ago, and why we believe that we can go faster than the historic 13, A percent is that the product portfolio is in good shape. So we have competitive products on the fundus imaging side, competitive products on tonometer side. And then if looking the R&D investments which are going in, so we are going to keep also in coming years the Tonometer products and platforms competitive, same for funders imaging. And this year we are going to push more effort also to the perimetry side and we hope to gain growth in there. And then if we go to the home and the software part. So those are not fully moving the needle yet, but I mean, Home 2 has been the most growing device for us last year, if you look month by month and the full year, even January this year. And then if we go for the software side, so I mean, We are on track that one, but of course, that's going to take years, but it's going to contribute in the years to come also to the top line and profitability as we see it. So, Robin, anything to add on this one?

No, I think it's good.

All right, thank you. Then if I still continue on the same subject, I think you mentioned that you are now entering or kind of strengthening your position in China. What kind of contribution should we expect from China going forward?

So, let's go first through the logic, and then I answer the contribution question. So, we did a bit more than half a year ago, half a year ago, we did the decision that it would be really beneficial because the volatility in the geopolitical situation, and then difficulties what we had related to the regulatory approvals to actually have a team in China. So quite many are now pulling out from China. We did the decision that we go in. We don't go in to build up the R&D center, but we go in and we went in to build up the sales office in China. That's operational. We have a good solid team there currently. Rebecca running it, so she's Chinese and very smart and now we have been able to go top of the regulatory things. We got really the IC200 now approved last year and then now we have an understanding of how the market dynamics is kind of going to go in China and how it moves forward. Then the logic and coming back to the the kind of Euro amounts in China, so not too big part yet as a revenue, and we hope that we are able to grow it, but if we look at the numbers, if we compare it to the guidance and the current growth plans, so China is going to be upside for that one if we are going to be successful in there. So that's it. Hopefully it answered Pia your question.

Yeah, thank you. And about the regulatory approvals for the fundus imaging devices, are they still pending?

Yeah, those are in. So we are now currently in with the tonometers. So they have been in for the longer time, but those are kind of on the works. And honestly, I don't have even guessed that when we are going to be done.

All right, thank you. Then still a question regarding the so-called recurring sales in your portfolio. Can you give us some kind of indication of how much of your sales is recurring?

We haven't really disclosed that number, Probes, of course, is a big part, very important part of the revenue for us. And then with the Illume and other solution packages that we're working on are hopefully going to increase that part as we move forward. So I'm quite positive of how that's going to be developing in the, necessarily not this year much yet, but the coming years. I am optimistic about the impact on gross margin and the recurring revenue part.

okay uh so just if i uh sure i mean are we in in in the 20s or or still are we how should i i mean how should i think about it are is the recurring sales like between 20 and 30 or still less than 20. uh we haven't disclosed that number i don't think i can give it out right now yeah

Did we... Sorry, Pia. So, did we give something out, I mean, years back? So, when earlier, before Centerville acquisition, the probes were basically 30% of the tonometer sales, but we haven't done that split anymore after that.

Okay, another final question for me, if we still can revert to iCare Illume. Can you describe the revenue model? I think we've discussed that earlier, but just a reminder. So now when you said you start selling iCare, Illium, what kind of a revenue model are we looking at?

Yeah, there's three components on that one. So the first one is the device sales. So if we go back to the solution, so it said DRS Plus, and there's a new software in a DRS Plus, which automatically If you press a button, it sends four images to the Illum Cloud. Then the Illum takes care of forwarding the images to the AI. Then it gets the report back from the AI. And then we added actually about two, three weeks ago, we added the new functionality to the Illum platform, which is the digital referrals. the same logic what we have in Australia and New Zealand running. So now we have the first solution available, which is easily doing the referrals as well if you have a problem with the DR. So, there's three revenue components. So, one is selling the device. So, of course, we are continuing to get the revenue from that one. Recurring revenue from the Illum. And then, thirdly, the revenue share from the AI. So, those three components.

All right. All right, that's all from me. Thank you.

Hey, thanks, Pia.

As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Seems to be that there are no questions, so I would say big thanks for participating, and I think the Q1 is the next one, so see you soon. Thank you.

Or the AGM.

AGM, yeah, that's true. That's before, yeah.

Okay, good, good.

Take care. Bye. Bye-bye.