4/25/2024

speaker
Jouni Toijala
Group Chief Executive Officer

Welcome to Revenue Group earnings call for Q1. My name is Jouni Toijala, and I'm the group CEO. And with me here, as normally we have as well, our CFO, Robin Pulkkinen. Agenda for today. So I'll start with the highlights for the Q1. Then Robin is going to go through the financials, shareholder structure, plus reiterate the guidance. So, let's move on to the Q1. So, the Q1 started slightly softly, as expected. However, the cash flow was strong. So, net sales ended up to 23.6 million, reported growth 1.8%. If we look at the currency adjusted number, so that was slightly down, 0.5%. EBIT down from 6.2 to 5.1. The biggest contributor for that one was the FDA approval related costs. And Robin is going to do a bit more deeper dive to the cost side in his part of the presentation. Cash flow was strong, so 4.6 million for the Q1, and the big contributor for the good cash flow was related to the non-payment for the long-term incentive scheme, plus also really, really minor payments for the short-term incentive schemes. So, if going to the business highlights for the Q1, so sales in the U.S. and Europe, Middle East, and Africa was strong. A couple of highlights from the product side, IC200 continued to sell really well, like during the Q4. Also, the DRS Plus sales was really good during the Q1. Then, as mentioned earlier, so we have started to work with the FDA approval related to the DRS+, iCare, iLoom, Cloud Platform, plus the AI, and that cost occurred partly during the Q1. this year, so roughly 600,000 euros. Then, if going back to the Q2, Q3 last year, so we had lots of headwind from the private equity-owned optometry sector in the USA. So, on the positive note, we saw some increased activity now during the Q1 from the private equity driven optometry. So that's clearly the positive side. On the product side, iCareMy and MicroPerimeter is progressing according to the plan. So based on the current plan, we have intention to launch the product towards the end of Q4 this year. And then As in all quarters, so lots of activities, of course, related to sustainability themes, and especially now during the Q1, lots of activities around the double materiality assessment. So that's working according to the plan as well. But over to you, Robin.

speaker
Robin Pulkkinen
Chief Financial Officer

Thank you, Jani. So, Like Jooni mentioned, Q1 sales, slightly soft. Of course, just looking at the numbers, you may say it's well, that's what we think when we say that it's soft, but then we did have tough comparables and the good news is also that it did go pretty much like we planned. So we were not. internally surprised it has no impact on our longer term guidance. So we knew Q1 is going to be challenging. Q2, Q3 are the ones quarters where we are having easier comparables. And then, of course, Q4, again, we have challenging comparables. So I think the Q1 and Q4 also internally were expected to be a bit softer year over year. Gross margin we were able to protect well, so not a big change there, so 70.3%. And like Jooni mentioned, the profitability is down, driven by the FDA approval-related costs. We did highlight at the end of the last year, or the Q4, that we do have some cost headwinds this year, so the FDA trials for the new products were expected to be roughly 1.5 to 2 million euros this year. And then, of course, the salary side, where we did pay record low incentives this spring, but those, of course, were accrued last year. So, in the costs in the books for last year, but the cash flow impact this year. Earnings per share, 13.7 cents, and the net gearing, minus seven versus minus 13 last year. So here you can see a bit more of the sales trend. The Q1, again, slightly below the trend line, but that's been the case for every Q1 also earlier. So the 1.8% reported growth, slight decline on the FX adjusted, and especially the EMEA and the US sales were performing really well. And then the profitability side. So that we can see here that it did come down, but we did kind of anticipate this to happen also. So the FDA costs, I think, seems to be a bit higher than maybe the market was expecting for the first quarter. The analyst reports, I think they were, in average, expecting a lower cost for Q1. We haven't really specified what quarter these costs are coming in this year, and I think it's fair to expect that there will be quite a bit of quarterly fluctuations in how those costs come in. Of course, looking at the profitability for this year, like I mentioned, the bonus accruals last year were quite small. Looking at this year, expecting to remain within the guidance, the payroll costs will be higher this year compared to last year. Cash flow, record high. I think we haven't been even close to this level in the earlier years for many years going back. So, traditionally, all the STI and LTI incentive programs are paid out in first quarter. And now that those payments were smaller, that is the main reason for the increase in the operating cash flow. Of course, then also, we did pay taxes less than the comparable period, and then the trade receivables came down, which we also, at the end of Q4, discussed that the AR was quite high due to a really strong end of the year. So, the AR coming down was also pretty much what we have planned and foreseen earlier. The balance sheet remains strong. So the equity ratio almost 75%. It's up actually more than 10% year over year. One big reason there is that last year, I think the dividend was paid in Q2 like this year, but the AGM was in March. So the equity postings for the dividends were already in the balance sheet. So that was one reason. So Q2 this year will also have the dividend payment in the equity, so the equity ratio probably will come down slightly. So, 38 cents of dividend paid based on the AGM decision on April 4th, and those payments went out around mid-April this year. Shareholders, a couple changes here. The forums seem to be noticed also that the demand to invest has increased their ownership, so went from slightly below 18% at the end of the year to 18.73% now at the end of Q1. And then also we have a new, not new shareholder, but Berenberg Funds. They have been our shareholders for already a long time back, but then have now increased their ownership and become the sixth largest shareholder. on the top 10 list, so other than that, all the others are in the same order and pretty much in the same level as they were at the end of the year. Foreign ownership also now slightly above 50% again after being just under 50 at the end of the year. The country split hasn't much changed, so nothing really to highlight there. The guidance remains the same. Revenue group exchange rate adjusted net sales are estimated to grow five to ten percent from the previous year, and profitability excluding non-recurring items is estimated to remain at a good level. No change here. Good. And I think we're good for questions.

speaker
Jouni Toijala
Group Chief Executive Officer

Yes. Thank you, Robin. And it's time for questions, please.

speaker
Operator
Conference Operator

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Nico Ruakangas from SEB. Please go ahead.

speaker
Nicolaas
Analyst, ACB

Hello, this is Nicolaas from ACB. Thank you for the presentation. I have a couple of questions. Starting with that, you say that you have seen some improvement in activity around BE-driven segments. So how much was this already visible in Q1 numbers, and what kind of level it currently is compared to the level prior to challenges in the segments?

speaker
Jouni Toijala
Group Chief Executive Officer

So, some order activity and then increase on the pipeline related to the RFQs. So, I think that's the current status, Nikko. And thank you for the questions.

speaker
Nicolaas
Analyst, ACB

Yeah. Great. Okay. Has anything changed? How do you view that market trend developing compared to Q4 conference call two months ago? So do you still see some light in the trends?

speaker
Jouni Toijala
Group Chief Executive Officer

I would say that if not, so not too much change. So I think the private equity driven optometry, that's more positive. Then if we go back to Q2, we go back to Q3. So I think that there's a bit more footfall on the optometry side. I think what we were expecting from the interest rate perspective, Q3 and Q4 last year, Perhaps we were expecting interest rates to come down slightly faster than now what is planned. But in summary, so PE-driven optometry, now more activity, so that's not totally standstill. I think that's a good sign and perhaps a bit more footfall to the optometry as well.

speaker
Nicolaas
Analyst, ACB

Okay, okay. Thanks. Then still one question related to your costs, even though you already opened it a bit. In general, the fixed cost sides, I understand the reason for the increase, but on what kind of level do you expect the fixed cost to be in the rest of 2024 compared to 2021?

speaker
Robin Pulkkinen
Chief Financial Officer

I think the biggest variable items are related to the clinical trials we have ongoing and have starting this year. In general, as long as we expect to remain and do remain within the guidance, then the bonus accruals are going to be higher than last year. So the payroll costs are going up. We hired, I think the average headcount went up seven people last year, so from 212 to 219. So the total payroll package is also slightly increasing, but not that much. Of course, then the salary inflation has been around four or five percent. So those kind of together are probably the variable parts there. But I'd say the biggest bit open one still, how the costs are coming for each quarter is related to the clinical trials, which is something we keep on working on, but we don't have a full schedule for every quarter of how it's going to hit yet.

speaker
Nicolaas
Analyst, ACB

Okay. And do you expect also salary inflation of 0.5% also for this year?

speaker
Robin Pulkkinen
Chief Financial Officer

Sorry, the line was a little bit bad. I didn't catch the question.

speaker
Nicolaas
Analyst, ACB

So, you said that the salary inflation has been on 45%. So, for this year, where are you talking about?

speaker
Robin Pulkkinen
Chief Financial Officer

This was this year. That was for this year, the salary inflation, roughly there.

speaker
Nicolaas
Analyst, ACB

Yeah. Okay. Great. That's awesome.

speaker
Operator
Conference Operator

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

speaker
Daniel Lepisto
Analyst, Danske Bank

Hi, it's Daniel Lepisto from Danske Bank. I have also a few questions here. Maybe on the cost side, on the R&D cost headwinds that I guess you highlighted already in the Q4 report. I do remember that the talked range was about 1.5 to 2 million extra for this year. Are you still within this previously talked range now after the Q1?

speaker
Robin Pulkkinen
Chief Financial Officer

Yes, that hasn't changed. So it's still the same range. I think, at least seems like the market expected it to be more end heavy. But we did have quite a bit cost already in Q1. But there's a good chance that there is going to be big quarterly fluctuations there. So it's hard to say exactly yet how it's going to play.

speaker
Daniel Lepisto
Analyst, Danske Bank

All right, that's very clear. And maybe just to continue that, these Maya-related R&D costs, are these included in this figure as well?

speaker
Robin Pulkkinen
Chief Financial Officer

Yeah, yeah. Yes.

speaker
Daniel Lepisto
Analyst, Danske Bank

Okay. The second topic on the Home 2 reimbursement, I guess that as well in Q4, you talked about H125, when you would be expecting the decision on that. So I guess you are seeing to get some news of this maybe a bit faster than previously anticipated. So has something changed for more positive or where it's just faster on your sort of submittal of the data and so on.

speaker
Jouni Toijala
Group Chief Executive Officer

There's two milestones on this one, which we are following carefully. So, first one is Q4, when we should get the information related to application for the codes. And the one key, really the first step is to get the codes, so the reimbursement codes, and that's a Q4. time for Q4 this year. And then, of course, after that one comes the payer insurance company side alignment in order to be able to get the reimbursement. So then we advise on that one, Q2 2025. So I think those are the two things that everybody should be following up that those are going according to the plan.

speaker
Daniel Lepisto
Analyst, Danske Bank

All right, thanks for the clarification. I guess also on that topic, I think it's still open whether you will be seeking or whether you will be getting the full or partial coverage. I mean, do you have any sort of scenarios on this one and what's your view on this topic?

speaker
Jouni Toijala
Group Chief Executive Officer

So we are looking at the codes for the hardware, so currently there's remote monitoring training related codes existing, but now we are looking at the reimbursement codes for the hardware side. And then of course we are We are looking as high as we can, but that's not fully on our control, what's going to be the result, but really the date or the time period is Q4, so we have to come back to this one, Q4.

speaker
Daniel Lepisto
Analyst, Danske Bank

All right, that's clear. I guess the final question on the ILU plus AI FDA approval and the timeline of that one, are you sticking with the timeline of H125 on that one as well, or has there been any development on that?

speaker
Jouni Toijala
Group Chief Executive Officer

There's a movement on that one, so we did the pre-sub. Then we got just a couple of days back, so we got the information related to the clinical trial requirements, so what's the scope of the clinical trials. We are analysing the data as we speak, and there seems to be a wish from the FDA that the clinical trial scope perhaps should be extended, so we are discussing with the FDA. So I think that it is going to have an impact to the timeline, and I would say that most probably not first half next year, so that's my current understanding. I would perhaps, to be sure, push it to the second half next year, and of course, it's an FDA approval process, so they tend to have tendency to take time, but that's the latest, and we just got the info from FDA a couple of days ago, so we are analysing that one and being in contact with the FDA on that, but that's the latest really, I mean, really in couple of days.

speaker
Daniel Lepisto
Analyst, Danske Bank

Okay, and this scope extension, it won't have any impact on the R&D cost side, at least this year?

speaker
Jouni Toijala
Group Chief Executive Officer

Not this year, no. So we were putting from 1.2 to 1.5 for Ilum, then the remaining part for the Maya, as Robin explained. So no change on the cost side for this year, for sure.

speaker
Daniel Lepisto
Analyst, Danske Bank

Okay, that's all from me.

speaker
Jouni Toijala
Group Chief Executive Officer

Thanks for the answers. Thank you, Daniel.

speaker
Operator
Conference Operator

The next question comes from Joni Sandvall from Nordia. Please go ahead.

speaker
Joni Sandvall
Analyst, Nordia

Thanks for the good presentation. It's Joni from Nordia. You had some larger multi-year orders in Q4, if I remember correctly, Germany, and also some US deliveries scheduled for this year. So can you give any comment on deliveries of these and timeline?

speaker
Jouni Toijala
Group Chief Executive Officer

So we did first deliveries for both countries, so imaging devices, tonometers, already Q4. So during the Q1, we also continued to deliver DRS pluses to the clients. So that's going according to the rollout plan.

speaker
Joni Sandvall
Analyst, Nordia

okay perfect then maybe follow up on the on the pipeline situation you said that maya maya towards end of q4 and i think we went through the home to an fda approval situation but uh is there some some other new product launches now scheduled for for the 24.

speaker
Jouni Toijala
Group Chief Executive Officer

That's an interesting question. I would love to give an answer to that one. So, I think this is perhaps a bit of a teflon statement, but we have been working quite a lot on the R&D side related to coming years. So, I think the time will show in the coming quarters, that if there's something new to come. Sorry for the unclear answer.

speaker
Joni Sandvall
Analyst, Nordia

That's okay. Then maybe lastly on the guidance, you are in tact with the guidance. After the bit soft Q1, as you said, how is your visibility now going forward? How long visibility do you have and how confident are you with your guidance?

speaker
Robin Pulkkinen
Chief Financial Officer

Q1 went very much like we thought it's going to go. So the way that we thought it's going to go when we gave the guidance, so nothing's really changed there. The Q2, Q3 are, from the comparable points, hopefully the easier corridors. But of course, the visibility for us hasn't really changed. So we deliver tonnometers, our backlog is maximum two weeks, and then For imaging, it's not more than four weeks in rare cases. So our visibility, what we've sold for Q2 is probably 20-30% so far. So we don't even know yet what the Q2 is going to be like. So the visibility is quite short. And that's normal. Normal, yeah, for us.

speaker
Joni Sandvall
Analyst, Nordia

Yeah, okay. Well, maybe follow up on that. Can you give any... you know, sequential color, maybe on the sales trend now, towards end of Q1?

speaker
Jouni Toijala
Group Chief Executive Officer

If looking the April, we are executing according to the plan. I think that's, Robin, fair to say. So, if you look the current numbers, what we have, so we are executing according to the plan, which is, of course, good. Okay, perfect. That's all from me. Thank you, Joni.

speaker
Operator
Conference Operator

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Pia Rosquist-Heinzalmi from Carnegie Investment Bank. Please go ahead.

speaker
Pia Rosquist-Heinzalmi
Analyst, Carnegie Investment Bank

Hi, Jouni. Hi, Robin. Thank you for the presentation. I'm going back to the demand situation in Q1, and you said or you reported sales growth of slightly shy of 2%. But can you give some more color on the different products in addition to DRS Plus, which you said grew strongly, and I think you also said IC200 grew well. So what happened in the other product categories?

speaker
Jouni Toijala
Group Chief Executive Officer

Yeah, those two were... Thanks, Pia, and hi. So, those two were the kind of the highlights. So, I mean, we saw really, really big and strong growth on the IC, especially in IC200, same for the DRS+. And then, of course, the ADON family, according to the normal, steady growth strength, and then same applies also for the other products, but those were kind of the two highlights that we actually went slightly better than expected, so that was a logic why we put them up. Anything, Robin, any flavor you would like to add?

speaker
Robin Pulkkinen
Chief Financial Officer

Yeah, I think the IC200, it's good to understand, it's partly cannibalizing the IC100 sales. So kind of it's not only new add-on sales. So like in the U.S. seems like the sales are transferring more towards the highest end device, which is the IC200, which has been then playing or showing as a decline partly on the IC100 sales.

speaker
Pia Rosquist-Heinzalmi
Analyst, Carnegie Investment Bank

Okay, thanks. I'm just trying to understand if there are any product categories which declined since, I mean, the reported sales or the FX-adjusted sales were actually down slightly. So if IC200 and DRS Plus are growing very strongly or strongly, so what kind of products are there then maybe declining?

speaker
Robin Pulkkinen
Chief Financial Officer

Well, often it's difficult. One quarter is a short term. review period. So there are big, especially like the imaging devices, there are big differences between months and quarters. So definitely like the biggest growth are from there. And then I think for the parameters, it's pretty small still for us. So there's the products that go up, some have gone up, some have gone slightly down. But kind of overall, I think the comparable quarter was so challenging or tough, that the sales was quite okay from our view when it comes to Q1. But I wouldn't necessarily disclose exactly what happened to each product group, but there's some that went up, some that went down.

speaker
Pia Rosquist-Heinzalmi
Analyst, Carnegie Investment Bank

All right, that's clear. Thank you. Then, do you have any comments on the home device? How is that performing? Any numbers to share?

speaker
Jouni Toijala
Group Chief Executive Officer

Steadily growing like in earlier quarters. And of course, not the step change growth, but steady growing as before. And of course, the key to this debt change growth is the reimbursement. But that one we covered already. Any other flavour, Robin, on that? Yeah, maybe the screening, if you want to... Say a few words or what do you think about the new screen accounts we have? Yeah, so then of course, on the positive note, what comes to the Loom and the DRS plus the AI. So we have been getting now quite a lot of traction, especially in Europe. So, I mean, we start to have tens of clients in a live use form. for screening here in Europe, so that's of course good progress on the Illum side.

speaker
Pia Rosquist-Heinzalmi
Analyst, Carnegie Investment Bank

That sounds good, and when will the needle move in terms of revenues for that?

speaker
Robin Pulkkinen
Chief Financial Officer

It's a 12-month subscription that they sign up for, so the Yeah, it's not very fast to get it to hockey stick, but at least there's a good traction, a lot of requests even for larger programs in different countries for kind of screening the population. So looks quite good from our end.

speaker
Jouni Toijala
Group Chief Executive Officer

And of course, for this year, we have budgeted in the hardware sales for the screening. So if coming back to the business model, so it's a combination of the additional hardware sales to the new segments, plus then the report-based invoicing for the AI-based reports, plus then of course the Elune platform.

speaker
Pia Rosquist-Heinzalmi
Analyst, Carnegie Investment Bank

Right, good. Thank you. Then, if I still can continue, Regarding the plans for the clinical study, you mentioned that you have got some indications to broaden the scope, but what kind of scope are we talking about? Can you share any color on the number of patients, how many locations, etc.? And just to make it clear, so when you talk about the second half of 2025, that's when you plan to be able to submit data the application. Have I understood correctly?

speaker
Jouni Toijala
Group Chief Executive Officer

That's good. Thank you for asking, Pia, the question and clarifying the situation. So, we are now in... So, we did the so-called pre-sub already earlier, and then after we did the pre-sub, so then there's roughly 90 days, three months to FDA to come back. So, they came back last week on Friday. And now we are looking their feedback, what kind of sites to include, what kind of patient population to include. So that's still on the progress. And then after we have now done the study, made the revisions, then we do a new breeze up, then we start the clinical trials. And when I was referring to the to the second half next year, so I'm really hoping that we are able to submit the application way before that one, so that was the logic, but now we are crunching and analysing the feedback from the FDA, so we have to run the power calculation and certain things again based on the FDA feedback, so not able to answer yet in detail to your question.

speaker
Pia Rosquist-Heinzalmi
Analyst, Carnegie Investment Bank

All right, so just to clarify, you expect to receive a market approval during the second half of next year?

speaker
Jouni Toijala
Group Chief Executive Officer

If everything would go in extremely nice and smooth way, that would be nice. But then I think always when dealing with the FDA These are a bit more complex clinical studies, so of course, there's risks that it's not going to happen, but that's a direction towards where we are working currently.

speaker
Pia Rosquist-Heinzalmi
Analyst, Carnegie Investment Bank

Good, that's clear. Thank you. Then let me check my questions. Finally, maybe still a comment on the contingent consideration of roughly €8 million you have referred to in your report. Do you have any additional color on the likelihood of this occurring, and what kind of technology or what kind of company investment are we talking about?

speaker
Jouni Toijala
Group Chief Executive Officer

Currently, I would say that everything is going according to the plan, and that's all because of the NDAs and confidentiality that we are able to say. So, currently, everything is going according to the plan, and then we come back to this one during the Q3.

speaker
Pia Rosquist-Heinzalmi
Analyst, Carnegie Investment Bank

All right. Okay, I think that's all for me. Thank you so much.

speaker
Jouni Toijala
Group Chief Executive Officer

Thank you, Pia. Thank you.

speaker
Operator
Conference Operator

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Charles Weston from RBC. Please go ahead.

speaker
Charles Weston
Analyst, RBC

Hello, thanks for taking my question. I'm on for Jack Reynolds-Clark. Just one, please. Could you comment on what you think the trajectory of Home 2 might be once you do get the reimbursement and it is kind of on the schedule for the insurance companies? What will be required after that to get to that hockey stick that you mentioned, and how fast might that be? What time frame are you thinking?

speaker
Robin Pulkkinen
Chief Financial Officer

So hopefully everything goes smoothly and we get the codes and the reimbursement also agreed with the insurance companies early next year. There is quite a bit of sales already today where like in Europe, more than half of our unit sales are paid by the patients out of their own pocket. And there's clear evidence and common understanding among KOLs that measuring the eye pressure at home is the best way to manage glaucoma. And like for an insurance company, if a person goes blind, it's a seven number sum of money that it costs for them to pay to the patient that goes blind. So it seems to be that the insurance companies fully understand also that the paying two and a half thousand, three thousand reimbursement for a device that helps to protect the site of the patients hasn't been a very big obstacle to convince them. So in a way, if the device is free for the patients, of course, we do think that there is a very good chance for very strong growth on those sales. But the market, what we expected and kind of in the CMD, that our understanding of the whole market is roughly 750 million annually by 2030. And there is no other device available than our device. So, of course, hard to exactly say. I think your guess would be almost as good as my guess what it could be. It's still early and difficult to forecast.

speaker
Charles Weston
Analyst, RBC

I'm sure your guess would be better. Perhaps in terms of the marketing effort that you'll put behind it, once you do get that, if you do get that and it's an attractive number, would that trigger a material investment from you in terms of marketing and getting that message out that it's now available in inverted commas for free for the patients?

speaker
Jouni Toijala
Group Chief Executive Officer

The current distribution model is following that we have the distributors in the USA, and their growth is really good, so they are going to cover part of the burden in terms of the marketing of course if we get the codes if we get payers aligned so so then according to the normal process we are then going to evaluate how much more money we are going to put behind the home to marketing but i i think we would perhaps target the marketing more towards the eye care professionals because they have to prescribe the device and then it of course would require lots of money to start the business to consumer side of the marketing. So I would say that Okay, marketing spend increased, but not endless amount of money, because we are not planning to do direct marketing straight to consumers. Rather, the eye care professionals and also the distributors are covering part of the marketing spend. Understood. Thanks very much. Hey, thanks, Charles.

speaker
Operator
Conference Operator

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

speaker
Jouni Toijala
Group Chief Executive Officer

Thank you for the participation. And next time, early August, related to the Q2 earnings call. And let's hope that the spring is coming here in Finland. Doesn't look like it yet, but have a good spring and have a good summer all. And next time, let's talk early August. Thank you. Bye-bye. Bye. 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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