Earnings Call: Q2 2021

Aug 5, 2021

Good afternoon from Sunny Helsinki, Finland, and welcome to Revenue Group Second Quarter Earnings Call. My name is Sioni Tojela, and I'm the CEO of Revenue Group. In addition to me, we also have our CFO, Robin Pulkinen, joining today. So I'm going to start by talking through the 2nd quarter highlights. And after that, Robin is going to go through a bit more thoroughly the financial numbers. Let's start with the sales. So excellent quarter for us, especially supported by the growth of Imaging Devices. So the sales was up 37.9 percent, so heading to the €18,900,000 And really, if looking and comparing to the past performance, so we actually had the best quarter ever what comes to the etching device sales. So we are actually up about 20% even to the pre COVID numbers. Then when we go back to the Tonometers and probe sales. So in addition to the imaging device sales, also probes, where the probe sales was growing steadily, also the tonometers during the second quarter, also during the first half. And if we do a bit more deeper dive to the products, so DRS Plus on the Imaging side, growth was extremely strong. Also, ADEN family, so the whole family of the products, there were a lot of growth as well. And then also the perimeters and the microperimeters, that business was growing during the 2nd quarter. And that was valid across almost all the key markets where we are present. So then if we go to the bottom line, so the EBIT part. So the EBIT performance was €4,400,000 up 28.7%. But there, we actually missed the consensus. So Robin is going to go a bit more deeper on that side. But a couple of items dimension there. So one reason for that one was the sales mix. Then for the personnel costs, we had one of personnel costs in a bit of a hit from the foreign chase rate. And then I would like to remind also that we closed the Okulo acquisition during the April. So as we stated earlier, so we are going to invest to the Okulo SaaS platform. So in terms of the relative profitability, So during this year and next year, the relative profitability is going to be lower compared to the previous years because of the investments going to the software platform. Then if we go a bit to the product side. So the product from the product perspective, the 2nd quarter was very active for us in the first half. So we launched a new Eye Care Home 2 tonometer, and there are a couple of significant improvements. So we improved the easiness of the use of the actual devices, so it's much more easier to do the measurements. Then compared to the older home device, so we actually had to use the cables in order to transfer the results from device then to the cloud. So now we are using the wireless connectivity. And then we also support the iOS app. And the feedback what we have been so far received from the device, so that's very good. And it's actually already on the market in Europe. And we are in the process of applying the FDA approval for the U. S. A. Then what comes to the imaging device side. So we also have a New product coming out, so called ADON, ultra wide field fundus imaging device and also the lens, so that we are able to upgrade the functionality, the devices which are already in the field. So with that feature, we are able to capture and increase the angle, so 120 decrease with the single shot and then if we used the Mosaic functionality. So the field of the views is going to be extremely large, around 200 degrees. And then as stated many times before, so we are continuing to receive a really good feedback related to DRS Plus. So currently, if looking from the product portfolio point of view, So good feedback coming across the board for the Imaging product, which is then providing the long term growth for us as well, so we believe, even though that we are sure that there has been some pent up demand, especially on the Imaging side during the first half this year. But definitely, the growth rate has been so high on the Imaging side that we are definitely also gaining market share as well. But with these words, I would hand over then speech to Robin. So over to you, Robin. Hello, everybody. My name is Robin Pulker. I'm the CFO of Revenue Group. So to go through the numbers a bit more so, like Jonny mentioned, 2nd quarter, euros 18,900,000 in revenue. And then like we stated and you only mentioned that the FX has been playing against us quite a bit. So It's nearly a $1,000,000 hit that we took on the top line on the 2nd quarter. So without that, we would have been quite close to $20,000,000 in revenue, And the growth would have been actually over 40%, so 43% to be exact. For the first half as a whole, the growth has been extremely strong. So €35,600,000 in revenue with 39.2% growth and with the currency adjustments 43.7 percent growth. On the EBITDA and the EBIT line, we have also the adjusted numbers here. For the Q2, there wasn't much adjustments to be done. So the adjustments we have here are basically the costs related to the acquisition of Okulam, so the kind of the transaction costs. For the second quarter, there was less than $50,000 that we had. But for the first half as a whole, it's almost 700,000 that we have in the costs. And those have been adjusted out here. So The adjusted EBIT for the 2nd quarter, €4,500,000, up nearly 30% From year over year, it's 23.7 percent out of the revenue. And for the first half, €9,700,000 and 27.3 percent out of revenue with a growth of 65.7%. Like Jochenny mentioned, the consensus was probably a bit higher for the profitability for us. So just opened a few items. The FX, almost €1,000,000 on the top line, But also that hit our bottom line by over €400,000 for the quarter. Also, the product The imaging devices have been growing really fast in the second quarter, and their share of the total sales were actually quite high. And that, as we've stated earlier and quite commonly known, is that the imaging devices have a bit lower gross margin. And kind of that Product mix hit, when you look at the year back, is also quite significant when it comes to profitability. Then we had certain onetime personnel costs, which will not continue going forward. And then, of course, the Okkula transaction that took place and with the numbers for Okkula have been consolidated since the 28th April. And so we have pretty much 2 months in the numbers here. Some of the key figures. Our equity ratio continues to be very strong. Cash flow for the first half was very strong, actually up 80% from last year. The drivers for that were Basically, the increase in net profit and the changes in the working capital. Also, when you look at the net gearing maybe there, Where the bigger change is actually we added the Ocala transaction, which we paid in cash. So In the transaction itself was AUD 18,500,000 And in the purchase price allocation, we've allocated about €2,500,000 to the intangible assets and then €9,500,000 to goodwill. And all this was paid in cash, which resulted in a lowering of the net gearing. So kind of our cash and Cash balances went down quite significantly during the quarter. Main shareholders, there's not been much change over the last months. The biggest change in kind of the go back 12 months from now or 9 months from now are kind of the U. S. Ownership, which has been going up a lot. So on the top 10, we have Columbia Threadneedle Capital Group Vanguard BlackRock, some of the world's largest investors who've joined our ride over the last year. So that's kind of the one of the bigger changes that's been taking place over the last year. Other than that, we have pretty familiar names on the list here. And then yesterday, we updated our guidance. So I just want to highlight here again that that's a full year guidance. So even though we now updated it, that's actually still for the full year. So the first half, we grew extremely Strong, so 40% growth. But when you go back, look at last year, there was a COVID year. The first half and second quarter especially was quite weak, so it wasn't one of the best quarters for us. So but when we look at the second half last the year. Our performance was extremely good already there. So I would be I would kind of as an investor, I would not assume to expect similar growth from us for the second half that we've been seeing now in the first half. So the guidance here, even though it's a positive change, it's still a guidance for the full year. And that's it from me. Now we'll go to the questions. Thanks. Robin, so We received plenty of time for the questions. So the floor is open for the questions, please. Thank you. We have a question from the line of Julius Raffelli from SEB. Please go ahead. Yes. Thanks, Joni and Robin for the presentation, and thanks for taking my question. Firstly, one regarding guidance upgrade. So regarding this upgrade, has the outlook or visibility for H2 Have you guys changed in some way? Or is this only a reflection of the super strong H1 you have now performed? Well, our kind of our tonometer business traditionally is we don't have that much backlog over there. And the imaging also, Our visibility like in backlog wise and orders is maximum couple of months forward. So we don't really have much visibility into Q4 and what that will be looking at that point. So it's also kind of we have our assumptions and forecast, of course, but of course, it's also backed up by the extremely strong first half. So that's kind of the reasoning behind it. All right. Perfect. Then One follow-up question regarding gross margin. And you already mentioned the mix change in second quarter that was are causing some somewhat lower gross margin here. Do you see any headwinds from input material Costs. And then on the other hand, do you see any issues with your supply of input materials? Yes. So first, the cost. So there's a clear indication that costs are coming up. So that's a silver clear. So we have been trying to tackle that one by making a bit more longer term commitments towards our suppliers in order to be bit ahead of the wind, so that we are a bit more aggressive of buying the components in and making the commitment so that we are able to keep the prices in a bit more better level in a near future when going forward. And then we have also increased proactively the stock levels, and we have made commitments in order to be able to guarantee the supply of the devices. And also, it's just a fact that there might be challenges, what comes to the components. So we have had challenges, an example related to the Bluetooth components, but we were able to So that earlier this year. So currently, everything is okay. And these are the actions that what we have decided to do in order to control the costs, plus then the guarantee that we are able to have the products when the clients are needing them. So in one sentence, now everything is okay. But this is the weekly discussion with our operations team that we are able to perform well. All right. That's very helpful. Thanks. That's all from my side at this stage. Our next question comes from the line of Pia Ruiz from Carnegie. Please go ahead. Yes, hello. It's Pia from Carnegie. You said your imaging device growth was very strong in Q2. And you also said the tonometer business grew. But can you still clarify, did the Tonometer business grow or was it only the Probe business or did both the tonometers and the Probes grow? Yes. So the both probe business and then the tonometers, both were growing, but of course, not as much as the Imaging Devices. So the strong So we had a really, really strong growth on the Imaging Devices during the Q2 and throughout the whole first half twenty twenty one. Okay. And the Home business, how is the Home2 sales developing? Yes, it's picking up. And if you look now, it's easier to look not quarter by quarter in a way. So we have been selling Home2 devices, of course, during the Q2. But if you look, As an example, the first half twenty twenty one, so there's a quite strong growth on the home devices as well. But of course, it's so small amount still compared to the other business because the other business is growing so fast. So Still more sales needed in the long run, so that it starts really to move the needle. Yes. Okay. And then do you have any news on Ventica and Kyutica? How are these Projects developing, taking into account that you said at the CMD that you your focus is on Eye Care Business. So when can we expect news on Ventica and Qtica? Not yet. So we have discussions on ongoing, but not major news to be released yet. Hopefully, we are a bit more wiser when we go towards the end of the year, so towards the end of Q4, Q1. So discussions ongoing, but nothing concrete yet. Okay. Good. Then Julius asked about the input prices, but How do you tackle the situation from your sales price perspective? So are you able To adjust your prices also upwards? Or is the competition at such a level that higher sales prices are not possible. So we actually have managed to get a slight as price increase for the Europe already. So that's basically already done and implemented. And then, of course, monitoring closely that what should we do in the other parts of the world. So I think the overall, there's a trend that the component prices are coming up plus the overall inflation. So in certain regions, we already have we have had the price increases implemented. Okay. And then still back to the question. May I ask what kind of what caused the nonrecurring Person or what caused the personnel costs to be exceptionally high now in Q2? We haven't really disclosed the reasons publicly for that, but it's kind of onetime costs So that is not tens of 1,000, but in the 100 of 1,000. Okay. Okay. And then maybe finally on your M and A agenda. Where do you stand on that point? Are you now you are, of course, integrating Ocula and investing into that business, But how active do you want to be on the M and A space now? Is it high on your strategic agenda? I think there, the answer is yes. But we have to, at first, now take care that we do the proper work by integrating the Okulof. So on the Okulof front end from the integration point of view. So of course, the finance systems, so those are okay. So that The integration is done. Almost the whole IT integration is done. Now we are forming up to the joint solution vision ending up to the roadmap discussions and so forth. So there, the house is in really good order. And the plan is that we are going to finalize that one. And then as before, in kind of as earlier. So we are constantly screening and keeping the possible eminent days high on the strategic agenda as well. So that's, in a way, a continuous work what we do. Anything, Robin, to add on this one? No, that's true. We've there are the possible targets are quite a few and far between. So We need to keep the kind of momentum moving all the time. So these transactions tend to take a lot of time like we saw with CenterView. So we really haven't stopped at any point. We have a question from the line of Juha Kiminez from Inderes. Please go ahead. Hello, gentlemen. This is Juha from Inderes. I have a couple of questions that are regarding the future outlook, so you are probably excited to answer them. Could you give us any guidance on the sales mix going to the second half of the year? I'm just wondering if this 2nd quarter was exceptional or is the similar mix going to continue? Maybe if I start, Johan can maybe continue. So If you look at last year, last year, the imaging was really struggling, the 2nd quarter, the 3rd quarter pretty much as well. But every quarter has been better as we moved on. But last year, the second half Still, the second half was very strong. It was mostly driven by the tonometry, of course, which, of course, was also visible in the profitability and the bottom line. So for the second half, it is going to be difficult to get very high growth for the tonometry because last year, it was extremely strong for the second half. So I guess that's kind of my $0.02 for the future, Luc. But anything to add on? I think nothing to add. I'm spot on. All right. Well, thank you for that. Second question, if I understood correctly, Opkulon made an operating loss of €900,000 in the first half. Is this rate going to continue in the same level or is it going to increase? So hopefully, we will of course, we're following the we have plan in place what we expect to receive on the top line. And then of course, if the top line starts to pick up quickly, there's a lot of resourcing and kind of R and D needs that we will start But we're very careful. So we kind of follow the plan that the profitability needs to stay within the frames we've agreed. And what we've communicated out also that the kind of the impact on our profitability would be 3% to 4% this year. So we're kind of following that carefully. So we don't want to be too aggressive up Hiring people and then figuring out that the revenue doesn't follow. So we're kind of having our finger on the pulse on that one. All right. Let me do it. Thanks, Johan. Our next question comes from the line of Rokot Tatkinen from Danske Bank. Please go ahead. Hi, Hakko Takinen here. Thanks for having my questions. They were mostly answered before, but I would like to clarify, as you said, that the sales mix Has affected your margins. But do you have any or can we expect a similar split in the future? I think for so it's a yes, hard question. We have Our backlog is only a couple of weeks forward, so it's hard to say. The mix is different and then the growth is different. I think For the second half, I would assume the imaging to grow faster than the tonometer because the tonometer was so strong last year second half. But what the mix will end up being, that's something I can't really answer. Hard to say on the detailed level. But I think, like Robin mentioned, so the trend is going to be following in a second half. So that the Imaging is going to grow faster than the tonometry business. So I think that's perhaps fair to say. And there's an implication then to the revenue mix as well. Okay. Thank you. That's all from me. Our next question comes from the line of Anssi Rausi from OP Markets. Please go ahead. Hi, Joni and Robin. First of all, can you hear me? Yes. Hi, Anssi. Really well. Yes. Hi. Yes. This is Anssi from OP Markets. First of all, about your gross margin. We have had already a couple of questions regarding that one. But I think when you bought or acquired CenterView, CenterView's gross margin was about 62%, And you were aiming closer to 70%. Would you give us any updates where you are at the moment? And are you closer to this 70% target at the moment? Thanks. This is my first one. Yes. So if I'll start, I think There's been definitely positive development on the centrifuge side. There's not that drastic changes for the existing products. But I think the bigger changes and impacts have come from the fact that the when we changed when we released the new version of the DRS, so the old DRS, for example, was it had higher bill of material and it was a lower selling cost or selling price. So with the DRS Plus, we're able to sell it for a lot higher price for it and it's a cheaper device to manufacture for us. So those kind of items are the ones where we see the bigger jumps in the profitability. Then of course, we've also had more license revenue coming in from the CenterView business, but kind of The devices that have been out selling, there hasn't been significant changes in those gross margins, but other than the kind of Okay. And my second one would be about the personnel costs you were mentioning a couple of times. Could you still quantify a bit more especially, are we closer to the €100,000 or €800,000 or Well, yes, it's 100 of 1000, but less than 500,000. Okay, great. And yes, I think that is all for me. Yes, thank you. Thanks, Arsen. Our next question is a follow-up question from the line of Kjerduskris from Carnegie. Please go ahead. Yes. Thank you. Thanks for taking the questions still. I'm now thinking about the photometer business again and coming back to the second half. So is it fair to expect that actually due to the very strong performance in the second half of last year, there is a risk The tonometer business, I mean, the base tonometers are not growing in the second half. I think that currently, if we look our view and forecast, So there's a gut feeling that there's still growth. So if you look to forecast and if you look to budget, So of course, we budget for the full year. So still in a way, we are kind of hitting the numbers in terms of the growth for the tonometers for the full year. So but it's as Robin mentioned earlier, so the backlog is small, but I think that we still so at least we have seen the growth. In first half, we have seen the growth in a second quarter, both for devices and both for probes. So I my gut feeling that I wouldn't made that statement right now, Pia. Okay. Thank you. There are no further questions registered at this time. So I may close. Okay. Very well. So if there are no more questions, so I would like to say a big thanks for everybody who was Participating and have an excellent continuation of the summer. Thank you very much, and bye. Thank you.