Earnings Call: Q3 2021

Oct 21, 2021

Good afternoon from Sunny Finland, and welcome to Revenue Group Q3 Earnings Call. My name is Jonny Tojela, and I'm the CEO of Revenue Group. And with me here today, we also have Robin Pulkinen, who is our Group CFO. I'm going to start First, by going through the Q3 highlights and then Robin is going to go more detailed to the finances. So Q3, so an excellent quarter for us. Net sales, €19,400,000 up to 22.7%. And what was really going strongly was the sales on Fundus Imaging side. So we managed to sell really well across all the markets, especially in Europe and in the United States. And it should be also noted that the Tonomer demand continued to grow well as well. Then if looking the profitability, So EBIT number in good shape, so €5,900,000 Of course, the percentages here are looking significantly higher than last year. And I think that it should be noted clearly that In last year comparable numbers, we had a €1,900,000 kutika impairment. So please note that one. Then the cash flow, so €5,800,000 slightly down from last year. And there were a couple of things which were impacting to this one. So first, the Ocular development activities reduced the cash flow comparable cash flow and then also changes in working capital. And this is due to the Investments, what we have been putting in to actually increase the stock level because of the kind of a bit more riskier situation related to the components, and I think this is a familiar information for all. So if looking a bit more deeper to the growth drivers, so Imaging Devices, especially the DRS Plus plus the new product, so called Aedron Ultrawide Field. So they were selling really well across the markets. Then we have been also seeing now Q3 that the investments done towards the digital marketing, towards the brand and then the channel integration after the Centerview acquisition. So those have been successful activities during the Q3. Then if looking at the data, so I think the good question is that Is all of this growth pent up demand or not? And the answer is that we actually have been able to grow actual market share by a couple of percentages, both in Imaging Devices and also in Tonometer side. So from the product portfolio, product quality, product performance point of view, the offering what we now have on the table for sales. So it's actually looking really good. But with these words, I'll let Robin to go a bit more detail through the finances and then we Have questions after that one. So over to you, Robin. Thank you, Jonny. If you want to switch the slide. One more. There we go. Thank you. So net sales like you only went through, €19,400,000 up 22.7 percent. And For year to date, we reached €55,000,000 in sales, up by roughly 33%. The FX has not played a Very critical role for the year to date numbers. So FX adjusted growth, roughly 34% year over year. On this slide, we have some of the adjusted numbers also presented. So if I go quickly through what we've adjusted here, basically for the current reported The quarter, there actually is no adjustments. But for the Q3 last year, what Jonny also covered is that the Kotikarat tower impairment of €1,900,000 has been added to the comparable EBIT number here. And then for the full year numbers, we've added in the Okulot onetime transaction cost for that was paid out in the first half, so €700,000 has been added to the EBITDA line and the EBIT line for this year. And then for last year, the same Kuttika impairment has been added to the EBIT line. So something to take a note Back from here, for example, the adjusted EBITDA, we actually have been able to maintain the same level than last year, so 32.4%. Basically, the EBITDA has been growing in par with the top line. And same for EBIT, actually slight improvement. So the adjusted EBIT, 28.5 percent compared to the 27.6% last year and 37% improvement. So I'm looking to Q4. We mentioned this earlier, the second half last year was extremely good. Looking at the 1st 9 months last year, our organic growth, currency adjusted growth last year for the 1st 9 months, 22%. And then we look at the comparable Q4. The growth was Currency adjusted 36%. So the Q4 growth last year was half 50% faster half faster than kind of the 1st 9 months of the year. For this year, our growth for the 1st 9 months, like we said earlier, it's been currency adjusted 34 So going into Q4, we are coming against some really tough comparable numbers. Also for last year to keep in mind that we have the contingent accrual release that was readded to the Centerview transaction. So there last The comparable numbers also include the €1,000,000 other income that kind of flows straight to the bottom line. Some of the key figures on a more graphic way. So no major changes in Q3 in the big picture. The cash is up €4,400,000 from Q2. So end of Q3, we had €16,500,000 in the bank. At the same time, the net gearing went from almost 15% down to 11.2%. And also the equity ratio improved during the quarter from 57% a little bit over 57% to 64%. So basically, our balance sheet remains very strong. And along with the other growth opportunities, the gives us the opportunity to also look at the options of inorganic growth going forward. On the ownership side, there has actually been some more bigger changes in the kind of the largest owners. So the William Demant, they have increased the ownership. They've roughly bought or invested worth €20,000,000 into the revenue share. So on the top owner list, that's the biggest change worth mentioning. So the William Demand ownership went from think it was a little bit below 11%, now it's 12.3%. And the guidance, no changes to the guidance since August. So the guidance still is that the revenue group's exchange rate adjusted The net sales are estimated to grow very strongly from the previous year, and profitability is to remain at a good level without nonrecurring items. And the COVID pandemic continues to cause uncertainty related to the markets. So the guidance remains as it's been earlier. And that's it from the financial side. I think we'll go now to the questions. Yes. Thank you, Robin. So let's open the floor for the questions. We have one first question from Mr. Sami Sakamir from Mordea Markets. Sir, please go ahead. Hi, thanks for taking my question. I have actually a couple, but let's take them 1 by 1. Starting from Conor Mehters, where you're saying that you grew sales in the Q3. Can you elaborate on the growth rate? I mean, for example, how does that compare against growth rates you had in the first half of the year? And then on Q4, do you think you'll be able to grow Tonometer sales in Q4 relative to last year. Sure. I'll try to take that. So if I recall right, our First half growth this year was over 40% FX adjusted. So I think it's like almost 45%. So of course, the comparables for the first half this year was a lot easier. So kind of the COVID pandemic, We kind of our sales hit the bottom April 2020, and it's been getting better since then. So the growth this year was really strong in the first half. Now we're about still above 20% for the FX adjusted. So even last year Q3, if I recall right, it was roughly 17% growth. So it's still in a very good level. And then of course, when you go into Q4, the comparable number is very big. So in the big picture, We do see that there's room for growth for the tonometer and the imaging business. In the short term, in the next 1 or 2 years, I would think Imaging devices probably have a better chance of faster growth compared to tonometers. But kind of in the big picture, the tonometers also continue to grow. But I can't really comment on a single quarter right now for the growth expectation for Q4. Okay. And are you able to compare growth rates during this year within photometers and Fondrous Imaging, but What sort of differential are we talking about? I think that if looking at the fundus imaging, so that's really growing a lot. So we are not talking about the 10%. We are not talking about the 20%. We are not talking even the 30%. So they are on the different growth path, and that's partly explained, of course, the market share. And then we had on the tonometer side during the COVID, we really had a huge spike. So I think that's explaining. So on the tonometer side, we have returned pretty much the regular growth rate that if you go back into the years, so I think that we have returned to the kind of a normal growth base on the tonometer side. And then if you look in the fundus imaging, So we honestly see we are seeing a really strong growth on the Fundus Imaging. And due to the group products, and we are really gaining the market share as well on that side. Okay. And then I think you mentioned that in both conometers and imaging, you've been able to gain Market share, a couple of percentage points. What was that over the past year? Just wanted to verify the time frame. I think it's about 1.5 years' time when we so when we updated the strategy a bit more than a year ago. So we crunched The numbers then we crunched the numbers about 2 weeks ago. Again, so we have been able to grow quite well on the both sides also from the market share perspective. Okay. And moving on to sort of Your cost level, are you now sort of proceeding at full speed related to all activities? Or will we still see sort of costs rising in the coming quarters as you're sort of starting Some of the activities that may have been on hold during COVID-nineteen. I think Robin might go perhaps details, but what we see currently, perhaps 2 buckets. So the trade shows are back. So we had a 1st trade show here in Europe about 3 weeks ago, so beginning of October. Then also, we still see that we have to invest on the software solutions side. So we are going to hire the people also the Oculo team when going forward next year. So I think that's also in the line what we have been communicated. But do you want to Kind of a comment on the overall cost level, Robin? Yes. I think the changes in future costs is related a lot to the changes in the headcount. So we're still kind of going through the planning phase, but it's clear that the headcount is probably going to be higher this time next year than it is today. Also travel is still very limited and now we're just kind of getting back into the trade shows. So So I think there is the kind of the base level might still go up a little bit, but kind of I think the bigger changes related to the capital allocation and what the investments we decided to do next year. So nothing significant, I think. But yes, the headcount is a lot tied to the headcount where we end up for the future. Okay. And my final question would be on potential divestments So for Kuttika and Wintika that you are sort of reminding in the report, it seems that you have made some sort of progress here. So are we sort of getting closer to some sort of announcements? And can you please Explain what kind of deal structures you may be looking for these sort of noncore assets? So let's first start with Kuttika. So we start to be end of image collection. So we have been running the clinical trials in order to get enough images, and that has been a bit delayed. So we were estimating to finalize the Kotika Image collection about the summertime, but due to the COVID, so that's a bit more delayed. And after we have That one closed up, so then we can test the AI algorithm. So I think we are wiser towards the end the year, early Q1 related to that one. Then discussions related to Ventica because that's more mature. So Their discussions have been ongoing, but we don't have anything to announce Q4 on that one. So the work is still ongoing. But the strategy is silver clear. Capital allocations are silver clear. So and really, the key message is that we are going to be fully focused On the eye care market and the capital allocations are following that one as well. So we are not currently investing more money to the Kotika and Ventika and rather now trying to find an optional kind of optimal solutions to find a good home for them, whatever is the model. Okay. Thanks. That's very clear. I don't have any further questions. Thank you. Follow-up your questions. Thank you, sir. Next question is from Mr. Daniel Leiste from Bank of Bank. Sir, please go ahead. Thank you. So I have a couple of questions. So basically, first of all, Could you give some more color on the current challenges with component availability and pricing? So as you kind of said previously, you have Somewhat increased inventories. But maybe if the situation persists, do you see the kind of issue being more of The availability related to these components or the pricing related to these components, so will this be more of a top line or profitability issue? And how do you see this? So let's start first with the cost. So that's a silver clear, and we have already faced that one that the prices are coming up. And we have been, of course, following that one, but the prices are definitely going to go up. And there, we have already done some price increases, planning to do more. So that's partly covered on that one. And then, of course, it comes in a way to the the bit more bigger package that how big part of the sales price is actually the bill of material and so forth and what's then going to be the impact for the gross margin and so forth. But the prices are coming up, and we are then transferring partly definitely those also to the sales prices. Then the second thing is really the availability. So what makes it a bit complex, so we should actually, as we speak today. So we should have a clear view what do we sell. After 1 year, what do we sell after 1.5 years? So we are doing the commitments. We are doing the forecasts about the sales booking the components. So that, of course, is not optimal because the crystal ball should be quite good in order to be able to do that And we have been tackling that one to make a commitment towards our suppliers' increased with the stock level. And so far, so good. So no hassle. So we have been able to deliver the products that what we have got from the orders point of view. But this is to be clear, so This is developing on a weekly basis, and our operations team is working really hard on solve these issues. But so far, it's okay. But it's a tough, tough, tough place to get everything balanced. All right. Thanks. So my other question is that when thinking about this excellent fundus imaging device demand, Has there been kind of any indications that there could be any restrictions to access hospitals? What was the issue during the pandemic, Especially in the U. S. So has there been any issues? No, no. U. S, Europe is okay. Then we have had Still, because of the COVID, some restrictions ongoing in certain APAC countries, but that's easing up a bit. So when discussing with sales across the global distributors, so there's no red flags on the COVID as we speak. And that's a good news, of course. So So the U. S. Has been going really well even during the COVID times. All right. That's great to hear. So Okay. My next question is that related to the market share kind of estimates you just gave and said that you have grown couple of percentage points In the Fundus Imaging and in the tonometer market. So as I recall, correct, you last time you updated this figure, it was That you had like 5% market share in the Fundus Imaging device market. So does this mean that you are still below 10% here Yes, definitely below 10, so closer to 5 than 10 or kind of almost in the middle. But we have been clearly been able to now to gain the market share. And I think what's good to remember here that the Based on our calculations, so the overall market for Findus Imaging is roughly USD 500,000,000 and we still have a single digit market share on that one, which is growing quite aggressively. So the overall Financially Imaging market is going single digit, less than the 5% definitely, and we have been really able to gain the market share. So on that perspective, it really looks good. Yes, yes. So okay. Maybe one question, if you can answer. The tonometer installed base, you were kind of updating us a couple of years ago. It was like 80,000, 82,000 devices in 2018. You have any updated figure on this tonometer installed base? I think I don't have an exact number, but I think it's over €100,000 at this time, which is kind of my understanding. But yes, I don't have an exact number to give. All right. That's fair. Maybe my last question is about basically the Q4 and Q4 demand as It has been your strongest quarter. So maybe you answered this part here already, but how would you compare it to kind of the last year's Last year's Q4, which was kind of exceptional in terms of demand. Yeah. Q4 is always Our strongest quarter traditionally. A lot of that actually looking at APAC and EMEA, it's more flat, But especially U. S. Is kind of very Q4 oriented. It seems like they my understanding is that they try to spend the remainder of their budget at last week of December often. So the last week of the year is often the best, which is also keeping us a bit nervous where we end up at the end of the year Typically, but kind of the growth, of course, year over year should be kind of that should be kind of Even though it's best quarter, the growth should be similar hopefully throughout the year. Now it's been really difficult 2 years because there's been such big movements and changes between quarters. So looking at the comparable number being growing half faster than the whole year last year, that kind of It puts that number very tough for us for this year. So of course, we'll do our best, but I can't really comment what we think we're going to be, but it's Probably the toughest quarter for this year in the comparable side or it is not probably, but it is. Yes, fair enough. So that was all for me. Thank you for the answers. Thanks, Daniel. Thank you, sir. Next question is from Mr. Joakim Holland from Endurance. Sir, please go ahead. Hello, gentlemen. This is Juha from Inters. Most of my questions have been asked, but Perhaps one more about the cost inflation and pricing. So could you elaborate a little bit about your pricing Strategy, because are you using kind of an idea where you are in a mature state that you are raising prices more aggressively and perhaps Sometimes with the new products, you are trying to gain market share and pricing then very affordable. Or do you use it kind of like a same gross margin target for everything? So I don't fully go to the details of the pricing price our pricing strategy or policy. But the first thing is, of course, to understand that what's, if you think, the value that the device brings? And then how do you position that one in a specific market compared to the other products which are there. So it should be priced based on the in a way, on the value that what it brings. And if, for example, as an example, taking the value of rebound tonometry and then doing a cost plus pricing so that you take a bill of material, you just add the margin. So I think the revenue would be totally different company if the pricing would have been done in that way. So I think this is more or less the best answer that what Vata can give. So in a way, in a nutshell, so we look the end user prices, we look the value and the uniqueness what the devices can bring and then we price accordingly. And now if thinking the price increase is what we are implementing related to the as an example, the increase on the component prices. So then that's top of the existing pricing strategy what we have put for the devices. Anything, Robin? Would you like to add something? Or did I miss anything? Yes. I guess it depends on country and customers. Just like as an example, our probe costs more for the customer And the whole measuring eye pressure in India costs. So it's almost impossible to get the same price in the U. S. Then in India, for example, if the whole single probe costs more what the doctor can charge the customer. So this is an example. All right. Do you see any problems with Taking the cost, higher cost and putting them in the price, is there some segment that is definitely so price sensitive that you have Lower your gross margin basically. I think that if looking now the cost increases related components. So that's a universal challenge. And I see that all our competitors and the players across the industry, So they are definitely going to move also the price increases related to the components to the end user prices. So I think that's going to be the case. So it shouldn't be a problem. All right. One last question that is very simple, but you probably won't disclose it, but let's try. And what percentages of your sales currently comes from home products? Yes, we haven't really we have kind of stopped giving the share even between the imaging and tonometer, so I can't really comment that one. It doesn't really try you, Hach. So It grows fast. It's growing fast. So the home tonometer is the fastest faster growing area in the tonometer business for us. All right. Thank you very much. Thank you, sir. Next question is from Madam Pierre Husqvist from Carnegie. Please go ahead. Yes. Hello. This is Pia Roskrist from Carnegie. I'm wondering about the share of consumables as a share of total Sales, can you give an update on how much of your sales today is so called recurring revenue? So view so we can't give there again either the exact percentage, but kind of When 7 years ago, I think the probes were roughly maybe onefour of our total sales when we only had tonometer business. And it kind of had been growing 1.5% to 2% a year, the share of the probe sales. So I think That trend gives maybe then some tools to do an estimate where it might be today. So every year, the probes have been growing faster than the tonometer sales. Okay. And this Trend has continued this year. So probes are accelerating faster than the so called basic devices. Now it's a bit tricky year because last year we also had extremely good probe sales because the COVID and the kind of the Hygienic reasons, so it's maybe not a perfect year to look at, but kind of In the ballpark in the bigger picture, I think they have been growing faster, yes. Okay, okay. Good. Then the imaging sales, yes, must have been really strong. Are there any More sizable orders or would you describe the sales growth as So broad without any particular larger orders included. I think if looking really the across all the regions and looking the more or less kind of top 20 countries. So we have been actually managing to sell well broadly. Of course, there are smaller and the bigger deals, but I think there's no any kind of really, really big highlights on really big one off deals. So if looking overall, so the Fundus Imaging product portfolio is in good shape, and it's competitive and it's young. So DRS Plus was out about 1.5 years ago. So really in the early phases of the product life cycle. Then we have a AEDON family. So it's a bit more older, but then we have a really good update, which is the Aedon ultra wide field lens. And that's only a quarter old. So we saw the first sales during the Q3 for the ADON Ultra Wide Field. So Nothing special to mention on the big one offs. Okay. Thank you. Then on the home device product and Home 2, What kind of plans do you have to I mean, understandably, and then you also said that home sales It's growing really strongly. But what kind of initiatives are you running? And how do you Present the home device at trades, fairs, etcetera. I mean, how are you working to Speed up the home sales even more? Or are you very happy with the growth rates currently? So if looking the percentages that how much it's growing, so it's one of the fastest growing. Device category is what we have. And then, of course, the question is that it's still reasonably small amount of the overall business because the overall businesses, as an example, in this quarter grew really strongly. So I think that's good to keep in mind. Then if looking the Home2. So the next key step for us is to go and get it approved in the USA, so get the FDA approval. So that's, of course, the step 1 to start scaling the Home2. Then also, what we have to see is still look perhaps the business model that and the channel that are we getting the maximum performance out from the existing sales channels, so meaning the distributors. So that's perhaps one thing that we have to We'll get a bit more detailed when going forward. Okay. Thank you. Then maybe finally, what are your Biggest concerns today regarding the coronavirus pandemic. I mean, looking at your sales numbers, you have Performed really well and as such the pandemic burden, the imaging sales last year. But as of today, Are you really concerned that the pandemic still might affect your sales development? So if really discussing with the sales, discussing with the distributors, so from the U. S. A, I we don't hear too much concerns related to the COVID-nineteen. Then in the Europe, it's the same. Then, of course, now is the question is the good question is that, are we again getting more infections, Australia is a big market for us. So they are now easing up the COVID related restrictions. So that's helping us up there. And then same applies for the certain countries in APAC. So really, currently, no red flags. But of course, this is a bit of a moving target. So Let's hope that the situation remains the same and remains to be better like it has been during the Q3. Okay, good. Thank you. That's all for me. Thank you, madam. We have no other questions. Back to you for the conclusion. So hey, if there's no other questions, so I think we are done for today. So really, thank you for your time. And I think the next This time, we are then having a yearly reporting earnings call, which is going to be then early February. So thank you very much for your time and the interest. Thank you.