Revenio Group Oyj (REG1V) Earnings Call Transcript

Welcome to Revenio 2024 Financial Statement Release. And special thanks for all the people who are here face-to-face at Sanomatalo and, of course, for all of you who are behind the webcast. My name is Jouni Toijala, I'm the Group CEO for Revenio. And today, together with me, we also have our CFO, Robin Pulkkinen. For today's menu is looking like this. So we have 5 topics. So I'm going to start with the business highlights, then I'm going to recap the strategy and then also look back to the year 2024, how we have been able to execute the strategy. Then Robin is going to take over to go through the Q4 and the overall 2024 numbers and then we are going to give at the end the financial guidance, and Robin is going to conclude with the topic revenue as an investment, and then we move to the Q&A at the end. Q4 net sales, EUR 30.5 million, so this is reported sales. So if you look the currency adjusted sales terms, so we were down 1.1%. Operating profit in good level, so 29.9% from the sales, leading to EUR 9.1 million. Then if you look the whole quarter, so the cash flow was extremely strong. So we ended up with a positive cash flow up to the EUR 9.8 million from EUR 5.2 million compared to the last year Q4. If you look where the money came, so more or less exactly the same than before. Tonometers selling well, especially the IC200 Pros were selling well, also the EIDON family DRSplus were selling well. Then regional split, so this is the first time that we are giving the exact numbers related to the regional split. So we have been talking about the U.S.A. before, but now we have EMEA, LATAM and Canada in one bucket and then the APAC. So U.S.A., roughly 50%; Europe, Middle East, Africa, LATAM and Canada, 33.7%; and APAC, 16.6%. Then if we go back to the product, so we have had quite many product launches during the second half. So ST500, then we launched, before the Christmas, we launched the iCare MAIA device and then 2 vet products. And we have had also the sales start, so it's different to launch the device compared to have it in the market in a sale. So ST500, so we have been getting the sales already during the Q4 for ST500; same for TONOVET Pro and same for TONOVET Pet. And as we have stated earlier, so the MAIA microperimeter is on time. We have already order backlog for that one and estimated to start the sales early Q2. Then first time, we are also giving out the recurring revenue ballpark, so roughly 1/3 of the total sales. So if the reported sales was EUR 103.5 million this year, so roughly 1/3 is coming from the recurring revenue. So that's mainly probes and software licenses and, of course, partly also from the service contracts. Even though that the 2024 was not particularly easy, so we have been able to implement our strategy extremely well, and I come back to that one as a next step. So even though the world is in quite turbulent situation quite now, whether it's the geopolitical challenges or economical in general, so no fundamentals of any have changed. So people are aging, more lifestyle-related diseases like diabetes coming up. So the amount of the patients and the need for eye care is growing globally day by day. And then if we match this one with the insufficient amount of the eye care professionals, so we have a totally unbearable situation at the moment. And in order to cope that one, we really need the smarter ways of working as we have been stating many times. And in order to keep the wonderful visible for all, i.e., those growing amount of the patients, so we laid out the strategy 2023 November for the period of 2024, '25 and then the '26. And that was towards the connected and predictive eye care pathways. And we had 4 key cornerstones in our strategy. So the first one was related to the devices. So improve the quality of clinical diagnostics with targeted product innovations. So example, rebound technologies TrueColor confocal with full automation. And I come back to how we have been able to execute 2024 in the coming slide. Then the second topic was how do we optimize the clinical care pathways with connected and predictive solutions. So we had 3 different pathways inside this bucket. So the one was glaucoma care pathway, one was retina and then we had the retina screening, starting with the glaucoma, diabetic retinopathy and then AMD. Then we also talked a bit more than a year ago in our Capital Markets Day, we talked about third topic, which was enhanced customer focus in operations and sales. So that included how do we more efficiently work with our supply chain partners, how we work with our manufacturing partners, how we improve the customer satisfaction, brand and also marketing and develop new channels to the new segments like diabetic clinics or primary care. And then as a fourth topic, which is the foundation, so we have to guarantee that we have the right competencies at the right time at the right place, then we take care that we are able to retain our key people and then able to attract when we hire more. And then, of course, we have been working around our values and culture. And logic is that if we do these 4 things extremely well, so we are able to continue our profitable growth. And if you go back to 2025 -- 2024, so improve the quality of clinical diagnostics with targeted product innovation. So many new products came out last year. So we have been investing constantly more or roughly 10% or more even throughout the years. So if you look last year, so a lot of new things: totally new tonometer, iCare ST500, and it's also the basis for the future tonometers, which we are going to launch and which we are going to have in a road map. And that's a new hardware platform, that's a totally new software platform. Two products for the vet side. Then we have been working with the new microperimeter, and that's looking good. So we have papers already submitted to the FDA. So now we are in the waiting mode to get the feedback from the FDA. Then from the market entry point of view, so China was actually selling well during the Q4. And the reason for that one is that we got the IC200 Quick Measure in during the 2024. We also got the EIDON family in and then we also have DRSplus in. So now the product portfolio, which we have available also for China, is quite comprehensive. Then back to the clinical care pathways. So we acquired the rest of the share from Thirona Retina, so the Netherlands-based AI company. And now that team is part of our eye care team, fully integrated. And really, the acquisition logic was, of course, linked to our retina screening solution, so DRSplus plus the ILLUME plus the AI. But as big logic is as well that how do we enhance our devices with AI capabilities when going forward. So that's also the key in order to understand the acquisition logic. Then what comes to the ILLUME expansion into the markets, so we have been able to increase the installed base 4x compared to 2023. We have doubled the amount of reports during the 2024. So good traction also what comes to the DRSplus plus the ILLUME plus the AI package. Then on the customer and operations perspective, lots of things done there also during the 2024. So we haven't had any delivery challenges, we haven't had any supply chain challenges during 2024. And we have been able to manage also the cost level what comes to the components extremely well. Then with the manufacturing partners and with our other stakeholders, we have been able to improve the product quality across all the product categories. It has been in extremely good level before, but we have been able to improve that one further. And then we constantly measure the brand and the customer experience, so we have a slight improvement compared to 2023 results to the 2024. So we have slightly able to improve also the brand recognition. And then what is important? So we have been able to build new non-ophthalmic distribution channel also for the screening business. Of course this is ongoing work, so plenty of work to be done there. Then people and culture side. So we have been spending a lot of time and also money to keep developing our leadership skills among the teams and people who are working for us. Then we have also gone through so-called job architecture project where we have been going through the all roles and responsibility inside the company across all the geographies and then set up a job leveling for everybody. And then of course we have been continuing working on our values and culture. And Robin is going to go more detailed the, of course, the numbers and the profitability, but also compare that how we have been able to perform in terms of the growth and profitability what comes to our peer group. So if we think that one, so 2024, we have been returning back to the growth, and the profitability has been on a good level. So we start to be in the middle of the strategy period. So if the strategy period for us is 3 years, so that's '24, '25 and '26. So roughly 1 quarter to go and then we are in the middle of the 3-year strategy period. And if looking the priorities for this year, so we are going to continue to invest into the R&D in order to launch the new products. So we have a clear understanding what kind of products we should launch in the future on the tonometry side, same for fundus imaging and same for the perimetry. And then we have a clear road map also then what comes to our software and solution business. And from the sales channel perspective, so we are doing constant optimization of the sales channel. And plan is also, of course, to work with the retinas cleaning solution and also we have some other products coming on the software side when going forward towards the strategy period. Then M&A, I think we are going to talk at least on the Q&A side regarding to the M&A. So constant work is ongoing. Hopefully, we are able to move on that front also this year. And then what comes to the ESG, so there, the house is in extremely good order. So based on the auditors, so we have run already the kind of a pretesting for the 2026 readiness so that we are able to report all CSRD readiness numbers 2026. So now we are collecting the data. But with these words, I think it's time to call Robin here.

Thank you, Jouni. So my name is Robin Pulkkinen, and I'm the Group CFO. So going a bit through the numbers. So Jouni covered the top line there slightly earlier. But for the full year, just over 7% growth, reaching EUR 103.5 million; and then for the last quarter, just under 5% growth. The FX has been quite of a rollercoaster for especially the second half of the year for us. It was a bit more not so visible in the first half, but then the euro-U.S. dollar exchange rate kind of peaked in end of Q3 and now it came back down again in the last quarter. So the headwind we had in Q3 came back as a tailwind now in Q4. And now maybe there's one point there that what we have been working on kind of rearranging a bit of the balance sheet. So a lot of those items that, for example, now have hit the growth or the sales lines have been kind of eliminated in a way that we rearranged the balance sheet. So a lot of that FX is actually going to hit the financial costs and returns going forward, so starting from December 1 with the balance sheet kind of rearrangement there. EBITDA, there's been some kind of one-off costs that have been adjusted out in Q4, not much, under EUR 200,000. So the adjusted EBIT, actually 30.3%. For the whole year also, we had last year and this year roughly EUR 1 million of adjustments, which we have brought into the table here. So the full year adjusted EBIT, just over 25%, slightly down from last year. So the growth, and kind of like Jouni said, we're now back on the growth track. I think just to recap last year, our reported numbers were -- or '23 reported numbers were flat. The driver there, in '22, if some still remember, we sold the remaining stock of our microperimeter, the MAIA, which Jouni was saying that is now hopefully being launched again, and we're applying for the FDA approval now in the next couple of months hopefully. So we ran out of the stock at the end of '22. We had roughly EUR 7 million of sales in '22; '23, we didn't have anything to sell, but the sales were still flat. So basically saying that the tonometer and imaging products still grew quite well during the year to kind of catch up for the hole that we had for the MAIA we sold in '22. And now in '24, no MAIA sales, but reported growth kind of over 7%. And now going into the '25, of course, like we guided, we'll go back to that later, but kind of we're quite positive of the growth drivers we have and especially the new microperimeter that is hopefully coming out soon. We finished the year with a strong profitability. The kind of graphs look very familiar from every year. So the last quarter is always where we make like 1/3 of our profits. We did have cost increases. So in '23, we had very little bonus payments, for example, for all the employees have a bonus program, but the performance wasn't really what we are hoping to have back then. But also there has been additional investments into IT and marketing for many of those new product launches that Jouni was going through. And the clinical trials actually didn't have, at the end, a very big impact on the profitability for last year. The balance sheet remains very strong. The equity ratio has been growing. Basically, the dividend payout ratio has remained around 50% for the last couple of years. So that's the biggest driver for the improving equity rate. The net gearing has been below 0 for the last 5 years at the end of the year. It's pretty good considering that we, at the same time, have paid over EUR 45 million of dividends and then acquired companies with the cash reserves. And still, we have more cash in the bank than the interest-bearing debts in the balance sheet. So the cash generation was really good for last year. The biggest improvement -- so actually, the operating cash flow is up 120%. The biggest improvements actually come from the working capital management. So we've been working on that and paying quite a bit of time on that to make sure that we get the improvements in that area, and it kind of pays out well now here, looking at how the cash flow developed. Over the time frame here that you have on the graph, so from 2016 to '24, our compound annual growth rate for the operating cash flow has been nearly 19%. And that's the way we kind of plan to run the company in the future also. So we are a cash-generating company, and we are planning to stay so also in the coming years. So Jouni mentioned on the R&D investments, we spent roughly 10% of our sales in R&D. We -- there, basically 2/3 of our R&D investments go into hardware and embedded software. So in Italy, we have our imaging and perimetry teams. That's Italy in general is our biggest single site. So there, we do have a quite big R&D team. The tonometers are managed and developed in Finland. And also in Finland, we use quite a bit of outsourced service providers for noncore R&D work that we buy from the outside. And then the 1/3 actually goes to the software development, which is mostly in Melbourne, Australia, also a couple of people in Italy office helping on that work. And then the competition. So what we have drafted here is kind of a combination of publicly available competition data on the net sales growth, EBIT growth and EBIT margin. So kind of the movements have been similar going into the same directions. I think the right-hand side here on the graph, the EBIT margin, you can see that our profitability level has been on a totally different level than any of the publicly available data that we have and also non-listed companies that we have been looking at. It's quite exceptional level where revenue is moving. So our profitability has come down. Now we finished last year at 25%, so come down from 30% to 25%. Looking at the competition, the relative drop from 15% to 5% is actually quite big, even bigger, a lot bigger than revenue. And then the dividend. So the Board is proposing to the AGM, '25 AGM in April that a dividend of EUR 0.40 will be paid. So the dividend payout ratio is 57.6%. We do keep maintain or plan to keep a strong balance sheet to finance acquisitions. So like we've been talking, we've been working on that a lot. We've had challenges on the valuation levels still on many of the targets and could have closed deals, but haven't moved because we have thought that they are not good for the shareholders. And also, we aim to pay a sustainable dividend that doesn't endanger the parent company or the group liquidity. Shareholders, there are not really any major changes during the year. William Demant has bought roughly 1.5% more or 1.7% more, if I remember right. Other than that, the other companies are very much the same that we had a year ago and more or less in the same order almost also. So the foreign ownership is just over 51% or 51.7% now. The Finnish ownership actually went up a little bit from end of Q3. So there has been activity there. Demant has been buying more shares in Q3 and Q4 at least, but quite small blocks, nothing significantly changing the ownership structure. And like we said back in the CMD in end of '23, this still holds. So despite what the guidance is, we are still targeting to grow 3x faster than the ophthalmic diagnostic device market starting from this year. So revenue operates in the ophthalmic diagnostic device market, which is roughly USD 3.5 billion in size. With our product portfolio, we roughly cover 1/3 of that market. The tonometers growing roughly 2% to 3%. That's roughly tonometers with the probes, excluding the home, $200 million market annually. Retinal imaging devices growing faster than 4%. That's also roughly $0.5 billion market annually. And then the perimeters are growing around 2% on average and the market being around $300 million. And the guidance for this year, our exchange rate adjusted net sales are estimated to grow 6% to 15% from the previous year. And profitability, excluding nonrecurring items, is estimated to remain at a good level. Then to the Q&A. Did you...

I'll jump in as well.

Yes, you're welcome.

So hey, let's do so that we have to juggle a bit. So we have 3 ways to actually put the questions forward. So we have the audience here, and then we have a webcast team behind the camera and then we also have the chat availability.

So we start from Nikko here.

Nikko Ruokangas from SEB. I have a couple of questions and maybe continuing first on the guidance you discussed about. So you are now giving a bit more broad guidance compared to last year's. So what is the reason for this wider guidance range? And then especially thinking about the lower end, so what kind of scenario do you think that should happen that you will treat the lower end given the new product launches?

So yes, it's wider than last year. Before that, we had the verbal guidances. It's quite a bit of changes going on. Like we can see, every week is quite exciting from the news point of view. It is a bit hard to see how the year is going to play out, especially with the tariffs, which so half of our sales are to the U.S. and there has been tariffs discussions. We're still kind of optimistic that it won't hit us too much. And maybe there, the good thing is that many of our competitors are not also U.S. companies, rather, they also import many of them. So that is one play. Jouni, would you?

Yes. I would agree that if you think that what's the scenario for the lower end of the guidance, so it's a big geopolitical hassle and then it's a full-on trade war. And we are looking quite optimistically what comes to these tariffs against the medical technology. So my assumption is that for sure, the U.S. is not going to start from there as they haven't started yet. But if you want to name a one low-end guidance scenario, so that's a big geopolitical hassle and full-on trade war, which currently I'm at least quite optimistic that we are not starting from the medical devices.

Okay. So that we can interpret you haven't seen market turning to a bit slower or more negative development now recently?

So if you look at Q4 and we even go month by month, so we start from October, November, December, so we saw better performance every month towards the end of the Q4 and towards the end of the year. And as said in the release, so we had a best-ever month on the December around the company's history. Of course, that's a 1-month performance. But the January is going according to the plan, what we said.

All right. Then on the cost side, you also already mentioned a bit about costs related to IT and marketing and so on. But then you also had some extra costs related to FDA applications, which will probably continue somewhat also this year. But if you summarize this, so what kind of cost pressure do you see in '25?

'25, I think, well, the salary or the personnel costs are roughly 60% of our fixed costs. There, the salary inflation is probably one player that will have a cost increase and impact. We do have some resource needs to be hired. But also at the same time, I think the FDA path and the clinical work is one we're still kind of investigating how that is going to play out. We don't have a full visibility yet to that. And then we do have significant cost related, for example, to MAIA launch for this year. But kind of -- there's quite many areas like the IT in general, there's quite a bit of new regulation coming that kind of requires investments into that side as well.

All right. So if you kind of compare development plus marketing expenses related to the new product launches in '24 and then maybe marketing expenses related to those products in '25, so you think that those will come up year-on-year?

Probably there will be a little bit up. It's not fully certain yet how that's going to play out. So the vet products are also new. We're still spending quite a bit on the marketing. The take-up for the Pro, which is based on gold -- or our human side IC200 has actually taken off really well. So I think there are also good plans for the kind of making sure the market is aware of these new products on the vet side, for example, still this year. So it's not all kind of burned last year. So we're still working on getting that message out.

All right. I understand. Then the FDA process, which you already mentioned briefly, so given you didn't have much of those costs in Q4, could you give us an update on how it is progressing?

I can pick up that one. So we're actually in quite interesting situation with the FDA. So -- and now we also -- we have been discussing about the kind of a 2-sided strategy so that we get the FDA approval with the other camera manufacturers and then we apply for our own. And now we have been in more detailed discussions with the other AI players that they take our DRSplus and going also through the logic that why they have been delayed. And the reason is following. And now we are trying to figure out this one with the FDA that how do we go forward is that if you think the reference device, which is normal fundus camera, and then you have a human grading for that one and you compare the image quality of our cameras, so our camera plus the AI is detecting way more than the reference implementation. So that means in practice that if your reference device is normal fundus camera, then you use the human to detect. So we are, with our camera, we are detecting more. And then the FDA thinks that there's a so-called false positive even so that they are real. And now we are having a discussion with the FDA that how do we go forward because the overall quality of the camera and the AI is way better than the reference. And this is a discussion now. So now the latest logic is that we have an answer for this one. And then Q1 hopefully goes so that we finalize the protocol and then we are able to start the clinical studies. What that means in practice for the time line, so we won't be ready end of this year, which was the original plan. But now we know the reason that why it has been so difficult for the other players with our camera and then why we have been going through and negotiate the protocol with the FDA.

All right. Do you still think that '26 could be a realistic scenario?

Yes, I think that one. But okay, I said that I would be disappointed in the CMD if we wouldn't have last year the third-party AIs approved with our cameras. But now we, for sure, we know what's the reason.

Yes, I understand. Then the last one from me at, least at this point. You have now lived a couple of months with Thirona Retina together. So how has that been? Have you been able to already generate some synergies or other benefits from this collaboration?

Yes, that has been actually going well because we have also been able to start working on the overall clinical AI road map with them and what to implement and whatnot. So that work has started. And if we wouldn't have the asset of our own, we wouldn't be able to dictate together with them that what's the direction of the clinical AI and where do we want to take it. So team has been so far been happy, but of course, we have to take good care of them. Should we jump to the online and through the telco line? So any questions coming from there? And then perhaps we have one from the web pad and then we go -- then we see who's next.

[Operator Instructions] The next question comes from Jack Reynolds-Clark from RBC Capital Markets.

I had a couple, please. First, on revenue growth in kind of Q4 and actually through 2024, could you kind of quantify the contribution from tonometers versus fundus? And kind of within the fundus element, could you kind of talk about how the underlying kind of growth there fared kind of without that, obviously, that big lump sum order that you have in 2023? The next question was just on the guidance for 2025. So I mean, obviously, we kind of touched on the downside scenario within that guidance range that you gave. But kind of would it be fair to assume that if actually the economic situation or the macro geopolitical situation kind of doesn't deteriorate too badly that we can expect to kind of -- we can expect growth in that kind of the upper end of that range in line with kind of where expectations are right now? And then just on phasing, could you kind of run through a bit of detail on how you're expecting growth and profitability to progress kind of through kind of Q1 to Q4 this year?

I'll try to remember. I'll start at the end, I remember those.

Yes. So you talk, I'll write them down.

So I think the -- in general, like we reiterated at the CMD, kind of messaged that we are still targeting to reach 3x market growth. Basically, that clearly means we're targeting double-digit growth going forward. Of course, it's a bit difficult to know what the market growth is, like we don't know what it was last year yet. So what kind of -- the idea is that we have -- we're targeting double-digit growth there definitely. We haven't disclosed exactly how the tonometer and imaging growth has gone last year. But basically, all our main product groups were doing really well. So I think in general, there's nothing I see -- or the HOME is probably the fastest-growing single device in our portfolio, but the IC200 has remained to grow really well, taking...

Probes growing well.

Yes, the probes growing really well. IC200 even taking space from the IC100. So that's totally fine for us because it's a higher ASP product. On the imaging side, the EIDON family has been doing well. And then in like the last quarter, now we did have last year some big orders on the DRSplus which didn't happen -- or in '23, we had the big orders there, which didn't happen in Q4 last year. So the catch-up was mostly done from smaller deals. And then there, that, of course, Q4, looking at Q4, the DRSplus was slightly down because we didn't have those big orders. But for the whole year, it was still doing pretty good. And then going into this year, I think the trend has been very similar. We normally start -- Q1 is normally our worst quarter and then Q4 is the best quarter. At least there's nothing in my mind that I know that would kind of dramatically change that, how we see this year performing.

And then, right, Jack, so you had a one concerning the guidance and the lower end of the guidance as well. Do you want to, Robin, comment that one? Or was that right, Jack, on that?

Yes, I think the first comment saying that we're targeting 3x market growth, yes, was meant to answer that.

Yes, yes. No, no, that's super clear. I guess a quick follow-up on the phasing piece. From a profitability perspective, is that also your expectation that Q1 the best, Q4 -- no, sorry, Q1 the worst, Q4 the best?

So I think, Jack, I reiterate the question. So if thinking year 2025 and the quarterly fluctuations, which quarter is good and which is bad one? So was that the question, right?

Exactly, yes.

Yes. Okay, good. Good. So I wouldn't see too much of surprises compared to the past history. The only new swing factor here is, of course, the microperimeter MAIA. So usually, the Q1 has been, of course, clearly poorer than the Q4; Q4 always the best quarter of the year. And now I think what most probably is going to change the equation is the having a microperimetry sales starting to come through during the Q2. Otherwise, I would say that perhaps the history repeats itself. Yes. Let's go to the -- but next, so what kind of...