Revenio Q3'24 preview: Interesting quarter behind

Translation: Original published in Finnish on 10/28/2024 at 7:53 am EET.

Revenio will announce its Q3 results on Thursday at about 9.00 am EET. We expect the company to deliver good revenue growth and a significant improvement in earnings, helped by a very weak Q3'23 by the company's standards. Profitability, which is generally highly scalable due to high gross margins, is impacted by wage inflation and costs related to the FDA submission for the iCare ILLUME screening solution. The company had an interesting quarter with the announcement of the acquisition of the Thirona Retina AI software company (comment) and the launch of the iCare ST500 tonometer product (comment). These, together with the development of other growth drivers in the coming years, are the clear focus of the earnings release.

We expect brisk revenue growth

We expect Q3 revenue of 25.2 MEUR, which would represent a strong growth of almost 15% from the sluggish comparison period. The company's growth accelerated significantly in Q2 (+14%) and we expect a similar development now. We believe that Revenio's market situation has continued to gradually improve, even though other players in the industry have recently reported relatively weak figures. The difference is mainly explained by Revenio's fast delivery times and therefore non-existent order book, as well as the company's relatively strong position in the procurement of private equity-backed opticians in the US, which "froze" last year. In Q2, the recovery in this segment had not yet materialized in significant orders, which is probably one of the next issues to be addressed in the comments. So far, the market has developed positively in line with Revenio's expectations, although the macroeconomic situation seems to have deteriorated.

We expect growth in Q3 to come from both tonometers and imaging devices, although we expect the latter to have grown at a faster rate. Among the products, the iCare IC200 tonometer, the iCare DRSplus fundus imaging device, and the EIDON family of products are expected to lead the way. The interest in the new iCare ST500 is mainly about the market reception. The significant strengthening of the euro against the dollar in the third quarter may have caused vibrations in revenue, but this movement has become more favorable for Revenio since the end of the period. We have made no changes to our forecast, and our forecast is virtually in line with the consensus.

Earnings are growing, but there are also cost pressures

We expect's Q3 EBIT to land at 7.0 MEUR (Q2'23: 6.0 MEUR), which would mean an EBIT margin of just under 28% (Q3’ 23: 27.4%). In other words, we expect significant earnings growth, supported by revenue growth and high gross margins (around 70%), but we do not expect profitability to scale as usual. Headwinds include cost inflation, rising personnel costs, and one-time costs related to the FDA approval of the company's iCare ILLUME screening solution. The company has estimated these costs at 1.2-1.5 MEUR in 2024, but there is substantial uncertainty about their timing in different quarters. Personnel expenses will also increase significantly due to the uptick in bonus provisions from last year's low level, as this year has been a successful one for Revenio, at least so far. The acquisition of Thirona Retina and its integration into the Revenio Group will change the revenue and cost structure in the future, but we do not expect any material impact in Q3. We expect earnings per share of EUR 0.20. Consensus forecasts are also in line with our earnings estimates.

Lots of potentially moving parts in the outlook

Revenio's latest guidance is for currency-adjusted sales to grow 5-10% year-on-year and for profitability excluding one-off items to be at a good level. With H1'24 revenue growth of 6.1% at constant exchange rates and a strong Q4'23 comparison period, growth will inevitably slow for the remainder of the year. The just-completed Q3 is likely to be the strongest quarter for growth. We expect the company to reiterate its guidance, which is in line with our forecasts. Our forecasts expect reported revenue to grow by around 9% to a total of 105 MEUR and EBIT margin to be around 25.5% in 2024. On the exchange rate front, we expect mild support for growth based on current EUR/USD levels. We also look to the report for confirmation that the positive trend in market conditions will continue. In terms of competition, we continue to focus on the impact of Reichert's competing Tono-Vera tonometer in the US market, but we do not believe the situation has changed significantly.

The main interest in the outlook is the impact of the acquisition of Thirona Retina and the future strategy. We expect the company's revenues (outside of Revenio) to still be at low levels, directing more attention on the cost side and future investments. In the short term, we expect the acquisition to weigh on Revenio's profitability, but in the long term it will provide access to attractive AI revenue streams. It is also interesting to see how Thirona Retina's other partners (such as Topcon, Nidek and Canon) have reacted. Thirona's RetCAD is used in Europe in the Revenio iCare ILLUME screening solution, which is currently seeking FDA approval for the US market. The importance of Thirona for the future competitiveness of Revenio as a whole should not be underestimated. We will update our estimates to reflect the Thirona Retina acquisition after the Q3 results when we have a better picture of Revenio's plans. Also of interest in the outlook is whether the updated Maia microperimeter will be launched before the end of Q4, and the progress of the next few years' revenue drivers (FDA approval of the iCare DRSplus camera and AI combination) and the iCare HOME2 tonometer (US reimbursement process). It seems that there will be an extraordinary number of moving parts in the near future.