Revenio Q2'24 preview: Back to earnings growth

Translation: Original comment published in Finnish on 8/1/2024 at 7:25 am EEST.

Revenio will announce its Q2 results next week on Thursday at about 9.00 am EEST. We expect Revenio's revenue and result to return to a clear upward trend, helped by the company's exceptionally weak Q2'23 comparison period. Together with revenue, profitability will improve thanks to high gross margins, but will still remain relatively weak for the company. The most important thing is that Revenio is back on track for earnings growth in Q2. In particular, we are looking for the report to confirm the expected gradual recovery of the market outlook towards the end of the year. Comments on possible changes in the competitive environment and on the company's growth drivers for the coming years will once again be of interest. 

Revenue returns to normal after a weak comparison period

We expect Revenio's Q2 revenue to increase by just under 8% to 24.0 MEUR. After the very poor comparison period, the company issued an exceptionally negative profit warning last year. The company's growth has been slow in the previous quarters (Q4’23: +3.0% and Q1’24: +1.8%), but we expect the pace to pick up significantly in Q2 due to the already weak comparison period. We expect the market situation to have been relatively sluggish in Q2, but the worst of the demand slump is behind us and we believe that demand has slowly picked up, including the purchases of private equity opticians in the United States that were "frozen" last year. Revenio has commented that it expects the market situation to begin to recover in H2'24 and we expect the company to reiterate this view. We expect growth in Q2 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 and the iCare DRSplus fundus imaging device are expected to be the main drivers.

Result recovers, but is still relatively modest

We estimate Revenio’s Q2 EBIT to be EUR 5.5 million (Q2’23: 4.7 MEUR) which would mean an EBIT margin of 23% (Q2’ 23: 20.9%). We therefore expect significant earnings growth, but this is also against the background of a weak comparison period in terms of earnings. With a seasonally reasonable Q2, Revenio has historically delivered significantly better profitability (Q2’22: 29.2%), and in our view the company’s profitability potential has not changed. We therefore consider our forecast to be relatively cautious. Earnings growth is driven by revenue growth, which is strongly reflected in profitability through high gross margins (around 70%). 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 their timing is subject to significant uncertainty and their weight in Q1 was high (over 0.6 MEUR). If these costs have been low in Q2, profitability and earnings are well positioned to exceed our expectations. Consensus forecasts are slightly higher for both revenue and result, but we think they are also entirely realistic.

We seek validation of our growth 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. Our forecasts expect reported revenue to grow by 9% to a total of 105 MEUR and EBIT margin to be around 27% in 2024. Our growth expectations depend strongly on the last part of the year, when we expect a significant recovery in the market environment, especially in the key regions for Revenio in the US. We look to the report for confirmation of this recovery and of our earnings growth outlook for the rest of the year, which is still supported by a weak comparison period in Q3. Adding further interest to the market commentary, Reichert launched a competing Tono-Vera tonometer in the US in Q2. This is the first competing device with the rebound technology developed by Revenio, but it still lags significantly behind Revenio's new devices. Based on past experience in the veterinary sector (Tono-Vera Vet), we do not expect this to have a significant impact on Revenio's sales, but it is nevertheless an important checkpoint, especially with regard to potential price pressure in the longer term.

We also aim to ensure that earnings growth drivers for the coming years develop broadly in line with expectations. The growth prospects for next year and beyond are supported by the upcoming renewed Maia microperimeter (possibly as early as Q4'24), the expected FDA approval of the combination of the iCare DRSplus camera and partnered AI (no visibility on timing), the FDA approval of the ILLUME solution (expected in H2'25) and the progress of the reimbursement policy process for the iCare HOME2 tonometer in the US (more details expected later in the year). We do not expect these to change materially, but any additional information is important to the outlook for earnings growth in the coming years. In addition, we are seeking to determine the impact of a potential increase in sensor reuse on growth prospects.