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Good morning, and welcome to Carasent's earnings report for the first quarter of 2023. My name is Daniel Ohman, and with me, I have our CFO, Svein Martin Bjornstad. We will start with the highlights of the first quarter. Then we'll do a business and market update. And finally, we'll do a financial review before going to questions and answers.
So starting with the summary of the first quarter where the revenue growth of 34%. This, of course, both the organic part and then it's the acquisitions of HPI and Confrere. The organic part was 16% in the quarter. And this is really our focus going forward, and I will discuss that later on in the presentation.
During the quarter, we signed 27 clinics for Webdoc in Sweden. This is in line with previous quarters. The average clinic was a bit larger than usual. We had decent sales during the first quarter and better than the same quarter the year before. We continue to have a strong balance sheet. And after the first quarter, we have implemented a change of focus for Webdoc and the cost savings program, both which I will discuss within short.
From the last quarterly presentation, the one for Q4, we discussed these three areas of near-term focus. And we have done quite a lot on those, I will say. So I would like to update you all on that. When it comes to business focus, we -- as just mentioned, we have implemented the cost savings program, and we are almost finalized all parts of that cost saving program.
So the final parts will be done by Friday, we expect, and thus reducing our cost quite a lot going forward. But what's also important to know is that we're still mad for expansion and for investing quite heavily into our products. So it's not a slim-down organization. It's an efficient structure but built to build upon and which do not need to grow when our turnover grows.
We also have a much larger internal focus on financial performance and it comes quite natural from a cost savings program. Now everybody think about how can we avoid being here again. What do we need to do in order not to end up in the same position again. So going forward, we'll have a strong focus on the internal and financial performance and regularly update entire organization and make sure to drive all parts of the organization aligned those -- along those lines.
A key for a company like ours is working closely with our customers. It's both for sales but also for the development of our products, of course. An example of what we've done is that we have customers taking part in our town halls, we have exchange programs where about 40 developers will visit real clinics during the year, and it's been very appreciated both from the customer side and internally to really -- to both sides, understand the charter better and that our developers really get to see hands on how are our products used and what are the possible areas of improvement.
We also have been looking at our organizational structure to make sure that there are clear lines of responsibility. So now each product is its own profit unit to make sure that we lower the complexity within the organization and can drive each part of the business. And naturally, also, we have adjusted accounting structures to follow that logic. We also have a new management team for Carasent, which is a slimmer management team, which then can focus really on the overall value creation of Carasent.
And when it comes to strategic review, we have come to a number of conclusions. We will focus Webdoc on Sweden. Webdoc X is the systems we will really take international. And we closed down the project Webdoc for Norway. And I should also mention in this, I hear that we have delayed the Capital Markets Day until the third quarter of this year instead. We want to make sure to really have time to do the internal changes we want to do first and to really be able to focus internally. But we'll get back to that during the third quarter.
And the reason why we made this strategic changes is when we look at the markets in Sweden, the present town we have is around SEK 800 million. With no obvious functional gaps, we can, of course, always get better at certain points. But overall, there's no obvious functional gaps, and we are in almost all instances, the best choice for a private care provider, and those are the other ones that are included in this SEK 800 million.
There are an area which we call Region Stockholm & Surgery, which are actually two areas where we do not have to file -- we do not fully support our customers. We have some customers in these areas but there are 0 to 12 months -- or up to 12 months development left to really support these customers and to drive sales compared to smaller market in Norway, and 24 to 48 months remaining of development.
So even if there's ups and downs with every choice you make, I think it's a quite clear choice. It's a larger market. We already have the operations in place to support that market. We have the reputation in place. There is less development need. And crucially, we have Webdoc X, which is meant to go international and which is much easier to adopt to an international setting. So that's the background for the choice we made, and I feel very confident about that choice.
Going forward, we'll now focus a lot on developing sales. Today, almost all our customers in all our products, they are the one reaching out to us, saying that we want to buy products. So that's, of course, a very good position to have. We do not -- we want to increase those volumes, of course, by improving reputation, improving products and so on. But I also think we can do quite a lot with marketing and to really work like a more normal SaaS company in that sense.
It's a bit slower processes than for many other products. So it will take time to make these changes. Even if we are successful, it will take time for it to really run through. From the start of a discussion here is at least 6 months before you actually close the deal and before they start paying, it's even longer. So what we think we can do a lot with outbound marketing based on product features, based on the type of products we have, based on how it is actually to change products and so on. And we want to implement a CRM system to support those processes.
In general, we now have the structures that we need to work within. We have the management in place, we have the accounting following that in a clear way and everyone knows what's expected of them. So now it really comes down to continuous improvement in all parts of our business. And if we do this properly, it will translate in higher sales, higher efficiency and development, pricing power and so on. And we'll base this work on a number of different KPIs to make sure that everyone knows what they aim for and to really translate our strategic plan into a number of health cares.
Strategically, we now start looking at the M&A pipeline. There's a lot of interesting opportunities out there where we could be a really good owner and where there are good strategic fit, both in our home markets, but also when taking to international, we need M&A to support that. We are also looking hands on, on the entry market. The marketing strategy is for Webdoc X through listing a number of countries and really sitting down with doctors, nurses and so on, seeing what systems they use and in what way to make sure that we have the absolute best system possible, and we have a good way of going to market.
So with those words, I will hand over to Svein Martin.
Thank you, Daniel. So starting off, looking at the key highlights of our financial performance within the quarter. We had revenue growth of 34%. We had organic growth of 16%, where recurring revenues grew 13% year-over-year. Our net retention was 107% in the quarter. EBITDA margin is 8%. And ending the quarter, we had an annual recurring revenue of NOK 219 million.
So our revenues continues to grow rapidly. We had NOK 60 million in revenues compared to NOK 45 million in the first quarter last year. And looking historically, we continue to grow our revenues quarter after quarter. And we have a strong position in an attractive and growing market. So that gives also many opportunities for further growth. However, rapid growth on many levels, including this expansion initiatives and acquisitions in -- that has been done in future growth has taken a lot of focus, as mentioned, and affected the profitability. So this is the reasons behind the trend in margins that we see on this slide. And the goal with the measures we are now taking is to continue to grow our revenues as we are doing, while at the same time, start to demonstrate scalability in margins and cash flow.
Net retention rate was 107% in the quarter. This is slightly lower than what we have posted in the last few quarters. And the main difference here is that some customers has had reduced activity levels in terms of the patients, particularly vaccination-focused clinics, and there are volume-based pricing model and caused us this to -- our revenues to decline and in addition to the variable add-ons that we have talked about previously.
However, we continue to see that our products are highly sticky with very low churn. And there is a strong potential that remains on existing customer base. When we now focus more on the home market, we also expect to bring a lot more value to our existing customers, which in turn will enable upsales.
New -- looking at new customer growth, it was 6% year-over-year. This is the key driver for long-term growth. And given our products reputation and market share of, for example, less than 10% for Webdoc, the potential is definitely there. And there are steps we are taking now with new functionality in Sweden and an increasing focus on sales is -- with the aim to increase our market share.
So as mentioned, profitability and cash flow has trended downwards over the last year affected by growing cost base. And we initiated a cost savings program after the end of Q1 where we aim to address this development, improve cash flow. And we will -- we believe that we will come strong out of this program with an organization that is strong and maintain the capacity for developing new solutions and grow in the long term.
Summing up the cost savings program. We expect savings in the range of NOK 35 million to NOK 40 million on a yearly basis, primarily related to capital expenditures. The majority of savings will include personnel costs, including employees and consultants. And the total cost of the program is estimated around NOK 4 million, and this will be booked in the second quarter. So the program was initiated in April and most of the savings will be realized by the end of the second quarter. And all of the savings in the program will be -- is expected to be realized by the end of Q3.
So with that we can open up for questions.
And we have received a few questions here from Mark at Redeye. First question, adjusted EBITDA is minus CapEx is still negative. It seems after the announced cost savings. When do you expect to be cash flow positive again? And how do you view margins going forward?
So I can take this one. It -- that is correct. And we haven't -- given that we haven't provided any guidance on this, we can't be too concrete on the near future. But the base we have -- the cost base we have in Q1 is basically the run rate we compare the cost savings again. And then we will be very disciplined going forward in terms of cost, while at the same time, trying to scale or grow revenues. So then we will grow into our cost base, but we still have kept a lot of capacity to enable future growth.
And I think it's important to mention the cost savings program was not about improving cash flow the most at this point in time. It was really to strengthen the company over time. And we are left with the capacity as less as big as before, I will say, for development and to really build for the future. So I think that's important. That was the aim with the program. You have to be more efficient but continue to aim forward and not now.
Yes. Next question, Daniel, maybe you can take this one. What are your plans with the Confrere customers?
So we've been developing our own solution, which is called are Vitromed. Vitromed is a tightly integrated patient engagement tool for Webdoc where we developing that, so it can also serve as a stand-alone product and which will replace Confrere as a technical solution. And the first pilot is to be launched in a week or 2. So during the year, our aim is to move all customers to our own platform.
Next question, could you expand on your plans with Webdoc X? Is a launch in the U.K. still on the table in 2023? What segments are you targeting?
Yes. So Webdoc X, it's important to say, it's already used by Mindler in a number of countries. One of those countries are U.K. So it is up and running. There are a couple of countries which are really, really interesting for us wherein it is good. And the hands on visits at location, I think, is key to really decide on where to start first, but U.K. is a likely area. But we really want to just make sure that we make the right decisions.
When it comes to segments, we will start with the simpler segments, but then move up to more complex segments as we go. So for example, we will not be able to have prescriptions from the start. So it's psychologists, physiotherapists and so on are at a good starting point. But then over time, to move to more complex customers where the willingness to pay is higher than in the lower -- with lower complexity customers. And Webdoc X is, and it's been built as a very complex system. So it should really be well paid by customers, and therefore, we need to have the more complex one.
Okay. Next question, given the change of focus to the Swedish Webdoc and more focus on sales, when could we potentially see a difference in the customer intake as a result?
Yes. So there are a couple of things we do to improve sales. And a couple of examples of them is just being there, being close to customers. They feel that we have their back, that the system is up and running fully. We have had much less downtime on the system the last couple of months, which is really good. Very little downtime, if any. And then we work on how the sales process looks and then we add also functionality. So there's quite a lot of different things we do to improve sales over time.
I think the first part is what could start improving sales the first that is being really close customers and being out there and they see that we focus on Sweden. We are not -- a couple of customers felt a bit forgotten because the focus was so international and acquisition-based. So I think that would translate into sales to first. It might not be the ones that move sales the most though. But it takes somewhere around half a year. It's different with each customer, of course, but around half year from initial contact to contract signing and then more before you start paying. So I will say it's at least half year away.
Great. Have you noticed any change in the large clinic segment? What would make them start changing the EHR systems again?
So I think that an important part there is to start with surgical part, in general, clinics having surgical or larger clinics. So that will really help us drive that segment, I will say. Also going into Stockholm and more, there are a much larger part of private -- of health care is run by providers and some of those things are really big. Outside of Stockholm, there are more smaller things, I will say. So that's -- those parts will help us.
Great. Next question. What is your comment on the net revenue retention? Are the buying patterns the same? Or have we seen any changes? Why was it lower in Q1 2023 than in Q4 2022?
I can take this one. So there are two main reasons for the development. And the first is -- or I mentioned both of them in the presentation. But the first development we have seen during last year is that some customers have reduced their activity levels quite dramatically. And given that we get paid by the number of patient visits in terms of the Webdoc license, this has caused revision downwards of the Webdoc license that we see the effects in Q1 and also that factor with the variable add-ons, SMS and other variables add-ons that have seen the slowdown over the last year. So those two factors are the main reason for the development.
I don't think there are any changes fundamentally in terms of buying patterns or churn. We still have the potential. We just need to continue to deliver more value to the existing customer base and work more structurally with upsales as well.
Next question. You had the guidance last year. Will there be any guidance for 2023 or for the next couple of years? Why or why not?
Yes. So we are doing a bit of a restart, I will say, for the company and the group. And my aim was to have financial goals at Capital Markets Day. And that's why also why we delayed Capital Markets Day. We want to make sure that they have a proper restart. We make -- we do everything from the ground-up and do it properly. So we'd rather take a little bit longer and do it the right way than hurrying things. So yes, we will come back to you all with financial goals but it will be during the third quarter.
Next question, could you expand on the increased ARR and the different components of it?
Yes. So the ARR had organic growth similar to the recurring revenues for the quarter of 13%. And the break that organic growth is what we told in the slide on -- from the existing and new customers. And then acquisitions was the remaining part of the growth.
And then we have some questions from Emilie at DNB. First question was regarding net retention. So I think we addressed that.
Next question, recurring revenues. Recurring revenue growth was down in Q1, 13% compared to 15% in Q4. How do you expect this to develop going forward? Understand, it takes time for new sales activity to materialize on the P&L, but should we expect this to decline further?
So I can start. This is, of course, a key focus for us to drive this upwards. But as you mentioned, it takes time. And there are no reasons why this should develop -- or we don't have any reasons for this developing more negatively. And we work with this -- growing this recurring revenue base organically as a key focus in the business. I don't know if I can say more than that.
Next question. Any updates on SkĂĄne and VGR? What is the feedback from customers in these regions? Are you seeing an increasing demand from these customers? Or are they still waiting to see what is happening with Millennium?
Yes. So it's not a black and white question. It's -- we're selling in those regions. Those customers keep on buying. We will say that there is still some hesitation connected through Millennium among some customers. We're trying to really work through that in a number of ways. One thing is that we -- yes, we're running a lot of different projects to really push that and to push it together with our customers.
I will still say that most customers really don't believe that they will have to go into Millennium. That was my view when I was on the other side, so to speak. And I will say the most of that. And in any case, they will not be able to move all their customers into -- so our customers' customers, the patients. They will not be able to move all patients into Millennium because many of our customers have insurance patients, private patients and so on. And those are not -- you're not allowed to put them into the public system.
So for example, some of my alternates, if this would go through, they would have to work in a number of different systems. So one for the VGR patients, one for SkĂĄne patients, one for private patients and insurance. So three systems within one single clinic, and these are like ERP systems. So we would have three different one unit, and that's really not a realistic way of running a clinic.
So we'll see exactly. I think also as you -- as many of our customers would have to use multiple systems, we are looking also at different ways of them being able to just use Webdoc and then that we, through different techniques, can move the information between systems. This also what we're looking at with Stockholm, we take care in order to enable e-referrals.
So -- but still -- it is still -- it's -- we will sell better if that wasn't -- that decision wasn't there. So we need to keep pushing on those questions. But we are selling and customers are buying and are looking to change systems. But if we could push that question further, we would improve sales, I think. But it's not black and white and will never be like, okay, this will not happen, and it would probably never be that this will happen. So it's unfortunate like that, but that's -- a lot of private health care is in that way. We've been living under the notion that a large part of third parties really want to stop private health care and fully done and that will never happen either, yes.
Next question. Do you consider to start reporting on profitability per region or per product, assuming that some products will focus more on profitability rather than accelerating growth going forward?
Yes. So it's not something we have considered yet. We're very much focused internally and then we can think more about our external communication. But we start internally and do these changes needed to improve our -- both profitability and growth and our build for the future. And then we'll come back to our external reporting and the goals. But so far, we haven't considered it.
Okay. That was the final question.
Okay. Then I would really like to thank you all for giving us the time this morning. And if you have any questions, just reach out at any time. Thank you all.
Thank you.