Carasent ASA

OSE:CARA

Earnings Call Transcript 2024-Q1

[Operator]

Welcome to Carasent Q1 Report for 2024. [Operator Instructions] Now I will hand the conference over to CEO, Daniel Ohman; and CFO, Svein Martin Bjornstad. Please go ahead.

[Daniel Ohman, executive]

Hi, and good morning. Welcome to Carasent's Q1 earnings call. My name is Daniel Ohman, I'm the CEO; with me is Svein Martin, our CFO. And we started me giving some highlights and then a company update, and then Somadwill give a financial update. Looking at the highlights for the first quarter, I hope that you all have seen that we have released new financial targets yesterday after working hours. And the background of that is that we've seen a good increase in new customer contracts. We have had more efficiency gains than we had planned for.

We have sold Contra and we have continued very low churn. So that gives us very good visibility on this year and the next year. And I will come back to that and give more details later in this presentation. Other highlight is that we have a new agreement with Vesteralen region in Sweden regarding Medrave. And Medrave is our system to follow up the quality of care in -- mostly in primary care and also to automate reporting to national quality registries. And Lester is now changing EHR system for the region, and then they have procured the Medrave functionality for the new EHR system. And the ARR from this new contract is NOK 11 million.

They are from the old contract was around NOK 5 million -- so there is a SEK 6 million increase was a NOK 2 million of consultancy fees connectors that we'll have this year. I mean most respect, this is basically a price increase we're doing -- it might sound like a lot, but the baton is also that Medrave have had a lot of new functionality since with your procured made the last time. So we are actually increasing price to catch up on that. And in general, I think we have quite good pricing power as we need to use, especially in that product.

So it's mostly a price increase when they update to a new system [indiscernible]. We have also released our E-referral solution in Stockholm for Webdoc. So E-referral is that if you use the regions so you can send refers directly to our clinic using web dock. It used to be before this that if you had used Webdoc in Stockholm, you had to transfer the refers by hand from the public system to your own system. And that's quite cumbersome and really makes it more difficult to sell a Webdoc where you have to treasure all those by hand.

The first pilot says that he can add on more patients per day, thanks to this solution. I think that's a bit optimistic. It's an optimistic guy. But I think it's an important point, it's making and that is that if you look at use of our system, they typically cost around 2% of the turnover if they use a lot of our systems solutions. So we take a rough 2% of the turnover for our customer. But for the customer, we also set a lot of how it is to work within that clinic or a hospital.

So our systems are extremely important when it comes to driving your processes internally, driving profitability, all these parts. So if we're really good at that in selling that -- those kind of solutions and really developing them to fit our customers, if we charge 2% or 2.5% of their revenue, it doesn't matter that much. They have mostly fixed costs. So to make sure that our systems are always up and running, never down as we keep improving, making sure that they can do as much as they can and help as many patients as possible. It stay. We see it in a really good position.

When it comes to growth, I not implemented ARR is now up to NOK 40 million it was NOK 2 million at the same time last year, and this will propel our growth next year, of course, and gives us this visibility of where we're heading in a really good way. And if you look at signed at this point in time compared to the last same time last year, we have an organic growth of 20%. And I think this is the most important number for us to look at. This is what -- what will drive our growth going forward. And ARR is, by far, the most important type of revenue for us. We are more and more moving from consultancy fees to ARR and in any agreement we do, we make sure to really focus on the ARR.

So for some new agreement with Volvo. We have focused on getting well paid for ARR. We have low churn. This country will last for a long time. The implementation and the consultants were connected to that, and that's quite big in that contract. We sell it roughly half what we usually charge. It's enough to pay for our costs, but it's not where we make our profit. It's not from the consultancy fee. It's the same individual. We only charge NOK 2 million to get Merino the new EHR system. But it's the ARR we're focusing on. And in the long term, that will really help us because it adds every year.

Looking at profitability, we have done additional cost savings and I think this is also an important point. Last spring, we did a big cost savings program. We changed the entire structure of the company. We put a lot of new people into new roles. And then, of course, if you do those kind of changes and so much changes, not everything is perfect day 1. A big part of running a business is every day becoming a little bit better. And over time, that creates a lot of improvement. And we continue to get every day a bit better. And what we've done since then is looking at different roles, are [indiscernible]? Did we get that right and so on. So we can get more and more efficient and keep getting more efficient going forward, which I really look forward to.

And every role, when someone lives, we take a hard look at it and think can we find another way of not having to hire a new person. Can we move from consultants to employees, can we lower our COGS and so on. And this has led to quite significant year-over-year improvements when it comes to EBITDA and EBITDA and excluding Webdoc X, I think we should always be excluded when looking at these measurement on how we're doing because we do is using our position, our knowledge to create value in a completely new market for us. So it has nothing to do with the present business. But the EBITDA, excluding Webdoc X goes from minus NOK 11 million to plus NOK 1 million. So that's a big improvement. And we're also actually cash flow positive in the first quarter.

Looking at our financial development in the quarter, we only have organic growth, but the previous numbers actually include could Confrere when you compare the revenue and all the other measurements, of course. And you can see here that the EBITDA is improving quite rapidly from back. And you can also see how we continue to invest a larger share than we used to in maintenance.

And this is, I think, the most important part to win new customers is that they really -- that all of our solutions really help them every day that there are no bags. It's always up and running, and then maintenance is really important to give us pricing power and also to drive sales. This is a more important part to drive sales than new functionality. It is the systems are stable. They work really well. They're no [ bags ], they are always up and running.

Because all of our solutions are mission-critical, you cannot run a health care clinic or hospital without the HR system up and running. So when there are bags when it's downtime, it really hurts the production of our customers. On this slide, you can really see how we are scaling into our cost base. So revenue has increased by NOK 7 million and a combination of growth and cost savings led to a large improvement in EBITDAC of NOK 30 million. What's also worth mentioning is that at the same time, we are investing in compliance and marketing and other functions.

So we're not just saving money. We try to become a much better company to also spending more money on new things that we didn't spend on before. So it's a combination. But in total, of course, we're saving money. Going forward, growth in ARR drives very limited costs. So that's really what I like compared to my previous business of running clinics that here, a new revenue does not at all drive costs, especially when it comes to ARR. The consultancy is a bit different.

And as I hope you know, within Webdoc and most of products, we do not have any development for a specific customer. The consultant then is just implementation projects and helping customers with education and so on. But some of our products have some development -- specific customers also. And if we continue to focus and as we do continue to focus on efficiency, we will see excellent effects on the bottom line from our growth.

And looking what we've done to drive sales. I would say the first 3 points are the ones where we have gotten traction. The last 2, we're not really there yet. The focus on customers is going from kind of an internal focus that we used to have to an external focus where we really discuss and meet our customers to look at what makes us more attractive in their eyes. That's the most important point.

And that led lead us to choose what to develop, how to improve our products, how to improve our delivery and to always, of course, then become also more efficient in doing those. We have invested a lot in marketing. We have new webpages for almost all products now. I think there's 1 or 2 lacking still, but almost all of them have new stories around them, new web pages, new marketing material. We are also running a lot of ads in different forums.

And most importantly, we're trying to generate a lot of leads with different types of efforts and build a marketing department based on really generating leads for our sales team to work with. We have started with outbound sales efforts. We're not really there yet. It's supported by the change in how our sales people are paid. They now have a much larger share of the payment being dependent on how much the as individuals sell. It used to be mostly fixed salary. So I think that will also help.

But it's an ongoing effort to move in that and also to learn how do we best approach a customer which is semi warm. I would say that most of our potential customers, they're using an EHR system, which they are not very happy with. I think the most of them feel that they would be better off in using Webdoc, but you have to convince them to really take the lead, to take all the work in changing system. And as all of our customers most have fixed costs, it's really expensive to have some downtime also were changing EHR system. So we're a bit reluctant to do that, and it also creates a lot turmoil within a clinic or a hospital typically to changing system, and that's why our delivery team is so important, and they do a great job.

And what we're trying to market at the moment. more and more is that it's quite easy to change to webdoc. You can import all your old medical records the customers that we do move, they are really happy with the change when we asked them a month after the change to weld up. Are you happy? We get really good responses. And I think to do more marketing around that will really help us because I think that's a major obstacle to change systems. And we're also doing new development at new markets.

And there, I especially look forward to surgery. This has given effect. If you look now, as I mentioned previously, we have NOK 40 million of signed not implemented ARR -- that's up from NOK 2 million before. And if we would add that, it equals 6% growth on top of the ore have -- and the major new contracts in Norway, it's medical and Volant. -- in Sweden for Webdoc ,it's 9 new Capio Joint Academy and from Medrave. We're winning customers from many of our competitors at the moment.

I think we also have quite a strong potential pipeline of new contracts. -- larger ones, it's connected both to the study, which I think is -- will really help drive web to grow even further. But also in Norway, we need new contracts for Curis and Ads. That's extremely important. -- we are not close to where we need to be at the moment within those products. So it's really need that, but it's also ongoing I have strong belief in us getting further contracts. Looking at new functional to drive growth. I've already mentioned Siefers. I really look forward to our work on the patient journey within webdoc today in health care, still see a lot of snail mail. You have a lot of phone calls. It's really cumbersome to be a patient, and it's also covers to be the caregiver because you have to send all is post and then people don't like what they see in the post they call you and so on.

And this takes really a lot of time and effort from the clinic and make it difficult to plan your days. And within webdoc, we have a lot of functions that really can help the caregiver be much more efficient and just get rid of all this name, the phone calls and so on. but we need to make sure that it's a really good experience all through, and we need to sell it as an experience and a process not sell it as different functions.

And me as a customer, I would have loved what we can do within webdoc in a way that almost no other system can do. So it's really something we can work with. We've been talking about the new functionality before and it's not growing as fast as we wanted. Here you see the number of tests in the new functionality from August '22 to March '24. and you have this really exponential growth. And this is how it typically looks with software, especially in health care, you need to have some first users, then they took some other users. And then more and more users get to know about the product. It's difficult to sell a product that you don't -- to get someone to buy a product that they have no references of because you're quite careful within health care, you really don't want to take risks as a health care provider, and it's all in the mentality of healthcare provider.

So here, you can really see the growth. We hope it continues this way. You never know, of course, but it's a good sign. And in total, we have new customer growth of 5%, a net rotation rate of 110%, as Martin talked more about it. And all this leads us to our new targets. And with the backlog and cost control, we have this high visibility of our results going forward. And if you look here at 2023 compared to '24, 2023, of course, includes Confrere, but the difference between '23 and 2024 is a combination of the savings we already have done and growth and continued cost control. So we feel it's quite a lot in our hands to make sure this happened and that this is very doable

Looking at 2024, 225, more of the improvement comes from higher growth and continued cost control, of course, but growth is a larger part of the improved results, but the growth in here is the increased growth from '24 to '25 is roughly NOK 15 million, and that's what we have in the backlog for next year. So we basically know that we have that extra revenue. Then, of course, we have to continue to sell well in all of our products and have the underlying growth that we already have that needs to continue. We need to improve it a little bit, but most of the difference between these 2 years we already have in the backlog. So we feel quite good about this.

Looking at the financial performance in the first quarter, we have shown you this structure before to give you a good view on how the different parts of Carasent are doing. We have the major part, which we call operations, which are the ones the part of Carasent that is quite healthy. It's 86% of our revenues, almost all of it. There, we have 16% growth. EBITDA continues to improve and especially EBITDA improved from NOK 0 to NOK 8 million in the quarter. quite good improvement there. When it comes to the part where we have a little bit more challenges than we have HBI and dopes. We used to have Confrere, but it's been sold. It's just 30% of our revenue there we have a lower growth.

So it's important to keep going. And these signs are very positive when it comes to HPI, as you saw in the previous graph. Ad Opus, we still have some work to do. when it comes to growth. But costs are under control within these 2 products now, which is really good. As you can see from the EBITDA come from minus EUR 4 million to minus SEK 1 million, and we expect to continue to improve that during the year. In Webdoc X, we have improved somewhat, and we keep going from consultants to employees in that project xSo that will also help us save money. And H2 has improved a bit.

So looking ahead, we aim to continue with strong organic growth. A lot of it is already in the backlog. I look forward to having new functionality that will drive sales even better. Efficient use of resources is, of course, extremely important when it comes to driving profitability. And in this quarter, we did have additional cost savings. And those are the only one-offs that we have adjusted EBITDA with is the cost of the -- related to layoffs of SEK 1.7 million. And it's a bit at all over the organization. Where we see that here, we can become a bit more efficient.

But it also comes from , yes, every time someone leaves. We look at doing interlateral and can we replace it with some in term and always become more efficient. And finally, which is an extremely important part in the a little bit more long term is the launch of dates. The development there is focused on certifying the system for Germany. So that someone working for a public system in Germany can take start using all the [indiscernible]. We hope to do that within the coming 6 months. And we're also working with acquisitions, as you know, from before. I think it's an important part of rolling out Webdoc X in Germany is that it cannot be a complete greenfield. And then it will take too long and it too expensive.

So we are looking for an acquisition there to support them, to have a customer base to work with. But it will have to make sure that we buy the right target and the system of that target is ready to be replaced, and it doesn't have too much functional because then it will be too difficult. So with that, I think we have good dialogues and look forward to continue that work. But nothing I can go into more details now. Having said that, I will hand over to Martin.

[Svein Bjornstad, executive]

Thank you, Daniel. Although we don't see all the effects of the recent operational advancements in the figures, yet. We are starting to see that our financial metrics is also improving rapidly. Revenues in Q1 was NOK 67 million, up 12% from last year. We now have a signed ARR base of SEK 260 million, which grew organically by 20%. Our net retention rate was 110% in Q1, which shows our very solid basis for growth. And if we haven't succeeded that all on the new sales out, we would still have grown 10% last year. Our margins is so improving. We had a 12% adjusted EBITDA margin in Q1 and minus 7% EBITDA minus CapEx and that's including all the investments in Webdoc X. So quite some details on this slide.

But in summary, we are seeing major improvements on several levels. As you see on the top here, Webdoc grew 25% year-over-year. and adjusting for currency, 21%, which is still a major uptick compared to the level we saw last year, which was around 15%. And that shows that Webdoc is gaining momentum on both the new sales and also upsell to existing customers. Our other EHRs is growing at a steady pace. Here, you see that the platform products, which is HPI and Medrave declined, but that was due to the divestment of Confrere.

And adjusting for this, we had a 10% organic growth in this category as well. And our consulting revenues are down, and this is because we prioritize recurring revenues in basically all levels of the organization, as Daniel mentioned. Our gross profit increased quite significantly from 80% last year to 84% this year. And this is driven by 2 main factors: Firstly, we have done a procurement process in Norway for a new hosting supplier, and that cut our cost by close to 50%, on a run rate basis, around NOK 2 million to NOK 3 million per year. And also the divestment of Confrere, the positive effect on the margins given that it was very dilutive on gross margins same period last year.

Personnel expenses increased NOK 5 million. However, this was driven by a decrease in capitalized development of more than NOK 10 million. So this is what we have talked about that we prioritize our core products in our core markets and then we capitalize less costs Also, we had a one-off on the personnel expenses of NOK 1.7 million related to the layoffs in the quarter that will drive cost savings going forward. So in total, EBITDA increased from NOK 2.3 billion to NOK 6.3 million and adjusting for the layoffs, we had adjusted EBITDA of NOK 8 million in in Q1 and EBITDA minus CapEx of NOK 4.9 million. And we had a positive EBITDA minus CapEx, excluding the German expansion project

Our recurring revenues grew organically by 15% in the quarter, which is also a step-up compared to the level we have seen the last few years. and it was driven by a strong net upsell a bit less than half is related to price increases and the other half is that we continue to sell more services to our customers and that they continue to grow. Churn is very low at 2%. And and new customer growth in the quarter was 5%, which is quite in line with what it has been the last few years. However, we now see that our all the initiatives on the sales side is starting to pay off.

And we see that the ARR, including the time not implemented ARR is increasing quite rapidly, mainly as a result of the new large new contracts we have won. So -- looking at the signed ARR last year, it was NOK 211 billion and with constant currency, we had an organic growth of 20%. And you can see that it is driven by the strong growth in the revenue backlog that increases from NOK 2 million to NOK 14 million. combined with the strong underlying basis, we have with a net retention of around 110% and the bread and butter new sales of around -- in addition, churn is very low, 1.7% for the group, and that's even lower if we exclude Ad Opus, which has seen some churn. -- it's closer to 1%. And that clearly shows that our system is truly critical to our customers.

And in addition, as Daniel mentioned, we are a quite small fraction of their costs. So that combination is very powerful in terms of our churn and also our pricing power in the long term, I would say. Another highlight in Q1 is that we have the positive cash flow -- our operating cash flow was around NOK 13 million. And the increase was partly driven by the improvement in profitability.

But also in Q1, we have quite strong working capital effects as some of our products does annual invoicing for their customers. This, of course, varies -- will vary a lot from quarter-to-quarter -- but in general, our working capital profile is very attractive and supportive to our cash flow, given that we invoice our customers in advance. That could be like 3 months in advance or 12 months or 1 month. And then we pay our invoices in arrears.

So it's a positive effect that we will have in the long term as well. Investments or CapEx is significantly down from NOK 25 million to NOK 13 million. And in total, we are cash flow positive slightly, but it is a milestone for us. And our profitability is also improving rapidly. On the left-hand side, you see that our cash profitability, excluding Webdoc X in Q1 is positive improvement of NOK 12 million year-over-year.

And in Q2, we will be close to breakeven, even including Webdoc X. And the main uncertainty in our business and profitability development is basically how fast we can grow our revenues, given that the cost side is very much in our own control. And combining the large contracts we have won with the underlying net retention and the bread and butter sales that we have delivered the last few years means that we now have much of the growth for 2024 and 2025 already secured.

And this gives us a very strong visibility that the margins will improve rapidly as well. This was faster than we anticipated and also at a lower cost, given that we expected as a new ARR we would generate would require more resources than the 1 contract we have signed. So in general, all our businesses are highly scalable. And if we manage to continue to grow our revenues, our margins will expand rapidly also in the long term. So with that, we can open up for questions.

[Operator]

[Operator Instructions]

There are no more questions at this time. So I hand the conference back to the speakers for any written questions or closing comments.

[Svein Bjornstad, executive]

Okay. So we have gotten quite a few questions here. First one is from [ Rasmus person ]. Can you talk about the tender for the region, Stockholm and Gotland? And any risk you see if they move to a closed system?

[Daniel Ohman, executive]

So I would say that today, Stockholm is basically a closed system, which we have opened up because in Stockholm and fear, you can choose any system you want. But if you choose another than region system, then you have to transfer all the first by hand or the 1 [indiscernible] have to send you a letter in the post and no one referring a patient with in the letter in the post. That's just a lot of work that they want to do. So L1 has to transfer patients by hand or as we now can do with the help of RPA solution and robo solution, we can transfer patients between the systems. And I see us doing similar things with all other systems in the regions so that our customers are free to choose systems. Even if Region wants it or not, that's our aim.

So I think they basically closed today. What they say is that the private providers will be allowed to use a public system, what to say so far, but it's not demand. And Stockholm has even been there. I think that they will continue to be there. So I feel very positive about Stockholm. That's a couple of years in the future. So now we talk about the system that will be deployed in 2029, 2030 somewhere and so it's quite a lot far in the future.

But at that point in time, I think it will be very positive for us because the main upsell for us is that everyone needs to get the chassis them. They know that they would be more happy off with webdoc what they have. but it's a lot of work to change systems. And as you have seen in the press problems from time to time, typically within health care, are typically not very happy about changing systems.

So if you own a private practice or a hospital group or something like this, you're very lucky to do those changes unless you really, really confident that's good. So that's our main or obstacle and region Stockholm will fix that for us because everyone will have to change systems. Also, I think having points to come be winning that process. And those are the ones we're winning customers from in Sweden at the moment. So I think you saw that at Capio picture showing that we want to them we had we said, I think it was 8 clinics that moved from Capio to Webdoc now.

So I think that's a very positive thing for us. I think in a close system, I think it will be less close going forward. And also all what the government is initiating in this area is to increase interoperability between systems. There is also a new EU regulation on the same thing. So I think in the longer term, we're moving to a more open environment and not a closed environment. But it's something we have to always look at. We have to be there. We have to push for it, and we have to discuss with different parties. Yes.

[Svein Bjornstad, executive]

And next one, you had a workshop with Confrere years ago. where you talked about sharing information between your EHRs, any update on the progress here?

[Daniel Ohman, executive]

Yes, I don't know that specific workshop, but as I mentioned just now, there is a push from both government and EU on increasing interoperability between systems. There is even a government training? How was the same English? The investigation into new legislation, where they're looking at interoperability between the systems. You have a lot of new things coming out, for example, MLL, which means that means that any use of NHI system should be able to see all mocation given by any other health care provider in Sweden, so that will really help and lessen demand for interoperability between the systems themselves. We also have NPL that is part of Evoke where you can really also look at the medical records from other institutions even if they use the same issue or not.

So I don't think the solution is really to have a one-on-one integration with [indiscernible] Cabo. It is moving in direction of states moving with more and more interoperability between systems

[Svein Bjornstad, executive]

Great. There is talk about national taxane, how large part of revenue within webdoc from doctors and physician within National [indiscernible] so I think national ataxin here, I think he's talking about [indiscernible], would call in Sweden.

[Daniel Ohman, executive]

So that is that the doctor of iterates or [indiscernible] they have an agreement with where they can on the self just take on patients without the region having sat in general. -- it's a bit mixed. But -- and there is always a discussion on should that continue or not. I think that it was introduced in the '90s with the right government at that time, said that we need to increase competition and then you were allowed to leave the hospital and then you didn't have to win a tender, you could just get this agreement with the government that you can charge the region for MMK you provide within other limits. Then it was about to be closed down back in -- it was around 2,000 a little bit later. Social Democratic and like is at all. Then when we got the Reinfeld government, they started allowing those contracts to be sold. So there were no new contracts awarded, but then they started selling them between themselves doctor to doctor, nurse to nurse and so on.

And ever since then, it's been really difficult for the regions to close this down. because individual doctors and fixed tablets have paid a lot to get those contracts. So that's been discussed since the '90s. If that will happen, not I don't know the reason why the regions want to close this down. is that they don't really have control of these docs and [indiscernible] and they want to have control. They want to tender those agreements in that. I don't think we're very dependent on those agreements. But I also don't think they will disappear. It's been a long on discussion for quite some time. I would say that it's not a major problem for the regions. So it's not really a big push, but we'll see.

[Svein Bjornstad, executive]

Next question, can you please provide a split on retention? How much is price increase?

[Daniel Ohman, executive]

I mentioned it briefly in the presentation, but if we look at our net retention, it's composed of 12% net upsell and 2% churn basically. And on a net upsell sale price is close to half of it, so 5%, 6%. And the remaining is that we have seen quite a strong momentum for several add-ons, for example, [indiscernible] recently. So that's one part, the upsell and then the other part is that the volume growth. So that's the remaining 6%, 7% in the topic.

[Svein Bjornstad, executive]

Next question from Philip. Can you elaborate on the momentum in the sales from smaller contracts?

[Daniel Ohman, executive]

Yes. So if you talk in them, it's mostly Webdoc is winning a lot of small contracts all the time. And we have good patient small contracts. What really drive growth to get extra of, we need also larger contracts. So in Q1, we had joined Academy, which was quite a bit larger. We had a couple of capital clinics going on from Cambio. So we need those large clinics also, and that's why I look forward to surgery when we have that model up and running because typically, if you have a study, then you have a much larger clinics. So there, we have large customers waiting and we have great discussions with them and big interest from potential customers. So we have many potential customers in that project. working with us setting all those structures.

So -- but small customers, they continue to add. They're important because they drive net retention going forward. I mean most start small and then they grow. So we need to continue with them, but to drive growth in more short term, we also need large clinics and private hospitals moving to our systems.

[Svein Bjornstad, executive]

And I would say also that the 21% growth for Webdoc, currency adjusted is a good signal on this point that the momentum is very strong in endo compared to what we have seen in the last few years. .

Next question from Nicolas. While your primary focus for acquisition is to make one in Germany? What opportunities do you see across your ecosystem in Sweden and Norway for add-ons?

[Daniel Ohman, executive]

Yes. So there are a lot of interesting opportunities out there. I think there are a couple of different points here. The firstn one is that we cannot try to do too much at once. So even if we have a list of acquisitions that we would like in this region, we're not actually pursuing it. I think also in the private market, in general, especially in the Nordics, is that if you are profitable and you have a good cash flow, then and you don't need to sell your business, then prices haven't come down. They were all offered really good sums a couple of years ago, and they're not prepared to sell for less typically.

So the price has not really changed to reflect the valuation that you see, for example, a public company. When it comes to the ones not making profit. there quite a lot of that after that boom, we had those couple of years. They have come down a lot in price. But those are not the ones we want to buy. Typically, they have business models which are not really working.

And I think what many made as mistakes is that they come from the outside and try to change how health care is provided too much. Health care is a slow-moving business when it comes to change, cannot come in and try to disrupt it, especially not from the outside that will not work. So I think that's makes it also it's not the right time to chase opportunities when it comes to acquisitions in the Nordics.

[Svein Bjornstad, executive]

Great. We have a few questions from Richard. Have you seen any effects with customers from product improvements, NRRB, NPS et cetera, potential going forward? .

[Daniel Ohman, executive]

I think I mean that Web.now is growing at more than 20%. This is what you really see there and the net retention rate where we can increase prices. a little bit more than a year ago. So I think it was in January last year. I mean, I was a customer before and all of our customers, we felt that Webdoc was a great product, but they kind of it sounds like they didn't really care about us anymore as customers. They were focused on other fees. That was a general feeling, actually, and we spoke about between the competitors.

And so the first things I did was to invite the chief digital officer of our largest customer cap here, and he said that I don't need a new functionality, I as needed system to really work and work well -- and it was -- and they were quite upset at that point in time that it did not work better that we didn't fix things that need to be fixed. Software, if you don't do anything, there would be more and more programs. You have to have maintenance just to make sure it works as well as it did yesterday basically.

And now a year later, they're really happy with the product. So we have completely different discussions with them and other customers. So that's where I feel we're in a really strong position.

[Svein Bjornstad, executive]

Yes. Yes. Next question, what is your view of the long-term sustainable level of consulting revenue and its effect on EBITDA?

So in Q1 now, we had consulting revenues of around 8% of the total, where recurring revenues was NOK 92 million. Given how we focus now, we expect recurring revenues to grow faster and consulting revenues, but we will always have some consulting revenues related to implementation, there could be a specific project or [indiscernible] et cetera. But the most important focus is on the recurring revenues. Without being too specific.

And next question, what is your view on the efficiency of resources deployed into box with only 1 live customer?

[Daniel Ohman, executive]

Yes. So we're not trying to get more like customers in general into Webex at the moment. What we're really trying to do is to make sure that allowed and certified for the German market. And then we want to have live customers in that market. I think it's extremely important that we develop the system for a specific customer base. and not try to build a 2-wire system, then you typically have issues with the customers not really liking the products you have developed and that's what you see quite often, I would say.

And part of the reason why we win customers from other systems at the moment, but you can always discuss efficiency, we try to become more and more efficient. The team is now smaller than it was a year ago. And I think it's also working better. We have changed the entire structure around the team, revenue management in place. And I feel that the team really knows what needs to be done. We now have good how to put it.

When it comes to software development, it's very important to make sure that you have a good pace in demand and that the developers can meet that demand, so you don't have any lags and that you have no one sitting idle at any point in time. And it's -- that's kind of the refactory going on here. And now within Webdoc X, we starting to get that home really going well, I think. We had a lot of changes in the personnel there to make sure to get there.

That team was employed in maybe a bit too short time with the folks on just entering the pit in a very short period of time, which created -- yes, maybe we were not at that point in time as careful enough as we should with employment, as you always need to be -- so that's what we had to fix quite a lot there. But I feel now it's a much better team with good internal pace and with more harmony than before.

[Svein Bjornstad, executive]

Next one, what effect can be expected on the communicated targets for EBITDA with the potential German market entry in 2024 and 2025?

[Daniel Ohman, executive]

Yes. So that includes investment in those targets include investments in Germany and Webdoc X with NOK 20 million per year, roughly. And we feel that it's -- we do not include the acquisition of that. So that's why it's just negative. That's part of the case. Aimiacquisition, we don't have it yet, so we cannot put us into the numbers. but we're aiming to buy a profitable company, which will help us scale up faster. But so that should they are positive for those targets when we have that and if we have that acquisition. So -- but this is the base case where we do not have it, and it's being rolled out quite slowly.

[Svein Bjornstad, executive]

Yes. And the target now, I would say, on the revenue side is very limited effect from Webdoc, but we have the SEK 20 million in cost, but we, of course, aim to do an acquisition that will make it potentially look quite different. .

Now we have quite a few questions from Market red eye. First one, could you comment on what you see in Region Stockholm, given the political landscape, your churn is low, but as this impacted your customers yet? And has it impacted new sales in the region?

[Daniel Ohman, executive]

Yes. Yes. So Region Stockholm now. So private health care in Sweden is always quite political. It's always been and have been active here since 2006 in this landscape. Typically, there has been a lot of talk, but very little action. So the private part has always grown because the private providers are cheaper than the public ones. It's easier for the region to deal with. And you use to give us more care for the taxpayers.

Now in Region Stockholm, I would say for the first time, you see the social Democrats actually trying to turn the tide. I never seen that before. And they are actually trying to take some of the care into the public hospitals again from the private providers. It will be much more expensive than they get at the moment. But it's the first time I actually see that the number of private providers actually will decrease and are maybe decreasing in Stockholm. But at the moment, we have quite a few customers in Stockholm. So it makes it a bit more difficult to sell. It's been like that for maybe a year now. So it's a bit more challenging environment to sell in. If we wouldn't have that situation, we would be able to sell more.

And most of the providers today, at least are[indiscernible] public are now aiming to get insurance patients, then Webdoc is an even better system for them. And they are also hoping, I think, to win tenders because the public hospital will not be able to manage this today. The public costs every year get a little bit less efficient. So -- and the care need increases all the time. So we might have some short-term headwinds there we have. But in the longer term, I think it's a nonissue and they will move back to the usual pace. But it's -- at the moment, it is a bit more difficult to sell, and it's been like that for like a year, I would say.

[Svein Bjornstad, executive]

How has the response to the referral been so far? .

[Daniel Ohman, executive]

Yes. So the pace is up and running now. As I mentioned earlier, they're very positive, a bit too positive. It really saves a lot of time for them and increases -- or the decreases the risk for patient risks when you processes behave, you might miss patients. I know there was a patient, for example, where they've missed giving a response in our cancer case because this was [indiscernible] there in the [indiscernible] patient, but it's not acceptable those things happen.

And now we're automated. It increases risk, so that's quite good. and will help us sell in Stockholm. It's a key part of it. It's not a stand-alone thing that makes you buy system, but it's part of the whole thing that will help us help.

[Svein Bjornstad, executive]

Have the new [indiscernible] clinics signed due to the expected surgical module? Or is it tied to other underlying things such as improved downtime referrals, et cetera? .

[Daniel Ohman, executive]

Yes. Now so it has nothing to do with the certain module. I think it has more to do with the product improving and that I feel that we are really we won't have customers in Sweden that I feel that we are going after that and that we are improving the system all the time. So those clinics, they will not use the certain module. We have to do some other development to automate reporting into cataract register for the case was I clinics. We didn't have that before. We can sell it to also some of the existing clinics that module. So that's a good thing. But we had to do some small, small development that we can then sell to all other customers also.

[Svein Bjornstad, executive]

[indiscernible] is selling strongly. Could you talk more specifically about the upsell, what you see here?

[Daniel Ohman, executive]

So what I really look forward to is this patient journey, I spoke about earlier, we have a product which we call [indiscernible], which is for the interaction with patients between the in patients. And there, you can have a chat with the with the patient, you can have video cost with patients, you can have a patient rebooking their appointment. -- we can send that form. You can do a lot of things. And what's really key between [indiscernible] and other similar solutions out there is that it's completely connected to HR system, whether that is. So anything you do there, connects directly to web docs. So when you change the appointment, it changed within Webdoc. If you shed with the patients, you can press a button and it goes into the medical record. Otherwise, you have to transfer it by hand in different ways. And many systems, good EHR doesn't allow you to use control C, control V, for safety reasons.

So it's really a very efficient system, but we've been selling it as single functions and caregivers are not the most inventive. So if you try to sell -- you should sell a chat, it doesn't really help them very much. But if we sell a complete customer experience, and how that can drive efficiency in their world and really show that, and we set it up for them. Then I really believe in that product and that we can relaunch it and there are some smaller things we have to do to make sure that, that is a seamless experience. So that's the aim now.

[Svein Bjornstad, executive]

And I think that could really drive up sales. So the circle module was adding new partners in the network that will help us drive up sales. And I think another part that has driven it is that upsell has been quite strong for a period, but we also, last year, had quite big drawdown in volume after the pandemic. So that volume growth is now more stable than it was last year as well.

Next one, do you see a chance of a larger contract for Medicare as well, given that the region has also procured the same public EHR system

[Daniel Ohman, executive]

No. [indiscernible] has a different type of contract. So it will not be a completely new contract with them to give a mandate to Millennium. So no, it will not be the case. They will have Medrave, and they will continue to have mandate. We are setting it up for them at the moment. But in general, and insurance corner, I think we need to look over the pricing of Medrave everywhere. We have improved the system a lot and we now -- we haven't really charged our customers for it fully, I think, and it's creating a lot of value for our customers. So we will not have a new large country with core, but I see the opportunity in general to increase prices within Medrave.

But we're analyzing it at the moment. We also have many different types of contracts in that product. I mean, more than 90% of all primary carriers in use mandates. So it will be stepwise and will be at different times, different contracts and so on. But in general, I see a good opportunity to increase prices with Medrave.

[Svein Bjornstad, executive]

Next one, any update on the process of finding an acquisition in Germany.

[Daniel Ohman, executive]

Yes. We have, I think, good discussions. I think every time we're there as we feel more and more strongly about this opportunity. We're very positive about that it's the right time into Germany. -- and we have good discussions but -- and this is the challenge with M&A. It's not -- it's black and white. So you have a partially do it, you do it or don't do it. And it's always important that we are ready to back up. If we find something or something that we don't like or if the negotiation doesn't go well enough. So it would be very difficult to give a proper update until it's done or not do

[Svein Bjornstad, executive]

Do you see good acquisition target in the Nordic region to I think I responded to that earlier. Could you comment more on Acuris and dopes and their sales progress? .

[Daniel Ohman, executive]

Yes. So those products need small customers. And I think we have good discussions and good likelihood of at least Biglari contracts for 1 of those products within the coming months. And that then we would have ability also 1 of those products under control, which would feel really good and we need it. we need to do other things. Ad Opus, we've lowered costs quite a lot and rolling out Ad Opus.

We have some parts which are not really developed enough to give that customer experience that we need to give, especially when it comes to logging in and logging out a system is not stable enough. -- but we should do that we in short. We have had a customer survey and ops web users are quite happy that they don't like, but in others, they relapse with system. So I'm optimistic still, but we are a bit behind schedule on that order.

[Svein Bjornstad, executive]

Next one from Philips. What gives you confidence in the 15% growth during 2024, as I understand it, most larger contracts will contribute with start in 2025. So for 2024, we of course, have quite good visibility at the moment. And the growth we target is quite close to the run rate we are at at NOK 67 million in Q1, and we expect some growth during the year as well. But it's correct that the larger contracts for VR and Volvo will have the main impact in '2025. Although the Medrave contract will start generating revenues in Q4 already. .

You are saying from [indiscernible] DB, you are saying that most of the growth included in your updated targets are already secured, but you say something about how much of the growth with new contracts will contribute in '24 and 2025?

Yes. So -- the new contract is basically why we target a higher growth in 2025 or 20%. It's around in 2024, we expect to grow around NOK 35 million nominally from -- if we adjust for compare last year. And then if we take the same growth, which is basically how we have been growing the last few years, and add the new contracts, then we come to the 2025 figure. So we have to continue to succeed in the same pace that we have done historically and then add a new large contracts on top of that basically.

Next one, what is your best guess on the timing on new system in Stockholm? And when do you expect to see effects from this process on your sales?

[Daniel Ohman, executive]

Yes. . So I've mentioned this briefly before, but it's being tested at the moment. It's to be implemented around 2029 somewhere that the plan is to produce typically delay by 2, 3 years. I think it's Stockholm is a bit more difficult than it usually -- than it should be at the moment because you have some care that the region is trying to move from the private to the public side. And also, you have that the car gives don't know really what will happen with the new system. They don't know what their options will be. So many they're comparing web doc with something they don't know what it is yet.

So I think that as we get closer to that point in time, it will be sent to sell. I mean we sell quite okay anyway, but it is actually quite a difficult then to sell it at the moment. And but that will take some time. because 2029 is some way off. And this is the third time, I think, the trade tender this system. So I think that clarity and that things get clear are always good when our customers don't really know what the options are and what's happening, they tend to wait with big decisions like this. big changing system that is. So I think it is affecting us negatively. I think we just need to realize that that's how the market is and just make sure that our system is even better so that you anyway chooses to change systems. And we are taking customers in Stockholm. We'll continue to take customers in Stockholm.

And I think we can increase when it comes to surgery, a lot of that is in Stockholm because surgery are the big care. That's what you typically don't pay out of pocket for. So if you look like a smaller region, that doesn't put as much care on the care providers, Then you will typically have a lot of outpatient and less surgery in Stockholm, you have a lot of surgery within the private setting. So [indiscernible] will be important to stock coming especially

[Svein Bjornstad, executive]

Next one, another on the potential German acquisition. How many targets would you say are ticking all the boxes of the requirements you mentioned? And would you expect -- would expect that several of the legacy systems are complex given that you typically see that systems growing complexity over the years? .

[Daniel Ohman, executive]

Yes. Yes, that's partly true. So the German market for HR system is extremely fragmented. You have CGM owning 30% of the market, but that's not 1 system that's so many different systems that they acquired and not really invested in -- so -- and not kind of pushing them together, what we can see in any major extent. So they own a lot of systems, and then there are a lot of small systems out there. So the potential to list is really long. And as you mentioned in the question, you're completely right there. It's important to make sure that Pota do not have too much complexity. And that's something we really have to look carefully at when buying systems.

[Svein Bjornstad, executive]

Actually, I think we have talked a little bit about. But on your ecosystem of third-party add-ons, any developments here, new interesting applications or any existing applications that are gaining traction.

[Daniel Ohman, executive]

Yes . I think [indiscernible] is gaining traction. I think we can do much more to make it gain traction more. We have a new partner we're working with were using some AI in the speech recognition, which is maybe a bit more popular than the ones we used to sell. So that's improving. The checking shows we're selling are actually -- we're losing some customers at and we're moving them toward room to try to move them towards that. So I think that's a positive. It gives us a bit less revenue but more profitability. So because water met, you don't have a fiscal shock and you don't need to have that anymore. So it hurts revenue a bit, but it's good for profitability in that move. And yes, we're adding new partners all the time. But I think those are the most important changes.

[Svein Bjornstad, executive]

And then the final question from Peter. You are not making any changes to your long-term guidance, correct?

[Daniel Ohman, executive]

Now that's not correct. So we used to have a goal 3 years in the future kind of with the average for a year. Now it increased visibility. We can give a much more precise guidance, but we're giving it for this year and next year. So this means that we do not have a goal for the year after that yet. We see this we are very positive and optimistic as you can hear, but we don't have the same visibility on 3 years in the future as we have in 2 years in the future. So we're replacing the old toys fully and now have much more granular targets for the coming 2 years.

[Svein Bjornstad, executive]

Okay. That was the final question. Do you want to wrap up?

[Daniel Ohman, executive]

Now thank you all for listening. If you have any questions or comments, just reach out. So I look forward to hearing from you. So have a good day. Thank you.

[Svein Bjornstad, executive]

Thank you.