Carasent ASA

OSE:CARA

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Welcome to Carasent Q2 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]

Good morning, and welcome to our presentation on what's been quite a busy quarter with the takeover interest from EG, the relisting process and acquisition processes in Germany. But I'm really pleased with how we managed to keep both together and deliver solid quarter. And today, we will start with me giving some highlights and the company update, then I will hand over to Svein Martin to give a financial update.

Looking at the highlights for the second quarter. We signed 2 new contracts. The contract with [ George ] at Medrave was already known at last quarterly conference. We spoke about that project. Now we've also signed a contract with Frelsesarmeen for Ad Curis. And what's really important is that now for all products except our smallest products, we have secured strong growth going forward.

So Medrave and Webdoc and HPI already have really strong growth, and we have secured contracts for all other contracts, et cetera as I mentioned to also get really good strong growth going forward, starting by next year.

So at the same time, we keep a really strong cost control and a good cost control, and that means that we should really by margins during next year. Ad Opus, we're launching Ad Opus Web, where we have the first 5 customers migrated to the new solution, which is much better and more than a completely new solution for user experience point of view and also with a much lower cost as it's a pure web-based solution, a web-based solution.

So this really has been a solid foundation going forward, which is contracts. Other highlights is that the relisting process continues on the third day -- on the first day of trading in Nasdaq Stockholm in Q4, probably in December. It looked like it will be a relatively easy process as we already are listed on the regulated market with similar requirement at Nasdaq Stockholm.

This has been relatively easy. In the quarter, it was at quite high onetime cost related to potential bid from listing, re-releasing and acquisition projects in Germany and that will be similar costs in the quarters going forward. But these are truly onetime costs.

Looking at growth. Signed not implemented ARR is now up to NOK 17 million. That adds from NOK 2 million a year ago. So it really translate the stronger growth in a year from now. We've seen growth. We've seen themselves when it comes to recurring revenue and that same as the last quarter.

Profitability wise, we're close to breakeven on cash profitability and that includes all the investments in Webdoc X, which as you know, is a new solution for new markets. We can manage and fund it ourselves for present business. And if you compare it to a year ago, our adjusted EBITDA is now up to 16% from 8% a year ago, and we're actually cash flow positive both in this quarter and last quarter.

And as mentioned, we keep you well, even though we're moving from consultant income to recurring revenue. What's important to note is that we're moving from consultancy revenue to recurring revenue. It will not translate directly into better revenue, because if we take away, say, NOK 1 away from the consultancy income, we're implementing one for our systems at the customers, add a NOK 1 to the year in ARR, that will become at the start of it, it's much better than having these consultancy revenues as we are still in the churn.

So it will retranslate to stronger revenues over time by a little bit. But it is growing and was worth mentioning, I will say, that you see that we sold Confrere. So that takes down revenues a bit quarter compared to last quarter and previous quarters.

If we take away Confrere, we grew NOK 5 million in complemented quarterly recurring revenue. We grew with NOK 9 million, so from NOK 0.5 million a year ago to NOK 4 million, a little more than NOK 4 million this quarter. So in total, I would say that our growth rate is up by NOK 9 million. You can also see that the recurring revenue is a larger and larger part of our revenues. So it's NOK 61 million in this quarter compared to NOK 64 million same quarter last year.

It's not that we'll not any consultancy at all. We do some work, which should give us consultancy revenues and also different customers, especially with Vastra and loyal contracts, have different possibilities or requirements when it comes to what is your product to pay, recurring revenue or consultancy revenue. So some customers have really, really prefer the one-time cost of implementation. And in those excess, well, we charge dose-type of revenues.

Looking at the EBITDA, we improved from minus NOK 11 to minus NOK 1 million or if we take out Webdoc X, we're moving from minus NOK 4 million to NOK 4 million in the quarter.

And those other operations, they are 87% of our revenues and have a good organic recurring growth of 60% and what's more mentioning then is that Metodika actually shrinked in the quarter and the reason for Metodika sinking by 15% in the quarter is that with the new -- we are doing a lot of consultancy work for them and during the coming 12 months. This work, we priced very low, but we have much stronger recurring revenues with the increments.

So here now. But a year from now, where we're implementing Metodika, where we will have our recurring revenue, the revenue of NOK 6 million from that and therefore, consultancy work will also be a full criteria. So a year from now, Metodika will really help us drive consolidated, but that's short term. For operations, EBITDA volumes are now up to 25% from 20% a year ago and EBITDAC margins up to 17% from 12% a year ago.

If you're looking at the opposite, where we have some more challenges. We're doing large improvements also there. That group, which is only 12% of our revenues had organic revenue growth of 7% in the quarter. And I imagine that HPI actually grew with 25% in the quarter. So HPI is doing really well now and Ad Voca is still not growing. But we have an obvious welcoming, which we really believe in. And now when we have the customers come online, they will help us spread the word.

So I'm very positive about these 2 products also. EBITDA from those 2 amount to NOK 2 million and cap is close to 0 for those 2 products. In Webdoc, we have lower costs a bit more. We're now at minus NOK 6 million from minus NOK 7 million in EBITDA and CapEx. And we continue to move in that group from consultancy revenue during June. We've removed the last consultants in that group and starting after sometime, we'll only have employees. So it will help us control costs for the next quarters and coming quarters. At ahead of it, we've gone from minus NOK 8 million to minus NOK 5 million. And I think that's a reasonable level and roughly where we will be going forward.

Finally, looking ahead, we will continue to develop our segment. As I've mentioned before, we are really doing a lot with our marketing and sales, focusing on in marketing and sales. We have revamped all our web pages. We have developed a tight link on LinkedIn and on social media buying softwares and so on. And we've been learning, I will say. It will take some time for us to really move into a different mode of selling.

But I really believe that many of our potential customers know they need to change systems, but it's quite a big change to do for a business or for a clinical hospital, and we need to help them to make the decision and to push them over that hurdle and give them our sellside, the customers who have migrated to systems or both with systems and with the process, we can really market that.

So it's something that will take us some time to learn and get better and better at. Another focus for us in order to deliver the strong organic growth is to deliver new development on time. So actually, all of our products are dependent on us delivering our solutions on time for those customers.

So that's an important area to focus on for us. Efficiencies of resources is something that we work with every day, and we continue to work with every day. Every quarter gets 3%, 4% more efficient, and then we add that over time. It translate into the improvements, and that's basically the most important part of business is to always improve and grow much quicker than new problems arise.

So that's really where everyone has to really focus our attention. When it comes to our projects, we now most likely will satisfy in Q1 next year. And then we'll have a system which is ready to be used in Germany that we're building a lot of smaller part of different types of categories we need for the systems, but then we will need to start rolling it out to the first customers.

And it's been a very intense quarter when it comes to our operations in Germany. We have had many discussions with possible pilots and acquisition targets and also collaboration partners, we've spent a lot of time in Germany this quarter. And that time we spent talking to customers, talking to potential partners, which is strong on that this makes us to be. So I really look forward to start rolling out during next year. So with all this, I hand over to Svein Martin.

[Svein Bjornstad, executive]

Thank you, Daniel. Some of the highlights here from a financial perspective is this quarter was a clear step in the right direction. Firstly, we show that our underlying revenue growth is from us with 15% recurring revenue growth and also that our -- through signing new contracts with the growth for the next period also looks promising.

Secondly, our margins are improving with the 16% EBITDA margin and EBITDA minus CapEx close to 0. Our signed ARR grew 20% organically year-over-year. And this was driven by a major increase in our backlog of signed off implemented ARR because of the large contracts we have signed.

We didn't have this sort of contract in the last few years, last contract of this magnitude was for 2021. And now we have signed 3 such contracts within the last couple of quarters. So it's clearly setting a very solid foundation to see accelerated growth in the coming years. And we now -- without these contracts, we still grow very solid in the quarter, where we had net debt of 13%, churn continues to be very low, 2% year-over-year.

And we also have this -- still have this inflow of new customers, mainly for Webdoc where we continuously find new customers. It was 4% in the quarter. This is a very important part of our growth because these customers typically buy at a lower price, and then they add more functionality, paying more, but also grow their business faster than the markets is a difficult profile of when the customer time.

So looking at the P&L for the group, there is some points for piloting as well. Firstly, we have to look at the underlying growth for all product categories, if you look at the year-over-year figures. Webdoc was 17% or 18% adjusted for currency, which is strong and around 20% for first half of this year. The other EHR category grew 9% adjusted for currency.

And for this category, we have signed Volvat for Metodika and for Ad Curis in total around NOK 10 million ARR. So if you compare that to the figures we are now reporting, it's clear that we have secured a very strong growth only from these contracts alone for this category in the next few years. Platform products, as you can see, declined because that was on the divestment of -- adjusted for distant currency grew nicely at 14%.

This is HPI net rev. And here, we also have the BDR contract of NOK 6 million ARR coming next year. And also HPI's strong underlying growth make this category also strongly positioned for the coming period. Resulting decline, as mentioned by Daniel. And the gross profit margin increased from 82% to 85%. This is because we saw Confrere, which had a dilutive impact, but also because we have renegotiated with our hosting supplier in Norway, reducing costs quite significantly.

So you can see that even though revenue is increased by NOK 3 million, COGS actually decreased by NOK 1.3 million. So this is a very nice improvement for us. And if you look at the profitability as well, you see major increases in EBITDA, and we are close to breakeven on EBITDA versus CapEx. And if we exclude the investments into Germany, it was okay, we are now -- have a EBITDA of NOK 4.4 million in the quarter or 7% margin, and it's improving rapidly.

We constantly work on the cost base. In this quarter, we have added the R&D consultants with an impact of NOK 6 million, NOK 7 million on an annual basis. Some of this will be replaced by employees, but net impact is positive for us. We also are in the process of migrating to renewable solutions in Sweden that will reduce costs and also when we move customers from other web, we can cut COGS significantly for that product, which is still quite high.

So these are some examples, but in general, our plan is to keep costs flat and grow revenues. And then to be able to do that, we need to do cuts and become more efficient because we need added costs in other places, such as sales and compliance, et cetera. But we see potential to continue to become more efficient as we grow. We have a high gross margin. So if you are able to keep costs flat, then we can scale our margins quite rapidly as you see from this slide.

Finally, we had a positive cash flow also in Q2 driven by the improvement in profitability, a good working capital effect from additive invoicing for some of our products and dramatic reduction in CapEx.

So in summary, from a financial perspective, we continue to grow well. Our underlying royalties robust. We have signed major contracts for future growth and our profitability is improving rapidly. So with that, we can open up for Q&A.

[Operator]

[Operator Instructions]

[Svein Bjornstad, executive]

We don't have any questions from the call in line, but we have several questions posted in the chat, so we can start with those. First one from Milan EB. Any updates on your targets of organic growth and profitability? Are you confident that you will reach the target of 15% organic growth? Do you also expect to breakeven on EBITDA for the full year?

[Daniel Ohman, executive]

Yes. Thank you very much. Yes, we feel that our targets are solid, and we're delivering on those. So we're pleased with where we are and moving forward in a good fashion. This type of business is quite compared this as we have a small churn, we know the rate of our growth and we can keep a good cost control.

[Svein Bjornstad, executive]

Yes. Next question from Architye. First one, could you comment on the quarter-on-quarter growth outlook? Was there some churn in currency or just lower activity among clinics?

[Daniel Ohman, executive]

Yes. So I mean, we'll always have some movements up and down when it comes to growth, if you signed a large clinic or not a couple of large things or not. So we're growing roughly around 20% in the first half year. What we did have in the quarter, which impacted this quarter a bit was that we had a couple of customers that came online where they have told us that they were much lower than they were. So it went up with charge per visit. So in regulated pricing increases we do, we look at the number of visits that customers have had in the last period and then we increase by they have.

When there's a new customer come in, we charge them based on the number of visits they say they will have or have. And especially on a rough estimate, it was not even close to -- I think there was some miscommunication. I think it was basically what they thought that would have to going forward and not really what they had. So we had to rebate some of that in the second quarter. But in general, we're growing well, and we keep growing around 20%.

[Svein Bjornstad, executive]

Yes, there was some currency effects also compared to the last quarter. But the growth rates of around 20% for H1 is representative of where we are currently trading, I would say, for Webdoc. Next one, how does new sales clinic sign-ups for Webdocs look like?

[Daniel Ohman, executive]

Yes. We actually had this first couple of, we call it, cohorts to mention it, where we actually -- it's us switching out a customer and they're not switching out to us. We've managed to close contracts. So I'm really happy about it.

It's still, as we spoke about, and as it has been for quite a time, a challenging month to sell it, especially with the real unknowns and letting this type of business decisions with this to change systems. You don't do that when you have a lot of unknowns around here. So it's a bit of a challenging market. It's been that for quite some time.

I think it will be so falling in time going forward. But we grow at around 20%. So I'm quite happy about it.

[Svein Bjornstad, executive]

Great. Next one. Can you update us on the impact of what is happening in Stockholm related to private clinics politically?

[Daniel Ohman, executive]

Yes. So Stockholm, we have the new leader in region. Stockholm has been really trying to move cash from private care to public care, I doubt that will actually happen. So if we probably have something less care in total and more choose Stockholm, and then there will be more credit card again.

So long term, this challenge has been for a very, very long time that the private care as part of total care is increasing. That's what private cap rates are, obviously much more efficient. And I think that what we have later on again. But short term, we should have this movement away from public to -- or from private care to public care. But for us, it's not really any major problem because what's happening in Stockholm is that many of these private clinics are moving from public care to private care. And private, it's both insurers and private pay because useful care is there.

And if public is going to provide less care to population, more low population will be able to care themselves. Webdoc is really good when you have a mix of different private care. So it actually support or mimic what our customers talk of, these Webdoc for private and insurance patients and this care for the publication. So these 2 systems, you want in a clinic. That's also going to move away from with the new leader for our solution and so on. But that's been the case and also our cohort is quite small. So then if market is not growing at the moment, we can see growth. So I don't think -- and we don't see any major impact on us and it can be a bit positive or negative.

[Svein Bjornstad, executive]

All right. Next one, how much further can you strengthen your gross margin roughly? I would say the most near-term improvement we have there is the one I mentioned where we have Ad Curis customers do well. Other cohorts we have there is around 1% of -- a bit more than 1% of our revenues today. So that could be an improvement, but it will take some time to materialize. The Webdoc hosting cost is reported in an OpEx as it's not directly linked to the sales.

So there is also a potential that, that want to improve the debt gross margin. And then more long term, we have also quite high cost in our other product in Norway, but that's more a long-term potential.

Next one, you said that you delivered development -- new development on time. Can you talk a bit more about the development and the launch of Ad Opus Web, the surgical functionality and Webdoc taking?

[Daniel Ohman, executive]

Yes. So I think what I said about that it's important to delivering that on time. And anyone who's got software on that is part of the challenge of our software, so it's very important to have a really efficient development with a Carasent and talented employees who would like to work and that's what we're working on with.

And so Ad Opus Web was dependent on far before starting development on -- I don't know what time was back then. But it seems to be a really good product from what I can see. It's a really good product. But it's always the customer who decides to see when it met customers, but the first customers are really happy about it.

And now we will move over to a large customer for Ad Opus Web, that will be really interesting to see how that plays out. And then it's on amount which is really important. We're also working with Martin to strengthen this message. But even if this is quite small. So you typically talk to someone else and say, how is that working? So -- but we believe that the Ad Opus Web will really change in the view of Ad Opus customers. Martin also asked you about the function of Webdoc. We roll out the first pilot after summer and month or 2 after precision ends and be ready to be sold in October, November and rolled out in a general fashion around January next year.

So then that's when everyone can use it. It's taken a little bit more than 12 months we planned for. So first, we had -- so the development time is maybe 14, 15 months from 12 months, which we have planned for. But we are getting better and we need to keep getting better at pace of development. And that also goes for the case, where we have done a lot of improvements in how we develop, achieve composition, the management, especially of all management of Webdoc X have been replaced during the last 12 months.

I must say that we have a really good paced demo in terms of building a new system. So confident about the Webdoc X being a really good system. Then it takes time to really implement all the customers. These are big complex systems. But complex customers to make sure that we build things that a customer really appreciate and that we do not overcomplicate things and building things for the sake of building things. We need to build what customers actually need.

So we need to say we're a competitor. So the due diligence was sending the information that we do not want to give a competitor, we can give to you. And that's always how we have those situations. If you have someone who's going to bid you, and obviously, you give them access as much as possible for them to be able to give the bid, but then you have to reaccess to things that a competitor might take along, nothing we can do.

[Svein Bjornstad, executive]

Next one is from Berg? And what are the overall expectation both for the company and existing shareholders with the move to NASDAQ Stockholm Exchange, any Capital Markets Day planned related to the move.

[Daniel Ohman, executive]

So we see that, I mean, most probably Sweden, most of our customers are in Sweden. The interest for companies like ours is more Sweden and in Norway. So we believe that NASDAQ Stockholm is the right exchange for us. We're looking to make as easy for all shareholders to transfer the shares and to keep all of the shares in. We are planning to see capital markets day, but we're planning for activities to make Carasent more well known to the public in Sweden, so that we look forward to it during the autumn.

[Svein Bjornstad, executive]

Yes. Okay. And a final question from Otto. It's in Swedish but I will try to translate. During the quarter, we had this drive within the health care sector in Sweden, the parts agreed, but the union leaders flagged that it could come more of this going forward. How does this impact at Carasent?

[Daniel Ohman, executive]

So our customers were not directly affected in a major effect in any way. So it's nothing that we see in our revenues and are unlikely to see. What it means is that it uses which are already will it keep getting longer. So ever since the pandemic, the system has lost a little more of relevancy in Q2 during the pandemic and all this done is growing even more. So it will obviously put a lot of pressure on the ecosystem, and that's really where we can support our products, help our customers get more efficient and able to support, take care of more patients per hour.

So we believe that it's -- it's not something that -- it's most likely to have a positive effect on us, especially in the long term as when we choose to grow, either the public will have to buy more casual client providers or more private -- or more patients with insurance. So -- and that's where Webdoc comes in but also many of our other products. So we don't see that to have any negative effect on us, possibly a positive effect.

[Svein Bjornstad, executive]

Okay, that was the final question.

[Daniel Ohman, executive]

Okay. And I would like to thank you all for your interest today and wish you all a really good summer. Thank you for now.

[Svein Bjornstad, executive]

Thank you.