Carasent ASA

OSE:CARA

Earnings Call Analysis

Strong Recurring Revenues and Growth Focus

In Q4, revenues hit NOK 65 million, with a remarkable 90% being recurring. The company's Annual Recurring Revenue (ARR) saw a 13% organic year-on-year growth, reaching NOK 239 million. Notably, net retention was at 108%, reflecting the indispensable nature of the company's systems to its customers. HPI is witnessing exponential growth from a low base, while Ad Opus is expected to start growing by mid-2024 after a current decline. To forge ahead, the company has embraced in-house digital marketing and revised its sales remuneration structure to boost performance. It has also prioritized resource efficiency, streamlining costs while preparing to introduce new modules in its offerings.

Financial Performance and Strategic Initiatives

The company recorded revenues of NOK 65 million in Q4, with recurring revenues comprising over 90% of this figure. The annual recurring revenue (ARR) increased by 13% organically year-on-year, reaching NOK 239 million. Including currency effects and mergers and acquisitions, the total growth was 21%. Despite reducing costs, particularly at the headquarters, the company still focuses on growth, with customer testimonials and a revamped sales strategy through a new remuneration model and in-house digital marketing. The company expects to grow revenue while maintaining flat costs, capitalizing on the high gross margin of around 80%.

Product Development and Market Expansion

With significant advancements in its product offerings, including launching e-referrals and an archive module in Stockholm, the company continues to innovate. There is anticipation for the release of the surgery module in the upcoming period. New hosting in Norway has reduced costs by NOK 2-3 million annually, and similar efforts are being planned in Sweden. Carasent is prioritizing the certification of Webdoc X for the German market, considering the potential for this product to surpass the rest of the organization's revenue. Despite conservative attitudes towards cloud solutions in Germany, the company is targeting early adopters and considering acquisitions to transfer existing customers.

Churn Risk and Customer Retention

The company enjoys low churn rates, with voluntary churn almost at zero. This stability is underscored by their strong retention figures, with net retention at 108%. Churn is primarily driven by the two smallest products, Ad Opus and Confrere, the latter of which has been sold. Ad Opus is forecasted to face headwinds, contributing to a drop of approximately NOK 2 million in ARR, which the company aims to recover throughout the year. The focus is now on turning around the Ad Opus trajectory with the new Ad Opus web and limiting future churn risks.

Revenue Backlog and Growth Outlook

The company's revenue backlog has quadrupled from under NOK 2 million to NOK 8 million at the end of 2023, laying a foundation for increased future growth. The Volvat agreement is one such contributor to this backlog, expected to significantly impact 2025. Although no specific annual growth guidance has been provided, the company suggests an average organic growth rate exceeding 15% from 2024 to 2026. Additionally, the performance of HPI has met breakeven, indicating cost control and promising rapid growth due to recent product launches.

Prospects and Challenges Ahead

To enhance profitability, the company gave rebates on consultancy revenue, with no concessions on ARR indicating a longer-term return on this strategy. Price adjustments in line with inflation across products are being implemented. Carasent is cautious about premature expansions and misaligned customer acquisition, focusing instead on strategic customer engagement to avoid redirecting development efforts negatively. The company acknowledges the potential for acquisitions but commits only to attractive opportunities, noting that NOK 250 million might represent an upper threshold for potential deals.

Management's Commitment and Shareholder Value

Management is working to improve the performance and has expressed optimism about rapid improvement. They believe that success and share price are intrinsically linked and that the company has improved, which will be reflected in the long-term share price. This sentiment is bolstered by an emphasis on growth and effective use of resources, with the goal of driving shareholder value by delivering on strategic initiatives and strengthening the company's market position.

Earnings Call Transcript 2023-Q4

[Operator]

Welcome to Carasent Q4 report for 2023. [Operator Instructions]

Now I will hand the conference over to CEO, Daniel Ohman; and CFO, Svein Martin Bjornstad. Please go ahead.

[Daniel Ohman, executive]

Hello, everyone, and a warm welcome to Carasent's fourth quarter report. My name is Dan Ohman and with me I have our CFO, Svein Martin Bjornstad. I will start with some highlights from the fourth quarter and the company update. Thereafter, I will hand over to Svein Martin, who will give our financial update.

In the fourth quarter, we continued to improve our underlying profitability significantly. And also, we took many steps towards improving our growth, especially, I would like to highlight that in the fourth quarter, we sold for more than in any quarter before. Looking at the summary, we had a growth of 15% year-over-year, but only -- in the quarter, only 8% was organic. But what we really focus on is our ARR and the recurring revenues grew by 13% in the quarter. And our focus on recurring revenue hurts our revenues short term as our consultancy growth -- consultancy revenue becomes lower. And the reason is that we want to make it as easy as possible to change to our systems. It's a big hurdle enough to change HR, but we really want to make it easy.

So we don't want a lot of upfront costs. So that's part of the reason. The other reason is that ARR is much more valuable to us than onetime income. So for Webdoc, which has no development for a specific customer, that means that we give a lot of rebates on education and implementation of Webdoc when a new customer comes in, but we give very little rebate, if any, on the monthly bill going forward. And this is especially true for Metodika, where we have a lot of customer-specific development where we now give all rebates and very little or if any, on the recurring revenues. And Metodika is roughly [ 50% ] of our consultancy income.

Looking at our sales in the quarter, the most significant milestone is that our new contract with Volvat, which is one of the largest health care providers in Norway, it will give us a revenue of roughly NOK 7 million to NOK 9 million per year, where most of it is recurring revenue. It will go fully live by the summer 2025. Also in the quarter, we signed an agreement [ with Joint Academy ] for Webdoc, which is another quite big customer, not as big as Volvat, which will go live later on in this quarter. We also distributed roughly NOK 250 million to our shareowners and set new financial targets in the quarter.

Looking at our turnover. In the quarter, it was NOK 65 million. And as mentioned before, we had record sales in the quarter, but it takes time from sales implementation, which is reflected in this number. If we're looking at EBITDA, you can see that we are capitalizing less than we used to. This as a smaller part of development is in new products. It is still however the case that even if we do not capitalize as much as before, the majority of all our spend is to increase future growth. It's not to keep present customers.

Underlying the EBITDA, [ you see ], so EBITDA means capitalization, continues to improve. You can see that we lost a little bit. We went from minus 12% to minus 13% in the quarter, but that's a seasonal effect. The third quarter is always better from a profitability point of view for us, and that's the effect from vacation. So almost all vacations are in the third quarter. You can see the same effect in the third quarter of 2022 where we were on a downward slope. But that quarter EBITDA improved actually, and that's the cause of the vacation effect.

And then just to give a brief recap on the things we've done during 2023 to address our financial and growth issues. So we have enacted our cost saving program of NOK 40 million on a running basis. It's all -- all of those costs are related to employees and consultants that we have also were taken out of the company. We also prioritized quite heavily among our products. We used to have 2 international projects, 1 for Norway and 1 for Europe, Webdoc X. We could and continued both projects with high quality and costs in line [ so to speak ]. So we chose to focus on Germany with Webdoc X and closed down Webdoc Norway. Also, in the organizational structure, we have reduced complexity a lot. So nowadays, each product has its own P&L, and we have very clear lines of responsibility where I can keep each -- head of each product responsible for their performance, both when it comes to growth and financial results.

The most important part, I think, if you look a bit further ahead is our focus on business with a strong sense of urgency through the entire organization. And of course, if you do a cost savings program as we've done, that helps a lot for this. But also we continue to push this. And everyone in the company knows that what we need to do is to improve growth and keep costs flat. That's the focus of what we do every day, increase growth and keep costs flat. And finally, we have improved our capital structure with the distribution of NOK 250 million to our shareholders.

A little bit of what we have done. After the end of the fourth quarter, we have sold Confrere. And the most important reason why we have done this is to reduce complexity, and this allows us to focus on our larger products. It will also improve our financial results quite a lot. Confrere had a turnover of NOK 9.3 million in the last 12 months and an EBITDA effect of minus NOK 1 million. It also had a negative growth of 18% year-over-year in 2023. So it was a part of Carasent that we're going down in size, losing money and not an important part of the entire product.

And now we can focus on our core with sticky products with minimal churn. Stand-alone video solutions is an area with low margins, high competition and high churn. So we don't see it as a very attractive niche. The financial impact of the sale is, of course, that our results will improve both from a turnover point of view, that we will start growing more rapidly, but the bottom line will be more profitable. We will have a right of approximately NOK 5 million because of the sale. This can improve if Compodium the buyer of Confrere is successful in transferring customers to their platform.

Now I will show 2 new slides where the goal is to increase transparency on how we are progressing. And first of all, here, we look at the full year of 2023 and the first column is what we call operations. So it's all our products, except HPI, Ad Opus, Confrere and Webdoc X. And what you can see here is that the majority of Carasent is doing quite okay. So 84% of our revenue is in what we call operations. We have an organic growth of 15% in that part of the business and an EBITDA margin of 23%. So we have a core that's doing quite okay. We are not satisfied where we are at the core. This is where we need to increase our growth and keep costs flat.

Then we have our area with products which are a little bit more of a challenging situation with HPI, Ad Opus and Confrere. This is only 16% of our revenue. It do cost us quite a lot when it comes to growth and also when it comes to EBITDA. We have now sold Confrere, which will improve this part of the business quite a lot. HPI is doing better and better and the same with Ad Opus because we have lowered costs quite a lot in the fourth quarter within those 2 businesses.

Webdoc X is our new medical record system for Germany. And my view is that this part of Carasent has the potential to be much more valuable than the rest of Carasent combined. The reason being that Germany is the largest health care market in Europe. They are far behind Sweden and Norway when it comes to HR systems. They've just opened up for cloud solutions. And there is no strong incumbent there. There are just a lot of really, really old systems. Our competition in the country is milking so to speak. So we believe very strongly that there is a big amount for us to take in Germany. And finally, we have the head office. And looking at the entire year of 2023 as you all know, we have lowered cost by roughly NOK 40 million on a running basis. But if we would have done that cost saving program before 2023, the result in all this column would be roughly NOK 20 million better than what you can see here. So the EBITDA [Audio Gap] would be roughly NOK 32 million.

Looking at the sales structure for the fourth quarter we can still -- we can see that we still have the core, which is doing quite okay. The growth is a bit disappointing, as I mentioned already. We sold for more than any quarter before. But actual revenues that come in, in this quarter are a bit lower, and that's mostly because of the consultancy being lower. And Svein Martin will go into that in more detail later on in the presentation. But we continue to keep costs flat and to grow.

When it comes to HPI, Ad Opus, Confrere, as you know, we sold Confrere, HPI has been growing quite a lot lately. That's why we now have organic growth of 0% in this part of the business and HPI's new products are actually growing exponentially. And that's what we typically see when we have a new product of this sort is that you first get 1 user, then you get 2 users, then you get 4 users, then you get 8 users and so on. So it's typically that you see an exponential growth. When it comes to the new products within HPI, it's from a low base. But if that trend continues, it will look very promising. And it seems like the customers are happy with the product. They want to implement it. So I have strong faith in HPI.

Ad Opus, we will see that they continue to lose customers and lose revenue during 2024. The reason being that the contracts within Ad Opus are 1-year contracts. So you can only -- they always end at New Year. So we had customers who signed in for Ad Opus during 2023 and that will take effect during 2024. However, now we have the new Ad Opus web that's been live for a couple of months now and which has strong interesting customers. So I expect to see Ad Opus start growing by the end of the first half of the year of 2024. And otherwise, we'll have to take further actions.

Webdoc X is now at a run rate it should be roughly and also we reduced cost at the headquarter quite a lot compared to where it used to be. And in total, you can see that we're much better than the same quarter last year. And we will continue to show this structure, this set up so that you can see how we are improving in the different parts of Carasent. And I hope this is a good way of showing how we are actually doing.

Looking a bit ahead, I mentioned it a couple of times now. We have a strong focus on growth. What I would like to highlight especially is that we've been working a lot with sales during the last 4, 5 months. We now have in-house digital marketing in place. We're getting better and better in doing those videos. I hope you've seen some of them on LinkedIn with our customers explaining how very happy they are with our products. The next set of videos will focus on that it's much easier to change system than you believe and most caregivers, I was one of them, really think it's so difficult to change systems. But it's not. If you're looking at our customers that have changed between systems, they are really happy. So we hope to get some strong testimonials from that.

We have implemented a CRM system in the fourth quarter, giving us much better visibility on how we're progressing. We can really see the summary how we're moving forward, which will allow us to act quicker. It also allows for our salespeople, but also support and implementation to work with existing customers to have a good overview of what they have and what they don't have of our products. We will also be able to much better target potential customers than we used to be.

And I would also really like to highlight that we've changed the remuneration model for our sellers. They used to have 90% flat income and terms and bonus paid out by the year-end. Now they have 70% fixed salary and 30% flexible salary, which is dependent on your individual performance and is paid out after each month. So giving much strong incentives to really push forward and seek out new customers with the help of a CRM system and everything else we do. And this should be seen in addition to everything we do to improve the products. E-referrals in Stockholm is now live with the first 2 pilots with good reviews. What we haven't spoken about in this type of calls before is that we also have our archive module up and running.

And the point of that is that when you change to Webdoc, you will be able to see the medical records from your previous system within Webdoc. And this is really important because it used to be if you don't have this type of setup that you have to run double HR systems for roughly 2 years. And the reason being that when patients come into see the doctors, the doctor needs to know about the patient's medical history, and it takes roughly 2 years to have everything in the new system. So with this, you can close down their old system. And more importantly, your staff only needs to look into 1 system [ and can work within one system and ] be much more efficient. So that really is just the change.

And coming around the summer, autumn, we will launch the surgery module, but so far, we have really good collaboration with our existing and potential customer for that solution. So it looks very good I think. When it comes to efficient use of resources, as I mentioned before, we aim to keep the cost flat. But there are always [ muted ] loss. For example, we're investing a lot now in compliance and IT security so that we increase cost, then that means that we also need to take out costs constantly within the organization.

So for example, at the moment, we are looking at reducing roughly 8 roles within the organization at different levels. And that's to make room for other roles. So we're working very hard to keep staff costs flat even as we grow it and doing more things. We also work at optimizing our cost base. It's a lot about prioritizing, what cost can we actually take and what can and can't be prioritized, and we are improving procurement. An example of this is that we have now procured new hosting in Norway for our Norwegian product and that cost -- that have diminished cost by roughly NOK 2 million to NOK 3 million per year, and we're now looking to do the same in Sweden for our Swedish products.

And finally, we're focusing on launching Webdoc X which, as I mentioned -- my view is that potential to be more work than the rest of Carasent combined. The present focus in our development is for certifying the system for Germany. And that means to certify it for the insurance market in Germany. And what you then certify is the building module, which has to fulfill, I don't know, roughly 200 different demands. So that's a lot of the work now. And that's really a big hurdle for Germany. Other than that, there is very little specific needs in the German market. There are much more specific needs and requirements in, for example, Sweden and Norway. And I think we have good initial dialogue with potential partners and acquisition targets in Germany. And that's where I and some of my colleagues will put a lot of the efforts in the coming months.

So having said this, I will hand over to Svein Martin.

[Svein Bjornstad, executive]

Thank you. So looking at some of our key financial highlights in the quarter, we had revenues of NOK 65 million in Q4. Of this, more than 90% was recurring revenues. And our ARR was NOK 239 million at the end of the quarter, growing 13% year-on-year organically. And net retention of 108% shows that -- the position we have as business-critical systems for our customers.

We have also taken steps in the right direction on the profitability side. The cost savings program we did in Q2 is starting to show results. And we had an EBITDA margin of 10% in the quarter and EBITDA minus CapEx margin of minus 13%. In total, our revenues grew 15% year-over-year, and this was partly driven by the acquisition of HPI in November last year and partly by currency. But our recurring revenues, which was 91% of total grew 13%, which is quite in line with how the growth has [Audio Gap] the last 5, 6 quarters -- our key strategic focus, as Daniel mentioned, to grow this going forward as well.

Total organic growth was 8%, which is slightly lower as we saw a decline in consulting revenues. Metodika is basically around 1/2 the consulting revenues we generate. And Metodika was very much focused on winning the Volvat tender process in Q3 and Q4. So that also impacted the consulting revenues, I would say.

So as mentioned, our recurring revenues grew 13% organically. We have a very strong basis with the high stickiness and low churn. Our net upsale was 11% year-over-year from existing customers and churn was very low at 3%. And the little churn we have is really not coming from the core. Our 2 smallest products, Ad Opus and Confrere generated almost half the churn that we see in Q4. Confrere is now sold and Ad Opus, we will face some headwinds from January, but we are also seeing very promising signs from the market that we are able to turn this trend going forward. Excluding these 2 products, churn is basically around 1% to 2%, and that includes involuntary churn. So people going out of business, going -- retiring, et cetera. So the voluntary churn for customers leaving our system are very close to 0 actually. So this clearly demonstrates how business critical our systems are to our customers and the very strong position we have to build from for all of our products basically.

New customer growth was 5%, which is in line with the previous quarters. And currency effects and M&A brought the total growth to 21%. So our ARR was driven by the same organic trends as the reported recurring revenues. However, we are starting to see that our investments into new sales is starting to generate results. If we look at the orange part of this graph, it shows the ARR we have signed but not yet implemented as of year-end, so basically, our revenue backlog. And this figure was NOK 8 million at the end of 2023. The same figure last year was under NOK 2 million. So it basically shows that our backlog has grown 4x in size since last year.

Also, if you compare that backlog of NOK 8 million to the total growth from new customers during 2023, it was NOK 10 million. So this clearly shows that we are starting to build a very solid foundation for a step-up in growth going forward. It is, of course, boosted by the Volvat agreement, which will have a main impact in 2025. We are also seeing promising signs and an increasing amount of promising dialogues, I would say, on the sales side for Webdoc particularly, but also for our other products.

Finally, we are also seeing that profitability is improving gradually. We see the effects of the cost savings program we completed in Q2. The cost base remains high compared to our revenues as we invest in future growth. But as we have shown, we strongly believe that this is the right thing to do in the long term. And going forward, we basically aim to grow our revenues and keep our costs quite flat. And if we are able to do this, we have a gross margin of around 80%, which can basically be translated directly into our cash profits going forward if we are able to keep operating costs flat. We are also working on optimizing the cost base in general, and we monitor all parts of the organization very closely so that we develop according to our plan. And if -- we have this very high predictability and stickiness in our revenue stream so if the growth we plan for does not materialize, we are also able to adjust costs very quickly to address that.

So with that, we are done with the initial presentation, and we can open up for Q&A.

[Operator]

[Operator Instructions]

[Svein Bjornstad, executive]

We have gotten a lot of questions here on the chat. So we can start with those. Firstly, from Mark at Redeye. Could you expand a little about the investments you make in existing markets, the new surgical module and e-referrals and so on? What do you expect from these in 2024?

[Daniel Ohman, executive]

Yes. So I think these are extremely important parts of increasing our growth going forward. E-referrals in Stockholm is now live for the first 2 pilots, meaning that it used to be that when you got a referral in Stockholm, if you didn't use Stockholm system to care, then you had by hand to transfer those patients to, for example, Webdoc. And then you had to transfer them back to take care when you were done with the patient. So that's a lot of manual work really lowering our possibility to sell in Stockholm. And Stockholm is by far the largest private market in Sweden. So we were, to a large extent, locked out by it -- from it.

We do have customers in Stockholm who have chosen to use Webdoc anyway. So they had -- they do this -- all these manual transfers just because they like the efficiency of Webdoc much more. So you have to remember that Webdoc, if you run it fully will be roughly 2% of your revenue. The rest of it is mostly fixed cost that relates to staff, meaning that if our system helps you be a little bit more efficient, it will easily pay for itself. Now we take out a lot of what the manual work. And you can now -- if there is a patient transferred from Stockholm clinic to a Webdoc clinic, it will transfer automatically. So I think that's very important. We have 2 pilots. It seems to be running well. What I also really like with it is that we have done it without any work from TakeCare because they don't want to connect to us. So that means -- that's what I think we have to do with multiple systems going forward into the future. We will have to make sure that systems speak with each other even if we do not have access to their APIs. So I think that will help our sales in Stockholm going forward quite a lot.

The RTI module, I explained earlier, where you can see all your previous journal notes, will also help quite a lot when it comes to new sales and really support our customers. The most important part, I think, is still a surgery module. A large part of private health care in Sweden and is surgeries. [ They are ] obstetric surgery, you have general surgery, you have plastic surgery and so on. And these areas, a really important part and the most important part of the business is to plan your surgical theater. Today, Webdoc has very little support for that. And the only systems that have that are really old and not good at all. So I think we can quite easily build them.

The other important part when it comes to this is that when Stockholm will now, over time, in 2029 is the plan now to replace TakeCare with the new system, they are not buying a surgical module. So all surgical clinics will need to have a system which supports the surgical timing. So that's a good position for Webdoc to have. But also near term, I think we will be able to take quite a lot of customers. And we have -- every second week we have a joint meeting with potential customers around this and the interest is really high. It's quite a big build, but it will also give very good returns.

[Svein Bjornstad, executive]

Next question. We -- you're right that we have developed new functionality that allows users to access their old records directly in Webdoc when switching. Typically, all users, which switch systems have had to use dual systems for about 2 years. Has this been a big hurdle for you in sales process previously?

[Daniel Ohman, executive]

So I think it's part of why you are very reluctant to change systems. So it's not enough for our system to be a little bit better than the old systems. They have to be so much better because changing systems is a lot of work. There are a couple of issues when it comes to change system. One is the upfront cost. And that's what I explained earlier, we try now to push that down. It hurts us short term, but we gain from it long term. The other part is that the business will be slower for a while, while you demand and you educate the entire staff, and that costs you a lot of money when the business is a bit slower.

I think that most customers are, and myself did also, overestimating the impact of this. And we can see that from our customers that have changed systems. We're now measuring their happiness. And right after they have implemented the Webdoc, we ask them when we've done the implementation. How happy are we with the change? And on a scale from 1 to 5, we are around 4.5 to 5.0 each month. So they are extremely happy on we have changed and we need to spread that word. So that's -- I think the market will be an important partner with testimonials. And then the last part which makes you very hesitant to change system is that you will have to run double systems for quite some time, typically and now you don't have to.

And to say how much is just to free hurdles, which one is impacting the most, it's a bit difficult to say, which I'd push all up and down. And I think that, that will really translate into more sales.

[Svein Bjornstad, executive]

Next question, what led to Metodika winning the Volvat tender and how will the deal impact consulting revenues in 2024 given rebates and so on?

[Daniel Ohman, executive]

So I think Volvat is a great system for any large enterprise customer. So Volvat, the strongest customers they have is Aleris Norway and Volvat Norway and [ Avnova ], those are big health care providers, operational health providers with multiple sites. And Metodika has a very strong functionality supporting multiple sites. It also has a lot of functionality to support different types of care, including an occupational health and very few systems do this. And it also supports all your commercial processes. And that's the most important part I would say. There are other systems supporting big health care providers, for example, hospitals. But those systems are typically done in the Nordics for nonprofit. So government use, public use. So they do not support your financial processes or commercial process in a good way, which Metodika does.

So I think the reason that they won is that, that they can support all parts of a customer like Volvat with multiple sites, many different types of care, including occupational health and it will be replacing a lot of existing systems. Then I also think it's our focus on the customer that we're there for them, that we listen to them, they want to understand their needs. I think they felt that we really are a good partner. And the other really large private provider in Norway, Aleris are happy with our products. I think that's a big reason.

Consultancy revenue, so Metodika had a lot of consultancy revenue in 2023. It will have also a lot of consultancy revenue in 2024, but we have given a rebate on that. So as we mentioned in the press release, it will hurt the profitability of Metodika due 2024. But on that, we have given no rebates at all on the ARR going forward. So we will get that rebate back many times over. And I really think that's the way to go. It builds more value over near term. But it means that Metodika will lose a little bit of profitability due in '24, other parts of Carasent will pick that up. And then Metodika will swing around and really add a lot to the bottom line of 2025 report.

[Svein Bjornstad, executive]

Yes. So consultancy revenues will be quite stable, but it will require more resources basically to generate the same result. Next question, how big is the expected drop in Ad Opus quarter-over-quarter into Q1 2024?

So the drop in is around NOK 2 million on an ARR basis, which is not that big of a drop for Carasent as a group, but it's quite big for Ad Opus. But we aim to doing -- aim to win that back during the year. And we will, of course, need to see an improvement in Ad Opus in 2024, on ARR or the other.

[Daniel Ohman, executive]

And I think we should clarify that. It's the old Ad Opus products that have desktops. The new Ad Opus Web, which is a completely different product to use, which has been developed for Carasent -- by Carasent for a couple of years is a much nicer product, much more modern and support a much modern work -- way of working with your patients. So we believe strongly in Ad Opus Web. But the ultimate proof is that customers actually are picking it up. And that's what we aim to see during the first half.

[Svein Bjornstad, executive]

Next question, net retention rate was 108%, what the price increases look like in 2024 on contracts?

I can take this one. We generally have -- or we have -- are doing inflation adjustments on all of our products. It varies a bit what index we use, but it's typically linked to our own production costs basically and salary increases.

Next question, [ Max Gadeen ]. Looking at acquisitions in Germany, what size are you targeting? Please elaborate on your cash position? And how much of it do you intend to spend on acquisitions?

[Daniel Ohman, executive]

So when it comes to acquisitions, it's a bit of an unpredictable process. We have a long list of potential targets of roughly 20, a little bit more than 20 actually. Of that, we're working with a short list of a few targets. And what we're looking for are a couple of different things. We want the product to be profitable. We want to -- if not to have too rich functionality, what we mean by that is that we want to be able to replace it with our system. [ We did not for ] too long. And the reason we want to replace it is that when we move to cloud, we lower the cost at the customer site which would be our revenue. So typically historically, when we are moved to the cloud, we have been able to double the revenues from the customer.

And we do not want to buy a too small system. We want at least 20 employees. [indiscernible] otherwise, it's too small for us to work with. But we also want to forward it and preferably not being too big. But it's -- we wanted to fulfill all this category and also, of course, we don't want it to be too expensive. So exactly which size it will be, will vary. I don't expect it to use our entire cash pool. And what we'll do with the rest we will have to come back to later on, but it will be nothing more than that at least. That's not our aim.

[Svein Bjornstad, executive]

Next question from [ Rickard ]. Could you please elaborate on the recent ownership discussions, although there was a majority against an extraordinary dividend? It is clear that there are frustrations amongst a broad base of shareholders on the lack of profitability in the current business. Have you considered further cost savings and/or any changes regarding the planned German market entry?

[Daniel Ohman, executive]

So what I mentioned in my letter is that I feel that we now have very good discussions with our 3 largest owners [ roughly ] quite a large part of the shareholders. And I think it's worth noting that almost all of the shares actually voting in favor of the proposal at the AGM. They have now changed control to a new owner. So I would expect that, that vote would have been much stronger again today than it was back then. But for me, as CEO, the most important part is that we feel that we have the owners behind us, and that I feel strongly. When it comes to cost savings, as I mentioned earlier, we are doing cost savings all the time. So we're looking constantly at what cost to take out. I believe strongly that Webdoc X can be more worth than the rest of Carasent combined. And I feel that we have our largest owners behind that idea. So I'm quite happy with the discussions we have with owners and that we are now in line with our owners.

[Svein Bjornstad, executive]

Great. The next question, when do you expect to see improved organic growth in ARR recurring revenues? Are you concerned that you are yet to see effects from the initiatives taken during the last 12 to 15 months?

[Daniel Ohman, executive]

So it takes time. As I mentioned before, we sold more than any -- than in any quarter previously in Carasent's history. So I mean, we are increasing growth. It's just that it's not been implemented yet, and that's what Martin showed earlier. I hope that we will be able to show that ARR yet not implemented will grow quarter-over-quarter. I would say that it has taken a bit longer than I expected. It's a bit slower to market. I think the reasons being a couple of different things. Carasent has very little focus on present customers. And it takes time to convince them that we're back and that they really see it. The sales process are quite long. You never -- or you almost never have to change systems and you do not want to change systems. If you have any excuse, you do not do it. So we really have to be there for them in all different ways for them to actually move forward. And that takes some time.

But having said that, our sales were higher than any time before. So I think what we do are translating into higher sales. It's just not implemented yet. And for many of our products, from sales implementation is quite long. That goes for all our bigger system. Webdoc is a bit different, where it's typically faster in implementation, but also there, it takes time for customers to feel that it's different that they hear from our present customers that it's working really well now and that they have the time to hear and listen about what we are doing differently and the new functionality coming out. But I'm confident that we are improving in a really good way and that we will see customers adding more quickly.

[Svein Bjornstad, executive]

Next question. CapEx increased by almost NOK 5 million since Q3. Is -- this is the level you are at now the level we should count on per quarter going forward?

Yes. The increase was basically related to holiday effects, as we talked about, as both CapEx and personnel costs are lower in Q3 due to the summer months. But the level we see in Q4 is on the cost side is basically where we are at now at the run rate. And then we, of course, do a lot of work on optimizing this cost base, both on the OpEx side, the COGS and the personnel, which Daniel mentioned, but I would say this is sort of a run rate level we are at, at the moment.

Same -- next question from [ Adam ]. Your net working capital has contributed negatively for the year as a whole. Are there any reason for this for the year? As a SaaS company, you should be able to leverage -- to operate with negative working capital. What measures are you taking to reduce your net working capital position?

In general, we have a very attractive net working capital profile, where our customers generally pay either 3 months or 1 year in advance for basically all our products. And we pay our vendors after their work is done. So in the long term, our net working capital will be a very positive contributor to our cash flow. This year, it was negatively impacted by some large transaction costs in Q4 last year that was on the balance sheet as of year-end that we paid in Q1. But in general, we work closely on the working capital as well and the profile is attractive in the long term.

Then next question, one of your shareholders released a letter stating that they oppose proposed acquisition of around NOK 250 million in Germany. Is this the acquisition size shareholders should expect?

[Daniel Ohman, executive]

No, I don't think so. We do not know what acquisition we will do, which one we will do, if any, we will only do it if it's attractive. I think that's the upper end of a potential acquisition, but they do not have any more knowledge than you do.

[Svein Bjornstad, executive]

Next one is Germany is conservative around cloud solutions. What risks do you see of entering this market too early?

[Daniel Ohman, executive]

So I think it's very similar to when Webdoc started back in 2010. I wasn't part of Carasent or Webdoc back then, but I know what I've heard from the ones who work within Carasent to why that. There were a lot of discussions with doctors, nurses, managers, the health care providers that is the cloud really safe, can we really trust the cloud and so on. It's possible that Germany is back where Sweden was in 2010. I think they shouldn't be really that far behind because, I mean, a lot of the other solutions they use, like we use are cloud based. So I don't think they should be really bad, but we have to expect a lot of those questions. But having said this, I think that all of us are really happy that they pushed ahead with Webdoc back in 2010. And I think the same with Webdoc X now for Germany, but obviously a much larger market.

And we do not need to win like 10% of the market. We just need to, in the beginning, win the few really early adopters in the German market. So even if 95% of all German docs really do not want to go to cloud, 5% is more than enough for us. So that's where we have to do a lot of work and to find them. But I also think that why we want to do an acquisition to transfer existing customers. We have really good experience from that. We have to do it in a sensible manner. But then you have customers that you can point at and can tell everyone about the solutions you have.

[Svein Bjornstad, executive]

Next question from [ Eric ]. [ I notice at the time you must have ] been the largest seller in the open market after the EGM pushing down the share price? How do you view this overhang in the share given that they are your largest owner?

[Daniel Ohman, executive]

So I also noticed that [ our tenant ] pushed a lot of shares in the open market. I believe that, that ended when they lost control of their shares a couple of days ago and the new management is not selling shares. So I think that's over. But I will say that long term, our share price is only dependent on how successful we are. We have been performing too poorly but I have seen -- and I see that we are improving quite rapidly, and that is what will be reflected long term in the share price.

[Svein Bjornstad, executive]

And then we have some questions from Emilie, DNB. First one, your guidance of more than 15% organic growth is for '24 to '26 on average. What do you expect for 2024?

So we didn't give any guidance like per year when we stated it, but we are working, of course, on improving growth, but we are at a lower level than our targets in Q4, and that's where we are at the moment. But we are starting to see gradual improvements in that as well.

Then what is the status on HPI? And what do you expect here going forward?

[Daniel Ohman, executive]

So HPI, we have lowered cost at HPI, and they are now breakeven. They are growing quite rapidly, not as rapidly as we believed when we acquired them. But the new products within HPI are growing exponentially, and that's what new product could to do. And we expect that -- or we hope and expect that, that will continue. And if it doesn't, then we will have to take further actions. It has every potential to be a very profitable growing business. We have the largest customer there is [ Avnova ], which is one of the 3 large operational health care providers in Sweden and the Nordics. They really want to implement it. So just, I think, 2 or 3 weeks ago, the HPI team were at their internal conference where all doctors and nurses were there, and HPI was given 1 hour to explain everyone how they use our new products.

So Avnova management is really pushing for this product. They want it. They want to see that it can improve their -- both the value they add to their customers, but also the internal efficiency. Health care is a very conservative business for sure. So it takes some time to get new products out there, especially if it requires a little bit different work patterns than we used to do. And in general, I think that everything we do within Carasent should support present processes at all our customers. It should allow for future process to be more efficient, but you also need to support present process. That's a challenge with HPI's new structure or new products, but we see that our customers really want to overcome that challenge and want to implement it. And we see that the growth is exponential in those products. And if that continues, it's from a low basis, but a couple of months going forward, it would look really good if that trend continues.

[Svein Bjornstad, executive]

What would you say is the churn risk going forward given Ad Opus, what is the worst case?

[Daniel Ohman, executive]

So it's a bit difficult to say exactly, depends on also the time line. In general, you're really slow to changing systems. What -- the majority of the churn when it comes to Ad Opus is that a lot of providers in that market has joined forces and decided to use another system basically a normal CRM system, and they built [indiscernible]. Some of those from the union were our customers, some were customers of our competitors. And we do not believe that union will grow much further because they have one location at each part of Norway, roughly and they don't want to compete with each other. So we do not expect any question going forward, more than the ones who have already resigned.

We also believe strongly that the system they use is not what you can use. There's the same regulation in Norway as in Sweden, and it's the same for these type of customers as it is for health care providers. And we can also see that [ NAV ], which is the one procuring services from our customers, they themselves use a CRM system internally and you can check with the newspapers. If you look at NAV and GDPR finds, you will see that they got the large fine any public -- what's the word?

[Svein Bjornstad, executive]

Entity.

[Daniel Ohman, executive]

Entity has ever gotten in Norway because they used the wrong type of system. And we believe it's the same for this system that they are -- some of our customers have migrated to. So best case, they're coming back. Second best is that Ad Opus will start winning a lot of other customers. Worst case is probably a little bit continued churn that if Ad Opus Web doesn't really take hold at all, and then we have to look for the costs.

[Svein Bjornstad, executive]

And it's worth noting also that the churn that we will see from Q1 in Ad Opus is around 1% for the group, and we are seeing no signs of change on all the other products, which are laying around between 1% to 2% churn basically all involved there. So in general, it's very stable and sticky are our revenue streams and will continue to be going forward.

A final question from Emilie. Status on Webdoc X, any new customers?

[Daniel Ohman, executive]

So Mindler is now a paying customer. So that's a good milestone to have the first paying customers. We are in discussion with some other customers, potential customers who are also pure private players. So presently, we can only sell to providers who are not part of the public system or insurance system at all and also does not require too much functionality. So that's a very, very limited base. And also, we do not want to focus on selling to these type of customers because we want to focus on developing products for those customers we aim to have, not for the one we can get at the moment.

And if we try to get too many customers of the wrong kind now that will steer our development in the wrong way. So our aim is really to get the system certified in Germany, so that an insurance -- I mean, CRM is an insurance-based system, and we need to get [ intra-system ]. And that's the aim of the development is to get that. And our aim when it comes to users is to get pilots that are that type of users because those are the customers who we want to have long term and where the big potential is.

[Svein Bjornstad, executive]

Great. That was the final question. If you want to wrap up, Daniel.

[Daniel Ohman, executive]

Yes, then I would really just like to thank you all for listening today. Yes, contact us if you have any questions or comments, and I look forward to seeing you all in the future. Thank you.

[Svein Bjornstad, executive]

Thank you.