Omda AS

OSE:OMDA

Earnings Call Transcript 2023-Q4

[Einar Bonnevie, executive]

Good morning, ladies and gentlemen, finally, Friday, reporting day. Welcome to the presentation of Omda's achievements for the fourth and final quarter of 2023. The report and a copy of this presentation will be found on NewsWeb or can be downloaded from our website. This webcast consist of a good 30-minute presentation followed by a live Q&A session. You can type in your questions at any time, and we will attend to them as soon as the presentation ends. A recording of this webcast and soon to follow also a transcript will be available on our website shortly after this presentation ends. We are not alone in this world. Thank God. And I'm happy to be here with my long-time colleague and the CEO, Sverre Flatby. But enough about that, time to get the show on the road. The stage is yours, Sverre.

[Sverre Flatby, executive]

Thank you very much, Einar. And I'm happy to present the highlights of the fourth quarter. Before that, for those of you that are new, I'm the CEO, Sverre, and I also have Einar, the CFO, with me. And we are also shareholders through a common investment company. So you know that. Let's go to our company and Omda, what is Omda? To take the fundamentals first. And our vision to create a safe and healthy world is important. We have a role that affects millions of citizens and hundreds of thousands of users of different types of software components.

And our mission that has given us the possibility to become a leading player here in the Nordics is a very specific strategy and a unique one. We are focused specifically on health care, specialized health care and emergency. And that has made it possible for us to become a leading player. So if you look at health care, where are we as a company? I think that is important to understand our numbers and what we do and our strategy.

One way to divide health care is into 5 areas, is this primary care, community care, long-term care, emergency care and specialized care. And if you look at this, you will see that there are different type of ways to handle projects and software in the business. [Technical Difficulty] you see that there might be churn, there might be short projects to change systems. While on the -- down to the right here, you will see that within emergency and specialized health care, it's a quite different business. And this is the answer why is the top line so predictable over decades for Omda.

So we are very happy that our strategy has put us in that position. And I think it's important for you when you look at our numbers that you understand this part of our business. And then again, what are we actually doing the specifics, I cannot go through all the details, but just to explain the specifics of one of the business areas. Emergency, which is the one top left here is the biggest one. And what we do in all of these business areas and niches is actually to create a value chain of components supporting different users.

And if you think about it, how important it is to you, if you are a patient that if an acute situation happens, that's something those who handle that do the best they can and how can we help them as Omda. Well, the call taker, 911 call, obviously, the software that you have working with that process it would help you to make a decision faster. And that is one user group. And then you have the ambulance in the picture here. In that car, you have 2 user groups. You have the one that have given the order to drive the car, which is important to get to the right place in the right time.

And secondly, you have the man or woman in the back of the car helping you as a patient with a critical situation. And then again, the information should flow to the acute receiving hospital. And then again, you have another user group, the management. If you have many ambulances, maybe 40 ambulances, is there a way to do the same high quality of the business using 38 ambulances, for instance. And that is analytics software that makes that happen.

So if you think of all of our niches, all of our software types, this is the way our strategy to create niches within niches and put up value chains that support the complete business. So that is the similarity with all of these business areas while they are completely different when it comes to disciplines. For instance, medication management, cancer is a quite different thing when compared to emergency.

On the other hand, in there as well, you have these value chains. So I think it's important when you read our numbers that the recurring revenue streams that we have created within these specialized areas is what gives it possible -- that is possible for us to look at a very predictable future with high visibility going forward. So what has happened when you look at the last years in our development, you will see that our long-term recurring revenue and also you will see from the fourth quarter that the recurring revenue part exiting 2023 is very nice, 78%.

And of those 4 types of income we have, the one, #1 is obviously #1 in any aspect and the other one, #3 there is also, in a way, semi-recurring, as we call it. It will happen in a way anyway with all of those customers we have around different countries. They always have some extra needs, some support help, et cetera, that they pay for. That is the reason why we can have visibility for more than 90%, for instance, now going into 2024. You have a predictability when you look at the top line of the company, which is very important these days, obviously.

So and who is actually paying those recurring revenue streams. Well, they are very important specialized entities in the health care sector. Some examples here to the left and those solid counterparties, they always pay their bill, so there's no risk there. And we have many more than 600 contracts, meaning there is no binary threat to the business, it's highly diversified. And these types of systems are tied into complex workflows, meaning that they will stay there sometimes for many decades.

And that's why also the low churn we have had historically and continue to have in the fourth quarter and going forward is because these mission-critical systems are there to support people and the business case to change them is really not there. That's why we have this long-term predictability. So that is important summary of the aspects of the business, the fundamentals, and then let's go into the specifics for the fourth quarter.

A very good thing. Our top line, NOK 109 million compared to NOK 98 million in the fourth quarter '22. It's very good. And looking back to what I just said about the recurring revenue streams and the business stability. This is very important and obviously, the most important thing for us in the quarter. That means 11% growth is good and also the annual growth with reaching or passing a target of NOK 400 million and getting to NOK 415 million for 2023 in total is a very good number.

And with all those recurring revenue parts of that business, obviously, this is the most important thing. And then we have the EBITDA also compared to the fourth quarter in '22, minus 21% and 19% this quarter, 40 percentage points better. However, we would love to have a higher EBITDA than 19%, but on the other hand, there are a reason for it, and we will use some time in this presentation to go through the EBITDA and the cost items.

And one of the cost items, the COGS have been developing good if you compare the COGS from 2022, the fourth quarter was 6.6% and then going to the salary cost, we will see that this is the high part that affects the EBITDA, which we will go through in a minute and also focus on in the financial part of the presentation. On the other hand, the other costs was 22% in the fourth quarter '22, now at 15%, which is a normal guidance that we have had for years.

And we think that all in all, if you look at the fourth quarter, a profitable growth, most importantly, the income growth, a slightly lower EBITDA than expected. However, we see that the run rate into 2024 gives us comfort. So let's go through this. And just a rough way to look at the performance over the year. You all know that we have had a margin improvement program and in this program, we have gone from 8% EBITDA in the first half year of '23 to 23% in the second half year.

So the average between with Q3 and Q4 is obviously here better. So I think into 2024, it's a different story, which we will explain further later on. And then how in the day-to-day life, are we going to achieve and trim our EBITDA margin. Well, the decentralized model has helped us find or identify specific areas that are relevant that will make the margin better over time. So we will see that we measure our businesses.

And you also see that on the left side here, we have something called Connected Imaging earlier on and still in this quarter, we will report Connected Health Care and Medical Imaging as 2 business areas, while going forward from the first quarter '24 and going further, we will report this as one business. And the reason is there's also potential there to increase margin because the combination of Medical Imaging and Connected Health Care customers, more than 90% of the projects have the same customer, same project to deliver, meaning there are synergies there.

So this is how we're going to do it on a day-to-day basis in the organization. And then just to explain the cost item in a perspective here. If you look at the period before we IPO-ed and start in the bottom of this slide, you will see that our COGS, those things that we sell, other types of software other than our own, was about 10% and has gradually, over time, come down to 6.9% on average in the second half year in '23. Our target is 5%, but this is going the right way. And I think that is also important to see.

And on top of there, you see the green one that other costs, which is although the rest of the ordinary cost is also coming down. And now in the second half of '23 and also the fourth quarter is a very good number there. So that means that leaves us with where is the actual challenge. And the question is, is it a challenge? What is it? And as you see there, 55% roughly in the second half of '23, while our target is 50%.

And all of you probably understand if you take the right column here and add 50%, 15% and 5%, you will get 70%, and that's how we should reach 30% margin. So that is in a more long-term perspective. And then specifically, what do we do to reach 30% margin. Well, with the 55% in the second half year of '23, there are actually 2 main activities to solve it. One thing is there are still some large projects going on with external consultants. And that is a deliberate thing. These are important and gives us a recurring revenue over decades. So we have decided to move on with high speed there, as a naturality would be to postpone it to reduce the cost, but that has not been a good idea in our heads. So that is one thing. We will reduce it, have already done it, meaning it will gradually be reduced in the first quarter.

And then secondly, and please, I will remind you if you see our 3 last quarters, we have actually performed in the upper part of our guided interval organic growth of 5% to 10%, actually closer to 10%. And for the year, we are actually on 9.5%. So if we just manage to handle that or do the same thing in '24 and do this one action on the consulting side, then we will reach 50% personnel expenses compared to the top line, which is good and which is our target for the year.

So this is how we work and how we're going to trim the margin going forward. I think it's important now entering 2024 that we are back to a very good business. It's a profitable business. We are going to focus more on the combination of elements of our business model. And starting in the bottom to remind you all, within this health care sector is a very strong place to be with an annual growth of 10% to 12%. And also on top of that, number two, we have the specialized software and health care emergency strategy, giving us these long-term and low churn businesses.

And on top of that, obviously, with these recurring revenues, we do these activities with current customers giving us the 5% to 10% organic growth in the last quarters and hopefully, going forward, stick to those close to 10%. And then on top of that, most importantly, since these predictable areas are predictable to grow much faster, you need to do M&As. And we have successfully gone through 15 M&As in the past, and we will continue and have high activity at the moment to make sure that we can acquire good companies and add them to our current businesses and also probably create new business areas over time.

So we will not forget that we are a growth company, but we had to use '23 and the transition to '24 to secure a good EBITDA and cash flow that can handle our bond, which also is a good thing for us with a tap issue and possibility to further growth and acquisitions.

So to summarize the industry logic and the history and the plan, as you all know, we are a Norwegian small start-up many years ago. We were able to export software. And then with help from a private equity company, we're able to start growing through M&As in the '15 to '21. And then after the IPO we had several acquisitions and used that time to secure a decentralized model and, of course, then start with these margin improvement activities that has been successful so far.

So what we're going to do now? Well, we will focus on Europe primarily, although we will still have and have growth in the U.S., for instance, and then over time, also add acquisition targets that will create a possibility for us to win where our very unique strategy with highly specialized components also worldwide. Having said that, in the left or right corner in the bottom of the slide, you'll see the priorities going forward.

We will obviously work with organic growth, profitability cash discipline and acquisition in that order. So we'll make sure that we will follow the plan and create a good future for all of us. So Einar, that was the final industrial summary of the fourth quarter and what I think is going to happen going forward. And now it's your turn to dive into all the juicy details.

[Einar Bonnevie, executive]

Thank you, Sverre. Yes, let's have a look at the numbers. And again, I remind you before going to numbers, you can type in your questions at any time, and we will attend to them in around the quarter's time. Right. First and foremost, coming back to this. This is an all-time classic, the recurring revenues, and you see that they are growing steadily also in the fourth quarter. And you see there the annual recurring revenue, the run rate -- annual run rate NOK 326 million as of Q4 2023. That's an all-time high.

And I remind you, they come from more than 600 customer contracts in more than 27 countries, public sector or public sector-like institutions or customers and with very little churn. We are a diversified business. The largest business area is Emergency. It was last quarter and still is, almost 50% of the business is linked to Emergency Services. And then Connected Health care, Medical Imaging will be combined 20% -- represent 20% and then you see LIMS and Women and Child. LIMS is actually now growing past Woman and Child.

And then Health Analytics and Medication Management, small but beautiful jewel in our portfolio. We also see the geographical spread still very much continue to be dominated in Sweden. That's the largest country and then Norway, 19%. And you see the rest of the world is starting to compete to be the second largest country, if you like and then Finland and Denmark. Rest of the world biggest competitor are Spain, U.S. and U.K., we get that question from time to time. So no, you know. The revenue mix continued to be strong. So not only strong top line, but a good quality of earnings. We see that still strong recurring revenues. And then strong license sales in the quarter and also strong professional services. You will see that hardware is coming down, partly is a priority, but also remember, we sold this in the Finnish scanner business and also the Swedish one 1 year before in the third quarter, and that contained a lot of hardware.

So that's where we are on the quality of earnings. As were presented, there is significant cost improvements compared to Q4 last year. And in total, we've reduced costs for the quarter by NOK 16 million. And you can -- I'd just like to remind you the ambition for the Triginta margin improvement program was NOK 60 million. So we are not that far away, I'd say. Significant cost improvement on COGS. It keeps coming down. We think it will continue to come down, but this is a marathon not a fast sprint.

But over time, it will come down. We will maintain control on other OpEx. And if you read the report, you'll see that our nonrecurring items there were approximately NOK 1 million. If you want to make your own adjusted EBITDA, you can do that. But as usually, we don't make any adjusted EBITDA, but the cost is coming down significantly. We're almost there on COGS and we are on the OpEx. We are a bit closer than you think on the salary and personnel as well.

And the reason is that we are -- the difference between the Q3 and Q4 is the payment of holiday pay in Norway and Sweden. And that explains most of the difference between Q3 and Q4 this year. Then some more use of consultants, approximately NOK 2.5 million more in consultants this quarter. And there's also an FX effect in the salary and personnel numbers. While we consolidated numbers in Norwegian kroner in reporting currency, most of the employees are in other currencies than Norwegian kroner.

And as it weakened through the quarter, that translated in NOK give you a higher number. All right, we are indeed approaching the 30% EBITDA margin on an annual basis. A stark improvement from Q4 last year was minus 21% and plus 19%. So 40 percentage points improvement from -- in 1 year. It may not be perfection, but it is certainly good progress.

Ideally, that said, our ambition was that the EBITDA should have been a few percentage points higher, say, 2 to 4 percentage points higher to be perfectly in line and that is, again, linked to salary and personnel and for the reasons I mentioned, increased use of consultants and some other. But we were down to a couple of millions really if you adjust for the whole payments.

All right. CapEx, we are investing in our own growth, in our own software as well as in new businesses. And capitalized expenditure, that is R&D for all practical purposes, very little PP&E. It's about on the same level as last year, comprising 13% of sales this year in the fourth quarter compared to 12% in the same quarter last year. But by and large, we're there. And year-to-date, we are exactly on the same level as we were last year, just a little south of 10%, and we have guided on 10% as the standard. So I'd say, those are it.

All right, net working capital, we were disappointed about the development last quarter. Part of that was linked to the Triginta accruals, one-off fair enough, but part of it was really, we had focused on top line growth and improving the margin and maybe lost the cash a little out of sight. Not anymore. We see an improvement from Q3 from minus 5% to minus 11%. Our target is minus 10% or better. So we are there. But we are not as good as last year. So minus 4 -- it should be 4 percentage points less in working capital compared to last year.

And this is a priority going forward to improve the net working capital as well as cash conversion overall cash discipline. But we noticed that we were laying a little behind our ambitions when we did receive the third quarter numbers mid-November and we started to improve, but it will take some time before it showed. It improved somewhat in the Q4, so not all that bad. But we will continue to focus on this going forward.

And hopefully, you can see some even stronger improvements in Q1, Q2, Q3 and Q4 this year. All right, as Sverre said, we are continuing to build this business, and it is a marathon. And we will continue to focus on this market with the underlying growth. We will continue to focus on specialized software within clinical disciplines and emergency. We will continue to address public customers or public sector-like customers. We will focus on organic growth and do it profitably.

And then we will do acquisitions when the time is right and the opportunity is there. But we are in no rush to do a bad deal. All right, and that really takes me to the concluding remarks. Our focus right now and our priorities is to maintain the strong organic growth. As Sverre mentioned, we have enjoyed above 10% for the last 3 quarters and around 10% for the past year. Our ambition and our guiding is still 5% to 10%, but our ambition is to continue to be in the upper end of that interval. That said, part of the explanation for that ambition is, of course, also we are in a high inflationary environment, and we will continue to profit from that.

So we get some tailwind from the inflation. We will continue to improve the margins by maintaining strict cost control. We will -- on other OpEx, but we're not about amputating the fingers. It's more than cutting your nails. So we're going continue to improve. We will continue to improve on COGS quarter-by-quarter, step by step. And right now, primarily the task is about replacing third-party software with our own IP.

And then last but not least, we will continue to focus on salary and personnel, external consultants and maintaining a tight cost discipline. And if the cost is maintained around these levels or maybe a little less, and you have -- and they will increase over the year with inflation, and we can grow the top line by close to 10%. Well, you do the math. Cash discipline, absolutely. We will focus on cash. I even thought maybe I would dress in Black today to honor the cash, but I didn't since the spring and I wear a gray suit.

But we will focus on cash. That is net working capital that is getting -- selling out invoices that is getting paid upfront rather than -- from customers rather than later. It is on cash conversion. It's all about that. So that is a top priority and it links very well with the last bullet point there, M&A because of strong cash conversion, also is a funding for further acquisitions not only the bond on our equity, but also funding from our own operations. There is high activity on the area. We have several discussions going on.

But again, we will remain disciplined patients, not often seen in finance, but probably a good way and a beacon to navigate after. So we will remain disciplined. But when the opportunity is there, we are able and we are willing and we can act fast. So stay tuned for something to happen. All right. Before we venture into the Q&A, if you [Technical Difficulty] subscribe to our newsletter, just scan this QR code with your phone, and it will take you right to the subscription page. All right. Time for Q&A.

[Einar Bonnevie, executive]

Are you ready for some Q&A Sverre?

[Sverre Flatby, executive]

Of course.

[Einar Bonnevie, executive]

Of course. All right. We have 9 questions thus far. I'll start with the most recent one, so I can sort through them. And this one is for you Sverre, it's from Matthew. And it's dear Sverre and Einar, thanks for your hard work. I'm curious about private market multiples currently, Nordic markets have never looked hotter for software companies. Could you give us some numbers on what multiples you are like right now? Or maybe it was for me after all.

[Sverre Flatby, executive]

I guess...

[Einar Bonnevie, executive]

It was a long question. All right. The multiples in the private market, it's a bit hard to tell. I think you will see that there is quite some distance between the expectations of multiples by the entrepreneurs and the private market and what is actually where transactions are going. I'd like to say that if you use the multiple EV sales, I would say, enterprise value is the most -- the financial definition. But when you speak to an entrepreneur is very often emotional value. And our job when we negotiate is to bridge that gap. I'd say it's -- we have always been doing acquisitions on if you use EV sales between 1 and 2, and I think it can still be there.

But that said, how we really do in the calculation is an NPV calculation. So the EV sales is more a proxy than anything else. But I'd say it would be still within the 1 to 2 range, where the transaction would be done. But expectations are -- and have been higher.

All right, and this is for you Sverre it's from Henrik Larsen. And it says, how will you manage to mainly use internal resources for large projects going forward? And what will change from today?

[Sverre Flatby, executive]

That's a very good question. And as you know, there's one big project that actually -- that we also published publicly, and that was the contract in Denmark. And this contract, we have, through 2023, finalized the main delivery of that contract, meaning that the whole country, Denmark is now using our blood management software. But this project alone would probably -- if you have removed external consultants from that project alone probably been on 30% EBITDA in the second half of 2023.

However, there are new things to come as it always is, a new functionality, replanning of the projects, added components, new versions, et cetera. And these processes are short term, the planning process and then it will be transferred to ordinary operational activities. And the reason why I think this is not going to be a challenge going forward is that we don't have any -- that type of big projects going on at the moment that are not handled by internal resources.

So that is actually the answer. And we've seen it since we are already into the first quarter that the reduction has been going on through the first quarter and the finalizing of the planning process in the big project is over, meaning that from the second quarter and onwards, this is not there anymore. So I feel quite comfortable that going forward, our team with employees will handle our current business without help from consultants. Although there are always smaller things, but not that type of amount that we are talking about in 2023.

[Einar Bonnevie, executive]

Thanks, Sverre. I'll continue with a question that is down the same alley from Matt and he or she writes, you are focused on cost and salaries, aren't you afraid of losing your best talents or failing to recruit new ones?

[Sverre Flatby, executive]

I don't think the reduction here is not really about reducing the number of employees or reducing the costs as it's more like most of the cost items are external consultants. So I think we will be able to secure that we can stick to our current business without doing any type of project like the Triginta margin improvement project where we had to reduced number of employees and focus on cost items like that.

So the main challenge is actually just consultants. So I'm not afraid of that, and we work hard to make sure that we measure how employees feedback are at the moment, and we will take action based on that. But we don't see that the personnel expenses to our current employees is the problem, it's actually the consultants.

[Einar Bonnevie, executive]

Okay. Thank you, Sverre. I'll continue with the question. The very first question that came in from Karl. Thank you, hadn't forgotten you. And it's about capital allocation, and that is, I guess, what this running business is really all about? It's a long question. I'll take it in parts. The first one is thanks Sverre and Einar and thank you. How do you think about various ways of allocating capital, internal investments versus M&A versus share buyback?

Okay, let me take that one first. CapEx is the investment for our own development, and we have guided at on approximately 10% of our total sales or total revenue and M&A and buybacks, M&A really, as long as we have the capital, there isn't a limit of what we can buy, but we have said maybe to grow ideally 10 percentage points organically and 25%, 30% percentage points through M&A in the year, and that is [Technical Difficulty] we keep up with to give you an idea.

And then share buybacks, should be seen in conjunction with M&A because when we do a share buyback, and we have our own shares, but we can only use -- we prepare to -- plan to use them for as a partly or complete settlement in future M&As. The bond agreement doesn't allow us to use them as dividend and to know them or to avoid them just for your information.

And then the follow-up question, do you follow a certain return expectation, a hurdle? We have a weighted average cost of capital of 12% that we use. And how do you prioritize between these levers, I think I addressed that in my previous comments. Okay. And the next question, I think, is can be for you Sverre, and this is from McCarrie and Kevin Yemi. Thank you, guys, for another solid quarter. Thanks, guys. And the question, looking back, have you achieved the hurdle rates or goals you had for 2021 and the 2020 acquisitions?

[Sverre Flatby, executive]

Yes, there are. As you will see, for those of you who know our internal margin expansion methodology called Buy, Integrate and Build. You will see that the last acquisition we did was still within the 2-year framework of margin expansion. So the Health Analytics business area still have some work to do to finalize through the first half year.

But other than that, we will actually see that now the business is an ordinary organic business run decentralized with separate business area managers and with no other integration activities than the one in Health Analytics, which is a small part of the total. So in that sense, it's -- I think you can expect that this will be predictable going forward.

[Einar Bonnevie, executive]

Another question for you from Henrik Larsen. And it relates to the project -- to the LIMS and Emergency projects. And he asks, when will your large customers' projects for LIMS and Emergency end ?

[Sverre Flatby, executive]

Well, the big impact here is on the LIMS part. The Emergency is much smaller, and that part is an AI project, which is important. It is let's say, a modern engine supporting the 911 operators with an AI engine that could help making decisions much faster. And we added a cooperation with the University of Valencia, which also we have to pay a part of that cost. So but that is a smaller part. The big one is the LIMS, and that is now a project that will go on until 2027.

On the other hand, as I mentioned, the project now is more transferred to the ordinary business. It's not a huge, big separate project because the major milestone has been reached in 2023, namely that the big capital regions of Denmark now using the software in production and we also got feedback from those who run these blood establishments that this solution is working well.

That means that activities going forward in the period from -- to 2027 is more about adding new versions and new components in the next 3 years. And after that, you'll probably see 10 to 20 to 30 years of recurring revenues and add-ons and the same activity that we normally have after delivered such a big solution.

[Einar Bonnevie, executive]

Okay. We have 6 more questions pending. And again, and we have several -- a good quarter. So if you have any more questions, just type them in as we continue with the next question, and that is from Emilia. And Emilia, she wonders, Sverre, what is driving the strong organic growth guidance for 2024? Or should we not consider what you said the guidance?

[Sverre Flatby, executive]

That's the word guidance is important. I understand that. We have, I mean, the last 5 years, guided on the 5% to 10% and I think the trend, what we see now is that we have been in the upper part, as you've seen in the last 3 quarters, even above 10%. And I think the reason is that many of those installations we have and the volume have obviously increased, is that these added components, added integrations, et cetera, seem to continue.

So we'll still guide on 5% to 10%. But I think what has happened in the last 3 quarters is not going to dramatically go down. So in that sense, I'm more comfortable thinking that we are closer to the upper part of the interval.

[Einar Bonnevie, executive]

Okay. And then we have a few questions on M&A. I'll try to group them and take them in one. And the first one from Karl Kanger and he is looking back at the M&A deals after the IPO, what are the learnings in any? And is there anything that you would have changed your approach since the last deal. So how we learn and the things are?

[Sverre Flatby, executive]

Yes, we learn all the time, even we're too old men. We still learn definitely. And I think the most important thing we talked about is that we probably made a mistake by not decentralizing before we are build because we see now that the methodology of Buy, Integrate and Build inside one business area is much, much easier to handle, easier to scale and it's transparently easy to measure because it doesn't disturb other business areas.

So in that sense, the most important thing we have learned, and I think that partly comes from many of our American shareholders that do learn from the biggest one that work with the acquisitions. So I think that part is in my head, the most important learning. But also, we've seen that some of the activities might be done faster. And we are now in the position because we have worked the last 2 years with digital tools to be more efficient when it comes to further integrations.

For instance, invoicing, automatic invoicing routines, et cetera, that way we could add faster into the new acquisition targets. So in that sense, I think we are positioned to with the decentralized model and digital tools be able to get more out of acquisitions in the future faster.

[Einar Bonnevie, executive]

Okay and continuing on M&A from Emilia and she wonders, do you expect M&A to materialize near term? And is it any segments that you are more likely from an M&A perspective? So what are your thoughts Sverre? What can you say?

[Sverre Flatby, executive]

You always said, Einar, that it takes two to tango. So obviously, we have to get into an agreement and agree with the owners of those we discuss with. So we cannot anticipate exactly where we're going to hit the first ones. On the other hand, I see that from our database, which has a very high value in my head, we have been working on that since 2005, almost 20 years. We have an overview of these targets, and we have dialogue with many of those and have had that for years.

So they are adding elements to all of our business areas. So we still have possibilities within all areas. And so I don't think it depends actually more on the actual negotiations with the parties rather than a decision we make or a trend within any business area. So I think near term, the question is what is near term, but we have had hard work in 2023 with M&A as well, although we haven't closed any deals. We have very good dialogue with many of those, and I think we will end up doing or entering that growth of 25% to 30% M&A growth annually going forward, that should be our goal based on what I see from the database at the moment. And whether it comes in one of the other business area, you will see. So looking forward to tell you Emilia.

[Einar Bonnevie, executive]

All right. One last question on M&A. And that is, what can you say about your M&A efforts since the refinancing of the bonds? And how are the expectations of the sellers?

[Sverre Flatby, executive]

Well, one thing is we have some cash available. We have a bond with a tap issue of NOK 500 million. We have the ability in that contract with possible earnouts and seller credits, et cetera. So that means we have a war chest here to do what we are supposed to do. And I think we are in a position to do that, to continue and do exactly the right deal at the right time. That means also, I think we are able to acquire both small and bigger compared to ourselves, probably not bigger than half of our own size, but at least if you look at it that way, we have the possibility financially to do it. And we see from our target list that there are a lot of good targets there that both small and bigger ones that could bring us fast to our -- the targets we are working for.

[Einar Bonnevie, executive]

Okay. There are 3 pending questions. Again, you can continue to type them in. One from Oliver. And Oliver is writing why did you not have better visibility on Q4 salary cost by Q3? In other words, why the surprise on OpEx and CapEx? And what are your margin cost expectations for Q1. I'm not sure I subscribed to the idea of not having visibility. Maybe we haven't been clear on it.

So I'll repeat that. But in Omda, we are accounting according to GAAP, to Norwegian GAAP, Swiss GAAP and it's always the way that you accrue for holiday pay throughout the year. And when a person takes vacation, when you're off work, you're not getting paid your salary for natural reasons. And that is when you're using the accrued salaries or accrue holiday pay instead of the salary for that period.

That is classic NRS, an NGAAP, an [ SGAAP ]. We have always used that accounting method. It could be discussed should we use an average method more IFRS like, it could be an alternative. We have decided to continue to use the method, but we're very transparent, very clear about it. And it also makes it very much easier for you to do a comparison from one year to another. If you constantly change the accounting practices, it probably more confusing than convincing. But that's the way it is.

So absolutely nothing new. You saw the same thing last in '22 and '21 and '20, et cetera, et cetera. But as most of the employees are in Norway and Sweden, the countries having this arrangement is, of course, becomes maybe more dominant. But you can read that out from the personnel, the pie chart in the report where our [ OFTA ] is located. So that is one thing.

On the CapEx, I don't know if the production can bring the Power Point slide up again, thank you. And there you can see, CapEx is routinely higher in the fourth quarter, actually for the very same reason for the holiday pay when people are on vacation, they are not on work and they are not coding when they are back to work in the fourth quarter, very few holidays, public holidays and vacation days, they're work and they're coding.

We have always guided and we saw it was 12% last year, same quarter last year and 30% this year around the same number. We have guided on 10% on an annual basis, not necessarily on a quarterly basis, right? So that was just what I wanted to remind you about. And when it comes to guidance. For the first quarter, we haven't guided specifically for a quarter. We are trying to show you the ambitions for the year. Sometimes I mean, like a sale can slip from the 30th of March into the 1st of April and it shifts the quarter, that is not what you should worry about.

But expect to see distribution of costs, et cetera, to follow the same pattern from quarter-to-quarter from year-to-year. So that is what I will say to you. And there may be some natural variations. But we stated the ambitions for next year and our priorities and I think, for instance, on organic growth for the last 3, 4 quarters. And on the cost side, we are indeed working on our ambitions and our priorities. And again, maybe not perfection, but certainly good progress, in our humble view.

All right, 4 more questions. And this is also related to economy. So I'll take that one from anonymous. What revenue level you expect a 30% EBITDA margin to become easily achievable in terms of scaling the cost base and I'd say, yes, I don't think we would need to scale the cost base, particularly on COGS. On the contrary, other OpEx, we are running a lean organization, and we invested heavily in digitization and we see the benefit from that so that we scale better, say, on accounting, et cetera, and on IT.

And on the salary and personnel side, I think we're more or less there. Remember that during the cost saving program last year, a lot of people that embarked on journeys on new careers, they were on the administrative side. So yes. And for you Sverre, there are 3 more questions. And 2 for Matthew. First, dear Sverre and Einar, could you enlighten us how the tender process length and bidding process worked in your markets and do discretionary price increases trigger a contracted churn?

[Sverre Flatby, executive]

Well, I think the most important thing when we talk about tenders in our markets and in our business is that since these systems normally are in production for decades, there are very few tenders. And our strategy is actually to avoid tenders because we would rather acquire systems to grow than participate in tenders because they are so long. We have examples of tenders going on for decades without ending in a successful installation, many of those actually in Nordic regions.

So that has brought us to an idea that we stick to the organic growth we have when we plan it, that is the organic growth coming from our existing contracts with existing customers. So the 5% to 10% is coming from there. If a tender comes up, that will work for some years, and we have some examples, the one in Denmark is a good example.

We have had installations there for decades, and then they ask us to participate. We will obviously participate in that type of tender. But that was one, maybe the next one is in 20 years in involved management. So it's the long-term thing is a very good thing when it comes to recurring revenue streams. But when it comes to getting new customers through tenders, that is really not our game.

So I think that is the most important takeaway. So but there are sometimes to specifically say how long will it take to participate in the tender. Normally, the customer planned for a couple of years a tender. They use a couple of years to carry the tender through. Then you have maybe a 5- to 10-year implementation phase before you get after 15 years normally then to an ordinary operational status. So that is why our strategy and our budget has not focused on tenders at all.

[Einar Bonnevie, executive]

Okay. Two more questions and 2 minutes left. Both questions from Matthew. I'll address the first one. As a follow-up on a tender question, how do your counterparties view on the use of debt, do they ever express worries about the leverage the company is after all, providing mission-critical functions. And yes, we are. On leverage, if-- make it short, if we reach our ambitions for 2024, we will have a net debt to EBITDA of around 3 and net debt to recurring revenue of 1.3. So that should be considered a higher leverage and certainly isn't in contract with the bondholders. And no, they haven't expressed any worries about our debt level. Okay.

And the last question from [Technical Difficulty] also Matthew quickly, dear Sverre and Einar, now that the business structure is decentralized and segment CEOs are taking care of the day-to-day operations, what are your duties and days like?

[Sverre Flatby, executive]

Of course, we will focus more on the growth side, at the same time, follow up each business area that these trimmings that the tasks there to secure the 30% running EBITDA is there is obviously still a priority. But on the other hand, we will focus more in 2024 on the acquisition side because we see there are large opportunities for us, and we will continue to be a growth company as well, a solid and profitable one.

[Einar Bonnevie, executive]

Okay. We are a bit overdue, but a very last question and that is related to share buybacks and the question is, do you see Omda stock better buy than further M&A activity? And that's I think it's absolutely makes sense to buy back your share when you think it is when the price is below the value. And in the new contract with the bondholders, we can buy up to 50 million of our own shares, and it's a revolving facility.

And you probably don't have to be a fortune teller to try to guess what will be suggested for the next AGM. But again, sometimes the acquisition [Technical Difficulty] very attempting. So there is a competition. All right, all about the capital allocation seems to be no more questions. And thank you very much for your questions, very much appreciated. We hope you have enjoyed this presentation.

Please tune in again on the 14th of May, when we will present on those results for the first quarter of 2024. And until we meet again, thanks for watching. Take good care. Enjoy your weekend, and as always, stay safe.