Physitrack PLC

STO:PTRK

Earnings Call Transcript 2024-Q1

[Henrik Molin, executive]

Good morning, everybody, and welcome to Physitrack's Q1 2024 Results Webcast. I am Henrik Molin, and I'm joined by the always amazing Charlotte Goodwin, Physitrack's, CFO. Let's kick this off.

We will start off with looking at the quarter in short with some of the highlights. We'll go into the business updates for the 2 divisions. Charlotte will talk us through some of the financial results in detail. We'll move over to strategy and outlook. And we'll finish off with a Q&A. [Operator Instructions].

So let's just get going here. Q1 in short, a very exciting quarter for us for a number of reasons. We passed another million milestones. So we're now safely over the EUR 16 million annual revenue threshold, which is really, really nice following a strong quarter-on-quarter growth. The second box that's on the left, our subscription revenue growth is now over 80% or the subscription revenues -- sorry, as a proportion of the whole business, 80%. So EUR 10.5 million is recurring and nicely stable. It makes it really nice and easy to plan a business when it's like that. Very strong growth. We increased with EUR 1 million compared to this quarter in 2023.

Next box there, we are cash flow positive for the second quarter in a row post-IPO, which is very nice. So we keep investing in the business. We keep planning our future trajectory in the most the best way we can. So it's kind of one foot on the gas, one in the brake, but it's producing some nice cash flows, but it's not compromising on the way that we accelerate right now. And as you might have seen from the announcement yesterday, the Santander U.K. GBP 5 million credit facility has been extended for a further 5 years into 2029.

And lastly, on the right side there, adjusted EBITDA year-to-date EUR 1.1 million, which is fantastic. So 26% growth compared to last year. And some of the highlights there in the box you can read out with. But the bottom one, they're very, very important. We have merged our sales market and customer excellence team into what is known as the growth team internally because the blow for customers is more and more holistic, so you want to keep that relationship from whenever somebody browses your website into them becoming a customer to them needing support and eventually experiencing some great things.

And maybe sadly, if that's the case, contemplating leaving. So you want the whole operation to work seamlessly together with fast decisions and the best tools available. So we've done that in the last couple of quarters, and that's really, really a great experience for us. And of course, adopting AI you might have seen the launch of Fysiotest co-pilot widely over the last few days, which is a great way to find and assign exercises. But also, this is the starting point really for us to develop more of these features or more of this to come. And empowered by open AI, obviously, the new GPT [indiscernible] last night with those speech capabilities are going to be very interesting for where we go next with some of our mobile apps. So stay tuned to that.

Now in terms of the 2 divisions, just in terms of the tilt there between them, so 63% is Lifecare, 37% is wellness. So putting the tools into the hands of health care providers around the world within the tools into the hands of employers around the world so that they can help their employees feel better and more productive, happier so on. And you saw the amazing Laura Dallas, Head of Product, launching the new 3.0 version of Champion Health, which is an amazing upgrade with anything that's related the actual content, the way that it's distributed, the algos, how they work to hyper-personalize that. They're also wearables, you have the sleep tracking and you have the goal settings and team challenges. I can go on like this all day because it's a massive upgrade and this is something that's going to be really, really interesting as we roll that out globally. More on that in a second.

Now for Lifecare, we see a really, really nice strong growth in the license number. We had some record months in the first quarter. Happy to say that also continuing into the second quarter in terms of subscription growth. Some of these numbers, we have not seen since the incredibly strong pandemic numbers of 2020. And as you can remember, when nobody really could see people face to face, so they had to work with tools like Physitrack to make things work for the patients. So we're seeing some of the best numbers ever. So top 3, top 5 numbers in terms of license growth in terms of that ARR growth. So really, really nice to see and it's a great testament to the hard work that has been done on product engineering, marketing and customer excellence over the last few quarters there on that product.

Now just walking down the list there on the left, you see the some new features there as well, new algorithmic search that we have powered up, it's faster, it's more predictable, and it's something that's making customers much more happy the co-pilot is a big one, and there'll be several more tools like this to make sure that we can really hit the sweet spot when it comes to the way that AI can help you accelerate in terms of business development. And of course, a lot of tools in-house as well to help us with go to market with the new growth team that I was speaking about and the take-rate workflow of our teams. So there's not one team that is not touched by AI in terms of optimizing what they do every day, making sure we get more acceleration of turning our team into superheroes that's an amazing thing that AI does for us.

We spoke about the growth team already and is generating already some really, very nice numbers and more to come from that. We've only just scratched the surface on that. And also on the product team side of things. So you are seeing some interesting features yesterday. We had the launch of BEC assign, which is the rapid fire ability to push out excise programs to patients very, very quickly straight from the basket. For example, something that we've had in development for a while. But we're moving into a product operating model for the product team, which means that customer research using great data-driven tools like full story is something that's powering our marketing site and powering our product, so we can understand exactly what our users are up to and what their needs are on an anonymized basis, of course, so that we can make the right prioritizations and product decisions in the world that's moving extremely fast in tech.

And we will actually host our first hackathon in May to look at gamification features for the patient app. So the patient tap is really at the heart of everything. We have 7 million, 8 million people every year they use that for the rehabilitation. And we want to empower the patient to make decisions about how that journey should be more in detail, so not compromising cause on clinical quality, which is set by the healthcare provider, but having some choices available for those patients on how that journey should be. So that hackathon with over 30 really, really clever people in-house in the group with engineers and developers and product people that's going to be amazing just to see what comes out of that.

Now as an effect of all of this work, you can see churn is also down. So we're down at 1% with monthly data, 12 months looking back. So really, really nice strong month -- sorry, quarter for the wireless division. Looking at looking at wellness here, and I should have said Lifecare on the previous slide, I meant to say Lifecare -- this is wellness. We are seeing some really nice innovation there. So you saw a lot of that of us Champion introduce 3.0. It's an amazing upgrade to the platform. And of course, we are launching in 8 languages in the coming months. And so localization work is well underway there. It's going to be super exciting to cater to multinationals, of course, based out of the U.K., but also to cater to the people that we have under our wings in the Nordics and in Germany, for business development directly with existing customer bases. So some really nice things there coming live in the next few months.

Strong quarter of sales overall with Champion Health and some nice wins there. The pipeline is being expanded. We have some new amazing salespeople that joined just in the last few weeks actually, and they're already hitting the ground running with record numbers in terms of meetings booked and in terms of how that pipeline is developing. So great things to come from there.

And lastly, Champion Health Plus also riding the AI train here, and we're developing self-service tools for MSK and also the development of our national network there to be able to reach more people, more widely in the U.K. Those are powered by some great, great tools for self-management, so that's the ability to diversify what we do there with our existing and new customers. So many, many exciting things to come.

Now in terms of the growth team. So I mentioned this in the introduction. And of course, this is a way for us to turbocharge what we want to do here in terms of that customer journey. And so things move so fast these days. Customers are very picky in terms of the relationships that they want to have with their software providers. They want things to be really seamless. They want things to be really fast. They want things to just be as amazing as they can. And once they've had a great experience, they want that to be replicated everywhere. And that's throughout the whole journey. So really to make sure that we can work as quickly and as seamlessly as we can with our groups of customers with merged sales, marketing and customer excellence into our growth team.

So we're very, very serious about meeting these ever challenging expectations that customers have by doing it this way. And some great, great tools coming into this. We just launched our AI agent, Robin, our marketing [ pages ] and in the product. And so that's something that's powered by AI to be -- to make sure that you can get answers to customers -- prospective customers and existing customers as they go through that journey. And it's very, very nice. The resolution rates are incredible. There are over 80% in terms of what we can achieve with Robin. And these are only early days, but we're really really catering to the ever-increasing needs of an exciting customer base. So hello to the growth team, and I will see you on the move. That's the business update from my side.

I will now hand over to Charlotte for the financial results.

[Charlotte Goodwin, executive]

Thank you very much, Henrik. So as usual here, we'll start with an overview of the key financials for the 3 months ending in March 2024. In the quarter, we delivered revenue of EUR 4.4 million, which was up 10% on an absolute and organic basis from EUR 3.7 million in the prior year. Within this, we've continued to see strong growth in our core subscription revenue, which has grown 23% in the quarter to GBP 3.3 million and now represents 80% of our total revenue.

In the quarter, the Physitrack Group delivered adjusted EBITDA of EUR 1.1 million, up 14% from the prior year. And this resulted in adjusted EBITDA margins of 26%, which is up from 25% in the prior year. Total EBITDA has increased 32% from the prior period to EUR 1 million, driven by adjusting items falling away. Operating cash flow has increased 379% to EUR 0.9 million, and this reflects our continued focus on cash generation.

Moving to the next slide. Now on to a closer look at revenue. On the left, you can see the group revenue by quarter, both on an absolute and organic basis, there's not a difference this quarter between absolute and organic and the FX rates have been pretty steady, and we haven't any M&A activity. On the right here, you can see this revenue split by Lifecare wellness. You see the revenue growth is being driven by both divisions.

Please, the next slide. Now you can see the group subscription revenue, which we've seen strong growth. Subscription revenue has been growing as a percent of total revenue for some time now and now represents 80% of total group revenue. We grew 23% in the quarter against what was a strong comparative in the prior year.

Please, the next slide. On the left we have adjusted EBITDA shown by quarter for the prior year and so far in the current year to date. On the right, we have EBITDA by division in Lifecare, which is our longest established division, EBITDA margins at 49%, in line with the prior year. In the Wellness division, margins are currently at 6% compared to 4% in the prior year, as we focus on margin expansion in this division. The gray bar represents group costs such as board fees, listing fees and associated advisory fees, and these are flat year-on-year, so now represents a smaller percentage of total revenue.

Please to the next slide. Now looking at cash. We opened the year with a cash position of EUR 0.5 million. Adjusted EBITDA in the quarter has generated EUR 1.1 million and was offset by interest payments of EUR 0.3 million -- sorry, EUR 1 million. Intangible assets and fixed asset additions, EUR 0.8 million and consist of development of the Lifecare tech platform and investment into the wellness ecosystem. There was also EUR 0.1 million of adjusting items related to M&A integration. And this relieves the group exited the quarter with cash of EUR 0.6 million.

In July 2022, we entered into EUR 5 million sterling revolving credit facility with a 3-year term. And this has recently been expanded for a further 5 years. The EUR 0.6 million of cash plus the remaining undrawn facility of EUR 2.1 million, gives a total available liquidity going forward of EUR 2.7 million. We expect this liquidity to be sufficient for the group's requirements going forward.

And, please the next slide. And this slide shows the total free cash flow by quarter. And due to spend on M&A and integration costs, we get recognized adjusting items in the P&L and investments in both the Lifecare and Wellness division, we've had a net cash burn in recent years. This cash burn has been steadily decreasing and was robust in Q4 2023. We're pleased to continue this cash generation into Q1 2024. We'll continue to be focused on improving cash generation going forward. And although there will be seasonal variations of reporters, overall, we expect 2024 to be free cash flow positive.

Moving through to the group's balance sheet on the next slide. The first line here includes the internally developed technology platform as well as intangible assets and goodwill recognized on acquisitions. Cash and borrowings, we've already covered. And trade and other receivables have increased in line with the increase in revenue. And this increase is partially offset by an increase in deferred revenue where we've had more upfront sales. The [ third ] tax rises on the intangible asset balance is recognized on acquisition, and this will unwind over the period of the amortization of those assets. The Fed consideration has dropped year-on-year, both repayments being made and a revaluation at year-end reflected the current expectations of the timing when certain revenue and profit targets will be met.

We currently expect to pay on the third consideration payment in the year likely to be in H2, and this is currently recognized as current consideration.

That's all for me, and I'll pass you back to Henrik. Thank you very much.

[Henrik Molin, executive]

Thank you, Charlotte. That's great. So strategy and outlook, just a quick revisit of this. And remember, I used the word holistic quite a lot, and you saw that with the [ interclip ] with Champion House, the new platform people now amazing as really that holistic needs that companies have. And we believe that this is really putting us into true product market fit. So you see also the Physitrack family of products. So trying to cater to all needs in one place, and that's the tune of the world that we're in. right now. So that's really excellent.

There are some great macro growth drivers, although the macro climate can be slightly challenging when it comes to the interest rate levels in terms of payment speeds and some customers are a little bit more slow in making decisions in the environment. But net-net, as you can see, this is something that's not really affecting us that much, but it's something we are watching closely.

That profitable growth is very much part of our DNA, but as you've seen as well, it's very important to invest into new initiatives so that you can launch them when things are really current and hot, you don't want to be a laggard in the world of tech. You don't want to be the last one on the board with certain things, unless you are to Google and you lost the last search engine -- but [ just aside, ] it's very, very important to stay on top of the innovation curve and that's what we do when investing business.

So it's -- we have one foot in gas, one on the brake, as usual with that robust business model, as you have seen, so 3 years of nice steady planned growth for this and no real hiccups, I'd say, in terms of how that portfolio has performed for us in terms of the businesses that we have, making it an all-weather product. There are some changes to our financial targets. So we live through the medium term on our first target set post IPO, which was 30% organic growth over the medium term. And so with that medium term, pretty much past, we have now set our eyes on the next financial goal, which is to double the company in the medium term in terms of top line revenue. And this is something that's highly motivating to us and our teams, and we see some great things come out with that.

And profit margins unchanged, as you can see with the Lifecare division clocking in at almost 50% EBITDA margins is something that's very realistic for us to achieve across the whole group. Now again, one foot on the gas, one foot on the brake, very important that we don't compromise on investments in the key initiatives that's going to drive growth to the tune of doubling the company in the medium term and beyond. But we are, of course, very focused on profitability as we do this.

Value cash creation, we see this as a highly cash flow generative business over time, which can lead to distributions, just not in the phase that we are in when we need to invest in the business as much as we can. And that concludes the presentation here. We're going to open up for some questions. Let me just open the Q&A panel.

[Henrik Molin, executive]

First question here. Do you see the positive trend from Lifecare continuing into Q2? And how confident are you in signing some large wellness contracts during Q2. So the answer to the first question is, yes, we do see the positive trend continuing in April. We continue to see top 5 subscription growth on the Lifecare side of things, which is really nice. We'll see that [ Juris ] obviously still out for the rest of the quarter, but that positive trend that started in December. And moving into the first quarter, it is continuing, which is very, very nice to see a great testament to the hard work that's done by all the amazing people on board.

Large wellness contracts during Q2, yes, we are very confident about that. Pipelines are really nice and full. I indicated some challenges with payment speeds and decision-making speeds, but that shouldn't affect what we have there in the pipeline for Q2.

Second question there, and I'll pass it over to Charlotte, what portion of the year-over-year growth in ARR stems from volume increases compared to price increases.

[Charlotte Goodwin, executive]

At Physitrack [indiscernible] it is roughly 1/3 price increases and 2/3 volume increase.

[Henrik Molin, executive]

There we go. I continue to believe that our technology is underpriced compared to the utility that it has for our customers and the value that it brings. And of course, with the increasing feature set and the great investments that we do, but we see that there's quite a lot of prices to elasticity in our favor going forward. So we will continue with that trend for the foreseeable.

Next question here. Regarding the growth of licenses within the Lifecare division in Q4 and Q1, what percentage we originated from new customers versus existing physiotool customers, transitioning from a multiple user license to one user per license. I'll bounce the first part of that over to Charlotte and I will fill in the gap.

[Charlotte Goodwin, executive]

In regards to that none of it originates from that [indiscernible] The license the user data that we give is users. So where people have concurrent licenses, we count per user. So it was a comparable metric between Physiotools and Physitrack, we could combine it into oone to report for Lifecare as a total. So there's no impact of people just moving license types areas by user.

[Henrik Molin, executive]

We do see some interesting traffic between tools and track, which is nice to see that we get adopted in the old Physiotools homes. And it's obviously great to be able to cater to as much as possible, one platform in terms of innovation, and that's really helping us with growth. And -- but physiotols, it's a really, really nice steady cash flow generating business, and we're very, very happy to have that on board, and we'll see what happens here over time in terms of that journey from tools to track.

During the last conference call, you expressed strong confidence in the return to 30% organic growth by the second half of 2024. Is that outlook still unchanged.

I remain very confident and remain very optimistic about the capabilities of these products and these teams, especially with the way that we have invested in the platforms, in the features, in the growth team and in some great, great people. I think we net added 12 people to payroll since the third quarter of 2023, just to make sure that we could accelerate in a very, very nice way. So we are in 2 exciting total [indiscernible] markets. We're doing some great things there. So we have no reason to not be confident about our abilities to achieve great numbers there.

Next question, considering the current cost base and investment, what run rate is necessary for the Wellness division to begin gaining significant leverage for enhanced scalability and when do you anticipate this to be achievable. But we don't look at the Wellness division and the Lifecare division as 2 siloed businesses where you have people and innovation and great products siloed on one side with Champion Health and then the same thing for Lifecare. There is a lot of cross work with what we do with product engineering and sales and marketing and so on. So it's much more fluid than that.

So it's not really necessary to isolate a certain sort of critical mass of run rate that you need to to get operational leverage because you get the operational leverage with that cross-functioning of it. So the Champion is a business that is powered by people from EUR 15 million, EUR 16 million worth of revenue at this point, and that's huge operational leverage. And that's really necessary because with the size of that total addressable market, we really need to put all firepower available from the smart people and the team into what we do there because our competitors in the space and the developments in this space indicate that if we don't do that, we're going to -- we're just going to be sam blasted out of a very exciting situation. So operational leverage comes from the whole group. So I hope that's a good answer for you.

The second -- so the next question here. With continuing education, we recorded 0 sales for the quarter. So I'd say, actually, we're rounding into the closest 100,000 that -- so it wasn't -- it was not actually 0 sales. So just sort of dig into the decimals and we'll -- you'll see that it wasn't. But what's the current state of orthopedic courses and what actions are needed for a guessing the last word should be turnaround.

Now so there's a lot of cross-selling going on between courses. So we have 15,000 customer database on the course side of things. And so that's cross-fertilizing nicely into the track ecosystem and conversely, which we'll see more with the growth team just getting their feet to the ground in terms of campaigning. We've been quite quiet actually on campaigns for the last few months. But as to get going there, we will see more of track users using the [ physic courses ] solution.

Right now, it's growing nicely. We have 400 courses now in courses. I think we had about 100 when we acquired them. We had to scrap some because of legislation in the U.S. So we're regulated there in, I think, 47 states, but we have over 400 courses now, 2,500 hours of content, new ways that were that we're working with that content with our end users in a great way, thanks to the work of the courses team. So much, much more to come there, but it's playing a really nice role there in terms of that cross fertilization in between the business [indiscernible] side of Lifecare.

And I believe that is it. I didn't have any more questions in the Q&A box. So I'd like to thank everybody for joining this call. And thank you, Charlotte, for being amazing as always, by my side, and let's get going. Enjoy your day, everybody. See you soon. Bye-bye.