Physitrack PLC

STO:PTRK

Earnings Call Transcript 2022-Q3

[Henrik Molin, executive]

Hello, everybody, and welcome to the Physitrack Q3 results webcast. I'm Henrik Molin, the CEO of Physitrack, and I'm joined by Charlotte Goodwin, our CFO.

Now let's get started. Let me just get the presentation up.

Here we go. So we will give you some quick highlights from Q3 followed by a business update, and then Charlotte will walk you through some of the details of the financial results. And I'll look a little bit at strategy and outlook after that, and then we'll open up for Q&A. Q&A, we are doing now via the Zoom platform, use the Q&A function on your screen, please. And so you can start writing your questions now, copy paste them in as the time comes.

Okay, let's kick this off. Q3 in short. We're seeing some very, very nice numbers. Year-to-date, 65% growth in top line revenue. Of this 30% was organic revenue growth. So getting that combination in with both achieving growth by acquisitions and organic growth, very, very important. We'll talk more about that as the call goes on. And EBITDA increased 46% to EUR 2.6 million. Some very, very nice financial KPIs here as part of the report. Charlotte will get to some more of [indiscernible].

A couple of highlights in terms of the business. And we'll have more details on this later, but if you want to just ditch us and grab a cup of coffee after this, these are the things that you need to keep in mind.

We have invested in the access ecosystem to be able to broaden Champion's offering. And so an example of that, you saw with the launch video on mental health therapy, which is a milestone for Champion and it is a milestone for the Wellness division and the strategy that we actually started about 2 years ago when we launched the M&A program. So we'll revisit that a little bit later here in the end of the presentation. So more added to that care escalation to complement what is already physiotherapy as part of Champions, very, very strongly growing platform.

And also, we have undertaken the rebrand of Champion Health in several geos and as you know, from now on the Wellness division and what we do there is all gathered under the brand name Champion Health.

On Lifecare, interesting things going on there, obviously, KPI-wise, but notably, we have been able to access some real rock stars in terms of development and in terms of the firepower behind our technology there. And we have gotten some fresh perspectives, some new interesting initiatives. And what's notable there is what we call Easy as 1, 2, 3. We have EasyLink, EasyPrint and EasyAssign, which are 3 features that will really help us accelerate with health care providers that actually don't want to be super tech savvy with their patients just to make things very, very easy for them, a lot of busy health care providers out there in public health care. For example, they actually don't want to do tracking. They don't want the patients to be logging into apps or downloading things off the app store. They just want something very, very easy.

Well, we've [indiscernible] that with the Easy series of features. More to come on that. And excitingly, on the PT Course side of things, paving the way for these bundles that we see will help us accelerate into the American enterprise market further there and so to complement the platform and to actually take that to whole other levels, we have invested in a new learning management backbone to that platform, which we'll launch in the next few weeks, and that will add some fuel to the fire with the subscription base there, which is accelerating nicely, almost 1,000 new customers on the PT Courses platform over the last few months, which is great, but there's a lot more to come, and those bundles will be very, very interesting for the American market.

Now let me get you some of the business updates. But just as a reminder, we have 2 divisions here at Physitrack, there's Lifecare Technology there on the left, which is the heart of our offering to health care providers, predominantly physiotherapy customers, but it's a wide range of customers that provide care to their patients, they care for their lives and hence, name Lifecare.

Today is 72% of the platform and on the right side there, Virtual Wellness, which is gathered under the Champion Health brand. And this is also accelerating nicely with some great growth numbers as we will see.

Now at current state of play, we are now at a EUR 13 million run rate across the business. And so the strong growth continues. Wellness has passed EUR 4 million; and Lifecare EUR 9 million. And the more to come here. That is the continuation of the trend that we have seen. And notably, we are doing this with a nice profitability as well, which is part of our DNA.

Now the newest division with Physitrack is the Wellness division. And that came about because we founded our M&A program, and this is actually 2 years old now. So I thought we'd take the time to just revisit that and just to revisit that strategy a little bit because I think it's quite unique in terms of what we actually do, do there on the M&A side of things. We are not a buy-and-hold strategy. We are not a company that will just buy assets and sit and just talk that they will develop the data working with them. We're actually a very active owner, and we have a buy-and-build strategy as part of that.

And the build means that we go for organic growth and we go for profitability once companies are on board. And so this is now a couple of years old. We have made 6 acquisitions. And as we can see just from this year, year-to-date pro forma almost EUR 1 million of new revenue -- organic revenue and 56% growth, which is a sign that the strategy is working quite well. And the work that we undertake is really, really geared towards finding interesting assets with great entrepreneurs running those companies, making those entrepreneurs work with each other, which is a great thing to do because entrepreneurs are usually a bit of a lonely breed when it comes to building their businesses and figuring out the great ideas and to put them in together to figure out were to go and to accelerate, a very exciting part of our business. That's really rocket fuel.

And what we have done there has really paid the way for us to emerge as the leader in Virtual Wellness and the numbers they have been very, very good in that way.

And so just some KPIs and some key things there. Now, going back to the very start here with the acquisitions of Physio tools, that's been incredibly successful. But we found some great synergies, both on the cost side and the revenue side. And as we can see there, the EBITDA margin on an adjusted basis is now 48%. Now that's a really strong number for what is quite a big division compared to what Physitrack used to be before we IPOed the company. And so we keep expanding revenue, and we keep expanding margins there. And the physio tools has really, really helped us with that, and it's a sign that the strategy behind that was really, really favorable.

PT Courses, we spoke about that and with investments that we're doing there, but that enhancement and the acceleration of our customer base is moving ahead of plan, which is very, very positive, and we will see more effects on that on the revenue and also on the margin side of things and next year in the Lifecare division.

Now we spoke a lot already about the wellness division what I'd like to point out at the bottom there, over a 500% top line revenue growth for 2 of these entities. And this is Champion Health Germany, which was called Wellnow when we acquired them and obviously, the mothership champion with the software platform. These are exceptional numbers. And these are numbers that are being achieved in collaboration with the leaders from the Physitrack Group and also the very, very smart entrepreneurs from the other entities there inside of the Wellness division.

So very, very active acquirers and a team that's really going for the organic growth. And it's 2 years into this, I'm very, very proud of what we have achieved and what these entrepreneurs have achieved under our umbrella.

Now just very, very briefly, I will walk you through some of the developments here on the Lifecare side and then I'll do the same on the wellness side. Just as a reminder, the Lifecare side nicely diversified in terms of the product and we have a world-leading platform that provides tech for health care providers so they can help their patients, notably as the ecosystem. And we have several revenue enhancers inside of that mix of products that make this a very, very interesting claim, not just because of the growth of the ecosystem in terms of number of users, but also what we can do with that ecosystem as people become customers. So a lot is paid is in our playbook here.

Now if you look at the development here of Lifecare over the last quarter. So on the top right, 9% growth in license numbers, which is nice. So we have an ecosystem that is growing. If you look at below that, you can see that the churn keeps coming down. For those of you who remember, coming into 2021's fourth quarter, we were about twice the size of that chart. And this is a natural effect of the sort of the pandemic era and a lot of the noise and our data goes away, but it's also a sign that our platform is that sticky, that very, very important day-to-day tool that our customers have to be able to enhance the life journey of their patients as we have it.

But that's a downward moving trend and that it's expected to continue, thanks a lot of the initiatives that we have there, specifically targeting the customer value experiences and the need for our product as an everyday tool. Now on the left there, some nice return on investment. We spoke about the development of the in-house development team or the recruitment of the in-house development team for some top firms like Zendesk, that's performed better than planned. There are almost 20 people now on board in that team, and we're very, very proud of the achievements that they've had so far. We've spoken about Easy 1, 2, 3, which is going to see the light of the day here starting with EasyLink over the next few weeks. And as we go through the next few months here, we will see more tools that are going to be more palatable to health care providers that might not have the same appetite for very, very advanced tech in the day-to-day with exercise prescriptions. That will be a game changer in a lot of ways for new customers and also for existing customers.

And of course, security stability, very, very important, especially with entrepreneur sales, lot of increased pressure there, and we are able to invest time and effort and money into that in a way that our competitors can't. It's getting increasingly competitive out there. And one of the things that you compete on is the security and the stability. And it is quite hard to cater to as a smaller competitor. And now size lines, we are the biggest player in the world for exercise prescription, eclipsing Medbridge quite dramatically with what we have, which is our biggest competitor in the U.S. market. And of course, some work here on the product-led growth side.

We have introduced 3 version, which is a very simple version, which allows for print only. And this is a nice new gateway into the ecosystem that is expected to drive product-led growth further and more on that to come in the coming quarter, but we are doing a lot there on product like growth. It's a very exciting part of running a business because that growth is actually quite inexpensive. The CAC customer acquisition cost is quite low. And so that's rocket fuel both for the top line revenue numbers and for the margins, and that's some of the secret sauce and what we're hat we're achieving here over the period going forward.

Now we spoke about the LMS and PT Courses, and we will be seeing more things there in terms of the bundles, especially in the U.S. market, cross marketing with some things happening on screen and the Physitrack platform to introduce PT Courses and the ability to get your licenses as a physiotherapist or an occupational health professional renewed and managed with the PT Courses platform.

On the Champion side of things, same idea here. It's the core ecosystem, which is the simple version. It's a plug-and-play situation with Champion where you set that up for an employer and you get the employees partaking and using algorithmic analysis you come up with the content of the Netflix of well-being, which is the staple part of the Champion product.

Now for more advanced customers, we have an enhanced data analysis offering and we have the coaching of the leadership teams of those companies. We have the ability to do live webinars and live handholding and some of these things that make this introduction of a wellness strategy to a company much easier and much more effective.

And as we can see here, there's a lot more in that Champion health bag of goodies and we keep expanding on them, as we saw with the introduction clip there where featuring, Harry Bliss, the CEO of Champion, a lot more of these enhancers coming in. It's really, really good for our customers. It is also great for the group in terms of having diversified stable revenue flows that have an all-weather type of characteristics.

Looking at the wellness segment. So fantastic growth there over 50% pro forma revenue. So year-on-year, this is organic growth. This is hard work from the members of these teams. And I think this is really, really nice to see. It was a bet of Physitrack to diversify into wellness. We are very passionate about elevating the world's well-being. And this move here with what it's achieving is very, very satisfying to see.

Bottom right there, look at this recurring revenue, this is subscription revenue. And so the plan for this division was always to make sure that as much of this revenue as possible was put on a SaaS model. And this is happening in a very, very big way, and we can continue to see this trend in the -- in this allocation between subscription and non-subscription revenue. So more to come.

And I should say the other half of that 50%, they are made up of very sticky long-term contracts that we provide to employers and they are recurring customers. So it's quite sticky. It's not one-off revenue in that sense. But we will see more of the subscription piece come in.

Now looking at the bottom, sorry, top left there, some great things here reboarding the offerings. So we want that all over the strategy. We want the widely diversified strategy, with the revenue enhancers and so mental health therapy. We saw that launch today. We've had a first few successful quarter here with the physiotherapy enhancement that we had with the care escalation and of course, the rebrand and which could be fun for our Nordic and Swedish participant. We have now also set up a sales office in Stockholm to work with some of the Swedish multinationals, which have a great appetite for products like this and also a beachhead into the rest of the Nordic markets.

And then lastly, Champion Health Germany with some great traction there with big, big multinationals, and we expect to see some further results on that going forward. Now I'm just going to finish off this slide with mentioning the great achievement. We're getting Currys on board. Currys is a GBP 10 billion electronics retailer with 8 geographical locations around the globe, and they have over 800 -- they have over 800 stores, 35,000 employees. And if you're in Sweden, Elgiganten is part of the Currys Group. We had a first really, really substantial contract with Currys, 15,000 employees that came on board and a long-term relationship with Currys and it's a very, very significant customer. We'll see more of this.

Currys was the first customer that really allowed us to speak about them publicly. We're very grateful for that. We have other customers of notoriety in the book of business there with Champion, but a lot of them, they want to be discrete, but Currys was a great thing to be able to talk about. And of course, [indiscernible] a lot of things going on there with Champion explaining that 500% growth that we've seen there over the last year.

So that was the update for wellness. And this is just a little summary slide on what we saw there in the beginning what Harry Bliss talking about it. This is exciting. We are creating a more holistic product there. It's great to have preventative components of a wellness product like that, but to be able to escalate things into actual care provision provided by actual humans. That is a very, very important part of that story and why employees will be very, very happy to work with us. And it's also, of course, if you look at it from a revenue perspective, helping people aside, this is something that great revenue enhancement, it creates more stickiness, and it's something that will really help us further accelerate the growth and the profitability of Champion Health for the rest of 2022 and in 2023.

That concludes my initial remarks there on the business update, and I'm going to hand you over to Charlotte Goodwin, our CFO.

[Charlotte Goodwin, executive]

Thank you very much, Henrik. So I'll start off here with a brief overview of the key financials for the 9 months ended September 2022. Year-to-date, revenue has increased 65% to EUR 9 million from EUR 5.4 million in the prior year. Some of this growth is, of course, due to the acquisitions of Fysiotest, PT Courses, Wellnow and Champion Health. On a pro forma basis, with the revenue from these entities included in the prior year comparators, revenue increased 30% in line with our medium-term targets.

Year-to-date, the Physitrack Group has delivered adjusted EBITDA of EUR 2.6 million, up 46% from the prior year. And this results in adjusted EBITDA margins of 29% for the 9-month period, down slightly from 32% in the prior year. This fall represents the well-signaled impact of the Virtual Wellness acquisitions on the group's margins.

Total EBITDA has increased 340% from the prior period to EUR 1.2 million as we incur less costs relating to M&A and integration work. And it's pleasing to see that as these costs fall away, we've returned to bottom line profitability for the quarter. Operating cash flow has doubled to EUR 0.6 million.

Through to the next slide. Now on to a closer look at revenue. On the left here, you can see group revenue by quarter, both on an absolute and a pro forma basis. On the right-hand side, we can see revenue split by Lifecare technology and Virtual Wellness.

In Lifecare Tech, which currently makes up just under 3/4 of our revenue, quarter-on-quarter, an increase in underlying subscription revenue has been offset by a fall in one of custom app setup fees. Year-to-date, the revenue increase has been delivered has been driven by increasing user numbers and price rises.

The Virtual Wellness division, which currently makes up slightly more than 1/4 of the group's revenue, has experienced strong pro forma revenue growth in the quarter of 57%.

It's also pleasing to note that an increasingly large proportion of this division is now made up of subscription revenue currently half, offering a more stable revenue growth profile and a move towards increasing margins.

Through to the next slide. Moving to profit. On the left-hand side here, we see the prior year figures. Last year, EBITDA was EUR 0.3 million, with adjusting items of EUR 1.5 million stripped out. Adjusted EBITDA was EUR 1.8 million.

In the current year, EBITDA has risen to EUR 1.2 million, an increase of over 3x. Within this, there was EUR 1.3 million of nonrecurring adjusting items, primarily relating to the acquisition of PT Courses, Wellnow and Champion Health and associated integration costs as well as the unwinding of discounts on deferred consideration.

With these amounts stripped out, adjusted EBITDA has increased by 46% to EUR 2.6 million. Adjusted EBITDA margins have fallen slightly from 32% last year to 29% in the current. Due to the well-signaled impact of acquisitions as well as the continued shift of the group towards Virtual Wellness revenues, which currently operate at a lower margin plus investments into future growth.

Over the medium term, we expect these to rebound to our target EBITDA margins of 40% to 45%. On the left -- sorry, through the next slide.

On the left here, we have adjusted EBITDA shown by quarter for the prior year and in the current year so far, highlighting the strong growth in this area. On the right, we have EBITDA by division, which is the first time this information is being presented.

In Lifecare Technology, which is the longest established division, EBITDA margins are at 48%, an increase from the prior year of 44%, driven by increased revenue and the efficiencies implemented in the acquisitions in this division.

In the Virtual Wellness divisions, margins are currently at 3%. While we're starting to see margin expansion in some businesses, which have been part of the group for longer, namely Rehabplus, which was a loss-making entity at the time of the IPO and now delivers 10% profit margins. We're also investing in these businesses in the short term to drive future growth. The gray bar represents cost -- the group costs such as board fees, listing fees and associated advisory fees.

As would be expected as revenue increases, these have reduced as a percentage of revenue as the costs remain relatively stable.

Through to the next slide. Now looking at cash. We opened the year with a cash position of EUR 13.3 million. Adjusted EBITDA in the period generated EUR 2.6 million and was offset by a working capital movement of EUR 0.8 million. Intangible assets and fixed asset additions were EUR 3.2 million in the 9 months and consists of development of the Lifecare Tech platform and investment in the Virtual Wellness ecosystem plus, the previously signaled spend on billed fees for internal systems such as charge [indiscernible].

There was an acquisition spend in the period of EUR 6.9 million in relation to PT Courses, Wellnow and Champion Health, plus deferred consideration payments of EUR 3.4 million and related M&A and integration costs of EUR 1.2 million.

On the 27th of July 2022, we entered into a GBP 5 million revolving credit facility with a 3-year term. In the quarter, we drew down GBP 0.9 million this facility to fund part of the deferred consideration payment. Net of arrangement fees, this resulted in a cash inflow of EUR 0.8 million. There was also EUR 0.1 million movement on foreign exchange on our cash balances. This leaves the group exiting the quarter with cash of EUR 1.1 million, plus remaining undrawn facility of EUR 4.7 million in total, giving total available liquidity of EUR 5.8 million.

Through to the next slide. Now moving through to the group's balance sheet. The first line here includes the internally developed technology platform as well as intangible assets and goodwill arising on acquisitions. Cash and borrowings, we've already covered. Trade and other receivables have increased due to the recent acquisitions, particularly Champion Health, which builds upfront for 1- to 3-year contracts and is expanding rapidly as well as the relative increase of our enterprise customer base in the Lifecare Tech division and the sales of custom apps in the quarter.

Additionally, accrued revenue related primarily to Rehabplus has increased as this business grows rapidly. We are pleased to have seen the trade receivables balance start to reduce in Q4 as these impacts equalize.

Deferred revenue is primarily generated by Physio tools and Champion Health, we bill upfront for 12 months or longer contracts. Deferred tax arises on the intangible asset balance. It's recognized on acquisitions and will unwind over the period of the amortization of these assets. Deferred consideration relates to the Rehabplus, Fysiotest, Wellnow and Champion Health acquisitions.

That's all for me. So I'll pass you back to Henrik.

[Henrik Molin, executive]

Thank you, Charlotte, and we can obviously have the opportunity to ask some questions in the Q&A. Don't forget to put your questions in the Q&A section here.

Just briefly revisiting the strategy where we find ourselves -- and to -- on the left side there, the market growth dynamics are very, very favorable for us, which we see in the top line growth. And of course, we also see that in the margins with some high-margin products driving that growth and also with pricing power that we've seen on the Lifecare side of things with the price adjustment that we did sort of midyear. So we can continue to -- see that continuing. And of course, in this micro climate, things are stressful, things are a little bit difficult for companies and for employees in that scenario investments in wellness technology is something that's seen as a quick solution and real quick help to that problem.

So the building of a long-term wellness strategy is something that has been triggered by what's going on in the macro environment. So that's giving us a lot of -- that's giving a lot of wind in our sales, and we can see that continue on the Champion side of things. I can mention there that what we are looking at on the Champion side of things is to start the focus on product-led growth in order to attract business from small to midsized customers. We have very significant interest from small to midsize customers on the Champion side of things, and this is over 10,000 opportunities that they have seen over the past year or so, but the focus there has remained on enterprise sales which has focused on 500 companies -- 500 employee companies or not.

And so what we will be seeing here in the fourth quarter and in 2023 is an increased focus on that, which would be very, very interesting for. The middle part of this, the organic growth levers, so the product-led growth piece with Champion enhancing that on the Physitrack side.

Remember, we spoke about the Easy 1, 2, 3. There are a lot of other things involved there in the market expansion. On the product-led growth side, we'll be seeing a lot of initiatives there in terms of getting more leads in through our automated channels, higher conversion through the automated channels and some nice tools in there in terms of our customers to get up and running with them, faster, easier and in a way that their patients would love with what they need.

And so it is a very favorable environment for organic growth for us, and this is something that's expected to continue. On the right side there, M&A initiative. Now we are very, very focused on organic growth. At the moment, we are focused on letting these fantastic entrepreneurs work together to achieve some more spectacular numbers, and we're talking about the 500% each for Wellnow known as Champion Health Germany these days and Champion, the mothership. But also love to forget Champion Health Plus, formally known as Rehabplus, which has clocked in over 180% growth in the last year.

So we're very, very focused on that work, and that's likely to continue. We do see a lot of interesting opportunities. We are keeping our powder dry at the moment though, but the M&A program, as we've seen, has been very, very successful, and it's not something that we plan to discontinue anytime soon.

And just as a final note here, we are seeing that we have a balanced portfolio of business. We have something that's achieving both organic growth and profitability is very deeply rooted in our DNA. This is in this environment, even when a lot of companies are struggling with growth.

And of course, with profitability, which is even harder, we have something that is more or less an all-weather product the way that the world looks and the way that the world will look as we're out of these stressful times. And have true product market fit. I think Champion Health is a home run product in terms of what it's achieving. And it's being very much supported by the macro environment.

And we believe that we have a great formula here to achieve some amazing growth in the following quarter and in 2023. Therefore, we are reiterating our financial goals. We -- as a group, we will be achieving 30% or more growth -- organic growth. We are expanding margins. We have the tools in the toolbox. We have the history of it, looking at the Lifecare division today with 48% EBITDA growth -- EBITDA margin, sorry, this is something that's very much part of what we do every day, and it's something that we are doing in the Wellness division as well with these really, really hungry smart entrepreneurs.

So over time, we don't have any expectation of lowering our goals with the EBITDA margin. You can expect us to hover around where we are now around 30% give or take. Over time, it's a very, very buoyant climate as an investor in that and in people, processes, technology, et cetera, and we want to be really, really good at that. So we have no reason to believe that we will expand significantly that around 30% margin in 2024. But over time, definitely, you can see that in our KPIs. That's very much part of the playbook.

Lastly, dividends, love them, not just right now, cash is better spent on investing in tech teams and really smart companies. But sooner or later, it will be part of what we do as well. It's a natural effect of running a successful business that spits out a good level of cash.

And that concludes our presentation this morning. And now, we will look at our screen, and we will answer some of the questions that have come in here on the Q&A.

[Henrik Molin, executive]

So let's get to it. First question here is for Charlotte. Is there a reason you put your midterm financial targets on pause in this noisy environment?

[Charlotte Goodwin, executive]

Yes. Thank you. No, we don't see a reason to put our midterm financial targets on pause. There were always targets that were to be delivered in the midterm. So we are able to do things like invest in -- investment which drive future growth and sort of have short-term EBITDA contractions and we're doing that where it makes sense. But as an accessory, we reiterate our medium-term targets, and we're happy with the level that they're set up.

[Henrik Molin, executive]

Yes. I'll reiterate that. The net from a business standpoint, very important to remember, you can't starve your way to growth. You can achieve it profitably, which is an important part of running a business. But if you step on the -- step on the brakes too much, then you're not going to achieve that top line growth, but I think we find a perfect balance. And of course, we could have a situation where we have higher margins, but I think that will come at the cost of growth.

So again, we will continue to hover there around the 30%. And in the medium term, we will be hitting those targets be sure because that's what the data tells us here.

Second question here, what can we expect in terms of improving up FCF over the coming quarters. And so that's the one for Charlotte.

There is a second question. Have you reached a trough in the M&A-driven margin contraction? And is the EUR 1 million quarterly CapEx level seen in Q1 -- Q2, Q3, the best way to think of this going forward. Over to you, Charlotte.

[Charlotte Goodwin, executive]

Yes, of course. So I'll take those in order. Well, I'll answer the second 2 because that sort of answers the first. So have we reached a trough in the M&A-driven margin contractions. So yes, we have had a full impact of the acquisitions in the latest quarter. So we have seen the sort of trough of those coming in at a lower margin. And we will expect now to see the acquisitions that we put in slowly expand their margins. .

The sort of counteracting factor is that we're seeing the Virtual Wellness division grow rapidly and that does still operate at those smaller margins and the Lifecare Tech, you sort of got those 2 factors, counteracting each other. So that growth in the wellness division and that becoming a bigger part of the group, I think, could see us still drop a couple of percentage points on the EBITDA potentially. EBITDA is still increasing, but the margins contracting slightly just because that becomes a bigger portion of the group before we start to see the whole lot coming up through the margin expansion and revenue growth and the efficiencies put in and move towards subscription revenue and all the good things we're doing there.

So yes, in relation to the M&A coming in, we've reached a trough, but we will still see, I expect Virtual Wellness growing quicker than Lifecare Technology.

[Henrik Molin, executive]

No, I was just going to say, so when we acquire companies and we do these deals with these entrepreneurs, they come in on earn-outs. And so they get a portion of the acquisition consideration upfront, and then they have portions of it that comes out over time, that's contingent on them reaching growth and profitability goals. And those profitability goals have been defined in a way that they will harmonize with the profitability goals of the whole group. And so there's some very, very strong incentives for those teams to achieve the margin expansion. And so this is very much something that's in play. And we expect that to actually signal the trough there in the M&A to the margin contraction.

We see that as a very positive thing. These are very ambitious people, and I think they've done a great job so far with top line growth and some profitability. And I think they will be hitting home runs like the Physitrack company in terms of achieving both profitability and growth over time.

[Charlotte Goodwin, executive]

And then through to the sort of third question of the 3, is the EUR 1 million quarterly CapEx level seen in Q2 and Q3, the best way to think of this going forward.

So actually, as part of the acquisition, we have put some investments into the business, so I'd actually expect CapEx to drop slightly through to next year to around the sort of EUR 0.7 million, EUR 0.8 million a quarter level. So we see a little bit of a drop off and certainly not an increase in CapEx in 2023, which I think pretty much answers the operating free cash flow question that we'll see, we expected cash flow increase into next year and for that partially fund the earn-out payments.

[Henrik Molin, executive]

I think what Joachim is also after implicitly, she's asking if we see a need to raise capital on the basis of us needing our liquidity to support operating cash flow. And the answer to that is that we see no need to raise capital. There's a forecasted cash flow positivity there that will do away with our needs or anything like that. We actually -- we're actually very, very confident of our cash position plus the -- sometimes the credit line and yes, we'll see here in the coming quarters in terms of what that does to it. But things are looking very, very positive for us here.

Next question. Given the cash flow trend and EUR 1 million in cash available, excluding EUR 6 million RCF, based on sizable earn-out payments ahead, what are the key efforts and takes regarding how well capitalized you are at this stage and potential need for further liquidity over the coming year.

So I believe I answered a part of that in the question Joachim, part of that plan because you have the growth with the profitability, then you have a cash flow situation that actually takes care of the earn-out situation as well. So again, there are no needs there. We don't see any liquidity challenges going ahead even based on the earn-out situation. But Charlotte, do you want to add anything to that?

[Charlotte Goodwin, executive]

No, I think you've pretty much covered that. So no plans for a capital raise for anything business as usual or earn-outs.

[Henrik Molin, executive]

All right. Next question here when it comes to Virtual Wellness from a geographical point of view, what are the core markets as of today.

So that's U.K., Germany are the -- by far, the biggest markets there. And then we have a slice of business there in Sweden that we are enhancing and we spoke about that office in Stockholm, which is going to be really, really good for that. And there's potential to do things across the Nordic region on that.

Have you seen any changes to the competitive environment? I would say, on the wellness side specifically, we have seen changes. We've seen our competitors probably have gone weaker because of what's been going on with cost increases and the pressures to actually achieve things on a profitable basis. We've seen initiatives scale back in terms of enhancing and expanding. We've seen the cut of staff and it's something that's created a more of a favorable environment to us because we've seen we keep enhancing, we keep hiring. We keep pushing in a way that others aren't able to do at the moment. So I think the signal value of what we're up to has shifted the competitive landscape in our favor, actually.

The thoughts on mileage U.K. expansion plans together with [indiscernible] any comments on those.

I think competition is healthy. I think competition is positive because it means that this product market fit for things that you do, and it's great to have in cases where a competitor can knock on a door before us and get a company a nice warm and ready for a better pitch and a better product. I think that's always positive.

And we can see that. I mean we also have let the competition for everything that we do, but we have a unique way with what we do in the way that we have these product enhancements and the diversifications of the product offering that you see both on the Champion Health and the Lifecare Technology. It's probably very hard to beat. And as you get up to size, the investments that you can make in your technology and people, it's very, very difficult for competitors to meet and beat that. So I think we definitely have a few aces up our sleeves. And again, I think great with competition, they can prepare the market for Harry Bliss and his team, that's all good.

Last question here from Mr. Gunell of DNB. What are the key delivery mechanisms to ignite organic growth in Fysiotest and PT Courses?

Starting on the latter the PT Courses, product-led growth is the most important part of that. And that's something that's based on attracting initial interest from a target market electronically. So you have your SEOs and you have your Google ads and so on making sure that you end up at the top of the heap favorable pricing there is very important alongside a very strong product. And as you have people come into that product-led growth conversion chain, it's very important that you have the processes and the technology to be able to get as high conversion as possible.

So it's definitely an edge with the group. A lot Physitrack's success has been based on product-led growth, and it's something that we're making sure that we are also injecting into PT Courses, alongside a revamped platform.

Fysiotest will remain a combination between enterprise sales and product-led growth throughout 2023. We hope that we can have more of a tilt towards product-led growth, especially with the nightingale-powered product there that makes it possible to actually work with companies remotely and virtually. We have some new firepower in that team. That is going to help us with some of these journeys. And of course, looking at Fysiotest, which is Champion Health Sweden now looking at the Champion Health product, this is something that is very, very interesting to Swedish multinationals. So it's a combination between working with an enhanced version of the existing product that Champion Health Sweden has and, of course, working with the Champion Health itself.

Some very exciting things going on there actually, and we're being patient with the turnaround in the top line revenue there because we know that this is something that will render some great results there in the future.

What is -- here is a question from [indiscernible]. What's the reason for slightly lower revenue quarter-on-quarter in Lifecare?

Well, so this is something that we have been quite open about in terms of why we expanded into wellness and why it's so important to have a division there with a large total addressable market. As it -- as the size of a business grows, the percentage growth numbers, if you have a relatively inexpensive product in a narrow niche, those are harder and harder to achieve. So although that we can achieve a similar type of absolute size of revenue in our Lifecare division on a percentage basis as that division is now over EUR 9 million. Well, the percentage numbers are naturally smaller just because of the acceleration dynamics that you have there, [indiscernible].

So this is according to plan, part of the plan, which is why it was such a great journey for us to start that acquisition journey with Rehabplus on the wellness side of things in order to accelerate our way into this very, very buoyant and very, very dynamic segment, which is wellness. And of course, over time as a group, you have the 30% top line revenue growth -- goals. And of course, if we play our cards right there with wellness, it's not unreasonable to think that we might be able to beat those, but let's just have that unsaid for the time being.

There's a question from ABG, Oscar Ronnkvist. Can you elaborate on the magnitude of the financial impact from the contract with Currys? Well, so we don't actually disclose the exact details of contracts with customers, they are not comfortable with doing that. Some of our customers actually don't want to talk about the relationship with us at all, not that they're not super proud of it, but it's because they see that there is a competitive advantage.

In terms of Currys, it was great that they wanted to communicate that they are working with Champion Health, that they are a significant customer, but the extent of that we're not able to disclose. But it is -- it represents a very, very substantial part of Champion's top line revenue. It's a double-digit size of it without going into detail. But the exact nature of it, it's not something that we are able to disclose.

Continuing here with the questions from ABG. How should we think about the cash flow going forward? And can you elaborate on how you are thinking about the current cash balance? And I'm going to bounce that over to Charlotte.

[Charlotte Goodwin, executive]

Yes. So I think we've probably covered this with earlier questions. But the cash flow going forward, we have a decent liquidity buffer with our existing cash and the Santander RCF, but to make those earnout payments, as Henrik says, we need to have profitable growth, so they will fund plus the Lifecare Tech divisions, profitability, that will fund earnouts. And with that all in the mix, we expect our existing liquidity to be more than sufficient for our needs.

[Henrik Molin, executive]

Next question here. You had EUR 4.1 million in the last quarter of cash versus EUR 1.1 million this quarter. Maybe you mentioned something on it, but it's activations.

Now a big part of that is or actually, I think I'd say all of that is our earnout payments to very successful entrepreneurs that are reaching their earnouts and profitability goals. So it's a natural part of the M&A program that as you see these fantastic results, then that additional acquisition consideration is paid out for that.

So yes, we will be seeing more cash payments to these clever entrepreneurs going forward as they reach their goals. And as a segue into the next question from ABG here. Can you give any color on timing regarding the margin expansion in the Wellness division. Now we don't have an exact timeline that we are sharing publicly, but we are budgeting for substantial margin expansion in 2024 for wellness. And why is that because it's part of our DNA. This is what we do. You accelerate based on high-margin products. And as you grow your revenue, well, then your margins will also expand. But the entrepreneurs are very, very incentivized to achieve our profitability because that's part of -- that's part of their deals with us with the acquisitions, with the M&A side of things. So there's some really, really strong drives there to achieve what for example, Rehabplus, Champion Health Plus now has achieved with coming in as an unprofitable company. And together with us as a leadership team and also with other entrepreneurs accelerating that profitability up to over 10% and counting.

So we'll see more of that over the next quarters. And yes, things will continue to look rosier and rosier as we get into that Physitrack mindset of growth with profitability.

Last question here. Do you have the infrastructure now for Sweden, [indiscernible] for example?

That's a good question. We have fully on the Lifecare side of things. We have a fully localized Swedish platform, check it out on www.physitrack.com, set the language to Swedish. So fully localized. We have some great exercises there from the Physitrack side of things, with our -- also robot speaking Swedish. And also, we've added our Mobilus platform and physio tools is excess library on there as well. So fully functional [indiscernible] specifically, it is something that we are developing and it's something that is actually part of the transition plan for some of our Mobilus customers into the Physitrack platform, which is a very interesting move that we're doing here in the coming quarters.

So yes, we have to play the game according to the local rules. Sweden is no exception.

If there are no further questions, then I will just like to thank everybody for joining the Q3 results call here from Physitrack. On behalf of myself, Charlotte and the whole team, thank you so much. Thanks for following the story, and we'll speak to you again soon.