CompuGroup Medical SE & Co KgaA

XETRA:COP

Earnings Call Transcript 2018-Q1

[Christian Bartlett Teig, CFO & Member of Management Board]

Thank you very much. This is Christian reporting from Koblenz for the first quarter 2018 conference call for CGM. We will very much follow the same usual format for this conference call, where we first go through a presentation and then, after that, we have a Q&A. The presentation is available for download through our website. You can also listen, which also you will do, then to this webcast. All links should be in the circled invitations. As I go through, I will do my best to refer to the slide numbers so that everyone can be up the same page as we step through the presentation. So turning to the Slide #2. We here see the key figures for the first quarter 2018. It is the quarter with the first large impact from the TI rollout in Germany, and we see this with a strong growth throughout the P&L. All of it, for all practical purposes, without acquisitions, it's organic growth. Other than about a EUR 2 million currency headwind on revenue, there are no real one-off special effects, and it's, in essence, a clean P&L here presented, again, with strong growth figures from the top to the bottom. Moving a bit into the details behind. That turns us to Slide #3. Here is the last 5 years in revenue and profitability. So having a higher revenue in Q1 relative to Q4, without material acquisitions, is special for us. And again, it underpins that we have taken a step-up now because of growth in Germany. I guess, if you look throughout the 5-year period, you also do see and -- or at least begin to see a clear margin expansion trend over this period, something that we also expect to continue in the coming periods. This brings us to Slide #4. Here, we see a little bit of the breakdown of the business model, the cost of goods and the corresponding gross margin. There is some change now to the overall revenue mix and business model, which is driven by the TI rollout, where there is a larger component of third-party products and services. It's nothing dramatic, but clearly, this has some impact of our gross margin, which is now slightly below 80%, whereas it -- in a normal state, would be slightly above 80%. To Slide #5, another part of our cost structure. Personnel expenses are kept well in check. This underpins that the growth that we see is scalable growth. We will see this on the next slide, that there is more use of external and more flexible resources as we are, in some areas, taking off peaks, but certainly, in terms -- relative to our top line growth, personnel expenses are kept very much in line and in check. Slide #6. We see then all other expenses outside personnel and cost of goods. We do use more external resources in this phase. They are mostly related then to TI rollout, marketing, call center, everything related to the marketing and sales part. And then we will also see this a little bit in the CapEx, that we have moved to a stronger element of reassuring of R&D, countries like Ukraine, Romania, which then also shows up here on the other expenses. But nothing dramatic, and again, costs are kept well in line to our expectations and plans. This brings us to Slide #7. I have, by now, reported 40 quarters or at least 38 quarters for CompuGroup in a row. And this is the first quarter in this period where we have absolutely 0.0 related to acquisitions. So it shows the kind of focus we have on our organic growth. I guess, it also reflects, to some extent, our environment where attractive acquisitions are difficult to find. It doesn't mean that we are not looking as always, but at least, in this quarter, first quarter 2018, the amount spent on acquisitions is 0.0, which leads us to the very normalized CapEx, intangibles and tangibles. Absolutely nothing special on the tangible side. On the intangibles, that number, which will probably stay around that number for the rest of the year, is related to a step-up that we are doing to basically finish earlier with remaining modules and functionality in our Hospital Information System, basically, to get a clearer product advantage in that initiative, which is not going to drive any growth this year but definitely have the potential to increase the attractiveness of that segment in the years to come. So we are putting some more money into that during this year. Brings us to Slide 8. Operating cash flow. Yes, our expansion on the P&L side is translating nicely into cash and, increasingly so, a good, strong operating cash flow for the first 3 months. And we also expect a strong cash flow in the coming quarters at the back of the TI rollouts and, say, other positive developments on the business side. This moves us then to Slide #9. The balance sheet. As you are probably aware of, say, on the European side, we have IFRS 15, revenue recognition; and IFRS 9, financial instruments. They create a massive amount of extra work for -- especially my area of responsibility in the group. The net result, in terms of P&L reporting, is essentially 0. Where you do see it, and this is mostly an effect from IFRS 15, is in the balance sheet, where, as a transition effect, we have booked in about net EUR 16.5 million of deferred revenue into our liabilities, which is booked directly against equity. This is how you do it to manage the transition. As our revenue recognition has changed, essentially in a very dramatic way in terms of current year revenue, the effect from past years, which has deferral of license revenue into current year, creates then, essentially, the net effect of 0 on P&L. But to make all, say, the mechanic's work, we have this onetime transition effect in the equity in the balance sheet, which you will also see in the figures here, that as debt goes down, it doesn't change. All of these effects are completely noncash. But despite having a significant net profit in the quarter, equity is more or less stable from the end of last year. Now that transition is done. And from here on, yes, all of this work, all of these reforms, all of these changes, are essentially a nonevent, as it appears for CompuGroup and as we can observe for most of the corporations. Those were the details of the financials. Now we step into the different segments, starting with the software for doctors through the placeholder into the Slide #11. 28% organic growth is a highlight. It's clear that the main growth driver is the continued rollout in Germany of the TI. Outside that, business develops normally, which means a good mid-single-digit growth in Europe. U.S. continues to be flat in local currency year-on-year. In euros, it looks a bit bleaker as the euro has grown very strong and the dollar has grown very weak. This will even out throughout the year. But in essence, we are happy with how the AIS business have started this year. Exactly -- it's going to be, one way or another, dominated by the TI rollout this year. We'll give you some color on what happens behind the scenes. But as I said overall, all development is normal as in prior years and then the overlay on TI rollout revenue, which now all appears in the segment. This brings us to Slide #12. A little bit of detail on the TI rollout. So last time, we reported the first steps that we did. This was in early February. We were the only ones ready to deliver to customers. We are still the only ones able to offer whatever is needed to connect doctors and dentists to this network. Yes, the sales and installations have continued. If you subtract what we did last year, we did about 8,300 installations in Q1. The backlog remains fairly high, something that we aim to get installed in addition to running orders, which continue to be in the 500 to 1,000 pieces per week. Into the second quarter, altogether, we expect continued growth and higher activity in this rollout. Certainly now in the second quarter and for the remainder of the year, we are in line with how we have expected this to develop. We get more and more certainty and comfort within our own customer base and customer group. How the non-CGM market will play out is still an open question. As it hasn't really started to move, we do, however, expect this to begin to move during this quarter. We have our first distributors in place active. They are placing orders, doing installations. There is this company which you can visit on the web, Concat, which gives you some idea on how these distributors work and who they are. Another event, which actually may be positive in terms of getting this part of the market to move, would be that competition finally enters the market. Their statements about when they would be ready remain unchanged, meaning that [it could] expected to happen in the course of the second quarter, meaning then May, June. So all in all, happy with how it started. There's a lot going on, and, yes, the second quarter is going to be very interesting, especially in terms of the dynamics within the non-CGM customers. This brings us to Slide #13. Just to keep you informed about the progress of the offers that we make into the market. So the current offer, which is valid for this quarter, the second quarter, continues to follow the financing agreement, which has a certain price step-down per quarter. And what you then, including VAT, can get from us, the 3,245, corresponds 100% to what doctors and dentists in this period get reimbursed through the financing agreement over the public insurances. So those were the additional comments on the TI rollout and the end of the review of the AIS segment. We now move to the second segment, software for pharmacies, PCS, through the placeholder into the Slide #15. Good start to the year. 6% organic growth is certainly above what we have guided for the year. It's always good to start well. We still believe that this is within normal quarterly fluctuations. And we will consider this segment, so far, to be in line with the expectations for this year. And in terms of revenue, it is for all practical purposes, 100% from the German and Italian markets. We have some small emerging positions taken last year in the Spanish market, which we see as an interesting place to look for further growth. We like this business. We see it as now part of our core. And we are excited to see what we can achieve also in regions outside Germany and Italy in the periods to come. This brings us to the third provider segment, hospitals, through the placeholder then to Slide #17. Very much the same comments as with pharmacy software. Strong start to the year. Stronger at least in terms of growth rates than what we have guided for the full year. We still see this within normal quarterly fluctuations, but as I said, it's always comforting to get off to a good start. And here, the 5% even absorbs some erosion on top line, which comes from some changes to contract structures that we also built into the guidance for this year. So the hospital business is showing some good signs of growth, which comes mostly from the German-speaking market, meaning Germany, Austria and Switzerland. Yes, this brings us to the fourth and now final segment, HCS, Health Connectivity Services. Slide #19. Pretty much an unspectacular quarter. We will use the same comments here as with pharmacy software and hospital business. In line within quarterly fluctuations. Some effects from exchange rates, some effects from divestitures and exits that we did last year. On these numbers, we see this as flat revenue development, which is according to how we have guided and the expectations for 2018. This brings us to Slide 20. The guidance for 2018, which is unchanged. You see it here on the slide. Revenue in the range of EUR 700 million to EUR 730 million. EBITDA between EUR 175 million and EUR 190 million. We've started well. There's a good start. Nothing more, nothing less. It's clear that we need to see the number of TI installations to grow at an increasing pace in the coming quarters, and this is also what we expect. Q2 will be important. And we'll probably, after this, give a much clearer picture on the non-CGM part of the market, which is the biggest swing factor in terms of the outlook for this year. Yes. Then on Slide 21. Just a reminder on the next checkpoint, we do have our AGM, as always, in Koblenz. This is this year, on the 15th of May. Then Q2 will be presented early August, August 9, and again, an important checkpoint for how this year will develop and ultimately end up. In October, we have our Annual Investor and Analyst Conference. We always hope as many of you as possible can visit us in Koblenz to take part in this. And then Q3 normally for us, early November. So very much the same financial calendar as in prior years. And this was the prepared part of the presentation. Took as normal, about 20 minutes. We are now into the Q&A session. [Operator Instructions]

[Operator]

[Operator Instructions] The first question comes from Knut Woller, Baader Bank.

[Knut Woller, Analyst]

A couple question. The first one regarding TI, just a clarification. Is it correct that you did 8,300 installations in Q1 coming from TI? Then secondly, if I remember correctly what you said in the Q4 conference call, you were talking about something like orders of 12,000 for TI in 2017, of which 4,700 were done in December. This left a backlog of 7,300. And so you seem to have done only 1,000 more installations than the backlog you already were able to generate in 2017. So it looks from an outside perspective that the adoption is relatively low and that it takes a bit longer. Then if I take into account the 500, 2,000 orders you mentioned to receive per week, then I would have assumed -- in my assumptions, so I would have assumed, based on your comments and the backlog, that the TI contribution should have been well above the level where it was. Secondly, on ASPs for TI, you're already seeing them, in line with the reimbursement plan, are coming down regarding -- compared to your early board offer. And you mentioned also competition. Is it fair to assume that we will see, if competition enters, basically, a decline of the ASPs more towards the low end of the guidance? Or the indication you provided us, the bandwidth, the 2,000 to 4,000 per location over the course of the rollout, is that what you're also assuming in your model? And then, lastly, on the Spanish market. In PCS, we have a similar structure from a competitor perspective. No dominant player in the Spanish market, rather, a couple of players with market shares in the range of 20% to 30%. And looking at your model in Italy and also in the German market, it used to be one of also an organic growth. Is it fair to assume that you're also trying to pick here some competitors and take some competitors out to gain faster critical mass in this market? These would be the questions.

[Christian Bartlett Teig, CFO & Member of Management Board]

So thank you for those questions. The first one was a confirmation that we did 8,300 installations in Q1. That is correct. The second question/statement is that we have a backlog which is comparable to what we had end of Q4 last year, which means we have more or less sold and installed the same number of installations. That is true. We are not too concerned about that. We've essentially done 13,000 installations in 4 months, all new, all with a learning curve. We still see the limiting factor for what we will be able to do this year, to be sales and orders, not installations. We have ways, if needed, to boost that capacity. We've also seen in individual weeks that we are able to do over 2,000 by only using, say, our roughly 600 educated technicians. That's probably not a sustainable level that we can do every week. But still, how we have gathered experience now is that what will ultimately decide what we can achieve this year will be orders and not installation capacity. One way of proving that is that we certainly aim to burn down the backlog we have to a low number end of Q2. So hopefully then, we can show that we are able to install, at least in the period, more than we sell. And we certainly expect and plan to sell more in the coming days, weeks and months. On the third question, on the ASP and reimbursement, yes, so far, we have followed the step-downs that was written into the price sheets of the financing scheme. That's been a fairly easy decision basically to keep a momentum in terms of volume without any issues, which may or may not surface up until this ongoing quarter. It is, by far, not an obvious choice stepping into Q3. A, we see that all offers that have been announced by competitors, so pre-announced before they are able to deliver, are identical to our prices, and nobody has made any indication that they would align to the Q3 reimbursements. That would also be difficult, in our opinion, if you look into all the stages of the value chain. That essentially will need a certain incentive to put in the effort. So right now, it's public knowledge that there is an ongoing discussion between the doctors and the insurers to make an amendment or adjustment to the price sheet. Before that happens, I guess, we all have to relate to the current price sheet. At least from the media, it doesn't seem as though those discussions are going particularly well. Having said that, that was also the case the last time where we went into arbitration and a decision was made fairly soon. So there are a number of outcomes possible here. One is that there would be some adjustments, prolongation of reimbursement comparable to current levels. If the current financing agreement stays, certainly, we have no plans to lower ourselves down to the current reimbursement levels. We don't see any of our competitors doing it either. As always, it's a dynamic market, so that doesn't come with a promise attached to it. But that's how we see it currently. For the meantime, we are focusing strictly in the short run now to do as much as we can when this operating environment is, yes, beneficial and strong. And then we will see in May, June what the dynamics will be, if and when competition enters, how they will behave not statically but also dynamically, and if something happens and what the messaging will be around the negotiations between the doctors and the insurers. But right now, it's a stable environment, where there even is an element of pressure, which is positive for doctors to just get it done in the current quarter. Your fourth question, Spanish market. Are we thinking about potential M&A? I guess, the short answer is yes. But as always with M&A, it is a nonevent until it happens, and there are many factors that need to fall into place to enable us to do it. But certainly, we always aim to have a significant part of the market when we enter, and this would be a worthwhile market given its size to do it. But let's see. Those are our intentions. And we've started with both 2 small firms, I guess, [indiscernible], 2 niche players, to basically have a foot in, to learn more about the dynamics, to get some competent people also in terms of local market environment on board. Yes, then we will see. But definitely, in terms of focus for further expansion, Spain is on top of the list.

[Knut Woller, Analyst]

Just a quick follow-up and clarification with regards to your comments on guidance. Is it then -- do I understand your comments correctly, assuming that the high end of the guidance is only to be achieved if the competitive dynamics overall won't change? If you are able, really, to take that share from the competition or beyond your own existing market share, is that the way to look at things? Or is that not the right way?

[Christian Bartlett Teig, CFO & Member of Management Board]

Yes. I mean, we've always assumed a certain success in the non-CGM market. We believe we made prudent and even conservative assumptions when we started the year. Keep in mind, this is, by far, the largest part of the market, which hasn't, for practical purposes, moved an inch. So we have not -- we will not give any, say, color on where we now expect to end up in this range. We believe the whole range is still fully open. But the second quarter will be important, not just for what it produces in terms of P&L contribution but also from how it points into the rest of the year. So -- but right now, we don't see anything that changes our opinion, that the full range is still fully open.

[Operator]

The next question is from Andreas Wolf, Warburg Research.

[Andreas Wolf, Research Analyst]

Christian, it's Andreas, Warburg Research. Just -- also for clarification. So when does it connect to actually get built? Is it when the order is placed, just right after that or when the installation is carried out? That would be, I think, important to know. Then with regard to the resellers, to what extent are revenues -- revenue contributions from resellers included in your guidance? So if I look at Q1, I would assume that it would need certain momentum from the resellers to reach the upper end of the guidance. Is this assumption correct? And then if I look forward into Q2, Q3, Q4, et cetera, I would assume that you would need to increase Konnektor sales by roughly 30% to 40% to fulfill market expectations. Is it the right assumption? And why -- what makes you positive with regard to acceleration towards Q2 and the rest of the year? Q2, I would assume it's linked to the fact that reimbursement, at least now -- right now is expected to fall from Q3 onwards. So that should create some panic orders and that is [indiscernible] by doctors. Is this the view we should have? That would be helpful.

[Christian Bartlett Teig, CFO & Member of Management Board]

So Konnektors get billed, essentially, as fast as we were able to do the back-office work, the day it gets installed. So an installation takes about 90 minutes. And the final step in an installation is that you will, with 1 valid insurance card, do a deutsch log. So you will do a lookup of that insurance data. And this -- that test has been done. It's the final thing. And then the installation is live. It can -- from there on, it can be used 100%. And then it gets invoiced and billed. So there is no real lag. And we have, yes, about 80% [indiscernible], which means we can also collect the money in a very efficient and rapid fashion. Then on the resellers, yes, there is revenue contribution from resellers and, say, from the non-CGM market included in our outlook this year, also because we took a certain percentage of our own customer base and assumed that, that would slip into next year. Yes, even if this has been with a 0 contribution in Q1, this part of the market, which is still the largest part, needs to start. And given the reluctance from the insurers to, at least, right now, accommodate a prolongation of higher prices or higher reimbursement and also the reluctance from the ministry to have any discussion related to extending the deadlines for sanctions, there is an element of time pressure, which ultimately should have a stronger effect now on the non-CGM customers as opposed to the CGM customers. So, I guess, when we gave the guidance, we said that our outlook is that we will end between 50,000 and 60,000 installations end of 2018, in some mix, between own customers and non-CGM customers. Clear, the majority is own customers. There is some playroom. There also where we can compensate. But, of course, if we got 0.0 for some reason, that nothing happened there or we got completely frozen out, yes, then it will be hard to certainly reach the high end. But this is a highly unlikely development, the way we see it. And as we said, it's now the most interesting period, May, June, when we will start to see the dynamics, also the non-CGM market, which could be very exciting, or not. We don't know much more today compared to what we knew in the middle of January. But now this knowledge starts to flow. Yes. And then, I guess, your math on the increased sales is true. I mean, we have to now see continued growth in installations. And, yes, there is -- first of all, we have a backlog, which certainly takes the limitation of sales out. Sales have been held at a consistently high level. And given the mentioned dynamics, we see no reason why it shouldn't, at least, stay or even accelerate. And for example, you see that Concat has educated now 90 smaller local service providers, it's on their homepage, who adds to installation capacity. So I think we are -- in our opinion, we have done a lot in a very short period of time. There is, of course, still a learning curve also in getting all elements of this value and delivery chain to work absolute capacity. And we're still in the process and we see no reason why the trend that we've seen so far shouldn't continue and that we will see the acceleration in the coming quarters.

[Andreas Wolf, Research Analyst]

Okay. Just a quick follow-up, if I may. Now, as we've entered Q2, have you already seen acceleration in order activity? Or is it something that you expect for the second half of Q2?

[Christian Bartlett Teig, CFO & Member of Management Board]

Yes. So we only -- we're 1/3 into it, minus the Easter. So -- but I think it's -- we have a lot of visibility in terms of scheduled installations. As I said, in terms of activities, yes, this is monitored on a daily basis. And the statements that we make are with conviction and a lot of analytical support.

[Operator]

The next question is from Victoria Kruchevska, Commerzbank.

[Victoria Kruchevska, Analyst]

A couple of questions from my side, if I may. My first question is regarding the Q2. We have stock -- the stock fields since you're talking about that. But can you please maybe update on how it's going, like a little bit of color? I mean, you have mentioned that you have entered Q2 with some of the backlog. If I calculated correct, it should be around 7,000. Can you maybe talk a little bit about how much of new orders did you get so far or at least some indication or guidance? It will be my first question. My second question is regarding your goal for TI connections for this year. You have also confirmed it in the conference call right now. I remember your goal is to connect between 50,000 to 60,000. However, if I calculate it correctly, each quarter has roughly, I'd say, 13 weeks. And your goal is 1,000 installations per weeks, which translates pretty much into 13,000 installations per quarter in the best case scenario. And if I will add up those 13,000 installations per quarter, for the rest of the year, I would have 47,000 of total TI installations. Maybe you can comment on that, how I -- how we can reach that at least lower end of 50,000. And my very last question is regarding the TI sales distribution. It was a little bit touched upon but maybe you can shed some light on. Do you think it will be more front- or back-loaded? How should we think about that?

[Christian Bartlett Teig, CFO & Member of Management Board]

So, I guess, we try to stick to the quarter, which is being presented, which is Q1. So, I guess, we will not give any specific color as the quarter is still relatively young, but as I said, the analytics about what has been achieved, what is planned in terms of scheduled appointments or points to the accelerating trend. In your second calculation, you are missing one thing, which is the inclusion -- or gradual inclusion of our distributors. So you are correct. If you -- the limitation of 1,000 per week is not an absolute limitation. That's more related to sales. As I said, we have weeks where we've done 2,000 installations. So that can be done. So none of these numbers are hard limits, but I think it's fair to say that through our own dealer network, our own direct sales and dealer sales, we can get, say, 85% to 90% of our own customers on board this year. On top of that, yes, we have the distributors with the likes of Concat with their service partners and installation capacity, which has now been certified and is ready. And this capacity will now gradually add to what we already have, and this comes then on top. On the TI sales distribution, I'm not sure I fully understood the question. If you could elaborate a bit.

[Victoria Kruchevska, Analyst]

Well, I mean, this year, in the very -- in the first quarter, I guess, around 15%, so to speak, of your goal has been installed. I mean, if I would take the midpoint, 55% will equate to around 15% of the sales for TI in the first quarter. I was just simply wondering how it would look like in the second, in the third quarter, where they're talking like 35% of the -- sort of like your sales -- your expected sales, TI sales, for 2018 or like 30%? How should we think of that? Where is, so to speak [indiscernible]

[Christian Bartlett Teig, CFO & Member of Management Board]

Certainly -- well, okay then, I understand. So the seasonal distribution. Certainly, Q2 needs to be significantly higher than Q1, and I think we'll leave it with that as a general statement and a clear indication. Probably, yes, let's stick with that. So Q1, good start, we need to see a continued growth in the trend. And Q2 needs to be clearly in line with that assumption.

[Victoria Kruchevska, Analyst]

Okay. Maybe a follow-up regarding the distribution. I remember, if you can remind us around 1,500, so to speak , that is from 50% of what you can charge from your CGM customers, you would be charging the non-CGM customers. Is this still the correct assumption?

[Christian Bartlett Teig, CFO & Member of Management Board]

Yes. So this is true in terms of top line. Of course, the margin contribution will be more similar as we then have nothing to do with the installation, which, I guess, has an implicit component, including VAT of about EUR 900. And we also have no, say, further resources in terms of sales or support capacity. So we have a lower top line revenue, but the gross margin that comes in is comparable.

[Operator]

The next question is from Charlotte Friedrichs, Berenberg.

[Charlotte Friedrichs, Analyst]

The first one is a follow-up on how you book revenues. But did I understand correctly that you book revenue when the installation is completed?

[Christian Bartlett Teig, CFO & Member of Management Board]

Yes, that is correct.

[Charlotte Friedrichs, Analyst]

Yes? Okay, perfect. And then if I look at Q1, can you maybe give a rough indication of what the split is of revenues in AIS between TI and your organic underlying business? The reason is that I'm looking at the number of installations you have and your average selling price. I'm trying to reconcile, basically, how much is coming from each.

[Christian Bartlett Teig, CFO & Member of Management Board]

Yes. So in this quarter, it's not a big secret. So the number of installations that have been recognized for revenue is 8,300. From our last presentation, our selling price was 3,450, including VAT, which means ex-VAT, it's 2,900. So this will give about EUR 24 million. We've sold a little bit of extra card readers, but the mobile card readers are still not certified. So that hasn't been delivered yet. So order of magnitude, this is the number that you can use for the TI contribution for that period.

[Charlotte Friedrichs, Analyst]

Okay. Okay. But just as I look at your revenues year-on-year, there's only a EUR 22 million increase, if I see correctly, on the revenue line?

[Christian Bartlett Teig, CFO & Member of Management Board]

Yes. And then everyone needs to keep in mind that as we are doing the TI rollout in Germany, other, say, normal module sales and cross-selling and up-selling will be lower than in prior years in Germany.

[Charlotte Friedrichs, Analyst]

Okay. So on an organic basis, your revenues in AIS declined and you had roughly EUR 24 million contribution from TI. Is that correct?

[Christian Bartlett Teig, CFO & Member of Management Board]

We see 28% organic growth in AIS.

[Charlotte Friedrichs, Analyst]

Okay, fine. Okay, good. If you -- yes. Good. Okay. And you said there's no update yet on the financing agreement from Q3 onwards, right?

[Christian Bartlett Teig, CFO & Member of Management Board]

That is correct.

[Charlotte Friedrichs, Analyst]

The public debate is not moving a lot.

[Christian Bartlett Teig, CFO & Member of Management Board]

Yes. So these are normal -- so the regular discussion partners on the topic of financing and financial terms and conditions for doctors and dentists, we believe that something will be agreed, but before it is, I guess, we all have to look into the current financing agreement, which, right now, creates some positive pressure for everyone to reach a decision and actually get connected.

[Operator]

The next question is a follow-up from Knut Woller, Baader Bank.

[Knut Woller, Analyst]

Just on the margin side of things. If I understand the math correctly behind the OEM partners, you were elaborating already on the gross margin, but looking at the line items below, I mean, OEM partners should have a higher profitability. As you said, services slightly lower than margin and then the sale of the product and also the recurring part. To get to the 25% to 26% margin range, we are now at 23%, to which extent would you need resellers adding to your own organic growth or to your own direct sales growth for TI? Would that be needed? Or is it just a scale effect that you are [ envisioning ] to get to the 25% to 26% full year margin?

[Christian Bartlett Teig, CFO & Member of Management Board]

It's just a scale effect. We don't -- in this respect, we don't care where the growth comes from.

[Knut Woller, Analyst]

Okay. So no matter what resellers or direct sales, if it scales, then we would be within your margin range in the full year.

[Christian Bartlett Teig, CFO & Member of Management Board]

Correct.

[Operator]

There are no further questions at the moment. [Operator Instructions]

[Christian Bartlett Teig, CFO & Member of Management Board]

This seems not to be the case. So thank you so much for following this conference call. And if not before, we will be revisiting the next quarter in August this year. Thank you so much.