CompuGroup Medical SE & Co KgaA

XETRA:COP

Earnings Call Transcript 2021-Q1

[Claudia Thomé, Head of Investor Relations]

Good morning, and welcome to our conference call today for the first quarter 2021 results, whether you've dialed in via phone or following on the webcast. As always, we published early this morning our presentation, the quarterly statement and the press release on our website. We're going to start with presentations by our CEO, Dirk Wossner; and our CFO, Michael Rauch. And we will then move on to the Q&A with both Dirk and Michael available for your questions. One more housekeeping thing before we get going. Please take the disclaimer on Chart 2 as read and take into the notes.And with that, I would like to hand over to our CEO, Dirk Wossner.

[Dirk Wossner, MD, CEO & Chairman of Management Board]

Thank you, Claudia, and a warm welcome also from my side to all of you. We're happy to report a successful first quarter of 2021 for CompuGroup Medical.Let's start with the financial KPIs, which underline a good start into 2021. The revenue side was a strong top line growth of 25%, organic growth of 5%, and with an improved quality within the revenue mix, we're now at 69% of total revenues recurring. On the bottom line, adjusted EBITDA came in at EUR 47 million and a margin of 20%. The margin is down, in line with the investment program we have announced for this year, in order to drive further growth. Adjusted EPS is on the prior year level. And finally, we have seen an exceptionally strong free cash flow in the first quarter, and Michael is going to give you some details on that later on.At CGM, we're passionately supporting our customers, doctors, nurses and all other health care professionals in the courageous fight against COVID-19. Kudos to their selfless dedication and commitment. And I would also like to thank our CGM teams worldwide, especially in tough places like India and South Africa, who are doing such a great job supporting our customers under these challenging conditions.In the COVID-19 pandemic, most of the countries we are present in are impacted by the third wave now and are ramping up vaccination. CGM is supporting doctors, hospitals and pharmacies in this process, and this chart only shows a couple of the products and solutions we're offering. In this crucial phase, our goal is to support our customers in the best possible way.A lot of that is around the vaccinations. In Germany, for example, we're offering our vaccination module for the first 3 months for free. It helps doctors in the cumbersome process of managing, documenting and reporting vaccinations. In Austria, CGM is providing the vaccination certificate. In Italy, we're supporting pharmacies, which are part of the rollout there. And in France, we're providing admin tools for the vaccination process. And those are just some of the countries I'm mentioning here. We do this in a lot more of our countries that we're present in.That brings me to the next slide, hospitals. In our hospital business, we have recently signed a vaccination support contract for the Madrid region. Overall, the hospital business is in excellent shape. The Cerner integration continues on a very good path. The highlight of the first quarter, we're extremely proud of the team winning one of the most reputable German university hospitals, the Universitätsklinikum Eppendorf in Hamburg. This decision by one of the leading clinics in terms of digitization for CGM CLINICAL for a 5-year period is a major milestone in the rollout of our G3 platform in which we have significantly invested over many years. This and other orders we have secured will be one of the pillars of organic growth in this segment.Another pillar of growth will be the Hospital Future Act, Krankenhauszukunftsgesetz, which has passed -- which was passed in November in Germany. We're in intense discussions with our customers. We have a high number of leads we're processing, and it's encouraging, though we remain cautious with regard to the actual timing of the rollout for the years '22 -- '21 and the bulk of the relevant years will come in '22 and beyond. Despite it still being early days, we see overall very good demand on the customer side for products that are subsidized within the Hospital Future Act.Let's move to another segment, which has been driving organic growth this quarter, Consumer & Health Management Information Systems. We recorded another strong quarter in Telematics Infrastructure with the rollout to pharmacies continuing. Roughly 10% of the 60,000 connector installations are in the pharmacy segment. We have thereby expanded our strong position in TI. But the segment development has been excellent beyond TI. We're extremely pleased with the process -- progress in our Data business. THERAFOX, for example, our cloud-based drug safety checker, has now more than 1.5 million requests every week.And finally, in consumerization, Meine Gesundheit, which is our white-label electronic health record, has reached 0.5 million users by the end of Q1, which makes it Germany's largest e-health record customer base at the moment.In the U.S., we successfully started the new era post the closing of eMDs' acquisition. The first step was setting up the new management team, combining the best of both worlds. The former eMDs CEO, Derek Pickell, has taken responsibility for the new U.S. CGM as the CEO. We're convinced that our positioning is excellent, especially regarding the growth business, RCM. Technology integration has kicked off, with the first milestones around -- across the first product chain coming in.The performance in the first quarter has been encouraging. Our goal is to achieve significant cross-selling results, and we are confident that the additional scale we have achieved is an excellent starting point to successfully compete in the long run and execute on our business plan.I would like to share with you my thoughts after the first 100 days as CEO here at CGM. What did I find? First of all, a group of highly talented, motivated people. Nothing can stop us if we put our mind to it. Our assets, market position and technological depth is unparalleled. We do have a head start, and we have a strong growth mindset with sufficient financial firepower. This puts us in an excellent position to address the challenges and opportunities ahead. Based on the portfolio that has been successfully built over decades, there are numerous growth drivers in our core business.On top of these, we have opportunities that we're aiming around, for example, being a top player along the patient journey, which will be digital to a much higher degree going forward. CGM is in an excellent position to deliver value in this regard. Digitization and data-driven business activities will play an increasing role, and we need to be ready. And we will continue with value-enhancing add-ons and M&A to drive further growth.We'll also focus on efficiencies. By putting our customer experience first and delivering great service, we will not only increase customer satisfaction but also make our customer service processes more efficient and therefore strengthen our valuable core business. Also focusing on product development and the road map to a scalable technology platform is the basis for higher customer satisfactions and efficiencies around product development. At the same time, we will reduce complexity and strive to continue our efficiency drives across the entire company.And last but not least, our people and our culture are what our success will be based on. It's all about that. This will be a top priority going forward. CGM has grown quickly. Our ambition is to maintain an entrepreneurial culture and to create the best place to work to be able to attract the best talent.In that context, I would like to inform you that Ralph Körfgen, the leader of our AIS and PCS segments, has decided to leave the company effective October 31 of this year. We regret his decision, and we're glad to know that he will stay onboard until the last day of his tenure. And the search of a successor is now ongoing.Where are we regarding our investment [ program and the investment ] in 2021? We're ideally positioned to capture a large number of business opportunities, as I said before, and this is the year of investments. The CLICKDOC calendar tool is now ready for rollout, and that means it can be integrated in 7 current AIS systems across Germany and France. And we'll continue to increase that number over the coming months. And the step-by-step implementation across our customers and countries is ongoing.We're full-steam on the connector upgrade, as always, in close interaction with the regulatory bodies, gematik and BSI, still aiming towards the implementation of the connector upgrade in the second half of this year. The upgrade is the prerequisite for the next-level TI applications, such as the electronic health record or the ePrescription, which by law in Germany is scheduled to start on the 1st of January of next year. The rollout of the secure communication tool for doctors called KIM is getting traction. We're continuing developing and optimizing and customizing our G3 product world. We have just launched the first G3 cloud-based AIS system in Italy.In addition to R&D, we're stepping up investments into marketing and sales and distribution to support those new businesses. Overall, our investment program depends heavily on our ability to recruit and retain new talent, whether in R&D or sales and marketing. We're on a good path, but this remains one of our top priorities for the rest of this year.Thank you for your attention. And now I would like to hand over to Michael for the financials. Michael?

[Michael Rauch, CFO & Member of Management Board]

Thank you, Dirk. Welcome, everyone, from my side as well. Let's start with our segment overview.The strong top line growth was driven by the 2 large acquisitions in the AIS and HIS segments and by organic growth in the HIS and CHS segments. Growth in CHS was helped by another good quarter in terms of Telematics Infrastructure. And the underlying development in AIS and PCS were slightly below a strong prior year quarter, which still benefited from the Windows 10 rollout. We will go into the details in a couple of minutes.On the EBITDA side, the investment program 2021 is impacting all of our segments. The HIS segment even showed a slight better margin compared to prior year despite increased investments. For the other 3 segments, the margin is down. On group level, the EBITDA margin is 4 percentage points down year-on-year, in line with our various investment initiatives.We are pleased with the revenue development in the first quarter. The strong face value growth of 25% was, of course, supported by the 2 large acquisitions we closed last year. Recurring revenues increased by even 29%, helped by a higher recurring revenue share of the newly acquired eMDs business in the U.S.Organic growth of 5% marks a good start into the year, with significant contribution from Telematics Infrastructure. Excluding TI growth, organic growth stood at 1.5%, in line with the phasing we are expecting for this year.Moving on to an exceptionally strong free cash flow. We recorded a free cash flow of EUR 70 million in the first quarter. On top of a traditionally strong free cash flow that we always see in CGM in the first quarter, this quarter has been impacted by 2 additional effects. First, there was a cash-in from Q4 2019 receivables, plus we've increased the overall annual direct debit invoicing percentage. Second, from this year on, we are doing all bonus payments group-wide in April, while in prior years, this had been paid largely already in the first quarter.The very strong free cash flow was also supported by lower CapEx and improved working capital management overall. Please keep in mind the phasing pattern that we usually see throughout the year here at CGM. It is not unrealistic to expect the negative free cash flow in the second quarter as we've seen in the second quarter 2020, and 2021 third quarter is up against the prior year's strong comparison. So overall, we stick to our guidance of more than EUR 80 million free cash flow for the full year 2021.The [ head start in ] free cash flow helped to reduce our net debt from EUR 480 million to EUR 460 million despite the share buyback program, which we successfully completed last week. Leverage remains with 2x adjusted EBITDA on the level of year-end 2020.For the share buyback program, we spent EUR 43 million in Q1 and completed the program last week for a total amount of 1 million shares at an average share price of EUR 71.25. Hence, as of April 30, we now hold 1.9% in treasury shares, and the free float stands at 48.1%.Now let's move to taking a closer look at the financial performance of our segments, starting with the Ambulatory Information Systems segment. Please be reminded that with the start of this year, the Telematics Infrastructure activities have been shifted out of the AIS and PCS segments and moved into the CHS segment.In the AIS segment, reported revenues are up by 18% driven by the first-time consolidation of the newly acquired eMDs business in the U.S., which Dirk had already commented on earlier. The segment's organic revenue development was slightly below prior year. 2 main reasons here: first, the prior year was still benefiting from the Windows 10 rollout; second, in Q1 this year, we continued to see an impact from COVID still for larger parts of our customers, particularly in the dental sector.Please keep in mind that the organic growth effects we are anticipating for the year kick in towards the second half. Recurring revenues are now at 77% of total revenues, up 4 percentage points year-on-year, which exemplifies the long-term strength of our largest segment and eMDs even reinforcing the strong profile.The EBITDA development has been impacted by the increased investments into research and development, into sales, service and distribution functions as planned. The margin is down accordingly by 3 percentage points.Coming to our second biggest segment, the Hospital Information Systems segment. Well, the top line continues to benefit from the largest acquisition in company history that we closed on July 1 last year. Reported revenues have increased by 64%, and organic growth has also been very strong with an 8% increase, which was mainly driven by the German business activities.The HIS segment is fully on track after the first quarter. Recurring revenues represent 68% of revenues now. However, please keep in mind the quarterly profile in the HIS segment regarding recurring revenues. Q1 is probably going to turn out the quarter with the highest recurring revenue share due to seasonality and the phasing of the Hospital Future Act.Looking at the EBITDA, the HIS segment recorded an even stronger increase and the margin is up slightly year-over-year despite higher R&D investments. Dirk already said it, the HIS business delivers excellently in line with our ambitions.Turning to the Consumer & Health Management Information Systems, after the TI reallocation, now our third largest segment. The CHS segment has been a strong contributor to our overall company organic growth in the first quarter, with an increase of more than 30%. The continued TI rollout to pharmacies has been the main driver, and even excluding TI growth, the organic growth stood at a very strong plus 9%. This was driven by the continued success of our data business solutions. Intermedix has shown an excellent performance in the first quarter.The recurring revenue profile of the CHS segment has been impacted by the TI rollout, with the high share of one-off hardware sales resulting from the connector and hardware sales to pharmacies. Therefore, recurring revenues grew with 14%, a bit lower in this segment. As planned, the investments, both in Telematics Infrastructure and in data business as well in all other growth opportunity areas, is leading to a margin decrease versus the prior year.And finally, the Pharmacy Information Systems segment, where we have a similar effect like in the AIS segment, a strong prior year comparison due to the Windows 10 rollout in 2020. In addition, in Q1 last year, the PCM (sic) [ PCS ] team was working off an exceptional backlog that was built up in Q4 2019. Against these prior year comps, revenues are down by 3% in Q1 2021, in line with our expectations. The quality of the revenue mix has increased, with recurring revenues now representing 71% of total revenues. Looking at the bottom line, adjusted EBITDA has been impacted by increased investments into further growth as we are aiming to accelerate our technology upgrading.Moving from our very solid start of the year to the outlook for the rest of the year. The guidance remains unchanged for the full year 2021. So no change in guidance for any of the KPIs, and we are fully on track to achieve our full year guidance. With regard to the quarterly phasing, we continue to expect the gradual buildup of revenue expansion. We continue to expect revenues for the Hospital Future Act to kick in not before the summer, although the lead development is very encouraging. We still expect the PTV4 upgrade for the Telematics Infrastructure connector to be installed in the second half of this year, subject to all the well-known prior milestones, where we depend on many parties, most of all regulatory bodies.Let me also position a notion of caution for the second quarter. Here, we expect to see additional EBITDA impact from the hiring catch-up, and as mentioned before, we also anticipate a free cash flow dip due to reasons I discussed earlier. All in all, based on the good start in the first quarter, we see ourselves fully on track to deliver our 2021 guided KPIs.And finally, let me please address a topic which goes beyond 2021, the introduction of Saas, Software as a Service, subscription-based models. We had originally promised you this slide for the Capital Markets Day in September. But hearing that question often enough in recent investor meetings, we pushed the analysis and want to share with you already today our current expectation for the next couple of years. As Dirk has stated earlier, we are ramping up our efforts towards moving a larger number of our products to the cloud in a multiyear road map.What are the advantages of SaaS subscription versus one-off license revenue? Clearly, the discounted value of SaaS subscription models is higher than the corresponding one-for-one of license revenue. Customer retention tends to be higher, and from a customer's perspective, the upfront barrier for projects that aren't specifically subsidized or funded is much lower with a clear benefit. And we will increase our already high share of recurring revenues even with further improved margins. As stated during the February call already, the transition impact will be limited for us.So let me briefly illustrate that based on our published 2020 numbers. With full year revenues of EUR 837 million, with the HIS business not affected, we estimate that only 30% thereof falls into the maximum scope of revenues that are relevant for a shift to SaaS subscription over time. Based on the assumption that the transition will be carried out over the next 3 to 5 years, we think that the annual revenue growth could be slowed by an average less than 1 percentage point during the transition period. Single years may be more or less affected, with the impact for 2021 already built, so I repeat, with the impact for 2021 already built into our 2021 guidance released in February and confirmed again today.Post the transition period, we expect to see an acceleration of organic annual revenue development by a CAGR of 1 percentage point or more. At the same time, we expect the share of recurring revenues to increase, from 63% last year, to more than 70% by 2025, and which is important, with a better margin and cash flow profile.Now having clarified that, let's briefly look at the upcoming next events. We will host our Virtual Annual General Meeting on May 19, release and discuss our Q2 results on August 5 and welcome you all to our Virtual Capital Markets Day on September 15.This concludes my part of the presentation. I thank you for your attention and hand back to the operator for the Q&A session.

[Operator]

[Operator Instructions] And the first question comes from the line of Andreas Wolf of Warburg Research.

[Andreas Wolf, Research Analyst]

A few questions. So the first one would be on the expectation of incremental cost for Q2. What should we basically bake into our estimates as probably, I guess, you have a good view already on the cost development in Q2? And then on the CLICKDOC calendar function, should we also expect incremental revenues coming from that? And I'm not sure if I got it correctly, will the CLICKDOC calendar function also be available to non-CompuGroup doctors, like offered by competitors?

[Michael Rauch, CFO & Member of Management Board]

Thank you, Andreas. I take up your first question regarding the expectation of the incremental cost. So just maybe, and this will not be a surprise to all of you, to explain, the highest cost portion that we have is personnel cost. And so if you view the total amount of personnel cost in Q1, it was EUR 114 million, 1-1-4. Then we have a contribution from acquisition of EUR 18.2 million. So if you take that out and if you take the normal salary increases into account, you are left basically with an additional headcount that we put onboard in the number of around EUR 3 million to EUR 4 million. And that is probably the number that we are ramping up now also for Q2 to come. So that will be the number to take into account.

[Dirk Wossner, MD, CEO & Chairman of Management Board]

Yes. And thank you. On your question regarding CLICKDOC calendar, it's a good question. So the first thing, the CLICKDOC calendar will be integrated into our AIS systems, i.e., over time, we will replace the existing calendar in our systems by the CLICKDOC calendar with its full capabilities. At the same time, the CLICKDOC calendar works as a stand-alone unit. It's cloud-based -- by the way, even if we integrate it into our existing systems, it's a cloud-based solution. And that can be either used together, ideally with one of our systems, where the interaction will be optimal, and this will be much easier to operate. But also, it will work as a stand-alone calendar in competition to other stand-alone calendars that are out there. Actually, at the moment, we are quite successful in also selling it as a stand-alone calendar in Germany and France.Regarding your questions on the revenues, yes, there will be additional revenues coming in through the CLICKDOC calendar. As we phase up this year, I would expect that to show up on a more significant number probably in the next year.

[Operator]

And the next question is from the line of Uwe Schupp of Deutsche Bank.

[Uwe Schupp, Small and Mid]

2 questions, please. Firstly, you won this large contract in Hamburg that you indicated in the quarterly statement. Can you give us an indication on the potential size of this contract and potentially the phasing? And related to that, do you expect further deals of similar size or even larger ones in connection with the Hospital Future Act?And then secondly, just on the electronic prescription coming next year. There obviously was some nervousness in the trade press over the last couple of days regarding the start of the tests towards the middle of this year. I was just wondering what's your current take on where we stand with regard to the regulators and what we should think about that.

[Dirk Wossner, MD, CEO & Chairman of Management Board]

Well, thank you, Uwe, for your question. So starting with the UKE contract. And I think we've said before, if we take the UKE, the University Hospital Hamburg contract, and the contracts we did in Madrid, you're talking about EUR 20 million to EUR 25 million in revenues over the next 5 years. That's about the size of that. And please understand that we can't disclose individual contract sizes.Regarding your second question, on the ePrescription and the noise that happens around ePrescription, indeed, there's almost daily news on the ePrescription. I think the good news is that there's some very [ constant -- number one, it's ] very constant. It will start on the 1st of January of next year. I have not heard any discussion that, that would be delayed, and I think it's highly unlikely that, that delay comes. All the noise you hear right now is whether there is a 1- or 2-month delay or penalty to the doctors, et cetera. We consider that a minor impact on the whole thing. The connector upgrade will go out, and the ePrescription will come in [ soon ]. And at least, that's the current position. And obviously, as always, there's many interests trying to have some last-minute adjustments, to put it that way.Regarding your -- the Hospital Future Act, it's hard to state a concrete revenue number right now. I can tell you that we have over -- significantly more leads than we thought, over 600 leads that we're currently discussing with hospitals. Obviously, this is a cumbersome process, as you can imagine, as you need basically to have a pre-discussion on the offer, then you need the approval from the respective state government usually or whoever is the -- whoever owns the hospital. So this is a little bit of a cumbersome process, which leads to, I think, the prolongation in the actual coming in of the orders. But if we look at the discussions that we have and the potential that is there, it is actually higher than we expect.

[Uwe Schupp, Small and Mid]

Excellent. I would have a follow-up for Michael, if I can. Michael, the purchase price allocation was relatively high, definitely higher than I would have thought. And could -- I was just wondering whether you could give us an indication of where we stand here for the coming quarters, what we should build into our models and whether Q1 was the peak from the resulting -- presumably, from the U.S. acquisitions.

[Michael Rauch, CFO & Member of Management Board]

Yes. Fair point, Uwe. And indeed, we have done, as you know, within the past, what is it now, 18 months, 3 out of the 4 largest acquisition CompuGroup has done, with EPSILOG, with the acquisition of the Cerner assets and with the eMDs acquisition. And as -- we do put something, as usual, on goodwill, which is not depreciable. There are purchase price allocations where you actually allocate value also to individual assets. And that is now reflected as the initial purchase price allocations have been done for all of the 3 acquisitions. And you see it in the first quarter, with a charge on amortization, depreciation for the PPAs here of around EUR 5 million in the first quarter. And I think it's safe and fair to expect that this will continue also for the next couple of quarters. It usually takes a period of 3 to 5 years until basically the charges then come down.

[Operator]

The next question is from the line of Charlotte Friedrichs of Berenberg.

[Charlotte Friedrichs, Analyst]

The first one would also be on the Hospital Future Act. And I would be interested to hear a little bit more about what the themes are that you are hearing from hospitals right now. Is there good willingness among the hospitals to invest, but maybe a little bit of hesitancy among the states and the owners of the hospitals to go ahead? And the second one would be if you can share with us perhaps any metrics that you have on the uptake for KIM, so the communication tool.

[Dirk Wossner, MD, CEO & Chairman of Management Board]

Okay. Thank you very much. On the Hospital Future Act, I think there's a lot of demand from the size of the hospitals around various areas, be it security, be it patient portals, be it the certain modules of that. And there's a lot of discussion going on. As you can imagine, this has come in rather fast. So I don't quite remember, but it might be 4 or 5 months old. So as usually, with these kind of subsidy programs, it takes a while until everybody sorts themselves. What do we do? What are the rules? In addition, the rules are different by state-by-state. So this is, I would call it, a very German exercise. It's highly complex to do that.And what happens right now is everybody is orienting themselves around, okay, how -- what are the rules, how can we do this, et cetera. The demand is very high. And there's also a very, very high willingness to invest. And remember, German hospitals are underinvested in comparison to not only American hospitals, but even Swiss hospitals or Nordic hospitals. So there is a huge gap in what needs to be invested to bring those hospitals forward. And this is one of the, I think, better aspects of COVID that has been made transparent.So I think there's a huge willingness, not only on the government side, but also on the hospital side, to invest. There might be some minor things on privately owned hospitals. But if you look at the majority of the hospitals and the pressure that's coming from the states to improve, I think that this is very positive. But again, because the process is cumbersome, because these are complex projects and you need lots of experts, this goes slower than, not we would have expected, but slower than if this had been something in the pipeline for the last 2 years.

[Michael Rauch, CFO & Member of Management Board]

And I take your second question with regard to the KIM situation. So one has to say that, as you know, we were one of the first-movers again also here on the communication in the medical sector, establishing and working with that secure network. And the order take-up is so far very promising and astonishing. So it is more than 4,000 orders we have already received here, and we will start basically then with the charging in the second quarter as we had planned.

[Operator]

The next question is from the line of Knut Woller of Baader Bank.

[Knut Woller, Analyst]

Michael, you alluded a bit on the impact -- cannibalization impact of SaaS. Can you share with us what you are targeting for organic growth rates then in the coming years? And secondly, on the impact of margins, should we expect in those years of transition margin progression? And what will be the drivers of the margin progression? And then on the PCS segment, we have seen that a good part, I think, according to press reports, 75% of all pharmacies are already connected now to TI. Can you give us an idea about your backlog as we are entering the second quarter and the rest of the year, what you're expecting here?And lastly, on the trade receivables past due that you alluded on, you said there was a cash-in impact from the fourth quarter. Still, we have seen that trade receivables have been up sequentially since the end of last year. So how much was the cash impact you received from the trade receivables past due in Q1? Can you quantify that?

[Michael Rauch, CFO & Member of Management Board]

Thank you, Knut. I can give you answers to all of the 3 questions. So let's start with the question on the last one, which you did with regard to the impact of the receivables. Yes, as it goes typically, sometimes you have situations whereby you have dispute resolutions, and then things take a bit of time and then finally, they are solved. And so I think you marked it also in one of your reports earlier that we had some receivables longer than 12 months. And that is now clear. That's now behind us. And that was actually, as you rightly said, the receivables from Q4 2019.And now then, we are building up receivables again, which is a good sign because we are invoicing our customers and the cash-in will come over time. So this is nothing to worry about. On the contrary, we're actually picking up orders here. And we have also taken acquisitions onboard, which then lead automatically to an increase of the absolute size of the receivables here. So nothing to worry about, all in line.Now with regard to the orders, basically, on the PCS side, so I'm answering your questions in reverse order. We have basically about 6,000 installs. And at this point, we have 6,500 orders, so 6,500 orders around at this point. So I would say, significantly above our expected fair share we would get, and we are very happy with the development here. Then your question was what -- the first question, can anybody help me just focus...

[Dirk Wossner, MD, CEO & Chairman of Management Board]

The [ margin and growth ]...

[Michael Rauch, CFO & Member of Management Board]

Yes. Thank you. The -- first of all, you asked regarding the growth impact, what can we expect for the next couple of years. And we came out with our announcement in December, where we said we want to significantly invest in the year 2021, of course, following to achieve a growth profile organically, to be able to grow beyond 5% on a longer-term horizon. And we still stick to what we have come out with in December. We didn't give any margin guidance yet, and I would please ask you also to stay tuned until we have a bit more visibility on the margin situation as we are investing right now. And then we will come and give you also guidance on the margin side.But one thing is for clear -- for sure, when you transition to a SaaS model, you have an impact in the short term, a bit weighing on the margins and then you have a benefit in the longer term, as I also alluded to, because the recurring revenues come in with a much better profile in terms of margin and free cash flow.

[Knut Woller, Analyst]

Michael, just 2 follow-ups, just to check whether I understood your comments correctly. On the PCS side, is it then fair to conclude that the backlog is still 500 orders for you, that, that still has to be worked off in the second quarter?

[Michael Rauch, CFO & Member of Management Board]

Correct.

[Knut Woller, Analyst]

And to get a better feeling -- okay. And then, two, regarding growth, the 5% or more than 5%, is that then something you want to achieve looking beyond 2025? Or is that something that you think you can achieve already earlier?

[Michael Rauch, CFO & Member of Management Board]

Yes, we first came out with the communication regarding 2025, and I think we haven't given any long-term outlook so far, at least since I'm here in the company. And that was the first time we did in December last year. So let's first make sure we actually deliver, and then we can talk about what's beyond 2025.

[Operator]

The next question is from the line of Florian Treisch of Commerzbank.

[Florian Treisch, Research Analyst]

2. The first is on the margin pressure going into Q2 over Q1. You mentioned the EUR 3 million, EUR 4 million higher personnel costs from hiring and some investments. But in your statements, in the opening statements, you also mentioned that the bonus payment is now paid in Q2. So can you quantify the impact on the profits for Q2?And the second part is around your comments around the SaaS or subscription shift in the coming years. If I got your message right, it also implies that you only expect something like 50% of your recurring business will become a subscription-based business. And that still the other 50% in 2025 will be more a legacy-based software model, i.e., license and maintenance, which probably reflect your very slow-turning customer base.

[Dirk Wossner, MD, CEO & Chairman of Management Board]

Yes. Thank you. I'll take the second question then, and Michael will go to the first one. I think your calculation on the SaaS business -- we already have a significant service-based business that is there today. So we're talking about migrating the rest of our business, which is license-based, into a SaaS model. And that's why we said and this is why believe, a, it will take over time because the migration will happen with natural updates that happen in our base; and secondly, as we said before, many of our models are already, if you want, SaaS-based.

[Michael Rauch, CFO & Member of Management Board]

And then back on your question with regard to the cash flow impact of the bonus. Yes, that will come, but it will not be an EBITDA impact of the bonus because that has been already accrued for. So the EBITDA impact will come rather from additional personnel that we get onboard. And this is still the ramp-up that we mentioned because we do have a hiring catch-up. We had anticipated -- we wanted to recruit skilled labor earlier. But as you know, also that is a challenge to recruit qualified people in adequate time and get them onboard and onboarded, so that's why the impact is there.

[Florian Treisch, Research Analyst]

Okay. Maybe just one follow-up, so to the first part. So you would say above 70% recurring revenues. You can also say, [ slash-subscription-based ] business model, i.e., no license business any longer really?

[Dirk Wossner, MD, CEO & Chairman of Management Board]

In the long term, in general, yes, there might be very small things that are license-based, but the majority is the migration to a SaaS-based model, yes.

[Operator]

[Operator Instructions] And we have a follow-up question from the line of Andreas Wolf.

[Andreas Wolf, Research Analyst]

And just a quick follow-up, if I may. So I've noticed on your Telematics homepage that one of the card readers is now NFC-ready. 90% of the installations there are related to card readers, which does not have NFC functionality. To me, this looks like the future card might be NFC-based, maybe also [ fitting ] on a mobile, as we know [ this already ] from Google Pay, et cetera, where we just pay with NFC, in the supermarket. Is there some potential replacement upside for the card readers going forward, maybe triggered by the electronic health record?

[Dirk Wossner, MD, CEO & Chairman of Management Board]

So currently, it's regulated, to my knowledge, that the card has to be physically inserted into the device. So there's no -- even if the device has the capability to have an NFC, the current regulation asks you to put the card into the device. As you know, this is a highly, highly secure environment. Going forward, there has been a discussion about the future of the TI infrastructure and there are discussions about tokenizing and going -- putting those, for example, in mobile handsets. And hence, NFC readers might be necessary.But also, last time, we commented on the timing of this. If you look at the usual deployment of next-generation TI, we would say this is a 2 -- probably more a 3- to 5-year process rather than next year, over the next years. In that process, there might be exchange of hardware because hardware is just outdated before we even come to the next generation of TI. And even in the next generation of TI, some sort of hardware will be needed. But to be honest, there's too much influx right now to make concrete statements on whether those card readers will be the ones that are there or not. It will be quite some time until that will be implemented in Germany in a wider range.

[Claudia Thomé, Head of Investor Relations]

And since we don't have any further questions at this time, we would like to thank all of you for dialing in, spending the time. And as always, Investor Relations is available for further questions. Don't hesitate to contact me via e-mail or on the phone.Have a great day. Bye-bye.