CompuGroup Medical SE & Co KgaA

XETRA:COP

Earnings Call Transcript 2021-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator. Welcome, and thank you for joining today's CompuGroup Medical Investor and Analyst Call. [Operator Instructions] And I would now like to turn the conference over to the Corporate Vice President, Investor Relations, Claudia Thomé. Please go ahead.

[Claudia Thomé, Head of Investor Relations]

Good morning, and welcome to the CompuGroup Medical Investor and Analyst Conference Call for the Second Quarter 2021 Results. Great to have you with us, whether you're dialed in via phone or following the webcast. As always, we published our presentation early this morning on our website as well as the half year report and the press release. We're going to start with presentations by our CEO, Dirk Wossner; and our CFO, Michael Rauch. We will then move on to the Q&A with both Dirk and Michael available for your questions. By the way, Dirk is dialing in from the U.S. today. We're hoping for a good connection. But should there be any issues, that's the reason why. One more housekeeping thing before we get going, please take the disclaimer on Chart 2 as read and taken to the notes. And with that, I would like to hand over to our CEO, Dirk Wossner.

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

Well, thank you, Claudia. And indeed, I'm dialing in from the U.S. I'm visiting our new subsidiary here at the moment. So for me, it's 3 a.m. in Austin, and good morning to all of you. Let's turn to the second quarter and first half year results, which we consider a very good milestone on our path towards further digitization of health care. Step by step, we're working on improving the patient journey with increasing digitization and interoperability and at the same time, it's our goal to protect medical data and the infrastructure. Let's start with the financial KPIs, which underline the strong second quarter. We're fully on track after the first half year and are confirming our full year guidance. In the second quarter, we've delivered another strong top line growth of 34% year-on-year, but more importantly, organic growth has increased an excellent 10% with a high quality within the revenue mix. We're now at 67% of total revenues recurring. On the bottom line, adjusted EBITDA came in at EUR 51 million in Q2 and a margin of 21%. The margin is down year-on-year in line with the investment program we have announced for this year in order to drive further growth. Adjusted EPS is up in line with the EBITDA, and free cash flow is slightly negative in Q2 as guided, but strong in the first half. Michael is going to give you some more details on that. Most remarkable about Q2 -- our Q2 key performance indicators is the fact that organic growth is picking up. Organic growth has increased to 10% year-on-year in the second quarter after 5% in Q1. Excluding Telematics Infrastructure growth, organic growth has reached 6% after 1% in Q1. We've seen an improvement in all 4 segments. The Ambulatory segment is back to 3% against a still strong prior year comparable. The Hospital segment delivered a stellar organic growth of 15% after an already strong Q1 with 8%. You see the Consumer & Health Management segment with a strong overall 42% in Q2 after 34% in Q1. And even excluding TI, the growth rate accelerated slightly from 9% year-on-year in Q1 to now 10%. In the Pharmacy segment, we still didn't see growth against strong prior year comparables, but the decline rate has improved from minus 3% year-on-year, which we saw in the first quarter to minus 1% in the second quarter. So overall, a strong Q2 and a big step forward towards our organic growth target of 4% to 8% year-on-year for the full year 2021. Let's take a closer look at some of the quarterly highlights in the AIS segment. And our new U.S. business continues to perform well. And I can tell you being here, having met the new merged team, so the old CGM U.S. team and the new EMDs team coming together as a strong leadership team is really convincing. We're seeing early improvements in operations. We're seeing synergies already being realized across both cross-selling opportunities, also cost reduction, mainly, for example, by using our new Indian RCM operation as the basis for legacy RCM business and CGM. So overall, we're impressed by the performance of the U.S. business and are looking forward to growing in this important market. At the same time, we're seeing organic growth again in our legacy AIS business after 3 quarters of tough prior year comparables, we're back to 3% organic growth year-on-year. This is mainly due to a strong European business. And in addition, we've started rolling out our e-health record modules, the EPA modules to doctors in Germany. We see this as an encouraging start and expect the rollout to continue and accelerate in the second half of this year. Our customers, doctors, pharmacies and hospitals are crucial in fighting the pandemic. We've continued to support them in the second quarter with vaccination campaigns peaking across Europe. In Germany, we're providing our vaccination management module at the premium model. It helps doctors in managing, documenting and reporting vaccinations. And from June onwards, we are providing vaccination certificates to doctors in Germany like we already did in Austria. In Italy, we have supported pharmacies, which are part of the rollout there. And in France, we have provided [ adequate ] tools for the vaccination process. Our hospital business has delivered another strong quarter. Great job by HIS team posting an organic growth of 15% year-on-year, which is a fantastic -- which is fantastic, even considering the slower prior year quarter when the pandemic impacted growth in the HIS segment. The progress of the G3 rollout in Germany was one of the major drivers in Q2, together with the Polish team outperforming the project milestones originally targeted. The lab business has also posted another strong quarter. After the finalization of the Cerner integration, we're well set for future growth. with more than a double market share and being the clear #2 in Germany hospital business. This puts us in a prime position to benefit from the Hospital Future Act. We support our customers applying for funds. A large number of projects have started already, but we still don't expect revenues to kick in until after the summer with the bulk of revenues expected for the years '22 and beyond. Let's move to another segment, which has been driving organic growth this quarter in Consumer & Health Management Information Systems. We recorded another very good quarter in telematic infrastructure with strong card reader sales and the rollout to pharmacies continuing. We received the approval for the connector upgrade for next level functions to enable the e-health records. We're seeing strong momentum in the rollout of safe e-mail communication and medicine short, KIM, with more than 9,000 installations already. But the segment development has been strong beyond TI. We're extremely pleased with the progress of our data business. Our safety check tool for content indication of prescribed medication called, Therafox, recorded more than 6 million requests per week. 4x as much as we saw in the prior quarter. And finally, in consumerization, our e-health record for private insurances has reached more than 0.5 million users by the end of Q2. Based on the first half year results, we're confirming our guidance. We continue to target EUR 1 billion in revenues, more than 60% thereof recurring and EUR 210 million to EUR 230 million in adjusted EBITDA. For the midterm, our ambition is to grow organically with a CAGR of at least 5% and to increase EBITDA -- the EBITDA margin, again after this year of investments into growth. We also expect to further improve the revenue quality over time from an already high level. We target recurring revenues to represent more than 70% of total revenue in the midterm. We will provide more details at our virtual Capital Markets Day in September 15 to which you're all cordially invited. To summarize, CompuGroup Medical continues to be in a prime position for further growth in the attractive market of health care IT. Thank you for your attention, and I hand over to Michael for a deeper look into the financials.

[Michael Rauch, CFO & Member of Management Board]

Thank you, Dirk, and welcome to everybody also from my side. Let's turn to the financials for the second quarter. We'll start with the segment overview. The strong top line growth of 34% was again driven by the 2 large acquisitions, EMDs and AIS and the assets acquired from Cerner and the HIS segment. The EBITDA is up by 14% and the margin is down by 4 percentage points, in line with our earlier communication about the investments for further growth. Dirk has already spoken about the excellent organic revenue growth in the second quarter was a 10% increase year-on-year and 6% excluding TI growth. The strong face value growth of 34% was supported by the 2 large acquisitions we closed last year, and the recurring revenues increased by 30% and represent 67% of total revenues in Q2. On the cost side, we are seeing the ramp-up for growth, especially in the personnel expenses line. The main increase of personnel expenses is attributable to the large acquisitions we did last year. From an organic perspective, personnel expenses increased by 15% year-on-year, reflecting the ramp-up of further growth. Moving on to the free cash flow. We recorded a free cash flow of EUR 65 million in the first half year. As guided, free cash flow in the second quarter was negative. From this year on, we are doing all bonus payments group-wide in April, while in prior years, this has been paid largely already in the first quarter. Overall, we stick to our guidance of more than EUR 80 million for the full year 2021, taking into account higher CapEx cash out and expected tax payments in the second half of this year. Our net debt has increased from EUR 480 million by year-end 2020 to EUR 599 million, reflective of the share buyback, the dividend payout and the payments for acquisitions closed in 2021. Leverage has increased accordingly to 2.6x adjusted EBITDA. Now let's move to the financial performance of our segments, starting with the Ambulatory Information Systems segment. In the AIS segment, reported revenues are up 24%, driven mostly by the newly acquired EMD business in the U.S. Dirk already mentioned the return to organic growth in AIS was 3%. This was driven by a strong European business, especially in France. The successful rollout of the e-health record module to doctors in Germany, which started in Q2 also helped. We consider the step-up in organic growth against the still strong prior year comparable of 7% due to Windows 10 as a good step and we expect stronger AIS organic growth in the second half of this year against weaker comparables and with the continuing momentum of the rollout of the e-health record module. Recurring revenues are now at 76% of revenues, which exemplifies the long-term strength of our largest segment, and the EMD is further supporting the strong profile. The EBITDA development has been impacted by the increased investments into research and development and the sales service and distribution functions as planned. The margin is down by 8 percentage points year-on-year, which is reflective of the hiring catch-up mentioned in the May quarterly call and strong prior year Q2 performance. Additionally, please keep in mind that the newly consolidated U.S. business is operating at a lower margin. Let's turn to our second biggest segment, the Hospital Information Systems segment, where the top line continues to benefit from the largest acquisition in company history that we did last year. Reported revenues have increased by 86%. Organic growth has been excellent at plus 15% year-on-year, which is yet another step up in organic growth from the already strong plus 8% in the first quarter of this year. A strong performance of G3 in Germany, a great job of our Polish team and their successful lab business contributed to the excellent growth. This is testimony to the strong momentum in the HIS business, even considering the easier comps in the prior year quarter was 1% organic growth. Recurring revenues also showed a strong increase with 80% year-on-year. Looking at the EBITDA, the HIS segment recorded an even stronger increase and the margin is up by 5 percentage points, benefiting from a one-timer of accrual release, but even without that, the margins would have been up. As Dirk has said, the HIS business is in excellent shape. Turning to the Consumer & Health Management Information System. That is also posting a strong top line performance with revenues growing at 41%. Telematics Infrastructure has been a big driver here with strong card reader sales in the second quarter and still ongoing installations from the TI rollout to pharmacies. And even excluding TI growth, the organic growth stood at a very strong plus 10%. This was driven by the continued success of our data business solutions, and Telematics has again shown an excellent performance in the second quarter. The recurring revenue profile of the CHS segment continues to be impacted by the TI rollout with a high share of one-off hardware sales resulting from the card reader and connector sales to pharmacies. Therefore, recurring revenues grew with 14%, a bit lower in this segment. As planned, the investments both in TI and the data business as well as in other growth opportunities in this segment is leading to a slight margin decrease versus prior year. EBITDA growth was still strong with 31% year-on-year. And finally, we turn our eyes to the Pharmacy Information Systems segment, where we have a similar effect like in the AIS segment, still strong prior year comparison with plus 6% due to the rollout of cash point modules in Germany in Q2 2020. Against these prior year comps, revenues are down by 1% in Q2 2021. The quality of the revenue mix has increased with recurring revenues now representing 69% of total revenues. Looking at the bottom line, adjusted EBITDA increased mainly due to positive development in Italy. The margin is up by 3 percentage points accordingly. Moving to the outlook for the rest of the year, and Dirk already mentioned it, we are confirming our guidance for the full year. We continue to expect group revenues in the range of EUR 1 billion to EUR 1.040 billion and EBITDA of EUR 210 million to EUR 230 million and an adjusted EPS between EUR 1.70 and EUR 1.95. For your information, in order to provide you with more transparency regarding our main KPIs, we have included a number of additional charts in the appendix of this presentation showing the adjustments for both EBITDA and EPS, starting on Chart 40 and including also the PPA effects that you have been asking about also in the last quarterly call. Now let's briefly look at the upcoming next events. As Dirk has said, we will host our Virtual Capital Markets on September 15 and are looking very much forward to seeing as many of you possible -- as possible virtually attend the day. And we're keeping our fingers crossed that in the near future, we can also meet physically again. The next publication milestone is a release of our Q3 results on November 4. That concludes my part of the presentation. Thank you for your attention and hand back to the operator for Q&A.

[Operator]

[Operator Instructions] First question comes from the line of Laura Metayer with Morgan Stanley.

[Laura C. Metayer, Research Associate]

I have 3 questions, please. The first one is on TI. What is the outlook for the rest of the year? And do you still expect an acceleration in the second half? Second one is on the AIS and PCS segment organic growth. So AIS returned to positive organic growth after a few consecutive quarters of negative growth. Do you expect that positive organic growth to continue? And what are the drivers for that team? And on PCS, when do you expect a return to positive growth? And what will be the drivers for that? Last question on the CHS segment excluding TI. You've had good momentum in your data business in the last quarter. Do you expect this to continue? And are you actively working on broadening your data-driven offering? And lastly, are you seeing a growth in the number of contributions for physicians to your database compared to the number you published, I think, a few quarters ago?

[Michael Rauch, CFO & Member of Management Board]

Laura, many thanks for your question. Sorry. Dirk, do you want to start with the data question maybe?

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

Yes, I can do that. Sorry, this is a little bit due to the fact that I'm on the line here. I have a little delay. So I'm going to start with the answer on the data question, I'm going to hand over for the TI and AI questions to Michael. So yes, we are planning or we are seeing continued good growth in our data business, driven both by Intermedix and -- but also by new applications, as we mentioned earlier, like the Therafox medication checker, which is highly successful right now. And we expect that to continue going forward with good some momentum. There's some tough comparables in Q4. Remember, in Q4 of last year, we had record growth in intermediates business. But overall, you can expect that growth to continue to go on. I'm not 100% sure about the second half of your CHS question. So if you may want to repeat that part, that would be helpful.

[Laura C. Metayer, Research Associate]

Yes. I think a few quarters ago, you reported like a number of physicians that are contributing to your database. And I just wanted to see if you're seeing that number increasing in terms of the contributions to tour database on physicians?

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

So there's 2 things. Yes, we are seeing continued growth in the number of physicians, but we're more focused on actually the quality of the panel that we have. So we have started an increased quality panel, i.e., meaning the information we get is richer and broader than the one that we got originally. Here, we are on a good journey to actually even grow that phase and then have enriched data available. There's lots of campaigns going on. We actually also use, for example, benchmarking data on practice performance to win as many practitioners as we can to contribute to those panels. So overall, yes, we continue to see good panel growth, both in number but also in quality.

[Michael Rauch, CFO & Member of Management Board]

Okay. And then Laura, I take over on the rest of the question that you mentioned. So starting here with TI. The obvious question, as we are already entering or right now in the third quarter. We have released the news that we have received the approval for the PTV4+ upgrade. And with that, actually, we are now in a position to invoice our customers that TI upgrade, which will happen in Q3. And with that, we can also confirm that, that element of uncertainty in the guidance on the CHS side has now moved away. Then you asked questions regarding the organic growth profile of AIS and PCS. And indeed, as you were mentioning on the AIS side and Dirk was also alluding to that, we had seen Three quarters of negative organic growth and now first time the fourth quarter, positive organic growth in our Q2 of 2021. And we are moving against weaker comparables in the second half of this year. And against these weaker comparables, we are going to see also a step-up in organic growth here on the AIS side. We forecast that for the second half of this year. And that's why we also stick to our guidance in terms of the segmental guidance for the CHS segment and for the AIS segment. On the PCS side, the main part of, also, our PCS installation team has been supporting the TI installations. Now for the second half of this year, there will be more focus back to the normal PCS software elements. And with that, we also anticipate a step-up in organic growth on the PCS side. I hope that answers all of your questions. If not, please come back.

[Operator]

Next question comes from the line of Charlotte Friedrichs from Berenberg.

[Charlotte Friedrichs, Analyst]

Three of them as well. The first one would be if you could please provide an update on where you are at the moment with regards to the ramp-up in your employee base for the growth investments? And related to that, is your new personnel expense, sort of, the run rate that we should expect for the rest of the year? The second question is if you can give us a little bit more of an idea of the magnitude of the leads and orders that you have received in the hospital area? And then thirdly, also on the Hospital division, how big was the accrual release that drove the margin improvement in the second quarter here?

[Michael Rauch, CFO & Member of Management Board]

Charlotte, many thanks for your questions. I'll start with the obvious question affecting our cost base that is here on the personnel cost side. And I mentioned that the organic personnel cost increase is about 15%. We have been debating already in Q1, the ramp-up of personnel. And I have been mentioning in Q1 that we saw an increase organically in the vicinity of around EUR 4 million. And I would anticipate a further step up in hiring and with that also an increase in personnel cost in the vicinity of another EUR 4 million, and that actually came true. So right now, we are about EUR 8 million organically above prior year and personnel expenditures due to the hirings. And going forward, we will step a little bit on the break. So we're still hiring, but we will hire less than we did in the second quarter of this year. Now the question was regarding the one-timer in the HIS business. Indeed, what has happened is you might be aware that we did the asset deal for Cerner, which came with a transitional service agreement during that transitional service phase. The U.S. team of Cerner was also recording bookkeeping for us. And when we revisited the numbers at the end now of the full period for the opening balance sheet, we saw that actually during Q3 and Q4, some costs were recorded, which didn't need to be recorded and were released as a one-timer. That onetime impact has impacted here also the margin on the AIS side and is also shown in the other income in our overall P&L. And even if you exclude that, you would still see a step-up in margin on HIS. So talking about EUR 1 million to EUR 2 million here in total. And then with regard to the order intake, the order intake is excellent on the Hospital Future Act here, and we are ramping up our resources. We are anticipating more projects here to come and we're looking forward to then see those turn into invoicing over the next quarters to come.

[Charlotte Friedrichs, Analyst]

Perfect. Just any more color that you can give us in terms of numbers, say, the number of leads or anything about the potential revenue on the hospital side here?

[Michael Rauch, CFO & Member of Management Board]

No. We're not disclosing that particularly.

[Operator]

Next question comes from the line of Uwe Schupp with Deutsche Bank.

[Uwe Schupp, Small and Mid]

Two questions for me, please. Firstly, on the growth investments. So you indicated some further growth in investments, but if I understood correctly, at a more modest pace. If you look back compared to where you stood earlier in the year or at the start of the year, is that pretty much according to the budget? Or have you deliberately basically slowed down investment or maybe even had issues in finding the right people. In other words, could we expect this growth investments to drag on for a bit longer, but maybe at a more modest pace compared to what you initially expected? And then secondly, a follow-up on the hospital comments there. Obviously, the growth stepped up very nicely in the second quarter. Just wondering whether that is the new normal, the 15% growth that you showed here? And to what extent that already was impacted by the Hospital Future Act because my feeling is that it's more on the order side where you see the improvement right now? And so the real organic growth should be coming going forward. Related to that, as a side question, we -- there's obviously -- all hospitals here in Germany seem to be investing quite a bit and using the money that is freed up by the government. In other words, can you be even a bit picky? And should we expect the margins to be quite beneficial from those projects?

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

Sorry, I was on mute. Sorry. Thank you for the questions, and let me answer. Maybe start with the second one on the hospital. We don't expect the margin -- the growth to continue to be at 15% that would indeed be stellar. I think it's high-end single digits that we're aiming in terms of growth in the hospital business with -- depending always on the both prior year comparables, but also on actual performance within the quarter. And I think you're actually spot on regarding the Hospital Future Act. So there's a lot of activity going on. There's lots of tenders out there. Actually, the first orders in now, but I would call them, they're probably very, very early. So we expect the bulk of the orders to come the second half of this year and maybe even in the first half of next year that then will materialize into revenues accordingly a couple of months later. Regarding being picky about where we go, yes, we unfortunately have to be because both the market is dried up in terms of people you will need to serve all the requests that are there. So we are very selective of where we play and how we can play. It's not necessarily always around picking just the best margin projects, also the ones that you can serve and deliver reliably because that's an important element for us. But clearly, right now, the demand for what needs to be done there clearly exceeds the supply, and that's always a good position to be in if you're a supplier. Going back to your second question regarding our growth investments, I think we're in line with the plan. There are some issues you always have, but this is standard in our business is trying to recruit especially programmers, and coders. This is a constant issue we have in the company, and we would like to probably have a couple of more of them, but I don't expect huge distortions from what we've said in the plan. And if at all, there might be a slight rollover into Q1, but we don't expect that to be large.

[Uwe Schupp, Small and Mid]

Can I have a follow-up, please, on the potential margin impact of the connector upgrade? Should we expect, Michael, a similar healthy margins compared to what we saw last year same time? Or is there something -- a different margin profile to be expected for whatever reason?

[Michael Rauch, CFO & Member of Management Board]

Yes, we do expect a similar margin benefit this time. However, just for the benefit of details, just to let you know, in terms of the way this one-timer is going to be recorded, we see the bulk of the revenue and the EBITDA in the CHS segment, but we also see parts of that in the AIS segment, so a smaller part in the AIS segment, that has to do with the way that the reimbursement works for this upgrade. That's decided to others, and we just follow.

[Operator]

Next question comes from the line of Knut Woller with Baader Bank.

[Knut Woller, Analyst]

Yes. Just 2 technical questions. First for Michael. And the other OpEx was surprisingly down quarter-over-quarter in Q2, while they used to be up sequentially in prior years. So can you shed some light here what drove this development? And then looking at the amortization of intangibles, it also was down sequentially. Is the Q2 number a run rate and what drove this development? These would be more the technical questions. And then looking a bit more strategically at the investment case. You have this year some one-off correct tailwinds in terms of growth in connector update. You have still one-off revenues from the PCS and TI rollout. So these are headwinds in terms of growth next year. So how should we think about growth next year? You guided for the 5% plus. Is that taking into account these headwinds that you're expecting to be offset by the Hospital Future Act tailwind? And then secondly, also on margins, you stated that you want to increase margins going forward. Looking at the overall investments and the magnitude of the project that has to be done, is there a reason -- or is it fair to believe that there will be ongoing investments also next year to get this growth onboard? Thank you.

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

Yes. Thank you. Maybe let me start with the nontechnical part of the questions regarding the headwinds that you mentioned or the revenue growth. And again, we said that earlier, we expect growth in spite of what you call headwinds to be a minimum 5% organic growth for next year as well. And I would probably be as pessimistic as you around the headwinds. Yes, there are tailwinds we have this year, which are not going to be there next year, but there's already talk about other programs for next year. Like there's a large government program coming in, in France called the Ségur program, which is an update for individual physicians into certain functionalities in their practice management systems as well as security. We're in a very strong position in France to capture that. There's also discussions about other elements of government programs that are in the doing. Secondly, as we said earlier, the Hospital Future Act revenues were actually -- in terms of revenues actually coming in will be much stronger next year than they are -- next year and the following years than they are actually this year because of the delay in how these projects evolved. And thirdly, to the question of TI business, there's also going to be another TI upgrade next year, and it's not 100% defined when and how that will happen exactly. But remember, some of our first connectors are coming out of life and will need to either be replaced or prolonged which would happen through a connector upgrade. So as always, we expect also there to be some business. Regarding margins, and I think we've been pretty clear about that, we expect margins to be improving next year, and we'll give further details on the margin development, as we said in the Capital Markets Day.

[Michael Rauch, CFO & Member of Management Board]

And then could I continue...

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

I hand over -- sorry.

[Michael Rauch, CFO & Member of Management Board]

Yes, perfect. And Knut, I continue with a more detailed finance questions here. And allow me to make one comment again because you mentioned 2 one-timers where you wanted to have explanation on. I just want to reiterate, there was third one, which I mentioned earlier during the call, with the other income increase here due to the accrual release on the HIS segment side. Now you talked about the other OpEx. And so just for the benefit of everybody, we basically have 3 main lines and our operative P&L. One is the cost of goods, one is the personnel expenses, and then there's a big rest of other expenses. And these fluctuate in essence, from quarter-to-quarter, depending on what kind of investments we actually are taking. It could be [ leased ] personnel compensating for not hired own personnel, could be all other kind of lines. But specifically here to the second quarter, you might know that our Board of Directors is no longer recorded in personnel expense. That's a technicality, but is actually recorded in other expenses and with the end of Ralph Körfgen stay here on board in the second quarter, as it was announced, we had to take a onetime release here in the second quarter in other expenses, which was beneficial. So going forward, we would expect rather that to be up at the level where it was in the previous quarter. The second technicality question was on the amortization effects here, particularly on the software side. And yes, we have been capitalizing software for many years here, partially at least within CompuGroup. And if a project has to be stopped and if there is some amount of money sitting on the balance sheet, it has to be retired. And that actually happened. We had to stop a project in Q1, and therefore, there was a onetime charge on amortization for the retirement of those costs taking them from the balance sheet in the vicinity of EUR 3 million.

[Knut Woller, Analyst]

Thank you, Michael. And so Q2 is then the run rate for the amortization in the coming quarters. Is that right?

[Michael Rauch, CFO & Member of Management Board]

That's how we see it, yes. That's the best guess right now, Knut.

[Operator]

[Operator Instructions] The next question comes from the line of Andreas Wolf with Warburg Research.

[Andreas Wolf, Research Analyst]

And congratulations on the strong quarter. So the first question is on the electronic health record. Could you elaborate on the economics of what the additional offering costs for the doctor and how we should think in terms of how many EHRs there will be needed in the field by the more than 100,000 doctor offices? So is it basically 1 EHR per office more or less? And maybe you could also provide some insight into how the beginning of the rollout was how many modules you've sold already. And then on Poland, I remember that there was also a phase where sales were languishing simply because of the political situation and the reduction of EU subsidies. So do you see significant pent-up demand there as this -- the situation changed? And maybe you could also provide some insight. This would be my third question on France, what the potential might be there in terms of economics? Is it comparable to Germany overall just to get us -- to give us a better impression of what might be the opportunity for CompuGroup?

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

Thanks for your questions. And I'll go to number 1 and number 3, and then hand off for number 2 to Michael. So the first question on the EHR record. This is a doctor asked to buy an EHR module to fit into his practice management system. So basically, every -- per practice, we need one EHR upgrade to be sold, and that is mandatory for the doctors to have. Part of that update is actually just not the EHR, it's also, what we discussed last time, the [ ERO ], i.e., the Electronic SickNote and other functionalities of the TI coming in and you need a module to be fit into your AIS system, and that has a couple of million revenue impact in AIS already this year. The other part, as Michael mentioned, of that, is in the classical TI business. So you have to keep that in the back of your mind. Regarding the French Ségur program, it's quite dynamic right now, not in terms of that the program will come. But exactly how much it would be and exactly how it is. I'm not with our latest, latest news on that. I think the discussion has been around EUR 1 billion to be provided. But again, that has not been finally decided and it's also not 100% clear how that will be exactly distributed, but we can expect with our strong market share in France again, we have over 30,000 practitioners in France. We expect a big chunk of that to come into the practice management systems because functionalities such as secure messaging, data handling, et cetera, are included in that program. And again, they are in the final details of the political definition of the program. And Michael, you might want to take over the second question.

[Michael Rauch, CFO & Member of Management Board]

Yes. Thank you, Andreas. I'll take over the question regarding Poland. So for the benefit of everybody following us maybe not so long as Andreas has been, with regards to the Polish market, we entered it as typically, CompuGroup [ that's ] via an acquisition in the year 2006, the company that we acquired had been founded about 10 years earlier. We grew successfully with our Hospital business and are now #2 player in that market. We were offering all kinds of hospitals system solution with our CGM CLININET and we have also ERP functions for enterprise resource planning. The projects that have been very successfully rolled out year-to-date are mostly extensions to our installed base, such as electronic documentation modules, patient e-services and connections to countrywide platforms. And with that, I want to thank, also, our Polish team here doing a fantastic job in the HIS business for many years now.

[Andreas Wolf, Research Analyst]

Great. Maybe one quick follow-up, if I may. So what is the revenue per doctor office that we can calculate within the context of the HR module rollout that would be helpful just to better assess the full potential that you might have here over the next few quarters or maybe years?

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

I am not 100% sure of that number. I think it's around EUR 100 per doctor office, but don't nail me exactly to that question, but I think that's the magnitude that we're talking about.

[Operator]

Next question is from the line of David Vignon with Bryan Garnier.

[David Vignon, Research Analyst]

I have 3 questions, sorry. The first is regarding the Telematics Infrastructure. Could you give an update on the possibility of seeing the hardware connector being replaced by a cloud connector soon? And an update also on the rollout to [indiscernible] was expected to start in H2 of this year or H1 of next year. The second question is on the connector upgrade that you mentioned earlier for the replacement of existing connectors. Should we think about it as a software upgrade similar to the ones in last year and expected for Q3 of this year or is it a complete replacement, meaning hardware replacement? And the last question, you mentioned the [indiscernible], and the Ségur [indiscernible] in France. Do you have also some details on the programs that are expected to digitize health care in Italy and Spain? And what's your opportunity there?

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

Thank you very much. And let me start with your questions regarding where are we regarding the TI. First of all, the question to the rollout to other groups, i.e., the physiotherapists and the [indiscernible] that has been delayed. There is discussions around whether that, and how fast that would happen. There is a positioning paper of the gematik which is the regulatory body here regarding -- and that also comes to the first part of your question regarding the replacement of the connector going forward in the future, so-called TI 2.0. We don't expect that to be operational for at least the next 2 to 3 years. Again, certification, definition of that takes time. So in some publications there was talk about that would be coming next year or earlier would be available for that physiotherapist for that [indiscernible] upgrade we don't expect that to be the case, i.e., the current telematic infrastructure environment will continue to be around for, as I said, probably the next 2 to 3 years at least, and then you will see a slow grading or coming in of the next-generation connectors. It is not 100% defined yet, whether that will be -- that connector will have a hardware component or will be all of software. It will be definitely -- probably have a smaller hardware component, if any, at all, that has to be rolled out. But again, that's -- we're fairly early in this kind of a discussion. And as you know, there's elections in Germany next year, so there might be actually also new people in the respective organizations and maybe a new Secretary of Health. So we'll have to see how that evolves over time. But I would still expect that at some time the [indiscernible] would need to roll out even before the new TI 2.0 is available, but that's my personal assessment. It's very difficult to talk about timing here right now. There is an intermediate step that we're looking in, which would be a so-called cloud connector, that would mean that you actually put the physical connector into a data center. That's something that could work as an intermediate step to serve, especially, for example, if you think about [ midwifes] they're on the road a lot. So they need a mobile use case and then the physical connector in their practice doesn't make that much sense. But again, this is speculation. We don't have any concrete data on this, but we're very well positioned on both an intermediate step or a final step in terms of moving towards Telematics 2.0. To your second question, the connector upgrade, we expect that to be a software upgrade of the connectors which would come in starting in the second half of next year when the old connectors to run out. But again, the final certification of that definition of the requirement hasn't been done yet by Gematik, but we expect that to happen in the next months. And your third question regarding government programs towards physicians and how they've helped. In Spain, for example, we see a lot of the programs are actually more on the regional basis or the [indiscernible] autonomous. So there's regional programs, of which, by the way, we benefit very well, for example, in Madrid, and in Murcia, both with our hospital business that we acquired in Spain as well as our doctors business. In Italy, I'm not aware of that program or any program with that. I'm aware of discussions that are going on. But to my knowledge, there hasn't been a big government program. However, there have been requirements given to doctors that we'll need them to upgrade. For example, the specialist segment now needs more electronic documentation, requirements and pharmacies, that e-prescription is quite prominent and well working in Italy. So there's things around there. I'm not aware of how much of that will be funded by government money whether will be a requirement to the doctors directly. I hope that answers your question.

[Claudia Thomé, Head of Investor Relations]

And since we don't have any further questions on the line, we thank you all for dialing in today and taking the time. As always, Investor Relations is available for further questions via e-mail or on the phone. Please don't hesitate to call me, and thank you very much. Have a great day.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thanks for joining, and have a pleasant day. Goodbye.