Nordhealth As

Hello, everyone, and welcome to the Q2 2024 presentation. For those of you that are joining for the first time, I'm Charles McBain, I'm the CEO of Nord Health, and I'm joined by my colleague, Mari-Lena, our CFO.

Hello.

Today we're going to go through three different topics. One will start with a general company update, then dive into the veterinary view update, then the therapy view update, then Mari will go through a financial update, and then we'll leave some time for Q&A. So please hold your questions till the end. And then you can ask questions by just raising your hand or also typing messages in our chat and we can go through them either myself or Mario will answer them. Starting with the company update. In Q2 2024, when we look at growth, right, in the last 12 months ending Q2 2024, we grew 17.4%. which is within the range of 15 to 20% that we guided. Our net retention in the last 12 months and in Q2 2024 has been 108%. Our net churn has been 5.1%. We have had a cap to new ARR, of 0.8. And our LTVD CAC is still quite high at 12.5, based on last 12 months Q2 2024 numbers. We ended the quarter at 40.8 in implemented AR. And our signed AR was 42.7 at the end of Q2. This is signed AOR, just as a quick reminder, is the total value of the implemented, the invoiced revenue that we get from our customers, plus those signed contracts that are signed, but not implemented. Um, good to note as well, this number is that we do not include, um, uh, post pilot rollouts for corporates in this number, unless those are sucked. Right. So we wait until the pilot is officially successful until we include them, which is leads to a bit of conservativeness. RAR per share, which is the best, uh, short term proxy for free cash flow was a 0.52 euros per share. Next is, just to give a background, we've continued growing every year, both organically and by M&A. In 2023 and 2024, we have not done any M&A yet, but you can see we've got already quite a strong growth path in 2024. Just to highlight this better, because this graph makes it a bit tough to highlight the impact of growth, I looked at organic growth on a yearly basis, excluding M&A. And you can see that every year we've improved the organic growth. And last year we added 5.8 million euros of ARR organically. And the first half of this year, it does include some price increases, which are much more on the first half of the year, but it's already 5.1. So we've done a very good sales performance this year. Looking at the quarter-over-quarter AR growth and the breakdown, We, in Q1 2024, we started at 36.5. We've added a million of new customers of AR. And our net upsell was 3.7. And churn was 0.5. Which means that we grew quarter over quarter 11.7%. The driver of the net upsell large number of 3.7 was primarily driven by the implementation of the CVS small animal clinics. So how it works basically is when they're piloting, they're a new customer. Then when they sign, because they're a current customer, we actually add those to the upsell numbers. Now, looking at the, zooming out a little bit and looking at this year over year, in Q2 2023, we were at 34.7. We've recruited 3.2 million of euros of AR of new customers. Our net upsell has been 5.5, but our churn was 2.7. where that means that we ended up at 40.8 of implemented AR and 42.7 of signed AR. Interesting to note is that 70% of the 3.2 came from a cloud and easy practice. That 5.5 net upsell is primarily driven, as we said, by CVS, as we can see in the Q2 numbers, but also by other private clouds, ARPU and user growth. it's really important to note at the 2.7 of churn, right? Which actually is, means a 7.7% churn in the last 12 months. This is much higher than historical. So let's go through what are the driving factors behind this. Number one, right? We lost a enterprise customer of the arm. That was the reason for the loss that we explained in the previous quarters was that the customer was bought by a company which had both GPs and therapists and wanted to unify their software. So have one software that can serve both markets. That is not the case for our software, where we only tailor this to therapists. So if we exclude that, our churn rate would have been 6.2. The second one-off impact on churn is that with our acquisition and migration strategy, There are some customers which remain until the end that are not willing to shift to our software, our new software, Provet Cloud, but instead want to go to a new software or not new software at all. And so when we've sunsetted Provet Win and NetServe, those last customers are now churned, given that we stopped their membership. So that would actually have churn be around 5.5. And we do foresee the long-term average churn to be roughly around 5. There'll always be noises, right? But upwards or downwards, right? Because it's highly sensitive given this low churn. But still, if we put into perspective, 5% churn means that someone stays with us for 20 years, which is incredibly low. Next important thing to note, which I highlighted in the first page, but I'll re-highlight here, is that the Feds for Pets post-pilot route is not included in this 1.9. Only the pilots are included. Now, on the profitability side, we're very happy to announce that although we had forecasted to breakeven in Q1, 2025, we actually have been able to achieve that EBITDA minus capex margin breakeven in Q2, 2024. So this was maybe driven by the fact that we accelerate the implementation of CVS, right? Which you could see in the recurring revenue numbers. Now going into the veterinary updates, So in Q1, as we mentioned a few times, we started the CBS rollout, and we now have 385 locations live on Provide Cloud. We still have further locations to implement, but this is a good initial start of this project. We also were able to deliver this project in record time, which was an incredible feat from our UK implementation fleet. In addition, excluding CVS, we also signed around half a million euros of new AR in Q2 for veterinary customers. And also an interesting milestone is that our payment solution, ProVetPay, has reached over a million euros in AR in Q2. And they are just for everyone for payments, how we do it. It's just the amount that we make on, uh, does not include the full payment volume. That's one way, which is hard, right? It does not include the transaction fees that we pay back to IDN or to visa or mask card. It's just the additional revenue that we generate above that. And then. Lastly, Vetsr has successfully been discontinued and customers migrated to Provide Cloud in Q2 2024, which is a big, significant achievement. Now, looking at the year-over-year breakdown of ARR growth, We ended Q2 2023 with 18.2. We were able to recruit 1.7 million of new customers. We had a net upsell of 4.2, which is equivalent to a net retention rate of 118.7%. And we had churn of 0.8, which is equivalent to a 4.4 churn. And again, excluding these one-off impacts of probit, win, bet, serve, right? That churn rate would have been 2%. Which is an absolutely ridiculous number, right? It's very, very low, which is a testament to the stickiness of our products. Then 33% of the growth in new customer was accounted for by, came from new customers year over year. Looking quarter over quarter, you can see the more accentuated impact of the CVS role with 3.4 million. And we grew over 20% in one quarter, which is a great performance by Walter and his team in the veterinary business units. And despite us having very strong new jobs now, we also were able to sign quite a few new customers, around 700,000 new customers. And you can see that the churn rate is normalizing as well. And from a EBITDA as CapEx level, we also were able to, we improved it quite significantly by 1.5 million year over year. And you can see the drivers of that improvement. One was the implementation and one of license revenues, 1.3 million. Second was recurring revenue growth. That's more of a constant one that we have over time. However, this was negatively impacted by the investments we had to make to support growth of 1 million. Now, going on to the therapy update. First is... Our new implemented AR year to date ending June 31st was $55,270, which is slightly above our target. So we've been able to sign up new customers quite well. Recurring revenue was slightly below targets due to higher churn and downsell. And also the price increase was easy practice as we're looking to do a more thorough price restructuring to be able to match the pricing of Aspen. Also on the growth side, our new product, our booking portal, we've had at the end of Q1, 334 therapist profiles signed up to the booking portal and they've made just over 1,500 bookings. So we're very excited about the booking portal's ability to improve access to care in addition to improving the ability for customers to be able to have a better experience on the booking process. From the migration side, migrations of gaps between hospice and easy practice have been more extensive than we initially foresaw. At the end of QM, we had only migrated 34 of the 73 single user private therapists. because we've been focusing on all users which don't use Norwegian HealthNet, which is a big blocker currently, which we are looking to solve very soon. Interestingly though, the feedback has been very positive from these clinics and we've had no migrating customers churned. From a new joining perspective in the team, we welcome the new principal product designer to help improve the design of EasyPractice, We've also hired a principal software architect to help us scale the platform, right? And we've been aggressively recruiting full stack developers to be able to accelerate the migration. Also in Q1, we completed the functional restructuring and hiring of BU CEO was completed. What that means is now that instead of having each product have its own GM, we are split by functions, sales and marketing, support, product and design and engineering. In addition, Christian is focusing to helping us on the implementation of the new upgrades. A bit about our new GM. We have recruited Karan Valia to join NordHealth. He will be joining us on September 2nd. Prior to NordHealth, he started his career at Microsoft as a senior business development manager. Then moved to Europe, where he worked in products as director of product development, responsible for the homes and apartments, hotel chains and new segments. And prior to that, at Booking.com, he was also in a similar GM role, focusing on launching a new product as part of Booking.com called Booking.com. And prior to joining us, he was at Smart Recruiter where he was a general manager and then a senior VP of product management. One thing that we're very excited about is Karan's strong and deep product history, which is increasingly important as the directly business units under our flagship product, EasyPractice, has a strong product-led growth focus. Now for the results. Year-over-year, implemented AOR has grown 5.4%. We've had very strong new customer acquisition growth. Our net retention, however, has been very low at 97.9. You can see from the 1.2. And our churn, which is most a driver of this net retention, was very high given this one-time impact. And you can see excluding that impact would have been quite a bit lower. We've shaded that separately. Also important to note, which affects that retention, is that we haven't done a price increase in the last 12 months for easy practice, as we're aiming to change the pricing model in late 2024. Quarter over quarter, we grew 2.1%. which is 300,000 came from new customers, met upsell of 300,000, and churn was 0.2. So if you look at this as we go from quarter to quarter, you can see churn is decreasing from 11.3 when we had this initial loss of customer, which continued in Q1 2024 with 8.8, and now it's 6.5. And we can see that although we are quite profitable on this capex level, right, including group allocations, in Q2 2024, we decided to accelerate the investments in development to be able to accelerate the migration. And you can see the drivers of the results are known between Q2 2024 and 2023 are yet recurring revenue growth, which counted to 200K. But as we said, product development and sales and marketing investments have actually increased. Next I'll leave it to Mari.

Thank you, Charles. So let's take a look at the second quarter reported financials then. Total revenues in the second quarter grew by 33% year over year. As already mentioned, the implementation and one of license revenues were up by 1.3 million and recurring revenues in total were up by 1.5 million from the previous year. So this growth was mainly driven by veterinary cloud products. And the currency fluctuation in both Swedish krona and Norwegian krona have somewhat stabilized now. So the impact of changes in these currencies is not impacting the results on year over year basis significantly at this point. But the share of our Swedish and Norwegian krona denominated revenues is decreasing in proportion as revenues earned in UK pounds are increasing. but still weakening of any of these currencies would have an impact on our reported revenues going forward, but we don't see that as a significant factor at the moment. Share of recurring revenues in the second quarter was 81%, and this is a decrease from 89% in the previous year as the current quarter was impacted by the one of revenues. which, by the way, more than doubled from the previous year. So it was a big impact. Adjusted EBITDA improved from negative 0.2 to positive 1.3 million, and adjusted EBITDA margin improved from negative 2% to 11%. As we announced in July, we have had an excellent quarter in terms of revenue and profitability reaching positive EBITDA minus capex ahead of target that was initially set for the first quarter of 2025. But as the quarter was heavily impacted by the one of revenues, this is not yet the going rate we are able to maintain in the short term. Moving on to recurring revenue, reported recurring revenue has grown by 21% from 8.2 to 9.9 million from the previous year. So not only have we seen major organic growth in our total revenues, we have also been able to grow our recurring revenue significantly with ARR growth rate well ahead of previous years as already earlier presented by Charles. In the previous year, adjusted EBITDA margin was negative 3%, but since the first quarter, we have been back on positive EBITDA margin, and we expect to stay that way. We are committed to improving our profitability on a sustainable and long-term basis. But with the growing revenues, we have also experienced some increase in our cost base. The cost increases relate mainly to headcount, as in particular, Provet Cloud implementation and support teams have been strengthened in order to ensure all of the ongoing and new implementations and migrations to Provet Cloud, as well as providing quality support to all of our customers. As Charles just mentioned, we have also been able to build key positions and new roles in our product teams, as well as the mentioned senior management hire as a new therapy lead is starting next month. And we have also seen an increase in direct costs as our user base has increased. However, that is not impacting our gross margin negatively. On cash flow, we have improved our free cash flow by 3.5 million from the previous year on a last 12-month basis. This is a really huge achievement. And in the first quarter of this year, we did have positive free cash flow for the first time since the IPO. And we then discussed that we had some delayed customer payments and also federal annual invoicing took place in the first quarter, impacting the quarter's pre-cash flow positively. And we had a positive impact from changing the Aspit biannual invoicing to monthly billing schedule that impacted both comparability and actual cash flows positively in the first quarter. In the first half of this year, the impact from Aspit billing change change has been some 1.5 million negative in comparison to previous year, but overall on the last 12 month basis, the impact has been positive about 1.3 million in comparison to 2023. So although we are still likely to see fluctuation in our cash flows between quarters and comparability between years, explaining until the end of this year, we are still steadily improving towards our long-term positive free cash flow, despite the fact that we have removed EBITDA minus capex target from our guidance. But we are committed in developing our products to gain market share to support long-term profitability, and we have the means to do that. Our cash balance still remains strong. And cash equivalents and investments in total decreased from 22.2 million to 20.4 million from the beginning of the year. And of this, 16 million was invested in money market funds as at the end of June. We have 45.4 million of goodwill on our balance sheet, and there has been no new acquisitions or impairments of goodwill during the quarter. 13.1 million of intangible assets consist almost entirely of capitalized development expenses, where we have recorded additions during the quarter amounting to 1.3 million. That is reflecting our commitment to product development. The capitalization ratio, however, of our total product development expenses is not very aggressive, and that was approximately 47% on a year-to-date basis. We are in fact investing a lot more in product development than what we capitalize. We have not had any material equity transactions during the second quarter and equity remains strong at 78.3 million. During the second quarter, we made a share payout from treasury shares under the performance share program that was launched in 2023. In total, approximately 21,000 shares were transferred to the participants, still leaving the company to hold over 1.1 million shares in treasury. And we continue not to have any external financing or material and liabilities on our balance sheet. And the liabilities consist of operative items, accruals and advances received and the like. So no change there from previous quarter. And the more detailed second quarter and first financials you can find in the appendices.

Thank you, Mari. Just to conclude the key points looking forward. One is that we'll be focusing on adding development resources as we have in Q1 and Q2 to accelerate the migration of us with the easy practice. This is a really important goal for us as once the migration will actually to a 3 million euros of synergies. And these are not hypothetical synergies. It's money we spend on software license fees for Citrix or for Microsoft. And having a dual development team have to maintain two products versus one. There's also a lot more support questions on the legacy products than there are on easy practice. The number of support tickets per user is much higher. So we see a huge amount of synergy potential of which probably over half comes from what we were able to capture as we migrate users and the other half is upon the end of life of the product. The second is that, as we saw in this quarter, we've seen some very good traction from enterprise customers in Europe and in the US. And as a result, we want to invest in our private cloud engineering to be able to capture these enterprise opportunities that are arising in the US and the EU. And lastly, we are also looking to accelerate the entrance of the booking portal to Norway and Denmark for therapy in the next few quarters. Looking at the updates, on the first part, we are saying that we are maintaining our recurring revenue growth guidance at 15% to 20%. The second one, we decided to drop the EBITDA minus capex break even by Q1 2025. to focus on the growth opportunities above, right? So a few key points on this. One is that we foresaw that we were able to have EBITDA minus capex break-even in Q1, but we were able to do it sooner in Q2 2024. So we reached that guidance earlier. The second is that due to the previous three points, we are looking to continue to invest in developments to be able to grow. So we foresee H2 2024 EBITDA minus capex to be negative, despite this Q2 being positive. Third is that we will provide an updated guidance on 2025 as we do every year in our Q4 2020 report. That being said, we do foresee, as Marion mentioned in her presentation, improving free cash flow versus the 2024 Q2 last 12 months over time. Perfect. Thank you, everyone. Now, maybe finalizing financial calendar, Q3 2024 results presentation will be on the 12th of November, 2024. And you can, as usual, see the full year financial calendar on our websites. Now on to Q&A. So please, if attendees want to ask a question, they can type a message in the chat or they can raise their hand and I can unmute them so they can ask a question.

Hey, Oliver.

Hey, can you hear me?

Yep, I can hear you.

All right, very good. Yeah, so just a couple of questions on the changed guidance. You sort of specified that this will lead to higher investments or a higher cost level. Do you also expect it to accelerate growth beyond what you had expected previously? Or is there any sort of additional top-line effect that makes this NPV positive investments, because I see no changes to sort of longer term ambitions or comments about longer term growth rates or so.

So the way we think about investments relative to growth is that I look at the contribution margins of each of the different products, which is basically the full cost and revenue, excluding our investments in R&D. which is basically an ink to CapEx plus OpEx plus our investment in customer acquisition costs, which is basically made up of professional services and sales and marketing. And we expect a 20% more or more return on those. So that means that the more we invest in R&D or in CAC, the more we expect an improvement in contribution margin. But there's two different things that contribution margin includes. One is that we grow the top line faster. That's one part. But second is also the impact of migration, where the margin can go from a 75%, 80% margin on the recurring gross profit, which be after COGS and customer service, Um, or, um, to a, uh, uh, from the original, for example, aspect, which would be like the 60%. So I think that that's the best way to look at it. We look at the improvements in sort of cashflow before CAC and R and D investments. Does that make sense? So we are increasing the level of R and D. We are also increasing the expected cashflow to generate either, which will come from growth or from, um, the, uh, migration. Yes.

But is there sort of what necessitated the acceleration in cost? Because you've added quite a lot of sort of quite a significant, you've built quite a big organization and you seem to see sort of need to accelerate migration and do more development faster, given that you're now ramping up the investment. So what's happened to drive that?

Sure. So I think the primary one is that we're seeing great corporate interest on the veterinary side. Because not only the fact that we've been successful in many markets, but also our approach implementation where we can do implementation much faster than the other players in the market, right? And so that has certainly a lot of interests and every corporate will need, so for example, integration to their accounting softwares or like integration to their customer marketing platform or app, right? So we wanna, in order for us to be able to capture those opportunities, We can decide to continue investing the same amount as we do today, but that will mean that we'd have to delay those. And a lot of these enterprises are looking to make a change quite soon. So we want to be able to support them fast. That also means taking a little bit more risk on implementation. An implementation person takes roughly six months to get to full productivity. And so in order to be able to implement those enterprise customers that we foresee coming, we also need to have the capacity to implement them. So that was the primary reasons for veterinary. On the therapy side, we just saw that it was a better ROI to go faster because there's such a massive saving from this migration. And especially as some of our costs are rising for supporting these legacy products. And also the risks are rising as we have like a legacy platform being used for longer and longer. Um, shifting them over to easy practice, um, is, uh, just NP positive. Yeah. Got it.

Very clear. Um, and perhaps a last one for me then, um, Regarding the CVS contract, have we seen the full effect of that implementation now in Q2, or will we be seeing additional growth contribution in the coming quarter from that?

We've seen a significant percentage, but we've currently rolled out only their small animal first opinion clinics. in the UK. We have not rolled out yet the referral hospitals, except for one. And we have not rolled out in their non-small animal clinics for farm animals, production animals, and so on. In addition, we have not rolled out internationally beyond the UK. So there's still quite a bit to go there.

All right. Very good. Thank you for taking the questions.

Thanks. Any other questions? Your hand is still raised, Oliver, but I'm guessing you didn't have any. Oh, there we are. Good. Well, thank you very much, everyone. If there's no other questions, thank you for your time. And we will see you again in November for an update on Q3. Thank you. Have a nice day.

Thank you.