Carasent AB

Good morning and welcome to our presentation of the third quarter. This is the agenda for this presentation. I will start with some highlights of the third quarter then give a business and market update and then I will hand over to Sven Martin who will give a financial update. So let's start with the highlights. During third quarter we have continued our transition to a more focused and nimble organization with a lower cost base and working very much closer with our customers. If you look at the ARR growth, we are growing more or less in line with history. But in Norway, we're a bit behind. And the reason for that being that in Norway, our systems in Norway typically have much lower customers and much longer sales processes. But we have a very good pipeline that we'll get back to a bit later on this. The inorganic growth in the quarter is coming most from HPI and Confrere. I have to mention briefly Confrere is the product where we bought the customers and the brand a little bit more than a year ago. We're still paying for the old technology, so all revenue we get from that product goes directly to the owner of the technology. We transition those customers to our own platform during the first six months of next year, lowering our cost considerably in that area. During quarter, we have also started distributing roughly 250 million NOC. This comes from our strategic review, where we have concluded that we do not need all the cash we have on the balance sheet. We have very many exciting acquisition targets, but we want to go ahead at a sensible pace, make sure we do good deals and that we can handle them correctly. So therefore we have realized that we do not need all our cash the coming two years. Looking also at WebDoc, in the quarter we signed 28 clinics, roughly where we usually are. What's worth noting is that in September we had a record month with the most clinics ever signed, which I'm very happy about. Continuing to the business and market update, We can see here that our revenue is not the best quarter from a revenue perspective. It never is for Karasent and this trend has been strengthened by the acquisition of HBI which do many tests and we do very little tests in the vacation months. What you also can see here is that we improved significantly on cash EBITDA. That's a result of the cost-cutting program, obviously. But also worth noting is that the third quarter, if it's not that good from a revenue perspective, it's really good from a cash IBTA perspective. So we have some vacation effect in those 11%. So for the next quarter, I expect that to be roughly flat. And then we continue to grow into our cost base. IBTA is improving the same way as cash IBTA. And that's reflecting our focus on our present products and investing in them, and also a bit more conservative view on capitalization. In general, we really focus on cash EBITDA and not EBITDA. So what are we focusing on at the moment? There are three areas that are my main focus. It's sales, it's to grow into our costs, and launch web.exe. In general, we focus on selling our present product and the way that's been done historically is mostly by word of mouth. That's really a key. So the investing in present products really improves in that sense and it will help sales going forward. And I think a good evidence of that and early lead indicators, so to speak, of sales is that the number of support calls has been lowered by roughly 40% the last six months compared to the same six months the year before. that's even though we have more customers and it's really a result of working a lot with the product getting rid of bugs improving functionality which has had the most negative effect for our users so we really expected translate into more sales we are also testing and experimenting with many new types of sales, working with inbound marketing and strengthening the organization within both sales marketing with new people and competences. We are also investing a lot in home pages, search engine results and branding, where I think we've been lacking a bit. In Norway, where we are a bit behind, it takes longer because those products are heavier, it takes longer to sell in, the typical customer is larger, and the implementation process is much longer. With WebDoc, for example, where many customers who are live within a month of signing up for WebDoc. For our Norwegian product, it takes much longer, typically a year-long process, but much larger contracts on the other hand. What I'm really happy about is the pipeline in Norway, and where we also signed a letter of intent with a very large customer. which I hope to be able to present a finalized deal with in short. And in general, it's good to notice we're not aiming at selling consultancy services. We want to have recurring revenues. So if there's any place we give rebates when selling a product, it's on the consultancy side. And that's something we're really pushing in that direction make sure that we have good recurring revenues, and we don't want these lumpy results moving up and down. Looking at our cost structure, we took down the cost structure quite a lot during the second quarter. We're still investing a lot in our present products. We're still at quite a high cost level, which we aim to grow into. A lot of the part will be, of course, improving on our sales side, but also make sure that we run a tight ship, so to speak, and that we have control of our costs. We have two products which are not really living up to our expectation in the quarter and the last couple of quarters, and that's HBI and Adopus, where we therefore have decided on five million of additional savings on a yearly basis. That's starting by the end of the year. It should be noted, though, that those are savings within those products. We are also investing, as I mentioned earlier, in marketing sales and also compliance. So the important part here is to keep costs under control, make sure that we go in the direction we want, and keep costs steady, so to speak. There's also a lot of focus on costs, where we can do quite a lot. That's not really been our focus so far, but we start working quite a lot with that. The third area, which we're working a lot with, is the launch of WebDocX. And WebDocX, for you who doesn't know, is our brand new system, HR system, where we take all the learnings from WebDoc, which is an excellent system, but built for the Swedish market, where we take all the learnings from that, building a completely new system from ground up, targeting Europe, and where we putting a lot of effort in in the last quarter is visiting potential customers in different countries, really understanding the market dynamics, the competition, what are customers looking for in each market, and then deciding on which market to go ahead in and in what way. And I really look forward to talk more about this, much more about this on our Capital Markets Day, December of November. So I hope that all of you can make it. With those words, I will hand over to Sven Martin.

Thank you. So looking at the financial highlights of the quarter, we had the revenue growth of 17%, where organic growth was 7%. Recurring revenues and net retention rates grew in line with the previous quarters, approximately, while EBITDA margins of 8%. was quite flat, but cash EBITDA improved significantly compared to Q2. And we had an ARR of 222 million NOC as per September. So our revenues ended at 56 million in Q3, where we had the recurring revenues of 95% of total revenues. And organic growth was, as you can see on the bottom side of the graph, lower than it has been the previous quarters at 7%. And that is a result of low consulting revenues, as Daniel mentioned. So Metodica has been the main driver of consulting revenues during the first half of the year, and Metodica during Q3 focused on other projects, and that mainly includes winning new business, which we hope to see effects of going forward. Also, our Norwegian EHR system, Madcuris, finished a large customer development project before summer. and also focused on recurring revenue growth in the third quarter. So that is our main strategic focus. Recurring revenues grew 13% year over year, which is quite in line with the history. If we look at the decline in recurring revenues from Q2 to Q3, from 56 million to 53 million, that is mainly driven by currency effect. of 2.5 million, and also the transaction-based revenues, including, for example, SMS and HPI test, as mentioned, are typically very slow during the summer months, which we also saw last year. When we take a closer look at where the recurring revenue growth comes from, we had the net retention rates of 108%, as mentioned, and this is driven by a net upsell of 10% and the churn rates around 2%. And churn rates has been around 2-3% for the last couple of years and that is also including involuntary churn when people go out to business and retire etc so it's a extremely strong position we have we operate in protected niches and we truly have a business critical system for our customers so it's a way we now focus a lot on our customers and developing functionality we also see that we have an excellent position to build from. New customers accounted for 5% growth in the quarter. And that's relatively in line with what we have posted the past few quarters. And we are doing a lot now where we focus on driving this ratio through the sales initiatives, but also on the product development side. Looking at our cost base, we had completed the cost savings program in Q2, as mentioned, where we had cost savings of approximately 40 million on an annual basis. And most of these savings had taken effect in Q3. The 15 million decline from Q1 is also partly driven by holiday effects as we have lower personnel costs and salaries during the summer months. But the main driver is still the cost savings program. And we now have a cost base where we aim to grow our revenues and scale into this cost base as we still have a lot of capacity in the organization for growth. Looking at the profitability development, we see that the EBITDA margins is quite flat during the year, but the capitalized development has decreased significantly as a result of the cost savings. We have improved cash EBITDA from Q1 to Q3. We see an improvement of 12 million on cash EBITDA level and improvement since last quarter of 5 million. And the target here is to keep costs quite steady for many quarters going forward and grow our revenues. and then scale our margins as we do that. With that, I can open up for questions.

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