Carasent AB

Hi and good morning. Welcome to Q1 earnings call. My name is Daniel Löfman. I'm the CEO. With me I have Sven Martin Bjornstedt, our CFO. And we'll start with me giving some highlights and then a company update. And then Martin will give a financial update. Looking at the highlights for the first quarter. I hope that you all have seen that we have released new financial targets yesterday after working hours. And the background of that is that we've seen a good increase in new custom contracts. We have had more efficiency gains than we had planned for. We have sold Confrere and we have continued very low churn. gives us very good visibility on this year and the next year. And I will come back to that and give more details later in this presentation. Other highlight is that we have a new agreement with Västergötalands region in Sweden regarding MedRave. And MedRave is our system to follow up the quality of care in most in primary care and also to automate reporting to national quality registries. And Västra Götaland VGR is now changing EHR system for the region. And then they have procured the MedRe functionality for the new EHR system. And the ARR from this new contract is 11 million. The ARR from the old contract was around 5 million. So there's a 6 million increase. We also have 2 million of consultancy fees connected to this that we'll have this year. And in most respect, this is basically a price increase we're doing. It might sound like a lot, but the background is also that Medrev have had a lot of new functionality since Vidyar procured Medrev the last time. So we're actually increasing price to catch up on that. And in general, I think we have quite good pricing power as we need to use, especially in that product. So it's mostly a price increase when they update to a new system in Västra Götaland. We have also released our e-referral solution in Stockholm for WebDoc. So e-referrals is that if you use the region's EHR system in Stockholm, you can send referrals directly to our clinic using WebDoc. It used to be before this that if you had used WebDoc in Stockholm, you had to transfer the referrals by hand from the public system to your own system. And that's quite cumbersome and really makes it more difficult to sell a web doc where you have to transfer all those by hand. The first pilot says that he can add one more patient per day thanks to this solution. I think that's a bit optimistic. He's an optimistic guy. But I think it's an important point he's making. And that is that if you look at use of our systems, they typically, we cost around 2% of the turnover if they use a lot of our systems. solutions. So we take a rough 2% of turnover for our customer. But for the customer, we also set a lot of how it is to work within that clinic or hospital. So our systems are extremely important when it comes to driving your processes internally, driving profitability, all these parts. So if we're really good at that, in selling those kind of solutions and really developing them to fit our customers, if we charge 2% or 2.5% of their revenue, it doesn't matter that much. They have mostly fixed costs, so to make sure that our systems are always up and running, never down, that we keep improving, making sure that they can do as much as they can and help as many patients as possible each day, we sit in a really good position. When it comes to growth, Signed not implemented ARR is now up to 40 million NOC. It was 2 million NOC at the same time last year. And this will propel our growth next year, of course. And it gives us this visibility of where we're heading in a really good way. And if you look at signed ARR at this point in time compared to the same time last year, we have organic growth of 20%. And I think this is the most important number for us to look at. This is what says what will drive our growth going forward. And ARR is by far the most important type of revenue for us. We are more and more moving from consultancy fees to ARR. And in any agreement we do, we make sure to really focus on the ARR. So for example, the new agreement with Volvat, We have focused on getting well paid for our ARR. We have low churn. This contract will last for a long time. The implementation and the consultants were connected to that, but that's quite big in that contract. We sell it roughly half of what we usually charge. It's enough to pay for our costs, but it's not where we make our profit. It's not from the consultancy fee. It's the same in VR. We only charge 2 million to get Merev into the new HR system. But it's the ARR we're focusing on. And in the long term, that will really help us because it adds every year. Looking at profitability, we have done additional cost savings. And I think this is also an important point. Last spring, we did a big cost savings program. We changed the entire structure of the company. We put a lot of new people into new roles. And then, of course, if you do those kind of changes and so much changes, Not everything is perfect day one. A big part of running a business is every day become a little bit better. And over time, that creates a lot of improvement. And we continue to get every day a bit better. And what we've done since then is looking at different roles. Are they needed? Are they not needed? Did we get that right? And so on. So we can get more and more efficient and keep getting more efficient going forward, which I really look forward to. And every role when someone leaves, we take a hard look at it and think, can we find another way of not having to hire a new person? Can we move from consultants to employees? Can we lower our cogs and so on? And this has led to quite significant year over year improvements when it comes to EBITDA and EBITDA and excluding WebDocX. And I think WebDocX should always be excluded when looking at this measurement on how we're doing. Because WebDocX is using our position, our knowledge to create value in a completely new market for us. So it has nothing to do with the present business. But the EBITDA student WebDocX goes from minus 11 million to plus 1 million. So that's a big improvement. And we also actually cash flow positive in the first quarter. Looking at our financial development, in the quarter we only have organic growth. But the previous numbers actually include Conferera when you compare the revenue and all the other measurements, of course. And you can see here that the EBITDA is improving quite rapidly from back. And you can also see how we continue to invest a larger share than we used to in maintenance. And this is, I think, the most important part to win new customers is that that all of our solutions really help them every day, that there are no bugs, it's always up and running, and that maintenance is really important to give us pricing power and also to drive sales. This is a more important part to drive sales than new functionality. If the systems are stable, they work really well, there are no bugs, they're always up and running. Because all of our solutions are mission critical, you cannot run a health care clinic or hospital without the HR system up and running. So when there are bugs, when it's downtime, it really hurts the production of our customers. On this slide, you can really see how we are scaling into our cost base. So revenue has increased by 7 million NOK. And a combination of growth and cost savings lead to a large improvement in EBITDA of 30 million. What's also worth mentioning is that at the same time, we are investing in compliance and marketing and other functions. So we're not just saving money, we're trying to become a much better company to also spending more money on new things than we didn't spend on before. So it's a combination, but in total, of course, we're saving money. Going forward, growth in ARR drives very limited costs. so that's really what i like compared to my previous business of running clinics uh that here a new new revenue does not at all drive costs especially when it comes to error the consultancy is a bit different and as i hope you know within webdoc and most of products we do not have any development for a specific customer and the consultancy then is just implementation projects and helps helping customers with education and so on but some of our products have some development specific customers also and if we continue to focus and as we do continue to focus on efficiency we will see excellent effects on the bottom line from our growth and looking what we've done to drive sales i would say the first three points are the ones where we have The last two, we're not really there yet. The focus on customers is going from kind of an internal focus that we used to have to an external focus where we really discuss and meet our customers, look at what makes us more attractive in their eyes. That's the most important point. And that lead us to choose what to develop. how to improve our products, how to improve our delivery, and to always, of course, then become also more efficient in doing those things. We have invested a lot in marketing. We have new web pages for almost all products now. I think there's one or two lacking still, but almost all of them have new stories around them, new web pages, new marketing material. We are also running a lot of ads. in different forums. And most importantly, we're trying to generate a lot of leads with different types of efforts and built the marketing department based on really generating leads for our sales team to work with. We have started with outbound sales efforts. We're not really there yet. It's supported by the change in how our sales people are paid. They now have a much larger share of the payment being dependent on how much them as individuals sell. It used to be mostly fixed salary. So I think that will also help. But it's an ongoing effort to move in that and also to learn how do we best approach a customer which is semi-warm. I would say that most of our potential customers, they're using an EHR system which they're not very happy with. I think that most of them feel that they would be better off in using WebDoc, but you have to convince them to really take the lead, take all the work in a changing system. And as all of our customers mostly have fixed costs, it's really expensive to have some downtime also when changing HR system. So you're a bit reluctant to do that. And it also creates a lot of turmoil within the clinic or hospital typically to change HR system. And that's why our delivery team is so important and they do a great job. And what we're trying to market at the moment more and more is that it's quite easy to change to WebDoc. You can import all your old medical records. The customers that we do move, they are really happy with the change. When we ask them a month after the change to WebDoc, are you happy? We get really good responses and I think To do more marketing around that will really help us because I think that's a major obstacle to change systems. And we're also doing new development to open up new markets and there I especially look forward to surgery. This has given effect. If you look now, as I mentioned previously, we have 40 million of signed not implemented ARR. It's up from 2 million before. And if we would add that, it equals 6% growth on top of the growth we already have. And the major new contracts in Norway, it's Medical and Volvat. In Sweden for WebDoc, it's Capio and Joint Academy. And for Medrevis, Västra Götland's region. So we're winning customers from many of our competitors at the moment. I think we also have quite a strong potential pipeline of new contracts. Largely ones, it's connected both to Sudry, which I think will really help drive web doc growth even further. But also in Norway, we need new contracts for Atcuris and Adopus. That's extremely important. We are not close to where we need to be at the moment within those products. So it's really needed, but it's also ongoing. And I have strong beliefs in us getting further contracts. Looking at new functional to drive growth. I've already mentioned serial e-referrals. I really look forward to our work on the patient journey within WebDoc. Today in healthcare, you still send a lot of snail mail. You have a lot of phone calls. It's really cumbersome to be a patient and it's also cumbersome to be the caregiver because you have to send all these posts and then people don't like what they see in the post and they call you and so on. And this takes really a lot of time and effort from the clinic and makes it difficult to plan your days. And within WebDoc, we have a lot of functions that really can help the caregiver be much more efficient and just get rid of all this snail mail the phone calls and so on. But we need to make sure that it's a really good experience all through. And we need to sell it as an experience and a process, not sell it as different functions. And me as a customer, I would have loved what we can do within WebDoc in a way that almost no other system I've seen can do. So it's really something we can work with. HBI, we've been talking about the new functionality before and that it not growing as fast as we wanted. Here you see the number of tests in that new functionality from August 22 to March 24. And you have this really exponential growth. And this is how it typically looks with software, especially in healthcare. You need to have some first users, then they took some other users, and then more and more users get to know about the product. It's difficult to sell a product that you don't, to get someone to buy a product that they have no references on. Because you're quite careful within healthcare. You really don't want to take risks as a healthcare provider. And it's also in the mentality of a healthcare provider. So here you can really see the growth. We hope it continues this way. You never know, of course. But it's a good sign. And in total, we have new customer growth of 5%. The net retention rate of 110%. And so Martin will talk more about it. And all this leads us to our new targets. And with the backlog and cost control, we have this high visibility of our results going forward. And if you look here at 2023 compared to 2024, 2023 of course includes Conferrere. But the difference between 2023 and 2024 is a combination of the savings we already have done and growth and continued cost control. So we feel it's quite a lot in our hands to make sure this happened and that this is very doable. Looking at 2024, 2025, more of the improvements come from high growth and continued cost control, of course, but growth is a larger part of the improved results. But the growth in here is the increased growth from 2024 to 2025 is roughly 15 million NOC. And that's what we have in the backlog for next year. So we basically know that we have that extra revenue. Then, of course, we have to continue to sell well in all of our products and have the underlying growth that we already have that needs to continue. We need to improve it a little bit. But most of the difference between these two years, we already have in the backlog. So we feel quite good about this. Looking at the financial performance in the first quarter. We have shown you this structure before to give you a good view on how the different parts of Casent are doing. We have the major part which we call operations which are the ones the part of Casent that is quite healthy. It's 86% of our revenues almost all of it. There we have 16% growth. EBITDA continues to improve and especially EBITDA improves from zero to eight million in the quarter. So quite good improvement there. When it comes to the parts where we have a little bit more challenges, we have HBI and Adopus. We used to have Conferero also, but it's been sold. It's just 30% of our revenue. There we have a lower growth, so it's important to keep going and the signs are very positive when it comes to HPI as you saw in the previous graph. At Opus we still have some work to do when it comes to growth but costs are under control within these two products now which feels really good as you can see from the EBITDA going from minus four to minus one million and we expect to continue to improve that during the year. In WebLockX we have improved somewhat and we keep going from consultants to employees in that project So that will also help us save money. And HQ has improved a bit. So looking ahead, we aim to continue with strong organic growth. A lot of it is already in the backlog. I look forward to having new functionality that will drive sales. even better. Efficient use of resources is of course extremely important when it comes to driving profitability and in this quarter we did have additional cost savings and those are the only one ops that we have adjusted the EBITDA with is the cost of the related layoffs of 1.7 million. And it's a bit all over the organization. Where we've seen that here we can become a bit more efficient. But it also comes from, yeah, every time someone leaves, we look at do we need to replace this role or not? And can we replace it with someone internal and always become more efficient? And finally, which is an extremely important part in the little bit more long term, is the launch of World of Gates. The development there is focusing on certifying the system for Germany. So that someone working for a public system in Germany can start using WebLockX. We hope to do that within the coming six months. And we're also working with acquisitions, as you know from before. I think it's an important part of rolling out WebLockX in Germany is that it cannot be a complete greenfield. Then it will take too long and be too expensive. So we are looking for an acquisition there to support them, to have a custom base to work with. But we have to make sure that we buy the right target and that the system of that target is ready to be replaced. And it doesn't have too much functionality because then it will be too difficult. So I think we have good dialogues and look forward to continue that work. But nothing I can go into more details now. Having said that, I will hand over to Martin.

Thank you, Daniel. Although we don't see all the effects of the recent operational advancements in the figures yet, we are starting to see that our financial metrics is also improving rapidly. Revenues in Q1 was 67 million, up 12% from last year. And we now have a signed ARR base of 260 million, which grew organically by 20%. Our net retention rate was 110% in Q1, which shows our very solid basis for growth. And if we hadn't succeeded at all on the new sales side, we would still have grown 10% the last year. It's so improving. We had the 12% adjusted EBITDA margin in Q1 and the minus 7% EBITDA minus capex. And that's including all the investments in WebDocX. So quite some details on this slide, but in summary, we are seeing major improvements on several levels. As you see on the top here, WebDoc grew 25% year over year, and adjusting for currency, 21%, which is still a major uptick compared to the level we saw last year, which was around 15%. And that shows that WebDoc is gaining momentum on both the new sales and also upsell to existing customers. Our other EHRs is growing at a steady pace. Here you see that the platform products, which is HBI and MedRev, Declined, but that was due to the divestment of Confrer and adjusting for this, we had a 10% organic growth in this category as well. And our consulting revenues are down, and this is because we prioritize recurring revenues in basically all levels of the organization, as Daniel mentioned. Our gross profit increased quite significantly from 80% last year to 84% this year. And this is driven by two main factors. Firstly, we have done procurement process in Norway for a new hosting supplier, and that cut our cost by close to 50% on a run rate basis, around 2 to 3 million per year. And also, the divestment of confrere had a positive effect on the margins, given that it was very dilutive on gross margins, same period as last year. Personnel expenses increased 5 million. However, this was driven by a decrease in capitalized development of more than 10 million. So this is what we have talked about, that we prioritize our core products in our core markets, and then we capitalize less costs. Also, we had the one-off on the personnel expenses of 1.7 million related to that. the layoffs in the quarter that will drive cost savings going forward. So in total, EBITDA increased from 2.3 to 6.3 million. And adjusting for the layoffs, we had the adjusted EBITDA of 8 million in Q1 and the EBITDA minus capex of 4.9. And we had a positive EBITDA minus capex, excluding the German expansion project. Our recurring revenues grew organically by 15% in the quarter, which is also a step up compared to the level we have seen last few years. And it was driven by a strong net upsell of 12%, where approximately a bit less than half is related to price increases. And the other half is that we continue to sell more services to our customers and that they continue to grow. Churn is very low at 2%. And the new customer growth in the quarter was 5%, which is quite in line with what it has been the last few years. However, we now see that all the initiatives on the sales side is starting to pay off. And we see that the ARR, including the signed not implemented ARR, is increasing quite rapidly, mainly as a result of the large new contracts we have won. Looking at the signed ARR last year, it was 211 million. And with constant currency, we had the organic growth of 20%. And you can see that it is driven by the strong growth in the revenue backlog that increases from 2 to 14 million. Combined with the strong underlying basis we have, with a net retention of around 110% and the bread and butter new sales of around five. In addition churn is very low, 1.7% for the group and that's even lower if we exclude Adopus which has seen some churn. It's closer to 1% and that clearly shows that Our system is really critical to our customers and in addition as Daniel mentioned we are a quite small fraction of their cost so that combination is very powerful in terms of our churn and also our pricing power in the long term I would say. Another highlight in Q1 is that we have the positive cash flow. Our operating cash flow was around 13 million and the increase was partly driven by the improvement in profitability. But also in Q1 we have quite strong working capital effects as some of our products does annual invoicing for their customers. This of course varies, will vary a lot from quarter to quarter. But in general, our working capital profile is very attractive and supportive to our cash flow, given that we invoice our customers in advance. That could be like three months in advance or 12 months or one month. And then we pay our invoices in arrears. So it's a positive effect that we will have in the long term as well. Investment or capex is significantly down from 25 million to 13. And in total, we are cash flow positive slightly, but it is a milestone for us. And our profitability is also improving rapidly. On the left hand side, you see that our cash profitability excluding WebDocX in Q1 is positive. Improvement of 12 million euro a year. And in Q2, it will be close to break even, even including WebDocX. And the main uncertainty in our business and profitability development is basically how fast we can grow our revenues, given that the cost side is very much in our own control. And combining the large contracts we have won with the underlying net retention and the bread and butter sales that we have delivered the last few years means that we now have much of the growth for 2024 and 2025 already secured. And this gives us very strong visibility that the margins will improve rapidly as well. This was faster than we anticipated, and also at a lower cost, given that we expected that the new ARR we would generate would require more resources than the one contracts we have signed. So in general, all our businesses are highly scalable, and if we manage to continue to grow our revenues, our margins will expand rapidly also in the long term. So with that, we can open up for questions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.