Careium AB (Publ)

Welcome to yet another quarterly presentation by technology-enabled care company Carium. Let me introduce CEO Christian Wallén and newly appointed CFO David Granath. Welcome guys.

Thank you. Thank you.

So after the presentation there will be a Q&A with joining equity analyst and viewers can also ask their questions in the live chat and I will pick them up along the way. So David, could you please give a short introduction about yourself?

Absolutely. My name is David Granath. I joined Carium in August and prior to that I was CFO at Polarium and Clearo Group and I also worked at Dustin and Applied Value before that.

What is your first impression of the company?

I mean my first month at Carium have been really exciting and I'm very grateful for this opportunity. I'm impressed by Carium and I'm impressed by the passionate employees and it's an opportunity to join Carium in this exciting phase of the company's journey.

I agree. And Christian, we are all ears to listen to the results of the quarter and your presentations. Please go ahead.

Absolutely. Thank you. So a warm welcome then to this section of the presentation. We can open up with the next slide here to get the highlights in focus. Oh, I'm supposed to do that myself. Thank you, Mattias. So first off, I think as a company with really high ambitions in terms of where we see ourselves being and where we set our targets for performance, I think we can conclude that the third quarter of 2024 in relation to sales was not a result that we wanted. Rather the opposite, while this is in many ways, as you will see throughout the presentation, driven by the infrastructure delays, you can all rest assured that this is our highest priority going forward into the fourth quarter and the close of the year. Now, if there is a silver lining to this for the highlights, I think what is really impressive is that we've actually sustained quite high profitability levels in spite of these challenges to the top line. And I believe it speaks a lot about the solid foundation of our business that we have attained. So more on a positive note in terms of what occurred in this quarter, we launched the eye care center. And what is this? Well, to us, it is a transformative innovation. This is an IoT platform tailored to our industry, alarms, data from peripheral technologies and so on, all coming together and being made a lot more meaningful. This is something we've been working on for many, many years, and we're super proud to be able to announce it in this quarter. Also, in addition to our first customer, A German company called MD Medicus, they currently care for 60,000 seniors all over Germany. Compare that to Carium, we have about 340,000 that we directly care for. So this is a large player in the German market and we are extremely proud that they have chosen our platform as their technology platform for the upcoming years in servicing and caring for these seniors. So this will be a huge part of Carium's future. We will build a lot of our value around this of course and we also see it generating about 10 million in savings when it's fully rolled out across our own operation. Last but not least, we have also opened our commercial office in Spain. And we've been in Spain for a few years, some of our technology teams are based out of Madrid, but we are now relaunching our commercial efforts. Spain is a fantastic market for technology-enabled care, close to 50 million people living there. In the 65 plus age range, which is the sort of target for us, around 11% already have access to these technologies. Compared that to Sweden, that number is around 9%. So it's actually a little bit more advanced. So we are super pleased to have industry veteran Beatrice Rodriguez de Lope. long time sales executive in our industry to head up that office. So with the highlights out of the way, we move to sales and gross margin for 2024 third quarter. Right. Get my notes here. There we go. In the third quarter of 2024, sales amounted 201.7 million SEK compared to same period last year where it was at 217.3. So this is a decline of 7.2%. If you adjust for the currency effect, it's actually 7.9. So the main driver behind this decline is the product sales due to infrastructure delays in UK and Sweden. The service sales however amounted to 164.3 up from 158.9 in the comparable quarter of 23. This is an increase of 3.1%. For product sales we delivered 37.4 million in sales in the quarter compared to 54.9 in the third quarter of 23. This is a decrease of 35.6%. And this is very much driven by 2G and 3G being delayed for an additional year in Sweden impacting both product sales and tender opportunities and the same story in the UK but for analog. The gross margin ended up at 42.8 down from 43.5. It was of course somewhat impacted by the product mix effects and so on when we compare it to last year. So moving over to our markets and starting out in the Nordics, the business saw sales grow about 0.5% compared to the third quarter of 23. However, service sales actually grew 7.4% compared to that same period due to majorly contract implementations and wins in Sweden. The main decline was seen in product sales where you could see a decrease of 60%. So this is the full weight of the impact from the announcements made in the middle of the second quarter. For the Nordics the gross margin remained at similar levels. In the UK are in terms of volume, big market, sales decreased 18.9% in the third quarter of 24 compared to 23. Service sales amounted to 45.9 million down from 50.3 in the same period of last year. This is a decline of 8.9%. However, We've been telling this story of how we are transitioning out of unprofitable contracts and so on, which is very much true. At the same time, for the fourth quarter in a row, our service sales in the UK are actually growing. So the whole plan of transitioning out of bad contracts, bad customer agreements and onto more profitable ones because we see this growth happening at the same time as profitability is increasing in our UK operations. So we are sort of tracking our own idea for how to turn the UK into a really well functioning unit that is well in sync with the UK actually being perhaps the best market for technology enabled care all over Europe. Now the product sales of course down 33.2% compared to the same period of last year and this is very much driven by the delay in the switchover from analog to digital. And while sources are a bit unclear, there is no governmental data or anything that is fully fact-checked so to speak, the estimate is that as of right now in the UK for this population, these types of technologies, around 40% of the market is assumed to have transitioned to digital solutions. So that means 60% of the installed base is still on analog equipment. And here we think, you know, our expectation is in due course this tide will turn. We have a new government there which has been quite clear on that this is actually a focus area as part of their social care initiatives. So we remain confident that over time things will change. Gross margin declined slightly in the third quarter of 24 and the main reason for that was temporary field service costs. With that we head over to the Netherlands. So the Netherlands delivered a steady and consistent good growth of 13.8% for the fourth quarter of 24 compared to same period 23. Sales were driven both by organic growth and also new customers onboarding into our operation. We've enjoyed very healthy growth for a long time in the Netherlands and it just proves that our operation is very well set to meet customer demands. Gross margin in the quarter was 59.6% which is a slight uptick compared to the same period of last year where it was at 54.8%. But as I have commented on previously all our markets work slightly differently so this is not a transferable setup with these gross margin levels to other markets. It is unique to the Netherlands and costs are taken at the OPEX level. So for other markets, we actually are including then now Spain of course, but we have not seen so much action as of yet there in terms of just setting up the commercial office, so predominantly Daesh and France. we actually saw sales decrease 15.5% compared to the same period of last year. However, this was not related to any infrastructure delays, but if you look to the first half of the year, you will see that these markets have really performed exceptionally, and the year-to-date growth at the end of this quarter is 60%, actually a bit over that. So we expect things to pick up in the fourth quarter, When markets are a little bit smaller in our industry, you get more variance throughout the year. So really positive about seeing the Spanish office in place. We expect it to contribute both to the growth and the profitability during 2025. Gross margin for other markets was set as 61.5% compared to 50.6% in 2023, same period, and this is mainly due to product mix. And with our markets out of the way, I am extremely pleased to hand over to David, our CFO, to take us through the profitability and cash flow. So I will do the honors for you here.

Thank you, Christian. And now an update on the profitability for the quarter. EBITDA amounted to 34.3 million compared to 44.1 for the same period last year, giving an EBITDA margin of 17% compared to the 20.2% last year. Despite the weak sales impacting EBITDA margins negatively, we managed to maintain profitability on healthy levels. Gross margin nearly kept on the same level as last year. And as Kristin mentioned earlier, our efficient operations can endure variations in sales. EBIT was 16.5 million in the third quarter compared to 20.7 last year. During the quarter, we launched the iCare Center. And with that, we also see an increase in depreciation somewhat impacting EBIT margin development quarter on quarter. And with that, moving on to cash flow. Cash flow from current activities in the third quarter of 2024 amounted to 13.6 million, compared to 1.6 for the same period in 2023. Working capital tie-up in the quarter was 16.2 million, driven by increased inventory levels following lower than expected product sales and delivery of rental equipment. Free cash flow was 3.3 million and over the past year we have accumulated 56 million of free cash flow. Cash totaled to 29 million at the end of the quarter and in addition the bank over a facility had unutilized amount of 39 million resulting in available cash of 68 million enough to continue to grow our business. And finally, net debt amounted to 180 million at the end of the quarter compared to a net debt of 228 million last year, a reduction of nearly 50 million. And with that, I hand over to Christian for summary and conclusions.

Thank you, David. And also fantastic to have you as part of this presentation. As we concluded in the report released this morning, we not only got David on board, but the quarter also saw us recruiting our new CTO to start following the quarter. So we are really, really happy to see such great talent joining the Carrium journey. So thank you, David. So concluding remarks for the Q3 2024. number one as mentioned you know we are a very competitive and very ambitious team we are not happy with our sales development for this quarter however silver lining being to david's point that in a way it is also something that shows that we have a very solid and stable core operation that can absorb these levels of variations predominantly related to hardware The launch of the iCare Center is truly perhaps our biggest innovation. We have a long history of a company of releasing what is now the gold standard for alarm receiving protocols, the first digital care phones and so on, and now we launched the iCC or iCare Center. This is transformative not just because it opens up to sector-specific IoT platform and all the value that comes out of that, But it is also a new revenue stream for us. So we can have platform sales in a different way and we can also bundle it together with our offerings. This is really something that strengthens both the internal side in terms of efficiency and cost saving, but also something we offer to the market that we are extremely happy about. And last but not least, I think opening up the Spanish commercial office with proper staffing. It's a great move, fantastic market. We need to be there. We've been there for many years. We have a lot of industry competence predominantly on the technology side, but we also need to sort of sharpen the saw in terms of our commercial operations. So that's good. The main challenge, of course, is this full weight of these transitions. In a way, we need to work twice as hard to try and generate as much sales as possible because there is a slowdown in the sales. We are very much doing that, but it is a tough work and we are consistently doing it on a daily basis. This also translates to our number one priority. It is to focus on the sales activities, both in the tender side and also in the direct sales, more in the B2B channels where our sales staff are working very, very hard to perform as well as we can. And the second big priority for the quarter ahead is of course continuous development and transition of end users for the ICC, both to generate the savings, build a stronger platform and also to take more customers on board as this technology is now open to all prospective European customers. So in closing, in relation to the guidance, we expect to deliver our stated guidance range of 5-10% of growth for the full year and the EBIT range of 7.5-10%. And with that, we conclude the presentation and open to questions.

Thank you so much. Yes, it's Q&A time. And there are a lot of questions from the viewers and from myself, I think. But we will start off with the questions from Oskar Rönnqvist of ABG Sundal Collier. Please, Oskar, go ahead with your questions.

Thank you very much and good day. So I think I'll just start a little bit on the guidance into Q4, more on the sort of visibility side. So the delays are obviously weighing quite hard at the moment, especially on product sales. So do you have any sort of comments on how we should think about the normalization timing, any color on the tender activity? and also quite a broad range going into Q4. Any color on the timing and visibility?

Well, our ambition, since we have revised the guidance a couple of weeks back, we have of course put a lot of work and effort into trying to create the most transparent and best way of guiding the market. And when we say that we expect to deliver onto the ranges that we have stated, then that is what we aim to do. And we do see that, as you can conclude, we have decent growth in the service segment. This is also to some extent impacted by the transitions because the urgency might be going down a little bit. But we're still very, very competitive. It is mainly on the product side. And there are no shortcuts. I mean, we need to work extremely hard. We have added additional resources, put new processes in place, new tracking and so on to make sure that we are delivering as well as can be, even in the markets that are impacted by these transitions. I mean, at the end of the day, we are not the company where we see that, OK, so we have some headwinds right now. Let's wait them out. We try to run crisis fast. And that always takes a little bit of time. And you need to double the effort. And that is what we're doing. And thus, we are retaining the guidance.

All right. Can just follow up on the cost control seemed quite good in the quarter and notice that, you know, admin costs keep falling sharply. So have you done, I mean, the complete of your restructuring now or can we expect that as a new bottom or do we expect that, you know, keeping to fall or any color on that, please?

Well, I mean, we always try to be more efficient, but we also need to invest in our future growth, right, to be able to accommodate and manage it in a smart way. So I would not provide any other sort of comments outside of the stated range. in relation to profitability. We aim to deliver along those lines and that means that we will need to keep our cost control in check. I think we are. However, there is some, if we look to the future, I mean, if you're a technology company, you need to make sure that you have great talent and great development across your technology offering. So that is maybe where I see that we should be investing more. I don't see us growing administrative expenses in any crazy way. Then we probably need to double the size.

Right. Perfect. Thank you. Just some color also on the Spanish outlook. So what types of contracts do you see likely in this region? Will it sort of mirror the UK contracts, be B2B concentrated, B2G or more sort of private pay? And also, if you have any color on the timing of the effect in 2025, can we expect that to contribute already early 2025 or is that going to be sort of more tilted towards the latter part?

No, very good question Oscar, thank you for that. So the Spanish market is a combination of a very, very strong public sector, but it is served by a lot of private entities. So you have your tendering akin to the Nordics directly to the public, the regions of Spain predominantly, and you also have the partnerships with those that bid on those contracts. And these contracts in Spain come in many different forms and sizes, from quite small ones that we could probably engage with ourselves without too much effort and worry, and the biggest contracts in all of Europe, which are the Madrid and Barcelona hardware-related contracts and also platform. and some software. So Spain kind of has it all. It is one of the most developed telecare sectors and it's also very different compared to many other markets that tend to be a bit more reactive. So you respond to needs from the seniors whereas in Spain two-thirds of the operator activity is actually proactive, so it's outbound. So they kind of reversed the whole thing. I think it's quite impressive actually and it's really important for us to also be in a market that is a little bit on the forefront. Same with the UK on technical innovation. So there's tons of values for us to be in that and adapt and design our offering to be competitive because we can transfer that to other markets. So just to answer your question clearly, the predominant side of the Spanish market around your 60-70% of all volume, that is tendered business. Now that is very rarely sole sourced. It's usually an installer coming together with a hardware provider and so on. So we can be a part of that with good partnerships. And the remainder of the market is more straight up B2B focused on hardware and software. We don't think that we will see immediate effects in 2025 due to the tender-based nature of the market. However, the talent that we have put in place is, I think you'd struggle to find such a strong individual as Beatrice that we've managed to take on board to lead these efforts. 12 years as a sales executive in this industry, extremely successful. So hopefully we'll be able to close the 25 with a very positive outlook on what we've achieved. But I don't think it will happen in January, so to speak.

Understood. Thank you very much. Just had some questions also on the gross margin. I think it looked, you know, quite healthy in the quarter, quite stable quarter over quarter and also year over year. It was affected by both the UK, I mean, the higher service sales and also, I mean, if you could talk a little bit about the mix here and also, I mean, given the decent underlying development for the whole company, I mean, have you optimized the gross margin and can this expand going forward? and just as a sort of a follow-up the i can i care center 10 million support is that coming through to the gross margin or is that more opex related david do you wanna take a stab at this one

No, but I think I agree with what you're commenting. I mean, the growth margin is on a healthy level. It's almost the same as last year. We see some mixed effects, both in terms of regions and in terms of product sales. So, of course, we keep on working with it, but it's... I don't see any very much potential, but we keep improving as we go. On the eye care center, that is OPEX related. I had to think a little bit. Yes, it's OPEX related and as we transition customers into our own platform, it will continuously show on the OPEX side. It will start to show a little bit in 2025, but it will also be a transition over time.

But I think to your question also, Oskar, do we feel happy that we will be set at this gross margin level for years and years to come? I definitely think there are things we can do. Some of them is about being technologically smarter. Some might be in relation to negotiating contracts with sub suppliers for certain things. And above all, It is how much can we drive down prices on hardware, thanks to bigger volumes and slight retrofitting, kitting, new versions and so on. So that is a huge part of the COGT side, so to speak. So there are a bunch of levers that we can pull. We're pretty occupied with the ones where we see maybe the most immediate value. but it takes a bit of time if you take something like adapting one of our core units to use a different component set you need to do that quite carefully and with a lot of testing before you can sort of take it to the market so the lead times on some of these bigger tickets it's it's actually quite long understood appreciate the color uh

Also, I had some just on the unprofitable contracts in the UK. It declined a little bit and you're restructuring the UK contract portfolio. So can you just talk a little bit more about this, how we should think about the balance between the connections and the actual sales here and when you estimate the restructuring will be done and take effect?

That's a very, very good question. So I think I'm going to be very transparent to all those viewing here. I mean, we were sat on some pretty big and pretty horrible contracts. For anyone who has followed us for some time, you could see the major issues we faced in 2022. They were to a large extent related to the UK. Now, some of that was due to not running the operation in a good way, which we fixed. But behind that was also that you had a contract base there. For many, many years, the task for this business had been to secure as many connections as possible. That was like the main KPI for how the UK was driven in 19, 20, 21 and so on. And of course, that came at very little regard to profitability. So some of these contracts in the UK, they are, as you know, of a fixed length, so you can transition out of them and sort of pull the contract. But what you rather need to do is try and renegotiate, not extend per the customer's wish, because they are in a very fortunate situation, of course, getting great service for next to nothing. We are talking as little as, you know, 12 to 20 pence per senior and month which does nowhere near cover the cost of service delivery of course there's a scale effect here but at the end of the day it's it's pretty awful so what we have done is that now we are growing the sales in an organic manner doing so quarter on quarter bit by bit to try and sort of compensate this out how long time will it take Hard to say. It depends a bit on every negotiation. Can we push the customer to perhaps let us exit earlier? Can we renegotiate because we both see eye to eye on the situation not being sustainable? Is this a major problem that we're spending tons of time on? No, we've gotten pretty good at this. So this is BAU for us. I will not give you a time estimate, but I can be very clear on that we are having decent stability in the service portfolio growth in UK. And while we don't showcase it so clearly, since we don't report locally a bit, we can quite clearly see that we are now running a profitable operation. And that is the most important part.

Perfect. Thank you. Just have a final one, if that's okay. Just the contract with the Oslo municipality. So the full range contract increase in annual value. So what part of the offering are they now receiving that is sort of the full range? And is it a better mix for gross margins here as well with the full range? Or are you seeing any sort of uh cost pressures due to the sort of nature of the contract and also is this a key element for you going forward to try to sign more full range contracts or is this this more sort of a one-off related well i i think it's important of course this happened after the period so it was part of the significant events we quite clearly stated it because we thought it was fairly material since it was so big

So when we talk about the full range contract what we mean is that it features a lot of services. So the Oslo model that we are servicing it is actually unique in Europe in the sense that there is a completely unbroken chain of data alarms what have you leading to operator activity leading to that same operator who might often be a qualified nurse to basically take the elevator down to the garage go out in a car packed with equipment and solving whatever situation is at hand so this is a pretty unique model that Oslo has implemented and had for many years So our new contract actually features a slight extension of the scope, but it's more of a better compensation of how that contract has kind of grown over time to take all of that together in a more manageable SLA and so on. So we are extremely proud of getting the trust to keep delivering in this unique model. If you look at public sources, you will see that the second biggest contract of this nature, also found in Norway, is currently up for tendering in Askerenbærum, which is a municipality adjacent to Oslo. So this is a pretty Norwegian thing, to put it that way, but we are very happy that we are possibly the only company able to fulfill it in a good way. So when we talk about full range, it's more about that it features a lot of services. Now, going back to that particular contract, this is, of course, a very beneficial contract for us. But we also think that it reflects the value that Oslo receives and thus the price increase for similar level scope was probably quite merited.

Understood. Thank you very much. That was all the questions I had today.

Thank you so much Oscar Lundqvist of ABG Sundal Collier. Let me raise a question from a viewer regarding the ICC. Let's start off with, do you see a catch-up effect in product sales in the coming quarters? And can you say that something about sales and margin trajectory for the eye care center, ICC?

Good. I think in answer to the ketchup effect, of course, we'd love one. That would be great. I think maybe the best way of looking at it is what happened when these delays were announced. So when we were stood here presenting the fourth quarter of 23, early October we just had the first delay and we said that, you know, product related sales in UK are down 50%. That's the effect that was very immediate. When the additional delays were introduced, it was not another 50% drop, it was a little bit less than that. So my belief is that the reasonable view of it is not ketchup effect, but rather a steady return to normalized levels. That is also what we saw and communicated during the first quarter when the uncertainty of how long the prolongation of analog would be when it was clarified that it was just one more year then sales reverted back to normalized levels and then of course came additional extensions so to speak so no i don't think it will be a catch-up effect it will be a steady return to normalization and on the other part of the icc I mean, one of the great aspects of why we have launched it is that we are eating our own dog food. We are transitioning every single user onto this platform. This takes time, not because we can't technically do it, because we need the customers who have these seniors in their care to agree to all the changes that it means and so on. And this is different market by market. There are some functionalities that a certain market might be gated towards and so on. But at the end of the day, we will need this platform because it services us and allows us to be better at our service delivery. We think, as we can see in the case of MD Medicus, that there are many others that will see that too. Most of the market in Europe is using third party platform providers, we have as well, because the offering from the more fully integrated entities like us and some of our competitors, they have simply not been up to standard. And here we have just launched what we believe is an extraordinary IoT platform built for this industry. We're not building it for, you know, competing with Securitas or any other company like some of these platform, pure play platform companies are forced to do because the market isn't big enough. But for us, it's great. So we think that if we can confidently say, you know, we're the third biggest company in the business in Europe and we're 100% in on this, you can probably gain a lot from this also. So this means that our margins to serve a customer it's actually pretty small because the main saving we get ourselves. The internal cost case is basically over time when fully migrated it's a net positive for us in terms of run rates. So adding any customers on top you would see your source margins, if you will. And we also have the opportunity to bundle it together with our hardware and other services.

Thank you. Another question on the ICC. What's the revenue potential with the eye care center, for example, with MD Medicus, the client?

So we won't disclose any particular contract agreements or anything but we feel pretty happy about the revenue to be generated. We think the market for these types of solutions in our niche in europe it's of course not the 20 billion sec opportunity so it is smaller but the margins are extremely good due to us replacing other technologies that we're sourcing from someone else so for us it's more of a maybe a margin play a growth play it won't make you know massive waves on the top line but we think it's very very good top line additions when you look further down into the the income statement.

When it comes to the tender in Berum, could you say anything about the size on that one?

Well, size remains to be seen. It is an extremely complex tender. It features everything from this previously mentioned Oslo service model delivery to AI consulting services. So obviously this is a little bit out of our depth. So we are partnering with others, of course. But I think the interesting part of the contract is that it is a 12-year contract, which is quite uncommon. We don't see that that often. So we are together with partners and an active partner in this, of course. And the model in Norway is very pragmatic in terms of how they work with the tender processes. In Sweden you hand in your papers and then you wait for a week and see what happens. Whereas in Norway you do multiple rounds of negotiation to really make sure that the customer, the municipality, gets the best possible partner. So we expect to know where that one lands in week 48, I think.

And could you elaborate a bit on your current or existing larger contracts that is up for renewal within 2024-25?

That's a very, very good question. So, Oslo is by far our biggest contract as a sole source kind of contract. And it's actually two contracts in one. It's one for the hardware and one for the service delivery and software. That's how it's set up. So, as it stands, we have a policy where we don't communicate on material contract wins unless they exceed a certain threshold. So for those that have been following us, you will know that we communicated the Leeds hardware tender in UK about the time around this time last year, I think, because that one was an annual value of, I think, 22 million per the contract. Sick. which reached that threshold. Norway is the same. So we expect to fully comply with both the potential risks of contracts leaving us or contracts coming into us. I mean our Swedish organization as you could see from the service sales growth, they want tons of contracts throughout the year but we don't communicate on any of those because each and every contract is not that big. So, in that regard, the answer to the question is that when we deem it material, we will of course communicate it going both directions, so to speak.

And here's another question from a viewer. It says in 2023 there was 60 million SEK of depreciation of intangibles from the customer registers slash distribution agreements. 9 million SEK remained for 2024. Is this now fully depreciated so that reported profit will go up?

I will turn to you, David.

Can you repeat that again?

Yeah. In 2023, there was 60 million Swedish kronors of depreciation of intangibles from customer registers slash distribution agreements. Nine million Swedish kronors remained for 2024. Is this now fully depreciated so that reported profit will go up?

Sorry, I'm not 100% sure what's in the 2023 numbers. I have to get back to that question because I don't have it by heart.

If we can get the viewer info, we will try to.

Yeah. So let's say like this. Ask your questions to the IR email address and you will answer it there. And I actually think it's time to wrap this whole broadcast up for today. And thank you so much, Christian and David, for joining us here today.

Thank you, Mattias. Pleasure.

And thank you for viewing and meet up in three months for the full year report. Let's see you then.