Kinnevik AB

Good morning, everyone, and welcome to the presentation of Kinevix Result for the third quarter 2024. I'm Jorg Eganev, Kinevix CEO, and with me today is our CFO, Saman Sjöström, and our Director of Corporate Communications, Torun Litsén. On today's call, we will walk you through the key events during the quarter, including our most recent investment activity. I will also give you an update on our two most recent investments in Spring Health and ERA, Samuel would then cover our financial position and the development of our net asset value. Finally, I will show you the agenda for upcoming Capital Markets Day next week. And as usual, we will end up with a Q&A. So let's start on page four. The third quarter marks the completion of the Genevieve transformation that we have been driving for the past six years. With the last step of the Tele2 transaction concluded, we enter our next phase with a strong financial position and a growth focused portfolio with a high performing core and several exciting early stage companies with the potential to create significant outcomes. Over the last quarters, we have seen encouraging development in our core companies, now representing more than half of our portfolio, up from 30% at the end of 2022. However, we have also had several disappointments that have clouded this strong development in our core, and we regret to bring you another downward valuation revision in the non-core part of the portfolio this quarter in Village MD, a subject that both I and Samuel will come back to. Excuse me. Our net asset value amounted to 37.4 billion SEC. or 132 SEC per share at the end of the quarter. The fair value of our private companies was down by 7% in the quarter, driven primarily by a complete write-down on VillageMD. The weakening dollar also bore a significant 0.7 billion SEC negative impact on the NAV. Excluding VillageMD, the underlying valuations were flat on average or written up 4% in our core companies. With 1.3 billion SEC net invested in the quarter, the private portfolio declined in value by 0.5 billion to 25.2 billion SEC. Looking back at our investment in VillageMD, we first invested in the company in 2019, supporting the founder's vision of building a primary care-led clinical model that produced high-quality care for patients and strong economic value to physicians. In 2021, we made a partial exit of $360 million at 3.2 times our total invested capital when Walgreens acquired a majority stake in the company. And during 2024, Walgreens has on several occasions stated that they are evaluating options for their village MD investment, including a potential divestment or restructuring. This is a process in which we have very little influence, and we therefore face significant uncertainty reflected in the lower valuation we ascribe to the company this quarter. But we have also seen continued strong execution in our core companies, Citiblock, Muse, Clio, Spring Health, and Travel Perk, and they have kept on delivering in 2024. Now representing 52% of our growth portfolio, these companies have grown revenues by more than 60% on average over the last 12 months. They have progressed on their path to profitability and are expected to generate positive EBDA as a group during 2025. And in this quarter, we invested more capital in Spring Health, which we will go through in more detail soon. We also see promising developments in our group of selected ventures. These are companies which are still early on the growth journey, but where we expect to continue to invest meaningful capital in the coming years, if they meet our expectations and milestones. We are convinced that some of them have the potential to generate outsized returns and emerge as our core companies of the future. We also know that not all of them will be as successful, but as a group, we have high conviction in their ability to create a number of exciting businesses. And in the quarter, we committed an additional €20 million in ERA, which I will touch on further shortly. Our drug discovery company Recursion deepened its capabilities with the acquisition of Exciencia, a company with a complementary AI platform. We expect the combination to accelerate the discovery of innovative treatments, making the process faster, more cost-effective, and delivering higher precision in targeting diseases. Spring Health is now the largest asset in our portfolio, representing close to 5 billion sets.

And let us have a look at why we are so excited about this company, starting at slide five. We first invested in Spring Health in September 2021.

And since our first investment, the conviction that we had at the time that not only does Spring Health represent an outstanding business opportunity, but also the opportunity to change lives for the better and to have a real life positive impact has proven right over and over again. The founders, April Koh and Adam Shekrud, are executing on the vision that the future of mental health care is going to be radically different. Instead of being a game of trial and error, it will be accurately tailored to each individual through data. And with super-focused execution, Spring Health has consistently surpassed expectations on both growth momentum and profitability improvements. growing run rate revenues by more than 15 times since our first investment in 2021, with clients including names such as Microsoft, Target, JPMorgan Chase, and Delta Airlines. And since our $100 million secondary acquisition in mid-2023, the company has more than doubled its revenues. The company is in parallel, overperforming by five percentage points on EBITDA margins in 2024 to date, and expected to make a small single digit loss margin. With profitability already demonstrated on an occasional monthly basis, the company is expected to be cash flow positive in 2025, with a large and expanding TAM, allowing continued high-paced growth. In the quarter, Spring Health raised $100 million funding round, strengthening the company's balance sheet as it prepares to become a public company. We participated in the round with a $35 million investment and acquired an additional $45 million in secondary from co-investors, making us now the company's leading shareholder behind the combined ownership of founders April and Adam. The investment in Spring Health is another manifestation of our strategic priority to accelerate the concentration of Genevix's portfolio to our core companies. And Spring founder Adam Sjekrud will be in Stockholm next week to present at our Capital Markets Day. And I hope many of you will be there to tune in to hear him tell the Spring story in his own words.

Now let's move to page six for an update on our investment in ERA.

In the quarter, we invested another 20 million euro in ERA together with our co-investors, Temasek and Altor. As you will recall, the market for residential heating is a trillion euro market accounting for 10% of Europe's carbon emissions. ERA has a bold vision to drive the adoption of clean energy technology by accelerating the electrification of residential heating with intelligent heat pumps at the core. With five countries banning fossil fuel heating equipment to date, more than 130 million boilers in Europe need to be replaced with sustainable alternatives. ERA's business model is built on vertical integration, and it has successfully expanded its operations since our first investment in late 2023. In this short time period, ERA has built a vertically integrated clean energy tech company with commercial operations in Germany, Italy, and in the UK. They also have R&D and product development in Sweden and a manufacturing facility in Poland. The company is currently run rating annual revenues of 100 million euro from zero just 12 months ago. And in ERA, the feedback loop is faster. And the fundraising model is more reminiscent of traditional venture capital relative to our other long-duration climate tech investments, such as Soligen, Charm, and Stegra. And we expect ERA's continued performance to have a positive impact on our NAV already in 2025. And we're also very glad to have ERA's CEO, Martin Leavitt, with us at the Capital Markets Day to share his perspectives on the company and their journey. That said, I will now hand over to Samuel to talk you through our private portfolio valuations and our financial position.

Thanks, Jorgi, and good morning, everyone. So as usual, I'll start on our financial position in capital allocation and then move my way into NAV and private company valuations. In Q3, you will have seen we finalized our Teletubbies divestment and thereby our transformation to growth that we set out on some seven years ago. We ended this quarter and this transformation with a 12.2 billion SIC net cash position, providing a long enough runway for us to deliver exits and again prove that our strategy can finance itself beyond the 9.5 billion SIC that we've already released from our growth portfolio during the course of this transformation. As has been the case for the last quarters, investments were focused on our core companies and on our newer ventures, with minimal deployment elsewhere in the portfolio. This quarter, the largest investments were the two that you just heard Jorgi talk to, our $80 million investment into spring and our 20 million euro investment into era. With these investments, we've now deployed 1.8 billion SEC into our focus companies during 2024, representing more than 75% of our total investment year to date. Still, we continue to work through a pipeline of opportunities in our focus companies and see a path to deploying upwards of 1 billion SEC in Q4 through one or two larger funding rounds and one or two secondary acquisitions. As we've said in prior quarters, fundraising processes are lengthier and more enjoyable in this environment, and secondary acquisitions entail even longer and less predictable processes. A deployment of 1 billion SEC in Q4 reflects a probability-weighted pipeline, and hence there can be some swings around that number due mainly to processes progressing faster or slower than expected. Meanwhile, we continue to actively assess new investments while exploring options to exit some of our smaller non-core companies and are cautiously optimistic around our ability to show progress in both these areas in the next few quarters. At our Capital Markets Day next week, we look forward to providing you with more and longer-term details on our capital allocation strategy for the years ahead. But for now, let's move on to page 9 in this quarter's NAV developments. NAV was down 5% in Q3 to 37.4 billion or 132 SEC per share. Three main factors drove this development. Firstly, our core companies continued to perform and grew in value by 4% on a constant currency basis, despite facing 3% multiple contraction. Secondly, the dollar weakened against the Swedish krona by more than 4%, with currencies overall bearing a negative 0.7 billion SEC impact on NAV. But thirdly, and most materially, we've chosen to write down our underlying valuation of VillageMD to a level where there is no residual value to equity holders after death owed to controlling shareholder Walgreens has been satisfied. This stems from Walgreens' statements during the quarter that it is evaluating options for its investment in VillageMD, including a divestment or restructuring of the company. Walgreens has also stated that it and VillageMD has acknowledged the existence of defaults under its intra-group loan agreements and that they have agreed that Walgreens will not seek more immediate remedies. The increased uncertainty surrounding this situation and the limited influence and information that our small minority shareholding affords is what causes us to take the conservative but drastic action to write down our investment to zero at this juncture. Now, this is a good case study of the perils of having a controlling strategic investor in your cap table. And we've learned a lot. But with that said, we are extremely disappointed by the development since Walgreens acquired control of this business, even though that acquisition of control entailed us locking in a 3x return on our investment. We are assessing our options to salvage value and to potentially support VillageMD in a future where Walgreens is no longer in control of the company. But while working on remedying this situation, we are for now front-loading downside risk to NAV and riding down our stake to zero. This ensures that a solution to the current situation is not only positive for the company and for us minority shareholders, but also for future NAV development. Moving on, all in all, the private portfolio was down 7% in SEC terms to $25.2 billion. of which 13.5 billion sits in our five core companies where we saw underlying value growth of 4% in the quarter. And all these core companies have been priced by other investors during 2024, most recently spring in this quarter at a premium to our Q2 NAV. Looking at the full private portfolio, we've seen price transactions in 79% of our private companies by value since the start of 23, at valuation levels that on average have been a percent above our preceding quarterly NAV. Unpacking that number into primary transactions, meaning funding rounds, and secondary transactions, meaning acquisitions from co-shareholders, secondary transactions have on average occurred at a 30% discount to NAV, and primary transactions have on average been concluded at a 20% premium. These price levels that other investors are transacting at in our companies resonates not only with what are normal secondary discount levels in healthy businesses in the current illiquid state of private markets, It also validates that the valuation levels in RNAV service attractive entry points for new co-investors coming into our private companies. This provides a degree of comfort that we're doing an okay job marking our portfolio to market. However, during 2023 and 24, we've had significant negative valuation developments in a handful of non-core companies that have obscured the otherwise resilient performance of our portfolio. The most recent example is clearly VillageMD, and earlier we've lost significant NAV on investments mainly in e-commerce companies like ODA, Matem and InstaBee. The fact that we're taking down our valuation of VillageMD so significantly this quarter and our overall valuation levels of our non-core companies in Q3 is drawing on lessons learned from these situations. These significant write-downs naturally cause our non-core companies' percentage share of our portfolio to come down, And this, together with improvements in the level of stability and predictability in many of these non-core companies, we believe has reduced valuation risk meaningfully in that part of the portfolio. And this should help ensure that the strong performance in our core companies becomes more visible and more impactful in the development of our full NAV going forward. On the next couple of pages, I'll give you some color on the valuations in the private portfolio. But as usual, you can find much of what I'll be going through and more in note four in today's report. And I'll try to be as helpful as I can when we get to Q&A. Starting off with a very quick snapshot of the known external drivers, currencies, and multiples on page 10. As I mentioned up front, the US dollar depreciated by 4.3% in Q3, impacting 62% of our private portfolio, and in turn causing our valuated currency basket to be down 3%. This corresponds to the negative 0.7 billion SEC effect on our private valuations in the quarter. Trading in the key peer sets of our private portfolio was a lot more stable than last quarter, as outlined on the left-hand side of this page. On average, value-weighted peer multiples were up 5% in Q3. In particular, we saw positive movements in the average levels of our healthcare peer sets, although with significant dispersion in trading within these groups. And we also saw stability in software after last quarter's significant D rating. But this you all know, so let's jump on to the next page, page 11, where we are again charting how our valuations in our largest areas, software and virtual care, stack up against these public benchmarks. So what we're showing with this chart, again, is that we are valuing our investees more or less in line with the average multiples of public software and healthcare technology businesses despite our companies growing significantly faster while reaching or approaching cash flow profitability. In this chart, expected gross profit growth over the coming 12 months is plotted against the x-axis, and on the y-axis, we're charting forward gross profit multiples. And gross profit multiples are, we believe, a good starting point in comparing the valuations of our businesses to those available to public investors, as gross margins are typically indicative of future bottom-line profit margin levels. Our software and healthcare technology businesses are still loss-making as a group, with cash flow loss margins of around 7% to 10% over the next 12 months and around minus 4% to 5% on average in 2025. That spans profitable businesses like Cedar and Spring to very early-stage companies like Pelago, which is growing at a much more violent pace and allowing themselves to invest heavily in building their product and go-to-market and thereby generating large percentage loss margins in the short term. On this chart, we've plotted out the public comps as well as our investee averages within software and virtual care. And as you can see, public company valuations remain fairly tightly dispersed along the black trend line as growth remains the most important determinant for public investors valuing healthy and well-financed businesses in these sectors. As we've touched on in the past, the financial profiles of companies in this part of our public peer universe have changed meaningfully coming out of the pandemic. to a point where today there is virtually not a single public stock available in these sectors if you're interested in a company growing by more than 30% year over year. Meanwhile, our software and virtual care companies are growing gross profit and revenues by around 50 to 55% on average, but are valued as a group at a multiple in line with the average gross profit multiples of similar public companies growing by around 20%. And as we've stated several times in the past, there's no rush to push our companies towards the left-hand side of this chart. Growth compounds over time, and slowing down too fast can bear significant ramifications on longer-term potential. Now, the reason why we're still valuing our companies at a discount to what is suggested by the value that public markets ascribe to growth is because we take into consideration several parameters beyond growth and gross margin. Obviously, and first and foremost, profitability, but also scale, addressable market and share of recurring revenues relative to more transaction or usage-based income. As we continue to take initiatives to improve disclosure and transparency around our private companies, we plan to provide another valuation deep dive presentation in the near future, similar to what we did in 2022, to provide you all with more details on our valuations and our processes and methods that underpin them. But for now, Let's move on to another one of our staple pages that covers how our core companies have managed their growth profitability balancing act on page 12. Looking back on our core company's development since end of 2021, they have matured. That they've managed and are continuing to manage to trading growth for improved margins in an efficient way. On this chart, which you have seen a couple of times before, We plot our core company's average year-over-year growth rate on the y-axis and their weighted average EBITDA margin on the x-axis. The first red marker in the top left is the average financial profile of these companies in Q4 21, and then each red dot represents a subsequent quarter up to today's Q3 24 outlook. From being expected to grow by more than 150%, with 70% EBITDA loss margins on average at the end of 2021, throughout this journey coming out of the pandemic, they've balanced the growth profitability trade-off well and are now expected to grow revenues by 40% to 45% over the next 12 months, with EBITDA margins of minus 5% on average. Each individual core company is grouped around that average, with growth rates spanning mid-30s to 70s percentages and EBITDA spanning loss margins in the high teens to positive mid single-digit margins. Looking into 2025, we continue to see this group of core companies growing by more than 40% and transitioning into EBITDA profitability, which effectively for these typically asset-like companies means reaching cash flow profitability as well. Now, once that break-even inflection point has been reached and proved to be sustainable, We believe and will work towards supporting growth rates stabilizing at above 30% levels that can compound year-over-year at profitability, meaning that the slope of this red curve should begin to flatten for this group, and in particular for a select few. With that, I'd like to move on to the quarterly valuation changes, starting with these five core companies. And again, you'll find more elaborations on our valuation assessments in Note 4 of today's report. On average, underlying constant currency valuations of our core companies were up by 4% in the quarter. Quickly going through each of them, Citiblock and Muse were largely flat in the quarter, while PLEO was down 6% on an underlying basis due to multiple contraction that now places our valuation level of PLEO to being in line with the average revenue and gross profit multiples of its public software peer set. This multiple contraction and the valuation of PLEO was also impacted slightly negatively by us making some conservative cuts in our forward projections in light of the market-wide slowdown in growth amongst public software companies. At Spring, we raised our valuation in Q3 to a level largely in line with that of the funding round announced this quarter, a transaction that corroborated our approach of valuing Spring at multiples somewhere in between software and healthcare technology, reflecting the company's revenue mix. And at TravelPerk, we raised our underlying valuation by 11%, stemming from the company continuing to overperform on our expectations. Year-to-date, TravelPerk has beat our gross profit expectations by more than 10%, and have beat EBITDA margin expectations by more than 5 percentage points. This overperformance is what drives this quarter's write-up, while the company remains valued at an unchanged 25% discount to its public software benchmarks. These five core companies represented more than half of our portfolio at the end of Q3. And if they continue to deliver results close to our expectations, they will continue to grow their share of our portfolio value even before taking further capital reallocation into account. And we will see solid value accretion from this group in a flat market. Moving on to page 14, having covered off our core companies, the largest remaining valuation change this quarter is again VillageMD. As I said in the beginning of my remarks, we've written down VillageMD to a level where there is no residual value to equity holders. That does not mean that we ascribe VillageMD zero enterprise value, nor does it mean that we're no longer shareholders in this business. What it does mean is that the statements from Walgreens around them evaluating options for its VillageMD investment, including selling or restructuring the company, coupled with their statements that VillageMD is in foreborn default on parent company debt, causes significant uncertainty for us as a small and non-influential minority shareholder after our partial exit in late 21. So what we're doing is that we're focusing on what we can control, and that is removing all VillageMD valuation risk in our NAV until the outcome is certain by writing our stake down to zero. and it is by assessing our options to salvage value and to potentially participate in staking out a path for the business where Walgreens and their strategic priorities no longer dictate the future of VillageMD. We should have a more definitive answer on the future of this business by end of this year, but at this point in time, it is unfortunately hard for us to provide more nuances. When excluding the write-down on VillageMD, we saw underlying changes in valuations of our private companies that were largely flat on average, leading to a value decline pretty much on equal step with the aforementioned currency headwind. So to conclude, Q3 was another quarter of strong performance in our core companies, solidifying our trust and then becoming a positive undercurrent to NAV as we end 2024 and enter 2025. We see stabilization in our non-core assets, with limited funding needs and less valuation risk after significant write-downs of VillageMD and other non-core companies during 2024. And this combined makes us feel optimistic around the NAV outlook, as well as on our ability to ensure that capital allocation continues to be dedicated towards our high return opportunities in our focus companies. With that, I'd like to hand it back to Jorgi for his concluding remarks.

Thank you, Samuel. Let's now move to page 16, the final page of the presentation. As I've mentioned, we will host our Capital Markets Day on the 23rd of October in Stockholm and online. And during the day, we will share where Sinevik is today and what the future holds in store when it comes to our competitive edge, the opportunities we see in the portfolio, and how we intend to invest our capital going forward. We also want you to meet our senior investment professionals and our portfolio companies to familiarize you even more, both with the Cinevic team who are sourcing, investing and driving value in our portfolio, as well as the leaders of the companies that have grown to be the backbone of Cinevic. And if you would like to register, you will find more information on the Cinevic website. I look very much forward to meeting you there. We're now ready to answer your questions. So operator, please open up for Q&A.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will now go to the first question. One moment, please. And your first question comes from the line of David Johansen from Nordea Markets. Please go ahead.

Hello, good morning. I want to focus on VillageMD a bit. I think one would be your comments around the credit facility to Walgreens. You know, I think obviously you must have been aware that Village didn't have enough liquidity to meet the debt payments for the last number of quarters, I think, and As you said, also Walgreens, they have been pretty clear for some time now that they're looking at a variety of options to monetize this asset. So I guess my question is, what has changed this quarter and why do this now? And then my second question would be, how do you think about this asset going forward? You say you're looking at different kind of options to protect value from here. So my question would be if you're able to elaborate a bit more on that. Thank you.

Hey, David. It's Samuel. So on your first question, yes, I mean clearly bringing it back to late 21 and then also sort of Walgreens tenure as controlling shareholder, looking back, they made this very large acquisition of Summit. They financed a large part of it with debt, and that acquisition clearly didn't work out. And sort of this has destroyed value over time to a point where Now also with Walgreens apparent strategic urgency to refocus on their retail footprint, we feel that this incremental step means that there is substantial risk of Walgreens trying to solve for a transaction where effectively all capital that's being released goes to satisfy Walgreens debt. So I'd say it's the incremental urgency and there's clearly also you know, some information flow to us on negotiations between the important parties in the situation that gives us an increased sense that our value here is at considerable risk.

And if I may add, we say that we have very little influence of the process. That doesn't mean that we have zero insight in the process. So, of course, we have been very close to the company VMD in this case. I mean, to understand the various options. And we are still hopeful that there will be an option where VillageMD can have a future on its own without having a controlling shareholder as Walgreens. But again, with very little influence and this being more of a kind of an urgent situation for Walgreens, we are front-loading the risk in the NAV.

Yeah. Understood. And then to follow up on that, I think you've said earlier that Cigna could be one of the parties looking to increase their share in the village MD. So do you have an update on that process? Thank you.

Nothing that we can share publicly since it's very fluid, but you're absolutely spot on, David. There are many potential options here. I mean, of course, the founders are super dedicated to the business and we know them because they're Tim and the team were the ones we were backing back in 2019, right? So they are instrumental in this potential new future for the company. Cigna is another long-term owner that have shown interest, but exactly where the process stands today, we can't disclose.

Got it. Thank you. And then I also wanted to quickly ask a question on Matem and Oda. You know, Georgie, when we spoke on the last call this summer, you sounded pretty clear that the company was now on the right track with your latest investment. So it's a bit surprising to see our restructuring so soon, I think, after. And obviously, you're running this company down again now. So what's the process with Maltev now? And can you finally let this go now? Or are there more investments coming from your end? Thank you.

I think it's a very relevant question, David. And I think at the time when we were backing ODA and Matem in this merger together with the other shareholders on the cap table, we did not know about the reconstruction in Matem. However, that said, all the investors did send the clear signal to ODA group that they had to take the needed actions to make the company profitable. And I think with the new management in place, we are still very certain that the plans that they have presented are solid. And we see, again, the kind of the upside potential inefficiency by using the ODA software and hardware. That said, management did propose to the board that a reconstruction was necessary in March 10 to basically cut further costs and to have more of a reset for the operations to be profitable. We are supportive of this action via our representative in the board, and how the future will look like is very difficult for me to speculate. But again, what we have said is that we are not interested to back this company unless they show profitability.

Understood. Thank you. Those are my questions.

Thank you. We will now take the next question. And your next question comes from the line of Linus Sigurdsson from D&B Markets. Please go ahead.

Thank you and good morning. So a few more questions on Village MB, if I may. So, I mean, I guess essentially the issue here is driven by the fact that you're not really in the driver's seat in that investment. But if you look elsewhere in the portfolio, I mean, do you feel confident that you're in the driver's seat there? I mean, to add to that, this was kind of an investment that you earlier listed as a successful example of the new strategy, and now it's essentially down to zero. How can investors be confident that it's going to be different this time around with your current core holdings? Thank you.

Thank you, Linus, for the question. I think a very important difference between VillageMD and all other companies in our portfolio is that VillageMD has a controlling shareholder in Walgreens. And it's very clear that we are not aligned when it comes to the future of VillageMD. And being in the driver's seat or actually being in the back of the bus since our divestment in 2021, we have just, you know, seen this ride happening with firstly the acquisition of Summit, leveraging the company quite a lot, and then missing the plans when it comes to synergies and top line. And this has pushed the profitability of VillageMD out in time with this dependency on Walgreens. That is coupled with issues that Walgreens are having on their own. That's easy to understand when you're reading their reports, right? That they are taking drastic actions to provide clarity in their own equity story. And here, basically, VillageMD, I would say, To be very frank, it's a company that is squeezed in this transformation on their behalf. Looking at our other companies in the private world, of course, our ownership span from a few percentage points up to being the largest shareholder next to the combined founders of Spring, for instance. But then you have shareholder agreements. We have rights. that actually makes us comfortable. And more importantly, we have other co-investors on the cap table that we're aligned with. And with a strong cash position, as you know, we've also been able to concentrate the cap table in companies like Spring Health to provide further alignment between the larger remaining shareholders and the founders. That's a way for us actually to make sure that our interests are 100% aligned with the founders, and that is to create strong value over time. So I feel a lot more comfortable in our other assets generally, and especially, I would say, in the core assets.

And it's on the question on whether Village is a successful investment. I think it depends on your perspective, right? We did a 3x realized return in two years. So by, call it financial standards, then clearly, yes, it is a successful investment. However, you know, is this a fairytale ending? Clearly not. But in financial terms, 3x in two years is, by our definition, a successful investment.

But if I may add also something that you alluded to, what is the implications on the strategy based on this?

It's easy to say that the complexity in value-based care has, to some extent, been underestimated by the market. So just a couple of years ago, these apps were trading at very high multiples. And obviously, that has changed. We still think it's part of the future of used healthcare. And we're quite confident that these businesses can operate, you know, profitably. but I think this situation with the DMV again has been extreme. Okay, I appreciate that answer. And then just quickly on PEO, it's tracking above expectations on profit improvements, but you lower expectations for 2025. You've shifted communication around profitability further into 2025. Could you just help us understand how you think about that?

Surely, and it's pretty simple, and it's again drawing on lessons learned in the past, where we have seen this slowdown in public software companies. We're not seeing it coming through in PLEO's monthly reports, but we just feel we don't want to get surprised here, so we'd rather sort of bring that forward, take down our expectations now on both revenue and profitability, and then increase the chances for the company to meet or hit or exceed those expectations. So it's Just this small incremental measure this quarter to sort of readjust as we head into 2025. Okay.

Thank you very much.

Thank you. We will now take the next question.

And the question comes from the line of Andreas Jolson. Go ahead. Good morning, everyone. Just a couple of clarification questions from my side. Let's start with the core holdings. I think you state that they have $8 billion in cash in total and only $2 billion in burn rates until they are cash flow positive. So I also understand that you would use your own net cash position for fundraising in these companies, secondary transactions or new investments. why would there be a need for additional fundraising within the core companies? That's my first question. And then the second one, I think Samuel, you stated, and maybe I didn't get this right, but the secondary transaction and fundraising 20% premium. If that was correct, when you do a secondary, This can be reflected in the NAV, just as the premiums usually are reflected in the NAV in fundraising. Thanks. with the first one. That's correct. we want to provide you with that figure for you to understand that there is a buffer in these businesses to actually become break-even. And we think that is an important message. However, we've also said that we are of these companies, and therefore, opportunistically, we're actually looking for transactions. And that is also, as I said, sometimes to concentrate the cap table and align

better on the company's long-term future. When it comes to primary capital, there are many reasons for the companies to consider that. One could be a more aggressive footprint expansion, could be a transformational M&A, or just to have a larger buffer preparing the company to go public. So we will, of course, always choose primary capital before secondary capital, if it can add more value to the company's growth. But that's the main reason for the core holdings being interested in potentially raising.

Great. And Andreas, on the question around how we deal with valuation, secondary and primary transactions. You're absolutely right. Average discount is $6,000. Secondary deals has been 30% to our most preceding NAV, and primary rounds have happened at a 20% premium. To what extent we just sort of call it plug those valuations into our models, it's not that simple, and it depends. The second transaction we had in Citibank earlier this year was something that led us to take down our valuation a notch because we felt that that sort of gap to where that transaction cleared was a bit too high. On the flip side of that, we've had several valuations that companies have been ascribed in funding rounds where we have valued the enterprise value of the business at a discount. to that headline evaluation. And that can depend on a variety of things. It could be that it's a wholly internal round. be preferential terms of different sorts. So it's quite complex, I should say. But it's not as easy as wherever a deal happens, we just describe that situation to a business. And then, and I don't want to complicate things too much, I'm bored with you, but there's also clearly different share crosses in each of these companies. So when you buy a share of common stock, you might pay a different price than if you buy a share of preferred stock. And that's also something that we clearly reflect in the valuations of our aggregate investments in any given company. I hope that answers your question, because this is one of those things that we should cover at the upcoming Valuations Deep Dive session.

Thanks a lot. That is very helpful, and you are never boring.

Thank you. We will now take the next question. And the question comes from the line of Derek Laliberti from ABG Sundar Kholia. Please go ahead.

Thank you. A couple of questions outstanding. I wanted to ask on the recursion here on the major acquisition recently made, you sounded pretty bullish about that, but clearly it hasn't been well.

by the market. So why aren't you buying more shares in the store? Hi, Derek. Georgi here. Yes, I am hopefully excited about this transaction. And then you should hear Adla in our team who has a PhD in bio. She's even more excited. And the reason we're excited is that we see that these companies actually together become the undisputed leader in this space when it comes to backing a platform company. combines the biology with the chemistry in a very fundamental way to actually improve drug discovery as I laid out. The reason why the market is not appreciating that, we believe, is that the market is not paying any premium or any value to the platform concept today. It's more kind of traditional, mobile, of investors looking at pipeline. pipeline has extended we still are too early to say which of these candidates actually can be turned into real And that is basically what the market is debating about. So you value these companies in a very traditional way. We have backed recursion because we are super were excited about, again, their platform capabilities that can fundamentally change the way drug discovery works. And that is very similar to how we see the potential in VEDA. To the question whether we are up for buying,

Yes, for sure. I mean, I think what we have said is that the core companies we would, you know, very likely invest in if we see that opportunity, both in primary or secondary. The other select number of ventures, which is a group where recursions belong to, that is where we also would like to buy more into these businesses when we see milestones being delivered. The difference now with Recursion and Exentia is that they have a very strong cash position after that merger. So we would then, as you say, have to buy over the market.