Physitrack PLC

Good morning, everybody, and welcome to Physiotrack's Q3 2023 results webcast. I'm Henrik Molin, and I'm joined by probably the best CFO in the world of digital health, Charlotte Goodwin. We'll be taking you through the Q3 in short to begin with. We'll look at some business updates. We'll look at the financial results and revisit the strategy and outlook. And then we'll move into Q&A. You can use the Q&A function on your screen below and ask us nice questions there at the end. And we'll probably spend around 15 minutes on this presentation and a few minutes on the Q&A. Let's go. Q3 in short. It was a very nice quarter where we generated 2.9 million euros in adjusted EBITDA. And just on the quarter, we generated 1.1 million euros. And so that's nicely up from 1 million, which was the previous quarter. 27% year-to-date 2022 organic revenue growth compared to last year. And this is 100% organic for the first time. because we didn't have an acquisition for the last year and a half. And so we keep accelerating with the businesses that we have, and the leaders that we have there, which is very, very nice, and nice year to date 2023 revenue growth compared to the last quarter last year, a couple of A couple of big focuses down there, obviously, profitability up 27%. So that 25% trough that we hit was very much the trough. We keep accelerating upwards. And there's some really, really nice developments there in terms of how the business is run and how we are optimizing our resources and accelerating with that. We are also selective on revenue opportunities. We like high margin. We like low. cash flow generative revenue opportunities. And so we have been a little bit selective there in the last quarter in terms of what we want to do. And you can see that filtered through in our margin numbers. Free cash flow burned 0.3 million and it was 0.6 last quarter. And if you compare it to a year ago, 0.9. So that's a very positive trend. It will continue. We'll be exiting Q4 with positive cash flow. We'll be focusing a little bit on innovation in this presentation. And this is something that's been very, very exciting to be part of in the last year. few quarters, actually, and we will be telling you about some of these AI-based developments later on in this presentation. Also noteworthy is that we've completely revamped Physicourses. There's a whole new webpage there, physicourses.com, if anybody wants to take a look. And the way that that offering now integrates with Physitrack is very, very nice because for the first time we can now offer our enterprise customers bundles and that there's more of a seamless interaction between users on both sides of the Physitrack, Physicourses fence. And there is a lot happening there as well on the wellness side of things that you saw the intro clip from amazing Champion Health. We are deep into the development of the new version of Champion, which will start to trickle out to users in this quarter, but will be launched widely in 2024. Exciting times indeed to be in our business and in digital health in general. Looking at the business, Just as a little reminder, we have two divisions here. There's life care, where we put tools into the hands of healthcare providers so that they can help their patients feel better, faster, and hopefully have a little bit of fun along the journey. On the right side there, the wellness division, which puts tools into the hands of employers so that they can help their employees be healthier, happier, more productive, and to have the ability to see what's going on in their businesses using data analysis tools that can help them really pinpoint what they should be focusing on as employers. So it's a great, great way to run a business with Champion Health. I can warmly recommend it to anybody watching this that is an entrepreneur. All right, big enterprise player. Now, the split between the businesses, the division is 63%, 37%. So that's the same as last quarter. In terms of life care, if you look on the right side there, nice continued growth in that ecosystem of ours. And we are... coming into some newer markets, which we'll have the opportunity to talk about in the coming quarters. But this is very much a strong offering, and this is something that is becoming the go-to solution for many, many healthcare practitioners around the world. So strong ecosystem. If you look on the left side there at the bottom, churn down to 1% on a rolling 12-month basis. And so not only do we have a nicely growing ecosystem, it's a very sticky ecosystem as well. On the top there, so continued focus here on profitability growth and driving efficiencies. And we're not at all in cost-cutting mode. We're in optimization mode, which means that we're getting more out of the resources that we have, with the tools that we have, the amazing people that we have, And that's leading to some real nice EBITDA expansion. Physicourses, as I mentioned in the introduction, nice introduction there into life care. You've seen the lines blur more and more. And what's fun about Physicourses is that it is actually a global offering. And so we're seeing interest and signups and paid usage from all over the world, actually. So it's very, very nice to see that that solution is finding a home in many places. And we'll talk a little bit more about AI later on, but all of our teams, pretty much everybody in our group of almost 140 people have looked at how AI tools can boost their day-to-day tasks and their day-to-day efficiency. And we have implemented a lot of really interesting things in terms of workflow related things across the whole team. So finance and sales and marketing and everything that we do with content production, software development, et cetera, et cetera. So people are launching new pieces of software, co-pilots, and are testing new things out. And as an effect, we're saving dozens of man hours in total across the group, and we're able to produce some really, really interesting things. Now, in terms of the product development pieces, I will show you a little bit more about that in the coming slides. First, wellness. Look on the right side there. Really, really nice. 100% pure organic growth. So we didn't accelerate with... the M&A program, which is a part of what we do, where this is pure organic growth based on the great leaders and the people that we have in the subsidiaries. So very, very nice continued development there. And More to come there. And you saw just how exciting it is to be in wellness with a great solution by Champion Health. On the second point there, some great new features coming into Champion Health. And we will also be seeing localization of Champion Health. We have identified that we are tendering some great technology for AI video to video in terms of getting that library and it's almost a thousand pieces of content at this point and it keeps growing to get that localized into multiple languages so that we can cater to multinationals but also that we can become a strong local player where we have feet on the ground in places like Germany. Very exciting things going on there. And of course, some great wins. And I'm not surprised to see more of these amazing logos in the collection of wins from the wellness division. So looking at things like Helix or like we announced just last week, E.ON, which is one of the Europe's and one of the top energy providers in the world. So much more to come on that front. Hopefully we can talk about it because a lot of these companies, they see it as a competitive advantage to use Champion Health in their day to day. But I will tell you more about that as we can. Right, just looking at some of the innovation that's been going on in the business in terms of product and content development. So top left there, very, very exciting things happening there on the content side of things. We are looking to diversify our content. We have wishlists from our clients almost on a daily and a weekly basis. And we're always trying to find ways to produce content faster and something that's very important to us as a business that has 14 nationalities on board from all over the world, diversity in the library in terms of the ethnic focus on the cultures and the models and AI is doing some amazing things for us in terms of being able to create content that can have that diversity. And this is something that we're rolling out in the next year In the next couple of quarters, and there's a project that will be with us for a while because we have 17,000 exercises in what is the world's biggest exercise library for clinical exercises in physiotherapy. On the right side there, you see some of the work from the AI lab when it comes to the content library. So just making sure that these metahumans or these very lifelike avatars have all the characteristics of a real human so that it looks as realistic as possible down to tooth work. as we see there with one of our models. We have lovely Alice there, bottom left, and that's, I'm not going to play that clip, but that's a clip of Alice speaking perfect Spanish, lip movements, everything moving in tandem with the content that she's delivering ai is providing us with some amazing opportunities just to just to reach people in the countries where they are in the languages that they speak without without compromising on quality or the the local fit so amazing things happening there bottom right i'll show you a little bit more about that we have an ai co-pilot coming to fizzy track that will revolutionize the way that our customers identify and roll out exercises to their patients. A little bit more about that on the next slide. So I thought I'd just give you a little showcase of what the AI library, the content library will look like with these very human-like avatars. And as you can see, just the quality here, and I'm hoping that this translates at your end as well with the screen sharing, but just the lifelike nature of these the way that the models and textiles and hair and everything is moving. You see this lovely diversity we have in terms of the coaches and the models. And this is really something that will feel very, very nice to roll out to all parts of the world where we have customers. So a lot more to come on that. In terms of the co-pilot, well, the way that you search and identify exercises in the PhysioTrack library and how you find contents in a lot of places in the world is by search. We have algorithmic search in the PhysioTrack platform. Right now, you search for exercises based on keywords or filters, and you select exercises like you would select exercises and sending them to your friends and family or iPhone, where you put them in a basket and then you fire them off to your patient for their rehab. It's a great way and we've revolutionized the way that we do this with our algorithmic search engine and the speed of this. But with our co-pilot, this is going to be even more streamlined. So we'll be able to, using LLM, to have the practitioner just prompt based on conditions and also specific instructions and then generating a program that can then be rolled out very quickly to the patient. And so this, as you can see, is a more modern way. It's a very, very efficient way to get content into the hands of the patient. And this will be have a big impact on how our customers see us, and of course, how we'll be able to be seen as the innovator in the space. So this is super exciting. The team has done a fantastic job on this. So we'll see this in the coming quarter on the platform, and we're testing that internally right now. All right, some exciting development from me, and I'm now going to pass over to Charlotte for the financial results.

Thank you. Thank you very much, Henrik. So starting here with a brief overview of the key financials for the three months ending September 2023. A quick reminder that we've replaced the pro forma revenue growth metric with an organic revenue growth metric. This includes where relevant the impact of acquisitions as the previous one did, but it also takes into account the impact of foreign exchange year on year. In the quarter, we delivered revenue of 3.9 million euros up 14% from 3.4 million euros in the prior year. Year-to-date, on an organic basis, adjusted for the impact of foreign exchange, revenue increased 27%, broadly in line with our medium-term targets. In the quarter, the Physiotrack Group delivered adjusted EBITDA of 1.1 million euros, up 15% from the prior year, and this results in adjusted EBITDA margins of 27%, flat versus the prior year, and up from 25% in Q2. Total EBITDA has increased 16% from the prior period to 0.8 million euros, And operating cash flow has increased 18% to 2.1 million euros. Through to the next slide, onto a closer look at revenue. On the left here, you can see group revenue by quarter. Total revenue in the quarter has grown by 17% year on year on an organic basis. And year to date, organic growth was 27%. On the right-hand side, we can see revenues split by life care and wellness. In life care, growth in the quarter versus the prior year was 12%, driven by growth in user numbers and continued upward price momentum, offset by a fall in one-off build fees for branded apps. In the wellness division, quarter-on-quarter organic revenue growth was 28% against a strong prior year comparator. So the next slide. Moving on to profit. On the left-hand side, we see the prior year figures. Last year's nine-month EBITDA was €1.2 million, with adjusting items of €1.3 million stripped out. Adjusted EBITDA was €2.6 million. In the current year, EBITDA has risen to €2.2 million, an increase of 82%. Within this, there are €0.7 million of non-recurring adjusting items relating to costs associated with the integration of acquisitions and the restructure of Champion of the Nordics, previously Physiotest. With these amounts stripped out, adjusted EBITDA has increased by 14% to €2.9 million. Adjusted EBITDA margins year-to-date have fallen year-on-year, from 29% last year to 26% in the current, due to the shift of the group towards wellness revenues, which currently operate at a lower margin, plus investments into future growth. Quarter-on-quarter, these margins have increased from 25% to 27%. Black from Q3 last year. Over the medium term, we expect these to continue to expand and rebound to our target EBITDA margins of 40 to 45%. On the left here, we have adjusted EBITDA shown by quarter for the prior year and the current year. On the right, we have EBITDA by division. In life care, which is the longest established division, EBITDA margins are at 47%, roughly in line with the prior year. In the wellness division, margins are currently at 6%, compared to 3% in the prior year, as we focus on margin expansion in this division. The grey bar represents group costs, such as board fees, listing fees, and associated advisory fees, which are flat year-on-year due to the cost of indices realised in head office, offset by inflationary increases. Through to the next slide. Now looking at cash. We opened the year with a cash position of 0.6 million euros. Adjusted EBITDA in the period generated 2.9 million euros and was offset by a working capital movement of 0.8 million euros and interest payments of 0.2 million euros. The working capital impact was driven by proportionally less of our contracts being sold on a 12-month cash upfront basis. Intangible assets and fixed asset additions were 2.5 million euros and consisted of development of the life care tech platform and investment into the wellness technology. There were deferred consideration payments in the period of 1.6 million euros and related M&A and integration costs of 0.7 million euros. We do not expect to pay any further deferred consideration in the current year. In July 2022, we entered into a 5 million sterling revolving credit facility for the three-year term. In the year, we drew down 2.9 million of this facility. This leaves the group exiting the quarter with cash of 0.4 million euros, plus remaining undrawn facility of 1.9 million euros, giving total available liquidity of 2.3 million euros. We expect this liquidity to be sufficient for the group's requirements. Go to the next slide. This slide shows the total free cash flow by quarter. Due to spend on M&A and integration costs recognised as adjusting items in the P&L and investments into both the life care and wellness divisions, we've had a net cash burn in recent quarters. As these investments are completed and operating cash improves, we've seen this cash burn decrease. Year on year, the Q3 free cash flow burn has decreased by 67%, from 0.9 million euros to 0.3 million euros. As expected, quarter on quarter, the cash burn has also decreased 50% from 0.6 million euros to 0.3 million euros. And we are on track to reach net cash generation before the end of 2023. So next slide. Onto the group's balance sheet. The first line here includes the internally developed technology platform as well as intangible assets and Goodwill rising on acquisition. The fall versus last year represents the impairment of the physio test Goodwill recognized last quarter. Cash and borrowings, we've already covered, and trade and other receivables have increased in line with the increase in revenue. Deferred revenue is primarily generated by physio tools and Champion Health, who bill upfront for 12-month or longer contracts. Deferred tax arises on the intangible asset balance, recognised on acquisition, and is in winding over the period of the amortisation of these assets. Deferred consideration relates to the Champion Health Plus, formerly Rehab Plus, well now in Champion Health acquisitions. A deferred consideration relating to physio tests has now been released following a signed agreement with former management. And that is all from me. I'll pass you back to Henrik.

Thank you, Charlotte. Right, just revisiting strategy and outlook. So again, top line there, we have a holistic offering and you see that how we have diversified the business into the two business lines, life care, wellness, but within the two divisions, we have diversification in terms of the product lines that we have there. Very, very important to do that because it makes us into a more robust and it makes it into an all weather type product, but we find a true market, a product market fit with this. providers today, patients today, employees today, they don't want five, six places to go when they want to solve problems. They want just a couple of places to go. We uniquely put a lot of things into one holistic solution per division, which is exactly what consumers need today. So it's a great product market fit there. And a middle one there is We are supported by the macro environment. It is a difficult place to be right now with high inflation and stress and everything that's going on in the world. But what we do is very much supported by that. And second point there, obviously, profitable growth is part of our DNA. Note, we are clocking in at almost 50% EBITDA margin on the livecast side of things. So we have it in our DNA to make sure that We have a business that is sustainable and as robust and as cash flow generative. It's exactly what we do. And the bottom there, I already mentioned that the balanced portfolio, the all-weather nature of the product on both sides of the business, super important for us and something that makes our value proposition absolutely unique. All right. So just reiterating our financial goals. So we are in a mode where we are not acquiring businesses. And you can see that despite that, despite having the ability to accelerate organically with new leaders coming into the business with great opportunities locally, we are clocking in at our medium term goals. And We are, as you can see, expanding margins and the financial goals, they stay in place and we feel that this is going to be a really, really nicely cash creative business in the coming quarters and with us passing into cash flow positive territory in the next quarter. So exciting times to be part of Physiotrack and exciting times to speak to you. And now we are going to open up for some Q&A and let's just see what's come in here in the Q&A section. Yeah. First one, how realistic are your long-term goals in light of today's results, in particular with regards to long-term growth, 30%? Well, the goals are medium-term. The goals were set in and around the IPO. We have consistently met or surpassed those goals on the top-line growth side of things in the environment that we are. We were even getting to that place without M&A boosting us in terms of organic growth and new markets. When it comes to the longer term outlook, I'd say as we get more mature as a business, we're probably more likely to set goals based on a yearly outlook. And just to be a little bit tight on that, we had the medium term, which is a three to four year outlook. And as the size of the business grows, the maturity of it grows, it might be time for us just to take a look at that and see how we do that, but we have no reason to believe that our medium-term goals are going to be missed in any way going forward. I hope that's a good answer. We have Jessica from Red Eye asking us, could you provide more details on the financial impact of the Helix and Eon agreements in Q4, 23 and for 2024? And are there expectations for additional enterprise contracts in the wellness division throughout the remainder of this year? Well, we can answer the second part of that question. Yes, very much so. There are additional enterprise contracts in the wellness division, as I alluded to, in my intro there, it is hard to get our enterprise customers to speak openly about what they do with some of these tools. They're seen as a competitive advantage. It's not something that a lot of them want to talk about too much. We saw the EU press release was very simple, quite redacted, because it is sensitive information for a lot of them. So we keep closing enterprise deals every month in Champion Health. And so there are more of them coming, obviously, perhaps not with the ability to talk about them at all times, but we'll do our best with that. Financial impact of Helix and E.ON agreements. We saw the impact of E.ON in Q3 a little bit in terms of setup costs. We will be seeing the impact of E.ON over the next few years because it's a multi-year engagement and it's something that's accrued over the life of the contract, which is a multi-year contract. Helix, we saw the effect on that in Q3, but it also occurred because it's a subscription situation. But the distribution capabilities of Helix and the way that we can reach their customer base across Europe and in the US, that's something that's going to provide for very interesting growth over the next few years as we have that long-term agreement with them, which is great. Second question. While you made it clear in the previous report that there are no plans to raise additional capital or debt this year, how about in 2024? No, we don't have any plans to raise in capital, issue any shares or take on a new debt. Now, we have a revolving credit facility that renews early 2025. And so obviously we'll be renewing that later. We'll see what the cash flow generation situation is and let's just see what we need net-net, no plans for anything new unless we open up the M&A program. Very important to point out that M&A is an interesting side of things. You can see that some of the amazing organic growth that we have had, especially in the wellness division, has been based on M&A. And if there is an opening for us to work with finance partners and to work on some of the great targets that we keep seeing in the space, we will be doing that. But we won't be raising anything for organic expenses. Do you anticipate that the cash flows and available liquidity will be sufficient to cover the expected earnouts? Yes, we do. What is the margin of safety concerning the covenants associated with the revolving credit facility? Well, Charlotte can obviously, I'll let her answer that. But in everything that we do, because I believe you only have one shot at building a business like this. So whenever we do things, we do it with braces and belts. And we are really, really focused on having a margin of safety with everything we do. So more specifically on covenants, I'll pass that over to Charlotte.