Physitrack PLC

Hello and welcome to Physitrack's Q4 2023 results webcast. In case you didn't read the caption down below, I'm Henrik Moland, I'm the CEO and co-founder, and I'm joined by probably the best CFO in the digital health space, Charlotte Goodwin. We have a little program for you today that we'll walk through, and it will be exciting to talk about Q4 in short, followed by business updates for the two divisions. We will look through the financial results with a deep dive from Charlotte, and we'll look at the strategy and outlook, and then we'll open up for Q&A. You can use the Q&A function at the bottom of your screen. I am just going to make sure that I have the right settings for my screen share here so that we don't have a graphics problem along the line. So here we go. Q4 in short, looking at the numbers here, 22% full year organic revenue growth. We had a really nice turn into cash flow positivity the first time since the IPO that we're in that territory. It's coming back to basics for us. There's a bootstrap business, which is really nice to see part of the plan and a 26% growth in adjusted EBITDA and lands at 3.9 million. Now, as we said, cashflow positivity, big thing when you do these things, when you invest for growth mainly, and at some point you have to pivot and you have to invest for growth and profitability, it takes some time to see the results of that. And I'm really, really pleased that what we communicated throughout the year of 2023 has really come into place. Hasn't been an easy journey for the whole company and for all the teams, but it's a relief that we are there and we're on a nice trajectory to maintain the cash flow positivity as a whole for 2024. Some exciting things, and I'll talk a little bit more about the people side of things. So the business, innovation, tools, a lot of exciting things that have happened in 2023, especially in the last few months. We have rebooted our digital marketing efforts. We have some really, really strong hands there at the helm. Same thing with product. I came in at the end of the fourth quarter, and this is really paving the way of some really exciting things that we've been working on for a while with the normal organic people driven stuff, but also with the use of some amazing tools that were not at our disposal when we started up 2023. And as an effect, we're already seeing signs that a lot of the things we do are working. We have started 2024 with some of the strongest ecosystem growth numbers since probably the pandemic. And it's very, very quick to pivot the business if you're in tech with the help of tools that can actually 10x humans in terms of their capabilities. So very, very happy about that. I'll talk a little bit more about that in the people section, but also the main points here. have a little look at the business lines we are as you know a two division company on the left side there life care which puts tools into the hands of healthcare providers around the world in 15 languages and on the right side we are a occupational wellness platform that puts tools in the hands of employers so they can make their employees feel better happier more productive and you see the split there in the middle In terms of life care, then first, we've had some really nice moves. And as I said in the introduction, some of the tools, some innovation, some of the things that we do was just not possible at the start of 2024. It's the advent of AI, the advent of some really, really fantastic tools that are making it possible for us to change a lot of the ways that we work, of course, but notably how we serve our customers. The world of tech has changed forever, and the way that our customers are using our solutions, the speed at which that needs to happen, and the way that they need to be supported by AI in a lot of ways to be faster and more productive, just like our business. That's changed forever. And I'm really, really pleased that we were very early on the ball there with our AI co-pilot, which we saw a little sample of at the end of last quarter. And this is really going to pave the way for some amazing things in B2B. and perhaps down the line b2c for the first time it is possible to do things that have the potential to accelerate growth without actually investing relatively speaking too much resources and people around that because just the tech that's coming out now is just really amazing Now, we are seeing that in the user base. So we're seeing some movements in the user base on the right side. This is very much a trend that started at some point, I'd say in Q3, Q4, and it's continued into 2024. And this is very, very nice to see in terms of that user base. People trust us to provide innovation. People trust us to put tools into their hands that they can be seen as innovators with. And I'm really pleased with what's been happening with engineering and product and the way they've been able to communicate that with marketing. So this has been really, really important. As you can see there in the bottom bullet point, we've reached 90,000 record site visits in December of 2023. And we're seeing between December and January actually an increase of about 40% since December. so things move and they can move really fast and of course we are not strangers to that because we sat through the pandemic and we saw our business grow two and a half times in just a space of six weeks so we have the right tools into the hands of the right customers at the right time things can move fast now if our customers can find value from that you will also see that the stickiness in the user base will be quite significant and a nice example of that is the churn that has now come down to 1% rolling 12 month average. So that's a decrease of 0.2%. So our customer base trusts us to be the innovators that they need to make a difference in the lives of their patients or the life of these other things. Very, very nice to see. On the wellness side of things, if you look at the year-to-date revenue, 41% growth for 2023 on the top right side of things. You see the collection of brands there is growing very, very nicely. Some of these brands, they allow us to communicate that to becoming customers. Some of them don't. We wish we could communicate about everybody so that the world can see just how great the Champion Health team is doing. As well, the Champion Health Plus team, who have actually, you see that bottom bullet point, they've now reached 70,000 appointments with an MPS of 86. as an annual average. These are some astounding effects that are happening with these businesses. notable first point that we haven't acquired a business in 18 months and we still managed to have this acceleration this innovation with those leaders that are in place which is i think quite unique and don't forget that the acquisition strategy feeds into the overall growth strategy so even without additional acquisitions acquiring boots on the ground new teams new innovation is still driving the numbers in a very very nice way Now we had a really strong quarter for Champion Health with some of those deals coming out on the ticker and notably also Champion Health Nordic, which if you do the maths have more or less doubled since in terms of the top line revenue run rate since the departure of the previous management team in February of 2023. So some really impressive things going on. What to come there? The big thing that we see as a growth driver for Champion Health is obviously the localization. And we have some strong hands on the ground. Boats on the ground as well in the Nordics and in Germany. And they can't wait to get their hands on this technology. We're moving the needle on that. But as you've seen, technology changes almost from a day to day. And I'm actually very happy that we didn't start the localization work too early because we would have missed out on using new tools that have done this job much cheaper and faster and easier. But I'm happy to say that the work is going on really, really nice and fast. And we'll see some of these new things happening in the next few weeks and months. Now, something that's noteworthy is that these companies that came into our portfolio, BARD1, Physiotest, they came in with extremely strong acceleration. They all posted returns of 2x, 3x, 4x in a short period of time. it was the time to reboot their efforts. It was a time to look at their product portfolio. It was a time to look at them laser focusing on more profitable growth opportunities. And that's why you have seen a bit of a slowdown in the pace, which we see is temporary. So we remain extremely positive about the potential for this division, the tools, the people, and what we'll be able to achieve with these guys going forward. It was a big investment for us, and we are relentlessly pushing ahead and knowing that we've done exactly the right thing with those teams and those products. That was the wellness side of things. Now, something to illustrate what's been going on with us, and those of you who have kept track of the company, you've seen quite a lot of job ads over the last few months. And that's a natural part of the reboots that we've done in product, in marketing, to a certain extent as well on the sales side of things. The size of the business now requires slightly different talent than what we required, say, 18 months or 24 months ago. And it's quite natural for us to reshuffle and also to get new talent on board, new amazing people that can work with the latest and the greatest tools that are out there and that probably didn't exist 18 to 24 months ago to set up renewed acceleration. So it's very, very nice and comforting to see this. We saw really nice effects on the product side, the marketing side, and we will be seeing that as well in terms of the sales side, notably in wellness as those recruitments come to a close. The Canada side of things, it's absolutely amazing. I'm saying this coming from a perspective that for a long time, it was hard to find people that were willing to to throw the hat in the ring and to join a smaller company in a space that's new and perhaps unpredictable. So for a long time, we really had to make do with great people were great people that we had to train to be the experts in the domain. Now, the things are very different. We're able to recruit some of the best of the best in their industries from some fantastic companies. And they come in with really stiff competition with other people that are looking to get the same job. But something happened to us as we passed sort of the 15 million run rate mark with the attractiveness of this business and the way that it's seen as a safe, place to be where you also can accelerate your career, where you can work with some amazing people and use some amazing tools. And because of that, as of the mid-February, we had over 1,000 applicants for the few roles that we advertised. We actually have to use AI at our end, which has really, really accelerated things in the way that we can attract, that we can sort through all of these applications, that we get all these wonderful CVs. And this has been a real game changer for us in terms of how we're able to populate the business with some really, really nice people. so thanks to ai cloud tools a completely new strategy for people which jack goodwin put into place after he started in in april of 2003 has really changed the game for us and this is what's going to continue to drive growth to the numbers that we have seen prior to this year. And with these investments and the way that we have set ourselves up, I'm more than confident that we'll be able to reach our financial goals in the medium term as stated. All right, so with that, let me pass over to Charlotte for a look at the financial results. Over to you.

Thank you very much, Henrik. So we'll start here with a brief overview of the key financials for the three months ending December 2023. In the quarter, we delivered revenue of €3.8 million, which was up 11% on an organic basis from €3.5 million in the prior year. Year-to-date on an organic basis, adjusted for the impact of foreign exchange, revenues increased 22%. This is below our medium-term target of 30%. As in the second half of 2023, we've been focused on cash and margin expansion and have been more selective about the contracts we've entered, ensuring that they have favourable margin and working capital dynamics. Over time, we remain confident that the 30% growth target is achievable. In the quarter, the Physytrap Group delivered adjusted EBITDA of €1 million, up 12% from the prior year, and this results in adjusted EBITDA margins of 26%, up from 25% in the prior year. Total EBITDA has increased 270% from the prior period to €4.8 million, driven by the revaluation of deferred consideration. Operating cash flow has increased 82% to €2.6 million, reflecting our focus on cash generation. Through to the next slide. Now onto a closer look at revenue. On the left here, you can see group revenue by quarter on both an absolute and organic basis. Across the whole group for 2023, revenue has grown by 22% on an organic basis. On the right hand side, we can see revenue split by life care and wellness. In life care, growth in the year versus the prior was 13%, driven by growth in the ecosystem and continued up with price momentum, offset by a fall in one-off build fees for branded apps. In the virtual wellness division, annual organic revenue growth was 44%. Moving to profit, on the left here we see the prior figures. Last year's EBITDA was €2.5 million, with adjusting items of €0.9 million stripped out, adjusted EBITDA was €3.4 million. In the current year, EBITDA has risen to €7.1 million, an increase of 178%. Within this, there's a net credit of €3.2 million of non-recurring adjusting items relating to revaluations of deferred consideration, offset by costs associated with the integration of acquisitions and the restructure of Champion Health Nordics' previously physio tested as well as an impairment to the goodwill of physio test. With these amounts stripped out, adjusted EBITDA has increased by 13% to €3.9 million. Adjusted EBITDA margins have fallen slightly year-on-year, from 28% last year to 26% in the current year, year-to-date, due to the shift of the group towards wellness revenues, which currently operate at a lower margin than the life care division, plus investments into future growth. In Q4, these margins have increased year-on-year from 25% to 26% as the wellness margins start to expand. Over the medium term, we expect these to continue to expand and rebound to our target EBITDA margins of 40% to 45%. Here's the next slide. 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 divisions. In life care, which is the longest established division, EBITDA margins are at 46%, down from 49% in the prior year as we've seen a drop-off in one-off build fee revenue and made investments into this division. In the wellness division, margins are currently at 7% compared to 2% in the prior year as we've focused 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 cost efficiencies realised in head office offset by inflationary increases. Now through to the next slide. Looking at cash, we opened the year with a cash position of 0.6 million euros. Adjusted EBITDA in the year generated 3.9 million euros and was offset by a working capital movement of 0.4 million euros and interest payments of 0.3 million euros. Intangible assets and fixed asset additions were 3.4 million euros and consisted of development of the life care tech platform and investments into the wellness ecosystem. There were deferred consideration payments in the period of 1.6 million euros and related M&A and integration costs of 0.8 million euros. In July 2022, we entered into a 5 million sterling revolving credit facility with a three-year term. In the year, we drew down 2.6 million of this facility. This leaves the group exiting the quarter with cash of 0.5 million euros, plus remaining undrawn facility of 1.9 million euros, giving total available liquidity of 2.4 million euros. We expect this liquidity to be sufficient for the group's requirements going forward. Here's the next slide. This slide shows the free cash flow by quarter. Due to spend on M&A and integration costs, recognises 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. This cash burn has been steadily decreasing, and we're pleased to announce that in line with our plans, in Q4, we had free cash flow generation of 0.3 million euros. Although there will be some seasonal variations, overall we expect 2024 to be free cash flow positive. Go to the next slide. And demonstrated here, the cash flow Free cash flow burned increasing drastically in 2023 and our expected cash flow positivity in 2024. And through to the next slide. Now moving through to the group's balance sheet. The first line here includes the internally developed technology platform, as well as intangible assets and goodwill arising on acquisition. The four year on year represents the impairment of the physio test, goodwill and movements in foreign exchange. Cash and borrowings we've covered. Trade and other receivables have increased in line with the increase in revenue and this is partially offset by an increase in deferred revenue. Deferred tax arises on the intangible asset balances recognised on acquisitions and is unwinding over the period of the amortisation of these assets. Deferred consideration is dropped year on year, both through payments being made and a re-evaluation at year end, reflective of the current expectations of the timings of when certain revenue and profit targets will be met. That's all from me, so I'll pass you back to Henrik now. Thank you.

Thank you, Charlotte. We are swiftly coming to an end. Just wanted to reiterate that we have a unique value proposition, the holistic offering powered by top of the line tech. And if you saw the Q3 results webcast, you saw showcases of the latest and greatest, quite unique things that we rolled out in line with catering to the need for our customers to innovate. very very important that we do that and not stick to our old guns whatever we knew a year ago or two years ago is not really relevant to today's climate it's really really important that we stay on our toes and we look ahead to see what's going to be out there what are the trends that we can capture and i think we did that extremely well with a co-pilot that rolled out in the uk market just a couple of weeks ago with great results originally Now, we are well positioned to capitalize on growth drivers. The macro environment is supporting us. Of course, profitable growth is part of our DNA, and we've demonstrated that that is something that we're highly capable of, even if the business has grown more than 2x since the IPO. And I'm so happy to see that we're back to basics there. A robust business model, and this is something that is important. There have been some really terrible things happening to companies around the world, lots of layoffs, lots of problematic situations with funding and other factors that make it really hard to be an entrepreneur. Not so much for us. We are really, really good at running a sustainable business with great people, with great tech, with products that are really suited regardless of what the market climate is around us for normal corporates. How it all comes together, you know a lot of these things, but on the right-hand side there, we want to reiterate that our growth target in the medium term is 30%. We have no plans to change that. We have really capable people, technology, and great customers that will make it possible. So even if you see plumps that you saw in terms of you know hitting 22 instead of 30 that is something that's relatively normal as you invest in a business especially in a world that's moving fast in terms of technology but rest assured we are not going to adjust that Target anytime soon because it's very very much durable to be up there and that's what a great business should do and we are a great business Happy to take questions. And we actually had a couple of questions that came in before the actual call. So I'll do that person a favor and I will tell you what that was. So the first question was around the ecosystem. So you saw the strong growth in the life care ecosystem. And this person wanted to know if this is something that was temporary or a one-off effect. Have efforts been made to increase sales of new licenses? And will the trend continue? And I can happily say, looking at data from Jan and Feb, the question is, The answer to that question is, will it continue is a resounding yes. And so a typical example here of movements that we can see when you are known as the innovator with a co-pilot, for example, people trust us with their own innovation. And that's key for making sure that you have sustainable ecosystem growth. So very much not a one freak pony. or a flash in the pan as they say. Second question, do you see any likelihood of previous sellers or other key personnel leaving or being demotivated as the earner has been written down substantially? So that's a very good question. People, as you've seen, is really what makes this company great. And we have now uniquely access to some really, really fantastic people. We have people in-house and on our teams. We have the founders that came in through the acquisitions. And as you saw, with over 1,100 applicants to just a handful of roles over the last few weeks, There is no shortage of very, very clever people coming in. The latter serves as a risk mitigator in a scenario where you have key levers. So if people are feeling the heat and that they don't want to be on that innovation bandwagon, or they don't feel that they have the energy to continue with us on the sales side, that can be a tough job. We are confident that we have alternatives for that, which is really, really nice to see. But it's a natural effect of it. And we appreciate that not everybody can be a lifer in terms of their participation in a business. From time to time, it can be pretty tough with all this change and innovation. but happy to say that we do our very, very best to train and to make sure we inspire our people to stay with us and to innovate. But in the event that they sadly will leave, then we have alternatives as you saw. And that also goes for the founders of the businesses that we have acquired. Great, great people, great innovators, great entrepreneurs that build businesses that very impressively accelerated 2, 3, 4X as they came in. Let's not forget about those journeys that have been really, really amazing. And they have the firepower to continue that with the new setup that they have in terms of making sure that the growth has profitable growth. Now, in the event that they would like to move on following their earnouts, coming to an end which they will come to an end for for all of those entrepreneurs within three or four years of the acquisitions well there are alternatives there are some really really strong people in-house and that are coming to us on a recruitment basis that that can just pick up from from where they left off so a good position there we feel now let's uh pick up a couple of questions here that came from the audience here A comment on the trend we have seen in wellness over the last couple of quarters. Pretty much flat on an absolute basis since Q4 2022. A wellness champion reached a plateau already. How will you get back to plus 30%? That's a nice observation. And as I was mentioning, it takes... time and effort to retrain a sales team or to retrain an organization to prioritize profitable growth. So in a growth at any price scenario, you can just pick and choose your opportunities. And we started saying no to that already eight or nine months ago when we said it doesn't make sense for us to have deals in the pipeline that are cash flow heavy in terms of having to front load them with cash and waiting for up to a year to get paid for them for example which is the case with some wellness with some some wellness opportunities that we turn down so there's a there's a there's some feeding pains that we see but it's got absolutely nothing to do with the product market fit it's got nothing to do with the attractiveness of those products and the the greatness of those organizations we um we actually don't think it's plateau And we will get back to where we need to with some new initiatives that we have seen on, well, there's a new version of Champion Health, for example, that we gave you a little preview of in the last quarterly report, for example. have a look at the ticker from from time to time when we're allowed to announce things it's very very much not a plateau i think it's just the end of the beginning where the beginning was higher growth at any price and the end of that was being our pivoting that to saying that profitable growth only please and you will see a return to that anytime soon okay can you elaborate on plans to invest in intangibles the staff platform over the next couple of years And what is a normalized level? 2023 was a decrease of 1 million from 2022 levels. Should we expect this trend to continue back to 2021 levels? Before Charlotte jumps in, let me just say this. The way... that the set of tools and the innovation that you have at your disposal for doing your job on the product side, on the engineering side, means that the investment pattern that you have in 10 goals is completely different today from what it was just six months ago or 12 months ago, 18 months ago. Now, the same person with the right tools can do the job of 3, 4, 5, 10 people, depending on what the role is, just because you use some of this amazing innovation that's out there. So from that perspective, we don't need additional spend in people and tools if we have the right set of tools to take us on that journey. We're leveraging off of innovation. We're making sure that the cost base is maintained stable. We're making sure that the same amount of people can do more work, more efficient IT work with all these amazing tools that were not in place in 2021. So there's no reason to look back in the rear view mirror and think that the investment patterns that we had to have back then to accelerate the technology innovation would be the same going forward, just because the world has shifted so much. So that's just my comment on that from a more workflow perspective. So over to Charlotte.