Physitrack PLC

Good afternoon, everyone. And should I say, willkommen, bienvenue, welcome to PhysioTrack's Q3 2024 results webcast. I'm Henrik Molin, the CEO and co-founder of the PhysioTrack group. And I'm here with our immensely talented CFO, Charlie Corwin. Today, we're going to walk you through the highlights of the third quarter. We're going to touch on the key business updates from the two divisions. We'll discuss the details of our financial performance with Charlotte guiding us through the financial jungle as usual in depth and we will take a little outlook for the quarters ahead. Afterwards, we're going to revisit our strategy and give you a clear view of our focus areas as we approach year end. Following these updates, we open up the sessions for Q&A. So to ask questions, please use the chat function located at the bottom of your Zoom screen. So with that, let's dive in and get started. So to give you an overview of the group for the quarter as it stands, We're continuing to see contrasting performances in life care wellness. For the quarter, we recorded a negative cash flow of 400,000 euros operating at a loss of 200,000 euros on a group level. Our wellness segment, specifically Champion Health, the software provider, has been the primary contributor to this cash flow shortfall with sales not reaching the levels that we had anticipated for the quarter. I'll go into more details on this shortly, but let's start with a high level summary. So on a positive note, our subscription revenue has shown strong growth. It's up 19% compared to the same period in 2023. So this aligns well with our strategic focus on establishing repeatable high margin sticky revenue streams. As a result, subscriptions now account for 82% of our revenue in Q3 2024, a significant increase from 72% in Q3 2023. However, we are feeling the impact of delays in Champion Health's rollout in the international markets and the need for a stronger product that consistently delivers on user KPIs so that we can grow existing customers and close new ones faster is in the works because it's needed, as you can see in the numbers. Turning to the business updates, you can see the relative growth tilt between the two divisions here. 65% life care, where we put tools into the hands of healthcare providers around the world. 35% is Champion Health, where we put tools into the hands of employers around the world. In terms of life care, revenue generation from product-led growth has reached historic highs. This quarter's numbers are among our best ever for the Physitrack ecosystem, with September marking our third highest revenue month for product-led growth in Physitrack on record. So this success reflects the investments that we made in December 2023 in a new marketing team, in new tools and new methodologies for doing this. Last time we worked on this, was in 2014, 2015, and it was in the need for a little bit of an update. More on this a little bit later. There is a substantial upside in this product line, and we're really well positioned to build on this with the amazing team that we have in place. We've also intensified efforts in enterprise sales under our new head of sales, Henry Gilas, who started in the group in May. So this has already generated some significant opportunities, including a noteworthy contract with Alaris, which has received considerable press. Seeing this progress in enterprise sales over the last few months is really encouraging, and it underscores the systematic work we do to elevate both marketing and sales to new heights. On the product side, development is progressing really well. We're now operating under a product operating model where decisions are made on the back of data and customer feedback rather than intuition and top-down instructions from leaders. which is more common for startup type of environment. Our head of product, Patricia's leadership in reshaping our methodology, our communication and our tools has been remarkable. And I'm confident that we'll see continued progress over the next few quarters as we roll out features that will enhance the subscriber experience for patients. So that's the ultimate priority in building a sustainable ecosystem. Moving to wellness. So while we have faced challenges, there are some promising signs in Champion Health for the software and in other parts of the division. We are expecting a strong close to the quarter for Champion Health Plus. It's a care provider arm. And that's driven by cross-selling opportunities to the Champion Health software customers that need online and hands-on MSK services in complement to what they do with just the platform. Notably, and announced this morning, we recently closed our first contract for Nexa by AI-powered MSK tool. And we are integrating that into a major insurers platform. Jan-Willem Wasmann, wellness program so this contract is valid at 50,000 pounds involves about 1200 referrals and it really reinforces that this innovation and momentum in this wellness division beyond just the champion of software which supports a broader turnaround strategy for the division. Jan-Willem Wasmann, Now. I'd like to highlight an example of our marketing team's impact and on the back of these really strong ecosystem numbers for the quarter. So on the right hand side of the slide, you see three cell funnels and they describe the situation that we have for customers coming to our webpage, the journey that they go through in the conversion work that we do with automated tools and then eventually what the final conversion is. So what you can see here is that the October numbers have very significantly higher conversion numbers for just one month compared to the whole quarter as a whole in Q3. You can also see how this is developing very, very nicely for November as well. So we see a continuation, and we see a lot, a lot of great things coming out of the fantastic work that Michael Day, the head of marketing, has done with his team with reshaping the way that we do these things. Now, note for November, we have a 14-day free trial period, and the first conversions from November are still a few days away. But all in all, this data is a really strong indicator that our user engagement and conversion efforts are gaining real traction, and this achievement again, stems from a thorough overhaul of the self-signup methodology that we originally created in 2014, 2015. We've modernized the entire approach and we're exploring enhancements like a new paywall structure and additional payment options just to boost this further. So as we continue to push new product-led growth initiatives in wellness as well, We initiated those earlier this quarter. We will be applying this refined methodology to support that growth. And so it's an exciting trajectory. And I believe that the revenue potential from these efforts will be considerable. So that covers the key aspects of performance and capability for this quarter. Over to Charlotte for the financial update.

Thank you very much, Henrik. So here you'll see an overview of the key financial highlights for the nine months ending September 2024. In the nine months, we delivered a revenue of 12 million, up 5% from 11.3 million in the prior year. Within this, 9.8 million or 62% was subscription revenue, which is up from 8.2 million in the prior year, an increase of 19%. We're pleased to see this strong increase in our core subscription high margin revenue. For the nine months, adjusted EBITDA was 2.9 million in line with the prior year. This resulted in an adjusted EBITDA margin of 24%, compared to 26% in the prior year. EBITDA was 2.5 million, up 10%, and the 2.3 million in the prior year, as adjusting items fall away. The six months operating cash flow for the year was 1.9 million, up 28% from 1.4 million in the prior year. Moving to the next slide, we take a closer look at revenue. Nope.

And we lost Charlotte there temporarily. While she gets going, I can continue to speak here. And what you can see, it's a strong pattern of maintaining revenue growth. We are in a bit of a flatline situation, quarter on quarter. But you can see that historically, we have a tendency to outperform as... as our product lines mature. Let's just see what happened there to Charlotte. Hopefully it's not a power outage where she was because then we'll lose her indefinitely for this call. One second. All right, what I'll do is while we wait for Charlotte, I'm gonna skip ahead to the Just the end of this piece, just to revisit the value proposition. So our offering is holistic. Everything that users need is in one place. So it's just like when you buy a car, you want to buy the whole car at one dealership and not the steering wheel in one place, the seats in another place and the gear shifts somewhere else. So that's how we think around the platforms. We're really well positioned in the current macro environment with a balanced and diversified portfolio. And a product is designed to perform well regardless of market conditions. It's robust and it's all weather and nature. So if you give us some time, we'll prove that with Champion Health as well. And hopefully we can keep opening this webcast with some more Broadway show tunes. Now, we seem to have some challenges with Charlotte coming back into this webinar. So what we will do is I will open up for Q&A. But looking ahead, our financial goals are really clear. We are doubling the company in the medium term. We are achieving strong profit margins over time as well. And we... plan to become a highly cash alternative business over time as well. So that wraps up the presentation here. with Charlotte on the sidelines, let me just go to the Q&A. So we'll see. Could be that there's a power outage where she is, and so that's why she can't dial back in. First question here, how much does Alaris impact the Q3 report? It's a minor impact on the Q3 report. There was some upfront revenue there in terms of the... Modifications that they needed to the platform to fit into their, they have an EMR solution that they roll up across a number of hospitals. And we are the go-to solution inside of that EMR. And so as Alaris grows, we grow as well with them. So I think there are three or four hospitals that took this on as a start. But there's an upfront revenue component of that because we do some of the modifications that they need for it. The impact of that is on an ARR basis, so recurring revenue that's then spread over the life of the contract. So it's a three-year contract and we get that monthly revenue booked every single month when we have, when this, when, We have subscription revenue coming in. So it's monthly revenue. So we'll see that for the foreseeable future. It's very nice. And of course, I think Alaris, given the size and scope and what their plans are for their hospital system, I think Alaris has a shot at becoming one of our biggest customers. So at least the top five. What is causing wellness to stagnate sideways? Does the product need to improve? I'll start at the end there. I think a product always needs to improve with the changing needs of a user base. So in terms of the needs and the preferences of users in the world where technology changes almost on a daily basis, and here's Charlotte, when technology changes on an almost daily basis, it's very, very important to be in tune with your customers and make sure that you adjust your product accordingly. So if you have a product operating model that we have in place for PhysiTrack, then this is something that's done systematically in terms of our always modifying and always working on a product. So there's always an underlying need from that, and that's something that systematically is in place. Now, in terms of the causes of this, you see a domino effect in a software as a service business when you have software delays. you can only really in earnest stop commercial work in a software business as a product is launched. And where we are, we operate somewhere between say three and 18 months in terms of our sales cycles. And given we have really big customers, especially in Germany, that means that we're probably towards the later end of that. So if you do the maths, if you have a one-year delay, that means that revenue coming into the books is going to be somewhere between three and 18 months. And probably in the worst case scenario, you're going to be at the longer end of that. Now, what I'm happy to say that there's been a lot of traction with Champion on the Swedish side of things where customers are a little bit smaller, so shorter sales cycles. And there's a lot of work that was done early on in sort of on the prototype stage in Sweden. So that's progressing quite nicely. where we are on Germany is that we are launching a pilot. I think we have nine customers that are targeted for that. And over time, we will see that those will, like in Sweden, come into sales processes as well. But again, it is a domino effect. And if you have a one-year delay, well, that means that your time to revenue gets delayed as well. that is what's going on right charlotte uh we are going to go back to your part of the presentation here which uh which uh started with the maintaining revenue growth piece if you could turn your camera on and uh can yes apologies for my side i'm having some connection issues here i've got the camera off to see if that helps um and if it goes well i hope i can get the camera

back on but I was struggling a bit hearing you with my camera on so I carry on like this for now and here we see the revenue growth and group revenues increased one percent year on year in the quarter this growth was driven by a seven percent increase in life care offset by a contraction in the wellness division of nine percent where we've seen a decline in our one-off revenues and the impact of the delay of the champion health product being available in other languages in the next slide We see here the details of our subscription revenue growth. In 2024 and in the back half of 2023, all of this growth is organic. We're pleased to see that this growth is in line with our medium term targets and demonstrates that our core subscription products are growing more quickly than our headline revenue numbers. Through to the next slide, looking at adjusted EBITDA, we've delivered 2.9 million in the year to date. Within this, Life Care continues to deliver strong EBITDA margins of 47%. However, wellness margins have dropped from 6% to 2%, reflecting the decrease in revenue this quarter. Group costs have increased due to inflation. Moving to the next slide on cash flow. In the period, we delivered adjusted EBITDA of 3 million, and this was offset by 0.7 million working capital movements and 0.3 million interest expenses. Intangible assets incurred a cash outlay of 2.7 million in the period, as well as 0.4 million of adjusting items. This has led us to draw down 1.1 million on our revolving credit facility, leaving us exiting the period with 5 million euros in cash. We have 0.8 million euros of undrawn available facility, resulting in 1.3 million of available liquidity. We expect this liquidity to be sufficient for our needs growing forward and don't expect to raise capital. Through to the next slide. Following the two consecutive quarters of net free cash flow positivity, we experienced a free cash flow burn in Q2 and Q3 of 2024. This is due to seasonal variations in working capital, as well as the lows than expected sales in the wellness division. Additionally, we've been investing in the group to take advantage of the many opportunities to improve our products and secure future growth. We expect to exit 2024 with a cash flow neutral cash run rate. Now through to the balance sheet. Goodwill intangibles and PPE of £34 million represent both our internally catalysed intangibles and the goodwill recognised on acquisitions. Cash and borrowings, we've discussed already. In trade and other receivables, we see a decrease driven by strong collections in the quarter. This has been offset in the cash flow by a fall in trade and other payables as a number of large payments were also made in the quarter. Deferred revenue is incurred mainly in champion health and physio tools. And that deferred tax arises on the intangibles recognized on acquisitions, and it's unwinding as these intangibles are amortized. Deferred consideration relates to the Champion Health and WellNow acquisitions. That's all from now, so that's all for me for now, and I'll pass you back to Henrik for strategy and outlook, and apologies again.

We skipped ahead, Charlotte, because the show must go on even with the best C4 in the digital space. Right, we can continue here with the Q&A. Let me pick that up again. Right. What is preventing you from entering the US wellness market as expected? I don't think there's anything preventing us from entering the US market. We have dabbled with that a little bit through the partnership with Helix, but I think it's very clear that in order to do this properly, we need to have more boots on the ground. it's not an investment that we're really willing to make to a greater extent right now, because, uh, uh, it'd be foolish to burn off even more cash. And, uh, while we roll out in the Nordics and in Germany, but the U S wellness market is extremely interesting. And I think we have all the chance in the world to do something interesting there when the time is right for that, but it will take some investment and, uh, Again, this is not something that we are planning on doing now. A few questions here. Could you provide some insights on ARR and churn for the quarter? Well, in terms of churn, we are looking at hovering around 1% on an average monthly basis, 12 months looking back. So it is slowly but surely creeping down. We have higher targets than that with the work that we do before this type of segment. So it's a very low cost segment. solution in a lot of ways. And I'm talking about the FizzTrack platform. It's a low-cost solution. It's roughly 20 bucks a month for most of our customers. And so you would expect to have almost B2C type churn with those type of pricing. So where we are is very healthy, but we have ambitions to have that over time. And the recurring revenue, I think we discussed that, but what you have seen is the patent in terms of the subscription revenue becoming the dominant part of our revenue streams. And as Champion Health picks up, then because that's subscription-based as well, you will see that percentage go up even further, which makes it really nice and easy to plan a business. What are our expectations for the Nexa platform? And what revenue impact should we anticipate? Well, you saw we already closed the first deal on Nexa. It's quite a nice, significant one. It's 50,000 pounds. What's interesting there is that the profitability... components of Nexa are very attractive and they're very much in line with what you would expect from a software business rather than a care business. So in a care business, you can be happy with talking in six to 10% of EBITDA margin, but in the context of Nexa with a high level of automation and the fact that you use a partnership network, You actually start clocking in at 30-35% EBITDA margin. So we can see how the use of Nexa and the national network that we have is tilting the profitability profile of Champion Health Plus, which is also obviously affecting the whole division in a positive way. And I'm carefully optimistic that we'll see a dominant tilt to NEXA type revenue. So using the national network, using automation, expect a tilt to happen over the next 12 to 18 months. So we'll phase out more and more the type of low margin investments hands-on revenue that we have, we will reposition a lot of that talented staff into working remotely via the Nexa platform and then using the national network for a lot of this. And that's going to be a really, really nice way to boost EBITDA while still accelerating revenue-wise. Could I elaborate on the progress with the Swedish and German market entries for Champion Health mentioned in the report? So currently we sit between, I think, 12 and 15 proposals out to Swedish companies for Champion Health. There are a lot of multinationals that we are in talks with that have a big chunk of their footprint in markets like the US market. And so it's a nice start to that. We've closed a couple of these deals, small still, but it's significant. There's definitely appetite in the Nordic reading around this And as I mentioned, for Germany, we have eight or nine companies that are on track to pilot the German version of this. And then we will hope for the best in terms of the traction there. But the software is out. You saw that in the lovely clip that the Champion Health team put together for us at the start of this. Are we still planning an earn out payout of 1.1 million in H1 2025? Well, we typically communicate around earn outs and deferred consideration in our Q4 reports, but I can understand on the back of our available liquidity, 1.3 million, Plus, obviously, the cash outflow that we've seen in the last two quarters that there are some people that are concerned about that. What I can say is this is so I'll say two things. Number one, as Charlotte mentioned, we expect to return to a cash flow positive run rate in Q4, which would take care of the operational cash outflow. woes that you might be having. And number two, earnouts, as a reminder, they're based on top line revenue acceleration and profitability. And if these two components are not in place for one of the acquired subsidiaries, there are no earnouts due to the entrepreneurs or the owners that sold their businesses to us. We do, however, not communicate on this on an in-flight basis, meaning we don't communicate this in real time. We communicate that typically in queue form. So, yeah, stay tuned to that. But as Charlotte said, we do not plan to raise any capital for this business in the foreseeable future. Where do you think we will stand a year from now? Hopefully on two feet, playing more short tunes, opening up a nice call with nice acceleration from Champion Health. And as I discussed with you guys earlier, the sales cycles will pick up. They start at the start of a launch of a software and they typically take between three and 18 months. So a year from now, I would expect us to have really nice revenue streams and a continuation of the fantastic development that we had of these subsidiaries as we acquired them. Because remember, these subsidiaries, when we acquired them, they grew three to four times in a relatively short period of time. On a CAGR basis, since the launch of the M&A program, we've clocked in almost 80% growth on these subsidiaries. And so we had to take a break from that type of rocket ship growth because we didn't have the software to plug into these businesses. But once that's back on track again, that growth trajectory should be back. Another question. In today's press release, you wrote, the initial engagement serves as a test at a smaller scale with the potential to scale dramatically based on favorable service delivery outcomes. Yeah, sort of sums up everything that you do for software. You look for signs in the data and then you extrapolate and you plan accordingly. Could you explain how much larger the potential actually is? And this is for Nexa. Can you provide a figure to give an idea of what we're talking about. We don't have a firm forecast for Nexa to share publicly in the markets, but it's something that can, over time, overtake and become a very vast majority of the revenue that we see from Champion Health+. So we can see, as I discussed, the shift in hands-on care revenue at a lower margin to this type of revenue using the national network, which is done at a much higher margin. So yeah, we expect a revenue shift, but I don't have any forecasts to share about that. What is the reason we're not seeing any insider purchases at these levels? So you're referring to the board of directors. I believe that they can speak for themselves, but it's usually the ability for a board to acquire shares, their personal decisions, based on their personal financial circumstances, the available liquidity that they have. I should say that PhysiTrack is not the type of company that pays incredibly high salaries in terms of board participation and other things like that. So there's really not a lot of liquidity to go on. It's not like we pay our board millions to do that, so they can invest substantial parts of it. But we did see Anne-Sophie Danlot acquire shares. She's the chair and she has a plan for that, which is personal to her. Can you elaborate a little bit more on the financing situation? I think we did that, so I think we'll skip that. But should I reiterate that again? We're not raising any capital. There won't be any capital raises that would create dilution or that would keep the governance of this company and put that into jeopardy in any shape or form. We don't need it. We will be cashflow positive by Q4. And then, as I said, with earnouts, stay tuned for Q4. Has the original Champion Health team already received all of its money under its earn-out agreement? And there's the definition of all money under the earn-out agreement is something that's based on top-line revenue growth and is based on profitability. So if a team continues to clock in with top-line revenue growth and profitability, they are owned earn-outs. If they don't, they are not. And typically the deals that we do with our subsidiaries, they're between three and four years. So on the acquisition path. So on a theoretical level, you can have a reacceleration of top line revenue growth and profitability. And in that case, owners can kick in. We do all of these probability estimates at the end of the year. So this is something that comes in into Q4. And so for any adjustments to that, stay tuned to the Q4 report. Will there be additional cap raising requirements in the coming quarters to fund this? No. When can we expect continuously profitable quarters? Hopefully, we have another two quarters of this sort of sideways situation for wellness. But I believe that it's going to come to an end faster than we know it. We see a lot of really nice signs to that. And obviously, as Charlotte said, Q4 is when we return to run rate cash flow, positive cash flow. Are the technologies synergies between the Champion and PhysioTrack teams? Yes. And there's only one engineering team running both of these teams now. So it's a merged effort. We are leveraging off of all the synergies that we have, both in terms of marketing, sales, engineering and product. So it's all one. It's not a uniform tech stack. The Champion Health platform runs on React Native. The Physiotracking platform runs on Ruby on Rails. So you have two efforts, two parallel streams, and obviously you have iOS and Android in the mix as well. But methodology-wise, leadership-wise, it is one team and it's one effort. And there's some great synergies that can be unlocked with that. Will you spend any bigger sums in the coming couple of quarters on software development or in opening markets? The investments that have been made into the teams are the investments that are in place for the foreseeable future. There are no plans to increase the headcounts on that side of things. We might adjust a little bit in terms of products because there's a lot happening on a UI UX front. So you need some more firepower there. But these are typically quite junior positions. I think we have a couple of headcounts out for designers. And we... In terms of opening markets, I'd be surprised if we had any more additions to the local teams for this. But we might beef up the central teams in terms of marketing just to have the local language angle to what we do in terms of our socials, in terms of our marketing efforts, and then also in terms of sales. But there's nothing that's really significant. So there's nothing on the horizon. I think we're very well staffed with some really, really clever people that are doing the right thing. All right, here's a question. You are running thin on available liquidity due to the high capital spend to the cash draining wellness, which is debt financed. Yes, but this is turning around in Q4. Will you take significant cost action restructuring measures to start generating positive cash flow on a sustainable basis? Yes, and these have been taken already. You've seen some changes when I spoke about in terms of merging team efforts and aligning stakeholders. leadership efforts, etc. These are things that have been in place for the last two, three quarters, depending on what the team is. And this is preventing having parallel tracks in terms of spend and investments across the Champion Health and the Physiotrack platform. So that's very much in play. In terms of restructuring measures, we always continuously analyze the state of the different companies inside of both divisions, actually. And it's our job to make sure that there are different type of scenarios in terms of what we can do in realizing the best value possible on an operational level and also on a non-operational level, meaning potential divestments and acquisitions on the flip side of that. So that's always in play. And it's something that's run from a board level and it cascades down to the team. So at any point in time, you can see that we keep very close track of the value of these subsidiaries and what they can potentially be worth in divestment situations. This is not something that we have a concrete action plan on right now, but it's always analysis work done in the background to make sure that we have the best risk reward tilt in place in terms of the value of these subsidiaries. So I hope that's a good answer. Or do you just urge the investors to keep faith in your assumed hockey stick in wellness? Well, we always ask our teams and our stakeholders and our investors to have faith in the drive and the initiatives and values. the incredible energy that we have in reaching our mission and vision, of course. What I can say is that a couple of quarters is a pretty short period of time in the whole scheme of things. And it's a one-year delay that we're talking about with the Champion Health platform. It's not more than that. We can expect sales cycles to accelerate on the basis of actually having launched these products now. So I'd say this is, from a risk assessment, from our point of view, we don't do hope, wishing, and praying. We're very data-led. We're very structured. We're very analytical when it comes to what we do with the utilization of cash available liquidity vis-a-vis what we expect in terms of the revenue acceleration with profitability. So there's very much a plan in place to... Jan-Willem Wasmann, accelerate this and to have high margin revenue lift the division up, which we will see in the coming two quarters, so you will see capital positivity already in Q4. Jan-Willem Wasmann, Now. Jan-Willem Wasmann, and Yeah. Do we urge investors to keep faith in your assumed hockey stick in wellness? Well, in fact, we had a hockey stick in the start of this. I don't think it's assumed. It's a proven hockey stick. And it's something that I believe that we can get a continuation from. In Sweden, you say, meaning that we had a break from this rocket ship growth that we had on the... based on this software delay that we have. So we have done this before. So it's not the first time that we clock in rocket ship growth in that wellness division. We will come back to that. But again, it's not something that we're hoping, wishing, and praying for. We're working very hard, being data-led, and we're being very systematic about that. Now, seems risky to wait since there's always lag in layoffs and cost cuts. Well, on that front, we have So we're not operating in a country like Sweden or France with our teams. And I'll emphasize this, the teams that we have in place are made up of some really amazing people that have historically generated some amazing growth for this wellness division and elsewhere in the business. Again, you look at the first few years of the journey of the wellness division inside of this group, you see rocket ship growth with companies growing three to four, even five times in some cases. These are very valuable people to us. But I will say this, we have a large degree of flexibility when it comes to cost reductions that can be done very, very quickly. So if you have the need for a risk mitigation statement around that. I can tell you that we can cut costs very, very rapidly if needed, but it won't be needed because we now have our wonderful software live in the markets where we want it. And just watch the space for the next couple of quarters. One last question. Life care is arguably worth significantly more than current market cap. Will you assess ways to unlock this value? And we typically don't comment on M&A opportunities or acquisition approaches, but this observation of yours is obviously something that you are not in loan and haven't made. And This is something that we will be living with for the next couple of quarters that we have approaches from various people seeing how to unlock value for the partial acquisition of components of our portfolio or the whole company. But it's not something that we are doing anything else but listening to. It's not something that's on our agenda because we don't see the need for it. I think this company is better off in the context where we are now, which is to deliver on promises in the common quarters with an amazing team doing some amazing things. Now, unless there are any more questions, we will cut this podcast for today. And we thank you for your time. Tune in and we'll speak to you soon. Take care.