Carasent AB (publ) (CARA) Earnings Call Transcript & Summary

Welcome to Carasent Q3 Report for 2026. [Operator Instructions] Now I will hand the conference over to CEO, Daniel Ohman; and CFO, Svein Martin Bjornstad. Please go ahead.

Good morning, and welcome to our presentation of the third quarter. We'll start with me giving a company update. And so Martin will take over to give a financial update. Just a brief view of our history where you can see a strong record of growth with small churn. So going into the third quarter and highlights of the third quarter, we continue to have strong sales. This quarter, we're especially happy about bringing Falcon Norway on board. Operational Health is an area which we believe is strong in and that we have a good position to grow. There are many large operational health care providers, which we aim to grow with. [indiscernible] has done a good work in [indiscernible] Norway. And we continue to have good sales on our AI assistant Medsum, but I'll come back to that. Also, our recent acquisition InfoSolution is developing very well. Is it going according to plan, InfoSolution will next year be among our top companies when it comes to Rule of 40. So that means growth and profit margin. So that acquisition is going very well. And I think the management is doing a great job in that part of our business. Germany is now entering a new phase. I'll come back to that. But we now are sitting up to rapidly start selling our new product, I'll come back to that. And looking at growth at 29%. The organic ARR growth is at 14% and the 12% organic revenue growth is a bit lower, and it has a lot to do with Germany, which I will come back to. When an EBITDA of SEK 21 million in the quarter and a margin of 20%. So if I start with Medsum. So that's our AI system that we built into our software what it does at the moment is that it listens in on the conversation between the caregiver or the doctor is therapist or so. And the patient and it automatically proposes clinical notes based on that conversation. So it saves really a lot of time for the caregiver, bringing up time to see more patients and we are now close to 400 active users at the end of September. We have 300 paying users. So it's growing quite rapidly. And what's really fun to see is that the customers really like this. this functionality. I think all of us use different types of software where they kind of build in AI systems that doesn't really do anything useful. Doctors, nurses, [indiscernible], they have a lot of administrative tasks to do around each and every patient in iterate. So they're spending a lot of time doing quite basic documentation, which we now can do further. So it will save in both time and they really love this type of functionality. And we are very limited churn on the product. So that's also good. We will now soon launch more functionality and was up in the entire UX. So to have the AI even more embedded into experience and make sure that it's 1 experience, the UX and AI, so I'll show you some pictures of that within short. We're doing in the certification. So [indiscernible], the governing body in Sweden for this type of products. have said that this type of solutions need to be satisfied according to MDR. So that's quite a big project because it's Class 2A, which means that we're spending a couple of million in Q4 to get it done and already spending a lot of time preparing on the documentation and doing test and verifying different types of scenarios. So that's an important project going on this year. It does take some time, make it slower to get other functional doubt. But over time, it will help us because there will be fewer [indiscernible] scribes on the market because of this type of regulation. And we are also allowed [indiscernible] to do much more than we do today that will really good. In general, in the rollout of the AI assistant in our software, the aim now is to get as many early adopters in different clinics to start using it. So most customers when we have a new customer, a customer for us is usually it's 1 organization. So 1 customer can be 1 clinic or it can be like [indiscernible] or it can be [indiscernible] and so on. And what we're aiming for at the moment is to get many earlier doctors starting to use it in different clinics. So 1 or 2 use in this clinic is what we're aiming for. so that they then can spread the work to the -- or the other ones working in those clinics. So this is really about getting people to start using it to see that it's really useful. Many are a bit skeptical and also health care is a really slow market. I never seen technology spread very quickly in this market, and this is the quickest I've seen, I would say in all my years in this sector. So we're really trying to get many users start testing it in different clinics so they can talk to our colleagues, and we will then grow within each clinic each customer and also with new customers over time. So just looking a little bit what we're doing with this -- what we're doing. This is from web dock. So it's our largest product. And sorry for the Swedish, but it's a Swedish product. So it's as main content on the left. So that's where you will -- we're looking at the medical records and we're looking at calendar whatever. And here on the right is the assistant as it works today. It doesn't look exactly like this. This is how it will look by around Christmas, but it works like this today. So you're recording the meeting with the patient or you can also do what -- the second 1 is there, dictate. So you can after the patient was left, you can add some more notes just with speaking them out or you can only do a dictation if you want and just talk to the -- to [indiscernible] and it will propose a [indiscernible], like you used to do with the Medical Secretary. What's coming next is this functionality. So while you're talking to the patient, we will look at everything that all lustrative as you will have to do after the patient has left. So here, I'm talking with the patient that has pain in the foot. So the first 1 there, start for Swedish again, it's a note to [indiscernible] that this patient is going to go on sick leave. Then the doctor has to fill out a really long form. There's a lot of text there. And if you don't do properly, the traction we send it back to you and you have to do it again and so. So you really want to do that well, but it's really not a fun task, and it takes a lot of time. So here, we have caught from the conversation that they're going to do that. That has the doctor has told the patient that I will put you on sick leave and Daniel said the page to the patient, I will -- we will book a revisit in 4 weeks. And I will also and refer to Optical. And I would write some medicine for your [indiscernible] here. And all of these things popped up here, and that is the part, but what we also will do is that we will prefill all these things. So after visit at units if you want to, this puts up as you talk. You can click on these things, and it will take you to the right business system and with basically everything you need already filled in except for medication because we're not allowed to do that here. We can do some things not ever. So this will really save a lot of time for that, making sure that you just go to the right places right down, everything is prefilled you don't -- our aim is also that you shouldn't even have to wait for the LLM on that to work because we can do this in the background, why you say good [indiscernible]. So this, I think, will really add a lot of value. We've been discussing it a lot with our customers, and this is the functionality they want to see and the type of work they want to offload. So this is coming around Christmas. And then it will help grow sales even more. We will not increase the pricing price will stay where it is at roughly SEK 750 per user a month. So looking at Germany, it has been going a bit slower than expected to bring Webcur, a new system to the market. even with AI, it still takes a lot of time to really make a software, which fits the users' needs. But we get there. Pilots are happy. The customers we show it to are happy, so we're now preparing to push it really into the market. There's been 1 big project that's been holding back somewhat, and that's been the reporting of public patients, but that's almost done now also. So now we're really setting out to push it. But in the meantime, until as you can see that we have churn in Germany are quite big, that's mostly -- is only with their own product, and it's usually the doctors retiring and the 1 taking over the clinic who wants to see a new system than the old system, but of data. So that's why we have quite a big share, and that will take -- it's a large part of the share of the entire group. So the share in the Nordics is really low. And as you can see, also the organic revenue growth in the group, if you take you out is 15% and the EBITDA margin of the group is 25% without Germany. While we really believe in Germany, it's a really large market. Most customers are on old on-prem solutions. Nothing close to what we had data was to really get an organization in place, which we can build upon. It's really hard making greenfield with a start-up in a new country. I think that's really unwise to do. So it's important to have something to build upon. That's why we acquired data. And now to really have this push into the market, we have a new CEO in place since September. He has a strong background in sales and marketing within this sector. We have also replaced part of the sales team and also added new salespeople and also change the product management team to really increase the speed and get to the market quickly. So we are pushing this now in Q4. It will mean in the short term that our cost [indiscernible], but we believe strongly in both the product and the market. And the last point on this slide is a bit interesting. So I mean to this, the churn of the data and the old product. As you all know, our plan was to close the product down eventually and to try to move as many of them as possible to our new product once the new product has all functionality the old 1 has. But with the help of -- now that we have such high speed in development, and especially since dataset already have, it's quite easy to work with AI on it to modernize it. So we're doing also push to modernize that product to decrease churn and possibly to keep that product in live. We'll see. It's a bit early days. If we go on [indiscernible]. But when you have the tire in the code, we basically have all the answers to what the customers want and which has been tested together with their customers over many years. So it's a good foundation for actually modernizing a product with the help of AI. Looking forward, we will continue to grow strongly, especially Nordic [indiscernible] and we'll pick up the pace in Germany. We continue to have strong cost control, make sure that a large part of the growth was down to the bottom line, and we're pushing recurrent market. So we look forward to Q4 and next year. With those words, I will hand over to Svein Martin.

Thank you. From the financial side, the Q3 came in strongly. Growth was maintained at a good level and margins continue to improve on the EBITDAC side. So we basically continue to deliver on our plan of profitable growth. As you see here, a contracted ARR was SEK 424 million at the end of the quarter, where SEK 8 million was signed, not implemented contracts. It grew 14% organically. And then InfoSolutions also added a bit more than SEK 40 million of ARR. InfoSolutions has developed very strongly, as Daniel mentioned, both good underlying organic growth and now after the cost savings, good profitability, and then we do the price increases by New Year. So in the plans for next year, it will be 1 of the top performers, top performing products in the group from perspective, which is very, very positive. EBITDA margin, 25%. EBITDAC, 20%. We keep converting most of the extra revenue into profits. And then we also had and net reduction of 10%, which is in line with what to be normally see. Looking at the P&L, our revenues grew from SEK 82 billion to SEK 108 billion, 12% organic growth. You see here that on the revenue categories consulting more than doubled, and that's mainly because InfoSolutions is a bit of a different revenue mix than the other parts of the group. Gross margins was slightly diluted from 85% to 84%. And then the cost base increased a bit on the personnel and OpEx side. This is mainly driven by the additional InfoSolutions and also by a lower degree of capitalization than we had previous year. But on the EBITDAC side, which is the metric we focus on, on the profitability, it improved from 15% margin to 20%, which was a growth of 75%. And there was no one-offs this quarter either. And then the last point side there on the slide. I want to spend a couple of minutes on. So Q3 is seasonally our strongest quarter on the margin side because personnel cost is lower because of the holidays. Revenues are also a bit lower, but in total, the effect is positive on the margins, which, of course, does not carry into where the cost and revenues normalize. And then we also will have some extra costs in Q4 related to the MDR certification of Medsum and that we are stepping up the sales and marketing in Germany. Also, it's important to bear in mind when we compare to Q4 last year, it was a very special quarter. So to repeat what I said on that conference call in Q4, we had very high consulting revenues, including a big one-off revenue in Germany and the positive one-off effect on the cost side related to the [indiscernible] grants that reduced cost. So I said already on that call last year that it's not something that comes regularly and these effects won't come back in Q4 this year. So the improvements that we see here in Q3 will be smaller in Q4, and Q4 will have a lot of noise in the comparison. But it's important to note that most of this is temporary and the underlying trend here is the 1 that we see in this quarter, and that does not change. And from Q1 next year, again, the comparison is more clean and the temporary cost has been taken. So we will get back to the big improvement that we have seen over the last few years. The ARR bridge is where we see the growth here is more or less in line with what we're used to. The net debt sale is strong, 13%, $42 million. This is driven by the same factors as normally, we add more clinics and at existing customers, we -- our customers have volume growth, and we also sell new modules. It's worth mentioning that Volvat or Captain Norway is an important contributor to this bucket given that it was on board during Q4 last year. And it was also a major part of the backlog that you saw there in Q3 last year. Medsum is also starting to show up here with now SEK 3 million in ARR and will be an important driver going forward. Next book, their churn, SEK 9 million, 3% or 2.8%. The Nordics is still below 2%. So the German business is contributing a lot to that churn unfortunately. And then we have new customer sales of SEK 13 million, taking the organic growth to 14% for the group and 15% in the Nordics isolated. You see that the backlog is now SEK 8 billion. So that was SEK 6 billion in Q2. So it has grown quite a bit. And this is -- we did have a very large backlog compared to normal 4 web doc in Q2, and part of that backlog we have kept because there is fewer implementations during the summer. But then we have also added this big contract that Daniel mentioned for [indiscernible]. So as it was in Q2, Q3 was also a very strong quarter actually on the sales side for the group. So the scalability slide shows our focus and how the business works. So you see that over time, revenues has grown from SEK 245 million to SEK 390 million. It's partly due to acquisitions, but also a very strong organic growth. And then the costs you see below there on the organic side has been basically flat over this period. So in the same period, we have had an EBITDAC improvement of around SEK 100 million. And this is because we have been able to keep that dark blue part flat. And yes, we have taken on costs in many places, such as AI costs and different roles, but taking out costs on other places. So this is a very important part of that we are -- have been able to increase our profits so rapidly. Finally, on the cash flow, we do have -- the third quarter is seasonally weak on the working capital side. You see our -- the change in working capital was minus SEK 22 million. This year, minus SEK 21 million, last year, it's because we pay out holiday salaries, and we don't have any being like annual invoicing in this quarter. So operational cash flow was SEK 5 million. But in the year-to-date, figures, you see a better picture of the working capital model that we have. So there is the operational cash flow, SEK 74 million and free cash flow after CapEx is SEK 48 million. So it's also quite a bit higher than the EBITDAC because the working capital is supportive as we charge upfront in the majority of the cases and pay invoices after the period. So a very strong cash flow so far this year. We did not have -- on the capital allocation, we did not have share buybacks this quarter, but we have repurchased SEK 40 million in the beginning of the year. And the cash position remains at SEK 47 million. So that was all from me, and let's open up for questions.

[Operator Instructions] The next question comes from Fredrik Nilsson from Redeye.

Regarding Germany and the initiatives to mitigate churn in data, should we view that as mainly a short-term initiative or is there a potential for a long-term shift in strategy in Germany?

Yes. So I think there might be potential for a long-term shift. I think in these times, it's important to stay flexible and nimble, not to get stuck in implants. It has nothing to do with our belief in worker. It's unchanged, but it's our belief that we can do so much more with our software now. And we know that it's always -- it's so difficult to get customers to change. So if we can renew the present product, then that we really -- maybe it's much as the customer and are growing with them. So we're testing it. We'll see if it works, it seems promising. And because the most part of developing software and has always been, it's not really the right code. It is to really understand the customers need, show them what you've done, rechange after you talk to them, understand what the different integrators need. They understand what the public need, the regulation need, all these needs up to on software, so to speak. And all those needs is what makes it quite difficult to deepen software. That's where your workers is not moving according to that really. It's a bit after. But in a product that you already have, you have sold all those needs. The problem used to be that if you have sold all those needs and then the technology gets outdated, you kind of -- there is no way to take all that code and just start transferring it to a new language. It will take so many years. So we don't do that to be clear. But now with AI, there is potential to renew legacy products much quicker in a way that wasn't possible before because you have all those needs describing that code, and you have sold all those parts. So it's -- you ask me to move the code from 1 language and 1 [indiscernible] to another. So that's what we're testing. It's not -- I'm not saying that we will -- what we will do with settings, but I think it's worth mentioning. I think it has the potential to lower the churn in Germany and potentially to kind of shift and maybe we'll have 2 products. It's not as difficult to have 2 products as it used to be either. Did that answer your question, Fredrik?

Yes, I think it was a clear answer. Thank you. And obviously, you have an impressive pace in the Medsum area currently. Could you share your expectations for next year? Do you think you can accelerate the pace in net new users in absolute terms further?

Yes. So I'm very close to these products. I'm extremely optimistic about it. But I think that health care is really slow. So I mentioned this many times, I think it's worth mentioning again. So all the doctors and nurses and we love to Sweden to remember that, but this goes for a large part of Europe. All doctors, nurses, test, they are educated in the public system. They lived a large part of their lives in the public system before going private. So they work in a war that has had very little change. They're working basically the same way as they did 20 years ago. And this means that that's what they used to, very to change. They also are trained not to make mistakes you can be reported if you make a mistake, you can lose your license to actually give care as a person, as a doctor or nurse, if you commit mistakes. So it -- health care is very slow to change by nature. And that might be good in certain ways, but it when driving a new technology debt is really a hinder. So -- but I expect over time, there would be a really big product. If you look at the U.S., to me, most statistics looks like 70% to 80% of all outpatient visits in the U.S. use [indiscernible] scribes. So in the U.S., we have much more commercial health care, so it's much more push towards efficiency and you have much, much less regulation. So you can't give the customer this type of functionality. So in Europe, it's obviously moving way slower. I think that our expectation is that today, 5% to 10% of our users use this type of technology, either from us or from a competitor or a partner in some cases. So I think it will not go as quickly as it should because this saves so much time when we talk to users, they order now, say, they save 1 hour per day or they say they save half of the administration, these type of things they say. And with the new function that we have coming out, which even better integration into the software will save even more time and make the user experience even better. So it can go quite quickly, but we don't see it yet, I would say. But over time, I think this will be used by most uses in our software.

I see. Great. Could you give us an update about your progression in region to column. Is the solid momentum still there and could potentially less left leaning new regional government to be a positive factor going forward?

Can it be -- did you say positive factor? Less left in.

Yes. Exactly. Yes.

So yes, Region Stockholm is moving forward well. We have finalized referrals going in. So we have a number of clinics that started during summer, which has our [indiscernible] solution. refers going out will tend tests, I think next week, it is. So then we can launch also that to our customers. So Stockholm is going well. It's, as you know, by far, the largest market. If the new region will be less left living then, yes, it will probably be positive, but I think it's likely because the region will be dependent on [indiscernible]. And what they've done so far, this coalition has not worked very well. So I think that there -- they destroyed quite a lot of well-functioning private care. So I think that, that has probably come to an end. I think they feel that themselves actually. Usually when a Region changes particle -- I mean I've been in this industry since 2006. Usually, when you change color, it doesn't really changed that much for CAGR. It's just usually a lot of talk before the election and then nothing happens. The right usually do a little more reforms and they left [indiscernible] care about the private rides usually. The last -- after the last election, so the last 4 years, Stockholm has stayed a bit differently. I think it's because all the positions on the website were almost all of them were new. So they hadn't been empowered before because it was 8 years since the last time. So I think that's why they did kind of a lot of main things, which I don't think they will repeat. But they will have the same language before the election and also after as they usually have. But usually very little happens. And I expect that to be the case when it comes to changes for private carriers.

Okay. I see. And 1 last question from me. Could you give us an update on the surgery offering?

Yes. So surgery is a great module. We're showing it to a lot of potential customers at the moment. We also have a lot of customers using it. Those are still the really big customers. So they come in -- it's quite a long process to convince them to change. We are in a number of them. And so far this year, in Webdoc had quite a few big -- really big units changing to Webdoc. We have a large number of small ones and small start-ups and so on. and then we grow with them to that. That's kind of fine. But we're looking forward to get some bigger ones also in terms. But it's a well functioning. It's well appreciated by the users to use it and we will continue to grow with that formality.

The next question comes from Elvin Rolder from DNB Carnegie.

I have a couple of questions from my side as well. Perhaps beginning with Webdoc and the more kind of AI-integrated workflow. Can you tell us a little how these features have been received in pilots? And is this something you expect to gain kind of broad-based usage amongst clinics. So it's kind of like similar early to Medsum in the beginning, be more of early adopters before gaining the bigger end of the tail. And then I don't know if it was it line that was bad, but I believe you mentioned price. Can you just reiterate what you said at the economy? The economics behind it will be an increase in price based on this? Or will you kind of more bake in these feature upgrades into kind of yearly price adjustments?

Yes. So yes, this functionality, the new ones where we have multiple agent loops looking into the conversation and finding actions. And then from the actions we trigger, for example, the silent and so on. That functionality is not on pilot yet. And I think we'll just piloted for like a week, and then we bring it out because it works well in our internal testing and we have done the real messy part, we do in medical notes. The medical notes are difficult because every 1 of our users or many of how use completely different structures, and they use different words and they use different -- if they have a freehold status, for example, it's very different what is users want to have in that field, but they want to have it their way. So the normal thing we do is really, really messy. So for each user, the system, it's not training, but this is to learn how that use on their medical notes. When it comes to sit lives and the other things, they kind of -- they just wanted to pass [indiscernible]. So we expect it to be so much easier. So we'll have to add those tanks as we go. We'll also add a normal speech to text in the entire system. So really have to add functions. So far also the costs for this because, I mean, the COGS for these type of solutions are a bit higher than in the normal case, but it's still not high. It's -- so we have good margins on the product with Charge SEK 750 per user a month, and we aim to continue to charge SEK 750 per user, even with the new functionality, and it will be included -- so we use these new features to drive up demand. So it will be really like you have your personal secretary doing everything for you, and it will be much quicker than if you use your secretary. So it's -- we will use it to grow quicker because SEK 750 per user, it almost doubles our revenue per user on average. So I mean, it's a great business for us to add this functionality. So we just wanted to spread quickly. We're using quite a lot of costs to just get it out there. We as long as many as possible to test it in so many clinics as possible to test it. It does have to be many users in each clinic, but many clinics test it. We prefer actually that's maybe 1 or 2 who really are interested in it, and then they can compete well internally because usually the ones that are using it, they get very positive and then they bring the ages on board. So at the moment, our focus on sales, and this is just to talk to as many clinics as possible to start getting on test user, so to speak.

Okay. Perfect. Maybe moving on a bit to Germany. And I guess related to what you're mentioning on the modernization potential for the legacy data products. Is this something that you're -- is this something that you're also seeing more kind of incumbents in Germany also pursuing, given that they're able to kind of use AI to modernize their products? Or are they still kind of lagging in? Do you expect kind of their products to be better and perhaps that new customer sales for web curve could become a bit more difficult than perhaps initially perceived if you're able to modernize the products? Or how do you view that?

Yes. So that's really interesting. I think that's why we need to keep a way open mind because what -- when -- what we have been working the last couple of years about is that AI will make it easier for someone to launch completely new products and compete with us, for example. And that's why we've done acquisitions to strengthen our position. We have increased development phase so that we kind of kept same distance between the competition and us. And then we've seen it most as again as we start moving much, much faster than before, and we are much most and the larger legacy tens yet still aren't really moving as we see it. So that's how we've been looking at so far. Now given that customers really don't like to change, that's a potential that we'll see that all the software can be more much more cheaper. It used to be that we let them done. I think that if you've gone too far down that route, it might be difficult to come back. But there is a risk for that. But also seems to me like the really big players with legacy systems, and they don't really seem to get going as of yet at least. But we'll see. [indiscernible] say, I think that what we will see in generally is that demands on software will be much, much higher than before. So and complex software as we sell with a lot of functionality, and we use a lot of -- really a lot of different wishes, means that we will need to have our software much more adapted to its users and customers' needs. I think that in a couple of years, our software will look very different depending on what type of users you are, what type of care you give and so on. So that's where I expect it to go. I think that our customers are fine spending 1% to 2% of the revenue on HR systems. And if we can help them help more patients, it really pays for itself. So I expect the lot pain to disappear in health care, thanks to systems like ours going forward in a much higher pace. But I think it's very important that we stay nimble, open to not get stuck in strategies and take the opportunities that are out there now.

Great. The final question for me, perhaps relating a bit to costs. I believe in Q2, you mentioned SEK 2 million in MDR costs during H2. Has any of that been affected here in Q3? Or will all of that or another amount if that has come in Q4? And then can you give perhaps some color on the degree of costs for kind of the increased sales and marketing in Germany?