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

Welcome to Carasent Q4 Report for 2024. [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 Carasent's presentation of the fourth quarter. My name is Dan Ohman, I'm the CEO of Carasent, and with me is Svein Martin Bjornstad, our CFO. I will start by giving you a company update before I hand over to Svein Martin. Looking at the fourth quarter, I'm really proud of how we managed to hit basically everything we set out to do during 2024. So, we had our financial performance in line with targets. We did the relisting to the Stockholm Stock Exchange. And more importantly, we did the acquisition of Data-AL, giving us a strong foundation in Germany. And talking about the acquisition of Data-AL, we have gotten to know them quite well or well actually during the quite a long acquisition process where we really want to see all parts of the business, and we want to get to know the management team before we actually pull the trigger. So, we've been able to move quite quickly after the acquisition. So, the Webdoc X team is now part of Data-AL, and we have a joint road map, including when to close down the different softwares from Data-AL and they will be fully replaced by Webdoc X. So, I feel really happy about last year. I'm proud of the organization and what we have accomplished. Looking a little bit more forward, we have good progress in our large development projects. I think most of you know about surgery. So that's Webdoc getting Surgery module, which is important for all many large clinics in Sweden, which will use it. We have really good discussions with our larger customers on moving to Webdoc for clinics that today don't use Webdoc and moving also to the Surgery module. So, I feel really comfortable about where we are with Surgery. It takes maybe a little bit longer than I expected because they want to have some further functionality in place before actually doing the switch. But we're in a good position in very close discussion with those potential customers, and we have a lot of interest from other customers also. So, I think that will really help us during the autumn, especially. And then NLL is the new medicine module for Sweden. It's a legal requirement that all medical record system needs to implement, but it's really good for Webdoc because after that's done, you will be able to see medication from all different systems in all systems. So, if you use Webdoc, you will be able to see what's done in the public and so on. So that's a really good one. Volvat, which is so important for the Metodika, and the rollout there is going well. And during the autumn, we'll start implementing Metodika and replacing all those present HR systems in Volvat. And for you who are new, Volvat is a cap you Norway, where we're replacing all their existing HRs with Metodika during the autumn, and it's to be finalized in January next year. We're building a couple of patient platforms for online visits and so on, which is going well. And Webdoc X really has the pace up now working towards the German market. So, from a development perspective, we're doing better and better and getting more efficient every day, I would say. During the fourth quarter, we had a couple of bankruptcies and also a larger customer losing their contract with Stockholm. So that would put some pressure and would give us a bit of higher churn during the end of Q1 this year and the beginning of Q2 this year. In total, that's a loss of around NOK 2 million to NOK 3 million ARR. That hit will take place in the end of Q1. And we feel that this is a one-off effect. The bankruptcies are the largest part of 2-tech companies, which have been quite large. One is a bankrupt and another one is in reconstruction, but it's most likely that they will not be able to continue. So, I think it's the time now when many of those start-ups who have received quite a lot of funding but haven't been able to turn around their business that the funding is drying up. We don't have any update of those kind of risks as we see it in the customer portfolio for Webdoc. We have many of the online doctors, but they are now mostly making profits and they have quite good valuations. So, we're not too worried about those. But these are 2 smaller online doctors that will close down most likely. That means that the ARR for the group is likely to go from 2% to 3% during Q2, we believe. But really feel it's a one-time effect. Growth, we have signed ARR amount to NOK 17 million. This is mostly Volvat. It's Medrave for VGR, and Ad Curis for Frelsesarmeen in Norway. Those customers will mostly be implemented during the autumn. So that's when we really will see those signed not ARR moving to real turnover. In the quarter, we have 15% organic recurring revenue growth and 17% contract ARR growth. It is really good that we're now at a breakeven level, and that's just a step on the way, and we have strong improvements in our EBITDA, as you will see on the next slide. And here, you can see we're growing with NOK 14 million in the quarter. In the 2023 numbers, we have NOK 2 million of Confrere in those numbers, which we have sold. But in the '24 numbers, it's important to note that we have NOK 8 million of Data-AL revenue in those numbers, where NOK 2 million or 25% of Data-AL revenues are consulting revenue. So, a total of NOK 40 million growth and what's really positive is that NOK 13 million of that goes all the way down to our EBITDA minus CapEx level. So, feel good about our control of costs and that we have the growth really, really going down to the EBITDA level. And looking at our targets for '24 and our performance, we're basically in line of all those targets that we set. And it's, as you can see, quite a large improvement over 2023. And especially, we're looking at the third row, EBITDA minus CapEx. That's what we internally is the only profitability level we look at company-wide, so to speak. The reason being that EBITDA is we feel a measure that's not really reflecting reality as almost every -- all development we do is to win new customers, also the ones we cannot capitalize. So, we feel that EBITDA minus CapEx is a good level to look at. Looking ahead, the really key to delivering this growth this year is that we have Surgery coming online in time and that we have Volvat coming online in time, and so on. So, it's really important that we deliver development on time or we have some extra time in the road map, but more or less on time will be a key for getting this growth to really reach the targets we have for 2025. But as I mentioned, we have big interest in what we're building. So, we feel we're doing the right things, and it's just important to get it out on time. The other really important part to achieve those goals is the efficient use of resources. And as I mentioned before, it's about every day, every week, and every month becoming a couple of percentage points more efficient, and we do that all the time. Some examples that we've been working within the last couple of months is replacing roles. So, if we have roles that are not really creating the maximum amount of value, we will remove those roles and add other roles. So even if costs are more or less flat, we are doing quite a lot of changes in the organization in order to really maximize our output. So, a couple of roles have been removed in the last month and a couple of new roles have been created. Also, the use of AI is quite important for a software company to really be efficient in development, and we see that we're getting more and more efficient using these tools. And when it comes to Webdoc X, as I wrote in the quarterly report, we did a little bit change in the road map now together with the Data-AL team. So, in Data-AL, we have 2 products, Data-Cur, which is a quite new product for therapies that's growing quite rapidly. And it's Data-AL, which is the older product, which is for doctors and has really a lot of functionality. So, what we decided is to first replace Data-Cur and then move on and replace also Data-AL in a couple of years' time. Data-Cur is the aim to replace this year. So that means that we can close down 1 of the 2 platforms in Data-AL much sooner than we had expected. But it also means that the certification we aim to do now, more or less now will be moved to the autumn in order to first fully replace the Data-Cur functionality and then comes down that software. So, I think that's a really good change, but it changes a bit in our road map. And the first German pilots are live and they are happy, but they are just using Webdoc X on the side, it's not full pilots as we're not satisfied. With those words, I will hand over to Svein Martin.

Thank you, Daniel. Starting off on some of the financial highlights for the quarter. Our ARR base grew quite significantly in Q4, and that is partly driven by this acquisition of Data-AL, which added about a bit more than SEK 30 million in ARR, and also our signed contract base takes us up to NOK 304 million in contracted ARR, which grew 17% organically. And the reported recurring revenue growth grew 15%, and our other metrics as well developed as we had planned in the quarter. If we take a more detailed look into the P&L, there are 3 main points I would like to highlight here. Firstly, you see that in the quarter, our gross profit increased by 26% and the gross margin increased from 81% to 84%. And this is because we have reduced hosting costs in Norway through negotiations with suppliers. We have also sold Confrere. So, this increase in margin is sustainable, and you see the same trend for the full year. Secondly, we had big one-off costs in the quarter, NOK 20 million of cost. And this was related to the relisting and the acquisition of Data-AL. And you also see that we had big cost for the full year of NOK 30 million. And this has been a special year with this bid process with EG, the relisting in Data-AL, but this cost has now been taken, and we don't expect any more costs from these processes going forward. Another key point to highlight is if we look at the personnel expense, it increased from NOK 32 million to NOK 39 million. However, if we also include the capitalized development cost, we get the cash cost for our employee base. And you see if we add these together, it's basically flat year-over-year, and that's very encouraging for us, given that we have added costs from Data-AL about SEK 2 million. And also, we have, of course, wage increases, et cetera. So this means that we have been very successful in reducing costs in other places, and we continue to work on that through reducing roles and also through changing, for example, consultants to employees. And you see the effects of this on the margins. So, we grew our revenues by SEK 15 million and the EBITDAC basically increased by SEK 14 million. So basically, all are 13. All our revenues trickle down to the earnings. And with a 22% revenue growth, we get a margin improvement of 18%. So, if we are able to continue being as strict on the cost side going forward, we can continue to see that this scalability has a very powerful effect. If we look at the development on EBITDA minus CapEx, excluding Germany, you see that the trend is positive. We have a good improvement year-over-year. It's a bit trending a bit down in Q3. But the reason for that is that we have this holiday effects in Q3 that we mentioned on the personnel cost side. So that is typically the strongest quarter on the margins. If we look at the ARR growth, we continue to have a robust underlying organic growth, primarily driven by the net retention rates. The churn is low at 2%. As Daniel mentioned, it might increase to 3% given this churn in Webdoc, but still the recurring revenue base is very much stable. And the contracts -- the signed contracts takes us up to 17% growth. And then we have Data-AL as well that takes us up to NOK 304 million. On the cash flow side, we also see good improvements. We have this high one-off cost, as you see on the reported EBITDA is negative, but we have a strong working capital effect in Q4, partly driven by the customer receivables, but also some of the effect is related to invoices for the relisting that wasn't paid at year-end. So that will have a negative effect again in Q1. But in general, we see on the full year figures that our working capital profile is very much supportive to our cash flow, given that we invoice customers upfront and then we pay afterwards. And you see that we have -- even though we have this big one-off cost of NOK 30 million for the full year, we are still very close to being breakeven on the free cash flow side. So that illustrates the power in our working capital profile. Finally, on the financial targets, we are now reporting in SEK after our relisting, and we have just provided this slide to convert the target we provided in NOK in October to SEK at the currency rate at the date of publication of the targets. So, with that, we can open up for questions.

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

A question regarding Region Stockholm will decide on a new system for the public care in next week. How might that impact your addressable market in the region for the long-term?

So, we're really positive to this as today, most private providers in Stockholm use the public system, just because of historical reasons. So, when Stockholm privatized, the region offered them to use the public system, which is called TakeCare owned by CGM CompuGroup. And they most just chose that system. There were no others to choose from. Webdoc wasn't there at that point in time. So today, most customers are -- we are winning in Stockholm. And what's really good is that all those private providers now have to change systems. So usually, the challenge for us is not to convince customers that Webdoc is better than what they use today, it is that's also worth all the effort in changing systems. And here now in Stockholm, everyone will have to change systems. So, we think that that will really support us going forward. And what's also really good or yes, is that CompuGroup has almost stopped developing TakeCare, because that system will die and everyone knows. So that also means that that system is lagging more and more compared to Webdoc. And so that will really help us too. What's also good is in the last couple of months, Stockholm has been more and more clear that you're not allowed to have large amounts of private pay or insurance patients in their system. So that will also help us. So, in total, I'm really positive about this. And finally, why I'm positive is that TakeCare is a system that is not really good for hospitals, but it's quite okay for primary care and specialist care. It was built for that from the start. And the rumor is that they would choose Cambio and that's what they wanted to choose. We know our system well, and it's good for a hospital, but it's really not what the small private clinic wants to work with, and it's also much more expensive. So, in total, I'm really optimistic about this change. But it will take a couple of years.

Yes. Just a follow-up on that because I know in other regions, you think Cambio, the private clinics might be locked into that, but I assume you see no risk of that here then?

You can never say there's no risk. But at the moment, Stockholm is pushing employees out of the system. So, I think that's the way we're going. And in Stockholm, you have a lot of private pay insurance patients, and the region is actually not allowed to provide systems for that. And that's what they're now acting on. So, I think that's quite good. And today, Stockholm is not pushing anyone into the system. In the other regions, nobody has really challenged that. So, we'll see what's happened there. We have some good discussions with a couple of clinics that are in the Cambio region. I don't know. How many of you follow that? Cambio has been pushed out in a couple of more regions. And private providers who used to be in the old public system there are now in Cambio and they're really unhappy because it's really, really slow the system. So, we have a process there hopefully together with the region to move them to Webdoc X. We'll see if that happens. But if that's the case, it would open up a lot more markets. But we'll see. That's early days, but we see no reason why we wouldn't be able to. And also, Cambio is built with a lot of APIs. So, it's very possible to connect systems, so you don't really have any downside of working in different systems. And also, Cambio is always saying that they are for a very open environment. We'll see what happens over time. But at the moment, that's the case at least. So no, I feel very positive about Stockholm, it's a large market, and that's where we're now gaining a lot of customers.

Great. That's clear. And last question from me. I mean, looking into this year, I assume your recruitment plans are very modest considering your guidance. But what about beyond this year? What should we expect for the next few years in terms of recruitment?

So I mean, we're keeping costs flat. And as I mentioned before, we feel that we have a really good development capacity and that do not need to increase. What we do is prioritize between different projects. We are most likely the systems investing most in their systems, and we feel that it's a good idea to do that. What happens then is that as we always invest a little bit more in our systems than what others do, we get better and better compared to other systems, creating more and more incentives to change systems. So, I feel happy that we are doing that, but we do not need to increase the level of investments in the system. We're also becoming more and more efficient in our development. So, I mentioned AI before. We're also doing a lot of new structures when it comes to our development departments. So, we're getting better and better, and I feel really hopeful that for our development, which is our largest part of cost, we can keep quite stable. We are also working with quite a lot of other issues. So even though we have much more customers, we do not have more support, business support questions coming to our support. And that's also a place where we can get more and more efficient and also use different tools to automate more answers. So, we feel that we can control costs quite well and keep them quite stable even as we continue to grow in the coming years.

The next question comes from Elvin Rolder from Carnegie Investment Bank.

I think several of my questions were actually answered by you during the presentation. So, thank you for that. But I have just one additional question because my line was a bit bad for some time. And it's about Data-AL in Germany. You mentioned that you have decided to replace the other products as well to simplify and streamline. Can you just say that again for me because I think I missed that during the presentation, what does that mean what you would replace it with, and so forth?

Yes. So, Data-AL has 2 products. It's a product that's called Data-AL, so it makes it a bit confusing. So, the product called Data-AL is for doctors. It's been built since the early '90s or the end of the '80s, I don't remember exactly at the moment. It has really a lot of functionality. And that's a product we have said will take a couple of years for Webdoc to replace because the doctors use the least amount of functionality, we can take it quite soon, but the one using the full functionality of Data-AL will take a couple of years to replace. That's fine. At the same time, we'll start selling to also other customers that has the same use needs. But then Data-AL has a new product called Data-Cur, which is a web-based cloud-based system, and it has just like 70 or 60 customers. It was launched 1.5 years ago, but it's not built as robust and as scalable as Webdoc X. So initially, our plan was just to replace Data-AL and let Data-Cur live in the therapist part. But it's better to get rid of 2 platforms and just have one left in the long run, that's much more efficient. So that's why we have chosen to replace Data-Cur first. There is almost no functionality that we need to develop that's not used by the doctors anyway. So, it will set us in a much better position going forward and also lower our costs. And then we can put all our efforts into Webdoc X. We don't have one product to sell to customers, one product to support, and so on. So, it's a bit of a change, but it's not a dramatic change. Did that answer your question?

Yes, yes, of course. That was very clear. And then just a follow-up on that because I guess you can remove a bit of personnel that has been working maybe on Data-Cur and cover that with Webdoc X personnel. What would you expect the net effect to be on costs from when we say this is fully -- when you completed the actual move and focused on Webdoc X, so to say. What can one expect in savings from this if there are any? Or do you need to fill it up with additional Webdoc X workers or something like that?

Yes. There will be a couple of roles possibly, but we'll have to discuss that in public when we get to that point. But I wouldn't count it as any major changes. I mean, for the overall group, we are all the time trying to become more efficient in different parts. And then we're also adding roles. So, we believe in always trying to be as efficient as we can. For example, we're adding roles within marketing, we're adding roles in compliance, which are 2 very important parts. Compliance is also important when it comes to sales. All of us want to feel really comfortable that their data is stored really securely, that no one else can take that data or access that data. They also want to that they themselves always can access that data because otherwise, they can hardly work without our systems being up and running. They have to almost stock down all of their own process if we are done. So, compliance is an important part. And for example, we're doing ISO 2701 now. So that will be finalized during Q2. So, I wouldn't do any calculation on it, but of course, it will help us be cost-efficient going forward. Sorry for long reply.

Okay. Great. And then just one follow-up on the bankruptcies and the churn that we will see here in H1. You mentioned SEK 2 million to SEK 3 million in ARR churn. Is that going to get like a full effect in Q1? Or will it be like the full implications on revenue will be from Q2 and onwards and then there will be some effect in Q1. How should one think about the -- how that churn will like transpire through the P&L, so to say?

So, it will take effect at the end of Q1 is our best estimate now, so in March. So, 1 month effect in Q1 and then full effect from Q2 onwards.

[Operator Instructions].

We don't have any more people dialing in. So, I think we can go to the chat where we have a few questions as well. First one is from Emilia at DNB. What do you expect in revenue contribution from Germany in '25 upside to the guidance if the migration process goes faster than you anticipate? And can you say something about when we should expect sales to come in from that region on Webdoc X? So, in terms of revenue contribution from Germany, we don't expect to have any material contribution from the Webdoc X product. But when we updated the guidance in connection with the Data-AL acquisition, we increased the guidance NOK 40 million. So somewhere slightly above that will likely be the impact. And I think like on revenues from Webdoc X, there's not much upside in '25 on the figures on the revenue side to the guidance given that even if we start to sign customers we won't have much revenue impact during this year, basically. But we expect more material contribution to come in '26, '27 from Webdoc X, I would say. Next one, same from Emilia. How much of the churn was driven by bankruptcies in Q4? Should we expect to see some effects from this also going into '25? I think we addressed this already, but these additional bankruptcies that we mentioned for Webdoc did not take effect in Q4. So, it will take effect, like I mentioned, in the end of Q1. Next one from Rasmu Pashun. Congratulations on the year and the quarter. Thank you, Rasmus. And first one, a large cash pile remains following the acquisition. It would be nice to get an update on the plans going forward. Are you expecting additional acquisitions?

Yes. So that's a discussion we have with the Board. So, as we see it, we will start having a strong cash flow from the business going forward. So that can be used in different manners, of course. We do not plan to sit with a lot of cash on the balance sheet. But also, we see a lot of interesting opportunities. So that's a prioritization discussion we'll have with the Board and then we'll come back to the market with how we view it. We feel strongly that it's important not to stress any acquisitions that you always have to do with good control analytics, think through things. And it's just now we are in that position that we really see this positive cash flow coming in and that will grow over time. So that's something we know we need to address also to the market now. And we'll come back to that in the coming months, I would say.

Next one, regarding Stockholm, our customers hesitant and waiting for the new tender for main system?

No, I wouldn't say so. The change in systems will take place if they manage to keep time lines for the first time ever by the end of this decade. So, it's quite some time to go before they actually have to change systems. I don't think they're waiting for tenders, is that Webdoc X is still quite unknown in Stockholm. We're working on that. We have had a lot of events in Stockholm during the autumn. We're doing a lot of marketing towards private clinics in Stockholm in different ways. So, I think it's about that and also about the -- most of our sales today are people using our system and talking to others, private clinics and they say, okay, that's a good system. So, then I will look at it. So, most of it is word by mouth, word of mouth is probably the way to say it. And that's, of course, weaker in Stockholm than in Gothenburg as there are much fewer installations in Stockholm or there are no installations at all, but users in Stockholm. So that's also an important part, but we're trying to really speed up with marketing and a lot of events. And the large private providers who are really very much better connected into the different systems and know what the different systems are. That's where we have most of the discussions at the moment because, yes, they have large IT departments. They know different systems. They know they want to use Webdoc. So that's easier for us to move with them and then have the smaller ones moving to Webdoc later on. So, I don't think that has the attempt. It is not a big part. What would really drive Webdoc growth in Stockholm is just more people getting to know the system.

Next one is on the bankruptcies. I think we addressed that already. And then one from Richard here on the ARR growth was a bit slower in Q4. Could you elaborate? It seems churn is stable, but net upsell is down. It's true that it's slightly a couple of percent down from Q3. But I would say, in general, around 15% is where we have been trending this year, and that is basically our run rate as well going into next year. And then we need these large contracts that we have signed that is not yet being reported in revenues that we need to implement those to drive up the percentage points basically.

And we could also mention that those large contracts has taken quite a lot of effort from the organization. It's a lot of close work together with customers. So, it also a little bit hampers our possibilities to take on other new contracts at the moment. When you sign -- the small contracts is no problem at all. We can sign them as we go and implement them as we go. All processes are there. That's really easy to do, and most of our growth is small contracts. But large contracts take a lot of effort from the organization to really discuss all the requirements that the customer have, go through it, show how we actually fulfill them. It's long, quite serious processes. And our capacity to run those projects at the moment is a bit tempered because we have these larger ones. But as we mentioned before, also, it's important to run them any way on the side so that once we have implemented this, we have the next large contracts to implement. And I think we'll get there. But at the moment, it's quite a lot of work with the existing large contracts.

Next one is from Nicklas. Two questions. First, on the cash position. I think you addressed that already. Second one is related to the historical tax losses. What happens to the historical tax loss after relisting? Will you be able to use this onwards to avoid having to pay full taxes? So, this is related to the NOK 295 million tax loss we have in Norway, and that was, of course, an important part of the relisting process, how we should manage that and the structure we made in the end for the relisting made and made that available for the future as well. So, in Norway, we have a very high degree of tax loss for a long time. And we also have some in Sweden.

We could also mention there is that when possible, we're trying to create values in Norway in order to be able to use these losses going forward. So, for example, the development of our new AI tools for customers is taking place in Norway so that we can use those losses. So, when possible, we do development in Norway in order to be able to use these losses going forward. I think that's all the questions we had. So, thank you all for your attention this morning. And just let us know if you have any questions, we're available, and have a good day. Thank you.