Careium AB (Publ) (CARE) Earnings Call Transcript & Summary

Thank you very much. And it is a pleasure for us to present our quarter 4 report, strongest quarter, both on sales and operating profit. We demonstrate continued success in winning and implementing new contracts in Sweden and our product sales in U.K. increased by 131%, reflecting transformation from analog to digital. We launched the alarm trigger, Ellis, which is designed as a piece of jewelry to minimize feedback. The rollout in Norway of digital keys for home care or is ongoing and our action program to get back to profit is in place and has given results. Careium now is well-equipped to capitalize on growth opportunities in the care sector. We demonstrated strong sales development of 29.9%, supported by growth in all regions and the continued organic growth of 20.9% in the quarter and 16.6% in 3 years. Services sales have gone up to SEK 145.1 million. That's an increase of 14.4% compared to quarter 4 2029, and our product sales amounted to SEK 51.1 million, which is an increase of 43.9%. We delivered a gross margin of 39.4% in the quarter despite this cost of components. During the quarter, we began to roll out, in Norway, of digital keys for home care. That's a system which simplifies the process for both caregivers and users. And the new alarm trigger, Ellis, was launched in quarter 4. Ellis is designed as a piece of jewelry. It is a piece of jewelry with the aim of minimizing the stigma as a way of increasing usage and safety. In the Nordic market, we increased the same by 16% compared to quarter 4 2021. Of course, we have several new contracts implemented in the quarter. We have good performance in service delivery despite high risk, particularly towards the end of the year in our alarming receiving centers. We are proud of that. We are very proud of that. And the number of connections at the end of the period equal to 134,700. That's an increase of 10.5% compared to quarter 4 2021. In U.K., we increased sales by 33.5% compared to quarter 4 2021. And our product sales went up to 131% compared to quarter 4 2021 and 88% for the full year. The digital transformation has gained momentum during 2022, and the continued work of the restructuring of the region is leading into lower cost for post service delivery and administration. In Central Europe, the increased sales was up to 13.6% compared to quarter 4 2021. The service sales increased mainly to increase of number of connections in the Netherlands. And the number of connections at the end of the period went up to 29,700, which is an increase of 9.5%. Other markets, mainly represented by product sales in France, have showed a decrease of 35.2% and that's mainly due to accounting error last year. Now to the profitability of quarter 4 2022. We are really proud of that. Adjusted EBITDA amounted to SEK 35.1 million compared to SEK 18.4 million same period last year, including the restructuring cost, EBITDA amounted to SEK 31.5 million, and that's compared to SEK 17 million for the same period last year. Adjusted EBIT amounted to SEK 16.5 million compared to SEK 1 million same period last year. Including the restructuring costs, EBIT amounted to SEK 13.2 million compared to minus SEK 0.4 million last year. The improved profitability is mainly explained by growth in sales and measures taken to decrease operating costs. The results include SEK 7.2 million of income from reversal of provisions for earnouts. Operating profit, excluding effective comparability, amounted to SEK 9.3 million for the quarter. Now the most impressive part of this picture, this slide is actually the journey that we've had from minus SEK 18 million of the EBIT in quarter 3, 2022, to plus SEK 16 million in quarter 4 in the EBIT 2022. We are really proud that. And of course, the action program to get to profit is completed, and it includes the restructuring of the U.K. operations, including the closing of offices, increased efficiency in contact center, field services implementation of common system for service delivery, implementation of new systems for private pay billing and increased efficiency in administration, which streamlined organization, our sales organization by joining other regions and markets and creating a bigger Nordic region, which is really good. And we merged our product management and our technology development to strengthen our portfolio going forward. Most of all, we created smaller, more unified, stronger, a very committed management team that we are extremely happy about. And the action program is expected to increase operating profit by SEK 60 million to SEK 80 million on an annual basis. Now the total transformation cost in Q2 amounted to around SEK 25 million. Now to our cash flow, quarter 4. The cash flow from current activities during the quarter 4 amounted to minus SEK 32.10 million. The negative change in the working capital compared to quarter 4 2021, it explains mainly, for temporary increase, working capital balance as high sales towards the end of the quarter tied up capital account receivables and also for accounts payable paid down during the quarter, thereby a cash -- negative cash flow for the right reasons, and that's important to note. The free cash flow went up then to minus SEK 53.4 million and the cash totaled to SEK 39.9 million at the end of the year. In addition, the bank overdraft facility showed available cash of SEK 20.8 million compared to 0, same period last year. Net debt amounted to SEK 253.6 million at the end of the quarter -- fourth quarter, compared with net debt of SEK 204.8 million at the end of the previous quarter and a net debt of SEK 149.7 million at the end of fourth quarter 2021. Now at the end of the quarter, Careium complies with the agreed bank covenant waiver, which is very important to note. Now a few concluding remarks. Of course, we are so happy about the strong sales and the good organic growth in quarter 4. The actual program to get back to profit is in place and has given another good results and the gross margin, we managed to maintain it despite the increased cost of components and really launched Ellis, a jewelry and the digital keys for home care, which are very important. Of course, we dealt with challenges. Challenges for field, service delivery and field services in U.K. But you know what? We performed really good. We turned it around and our performance now is fantastic and the negative cash flow that we've shown due to increase in working capital are for the right reasons. Going forward, the priorities and the opportunities you see, if I could elaborate a little bit on them, of course, will continue to improve in U.K., and service delivery. And we are confident our employees, our leadership, our culture, high on our agenda. We build strong relationships with our customers. We will continue doing that, and we broaden our product and services offerings. We want to take the market leader position for care sector in Europe. Now to conclude my presentation, I would like to thank our employees, who are just fantastic. You're great, and of course, our customers, who give us confidence and trust. We will do our best to deliver to you. By these words, I hand over to you for question and answers. Mathias and I are going to do our best to answer. And I'm ready to hand it over.

[Operator Instructions] The next question comes from Oscar Ronnkvist from ABG.

Marian, Mathias, so first of all, I just want to hear your thoughts on the cash flow again. So inventory levels came down a little bit from Q3, supporting the cash flow actually. And then as you mentioned, you had accounts receivables coming up, I don't know, like SEK 15 million, SEK 60 million, I think. But then it seems like the working capital effect is largely driven by the paid payables. Is that how to assume it? Or is it anything else that there are missing here?

Before I hand over to Mathias, just a couple of words on it. There are actually 2 major components, which impact the cash flow. At the end of the year, mainly in December, we've had fantastic product sales. We did a great job on that. And then on top of that, we paid for the components that we have and these 2, in combination, impact the cash flow at short term in a negative way. Can you please expand on it?

Yes, it's exactly, as Maria explains that we had quite a lot of accounts payable at the end of Q3 due to filling up the inventories. And those, we have paid off to a large extent during Q4 and not done as much purchases as we did in Q3, consequently lowering the inventories at the same time. So in my -- or in our view, we have a negative free cash flow, yes, but -- and the working capital is negative, but it's not bad working capital buildup. It is related to us paying our bills and selling on a high level at the end of the quarter.

All right. I see, brilliant. So -- but then just a follow-up. So would you expect the working capital rebound to occur already in Q1? Or should we expect that to, like, gradually come in 2023? Because you built up quite a lot of working capital during the entire 2022, right? So should we expect, like, a massive rebound in Q1, Q2? Anything you can elaborate?

We don't really like to do forecasts, if you say so. But I don't expect that we need to build up more working capital. I wouldn't dare to say that it will decrease rapidly in Q1, but I don't expect that we will see the same buildup of working capital also in Q1. So it will -- it would be -- probably be much less affected.

And as I mentioned before, it was a short-term impact in quarter 4.

Understood. Understood. Yes. Sorry for my sort of negative comments in this quarter, but let's see. Also just one question on -- related to cash flow. Just the CapEx came up, it was SEK 21 million in the quarter. Is that sort of seasonality effect? Or do you expect that to be sort of the run rate going forward? Or should it be more like SEK 13 million, SEK 14 million like Q3?

You see, the part of the CapEx coming up is related also to the demand of our product, because it's not only that we have good product sales. We also deliver a lot of hardware of products on our rental contracts. And when we rent a lot of new products, we will also have a higher CapEx. So it is -- yes, it's related to the demand of our products, if you say.

Understood. Then I have just one question on sort of the relationship with the bank now because, obviously, you say that you comply with the waiver that the bank gave you. Are there any concerns from your side about the relationship with the bank and the bank waiver? Did you have, like, tough KPIs to meet here? Or are you feeling pretty comfortable with the bank's financing situation?

We feel confident.

Yes.

Perfect. Clear, clear message. And just a final one. I have just a question on the margin going forward, because the margin improvement was, I mean, very steep in the quarter between Q3 and Q4. So just -- I mean, in terms of the run rate, both on -- I mean the gross margin came up quite a bit. And then obviously, the adjusted EBIT margin and EBITDA margin as well. But -- so the gross margin, should you -- we say that -- I mean, is it fair to assume that, that's going to come up a bit further? Do you have, like, any sort of normalized gross margin where you expect it to arrive at?

I would say that the gross margin reflects a bit also the sales, because even though, of course, you could say that was the -- cost in gross margin is variable, it is not totally variable. So if we have high sales, we will get better gross margin also as -- because the cost for the alarm receiving centers, those are recorded as -- within the gross margin. And they are not -- they are, of course, variable but not variable in a very short sense, if you say. Yes. So it's a little bit related to how much sales we manage in a quarter.

There are no more questions at this time from the telephone. So I hand the conference back to the speakers.

Thank you very much. Thank you very much for being part of this meeting and listening to us and taking part of our presentation, and look forward to cooperation with all of you going forward. Thank you.