Cegedim SA (ALCGM) Earnings Call Transcript & Summary

Good morning, and good evening, everyone. Thank you for joining us to discuss Cegedim full year 2020 revenue. Before we begin, I would like to remind you that this presentation and conference call may constitute forward-looking statements. These forward-looking statements may include comments about our guidance, our expectation and our prospect and are based on our view as of today, January 26, 2021. Additional information concerning important factors that may cause our results to differ materially from expectation and underlying assumption, please refer to our Universal Registration Document, specifically Chapter 7 on risk management. Having this in mind, I will now turn on the next slide. So if you look at Cegedim, you may -- one way to remember what Cegedim is doing and how we interact with people, we interact with people by having contact with people, the thousands of people every minute. So our solution really had to solve the health care system problems by having improving the health of thousands of people every minute. The full year 2020 revenue is quite close to EUR 500 million. We have more than 5,300 employees, and we are currently in more than 10 countries and more than 84% of revenue are generated from the health care space. How we go through the COVID-19 crisis in 2020? So first, in terms of people, we implement work deployment in all countries during lockdowns. So the first one and the second one and maybe the third one depending on, we have a very limited recourse to partial unemployment [ and ] just one of our activity mainly. This is the activity for advertisement at pharmacy in France. And one possible, of course, we have postponed any hearing. In terms of infrastructure, we've been able to deploy the Telework and to maintain continuity of activity for our clients by our robust network and our sectoral data center. And during this time, we continue innovation, so we have continued to spend money innovation to bring new product on the market, and we have continued doing this. And we have a very recurring business model on revenue, and this is why our revenue in 2020 is very close to the revenue from 2019. And we are fundamentally, as I mentioned before, in the Healthcare segment. In terms of the finance, we have very prudent cost management on travel reception and marketing have been all reduced, of course. We postponed some ramp and social payment. We have a robust financial situation with a reasonable rate, not that maturing before October 24. And when we make an addition between our revolver credit facility and our draft facility that both of them are not used, we have more than EUR 85 million of cash that we can use if needed. So this was during the 2020. So if we look on the first quarter, up on organics on like-for-like, excluding any impact from currency and acquisition and disposal, we've been up by 3.3%. Then we get the first lockdown that was very strict. And in most European country where we are. So we've been down in terms of revenue of 8%. And we get 2 impact on this. We get first the reduction of the health care spend by most of the citizen in Europe. So they're going to see less doctors, and spend less on drugs, et cetera. And as we manage reimbursement and we make direct payments, et cetera, will have been affected by this. We see some postponement on contract. We see that some contracts that we plan to implement in 2020 have been postponed to 2021. However, we get the boost on electronic invoicing on telemedicine during this period. So having this, we see a clear rebound in the third quarter by 1.9%. And an acceleration in the fourth quarter by 2.3% on organic growth, even if we get a lockdown of one month on this period. So the first lockdown minus 8%. However, a strong rebound just after that in Q3. And even with a lockdown in Q4, we've been able to make 2.3% up in the last quarter. So in terms of full year, on organic growth, we're just down by 0.2% at EUR 496.9 million. So if we look out to number now, [ on this table ], organically minus 0.2%. We had a negative impact of 1% due to the fact that we made disposal of the Pulse asset in 2019 and has been partly compensated by the fact that we make acquisition of NetEDI for electronic invoicing in U.K. and Cosytec for our HR activity some programming and a very small currency impact of 0.2%. So in terms of fuel, now 88% of our revenue generated in Europe and 10% in GDP and thus 1% out on other currency. So until now, we have been presenting our activity by the technology of clients. And the first division has in Chinese services, we put all the big name or the big account or big companies and the second division has care provision, we've put all the individuals. So one doctor, one pharmacy, or a group of pharmacies, a group of doctors or a group of pharmacies. This was the way we deal with clients. This is different to the marketing with big company and with individuals, et cetera. However, it's maybe more complicated to understand really what Cegedim is doing, so we have now decided to still maintain this presentation but had something new that it's a breakdown of businesses by activities. So we would like now to present our activity with this 4 segment. So the first one, software and services. In this segment that represent 56% of the revenue from 2020. This is everything that provides software. This is on license, on SaaS, internet services, maintenance, integration, hosting for health care professional in France, Spain, U.K., Belgium and Italy and Romania. And for health insurance companies in France and U.K. and for HR department in France. Then we get the flow business, the flow business is the digitalization of processes and invoices in France and U.K. and Germany, and I will also manage all the claims or the reimbursement, electronic reimbursement, mainly in France. So we think related to flows, exchange of data or exchange of invoices or exchange of money or reimbursement for insurance companies, et cetera is in this segment and this represent 16% of revenue. Having software and flow, we're able to collect data from the market. So we have the data division and having data we can do marketing. So we get the third division that is data and marketing, that is 18% of our activity. So this is all the heads that are based, all the information about patients, electronics can recall and completely anonymized, all the information about drugs, how doctor make prescription, et cetera, and we're selling this to health authorities, government, health care official and pharma company in Germany, France, Italy, Spain, Romania and U.K. And we also provide marketing at pharmacy. So we provide advertisement at point of SES in French finances, and we do some digital marketing also for doctors. And with that, we also have the BPO activity for health insurance companies in France and for the HR department and this represent 10% of our ROE. So this is the new way of presenting activity. I think it's more easy to understand what we do. It's more easy to see numbers and we'll provide, of course, all the details for all of this 4 segments in terms of revenue and profitability and guidance. Moving on the next slide is the performance by activities. So software and services, revenue came to EUR 277.2 million. This is down by 3.4% on a reported basis and 0.7% on organic. And how we came with comments on why we are up or down depending of division in a few minutes. In the second division flows, EUR 79.4 million, down by 1.5% and organically by 3.6%. Data and marketing, EUR 88 million, up by 2.4% on organic and reported and the BPO activity, roughly EUR 50 million on reported and organic up by EUR 3.9 million -- 3.9%. If we look quarter-by-quarter, you really see the impact on most of the division from the second quarter. The second one was the first lockdown. The activity have been completely stopping some of the part of the economy, et cetera. So we've been down in the second quarter. After that, you see the rebound in Q3 and Q4, software and services up by 1.4% in Q4 and flow a little bit down, but data and marketing very strong rebound in the last quarter, 13.3% and a slow decline on BPO, and we'll see this in few minutes why. So software and services organic growth minus 0.7%. This is a very recurring business. We have clients, there have been only us, they pay a monthly fee for the right of using software, so very recurring. On top of that, we get the boost from the teleconsultation solution, our Maiia teleconsultation solution. Even if we have decided not to charge our clients in the first half of the year, of course, we started charging in the second half. So we get a boost on that and are revolving. However, this have been offset by the fact that some project that needed to be implemented in 2020 have been postponed to 2021. So it's revenue that we should have recorded in 2020 that will be recorded in 2021. And some clients, mostly in the health insurance business, needed more time to take decisions. So the decision process have been longer. However, if you look on Q4, you see that already in Q3, we've been flat and are revolving in Q4. So we are very optimistic -- optimist for the 2021 revenue. In terms of flow, we're down by 3.6%. What's happened? The first one is that we get a very good performance from the invoice and process digitalization activity. Very strong demand that started during the first lockdown and most of the company needed to have electronic invoicing. So we get a real boost on that, of course, it needs some time to make implementation, et cetera. But we've been able to have some revenue in the second half. However, as we have seen in France, people have decided to go less to doctors and to use less drugs. So everything related to electronic reimbursement, et cetera, as we get paper volume on this activity would be down. So the fact that we get a boost on electronic invoicing for kind of sectors have not compensated the decrease on the Healthcare segment. However, as you may see in the last -- in the first quarter -- in the second quarter, we've been very down due to this decrease on [ SES ] spending. But in Q4, even if we get a lockdown, we've been down only by 1.9. So it also makes us confident that people will continue to spend money on health care to see doctors and to use drugs because you can't postpone some kind of disease for very long time. On data and marketing, very strong months, very strong year, very -- really driven by the data activity. And this is the result of the COVID-19 pandemic. We get a lot of requests from governments, health authorities in all European countries, but also from pharma company to track how drugs are sold in the pharmacy, how doctor make prescription, et cetera, to understand what's going on, what are the different dynamics in this complicated period. So our data business really make a boost. And as you see in the last quarter, we get more than 10% increase of revenue. And this being the strong activity in data have been negatively affected by the marketing activity at pharmacies. In the French pharmacy, we put advertisement in our TV screen, so pharma company and a cosmetic company paid for that. And during the April, and May, we roughly get no revenue. So that the activity was completely closed. And one of the reasons for that is that as nobody were on the street because of the lockdowns. We have seen also that less people use drugs and spend money on seeing doctors and drugs. We see less traffic in pharmacy. So then most of our advertisers have decided not to make advertisement. So roughly, revenue came to 0. And then adding this revenue very close to 0 during 2 months, due to the -- and we have seen a rebound in the second half of the year. So during the second lockdown, the activity on our advertisement business have been a little bit up. This have been pushed by the data business an increase of 2.4%. And then the BPO. What we have is a clear boost from the fact that we have added a new contract at the end of 2019, and on the same time, we get a decrease due to the effect on volume due to the fact that less people go to see doctors and make reimbursement. So our BPO activity for our insurance business, existing ones have been a little bit under pressure to decrease and be compensated at the beginning of the year by an increase to the fact that we get the new contract, so we get a base effect. So this explain why you see this kind of trend on our business on BPO. So at the end of the day, software and service is quite flat and start to rebound in the last quarter. Flow business have been affected by the fact that less people consume drugs and see doctors. However, we see that in the last quarter, we have been just a little bit down. Data and marketing helped and can be higher due to the fact that we have no revenue in April and May. And the BPO business, you have the impact of the fact that we get the new contract we were confident in this business. So if we take all of this, we're down just by 0.2%. In terms of revenue for 2020, we expect a recurring EBIT to be very close to the full year 2019 EBIT, recurring EBIT. For 2021 revenue, we expect something to an increase on a like-for-like basis quite close to 2%, so very close forecast to 2%. And for the full 2021, recurring operating EBIT will be disclosed when we disclose our full year 2020 earnings on March 18, and we'll provide the guidance at the group level in terms of profitability, but also for the 4 division at this time. On the addendum, as you may find our slide on our website, you will find the complete explanation on terms of breakdown of revenue by currency, impact of organic structure and FX for all of these divisions, so it's very important. You will also see that the fact -- the bridge between the reported and like-for-like revenue and you will see a table that will show you how we manage between sectors [indiscernible] and our division. So it gives you a view on how revenue move between these 2 way of presenting the group, and you will get something info about the Q4. Our equity story is really based on a solid business model, as you may you have seen, our revenues are actually flat in 2020. We continue to make innovation. We have a long-standing shareholder support. We have now [ connected through ]. We have a unique integrated as scare ecosystem. All of our products on Saas, we have now refocused group. So we think we have the right portfolio of product with strong market position, strong recurring revenue base. This is why we are quite flat also. We see that the COVID-19 accelerate the transition to digitalization, and we are ready for that, and we expect to have positive impact on that. And on the same time, we created a new product by having more synergies between our different offer. And the next event will be on March 18 with the full year 2020 earnings release. So this concludes my formal presentation. And if you have a question, you may ask the questions with the Q&A button or you may raise your hand if you have. Thank you.

A question for Geoffroy Michalet.

Jan Eryk, thank you very much for your presentation, and thank you also for giving a new breakdown of sales. My question is on the guidance of the plus 2% for full year 2021 in terms of revenue. Could you give us somehow a breakdown by division of what you expect the growth to be like? And maybe the key driver that will lead the growth next year?

Yes. So we'll give more color about guidance breakdown by division when we released the full year figures on March 18. However, if you look on this slide with what happened in Q4, we may expect to have a third lockdown in the first half of this year. So the first half of this year can be '21 -- can be a little bit complicated anyway. So in terms of BPO activity in flow, we may be flat in the first half of the year and a little bit rebound in positive growth in the second half. In terms of software and services, we have our existing client fracturing business. We know that we have some revenue from 2020 that will be recovered in '21 because we'll be able to make implementation. When we'll do this implementation, this is the questions, depending on if we get the third lockdown, this can be postponed to, say, May, June or July or July during vacations, also in September. And having so software probably between 1% and 2% increase in the first half of this year. And data marketing, if everything continues as this is right now, so we're still in a complicated year. First half -- in the first half, we still probably have a strong demand from high security and government on our data act business, et cetera. So anyway, we should take those numbers, we may expect to be around 2% growth. So between 1% and 2% on software and services, flow and BPO around 0 and maybe 10% for data and marketing in the first half and maybe more in the second half. So this is our first guidance 2%, that can be updated in April when we released the first quarter revenue or in July when we released the second quarter revenue. We starting the 2021. It's not easy to see exactly how this things will happen. However, we are confident to have the minimum of 2%. This is why we're waiting to the March to give you more visibility on this.

Okay. Maybe a second question, and then I will leave the floor to other people. Could you give us an update on how you're doing the Maiia software transition and the Maiia strategy as a whole?

So, the Maiia, it's 3 products. So we get Maiia rendezvous to take appointment on the Internet with doctors, where you have Maiia teleconsultation for teleconsultation. And Maiia restaurant, the first piece of that was a software keto practice. We still see a very strong demand for our software for keto practice. So there is strong traction. It's continue and we'll probably release at the end of 2001, the option of Maiia restaurant for dentists and after that for doctors, for GPs. So we are on track of that, but release of the acceleration on existing on the practice and for dentists and GPs probably at the end of 2021. In terms of Maiia rendezvous, you have seen that the French state has ask us to provide the Maiia appointment scaling solution for the vaccination centers. So we are -- have deployed this solution. This will not really generate sort of revenue, but this gives us a very strong visibility on the name of Maiia and Cegedim. And it's very important that this gives us the visibility and this is the opportunity to the marketing and to convince doctors to use also this solution compared to some of our competitor and one of them, is to clearly show doctor. We also exist and the French government have also choose us. So this is a real solution. So we expect a real boost from this -- from the fact that we are keeping vaccination central not in terms of direct revenue, but indirect revenue by having a main recognition on that. And teleconsultation continued to be very strong. We have not seen any slowdown since November with the peak during the second lockdown. And it's continued, and we are attracting more patient, and we're attracting also more doctors on this solution. And we have now a question from Eric Blain.

Do you hear me?

Yes, go ahead.

Okay. I just want the two point to understand very well. All the Maiia business is in the software and service?

Yes.

In terms of cost and in terms of sales?

Yes.

And about the wage management business, where do we find it, it's split between BPO?

Yes. So for the HR division, we have all processing systems. So making payroll, et cetera, in the software and services as this is an internal services, so people connect on cloud to put all the information, and then we can print the payslip, and the payroll. And the BPO part is on the BPO segment.

Okay. And in terms of percentage of sales, that means it's 40% in BPO and 60% in software?

No, I think it's more 75% in software and 25% in BPO.

Okay. And in terms of profitability, it's quite more in software than in BPO?

Yes, the software business is twice more profitable than the BPO business.

And I have a last question about the sales of BPO on the fourth quarter. I am -- I just want to understand it's less 7%. Is it due to basis -- high basis in 2019? Or it's a recurring business -- the trend is on such decline?

On BPO?

Yes.

No. On BPO, it's that we have signed a new contract in Q4 2019. So we get a very high revenue in Q4, 2019. And of course, when you control with the first quarter, we have the booth from this new contract in Q1 and then in Q2 and Q3, or one as we are making implementation. And in Q4, we have no more -- any positive impact from this new contract. However, we get the decline from the fact that less people are going to see doctors and continue drugs.

Is that means that the decline -- if we exclude this contract, the decline during the year was around this level of 5% to 7% on the recurring business?

Yes. As I mentioned, in terms of volume, we have seen a decrease during lockdown of 25% of activity for reimbursement. This is on volume. So yes, we may assume that just due to the drop down, we have a 7% decline on BPO. I have now a question from Patrick Jousseaume. Patrick, if you want to ask question.

Can you hear me?

Yes.

Okay. Okay. Perfect. In fact, I wrote three questions. But 1 has already been responded, the first one. And the 2 other, I am going to ask you. So the first question that I asked is, could you comment on the profitability of the new divisions? So could you give us on a division-by-division basis. I'm sorry, but I missed the start of the meeting. Could you comment profitability of this division? And second, there was an article in [ Mexico ] this morning about Doctolib so from this article, we understand that they find that there are some companies that make good margin on providing, let's say, solution to Doctolib. So we understand that maybe the target yourself. So could you comment on this, please?

Yes. So first, in terms of profitability per segment or division, I will provide more detail when we raise the full year [ guidance ] -- more easy to have their numbers and to comment on guidance for the future on that. However, what we can say is software and services it quite close. It's a little higher than the margin of the group. So if you look on the EBITDA margin of 2019, we've been at 20%. So EBITDA for 2019 was at 20%. So software and services were a little more than 20% EBITDA margin. On the flow business, we are more than 20% EBITDA margin. On data and marketing, we were in line with this 20%. Why? Because the data is very high margin, but the marketing activity is a lower margin. So in the mix, it came to roughly just 20%. And on the BPO business, we are more close to 10% than 20%. But we'll give you more details on that, and it will be more easy to comment once we get the full year earnings. Regarding the kind of comment Doctolib made in [ Mexico ] this morning, we know for the quite long time that Doctolib would like to -- on to providing something more productive than just appointment, scheduling and telemedicine. So the only way which we can do something else is to provide a software to doctors. However, there is 2 kinds of software products. We have the practice management software, it's mostly appointment, managing patients and making billing and reimbursement, the kind of administrative software. It's not so complicated. And I think it will be the first step for Doctolib to enter. And the second one, it's more medical software. So help doctor make prescription, make diagnosis, find allergy between drugs, find negative interaction between drugs, find interaction between new allergy and new drugs, et cetera, et cetera. And this part, it's more, more, more and more complicated to provide. So yes, I think that in 2021, Doctolib will enter in the market by providing, I will say, practice management software, but it will still miss the medical part of the software. And this is one of the reasons why we're making this huge investment on R&D. During the Capital Markets Day, we have said that we have spent EUR 100 million in 2020 on R&D is to get up-to-date product, and the first one was, as you have seen, it's Maiia Gestion for keto practice, and this will be also deployed on dentists and GPs at the end of 2021. So we are improving our products. We are simplifying the way of using products making more simple for doctor to move from one solution to another one and very easy to use this [indiscernible]. So we do not need to spend a lot of time to learn how to use the software, et cetera. So all of this is a way of being sure that -- and this is completed on cloud, et cetera, that when Doctolib will enter in the market, they will find a very hard competition. This is the answer on this. And someone asked also a question why we're spending this amount of money and we get the lower organic growth. We still -- we're quite -- on software, we're a little up. We have just some postponement of implementation of some product, mostly on the insurance one that had a negative impact of the segment from 2020 to 2021. The second is all of our new product on Saas. So we are now gaining market share in France, in U.K. and in Spain. With our new product to marching on sales. It takes time to regain this market share, but moving on the right direction. And we already have done this investment. And I think that some of our competitors will need to make the investment in on cloud in the future. And we have a question from Antoine.

Most of my questions have already been answered, but maybe as a reminder, could you remind me how many contracts do you have currently on the BPO business? And then as a follow-up question, a quick update on Clamae, how the company is doing? Are you still expecting it to be breakeven in 2 years? And when do you expect the safety bit solution to be fully implemented in your products?

Well can you just repeat the first one?

Yes. Just a small reminder, how many contracts do you have currently on the BPO business?

On the BPO side, we're actually [indiscernible] we have 2 kind of contract. We have small contract with some insurance company. When they have a pickup activity, they can transfer to some activity. So just during peak period, they can use our services just to maintain the flow and the quality of services. And we have plenty of contract of this way. This is a quite small contract. And from time to time, we get a boost on that. The second kind of contract is a real that they do some insurance companies have decided to completely outsource the claim processing system to Cegedim. And at this time, we have full contract of this kind. On the Clamae Group, we get just a minority share on this, 34%. The group is developing very well. They get -- they are now compliant with all regulation in France. They get an agreement to make a U.S. payment and they win a contract with Pierre. So they will manage all the payment. Pierre will use the solution for all the payments. So this would be an additional solution for payments presented by Pierre. So it's very good development for the company, and it will also implement the solution at the EDI store. So having Pierre and EDI, I think this will accelerate the compounding growth rate and, of course, the profitability, and maybe it will be less than 2 years to be breakeven. The second thing is when we'll implement all this payment solution in our solution. This is what we are actually doing. So this morning on. It takes some time because we need to put this in a very simple way to educate doctors, pharmacists, et cetera, how to use it. But this is currently under deployment. So we may expect that during 2021, some of our solution for doctors and pharmacies will be equipped with this solution. We get another question from Francis.

[Audio Gap]

So in terms of guidance, if you look, we expect to be flat in terms of recurring operating income for the full year 2020. When you look on profitability in the first half, we've been down. So this implies an improvement in the second half, and the improvement came first from the time that we get more revenue in the second half of the year, as you may see, software is a little bit up, flow is just a little bit down. However, the data and marketing business is up and the BPO, a little bit down. So the low margin. So it's less impact on the margin side. Software is stable. However, the data business is up and is very profitable. So of course, this increased margin. So the improvement of margin came mostly from the data business and the stability at flow and software. But on the same time, as we have reduced the costs related to travel, marketing, reception, et cetera. We have some specific savings for 2020. And of course, this help also achieve higher profitability in second half so to be flat on a year-over-year basis. If we have no more questions. So one want to raise hand or there is no more questions. I will try to answer all the questions that you put on written maybe by e-mails, depending on -- and you may find the presentation on our website. There will be a replay of this on our website also tomorrow. And you mentioned e-mail or give me a phone call, and I will be ready to answer this evening and tomorrow and today, of course, also. Thank you very much for listening. Bye.