Cegedim SA (ALCGM) Earnings Call Transcript & Summary

Good morning, and good evening, everyone. Thank you for joining us to discuss Cegedim full year 2021 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 prospects and are based on our view as of today, January 27, 2022. Additional information concerning importing factors that may cause our results to differ materially from expectation and underlying assumption, please refer to our universal registration documents, specifically Chapter 7 on Risk Management. Having this online, I will turn on Page 3 of this presentation. The big picture of 2021. So this is only revenue. The full year earnings will be released on March 27. So coming to the revenue. Revenue came up by 5.6% on a reported basis and plus 5% on a like-for-like basis. So the top range of our guidance, we came to EUR 524.7 million, as we have steady revenue growth during all the year. In the last quarter of 2021, revenue came up by 4.9% on a reported basis and by 3.9% on a like-for-like basis. And the fact that revenue grew by 5% on a like-for-like basis over 2021 came mainly from the needs for all health care organization to more digitalization and digitalization of business process on electronic payment, electronic billing and of course, apparel. If we look division by division and all the numbers you see are on a like-for-like basis. So software and services came up by 4.4%. And this is mainly due to the fact that all the product-based businesses recovered starting from March 2021 and mainly in the health insurance segment. We also get a very good performance from the HR management outsourcing solutions, meaning our payroll activity [indiscernible] [ Mr. Ash ]. At the same time, Maiia revenue doubled as predicted over 2021. And also, we get significant trading operation in the last quarter of 2021, and I will come back in this fact in a few minutes. On the Flow business, we are up by 6% on like-for-like basis. This is really an excellent performance despite some negative impacts from the pandemics. So -- having this negative impacts, we're up by 6%. On data and marketing, very, very, very high growth by 12.1% and this is mainly driven by the data activities that are very, very strong, including in the last quarter of this year despite a negative base effect. And we have very solid performance in marketing activities that are recovered from more difficult years in 2020. From the BPO business, we are down by 3.3%, which is the only division where we are down over the year. We get the negative impact of the pandemia again. We have also some negative impact of the end of implementation phases for some projects at -- having that, we also get a strong growth on the BPO activity for the HR department. So this is a big picture of what happened in 2021 in terms of revenue. If we look exactly, so we get a growth of 5% organic growth. 2 small acquisitions done in May 2021, Medimust and Kobus for the software division for health care professional, and we get the currency impact of sterlings in U.K. for 0.3%. And if we look at revenue for 2021, we are up 7% if we compare to 2019, so EUR 524.7 million of revenue. If we look quarter by quarter, you see that we have been up by all quarters. The first one have been a little bit small growth, say 1% and then with strong recovery in the second quarter of the year. And then in Q3 and Q4, around 4% growth on a like-for-like basis. So this run to the 5% increase at the end of the year. What is interesting to see is that in Q4 2020, we already had some recovered from the pandemic, being up by 2.3%. And even this negative base effect were up by 3.5% in the Q4. Go to Q3, we have a small base effect. If we look now division by division, so software and services, an increase of 4.4%. This is where we have the acquisition of Medimust and Kobus of 0.5% on structure based and 0.5% on currency impact. So on a reported basis, this is up by 5.4% or EUR 14.8 million to EUR 292 million. Again, we've been flat in the first quarter and then strong recovery on the second one and then an acceleration of growth in Q3 and Q4. This is mainly coming from project-based business recovered that started in March 2021 and mainly in the [ fail ] insurance segment, HR strong performance, Maiia double revenue and trading activities also in Q4. Flow business, an increase of 6%. This on a reported basis, EUR 6.1 million. This is EUR 4.8 million more -- and again, we've been had by all quarters over the year and in the last quarter. They've been just a little bit affected in Q4 by the pandemic that ramp up at the end of the year, the ramp-up of pandemic at the end of the year due to the Omicron virus. And this has affected a little bit our third-party payment for insurance companies and a little bit also some of our clients on electronic invoicing. Despite this impact on the last month of Q4, so in December, that affected a little bit of a business with by [ 3%, 2% ] in Q4. And data and marketing, as already mentioned, very strong growth in all quarters. That activity, it's really driven the business. It's a double-digit increase on the data. And also, we have a solid performance in marketing activities. So the advertisement at point of sales in the French pharmacies, strong recovery that started mostly in the second half of 2021, that also helped to reach this 12.1% increase, so this is plus EUR 10.8 million. On the BPO business, so we've been down all over the year. However, if you look quarter after quarter, just reduce a little bit. In Q4, of course, we get positive base effect if we compare with Q4 2020, we've been down by 7%. We get to the impact where the pandemic that lead the people in France less new health care system, so get less reimbursement. So less use of our BPO activity. On the same time, we have also entered the implementation phase of most of our clients. So of course, when we get the implementation, we should get higher fees because we get some, we say, implementation fees included in the pricing. Once this implementation is done, of course, the pricing decreased a little bit just to the normal business run. And then we get this impact in 2021 compared to 2020. But on the same time, we get a strong growth on the BPO activity for the HR department that is growing, that has been quite stable in 2020. And by the last quarter of 2021, we see an acceleration of this business. So if we would like to summarize 2021, an increase of 5% on a like-for-like basis. This is at the top range of our estimates for 2021, where you make a position to drive utilization of the economy improving health care and outside health care. I would like to add a few words about our Euris litigation. We get a judgment in December in favor of Cegedim. It means that the court dismissed the case against Cegedim, so this is no longer a litigation. It's a good news. For the outlook. So revenue at top range of our estimates. However, some trading activities that we carried out in the last quarter of 2021, of course, as this is trading activities that are lower margin than software activities. So as we get some boost on this activity, this have lower margin than other activity in first division. So this will probably hit a little bit our growth rate for the recurring operating income in 2021 compared to 2020. So it will be a little lower than the exact reflect of the increase of revenue for 2021. For 2022, what we expect is 2022 revenue will probably have roughly the same increase than in 2021. This -- onto the equity story, I would like just to remember that we have a solid business model. Innovation is very important, long-standing charter support from our culture, a unique integrated health care support. All of our product are now on SaaS, strong market positioning, very strong recurring revenue base. As you will see, in March, we continue to focus on free cash flows. We're uniquely positioned to drive the utilization of economy, and we continue to make synergies in the group to increase our offering and to create new offerings and increase margin at the group level. This is our goal. And then in Addendum, you will find the split between our division and our sector, sector, this is how we present our revenue in the past year. So you may have -- see exactly how this move, and then we get revenue quarter-by-quarter and trend by quarter by quarters for 2021 and 2020. The next time will be on March 24 for the full year 2021 earnings. This concludes my formal presentation. And I will now open the floor for the Q&A session. Thank you.

There were some questions about our guidance. It means that, yes, our guidance, if you look at the last time was in Q3, so in November, we said that recurring operating income will increase by 4% around if we are in the middle of our range for the revenue. This means that if revenue increased by 5%, normally, recurring operating income should have increased by 5%. However, I don't think this will increase by 4% due to the fact that we have some trading activities in the first division that are roughly trading activities around the margin of 10%, where software is more or less around 20%, 25%. So lower margin from the trading activity. So it's not -- it's around EUR 4 million of revenue so this will have a little bit impact. So maybe in state of -- I mean 5 will be a little bit lower than 5% increase. This is the only factor. Just mention that some of the revenue in the first division, it's trading activities that are lower margin than other activities. So of course, having this, this will have a little bit impact on the global growth rate of recurring operating income for the full year. On the expected growth for each division for 2020. Probably Software & Services and the flu division will have more or less the same growth rate in 2022. Maybe a little bit more on the Flow business because we'll have less impact from the pandemic, this is what we expect. On the Data & Marketing, probably some increase but at a lower rate than 12%, maybe coming back to a big 5%, big 6% maybe. And the BPO business will also be up probably in 2022. So it's a mix of -- I would say roughly, you may take the same numbers, just to increase a little bit on the Flow business, decreased a little bit of the Data & Marketing and put some increase in revenue on the BPO business. This is by different division. The trading activities is buying and selling software for some of our clients. So we get some clients from the retail space mostly that needs some software runs on businesses and in state of buying this software directly to some software providers like Araku, like Microsoft, they buy it through Cegedim. So of course, we buy some software, and then we resell them the same day to our customer, and we are -- very small margin on this business. So it's more or less some of our clients that prefer that already used some of our software. They just say, "Okay, maybe you can also provide some additional software that we run for -- need for our business," and it's more easy to have a unique contract for doing that. And we saw we're buying and reselling some software for some of our clients with low margin. This is what we do. We get a question from [ Jeremy Quicks ]. So just to remind you, the -- before we will take the question, just to remind you, the sales revenue from Maiia -- Maiia revenue. In 2020 revenue was around -- a little more -- in 2021, revenue from Maiia is around a little bit more than EUR 4 million. So a little bit more than EUR 4 million for 2021 for Maiia. Jeremy, if you would like to ask?

Just a question on a couple of points. You mentioned the litigation that you won at the end of the year. Did you have some provisions on the balance sheet? Are you planning to release the provisions? Do you have any amount that you can share with us? Then the question -- the second question is on the -- do you want me to give you all the questions now or?

No, no. You can go through all your questions.

Okay. And the second one is what is the total amount of trading activity in the software division? And can you give us a split of the software revenue per nature? So how much is recurring sales from subscription? How much is license? I mean maybe not giving us the exact amount, but just a range, maybe an idea, how much is service, how much is hardware, resell. That would be helpful. Then the last question is more on the -- so the other question is more on your guidance. So just to understand, so you say it will not be at 5%, but it will be around 4% to 5% EBITDA margin -- EBITA margin for this year, is it correct? The growth, sorry. And then the last question is on 2022 guidance. So what you said we should expect the same growth in the Flow division, 6% growth in data marketing, if I got it correctly? And the stronger growth in BPO. So it would mean that the software growth, which should be as -- I mean in the range of 2021, so around 4%. But in any way, it's not going to be much higher than this. Is it correct? That would be for me.

Thank you. So taking the first question on the Euris litigation. So we have not put any provision because we have consulting our external legal counsel and they all say you do not need to make any provision. So there will not be any -- will not reverse any provision because we have no provision. This is the first one. So not strictly no impact of this, either the fact that from we win this, there's no longer any litigation, but no financial impact in any way, including no impact from the reversal of provision. The trading activities and the split on Software & Services, we do not really note specific numbers on that on Software & Services. However, what we can say is that trading activities, buying, reselling software probably -- most of the use, it's around EUR 5 million -- between EUR 5 million and EUR 10 million, depending on the year, in total.

Sorry, just a follow-up. So this year was closer to EUR 14 million. It was a very high amount this year.

No, this year, it's more close to 10, I'd say that in between EUR 4 million and EUR 10 million, and we are more close to EUR 10 million this year compared to the year where we get more close to EUR 4 million to EUR 5 million. The first point. The second on software, what it's SaaS, what it's licensed, what's its maintenance anyway, even if you expect the license model as we are in a very regulated market, most of our clients need to buy any update every year. So this means that revenue from the license and maintenance in the structure is very close to a SaaS model revenue. So no big difference on that. So excluding this EUR 10 million on maintenance, maybe EUR 5 million -- EUR 10 million on trading, EUR 5 million on hardware, all the remaining revenue are really recurring and our Software & Services. Now on the guidance of 5%. Yes, this is what we have said is this mean at end of September, we see revenue increase by x, recurring operating income should increase by x also. The fact is that having this trading activity in the first division with quite low margin, it's around -- say revenue at 0 margin should be through. Of course, this puts a little bit pressure on the growth rate of our guidance. However, you will see some growth, of course, on recurring operating income. So instead of having 5, you will see less than 5. Exactly how many, you will see this in March. Just to say, take in mind that will not be at 5, but a little bit lower than 5 when we released our recurring operating income in March. This is what we really want just to say. It's -- normally should be the same. However, we have this specific activities in the last days of December. This added exceptional revenue in the first division with roughly no margin. So of course, this will have some impact on the margin. And then on guidance for 2022 on revenue. Well, I have said is Software & Services, yes, probably a 5% increase. The Flow business will be more than 6%. So more than 6%. And Data & Marketing will be less than 12%. So probably coming back to something like 6% to 7%. And the BPO business will be a little bit up instead of being down. I think I have responded to all the questions.

I have a couple of follow-ups. Can I ask them?

Yes.

So maybe on the -- on the margin for next year. Maybe first on the growth for next year. Do you plan to increase your prices for services, I don't know, for software in general in 2022 and by how much? What level of inflation are you observing on your cost at the moment? And maybe the last one, can you give us any -- I don't know, any outlook for the margin for next year? Should we expect more operational leverage next year or not? That will be just a qualitative question.

Well, first, on margin for 2022, we responded March when we released numbers for 2021. So we'll give no colors on that at this stage. The second one is on inflation. Yes. So all of our -- most of our contracts, the huge majority of our contract include a clause that give us the possibility to increase the pricing by the Semtech index, that it's kind of inflation and extra IT activities based on France. So on most of our activities, we are able -- we increase our pricing for all of our contracts by inflation, IT inflation, I would say. So this will be done and this is done automatically. So this is the first thing. The second inflation on costs, we have not really seen any significant inflation because the only part of our activity we would really see it is for our data centers when we're buying some data service, of course, price -- pricing have increased, but it's not -- there is some increase, but we can manage this. This have a very non-significant impact on our cost. And the second is salaries. Of course, we see some people asking for salary raise, et cetera. On the same time, we have some activities now in Morocco, Egypt, Romania and in different countries in Europe, so we are able to manage this and to manage this in a proper manner. And as we are able to increase some -- we are increasing our pricing with our clients for IT inflation, we can reflect part of this to some salaries. But I don't think that our cost will significantly increase just due to inflation in 2022 compared to 2021. So no real impact from inflation on our cost. We get a question for -- again for Maiia. So the loss of the -- losses at Maiia were close to EUR 10 million in 2020. We -- as we already said, we expect to have roughly the same level of losses for 2021. So EUR 10 million in 2020, EUR 10 million in 2021. I get a question from Eric Blanc.

Just a follow-up about the margin for 2022. If I don't want to make any assumption. But Data & Marketing is a higher level of margin. You told us in the past and BPO is quite lower level of op margin. So when you say that BPO is recovering and data marketing is slowing, that means that margin would be a little under pressure.

When we look at the BPO business, we are down by 3.3% compared to last year. So even if we make some progress on automatization, et cetera, probably we'll be able to again be quite flat on recurring operating income for the BPO activity. So this is the first point.

And BPO is more than breakeven right now?

Now probably BPO was breakeven in 2020, but it will be probably breakeven again in 2021. So no real improvement. So all the improvements that we have done is raised by the fact that we get less revenue. So again, breakeven on the BPO business. On data and marketing, yes, it's true that the data business is a very -- it's the highest margin in the group. So of course, when we see a double-digit increase on the data business, this has a positive impact on the margin at the end. So it's a mix of different things. We, of course, get a boost on the data activity. BPO would be roughly the same as last year. Maiia is the same as last year. We get this trading activities in software and businesses -- Software & Services. So more or less, yes. We'll be quite close what we have said, however, probably be some -- a little bit lower than what we are seeing.

And just I have seen that -- and I think that you have seen the [indiscernible] doing announcement now to enter strongly in services to meet to doctors. Do you see them aggressively entering this market in front of you?

No. We have not seen them aggressively, but have not lose any doctors to them. We know that they have released this version. We know that they are missing big part of the software. So it's complicated to them to compete against us or even some of our competitor, like CompuGroup or Pharmagest or something like that. Are really on a much lower level in terms of functionality of the software. So at this stage, we have not seen any change in the market from the fact that they have entered on the market.

And if we look on the longer term, from where do you see a possible increase in profit margin?

First, Software & Services, we are still lower margin than what need to be. So the biggest increase of margin at the group level will come from the Software & Services division and the second increase will come from the BPO activity. So this is 2 sources. So of course, we'll see some little bit increase on the Flow business, on Data & Marketing because we get an increase of revenue and this translate, of course, on some part to some increase of margin. But the highest improvement on our margin will come from the Software & Services division and then from the BPO activity. Then we get the question to know if PayFit -- it's one of our competitors for our payroll activity. We have never seen them when we compete to win some companies. So we never have been in face of PayFit at this stage. That probably target smaller company than where we are. This may be change in the future. However, in this state, we do not see any competition from them, even if we are quite close in the business. And for the Maiia, we are making losses of EUR 10 million in 2021. We do not expect to be breakeven in 2022, probably again some losses in 2022 due to the Maiia business. So breakeven will be more in 2024 for the Maiia activity. So our goal is to accelerate on this business appointment, scaling appointment and teleconsultation, winning more doctors, and of course, there is some cost related to when you do some more marketing to convince doctor to choose your solution. I guess another question on employees that maybe some employees would like to go to see some start-up activity or something like that. We have not noticed this on a big scale. People feel well at Cegedim, we have the family company, we are a listed company, we have some free share plan for our employees so we have not noticed any trend of people moving to some of our competitors. It's more that they want to fight again this new entrant or this -- some existing competitor. So no, we have no really see any talents moving from Cegedim to the companies. Yes?

Yes. Just a follow-up question. Do you have -- change your mind about the financial structure of the group about -- you have a huge reimbursement in 2024? '23? I don't remember when. But you told that you were making your mind about refinancing. Do you have -- had an evolution on that or not?

Yes. So we have to reimburse in 2024, EUR 130 million. So it's not a significant certain amount. But at this stage, we do -- we do not see any risk to fine on this revenue, we see that maybe interest rates are moving a little bit up. Something that will outlook probably at the end of the second quarter of this year, but it's for 2024, and we have some times to find the best structure to refinance this EUR 130 million at this time. So if we have no more questions, I will say we just would like to conclude saying that we are very confident of our growth and to continue to increase our market share. Due to the fact that we invested heavily in the past years that will have a positive impact on our revenue growth in the coming months and years. The digitalization of the health care is really an opportunity for us and you will see this in the coming, again, weeks, months, years that we profit from this. And of course, also the fact that electronic invoicing is gaining market share everywhere. And that will also be a positive impact for the group. So thank you very much for listening. Have a good day, and a good evening. Thank you very much. If you would like to get more information, do not hesitate to contact me by e-mail [ DiFranco ]. Thank you very much. Bye.