Cegedim SA (ALCGM) Earnings Call Transcript & Summary

Thanks for attending the presentation. So today, we have just released our H1 earnings. So let's start the presentation now. I think you are quite knowledgeable about the company, most of you. Just a quick reminder of what Cegedim Group is about. So you know we are mostly in the health care business. We have 5 more business units that you are getting accustomed to, the Health and Cegedim Insurance business unit, the Business Services unit, the Healthcare Professional units addressing doctors, pharmacists, the Data & Marketing BU and the Cloud & Support business units. You can see down on the right, their share in our revenue in 2025. And the upper corner on the right-hand side, you can see the trajectory of our profitability. And you can see that since 2022, we are improving our operational profitability and has been the case also for this first half, and we're going to get into details on that point. Also, it's our aim to improve it during the whole year, of course. So you know we are the center of the -- we are a leading integrated player in health care with a unique ecosystem. We are at the center of this ecosystem, and we are mainly in Europe for our operations. And also, I think it's worth reminding that AI is embedded in our strategy. It's at the core of our strategy. We develop it through 3 main key areas. First one is equipping our development factory. So we are equipping our collaborators in the R&D to boost productivity. We are also optimizing it through the monitoring of cost efficiency. Most of our developers are equipped right now. We are also improving our internal productivity. We are using AI tools to improve it, especially in the case handlers in the payroll, insurance BPO businesses as well as in the customer support. Last but not least, we are integrating AI into our offerings. We are enriching our site entering by rolling out some features as we always have done in the Maiia suite with the Claude Bernard database in the HR business and fraud detection in the third-party payer business. I think it was worth reminding where AI is for us and how important it is for us. Now I suggest we get through the earnings of this first half. First, we had the revenue released in July. Remember, it came up to EUR 354.8 million, an increase of EUR 2.3 million, 0.7% reported, 0.8% like-for-like. And as we had mentioned, remember, Q1 had a revenue declining by EUR 1.7 million, that was mainly due to the end of an important outsourcing contract and then demanding comparison basis on trading business for the Cloud & Support BU, which means that Q2 was very positive by EUR 4 million, benefiting from the growth of the Business Services BU that we will see, which is partly due to the reform of the e-invoicing in France that started in September 1 a few weeks ago and also on international subsidiaries that kept that trend going in Q2. Also worth reminding that over the first half, we launched our operation in Spain for the marketing business, C-MEDIA España, that generated some revenue also over first half. The adjusted operating income that you can see in the center box up there stands at EUR 19.7 million, an increase of EUR 1.2 million over the first half compared to last year, mainly thanks to cost control on external expenses and payroll costs. it grew by 6.9%. And the margin -- the adjusted operating income margin at 6.1% on this first half compared with 5.7% in H1 2025. An important feature is the specific items affecting operating income, which can be seen as the nonrecurring items. Remember that in H1 2025, we had a EUR 9 million nonrecurring income, out of which EUR 7.4 million were attributed to the residency scheme at the French pharmacy software business. EUR 6 million in provision, EUR 1.4 million in other costs, costs related. So we don't have this here. So these nonrecurring items are only EUR 2.4 million this year. So it's very -- that impacts very positively the operating income as you will see in the P&L. Regarding employees, we have a bit less employees than last year at the same period, 113 employees less, 1.7% in total, mainly in the offshore operation, but I will come back on a slide about this. The operating free cash flow is improving this year, standing at EUR 58.9 million, an improvement of EUR 2.3 million compared to last year. And as you can see on the bottom right-hand side, the net debt is improving, is decreasing. It's about EUR 150 million, decreasing by 17%, EUR 31.4 million. This is mainly due to the very good cash generation in H2 2025, mainly that allows us to have this net debt decreasing. You are now used to this slide about the impact of capitalized R&D and its amortization through time and how it impacts our P&L. So you can see that we are still investing in R&D. It's a slight decrease of EUR 0.2 million. And you can see a slight increase in the amortization of R&D, and we already mentioned in the previous call that we have reduced the time for amortization of R&D and it impacts, of course, its amount. So we have a slight negative impact on the evolution of our adjusted EBIT from 2025 to 2026. That shows how good the performance was on this side. Regarding the payroll costs, you can see that it decreased by EUR 1.5 million over the year, 0.8% improvement. You can see that we have 113 employees less in our headcount, mainly on the offshore side, which still is about 28% of the total workforce. So it's more of them at the side. It's due to things, among which the AI development in the company. And on the onshore side, despite the redundancy plan that we had in the pharmacy software in France, we had some hiring, and we'll develop that later on. But especially in Spain, you see that our subsidiary in Spain on software for doctors is working very well. So we had some hiring and also internalization of some temporary workers. So now we can jump to the P&L for the first half in 2026. So I think we elaborated quite on the revenue, so I won't come back on this. It's a positive change of EUR 2.3 million. You can see that the important thing is that the cost control I was talking about at the beginning of the presentation. We still have this trend on external expenses improving each half with the internalization of external contractors. You can see also the positive impact of the payroll costs. All of this helps the adjusted EBITDA growing by 1.3%, standing at EUR 62 million on the first half, which means that it's an adjusted EBITDA margin of 19.1% compared with 19% last year. Regarding the D&A, it's overall stable, a slight decrease of 1.1%. We have a slight increase, as we have seen in the previous slides on R&D amortization, a bit on tangible assets, and we'll come back with this on the cash flow. But we have a decrease regarding IFRS 16 amortization. So overall, it's quite stable, which leads us to this adjusted operating income, benefiting from the cost control we had, the improvement of 6.9% on this H1 compared with H1 in 2025 with an adjusted EBIT margin of 6.1%, so above 6% compared with 5.7% last year. So I mentioned in one of the first slides, the improvement of the specific items affecting operating income item, which is the nonrecurring burden items, improving by EUR 6.6 million. So this leads to this very important increase in the operating income, which stands at EUR 17.3 million in H1 2026 compared with EUR 9.5 million last year. So it's a change of EUR 7.8 million or almost 83% improvement. So thanks to the cost control and to the reduction in nonrecurring items. Below that, you can see that the total tax increased this year is mainly due to the increase of the profit. So all of this leads to an improvement in the net income group share, which stands at EUR 5.4 million this first half compared with EUR 1.2 million last year. So it's an improvement of EUR 4.2 million in the net income group share and of course, of its profitability. So let's jump to the free cash flow. So the improvement in this net income, of course, has a direct impact on the cash flow generated from operating activities that grows from EUR 56.6 million last year to EUR 58.9 million this year. I think it's worth noting on the tax paid last year, we had a benefit from it. And this year, we are, of course, negative. We have to pay EUR 4.7 million. This is due to, as we had mentioned in our universal registration document, the final payment in first half 2026 of EUR 4.1 million in connection with the tax audit. And also last year, we had a benefit due to a tax consolidation reform due to previous overpayments that was about when we set up the IP box regime that explained this improvement last year. So the cash flow from operating activities is almost EUR 59 million this year. You can see that the acquisition of intangible assets is quite stable, as we had mentioned before. The acquisition of tangible assets rise quite much this year. This is due to investments that we are doing. First, you know that we are building a new data center not far from Paris. So we had the final payments for this new data center. Also all the equipment we need for it and for all our data centers, servers, especially, we booked in advance some of them because you know prices are soaring. So we wanted to be sure to have the best prices we could and buy a bit in advance. Also, we have some investments in the marketing in Spain, the C-MEDIA España that we have launched this year, and we had to buy some screens to equip the pharmacies. The impact of changes in consolidation scope, this is due to -- we had mentioned it in July to Médoucine that now is embedded in the group since -- consolidated since May 1. Remember, it's a leading French platform for booking appointments with verified practitioners in complementary health practices such as osteopath or sophrologist. So this is the impact you can see here. Overall, you can see that we have invested quite much. That's why we came from EUR 36.2 million last year to EUR 52 million this year. So all in all, you can see the change in cash was slightly positive last year, which is negative about EUR 13 million this year. This is due to these investments in tangible assets as well as the buying of Médoucine. All of this leads to a net debt going to about EUR 150 million, as we had mentioned earlier. If you do the computation, you can see that a slight difference between the change in cash and the change in net debt is due to the fact that we have a bit of noncash items in the debt, which are mainly accrued interest and capitalized interest. On the balance sheet side. So the growth in the goodwill is due to the integration of Médoucine. The shareholder equity is improving, thanks to the net profit. You can see that tangible assets also are growing due to investments I mentioned earlier in intangible assets in the data centers. This is the main things you need to see on this side of balance sheet. On the financing side, so we respect our covenant. You can see that we had EUR 180 million at start, and now we have already reimbursed EUR 9 million on tranche A of our financing platform. That's the main point, and we completely respect our covenant. So maybe now we can see how it goes in all of the business units, the various business units, and I have 5 business units. First is the Health and Provident Insurance business unit. So as we have seen in July, the growth was quite stable over first half. This was due to -- BPO was a bit down on the first one as our clients are less beneficiaries. However, third-party payer is still experiencing a strong growth. thanks to our fraud detection and long-term illness detection solution that we have. And on the software side, Q1 was negative, but Q2 was very positive. This was due to a pickup in revenue in the projects on Q2. But as you can see, the adjusted operating income is rising over the first half by EUR 1.5 million, standing at EUR 7.1 million in 2026 -- H1 2026 compared with EUR 5.6 million last year, which is an adjusted EBIT margin of 8.5% compared with 6.7% last year. This is mainly due to the cost control and the decrease in external contractors, the internalization of the skills that we need and also the reduction of total payroll that explain this boost in adjusting operating income. The second business unit is Business Services. Growth was very -- was quite strong in H1, about 4% across the 3 segments of it. On HR software, it was due to the impact from starting up HR contracts won in 2025. On the e-business side, it had experienced an accelerating momentum as companies affected by the first turn of e-invoicing came to us and came with projects and the reform started in September 1 in France. And last but not least, BPO also won some new clients during the first half and had a 3.5% growth. The adjusted operating income is growing by EUR 2.7 million in H1, up to EUR 14.9 million, an adjusted EBIT margin of 15.6%. This is due mainly to the control of the cost structure, especially on payroll, which has been quite stable in HR and decreasing in BPO as the business is more stable. We have less temporary staff in it, so it cost us less. And this offset partly the increase that we had in HR for the digitalization business a few months before the start of the reform of the e-invoicing in France. Our third business unit is the Healthcare Professional unit. As we had seen in July, Cegedim Santé had a decrease in revenue due to mainly its legacy solution and churn, but had a solid growth on Maiia and Claude Bernard database. Also, it's worth noting that we had integrated Médoucine on May 1, this leading French platform. The adjusted EBIT at Cegedim Santé stands at minus EUR 5.1 million in first half due to decreasing sales, growing R&D amortization. But also, it's important to note, we are investing for the future in this segment. We have some new products coming up in the Maiia suite in the months to come. We have -- we are integrating AI in our products. I mentioned the Ed, the AI assistant that we have already in Maiia Médecin, but also in MLM and Crossway. We have also integrated Voca and AI telephone assistant. Claude Bernar has released its Claude Bernar AI. So it's worth noting also on the cost regarding Cegedim Santé, we have some investments in our products for the future. Also worth noting that in H2, we should receive some Ségur subsidies around EUR 4 million. On the Doctor outside France segment, you can see that the revenue is very dynamic, especially in Spain with the Balearic Island contract that we had, but also in the new product in Belgium, which is gaining traction. It doesn't reflect straight away into the adjusted operating income. This is due, as I mentioned earlier, to the fact that we had in our budget, and we have done it in H1, some hiring for some personnel helping for the various projects that we have over there that should pay off in the future. Last but not least, the Pharmacy segment, the redundancy plan that we had last year for the French business impacted negatively the sales as we had less commercial traction during that time where we posed. But we had, of course, a positive impact on the adjusted operating income, thanks to a reduced payroll cost during first half compared with last year, of course. So overall, the adjusted operating income for this business unit improved from a loss of EUR 8.7 million last year to a loss of EUR 6.8 million this year. On the Data & Marketing business unit side, as we had mentioned, Data had a stable, slightly positive by 1% reported growth on first half. That was thanks to after first Q1, which was negative, a Q2 in which we had some improvement in international operation and still a solid business activity in France. And regarding marketing, still positive in France during H1, even though the comparison basis is very demanding. And also, we have the launch of C-MEDIA España, the marketing activity launched in Spain during H1. This launch in C-MEDIA Spain went with some costs, of course, we need to invest to tackle this market. And on the data side, also, we had some launch of new offering, creation also of a European data warehouse compliant with the more and more stringent regulation across Europe. So we had some costs on first half this year on this business unit, explaining the decrease of the adjusted operating income, which stands at EUR 6.1 million compared to EUR 9.2 million last year. Our Cloud & Support business unit to end with. So we had this termination of this outsourcing contract and also demanding comparison effect on the trading business. there that explain the decrease in revenue on first half, especially in Q1, as we had mentioned. But as you can see, of course, it has an impact on the adjusted operating income. But thanks to a tight controlling cost structure and controlling staff costs, we're able to limit this side and the adjusted operating income came with a slight loss of EUR 1.6 million over this first half. So we stick to our outlook that we gave since the beginning of the year with a like-for-like growth above 2% and an increase in the recurring operating income and operating income. As we have -- as you have seen in this presentation, the fact that we have less nonrecurring expenses helps a lot on the operating income side. And the next release will have -- it will be our revenue, Q3 revenue. It will happen in October 22.