CodeLab Capital AS (CODE) Earnings Call Transcript & Summary

Good morning, and welcome to the third quarterly presentation for PatientSky Group. Happy to have you here all of you. I will go fast over the disclaimer and forward-looking statement and introduce the 3 persons we will have on stage today. We'll have Stian Husvaeg, who has been our Interim CFO since January. In this connection I also like to thank Stian a lot for his huge effort at PatientSky. He has been instrumental in setting up the ERP, making sure that we had our finance system ready for the full scaling internationalization and working in the 4 business units we have set ourselves up to. At the same time, he's also been a key part of us being able to attract the right CFO for the future, having a permanent CFO, having a strong foundation to work from. So here, I'm very, very happy to introduce Christoffer. He will introduce himself a bit more later on when he takes the financial numbers. But I'm very happy to have Christoffer onboard. He comes with a very, very strong background in investment banking. He has a strong, strong professional experience. And at the same time, he's a perfect personality to fit into the PatientSky family. Myself, I'm Kristian Ikast. I've been part of the PatientSky journey a bit over a year. A board member until 3 months ago, where I took over as CEO. Let's go to agenda. The agenda of today is that we will go through some Q3 highlights. We will dig down a bit more to the PatientSky business. Then obviously, we go through the financial numbers. Then we'll have a question-and-answer session. And then we'll end up with the closing remarks. Please feel free to shoot your questions during the presentation, then we'll collect them up and we'll answer them in the Q&A session. The main events that happened here in quarter -- the third quarter is, we appointed a new CEO. We used time on that in our Q2 presentation, so I'll not use more time on that right now. We have also appointed a permanent MD for our Norwegian SaaS business, Kjell Magne Solli. I'm very happy to have Kjell onboard who goes with a strong leadership experience to actually scale up the business we have in SaaS Norway. At the same time, I also like to have a big thanks to Bjarte Ottesen who stepped up, took the Interim MD role for PatientSky Group SaaS Norway. Bjarte has been instrumental in actually incorporating the Infodoc business into the PatientSky family. Bjarte has also been a key player of setting up the leadership organization of SaaS Norway, which consists of both Infodoc and PatientSky old members. So we have a good team to build on. And then I'm sure that Kjell will build on this going forward. On top of that, we have announced end-of-life on ProMed. We'll come into that a bit more in details, where we have -- the calibrations will be done in first quarter of 2022. We have accelerated the reorganization into the planned business unit as we also announced during our Q2 presentation, we would. We have some updates on the organization also coming through this presentation. And lastly, we have actually signed a new headquarter here in Oslo, so we can actually build on the organization we have, have a home for PatientSky and attract the best minds for the future. Let me just put a couple of words on PatientSky one more time. What is PatientSky is? We are a platform company, as we have also gone in depth details with in our Q2 presentation. We are open, scalable, low-code platform. We also do have a SaaS business, which is the leading cloud-based EHR provider in Norway with 2,500 clinics and annual recurring revenue around NOK 191 million. The SaaS business delivers a recurring growth around 17% and has a 30% EBITDA CapEx margin. We are 180 full-time employers in PatientSky at current time, and we have a headquarter here in Oslo. Our mission is still the same as we stated during our Q2 and has been the whole way through, to be a revolutionary and innovative eHealth platform. We want to change lives and the best way for changing lives, as our vision, is to actually go out and help the whole industry at improving everything around being the professionals. We had discussed many times that we wanted to be sharp on actually explaining our business. So we actually tried to give a very short simplified snapshot of our current business model. One of the challenges we had is when you look at the overall P&L of PatientSky, it can be quite hard to actually grasp what we are and what we are not. So let me just take very short into 2 main parts of PatientSky. We have the platform, which is the core part, which we've built the whole company on, but we also have the SaaS part, which is the revenue-generating part. So the phase we are in, in the SaaS business is migration, growth and margin improvements. At the same time, we have a platform, which we're investing heavily in to scale up internationally. So that actually means that we have a NOK 200 million SaaS business in Norway, which has EBITDA margin above 40%. But when you then add and have an investment into our platform around NOK 25 million per quarter as planned, it gives a very rare picture when you look into the overall P&L. Later on, Christoffer, he will actually come into the details as shown how is exactly our SaaS business P&L. To add to the mix of where the confusion could have been coming from is that we also have very different kind of customers we are addressing. In the SaaS business, we are addressing the private GP, physicians, chiropractors and psychotherapists. Whereas, our platform business is addressing the software companies, SaaS partners like our own SaaS business in Norway, system integrators, service providers, health information exchange companies and vendor-neutral archive companies, IoT companies, et cetera, et cetera. So that obviously also makes that we have one common strategy to be an international platform company but we actually have sub strategies in our business units to really utilize the full potential. In Norway, we are continuing to integrate and acquire companies. We are continuing to migrating from legacy to cloud and we explore -- wanting to go and explore the public sector, new segments and new business. Whereas at the platform part, we are investing in the core platform to scale internationally, improve partner customer experience and ramp up in-house partner competencies. We pretty much want to make the platform more easily onboardable. But we also want to continue on building on the potential partner pipeline that we have already. We are fully confident in having this heavy invest in the platform as we see today on our SaaS business is that it's using 80% of generic services from our platform directly to drive our SaaS business. The platform has been optimized over the last 7 years only through health SaaS business. And at the same time, we are actually operating an app on our platform, which has 250,000 unique users per month. So we actually see that the platform is working, operating SaaS business and an app business and now we are just focusing on the scalability by making it easily accessible. So if you just take a short look into how the 360 platform is in a couple of words, it's a tailor-made boiler plate for health care applications. It's low-code, it's easy to use. We have 140 micro services only for the build up to drive a eHealth company, 60 more than we had a year ago. It's open to everyone. We work with reusable and global. We only work with international open standards. So the partners can subscribe and/or consume a PaaS service, tools, framework through standard, open, external APIs. If we compare ourselves to other of our SaaS competitors, web or cloud-based, they often have EHR software tailor-made to specific countries. It's often very complex, and you are not able to sell off specific modules. You have to do license for the whole EHR solution. It's difficult to onboard the external partners. It's very hard also to scale internationally. Our 360 platform is actually built up where we have a split out the user interface, the SaaS modules and the PaaS business. That means that we work actually with a separate user interface, business logic, data repository, data module and workflow. So what does that mean? That means you can actually, in all platform, you can use the whole platform, you can do the full license, but you can also actually consume services and you can consume modules. You can actually work on our platform on the data repeat -- sorry, or not. So shortly, what is -- does that actually add a benefit for our partners? Well, it reduced the R&D costs since we have developed 140 micro services just for the eHealth. We increased traffic by actually being able to sell off parts or the full platform to different kind of customers, and you can work on the platform. You give a shorter time to market as you both can develop on the platform and by working modules. It makes it much easier to scale. We have an international platform. We continue to innovate the services we have. And we today, have 85% as premade and reusable. So you can actually have 85% of what you need to go to market. That is our biggest contribution to our strategy, our overall vision changing life for most patients possible. So what is the status of the platform? As communicated earlier, we still have 15 partners -- above 15 partners on the platform today. We have a highly flexible platform and strong functionalities, but we have also identified which we communicated earlier this year that is too complex to onboard. Therefore, we have put ongoing contractual negotiations on hold. But we keep on heavy investing in the platform as we still see there is a huge total addressable market, as we also communicated earlier, USD 100 billion. If we look into that, we can actually say just individual services has a total addressable market around USD 700 million. So we could actually start selling platforms of the -- services of the platform today to start actually generating revenue in the short term. But what we try to identify on the graph, the simplified graph is that if we start distributing services and have focus on that, we potentially delayed the whole platform launch. And we want to have strategically made the choice to say, we want to launch the whole platform not to be a service provider, but to be a provider that both can do applications, services and a full platform for our customers. So what do we focus on right now as we are building the layer to current top of the platform is that we are still have ongoing discussing and awareness campaigns with over 50 partners, majority is outside Norway. We have 35 companies and public organization waiting for commercialization while we are ramping up our capacity. Our revenue model is subscription and consumption-based. So right now, we are building up the market. We are building up the commercial traction. So we're ready and when we're ready to scale the platform, we're also ready to get partners on the platform. We do expect that we will see the first -- we can announce the first contracts within the next 12 months. And with the lead time we see in our platform business where we're bringing on bigger partners, we are confident that we can see a -- that we'll see proper revenue expected during the next 18 to 24 months. On top of the platform, we also have a solid SaaS business. Just to give a little highlight into our SaaS business, so we're all on the same page. The SaaS business consists of 4 companies, PatientSky, Hove, Infodoc and Programvareforlaget. We are now focused on integrating the 4 companies, building the common culture, utilizing and optimizing resources, streamlining and unifying product catalogs. The first step we have taken to really unify everything here is actually that we reported end of life on the ProMed. The reason why we've done the end of life of ProMed is that we see that we can take -- that we'd rather take a short-term hit by actually getting our customers over to a future-proof product that we'll keep developing and we actually do believe in. So let's make it very clear, we will have PatientSky, Hove and Infodoc in the future. Our core products will be the PatientSky clinic clouded, the Hove Total clouded, the Infodoc Sky clouded. So we'll continue to migrate from on-prem to clouded solutions to increase the flexibility for both PatientSky and the clients and reduce costs and operational complexity. We today have 1,500 GPs clinics, and we have around 1,000 non-GPs. Each of these GPs consists of roughly 4 to 6 licenses and non-GPs 1 to 3 licenses. That actually means that we are having a high focus on our SaaS business still, while we are focusing as a company on the strategy to be a platform -- international platform company. The only reason why we can actually have this dual focus at the same time is actually by developing into 4 different business units. So each business units will have individual finance accounts, meaning a full P&L responsibility. We'll work with intracompany SLA agreements to kind of create an arm's-length principle between the companies. So we really have the chance to develop different organization with a clear focus. One of the big steps we had to actually be able to develop the 4 business units is to actually have business unit leads in place. So I'm very happy to say we on the platform has Anne in place to running the platform and developing on that. We now have Kjell Magne in place to operate the SaaS business Norway, which is where the revenue is. We have Egil in place on the app. But I'm also very happy to say that I'm confident that I very shortly can announce a permanent CCO on our VAS business as well. So by having the high potential and the high profitability we have in Norway, we actually have the chance to evaluate strategic alternatives to really keep developing all our business units. But now that was the conclusion on what we had around the business and the insight of our business. Now I will hand it over to Christoffer, who can start with introducing himself and then also give a bit more insight on our financial numbers. Welcome, Chris.

Thank you, Kristian. Before we dive into the financial numbers, I would like to spend a few seconds on my background and also some initial reflections I've done. My name is Christoffer Mathiesen. I've been working in investment banking for 16 years, last with DNB Markets, and I've been with the company since the 1st of November, i.e., 4 weeks. I'm very well aware of the bit rocky start PatientSky has had as a listed entity. But hopefully, I can contribute with rebuilding some of that trust going forward. And I would like to thank my predecessor for the great work he has done through 2021, and we'll build on that work going forward. So what can you expect from the finance function going forward? There's a big milestone for the company that by first quarter next year, we will have every company in the group on the same ERP system, fully integrated with our CRM tool. That will also help with achieving several other points on this list. We will also work on earlier release of the financial figures, which I believe is a sign of improved internal processes. And we'll also continue working on adding transparency and improving the KPIs and the quality in the figures we provide. I'll come back with a couple of examples later on. Furthermore, we will start publishing more standardized financial reports in addition to presentations, improve the Investor Relations home page and add an analyst tool and eventually start preparing sometime next year for converting our accounts into IFRS. So if you look at the third quarter, how did we do? The top line came in, in line with previous quarters, up quite good from third quarter last year, mainly driven by the Infodoc acquisition. The flattish revenue development hides the fact that our recurring revenue streams are developing quite favorably, which we'll come back to on the next page. The EBITDA came in at NOK 6 million, which is down to 12% margin, mainly driven by 3 factors. One is that we had 1 additional month of salary this quarter compared to the second quarter. We're hiring new people, so increasing the salary costs. And we also had a lower capitalization rate, taking it down to 12%. More importantly, we are reiterating the guidance we have given earlier this year our top line coming in at NOK 205 million to NOK 210 million with an adjusted EBITDA margin of 20%. Looking more into detail on the top line, you can see that the nonrecurring items are almost halved over the last 2 quarters, but other recurring revenue streams are up 17% on an annualized basis, while our cloud revenue, which is the most important revenue for us, is up almost 50% on an annualized basis. We are measuring this over 2 quarters to take into account semiannually invoices so that we don't overstate the cloud revenue growth. On the next slide, we will show you some new information, which Kristian alluded to on business units. And hopefully, this will help you assess the company even better than we have previously giving you information to do. So looking at this, this is a preliminary assessment of the revenue and cost allocations of the management. As you can see, the Software-as-a-Service business constitutes almost all of our revenue and is delivering very healthy margins with 46% EBITDA margin and a 30% cash flow margin. But it's very important to note that this is pre any intracompany transactions, and we are in the process of setting up arm's-length principles and pricing structures between our SaaS business and the Platform business. And as we have said several times, the SaaS business is using our platform business. Group is overhead, C-level management and most of our adjustments on EBITDA is in that column. In the other category, you'll find the platform business. We will continue to report on this also going forward. So the next couple of slides will be related to our SaaS business. Before we dig into customers and churn and other KPIs, we want to give you a high-level view on what to expect going forward. As you can see from the illustration, as we have mentioned several times, we are in the midst of migrating the final ProMed customers and that is taking a lot of time and resources in the organization. And that will still be the case through the fourth quarter. Once that's done, we expect accelerated new sales, first from our Non-GP segment, then subsequently for the GP segment, as we are doing improvements on the functionality on the GP products. It's important to note that migration of ProMed customers has been the focus for this company for the last years. The other on-prem customers has been taken more on an adhoc basis. And currently, the cost of running ProMed is higher than the remaining revenue. And every time we do migrations, we always start by trying to educate our existing customers of the advantages of going to cloud. But we have a lot of other things in the toolbox. For instance, increasing prices on, on-prem; we are developing new functionalities, limited to cloud product only; we are providing incentives like free licenses and grace periods to get them over to cloud. So if we go on and look at the customer development in the SaaS business, we have around 2,500 customers, and it's a rather flattish development. But the big development is actually between on-prem and cloud. And basically, you can say that both on the revenue side but also on the customer side, we're taking from on-prem, dark blue, putting it into the green area, which is cloud. Bear in mind that this is end-of-period customers, and the way we define the customer here is that this is clinics or customers with at least 1 paying EHR license. We also have some customers that don't have the EHR license, around 100. And the development of all the steps in the bridge on the right is measured as invoice date. Meaning, for instance, that 69 upgraded customers during the quarter, they were -- most of them were sold and delivered prior to the third quarter which started paying in the third quarter. Looking at the average revenue per customer, we have made a slight definition change from the second quarter presentation, where we have excluded all the nonrecurring items, only focusing on recurring revenue and added revenue -- cloud revenue on the cloud ARPU, if you will, or ARPU per -- or average revenue per customer. From the connected clinics, that is clinics without an EHR license, but they are paying for our clouded add-ons or solutions. So you can see we had a healthy development in the average revenue per customer on both segments, both the on-prem customers and the cloud customers. And if you want to calculate our cloud revenue, you need to take the average cloud customer, multiply that with average revenue per customer in cloud; and in addition, add the small area on on-prem customers, which are cloud products upsold to on-prem customers as well. Looking at the churn. Happy to say that for the most part or every or all quarters, we see a clear tendency that we are losing low-paying customers, i.e., the revenue churn is lower than the customer churn. That is something we've seen throughout the year, exception being on on-prem in this quarter, and that was mainly due to a rather aggressive price increase in the second quarter. To round things up, we would like to show you the multirecurring revenue development per month through 2021. We have excluded ProMed from these numbers to focus on continuing business, and we divided it into the more fixed license part and a more variable component called notifications, where you can see the seasonality effect in July. The ProMed adjustments are ballpark 1 million in January and 450,000 in September, which you could add to this graph just for transparency, so you understand that we are not trying to hide anything. We are very glad that the MRR is up 60% over the last 8 months, and the cloud MRR is up 25% in the same period and last that is almost 40%. Kristian, I'll let you round up.

Thank you very much. So what happened since the third quarter? We have had an all-time high MRR in October with around NOK 16 million, we have appointed a new CFO, as you just saw. We have also appointed a new additional Board member, independent Board member, representing a last shareholder, Sven Gustav Bakken. So very happy to get that onboard as well. And we had our new sales month in October with the highest number of license than entire second quarter. So I think let's open up for some questions. And Stian, will you come up here and run the question session?

Thank you, Kristian. Perfect. We'll run through the questions. We have a couple already in, and I encourage you guys to write more questions, and we'll try to address as many as possible during the session. The first question here is on the revenue split of the different legacy systems of the NOK 27.4 million in on-prem revenue. And specifically, what's the share of ProMed revenues here? And I can probably take this one?

Yes, sure.

So as Christoffer mentioned, the MRR for ProMed was 450,000 in the third quarter. So they make up NOK 1.5 million of on-prem revenue. We also have Infodoc local, so the on-prem system, which made up around NOK 8.5 million, and the remaining is then Hove's System X on-prem solution. The next question is what is the average number of licenses per paying customer? Do you want to take that one, Christoffer?

I can do that. I can start with a more general comment first and then I'll dig into the details. I think one of the pages had a customer split per segment on the non-GP and GP. On the GP side, you can assume that we have around 4 to 6 paying licenses per clinic. On non-GPs, we have around 1.5 to 2 per clinic. So adding that up, I think the average is around 4.6. Is that correct?

Yes. Just about. That's actually all the questions we have in so far. Let's see. One more here. Churn picked up quarter-over-quarter, is this only driven by ProMed end of life or are there other reasons? How do you see this developing in the coming quarters?

Yes. Yes, end-of-life ProMed is one factor, but I also mentioned the rather aggressive price increase we had on our on-prem products in the second quarter, where we count churn when they stop paying. So a lot of those customers that didn't like that price increase stopped paying in the third quarter. So that's one thing. On the expectations going forward. We expect some elevated churn on, on-prem. We are working really hard to get all the ProMed customers over to our clouded solutions, but we expect some elevated churn because of that. So on on-prem, ProMed related churn, yes.

Yes. Perfect. Thank you. The next question is how to secure enough momentum to create attention on the Platform as a Service in Europe while developing the platform? That's probably a question for you, Christoffer.

Yes. I think it's a very good question. I think we have, obviously, as we also alluded to a bit earlier, we have kept the focus on really developing the core of the platform. So when we go to the market, we come out with a full platform where we can both offer our platform services. We can offer applications or modules and we can offer services. So our focus right now is obviously to go have the contracts we already have as communicated earlier, we have 50 customers we are in ongoing dialogue with, 35 signed up, really want to address it here. So we want to really build on that momentum and really also start during next year also showing some product demos also on these sessions here. That's an ambition. So I think we need to bring everything into a loop and be very clear on what we do on the platform.

And then there's a follow-up on this one. Is there any markets that seem more mature for PatientSky's platform?

Yes, there is, but there is actually a big priority of market. There's, of course, we are already in Finland, which is a very mature market in this. There are obvious normal candidates, which we was talking about earlier, but for us, it's really to build up to find the right partners in the market as well. So we are looking a bit wider and our platform is also set up for that. More questions?

Yes. I see we have more questions. Yes. Can you give a short outlook on concerning revenue for 2022?

Yes. You want me to take that? I think we will revert back on potential guidance in the fourth quarter presentation held in the first quarter next year. I think we are also giving you higher level illustration of what you can expect from our revenue-generating business unit, the SaaS business, where we expect new sales and revenue uptick in second half of 2022. Besides that, I don't think we are ready to guide anything right now.

Yes. And then there's a question here. In terms of scheduled growth, do you foresee any capital increase? I'm assuming they're asking if we're going to need any more capital to realize the growth ambitions that we have?

No. Not at the current time. We have made a plan also a bit of conservative estimate on our revenue and with the investments that we foresee. So our investment is going according to plan, and we have the time to do it the right way around.

And there's a question here on, do you, still after the on-prem price increases, expect migrations from on-prem to cloud to generate upselling on average?

Good question, given the on average point at the end. I think when you do price increases on on-prem as a general note, the uptick to cloud won't be that high. You're closing that gap. But the picture is a bit more nuanced than that because you need to look at the different companies in the structure, and there are still some parts of the or in some of the companies, the uptick is still very much present. But in the other parts, the gap has almost been completed closed.

Yes. Just to add on that one, I think also we talk about we want to enrich in our cloud products and have more focus on that. So that also gives us a much higher chance of the upselling. So really by making the business units, we also have a chance to actually have a higher focus on upselling and actually offer our products around the core products to our customer, which will, of course, also help in uptick.

Yes, good answer. And on average, we do have a positive uptick when we migrate customers to the cloud and it also gives us a chance to upsell further the modules down the road.

Yes.

Then there's a question how the cash burn run rate is?

How's the cash run rate?

Yes.

I think looking at the presentation and the numbers you have been provided. You can probably calculate that yourself. But basically, we have liquidity now to deliver on the targets we have short and medium term internally. And if there is any deviation around that, the market will know.

And also just a little comment on, when we plan with cash burn internally, we do very conservative on the revenue side to make sure we don't have any surprises in that sense. But obviously, we keep the market informed.

Yes. And then there's a question on System X customers. What is expected in terms of end of life of System X?

We don't have any end of life yet. I think we will see in a couple of years' time before we'll have full end of life, but we are focused on very much on actually enriching our product to actually take the customers from the System X to the cloud solution. So we are more focused on actually developing a cloud solution to make sense for the customers than doing our operation on the short term.

Yes. And then also a follow-up question on when we expect the System X customers be migrated?

Yes. We are migrating the customers now, right?

Yes.

But as I mentioned in the presentation, we spent 3 years plus on ProMed migration to finalize that, I won't be surprised if we spend something like that also on System X.

Definitely, definitely. Yes. And then there was a question on the SaaS business. If you present yourself as a platform company, why is that you have almost 5x more full-time employees developing the SaaS system instead of the platform?

That's actually a very, very good question. But obviously, that's because where we have the full revenue generation, it's much more staff consumption to do assess business as well. One of the business unit VAS will also take over some of the modules to make them international, which obviously will scale up there to make it more efficient and utilize resources better. But right now, we have a revenue, as you can see in Norway, that's also why the organization is severe, bigger there.

Yes. And it's probably not correct to view all the employees we have in SaaS Norway as developers. If you look at the developer split, it's very different than the FTE split between the 2.

Good point.

There's a question here. What is the improvement in notification revenue? Will there be a focus on notification revenue growth? I can probably take this one. Notifications is mainly driven when GPs send out messages to patients. And this is driven organically as we add the clinics and clinics add more GPs and GPs add more patients, and this is a natural trend that grow. Of course, during COVID, we had a few periods when a lot of the notifications were sent out to patients regarding COVID-related items. But overall, we see notification revenue growing quite steady, in line with our overall recurring revenue business. I think we are mostly done here ? There's 1 more question here. As SaaS is the main revenue driver. What is the focus of the product development for SaaS? I think this is a good question.

It's a very good question. And I think actually, as we alluded earlier, I mentioned it also, we will have a high focus on actually working on the Hove Total solution to actually get that enrichment. The same we will do on the PatientSky clinic cloud solution to get the full product prices improved there. And at the same time, we'll keep moving on the Infodoc cloud solution we have there. So we are very much focused on actually adding to the products we already have, the cloud solution. And therefore, actually get the product group that build around that. So I hope that answers.

Perfect. That was all the questions we had.

Thank you very much. Then let me conclude on today's session with an outlook and final remarks. So we will continue to ramp up our platform organization, the technology and the pipeline. We have focused on migrating and consequential new sales in our SaaS business in Norway to increase growth and margins. The Platform Partners agreement is expected in second half of 2022. We will have our next presentation in the 22nd of February for the Q4. And then we also want to do product presentation during 2022 when we have the platform to present it in a more visible manner. But thank you very much for following us and look very much to see some of you over the next couple of days and always reach out for questions. Have a nice day.