CodeLab Capital AS (CODE) Earnings Call Transcript & Summary

Warm welcomes to our Fourth Quarter presentation today. I will have a nice little jump over the disclaimer and the forward-looking statement. Today's presenter is Christoffer Mathiesen, our CFO in PatientSky; and myself Kristian Ikast, CEO of PatientSky Group. Today, we will give you a view how we work to our long term vision of changing lives. The agenda of today is consisting of the 5 different points. We'll first of all give a highlight into the fourth quarter. Then, we will discuss a bit more into the PatientSky business, both how is it performing and what is it we're doing in the organization? Then, Christoffer Mathiesen will go through our finances in depth and give a highlight on how we are performing and how our finances look. Then, we'll have a Q&A Session. And then, lastly, we'll have closing remarks. First of all, I'm extremely happy to say that we in our first quarter ended up reaching our north end of our guidance. We had a revenue guidance of NOK 205 million to NOK 210 million. We realized just above the NOK 210 million mark. So we are extremely positive, and happy about that. And we also had our adjusted EBITDA in line with our guidance on just above 20%, so also delivering on that point. We have record annual recurring revenue in December of NOK 198 million. So overall, our commercial business ended the year in a really good state. But also on the organizational part, we saw good changes coming in. I'm very happy to say and I don't say that only because this year Christoffer, I'm really happy to welcome him to the team as our CFO. Also, happy to inform that we have appointed a new CCO for VAS organization, Nicolai Ingemann-Paulsen. He has started at January. Then, we have also signed a new talent hub in Copenhagen, with the capacity of actually having 70 employees there. So we can have more brilliant minds in the organization on our journey to create an international platform company. We'll move in there in May 2022. So what is PatientSky? This is both for some of our new investors. But definitely also just so we all aligned with some of our existing investors. We are a platform company. We are a platform company, where you can open scalable low code, which allows partners to build applications and solutions on top of our platform. We also have a SaaS business, which is built on top of our platform. It's the leading EHR provider in Norway, with 2,400 clinics, and our annual recurring revenue of NOK 194 million. Our SaaS business is delivering a recurring revenue growth of 19% annualized and EBITDA margin of 31%. We are close to 200 full time employees in organization now. We have a headquarter here in Oslo. We have hired 17 new faces since our last update. Q4 was very positive for us. We ended up with NOK 55.3 million, which is a 7% growth compared to the third quarter of NOK 21 million. We see a healthy and stable growth in our revenue, cloud revenue in fourth quarter, annualized 57%. We see the new business development also taking good steps. So we have actually added 800,000 monthly recurring revenue during the fourth quarter. We at the same time see great traction on our R&D and product development in our PaaS and VAS part of organization. And we're really happy to see how our platform has delivered stable through the pandemic with our partners handling, testing etc. So we are now preparing the organization full on to the international expansion on the platform. This slide, we also showed the last time. We had a presentation. But just to remind ourselves, what is it actually we have, 2 out of 4 business units are the platform and the software SaaS part, which is the majority of organization. Our platform is investment phase. We are scaling up organization, scaling up technical competencies in the organization and on the platform. We are -- the cost to customers here are software companies, mobile health, telehealth, devices, etc. We work with a subscription and consumption model. The platform consists of platform services, platform tools, frames, and then infrastructure as a service. We are right now using all our energy in scaling the platform to make it international onboardable. So it's a [ CX ] experience we are investing heavily in also. At the same time, we have the SaaS company, which is migrating our acquired on-prem customers over to our cloud solution. We are focusing on growth and we are focused on increasing profitability. Here is the businesses we are focusing on, with EHR modules, journal etc. We have add-on video, VOIP and other communications that we also put into the clinics. Recurring licensing here, we are continuing to integrate the acquired companies we have. We are continuing to migrate from on-prem to cloud. And we are also now looking into different verticals and new sectors. Our Norwegian Business is ending NOK 21 million around NOK 206 million revenue and with an EBITDA above 45%. So what is our platform, showed this one the last time also. Our platform is a tailor-made boiler plate for the health care applications. We work low-code, easy to use. We have a source communicated earlier, just above 140 micro services. We have added around 60 over the last year. It's open to everyone reusable, and global. No country specific, will do the localization on top of the platform. We have international open standards. We will have our own hosting setup, which is important to say own hosting setup, which is all data-hosted in the EU. So what is it, we actually offer our partners here? We use -- we are actually offering something both to the enterprise customer, to the scale up customer, but definitely also to the startup customer, where we've had reduced R&D costs. We have increased traffic; we have shorter time to market. We have easy to scale International, as we work in international standards. We continue to innovate in our service offering. And basically, we are offering 85% of what we use as a vendor on our platform. So the way we actually look at it, we have the infrastructure as a service in the bottom. Then, we have the tailor-made boiler plate, which is consisting of service and tools and frames. And on top of that, we are building healthcare's specific applications, easy to use in solutions. Here, our VAS business is also adding international modules that can use across borders. Here, so what is our commercial plan for our PaaS and VAS to combine the 2, we still have 50 partners. As we have communicated earlier, we're not onboarding partner presently, but we still have 50 on board. We are building international, commercial and technical competencies in Finland, Denmark and Norway. We are focusing on delivering our long-term strategy of changing lives. But doing this necessary, we are still looking into a huge addressable market. We're using an easy, accessible platform ready-to-use, where we create easy signup of services and standard modules and easy access and easy-to-market for the partners. We actually are coming up with our European platform. We have the Norwegian platform up and running. We have also Finnish platform up and running. But we are coming out with the international European platform here in the first half of 2022. We have done the investments and are building it now. The key criteria is delivering a future proof and scalable product. Focus is continuously improving our product catalog and easy onboarding on communication -- sorry -- commercial opportunities. So we have ongoing discussions with around 50 partners still. We are in very close discussions with the concrete partners, where we waiting for the commercialization of the platform. We still expect to see the first contract announced here in 2022. And we really expect to see revenue coming in 2023. That was the core part of our platform, our international platform. We also have the SaaS business as earlier communicated. Our SaaS business consists of 4 overall product groups. The PatientSky, PatientSky Clinic, there's the Hove, Hove Total, cloud and the System-x on-prem. Then, we have Infodoc with Infodoc screen and Infodoc on-prem. And then we have ProMed. We have announced our end of life on ProMed as we communicated earlier. That will be the final execution. This would be part of in Q1 here. So that means that we are now streamlining our product offer. We are moving the customers from the ProMed over to our PatientSky Clinic clouded products. We are also integrated -- we are done with integrating the different companies. We are now continuing to leverage on our proven tool kits of migrations. We educate the on-prem customers. We are giving favorable prices to the cloud of -- sorry to the clouded solutions. We're introducing clouded add-on to on-prem solutions. So because we are now closing down the ProMed business and focusing on doing the PatientSky Clinic and developing additional products to the clouded solutions we have, we expect to see an accelerated new business coming in here in the first quarter on therapist market and second quarter and third quarter on the GP market. Long term, our focus is still everybody to the cloud. When the PatientSky Clinic Hove and Infodoc. This next slide is to show a bit how is actually you're addressing the market in the Norwegian, if you want to do pace. We want to have everybody to the cloud. But to do that in a high pace, we need to acquire on-prem solutions. We can also see that our peers are doing the same strategy. I will not mention the peers we're looking at. But we can see our peers doing the same strategy. They are out identifying on-prem targets. They are doing negotiations, acquisitions. Then, working on the PMI, and then starting the migrations and end up of that journey, you'll end up having full focus on new business. What we can actually see is that we -- sorry, on cloud, on the clinics, the therapists. We have PatientSky clinic, which has been a clouded product from the start. If we have only focused on doing organic growth, we firmly believe that it will take us 20 years to come to the position we have in the market today. So that's why we have done acquisitions. We did the first acquisition of ProMed back in 2017. We have used energy on acquiring them, integrating them and now we're doing the finalizations of the migration. So from after Q1, we can have full focus on our clinic product, only looking for new business in the therapist market. We can also see our Hove Total, where we have system-X being the on-prem solution. We are done with the PMI, its fully integrating organization. We are now fully focusing on doing migration and obviously also looking into new business. We have our last acquisition is Infodoc, that came in, in 2022. They are still doing the finalizing of the PMI. We are now, as we speak, on unified financial system, sales system, customer systems, and we have also one unified organization across the Norwegian team. So the leadership team in Norway actually consists of what you call old Infodoc people and the PatientSky people. So we are fully integrated as one company today. What we really see is that you go through the 3 different journeys when we acquired on-prem. You go through, of course, the acquisition, identifying all what's happening, then you go through the M&A and the PMI, which is extremely stressful for an organization. But when you get into the migration part, that's where you put the stress on the customers. So you will see you'll have elevated churn. You will also see that there will be elevated cost as you lose focus on other things in the organization. We see ourselves being a lot further on that journey than our peers are. Many of them are not even started the migration phase yet. But as we believe firmly, the clouded solutions are the future. So they will have to go through the same process. So we now have a module where we see elevated churn, but we don't see an elevated churn higher than what we expect, and we have a controlled process of it now. This is definitely not an easy journey, and we are also aware of that. We are focusing on building an international company, Platform Company. At the same time, we're having full focus on important market as Norway. So we have also, as we communicated the last 3 times, we have divided organization up into business units. We have the PaaS, which is the platform business unit. You can also see compared to last time we have added a lot of people there. That's majority of the people coming in into the PaaS organization. We have the VAS organization, which is building on top of the platform organization. And then, we have the SaaS organization, which is pretty much flat compared to last time. So we are now focusing on actually building it as a completely standalone business units, with own financial, own P&L, own ownership with an SLA agreement between the different business units. So we actually keep a real true arm things principle. That gives us the flexibility to pursue different strategic alternatives. But it also ensures focus within the business units. So we keep developing our Norwegian business at the same time as we are focusing on the remaining organization on international growth. Our VAS is adding value-added services on top of our platform. So also extremely important that we start developing something on top of our platform we can distribute across borders. So what it really gives us is a full focus on driving the SaaS business in Norway, but definitely also scaling organization to be international. And it also, as stated in the Q2 announcement, sorry, it also gives us opportunity -- tends to be optimistic in the market on SaaS and mobile app -- sorry, again, let me just say, because the chance to be optimistic on the SaaS and mobile app part of our business. So we have full focus on developing international platform company. Yes, then, I'll reach it over to Christoffer; who can then go in depths with the performance and the finance figures.

Thank you, Kristian. I'm happy to present the fourth quarter figures and hopefully also show you some progress on the reporting goals we set out in the third quarter. Basically, fourth quarter was a good financial quarter for PatientSky, with a record high revenue of NOK 55 million. That is 36% up from last year and 77% up from the last quarter; bringing the total revenue for the year, as Kristian has mentioned just above high end of guidance of NOK 210 million. We are especially happy about this as we are going through the migration phase as Kristian mentioned, with somewhat elevated churn. The adjusted EBITDA came in at NOK 7.7 million or 14%, bringing the total for the year to NOK 20.3 million, which is also in line with the guidance of 20%. On a more detailed level, gross margins were in line with previous quarters. Salaries up around NOK 2 million, other OpEx down around NOK 2 million; so those 2 OpEx elements basically a neutral effect from the last quarter. Adjusted EBITDA less capital less costs from the P&L was a negative minus NOK 21.4 million. The quarter also contains some large one-offs in total NOK 8.1 million, mostly related to provisions and expenses relating to exit agreement with former employees, but also some extraordinary large items on project costs. We also had -- or we have a negative NOK 1.4 million non-cash revenue item, which will book in the fourth quarter and thus reduced that 55 number with NOK 1.4 million. That relates to an old claim of bad debt, if you want from 2019. But there's no effect on adjusted EBITDA. Looking more into the revenue growth, good contribution from all presented revenue streams and especially cloud with an uptick of NOK 2 million or 57% unleashed growth in the fourth quarter. But also on-prem contributed positively and blended annualized growth in the quarter for our recurring revenue streams was 19%. If we look more into the different business units, it's pretty evident that our financials are heavily influenced by the investments we're doing in the platform and valued-added services. But the SaaS business is producing good numbers also in the fourth quarter. You can see that we have around 40%, 45% EBITDA margin or to the effect, 44% adjusted EBITDA margin in the quarter, with a cash flow margin of 25%. For the total year, the same numbers are 47% and 31% respectively. We still believe there is room for improvement in the Norwegian business, both on top line growth and margins. The other category is basically group functions, platform and value-added services business units. And as expected, we are investing heavily in that, bringing the total figures down. Please also bear in mind that all these figures are presented on a management account basis, preliminary figures and also pre-any potential SLA agreements between the different business units. Also worth noticing is the green bubbles. In the fourth quarter, we invested around NOK 30 million or NOK 11 million in the new data center and with some additional fixed assets as well, close to NOK 13 million in fixed assets. This was an investment plan for next year. But due to favorable terms, we're able to do that in the fourth quarter. The SaaS business has been performing well over time. If we look very high level on per quarter in 2021, we see that the EBITDA margins are around 45% to 50%. And the CapEx -- or sorry, cash flow margins are around 30%. In the fourth quarter, we have some one-off CapEx elements relating to the movement to the new headquarters and integration of ERP and CRM systems, approximately NOK 0.1 million, which brings the fourth quarter number a bit down, but also year-end bonuses, which influences the figures negatively on cash flow and margins. So if we turn our focus towards more on the KPI side of things. We have included additional KPIs as promised on number of licenses. Before we dig into that, I'll just show you the same picture as we did last time on number of clinics. Cloud had a good development in the quarter, with an increase of 34 clinics net. And as in the previous quarters in 2021, it's migrations that are the big source of the movement in both cloud and on-prem. We are expecting higher new sales activity and numbers going forward, another work back to churn. On-prem is down by 39 clinics. But also note we have done a cleanup of the on-prem portfolio, reducing that with 107 clinics. Basically, removing what you can consider debt licenses that either didn't fit the definition with set in the third quarter and/or were registered in different on-prem systems, wrongly due to human errors, so basically a reduction of 7% of the on-prem clinic portfolio. This has no impact on revenues. If we look at number of licenses, which as the KPI is one of the most important revenue drivers we have. You can see that cloud is adding around 850 licenses in 2021, not surprisingly due to the migration we're doing. And the share is now 32% compared to 24% in the first quarter. This is not only migrations, but all new sales we do are also on cloud. And in addition and not a small effect either is actually portfolio growth. Our clinics are growing, adding more and more licenses. On on-prem, it's a decrease of around 1,000 higher churn and also migration, biggest effects. But there's one thing that's really important to note. And that is when we migrated from the blue on-prem over to the green cloud, it's not a 1:1 ratio in a number of licenses. The cost on on-prem services charge for support personnel at their clinics. While our clouded services do not, that's for free. But we get that back with higher revenue on the licenses on cloud. So if we look at the average price per license -- we can see that through the year blended. It's up with 15% from first quarter. That obviously is a cloud/on-prem effects. But it's also a sound development within both each of cloud and on-prem. Next, you can see we have grown the average license price from approximately NOK 1,700 on cloud to now NOK 1,800. And for cloud it's important to just north of NOK 1,100. And in this, you have price movements or not price movements, but price increases for on-prem you have customer mix and obviously also additional revenue beyond ordinary licenses, add-ons, variable revenue that influences these figures. And you can see very clearly, as I stated on the previous slide, for example, in the first quarter, the price per license for cloud is around 17% higher than for on-prem. Okay. If we look at churn, you can see that on on-prem, we lost 0.6% of our clinics on an annualized basis in the fourth quarter, which is artificially low. The reason for it is that many of our on-prem customers are on 6 months contracts. And we measured churn on the date they stop paying, not when we see the termination. It's the same count, the same definition as we do when we count clinics and licenses. We received more terminations in the fourth quarter, and we also see terminations in the first quarter. So we expect churn numbers for on-prem to increase in the first quarter. So basically that gives a more accurate picture, it would be more correct to look at on-prem churn over 2 quarters. On cloud on the other hand, we lost 3% annualized on the volume side, but only 0.5% on revenues. If we look at the total year, we have on average around 3% volume churn and between 1.8% to 1.2% revenue churn. And that's annualized figures, and we're quite happy with that when we are in the phase we are. Before I give the word to you, Kristian, just rounding it up with the MRR development through the year. You can see that, as Kristian mentioned, we added 800,000 in MRR from September to December. The annualized growth on cloud is 40% and 23% blended. Around 10% of the MRR represent its variable components like notifications, there's a natural dip in July as we mentioned last time. Please bear in mind all these figures are excluding ProMed, which are now closing down. Okay. That's all from me Kristian. Will you round it off?

Yes, I will. Thank you. So just before we go to the Q&A session, just a couple of highlights post the fourth quarter. We see a continued health cloud growth. We also see the new sales on cloud is having a good momentum also into the new year. We are very happy to keep strengthening our Norwegian organization as a standalone business unit with adding Siv Jensen to the Board in SaaS Norway business. Our platform is also progressing according to plan, including new employees and technical development. And then, fresh off the press, I'm also very happy to announce that we have just signed our Chief People and Culture Officer, which is now completing our C-level management. So that was all we had from the first go here, then, we'll go to the Q&A session. [indiscernible]

I think we can handle it. Okay. I think, Kristian, the first question is for you. You stated that the platform is ready in Norway and Finland. What is remaining in order to onboard the first platform partners in second half?

It's a really good question. I think just to be very sharp on we are working on a European platform now. And it's the onboarding and the readiness of actually making international scalable and onboarding that we are waiting on. So the Norwegian and the Finnish platform is the one we have done some time ago. Now we are focused on making a European platform. That's why you kind of connected 2 of them one-to-one. I hope that answered the question.

Yes. The next one, I believe we might -- both of us might be able to answer. How high churn were your expectations -- and how high was it actually? Just I can start off -- and please fill in. I think the actual churn is what we have presented, right, with the definition we have when they stop paying. But we see that we have received more churn than the numbers show now. And just to repeat myself, I would expect an on-prem churn for the first quarter around 6%, 7% or something. So the blended would be, let's say, 3% to 4% over the 2 quarters, if that's like estimates.

And I would say that, that's very much in line with what we actually also did expect. We have also had communication with the partners ongoing. So this we expect that what we can see is that we are having a little positive upside compared to expected on the revenue side. We're actually expecting a bit higher churn on that part on the prem part. I think that covers it, right?

Yes. Any updates on the potential divestment on the SaaS business?

So no. We can say so much. We have been clear on that the whole way through. We are optimistic on the SaaS business in Norway. We are now splitting out the units in different legal entities that is ready. And we can definitely also say there are people asking into our Norwegian business, but there are no concrete updates on that one.

Okay. Next question. How much do you expect that the ProMed end of life to impact the first quarter revenues? I'm not sure if you have the exact number add-on, which is a colleague we have with us. But I think we said in the third quarter that the remaining MRR from ProMed was around 450,000, if I remember correctly. And we expect to lose most of that over the next 2 quarters; just to give you -- your ballpark figures on that. What ARR are you expecting for the end of 2022? We will have to revert back to the market with any potential guidance for this year. For now, we have guided on more operational soft factors on the mix of migrations versus new sales and also around the platform. But -- and the exact number, we have to revert back to if we want to share it. Okay. Could you elaborate on the EU platform investment in the quarter, that's the data center?

Yes, I think that's very easy. We took the data center earlier and pretty much basic very easy. We did get a good offer to do it 4 months earlier. So we did the investment 4 months earlier than we do it. We are still working on delivering the hosting set up already here in the first half this year and it's going according to plan. It's just removed cost in a bit earlier to actually do our substantial savings, so it's very simple.

Can you comment on the net working capital impact on cash flow in the quarter? Yes, I can do that. The main change is on the receivables side. And we have a cycle during the year, where we issued some invoices to our clients on the 6-month contracts in fourth quarter, some in the first quarter, but it's basically every half year ended heavy to set like that. So in fourth quarter and third quarter, we will have an increase in receivables on our balance sheet. And just to explain the one-off effects, we saw that already in January, our cash grew again from what we have reported on the balance sheet today. So they have until into the January and February to payers. Higher cash burn than I expected in fourth quarter. How do you view your future financing need? We are operating under a business plan where we are fully financed through the trough. That obviously is no guarantee. A lot of things can happen. But we have a buffer on that business plan and are comfortable with that as we stand. But if the SaaS business suddenly starts performing worse or we have further delays on the platform, those kinds of things. Then -- but we have no signals that it will, then, it might be a different situation.

I think it's important to say that that we are seeing that we have a buffer on it, and that's also why we have such a high focus on the Norwegian business of performance because the better we perform there, of course, the more safe we are on the ground. And then the R&D phase is also going according to plan as we speak now.

Yes. Last question. How much cash do you have for acquisitions? And how much do you want to raise as new capital? I think, in general, I think we're done with acquisitions for now. We might reconsider down the line, but that's years from now and then more related to the platform part. We have bought 3 companies, and we know the pain of migrating those companies together. So I think we will -- we have no plans of doing more M&A.

I think maybe just to add on that one. I think it's important to say, as we are focusing on being as a national platform company. We are much more looking extra partners to work across borders and help other partners across border than actually going us and doing the acquisitions. Obviously, if there comes some cash events in our organization during time, we will use that to invest in it in new revenue into the organization obviously. But right now, we're not looking actively into any acquisitions. We are focusing on developing international platform.

And to the last point of the question, as of now, we have no plans of raising more capital, where we stand. Yes. I think that's the questions we will cover now. No more. Will you round it off last time?

Yes, definitely, I will. Thank you very much for your questions, really appreciate it and also look forward to having some individual sessions with many of you over the next days and always welcome others to have these sessions. Just to round up, we are continuing to ramp up our platform organization, technology and the pipeline. We are increasing focus on new sales in our SaaS business. We are expecting a healthy cloud growth to continue. We, as Christoffer has mentioned, know that there will be an elevated churn in Q1 completely planned. Our platform partner agreements, we still do expect here in the second half of 2022, in the later part of 2022 I would say. Our next presentation will be the 20th of May, where we'll go through the first quarter of 2022. Thank you very much for joining in on this web meeting and look forward to see many of over next days. Have a good day.