CodeLab Capital AS (CODE) Earnings Call Transcript & Summary

Good morning, and welcome to PatientSky Group's Fourth Quarter Presentation 2022. Welcome to the one here in the room, and welcome to you joining online. Today, presenting, we have Christoffer Mathiesen, Group CFO in Patient Sky Group; and myself, Kristian Ikast, Group CEO; in PatientSky Group. The presentation today will be an overview of the Patient Sky business. Then we will dig into the business units and give a business update. Then we'll dig into the finances. We'll do a Q&A session, and then we'll end up with a close remarks and outlook. We are here for changing lives. That's our vision. It's been our vision, the whole time true and is still our vision. What we have been working on the last 2 years is actually split that company up in different companies. So we started doing -- first, we did the business units. Then during last year, we have done a legal restructure to actually create completely stand-alone companies also given the chance to have standalone focus. That means that the group is more working as an umbrella over these individual businesses. So let's start from the left. The first one we have is our PMP, which is there to create a better solution for companies unifying software solution make sustainable growth. This is an international focus. This is a focus on software companies. The 2 other businesses we have is the PatientSky app, which is a patient-centric where we focus on the patient. And then we have the PatientSky SaaS Norway, which is for the practitioners. There, we have a full focus on Norway in both the app and on the SaaS Norway business as today. This is for better, faster and cheaper patient care for the future -- if I just give a glance of the different companies. The first company we have is our SaaS Norway business. There, we have 2,100 clinics. We have our annual recurring revenue around NOK 191 million. 95% of our business is actually recurring revenue. We have a cash EBITDA range of almost 20%. Our full focus is on our 3 flagship products. POLAYMERUSS We have over total cloud-based. We have Infodcloud-based, PatientSky Clinic, cloud-based. Also Glance, I'll come back into a bit more on the SaaS Norway business. Our second business unit is the app. There, we have more than 2 million downloads. But actually what we're more proud about and more happy for is we have 250,000 unique log-ins per month. That actually means 250 unique patients using our app every month -- the last one we have is our PMP -- this is for modeling, designing and running when we talk about better solution, more scalable for software companies. So we have SaaS for practitioners. We have the app for the patients, and then we have the PMP for the software solution creators for the future. This is all in line with our purpose of the company, which is to develop digital solutions, invest and contribute to companies with the same purpose. To understand the future, you have to understand the past, it's been said many times, and it's a bit the same with us. We all started from a history of challenging status quo. We started back in 2014, creating PatientSky Clinic. We made it a fully cloud from the start own technology even on own hosting. The first trademark there we did was we acquired ProMed in 2017. That was to get a foot stand within the market and get the economic of scale. We have consolidated ProMed over the following year, taking the next step in our journey, doing acquisitions and then doing the migrations. We ended the consolidation of ProMed end of 2021. The next landmark we have in our history is actually when we acquired the Hove with the System X product. We did that in 2018. What is very important to get forward on some note, but I'm not sure all do, is that we actually took the same tech stack, we use the same technology to actually develop a product in a new vertical, meaning we have the [indiscernible] where we were strong before, and then we moved into the GP based on the same hosting same technology and of course -- same cloud technology and actually then, of course, making modules for the doctors or the GPs, there we are working on consolidating that by 2024. So System X get consolidated into Hove and in InfoDoc SKY. The last landmark we have here on the SEFT Norway part is we acquired Infodoc in 2020. InfoDoc was a very strong competitor for many years, has a very strong foothold in the market and has a very strong organization and product that fitted very well into our overall package. What we can see here is that we are acquired with a prem solution B in [indiscernible] and then we have the SKY solution infodoc SKY. The big difference there compared to many migrations. This is actually not a migration, it's more update. It's very similar products in the ground base of it, so the doctors experience more of the same when they use the system. Of course, when you move to SKY you move to a more future-proof more forward-leaning products that actually will take you to the future. So what we see there is we have got a very good new company into it. So overall, what we've seen on our SaaS business is, we have started up new verticals, and we can do that again going forward. Last is actually not a new vertical, it's a new industry. It's very important to say that PMP is something very different that we've been working with before. There, we have been fully focused on R&D for the last period, and we are now going to market during 2023. Let me dig into the SaaS business first. This one we have shown before, but I think is quite key to understand for understanding the journey we've been through also how the numbers that Christoffer will show you later actually adds up together. If we start from the right, we have our on-prem solutions. Infodoc Plenario is the first one. There, we are doing an upgrade from Plenario to Infodoc Sky. That's the full focus we have with that to actually offer the customer more future-proof product. The second one is our System x, also on-prem. There we are focusing on doing consultations by 2024. We have always migrated that to the Hove Total product, but we have also during 2022 actually developed the Hove Total product more to be more ready to actually cater for the needs of our customers. That's the GP sprint we talked about before where we actually slowed down the pace of the first half of the year to do. But at the same time, we also saw that Infodoc Sky was very well fitted for some parts of the customer base, especially the specialists. So therefore, we are actually offering our customers there to go to the right solution, not just for one product. The last one we have on the left is the PatientSky SaaS Norway. Is the -- sorry, PatientSky Clinic is under the PatientSky SaaS Norway legal entity. But that's actually for a physiotherapist market. There, we don't have any prem solution. It's a full on focusing on new business there. Patient Sky Clinic and Hove Total is built on our own hosting and is built on our own technology. Infodoc Sky is on Asia. What did that actually materialize into of numbers? If you look in our history that from '19 to '21, we had a car of 14%. That's the period where we focused on doing acquisitions, doing migrations, developing new. We had a vision from the start to actually have everybody to the cloud. So we can actually see 2022 has been a year where you see that the revenue has dropped due to having full focus on doing the cloud, not doing as many projects and also closing down ProMed. But that's part of our strategy to actually develop on something very scalable. So what we see for the future, we have a car of 9% going forward. This is actually -- the underlying here is actually we have a cloud growth of 40% car, meaning that we, of course, migrate a lot of customers having full focus on taking that journey. The very interesting part is, I'll come back to the churn numbers a bit later, but that will also show why this is a very valuable revenue for us to actually do it this way. When we look at the '21 numbers, it was more or less 60% that was on-prem. If we look at the 23 numbers, we are actually going towards 70% being on cloud. So a much more sticky revenue than we had before. more valuable for us and easier for us to focus on. The reason why we are confident in our journey ahead of us. is that we can actually see we had a very, very strong sales momentum during building up over the year. Just to understand the numbers here. First quarter, that's first quarter average per month, we got 19 clinics in of new business -- new sales, either migrated or completely new business. In the second quarter, we got 24. This is developing very nicely through the year. And what you can actually see if we compare first quarter last year with January February average per month. This year, we are at the effect of EUR 2.2 million. That's very important for us because that actually is -- while we did the first half of the year, we did the whole update. So we actually see the effect of that. But we have actually also brought in a very -- almost a new sales team, which normally, you see that takes the time before they really start performing, but we can actually see that very fast the product update together with the right sales team has actually taken us very far, very fast. And why is this so important? I'll go back one slide again. If you look at the bottom line, the cash EBITDA margin, what we're focusing on here is to be much more profitable, and it is a much more profitable business we get when we move over to the cloud business because we have much more with foreseeable, there's less churn and we can also consolidate resources and focus more on doing new development instead of maintaining which you do a lot on-premise solutions. Of the new business, we actually also see that get delivered, which is, of course, the purpose that actually the customers plug into the system. I think it's very important to say that when you talk especially about the GP market or the doctors, it's not like you do a sales and then you migrate the day after. We have everything from migrations happening week after to migration happening almost a year after. This is because, of course, has to fit into the doctor's calendar what they have to do dollars. Majority of the business, of course, coming with quite fast into the business. But that's also why sometimes you see the difference between the 2. For us, it's important to have the momentum to fill up. We can see that we have sold 20% of our sales target year-to-date. We can also see we have delivered 20% of our sales target year-to-date. That doesn't mean that's 1:1, but we are there. What we can actually see is that we have 40% -- of the remaining plan for this year have already booked in, but not delivered yet. That means that we have 40% we need to focus on getting sold to and filled up the calendar during this year. We are quite confident that actually, we're very confident in that because we already have a sales-qualified lead with what we work with, 20% of our total target we actually have what we call a 90% profitability. That means that we are in contact, and we are actually very close to getting to some where we can actually get them on board. We have a total SQL-based sales-qualified lead of 600. This is both the one we are forced on migrating, but also focused on new customers. We have a much stronger insight to our whole customer base and potential customer base that we ever had. That's been a high focus for us also during 2022 to really get that focus to actually being able to develop our business. And now the reason why it's so important to get to cloud, among others. If you look from the right, this is our blended churn x natural. Natural is taking out the clinics closing, consolidating or stuff like that. This is the customer change. That number on the right is too high to where we want to be, but that's a natural reason for that. We are doing migration. That actually means we go out and ask our customers to change their system. A big part take ours, but of course, somebody take a different system. That's the way it works. When we go to the cloud business, which is actually we build for the future, we can see we have a 4.5% if we take the total, but only 2.3% when we take the cloud x natural churn. This is a number we are very, very, very happy with. Christoffer will also show that in fourth quarter, we saw this being a very, very accurate trend also there. I'll leave that to Christoffer. That was the SaaS Norway business. I'll give a short update on the app and then the PMP. The app, as we communicated earlier and what we can see is consolidated on, they have around 200 -- more than 250,000 unique users per month. It's a really, really high number and a really high stickiness to our app. That also means that we have a high focus on doing continuously update every month. We did our full reversion coming in here in the fourth quarter -- sorry, third quarter actually. The next thing we're delivering to the market is managing of the relationships. That's been one of the biggest requests from our customers to actually get in or patients actually to get in to say, how do you manage your kits, et cetera, et cetera. That's the next thing we'll deliver to the market. One other thing we have also been looking into, to having that big customer base, how can we also monetizing that, obviously. And we have now work we are now working on a business case that actually have a value in the first full 12 months on EUR 20 million. I can't say a lot more about that right now, but we are working towards really getting this utilized also to have the combination of giving a good customer experience, patient experience, at the same time as us actually making a business on it. Our overall vision is to be much more patient-centric -- what is the 360 need of the patients. Now we just gave some example of some of the things that we will work on over the next years. But what we also do, we also communicate with our customers. example, sorry, the relationship management. That was a request we actually got out of a survey we did with our patients. So we try to [indiscernible] for how do we actually develop the app to be much more patient-centric. Last, but definitely not least, we have our PMP. We gave a bit extended update on that last time. It's still in the R&D phase, so it's not like I can give a big update every time on that. But the update is that we are following the time line. We still do expect revenue in 2023. When we have the product ready to show, we want to do a Capital Market Day to make sure we really present this in a good way, and I don't do a half presentation now. But it's still the R&D phase. What we're doing right now, we are actually validating the product and the features and getting feedback from potential customers, but also industry experts to really ensure when we go out with a product like this is extremely important that we hit a spot-on. We want to create a better solution for companies creating software solutions, making much more scalable and sustainable. That was the update on the different parts of our business, our 3 companies. Now Christoffer, will you take us through the finances and go in depth with that.

Yes. Thank you, Kristian. I'm happy to start off with high-level performance for the fourth quarter. revenues ending at NOK 50.3 million, up around 7 -- sorry, 9% quarter-over-quarter and also exceeding the guidance we gave in the third quarter of NOK 48 million. The cash EBITDA ended at minus NOK 24.4 million, which is actually an improvement from the third quarter, even though the graph says otherwise. That is due to an accounting positive effect from liquidation of Finland in the third quarter. Fourth quarter contained some one-offs related to investment in hosting equipment to increase our capacity in Norway as well as some legal fees, basically twofold: one related to the cost initiatives we have taken and second, the last payments on the restructuring we did last year. If we dig a bit deeper into the revenue performance, I'm very happy to see that all our revenue types contributed positively for the quarter. Especially cloud, which we've mentioned several times, is growing nicely with 26% MRR growth year-over-year. In addition to that, having over 95% recurring revenues for the entire year that gives great visibility for the company. The quarter also had positive development in what we call variable recurring revenues, basically bouncing back from a rather weak third quarter due to the latter having a holiday month in July. And finally, our nonrecurring projects, revenue and nonrecurring revenue was also higher than the previous quarters for 2022 as we had some late projects being invoiced in the fourth quarter. If we move on and look at simplified KPI set for this time around than previously. You can see that number of clinics developing like portrayed on this slide, where you can see cloud and green on-premise, in blue. And what we are doing the migration thing we're doing, we're taking from the blue transferring into the green. But as expected, in the fourth quarter, we have a rather stable on-premise portfolio. And the reason for that is their contract structure and being built or invoice for a 6-month period. We expect a much larger change in the on-premise portfolio when we enter into the first quarter as all the churn received in the second half [indiscernible] materialize them. Cloud grew by 24 clinics in the quarter, and the share of cloud have gone from 56% to 60% during the year. The other very key important metric for us to measure. As Kristian mentioned earlier today, is churn. I'm very happy to see that the quarter contained very good churn numbers, meaning low churn numbers. And again, just to repeat the definition, we measure churn when they stop being a revenue-generating clinic. So for on-premise, we had one clinic, and that was due to natural reasons. And for cloud, we had 14, which is in line with what we've had in the previous quarters, but perhaps even more interestingly, 10 out of those 14 are what we define as natural churn. -- clinics closing down temporary COVID-19 testations, et cetera. meaning that the underlying churn we actually lose because customers are dissatisfied or want to go to a competitor is really, really low. And this is also one of the reasons we now dare to be a bit more forward-leaning than we have been doing because we see that the customer portfolio is skewed towards more and more cloud clinics with a much better churn profile than on-premise. If we then go to our business unit overview. As previously, we have separated out the cash generating commercial part of our business, SaaS business. which is generating healthy margins and have been generating healthy margins for quite some time. It has 100% of the revenues in the group, but also posted 20% cash EBITDA margin for the year as a whole. Rest of the cost base is related to both group functions, but also the investments we have been doing for 2022 in the app and in the PMP -- that number and the combined number on the cost side and cash EBITDA side is, of course, too negative, and that's why we said in the third quarter that we had already initiated a cost reduction program or taken cost initiatives. -- picture to the left is what we said last time around. Just to give you an update, we are already seeing that these things are materializing. As per January, we're spot on the April or the pro forma and April '23 target in number employees and number of consultants. The same goes for the cost side on personnel, and we're on track for consultants. We also actually believe that there will be a further decline in personnel expenses in the coming months. So first quarter will be the first quarter we actually see the financial effects of this. In addition to that, we are, of course, continuously renegotiating terms with key suppliers, key vendors and also looking at internal operational efficiencies, including reducing number of IT application, number of licenses, et cetera. And to tie that up with what we said on the liquidity side, we are sticking to the plan, communicated in more detail in third quarter. The year ended at around NOK 60 million. But as many of you know, December and June are 2 months during the year where our cash liquidity is at it lowest. Then we have good months in January and February due to 6 months invoicing on a large customer portfolio. And you can see the effect of that in January 2022, where we have NOK 89 million, up from NOK 60 million, and we also still have a lot on our accounts receivables side to take from to keep that number quite high also in February. Then I think we are nearing the closure of this. Just to summarize. Cloud is still growing greatly. We are seeing lower cost run rate into 2023. And -- so with the good momentum on sales in the fourth quarter and year-to-date, we have been building up a very good backlog of cloud revenues, which will be shown in the financials during 2023. Combine that with more and more churn -- sorry, cloud clinics versus on-premise. We also see a very favorable mix when it comes to churn going forward. All of those combined are the reason we now set some targets and communicate the targets for what we will leave in for the future, for this year and next year and also on the margin side because as more and more clinics go to cloud and we consolidate systems, we see great cost efficiencies down the road and scalability as we grow. Then I think we're at Q&A.

Let's see... Yes. You have announced end-of-life systemic by end of 2023, and the customers that signed contract to migrate prior to end of February, will receive a 25% discount for the first 2 years. Can you comment on how many Systemax customers have signed up and any comments on expected effect of discounts and churn on the numbers.

Should I take that?

I can take the...

Then you can fill in. Of course, we cannot go into details. It is us exactly what it means. But what we can see everything here is baked into the numbers we believe in and we communicated earlier. We don't see this having a long-term effect. This has been kind of to start up the migration journey as we talked about, to really get everything over to cloud and also get the full utilization out of that. So we have everything in the plans we present and have that covered and don't see a longer-term effect of that. Mat, do you have anything to add?

No, I think the plan we're working towards is obviously to give a chart like this to get clinics to migrate. But as mentioned in the question, it's a time-limited offer. And our plan is a more smooth volume spread over the entire 2023, right? So it will have a limited impact on our revenues.

Yes. Next one.

Looking at your forecast. For SaaS, it implies lower OpEx in '24 versus 2023. Could you please elaborate on this?

Ill actually take this one because... This is actually part of our whole strategy of moving over to the cloud. When we move to cloud, we have a lot lower OpEx on it. We have lower cost on what we actually do or not communicated on the numbers is exactly what we have in our plan. But I can say, this is the reason why we move over to work on a cloud product, you use the same maintenance for everything. You do the same, you do, you actually can scale it much more, so most more scalable. Working on-premise solution is much more manual handle. That's much more upgraded than fixes has to be done in the process. So when we move everything to the cloud and as communicated in the question before, we also have the consolidation of System X, and that will, of course, take a lot of cost base out of us. We saw exactly the same when we closed down the ProMed earlier that we actually saw a positive cash effect of it, even though that we saw a small dip in our revenue. Do you have anything more to add?

No.

No, I think they are fine.

Why have you not included your cash flow statement this quarter, we should have. So I have to check that if it's not in the report, and it's an area, then we'll upload anyone. You guide NOK 63 million cash EBITDA for SAS for 2023, while PMP currently has a negative NOK 150 million run rate, including this quarter's head count reduction. If we please elaborate on how you will reach breakeven on a group level during 2023. I think for first of all, the cost reductions we have seen you will not see effects of that before in the first months of this year. And that's what we also said in the third quarter that you will see that materialize in early 2023. So the run rate costs on PMP stand-alone is much lower than the referenced amount. In addition to that, we also had a reduction in group costs and functions. And what is not, of course, in the figures, but we have a potential upside, both on the app and PMP. But that is not part of our cash neutral plan.

Is to make revenue.

Yes.

Yes. exactly. Then we'll get revenue in during the next years also as communicated.

Are you in line to be cash positive in 2023, as communicated earlier? If not, what is plan B? I think I can start with the first one, and you can start with the second one. I think what we said is that we target to be cash flow neutral to positive during 2023. -- not 2023 as a whole because the positive effects from the cash EBITDA generated from SaaS is more heavily weighted toward the second half of the year in the first half of the year. So it's during 2023. And you can also see that from the liquidity forecast we have given that we expect a bit of a downtick and then stabilizing. But the run rate out of 2023, that's where we should be cash flow neutral.

Yes. And just to comment on, we are following the plan as Christoffer communicated spot on. So, so far, we are completely in line with everything. So that stand what we said before.

Yes. Any comment on that?

Yes. The Plan B right now, full focus on plan A, but of course, there are alternatives to do on a plan B. We have talked about different things to do and also what we are opportunistic on the app and SaaS. And we could also scale down the other. So we have plan Bs in place. But right now, we are following plan A, as we are on target, and we are following it spot-on. So then we will continue following that plan.

How does the PMP product development compared to the previous past strategy and where is the past revenue that was presented in previous years. I can take the latter one. The past revenues presented in previous years. have now been moved to SaaS. It's a reclassification. And it's basically an agreement where we get paid to cover a lot of notifications on behalf of our partner and using our technology. you like to comment on the...

The top one is maybe a bit bigger question just to cover here. But I think the big step to actually say is that the new PMP is working on a much more scalable solution. It's a much easier way to go to the market. It's much easier way to onboard customers. The most important is that you have the right product from the start because otherwise, you will not get the momentum. So I think I'd rather have that when we have a proper presentation of the product instead of me giving a half story here.

Another on the cash flow statement, a follow-up on that? Can you please... I can -- okay. Can you please explain the allocation of personnel and other OpEx in the fourth quarter? It looks like it increased significantly compared to Q3 and year-to-date. Please come to the fault of convene and the impact on ongoing negotiations. Please discuss what investments are needed for P&P to be launched. I can take the first one, at least the latest figures I have. On the personnel side, we are around 110 people in SaaS. We're 20-plus in PMP. We are just below 10% in the group functions. We are 3 or 4 working on the app. That is the status quo. That number with associated costs or those numbers with associated costs were higher in the fourth quarter, but as alluded to several times, initiatives were taken will start to materialize in start of '23 and not in -- not much in the fourth quarter. Would you like to take that to others?

Yes. There's a comment on -- please comment on the default of convene and the impact of ongoing negotiations Yes, I don't want to communicate on individual customer as we have as now, but I can say we have a really good talk and really good relationship with them. But as everybody knows, a lot is also happening on the convenience side. So it's still ongoing and very positive so far. And that's actually what we can say about it right now. I think that [indiscernible] the next one.

Do you think it will be necessary to raise more cash in the near-term future to avoid breaching the body covenants? The answer to that is no. I think we covered that in depth, both in the last quarter presentation and this one. We are following the plan. Fourth quarter and year-to-date is according to plan. And the plan is that we'll come through the trough without needing to raise money. But as also asked about, we have a Plan B in case. But the aim is for us to avoid raising any more capital.

Definitely. We are continuing as the plan as we communicated earlier, and we are following that spot on, as Christoffer said, and that's really the plan we're dedicated to. Of course, we are very aware of everything around, but we see actually that we get the effect now. And at the same time, we also see the sales momentum being very, very strong. So that's only taking us in a better position, actually.

One more here. Number of licenses retire -- can you please -- could you give us a breakdown on number of licenses? Yes, I can. Let me see... I can tell you that number of invoice licenses for cloud grew by 158 in the fourth quarter and 17 for on-premise. Some late-coming questions. With a high amount of R&D costs, are you able to get reimbursement from tax relief programs and how much Yes, we are pursuing soft funding, and we do that for the projects that we can justify applying for support on the outcome for this year is not something I think we're prepared to comment on. But at least last year, you can see for 2022 that we had was at around NOK 4 million in softening over the year. So that's in the numbers already for 2022.

Now there's no more questions. Thanks a lot for your questions. Then let me just round up for today. I hope this gave a bit more detailed insight. We've also been a bit more open with the plans we are working with internally. I think that's important for us to be very open to say, what are we working on? What's our plans and also how we're following the plans earlier communicated. I hope that gave the insight today. Overall, we can say that 2023 actually started very, very good for us, as we could also see, we are building on a very strong momentum going out of 2022. We start -- we can actually see we actually start harvesting on some of the investments we did in the products and also of closing down Prem Solutions earlier. So that actually means that we have taken the initiatives to be much more increased on our earnings, as you can also see going forward, but also very important, at the same time, which actually links a bit together. We have also decreased the complexity. By making these individual companies, we have one focus in each company we work in, makes it much easier to actually go out target commercial target to get the right product developed. So -- last but not least, cloud continues to grow very good. We still see very low churn numbers on our cloud. So we actually see that we have a much more solid business, and we are on the shift of being significantly higher share of our business being cloud going forward. So that was actually everything we have planned to take today. Thanks for your question. Thanks for joining in. Thanks for being here in the room also. Next time, we will see each other is on the first quarter 2023 on the 25th of May. Of course, if anyone want to meet over the next weeks, then reach out and we can take a sit-downs, we are always open to do that. Have a good day.