CodeLab Capital AS (CODE) Earnings Call Transcript & Summary

Hi. Welcome to CodeLab Capital's First Quarter Presentation. This is the first presentation we have in our new brand, CodeLab Capital, but also in our new company. So a new company but same old faces. We have today presenting Christoffer Mathiesen, CFO in CodeLab. He's been on the journey also in PatientSky since 2021. Myself, I'm Kristian Ikast, CEO of CodeLab Capital also been part of the journey since 2021. Today, we have prepared an agenda where we'll go through first a business update. This business update will also be explanation of what happened, the position we've been through. Also telling about what are we going to do for the future with CodeLab Capital, the company, and giving a bit more insight to some of the things that will happen going forward. Then we'll have a financial update from Christoffer then Q&A session and ending up with closing remarks and outlook. First of all, we changed name from PatientSky Group to CodeLab Capital. Two reasons for that. One reason is we sold off the brand, PatientSky when we did the divestment earlier this year, also communicated. But we think also CodeLab Capital is much more same for what we do in the future in this company. We have a new homepage at www.codelabcapital.com. We have a new ticker, which is CODE, C-O-D-E. Now I'll get a bit more explanation on what that actually has happened and what it actually means. Well, before we were group structure. We've been used in the last couple of years changing PatientSky from being a one company doing everything to actually working in focused business units with own responsibilities. So if I take it a bit from the right, we have the PatientSky SaaS Norway, which consists of all the companies that we have here in the Norway, in the [indiscernible] business and all the brands. We have the PatientSky app, which is the patient-facing app we have had also here in Norway and communicate about earlier. The last one is a new name for everybody. It's Uniscale. This is what we previously has referred to as the PMP, our international platform. but it's actually also a completely new company starting up with a focus of bridging the gap between businesses and tech stakeholders. Big difference here, we go from well focused on the ESR market, focused on partners, patients and professionals to actually focusing on international market and a much more B2B focus. As we have communicated, just more put in a 1 pager, we have sold off the PatientSky SaaS Norway company, including all the sub-companies and the PatientSky app to EG. So what we have left here is now a holding company, CodeLab Capital, we send vesting into one company, Uniscale, with bridging the gap between business and tech stakeholders. We will also, in the future, potentially do other investments. So it's actually an investment company we're doing but a holding structure. What does that mean? Well, that means at a glance, we are going forward two different companies. We have the CodeLab Capital, which is the holding company, which is the mother. Then we are investing in tech companies. We are supporting the companies with strategy, capital and network. We will currently only have one investment, which is Uniscale where we have our focus. Our focus establishes the new structure and, of course, also supporting Uniscale. Uniscale, the first investment is a venture company is in a pre-commercial, pre-revenue phase. It's a cooperation tool for software development. It's bridging the understanding between commercial teams and development teams. Let me just take one step back again. What is it actually we want to do with CodeLab Capital? What is we just want to do in CodeLab Capital? Well, what we want to do with CodeLab Capital, our mission is to support tech companies with strategy, with capital and network to achieve the sustainable growth and positive global impact. And the reason why we have chosen this direction and why we believe in that's the right journey for us is both. We are a group of people with competencies from this, but also maybe more important, we have actually done it before. Let me just explain a bit more on that. We have come from a talent, a history of challenging status quo. PatientSky was a funded company, started as a start-up back in 2014 with the patientSky Clinic. We have done a number of acquisition over time. We have done a PMI merged this company in together, and have even also have done the journey from taking from prem to cloud journey. So all of these companies is now integrated in under 1 company, the PatientSky SaaS Norway. And of course, we have the app on that as well. And now have divested all of this company here first half of 2023. So meaning now we are in Uniscale. We are in the R&D going to the -- go-to-market phase here in 2023. So this is actually a journey we've done before. We have also done investments. We have supported company of taking the next step. But why have we done the divestment? Many reasons we say, but just to take a highlight, if we look at the left side here, our company was actually consisting of 11 companies. We have in the SaaS business alone, we PatientSky SaaS Norway. We had Infodoc, Hove Medical System, programware-forlaget, PatientSky Hosting and Acino, covering the branch of PatientSky clinic, Infodoc Pleanorio, Infodoc [indiscernible] , System X and Hove Total. And you could even [indiscernible] Promit there, even though we've done end of life on that. So obviously, even though we communicated for the last years that our focus has been on going to national journey, we had a lot of focus on Norwegian business as well being a big part of our chunk. So we had this schizophrenia between having 2 focus going to national and always having a focus on a really, really important market, a really, really important leg in our business. Then we had the app also focusing on the Norwegian part, also catering for a lot of people every month as we communicated in the last many presentations. So you can also not lose focus here. We have a -- the earlier communicated that we closed down Finland to have a stronger focus on that part. So now, we are left back with the 3 companies in the middle. But the change actually now is that we've gone over to be a one company, CodeLab Capital, doing an investment into the Uniscale, which has a daughter company in Uniscale Denmark. So a much, much more simpler setup. We said here, it's around 110 people that we are selling off in the Norwegian business that goes operating the business. They have always worked in the Norwegian business, but really following that over. That means we are left with a much less complex setup. And as you can also see here, we are focusing on the CodeLab Capital. It's a very small handful of people working on that part. And then Uniscale, the investment is where we have the people in. And as worth noting here is that we take actually consultant resource and bring in-house now to really have people in the same company, really making sure we build the IP together in the company. We'll then scale the journey as we see the potential growth over the time. So that's also why I see there's a lot of new hires in this one that will come in and we put a range between 10 and 20, but that's actually people who will hire in to support the commercial and technical journey going forward. So what now? Well, CodeLab Capital, we will operate as a holding company and an investment vehicle. For the short to midterm perspective, we'll have one investment which is Uniscale. We will have a high focus on proven the inherent potential in the Uniscale solution. CodeLab Capital have only key functions, all functions will actually reside in the company. That's also the way we want to operate going forward. Having a small number of people there and actually have people operating in the company with the focus of building other the companies or for now, the 1 company we're in. On the right side, you can see what we actually are doing here. We have a cash position around NOK 120 million. Christoffer will come into much more details in the later on. But we, as CodeLab Capital will do a share issue of NOK 100 million into the Uniscale. And that's actually funding the journey we see ahead of us. Let me be clear right now. We want to use extra funding when we really go to market and we start accelerating. That's part of our plan. But we have a very safe plan to carry through here that we can actually take the steps that we see deemed to do this the right way and actually have success with it, but we also want to go out and do further investments into the company and scale it up when we see the potential is there. So you can also see on the top right side, there's a gray box. We will do potential market activities, future investments, get dividend or other cash events in the future. To sum up on a 1 pager or at least trying to. We have divided into 2 steps. We think it's very important that we keep progress right now. So the first step is to do a capital injection in Uniscale, making Uniscale a stand-alone operational company. First phase for CodeLab Capital is to invest and have full focus supporting this journey. We have a fully financed business plan, as I said, but we have said -- sorry, opportunities to inject more capital for future scalability and actually use the potential. This is something we ongoing will evaluate and make sure we come in when time is right. Second step is a bit more longer vision of CodeLab Capital. We want to build and invest in next-generation technology. At CodeLab Capital, our mission is to support tech companies with strategy, capital and network to achieve sustainable growth and positive global impact. That will always be our mission even though we always have a really high focus on one company in making sure we get that out and dealing. I'd like to give just a little insight into Uniscale. I'll not give a lot of insight into the products and all the technicalities of the product right now. We'll not do that due to business sensitivity. We'll not do that because we think it's extremely important when we come out and present the product, we present the full product what it is. And as you always know, when you go to market, there are certain choices you do in the end, and we don't want to mislead the market. So for us, it's extremely important that we come out with what we are doing when we have the right information ready, we have the right penetration, we have the right marketing to support it. So we come with a full message to the market but also to the customers. But overall, the vision of Uniscale is bridging the gap between business and tech stakeholders. A bit more details into what that actually means, well, Uniscale is a collaboration tool for software development. It's based on components and modularity to reduce the risk of complexity and lock-ins. Uniscale is suitable for software companies, it's bridging the understanding between the commercial and the development. This one is the very important, we are industry agnostic. We actually are not focusing on the health industry only. We'll, of course, use our experience from working in the health industry and building in a very complex industry. But for now, we are actually working across industries, across companies, across countries. It's with an international focus. Our long-term vision is actually to be an exchange of functionalities, so we can actually use functionality across companies, but also across industries. That's actually what we're aiming for long term. So therefore, we really are working across, and I think that's important to understand that's a shift in the whole company. It's still under development. Our first step is to enable the scalability of the organization and the growth and if make sure we decrease the time to market. We are, of course, out doing a lot of market soundings. We get a lot of positive feedback, and we're very clear on that we are solving a true pin point out there. But we also are very clear on that there are some really good opportunities for us that we need to choose between, and that's the choices we are making as we speak. So we'll come back on a lot more details on Uniscale when we have [ a ready for ] it, and then we'll present everything in a much more detailed way. But for now, I will actually hand it over to you Christoffer for going through the financials.

Thank you, Kristian. I'll now walk you through the financial section of the presentation. Obviously, this section will contain quite different information than we have given historically, which were a lot of focus on the Norwegian business and the KPIs they're in, which are no longer relevant for this company. We'll rather focus on the transaction we've been through. the cash position and the cost base as such. Starting with the transaction. Early March, we announced late April, we closed the deal with EG, which acquired PatientSky host Norway AS and PatientSky [indiscernible] AS for a total of NOK 850 million in enterprise value. In addition to that, there is a conditional potential payment of up to NOK 50 million at a later stage. Total gross cash received in the transaction was just over NOK 900 million as they also got some cash with them when they took over the 2 companies. As part of the deal, we entered into a TSA where finance and infrastructure/hosting will help facilitate for a smooth handover for the next 4 to 8 months. Lastly, worth mentioning, we, in CodeLab and the seller group needs to stop using the PatientSky brand and domain. First step on the way was to change the name, which is now in effect, i.e., we are now named CodeLab Capital AS. So what has happened after the transaction date? First of all, we have paid out a large extraordinary dividend. For us, it was very important to try to find the balance between retaining enough liquidity for the remaining business. at the same time, paying back as much as possible to investors for them to be able to decide themselves if they want to take part in the next part of this journey. So now after that, and also repaying all the outstanding bonds, we have a debt-free balance sheet, i.e., we have lowered the risk in the capital structure, which is much more suitable for a company which CodeLab is now, which is more of a venture kind of phase. But as Kristian has mentioned a couple of times, we have retained enough cash. So we're fully funded on the business plan we have. We have a much leaner and more simple cost structure, and we will scale with what we expect will be the successful commercial momentum going forward. And as I also mentioned a couple of times previously today, it's industry agnostic, and it's an international product. We're not limited to the Norwegian business. So where do we spend our money on? If we look at the use of proceeds, we got in NOK 909 million. We paid down NOK 225 million in bond loans, including NOK 90 million in additional fees due to early redemption of the bonds. In addition to that, we paid out a large dividend of NOK 2.50 per share, amounting to close to NOK 500 million to the shareholders. The smaller steps here is: one, we settled a negative cash balance with Danske Bank due to the cash pull arrangement we had around NOK 30 million at closing. And we also expect subject to confirmation that will end up with transaction costs around NOK 20 million, which is constitutes of both fees to advisers, but also bonuses to employees in both seller and the target companies. Employees that were instrumental to getting the deal done. So we're left with around NOK 120 million after paying all of this. So this is pro forma, but before we've got a potential additional payment, which is up NOK 250 million. And this is also before we are covering now the operational costs. It's now grown up a bit over 1 month since we actually closed the deal. Looking at the cost base. On the left-hand side, you can see the reported sum of cash OpEx and cash salaries of around NOK 58 million on a consolidated basis, which includes the divested companies. We sold off all our revenues, but also the majority of the costs. So a result of NOK 36 million of the costs as per the first quarter and are left with around NOK 22 million on a pro forma basis. More importantly is that we have previously announced to the market that we have done cost-cutting initiatives across the company. That also includes the business that we have retained. So if you compare December to April, cost base, you see that it's gone from NOK 8.2 million to NOK 7.5 million. And we haven't had any tailwind when it comes to the currency rates because now the majority of our costs are located in Denmark. And the exchange rate has not been to our favor, like-for-like currency-wise, the April costs are NOK 7 million. That implies -- the April cost implies that we have a cost coverage on a consolidated basis of 16 months. In that period, we believe we will get revenues. We will believe that we will get some of that additional payments. And we also know that the cost base will go further down before we scale up again. We won't scale up again unless we see that we get the commercial momentum. So the 16 months is a minimum with the current business plan. Around 2/3 to 3/4 of the cost base are related to the Uniscale operations. Rest is CodeLab in the holding company. We expect that Uniscale will take a larger share of the total cost going forward, but both Uniscale and CodeLab will reduce the cost in the very short term. So givings a bit more detail around the share issue that Kristian mentioned. Both Board of Directors in both Uniscale and CodeLab have approved a share issue of NOK 100 million from CodeLab into Uniscale. CodeLab will subscribe for 100% of that share ratio. It will be done in 2 tranches at the same valuation, first capital injection is NOK 85 million, then a deferred injection amid our delayed injection on later on of NOK 15 million. The implied enterprise value in the share issue is NOK 600 million for Uniscale. This share issue will ensure that unit scale is fully funded. If we look at additional funding considerations. We have said now several times that we have enough liquidity to get through the trough and get into a positive cash flow territory. But we won't say that we won't need any more capital. We might even want more capital. It could either be done through CodeLab or Uniscale, but then it should be back on positive momentum that we want to increase speed and go-to-market activities. In that case, we would consider different structures and different investor types. So summarizing this from a financial standpoints. Yes, we are pre-revenue venture pace, but we have a product, we have the organization, and we have capital. So I strongly believe that we have set the foundation for another success. There aren't that many venture companies that can say the same. We have the building blocks to succeed. Now, we need to execute. The cost base will be taken further down before we scale up again with the correct setup. We will have full focus on succeeding with the commercial launch of Uniscale, both in Uniscale but also from CodeLab, helping supporting the one investment we have. That also means, unfortunately, in the short term that we will take down the reporting frequency for the next 6 to 12 months, obviously, still complying with all the requirements in order to get time to really focus on executing and creating value for the shareholders. That was what is -- that was everything from me, sorry. Kristian, now we get to Q&A.

Okay. I think the first question is for you, Kristian. Can you elaborate on the timetable for the potential NOK 50 million option. Can we say anything of how confident you are in getting the spend?

No, I cannot say anything on the timing of this. This is obviously confidential in the agreement but we are quite confident in that we get at least some of it in -- that is a lot part in our hands. So we're confident that we'll get some of that, at least. I think that's all I can say for now with the confidentiality we have in the agreement we've done.