Nordhealth AS (NORDH) Earnings Call Transcript & Summary

Hi, everyone. As per usual, this is the Q4 2024 presentation for Nordhealth. So as usual, I'd like to start the introductions. I'm Charles MacBain, I'm the CEO of Nordhealth. And I also wanted to introduce Alex. Alex, maybe go ahead. You're muted.

Thanks, Charles. Hello, everyone. I'm pleased to be on this call with you today. I'm Alex. I'm the new CFO at Nordhealth. I'm British, and my background is in fast-growing technology companies. Most recently, I was CFO of the Norwegian American creative services company, Superside. And before that, I was CFO of the Belgian e-bike maker, Cowboy. I joined Nordhealth because I think it's an exciting time for practice management software. There's an increasing consolidation of practices, creating more large enterprise clients who require more sophisticated systems. And I think Nordhealth has the best team, the best product and the best strategy to be the winner in this space and deliver the best experience for health care professionals and ultimately for patients. So I very much look forward to working with Charles and the rest of the team to grow this business. And I'll now hand it back over to Charles for the company update.

Thanks, Alex. So as usual, we will start with the company updates, then we'll dive into a veterinary BU specific update, then a therapy BU specific update. And then I'll hand it over to Alex for a financial update. And as usual, we will do a Q&A at the end. So please hold off your questions to the end, and you'll be able to use the Q&A feature to be able to ask questions. So starting with the company update. In Q4 2024, year-over-year, we've been able to grow our ARR organically by over 20%. That growth was driven by a net retention rate of 113%, a churn of 5.1%, so still quite low churn. And also, we've been able to recruit net new customers with sales and marketing efficiency, as you can see from the CAC to new ARR being 0.7. These numbers coincide to get us to 19.6% LTV to CAC over the last 12 months ending 2024 Q4. So at the end of Q4, we had an implemented ARR of EUR 42.3 million and a signed ARR of EUR 44.3 million. What's important to us is the value per share, right? So the ARR per share is currently EUR 0.53 per share. Looking back as we do normally, right? So the -- in 2018, when I joined the company and we bought Nordhealth, the recurring revenue was 3.4, and today, it's 44.3, right, which is a CAGR of 53%. In that 44.3, we do not include vets for pets and the U.S. enterprise chain post rollout. So only once rollouts are and pilots are successful, do we actually include those in our signed ARR to be considered. This is a different way of looking at the chart. This shows the change in ARR year-over-year. As you can see, every year, we've actually been able to acquire more to grow ARR by a larger amount. Now if we look at how we grew in 2024. We started the year at 33.9. We were able to get 2.6 million in new customers. Also, we were able to upsell our current customers by 6.2 million. Important to note here is that this is primarily driven by the CVS implementation, given that they were previously a new customer, but as they are a current customer now, a lot of the growth and expansion from -- as they rolled out new clinics was in the upsell. And then the second primary driver of that is our Provet Cloud ARPU user growth. Our churn was 5.1% over the last 12 months. And important to note on this one is that churn always goes slightly high when we're migrating and we're sunsetting individual products as the last few users actually that decide not to migrate are now considered churn. We have -- then we ended 2024 with EUR 40.8 million of ARR. We've got EUR 2.1 million of signed but not implemented ARR, which leads us to EUR 42.9 million of ARR. And then our other businesses, which are our e-trading business and also IT operations business, legacy businesses, ARR was EUR 1.5 million, and that's how we get to our EUR 44.3. So moving on to the next slide. This is a slide that we brought back in that I want to help investors understand how we spend money and what our targets are. So when I look at the business, I'm always looking at the ROI that we have on our investments. That's how I figure out how much to invest in different initiatives. So let me walk through this slide with you. So as you can see, recurring revenue has grown from around EUR 16.8 million in 2021 to EUR 37.4 million, right? And you can see the growth rate over there. then what we do is we actually look at the contribution margin. So how much cash have we actually generated despite the fact that we've been increasing the revenue. And so the contribution margin is the best proxy for pre-growth investment cash flow, right? So the way we get the contribution margin is we take the recurring revenue. We remove the COGS, customer service, maintenance R&D. This is all the development cost to maintain the legacy products, which we've acquired but have not yet migrated, and we also take out G&A costs. So the only thing which is not included there relative to EBITDA minus CapEx is investments in acquisitions, CAC and R&D. And so that's what we call total investments. And so how we make decisions is we look at how much we invest in those 3 areas, acquisitions, CAC and R&D relative to the change in contribution margin over the years. And it's really hard to be able to look at this in one year because a lot of times these acquisitions pay back over a multiyear period. The reason why is when we buy a company, immediately when we buy them, we don't migrate them over. It takes sometimes 2, 3 years to be able to migrate those customers over and see the benefits of that migration in the contribution margin. So as you can see, over the last 3 years, we've invested almost EUR 65 million in CAC, R&D and acquisitions. But we've been able to have a change in contribution margin of almost EUR 13 million, which is an ROI of 20%. That being said, right, a lot of the -- we can see the ROI trending up in 2024. And we foresee that over time, as we migrate more, we will see that ROI actually increase relative to the 20% average over the last 3 years. But that's how we look at the business in the long term, the amount that we invest in either of those 3 growth investments relative to the change in contribution margin. Now let's deep dive into veterinary. Veterinary had a spectacular year with almost 30% year-over-year implemented ARR growth. The particular reason why we grew was, one, we successfully recruited new customers for 1.3 million, but also we were successful with the rollout of CVS and other enterprise clients. In addition, our churn, although it was 4.8% for -- overall for the year, if we exclude the impact that I mentioned previously, which was the impact of Provet Win end of life, leading to a onetime churn, the churn rate would have been 2.9%. So it's a very, very, very low churn on Provet Cloud that we can see and other legacy products that were not end of life. Important to note is that in these numbers, Vets for Pets and the U.S. enterprise post-pilot rollout ARR are not included. Looking at profitability. We have been able to improve profitability year-over-year, where in 2022, the Veterinary BU was losing -- lost almost EUR 3 million in Q4 2022 as we were investing into the product very aggressively. We reduced that to negative EUR 1.1 million in 2023. And you can see that we have a EUR 1.5 million improvement in 2024, Q4 relative to the previous year. The drivers of that have been, one, we've been able to grow recurring revenue. The second is that we've been more efficient with professional services. So the profitability of those professional services have increased. But we're still investing more and more in product development, which hampers this improvement. But we've also been more efficient in other costs as we're seeing product developments, yield more efficiency through automation. And there's a small restructuring costs, which are also made from here, which you can see are around EUR 100,000 in Q4 2024 and similar amounts in 2023. Now I want to break up the growth of veterinary a little bit more to show you what the drivers of growth are. So in 2021, when we -- at the end of that year, which is the year of our IPO, we had roughly EUR 10.8 million of implemented ARR. The majority of that came from the Nordics. So 94% of our ARR came from the Nordics. The Nordics has been growing fine over the last few years. However, the majority of our growth has been boosted by our success in international markets. So in 2024, 46% of ARR at the end of the year came from outside the Nordics, and that contrasts to the 6% that we had in 2021. Interestingly, 32% of the ARR came from what we call our growth markets, which is the U.K., U.S. and Southern Europe. And you can see some quite nice figures here on our -- which display our success of organically conquering new markets. You can see the U.K. is now at EUR 4.3 million of ARR, right? The U.S. grew very well in 2024 and is now at EUR 1.5 million. And we are continuing to grow as well in Southern Europe, which is now at EUR 1.8 million. Interesting as well is that this is implemented ARR. However, we do have EUR 2.1 million of signed ARR that's not yet implemented and 90% of that actually comes from growth markets. So if we look at signed ARR, well, this would be even more acute. The second is a driver of our growth in veterinary has been our success with enterprise. So Provet Cloud is a very good solution for enterprise. And we are very well positioned to capture the enterprise opportunity, as we call it, which is the opportunity to acquire or to provide the PMS for companies which are currently doing the consolidation in countries. If we look at -- in 2021, right, we were the #1 provider of PMS enterprise in the Nordics. Now in 2024, we are now the #1 provider of PMS to enterprise in Europe. And we can see that our share -- the enterprise share of total ARR has grown from 21% in 2021 to 41%. So enterprise is a bigger and bigger part of our business. And we can also see, just like in the previous slide, international was driving our growth, that enterprise is also driving our growth, where 57% of ARR growth in the last 3 years has come from enterprise clients. But what's also important to note in an enterprise strategy is the customer concentration in that despite our focus on enterprise, our customer concentration remains low and that our top 3 customers together compose less than 21% of our ARR. Then our next project is obviously we grow organically, but we also grow via acquisition. And so the key to making sure those acquisitions are successful is the migration. So our cloud -- so basically the percentage of ARR, which was on cloud products, Provet Cloud, was 37% in 2021. Now it's 74%. In 2024, specifically, EUR 1 million of ARR was migrated from legacy to Provet Cloud. The churn rate for non-cloud products was 9% in 2024, which is a good result relative to the previous migrations. We were successfully able to sunset that certain Provet Win. And now we're working on migrating Provet Net in Finland, Sanimalis in Norway and Vetvision in Denmark. Now on to the therapy. Therapy, the focus of therapy has been to build a unified platform based on the EasyPractice software that we can migrate all Aspit customers to. Despite our focus on migration, we were still able to grow our ARR around 9.2%. As you can see, our net retention rate, including price increases, was 101%. The reason why is that our churn was 5.4%, which was quite good churn for therapy given that we've got EasyPractice and we're doing migration. And that was a lower churn than in 2023, which was 7.8%. So we can see our improvements in products are yielding less churn in EasyPractice. And also, we don't have the one-off effect of physios churn for the ARR. Looking at profitability. Our adjusted therapy BU EBITDA minus CapEx remained positive in 2024. We slightly grew our profitability, and the drivers of that was, one, recurring revenue growth, EUR 0.4 million, but that was offset by an increase in product development of EUR 0.4 million. That product development increase is mostly targeted at additional recruitment of engineers and product managers and designers for the unified platform. We were also slightly more efficient with a decrease in other costs of around EUR 100,000, and we emitted around EUR 400,000 in restructuring costs. in 2022, none in 2023, none in 2024. Similar to the country breakdown for veterinary, we can see the country breakdown for therapy, where we have been able to grow in therapy by going international. In the therapy case, though, we have grown mostly through acquisitions in those markets. We have not gone into a net new market organically with the exception of Finland and other markets. You can see here on the graph that the 7.6% is mostly Aspit, which was acquired in 2021. We can see that the addition of Denmark and other. In 2022, the acquisition of EasyPractice. And as mentioned on my first slide from therapy, the current focus is migration. And so that's why we've been seeing slower growth in 2024 and should foresee slower growth as well in 2025 due to migration. Once migration is completed, we will resume work on add-ons and potentially new country expansion as well. Now let's take a look at the therapy migration. So in 2021, 30% of our ARR was on our cloud products. And today, it's 45%. We have only begun the migration for -- of Aspit with EUR 100,000 of ARR migrated in 2024. But what's very impressive is that churn for our non-cloud products was actually quite low at 2.5%. So what we are -- the approach we're taking is to make sure that we keep that churn as low as possible by having a wonderful migration experience and to make sure there's good feature overlap between the legacy platform and the new platform. In 2025, we'll be focused on this migration, we'll see significant strides towards migration being progress. Now I'll hand it over to Alex for the financial update.

Hello again. So turning our attention to reported revenues. In Q4 2024, we did EUR 12.1 million of revenue, which is a 19.5% increase versus the same quarter last year. It's encouraging that the majority of that growth has been in our recurring revenues, which grew by 22.4% from EUR 8.7 million in Q4 2023 to EUR 10.7 million in Q4 2024. The largest items contributing to that growth in recurring revenue are the rollout of CVS in 2024 and the growth in ARPU and new users in Provet Cloud. The share of recurring revenues in Q4 2024 was 88.5%, up from 86.4% in Q4 2023. On the next slide, we see that for the full year 2024, reported revenues grew by 24% from EUR 36.8 million to EUR 45.7 million. Recurring revenue grew at a healthy rate of 21.5% from EUR 33.1 million in 2023 to EUR 40.2 million in 2024. We also had a large amount of other revenue in 2024, totaling EUR 5.5 million. This is primarily related to the implementation work for our large enterprise deals. Therefore, that other revenue should ultimately translate to increased recurring revenue as those clients roll us out into their clinics. The share of recurring revenue in 2024 was 88% versus 89.8% in 2023. Looking now at quarterly adjusted EBITDA minus CapEx. We've seen significant improvements from Q4 2023 to Q4 2024 with improving from minus EUR 2 million to minus EUR 0.5 million. The primary improvement has been the increase in revenues by EUR 2 million versus Q4 last year. Of that, we reinvested EUR 0.6 million into increased product development spend. As a reminder, adjusted EBITDA minus CapEx for us means that we remove any nonrecurring items from the standard EBITDA minus CapEx. In Q4 2024, this adjustment was EUR 0.1 million. On to the next slide, we see a similar story for the full year adjusted EBITDA minus CapEx. This improved from minus EUR 6.1 million in 2023 to minus EUR 1.2 million in 2024. The biggest driver of this improvement is the annual increase in revenues of EUR 8.8 million. We reinvested EUR 2.7 million of this into increased product development and other costs, including sales and marketing and G&A increased by EUR 1.2 million. Looking now at cash flow. In Q4 2024, we had a cash outflow of EUR 0.5 million, which is an improvement of EUR 2.7 million compared to Q4 2023. The drivers of this improvement are an increase in profitability of EUR 1.3 million versus Q4 last year. We also had a good quarter for cash receivables collection in Q4 2024, which meant our decrease in trade debtors was EUR 0.8 million better than it was in Q4 2023. Other working capital changes amounted to a EUR 0.6 million improvement versus Q4 last year. Looking at cash flow annually, the annual adjusted cash flow in 2024 was minus EUR 2.6 million, which is an EUR 8 million improvement versus 2023. The main driver of this was the improvement in profitability by EUR 4.2 million. The other big item was a one-off working capital change in 2023. Here in 2023, we gave certain clients reduced upfront billing terms in exchange for larger than inflation price increases. This created a EUR 3.8 million adverse working capital impact in 2023, which impacted the net cash flow for that year. Finally, looking at the December 2024 balance sheet, we see very few changes to the balance sheet in September 2024. There were no changes in goodwill in Q4, except amortization. There were no material equity transactions in Q4. There were no movements in treasury shares in Q4, and we didn't take any financing in Q4. Cash as at December is EUR 19.6 million, of which EUR 15.5 million is invested in money market funds. The intangible assets are primarily capitalized R&D and Nordhealth's equity balance is healthy at EUR 73.6 million. Full detailed financial statements, including P&L, balance sheet and cash flow are in the appendices. And I'll now turn it over to Charles to talk about 2025.

Thank you very much. So looking ahead to 2025, I want to highlight a few different initiatives that we have ongoing. On the veterinary side, the primary one is to complete the CVS rollout. We have migrated the small animal first of clinics, and we're now migrating the referral hospitals and the hospitals at some point as well the farm animal clinics. The second is we have signed up for Vets for Pets and also this American corporates. And we want to make sure that the -- and also we've got looking to recruit additional. But for now, we are looking for pilot success on those 2 corporates and to begin implementing these customers in the U.K. and U.S. The third is we want to be able to sign a net new enterprise customers, given our success with previous enterprise engagements. On the therapy side, the main focus is to migrate the majority of Aspit customers to a unified platform. Unified platform is the renamed name for EasyPractice. The actual name of the platform differs depending on country and depending on specialty, but the software is actually called Unified platform. So you'll see us mentioning that a few times. And the second one is that we're launching our AI dictation in clinical notes in 2025, which has the potential also to increase the average revenue per user as we are providing more value for the users. Now on the guidance. In 2024, our recurring revenue grew 21.8% versus 2023 with December 31, 2023, constant currency. This is at the top end of our guidance. So we're happy about that. And adjusted EBITDA minus CapEx improved from negative EUR 6.1 million in 2023 to negative EUR 1.2 million in 2024, right? We did not have a guidance on that, but it's nice to see a good improvement in our profitability. Looking forward to 2025, we are guiding a 12% to 17% organic growth in recurring revenues with December 31, 2024 constant currency, excluding acquisitions. Acquisition would be on top. In addition, our adjusted EBITDA minus CapEx, we're looking for roughly breakeven, plus or minus EUR 2 million, excluding acquisitions. This provides some flexibility to be able to be more aggressive in case we have a faster rollout or in case there's a great R&D initiatives that we want to take Otherwise, the next meeting, which will be for the Q1 2025 results will be on the 13th of May 2025. And as Alex mentioned, our full year financial calendar can be found on our company website as well as the full financials.

Now on to Q&A. So if anyone has questions, please use the Q&A functionality. So we've got a question on why lower growth guidance expectation compared to 2024? Thank you for the question. So the reason why we have lower growth guidance and expectation compared to 2024 is that we see on the therapy side that the focus is mostly on migration. And we want to continue that focus more aggressively than we did in 2024. We divided our investments partly on growth, partly on migration. And in 2025, we want to fully focus on migration. So we don't see -- we will see the topline actually growing less fast on the therapy side than last year, most likely. In addition, on the veterinary side, we had a rapid acceleration with CVS, and we have a broader range because of the fact that it's hard to predict the pace at which enterprise customers will actually be implemented. It could be that they decide to implement quickly, but it could also be that given circumstances are out of our control that they decide to implement slower. So that is why we've got a larger spread. Any other questions? Another minute or so to see if there's any other questions. We've got another question. I'll repeat the question. Can you tell us more about the American new customer? No, not yet is the answer. The current American customer is in a pilot phase. And until they have succeeded with the pilot, they have not yet allowed us to release the full name of the customer. The reason for that is that they want us to ensure that their current software supplier is informed before making the change. The second question is, what are your expectations for the U.S. in the coming couple of years given the announced pilot? If the pilot is successful, when do you expect the rollout? So as you can see in the slide, we have been quite successful in the U.S. in 2024. We are now EUR 1.5 million of recurring revenue. The U.S. is a very competitive market relative to other markets. There are some good competitors there. And so we have to be -- execute very well in terms of product development, support quality and implementation quality in order to be successful in the U.S. I foresee us continuing to be successful with enterprises, especially if we're successful with this pilot as it will be a very good reference point for us to be able to use to attract other enterprise customers. In terms of the second part of the question, if the pilot is successful, when do you expect to roll out? That's always a very hard one. So usually, it's -- the pilot can last between 3 months to 12 months. And post-pilot, depending on the number of clinics that can be -- and also the speed at which the customer wants to implement, it can be between 6 months and even 24 months. So that is the rough timelines for an average customer. That being said, implementing a PMS software is a big amount of work. And so -- and not just the work that's involved in the implementation, but also it's a time at which they want to have a digital transformation. And we are one part of that digital transformation. A lot of the times, as part of this rollout, they also, for example, change their pricing, their item of coding, they change their suppliers. They also build apps on top of our software. And that is the real blocker for the implementation, not so much our ability to implement or the software itself. Any other questions? Great. Well, thank you very much for everyone's time, and have a nice day, and we'll see you again in the Q1 2025 report.

Thanks, everyone.