Carasent ASA

OSE:CARA

Earnings Call Transcript 2022-Q3

[Dennis Hojer, executive]

Hello, and welcome to this presentation of the third quarter report of Carasent. Today, we will go through some highlights of the quarter and give you a brief update of our business and the market and also look into the financials, of course, which Svein Martin will go over and also talk a little bit about the outlook for the company onwards.

So a quick summary of our third quarter. We had a revenue growth of 28% year-over-year. And whereof 12% of this came from organic initiatives, a figure that had a hiccup during the quarter. We will get back a little bit to that onwards, but it's mainly because some of our variable revenues comparable to last year's figures is down a bit due to COVID boost. Svein Martin will talk a little bit more about that later on.

We have seen some revenue synergy materialized from our Medrave acquisition, where we have developed a version, which can address the customers which our Norwegian product, Ad Curis, is addressing, which is great to see. Our strategy is working. And we had a strong new sales for Webdoc within the third quarter, even though it was a vacation period during the third quarter, where we signed 26 new clinics.

We have done 2 acquisitions, one of the Norwegian video company, Confrere, where we acquired the brand and the customer agreements. We will talk a little bit more about that during the presentation. And also HPI, which we announced last week, which is a great acquisition for us to strengthen our position within the occupational health segment.

We still have a strong balance sheet of NOK 751 million in order to continue to execute on our onward growing plan. So just a brief overview of our track record, where we had a great track record of growth, which we aim to continue to execute on. And also to add new services to our Carasent concern, to our Carasent Group, in order to expand our product offer and our market position within the health care segment. And we had a net retention rate, which still remains strong, which increased a little bit this quarter compared to last quarter.

So just a brief overlook where we come from, where we are and where we are heading. We come from a position where we only were the Swedish company, Evimeria within the group. And now we contains with -- we have more companies within the group in order to expand our product portfolio and also expand our market which we address our products too in order to increase the possibilities to create synergies throughout our different services to different market segments.

In the future, and actually something that we are executing as of now, we want to make those synergies possible in a higher -- in a high way where we want to create new and add new services, which we can address to our complete market -- targeted market that we have.

We can go to the next slide. A few words about Confrere. We announced this during the summer. And Confrere is a Norwegian video platform vendor, which is the market leader. And what we did was basically that we acquired the brand and the agreements of this service since they want continue to deliver this service to the customers in the long term. So what we saw in this acquisition was, of course, that we get all the customers on our own customer list, which is will help us a lot in order to address our own products to the customers within Norway.

And we also got a video solution within Carasent today, the Swedish product, the digital care room, which we will address to those customers as a potential replacement. And of course, we see potential in doing upsell for both Webdoc, which we aim to launch within Norway in the upcoming weeks where we are launching our first customer within the Norway; and also, we see potential in adding Medrave to those customers as well.

We can go to the next slide. So a few words about HPI, which we announced last week. HPI is a market leader within Sweden for softwares that provides health profiles to the occupational health segment. You could say that HPI, most of the situation within occupational health is the main offer to the companies. So they have a very sticky product. It's comparable with Medrave, but within the segment occupational health. There are 11 employees as of today and have approximately 200 customers, which is potential Webdoc users as well.

And you can go to the next slide, and we can talk a little bit about the rationale, which -- where this is one of the rationale, of course, we get almost all of the occupational health care clinics in Sweden on our customer list. There are still more customers, of course, but some of those customers have 50, 60, 70 clinics. So I would say it's approximately 400 clinics. That's on our potential target list for Webdoc.

And HPI also have a large potential to grow in Norway as well, where we are heading with most of our product portfolio. So we can go hand-in-hand and create a stronger offer when we are entering Norway, together with HPI.

And not to say the least, one of the large component -- biggest components for us is the success within the new segments and what have made us successful historically is the competence of the customer in order to create the best solution for the customers. And HPI have lots of experience within the occupational health segment, which will contribute a lot to Carasent onwards.

And Carasent's path to growth continued to -- we are continuing to execute on. Of course, we will continue to grow organically. We are investing heavily at the moment in order to continue to execute on this plan for many, many years onwards, where we have great potential in doing upsell on existing customers to help new products and services and also onboarding new customers to our various platforms.

And also throughout M&A, where we want to add new products and services and broaden our market position. And through those two combined, we want to extract the synergies that we can -- that we see where we get new customers on the list and new products, which we can do upsell to our customers.

So with that said, I pass over to you, Svein Martin, to go over some financials.

[Svein Bjornstad, executive]

Thank you, Dennis. So looking at the key metrics for the quarter, we have the revenue growth of 28%. And of that, the organic growth was 12%, which was driven by our recurring revenues, primarily where the recurring revenues grew 14% with the 109% net retention rates, which we will look into a bit more detailed. And we had EBITDA margins of 23% in Q3 and ARR going out to the quarter of NOK 185 million.

So if you look at the quarter in a historical context, we can see that we have consistently delivered growth quarter-over-quarter, and this was no exception. The total growth of 28% was driven by both acquisitions and organically, as mentioned. And we see that's a step on -- another step on the long-term growth plan, even though we had some road bumps related to the growth rates in the quarter, which we can address later in the presentation. Our margin was 23% in Q3 on the EBITDA level.

So the organic growth on recurring revenues was 14%, as mentioned. We had -- if we break down the growth, we had a growth of NOK 2.7 million from our existing customers, driving the net retention rates. And that is typically driven by a combination of underlying market growth and also from upsell of add-ons basically to our customers.

And what we have seen there is that this variable add-on services, such as SMS, that were boosted a bit in the pandemic related to pandemic vaccinations, et cetera, was at a higher level in '21 than we had foreseen. So we have seen a bit of a drop there in this year, which also caused us to basically revise the guidance, which we will get back to for the 2022.

We also have a good traction on the new sales side, where we grew the revenues by NOK 1.8 million, corresponding to 6% growth. And there also, we continue to sign a lot of new customers, but customers we have signed has been a bit smaller than historically, given that the customer -- larger customers have been more cautious during these later periods and also decide to focus on the pandemic activities last year. So that is also affecting the growth rates a bit. But we see that there is huge potential in the group and revenue synergies and cross-sell potential was validated in Q3 as the first step.

And there, we see that this Medrave product that we sold to Ad Curis customer [indiscernible] has a lot more potential on the existing customer base as well. And we will focus on driving that upsell going forward as well.

So looking at annual recurring revenue, it was -- it grew by 31% year-over-year, which 12% was organic, and we had net retention rates in September of 106%. The drivers for this is similar to what we explained on the previous page.

If we take a bit closer look on the margin side of it, we had the EBITDA margins of 23%, as mentioned, down from 35% last year. And that decrease was driven by a few different factors. The main factor is that we are in the phase where we are doing quite heavy investments into management capacity and basically structure and infrastructure that can facilitate long-term growth. So we are doing quite big investments into this now that will not be needed going forward as our revenues start to grow. So the cost base is very scalable in nature, but of course, affects the short-term margins when we do it now.

And also, the acquisitions we have done has a dilutive impact on the operating margins in the short term, both -- also the Confrere transaction, for example, we have basically close to 100% COGS in the short term and until we change the product to our own digital care in the short term.

And also our balance sheet enables us to be able to invest now, and we see a great potential internationally as well. So we are investing quite heavily into Webdoc expansion, both in Norway but also in Europe, in general, our new product Webdoc X. So these initiatives don't generate any revenues as of now. But we view it as a great potential to drive the long-term organic growth. And this is organic investments, of course. And we see that these initiatives has a great potential and that our balance sheet is really an asset now in the current times when we are able to invest when other companies are not.

Dennis, if you want to wrap up?

[Dennis Hojer, executive]

Yes. Thank you, Svein Martin. So we did present a new guidance for the year, which were reversed due to those hiccups that we have talked about during the presentation. Although if you look a little bit ahead and what the prospect of Carasent exists of. We sit on a very large balance sheet in order to be able to invest into a market which is heavily under-invested and when the investment is needed the most, we are a vendor that is able to do the investment needed in order to provide the solutions that the market is demanding.

And we are continuing to grow. We also show profits in our normal operation. So the prospect of Carasent onwards is looking very good. We are one of the few vendors that actually both have a growth, profitability and a large balance sheet and is continuing to execute on the plan.

We have been investing heavily during the year that we have been through during the presentation in order to continue to do this for many, many years ahead. We are not looking into the next year. We are looking into the 5-year, 10-year plan, where we want to continue to be the main innovator of this market and the main consolidator and the most growing and profitable vendor within the segment.

So with that said, I say thank you for listening, and maybe we can open up some Q&As.

[Svein Bjornstad, executive]

Sure. We have gotten a few questions here, first from Mark at Redeye. First question, could you comment on the political risk following the general election in Sweden? What are your thoughts when it comes to centralizing parts of the health care? Could you talk a bit about this and how it might affect Carasent in the medium to long term?

[Dennis Hojer, executive]

Sure. I can elaborate a little bit about that. First of all, all those initiatives always takes time. But if you look into the initiatives that they want to do within the new government within Sweden, that's a very good thing for a vendor like Carasent. What they aim to achieve is they want to centralize how the health care is provided to the citizens. And with that comes also a centralized way to exchange data between caregivers, which is a huge problem within health care in general.

And what you have seen until this day is that every region want to solve this problem themselves, but some other regions is doing it by just implementing one big EHR, which on the bad part -- first of all, it's a very hard thing to do. And also, you're providing the same kind of processes to different kind of segments which need different kind of solutions. So if this is to succeed what they aim to do, you will see the market will open up more for a vendor like Carasent, since it will be more based upon standards.

[Svein Bjornstad, executive]

Great. The next question, I think you covered it, Dennis, but could you comment on the rationale of acquiring of [ HPI ] and what synergy rationale is expected from this?

[Dennis Hojer, executive]

Sure. If you are to look at where we have market shares today with Webdoc, we have specialist care, we have paramedical care, we have primary care, and we also have occupational health care. And we have quite a small part of the occupational health care segment today. And HPI sits on most of the customer within this segment. So of course, it's a great opportunity for us to have HPI as the door breaker for upselling Webdoc since they have a very likable solution to occupational health today.

So our products combined and integrated to this segment will be a very strong offer. So that's the main synergy rationale, I would say. And also, we get the competence, as I mentioned earlier, which we are in use of when we are developing our own Webdoc solution into the occupational health segment.

[Svein Bjornstad, executive]

Thanks. Next question. I can take that one. Our private multiple is starting to decline, thanks to downturn in the public markets. How are your M&A discussions going in general? We see that -- we, of course, have commented about this lag effect between public and private markets during the year. And we see that at least for specific cases that is changing a bit. We see that there is attractive opportunities that arise. And within the smaller companies that has potential attractive complementary products with cross-sell potential. We see interesting opportunities such as the [ HPI ] acquisition. And there, we also saw, of course, that multiples were -- that transaction were executed that multiples lowered than what we have done previously. So that's a good signal as well, same with the Confrere, I would say.

Next question, how are the dialogues with the Confrere customers going? When can we expect to see revenues from this? Maybe you can take that one, Dennis.

[Dennis Hojer, executive]

Yes, sure. As of now, we have started to talk with the customers, although not in a broader way. We are building a communication plan towards the customers. The first step that we want to do is to introduce our own solution in order to change the solution that they are using today to our own digital care room. And with that comes the possibility to also speak about other services like Medrave and also Webdoc. So we will probably see those things start to materialize.

[Svein Bjornstad, executive]

Yes. And it can be worth mentioning as well that we do have revenues from the acquisition, but we basically have 100% COGS as well, so that the margin step-up will be when we change the solution to our own in the first step there.

Next question for you, Dennis, as well. Can you talk a bit about your workforce in hiring in general? Do you have the team needed now? Or do you have to add to certain areas? How should we view the larger R&D force -- workforce?

[Dennis Hojer, executive]

Sure. What we see today, we have no more needs to higher management. That's what we have been focusing during the year. And also R&D, we will continue to need good personnel within R&D and within all our functions, but not in the upscaling way that we have done during this year. But I can't say more to that than this yet.

[Svein Bjornstad, executive]

If you could also comment on the Norwegian rollout, how it's progressing? What's the response from customers, et cetera?

[Dennis Hojer, executive]

Sure. We have been in dialogue with the Norwegian market since the beginning. Actually, we had some customers that we are in close dialogue with. And of course, they like what they see in our progression, even though we have some more things to do before we can address the full amount of segments that we are addressing within Sweden.

We are to launch the first customers, as mentioned during the presentation, in the upcoming weeks, and that will help us a lot in order to confirm the features and integrations that we have built. And when we feel comfortable with the solution that customers, of course, we will start to onboard new early adopters -- more earlier adopters in order to build the reference into the Norwegian market.

[Svein Bjornstad, executive]

Great. You mentioned that customers are cautious in the current macroeconomic environment. How is this impacting your customer intake going forward? Do you see it go down, is stable or still grow?

[Dennis Hojer, executive]

We haven't seen any effects of this yet, and we are in the business segment where the need for investments is remains intact even during a shaky period of time. We will always have to continue to deliver health care to the citizens. So -- but everyone will get affected somehow, but we will get affected less than compared to others due to the need of health care.

[Svein Bjornstad, executive]

Yes, the main effect, as you mentioned, been on the large customer processes. But there, we, of course, have a strong focus on converting those as soon as possible. And we have not lost any processes.

So how sure are you to make a new guidance of NOK 190 million, NOK 195 million. It seems like Q4 must be very strong in order to for that to materialize.

So this is our new guidance for the year-end. We are, of course, believe in that, given that we posted now after Q3, it's worth noting that, that guidance is as we write excluding currency effects and the effects of acquisitions. And that had -- as per Q3 had a year-to-date effect of negative NOK 4.7 million during 2022 this far.

Could you talk about the choice of Petri Niemi as Chairman?

[Dennis Hojer, executive]

Sure. I can elaborate a little bit about that, although I have not been in the commit to do that choice, even though I have been asked and involved. If you are -- this will be the last presentation that I will give you the last report that I will give you since Daniel Öhman is starting as the new CEO for the group next week, the 1st of November.

And if you are to look at the background of Daniel, he comes from the caregiver perspective, which will be a very good thing for us onwards since he sits on the demand and the need of the customers within the segment that we are addressing. And what we wanted a person as Chairman of the Board that can complement what Daniel is bringing to the table. And Petri has experienced from board work and operations of various kind of SaaS businesses and also expanding SaaS businesses internationally. So those two combined will make a great team in order to execute on the strategy which we have within Carasent onwards.

[Svein Bjornstad, executive]

Okay. We have a couple more questions we can take. How is the status on the Mindler partnership? When do you expect to launch Webdoc X in 2023?

[Dennis Hojer, executive]

Collaboration together with Mindler is proceeding very well. They are happy with what we are developing and providing to them. And we haven't done any new guidance on when we aim to launch Webdoc X during next year other than we are aiming to launch it during next year. So that's what I can say as of now.

[Svein Bjornstad, executive]

Sure. Final question here. In what range do you expect organic growth rates for 2023 and forward?

We haven't provided any guidance related to that, but we have -- we have a goal of reaching NOK 1 billion in revenues in 2026. And there, we model organic growth rates in the range of 20%, I would say, in the long term. But we, of course, have this near-term effect now that it's bringing the growth rates down.

[Dennis Hojer, executive]

And just to make sure that's not the guidance, that's internal goals.

[Svein Bjornstad, executive]

Internal goals. Okay. Final question, we can take. What would be a contract in terms of size Carasent will consider notifiable to the market?

I think that's a customer contract, I guess. We can say that, of course, large contracts will be -- we might consider excluding such as Aleris was disclosed in spring of 2021, when we signed a framework agreement with Aleris in Sweden. So that's an example.

Okay. With that, there's no more questions. So I think we can wrap up.

[Dennis Hojer, executive]

Thank you, everybody. I will continue to follow this company by your side onwards with the excitement. So thank you all for this presentation. And bye-bye, if you have any follow-ups, don't hesitate to contact us separately. Bye.

[Svein Bjornstad, executive]

Thanks a lot, bye.