Physitrack PLC

STO:PTRK

Earnings Call Transcript

[Henrik Molin, executive]

Hello, everybody, and welcome to Physitrack's Q1 2025 Results Webcast. I am Henrik Molin, I'm the CEO and Co-Founder of Physitrack, and I'm joined today by our Interim CFO, Matt Poulter.

Today, we'll walk you through the highlights of the quarter. We are going to look at the performance of the 2 different divisions, and then we'll have Matt take you through the financials in detail. And after that, we'll revisit our strategy and outlook before opening up for Q&A. And as always, you can submit your questions via the Zoom console at the bottom of your screen.

So let's kick things off. So Q1 in short -- and you'll notice that this quarter's report, press release and presentation, they include more financial data and operational metrics than before. And this comes in response to, let's say, popular investor demand and from stakeholders that want greater visibility into how we operate. So the flip side, obviously, is that these slides are going to be a little bit more data heavy than previously. So I'll focus on guiding you through the key figures and insights.

So starting with the group performance. We delivered 3% growth this quarter as an aggregate for the whole group. While modest, this reflects a deliberate strategic shift. Growth was driven by a 6% year-on-year increase in our Lifecare division, so partially offset by developments in our Wellness division, where we've been executing a clear plan to exit low-margin revenue streams, which you'll see.

Now as many of you know, over the past quarters, we've been repositioning the Wellness division. We've moved away from legacy revenues that didn't align with our profitability targets. So we've streamlined operations. We've exited certain markets and divested businesses that were no longer accretive to the group's long-term objectives. And as a result, we're running the group with almost EUR 1 million less cost on a run rate basis, while not seeing any major impact on operational momentum. I'll speak more about that shortly.

Now crucially, beneath this headline growth figure, the underlying strength of the Physitrack ecosystem continues to stand out. Over the past 12 months, we've delivered 24% year-on-year MRR growth in the Physitrack product. So that demonstrates a really strong demand for the core digital health solutions here. And this has been the engine driving predictable recurring revenue growth even as we reshaped other parts of the business.

Now this focus on recurring revenue is reflected in our profitability metrics. We ended the quarter with a 31% adjusted EBITDA margin and a 12% adjusted EBITDA less CapEx margin. So these figures underline the financial resilience we've built, and we expect to maintain this positive trajectory through 2025.

Now one of the major benefits of the restructuring work we've undertaken is that we're now able to focus our commercial and innovation efforts on product lines that deliver both high margin and revenue acceleration potential. So we've proven that with the right tools, workflows mindset, it's possible to do more with less. So in fact, some of the largest deals in Physitrack's history have been closed post restructuring. So it's a clear validation of this approach.

And -- so despite incurring close to $500,000 in restructuring costs, looking at cash flow, including the fees now for people that needed a transition settlement or one-off legal fees, we remain cash flow positive in Q1. So this is a strong indicator of the group's financial stability and great operational discipline and even that amidst significant structural change.

So now turning to the divisions more in detail. As you know, with -- in our group, we operate through 2 core divisions. We have Lifecare, where we empower health care providers by putting digital tools directly into their hands to help them deliver better care and outcomes for their patients. And then we have Wellness, where our focus is on giving employers the tools they need to make their workforce healthier, happier and ultimately more productive.

So as you can see on this slide, the current revenue split between the 2 divisions stands at 77% Lifecare, 23% Wellness. Now for those of you who recall last quarter's numbers, you'll notice there's been a significant shift in this balance. So that change is primarily driven by the reduction in Wellness revenue following the disposal of our Wella subsidiary and also the closing of our proprietary clinics in the Champion Health Plus business line.

As a result, there's now a stronger tilt towards Lifecare, at least in the short term, while we focus on rebuilding and expanding our revenue base within the Wellness division.

Now division by division, starting with Lifecare. So as mentioned, we delivered 6% year-on-year growth, driven by continued momentum in the Physitrack products. So MRR growth stood at 24% looking back to 12 months and recurring revenue now represents 99% of total revenue in this division. The churn remains impressively low at 1%, and it's low for B2B clients at this low price point. So price point is comparable to the B2C world where churn is normally much, much higher than this.

We achieved an adjusted EBITDA margin of 47% with an EBITDA less CapEx margin of 25%. So both strong indicators of the division's profitability and scalability. Notably, we closed some of the best deals in the division's history this quarter, which you will have seen from separate press releases, and that reinforces the confidence that we have in our ability to sustain growth with really, really nice margin. Our net revenue retention remains solid, reflecting both customer satisfaction and effective upselling strategy.

Now moving on to Wellness. As anticipated, we saw a reduction in top line revenue this quarter, which is directly tied to our strategic decision to part ways with low-margin operations. So this included the divestment of our German subsidiary, Wellnow, I'll have a separate little note on that in a second, as well as the closure of underperforming clinics and activities that were not contributing meaningfully to profitability within Champion Health Plus.

The Wellness division is now leaner, is more focused and it's aligned with a digital-first strategy, and we've accelerated efforts in enterprise-focused tools, enabling holistic care providers to deliver occupational health and wellness solution at scale. And the major deal announced in March is a clear example of this shift, and we expect to see more agreements of the similar caliber moving forward.

And this refocus that we have, it allows us to operate with a lighter team. It's interesting. So it's empowered by better tools, modern workflows and again, demonstrating our commitment to efficiency and profitability, doing more with less.

Specifically on Wellnow here, just a brief note here. So we completed this management buyout transaction at the end of March. And under IFRS 5, it has been removed from our accounting. So additionally, we eliminated EUR 243,000 in deferred earnouts from our balance sheet. Strategically, this move allows us to retain access to Wellnow's customer relationships that we built painstakingly from a EUR 300,000 revenue base up to EUR 1.7 million [indiscernible] with business. And we avoid the drag of a business that despite generating EUR 1.7 million in top line revenue, it hovered around cash flow neutrality.

And by transitioning sales and marketing efforts to our central teams, we can more effectively capitalize on these customer relationships within a software-first framework. So it's a far more scalable and profitable model than trying to retrain teams focused on physical care delivery.

Now you've seen the effect on profitability metrics following this move, and we'll talk a little bit more about that in Matt's segment here. And we feel that on an operational level, we have less product complexity, there's less risk. And it's a smaller team to take care of. It's all accretive to the business.

Finally, regarding Champion Health and Champion Health Plus. So we completed the restructuring process there, closing unprofitable clinics and shifting focus to higher-margin stuff for Champion Health Plus. And it's now more or less a software-driven service using a third-party network for care delivery, and we've kept some of the more profitable clinics with us that have margins that are more in line with what we need for the whole group.

The division delivered positive cash flow in Q1 2025, excluding restructuring costs, and we're now seeing the full impact of our cost base reset. So our largest ever partnership deal ever that we signed earlier this year, it's GBP 1.1 million. It commences in June, and we expect the financial contribution to be reflected from Q2 and onwards. And the contribution will grow from the GBP 1.1 million over 4 years that we started as that partner rolls out Champion Health software to more of their customers.

I will speak more about this in the Spotlight interview that we published this morning. And if you want more context there, have a look at that for more details. It's very exciting.

Now in summary, Q1 2025 has been a financially robust quarter, marked by strategic execution, financial discipline and a clear focus on sustainable profitable growth. And I feel Physitrack is positioned to thrive as a leaner, stronger, more agile company while it's continuing to drive innovation in digital health.

Now with that, I'll hand over to Mr. Matt Poulter, who's going to walk you through the financials in greater detail. Over to you, Matt.

[Matt Poulter, executive]

Thank you, Henrik. My name is Matthew Poulter, and I'm honored to be here today as Interim CFO, presenting Physitrack's Q1 2025 financial results. As many of you know, the business has undergone significant change over the past year, including strategic divestment and a restructuring. This means the numbers you'll see today differ from the previous periods.

In order to provide meaningful comparability, we prepared pro forma numbers, which excludes the contributions from both Wellnow and the closed Champion Health Plus clinics. On a pro forma basis, revenue increased 3% year-on-year to EUR 3.6 million, with our Lifecare division leading the growth. This was up 6% to EUR 2.8 million and was driven by strong retention rates and a better-than-expected increase in monthly recurring revenue.

Subscription revenue rose 6% to EUR 12 million, reflecting both the expansion in license volumes and the successful September 2024 price adjustment. Annualized revenue rose 1% to EUR 14.3 million, providing a solid foundation for the remainder of the financial year.

Turning to profitability. Adjusted EBITDA reached EUR 1.1 million with margins expanding to 31%, and this marks a material improvement from the 25% margin we reported in Q4 2024. The expansion reflects the early dividends of our portfolio reset, streamlining our operations, exiting low-margin activities and reshaping our cost base, particularly in the Wellness division.

That said, on a pro forma basis, EBITDA margins were broadly flat year-on-year. A reminder that while restructuring has moved drag, the journey to sustained improvement has just begun. We're talking more in our report about adjusted EBITDA less CapEx, and this is a really, really important metric because it shows whether a SaaS business is not just profitable on paper, but actually generating sustainable cash profits after the essential investments needed to stay competitive in this platform.

It's a real-world profitability lens and a much stronger signal on our underlying performance. This increased 32% year-on-year to EUR 0.4 million, generating a margin of 12%, a reflection of our strategic focus on investing in technology, systems and cost discipline rather than head count expansion. As a result, free cash flow for the quarter grew 79% year-on-year to EUR 0.1 million, a strong early indicator of our improved cash conversion.

On to the next slide, where we're looking at the SaaS metrics and outlook. So this quarter marks another important evolution. We've introduced key SaaS metrics to enhance the transparency and usability of our financial reporting. Metrics such as ARR, net revenue retention, net MRR, churn, ALPL and SaaS gross margins are now embedded in our quarterly updates. This provide a more granular view of performance and the levers we are pulling to drive value.

While this is a strong start, we recognize there is more to do. And over the coming quarters, we plan to introduce further enhancements to these metrics, including metrics like CAC. And once the residual impacts of the divested Wellness operations are fully absorbed and the restructuring has been fully reflected in the numbers, we will include more meaningful SaaS metrics.

Overall, Q1 2025 was a transitional and encouraging quarter, a quarter in which simplified the business, improved the margins and laid the groundwork for scalable recurring growth as the business pivots towards a pure SaaS focus.

On to the next slide, where we're looking into revenue in much more detail. So Lifecare, revenue increased 6% year-on-year to EUR 2.8 million, and that was in part driven by 24% growth in MRR for our Physitrack platform, and that really is the foundation of this division. Churn remains low at 1%, and that underpins our strong customer loyalty and our product market fit.

We're also implementing a price rise in May 2025, similar to that as we saw in September 2024, and that will further support our revenue growth over the coming 3 quarters.

If we turn to Wellness, here, we have made a deliberate strategic pivot. We're moving away from nonrecurring low-margin product revenue to a SaaS revenue stream and in part, pro forma revenue declined by 7%. This was evident in the Fysiotest business, where the transition from the sale of health tech-related products to the Nordic Champion Health SaaS platform occurred.

So whilst we have seen in the short term decline in revenue there, it does position us for much higher quality recurring income in future periods. Champion Health also saw a revenue decline year-on-year, and that was largely due to one-off implementation fees recognized in Q1 2024. And actually, if you exclude those, the underlying run rate is more stable, predictable and aligned with our SaaS model.

We move on to the next slide. Our focus on profitability. So this quarter, we achieved our best ever adjusted EBITDA margin of 31%. And I think the graph really indicates the fruits of the successful divestment of Wellnow and the closure of the Champion Health businesses. And this really is an important milestone for us as it shows we're firmly on the road towards margins typically about high-performing SaaS businesses.

Looking quarter-on-quarter, while revenue was impacted by the divestments, the closures and the operations had a significant drag on the profitability historically. And the results again highlight that the restructuring was the right decision to enhance the long-term quality of our earnings.

If we break this down by division, Lifecare's adjusted EBITDA less CapEx margin rose to 25%. And actually, if you benchmark that externally, this aligns with top quartile SaaS peers. Group costs in the Wellness division, EBITDA less CapEx remained broadly consistent quarter-on-quarter, and that is reflecting our disciplined cost management.

Now what revenue and adjusted EBITDA less CapEx flow into cash and liquidity, which I'll talk through on the next slide. And that is a core focus really of everything that we're doing. So during the quarter, we generated EUR 0.1 million free cash flow and repaid EUR 0.5 million debt. This is demonstrating our commitment in both improving profitability, cash generation, but also in strengthening our balance sheet.

We currently have EUR 1.4 million available on the liquidity on our facility. Looking ahead, we do expect a cash outflow in Q2, but that reflects the natural seasonality of our annual working capital cycle, such as the annual payment of audit fees and other one-off payments. However, we're really confident in achieving cash flow neutrality for the full year 2025 by both balancing revenue growth, margin expansion and deleveraging our objectives.

Moving on to the next slide. So we've spoken a lot today about the numbers, but actually what are we doing in finance. So innovation has always been part of our DNA. And over the last 4 years, both Charlotte and I have had the privilege to build a finance function from scratch. And in doing that, we've leveraged technology rather than head count to drive this scalability. And artificial intelligence is now allowing us to take this one step further.

Over the past quarter, we've looked to implement AI in pretty much everything that we do. And something that we're really, really pleased of is being able to reduce and make efficiencies in our reconciliation process by using specific GPT models. And overall, that's allowed us to reduce the manual workload. And actually, in doing so, that's freed up the team to spend more time analyzing results rather than compiling them. We've also embedded AI tools within our billing, payables and automation workflows.

And looking ahead, where we'd like to start using AI in finance over the next few quarters is in rolling out a group-wide AI-driven cash flow forecasting tool, using AI for flux analysis to identify unexpected or unusual movements proactively, using AI for [ deeper ] analysis and insights on both our customer and supplier bases and then expanding predictive FP&A capabilities to support better decision-making. That said, we do approach AI with a healthy level of skepticism. We apply critical thinking to outputs, and we use AI for heavy lifting, but retaining human oversight where it matters.

Finally, a quick overview on the balance sheet on the next slide. So the key movements there, as you'll see, is really as a result of 2 things. The divestment of Wellnow, that's driven a reduction of EUR 0.8 million in goodwill, intangibles and PPE, but also a EUR 0.4 million reduction in deferred tax liabilities. Cash has declined by EUR 0.4 million, but that's linked to the EUR 0.5 million debt repayment.

And deferred consideration linked to the acquisition of Champion Health will begin to be paid out from August 2025. So the liability that we've got there now is predictable, and that provides you with better predictability of future cash commitments. Overall, the balance sheet is becoming leaner, more resilient and better positioned to support the next phase of growth.

In closing, Q1, a quarter which was a quarter of focus, simplification and building a more scalable, high-quality SaaS-focused business.

[Henrik Molin, executive]

Thank you, Matt. That's fantastic. Before we move into the Q&A section, I'd like to take a moment to revisit the value propositions for both Lifecare and Wellness. They're holistic technology-driven offerings designed to enhance patient recovery and improve workplace well-being. So we are in a strong position to capitalize on key growth drivers, and we have a robust business model. It allows us to navigate headwinds while maintaining profitability.

And in terms of financial goals, you will see a reaffirmation of our financial goals here. Top line growth remains a priority. Our medium-term target is to double the company's revenue base, a goal we believe is well within reach given the trajectory of market demand. EBITDA margins, we aim to bring the entire business in line with where our Lifecare division is today, targeting 40% to 45% over time.

Cash generation, we've demonstrated that our model is cash generative. And as we saw this quarter again, that trend is continuing. Long-term shareholder value over time, we will position Physitrack as a dividend distributing investment to further enhance value for investors. We remain focused, disciplined, committed to delivering profitable and scalable growth, and we ensure that our tech continues to make a meaningful impact to our patients and providers and employers alike.

Now with that, I'd like to thank you all for your time today. Let's move over to the Q&A part of this presentation. Let's all use the Q&A function at the bottom of your screen on your Zoom panel, and I'll see you in the Q&A session.

[Henrik Molin, executive]

Okay. Let's get on with the questions. So we have a first question here. In your CEO letter, you mentioned a breadth of additional transactions, meaning of breadth, that taking place beneath the surface. Are these primarily related to Wellness or Lifecare?

Yes, indeed, there's quite a bit of deal activity happening under the surface and the stuff that is too small or it is too private to put out on press releases. I'd love to have a press release for every single thing that we do, but it's unfortunately not realistic. But this is happening both in the Lifecare and the Wellness segments. Many of these transactions are with Wellnow brands, which is really interesting, and they represent meaningful strategic progress.

Now again, that said, deal sizes are typically not large enough to justify stand-alone press releases and especially if they're in a pilot phase. If there's a paid pilot, there's a smaller amount, et cetera. And we don't want to give a skewed picture of scale or momentum by selectively highlighting smaller wins. We're not that type of company. We're quite sparse with press releases. But to be clear, there's a healthy volume of activity, and we're seeing good traction across both segments.

We have a second question here. Matt, so I thought I'd lobby that over to you. CapEx declined quarter-over-quarter. How should we think about the CapEx run rate for 2025? Do you expect it to be lower in -- than in 2024? And is the CapEx split still roughly 1/3 Wellness and 2/3 Lifecare? There's like 3 questions in that question, but over to you, Matt.

[Matt Poulter, executive]

Thanks, Henrik. Yes, we did see a decline in CapEx quarter-on-quarter, and that's primarily due to 2 key factors. So first of all, in the Wellness division, we've progressed through a significant restructure. That includes consolidating resources and driving efficiencies. So we've seen a fall in the CapEx there. Secondly, in Lifecare, we've made some meaningful strides in trying to embed AI and automation into our operations. And also that's allowed us to optimize our capital deployment in that division too.

I think given these developments, Q1 CapEx levels represent a consistent quarterly run rate that you probably would expect to see over the next 3 quarters. And then in terms of the CapEx allocation between the 2 divisions, again, what we're seeing now, so 90% directed towards Lifecare, 10% towards Wellness is again probably a consistent split, which we see quarter-on-quarter for 2025.

[Henrik Molin, executive]

Thanks, Matt. It looks like your camera is slipping. So let's be careful so it doesn't fall on the floor there. The next question is for you as well. The adjusted EBITDA less CapEx margins under division review, 25% for Lifecare and 5% for Wellness, are those calculated on a pro forma basis?

[Matt Poulter, executive]

Yes. So the Wellness division's CapEx -- sorry, adjusted EBITDA less CapEx, that excludes the contributions from Wellnow and also from the closed clinics. So that is comparable to the pro forma 2024 adjusted EBITDA less CapEx numbers.

[Henrik Molin, executive]

Thank you for that. Have you seen any change -- and that's for me, have you seen any change in momentum from Q1 to what you have observed so far in Q2?

Well, we've definitely seen a shift in momentum when it comes to larger scale opportunities that we're pursuing in Wellness and the intro clip here to the whole webcast indicates there's a lot going on there in terms of enterprise products and interesting things that are more palatable for bigger companies.

And so following that, we have seen more momentum here, particularly after that announcement we had in March because that really proved that we're capable of in Champion Health in a big way and not just dealing with specific corporates, but dealing with these wellness aggregators that have a holistic view of their offering in terms of care and prevention and digital tools. And so definitely, that transaction has been really, really good.

And I would say, it's opened the floodgates in terms of the types of conversations and opportunities now on the table. And you will have seen that in the interview as well that I did on Spotlight this morning. So I'll talk about that more in detail how that deal comes together and what it means to do a deal with an aggregator and a little bit of the tech and how that comes together.

So just to take a moment to look at that. There's -- if you go to physitrackgroup.com, you'll see all the Spotlight clips, and that's going to be the latest one that we have.

Now are you experiencing any effects from the current market volatility and uncertainty?

Yes, there's -- obviously, there's a lot of deal momentum I talked about that. We are seeing some short-term hesitation from customers when it comes to finalizing contracts. And a lot of that, I think, is tied to this unpredictable tariff environment and broader geopolitical uncertainty.

Now this stuff comes and goes as you've seen. So hopefully, we will see a stabilization of that. But we have seen some delays in deal confirmation. And we do think this is a temporary dynamic. And as we move deeper into Q2 and we'll hopefully have a more predictable external environment, we I think we'll see more clarity and we'll see the momentum returning to the legal side of things as well.

And I should say this has mostly been notable with manufacturing industry, so people that have physical goods that they're exporting, especially into the U.S. market. But overall, it's all very positive. Momentum is great, and there's some great things to look forward to in the quarter as well.

Right. Those are all the questions that we had. And I thank you very much for your time for tuning in, and there's a recording of this that's available after this, of course, and don't miss out on watching the Spotlight segment with the interview with me from this morning. Thank you so much, and have a great day, everyone.