CompuGroup Medical SE & Co KgaA
XETRA:COP
Earnings Call Analysis
Q4-2023 Analysis
CompuGroup Medical SE & Co KgaA
The company has been on a steady growth trajectory, with revenue rates consistently in the mid-single-digit percentage range for the past four years. This trend marks a departure from the more stable growth witnessed prior to the company's investment phase. In the fiscal year 2023, the adjusted EBITDA grew by 13% to EUR 265 million, leading to a significant margin increase of 1.6 percentage points over the previous year, reaching a 22.3% margin. This improvement is credited to stringent cost management, and the company is committed to pushing its margins higher while maintaining this organic growth.
The company's Ambulatory Information Systems segment has been a catalyst for growth, particularly in the U.S. where it outpaced other segments with higher growth rates and constant margin improvements. In Germany, the company fortified its market presence with e-prescription rollouts, which have soared in recent times. The hospital segment wrapped up the year with double-digit growth, backed by governmental projects and regional customer wins. Meanwhile, the pharmacy segment, particularly in Italy and Germany, performed exceptionally, achieving a stunning 36% adjusted EBITDA margin in 2023.
The Consumer & Health Management segment, after delivering a notable compound annual growth rate in revenues and EBITDA, is now fully integrated into the broader Ambulatory Information Systems. With the implementation of the TI flat rate and milestones achieved towards becoming a leading European provider of medical data solutions, the company is setting sights on future opportunities. Artificial intelligence initiatives begun in 2023 hold promise for enhancing the company's product portfolio and meeting growing market demands.
The company continued to successfully manage personnel expenses, maintaining a 3% organic increase despite wage inflation, significantly below the average rate. A strong emphasis on cost control relative to revenue growth is expected to lead to greater efficiency ahead. Moreover, free cash flow has bounced back to EUR 113 million, surpassing the EUR 100 million target, despite a challenging 2022. The company's leverage ratio also improved from 3.1 times to 2.8 times in 2023.
For 2024, the company's outlook is positive, projecting organic revenue growth between 4% to 6% and adjusted EBITDA ranging from EUR 270 million to EUR 310 million. Adjusted earnings per share are expected to see an approximate 10% growth. There's a focus on achieving further margin expansion and a continued push for profitable growth, with the anticipated recurring revenue share to be between 65% and 70%. Free cash flow is projected to fall between EUR 70 million and EUR 100 million, with 2025 expected to see a strong rebound of free cash flow aligning with the materialization of savings from various efficiency initiatives.
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Ladies and gentlemen, thank you for standing by. I'm Sasha, your Chorus Call operator. Welcome and thank you for joining today CompuGroup Medical Preliminary Figures Q4 Full year 2023 Call. [Operator Instructions]I will now like to turn the conference over to Senior Vice President, Corporate Communication and Investor Relations, Claudia Thome. Please go ahead.
Good morning, everyone. And welcome to the CompuGroup Medical investor and analyst conference call for the full year 2023 preliminary results. It's great to have you with us, whether you have dialed in via the phone or are following the webcast. You'll find all the relevant information such as the presentation, the quarterly statement, and the press release which we published early this morning on our website.Our CEO, Michael Rauch, will be presenting today and we also have Daniela Hommel with us, our new CFO. As always there will be the opportunity to ask questions.Before we start, as always, some housekeeping remarks. Let me remind you on our Safe Harbor statement, which is shown at the beginning of the slide presentation, and this is valid for the entire call.Thanks for your patience. And now, let's start. I would like to hand over to CEO, Michael Rauch. Michael, over to you.
Thank you, Claudia. Good morning ladies and gentleman, and a warm welcome to all of you to the first investor and analyst event of CompuGroup Medical in another exciting year. Let me start directly with a summary of our financial performance in 2023.CompuGroup Medical again took revenues to a new height, with 5% top line growth we achieved around at EUR 1.2 billion in group revenues. Organically, we recorded the projected growth despite tough prior year's comparison. Excluding the Telematics Infrastructure business, organic revenue ended up 5.3% higher compared to last year, again driven by numerous growth opportunities generated and executed throughout the excellent product offerings.Recurring revenues grew over-proportionately by 12% and exceeded with a share of 69% EUR 800 million in revenues. With 13% growth, adjusted EBITDA grew more than double the rate of revenue showing the weighted improvement of our bottom line. Adjusted EPS was also up double digit.So summarizing, we've taken revenue growth to a new level of mid-single digit organic growth now for the fourth year in a row, and we're now showing over-proportionate earnings revenue growth -- sorry, earnings growth.Before we deep dive into the numbers and the strategic milestones we laid out in 2023, I want to talk about the exciting opportunities we are facing in a rapid transformation of the healthcare market. This market transformation is a dynamic process influenced by many factors, most noticeably by macroeconomic changes, technology advancements and healthcare priorities.2 implications on the macroeconomic side. The demographic change is accompanied by growing and accordingly more costly healthcare market. This development has consequences. Healthcare systems will continue to adapt to this change. The pressure to work more efficiently and sustainably will remain high. And the benefits of software and IT, particularly its ability to reduce process cost will be a key factor in all areas of healthcare. Thanks to the advantage of rapid technological advancements, we have all it takes to adequately cater for the macroeconomic changes.Technology advancements including artificial intelligence, telehealth and wearable devices are going to improve healthcare support, easing patient care, enhancing diagnostics and streamlining processes for healthcare providers. The key to success for us will be to continue staying at the forefront of this development with our innovative products and services at highest IT security standards. It is imperative that medical data stays secure.All of this will shape the healthcare priorities going forward with personalized medicine, patient-centered care, predictive analytics, and highly secured interoperability means allowing seamless real-time and secure medical information exchange. This isn't science fiction. It's real and it's happening now. So let me just use 3 numbers to illustrate the current dynamics and technology in healthcare. Who would have thought that it took only 5 days for ChatGPT to win 1 million users.Well, CompuGroup Medical have been quick in adopting generative AI for our company. In less than 6 months, we rolled out our own AI tool ChatCGM for all of our employees and the learning curve is steep for all of us. This changes the way we work and we fully embrace it. Medical knowledge is now doubling every 72 days. This represents the biggest challenges for our customers, the physicians, hospitals, pharmacies, laboratories, and research institutes out there. Given the increasing scarcity of healthcare providers, we need to support them ever more with intelligent IT solutions in this daily challenge and we have the means to do so.And last but not least, one proof point to the magnitude of AI in healthcare. Studies revealed a 90% accuracy of AI-driven algorithms in detecting cancer on mammograms. For radiologists, the comparative figure is 70%. That demonstrates the benefit AI support can have for human doctors. Just imagine how many more lives can be saved by the increased usage of AI. Hence, we at CompuGroup Medical are ever more committed to our purpose in these times of change. Nobody should suffer or die because at some point medical information was missing.Health and well-being is deeply personal for everyone. However, relevant medical information needs to be made readily available and accessible at every point along the entire patient journey. We at CompuGroup Medical enable the connected patient journey while servicing the entire customer base. This drives us every day and motivates us to continually improve.Making medical information interoperable saves lives, detects rare diseases and improves healthcare overall. The big challenge is to connect data for it to be used by all significant players in the healthcare market. As CompuGroup Medical servicing the entire customer base of the healthcare system, we are perfectly positioned to unleash the true value of data for our customers because data needs to be shared to unlock its full potential. Thus, interoperability amongst healthcare systems provide us and patients this crucial for seamless coordination of care efficient information exchange and improved patient outcomes.At the same time, data needs to travel safely. And IT security is of the utmost importance since the data that is traveling, patients' medical data, is the most sensitive there is. Thus at CompuGroup Medical, we are investing more into IT and into IT security every year to protect our customers' data. And we utilize the benefits of artificial intelligence to enhance our products with new innovative features and identify the biggest value for our customers and the patients. Now is the time to make use of the power of AI in the realm of advancing software usability and enhancing the doctor-patient interaction.As mentioned earlier, with the example of AI-driven algorithms in detecting cancer on mammograms, AI can process and interpret complex visual data with high precision and speed in the field of image analysis. And AI also plays a pivotal role in medical decision support. The technology is able to analyze vast amounts of data to provide evidence-based recommendation, reducing the risk of human error and improving the quality of care. AI can optimize documentation and reimbursement processes in healthcare. It can automate administrative tasks ensuring accurate timely records and claims, reducing costs and increasing efficiency.The power of AI when harnessed properly will bring significant advancements in various fields driving innovation and growth. And we have the unique strengths to address those opportunities successfully. Superior market and R&D expertise, a unique database, and an e-health ecosystem filled with a full-service approach form the basis at an excellent position. We are the only company in the sector to cover the full value chain underpinned with excellent customer relationships serviced with sophisticated and deeply integrated medical software and services.Hence, we are in an excellent position. Due to our strengths, our USPs, a broad present and outstanding market position in Europe and a growing relevance in the U.S., we are strong #1 or #2 in many markets, and we all know the market position in our business matters because it is a base to further scale products and services. This is important for our growth path going forward, and we strive to continuously improve our market positions, never becoming complacent. And this is exactly the right time for accelerating our performance.In order to best participate in these massive opportunities, we need excellence, excellence in technology, performance, quality and people. What does it mean? We are constantly evaluating the team's skills and fostering people development in our company. We are growing together in our endeavor to become more professional every year to deliver high quality and excellent performance. And if and when necessary, we embrace the change, take action, adjust our skill set and make necessary adjustments like it was done in selective business units in the last quarter of 2023.At the same time, we are fully embracing the AI opportunities for the intelligent use of data for more quality in our processes and to innovate in a more efficient way. It is a process of constant learning, optimization, professionalization for the benefit of our customers with a clear ambition. We are the leading medical software company.Let me now underpin our ambition with last year's financials. Before discussing the financial performance of the segments, let me highlight our top line development. Total revenues are up 5% reported and 4.3% organically in 2023. Organic growth, excluding TI resulted in a 5.3% increase year-over-year. Recurring revenues increased over-proportionately by 12%, resulting in a share of recurring revenues of 69%. The jump by 4 percentage points is due to the TI business moving away from the high one-offs and thus away from the high volatility. Overall, we are now close to 70% in recurring revenues, a great achievement. And by the way, the target was 70% and higher for 2025.A quick look at the organic growth rates, which have been in the mid-single-digit percentage range now for 4 years in a row compared to a rather stable development in the years before our investment phase.Moving on to the adjusted EBITDA. We also see here an overproportionate development compared to revenues. Adjusted EBITDA grew by 13% to EUR 265 million, resulting in an adjusted EBITDA margin uplift of 1.6 percentage points, so 1.6 percentage points margin uplift 2023 over 2022, delivering a 22.3% margin for fiscal '23. This is a result of focused cost management and follow the path we will continue to pursue profitable growth and margin uplift. We are committed to clearly increase the margin further while maintaining the attractive growth organically, which we have delivered in the past years already.Please let me go into more financial details with a segment overview, starting with our flagship, the Ambulatory Information Systems segment, which is driving the digitization in doctors' practices across Europe and in the U.S. In 2023, we strengthened the basis for further growth. The U.S. business showed the anticipated development with an organic growth rate above segment average accompanied by a constant improvement in margins.In our core market Germany, we've seen an ongoing growing relevance of our market presence. The rollout of additional billing modules strengthened our position in German dental offices and with the ultimately mandatory e-prescription, more than 15 million e-prescriptions have been processed within our Ambulatory Information Systems so far year-to-date. This is more just in the first weeks of this year than in 1.5 years before until December 2023. E-prescription traffic in our CLICKDOC tool has also increased massively, which is reflected in doubling of transmissions only in the last 4 weeks. On the earnings side, we've extra invested into patient portals. Going forward, we are confident that we will see a margin rebound in the Ambulatory Information Systems segment.Coming to our hospital segment, we've seen the strong year-end finish as expected. A double-digit growth CAGR reported inorganically as well as the margin rebound not only supported by the execution of projects related to the Hospital Future Act, but also through customer wins across all regions.So short and crisp, HIS is back on track and will support our growth and success story further with strong growth and significant EBITDA improvement. And please let me remind you, the future is not only dependent on the German governmental initiative. We expect further growth tailwinds in the coming years due to increased demand for our next-generation product offerings and the consolidation of the market.Let's move on to the Consumer & Health Management segment, which will be reported separately for the very last time after the successful integration into the AIS segment. In our Consumer & Health Management Information Systems segment, we delivered a double-digit revenue CAGR over the past couple of years with an over-proportionate growth in adjusted EBITDA. We successfully implemented the TI flat rate in the second half of 2023, which is reflected in a strong growing share of recurring revenues. We also achieved major milestones on our path towards the goal of becoming a leading European provider of medical data solutions.With our AI initiatives started in 2023, which will sustainably enhance our product portfolio, we are really excited about the steps we will take in building up new opportunities. And there is a growing market demand for our solutions from healthcare providers, pharmaceutical companies, insurances and other healthcare constituents.Finally, let's talk about our pharmacy segment. Again, the PCS segment and our PCS colleagues recorded an excellent -- no, let me really say an outstanding performance exceeding our expectations. So thanks and congratulations, colleagues. You delivered against a very strong prior year 2022 outstanding results for '23. Revenue growth has been driven again by our teams in Italy and Germany. And the margin has seen another step-up due to efficient cost management in Germany and Italy, resulting in an amazing 36% adjusted EBITDA margin in 2023.Besides the outstanding revenue performance and record profitability, the relevance of our presence in the German pharmacy market is reflected by around 6 million e-prescriptions processed within CGM's Pharmacy Information Systems in January 2024 only. And of course, we look forward to continue to support our customers on their path towards further digitization.Let me now address a short update development about the development of our personnel expenses. As you know, we shifted gears significantly in mid-2022 after the strong ramp-up in headcount during the investment phase. Since then, the development of our personnel expenses is in line with our expectations. Even with wage inflation, we only recorded an organic increase of 3% last year, well below the average inflation rate in personnel expenses.We are fully focused on cost control by significantly reducing our personnel expenses in relation to revenue growth. This will enable additional increases in efficiency in the future. And supported by the means of increased AI usage, we will further improve our ways of working going forward.Moving on to free cash flow. With EUR 113 million, we managed to bring back the free cash flow well above the EUR 100 million target. After a challenging 2022, free cash flow is now fully restored. Despite ongoing M&A activities, higher interest rates and additional investments in next-generation technologies, we reduced the leverage from 3.1x to 2.8x in 2023. And we will continue to focus on deleveraging and cash flow generation in the future.Now, that actually brings me to our special guest today. I'm delighted to hand over the CFO task to my successor as CFO, Daniela Hommel. And she's here with us today on day 7 in office. Daniela, a very warm welcome to the CGM family. Great to have you on board. And now, over to you.
Thank you, Michael, and a warm welcome to all of the analysts and our investors of CGM. My name is Daniela Hommel, as you've heard, and I'm very happy to have finally started with CGM as of February 1st. To my personal details, I'm married and I have a daughter, which is a young lady of nearly 16.5 years now.Healthcare is a great sector to be in, I have to say. It's been 25 years for me now and especially compelling is the purpose of CGM, as Michael just iterated. My other passion, as you can guess, is finance. I head various finance and controlling positions within the Fresenius Group since 2012. And in my previous last role, I was responsible for the performance of the hospital business within Fresenius, which is Helios, as a CFO since 2018.In 2022, I started as a Chief Financial and Innovation Officer of Helios as whole, taking care of the international business. In addition, I was responsible for Fresenius' digital subsidiary, Curalie, as a CEO since 2022 also. Now to my priorities as CGM.One of them will be cash management and especially working capital and debt reduction to allow us further growth. Michael has also talked about the focus on cost and margins. That will be one of my priority also, and I will focus on R&D management, which plays a vital role here. I will also be responsible for ESG and our path towards net carbon zero. And I'm very much looking forward to taking over the baton from Michael to establish best-in-class financing processes powered by AI here at CGM to support the business units even better.I'm convinced that my new role -- in my new role as CFO at CGM, I will be able to further advance this fascinating company, which has great employees, and to drive digitization in the healthcare sector even further. I look forward to meeting many of you soon and to be in close contact and exchange with you. But enough about me now. Michael, back over to you.
Thank you, Daniela. So let's move on to talk about the goals we want to achieve together in the current financial year. Having achieved our 2023 guidance, we are now fully focused on achieving another year of profitable growth for 2024 with further margin expansion.For 2024, we expect organic revenue growth in the range of 4% to 6%. We expect adjusted EBITDA to be in the range of EUR 270 million to EUR 310 million, while growth in adjusted earnings per share is expected to be around 10%. This development will be supported by an anticipated recurring revenue share between 65% and 70%. We expect the free cash flow to be in the range of EUR 70 million to EUR 100 million in the current year.Now why is that the case? For 2024, we will see the cash impact from the different initiatives to drive excellent efficiency I mentioned earlier on this call, which we took in the fourth quarter of 2023 to upscale our skill set level and to further enhance the performance in the selected business units. These initiatives resulted in a EUR 26 million one-off in late 2023 and will materialize in the corresponding cash out in 2024. We expect significant savings from these initiatives to materialize within the next 18 months, positively impacting 2024 already with a mid-single-digit million-euro amount. And we, of course, will see a full swing back of free cash flow in 2025.Talking about our segment guidance for 2024. We expect an organic growth rate for our ambulatory segment, where the former CHS segment is now included, in the low to mid-single-digit percentage range. For the hospital segment, an organic growth rate in the range of mid to high single-digit percentage is anticipated. And finally, our segment for pharmacies is expected to grow organically in the low to mid-single-digit percentage amount.In closing, we are fully committed to deliver on our 2024 targets. And to further uplift our EBITDA margin while supporting all the healthcare practitioners out there in their daily work and on their digital journey in line with our mission, we create the future of e-health.With that, I want to thank you for your attention. And I'm looking now forward to your questions and handing over back to the operator. Thank you.
[Operator Instructions] The first question comes from the line of Knut Woller with Baader Bank.
Actually 2 questions to start with. Michael, when you announced the Q3 results on 9th November, there wasn't any mentioning of potential restructuring ahead. So what has happened since then that justify such a huge amount of money spent for restructuring EUR 26 million since 9th of November and the end of the year? And can you give us some more color on which segments have been affected? And I wasn't sure whether I gathered really the expected benefits out of it.And then secondly, on the margin expansion part. Your former midterm ambition looked for a margin of 27%, around 27%, in 2025. While I see that you're expecting ongoing margin expansion, if I would just keep the margin momentum, we would come in noticeably below this former margin ambition of around 27%. Can you give us here some more color on the margin trajectory also looking beyond 2024?
Thank you, Knut. 2 important topics you're addressing, of course, and I'm very happy to answer those. So going back to your first question. So indeed, the magnitude, the speed of change that comes with the introduction of artificial intelligence is enormous. And we need to adapt and react to that, providing the best service to our customers. So as a growth company in a dynamic market, we are, of course, constantly transforming. And if we need the opportunity to upgrade our skill sets and to put the right people in the right position, we will, of course, do so. And that's why we took action in the end of the fourth quarter. Your question was with regard to the segments, all of the segments in various business units were affected. A larger chunk actually happened in the HIS segment here.The second question was addressing the topic of the 27% margin. So today, we published our guidance for 2024. And that's why we want to focus on achieving our margin uplift in 2024. You saw a 1.6% margin uplift 2023 versus 2022. So the same 1.6% margin uplift would bring us to 24%, as you see in the midpoint of our guidance for 2024. And from there on, we will then move with a further margin increase into 2025. Thank you.
Just a quick follow-up on the restructuring. Is that now behind us or should we expect that the AI-driven change will result in the necessity potentially also for one-offs in 2024? And that would be it from my side.
Yes. Very good to follow-up. And you also asked about the expected benefits. So I want to answer both in one go. So we took the large charge of EUR 26 million in the last couple of weeks for 2023 with the cash out coming on 2024. And yes, if there is a need to further adapt our structures, we will not hesitate to do so, but not in that magnitude anymore. So, if you ask me what's going to come and to be expected, I would never rule out any further restructuring and adaptation of changes or structures going forward, but the magnitude will be significantly lower.Second point of your question was earlier on regarding the expected benefits. So I just want to repeat, we expect already a mid-single-digit euro amount of profitability improvement from those measures in 2024, and we expect the full impact to realize -- to be realized over the next 18 months.
The next question is from Martin Jungfleisch with BNP Paribas.
2 questions, please. First of all, on the guidance, on the EBITDA guidance. Can you describe a bit what needs to happen to see the upper and the lower end of the guidance? And then why have you chosen such a wide range again of EUR 40 million? I believe last year, you took that EUR 40 million range because of the uncertainty to the Telematics Infrastructure, but now this year you shouldn't have this uncertainty really. So, I'm just wondering why the big range again.And the second question is on the recurring revenue guidance, where you see 65% to 70% compared to the 69% last year, right? And last year, you had a lot of hardware revenues from the connector exchange. So -- and this year, you should have the TI flat which should be beneficial. So why is this relatively weak recurring revenue target for this year? That's it from my side.
Thank you, Martin. Also 2 important questions to be tackled. The first one on the guidance range. The range basically, if that is being put into percentage, is obviously the more revenue we as a company achieved always to be bigger than it used to be in the past, but there are also many moving parts. So, I just want to illustrate one which you, for instance, also spot when you look to the development of the fourth quarter. So, in fourth quarter 2022, we had [ Segurma de la Sante ] in our program for the first phase. We didn't know whether the second phase would come in Q4 2023. It did not materialize. Now it's coming most likely in the second half of 2024. So, these are moving parts, which are not in our hands because that depends on when regulatory bodies basically allow us to [indiscernible].And the same thing, by the way, could happen when we talk about programs like the Hospital Future Act, where we also need to have the corporations of the corresponding hospitals to say, okay, now we up the order volume in, but the question is when can we realize the revenues, when can we actually bring the project into fruition. So there are quite some moving parts, which are not always fully in our hands. Of course, we want to achieve as much as we can the upper end of the guidance.You also asked with regard to the recurring revenue portion and that has to do with the projects. So if I take, again, for instance, the Segur project as an example, then this is a onetime revenue to be recognized. And so, as we expect this to be recognized this year, there's, of course, a onetime component to come. Similarly, with the Hospital Future Act projects, you also recognize, in addition to recurring revenue, also a lot of onetime project revenue with professional services of deployment that we actually do in order to cater for the customers' needs.So besides the stabilization, which you rightly pointed out on Telematics Infrastructure, yes, this is definitely a much more stable business going forward. We will also see one-offs in different areas of development in AIS and HIS.
The next question is from Laura Metayer with Morgan Stanley.
3 questions, please. The first one, I just want to be 100% clear on the EBITDA margin target for 2024. Because if you take the low end of the EBITDA guidance and the high end of the revenue, you get to like a very wide margin range. So, can you just clarify what is the EBITDA margin guidance range for 2024, please?Secondly, you mentioned that you've seen customer wins across all regions in 2023. Do you mind giving us a bit more details on this? Is there any specific divisions where you saw customer wins? And then lastly, for the HIS segment, you guide to mid-to high-single-digit percent growth in 2024. Is that not too low given the organic growth that you achieved in Q4 in the light of the Hospital Future Act?
Thank you, Laura. I want to start with your last question. And yes, one could always say has Michael now become a bit shy or timid to give a bit more progressive guidance. I want to stick to that guidance. But of course, as you've seen also in Q4 of last year, we overachieved on HIS, and we are banking also on a strong performance of our colleagues, but we stick to our guidance.With regard to your second question, different regions where we win. Yes, we actually often talk and that tell our biggest market only about Germany. But we did, for instance, a fantastic project here on HIS in Spain and also in Poland, where we're getting also territorial wins. So, that was really nice. And also on the AIS side, we are winning significant customer bases not only in Germany, but also in the other jurisdictions where we operate in, for instance, in the Nordics with nice customer wins.Your earlier question was -- or the first question was on the EBITDA margin. And if I read note this morning correctly, I think you did the calculation with the 4% and 6% and with the EUR 270 million and the EUR 310 million, and you figured that out as between 22% and 25%. I just said earlier, and I want to be a bit more precise, we achieved 1.6% margin uptake from '22 to '23, and I want to target that margin uptake again. And if I can achieve more, it's perfect. We'll do so, but we are early in the year. So, let's see on how we can develop. But we are firmly committed to margin increase.
[Operator Instructions] The next question is from Wolfgang Specht with Berenberg.
2 additional ones from my side. First one on the Ambulatory segment.
Wolfgang, I'm sorry. Can you speak a bit louder?
Yes, I'll give it a try. The first question on the AIS segment. Can you give us an indication of the growth rate to what is currently higher? Let's say, the number of customers you're adding or is it rather an upselling of existing customer's question what's driving your growth year? And then on the free cash flow bridge, are there any other moving parts we can think of? Or is it just a restructuring charge that's going to impact free cash flow this year? Or is there something different, for example, on the CapEx side versus 2023? That's it from my side.
Thank you, Wolfgang. On your first question on the AIS side, yes. So if I were to classify customer gains, net customer balance versus ARPU, so average revenue per user, we are more swinging towards the ARPU side, so increasing a bit more ARPU than net customer gains. But actually, we are progressing on both sides. But since your specific question was on those 2 elements, it is more on the ARPU, so average revenue per user.On the second question with regard to free cash flow, we don't spike out a specific guidance here on CapEx. But in the past, we typically had CapEx between EUR 50 million and EUR 70 million. That kind of CapEx number, maybe it's this time towards a bit more of the lower end. We don't know yet, but that is probably the same range to target that is affecting the free cash flow. The main impact is really from the EUR 26 million, which will turn now into cash out in 2024.
The next question comes from the line of Andreas Wolf with Warburg Research.
I'm interested to know in which functional areas you are actually implementing the cost savings or efficiency measures? Is it mainly R&D? Is it the administrative part of the company? Some more information regarding these functional areas would be helpful. And maybe you could mention some examples what is actually being carried out.
Yes, thank you, Andreas. And I want to connect your question also towards the benefits that we actually see and the huge benefits we see coming here with artificial intelligence. So for us, we have defined 4 main focal points where we actually see the benefits of artificial intelligence to come. First and foremost, developing products and solutions for our customers. That, however, and that was part of your question, does not mean that we want to increase significantly our overall R&D spend.On the contrary, as we have always said in previous Capital Market Days, we want to keep the absolute amount of R&D spend rather constant, but we will redirect funds. And we will redirect more funds towards solutions for customers to implement an artificial intelligence. So that's stream #1.Stream #2 is, we also want to become more efficient in software development. So, we have a lot of possibility to actually on the coding side, in cases and so forth, become more efficient using artificial intelligence in the field of R&D development itself. Thirdly, in service and support, we will go for solutions using artificial intelligence and also have here some impact on the way we actually look into our setup from our people's skill set. And we also have the last point, which is all administrative task where we also think we can benefit from the high usage of AI.
We have a follow-up question from Knut Woller with Baader Bank.
Michael, just to get a better feeling for the momentum in 2024, if I keep in mind the tough comps that you are particularly facing in H1, which still benefited from the software upgrade, TI software upgrade, as well as the connector replacement cycle, is it then fair to assume that we should see margin expansion predominantly in the second half?And then the second question is just a housekeeping question. If I spotted correctly, amortization was around EUR 16.2 million in Q3, and we went to EUR 26.9 million in Q4. Can you give some color here? What drove this sharp increase in Q4 which took me a bit by surprise?
Yes, thank you, Knut. So, I want to start with your first question. And honestly, all of you know that you rightly pointed that out many times with regards to the development. So it's a clear yes to your question; we are more back-end loaded in terms of the margin. There were one-timers with the connector exchange in Q1, and there were the software update on the connector in Q2 and last year, that's true that we're running against. But we don't want to go into a specific quarterly guidance but by and large, yes, from front, we are more back-end loaded.On your other point with regard to the amortization charge, so let me just differ a little bit. When we look to the recognition of self-developed software, that actually has been in the lower amount than we had in past years. So for 2023, we only have recognized EUR 40 million in full year. Last year 2022, it was EUR 34 million. But we actually here had a one-off charge and writing off actually an old module on the HRS side, a very old module, which we are no longer having a usage of. Those things have happened and then we just followed the regulation.
We have a follow-up question from Martin Jungfleisch with BNP Paribas.
So just a follow-up on free cash flow, right? So, it's EUR 70 million to EUR 100 million this year, but when you adjust for the EUR 26 million restructuring, you are basically flat year-on-year at the midpoint compared to 2023. You also said that you see CapEx more towards the EUR 50 million, so also lower. So, what do you think is the moving parts when you expect EBITDA growth 10% this year at the midpoint, but then free cash flow flattish at the midpoint? What is -- is this mainly interest expense? And just a [indiscernible]
So, the interest expense [indiscernible] -- I'm sorry. Just already jumping into your question. The interest expense in general, as you've seen, has been higher. We don't expect interest to come down. So yes, we were very wise and well advised than perhaps our [indiscernible] cap. But still there is interest cash out that we have to look for. And we also want to be a bit cautious here on the free cash flow. I may be a bit too cautious, but we don't know how the customer side is also going to develop. Yes, will work significantly on working capital management, as Daniela has pointed out. But for the time being, we don't know in which direction it is going to go.
Okay. And then maybe one more question on this other adjustment that you were talking about. How much was this adjustment that you made with the license cost and tax audits? Is that EUR 7 million in the fourth quarter? And what was that relating to?
So this is a onetime charge. So, this is something we haven't talked about yet. So, this is a onetime charge of actually a license audit going many years back, which we had to report because we noticed that in one area, we were actually using products that were on the license, and we had to basically take that charge in Q4.
Okay. And since we do not have any further questions at this point, as always let me point out that Investor Relations, so Frederic and I, will be available for further questions. Please don't hesitate to give us a call or send an e-mail and we'll be in touch shortly. Thanks for taking the time to dial in today, and we wish you a great day. Bye-bye.
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