Ladies and gentlemen, welcome to the Q1 2024 Investor and Analyst Call of CompuGroup Medical Conference Call and Live Webcast. I am Zico, the Chorus Call operator. I would like to remind you that all participants will be in the listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star then one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Claudia Thomé. Please go ahead.
Hello everyone. Good morning and welcome to the CompuGroup Medical Investor and Analyst Conference Call for the first quarter 2024 results. Thanks for joining us today, whether you have dialed in on the phone or whether you are following the webcast online. You find all the relevant information such as this presentation, the quarterly statement, and the press release, which we published early this morning on our website. We will start with the presentations by our CEO, Michael Rauch, on the highlights of the quarter, followed by our CFO, Daniela Hommel, with the financials. As always, there will be the opportunity to ask questions after the presentations. Before we start, there are the usual housekeeping remarks. Let me remind you on our Safe Harbor statement, which is shown at the beginning of the slide presentation and is valid for the entire call. Thank you so much for your patience.
Now let us start. I hand over to our CEO, Michael Rauch. Michael, over to you.
Thank you, Claudia. Good morning, ladies and gentlemen, and a warm welcome to all of you. Every day, the employees of CompuGroup Medical work with passion to develop new, innovative solutions and bring them to our customers as fast as possible in order to further advance the digitization and connectivity within the healthcare system for the benefit of patients. At CompuGroup Medical, we are dedicated to the needs of healthcare providers, the everyday heroes in the lives of patients: the doctors, dentists, pharmacists, laboratory technicians, the nursing staff, and the entire medical team. We understand the responsibility that rests on us, and we are committed to providing the best possible solutions to improve the quality of medical care, reduce the burden on doctors, ensure the safety of patients and the security of medical data, advance healthcare through digital innovation, and thus healthcare delivery, and to counteract the increase in costs.
As a pioneer in connecting all players in the healthcare sector and in realizing a fully digital patient journey, CompuGroup Medical occupies a key position at the heart of digital healthcare. In recent years, we've seen massive changes in the healthcare industry. Digitization and the constant advancement of technology have revolutionized the way medical information is obtained, managed, and shared. We are faced with the challenge of managing these changes, and we are determined to remain at the forefront of this transformation. For more than three decades, we contribute to driving digitization in healthcare from a position of strengths, and we build long-term customer relationships, which is reflected in our recurring revenue profile, where we recorded a share of 75% on total revenues in the first quarter, an increase of six percentage points compared to the prior year quarter.
Total revenues declined by 2% due to a strong prior year's quarter with high one-off effects in the telematic infrastructure business. Adjusted for these TI one-offs as well as for acquisitions and divestitures and foreign exchange effects, CompuGroup Medical recorded an organic revenue growth of 3%. With 1% growth, adjusted EBITDA grew despite the slight decline in revenue. Adjusted EPS growth was also overproportionate. Please be aware that adjusted EBITDA and reported EBITDA, as well as EPS, both on reported and adjusted, have all been supported by one-time gain from portfolio streamlining with a divestiture of our Turkish business activities. Our CFO, Daniela Hommel, will guide you through the full financials later. Let's dive into the segment development. During the first three months of 2024, we reached new milestones by supporting doctors' practices around the globe.
In Europe, we've finally seen a massive ramp-up in usage of digital documents in healthcare. The German ePrescription is finally up and running since January, and the number of digitally processed documents in France is increasing above expectations. In the US, we continue to roll out our eMEDIX product into the acquired eMDs customer base. Our US colleagues are in full swing of preparing the second wave of this margin-supportive project. After our data solutions with the growth driver INSIGHT Health showed a slower development last year, the signals are pointing towards a more positive development this year. Let's now deep dive into AIS Europe. Looking at the digitization of the German healthcare market, where 113 million ePrescriptions have been processed within the first three months of 2024, that is finally a very good progress towards more than 500 million prescriptions processed per year.
More than 30% of these ePrescriptions since January have been handled within the CompuGroup Medical AIS network, and around 16% were redeemed within one of the pharmacies which use CompuGroup Medical software. The number of medical institutions that issue and process ePrescriptions also rose sharply by 260%, and more than 17,000 German pharmacies accept the new digital standard. Moving on to France, where in Q4 2022, we supported our French customers with the implementation of projects related to the governmental initiative Ségur. Since the full implementation in May 2023, the numbers of digitized documents created and processed by months in the French healthcare sector increased by 160%, thus exceeding the initial expectation for the ramp-up. In March this year, so 2024, the share of documents processed through CompuGroup Medical's ambulatory information systems was at 41%, underlying our strong market position and the relevance of CGM solutions.
Let's move on to the hospital information system segment. Over the first quarter in 2024, we've seen again how the HIS colleagues are delivering the expected revenue conversion of the order intake related to the Hospital Future Act. Quarter by quarter, the numbers are rising, and most importantly, our growth story does not depend solely on the Hospital Future Act. The investments we've made in next-gen technology are paying off, and we expect to win from the coming market consolidation over the next years. The announced withdrawal of SAP from the classical hospital information business is continuing to drive interest by potential new customers for CompuGroup Medical. At recent trade fairs and conferences, we've had record customer interest, especially with regards to our CGM Clinical software. For the revenue cycle management, we've announced a strategic development partnership. The next trends are already casting their shadows.
We are developing an AI chatbot specialized for hospital customers, and we expect the piloting phase for this later this year. So in summary, we see momentum of our hospital information system segment due to good progress in implementation of projects related to the Hospital Future Act and the additional growth potential due to the upcoming market consolidation. And that's just the German market. Also in our other markets such as Spain, Poland, Sweden, and the likes, we are continually gaining market relevance and see high customer interest. This brings me, last but not least, to our pharmacy segment. In our flagship pharmacy market, Italy, we introduced an expanded fully integrated offering. The innovative fully cloud-based solution enables Italian pharmacies to manage even faster and more efficiently, supporting the highest margin business within the CompuGroup Medical Group. We've seen high customer interest at recent trade events and fairs.
The team in Italy was up against an exceptional prior year quarter with high one-off revenues. But apart from this, the leads and opportunities for future growth are fully intact. As already mentioned, the final rollout of ePrescription in Germany also impacts the whole pharmacy sector. We supported our customers during the intense rollout phase and are now offering the full digital patient journey with our ClickDoc ePrescription solution. Our CompuGroup Medical team has once again demonstrated in all operational segments what an important role we play for digitization in the healthcare sector, fully in line with our mission: we create the future of e-health. With that, I would now like to hand over to the CFO of CompuGroup Medical, Daniela Hommel. I'm looking forward to the Q&A sessions later. Daniela, over to you.
Thank you, Michael. A warm welcome also from my side. Let's jump into the numbers of the first quarter, where CGM recorded a solid start into 2024 against tough comps. Total reported revenues are down 2% compared to Q1 2023, which was influenced by high one-time effects of the TI hardware connector exchange. Adjusted for these effects, revenues are up by 3% organically to EUR 285 million. Recurring revenues increased by 7%, resulting in a share of recurring revenues of 75%, a good proof of the strength of our business model. Adjusted EBITDA showed a slight growth, which is also reflected in a higher margin of 21% compared to last year. EBITDA reported and adjusted both benefited from a low to mid-single-digit million one-off effect of the sale of our operations in Turkey.
I will come back to the free cash flow later, which was impacted by the payments relating to the restructuring program we communicated in February. Adjusted EPS grew overproportionately, mainly due to an improved financial result, also supported by further portfolio streamlining with the divestiture of our Turkish business activities. Overall, the top line develops as follows. As already mentioned, total revenues are down 2%, both reported and organically. Adjusted for the TI hardware connector exchange, revenues grew more than 3% quarter-over-quarter. Please have in mind that there were strong prior year comps in different parts of the operating business. A detailed look at the quality of the revenues reveals an impressive growth of our recurring revenues over the past couple of years. On this slide, we are depicting the revenues for the last 12 months as per the end of March for the past four years.
Since the first quarter of 2021, those recurring revenues have shown a CAGR of 14%, and total recurring revenues grew by 48%. The share of recurring revenues has risen by seven percentage points in the same time frame. Organic growth rates are affected by one-off effects from last year. Just to remind you, we exchanged more than 30,000 TI connectors until Q2 2023, helping our customers to keep their practices online, which is fully reflected in the AIS segment. If you adjust for this effect, organic growth in the AIS segment was 3%. The hospital segment was also up against a strong prior year quarter from finished projects, and it still delivered 6% organic growth in Q1 2024. Looking at the pharmacy segment, please keep in mind that we supported our Italian pharmacy customers with additional hardware in Q1 2023, which led to exceptional organic growth of 11% last year.
Thus, not surprising, the organic development in the PCS segment in Q1 2024 was - 2%. To summarize, adjusted for the one-off effects in the telematic infrastructure, CGM grew by more than 3%. Let's go into more financial detail, starting with our AIS segment, including the former CHS segment for the first time. Despite the already mentioned decline in revenue, the AIS segment drives the strong development of Group's share of recurring revenue. Total recurring revenue increased by 5%, leading to a share of 76%, up eight percentage points year-on-year. The adjusted EBITDA in the AIS segment benefited from the disposal of the Turkish operations and showed an increase of two percentage points in the adjusted EBITDA margin to 26%.
Coming now to our hospital segment, we have seen a good performance in all our markets, especially the accelerating conversions of order intake related to the Hospital Future Act in Germany support the development, and revenue growth stood at 7% reported and 6% organic. Recurring revenues increased by 11%, and the recurring revenue share stood at 73%, up 3 percentage points year-over-year. Finally, let's talk about our pharmacy segment. In Q1, the PCS segment was up against tough prior year comps. In Q1 2023, the Italian PCS business benefited from hardware one-off revenues, which led to an organic growth of 11% at that time. Against those comps, revenues came in 2% below the prior year. Recurring revenues, however, grew by 6%.
The margin has seen another step up due to efficient cost management, especially in Germany and Italy, resulting in a strong margin of 38%, four percentage points higher compared to Q1 2023. Let me now give you a short update about the development of our personnel expenses, where we recorded an increase of 2%, both reported and organic. In the first quarter, we realized initial savings from the restructuring initiatives in a magnitude of a low single-digit million EUR amount. Please keep in mind that we will see the impact from this year's wage increases from May onwards. Let's move now on to free cash flow. With EUR 159 million, free cash flow showed the anticipated development.
We showed a solid cash position despite the cash out in Q1 of EUR low double-digit million amount due to the restructuring initiatives in Q4 2023 and advanced tax payments in a high single-digit million range and higher receivables. When I started here at CGM in February, one of my goals was to focus on the leverage. We are seeing an improvement here at the end of the first quarter. Leverage went down from 2.8x to 2.6x. Despite the continued focus on the leverage and cash generation in the future, please keep in mind that we will see a use of the free cash flow in Q2 as follows. First, we have successfully executed the share buyback, where we bought 500,000 shares until April 26th. Second, we plan to double the dividend payout after our AGM. Compared to one year ago, our financing funds have increased.
We are well set for sustainable growth going forward. Looking ahead, we would like to clarify once and for all that we have removed the midterm ambitions for 2025, which CGM published in September 2021. As you might remember, we didn't confirm them anymore already in February this year. CGM has delivered on the organic revenue growth ambitions that were set in 2021 for the Group, and we are close to reaching the target for the recurring revenue share. However, the margin recovery is taking longer than anticipated in 2021. Why is it? On the cost side, the world has changed a lot since the midterm ambitions were announced. Strong overall cost inflation, wage increases, and massively increased costs for cybersecurity have created new challenges. During the past years, for a company like CGM, there have been numerous growth opportunities.
For a software company, the world can change completely within four years. And last but not least, who could have anticipated the role of AI four years ago? Therefore, we will not set new midterm ambitions, and we will return to the policy of giving only annual guidance as always done in the past. For the full year 2024, CGM had published in February 2024 its guidance of organic revenue growth in the range of 4%-6%, and an Adjusted EBITDA in the range of EUR 270 million-EUR 310 million. Let me remind you that the year 2024 is back-loaded in terms of revenue and EBITDA development. With a slower start into 2024, it remains to be seen how a number of moving parts will materialize into additional revenue and EBITDA recognition. Of course, we will update you as the year progresses.
Let me assure you, we remain fully committed to profitable growth and a strong cash generation. Let me summarize. CompuGroup Medical continues to be well positioned to change the healthcare sector with innovative solutions to execute on the missions, "We create the future of e-health." With that, thank you for your attention. I am now looking forward to your questions, and I'm handing over to the operator for the Q&A session.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to use only handsets and eventually turn off the volume from the webcast. Anyone who has a question may press star and one at this time. The first question is from the line of Knut Woller with Baader Bank. Please go ahead.
Yeah, good morning. A couple of questions. The first one, I understand that you will switch back to annual guidance. However, can you just share with us whether the interpretation of your commitment to profitable growth means that we should expect also steady margin expansion in the coming years, or does that also include the expectation that there could be some dips still in the margin ahead? Then can you please quantify the cash out for restructuring that you recorded in Q1 and also quantify the disposal gain for the Turkish business? And lastly, on the adoption of the TI flat rate, can you please provide here an update regarding the adoption of the TI flat rate, how it developed now since the introduction, and what you expect in the coming quarters here? Thanks very much.
Thanks, Knut, for all your questions. I start with the first questions. You are asking about whether I could give an outlook on what means profitable growth for the coming years. As stated, we stick to our guideline or internal guideline that we only comment on the year ahead. For this year, we foresee profitable growth. We do not comment on the future years. With regard to the second questions, the cash out for the restructuring expenses is a low double-digit EUR million amount. With regard to the disposal of Turkey, we stated it's a low to mid double-digit EUR million amount. Please bear with us that we do not provide further information. On your third questions with regard to the TI flat rate, the adoption of the TI flat rate is more than 80%. With that, we are looking forward to other questions.
Thank you.
Thank you. The next question is from the line of Laura Metayer with Morgan Stanley. Please go ahead.
Good morning. Thank you for taking my questions. Three questions, please. The first one is on the AIS segment organic growth excluding thematic infrastructure. Could you please give us a bit more color on what drove this growth? So, for example, within the data business and the kind of old AIS business, did you see sequential improvements in both of these businesses? Second question is regarding the restructuring that you did. Could you remind us what you're planning to do with the benefits? Are you going to reinvest them, or is that going to be a benefit on your EBITDA margin? And then last question on the midterm guidance that you officially removed today. I just want to check if the ambition to grow your top line by more than 5% in the midterm still stands, or is that also removed? Thank you.
Okay, Laura, I take your first question regarding the AIS growth. You're right because we basically, from starting this year, have mingled our former CHS activities into the AIS one. And your question was tailored towards that former business excluding the telematics infrastructure, so basically the data business. And we are seeing, as I also mentioned in my comments, the data business picking up. So we are expecting a more positive development here that is mainly driven by INSIGHT Health at the moment.
On your second question regarding the restructuring, yes, we will also see a reinvestment of some of the funds which we freed up now with the restructuring into building up new competencies and skill sets for our team in order to be more tailor-made towards the needs which we now have with building more solutions with the help of artificial intelligence into our products for the benefit of our customers. And on the third question, I would hand over to Daniela.
You asked on the growth in the midterm guidance, as stated, and I need to state it again. We do not comment on midterm targets anymore. We stick to the annual guidance.
Thank you. Just to follow up on my first question, sorry if it wasn't clear. I was also asking if you can let us know if you saw a sequential improvement in the old AIS business. Thank you.
Okay. Maybe I didn't understand it. So your question was now referring to the former only AIS business excluding CHS. Is that your question?
Yeah. So I think it's +3% that you reported organically excluding TI. Just wanted to get a little bit more color on what's driving this. So it's obviously a mix of the data business and the old AIS business. So just wanted to get a little bit more color on the drivers of that.
Oh, okay. Yeah. That is exactly both. Yes. Thank you, Laura, for clarifying. So it's exactly both, basically, that play into that + 3% growth. So it is on the old former AIS business, so our base business, AIS Ambulatory Information Systems, and it is also the data business, both play into that.
Thank you.
Thank you. The next question is from the line of Martin Jungfleisch with BNP Paribas. Please go ahead.
Yeah. Hi. Good morning. Thanks for taking my questions. I've three, please. Just coming back on this Turkey sale, can you tell us what the contribution was in terms of sales and EBITDA in 2023 just to get a gauge of it? And then also on the pharmacy business or e-prescriptions, you talk about it a lot, but can you remind us what is your benefit exactly from these e-prescriptions now that I think the modules have already been sold to pharmacies? And the third question is on the SAP replacement cycle in HIS. Would you say this is more 2024, 2025, or 2026 story? Thank you.
Martin, thank you. I will start with your questions two and three, and then Daniela will answer the details on the Turkish business which you had asked for. So on e-prescription, you're right. The benefit of taking download and upload modules has been taken on our end. However, we highly welcome that now digitization also takes place in Germany. And that's why we also celebrate this because that will give much more traction to everything which is yet to come, the electronic patient file, the high usage of the benefits of the patient journey, where we will see also ClickDoc coming fully into play. So for us, we see that highly as beneficial that finally also in Germany, we become fully digitized with prescriptions. On your question regarding HIS, that probably is going to be rather towards, as you said, towards 2026, 2027s, and the likes. Why?
Because SAP is still offering maintenance mode. So that taking over, basically, of the customers and developing the opportunities for us is rather tilted towards the later of the periods you mentioned. With that, I would hand over to Daniela for the first question.
Sorry, you needed to switch lines here. So I'm taking the first question now. The revenue impact or the contribution of Turkey in 2023 was a low single-digit in revenues, and basically, no EBITDA. It was not a profitable business.
Cool. Thank you very much.
Thank you. The next question is from the line of Fabian Piesta with Jefferies. Please go ahead.
Yeah. Thank you very much. Good morning. Thanks for taking my question. Most have been answered. I still got two. When I look at the hospital information system, HIS, and margin improvement, could you just remind me or give us the moving part which has triggered the significant increase in adjusted EBITDA? And the second is also regarding HIS, whether you can give some color or intel on the momentum that you see in April or Q2 so far. Thanks.
Yeah. On your first question on HIS, we have been always commenting that the investment period, also with our larger customer projects, is mainly behind us, which doesn't mean that we do not continue to invest also in making our systems even more stable and better and more tailor-made towards our customers' needs. But we were expecting a margin that margin increase is now happening. Now we had in earlier times said that we want to return towards a margin level of about 17%. With 11%, we're moving in the right direction here. We see that margin increase on HIS to come. Your second question on the HIS side, you want to take that, Daniela?
Yeah. I can take over. We are currently still in the process of closing the books of April. I cannot and I will not give you a heads-up. However, I can refer to the speech of Michael, and he has mentioned that the HIS saw good momentum at the exhibitions that recently were performed. That gives us confidence that this segment will perform well.
Great. Thank you very much.
Thank you. A reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from the line of Wolfgang Specht . Please go ahead.
Yes. Hello. Good morning. Two additional ones from my side. The first one also on the hospital information system segment. Can you give us an indication if the order backlog is still improving, or are you already, let's say, working down the book? Second one on asset streamlining. Do you have additional assets, let's say, on target for a potential sale, or should we not expect something significant aside of the Turkish deal?
So I'll take your first question, Wolfgang. We actually have seen lately still some increases from the Hospital Future Act because you were, I think, mainly tailoring your questions toward the Hospital Future Act. In general, we, of course, are always ramping up our order backlog. So we don't comment on general order backlog on HIS. But we've lately seen still also some additions to the order backlog of HIS. But it's also true that we have started converting that order backlog into revenue, as I have been explaining. And that continues already over the past couple of quarters. And we see here a ramp-up with more revenue expansion to come. On the second question, I'll hand over to Daniela.
Yeah. Asset streamlining or portfolio review is a constant exercise that we perform regularly. That's why smaller or non-profitable businesses, we always try to grow them. You may see more throughout the year.
Okay. Thanks a lot. And that's all included in your full-year outlook?
Yes. Of course.
Okay. And since we do not have any further questions at this point, thank you very much for dialing in today and taking the time. As always, Investor Relations is available for further questions. So if there is anything, please do not hesitate to call or email Frederik or me. And we'll be happy to answer. Thank you very much, and have a great day.
Thank you. Ladies and gentlemen, the conference is now over.