Good morning, everyone. Welcome to the CompuGroup Medical Investor and Analyst Conference call for the first quarter 2022 results. Unfortunately, Claudia cannot be here in person today, but we are happy you joined our presentation, whether you have dialed in via phone or following the webcast. 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 are going to start with presentations by our CEO, Dirk Wössner, and our CFO, Michael Rauch, followed by the Q&A session. Before we start, there are some 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 for your patience. Now let us start. I hand over to Dr. Dirk Wössner, the CEO of CompuGroup Medical.
Dirk, over to you.
Thank you, Frederic, and good morning, ladies and gentlemen, and a warm welcome also from my side to today's conference call on the results of the first quarter of 2022. I'm happy to talk about an excellent start into the year 2022. With 10% growth, we achieved more than EUR 250 million in revenues. This is impressive because the first time in CGM's history we reached a hurdle of more than a quarter billion EUR during the first three months of the year. Our strong organic growth rate of more than 5% had a decisive role in this success, where we again delivered on our midterm ambitions. The adjusted EBITDA growth has even been slightly better with an 11%+.
All this based on a resilient and future-proof model as we already very good quality of our revenues reflected in the high share of recurring revenues has been increased once again. Let me share some details of our path and our progress towards our midterm ambitions. As already mentioned, we delivered more than 5% organic growth in Q1, fully in line with our ambition to record a CAGR of more than 5% until 2025. As you might know, we introduced a midterm margin target. Last year, we have seen the planned decline in our margin, and we announced that in 2022 we will leave the margin trough behind and deliver first step towards our target of around 25% in 2023.
Despite the fact that we're stepping up R&D expenses once again in the first quarter, in line with our investment initiatives, we managed to increase the margin in the first quarter slightly compared to last year. As already mentioned, we increased the quality of our revenues again, the share of recurring revenues to 71%. A strong statement and a big step towards our ambition of more than 70% in 2025. We have an excellent position to realize growth opportunities with strong market positions in Europe and the US. We've added significant scope during the past year and see increasing traffic within the digital CGM network. In Germany, the testing and pilot phase of the full introduction of e-prescriptions is now up to full speed. CompuGroup Medical is supporting its customers in the rollout.
Here, in our AIS core market, around 30% of e-prescriptions recorded by the gematik have been processed using CGM's software. In addition, around 1.7 million eAU signals and the same amount of KIM messages, that is Communications in Medicine messages, have been processed within the CGM network, both representing a market share of more than 20%. In the hospital segment, we're continuing to gain scale. We have won a high-profile pitch in Poland for the Pomorskie Clinics with an order volume in the EUR low double-digit millions and have already seen more than EUR 30 million order entry related to the Hospital Future Act. Let me give you an update on our five major growth drivers. Digitization in doctor's practices continue to drive growth in our AIS Europe business.
We have rolled out numerous additional modules and new functions to support our customers on their digital journey, and we will continue to do so. In France, we're preparing at full speed for the rollout of the Ségur program, a government initiative to push the digitization of the ambulatory sector. We expect the rollout to start in the summer. After the successful integration of eMDs in 2021 into our U.S. business, we expect to show strong growth in the second half of 2022, where we will unleash our cross-selling potential, and starting in the second half, we're planning to replace a third-party service provider with our own clearinghouse function, which will drive our revenue and margin development only to name one example. Our HIS business will also support our growth path.
In addition, we were able to record an order intake of already more than EUR 30 million related to Hospital Future Act, and we expect the revenue to kick in in the second half of 2022. Besides this government tailwind, we see an ongoing strong demand for our innovative G3 technology. In the area of telematics infrastructure, we still see potential to grow. Here we are focusing on new user groups like physiotherapists and midwives in the future, and we expect a connector upgrade in the third quarter at the connector exchange in the second half of this year. By the way, in the meantime, we have already rolled out the first centrally hosted connector, if you want to call it, telematics infrastructure as a service.
Finally, we believe in the growing importance of data in healthcare and transforming them into real value for our customers. To be in an even better market position for this exciting new growth driver, we decided to strengthen our offerings for future sustainable growth with a planned acquisition of Insight Health announced in April. Just today, data is becoming more and more important for healthcare practitioners in a connected world. Based on unparalleled data access from our entire network, we started to provide intelligent solutions to make doctors' lives easier, improve decision-making, and offer additional value. In this market, we're optimally positioned for a unique access to data, for our leading role in the ambulatory and pharma information systems market. We want to boost our data offerings to a new level in the future.
With Insight Health, we'll enlarge CGM's existing data lake with new types of sources of data and use the strong relationship they built within the pharmaceutical and insurance sectors in the past. With experience of more than 20 years, Insight Health became one of the leading data providers in the healthcare sector. Going forward, real-world evidence-based data will play a major role for future innovation in healthcare. With the innovative data service combined with an experienced management team and a vision for growth, Insight Health is successfully and uniquely positioned in this market and complements CGM's positions optimally. CGM's data business and Insight Health data offerings show a strong complementarity. Moreover, the acquisition of Insight Health enables CGM to tap into new data sources, plus to leverage CGM's database and Insight Health's market offerings.
We're looking forward to the next steps in which we'll close the deal, and we'll keep you updated on that very soon. Before I hand over to Michael, let me remind you and update you on our priorities for 2022. We will be a key player and key enabler in the digital patient journey market, where we deliver the best service day to day to our customers. With increasing relevance of our products for almost every participant in the healthcare sector, we are well on track to strengthen our already very good position even further. We'll innovate on our scalable platform and be lean and reduce complexity even further. As described earlier, we will focus on our data business, deliver a fast, smooth integration of our latest acquisition, Insight Health, to enhance our data lake and want to become a leader in this area.
Finally, it's mandatory in these times to offer the best place to work and to strengthen our team spirit and culture. Here, we're listening to our colleagues with employee surveys and internal development meetings on a regular basis. With that, I will hand over to Michael for the financial update before we open for our Q&A session. Thanks, Michael. Hand over to you.
Thank you, Dirk, and good morning also from my side. Today, we published the results of a successful start into the year 2022, and I'm happy to walk you now through the financial details. We're delighted to report a strong start into 2022, where we delivered fully in line with our expectations and showed great progress towards our midterm ambitions. Group revenues have grown by 10% year-over-year and by 5.4% organically, which is fully in line with our more than 5% CAGR ambition until 2025, resulting in revenues of more than EUR 250 million for the first quarter.
Please let me highlight that not only the amount of revenue has grown, we managed to also increase the quality of revenue, reflected by the share of recurring revenue, up two percentage points to 71% of total revenues. Adjusted EBITDA developed slightly better than the revenues resulting in EUR 52 million adjusted EBITDA. The corresponding adjusted EBITDA margin stood at 20.5%. Here we've seen the small expected step-up compared to last year. Please keep in mind that the main margin increase is expected for the second half of the year. EUR 65 million free cash flow ended up higher than expected and around EUR 5 million below last year's amount. Our adjusted earnings per share stood at EUR 0.41 as a result of higher net income. Before discussing the development of the segments, let me highlight our top line. Dirk has already mentioned it.
Revenues are up 10% and above 5.5% organically. Organic growth, excluding telematics infrastructure, resulted in a 6% increase year-over-year. Recurring revenues increased by 12% and now represent 71% of total revenues in Q1. The revenue quality has thus increased compared to the same quarter of last year, and so has the organic growth. Again, every segment delivered a quarter with organic growth rates in line with our midterm targets and even more. As a result, overall, we are solidly in line with our ambitions to deliver an organic growth compound annual growth rate of more than 5% until 2025. The main driver has been the hospital segment in this quarter, where we saw an increasing demand for our innovative technology. Let me now take a quick look at the segment overview.
The overall double-digit revenue increase was mainly driven by the HIS segment, supported by the VISUS and KMS acquisitions, and the AIS segment, where we've seen some consolidation impacts from the AATalanta and Portavita acquisitions, besides a positive currency impact, mostly from our U.S. operations. Adjusted EBITDA increased by 11%, thus slightly above the overall revenue growth. Please let me now go into more detail, starting with the ambulatory segment. Here, we're able to report a good quarter. Strong revenue growth of 7% was supported by the consolidation effects from acquisitions in France and the Netherlands and effects resulting from our U.S. operations. Revenue quality has always been high in this segment, Q1 being no exception, and with 78%, we increased the recurring revenue share by one percentage point.
As communicated in the past, adjusted EBITDA has been impacted by our growth investments to execute on the several growth opportunities that Dirk has also mentioned earlier today. Now, coming to the hospital segment, we can say that revenue growth, including the acquisitions of VISUS and KMS, was excellent with 21%. The 9% organic growth, driven by excellent German and strong Spanish business, outreached our anticipated midterm growth rates target of 6% to 8% until 2025. This is a very good start into the year, considering the fact that we are still pre-Hospital Future Act revenue recognition. Recurring revenues increased even stronger than revenues overall, and their share of total revenues is now 70% in this segment.
Impacted by investments into G3 technology and to execute on the Hospital Future Act to show a strong full-year development, adjusted EBITDA decreased year-on-year for the quarter. In the appendix, you'll find a chart that shows overall R&D expenses to increase to 23% of revenues in Q1. Most of the step up is due to our investments in the hospital segment. Dirk already highlighted the growing importance of our data business which pushed our overall consumer health segment, where the absolute revenue level has grown by 5%. Excluding telematics infrastructure, the organic growth rate was strong with 14%.
We continue to see a strong performance in our data business, especially the data products in our Intermedix platform, and we will update you in more detail on the impact of the acquisition of Insight Health once the deal is closed, which we expect to happen in the second quarter. Adjusted EBITDA went up significantly due to a better revenue mix seen in the TI business, which compensated the ongoing investments into fast-growing data business. Finally, let's talk about our pharmacy information system segment. We've seen a positive development on the revenue side with a growth rate of 7%, mainly driven by regulatory tailwind from digitization initiatives in Italy. Additionally, our German colleagues delivered a strong quarter. Recurring revenues are up by 6%. Adjusted EBITDA and the margin are down year-over-year due to investments made particularly over the last three months.
CompuGroup Medical recorded a strong free cash flow of EUR 65 million, which is much better than we had anticipated and communicated at the beginning of the year. Net debt and leverage could be reduced during the first three months of the year. At the end of quarter one in 2022, we stood at EUR 583 million net debt, corresponding to a lower leverage of 2.5x . Let me give you more granularity on our expected development for the running year with our confirmed guidance for 2022. Regarding organic revenue growth, we continue to expect a growth rate of 3% to 8% with a midpoint of 5.5%, fully in line with our Q1 development and our midterm ambitions of a CAGR of more than 5% until 2025.
We aim at improving the quality of our revenue with a share of recurring revenue of more than 65%, and we did well here in the first quarter. Finally, let me highlight our margin development. We announced back in December 2020 our investment initiative and the corresponding decline in margin to build the foundation for an even more successful CompuGroup Medical in the future. This year, we will leave the margin trough behind with the first step up to an adjusted EBITDA margin of 22.5% on an average of the guided range in a backloaded 2022. I say that again, in a backloaded 2022, which you can see also when you look at the margin in the first quarter.
The investments made are bearing fruits in terms of higher organic revenue growth, and we see we are on the right track to deliver a bigger step up in the next year towards our promise. The promise, as you know, is 27% margin by 2025. Looking forward in terms of upcoming disclosure events, the annual shareholder meeting is planned again virtually for May 19, and we will publish our results for the second quarter and the first half of 2022 on August 4. Our capital markets day is planned for September 1. Here we are very happy to see you all in Koblenz in person. Thank you for your attention, and we are now looking forward to your questions, and I'm handing over to the operator for the Q&A session.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. One moment for the first question, please. The first question is from Laura Metayer from Morgan Stanley. Please go ahead.
Good morning, and congratulations on a good Q1. Your data business growth has accelerated to 14%. Do you see signs that it will further accelerate closer to your midterm guide of 15% to 18%? Could you please comment on the growth profile of the Insight Health acquisition, please? Thank you.
Thank you, Laura. Let's comment first on your question regarding data business, excluding the impact of the Insight Health acquisition. Here we set for the longer term horizon until 2025 to grow north of 15%, and we grew 14% in the first quarter. We will always see variations year-on-year, and by and large, we wanna go into that direction. However, that is all pre the Insight Health acquisition. When we talk about Insight Health, here, actually, we see a lower growth profile. That will change, and that's why we said we will update you once we have actually concluded the acquisition. We have not closed it yet, we only signed. We will update you, which will be in the August call, on the impact of Insight Health into our profile. Does that answer your question?
Yes. Thank you.
The next question is from Nikolas Mauder from Kepler Cheuvreux. Please go ahead.
Hi. Good morning. Three questions from my side if I may. First one is on AIS organic growth. Can you provide some color on the split between continental Europe and the U.S. and whether any synergistic growth is already visible at this stage or whether it will come later in the year as mentioned earlier during the call? Second question would be, could you explain.
The swing in holding slash other costs and how we should think about it going forward. I understand there was some sort of restatement as well as a quarterly switch of option accruals. Maybe some color here would be appreciated and some guidance going forward. Final question on the diluted share count in the EPS calculation, why did the dilution effect vanish, I think, for a second quarter in a row? Thank you very much.
Nicholas, I'm happy to take the questions. Let's start with the first question on the AIS growth. The 3% and your question was, can you be more specific regarding Continental Europe and the U.S.? Indeed, actually, the split is kind of like similar. Continental Europe growing 3% organically and the U.S. growing 3% organically. With your question, what does it mean in terms of the U.S. growth ambition? We will see a pickup of growth in the second half of the year. Dirk also mentioned as an example that we exchange, for instance, a third-party provider on the clearinghouse by our own solution. All that will help us here also to grow on organic growth for the U.S. We're confident that we will see a pickup in the organic growth rate for the U.S.
Your second question was on the impact of minor adjustments. CompuGroup Medical has always had in the past, smaller shifts. Now, I just want to elaborate a little bit longer on that. Where does it come from? We are organized by segments, as you know, and if we are talking about a small country, it makes sense from a leadership perspective to combine management, for instance, into one segment, while they are actually catering two segments from a customer perspective. That's why we have minor shifts. Minor shifts is, talking just in terms of money, in the vicinity of a low single-digit million EUR amount in sales. This is really negligible. That's why we don't need to do any kind of restatement.
Your second part of that second question was regarding the other costs and shifts. We clearly differentiate between reported and adjusted costs. If we look just to the split up of the adjusted EBITDA, yes, you're right, there was an improvement in the segment other, which is the non-operative segment. That improvement in adjusted EBITDA came from a true up in Q1. That true up is of a one-time nature, and that will not happen again in Q2 until Q4. The third question of yours was on the dilution impact on EPS.
Yes, actually, when we look to the adjusted EPS versus the reported EPS, we see that there's one main impact which comes from the interest cap, which we have recorded as a financial income in the reported EPS, but have adjusted out for the adjusted EPS. On the share count, we actually have a change in the way we need to account for shares because we were made aware by the authorities that we had been counting too conservatively for the dilutive impact for the share options that were given out to management. We are taking them into full account, but we actually need to take them into a weighted account. I hope that answers all of the three questions.
Quick follow-up on the answer to the third one. Does that have any impact for your full year adjusted EPS guidance if the share count is somewhat different, or does that fall in the sort of area of uncertainty?
It's a minimal impact, and it does not have a major impact. When you look to the improvement actually in the adjusted EPS in Q1, it does not come from the change in the share count. It majorly actually comes from the amortization of software. We had the one-time hit of amortization in software in last year, which is not coming again this year, this quarter. That's the main impact on the adjusted EPS. It does not come from the share count. That's why we're not changing our guidance here.
Okay, thank you.
EPS, yeah.
The next question is from Knut Woller of Baader Bank. Please go ahead.
Hello. Thank you. A couple of questions. First, for Dirk, you highlighted the Ségur initiative where you start the rollout in the second half. Can you give here some color on the potential you're seeing from the Ségur rollout in France? Secondly, on the connector upgrade, I think it has been decided that it's now a physical replacement of the connector. Can you share here the impact versus the software update version? Three quick questions still. The interest rate cap, Michael, that you mentioned, can you share with us how it was derived or where it's related to? I found in your quarterly statement something that you cannot rule out an impact of the war in Ukraine in terms of potential impairments.
Can you give us here some color? While you highlighted that H2 will be the major margin expansion driver, should we also expect now after the better-than-expected start to the year that to see margin expansion also in the second quarter? Thank you.
Thank you, Knut. I'll pick up your first two questions, and I'll hand over to Michael for the second half. The Ségur initiative is a French government initiative focused on the improvement and digitization of ambulatory doctors. As you are aware of, we have about 30,000 ambulatory active doctors in France that would fall onto this program. Hence, you can calculate that there will be an ongoing deployment of the Ségur to those doctors in the dimension, if I'm correct, about EUR 300 per doctor.
This is not obligatory for the doctor to take it right away, so they could come a little later. I would not calculate with 100% of doctors taking it. There might be some time delays, but we expect that a large chunk of those doctors will actually adopt the Ségur program, and that is clearly part of our planning right now. There's also, to add color to this, a new discussion now going on for the expansion of Ségur to other healthcare providers. As you know, we are a large provider also in the physiotherapist market. Those are opportunities that we'll see in the future coming up as well around the Ségur program.
To your second question, the impact of the physical connector replacement, there has been a lot of discussions around whether there would be a software update of the end of life connectors, or there would be an exchange. Fortunately, and finally, the gematik has decided that there will be a physical exchange of the connectors. Now, the hacking, if you want, or the software replacement would've been quite cumbersome, and hence, we don't expect a massive impact on the margin of going from a software connector extension to a hardware connector exchange. There will be some hardware revenue effects on that. Again, these prices have not been fixed yet by gematik.
We expect that to come probably during the course of the second quarter, and you can calculate that we will have to replace about 40,000 connectors until the end of the first quarter of 2023. I'll hand over for question. Unless, Knut, you have a question here, I'll hand over to Michael for the other two.
Yeah, just a quick follow-up, Dirk, and thanks for the color on that. The 30,000 ambulatory doctors that you mentioned in France, that's your installed base, just to clarify that.
An installed base that is eligible for the Ségur program.
Of CompuGroup, the 30,000?
Yes.
Okay. Thank you.
Yes.
Okay, Knut, I'll take up your next question, which was on the interest rate cap. We actually acquired last year when we saw the first signs potentially of rising interest rate due to the responses to the inflation side. We decided to actually buy interest rate caps for a notional of EUR 400 million net debt to be somewhat protected here. We cannot achieve hedge accounting on that. That's why it's recorded mark to market.
Since the magnitude of the interest rate shift is quite high, the underlying evaluation or mark to market evaluation of the interest rate cap moves up, and we decided that this is a one-time nature which needs to be adjusted for, because if the sentiment changes, it can also move down again, and that's why it's adjusted out of the EPS. Now the next question was on Ukraine, and you're right, maybe the wording is a little bit too harsh here. We don't have a high exposure in the sense of the Ukrainian war conflict, but we need to see the development because with our Portavita acquisition, we also acquired a small legal entity in Russia with some developers, and that's why we just wanted to caution.
If you ask magnitude of amount, if anything were to happen, we would consider that to be a very, very low single digit million EUR amount. Then the last question was with regard to the margin. We don't particularly guide on quarterly margins. As you know, think about the upgrade for the telematics infrastructure. It is for us very difficult to forecast when this is going to come. That's why we said we are backend loaded. This is for sure, and we expect to sail through Q2 also steadily, but the major margin impact on an uplift will come in the second half of the year.
Thank you.
Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star followed by one. The next question is from Charlotte Friedrichs from Berenberg. Please go ahead.
Thank you for taking my questions. The first one would be on pricing and cost inflation, and it would be really helpful if you could talk a little bit about what you see in terms of wage growth this year and pricing, if there's anything different from previous years. Also a follow-up please on the Ségur program in France. The EUR 300 per doctor that you mentioned, that would be recurring, non-recurring? How should we think about that? Thank you.
Thank you, Charlotte. I'll start with your third one. That is a one-off payment that is given, so it's non-recurring. Again, this is not 100% of EUR 300. I would say it's around EUR 300. Also remember, not all doctors have to take it on the Ségur program, but they're obviously offered and the subsidies are there for them to take it. Regarding your second question, we do see a clear pressure on wages, if you want to call it that, which is our major impact of inflation we have on the cost side. We see that specifically in the US, I think probably the toughest market, but also in the European markets we have currently for this year, I think this is well planned.
I think for next year, I believe there is, there's more pressure coming than we had originally anticipated. On the other hand, we do have the opportunity, and we are, looking into this very thoroughly, to adjust our prices as well. We do have pricing power. Some of the price increases for 2023, 2022 have already happened, but there will be price increase in the second half of the year, that will be affecting second half of 2022 and also all of 2023. Obviously, inflationary pressures are going to be a major consideration there. I think also a good argument why, now it would be justified to go beyond the usually 2% to 3% price increase that we would do or that we have done in the past.
Can you give us an idea of how much pressure you're seeing on wage costs at the moment?
Well, I think at the moment it is fairly because we basically look at last year's effect. I think it's fairly within our budget. If you look going forward, we expect that to go probably up by one to two percentage points, I would say, to what we've seen in this year.
Okay. Thank you.
The next question is from Andreas Wolf from Warburg Research. Please go ahead.
Yes. Hi, good morning. Thank you for taking my question. The first one would be on the magnitude of price increases. Could you comment on that? Are you basically in line with inflation? And which regions will be the next where price increases will be put through? And then, could you maybe also comment on the offers that you've provided to clients with regard to the Hospital Future Act? You've provided guidance on the revenues that you expect. Does this match the orders or the offers that you have already provided to the clients? Or is there a gap, i.e., is the volume of outstanding orders in line with the revenue guidance that you provided, or is it covered more than one time? Thank you.
Thank you, Andreas. I'll take your first question. On average, and again this is a generalization, our price increases have been around 2% to 3% per year, on average. This is what we've done in the past quite consistently, over different markets and again, in different magnitudes. We believe that with the inflation going on, that could go up significantly depending on the inflationary pressures that we see in the markets. I would expect, for example, the U.S., where we see much higher inflation. Some of our products, we have pricing power immediately. In other products we have pricing power on a once per quarter or once per year basis. It's very difficult to say on average.
I would say that, definitely in the U.S. would be probably the market with the highest amount of inflation adjustments. I would also expect things to happen, for example, in Germany or France, which are our biggest markets. Again, there we do have pricing power in the second half of the year. Regarding your offers to clients in the Hospital Future Act, I think we've said in past calls this process is significantly slower than originally anticipated. So we do have a big pipeline of offers that are outstanding that have not been yet ordered formally. Remember, there's also a government approval process in between, the offer and then the final order.
We see that. We're quite confident there is still a significant amount of orders outstanding which will be coming in. I would say probably mostly in the second half, in the second quarter and the second half of the year. It's very difficult to predict exactly when they're going to drop. From the distribution of these orders, they're going from prescription modules into patient portals and into additions of BI software, so business information software for hospitals. There's broad range of offers that we sell into our existing customer base as addition to things that we provide already today. We're very confident that the Hospital Future Act is going well, and we're well on track with the whole thing.
Thank you.
Thank you, operator. Thank you, ladies and gentlemen, for joining today's call and following CompuGroup Medical. As always, whenever there are questions coming up after the call, please feel free to contact the IR team. For today, we wish you a wonderful day, and we will keep you updated. Thank you very much.