Good morning, and welcome to PatientSky Group's second quarter presentation. Welcome to Hoffsveien here in Oslo for everybody in the room, and welcome to everybody joining online. I'll jump over the disclaimer and forward-looking statement. Today presenting is Christoffer Mathiesen, our Group CFO here in PatientSky, which I have the pleasure to work with since end of 2021. Christoffer has come with a very strong experience into our organization and helped us doing a lot of the things we'll go through today, so I really appreciate having you on the team. Myself, I'm Kristian Ikast. I'm Group CEO of PatientSky. I've been CEO of the company for a year now. I've been in the PatientSky family since end of 2020, or since 2020, as a board member. Our vision is the same as it's been all the years, changing lives.
The agenda we have for you today is we will go through some second quarter highlights, we will give detailed insight to the PatientSky business, we will look into the finances, then we will have a regular Q&A session, and then we end up with the closing remarks. Pretty much as we usually do it. First of all, I'll start with an introduction to what are we in PatientSky. For some of you who has followed for a longer while, this might be a bit repetitive, but I hope this will be helpful for some of the new investors and potential investors. Overall, we have three legs. Our Norwegian SaaS business, which is built on top of the Norwegian platform, which is the leading cloud-based EHR provider in Norway.
We have almost 2,300 clinics and close to NOK 190 million ARR in the business today. 90% of our revenue is recurring, and we have, where cash EBITDA margin is around 25%-30%. We are highly profitable market leader in the EHR in Norway, where we really also go for new business right now, and I'll talk to that a bit later. Another leg we have is our app, which has more than 2 million downloads, has 250,000 unique user logins per month. It's the interface between our SaaS customers and the patients. We actually are also looking into a potential commercialization of the app. Our third, and definitely not least leg, is our international partner management platform, we call it PMP, which is modeling, product portfolio and compliance management, functionality and distribution management, and security.
As we talked about over the last presentation, we have been looking heavily into the IoT devices and wearables segment, as well as the more general SaaS suppliers. What are our key strategic parameters? It's new sales, it's cloud revenue, and it's profitability. First of all, I'm really happy to share these numbers. I think this is really a big kudos to our Norwegian team. We actually see an improved sales performance year to date. We have got 2.5 times as many clinics as we got the same period last year, which I think is a really strong achievement and also shows the focus that's been in the organization. We see a robust and growing pipeline. We have around NOK 20 million in pipeline. I will go into details on that a bit later.
On the cloud parameters, which has been our key journey since the starting point, we really continue to see the healthy growth we have here. 20% MRR year-on-year growth. 22% annualized growth here in the second quarter. It's driven by migrations, new sales, but also an extremely low churn. Christoffer, he will cover the details of this a bit later, but I think we can be safe to say we have a really, really solid product on the cloud product today. Our high level of second quarter is that we have done NOK 48 million revenue. 96%, sorry, of that is recurring, so we really see our recurring base keep developing healthy. Our adjusted cash EBITDA is -NOK 21 million. That is in line with previous quarters.
Our adjusted cash EBITDA in Norway is NOK 25 million, NOK 25.8 million in the first half, and we expect cost improvements going forward to kick in, already kicking. We have cash of around NOK 165 million end of the first half. End of July, we had NOK 198 million. Christoffer will come much more into details. I will leave that safely to him. We have decided as a company, which we also have announced last time, we will have an improved focus on improving our long-term profitability, with first effects coming here in the second half of 2022. We want to be a profitable company to finance our own journey. At the same time, we also see a financial market, as we all know, that has had an unstable development over the last period.
For us, this is an extremely important focus for us. Therefore, we have taken the decision to close down Finland. We are very sad to say goodbye to some really good colleagues there, but we have made this decision to consolidate our international journey and resources in Oslo and Copenhagen. Our target is to be cash profit, cash positive, sorry, during 2023. What is happening on our international business? We see very positive feedback from the first commercial meetings we had. We talked about last time we had the first meetings. We're continuing on with that.
We also see that we get a real confirmation in the interest in our product, and we definitely see there is a huge market potential. We have though decided on the profitability account to invest another quarter in development to execute on our cost reductions, making sure we separate our Norwegian business as a standalone platform and make sure we get a more simplified international setup. This is fully aligned with our cost reduction, but it has the effect that our partner management platform will be delayed. We still expect contract announcement in the first half of 2023, and we still expect revenue during 2023. We continue having the dialogue with our partners. On the last leg we have an international business is the app. We have just updated the app with enabling further functionalities and also potential future commercialization.
Let's dig in to our Norwegian business. There we have built a strong position as market leaders in our segment, and we have a high focus on cloud. We actually see now that we are reaching the first mark, 50% cloud revenue these days. We have a long-term strategy to move everybody to the sky, to the cloud. That has been a long-term vision for a long period that we are still doing through migrations, but also by all new sales is happening on our cloud products. Today, we have roughly 1,400 doctors, clinics, and around 800 physical therapists on our product. I'll come into that a bit later also, but we have focused over the last year to make Norway a complete standalone organization, a standalone company with own skilled people, own strong leadership, working across the whole product offer.
Why have we done that and had such a focus? That is to keep offering and enabling the best-in-class products, journal systems, waiting lists, video, et cetera, et cetera, et cetera. Today we are standing with five different product lines. On the left side, we have our three cloud products. On the right side, we have our two on-prem. We start with the PatientSky Clinic. That is sales for the therapist market, physical therapist. There we are fully 100% focused on new business. We are done with the ProMed end- of- life, which we announced earlier and discussed in depth last time. We have our Hove product, which is GP and private doctors. There we see an increased focus on new sales coming in also here. We have done further developments on our product lines there.
We also are still offering migrations and upgrades for our System X customers to move to a new future-proof cloud solution. We also have our Infodoc SKY, which is GP specialist and emergency rooms. There we are also focusing more and more on new business, but we are also migrating, especially from our Infodoc Plenario on-prem. We offer them upgrade. This is a more direct product comparable upgrade we do there and move into cloud and make it future-proof. We also see on some of our System X customers, which are more in the specialist segment, we actually have an even better product on the Sky product than we have on the Hove. There we are of course offering that on a more based on what the customers would need. This is in line with the slide I shown before. Everybody to the cloud.
Just quickly, overview on this one. We have been first movers on cloud business. We have been one of the first movers really doing acquisitions in the market and doing migrations. We are also one of the only ones building on our own platform to really have the reusability of what we do. We are a leading EHR provider in our segment. We are the biggest cloud EHR. We have a proven migration journey, and we are now, as I said, taking the first threshold of more than 50% being clouded. If I should just go through our three product lines, as I said earlier, clinic, physiotherapy market, we are solely focusing on new business. We are done with all migrations. On Hove, we are still migrating some from System X, but also focusing on new business.
If you look at Infodoc, we have a migration from Plenario, also some from System X, but also looking into new business. Also, we're set, we are fully done with the integration and onboarding of the Infodoc team into the PatientSky family. Now we are one company in Norway where we have a product line also there. That means they're working on everything from using the products across to working with the same finance system, the same CRM system, et cetera, et cetera. Where does this take us? We are now through, as we see it, the critical phase of onboarding and migration and enabling much higher focus on new business. What we see is that some of our peers in the market, they will go through the same process now and the same challenges, and we are ready to take advantage of that.
What does that mean? Our peers will also now start doing acquisitions and doing migrations, and when they do that, the market reopens. For us, we had a high focus on actually getting further on our journey, getting our migration skills up to the highest level, and at the same time keep developing our product offering to be able to take that chance. We see it's now, it's there. Why are we so confident?
We can see now what we have also announced during our Q4 presentation, if I'm not wrong, that we would see that the first half we will add a lot more revenue, and we start seeing the effect of the second half. If we go in and look at number of new clinics we added over the first half of the year, we actually added 2.5 times as many first half this year compared to the same period last year. We had taken 71 new clinics on. This is a year-to-date strong performance across all three cloud systems. We can also see we really get the benefit of the strength of our standardized and highly scalable onboarding process. We can also, on top of that, see that our sales efficiency is going significantly up.
If you look on the right side, we can actually see that we have done four times as much per sales rep as we did last year. That, of course, means that we can see an effect of when we add resources here, we also see it will have an effect. The good thing is now we think we have the momentum, we are working on it, and the best part, we can also see that the new clinics is coming from a wide variety. It's everything from newly established clinics we are getting from competitors in the cloud and on-prem market, and we also see more and more win-backs coming back to us. On top of all that, we will have migration sales, naturally. I'm very happy to take this slide as well.
This also kind of give a forward-looking approach to where we are going. We picked up pace first half, no doubt about it. We see that pace we can actually develop further on. If we look as of today, we have already secured added ARR for the second half that's 20% higher than we did for the first half. On top of that, we actually see that we have a really healthy pipeline building up. We have roughly NOK 20 million in our pipeline or total pipeline, so I also think it's fair to say now we can actually really see that the market is opening up. There is chances in the markets today. Fifteen, not fifty, sorry. NOK 15 million of that is actually named leads that we work actively with.
What we have put in here at the NOK 10 million, that's a conservative estimate of saying 50% we can convert over to our sales. Historically speaking, we actually see that number being closer to 70%. We definitely have a good potential of the pipeline coming in. We also, just to be clear on expectations, all of this doesn't show a huge revenue effect of the second half this year because they're getting onboarded during the year. It is significantly better than we have shown before. This pipeline is expected to materialize during second half. What we see is that we will pick up some momentum from the first half that start being paid now. Part of this, the NOK 6 million on the left side is grace, that actually just are waiting to pay, and others are secured in the delivery pipeline.
Why do we think this slide is so important always to present? We have actually made a decision in the company long time ago that we want to work with completely split out separate accountabilities. Now I really think that the two previous slides show that the Norwegian organization is really running their own show. They are really building on top of what we have, which I'm really happy to see. We can also see the Norwegian structure get much more structure, much more aligned being one company. At the same time, we have of course looked into our international part of the company to see how can we enable better efficiencies and scale the organization to grow more in line with the potential as well as the updated business model.
One of the things that we have taken a decision on earlier set is to close down the Finnish organization and operations, and that is to improve efficiencies and to do cost control. We also work on the left side in Snåsa setup with a much cleaner structure. Previously, you have seen we had a VAS and a PaaS business unit under the Snåsa setup. We have consolidated the resources there for the commercials to work across the full product offering as well as the technical resources. We still have the app on the international setup as a standalone business there, which we see a future conversation of. As it is today, it's fully focused on Norway, where we have more than 2 million downloads and 250 unique user logins per month.
Lastly, but not least, as we stated before, we remain optimistic on our SaaS business as well as we do on our app business. I think this was an insight into what we're doing right now and our performance. Welcome. Christoffer, will you take us through the finances?
Thank you, Kristian. If you look at the numbers, revenues came in at NOK 48 million in the quarter, cash EBITDA of NOK -21 million, in line with the previous quarters. Cloud revenue is now close to 50% of our total recurring revenues and growing. The somewhat lower revenue in the quarter is mainly or partly driven by lower non-recurring items, implying also that we had a very high recurring share in the quarter with 96%. If we look at the first half as a whole, we can see that, not surprisingly, that our Norwegian business is still performing good with close to NOK 26 million in cash EBITDA. Compared to group of NOK -40. The quarter contained large one-offs related to the restructuring and investments in enabling the Norwegian business to be completely standalone.
At the same time, we had some costs that were provisions for costs that should have been taken in previous periods, including 2021. If you look at the revenue composition, we can see that cloud ended at 20.5%, while on-premise, 20.6%. In June, that number is pretty much exactly 50/50. Positively, cloud is still growing nicely with 22% annual growth in the quarter. We've also done a minor adjustments in how we show the numbers on the left-hand graph, where we separated out the variable recurring revenue streams, being notifications and enterprise. Those are more exposed to seasonality, driven by number of visits to the doctor. We expect going forward, as we have done historically, to move revenue from the blue part to the green part.
Going forward, it will be a more healthy mix of new sales and migrations compared to close to only migrations for the last 12 months. If we look at this on a month-to-month basis, you can see the clear Easter effect in April, taking the monthly revenue down by almost NOK 1 million, but bouncing back nicely in May and June. The pure cloud MRR grew with 27% year-over-year. If we look at the more KPI side of the business, starting with number of clinics, we can see that cloud grew its cloud or clinic base with 66 clinics, of which the vast majority is driven by upgraded or migrated customers from previous periods. Not surprisingly either is that on-premise is rather flattish. I'll revert back to that when we talk about churn, but second quarter and fourth quarter, very limited movements on on-premise.
If we then look at the more interesting part of a numbers count perspective is number of licenses. That's actually what drives the revenue. Starting at the bottom, flattish development in the number of clinics, also flattish in number of licenses on-prem. Good to see that cloud growing nicely with 5% in the quarter, and that we have a rather flattish development in average revenue per license. Even though the vast majority of this growth comes from the therapist market with lower revenue per license than GP. An unfavorable customer mix, we're still able to maintain the average revenue. We had a small decline both for on-prem and cloud in the second quarter, mainly driven by variable recurring, Easter effect, a bit countered by increased focus from the sales team on add-on sales, which we now also see a good momentum on.
If we look at churn, we have tried to simplify the way to present this and now focus on nominal count in number of clinics, paying EHR clinics. Starting with on-prem, as I said, two quarters with very low churn, and then two quarters with higher churn. That's due to the six-month contracts we have on our on-premise portfolio. We expect the third quarter to be higher than what we had this quarter, but lower than what was posted in the first quarter. On cloud, it's low, consistently low, also taking into account that our portfolio on cloud is growing every quarter. The 15 clinics lost in the second quarter is equally divided between the three systems without any particular explanation why it's a bit higher than in the first quarter. Again, on a relative metric, this is very, very low.
If you now turn more over to the financial performance of our Norwegian business on our standalone business. As you all know, almost all revenue and COGS resides in the Norwegian business. We feel it's prudent to separate out the investments we do in people and other costs on our international journey. If you focus on SaaS first, you can see that we posted a cash EBITDA margin of 26%, which is in line with what we have guided on earlier, between 25%-30%. The EBITDA margin came in at 37%. We are investing quite heavily in our international journey, around NOK 30 million, NOK 30 million-plus each quarter.
We expect that the profitability in the Norwegian business will go up also in the short term due to rather visible cost savings in second half, but also that we'll be more efficient in our international or other category going forward. Lastly, on the liquidity side, second quarter ended at NOK 165 million, which was highly influenced by working capital movements. As I've said several times, twice a year, we invoice a large customer portfolio on six months contracts. Nice to see is that the Dunning module we introduced in April has a real good effect and brings the accounts receivable substantially down again after measuring it in June, meaning that we ended July with just shy of NOK 200 million in cash on balance. Kristian?
Thank you very much, Christoffer. Hope that gave us clarity on where we are. What's happened since our second quarter 2022? I would like to revert back again to what we said in the fourth quarter presentation, that we expected that the first half of the year will be adding, but not visible revenue, but the visibility of the revenue coming here in the second half of the year. We actually can see that the great sales pipeline is building up, which is really, really fantastic on Norwegian business. We also see that they are becoming paying customers now. I think already now to see that we have already secured 20% higher second half than first half, more or less before we start, I think is a good sign that we actually are delivering on that.
I think it's a big compliment to our Norwegian team, and they are delivering on the plan set out. We also see that our great delivery pipeline building up, and where we can really utilize our strong onboarding experience and standard tools. I think what we also see, we're not only talking about sales performance here, we also talk about delivery performance. I can really see here we picked up some really big clinics in a very short time to our delivery pipeline. I really trust that our system is working really efficient. I think we can really see we are getting pressure tested on some of the statements we come with, and we can actually see that we're delivering it now. Overall, as Christoffer said, we are looking much more into our earning efficiency.
How do we reduce cost, complexity, and improve efficiency of the organization? I talked about we are closing down the Finland to focus more on our two international hubs. We are implementing a plan to become profitable company during 2023. Here, there are some effects of things we have already done, as Christoffer said. We have taken cost out that we'll start seeing the effect of. We have also not done some hirings that we have in the original plan because we see we have a less need of complexity. At the same time, we have looked much more into synergies. Among others, we have, instead of having a VAS and PaaS unit, we are now consolidating on that parameter. We have actually overall looked at the company, where can we become more efficient as a company and still make our journey?
That's why we actually believe in that. I think it's looking at the numbers today. I understand that there will come questions for that, but that's definitely why we believe in it, and we have a solid plan to deliver on, which we are following month by month. Yeah. On that note, I think it will actually be a good time to open up for some questions. Christoffer, will you join up here?
Yeah. Okay, the first question: Could you please be more specific on your positive 2023 free cash flow guidance with regards to increased revenue and lower costs? How much should we expect the OpEx, CapEx base to come down from the current NOK 250 million yearly run rate?
I think I may start with the overall.
Yeah.
You go into details. Well, overall, as we see on the Norwegian business, we are picking up revenue that will have effect during 2023 over the next one and a half year. We have actually worked with a plan where we are extremely conservative on international revenue, but that will of course also come in. We have also done something on the cost side. Maybe you can go into details there, Christoffer.
Yeah. In general, we expect the Norwegian business given what you said, but also on the cost side, to yield higher profitability going forward. At the same time, by reducing complexity, we're also able to reduce costs on the other category. The combination of higher profits in SaaS with lower costs on other category will bring us during 2023 to a state where we can say that we have a cash EBITDA or cash EBITDA for the group above zero.
Yes, agree. Hope that answered the question. Let's move to next.
Next question: Do you see any effect on increased competition from growth aggressive competitors such as Carasent? What are customers saying are pros and cons with the PatientSky versus competitors' solution?
Well, I don't wanna go into any specific competitors, just to be fair. I think that's not fair to do in a setting like this. What we can see is that the market is opening up, as we also said earlier, and we can also see our pipeline is growing. At the same time, we can see that we have a much closer dialogue with our customers. We can see, especially when you look at our cloud revenue, what we're really building up, we are adding a lot of new revenue, and at the same time we are very stable in that segment. I think we don't see that the market being harder for us than it has been. I think contrary, we actually see that the market is opening up, giving us opportunity to go positive into the market.
I see there's the pros and cons of it there, but I don't wanna comment on specific competitors.
Agreed. You once again delay launch of the platform. Why should investors think this time is different? What is plan B should the platform not be successful and financial losses continue through 2023?
Fair question. I think the big difference here is that we make a deliberate choice. We say that right now for us, our key in our strategy is to be positive cash generating and control our financial situation. I think also to answer the second question, to say if against any expectations there are anything that doesn't materialize, we are still on the safe side, but keep utilizing and optimizing our profitability to actually be able to control through the harbor. For us to say, we are definitely building on it, but we took a deliberate choice this time to exactly as stated here, to have the financial muscles to carry the journey through. Anything to add or you think?
No. Cool. What is the OpEx effect of closing Finland? How many employees? What was the effect in Q2, and will we see a full effect from Q3?
Can you take that one?
Yes. Yes and no. I think in total we're talking about a handful of employees impacted by the decision. At the same time, there are some consultants there that we'll probably not carry on with. At the same time, we have some related OpEx to the data center in Stockholm that we could get rid of, but you won't see full effect in the third quarter. It will take more time before you see that effect. Into fourth quarter and the full effect from next year, I would assume.
Agreed. Definitely.
It's too early to pinpoint the exact financial estimate since this is a very recent decision.
Yes.
Okay, next question. Are the delays on the platform due to delays with customers or any functionality still missing?
The delay to the platform here is, as I said earlier, a majority due to we have shifted the focus. What we have done actually with the resources is here to make sure how do we actually get the Norwegian platform up and running as a completely standalone. That's one of the things we have focused on. That has been a higher focus on that part. We are still in dialogue with customers and see where there is gaps, of course, how we can develop further on that. I would say the majority reason of this is actually for us to say we see a Norwegian platform moving good on. Also, to the question before, if we really isolate that and they can move full on, then we have more flexibility going forward.
What will the cash EBITDA be if closing down the platform and remove costs within a year? I think the best way to look at that is to look at the current run rate we have with the pipeline we have and expected cost improvements on the SaaS business, without giving any guidance on what to expect from SaaS standalone for the next 12 to 18 months. We hope and assume that the numbers will be significantly better than what we have posted in first half of this year. If you multiply that by two, and with some additional revenue and scalability on the cost base, that should be. Could be an interesting scenario, but that's up to the board, not us.
I think definitely, it's fair to say that the Norwegian business is improving radically, and we will see a significant change in our cash EBITDA if we only looked at that business. I think the good advantage is we can actually follow that business going forward and see where it will. It is a significantly higher amount, actually to attain the next threshold, as we'll see on the cash EBITDA for the next 12 to 18 months. That is definitely a very profitable business, as we stated many times. That's also why it's important for us to keep isolating that and showing it is performing well.
Can you comment on revenue and margin guidance for 2022? Think we've had that question before, and we have deliberately not done it for 2022. We are now over half, we're through over six months of the year, and the guidance we gave in the fourth quarter is the guidance we're sticking with, which is more an illustrative guidance, where we said that in the first half, revenues will be rather flattish. We expect the new sales to start picking up momentum in the second half of the first half, with revenue effect into second half of 2022. That is exactly what we are seeing.
That was it, right?
One question more. How do you view the cash position post the payment of the seller credit? We view the cash position as Kristian said, that we still have the, what's the word? the opportunity to decide our own destiny. You can't, of course, keep burning that much cash forever. We believe we will have higher revenues and lower costs. Basically, we have made a plan that ensures that we are self sufficient on the liquidity we have now. Agree? Was that all the questions?
Yes.
Good.
Thank you very much for your questions. I'll just round up with the outlook and the final statement, what can you actually expect, from us. We have a high focus to improve our earnings efficiency and to decrease complexity and ensure the long-term financial stability of the company. Focus is to be able to self-finance our journey. I think we said that a couple of times. There was a comment also to the profitability in Norway. We definitely see the company in Norway is moving to a completely different level. Everything we add on of revenue, et cetera, is on top, EBIT, we put into the company. We see a very high efficiency, as we also shown. It is really a cash-generating machine we have there right now. I think that's really important to say.
That's also part of the financing. We are focusing on making the whole company profitable. That, of course, means that we have delayed the go-to-market on our international partner management platform. I think it's been a very important decision for us to actually go through now and make the decision to say we have a Norwegian business that we can keep developing. They can keep developing on their own, they can keep developing new products and go into new revenue streams at the same time as we can focus on the other part of the business on the international platform. We'll continue to focus on new sales in the SaaS business. As I say, a healthy growth expected. We say that every time, and that comes every time, so that's a kudos again to the Norwegian organization.
We'll start having visible effect of actually the revenue generating now, so we can actually start having much better picture on what is the revenue in that machinery. Overall, we believe we have the structure in place to deliver on our international journey while keeping focus on developing our valuable SaaS business. I think that was the final comment on this one. Thank you very much for listening in here in the room. Thank you very much for listening in online, and our next presentation will be the eleventh of November. Thank you.