Hello, everyone. Thanks for making the time. This is
This meeting is being recorded.
Just like to welcome you to the Q2 2022 presentation for Nordhealth. I'll be presenting, Charles, CEO, and also Mari as well will be presenting the financials in the last part of the presentation. We'll start off some company updates. First, starting off with the mission of the company, right? Is still to improve lives, the daily lives of healthcare professionals through a combination of software technology that we provide. On the company, right? Just a reminder, one, for some of the first-time investors that might have joined, right? We build and acquire practice management software in select healthcare niches, right? Currently, it's veterinary and therapy. Therapy we define as physiotherapy, psychotherapy, occupational speech therapy, right? About half our business is therapy, the other half is veterinary in terms of ARR.
We have sort of a once in a generation window of opportunity to recruit onboard clinics as they shift away from legacy on-premise or hosted software to cloud software. That's why in June of last year we raised EUR 120 million to help accelerate the capture of clinics. In terms of the, we're currently market leaders in Nordics for both veterinary and therapy PMS, and we're rapidly expanding internationally with a strong beachheads in Spain, U.K., and U.S. You can see the breakdown on the right-hand side of our ARR by sort of markets, right? We sort of bunch markets into a couple of different sort of sectors or subsectors. One is established therapy, which is basically our operations in Norway and Finland.
We've got established veterinary, which is our operation in Finland, Norway and Sweden, right? We've got growth veterinary, which is all the markets that we're expanding into, right? Such as Spain, U.K., U.S., Denmark, and so on. We've got our acquisitions, which we made this year, which account for about 12%. Right? Those include EasyPractice and Vetera. Today, we serve over 50,000 healthcare professionals, right, across over 13,000 clinics and hospitals, which are located in 13 countries, right? We're happy to recruit our 400th employee in July 2022. For those who more recently joined us, here's a bit of our history of acquisitions. The latest ones that we've done were obviously EasyPractice in Q1 2022, right?
To help us expand into the Danish therapy markets and also expand abroad in sort of the lower end of the therapy market. Then the second one is Vetera, which is one of the leading practice management softwares for veterinarians in Germany, Austria, and Switzerland. The strategy for acquisitions are pretty much all the same. We acquire normally a practice management software, usually a legacy practice management software, and then we migrate them over time to one cloud solution. In order to have one cloud solution in each specialty, which all customers will in the end migrate to. A bit about our KPIs. Last 12 months, ending Q2 2022, our ARR grew 33%, right?
We break that down in 17% ARR organic growth, 8% of which came from new customer recruitments. Okay? We had organic net retention of 109%. Our current sort of signed ARR stands at EUR 29.7 million as of the end of Q2 2022, which entails an ARR per share of 0.37, right, which is quite a significant increase from what we had last quarter. Our organic ARR growth churn is still very, very low at 2.3% over the last 12 months. Now, taking a look at the progression of ARR and what's driven that. In Q2 2021, right, we ended that quarter with EUR 22.4 million of ARR.
We've added EUR 1.8 million in new signed ARR, right, from new customers. We've been able to upsell or, the net upsell, which is basically the, amount that we upgrade, minus the amount that is downgraded, has been EUR 2.5 million. We had churn of EUR 0.5 million to get us to EUR 26.2 million, which is a 17% growth rate. We also made acquisitions, EUR 2.9 million of acquisitions in, during this period, which also grew by 0.6% to get us to the EUR 29.7 million. Breaking that down by quarter. We ended last Q1 2022 with EUR 25.6 million, and we had new signed ARR of about EUR 800,000. Right? Our net upsell was about zero, and I'll break that down with the reasons why that happened.
We have 0.1% churn, which is quite low, which gets us to EUR 26.2 million. We acquired EUR 3.2 million from acquisitions, and those grew by 0.3%. If we look at the drivers of this change, right? One is also organic growth was 3%, right? Which is a bit lower than the previous quarter. Acquisition growth was around 7%, so that was a good performance. What drove the 3% was, like, two sort of main reasons. One is that in the therapy business units, some of the larger contracts are revenue-based, and in Q1 it's only a lower revenue base. As a result, that had an impact of about EUR 0.2 million. Second is that actually has charges biannually.
In June, they get the majority of their term. That's what or downgrades. That's why we see quite a low net upsell this quarter. If we look at sort of veterinary, however, it continued growing quite fast. It's 6.5%, which is a faster growth rate than last quarter. It's mostly due to new location onboarding, not the net upsell, which is a nice which shows that we're continuously improving our sort of organic new signs. They are from new location. Obviously, you can see that the acquisitions, the two acquisitions included here, right? Are EasyPractice and Vetera. Now, looking at the Q2 updates. First, we're really glad that Simon Rodko has joined as our new Veterinary Engineering Director.
Simon was previously Director of Engineering at Opera, the browser. He'll be focusing most of his efforts on Provet Cloud and sort of improving efficiency and growing that engineering team. Second is we have Fabio Carneiro was promoted as VP of Product for Provet Cloud. Previously, he was one of the lead designers at Booking.com. What's wonderful about him as well is that he's also an engineer. He was engineering manager at Mailchimp. One of the first dozen of employees actually at Mailchimp. He's been through that scaling journey quite a few times. In terms of products, right? We've been able to launch Aspit Mobile, which is our first step for converting Aspit to the cloud, right? Which enables Aspit customers to access their data on their mobile anytime from anywhere.
Second, we've been able to sort of complete the pilot for the veterinary whiteboard add-on, right? Which will be upsold to mostly referral clinics and universities, but also some small first opinion clinics and specialty hospitals in the latter part of the year or early next year. In terms of new customers, we've been able to win the tender for the University of Cambridge. We've been able to sign IVC Evidensia Denmark, the shift from our competitor to ourselves. We've been implementing the IVC Evidensia clinics in Spain.
I want to take some time to, as I've done in the past, to break down the business into the core business and how the business unique economics of that core business works and compare that and also break down the investments that we're making, the quite significant investments that we're making in growth. I decided to look at the sort of our two sort of established businesses, which were basically veterinary in our established markets, which are Norway, Sweden, Finland, right? Therapy in Finland and Norway. If you look at those, right, together it's fine. The unique economics are quite similar, right? We earn recurring revenues of EUR 11.4 from those two segments, right?
If we exclude the cost of goods sold, which are basically hosting costs and also SMS and transaction fee costs, like mostly. We exclude sort of customer support, which we require to be able to support those customers in the market. We also exclude country G&A, which is a bit of an aggressive. I include the full country G&A there, but these country managers which actually are included fully in there also do some sales. It's quite conservative to put the whole thing in there. We make a contribution margin of around EUR 7 million, right? Which is a 61% contribution margin on this base of customers.
If we've been spending quite a bit to ramp up our general and administrative team because we wanted to make sure we build a headquarters that's able to support current acquisition, but also as we grow to a EUR 100+ million ARR business. We don't see G&A scaling with revenue, but excluding G&A, we have roughly a 37% margin. We're spending on sort of three main growth initiatives. One is establishing ourselves in new veterinary markets, right? The cash flow that we used to be able to do that, right, is around EUR 0.6 million. Let me break that down a little bit more. We had recurring revenues in those veterinary growth markets around EUR 1.1 million, right, in H1 2022.
If these were the same margins as veterinary established, right? This means that we're really today over-investing around EUR 1.3 million to be able to set up and ramp up the sort of customer service and local operations in these markets. The second is net customer acquisition costs. This is what I use to look at the amounts that it costs us to be able to recruit new customers. It's made up of four components. The first is marketing costs, all-in marketing costs. The second is sales cost. The third is implementation or onboarding costs. The fourth is minus implementation upfront revenue, right? That's how we get to a net customer acquisition cost, which is EUR 3.7 million today, right? Overall for all of our business units.
The efficiency of that, you can, we look at CAC to new ARR. You can see in the therapy business unit, it's about 2.1. In the veterinary established, it's 2.2. In the growth markets where we're still working to build up a reputation, working to onboard new salespeople and new marketing resources which are not fully ramped up, and so they're not up to on target earnings yet, right? It's around 4.6. The last one, but probably the most important, is our investment in product development, right? In that, there's we spend around EUR 5.6 million in product development to be able to so develop new features that we can upsell, right? Second, localize our cloud products to all the different markets that we're entering.
Third is also develop new add-ons like this Aspit Mobile or this veterinary whiteboard, which we spoke about. The last one is to improve operational efficiency, because that's the way we believe that we will be able to improve these contribution margins at one, for example, even more so, and also reduce the implementation cost, for example, will be by investing more in our products. Maybe Mari, can you go through financials? Thank you, Mari. Sorry, can't hear you. No, not yet.
Can you hear me now?
Yes, we can.
Okay. I'm so sorry about that. Have had some trouble with the speakers this morning. Yes, good morning, everyone, also on my behalf. Let's go through the financials. First of all, our key financials for the first half. Our first half revenue grew by 79% on a year-on-year basis and landed at EUR 14.6 million. Recurring revenues were 93% of the total revenues at EUR 13.6 million. That is an increase of 88% from the previous year. First half reported EBITDA was -EUR 3.1 million. This reflects the growth investments, as just discussed by Charles, in order to expand our business in the veterinary growth markets, our customer acquisition cost in all of our markets and in product development.
In the second quarter, revenues grew by 57%, amounting to EUR 7.5 million. Recurring revenues were EUR 7.1 million, that is an increase of 68% from the previous year. The second quarter EBITDA was EUR -2 million. One thing to note is that the net increase in our headcount during the first half has been 120 employees. That has clearly increased our employee costs by over 160% on a year-on-year basis, amounting to EUR 3.5 million in total. The first quarter EBITDA in 2021 includes IPO and M&A related costs. Those amounted to EUR 2.4 million, and if taking these non-recurring items into consideration, the adjusted EBITDA in the second quarter of 2021 was EUR 1.1 million positive.
The first half recurring revenues, those were up by 88%, year-on-year, of which, the share of organic growth was 23%. Second quarter recurring revenues were up by 68% year-on-year, of which organic growth was 10%. As already mentioned, the high level of our talent acquisition activity has significantly increased our cost base during the first half. Also to mention for comparability, the already mentioned, IPO and M&A related costs, which were reported in the second quarter of 2021, those were mainly reported under other operating charges. On the balance sheet, the changes are mainly the result of the acquisition of EasyPractice and Vetera, which were completed during the first half. Despite of these acquisitions, our cash position remains strong at EUR 48.3 million. That comprises of cash and money market funds.
The acquisitions were mainly paid in cash. Our goodwill has increased to EUR 61.7 million as a result of these acquisitions and the minority share in PetLeo was acquired as part of the Vetera acquisition is reported under other shares. Other current liabilities have mainly increased due to EasyPractice earnout debt amounting to EUR 4 million. An earnout debt relating to Sanimalis acquisition from 2019 was paid out in the first quarter. Some increase in non-current liabilities, those relate to a bank loan of Vetera, which has now been repaid in July. The increase in advances received is also a result of the acquisitions which were completed during the first half.
On the cash flow, operating cash flow in the first half has been mainly impacted by the growth investments and the recruitment within product development in accordance with the plan. Cash flow from investing activities include the cash payments that relate to EasyPractice and Vetera acquisitions. Then, cash flow from financing activities in the first quarter consists mainly of the Sanimalis earnout debt repayment. In the second quarter, a repayment of a short-term debt of Vetera, which we assumed as part of the acquisition. The third quarter 2022 results presentation will take place on the twenty-fifth of November. We have today issued the interim financials for the first half. Those can be found on the company's web pages as well.
Thank you, Mari. I just want to discuss a little bit the forecast going forward. We are still forecasting at, like, a 20% increase in signed ARR growth in 2022, excluding acquisitions. The second, which means that we're forecasting 2022 year end to be around EUR 32.5 million signed ARR excluding the large U.K. enterprise veterinary enterprise deal, which we'll only report implemented ARR. Right? Given that it might take quite a while to be able to implement that deal. The second point I wanted to make is that in light of the market situation, we will be shifting more and more from an aggressive growth to what we call capital efficient growth.
What I mean by that is, we will be reducing the pace of recruitments, specifically in veterinary go-to-markets. We will, however, continue to focus on R&D to drive sales and operational efficiency. We'll have a stronger focus on migration upsell versus just going after net new clients. Thank you very much for your time. Any questions? You can ask questions via the chats, or they can ask questions by raising their hand. Oliver.
Morning, Charles. Can you hear me?
Yes, I can hear you perfectly.
Good. Now I was looking at your revised guidance, and I noted you discussed seasonality of Aspit and some revenue-based contracts. I assume those were factors that were known to you when giving the previous guidance. Is it possible to elaborate a bit on what have changed in addition to seasonality in the latest quarter? Are there any demand trends that have changed or what do you see?
One of the things that we're seeing is that as we're not going to be as aggressive with investing in sort of go-to-market and new markets, right? We prefer to be a little bit more conservative with that versus our original plan, given the change in market situation.
Mm-hmm.
That's driving a slightly lower guidance.
What has changed in the market exactly?
If we look at the capital allocation, I try to see here's how much it costs us to recruit an additional customer, which we saw in the market in the presentation was around four for our newer markets, right?
Mm-hmm.
If we compare that to how much we're trading, right? It's cheaper for us, for example, to buy our shares, right, than to actually increase our ARR per share than to actually recruit a new customer correctly.
Yeah.
That economy has changed. That's one of the big changes. What we've looked at is instead of being way more aggressive in continuing to invest in this CAC ARR, what we'll do is we'll continue to invest there, but more conservatively. We want to go after sort of the longer tail, which previously made financial sense to go after.
The guidance change is then mainly driven by your own decisions to slow down organic growth and invest more cautiously given that dynamic. You're not seeing sort of any macroeconomic slowdown or any call it exogenous demand trends on the negative side?
No. I mean, we're incredibly lucky with the end markets that we're with, right? The veterinary and therapy end markets sort of are non-cyclical. What we saw in all the previous recessions as well has been that they have not been impacted and continued to grow throughout the recessions. I think I'm not at all worried about the macro trends there. There are some trends in specific countries where staffing is an issue, right? But that's, which means that they don't wanna take on a big new project, but I think that hasn't exacerbated since the previous quarters. It's still the same level.
Yeah. I guess same goes for competition. It's not that you're seeing higher competition in some markets that's sort of slowing growth.
No, we're not at all. I think this might be a very good thing because there's some in the two markets which are more competitive, the U.S. and the U.K. for veterinary, for example. There's a few startups there which have tried to get funding and so on, and I think that that's gonna get increasingly harder. The competition from low-end disruption from new startups will get, the bar will get much higher to be able to enter that market given the lack of funding. Long term, I think that this will be a nice little shakeup.
Okay. Yep. That makes sense. Would it be possible to comment a bit on the development generally in the U.S. and perhaps outside of the Nordics during Q2?
Sure. I think that we've been continuously expanding there, right? Recruiting new customers in Spain. As you saw, we're implementing IVC Evidensia there. We are also implementing quite a few of the corporate chains that we had discussed in previous quarters. In the U.S., we have recruited a few small multi-clinic corporate chains, right? Some, we're continuously ramping up the team there. We're onboarding the corporate chains that we had previously mentioned. In the U.K., as we saw, we won the University of Cambridge tender, so that means that we've got the majority of U.K. universities now signed up to Provet Cloud, which is great, because it's where all the students will get to know Provet Cloud.
When they go out into the world and compare Provet Cloud with the current software that is used in their clinics, if it's not Provet Cloud and it's server-based software, it'll be a nice push for them to shift the clinic to a new, more modern software. Although it is expensive to go into new markets because you have to build a reputation, right? I think that our reputation in those markets are sort of starting to improve, right? We're getting better known as we're continuously attending conferences, speaking at conferences, and sort of getting our visibility out from marketing.
Yeah. Makes sense. Perhaps final one from me. How do you see M&A in today's environment, given the pipeline of opportunities, private market multiples, your own trading, and so on?
Well, I mean, we're always on the lookout for interesting targets to acquire, right? As I mentioned before, there's two different types of targets that we're looking for. One is practice management softwares which we can buy at an affordable price, right? Most likely, given that this affordable pricing, right, it will be a legacy practice management software. The second one being add-on acquisitions, right? For example, like an add-on that we can upsell to our current customer base. Those are the two types of acquisition that we look for, right? We look for those in our current markets, but also established and growth markets. Although we're looking at opportunities, currently, we haven't seen the multiples correct as they have in public markets.
We're still looking and we're still hunting for deals, but they haven't yet been fully impacted. I think once the need for cash and to grow increases, as their sort of bank accounts sort of start draining, we'll see additional opportunities come up at more attractive pricing. I'm quite excited about that.
Okay. Very good. Thank you very much.
Thanks, Oliver. We've got a question from Mark. Go ahead, Mark.
Hey, Charles. Maybe you could just talk about when you mentioned earlier reducing some of the tail targets that would have come, it sounds like at a higher CAC versus more, let's say, plain vanilla potential additions. What the implications might be over the next three to five years in terms of your organic growth prospects? Is that just touching new customers or would there be an impact as well on the upsells and so on as well?
Thanks for the question. I'll start with the upsell point. No, this will not impact upsells, right? Because it will only impact new customer new signed ARR, right? That's the first part. The second, because upsells are actually way cheaper, right? To be able to acquire, given that you're selling to an established customer base. Getting in is the hardest thing, right? With practice management software, it's the main mission and critical software in the clinic. Once you've got that in, it's much easier to be able to upsell them than to actually convince them to switch PMS. On the three-five-year target, I don't think that it changes that much.
The one thing that we are being more conservative with is just that, the decision when we enter a new market, right, CAC starts quite high, and it goes down as we get more recognition in the market. 'Cause the clinics, when they're choosing a PMS, they're not really choosing the PMS, which is avant-garde, right? With such a mission critical software, it's really important to choose sort of the industry standard, right? It takes quite a few years to get that industry standard. Once you are there, the CAC to ARR ratio reduces dramatically, and we've seen this in our established markets. So much so that like, for example, in some countries, right, they don't even look for PMS, they look for.
They call the PMS our solution, right? They're looking for a Physica, right? They're looking for EDR. They even mention like, "Oh, we need EDR for our software. What EDRs are out there?" That's a bit like Kleenex and versus tissues in those markets. I think it's really important to get if you wanna be more capital efficient with your growth, right? First, get the recognition, right? Get the right customer cases, really make sure that they're happy. Then through a combination of referrals and getting your name out there, your sales, your conversion from sort of calls to demos will be able to increase. We don't have an issue at all. Once they're on the demo, it's very easy to convert them, right?
I think it's like 1/3 in the U.S. and about 1/2 in the Nordics. It's quite good, that conversion. However, it's about getting them on the demo, which requires your name to be out there. You can spend quite a lot of money in outbound sales and in marketing to be able to acquire those. It also takes time for those sort of customer stories to spread throughout the markets. Does that answer your question, Mark?
It does. That'd be great. Maybe another question, if you look at your installed base, is it possible for you to share what portion of your clients are currently on the server-based model versus the legacy on-prem who have yet to migrate to the newer technology?
We have not shared that number. Maybe next quarter we'll share it. I don't have the data in front of me.
It's okay.
If we look at veterinary, right? We just go back to this slide. We go here, right? If we look at sort of the all of veterinary growth is on our Provet Cloud software. About probably around half or probably maybe a little bit less than half than our established veterinary is on our cloud software. On the therapy side, right? About one third is on the cloud software. On the acquisitions, it's about a half as well, which is our cloud software. That gives a rough guidance on that. We'll maybe on the next quarter, we'll split it out by sort of cloud and non-cloud products.
You still have that latent migration opportunity to go after over the coming years as well, which will have a high-
We do.
sort of higher return on. Okay.
We do. That's something that if we're not focusing as much on go-to-market, right? It's for new customers, right? I think we will be focusing a lot on this option to migrate as well. One of the important things there, if we looked at the amount we're spending on development, right? Once we actually stopped those and migrate all the customers over from platform, we can get rid of the majority of the development cost to support that, right? Reinvest that in our core products. There's a lot of if we think about the cost structure as well, that's very much impacted by the number of products, right? Because we need to have one support lead per product per country, right?
Which is quite expensive to maintain, versus when you got a one product, you can have only one support lead in that country.
Do you envision going end of life at all in call it the next three-five years, or you will continue to slowly transition?
Yes. The way we've dealt with end of life has been. It differs a little bit by market, but normally the progress is that we start with making sure that the initial customers that are on board are happy. Once they're happy, right? We onboard different sort of types of customers, right? Small animal, first opinion, equine clinics, and production animal clinics. Similarly, in therapy, we onboard different types of therapy clinics, right? Then once they're happy, then we announce end of life. We are quite conservative with announcing end of life because it can also provide a big opportunity for our competitors to be able to get into the market.
We try to migrate at least all the large players before announcing end of life.
Understood. Just one more question. If you look at.
Yes, we do foresee some like, in the next three-five years, definitely. That's, I think, there's a few of our products will already be end of life, fully migrated.
Great. Just in terms of OpEx, and it looks like most of the acquisitions, I guess all of them actually, you've got Q2 bearing the full brunt of the cost. When we look at the OpEx that was realized in Q2, is that indicative of an annualized run rate? With respect to Mari mentioned earlier about the increase in headcount, for example, or should we expect a further increase in the back half of the year?
Mari?
Well, as Charles mentioned, we are still recruiting new headcount in our product development, maybe less aggressively, as we have done so far for the year. Of course, the 120 people we have recruited now during the first half of the year, the full cost for the full year is not reflected in the first half numbers as those employees have started during the first half. For personnel expenses, we can expect the run rate to be somewhat higher. If that answers your question.
It does. Thank you. I'll turn it back to you, Charles.
Thanks, Mark. Any other questions or comments? Oliver, I see that your hand's still raised, but.
Yeah.
Oliver, can you hear me?
Oh, yes. Sorry. Now, can you hear me now?
Yep, I can hear you perfectly.
Okay. Yep. Just a follow-up question on.
Sure.
On the last topic. I see you have about 400 employees now.
Yeah.
Could you say something about the plan for FTEs going forward? How many do you expect to be by, for example, year-end?
Yeah, sure. I think we will slightly be recruiting for the two following areas, right? One is, we will be making some recruitments in R&D for Vetera, so for Provet Cloud, right? Some select recruitments. We'll make some select recruitments for R&D for therapy, right? At a much, much slower pace than we have historically. If we look at Mari's 120 number, right, that also includes acquisitions, right? If you're trying to forecast out the number of employees that we might add tens of employees per month, right? Not more than that.
Yeah. You said 10.
Like, probably less than 10 employees per month.
Okay.
The pace of recruitment depends on the pace of growth and the opportunities that we have, right? For example, if we sign a big new corporate client, for example, in some markets, we might have to hire the implementation people up front, right? But any hires that we make on the operational side will be sort of fully covered by signed sales.
All right. Very clear. Thank you.
Perfect. Well, any other final questions? I see, Mark, your hand is still raised. I'm not sure if it's 'cause.
I came back in. I may have missed this in the first bit of the call. Have you shared the Enterprise U.K. revenue potential once it's fully implemented and you can recognize on a run rate basis?
We have not shared it. It's around 400-something clinics. An average clinic probably is around EUR 0.5 million o f revenue. It's a percentage-based revenue contract. The thing that's quite hard for us to forecast is the transaction piece. We don't have which on the upside, which is great for us, but we're not exactly sure of the full extent of those transaction fees. That's why we have not shared them until we get deeper into the data with them.
With respect to the semiconductor shortage in the past that was making it difficult for you to roll out the point of sales, is that well behind you such that there's no longer a constraint there?
Yes. As part of the rollouts, they're not looking to roll out the point of sale in the first instance. They will most likely be using our online payment tools, but they will be using their own PMS for POS for now for payments, given that they've got signed contracts with those.
Great. Thanks so much.
As well, Mark, for larger corporates, like, with this many clinics, the margin we can make on payments is not as big as we would on individual clinics, right? Because there's big differences in the sort of the margin that payment processors charge. For these large customers, you're not going to make a big margin from that. Hence why we don't push it that much.
Understood. With respect to if we think about the, I'll call it the take rate of what you can take as a percentage of the revenue, that will be more modest as well for large chains because they're gonna negotiate volume discounts and the like, and it's a very competitive process. Maybe you could just share the disparity between the larger and the smaller chains and how that rate may vary.
There's not a big difference actually in take rate because on the one side, yes, they get higher discounts, but on the other side, they have unique features, right? Such as they've got their own database, they've got their own SLA, right? All of that increases their price. Net-net, although they have more services, right, more guarantees, we actually make quite similar levels of revenue to a traditional clinic.
Great. I'll turn it back to you again. Thanks so much.
We've got a question here. It says Zoom users. I'm not sure who it is, but please go ahead. Maybe not. Right. So if there's no final questions, thank you very much everyone for your time, and thank you for the questions. We will speak to you again on the November 25th. Thank you.
Thank you.