Good morning, ladies and gentlemen, and welcome to the presentation of the results for Omda for the first quarter of 2024. The report and a copy of this presentation will be found on NewsWeb and on Omda.com. This webcast will last approximately a 30-minute presentation, and it will be followed by a live Q&A session. You can type in your questions at any time, and we will attend to them immediately after the presentation. A recording of this webcast will be published on our website shortly after the presentation ends, and as soon as possible, also a transcript will be published. As always, I am here together with my longtime partner, Sverre. The stage is yours.
Thank you very much, Einar, and welcome, everyone. Before we dive into the highlights of the quarters, the numbers, we will just talk a bit about the fundamentals of the company. First of all, our vision and mission are important to understand the fundamentals. The reason behind our success is because we have focused on highly specialized software for specialized health care and Emergency. Doing that the smart way has been our recipe and has brought us to become the leading player here in the Nordics when it comes to highly specialized components, and also with a nice growth outside Nordics as well. I think when you read our numbers and follow us, it's important to understand how the business is created. As you remember, some of you that have followed us for years, we decentralized in 2023, and now we have six business areas.
These business areas have an important role internally in the organization as separate business entities, but to society and to users of software, and also in the end to citizens, millions of citizens actually, that are dependent on the quality of these systems. Without going into all of these business areas, I think the common thing which is important to understand when you look at our numbers is how these businesses are operating. First of all, all of them have some kind of specialized set of components that are in use tied to specialized processes in hospitals or in emergency units. That brings us to the business model and how that works. If you look at our income side, which is primarily three areas that are our core income, which is the recurring revenues, the license sales, and other income.
To explain those, recurring revenue is the most important one that is sometimes over decades repeated because these systems are there over time. And then you have license sales, which is more of one-time sales, but still a software income. So the combination of those two, one and two, is the software income, which comprises 83% of our sales in the first quarter 2024. And the third one is professional services, which is also not a generic consulting service, but is related to our own software. That means this is also partly a recurring revenue because we have many customers in many countries, and there is always something, some need for new integrations, for training, etc. So that means one, two, and three here gives us the possibility to look at our future with extremely high predictability.
Actually, around 90% of our business will repeat, which gives us the flexibility and predictability looking at further growth also on the inorganic side. So this is important when you read our numbers to understand this composition. We have a fourth here, other income, which is not most relevant. It might be hardware and some other things, but we are measuring one, two, and three here. So why are these recurring revenue streams there for decades? The fact is that our customer types, these highly renowned structures in Europe, they have important roles in their societies. And these solid counterparties are really the fundamental thing with our recurring revenue. And then again, the number of those to the upper right here, more than 600 contracts, meaning the diversification is extremely high.
So that combo has given us the next thing, the high stickiness and the low churn in the bottom part of the slide. And why is that? Well, stickiness might sound a negative word, but it's more or less the fact that these complex processes need that type of complex software, and the combo of those is what makes it viable over time. And it's valuable for the customer to keep the software over time and for us to add new quality components on top. And that collaboration between our customers and Omda is highly valuable. And that creates the box number four down to the right, the fact that the churn is very low, like the last 5-10 years, below 2%, and we expect it's going to be the same the next decade as well. That is important when you read our numbers.
So let's go into the highlights this quarter. First of all, we had NOK 106 million in sales in the first quarter versus NOK 102 million in the same quarter in 2023. And then organic growth, 5% organic growth measured in local currency compared to the first quarter last year. As I mentioned, 83% is the quality of income or the software part of the income. 5%, we have always said guided on 5%-10%, it's in the lower end. Is that a problem? Well, it fluctuates always and has done so for 10 years, and it's going to do so the next 10 years. And if you see in our report published today, you will see on the table there that these business areas have completely different numbers each quarter. For instance, one even over 80% organic growth, while others even have negative growth.
So the average, it's between 5% and 10%, and at this point in time in the first quarter, it's 5%. And that's how it is. And then the EBITDA margin, 14%, meaning 9 percentage points better than the first quarter in 2023, still below our target margin, but that is activities going on in the business areas to focus on margin expansion. And then the COGS, which is going down, has come down all the quarters before and also going to go down further. So this is according to plan. A reduction of COGS in our business is related partly to hardware, but also partly third-party software, which we will replace with our own software to increase the margin as well. So that is a planned and good development.
The salary cost is also much better compared to the first quarter in 2023, however, slightly high compared to the sales isolated in the first quarter 2024. And then other cost develops as planned is 14.8%. We have expected around 15%. So all in all, that is how we expected it to be. So before Einar goes into the more detailed part of the financials, I would like to reflect on the report, the P&L. And this is just a cut and paste from the report published today. And to focus on the simple things that are good and bad, to put it that way, in this quarter. On the income side, the three major income items I mentioned, we would say license sales and recurring software revenue, which are the critical ones, are OK. And professional services, however, are weaker than expected.
If you look at the three primary cost items, the cost of goods sold, COGS, are developing the right way, OK, and also other costs. But then again, the salary cost compared to the sales and the combo of these two things is actually the major thing that drags the margin, EBITDA margin for this isolated, the first quarter, down. There are many ways to look at that. Of course, we would hope to have a higher professional service income, but that also fluctuates with different projects in different business areas. On the resource side, these are experts and people that have a high income potential. So it was not going to be a good idea to reduce the number of heads in the company, but rather focus on the income side.
So the primary approach to the margin expansion activities would be to focus on the income side, on professional services, but also deliveries on other items to increase license sales and recurring revenue at the same time. So all in all, this is our overall when we look at the performance, the EBITDA, that these two areas, the professional services on the income side and the salary and personnel on the cost side, are the major elements. That means the business in the first quarter is running well and has activities planned to continue the margin expansion. Then we will focus here on our business model and our value creation. As I mentioned before, the one, two, and three in the bottom here are derived of our strategy, focusing only on health care and emergency.
These highly specialized solutions stay the next decades with the recurring revenue and the growth of 5%-10% going forward as well. This profitable organic growth is the fundamental part of the business. The first quarter shows that the recurring revenue is growing and we are profitable. That leaves us with how can we accelerate on the M&A side? We are a serial acquirer, but we don't want to acquire just to acquire and just to grow. It is important for us to acquire companies that actually have the same characteristics as one, two, and three in the bottom here, and that we also acquire those companies to the right price at the right time.
So we are working hard with the M&A, and we have a lot of interesting activities, but we will take action when it's relevant and when we see the right return on investments. And also just to reflect on, for those who think that we have been drying out, to put it that way, for a couple of years, we have a history of mergers and acquisitions, and we know how to do it. And we have a database with a lot of interesting companies all over the world. And we have several dialogues going on, and we will continue to do that. So in our history here, from we were a startup, started exporting, and then became the number one here in the Nordics, we had this period, as you remember, 2022, 2023, designing a decentralized organization. And now it's performing as expected, slightly low professional services this quarter.
But anyhow, we will continue now to focus on the organic growth, the profitability, the cash discipline, and the acquisitions. Those four down to the right here are the management priorities and are now, I think, based on the first quarter and the performance there is what we're going to do going forward. We see a very nice future with growth and profitability. Now, since we've gone through the highlights, my colleague Einar, you will go through more details in the financials. I will indeed. All right. Let's have a look at the financials and take a deep dive. The first one, the recurring revenues, that is really our main focus. They are growing and continue to grow steadily, 11% increase year-over-year, quite nice, an annual run rate of more than NOK 330 million.
So this is really one of the big pleasures and the good news in this report. All right. Also, the diversified business, we are still a very diversified business, still emergency being the number one and comprising almost half of the sales. Then the Connected Imaging, which is the combined businesses of Connected Health care and Medical Imaging, the second largest business area. And then LIMS, and you see also Woman & Child and also Medication Management increasing its presence a little from the last time. On the right, you see the geographical distribution. We are still very much a Swedish company, almost half of the sales in Sweden, and then Norway, and then the rest of the world. The rest of the world, slightly down in percentage-wise from the Q4 report, but that is because the other areas have grown more than the rest of the world.
We are present in 27 countries around the world. So Nordic champion, but increasingly also present in the rest of the world. The revenue mix, although the top line could have been higher, the income composition is good. And we have almost 80% of the revenues recurring and 83% represented by license sales and recurring revenue. And that is good. The professional services are definitely lower than expected and as Sverre mentioned, and that will be a focus area going forward also. Some of it is due to really natural variations, some projects ending and not starting up, and some is merely on focus on how to spend time. So that is an area where we can and will improve in the quarters to come. Significant cost improvement from Q1 last year.
You see down from a total of NOK 97 million in Q1 2023 down to NOK 91 million in Q1 this year. COGS almost where we wanted to be and also other costs where we wanted to be. We see that the salary personnel is still too high. But keep in mind also that we live in a high inflationary environment. And just adding, say, 4% to the numbers last year, we take it from 97%-101%. So the cost improvement is actually underlying a little better than it appears at first glance. The salary and personnel, I also like to highlight, it seems like we have increased the number of employees. We haven't, although it says 283 compared to in the last quarter last year and 291 now, is merely a definition of employment and FTEs, part-time consultants that have a looser connection to us.
They are now counted as FTEs, but they have been there all the time. There is absolutely no cost increase at all related to this. It's just merely your definition of an FTE. So rest easy. We haven't been crazy. We haven't been shopping around. The EBITDA development is a good development from 5% to almost 15%, stark and good development. But that said, we had higher ambitions for this quarter, and it's very much down to the missing sales on professional services. But thank God it's not on license sales and not on recurring revenue. But also keep in mind, if you look at the CAPEX in the first quarter compared to the last quarter, fourth quarter last year, fourth quarter last year, we had CAPEX at 12%, and the first quarter this year, it's 8%. So that's a 4% difference.
So if you look at the EBITDA or cash EBITDA, if you like, you see that they are on par. So this is a quarter very much in line with fourth quarter last year. Lackluster, I agree, but not what Cormac McCarthy describes as bleak beyond bleak. All right. Speaking of CAPEX, you see that it's really coming down. The total CAPEX, most of it, for all practical purposes, is investment in R&D, capitalized R&D, and then a very small part of PP&E, but that's very, very minor. You see it's actually a little lower this year in kroner compared to last year. So no surprises here, and we maintain the rule of thumb, assume around 10% per annum, but there will be variations from quarter to quarter. Speaking of variations, this is the development in net working capital.
And the good news, it's going and moving in the right direction. Our target is that it should be -10 or better. It's -14 this quarter. So with those glasses on your head, it's okay. But compared first quarter this year to first quarter, say, last year or the year before, we are not satisfied completely with the development. I think that's safe to say. The main reason is that some of the accounts receivable that should have been, they were due in the first quarter. They weren't paid in the first quarter. They were paid a few days into April. Not the end of the world as we know it, but still, it disturbs this net working capital picture a little. But most of it is explained by payment a few days later. So no catastrophe, but a little irritating, I must admit.
But that said, cash is a priority. Cash flow, cash earnings, cash conversion, net working capital, everything that has to do with cash is a priority and a high focus area for us. All right. Going back to this one, we are still very, very much focused on this model. We will continue to be in the market of e-health and emergency. We specialize in software for health care. We will try to grow as fast as we can organically. This quarter, 5%, but again, don't look too much on the scoreboard. Keep your eyes on the playing field. We maintain our target 5%-10% in the long run. And then we have always said that acquisitions are a part of our business model and our strategy. And we will definitely step up the game and focus even more on that going forward.
All right.
So our priorities for the next quarter and this year, yes, we will maintain focus on organic growth, 5%-10%, as I just said. That is a target. We will definitely search and find every possible way to increase the organic growth. We will continue to improve margin and look for ways to do that. I mean, we have increased now to 15%-20% depending on the CapEx normalized, more or less. But we're still not there where we want to be. So we will, but from here on, continuous improvement, Kaizen, if you like. That will be a keyword. And as I said, cash disciplined, everything to do with cash, net working capital, cash conversion, we will definitely focus on the cash side of the business. We'll be playing Johnny Cash in the background until we're there.
And yes, M&A, mergers and acquisitions, we have increased activity and we'll continue to focus on M&A to see where we can find the good opportunities. But again, until we do, we will remain disciplined. But when we have an opportunity to strike, we will. All right. Before we dive into the Q&A, remember, if you don't already subscribe to our newsletter, you will be the first to get all the juicy news directly into your mailbox. And now it's time for Q&A. And let me see where we are. We have a few questions here. And the first one is from Henrik. And I think this could go to you, Sverre. It's related to professional services. And the question is, how much higher would you have wanted professional services to be?
Well, I would say many millions more would be a natural average.
But then again, you never control professional services, the booking of that income. Because as Einar mentioned, for instance, with cash, that something happens in April instead of March, the same thing happens with booked income. Because if you haven't reached a milestone, having a lot of activities going on in different business areas, then it will be not booked in that quarter. But we had expected that some of the projects would give us at least many NOK millions more than what is shown in this quarter.
Okay. And then a question which I think is for me from Oliver. And the question is, do you think there is any element of negative Easter effect in the Q1 growth or in the cash flow numbers? And I can answer the last part of your question, Oliver.
The cash flow, I think, as I said, yes, absolutely in the cash flow numbers, if it's the Easter effect or if it's something else. But it is a matter of fact that, as I said, a couple of invoices, large invoices that were sent out, they were due late March and they weren't paid in March. And that was because it was the, yeah, we were heading into Easter and they were paid third or fourth of April. Had we had a cut-off, say, 15th of April, the net working capital would have been significantly higher. So yes, there is an Easter effect there. And when it comes to MDR, the cost relating to MDR, it's also a question from Emily here that pertains to the same thing.
We haven't disclosed the cost related to MDR, but Sverre, maybe you can spend two minutes just to describe what is MDR, why have we done it, for how long has it been going on, and are we speaking of thousands or millions?
Yes. I think what is important here is that the whole business, especially here in Europe, has changed over the last years. And we have used more than two years to prepare. Some of our products already have the CE marking from earlier on. And earlier on, we had the medical device directive, which was a directive which was quite loose. But the last two years, we have the medical device regulation coming up, which is completely different. It gives you much more discipline. It has to be a complete thing all over the company, all processes, all documentation, and everything needs to be different.
That means it has been a huge turnaround for the company for the last two years, including also the fourth quarter and the first quarter this year. But now we are closing into a point where we will get the certificate soon. And I think it's impossible, as Einar mentioned, to find a specific number, but it's definitely many, many NOK millions. Because the fact is, one thing is auditors and all the consulting needed internally to make sure we have the competence to do it. That's one thing over these two years, but also the fact that our internal people had to train and had to document all these procedures and also take part of the auditing procedures. And some of those auditing activities come as a surprise because it's not up to us. It's the notified body coming from the outside and directly into us.
We had to disrupt current work and to make sure to participate in investigations, which they have to have to make sure that we can have this certificate. So when we get this certificate, one thing is the investment and cost back in time the last two years. But then again, it gives us a very strong position with current customers that want to stick to important vendors that are MDR certified. But also, as I have mentioned in the report that we see from the dialogue with the new acquisition targets, that they struggle, obviously, with such a high cost to handle and become MDR certified. So that also gives us a bit more power in the dialogue with merger and acquisition objects as well.
So in summary, it has been a huge investment in many ways, but also many of our operational costs related to this, and also partly why the external or the consulting service, the professional services, is lower. So I think the potential is high when it comes to increase the professional services. And also the potential is high to increase the business with current customers with the certificates that we will receive in the first half year of this year.
Okay. And a follow-up, Sverre, on the MDR from Oliver is, okay, what can we expect in Q2 and maybe beyond Q2 going forward?
Well, I think what we can expect to be MDR certified will not be as much work as it has been to develop the processes. So now when the processes are running, they are standardized.
We see the potential here to be much more efficient when it comes to our development and delivery processes. Because there's one negative side of having all these structures that might seem like bureaucracy. On the good side, it will also make us more efficient and standardized, but also give the software and the deliveries higher quality, which is a good thing for both the company and the customers. In many ways, to me, it is a highly welcome milestone, this half year. It will be easier for us, I think, to focus more on the income side rather than on the inside of the company.
Okay. Thank you. Then a question from Emilio. That is on the organic growth in the first quarter. The question is, how much is related to consumer price indices or other price escalators?
How much is new contracts or real growth? We haven't done an exact calculation, but maybe roughly half of it. You see, for instance, the new licenses that is all the very high sales of new licenses in this first quarter. It's higher than it has been for many quarters, as a matter of fact. That is typically everything related to that is real growth, if you like. But again, we have price escalators. But it's also safe to say that not all the potential there has been taken out, but it will during the second and the coming quarters. So rest easy, Emilio. There's more to come. And we will maintain our growth ambitions of 5%-10%. All right. And we have currently two questions pending. If you have any more questions, just type them in and we have time to address them.
So just type them in as we address the previous ones. Next question is to you, Sverre. It's from Mads. And it pertains to M&A and the multiples. And you can say something and I can say something. But the question is, M&A activity and multiples seem quite high in your sector. Can you comment on the market dynamic and provide some insights? And how can Omda benefit from it? And part of the reason why I'm asking you to start off, kick off on this one, Sverre, is because you are now engaging more and more in M&A yourself. So what are your views?
Well, I think the good thing is that the activity is higher. And as mentioned, one trigger would be the MDR for those type of companies that we are looking for.
Because one thing is the statistics you see in the market, which are normally slightly bigger targets than we look for, although we have both big and small in our discussions now. So in my head, the development has been, it was difficult a year ago and with higher expectations on the multiple side. But as I see it, we have more a growing number of dialogues coming up. And I see for those we discuss with are more in a rational area of what would be a good investment case for us. So I think the trend in my head with the dialogues going on is very positive. And we will take action as soon as a good one appears with the right business case.
So I think the growth, the acquired growth we see, we will continue to get back to where we were a couple of years ago and focus on doing that based on the fact that the new targets we have dialogue with now is more in our area of ability to acquire with multiples. And I guess you also agree, Einar, with the trend that it has been, the expectations have slightly come down. Expectations have been coming down. And we see that, I mean, we see that ourselves in dialogue with potential candidates. And we also see it from the statistics published by PitchBook and whoever that the multiples are becoming more attractive. But that said, the multiples is one thing. I mean, EV sales, EV, EBITDA, but they're still just a proxy for an NPV calculation. It has to make sense.
I mean, speaking of cash and cash discipline, it all comes down to try to understand and analyze the cash flows from the business you are buying. What is the cash flow on the current business? How can we improve it on the cost side or on the income side or both? And what is the new cash flow that we can look at and discount it with our weighted average cost of capital? It's really as simple as that. And then, of course, add some terminal value. But again, financial calculations aren't that difficult or quite easy. What is difficult is to remain disciplined. And that is what we try to do. And a lot of times we see things that aren't, maybe they're not a good strategic fit, maybe they're not a good financial fit, maybe the quality of earnings isn't good enough.
So we say the thing is when we haven't announced anything, what we don't publish is all the times that we've said, no, no thanks, no way. So no news on the acquisition side doesn't mean no activity. Maybe refrain from doing something wrong is better than is also an activity. But I think we can benefit from it to be direct math. I think we can benefit from this by increasing our focus, increasing and building a large number of lists of candidates and contacting more and having more dialogues and then just be active.
Okay. That was that. And then it's from Carlander . And that is to me, I think it relates to interest, cost, and intangibles. And the question is, how do you think about interest, cost, and intangibles amortization? Do you aim for net profitability at some point? Yes, I guess we do.
But the net interest, currently we have, as you know, a bond loan of NOK 500 million outstanding. It runs at 3-month NIBOR plus 600 basis points. So currently that is around 10%, good 10%. And so that is NOK 12 million per quarter or something like that. And so that is what it is. When it comes to amortization, we tend to focus more on the net profit, yes. But again, we're more cash-focused than accounting-focused on that part. So cash EBITDA minus interest, costs, or net financials is really more of a focus than net profitability. The other side of that is that you see we have a limited tax exposure in Omda. And we think that will continue for a good while. We changed the amortization schedule last year after a thorough research and a report made by BDO.
We increased the amortization schedule and linked it more tightly to the real lifespan of the assets. We have no plans to change or modify that. We think that will serve us well. So that will remain. Okay. There's one last question from Emilio. While we attend to that one, you can type in more questions if you have them. The last question from you is, you mentioned in the report that the EBITDA margin is impacted by part-time consultants. And are they related to LIMS? That was the first part of the question. And no, they are not primarily related to LIMS, Sverre. They are related to emergency.
Emergency, yes.
We mentioned the AI project last quarter, which is a very important strategic action to deliver software that actually helps operators do their work quicker, which might be a difference between life and death for a patient. So that is still going on. And that's partly with external people from the University of Barcelona. So that is partly the increased personnel that we have hired and will, after this first half year, will not be there anymore. So it's not LIMS anymore. And as you see, since you mentioned LIMS, you will see that you partly see from the organic growth there that LIMS are gradually getting paid for all their efforts over the last couple of years. So the trend there is good as well.
The trend on LIMS is good.
You will see that on page 15 in the report that is published, you will see the breakdown on the business areas. You will see that LIMS is actually enjoying quite a high growth this quarter. But we also added a new column, as you may have noticed, the last four quarters to even out the quarterly variations. The next part of your question, Emilio, was the certification project. I think we addressed that one. But maybe so we're coming to an end of that project, aren't we, Sverre?
Yes, we are coming to an end. And also, I think it's more of a competitive situation, a good milestone past than a problem going forward. But it has been complicated, as you would know. All of our business areas, they have a lot of types of products.
All the processes around these products have been affected by this, meaning that a lot of our internal processes have been focused internally, that we now could start focusing more on the customer side and be more customer-centric focused and also deliver products that actually are MDR certified, which also, if you think about it, might have a better price, which is also accepted by many of our customers. That's the real fact, the historic cost we have had, and the quality of the products is meaning the value is higher for the customer. The discussion, the price is also easier when we actually have the certificate at hand.
The last part of your question, Emilio, was related to the OPEX level. Can you please share some details around the elevated OPEX level and expectations for the 2024 margins? First, the OPEX level isn't elevated.
If you look at the order cost, you see that it's actually down from both the first quarter last year and from the fourth quarter. So it's actually not elevated. On the contrary, and also if you take inflation into your equation, it's actually more reduced than it seems. So it isn't elevated. And on the salary and personnel, that isn't elevated either. It's actually on the same level as it was in Q4 if you adjust for OPEX. And as I said, related to Q1 last year and also add the inflation or salary adjustments, on average 4%, you see that it's actually not elevated either. It's actually decreased. And total cost is decreased by in current constant NOK or dollars, actually down NOK 10 million. So it isn't elevated. But we still think there are things to be done.
On the 2024 margins, we haven't made any and will not make any more specific guidance than we have. We have our target of 30%. That target remains. All right. And it's from Jonas, a similar question. So what are your expectations for 2024 since you were confident to reach 30% EBITDA margin on the Q4 call? Thanks, Jonas. Same thing there. Our target remains. But we think that the cost structure is more or less. There's all these things to do there. It's first and foremost related to the income side. I think we will see more increase in recurring revenue and new contracts kicking in. New streams will come. And also, as Sverre mentioned, we have higher ambitions for professional services. That is where the big disappointment was this quarter, was the professional services. We have higher ambitions. I'll be fair with you.
We have higher ambitions on that. That said, maybe we have guided on a proxy on COGS, salary and personnel, and order cost 5, 50, 15. Maybe there will be some changes between these groups. Maybe COGS and order cost will be 2%-3% less and maybe salary and personnel a little more. Maybe there will be some internal distribution there. But the 30% target margin absolutely remains. Okay. There's one more question. That's from Carl and Kanger. Again, if you have any more questions, type them in. We'll attend to them. This question from Carl and Kanger is really an easy one. Are the buyback plans still in place? Yes, they are. We had a general meeting a couple of weeks ago. It was decided by the general meeting to buy back more shares.
What we can do also related to the updated bondholder agreement, we can have a total of NOK 50 million of our own shares at any one point in time. It's a revolving facility. So if we spend some of it on acquisitions as partly settlement for an acquisition, we can do a refill. We currently have 20 million of our own shares bought back, which means that we can buy up to NOK 30 million worth of shares. And so, yes, the plans are still there. And so we can execute on that. All right. That was the last question. Let me just give it 10 seconds to see if anything more pops up. But again, while we wait, just remind us all that there will always in a business like Omda's be some quarterly variations.
The good things like the license sales and not to forget the recurring revenue and the annual run rate. We like to focus more on the run rate than the actual number for one quarter. More than NOK 300 million in the annual run rate is very good. Again, there will be some quarterly variations. Don't lose too much sleep about it.
Okay. There seems to be no more questions. We hope you have enjoyed this presentation. Tune in again on August the 23rd when we will present the results for the second quarter of this year. Until we meet again, take care. Enjoy summer. Days are getting longer. As always, stay safe.