Welcome to CSAM Health Group's presentation of results for the third quarter of 2020. My name is Jennifer Goode, and I'm CSAM's Communications Director. Joining me today is Sverre Flatby, Chief Executive Officer, and Einar Bonnevie, Chief Financial Officer. A couple of logistics before we begin. This presentation is being made available on CSAM's website under the investor relations section, where you'll also be able to find our full Q3 report. A recording of this webcast, as well as a copy of the presentation, will be made available on our website later this morning. We will begin with a presentation of CSAM's third quarter highlights, followed by a more detailed review of the financial results. The remaining time is available for your questions, and we expect this webcast to last approximately one hour.
You can submit a question at any point during the presentation by simply typing it into the Q&A box, either beside or below this video screen. Please note, if you're watching this video in full screen mode, you won't be able to see that Q&A box. I'd like to thank you again for joining us today. Now it's my pleasure to turn it over to Sverre.
Thank you, Jennifer. Good morning, everybody. Thanks to all of you for joining us today. It's a pleasure for me to present our quarterly result, third quarter 2020. In short, it's a predictable quarter and increasingly profitable. I'm sure that all of you want to understand what's behind these numbers before we dive into them. We have positioned ourselves as the leading provider of eHealth niche solutions in the Nordics, and that is different from many other types of companies in our industry. We are not participating in big tenders and big installation projects. We are not focusing on primary healthcare or community healthcare. We are focusing on the specialist area, highly specialized workload processes inside hospitals. We stand there today as the leading provider of niche software in that area.
If you look at what are our products actually doing, and also in this quarter, it's a fact that why does our people, our employees, get up in the morning? Our software is actually very important to many citizens in the Nordics. Many of these software components are used by healthcare personnel in very important milestones in the life of a patient. Many of you and your friends, your family, will meet healthcare personnel that uses some kind of CSAM component when it's very important for you. Let me just explain to you then these types of software and some examples of what our business per third quarter this year actually consists of. To put it this way, these are most of them critical. We have made business out of them, so we have business areas.
One business area is medication management, and precisely this is related to cancer, and if you get cancer, you need sometimes medication. This niche software is actually doing very important processes around the treatment, around medication. This is a de facto leading software in the Nordics per third quarter this year. That is part of our extremely predictable recurring revenue stream. We have medical imaging. Medical imaging, the same there. It's highly specialized, focused on highly specialized processes inside hospitals, and it's not like big CTs, MRs, and things like that, but just related to specialized healthcare. Also there we have leading products like CSAM Picsara, that's helping a lot of different types of disciplines within hospitals. The third one, also important, you know that will be the most important milestone in every person's life.
When you are born, there's many things that are important because the rest of your life is defined through the pregnancy and through what healthcare personnels can help you with during that part of the process. Our solutions in the Nordics, that is also a leading Nordic software solution component set that helps healthcare personnel secure the best situation for a pregnant woman and for the child. Of course, as important, critical situation happens. There's a lot of types of software that helps people in critical situations. One example, in Sweden, we have the ambulance service. Most of the regions in Sweden are using CSAM components there for two of their user groups. One is the driver of the ambulance, which needs software to make sure that the ambulance gets there at the right time, the right place.
Then again, in the back of the car, of course, the guy that helps you, healthcare personnel that takes care of the critical patient, he or she needs a tool to register and make sure that when the patient arrives at acute hospital, that they know the same and that a couple of seconds could change the whole thing. Then, another very highly specialized and a Nordic leading software set is related to blood management and tissue management. That is, in many ways, also describing CSAM and how CSAM differentiates from other companies in our industry. This software portfolio has been developed for 50 years. That has been done through a lot of different types of experts around the Nordics, used many years to secure high-quality processes around these treatments.
From the thing you take from people that give blood or tissue into the logistics and process inside hospitals to use these products to secure the best treatment for patients in the hospitals. If you look at these are highly important. They are long-term software, and in our third quarter, these are present in almost all hospitals in the Nordics. The smaller installations, bigger installations, combinations of those are in the Nordics. That is our platform. The last part, connected healthcare, is a growing area for us as well, because as you know, almost all hospitals are different. They have different types of big systems, old systems, new systems. We have to make sure that our components are fully integrated with the current application architectures at these hospitals. To do that, we need connected healthcare.
That is very important and a growing area for us. Of course, it's also software, also recurring, and adds this as a complete platform for us as the leading niche player in the Nordics. This is really the content of what this is about. This is why we have these strong recurring revenues and the predictable business. We have made a business out of this, and what is really our business? Of course, these recurring revenue streams, obviously a very solid platform that we build our complete business on. Then on top of that, we have the organic sales. In our context, the combination of the two is very much like the sailing boat. It's organic sales to existing customers, so it's highly predictable, grow along the market growth. To grow further and faster, we have the speedboat.
That combination is important to understand when it comes to our business model. Our strategic M&As, that is how we have been growing 40% average for five years by doing M&As, but not any type of M&A. It's of course the same characteristics, highly specialized component that really means something to people. What is the third quarter 2020 actually showing you? That is the fourth box in the wheel here. Buy, integrate, and build. That is a very unique thing that CSAM has developed over many, many years. The third quarter this year actually proves that we integrate business and the margin increases. The margin expansion is a specific project-oriented model that we have implemented inside our organization. The combination of those four is actually what creates the good numbers that you will see in a minute.
Looking at the summary of this, the third quarter, before we dive into the numbers, our recurring revenues grow and our EBITDA margin grows. It's a fantastic combination and important for the business in the future. At the same time this quarter, we have added tools for us to secure that the speedboat has fuel because the bond, and with an additional tap, is an ability to continue the acquisition strategy. As you all know, a few days after the third quarter, we had the IPO and the combination of those two and the solid business gives us the possibility after third quarter to continue the planned growth that we have done the last five years also for the future. Now we feel it's a good quarter and it's a platform to secure that we can accelerate the M&A strategy years to come.
I'm sure you want to go into the numbers and it's a pleasure to turn over to Einar.
Thank you, Sverre. Good morning, everyone, and thanks for tuning in. My name is Einar Bonnevie. I'm the CFO of CSAM, and I have the pleasure of going through the numbers for you. First and foremost, Sverre was referring to the backbone of business, the recurring revenue. The recurring revenue in the software is steadily increasing. You can see from the first quarter of 2017 to now, it's increasing steadily, neglectable churn, and it's a fantastic backbone for bond investors, but also from an equity perspective on which to build an M&A machine. We have experienced very strong revenue development in the third quarter. The revenue increased 4% from quarter-over-quarter and 14% year-to-date compared to last year. Really showing the improvement in CSAM when we do acquisitions.
We didn't make any acquisitions in the third quarter, so what you see here is really the pure effect of the integration model that we have. While the sales increased, costs were going down, and as a result, the profitability increases, the EBITDA increases. You see a strong increase from the third quarter 2019- 2020, 26% EBITDA margin in the third quarter last year compared to above 30%, 31% in the third quarter this year. That's an increase of 18%. Even better, if you compare the first three quarters, the first nine months of 2020 compared to the same period last year, you see an increase from 20%-29%, so nine percentage points. A really strong increase in profitability. What you're seeing here is really the financial effect of the buy integrate and build model.
This is the integration part of CSAM's unique model that you see the results from. While sales were going up, costs were coming down and EBITDA improving, it's actually even better than you see at first glance. The CapEx was going down as well. CapEx in the third quarter was actually a little below what we have guided, and went down to below 10%. In that respect, you could say that the third-quarter results are even stronger than they appear at first glance. For the first nine months, you see that the CapEx is almost unchanged from last year. As again, it is coming down and the capitalized development is absolutely under control. CSAM is a very well-diversified business. Very little risk. We are diversified over in geography.
You see that Norway and Sweden is the biggest and most important markets, but also Finland and Denmark. We have some business outside of the Nordics, albeit limited. Diversified in geographies, in customers, number of contracts, but also on products and product categories. You see all six business verticals, that's very well true. They are contributing to our results. To sum up the quarter, one thing that you will see if you look closely at the quarters, at the numbers, is that there is some currency development that are impacting the numbers. You will see that the numbers and the financial income, you actually have a positive income in spite of lending costs. That is really a currency development that a positive agio effect that impacts us positively in this quarter.
You are also seeing clearly the effects of the synergies from acquisitions through improved profitability through this quarter. Through the bond issue, where we have a NOK 300 million bond issue with a tap issue of another NOK 200 million. The primary part of the IPO, we have refueled and we are now geared to continue to do acquisitions, which is really where we can grow and grow beyond the limitations by the organic growth in the market. In CSAM, we are careful with the outlook and guidance, but we will say this. The third quarter in this business and in CSAM is seasonally the weakest quarter of the year. In spite of that, you see that sales were increasing, costs were coming down, and it's a very promising profitability development that you are viewing.
While the third quarter is the weakest quarter and most boring quarter in the year, the fourth quarter is usually and seasonally the strongest quarter in the year. Of particular interest is the late sales. Last year, we have seen that the fourth quarter may be 15%-20% stronger than the third quarter. Also keep in mind that we have, through the acquisitions and through the optimizations that we have done this year. We have trimmed the organization, and by the end of the quarter, we are 167 employees, down from 177 last quarter, or excuse me, third quarter 2019, and it is corresponding to 164 FTEs. Most of these trimmings were performed during this year and is yet to take full effect.
With that, it concludes the walkthrough of the financial numbers, and now I would like to ask Sverre to come back up and join me for the Q&A session.
Thank you, Einar. I can see that we already got some questions coming in. I see some comes also there in Norwegian. I'll try to repeat those in English. The first one here is related to looking at our quarter and talking about our goal, NOK 1 billion goal in 2025. In the question here says that then the growth pace will have to be 30% year- on- year. Is this still realistic? That is the question. In general, yes is the answer, because the last five years we have been doing exactly that, and most of our growth has come from acquisitions, and that is what we have been doing, and that's what we have been planning.
In our view, based on the current organic business and the add-on processes we are planning through M&A, that is still the current plan and still realistic in our view. That is that. If you want to add something when it comes to financials on that, Einar.
I'll just add that the organic growth is really stable. What really will differentiate us is the acquisitions that we do. That is where we will really grow beyond what is possible to do organically.
The next question is also financial, Einar, related to our current year. The question is, it's possible to achieve NOK 240 million, and how would we describe the current M&A market? If you answer the first question, I'll go back to the M&A market.
We are doing what we can to improve sales. What you will see is that there are some effects, as I said, from the fourth quarter and late sales effect. That is where we'll guide you. Also, take a close look at the currency effects in CSAM, and they will give you, I think, the answers you're looking for.
The second part of the question, what about the M&A market? As we see it, the M&A market is still extremely fragmented. As you all know, we are the leading consolidator when it comes to this specific niche we have chosen, the highly specialized components. There are many of those in the Nordics, also many of those in the Northern Europe. We see it's highly visible to us what we are going to do the next five years when it comes to M&A. We look at the positive market trends within the M&A sector. Also, because one thing that we have in CSAM, a very structured approach to certification and industrialization of those type of components. Many of the companies are coming to us and want to join us to create a better total around these types of specialized solutions.
Yes, it's a positive M&A market. We have another question here. Do you see any impact on sales from the recurring coronavirus in Q4? That is a good question and an important question. I think our financials has not been affected by this, because what has happened really is more like a change in the income mix. One example could be a hospital rather prioritize that we help them with some changes in a system related to COVID rather than implement an add-on or a new version of a system in more general. We see more the change as a shift in income competition rather than an effect that is relevant. Yes, organic growth in Q3 without currency effect. That's a question for you, Einar.
The organic growth in Q3 without a currency effect would have been reported stronger. If, as some companies do, you would add the currency effect to the top line, you would add another NOK 6 million on the top line and improve the EBITDA correspondingly. The strong numbers that we have showed you, would have been even stronger if adjusted for the currency effect and move that, as many companies do, from the financial items to operational sales.
Yes, we have a question about multiples. What kind of multiples do you pay for your M&A targets on average? Einar?
We are typically focusing on EV/Sales multiples, as not all the companies that we acquire have a strong EBITDA or have strong financial results. We also differ a little bit if they have strong recurring revenues, or if it's less strong recurring revenues. So far, we have been within the one to two range on EV/Sales.
We have another question. How modern is your software stack overall, and are there any areas where you see need for improvements? Of course, when you deal with what we are doing industrially, we are focused on things inside hospitals, it has to do with life and death. To change software inside hospitals are huge processes. Often, it will take many years. In general, what we are doing is of course modernizing all our software over time, meaning that we will add things that customer orders as we go with added functionality. At the same time, we gradually increase, of course, the technology stacks, and we do things across niches. For instance, if you have a hospital that needs a single sign-on technology on one niche, of course, we reuse the same technology on another one.
That means we gradually have this transition to a better technology over time. Bear in mind, what is critical with this software is not the technology itself, it's the help the functionality is actually doing in quite complex medical processes. Another question, considering change of accounting principle to IFRS, pros and cons. Einar?
Yes, CSAM is currently consolidating its accounts according to NGAAP and for the various subsidiaries on local GAAP. The pros of IFRS would, of course, be that, one, it would be easier for international investors to compare CSAM results to other companies. Second, it would make it possible for us to be listed on the main list on Oslo Stock Exchange. That would be the obvious benefits as I see them. The cons, it takes a little time. It would be a shift in accounting principles. We will probably then continue to book on local GAAP and add the IFRS translation on top on the consolidated accounts. It will cost some money, it will take some time, but it will make it possible for us to be listed on the main list.
We have another question. Are you engaged in any advanced discussions with potential companies to acquire? I can understand the question. It's an important question. Two answers to that. One is, of course, that we will report any change or any news in this area according to the stock exchange rules. On the other hand, everybody knows what we've been doing the last five years, having done the seven acquisitions five years back. We are going to continue to do that all the time. That is the general answer to that question. When you show organic growth, what part of that is price increase? How much room do you have on the price side, Einar?
Very little this year is really price increases. Although in the annual recurring revenue, which is almost actually growing at 16% and actually faster than the total sales growth, there is inflation adjustment in almost all the contracts. However, this year hasn't been a huge inflationary year. Most of the organic growth is really either sales of new modules to existing customers, cross-sales, or extensions of some kind.
There's another question. In the presentation from September 26th, you had on slide 38 a graph showing growth in Q3 from Q2. Now it fell 10%, so what happened in the last weeks of the quarter? Einar?
I'm not sure I understand exactly Page 38 in a specific presentation, but hopefully you can answer that as good as you can. I'm not sure I have the picture of that view graph in front of me. Nothing really bad happened in the last weeks of the quarter.
On the contrary, it's highly predictable, as you know. If there's any other questions coming up, we'll answer them. I can't see there's any new questions, so I think that ends the Q&A session. I would like to thank you all for listening in, and I'm looking forward to seeing you next time. Thank you.