Earnings Call: Q3 2020

Oct 22, 2020

So good morning, everyone, and welcome to this webcast for CareCentre ASSA and the Q3 results. My name is Johan Lindqvist and I'm the Chairman of the Board. I would like to guide you through the Q3 results in a few minutes. But before we do that, I would like to start with a brief recap of who we are, what we do and also a little bit about our strategy going forward. So CaraSant, our strategy is to invest in companies that has the potential to develop and expand digitization within the health care sector in Scandinavia. And as you might be aware of, we acquired Evaneria in May 2018. And I've had questions around this, whether Evimeria is the focus of the strategy or not. And I want to make it crystal clear that Evimeria is the fundament in the strategy going forward. Having said that, we might as well, when we do acquisitions going forward, have more companies and operational entities in the CaroCent ASSA structure. But we will not do anything that's not related or where we don't have synergies in the strategy and a strategic fit with Evinuria. So a few words on Evimeria and what we do. So Evimeria basically do 3 things. We develop, we sell, and we deliver a proprietary EMR system called WebDoc. And to that, we have approximately 70 integrated services, making it a full business critical system for the private healthcare clinics in today Sweden. We handle 470 clinics and serving them every day. And our clinics handle about 3,000,000 records per year. And to put that into perspective, the private health care market in Sweden handles approximately 35,000,000 to 40,000,000 records per year. So that gives us a market share of around 10%. We are 50 employees in Gothenburg and Stockholm with a mix of healthcare and IT competence. And last year, in 2019, we had revenues of SEK51,400,000 and that, of course, is a number for 2019. And as you will see during this presentation, our run rate as of now is more in the €70,000,000 range. So what's the strategy for continued and future growth? As I said before, Evimeria is the fundament of the strategy. Evaneria has a scalable and proven track record, and we also have an organization that can be leveraged in many dimensions. When it comes to our growth strategy going forward, it's basically about 4 things. Of course, we will continue to grow organically in the markets that we're in today. Today, we address 4 different segments in the Swedish market. That's primary care, it's specialist, it's paramedic and it's occupational health care. But we also see great opportunities to free other dimensions in terms of new geographies, new segments and new products and services. And we think we will be able to do that both in an organic way, but we also see greater opportunities to do some acquisitions to support this growth strategy going forward. We have a history where we, for the last couple of years, have grown our customer base with approximately 30%. That leads us into a revenue growth of 40%, and we have also been able to scale our platform with the EBIT growth of 50%. This is historical numbers, but our internal target is, of course, to continue on this path. I will come back to later a little bit around how we can do that and how 30% customer growth will lead into a 40% revenue growth and a 50% EBIT growth. This is not a guiding, but it's internal targets that we live with every day. So now over to the Q3 2020 results. I'm going to start with a short overview and a few highlights of the Q3, then going into some performance measures in financials. And we will also end this session with an outlook, what we think about the future and what we intend to do. And we will finally, of course, have a Q and A session. And I think that you can already now put in your questions, and I will try to answer them at the end of this presentation. So Q3 2020. We had a decent quarter. Evaneria delivered, in my opinion, as expected. We had revenues of SEK 17,200,000, which represents an increase of 37% compared to Q3 2019. The EBITDA was €7,200,000 as compared to €4,400,000 in Q3 2019, and the EBIT was CHF5 1,000,000 as compared to CHF3,400,000 during Q3 2019. We also signed 23 new clinics during the Q3, and we ended the Q3 with 470 active clinics. When you look at the Carisent numbers and the consolidated numbers, revenues was 17,700,000 as compared to SEK 11,600,000. And as you can see, we have a quite large FX effect between the NOK and the SEK over the years. And including expenses for changes in some fair value of the previous issued stock options, we also had a net loss in Carocentre ASA of SEK 9,100,000. And just to remind you that we have the option to not dilute the number of shares, but instead paying this in cash if we want when the program ends in 2022. So we have to handle this over the P and L. But then, of course, if we decide to dilute the 2,000,000 shares, this will all be reversed. We ended the quarter with a cash balance of CHF 12,300,000, but we also have a short term receivable of DKK 287,500,000 related to the share issuance that we did in September. So basically, we ended the quarter with $290,000,000 in cash. So what about the market in the Q3? The market situation has stabilized further during the Q3. As you might recall from the Q2, we had some big decreases in customer activity. And in April, activity was down to maybe 80% on normal levels. What we have seen during the Q3 is that almost all customer segments has been backed close to normal levels in September. There's still some uncertainty out there in the market and especially in the big cities in Sweden, in Stockholm and Gothenburg and Malmo. At the end of September, we saw some outbreaks again linked to COVID-nineteen. So there's still some uncertainty out there. But as of now, the situation is stable, and we see almost normal levels in customer activity. Over the years or over the last year, there have been several consolidation and expansion opportunities that we've been working on. And to be able to execute on that, we carried out a successful private placement in September, which raised approximately $274,000,000 of net cash. So most important for us in our growth strategy is, of course, the organic sales engine. And during the quarter, as I said, we signed 23 new clinics, which represents growth in the number of clinics of just about 20%. We still see good activity and good demand for detailed service in our market. It's very strong. And if you look at the sales processes to smaller and individual clinics, they have progressed just according to plan or just above our plan. What we have seen in the second quarter and also in the third quarter is that the larger customer groups with a larger customer with more than one clinic, where we very often have face to face meetings, have had other priorities during this period. And that market is still not back to normal levels. Having said that, we have seen an increased activity among these groups. And hopefully, we can see an uptick in the number of clinics in Q4 of this year. So when it comes to the growth, revenues in 3rd quarter was CHF 17,200,000, dollars as I said before, which represents a growth of 37%. And our growth rate is not only depending on the number of new clinics that we sell, but it's also dependent on how our customer base actually grows since we have a transparent business model. If our customer base grows, we will grow. It's also dependent on whether they buy more digitization services from us. And we also have a mechanism in our agreement that increases prices on a yearly basis. So even though we have seen over the last year a customer growth in the range of 20% to 25%, We still see growth on revenues in the 35% to 40% range based on the organic growth and the digitalization growth and the price mechanism. We have approximately 80% gross margins. And if you look at the different revenue streams, the gross margins from the WebDoc license is close to 100%. And by definition, the gross margin in consulting is 100% as well, while we have approximately 55% to 60% gross margins on the integrated services. One more important thing when you look at the mix of the revenue streams is that we are an important part of our strategy is to expand the relationship of integrated services to build this big ecosystem for our customers. And the relationship is has been approximately between licenses and add on services has been 1 to 0.8. We saw in Q3 of 2020 that we, at the end of the quarter, were closer to 1 to 0.9. So that is also going in the right direction. Thirdly, of course, when you talk about sales and then you talk about growth, it's also important to see the scalability of the business. And we have had a history of scaling the business on an EBIT growth level of approximately 50% per year. And you can see that we did that in the 3rd quarter as well. So the EBIT growth compared to the 3rd quarter last year was 48%, and the EBIT margin stand alone in the quarter was 29%. If you look at the consolidated financials for Carasent, most of both revenues or all the revenues and most of the OpEx is related, of course, to Evimeria. What the differences between the EBIT in Evimeria and CaroSant is basically related to 3 things. It's an FX effect, which in the Q3 was minor. And then it's also the OpEx structure of Carasent, meaning the legal fees, the stock exchange fees, the board fees, etcetera, and the cost that we have to run a listed entity. We have previously guided that this is a cost in the range of NOK 1,000,000 per quarter, and that was pretty spot on in 3rd quarter. We also have a depreciation item in Karasanth, which is related to the acquisition of Evimeria, and that was €900,000 in the 3rd quarter. So if you walk the bridge from $5,000,000 of EBIT in EMEA in SEK, you end up with a EBIT of €3,100,000 EBIT in kerosent in NUC for Q3 2020. And as we discussed before, we also have this stock option cost that we take that gives us the opportunity to do a cash transaction on the stock option program when it ends 2022. So finally, a little bit about the future. So overall, I mean, I think it's become increasingly clear. And it's not only for this business segment, but for many segments that the pandemic as such will act as a catalyst for accelerated digitization and especially in the healthcare services sector. So far for Evaneria, the effect of the pandemic has been relatively limited. I think the biggest impact that we have seen is that delay in our sales processes to larger customers. Besides from that, I think we have handled the situation or the effects on EVIMIRIA has been limited. There's still uncertainty out there. We don't know how this situation will play out for the next quarters if we have new outbreaks linked to COVID-nineteen. But as of now, the situation has stabilized if you compare it to the Q2. Then of course, as we did that private placement in September, we are working with several opportunities in the market. We have a very long list and also a very attractive short list that we're working on. And we expect to execute on that strategy in the short term. I would like to put it just in the short term. I don't want to put a specific date, but we're working with a lot many opportunities. And I think we will execute on those shortly. So with that, I'm going to open up for some questions. And I have a question here from Matthias that says, what are your main competitors in Sweden? And is there something that they do better than Evimeria? And the other question is, how do you plan to start operations in Norway? So okay, so the first question, main competitor in Sweden is Compu Group, which is a German company, with their main focus actually on the hospital side of things, where we are not. But they also have a couple of systems out there for the private healthcare sector that we address. They have approximately between 30% 40% of the market today. The second question was how do you plan to start operations in Norway? And we have already started the Norwegian project, and I don't have any update on that other than what we said in the Q2 report that we have postponed that given the restrictions to travel back and forward into Norway. What we can say about Norway is that, I mean, that is obviously a country where we look into doing a potential acquisition. But we have already started to organically adjust our software to the Norwegian market. There's also a question from Christopher. Can you share some timeline and size of potential acquisitions? So I don't want to put ourselves in a position where we put out a timeline or a size of a potential acquisition. But I prefer to say in the short term, we will do an acquisition. And when it comes to size, I would say that what we would prefer is to do something to start with at the size similar to Evimeria. Couple of questions from Mark. In Q2, you said that the pandemic, to some degree, served as a catalyst for accelerated digitalization process, especially for services that enable remote visits? You also said that there were some spillover effects to other services. Have you continued to see this trend, especially since the ratio has gone up to 1 to 0.9? Can you expand a bit on this? Yes. So the trend is basically the same. What we see is a slowdown in traditional services linked to physical visits. And we see a ramp up of services that enables our customers to do digital visits. That's the most obvious one. Then there is a question of again around Norway. I think I've answered that. And then there is a question, have you seen an uptick of newly started clinics trying to take care of wards filled under. Yeah, so the depth. And that's a very fair and important question. So during the Q2 and also during the Q3, it's obvious that a lot of healthcare operations that should have been done wasn't actually executed from the healthcare operators because of COVID-nineteen. You delayed surgeries, you delayed different treatments, and that will come back. And the effect that we see of that initially is that there will be more private clinics starting up over the next year in Sweden. So we see it in terms of new started clinics that needs to have an IT environment that can support their startups. Okay. I think that was it. And that ends also the Q and A session. So thank you very much for your time. The report and the presentation will be both on our website and also published on NewsWeb. Thank you.