Good morning, and welcome to Carasent's earnings report for the first quarter of 2023. My name is Daniel Öhman, and with me I have our CFO, Svein Martin Bjørnstad. We will start a little bit with the highlights of the first quarter, then we'll do a business and market update, and finally, we'll do a financial review before going to questions and answers. Starting with the summary of the first quarter, we had a revenue growth of 34%. This is of course both the organic part and then it's the acquisitions of HPI and Confrere. The organic part was 16% in the quarter, and this is really our focus going forward, and I will discuss that later on in the presentation. During the quarter, we signed 27 clinics for Webdoc in Sweden. This is in line with previous quarters.
The average clinic was a bit larger than usual, meaning that we had decent sales during the first quarter and better than the same quarter the year before. We continue to have a strong balance sheet, and after the first quarter, we have implemented a change of focus for Webdoc and a cost savings program, both which I will discuss within short. From the last quarterly presentation, the one for Q4, we discussed these three areas of near-term focus. We've done quite a lot on those, I would say. I would like just to update you all on that. When it comes to business focus, we, as I just mentioned, we have implemented the cost savings program, and we have almost finalized all parts of that cost saving program.
The final parts will be done by Friday, we expect. That's reducing our costs quite a lot going forward. What's also important to know is that we still manned for expansion and for investing quite heavily into our products. It's not a slimmed down organization. It's an efficient structure, but built to build upon, and which do not need to grow when our turnover grows. We also have a much larger internal focus on financial performance, and it comes quite natural from cost savings program. Everybody think about how can we avoid being here again? What do we need to do in order not to end up in the same position again?
Going forward, we'll have a strong focus on the internal and financial performance and regularly update the entire organization and make sure to drive all parts of the organization align those, along those lines. A absolute key for a company like ours is working closely with our customers. It's both for sales, but also for the development of our products, of course. An example of what we've done is that we have customers taking part in our town halls. We have exchange programs, where about 40 developers will visit real clinics during the year. It's been very appreciated both from the customer side and internally to really, to both sides understand each other better, and that our developers really get to see hands-on how are our products used and what are the possible areas of improvement.
We also have been looking at our organizational structure to make sure that we have clear lines of responsibility. Now each product is its own profit unit to make sure that we lower the complexity within the organization and can drive each part of the business. Naturally also we have adjusted accounting structures to follow that logic. We also have a new management team for Carasent, which is a slimmer management team, which then can focus really on the overall value creation of Carasent. When it comes to strategic review, we have come to a number of conclusions. We will focus Webdoc on Sweden. Webdoc X is the system which we'll really take international. We close down the project Webdoc for Norway.
I should also mention in this here that we have delayed the capital markets day until the third quarter of this year instead. We want to make sure to really have time to do the internal changes we want to do first and to really be able to focus internally. We'll get back to that during the third quarter. The reason why we made these strategic changes is when we look at the markets in Sweden, the present TAM we have is around 800 million SEK with no obvious functional gaps. We can of course always get better at certain points, but overall, there's no obvious functional gaps. We are in almost all instances, the best choice for a private care provider, and those are the only one that are included in this 800 million SEK.
There are an area which we call Region Stockholm and Södra, which are actually two areas, where we do not have the full, we do not fully support our customers. We have some customers in these areas, but there are 0 to 12 months or up to 12 months development left to really support these customers and to drive sales, compared to a smaller market in Norway and 24 to 48 months remaining of development. Even if there's ups and downs with every choice you make, I think it's a quite clear choice. It's a larger market. We already had the operations in place to support that market. We have the reputation in place. There is less development need. Crucially, we have Webdoc X, which is meant to go international and which is much easier to adapt to an international setting.
That's the background for the choice we made and I feel very confident about that choice. Going forward, we now focus a lot on developing sales. Today, almost all our customers in all our products, they are the one reaching out to us saying that we want to buy your product. That's of course, a very good position to have. We want to increase those volumes, of course, by improving reputation, improving products, and so on. I also think we can do quite a lot with marketing and to really work like a more normal SaaS company in that sense. It's a bit slower processes than for many other products, so it will take time to make the changes. Even if we are successful, it will take time for it to really run through.
From the start of a discussion, that is at least six months before we actually close a deal, and before they start paying, it's even longer. We think we can do a lot with the outbound marketing based on product features, based on the type of products we have, based on how easy it is actually to change products, and so on. We want to implement a CRM system to support those processes. In general, we now have the structures that we need to work within. We have the management in place, we have the accounting following that in a clear way, and everyone knows what's expected of them. Now it really comes down to continuous improvement in all parts of our business.
If we do this properly, it will translate in high sales, higher efficiency in development, pricing power, and so on. We'll base this work on a number of different KPIs to make sure that everyone knows what to aim for and to really translate our strategic plan into a number of OKRs. Strategically, we now start looking at the M&A pipeline. There's a lot of interesting opportunities out there, where we could be a really good owner and where there are a good strategic fit, both in our home markets, but also when taking Webdoc X international, we need M&A to support that.
We are also looking hands-on on the entry market, the market entry strategies for Webdoc X, through visiting a number of countries and really sitting down with doctors, nurses, and so on, seeing what systems they use and in what way to make sure that we have the absolute best system possible and we have a good way of going to market. With those words, I will hand over to Svein Martin.
Thank you, Daniel. Starting off, looking at the key highlights of our financial performance within the quarter. We had revenue growth of 34%. We had organic growth of 16%, where recurring revenues grew 13% year-over-year. Our net retention was 107% in the quarter, EBITDA margins 8%. Ending the quarter, we had annual recurring revenue of NOK 219 million. Our revenues continues to grow rapidly. We had NOK 60 million in revenues compared to NOK 45 million in the first quarter last year. Looking historically, we continue to grow our revenues quarter after quarter. We have a strong position in an attractive and growing market. That gives also many opportunities for further growth.
However, rapid growth on many levels, including these expansion initiatives and acquisitions in that has been done in future growth, has taken a lot of focus, as mentioned, and affected profitability. This is the reasons behind the trend in margins that we see on this slide. The goal with the measures we are now taking is to continue to grow our revenues as we are doing while at the same time start to demonstrate the scalability in margins and cash flow. Net retention rate was 107% in the quarter. This is slightly lower than what we have posted in the last few quarters.
The main difference here is that some customers has had reduced activity levels in terms of patients, particularly vaccination-focused clinics. Our volume-based pricing model causes this to our revenues to decline and in addition to the variable add-ons that we have talked about previously. However, we continue to see that our products are highly sticky with a very low churn, and there is a strong potential that remains on the existing customer base. When we now focus more on the home market, we also expect to bring a lot more value to our existing customers, which in turn will enable upsales. New, looking at new customer growth, it was 6% year-over-year. This is the key driver for long-term growth.
Given our product's reputation and the market share of, for example, less than 10% for Webdoc, the potential is definitely there. The steps we are taking now with new functionality in Sweden and an increasing focus on sales, is with the aim to increase our market share. As mentioned, profitability and cash flow has trended downwards over the last year, affected by a growing cost base, and we initiated a cost savings program after the end of Q1, where we aim to address this development and improve cash flow. We believe that we will come strong out of this program, with an organization that is strong and maintain the capacity for developing new solutions and grow in the long term.
Summing up the cost savings program, expect savings in the range of 35 to fill it to 40 million NOK on a yearly basis, primarily related to capital expenditures. The majority of savings will include personnel costs, including employees and consultants. The total cost of the program is estimated around 4 million NOK, and this will be booked in the second quarter. The program was initiated in April, and most of the savings will be realized by the end of the second quarter. All of the savings in the program will be, is expected to be realized by the end of Q3. With that, we can open up for questions. We have received a few questions here from Mark at Redeye.
First question, adjusted EBITDA is minus CapEx is still negative, it seems, after the announced cost savings. When do you expect to be cash flow positive again, and how do you view margins going forward? I can take this one. It that is correct. We haven't given that we haven't provided any guidance on this, we can't be too concrete on the near future. The cost base we have in Q1 is basically the run rate. We compare the cost savings again, we will be very disciplined going forward in terms of cost, while at the same time trying to scale or grow revenues. We will grow into our cost base.
We still have kept a lot of capacity to enable future growth.
I think it's important to mention the cost savings program was not about improving cash flow the most at this point in time. It was really to strengthen the company over time. We are left with the capacity as least as big as before, I would say, for development and to really build for the future. I think that's important. That was the aim with the program. It has to be more efficient, continue to aim forward and not now.
Yes. Next question. Daniel, maybe you can take this one. What are your plans with the Confrere customers?
We've been developing our own solution, which is called Vårdrummet. Vårdrummet is a tightly integrated patient engagement tool for Webdoc. We've been developing that, so it can also serve as a standalone product and which will replace Confrere as a technical solution. The first pilot is to be launched in a week or two. During the year, our aim is to move all customers to our own platform.
Next question. Could you expand on your plans with Webdoc X? Is a launch in the UK still on the table in 2023? What segments are you targeting?
Yeah. Webdoc X, it's important to say it's already used by Mindler in a number of countries. One of those countries are UK. It is up and running. There are a couple of countries which are really, really interesting for us, where the need is good. The hands-on visits at location I think is key to really decide on where to start first. UK is a likely area. We really want to just make sure that we make the right decisions. When it comes to segments, we will start with the simpler segments, move up to more complex segments as we go.
For example, we will not be able to have prescriptions from the start, its psychologists, physiotherapists, and so on are an good starting point. Over time to move to more complex customers where the willingness to pay is higher than with lower complexity customers. Webdoc X it's been built as a very complete system. It should really be well paid by customers, and therefore we need to have the more complex ones.
Great. Next question. Given the change of focus, to the Swedish Webdoc and more focus on sales, when could we potentially see a difference in the customer intake as a result?
Yeah. There are a couple of things we do to improve sales. A couple of examples of them is just being there, being close to customers. They feel that we have their back, that the system is up and running fully. We have had much less downtime on the system the last couple of months, which is really good. Very little downtime, if any. We work on how the sales process looks, and then we add also functionality. There's quite a lot of different things we do to improve sales over time. I think the first part is what could start improving sales. The first study is being really close customers and being out there, and they see that we focus on Sweden. We are not.
A couple of customers felt a bit forgotten because the focus was so inter-international and acquisition based. I think that would translate into sales the first. It might not be the ones that move sales the most, though. It takes somewhere around half a year. It's different with each customer, of course, but around half a year from an initial contact to contract signing and then more before you start paying. I would say it's at least half a year away.
Great. Have you noticed any change in the large clinic segment? What would make them start changing their EHR systems again?
I think that an important part there is to start with the surgical part. In general, clinics having surgery are larger clinics, so that would really help us drive that segment, I would say. Also going into Stockholm and more, there are much larger part of healthcare is run by private providers, and some of those things are really big. Outside of Stockholm, there are more smaller clinics, I would say. That's those parts will help us. Yeah.
Great. Next question. What is your comment on the net revenue retention? Are the buying patterns the same, or have you seen any changes? Why was it lower in Q1, 2023 than in Q4, 2022? I can take this one. There are two main reasons for the development. The first is... Or I mentioned both of them in the presentation, but the first development we have seen during last year is that some customers have reduced their activity levels quite dramatically. And given that we get paid by the number of patient visits in terms of the Webdoc license, this has caused a revision downwards of the Webdoc license that we see the effects of in Q1.
Also that factor with the variable add-ons, the SMS and other variable add-ons that has seen a slowdown over the last year. Those two factors are the main reason for the development. I don't think there are any changes fundamentally in terms of buying patterns or churn. We still have the potential. We just need to continue to deliver more value to the existing customer base and work more structurally with the upsales as well. Next question. You had a guidance last year. Will there be any guidance for 2023 or for the next couple of years? Why or why not?
Yeah. We are doing a bit of a restart, I would say, for the company and the group. My aim was to have financial goals at the Capital Markets Day, that's why also we delayed the Capital Markets Day. We want to make sure that we have a proper restart. Do everything from the ground up and do it properly. We'd rather take a little bit longer and do it the right way than hurrying things. Yeah, we will come back to you all with financial goals, but it will be during the third quarter.
Next question. Could you expand on the increased ARR and the different components of it? Yeah. The ARR had the organic growth similar to the recurring revenues for the quarter of the 13%. The break that organic is to what we showed in the slide on from the existing and new customers. Acquisitions was the remaining part of the growth. We have some questions from Anelia at DNB. First question was regarding net retention. I think we addressed that. Next question, recurring revenues. Recurring revenue growth was down in Q1, 13% compared to 15% in Q4. How do you expect this to develop going forward? Understand it takes time for new sales activity to materialize on the P&L, should we expect this to decline further?
I can start this. It's of course, a key focus for us to drive this upwards, but as you mentioned, it takes time. There are no reasons why this should develop or we don't have any reasons for this developing in more negatively. We work with this, growing this recurring revenue base organically as a key focus in the business. I don't know if you can say more than that. Next question. Any updates on Skåne and VGR? What is the feedback from customers in these regions? Are you seeing an increasing demand from these customers, or are they still waiting to see what is happening with Millennium?
It's not a black and white question. It's... We're selling in those regions. Those customers keep on buying. We would say that there is still some hesitation connected to Millennium among some customers. We're trying to really work through that in a number of ways. One thing is that we, yeah, we're running a lot of different projects to really push that and to push it together with our customers. I would still say that most customers really don't believe that they will have to go into Millennium. That was my view when I was on the other side, so to speak. I would say that most are there. In any case, they will not be able to move all their customers into...
Our customers, the patients, they will not be able to move all patients into Millennium because many of our customers have insurance patients, private patients and so on, and those are not, you're not allowed to put them into the public system. For example, some of my organizations, if this would go through, they would have to work in a number of different systems. A one for VGR patients, one for Skåne patients, one for private patients and insurance. Three systems within one single clinic. These are like ERP systems. You would have three different in one unit, and that's really not the realistic way of running a clinic. We'll see exactly.
I think also as you, as many of our customers would have to use multiple systems, we're looking also at different ways of them being able to just use Webdoc and then that we, through different techniques, can move the information between systems. This is also what we're looking at with Stockholm, with TakeCare in order to enable e-referrals. Still it's, it is delay, it's we would sell better if that wasn't, that decision wasn't there. We need to keep pushing on those questions. We are selling and customers are buying and are looking to change systems. If we could push that question further, we would improve sales, I think.
It's not black and white and will never be like, "Okay, this will not happen." It will probably never be that this will happen. It's unfortunately like that, but that's a lot of private healthcare is in that way. We've been living under the notion that large part of the parties really want to stop private healthcare at fully so. That will never happen either.
Next question. Do you consider start reporting on profitability per region or per product, assuming that some products will focus more on profitability, rather than accelerating growth going forward?
Yes. It's not something we have considered yet. We're very much focused internally and then, we can think more about our external communication. We start internally and do the changes needed to improve our, both profitability and growth and, our build for the future. We'll come back to our external reporting and the goals. So far we haven't considered it.
Okay. That was the final question.
Okay. I would really like to thank you all for giving us the time this morning. If you have any questions, just reach out at any time. Thank you all.
Thank you.