Physitrack PLC (PTRK) Earnings Call Transcript

Hello, everybody, and welcome to Physitrack's Q2 2026 Results Webcast. I'm Henrik Mollin. I'm the CEO and Founder of Physitrack, and I'm joined today by our CFO, Matt Poulter. Let's get to it. We will give you a little snapshot of what worked and what worked less well as a start of it. And then we'll look at the 2 business divisions. Matt will take you through the financials in more detail. We'll also cover the share buyback. We're going to wrap up with strategy and outlook, and then we'll move into Q&A. And as usual, submit questions at any time using the Q&A function at the bottom of your Zoom panel on there. Now let's go Q2 snapshot some interesting developments. So revenue was up 8% year-on-year, 6% quarter-on-quarter compared to Q4 2025 were up 10%. Revenue reached EUR 3.4 million and 96% of that revenue comes from subscriptions. And -- that is, as you know, the gold standard and what we do in software, predictable, recurring revenue flows, and that's almost all of what our business is built on. Life Care revenue was up 11% year-on-year to EUR 3.1 million. Life ARPL, which is the average revenue per license increased 10% to EUR 189 per year. That's important because we're increasing the value of every customer relationship and we're adjusting pricing only, which is great. Wellness continues to move towards profitability. Adjusted EBITDA was EUR 170,000. Profit after tax from continuing operations came in at EUR 49,000. There also some really important milestones. The biggest 1 was in the U.S. We launched RTM. We now have our first paying customers live and the active leads that we're pursuing here are closing in on 100 of a customer base of about 600 main customers in the U.S. And on top of that, we announced over really nice enterprise wins that you've seen through our press releases, and there is some really, nice movement here. Looking at what slowed a little -- adjusted EBITDA margins came down slightly. That's entirely because of planned investments sales and marketing, mainly building up the New York office with more salespeople. Adjusted EBITDA less CapEx also came down temporarily because of the RTM development work that we've been doing, but nice investments there, and it's already paying off. Free cash flow for the quarter was negative because of a settlement relating to a supplier relationship that dates back to before 2018. It's been hanging over for a long time, and there's great to put that behind us now. Operating cash flow, however, remains positive and that's now 7 consecutive quarters of positive operating cash flow, and we're very, very happy with that as well. Annual recurring revenue now stands at a run rate of EUR 13.6 million. We're also a much leaner organization. Today, we have 33 employees a year ago. We had 71. It's a very different company, modernized. We've adopted AI across the business, we simplified the organization and we've exited operating physical clinics ourselves. All of that makes us a much leaner and meaner business. Looking ahead, we expect the CapEx cycle to moderate during the second half of the year as the RTM build is now largely complete. All right. Some financial highlights from the quarter is rehashing revenue for the quarter was EUR 3.4 million, 8% up year-on-year, so you expect quarter-on-quarter, 10% compared to Q4 2025. Adjusted EBITDA, EUR 1.2 million. Group ARR reached EUR 13.6 million. Free cash flow from continuing operations, positive at EUR 0.1 million. That's our seventh consecutive positive operating cash flow quarter in a row. The SaaS gross margins remain very strong at 9%. Let's take a look at Lifecare, revenue up, as I said, 11% year-on-year. Churn remains at 12-month look back, adjusted EBITDA margin set at 50%, equivalent to EUR 1.6 million, adjusted EBITDA less CapEx was 25% or EUR 800,000. You'll notice that the license base dipped slightly during the quarter, and that was mostly intentional. We parted ways with the legacy customer in the U.K. that generated very, very low margins. That's an agreement that I think we came in 2017-2018. And it simply was in a contract we wanted to continue servicing, what you can also see is some real nice movement in ARPL, so again, serving a higher value customer base we implemented our planned price raise in April. Churn following that increase has been extremely low. So in fact, it's been the most successful price increase in the company's history. It gives us a lot of confidence in our pricing power. We still believe the platform is undervalued relative to the value of our customers getting from it and customers tend to agree looking at core KPIs. Turning to wellness. Revenue contracted 14% year-on-year. Some of the reduction in contracts was planned as we exited lower-margin business that were done by the legacy team behind Champion Health. Some contracts also simply came to an end of their term. Annual recurring revenue stands at EUR 0.9 million. Adjusted EBITDA margins have improved to 30%. That's being wellness much closer to the group's long-term financial targets. Adjusted EBITDA less CapEx margin improved to 11%. And we've also achieved a very nice reduction in operating expenses, and that's largely the result of closing the Champion Health Plus clinics and moving entirely to outsource clinical delivery through our Nexa partnerships. And today, we're really excited to not have any hands on clinic operations ourselves. We've completely exited that. We're focused entirely on the software platform, clinical deliveries handled through partners and has a much leaner structure it's a much more simple operating model, and it's a much more scalable business. priority now is rebuilding growth momentum from that stronger foundation. All right. Looking ahead, execution priorities, sorry, for the business slide here, but there's a lot going on here. Our ports are very clear, though, North America as a natural point of focus, the build-out of the New York office where we are today continues, and it's really exciting. We have some very hungry people on the ground here, and we're continuing to expand the commercial team, we're also adding more product capability in New York. And it's so important for us to be close to the American market. And that's not just about the commercial aspects of it. It's for the product aspects of it as well because health care providers here, they're ahead of the game of their international peers. They have different needs on consumers. They are really rely on top of what they want from UI/UX because the latest underwater innovation reaches ahead of time from anybody else around the world. And so we want the product teams close to that market so we can respond faster and be ahead of the game. So moving over to RTM. That continues to be a really exciting opportunity. As I mentioned, we're closing in on a triple-digit pipeline of RTM opportunities. I think we're closing in on hundred of those within the existing customer base. Very important point here, we're not entering North America from 0. We're actually growing inside of an existing customer base that's already generating a couple of million of revenue. So we have a very significant opportunity to increase that revenue per customer through upselling and we don't have to build everything from 0, which traditionally is very, very expensive. On the capital markets side, we continue working towards a U.S. parallel listing through OTCQX. We are just waiting for market cap qualification levels. We've seen a lot of interest from American investors, thanks to the work of our Investor Relations team, the entrepreneurship culture here in the U.S. makes Track is a very interesting company, and there's a big history with market cap investing, thanks to the American Stock Exchange and other outlets. We're just moving towards this as our market cap grows. And once that happens, we'll move ahead with our parallel U.S. listing. So American investors can actually just press a button and buy this track or as, now on the product side, Tim, of course, has been live in production since June. We've also launched a unified enterprise bundle for the U.S. market that combines home exercise programs, RTM and continued indication that puts us more directly alongside providers like Medbridge when we're competing for enterprise customers. motion capture, another really important part of the strategy. So as reimbursement requirements become increasingly data-driven, providers need much better patient monitoring to prove they're actually working with their patients in a particular way. So motion capture gives us another meaningful opportunity to provide that and to increase license value across the U.S. customer base. So from a financial perspective, we'll maintain really strong margins while continuing to invest for growth. And of course, again, even consecutive positive operating cash flow quarter speaks for itself. The numbers we saw exiting June were extremely encouraging, both growth and margins have improved drastically, and that gives us confidence heading into the second half of the year. Now finally, down their bottom right, wellness has now completed its reset into a pure enterprise SaaS business. No longer are we involved in physical care delivery ourselves. Everything is done through partners through the Nexa system. And that leaves us with a much leaner cost base, much more scalable business model and a company that's firmly profitable. So overall, we're very encouraged by the first half of the year. We're looking forward to building on that momentum in the second half of 2026. Now with that, I'll hand over to Matt to walk you through the financial results in more detail. Matt, over to you, sir.

Thanks, Henrik. So looking at the Q2 2026 financial summary. Starting with the summary table, revenue of GBP 3.4 million against GBP 3.2 million a year ago, which is up 8% and then 7% on a constant currency basis and 6% ahead of Q1. It's also worth looking at this on a 6-month year measured against Q4 last year. Revenue is up 10%. I put that alongside the year-on-year number, not instead of that because for a subscription business like ours, revenue builds up progressively for the base rather than than arriving in 1 step. So that sequential trajectory is a genuine read momentum, not just a big number to quote. Adjusted EBITDA of GBP 1.2 million is down 3% year-on-year at 34% margin against 58% a year ago. that margin move is planned investment behind our U.S. expansion strategy, and that's not down to cost inflation. And I'll come back, I'll touch on that exactly why and how we hold ourselves to account for it when we get to profitability in a moment. Free cash flow in the settlement was GBP 0.1 million. That's our seventh consecutive quarter of positive underlying cash generation. And I'd like to add 1 point of context here. Of course, the cash flow can move around with working capital timing. That's normal for a business of our nature. But generating cash every quarter is an ambition that we hold ourselves team, and 7 straight quarters that ambition being met through executed planning and not just by chance. Now on the semen itself, Free cash flow was an outflow of GBP 0.3 million on a reported basis, and that's entirely attributable to the final payment of a legal matter stemming from a supplier as contributing to the business way back in 2018. I'd underline that -- this is a long-standing historical matter, which has been disclosed for many years in our annual report and is unconnected to any current supplier or trading relationship. And now it's finally resolved with net other expansion. And I'd just like to reiterate and confirm but there'll be no further cash outflows in relation to this. Next slide, please, Henrik. Now let's look at the consistent quarterly revenue growth -- this chart is the best single picture of the business. Revenue has compounded in almost every quarter since 2021 from GBP 1.4 million to GBP 3.4 million. A compounding business is not a step change, one, and Q3 2026 is a new course and of the previous week and thank you. Understandably, Lifecare has driven the great majority of that growth and wellness, as you can see from the shrinking band is now smaller. But conversely, it's a profitable business following last year's restructuring. And that's a deliberate strategic choice. Underperformance -- next slide, please, Henrik. Now we'll turn our attention to profitability. On profitability, the headline is simple. Our adjusted EBITDA margin has now held at 34% or higher for 6 consecutive quarters. So this is a durable, it's not one-off. I also don't want to pick up on the margin move a fact a moment ago because this is where it belongs alongside the investment in funds. Now that spend is predominantly North America and in RCM, and we front-loaded that by design. We're investing now to increase the velocity of which we ship in products and features. And those costs don't scale with in their fixed development investment, not a variable one. It's bigger than RCM alone. We're deliberately building a broader feature set that goes beyond remote monitoring to address the full range of what physiotherapies need from their platform, and what the expand revenue both for our in user base and forest we bring on. The market is moving at such a rapid pace to lead it. We just keep pace with it. Our medical device status in the U.S. is a real durable at text. It's a regulatory bar that's expensive and slow for any new entrants clear. As a features launch, revenue expansion and bringing new business, we expect them to be offset by the revenue that they generate. So these margins are not going to be carried indefinitely, and these costs won't be carried indefinitely, and it's not going to be a dropping margin. I'd expect this to be the area you want to rationalize closely, and that's rightly so. So let me be specific about how we hold ourselves accountable. We've medium-term EBITDA margin target of 40% to 45%. And we're conscious of our current 34% sector below that and closing that gap through revenue growth against a control cost base is exactly what we're working towards. Lifecare does continue to fund the group wellness is essentially breakeven on this basis rather than a drag. And the group total reflects this year's deliberate capital expenditure program. Next slide, please, Henrik. So the financial position in Q2 2026 please. On the balance sheet liquidity Cash of GBP 0.4 million is unchanged in Q4 -- in Q1 with GBP 4.3 million drawn on our revolving facility and GBP 1.3 million of available headroom Net debt is GBP 3.8 million, up GBP 3.5 million. And on specific about why increase, as we discussed, reflects the legal settlement and a facility drawdown and it's not due to top line trading. It's a one-off step, not a trend, and we expect net debt to come down over the remainder of the year as that one-off expenditure and cash outflow unwinds and the underlying cash generation continues. I'd also like to touch on the covenants as well. We have sufficient headroom or covenants despite the increase in net debt and the drawdown this quarter. cash conversion, operating cash flow of GBP 0.7 million is in line with last year. Free cash flow was an outflow of GBP 0.2 million on a reported basis. Excluding that settlement, it's GBP 0.1 million positive. That's now 7 straight quarters of positive underlying free cash flow. On cash and flexibility, our margin held at 34%. Net profit positive and cash generation continues to exceed operating costs. We remain in full compliance with our Santander facility in both covenants, a leverage test minimum cash and EBITDA test. And that compliance position is what allows us to conditions attached to the share buyback program, we touch -- or in a second, to be satisfied. And that brings us on the next slide, please, Henrik. So let's send our attention on to the share buyback, which we announced this morning. Essentially, the share buyback Peroba allows management to have now skin in the game. Through the long-term incentive program. And that long-term incentive broker is directly focused on margin expansion and sustained profitable growth funded without diluting a single existing shareholder. And now here's how is entirely non value. So shares were bought back from the market into treasury. It won't be newly issued shares and annual grants or size against those repurchases? Now because 2026 is a partial year for the program. This year's grant will draw down a small part on the 2027 share buyback repurchase versus the timing point, not a change to the funding bridge, but over next year, the grants are the realigned year-by-year with what's been brought back in that year. So we'll never have to draw down or reachieve another share. The awards were sized against independent remuneration benchmarking so nothing was set internally. Management doesn't actually see a single share until 2031. So it's a long way off based on a 3-year performance period. investing only at the end of that and nothing before. And then subsequent to that, there's a holding period. So the first exercise lands in 2031 and that expense across 2021, 2030. Vesting is automatic either, and the bar is a real one. It takes a number of 10% annual revenue growth. And just to unlock the quarter of the award scaling up to full vesting only for sustained 15% annual growth. And there's also an EBITDA underpin below that as well, which the remuneration committee can apply to reduce testing if profitability doesn't keep pace or in line with our medium-term targets. Estate or a committee is comprised entirely independent nonexecutive directors. So management has no available awards. There's also a shareholder for any mechanical benefit to because the shares set in treasury rather than being newly issued, they're excluding from the earnings per share count, while held there. So ahead of any transfer to option holders in 2031, the structure supports a car in the medium term rather than valuating it. On purpose and process briefly, which is not a return of capital to shareholders. Its purpose is to on the plan I've just described within the relevance safe harbor rules for employee share schemes frees out today's announcement. We expect the first purchase to commence in the coming weeks, most likely first week of August, and we're just waiting for a couple of statutory filings to be completed. At this point, it's an administrative process rather than anything pensive outstanding. That covers the financial results for the quarter. Henrik, strategy and outlook.

Christoph, thank you so much, Matt, right as is is true. So why are we positioned to win? Well, I is an important part of it. But of course, at the core, we are a clinic embedded SaaS platform. So we're deeply integrated into partition workflows, not a light touch tool. It sits inside of the day-to-day delivery of care, and that creates real switching costs. Once we're embedded in those ecosystems, it becomes operationally difficult to replace us, and that's where a big chunk of our man comes right and you see that clearly reflected in our churn, which sits around 1% on a rolling parent basis. And at our price point, that's a very strong signal to the market fits -- now if you look at the care and education proposition, we're not just delivering software. We are integrating continued education on physiotherapy content directly into the platform. So you have 1 single ecosystem that covers delivery, compliance and professional development. increases both relevance and monetization potential, of course, it gives us a clear path to expanding an average revenue per license, which strengthens our position in enterprise environment RTM, we've spoken about it a lot, but it is a step change in moves from being perceived as a cost center to be in the revenue generated from the customers, no changes in conversation. When you tie it directly into a provider's revenue stream, your importance in the stack increases, the deal sizes increased and retention strengthened further. Now from a business model perspective, I keep hammering home our 96% subscription revenue business, and that gives us a highly predictable and stable platform top rank from. Gross margins are around 90%, and that translates into a strong cash conversion over time. In line with our long-term model. And that is a business that's built to scale very efficient. At the same time, we're building very focused commercial labs in New York. So this is a global platform for oral -- now if you step back and look at the investment case, the underlying market dynamics are supportive. Of course, health care is digitizing providers are looking for scalable delivery models and reimbursement frameworks like OTM are accelerating our options. We are well positioned from an innovation standpoint and the more the time scale. In terms of financial goals, keep you trading. We're targeting a doubling of the company in the medium term, EBITDA margin is in the range of 45%. Based on the KPIs we are seeing, particularly on profitability and efficiency, we are well on the track on the margin side. Overall, a highly sticky embedded platform, multiple levers for revenue expansion and a scalable high margin. So a little summary, we are ready for Q&A. So please use the Q&A function at the bottom of your screen, and we'll take your questions like -- thank you so much for this side. with Q&A. Let's see if we can get marked in the room as well on second, right. So as usual, you can ask your questions by the Q&A function at the bottom of your screen to stick a little yes, we have a few questions. Grab a cup of coffee, sip water and off to the races. Okay. Adjusted EBITDA held at a 34% margin, but adjusted EBITDA less CapEx compressed to around 9% at group level, on higher U.S. and RTL/AI investments. When does this investment cycle peak and what is the path back towards the 4 medium-term target? Matt, do you want to go to that one?

Yes. So I think we've now absorbed bulk of the U.S. and the RTM investment. We've been in the states, New York now with the office for around 6 months. And obviously, that involves in front-loading of investment. And I think the run rate that we're now up is what we'd expect to carry forward. Obviously, there might be some increases in that as new projects new investments come along. But we're not expecting that now to be a step but up as we start expanding further. I think really now our primary driver for that 40% media margin, it's going to be through the revenue growth. So we frontline that investment now. And then we now expect the revenue to come through towards those costs and then expand those margins further. So we're expecting the margins to progressively build over the medium term rather than trying to pair back in the.

Thank you, Matt. You announced a non-dilutive buyback that funds the new LTIP from treasury shares with net debt of EUR 3.9 million and EUR 1.7 million of liquidity. How do you balance buyback deleveraging and continued U.S. investment and is the intended EUR 25,000 per year strictly sized to the plan.

So I don't think these are competing tools. In finance, we have follow-up what we call fiscal rules, but we run a formula where any excess cash that we generate is applied to pay down a facility and investing in valuations within the business. we weigh that 4 minutes towards derisking and deleveraging the balance sheet bring down that debt. I just point out that net debt was temporary elevated this quarter, as you've seen through the repayment of the legal settlement, EUR 1.3 million. And we're expecting that now net debt to fall and our cash generation to increase over the coming quarters. I'd also like to stress as well on the buyback itself, this whole thing is structured. So it's going to be non-dilutive and our attention to start both this year and the future years. The article at is never larger than the buyback funding it. So the treasury share mechanism doesn't get the existing shareholders. $250,000 that's the intended annual sizing at the moment, and it's silica to protect that on valuation objective. Obviously, as the business grows and we generate more cash flow by that program may sound further. But as of today and at the moment in time, the count there is 250,000.

Thank you, Matt. You achieved U.S. medical device status this quarter, indeed, we did -- how big a moat is that? And how do your proprietary data and on AI models, defend it, guessing the Montano classification continues to evolve. Well, I'm sad to say that medical device classification is not really much promote. It is something that any company that can send time resources that we can achieve the biggest multi you can have is the pace of innovation and making sure that you deliver value to customers and that you have a nice building into their ecosystems. And some of these things are part of that. So having medical device data is important because that means that you can get adopted by a health care system and you can get it up by a customer that has very strict rules around what tech they use. And as you do that, that's the entry point into being built into somebody's ecosystem. Now data and AI, of course, this sits as part of innovation and that's something that that deepens a mold and that deepens the distance to a competitor. But these things are very much fast moving, and it is very important to respect the fact that innovation and product development needs to move really, really fast, and having a team that's always curious and that's always on the ball in terms of developing the latest and the greatest even things that your customers don't even know that they need 6 to 12 months before they actually do feel like the depot. That's the best month you can have.

I have some more questions. And thank you. There's some of the timing here, if you don't have time to address all the questions below the minivan. Thank you so much for that. We'll keep going until we have to bring any more right. Wellness. Is it really worth continuing to invest in the wellness business when the majority of its revenue comes from a single contract, and it appears to require a significant effort to move the needle. Have you considered whether the business might create more value under different ownership. So those are a couple of questions. So we are diversified in the book of business for wellness. So it's a fallacy to claim that revenues coming from a single contract. So that is not correct. We like having a revenue diversification across both our business lines. there's no bigger effort really to service big enterprise contracts inside of wellness. There are some reporting overlays that are more or less automated at this point in time, but it's not a big difference, between those things. Have you considered whether business would create more value on the different ownership. And I don't know if you mean specifically wellness for Champion Health or if you mean the business altogether, I think we have an interesting cap table. I would welcome maybe an industry owner to some of the parts of the the shares that are sitting with legacy shareholders now and legacy shareholders that are now will be connected with the business or the industry. So we be quite nice because that's something that you use to drive innovation, and open doors for commercial acceleration. And of course, if you can have experienced investors with a foot in really deep innovation in places like, since Valley or use Texas or someone like that, that will be really favorable to us. So we do welcome a shakeup of the cap table if anybody is interested in doing that. You state that you have around 33 to 35 employees, that LinkedIn's tested the number is significantly higher, what it expects the difference. We have a number of contractors and a lot of the relationships that we have legally with the business are through contractor relationships because it's -- there's more flexibility for us, the more flexibility for the contractor. And of course, it creates a favorable tax environment, and of course, if you want to part ways with contractors, then it's much faster to happen that way. And there are also some things around permanent establishment in certain regions where if you have employees, then you have to set up local entities and then to have to make the whole process quite combo. That answers the question. profitability versus growth. You've now demonstrated that you can operate profitably. Thank you for noticing.