Physitrack PLC (PTRK) Earnings Call Transcript

Hello. Welcome to Physitrack's Q3 2026 Results Webcast. I'm Henrik Molin, CEO and Co-Founder of Physitrack and shoulder to shoulder for the first time, not an AI, I can assure you, I'm joined by Matt Poulter, our amazing CFO. So let's kick this off. We'll start with a little snapshot of the quarter, and then I will walk you through the business updates from our 2 divisions, Lifecare and Wellness. Matt is going to take the helm and walk you through the financial results a bit more in detail, and he'll give you an update on the share buyback program. And then we'll revisit our strategy and outlook. And after that, we'll take your questions. As usual, your Q&A function at the bottom of your screen. And I think that's it. All right. Let's go. All right. So a little snapshot. Looking at the quarter, what worked really well and what perhaps didn't work quite as well and where we actually ended up. So starting with what worked. Revenue was up 14% year-on-year to EUR 3.6 million. On a constant currency basis, that's 11%. So really nice growth. Lifecare was up 15% and the core [ Physitrack Homex ] as prescription platform, it grew by 26% year-on-year. That's a really, really great number for a platform that's been around for more than a decade. Actually, we'll talk more about that in a moment. Average revenue per license increased by 11% to EUR 190 per year per user and churn remained steady at around 1% per month on a 12-month look back basis. In Wellness, margins came up very nicely. And if you look at that, we're at 38% adjusted EBITDA margin, which is close to our overall financial goals. Operating profit, EUR 0.2 million. And importantly, 3 new systems were launched during the quarter, so remote therapeutic monitoring, our electronic medical record system, our EMR, we'll talk more about that in the coming slides. And it's an early access now. We have our educational modules as well that went live. We also secured 2 U.S. health care system selections through competitive processes led by our New York team, very, very nice win there. So lots of really nice things happening here. Now what slowed down a little bit? Well, adjusted EBITDA was down 8% year-on-year. This was largely planned and reflects the investments that we made in building out the U.S. operations and of course, developing these amazing new systems that we just brought to market. I'll revisit that a little bit in a moment. Now adjusted EBITDA less CapEx was EUR 0.3 million in the quarter and wellness ARR contracted EUR 0.7 million following the loss of one large customer. And as we exited the quarter, group ARR stood at EUR 13.6 million and net debt was EUR 3.7 million with that revolver at Santander. Net debt came down during the quarter, and we expect it to come down further. Our educational modules are now live. And on the EMR side, we expect paid subscriptions to start contributing from January 2027. So overall, a quarter of really strong growth, a lot of project delivery and some deliberate investments in the next phase of the business. Okay. So just quickly walking you through the financial highlights. Again, revenue, EUR 3.6 million, adjusted EBITDA, EUR 1.1 million; group ARR, EUR 13.6 million, free cash flow of EUR 0.2 million. And importantly, that's the eighth consecutive quarter of positive cash flow like P8. Gross margin remains very strong at 89% and recurring revenue represents 94% of the total. Now let's look at that. It's a very resilient financial profile, and we're managing to grow the business while continuing to generate cash. We're going to dig a little bit deeper into that. Moving to Lifecare here. So really nice performance. So 15% growth year-on-year, EUR 3.3 million of revenue contribution for the quarter. Adjusted EBITDA was EUR 1.4 million and adjusted EBITDA less CapEx, EUR 0.6 million, representing an 18% margin. We're seeing really nice growth throughout the year here. And as I mentioned earlier, the core Physitrack platform itself grew by 26%. Now that's a really strong number for a mature platform, and there's more to come there, particularly as we bring EMR and remote therapeutic monitoring into the ecosystem. Average revenue per license increased by 11%. We implemented a price increase during the quarter, and we're now seeing that reflected in the numbers. Now what's really encouraging is that churn remains steady. And I think that tells us 2 things. First, our customers are clearly seeing value in the platform. And second, we're still underpriced relative to the value that we're actually delivering. So there's room here to continue expanding revenue per customer over time just with price adjustments. Now the division remained profitable, gross margin 89%. And overall, this is actually the strongest growth we've seen so far this year, while at the same time, we're funding a really meaningful expansion in the United States and with a lot of innovation. So very pleased with Lifecare. Looking at Wellness, growth was relatively flat, up 2%. As I mentioned, we did lose one large customer, which brought annual recurring revenue of EUR 2.7 million. But what I'm particularly pleased about here is the improvement in profitability. Adjusted EBITDA margin is now 38% and adjusted EBITDA less CapEx is 29%. So that's a really nice development. Revenue retention has also improved 96.6% and we're now back to growth while rebuilding the enterprise ARR base. We've spent quite a lot of time resetting this business, as you know, we focused on the fundamentals and getting profitability back to where it should be, doing stuff that is profitable, not dealing with customers that are losing us money and so on. So it's been a nice cleanup effort, and we're now seeing the results of that work. More to come from Wellness, but we are definitely moving in the right direction. Okay, looking at the execution priorities. It's quite a busy slide, but let's start top left there with North America. You've seen a couple of really nice U.S. health care system selections announced, including one with integration into Epic MyChart. -- and another with a potential contract value of almost $400,000. Now that's a great testament to the hard work being done by the New York team. And as our Head of Growth, Kevin likes to say, it's impossible to lose. And that's the real ambition here is to making sure that we can really do those really nice big wins. And the RTM remote therapeutic monitoring solution is now open for trials across all U.S. customers. And of course, the U.S. is also our #1 priority for the new EMR. So we're starting to see the different parts of that strategy come together. Looking at margins and cash on the bottom left, it's a very, very nice story here to see that we've delivered 8 consecutive quarters of positive operating cash flow while also reducing net debt. And we're accelerating revenue while remaining profitable. Now adjusted EBITDA came down a little and the margin is 31%, but I think that's quite marginal in the context of everything that we've delivered. We've built and launched several major new systems, expanded the U.S. presence, and we invested really in creating a much bigger commercial opportunity for the business. So that's a very nice combination. And I think we can just accept that lower EBITDA margin, and that's going to be temporarily. Now looking at product unification and value expansion, bottom -- sorry, top right, we opened early access to EMR on September 28, and we already had almost 5,000 users sign up so far. We're now rolling that out step by step, and the feedback so far has been amazing. We've also launched educational modules inside of Physitrack, and we'll begin commercializing these in the fourth quarter. Now one thing I want to highlight here is how we actually managed to deliver so much innovation in such a short period of time. We brought our teams together in Poland for what we call a Physi Campus. So essentially, we hired a hotel. We moved in together. We live together, work together, aid together, coded together for a couple of -- and this model was inspired by some really, really nice successful companies like the Fang businesses, whatever you call them these days and companies like Atlassian, where people live together and they do these things, either on campus with hotel rooms that they have as part of that or that they travel together and they do this. The results were quite extraordinary. And when you get talented people together in one place working towards the same goal, you can move incredibly fast. And that's what happened to us. So we'll definitely continue doing these busy campuses. The next one is scheduled for mid-November, and it's going to be really, really exciting to be part of that. And again, just to put things into perspective, the core Physitrack platform, it grew by 26% even without having launched the EMR and monetizing the remote therapy monitoring piece. So I think that's a real testament to the strength of that underlying business model. And finally, bottom right, wellness. Again, we've been setting that business and getting back to sustainable growth and stronger profitability, but without compromising on innovation, some really, really interesting things that have been launched as of late. And I'm really, really excited about what we can do there on a stand-alone basis and also by integrating that into the Lifecare ecosystem. So nice good progress there as well. Now what is everybody talking about right now? The EMR. So of course, we'll talk about that a little bit more. There's an extensive interview with me from this morning where we speak more about that. And then also, obviously, the launch announcement on the 28th of September is a good source of information, too. Now we're very excited about this. I'm going to talk about it a little bit more if that's okay. So when we started building the EMR, we looked at the situation that was facing health care providers around the world from a macro perspective. And we also saw things from a micro perspective that are really, really interesting. These are people that are incredibly time constrained. So these guys want to work faster, they want to work smarter. And above all, they want to spend more time with their patients rather than sitting in front of a computer doing administration. And there's an interesting disconnect here. In their personal lines, of course, people are getting increasingly used to working with AI agents. They can ask questions, give instructions, get things done almost instantly now. That's a trend that's changed the world in the last, let's say, 9 to 12 months. And the way that people interact with technology as consumers has fundamentally changed. But when they go to work, they're often using systems that feel like they were built 20 years ago or maybe even 40 years ago, a lot of menus, a lot of clicking around, lots of boxes to tick a lot of text-heavy interfaces, and we wanted to fix that. So we took everything that we learned from more than 10 years of serving health care providers around the world. So the data, the workflow, the patient engagement side, the relationships there. And we had our own experience as well as pioneers in AI, and we built an EMR with Agentic AI at the core. And that's the important distinction here. AI isn't an add-on. It's not a little feature sitting somewhere on the side. It's right at the heart of the system. So you can talk to your MR, you can give it instructions to plain language. You can ask you to perform tasks rather than having to navigate through a bunch of menus or help us like click around a lot of tech stuff, Am stuff. And of course, you can still use the traditional internet if you want to. But this is a very natural transition for clinicians who want to move gradually towards an agentic way of working, and that is very much the future. So what's really exciting is that we built this as a complete solution. So from patient onboarding and scheduling to clinical documentation, billing, insurance, reimbursement and, of course, home excise prescription. And home excise prescription is really at the heart of it because ultimately, that's what you want your patients to leave with. So a clear plan for how they're going to get better and very, very tightly integrated with Physitrack with remote the monitoring as well. So instead of having a lot of disconnected systems, the clinic can operate through one unified platform. And I think this has the opportunity to become the go-to AI platform for clinics. And starting in physical therapy, of course, which is a market we know super well, but the opportunity is obviously much broader than that over time. And because we're really doing something here where we're rethinking how clinical software should work, we start with the human beings who actually use it, and that's why we're so excited about this. Anyway, not said about that. The traction is really, really nice. And the numbers have actually ticked up even further than this. These are numbers from -- I believe from Monday morning. But we have had a very, very nice response here, almost 500 clinics and almost 5,000 individual users have signed up to early access for this. And remember, we only opened this up on September 28. We're talking about a very short time period here. What we're doing now is we're releasing access to the system step by step. It is live. It is run by customers. And I believe the beta is now 50 clinics and what we do is we work with them step by step when we're comfortable we will increase the -- or expand the beta, but we have a wider release on the 2nd of November. So hopefully, the whole list will be able to profit from this and learn from what we can do and then give us feedback as it goes. So far, feedback has been really, really encouraging. And so we've seen some of these quotes on socials. Still early days, of course. But when you look at the level of interest, you combine that with the size of our existing customer base, the strength of our distribution. I think it's fair to say that we could be sitting on a very significant new source of recurring revenue here. So potentially even explosive. So we'll see. We're not going to say too much here, but we know these customers really well, and we understand the workflows and the pain points, and we spent more on the decade building trust in this market. And we're bringing it in a completely new way. So we're really think we've hit a home run here. Do we continue [indiscernible]. We'll give you updates throughout the progress, and we will see what comes through with that. Now with that, before Matt just gives up on me and falls asleep, Matt will take you through the financial results in more detail and also talk about the share buyback program. Matt, over to you to see financial results. Here we go.

Thanks, Henrik, and good morning, everyone. Henrik has walked you through what we built this quarter, and I'm going to now show you what it did the numbers, how we grew, where we invested and how we paid for it. So to repeat some of the [indiscernible] slides, revenue was EUR 3.6 million, up 14% from last year and 11% on a constant currency basis. On Q2, we were up 6%, and that's our strongest growth of the year with 94% of our revenue being recurring. Adjusted EBITDA was EUR 1.1 million at 31% margin compared with the 38% margin a year ago, and that's when the investment shows up. We built our North American team and launch products in one quarter, and we planned for exactly that. One probably point as well. Adjusted EBITDA refers to last year. This is actually the first quarter that we have no adjusting items, but I think that reflects the point of the business is. We've put a head of a lot of the restructuring buying companies legal fees, et cetera, all through adjusting items over the years. We're now a new business, all of that is behind us and we're not forecasting or expect that to be any adjusting items going forward. So EBITDA really is the metric and adjusted EBITDA is that metric from prior quarters. If you add the growth in the margin together, we come out at 45 on the rule of 40. So -- and that's the balance we're really striking there, growing faster and staying firmly profitable. Free cash flow was over EUR 0.2 million, down from EUR 0.5 million for the same reason. It also marks our eighth quarter in a row of positive operating cash flow. Next slide is Henrik. When we now look at the revenue growth. So 5 years ago, of course, for us, EUR 1.4 million of revenue. This quarter, it was EUR 3.6 million, which is the highest quarter year. LifeCare fundamentally drives most of that revenue grew 15% to EUR 3.3 million, and our core Physitrack product grew 26%. We raised prices in May. And since then, the revenue per license is up 11% to EUR 190 rates per year. China stayed at 1% and a license base is growing for 2 quarters running. It's clear that customers are accepting increase and they're staying with us. Bonus is a smaller simple business now, and that's growing again, up 2%. Group annual recurring revenue finished at EUR 13.6 million, up 6% from last year. It's flat on Q2, but Lifecare kept building, and that was offset by one large customer [indiscernible] and wellness underneath the Lifecare base keeps compounding. Now we turn our attention to profitability. The margin for the quarter was 31% up 53% year-to-date. The chart on the left is how we run the business day to day profit by CapEx by division. So Lifecare made EUR 1.4 million of adjusted EBITDA, a 42% margin and EUR 0.6 million after CapEx. You did that while funding the U.S. expansion alongside the additional development needed the 3 product launches this year. One has also turned a corner. A year ago, it made 54,000 in the quarter. This quarter, it made 125,000. So that's a 38% margin, up from 17% and the restructuring is now paying off. Group costs after CapEx rose to EUR 0.4 million from EUR 0.2 million. That's as a result of expanding the senior leadership team which should board at the end of last year and also the team now driving the U.S. push [indiscernible] launches, too. So what we're getting from that investment? From a sales front and specifically in North America, we signed 2 U.S. selected deals this year. One is the Metropolis and Health System, which goes live in Q4 and then the academic system follows in 2027. The EMR used to pay subscriptions from January and CapEx are flat at EUR 0.8 million, our busiest product quarter ever. Just on CapEx as well, in the day and the ace that we're working in, we're not forecasting there to be any further expansion on the current CapEx levels. And we're hoping over the next few quarters, that CapEx spend will tail off, but we're not expecting that to be increasing significantly. That's all. Also to point out, RTM and educational modules are live and EMA is in the early access. So we've got 3 there new revenue streams. Over the next 3 quarters, these are probably the things to watch. And as a business, we're really excited about the next slide, please Henrik. So looking at the financial position. Operating cash flow was EUR 1.1 million, more than 100% of adjusted EBITDA. Our profit is coming through as cash and after CapEx and interest, free cash flow was EUR 0.2 million. The chart tells the longer story through 2022 and 2023, the business used cash. Since then, it's turned around with 8 straight quarters of positive rating cash flow. Year-to-date, free cash flow is EUR 0.1 million, which includes setting a legal matter from 2018 in Q2. So that's all fully behind us now. And the chart shows the underlying trend without it. Net debt came down to EUR 3.7 million from EUR 3.1 million in June. What that is showing is, even with that additional investment in CapEx and EBITDA, we've seen this quarter, we were actually still able to pay a small amount [indiscernible] and that represents EUR 0.8 million adjusted EBITDA. The facility is drawn at EUR 4.3 million. Cash is EUR 0.5 million and a liquidity is EUR 1.9 million, including EUR 1.4 million headroom undrawn facility. So we are comfortably within our covenants, too. Really, what we're trying to say here is that we're funding growth from our own cash flow and we're paying down debt at the same time. Last slide, please. Now we turn our attention to the share buyback. So it's a small -- what we're doing this quarter and this year is small, but it's done one job and that's to fund a new management incentive plan without issuing a single share. So we want to reward our senior members of the team, but we don't want that to have a negative impact on our shareholders by diluting their shareholdings. The capital reduction we completed in July has made that all possible. Accounts for EUR 24.9 million of share premium and then created EUR 8.1 million of distributable reserves at the parent company. We're planning on spending about EUR 120,000 this year and subject to board approval EUR 250,000 a year from 2027. That's in line with the cap outlined by our banking partner and alongside that, the 10% authority approved the AGM. Pareto Securities runs independently. So nobody in the company directs any of the trades at all. And by the end of September, we bought 47,236 shares an average of EUR 0.76. That's all held in treasury shares. Each year's grants are capped the shares you buy back at that year. Management does well when shareholders do, and nobody gets diluted. So in a nutshell, this quarter, it represented faster growth investment from a profitable base, profit turning into cash and debt coming down [indiscernible] and next, we turn them into revenue. Go back to Henrik.

All right. Thanks, Matt. Okay. Strategy and outlook. Just to wrap things up here, revisiting this briefly. So this is where we think Physitrack is so well positioned to win. So what is happening now is that we're moving into a very interesting position in the clinical workflow. Historically, we were very strong in AMEX [indiscernible] and patient engagement. Now we've added our TM and with EMR, we're moving right into the center of how clinics actually operates. So we're becoming part of the chemical backbone if you like of these organizations. So that's a very powerful position to be in because you're establishing those workflows, will then the revenue becomes very sticky, and it's not something that customers are going to change every 6 months. We're becoming a central infrastructure clinic. And at the same time, we're unifying care, education, the administrative is running a practice. And so these are some very, very nice opportunities to expand revenue within the same customer relationship. And importantly, we're not just helping clinics operate more efficiently. We're also helping them generate revenue. So with better patient engagement, remote monitoring, more efficient billing, new products, more utilization of the time we become a very important revenue-generating tool for these guys rather than just another software expense. And that's a very, very powerful proposition. Now if we're looking at the financial side of the business, also very attractive, highly recurring revenue, high gross margins, strong customer retention. Increasingly, we have multiple products that can be sold into the same customer base. And so as revenue growth. We believe that it can translate into a very durable profitability as well. We have an established global footprint with a particularly exciting opportunity now in North America. So when you put all those components together, I think we're in a stronger position than ever. All right. And lastly, just revising the financial goals. I'm going to read those out because they're an important part of how we think about building this business, the medium-term adjusted EBITDA margin target. And again, this is the first quarter in a while that we didn't have any adjustments, and I believe that's going to stay this way, but the adjusted EBITDA margin targets are 40% to 45%. And as the target hasn't changed, as we continue to focus on the rule of 40 combined revenue growth and profitability. We will be accelerating organic revenue growth, and we build towards that 40% to 45% margin range, and we continue to generate positive cash flow as a result of that. Now at the same time, we're growing the business nicely, and we have the ambition to double this business in the medium term. At the same time, is generating nice cash 8 consecutive quarter as opposed to operating cash flow and it's something we're pleased about. And that gives us options. We can reinvest it in the business, accelerate the growth, reduce debt and according on capital to shareholders. So exciting times for fit a lot happening, and we have a very clear idea of where we want to take this business. And with that, we're going to conclude the presentation as part of today's and we'll open it up for questions. [Operator Instructions]. And thank you very much for joining this part of the presentation. Let's get right into the questions. See you on the other side.

Okay. Thank you for that, Matt. Let's see what questions we have, and you can use the Q&A function on your Zoom panel here. Let's start with this one. EMR sign-ups, new versus existing customers of the 480 clinics, 4,700 plus users that signed up for the MR early access so far, how many already use Physitrack today and how many are new to the group? In other words, how much [indiscernible] license base and how much is new licenses? And of course, with the caveat, we have actually -- we have more -- the numbers are higher, which was the 5,000 now and over 500 clinics, but let's just strike that down a little bit. Around 59%, 60% or existing cars, 70% of former customers that were with us at some point, but canceled the licenses are looking to come back, 34% are new to the group and so nice mix there. So let's -- we can do some math there as a follow-up just to figure out what that's actually worth in ARR, just so we can put some numbers on that. So first of all, you have to apply a conversion rate to the sign-ups. So that's to say the existing customers convert at 35%. That will be roughly 3,000 of the sign-ups so far. Now that part then is worth about EUR 0.5 million ARR at the found rate of $40 per month. So that's a nice new business. And of course, if you have a higher conversion rate given we have a closer relationship to these guys, maybe it is higher, but that -- even at that rate, it's quite nice. Now for new customers, you're probably looking at a lower conversion rate. So let's just call that 20%, but you're looking at roughly the same ARR there because you have to be a fixer customer just to qualify to get the EMR there. So you'll probably get $60 a month there. And that's another EUR 0.5 million there. So this adds up nicely. And just for the sign-ups that we've seen so far in a few weeks, it's worth about $1 million ARR give or take. But it's all the [indiscernible] about making sure that we have a nice conversion rate with a really nice product and -- but so far so good. But keep an eye on those sign-ups. All right. Second question here, and I'm going to give this one to Matt. cost base from here. Adjusted EBITDA fell to EUR 1.1 million or 35% -- 31% margin because of hiring in North America and the 3 product launches is Q3, the full run rate for OpEx? Or will costs keep rising in Q4 and 2027 as the U.S. health systems go live and the EMR is rolled out. Over to you, Matty.

So operating costs in Q3 were around EUR 2.5 million. We do expect them to ease slightly in Q4, but I would expect that over the next couple of quarters, maybe half 1 next year, the costs are going to probably stay around this amount. That's both with CapEx and OpEx as well. Just linked to that is to launch a marketing that we need to spend in terms of the EMR and then also having any additional product engineering people to get us across the line or also if we need any customer support success linked to that. But I'd say ballpark OpEx and CapEx is run rate now is around that going to be to half 1 next year.

And just to clarify, we expect to have a lot of automation in the customer excellence piece and for the support piece to so much be a wonderful technology now that you can use AI agents and jackpots and things like that. That's a great first line of defense. And we are implementing a low-cost customer excellence service where you can get brief onboarding calls, 10, 15 minutes. And as part of this whole thing, there's a little bit more handholding that we expect to do. But we are optimizing the cost base for that. So it doesn't run away. But again, there is so much that you can do now with automation and prerecorded stuff. And that's how we expect to do it. So we don't expect any big pressure there on OpEx. Now next question. Margin path back to 40% to 45%. The adjusted EBITDA margin was 31% and it's 38% last year because of the North American team and the product launches. Is Q3 the low point? And I'm going to bounce that over to Matt again.