Release Date: July 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CompuGroup Medical SE & Co KgaA (CMPUY, Financial) has maintained strong recurring revenues, which grew by 6% year-on-year in the first six months and represented 75% of total revenues.
- The company is making significant investments in artificial intelligence, data-based, and patient-centered solutions, which are expected to provide long-term growth opportunities.
- R&D expenses increased by 4% to EUR125 million in the first half, representing 22% of revenues, indicating a strong commitment to innovation.
- Management is focused on improving performance and remains committed to returning to revenue and EBITDA growth.
- Despite the challenges, the company anticipates an improvement in the second half of 2024 and into 2025, driven by delayed projects and regulatory initiatives.
Negative Points
- Group revenues decreased by 6% year-on-year in the first half and by 9% in the second quarter, primarily due to one-off effects in Telematics Infrastructure and an underlying slowdown.
- The company had to revise its guidance for the adjusted EBITDA, lowering it by EUR55 million to a new range of EUR220 million to EUR250 million.
- Nonrecurring revenues, which are crucial for achieving growth and profitability, are not progressing as originally planned.
- The AIS segment experienced a slowdown in additional module sales and professional services, impacting overall performance.
- Increased costs of doing business, including higher IT platform operating costs and security protection investments, have put additional pressure on margins.
Q & A Highlights
Q: Michael, can you break down the structural versus regulatory elements of the EBITDA guidance cut? Also, can you provide more details on the AIS larger projects and their timelines?
A: The EUR55 million EBITDA cut is about half regulatory and half other factors. Regarding AIS larger projects, delays in initiatives like the infotech medical centers have caused a shift into 2025.
Q: From a qualitative perspective, can we expect a revival of profitability and organic growth next year?
A: We anticipate improvement in the second half of 2024 and effects carrying into 2025. However, we will update guidance for 2025 in February due to many moving parts, including financial struggles in hospitals.
Q: How much of the incremental investment into AI is recurring versus one-off, and does it include restructuring measures?
A: The incremental investment into AI is in the low double-digit millions and is ongoing to stay competitive. We constantly adjust our cost base but have not decided on a new restructuring project yet.
Q: Why is the free cash flow guidance cut by 40% when EBITDA guidance is cut by 20%?
A: The difference is due to cash out for last year's restructuring program, additional tax payments, and follow-up costs for acquisitions.
Q: Given the AIS segment's underperformance, isn't it time for deeper restructuring?
A: We have already initiated leadership changes and company-wide restructuring activities. These changes take time to show effects, but we are targeting the issues within the AIS segment.
Q: With leverage above 3 times, is M&A and dividend still a priority, and are divestments considered for deleveraging?
A: The focus remains on deleveraging. Big investments are not a priority, but we continue to look at smaller acquisitions. Divestments of non-lucrative businesses are considered, but the US business is not currently in scope.
Q: Can you clarify the incremental investments into AI and the visibility on the amounts?
A: Investments into AI, patient-centered, and database solutions will continue over the next few years. This is a long-term investment similar to our past investments in clinical systems.
Q: Are there any major earn-outs expected for the second half of the year?
A: We see small earn-outs coming but no major ones for the second half of the year.
Q: Could potential asset sales include something bigger like the US business?
A: We are not speculating on selling the US business. We are focusing on non-lucrative businesses that do not meet our margin expectations.
Q: Is the hospital segment's new generation module still on track for early next year?
A: We couldn't capture the full question due to a bad line, but we will follow up directly for more details.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
