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Edited Transcript of COP.DE earnings conference call or presentation 5-Feb-20 9:00am GMT

Q4 2019 Compugroup Medical SE Earnings Call

KOBLENZ Feb 7, 2020 (Thomson StreetEvents) -- Edited Transcript of Compugroup Medical SE earnings conference call or presentation Wednesday, February 5, 2020 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Claudia Thomé

CompuGroup Medical Societas Europaea - Head of IR

* Michael Rauch

CompuGroup Medical Societas Europaea - CFO & Member of Management Board

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Conference Call Participants

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* Andreas Wolf

Warburg Research GmbH - Research Analyst

* Charlotte Friedrichs

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Christopher Esch;Baader Bank;Equity Research Intern

* Nikolas Mauder

Kepler Cheuvreux, Research Division - Junior Equity Research Analyst

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Presentation

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Operator [1]

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Dear ladies and gentlemen, welcome to conference call of CompuGroup Medical. At our customer's request, this conference is being recorded. (Operator Instructions)

May I now hand you over to the Head of Investor Relations, Claudia Thome? Please go ahead.

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Claudia Thomé, CompuGroup Medical Societas Europaea - Head of IR [2]

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Good morning, everyone, from Coupland, and a warm welcome. Thanks for dialing in today. We have published our Q4 and full year preliminary results this morning, as well as some news. And our CFO, Michael Rauch, will lead you through the presentation. And as always, following that, you will have the opportunity to ask questions.

With that, I would like to hand over to Michael.

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [3]

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Thank you, Claudia. Good morning, and a warm welcome also from my side. Let me kick it off by confirming that CompuGroup Medical has closed the fourth quarter and the full year 2019 in line with our guidance. We continue to capitalize on our excellent position in connecting health care professionals. We've seen another quarter of strong top line performance in our operating segments, benefiting patients by catering to doctors, hospitals, pharmacies, insurance of pharmaceutical companies needs. In order to remain at the forefront of technological developments, we continue to invest into software development and new product features with a corresponding headcount buildup. So please bear with me during the following pages of this presentation, first, giving an overview on 2019 and then taking a closer look at the Q4 performance before moving on to the guidance for 2020.

For the purpose of this presentation, I propose we take the disclaimer on Page 2 of this presentation as having been read to the notes. Please, let me remind everybody that we are presenting today preliminary and unaudited results 2019, whereas the audited results will be promulgated as part of the annual report release on March 25th of 2020.

As you might remember, we have changed the segment reporting slightly. With our new management board colleague, Eckart Pech, having joined in November, the health connectivity segment was renamed into Consumer & Health Management Information Systems, reflecting the ambition of addressing patient benefits more directly going forward. As a result, the segment reporting was adapted also including smaller changes in the other segments. I will come back to this in more detail later when talking about the 2020 guidance.

Suffice to say here that the 2019 numbers I will be showing on the next charts follow the old segment structure, which you have been familiar with and have included in your models. Going forward and this obviously concerns the guidance for 2020, we will be reporting segment financials following the new structure. For transparency reasons, we have provided the 2019 segment pro forma financials as they would have been according to the new structure in the appendix of this presentation.

Let's now dive right into the main financial KPIs for the financial year 2019. As you can see on Chart 4, we've achieved the guidance given in February 2019 and adapted in September 2019. However, the only adaption was a cost relating to the abandoned major M&A transaction outside of Europe. Revenues are up 4% year-on-year and turned out at the upper end of the guidance with EUR 746 million. This was again, substantially driven by our growing base of recurring revenues, showing the strength of our business model and successful integration of acquired businesses. EBITDA was down by 5% on face value as expected and reached EUR 178 million, within the range we communicated in September 2019. You are aware of the significant one-offs that have impacted 2019. Excluding those, the development would have been a EUR 10 million increase, equaling a 5% increase versus 2018 and fully in line with the original guidance given at the beginning of 2019. The same applies for EPS and cash net income per share. You'll find pro forma comparisons also in the appendix.

Looking at the overall revenue development on Slide 5, we see good growth for the full year with a 4% increase year-on-year. As already mentioned, revenues came in at the upper range of the guidance of EUR 746 million. Revenue growth of 4% is a very good result given the strong prior year comparisons in Telematics Infrastructure onetime installation revenues. Adjusted for TI, organic growth reached 7% for the group. Recurring revenues are up double digit for the full year, with an 11% increase, now representing 62% of total revenues, up from 58% last year.

From a pure face value perspective, a EUR 20 million increase of euros in revenues has translated into EUR 10 million decrease in EBITDA. Hence, it is important to crystallize the special effects which affected 2019 face value results.

On Chart 6, you can see the significant one-offs that have impacted 2019. We flagged the cost of EUR 17 million for an abandoned major M&A transaction and the settlement of stock options for a former Board member extensively in August and September of last year. In addition, we saw roughly EUR 3 million for other M&A activities in the fourth quarter, and you might remember that we also announced acquisitions having taken place in December and January. Excluding these one-off effects, the pro forma EBITDA stood at EUR 198 million, corresponding to a margin of 26.5%, a EUR 10 million increase in EBITDA and within the guidance range given in the beginning of 2019.

Looking at the drivers of the pro forma EBITDA, the year-on-year increase of EUR 10 million was supported by acquisitions and by the first-time application of IFRS 16 and the onetime IFRS 3 gain realized in the first quarter of 2019 against lower TI onetime revenues and correspondingly lower onetime EBITDA. We have deliberately stepped up our R&D activities, net of higher capitalization, in line with earlier communication, as you can also see in the personnel cost details provided in the backup.

Let's now turn to the segment reporting, and let's start with an overview on Chart 8. Here, you find a segment summary page for the full year 2019 before we move into the fourth quarter revenue for the individual segments. Please, again, keep in mind that this reflects the old segment structure, thus enabling a like-for-like comparison to the 2019 guidance. All of our operating segments achieved or exceeded the full year revenue guidance we specified in August 2019. The AIS segment posted revenues of EUR 461 million, slightly above the midpoint of the guidance range. The PCS, HIS and CHS segment exceeded the respective guidance ranges given in August for revenues, each of them posting also a strong performance in Q4, as you will see on the next chart.

We will dive deeper into the individual segment performances for Q4 2019 on the following charts, but what you can see already here in the overview for Q4 is that all of our operating segments are contributing to the strong development, with a solid to excellent revenue growth, and I will comment on EBITDA per segment as we move on.

So let's now start with our biggest segment. Let's move to Chart 11 for Ambulatory Information Systems. The revenues in our largest segment, Ambulatory Information Systems, are on prior year level of EUR 118 million. Acquisitions, namely GIS and Qualizorg, offset high prior year comparisons from TI installation onetime revenue. Recurring revenues grew by 11%, supported by the year-on-year growth in recurring revenues from TI.

Looking at the EBITDA, we see an increase by 3%. This was mainly driven by the positive impact from acquisitions and from IFRS 16, altogether more than offsetting increased R&D spend in this segment.

Please follow me to Chart 12, where you can find some more details on the AIS operational performance. The expectations we set at the beginning of August for the TI rollout have been confirmed during the quarter. At the end of the year, we are reporting an installed base of more than 55,000 connectors for the Telematics Infrastructure. As I'm sure you have seen CGM was first to have received the approval by the gematik for our TI connector software upgrade. But the TI road map is a complex multi-stakeholder process, and the actual rollout hasn't started. At this point, the field tests are yet to begin. So far, there have been only preliminary tests. We, therefore, refrain from giving any precise forecast on when we might be able to start the rollout. All we can say is that we at CGM are as ready as ready can be. So while there's uncertainty on the timing of the further rollout of TI going forward, organic revenue growth in the AIS segment ex TI in the fourth quarter was 4%. Q4 benefited from the Windows 10 implementation in Germany and the Netherlands. In Austria, the rollout of ELGA, the electronic health record, started in the prior year Q4, thus, posting high comps for Q4 2019. That is one of the reasons why the organic growth ex TI in Q4 year-on-year was below the year-on-year growth we achieved in Q3.

In Q4 2019, our U.S. business has posted strong growth, again, due to an excellent performance in lab business. With this good performance in the final quarter of the year, overall revenues for the segment ended up in line with the guidance for the full year, as mentioned before.

Moving on to the pharmacy business on Slide 14. Revenue growth of 6% is mostly organic. Recurring revenues have grown by 7%. EBITDA was impacted by and has to be seen against extraordinary one-offs in Germany, where some newly installed features could only be built in Q4 2018. Those effects could not be compensated in full by the positive impact from the IFRS 16 introduction.

Please see some more details on the operational performance of the PCS segment on Chart 15. Organic revenue growth of 5% was largely driven by hardware sales and upselling of software packages in the Italian pharmacy business, which was supported by government incentives to invest like in the prior year. Germany, on the other hand, had high prior year comps, as just mentioned before. Regarding Telematics Infrastructure, we continue to see promising initial interest from our pharmacy customers and received roughly 800 initial orders for the connection packages until December 2019. And as you know, delivery and installations are supposed to start during the course of this year. Like for the rollout of the software connector, we've taken a cautious approach here. The pharmacy rollout depends on the connector upgrade, which is subject to field tests.

On Chart 17, you'll find the P&L summary of the hospital information segment. Important to note that the 21% organic revenue growth was mainly driven by onetime impact from hardware sales in the Austrian NOKIS project. Recurring revenues, therefore, post a lower percentage as part of total the unusual was 47% of the segment and have grown by positive plus 8%. On the EBITDA side, we have seen an increase by 25%, resulting from the revenue growth from NOKIS and benefiting from the introduction of IFRS 16, both more than offsetting additional R&D investments which we put in order to upgrade our systems.

Moving on to Chart 19, with our Consumer & Health Management Information Systems, you can see, again, excellent revenue growth of 30%. This was mainly driven by projects with pharmaceutical and insurance companies. The EBITDA increase is in line with the revenue development. Please be aware that we've included in the backup a pro forma reporting of 2019 numbers in the new format.

Now let's turn to our guidance for 2020. Following last year's impact from several significant one-offs, we discussed with many of you, what the ideal disclosure should be to get the right understanding of the actual underlying performance of CompuGroup Medical. As a result of these discussions, and in order to provide our investors and analysts with better transparency on the underlying development of the company, we're introducing adjusted earnings KPIs as of January 2020.

On Chart 21, you'll find the definition of the adjusted EBITDA, we will be reporting going forward, leaving effects from M&A, stock option and restructuring programs, tax effects on the before-mentioned adjustments and other nonoperative one-off effects aside in order to show the trend in the underlying business development of CompuGroup Medical.

CGM continues to be active on the M&A front. And I trust that you've seen our 2 most recent M&A projects that were closed at the end of December and in the beginning of January and are thus included in our 2020 guidance with full year impact.

Chart 22 provides a brief summary. The acquisition of EPSILOG represents the latest addition to our AIS segment. The French-based software provider supplies physiotherapists and nurses with one of the leading ambulatory information systems. The financial impact is roughly EUR 15 million in revenues and a mid-single digit EBITDA.

The Italian-based software company H&S Qualita that is offering telemedicine solutions for social care providers was added to the HIS portfolio in January with a financial impact on revenues and EBITDA in the low single-digit million range.

Having said that, let's now turn to the actual guidance on Chart 23. We expect revenues for the financial year 2020 for the group in the range of EUR 765 million to EUR 815 million, and an adjusted EBITDA in the range of EUR 195 million to EUR 215 million. As always, this guidance represents CompuGroup Medical's management's current best estimate of market conditions for 2020 and how our businesses will perform in this environment. The guidance does not include any impact from potential acquisitions which have not been closed as of today. Thus, to be very explicit here, it does not include the acquisition of the Hospital Information Systems business from Cerner signed this morning, which I will obviously comment on separately in this call.

Lastly, I would like to point towards the uncertainty with regards to further rollout of the Telematics Infrastructure in Germany in 2020, as addressed before, for the AIS and the PCS segments.

Turning to the segment revenues on Chart 24. This guidance is referring to the new segment structure. Please refer to the appendix for the overview on what the segment financials would have looked like in 2019, had we already introduced a new structure then. Based on the new structure, the AIS segment is now including the lab business outside of North America and including the drug data business that was formerly accounted for in the CHS segment. For this new AIS segment, we expect revenues in the range of EUR 453 million to EUR 485 million. Within AIS, we anticipate Telematics Infrastructure revenues below the strong prior year numbers. For the PCS segment, there have been only minor changes resulting from the new segment structure. Hence, our guidance range for PCS revenues is EUR 124 million to EUR 134 million, including a low double-digit million euro impact from the TI rollout. For the HIS segment that is now including the lab business except for North America, we anticipate revenues in the range of EUR 142 million to EUR 148 million, including a low single-digit euro impact from the H&S acquisition and the Telematics Infrastructure. The expected revenue range for the new CHS segment is no longer including the drug data business and is estimated to be EUR 46 million to EUR 48 million.

To give you some color on the quarterly phasing during 2020, please take a look at Chart 25. As known, the first half of 2019 was strongly impacted positively by the TI rollout to doctors until the June deadline. Please keep in mind that Q1 and Q2 2020 are thus facing strong prior year comparisons with Q2 having been the peak quarter of the Telematics Infrastructure rollout in the AIS segment. On the other hand, the timing for the software upgrade for the TI connector and correspondingly also the rollout to pharmacies are subject to regulatory approval and market dynamics, causing uncertainty as to when the revenues are going to kick in. Just consider the recent press reports on the electronic patient record, which reflect yet another delay compared to the original road map. We at CGM feel positioned well and prepared well but remain cautious as to the exact timing of 2020 Telematics Infrastructure rollout.

On the cost side, we will see a rather front-loaded impact from development activities this year. Altogether, this should result in softer Q1 margins, and we anticipate a ramp-up of revenues and EBITDA throughout the year.

Let me close the guidance 2020 remarks with pointing out that we included additionally guided KPIs in the backup for your perusal.

Now let's turn to the additional morning's news release and the transaction that has just been signed and is therefore not included in the 2020 guidance, the acquisition of Medico, Selene and SHA. We have signed an agreement to acquire a portfolio of assets in the Hospital Information Systems space in Germany and in Spain from Cerner.

On Chart 27, you see an overview of the portfolio which comprises Medico, a fully featured Hospital Information Systems serving both public and private hospitals in Germany; as well as Selene, an integrated Hospital Information Systems covering public hospitals in Spain; the portfolio also entails Soarian Health Archive, an archive solution for health care providers. This transaction would make us the #2 in Germany and one of the leading players in Spain. Adding scale will be one of the major benefits, significantly increasing our installed base in the HIS market.

Looking at the financials. Revenues for 2019 are around EUR 74 million, and the business has grown with a CAGR of 5% over the past year. EBITDA reached roughly EUR 13 million in 2019, thus posting a margin level above our current HIS segment. The purchase price represents an enterprise value of EUR 225 million and corresponds to a 2019 EBITDA multiple of around 17x. We expect the transaction to be accretive in year 1, and the closing is subject to regulatory approvals and is anticipated to happen in the third quarter of 2020. The accretion obviously is on a pro forma basis. As soon as we have closed the transaction, we will update our guidance for this year accordingly.

On Chart 28, you see the strategic rationale in the financially attractive transaction. We are acquiring one of the leading providers for Hospital Information Systems in Germany and Spain, thus increasing scale and creating a European leader with the #2 position in Germany as one of the largest markets. The product offerings are highly complementary, and we see significant potential to further increase the reach of our innovative G3 platform. We see continued demand for integrated players that are able to service both, the hospital and the ambulatory sector, and we are raising CGM's profile even further by this acquisition to provide a better patient journey. As a result, the combined HIS revenues will represent roughly 1/4 of CGM revenues on a pro forma basis. So before leaving this chart, let me also thank all of my colleagues from the HIS segment working on this acquisition. Well done, guys.

Moving on to the next chart. I trust that you've also seen an additional news piece coming out this morning regarding the change of the legal form of our company which we currently envisage. Management Board and Supervisory Board have decided to prepare a change of the legal form of our company into a partnership limited by shares, a so-called Kommanditgesellschaft Auf Aktien or KGaA. This structural change shall enable CGM to obtain greater flexibility for the financing of future growth in the interest of the company and its shareholders, yet maintaining at the same time, the entrepreneurial approach and visionary founding spirit of the Gotthardt family. To this end, the general partner of the future KGaA shall be a European company an SE with a monistic management structure which is entirely held by the current majority holders. The change of legal form does not change the share that investors own in CompuGroup Medical. All shareholders will continue to hold the same number of shares in the KGaA as they do today, and the overall number of shares will equally remain unchanged. We are planning to propose a change of legal form to the upcoming Annual General Meeting on May 13, 2020. A conversion report with adequate detail will be prepared in due course by the management board and will be published together with the AGM invitation.

The majority shareholders of CGM, the Gotthardt family together with Dr. Koop, have already informed the company that they support the change of legal form.

With that, I will like to summarize, as you can see on Chart 30. CompuGroup Medical remains well positioned for further growth in 2020 and beyond, given our strong market positions and our reliable business model with a high share of recurring revenues. We expect to sustain the EBITDA on a high level, resulting from our strong cash flow profile. We look back on the long-standing track record of value-enhancing M&A and are determined to further enhance shareholder return and value generation. And we remain committed towards driving further digitization in healthcare in line with our purpose statement, "nobody shall suffer or die because at some point, medical information was missing".

This brings me to the final chart of this presentation on Slide 31, giving a snapshot of the upcoming events. We are going to publish the full annual report audited on March 25. It was our goal to provide you today with slightly more information than the years before on the segment performance, especially profitability and also mention the 2 other announced transactions. Further details on cash flow and detailed comments on the financial statements will be available in the annual report. We will then report Q1 results on May 7 and Q2 on August 6. Our AGM is going to take place on May 13.

Let me thank you for your attention, and I'm now looking forward to your questions and hand back to the operator.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we've received the first question, it is from Andreas Wolf from Warburg Research.

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [2]

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Sorry, we're not hearing, Andreas.

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Operator [3]

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Yes, as he hang up, I would continue with Charlotte Friedrichs of Berenberg.

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Charlotte Friedrichs, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [4]

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The first one would be around putting a few numbers around the TI revenues. And how much of that within 2019 was one-off versus recurring to get a better understanding of what the comp space is that you're facing in 2020?

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [5]

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Charlotte, can you please continue with your second question, and we will provide you the exact numbers.

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Charlotte Friedrichs, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [6]

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Okay. And second question would be around your guidance for the AIS segment, and you've guided for a relatively wide corridor here. What are the different assumptions that you made here, for instance, for the organic growth at TI in the AIS segment? You've come from a very strong level of around 11% in the third quarter to roughly 4% in the fourth quarter. Is 4% underlying organic growth for the AIS segment a realistic assumption going forward for your guidance? Or how do you think about that?

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [7]

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Yes. So if you say the underlying growth excluding the Telematics Infrastructure uncertainty, then we would say a range between 0% to 4% is absolutely within the achievable amount. And I would like to come back on your first question. Sorry, I just wanted to be very precise on the numbers that's why we were digging in. So we had EUR 47 million nonrecurring about...

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Charlotte Friedrichs, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [8]

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EUR 47 million recurring,

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [9]

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Nonrecurring.

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Charlotte Friedrichs, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [10]

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Nonrecurring.

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [11]

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EUR 47 million. Onetime. Yes.

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Charlotte Friedrichs, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [12]

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Okay. And then in total, is around about EUR 85-ish million then in total TI revenues?

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [13]

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Between EUR 85-ish million and EUR 90 million. You're fully right.

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Charlotte Friedrichs, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [14]

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EUR 85 million to EUR 90 million. Okay. Understood. And then in terms of M&A. With the acquisition that you've made with Cerner now that is due to close still. But can you give us an idea of how many hospitals you will then be serving in Germany and in Spain in total with your HIS software?

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [15]

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We haven't disclosed that number. And so we will see when we are going to give an update on the overall situation of the HIS business, including Cerner. So please understand, after we have closed the transaction, we will provide much more detail on the combined businesses in a separate call.

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Charlotte Friedrichs, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [16]

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Understood. And then I'm not sure if you can answer this particular question, but given the change through KGaA, I'm guessing M&A remains on the table for the short term. Is there anything that you can comment regarding to your pipeline of deals, et cetera?

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [17]

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Well, I guess, you have been seeing that we have been very active in the past couple of months. So let's anticipate that we are not only focusing on organic growth, but obviously, we don't comment any further M&A activities.

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Operator [18]

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The next question we've received is from Nikolas Mauder of Kepler Cheuvreux.

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Nikolas Mauder, Kepler Cheuvreux, Research Division - Junior Equity Research Analyst [19]

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It's mainly on the acquisition. After you missed out on the AXA deal and now acquired a different asset in the same space, do you -- how do you see competition in the European or especially German HIS space evolving? Do you have any visibility on the plans of the acquirer of the AXA business going forward? How do you -- any color here, appreciate it.

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [20]

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Yes. We are highly convinced of our own software solution, CGM CLINICAL. And we think, as I mentioned already in a couple of earlier calls and that was also alluded and elaborated on extensively in the last Capital Markets Day, let me say, we have really invested into our own development. And we think we have a brilliant product out in the market. And we saw that we win leads, and we will continue to win leads. So we feel well positioned. And strategically, we see that with this acquisition, we are going to increase our footprint even further.

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Operator [21]

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The next question we've received is from Knut Woller of Baader Bank.

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Christopher Esch;Baader Bank;Equity Research Intern, [22]

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Christopher Esch here on behalf of Knut Woller from Baader Bank. I have 3 questions. First of all, your EBITDA guidance for 2020 implies at the midpoint a decline of around 1 percentage point year-over-year, if your original EBITDA guidance for 2019 is taken as a base. Now what is the reason for this? Or the leading reasons for this? You partially talked about it. And how high will the margin progression be beyond 2020? My second question is your midpoint guidance is around 3% year-over-year organic revenue growth. What are long-term sustainable organic growth rates for your business? And do you expect them to be in the lower single digits as the compound annual growth rates are higher? And lastly, the capitalized development costs were an incremental tailwind of around EUR 6.1 million in 2019. How should we think about capitalized development costs in 2020 and beyond?

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [23]

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Okay. Let me just comment on the question regarding the margins. So the way we look at the midpoint is basically, if we take the numbers EUR 205 million over EUR 790 million, and we just compare that to the pro forma numbers for 2019 and our EUR 746 million revenue and put that into the equation. So it's actually, yes, a slight decrease, but it's more in the vicinity of 50 basis points than 100 basis points.

Where is that coming from? And why do we do that? Because we are deliberately continuing investing into our R&D activities. And with the investment into R&D activities, and that's how I would guide over to answer off the second question you proposed. Now with investment, higher investments into R&D activities, we also will see a higher capitalized portion of R&D investments to continue for 2020. So not only the increase you saw in the fourth quarter of 2019, but that will also continue on a higher level in 2020. With regard to growth estimates beyond 2020, we are not going to give specific guidance to you on the call. But obviously, we're going to give more color than as we usually do on the Capital Markets Day in September.

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Operator [24]

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The next question is from Andreas Wolf of Warburg Research.

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Andreas Wolf, Warburg Research GmbH - Research Analyst [25]

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I hope you can hear me now?

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [26]

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Perfect.

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Andreas Wolf, Warburg Research GmbH - Research Analyst [27]

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Yes, I was in the line previously, sorry. I could hear you very well. So my questions are with regard to the business that you acquired this morning. So is it basically the former Siemens business? And how does the product in terms of maturity compared to the AXA business? Do you see a lot of potential to migrate the customers to your G3 product offering? And then, could you also provide us maybe some insight to how much business will remain in Cerner's hands? If my information is correct, then Cerner had previously total market share of maybe 25% to 30% in the hospital software market. And then with regard to your EBITDA guidance, which is also related to Knut's question. So how much have you baked into your 2020 guidance with regard to R&D costs, which will impact your P&L? And when do you expect your KOM-LE rollout to start? And how much of that rollout is in your guidance for 2020? And my third question is regarding your financing structure. So obviously, the new legal form will support you in the future financing of acquisitions. My question is, to what level of net debt to EBITDA, I would assume if the -- then takes into account IFRS 16 as well, are you comfortable with?

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [28]

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Okay. So let me start with the questions in reverse order. So starting on the financing side. So obviously, we have sufficient funds secured in order to also finance this acquisition. And we don't have a specific guidance here in terms of leverage, but rest assured that we're very cognizant of the fact that we are publicly traded and listed company here in the German MDAX index. And hence, we take a very cautionary approach. And also in connection with the release of the news of changing -- the intention to change the legal form of the company, this is an opportunity for us also to finance here with equity going forward in order to sustain, yes, on a reasonable leverage lever. Obviously, we will optimize our capital structure accordingly.

With regard to the R&D investment spend. So the level of capitalization for 2020 to expect this probably around EUR 30 million, up and down EUR 1 million or EUR 2 million from what we see currently.

So then you had the question regarding the Cerner situation -- or no, sorry, maybe the question to TI first because you had a question regarding TI. So TI, as we pointed out on Chart 24, is expected below prior year level in AIS due to the strong nonrecurring revenue base, as we just discussed also in the first question. And regarding PCS, we said it's a low double-digit million impact expected from the TI rollout. That's what we currently see for HIS. It's only a rather smaller impact. With regard to your strategic question on Cerner. Yes, it is true. Cerner had acquired business from Siemens. And part of that Siemens business has now been transferred to us. There is a portion which Cerner will remain. So yes, indeed, Cerner will be also in the market in Germany. So our market position from current estimates which we see is somewhat in the range between 15% to 20% on a pro forma combined basis going forward. Are that all your questions?

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Andreas Wolf, Warburg Research GmbH - Research Analyst [29]

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Yes, nearly. Michael, with regard to KOM-LE, how much is baked into your guidance already? Just for clarification, if I got your answer correctly, then KOM-LE is not in your guidance. Is that correct?

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [30]

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No. Actually, KOM-LE will depend a lot. And obviously, we are a bit on open water here on the decisions by the gematik and also the approval of the different future tests that are going to take place. And yes, we took some of KOM-LE also into account here for 2020, but we took, I would say, not the full amount into account here because we see already some delays, which, obviously, are not on our side.

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Andreas Wolf, Warburg Research GmbH - Research Analyst [31]

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Okay. And with regard to R&D, EUR 30 million will be capitalized. That's -- did I understand that correctly? And how much will be expensed on top to prepare for the further TI rollout and EHR, which is obviously part of the reason why EBITDA -- the EBITDA guidance is probably not higher compared to the pro forma 2019?

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [32]

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Yes. So around EUR 30 million of capitalized R&D, as I said, is a step-up from what you saw already in 2018 to '19 with the increase. Originally, we were around EUR 20 million to EUR 24 million of capitalized R&D, and now we say, going forward it will be more in the vicinity of EUR 30 million. And then as you know, we are a software company within the health care space. So obviously, R&D is at the heart of our company, and a big, big chunk of our personnel cost is R&D driven and is thus an integral part within our EBITDA for the company. And this is an investment which we do in order to generate then highly profitable products and solutions for our customers going forward, where we will benefit from.

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Operator [33]

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The next question is from [Patrick Samaroo] of (inaudible).

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Unidentified Analyst, [34]

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I was wondering, if you could give some extra color around integration strategy of the Cerner assets. So maybe talk a little bit about where you expect synergies to be realized. Whether you will integrate both products or maybe have one dominant product?

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [35]

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Yes. So please understand, obviously, I like your question, Patrick, but we are at the very early stage. I mean, we just announced the signing as we were walking literally throughout the last meters here, finalizing everything. And now the question is on how basically the disentanglement can happen. And once everything is clear and crystal clear, then we can come out with much more detail towards this transaction. But in essence, going back to the route of your question, we don't expect so much on the cost synergy side. It is more on the revenue synergy side, banking on a combination of good products that we are acquiring, and obviously, our strong G3 CGM CLINICAL which we have on hand.

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Unidentified Analyst, [36]

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Yes. So if you think about cross-selling and up-selling at existing...

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Michael Rauch, CompuGroup Medical Societas Europaea - CFO & Member of Management Board [37]

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Indeed, indeed.

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Operator [38]

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As there are no further questions, I would like to hand back to you.

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Claudia Thomé, CompuGroup Medical Societas Europaea - Head of IR [39]

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Great. Thank you, everyone, for dialing in today. As always, Investor Relations will be available for further questions on the phone or by e-mail. Please don't hesitate to contact me. And we wish you a very happy day from Coupland. Thank you, and bye-bye.

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Operator [40]

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Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.