PatientSky - Growing EHR SaaS from Norway

[timontti]

Odotetustikin ketjua pystyyn PatientSkylle. Tässä pintaraapaisu aiheeseen.

Mitä PSKY tekee?

• PatientSky digitalisoi terveydenhuollon järjestelmiä. Tarjolla on valmiita moduuleita (SaaS) sekä mahdollisuus kehittää omia appeja/sovelluksia (PaaS).

”A revolutionary and innovative cloud data platform, enabling health professionals and partners to provide new, better, faster and cheaper patient care”

• PatientSky on Cloud-pilvipalvelu. Se toimii maantieteellisesti Norjassa, Suomessa, Virossa ja Tanskassa. Parhaillaan johto on katselemassa laajentumisvaihtoehtoja myös pohjoismaiden ulkopuolelle.

• PaaS-tuote on Platform 360, jossa terveydenhuollon toimijat voivat olemassa olevan SaaS-tarjonnan lisäksi kehittää sovelluksiaan omille loppuasiakkailleen.

”It allows you to deliver your own software, in combination with the software of other vendors, onto the platform in a uniform way, depending on your PaaS partner branding strategy.”

• Platform sekä toiminnallisuudet selitettynä auki parilla kalvolla. Alusta yhdistää klinikat ja niiden asiakkaat digitaalisesti.

• SaaS-tuotteen tarjontaa. Kattaa keskeisiä terveysklinikoiden tarpeita. Tällä hetkellä työn alla on mm. hammaslääkäripalveluihin laajeneminen.

Mitä hyötyä PatientSkyn ohjelmistoalustasta on?

Asiakkuudet

1. Ulkoiset asiakkaat; toimittajat (esim. IoT laitevalmistajat, kliinisten laitteiden valmistajat, tutkimusyksiköt, lääkeyhtiöt, hoivapalvelut)

Are you a vendor, who either delivers IOT devices to homecare services or clinical devices to service providers in the healthcare sector? You could also be an app provider

2. Sisäiset moduuli-/ SaaS-asiakkaat (esim klinikat)

Are you a vendor, who just wants to deliver modules and niche products in combination with existing functionality and applications from other vendors

3. PaaS-partnerit (Esim klinikat, terveystalot jne.)

If you want to deliver SaaS software to the end user then you are a PaaS partner. PatientSky’s PaaS Partner Program offers a white labeling of the platform’s modules as well as apps. This means you have the opportunity to brand your very own SaaS cloud-based EHR solution with your own colors and logo.

Toimialan trendit?

• Yleinen tarve selkeyttää terveydenhuollon tiedonhallintaa, tietokantoja kaikkien eri järjestelmien kesken.

• Terveydenhuollon kustannuspaineet, resurssipula jne. Tarve digitalisoida terveydenhuoltoa on melko selkeä trendi vielä pitkään; etävastaanotot ym. Suomalaiset kyllä tietävät ongelman.

• COVID lisää digitalisaation tarvetta akuutin pandemiavaiheen mentyä ohi.

• eHealth markkina kasvaa kaksinumeroisesti. Väestö ikääntyy länsimaissa vauhdilla.

Europe E-Health Market Size & Growth (2020 - 2025)

As per the research report, the size of the Europe e-Health Market is valued at 3393 million USD in 2020 and estimated to be growing at a CAGR of 15.94% %, to reach USD 7107 million by 2025 during the forecast period 2020-2025.

Yritysostot - kasvun keskeinen moottori

• IPOn jälkeen on tehty Infodocin osto (syksy 2020).

Kilpailijoita riittää Norjassa sekä kaikilla kohdemarkkinoilla

• Keltaisella Patientsky ja PSKY:n tekemät ostot

• Saas-kilpailijat

“SaaS competitors can be divided into two main categories; competitors using legacy on-premise systems and competitors using cloud-based EHR systems. Within the first group, examples of competitors include CompuGroup 26 Medical, Infodoc ID, Aspit Medica, Hano and Helse Respons. Within the second group, examples of competitors include Carasent, Pridok, WebMed, and WebDoc. These are competitors which are also currently present in the Nordics.”

• PaaS-kilpailijat

“This space is dominated by a few large international players such as Amazon Web Services, Google Cloud and Microsoft Azure. PatientSky competes against these in attracting developers and software companies to develop and run new applications on the PatientSky platform rather than through one of the former mentioned platforms. The relative advantage of using PatientSky’s platform is that approximately 85% of the development code is pre-made, reducing the total time and costs developers need to spend creating applications and shortens time-to-market for PatientSky and partners.”

Riskit

• Isoimmat riskit ovat varmastikin yritysostojen onnistuminen sekä datan integrointi omalle alustalle.

• Tteknisellä puolella asiakkaiden siirtäminen legacy → Cloud. Toistaiseksi tämä ei ole osoittanut merkkejä riskin realisoitumisesta.

• Liikevaihto ei kasva odotetusti; markkinointi ei onnistu, kilpailu liian kovaa, jne. perusjutut.

• GDPR / regulaatio pitäisi olla hyvin hanskassa. Norjassa healthcare on valtaosin private- / vakuutysyhtiövetoista. Yksi syy Hostingille omissa palveluissa on nämä EU:n GDRP-vaatimukset.

• IPO lock-up period päättyi 23.4.2021. Lyhytaikainen vaikutus osakkeen arvostukseen?

Omistajapohja

• Hallituksen puheenjohtaja, yhtiön perustaja, on selvästi suurin omistaja.

Jesper Melin Ganc-Petersen,

“Chairman Mr. Melin Ganc-Petersen is a serial entrepreneur within the tech sector, and is the founder of the PatientSky, Melin Medical and Melin Collectors. Mr. Melin Ganc-Petersen was named “Entrepreneur of the year” by EY in 2016 for his work with health tech.”

• Johdolta löytyy omistusta sekä optioita.

• Johdon taustalla näyttää olevan (mittavaa) kokemusta sekä SaaS-/teknologiabisneksestä että terveydenhuollosta.

Johan Zetterstrom

“CEO Zettersstrom started as CEO in August 2020. Prior to that he has was General Manager Nordics of Salesforce. He has also held positions with Broadvision and Projectplace International AB”

• TOP-20 omistajat IPO:ssa

TOP-20 omistajat 25.4.2021. Huom. suhtaudu dataan varauksella

• Mitä tapahtuu alkavalla viikolla lock-upin päättyessä?

Listautuminen

• Listautumisessa (500m NOK) hankittujen varojen allokointi

Sijoituskeissi ja näkymät

• SaaS-malli sekä toimialan konsolidoituminen ovat keskeisessä asemassa sijoituskeississä. PSKY on tunnettu agressiivisena konsolidoijana.

• Merkittävä osa liikevaihdosta on tullut yritysostojen kautta (M&A). Arvioisin, että strategia on järkevä. Alkuvuosina tehdyt kasvupanostukset tuovat skaalaetuja myöhemmin, kunhan Legacyä saadaan siirrettyä pilveen tehokkaasti .

• Yhtiö investoi edelleen raskaasti ja on siksi nippa-nappa tappiollinen (emoyhtiö investoi raskaasti, ostokohteet tuottavat liikevoittoa). SaaS-mallista johtuen skaalautuvuus tulee esiin voimakkaammin vasta myöhemmässä vaiheessa. Siksi tämä keissi sopii lähinnä pitkään salkkuun.

• Puhelinappi toimii jo Suomessakin. Toimipisteitä ei vielä tarjolla.

• Keskeisiä tunnuslukuja…

• Tulos 2020. Koronalla oli selvä tilapäinen vaikutus H2:lla.

2021 ohjeistus

• 2021 ohjeistus odottaa > 70% liikevaihdon kasvua…

”we feel comfortable in surpassing NOK 240m in revenues for FY2021 (+70% YoY). “

“In Q1 2021 the upgrade speed to Patientsky has more than recovered from the slowdown experienced in H2 2020, now tracking above 200% higher compared to H2/2020 and ahead of our 2021 schedule ”

“The 2021 PaaS revenue opportunities included in the revenue guidance are, as communicated in March, expected to be second-half heavy.”

“Building upon a robust 2020, we expected 2021 adj. EBITDA margin to be above 25%.”

“With a solid cash position of NOK 429m at the end of the year we are well equipped to engage with potential acquisition targets that would expand PatientSky’s global, vertical and/or technical footprint.”

2021 keskitytään:

• Increasing speed of migrating of customer to the cloud from the legacy systems

• Adding more strategic customer like Kry and Dr Dropin

• Expanding with new types of larger partnerships / JVs

Mikä yhtiöstä tekee mielenkiintoisen sijoituskohteen?

• Yhtiön johto on lupaillut, että tullaan näkemään operating leverage lähiaikoina.

• Vähän analyytikkoseurantaa; Carnegie seuraa (TP NOK 18 / BUY). Vähän muutenkin huomiota sijoitussomessa. Huom. Carnegie oli mukana IPO-järjestelyssä, joten analyytikon sallimat kertoimet voivat olla vähän koholla.

• Osake pyörii IPO-hinnoissa (~10NOK 04/2021), vaikka yhtiö on edennyt strategiassaan syksyn 2020 listautumisen jälkeen.

• Orgaanisen kasvun lisäksi ulkoisten kumppanuuksien sekä konsolidaation myötä vie legacy-softaa pilveen (kertalaskutus muuttuu ARR:ksi). Johdon mukaan tämä on sujunut menestyksekkäästi. Yhtiö ei kuitenkaan avaa tarkemmin legacy vs. cloud-softan osuutta liikevaihdosta tällä hetkellä.

• Yhtiön liiketoimintamalli saattaa sisältää merkittävää arvonluontipotentiaalia, joka näkyy vasta myöhemmässä vaiheessa; esim. LTV / CAC ilmoitettu 9. Yhtiön johto ei kuitenkaan tällä hetkellä avaa laskelmaa tarkemmin. Vertailun vuoksi LTV / CAC on todella kova lukema.

• Net retention revenueta emme tiedä, yhtiö ei ole kertonut

• Vertailun vuoksi LTV/CAC-parametrilla tunnettuja yhtiöitä ja niiden arvostuksia alla. Huom. Tämä on vain yksi parametri monien muiden SaaS-parametrien joukosta!

(kuva keväältä 2020)

(tunnettuja firmoja 11/2020)

• Tuotteen kilpailukyvyn arviointi ulkopuolelta haastavaa. Mutta yhtiön valuaatio Carnegien ennusteilla ei ole paha, mikäli yhtiö pystyy ylläpitämään kovaa kaksinumeroista kasvua lähivuodet .

• 2022 EV/S 6 kurssilla NOK 10. (marketscreener / Carnegie)

• Ennusteessa liikevaihdonkasvu keskimäärin 45% CAGR 2019-2022.

• Verokkien arvostuksesta poimintana mm. Carasent, joka kasvaa kannattavammin. Myös arvostus on huomattavasti kovempi (14.4.2021)

• Avainkysymys on, millaista kasvua yhtiö tarjoaa koronan jälkeisessä maailmassa (huom. kova 2021 ohjeistus sekä Q1).

• 2020 orgaaninen kasvu ollut reilu 20%. Tällöin korona kuritti varsinkin H2:n liikevaihtoa. Mihin yhtiö pystyy pitkällä aikavälillä?

• Liiketoiminnan skaalautuvuuden pitää näkyä tulevaisuudessa, mutta SaaS-mallissa vie aikaa. Tästä oli ainakin johdon lupaus tuoreeltaan.

• First revenues from Finland 2021: Mitä on tulossa? Entä muut maat, joita katsellaan parhaillaan?

Keskeiset katalyytit osakkeen hinnalle:

• Skaalautumien lähdössä käyntiin; luottamuscase johdon kertomisten suhteen

• M&A sekä legacyn siirtäminen cloudiin entistä tehokkaammin

• Koronan akuutin vaiheen lopputulemana digitalisaatiotarve varmasti kasvanut entisestään

• Tietoisuuden kasvaminen sijoittajayhteisöissä

Taloudellinen raportointi

Lähteitä

• IR-sivusto https://www.patientsky.com/investor-relations/overview#

• 2020 vuosiraportti pdf (pitkä): NewsWeb

• IR presentation (2021 ohjeistusta nostettu tämän jälkeen > 240m NOK): https://assets.website-files.com/5f4cc3532b080e0de2bb627e/5f91660e37d05f1349259a5d_PatientSky_Investor_presentation.pdf

• RedEyen videoseminaari 15.4.2021: https://www.redeye.se/video/event-presentation/808859/patientsky-ceo-johan-zetterstrom-cpo-laust-wilster-axelsen-presents-at-redeye-saas-seminar

• https://www.patientsky.fi/tuotteet

• RedEyen Carasent-raportit & SaaS-report 2021 spring

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Loppuun vielä savolainen arvonmääritys

”Onko osake halpa?”

”No ei sitä paljoa halvemmallakaan ole saanut. Funda menee koko ajan eteenpäin.”

Discl: Omistan hieman osakkeita. Suosittelen perehtymään tarkemmin itse. Tässä pintaraapaisu aiheeseen.

twitter: twitter.com/timontti at your service

[jaska7]

In Carasent’s thread, username @Nortti (your insights on this would be broadly interesting as the field seems familiar to you) has touched upon PatientSky a few times

Tulokset hakusanalle 'Patientsky' - Inderes forum

Benchmark’s Twitter thread

https://twitter.com/GetBenchmarkCo/status/1348684872622202883?s=19

[aspee]

I also pondered this myself at some point, when I briefly had a stake in Carasent. What stuck in my mind about the company was its really aggressive growth through acquisitions, even beyond national borders.

There are also articles in Finnish about the industry and Patientsky.

potilastietojärjestelmä - Hoiva&Terveys

[OssiS]

An interesting case. I’m a bit curious about the organic growth, how much has it been? Is this cloud service their own, and are they trying to gain new customers for their service by acquiring other companies?

Some major risks I see are with the old system compared to this new one, and whether the program is somehow superior to others or what advantages it has.

Although SaaS is interesting as an investment from a returns perspective, the business really needs to work. The valuation is probably reasonable, but how high was that IPO price?

[Visukinttu]

Organic growth for this year according to management “over 20% and better than 2020”

[Mr_Wonderful]

Really interesting opening and industry. I’d wait to hear what @Pohjolan_Eka thinks first, though.

[Pohjolan_Eka]

@Mr_Wonderful

A really interesting opening and industry. However, I would first wait to hear what @Pohjolan_Eka thinks.

Seriously? Of course, this looks good on the surface, even though it won’t be in my portfolio
Read through @timontti’s incredible opening, made with immense effort! All the information needed to make an investment decision can be found there.

[kto]

Thanks for this. A really interesting article regarding Finland’s situation. Different countries have different starting points, so in that sense, it’s a good thing for customer potential that using PatientSky doesn’t necessarily mean overhauling the entire system.

“Partner for existing systems”

Anne Räsänen does not see PatientSky as a competitor to current patient information systems, but rather as a partner that can work alongside them.

p.s. @timontti has done an amazing job with the opening post!

[Poimija]

Thanks for the mention @timontti

I work in the healthcare sector myself.
There isn’t a good, functional system yet that covers all needs. So, there’s a big market to capture, even if the switching barrier is high.

I need to research this more thoroughly; I’ll start by looking at the products in a Lynch-like fashion.
I’ll write more once I get a better grasp of what they offer.

[timontti]

https://www.patientsky.com/investor-relations/overview

In the Q4 (2020 results) earnings webcast on April 15th, at the 8-8:30 mark, regarding the 2021 guidance (breakdown part), it was commented that:

<we hope to have some more news when we report q1 AND ESPECIALLY BEFORE WE COME WITH THE FIRST HALF RESULTS FOR 2021

If one looks at this through the lens of an owner, there are more partnerships or acquisitions coming in Q2 (between Q1-Q2 guidance; between May 27th - September 1st, 2021). This could affect the revenue forecast.

By the way, keep an eye on the CPO:

https://twitter.com/LaustAxelsen

[timontti]

Why did the stock jump in November-December after the IPO? This might explain it.

So Aktia joined in, and Invesco, which was part of the IPO, has bought more.

As for this week: So far, despite the lock-up expiry, we haven’t seen any massive sell-off. That would be clearly visible in the price.

A little M&A contemplation:

@timontti

If you look at this through an owner’s lens, there are more partnerships or acquisitions coming in Q2 (between the Q1-Q2 guidance; between May 27 - Sept 1, 2021). This could affect the revenue forecast.

• Cash in hand NOK 429m
• Historically, the market seems to have acquired legacy companies at an average multiple of perhaps 5x revenue.
• I could well imagine using half of that cash, say NOK 200m, for acquisitions, as long as suitable opportunities arise. That could buy ~NOK 40m more in revenue, which was an option in the 2021 guidance.
• This would then be converted from legacy → ARR, which is clearly more valuable revenue. Earnings should start to grow and multiples should fall. A win-win.

Well, this was a rough simplification, as the cash also depletes… but just as a thought experiment.

[timontti]

https://twitter.com/JuhaItkonen/status/1386945306042974211?s=20

[evolution]

The investor calendar didn’t show a Q1 release date, but the Q1 earnings webcast on April 15th mentioned “when we report Q1”. Would there be a shorter stock exchange release on key figures such as revenue or recurring billing?

I bought the stock today at €10.80, a small observation that at this price there seems to be an iceberg order, as my order (10500) went through even though there were only a couple of thousand shares on offer. According to brokerage data, several tens of thousands of shares have now gone through at this price. Could there be insider selling after the lockdown?

[timontti]

@evolution

Could there have been insider sales after the lockdown?

At least if you look at the volumes, there’s nothing out of the ordinary.

At least nothing unusual is visible in TIKR-ownership. I don’t know the update frequency.

TIKR: Institutional-Grade Investing for Individuals

[timontti]

Laust Axelsen

[Helel]

Growth mostly through acquisitions. Looking at the big picture, the revenue is clearly, for the most part, acquired. This looks to my eye like growth by acquiring others, not, for example, because the product is particularly good. While a typical SaaS earnings dip is based on front-loaded R&D and customer acquisition sales expenses, for these companies, that dip seems to be due to depreciation from acquisitions. An aggressive consolidator, some might say.

They should be able to reach this year’s guidance, because the acquisition at the end of 2020 was, after all, large in terms of revenue compared to the previous business. They also have an option program for management compensation. So, some dilution is to be expected. Management ownership is approximately 10% including options.

The acquisition targets have been growing, but for example, InfoDoc, the most recent acquisition, only grew organically by 9% p.a. in recent years, and in fact, the other components are also at the 10% level, if I’m not mistaken. PSKY should certainly be able to squeeze significantly more organic growth from these acquisitions (or their customer bases) than this historical pace, i.e., more than the demonstrated performance.

It is not yet known how this will turn out. At this point, there should be a turnaround from the past and evidence of better organic growth for the promises to be fulfilled. Management’s “long-term annual 40% growth target” is clearly just talk, and very loose talk at that. In my opinion, the philosophy is not “under-promise and over-deliver.” However, I do not believe the integrations will fail: an experienced acquirer like this should be able to handle that quickly and skillfully.

If you look at the combination of organic growth and profitability, this is not particularly cheap compared to other Nordic SaaS companies. Of course, it has never been much cheaper, but then again, the IPO was only a month ago.

Carasent is expensive now, and I don’t feel like buying it either, but with its strong organic growth and strongly negative churn, it has earned those multiples. Still, it is expensive, but with its more than 30% organic growth, it might even justify its high valuation. PSKY is currently not a cheaper Carasent.

In my opinion, based on fundamentals and this performance, no significant short-term upside potential can be justified in terms of valuation, and the zero reaction to the 2020 results does not seem accidental. If this year’s rhetoric gradually materializes and performance continues next year, then by all means. But there is probably no room for extrapolating growth (and stretching multiples) prematurely. If it achieves the promised 20% organic growth, the market is unlikely to believe it without proof. And 20% is not even very rapid growth, in fact, if the EV/S multiple is, say, 10, when there is also very real competition in this industry pressing margins.

Unless one goes purely by sentiment strategy then. It did open higher on Monday.

On the other hand, if the acquisition targets do not start performing better than before (or if stronger growth cannot be extracted from their customer bases, actually), then for M&A machines like this with good double-digit growth, an EV/EBIT of 20-25 might eventually be allowed. EV/S works with a company that performs organic profitable growth but is a rather weak metric when valuing an acquisition machine if this turns out to be one. Then the valuation already looks tight.

One can choose what story to tell oneself, but I have seen weaker ones. Worth investigating.

[timontti]

Excellent counter-argument. You have many good points that illustrate the case’s challenges, both in terms of numbers and narrative, and certainly regarding the shortcomings of my write-up/DD. This is by no means a risk-free Sunday walk in the park.

@Helel

It’s still unknown how this will turn out. At this point, there should be a turnaround from the past and evidence of better organic growth for the promises to be fulfilled.

In such cases, I believe the management’s expertise, commitment, and experience are highlighted. With a few companies, my hunch has been correct before the story and numbers went in the expected direction. We’ll see how this one turns out.

They talk about a marathon, and at the same time, the emergence of scalability. I want to see if organic SaaS growth picks up or if this remains purely an M&A house. If it happens, it will also be reflected in the pricing. If not, it will certainly be reflected in the pricing in the other direction. For now, organic growth alone doesn’t warm me either.

@Helel

Growth mostly through acquisitions. When looking at the overall picture, revenue is clearly mostly acquired. To my eye, this seems to grow by buying others, not, for example, because the product is particularly good.

That’s how it is, as I described. It’s also difficult to say from the outside about the product’s competitiveness

[Apinamies]

An absolutely interesting case, but it has brought up very similar thoughts as for @Helel. I will bring up a few things that are foremost in my mind.

There is potential in the company. The management, strategy, markets, and story of the company are in very good shape, but the biggest question marks are caused by the merger and acquisition (M&A) strategy. The Patientsky 360 SaaS platform has been developed since 2014, but the revenue growth in recent years does indeed seem to be very largely acquired, as Helel previously stated. This alone is not yet a problem, as acquisitions have expanded the company’s own product service scale. As I understand it, the products of these acquired companies have been “merged” into the Patientsky 360 platform, but this perhaps highlights my biggest challenge in valuing the company.

Since the lion’s share of the company’s growth currently consists of acquisitions, visibility into future organic growth is still very obscure. It is actually almost impossible to say at this point how well the company succeeds, or has succeeded, in selling its own platform service. Product commercialization only began in 2018, but due to acquisitions, it is difficult to say for sure what part of the growth has come organically from platform service sales and what part from acquisitions. In such a case, organic, continuous SaaS growth will be significantly more valuable in the future than growth spurts acquired through acquisitions. Thus, in my view, the entire investment case here hinges on the management succeeding in making acquisitions that support the core product, whose integration into the Patientsky 360 platform proceeds relatively painlessly. And on getting concrete evidence in the coming years that the company’s organic growth is as strong as can be inferred from management’s statements and expansion ambitions. If the company remains merely an M&A house in the healthcare sector, it is difficult to see such long-term value creation potential here as would be possible with organic growth and reasonable M&A inputs.

Most of all, I would need concrete organic growth figures to support the investment story, but fortunately, there are other hints of that growth. +1 million app downloads and the new expansion into the Finnish market at least promise good things and give the impression that the company’s core product has found at least some buyers. On the other hand, the lack of concrete figures and, as @timontti stated, limited analyst coverage, in my opinion, opens up a reasonable playing field here relative to the valuation, which at this point is based more on story and promises than on concrete evidence. I haven’t joined yet, but it’s strongly under consideration.

Thanks again to Timontti for bringing up an interesting company!

Edit: Modified wording.

[kto]

Kauppalehti

Patientsky is involved in this.

[timontti]

I just realized that Lynch’s Fidelity Management has appeared on the ownership list as a new entry, ranking 3rd or 4th, about two months ago. Dated 27.2.2021. They were apparently not yet involved in the IPO.

TIKR’s list didn’t show a change percentage, probably because it’s an entirely new entry. (Apparently the same as here in Finland, meaning the top-list on IR pages doesn’t show a change percentage if it’s a completely new owner, which is logical).

Well, happy May Day