Earnings call transcript: Carium’s Q4 2024 revenue rises, stock steady

Carium reported a robust performance in Q4 2024, with significant increases in both service and product sales. The company’s full-year revenue reached $871 million, marking a 5.6% increase from the previous year. Despite these positive results, the stock showed minimal movement, reflecting cautious investor sentiment amid a broader market context. According to InvestingPro data, the company’s stock has delivered a strong 31.5% return over the past year, though year-to-date performance remains modest at 0.4%. Current analysis suggests the stock is trading above its Fair Value.

Key Takeaways

• Carium’s full-year revenue grew by 5.6% to $871 million in 2024.
• Q4 2024 product sales surged by 39.1% year-over-year.
• The company expanded its presence in European markets, focusing on technology-enabled care.
• Gross margin improved by 4.2 percentage points to 44.4%.
• Carium is exploring acquisition opportunities and expanding into assisted living markets.

Company Performance

Carium demonstrated strong financial performance in 2024, with notable growth in both service and product sales. The company’s strategic focus on innovation and market expansion has paid off, as evidenced by a 42.4% increase in EBIT to $84 million. With a market capitalization of $407.4 million and a P/E ratio of 16.6x, Carium continues to solidify its position as a market leader in technology-enabled care, serving over 515,000 seniors across Europe. InvestingPro subscribers can access 6 additional key insights about Carium’s financial health, which currently rates as FAIR with an overall score of 2.0 out of 5.

Financial Highlights

• Full-year revenue: $871 million, up 5.6% from 2023.
• Q4 service sales: $165.9 million, a 7.6% increase year-over-year.
• Q4 product sales: $63 million, a 39.1% increase year-over-year.
• EBIT: $84 million, up 42.4% from the previous year.
• Gross margin: 44.4%, an improvement of 4.2 percentage points year-over-year.

Outlook & Guidance

Carium anticipates continued growth in net sales, profitability, and free cash flow in 2025. The company expects a softer first half of the year due to market dynamics in Sweden but remains optimistic about the second half. InvestingPro analysis reveals that net income is expected to grow this year, with EPS forecasts for FY2025 at $2.18. However, 2 analysts have recently revised their earnings downwards for the upcoming period. Carium is actively exploring acquisition opportunities and expanding its focus on the assisted living and direct-to-consumer markets. Discover comprehensive insights and detailed financial analysis in the Pro Research Report, available exclusively to InvestingPro subscribers.

Executive Commentary

Christian Wallen, CEO of Carium, emphasized the company’s commitment to maintaining its leadership in technology-enabled care. He stated, "We closed the year with over 0.5 a million senior people all over Europe that are dependent on our technology and services to live really rich, safe and active lives." Wallen also highlighted the importance of strategic connections, saying, "We are not of the opinion that just having connections is the right way forward. We’d rather have the right connections."

Risks and Challenges

• Market dynamics in Sweden could impact the first half of 2025.
• Delays in framework agreements in Nordic markets may hinder growth.
• Increased R&D costs, which rose by 36% in 2024, could affect profitability.
• Competition from companies like Le Grand and Tamsen remains a challenge.
• Sector-wide growth challenges in technology-enabled care could impact future performance.

Q&A

During the earnings call, analysts inquired about the company’s gross margin improvements, driven by product mix and efficiency. Questions also focused on the UK market’s recovery signs and the ongoing optimization of unprofitable contracts. Carium’s potential expansion into the assisted living market was another topic of interest, highlighting the company’s strategic growth plans.

Full transcript - Carter Bank and Trust (CARE) Q4 2024:

Matthias, Moderator/Host: Technology enabled care is what Carium is all about. And Carium published their year end and Q4 report earlier this morning. To add some color to the numbers, I am pleased to introduce CEO, Christian Wallen and CFO, David Gerhardt. Welcome.

Christian Wallen, CEO and President, Carium: Thank you.

Matthias, Moderator/Host: Thank you. What are you most proud of in this report?

Christian Wallen, CEO and President, Carium: I think the number one thing that we are the most proud of is the development in The UK. If you have followed us for some time, you will see that for the past couple of years, a lot of issues have been related to that part of the business. While improvements have been steady, I think we mentioned last Q3 report that we’ve had four consecutive quarters of service growth. We do see a very, very fine outcome from The UK business for

Matthias, Moderator/Host: the fourth quarter, which we are very happy about. I understand you. And after the presentation, there will be a Q and A. We are joined by two equity analysts and viewers can ask their questions in the live chat. So by that, please go ahead with your presentation.

Christian Wallen, CEO and President, Carium: Thank you so much, Matthias. Warm welcome again then to the Carium Q4 of twenty twenty four and year end report. As stated, I’m Christian Mallet, CEO and President of Carium. And with me is my colleague, Dovry Gernodt, our Chief Financial Officer. So warm welcome, and let’s open up with the highlights of the fourth quarter and the year end.

If I may have the next slide.

Matthias, Moderator/Host: Oh, sorry.

Christian Wallen, CEO and President, Carium: Oh, I wasn’t given the magic ticker. If I can manage it myself, hopefully I can. All right. So first off, we are, of course, very pleased to present a positive quarter and a return to growth with strong profitability. We have issued the guidance for the year and we are pleased to note that we, on the growth side, come in at the lower ranges, but on the profitability side, deliver an outcome for the full year that is in the upper ranges of the guidance.

And on a very personal level, for me and the entirety of Carium, we closed the year with over 0.5 a million senior people all over Europe that are dependent on our technology and services to live really rich, safe and active lives. And I think that’s absolutely amazing. And as we look to the many good years to come for Karyum, of course, a huge milestone for us is to attain 1,000,000 people served. So we’re really happy to see that we’re now halfway to what is very near and dear to us. And with the highlights out of the way, let’s head over to sales and gross margin for the fourth quarter of twenty twenty four.

So in 2024, the fourth quarter, organic growth amounted to 14.8%, twelve point five % if you adjust for currency. Sales were strong in all regions, say for The Nordics. And in The Nordics, it was particularly Sweden. That was a bit of a drag due to a big framework of agreement that the market is waiting for that will be in place in the first half of twenty twenty five. Service sales increased 7.6% to 165,900,000 compared to $154,100,000 in the same period of 2023.

Product sales increased 39.1% up to 63,000,000, which is up from 45,300,000.0 in the same period of 2023. The main driver of this increase was, of course, The UK business coupled with our operation in Germany or DACH, as we like to call it. We delivered a gross margin at a very good 44.4%, up from 40.2 in the same period last year, and this was very much driven by the regional and product mix making up the sales. And with that, we head to our markets in more detail. So first off, our business in The Nordics saw a sales decrease with 7.4 compared to the same period in Q4 ’twenty three.

Service sales declined 6.7% to 87,600,000.0, down from 93,900,000.0 in the same period last year. Product sales, meanwhile, declined 16.1% amounting to an outcome of 6,900,000.0 SEK here in twenty twenty four Q4 compared to SEK8.2 million in the same period last year. Our business in Norway developed very nicely in the period, so the main decrease is attributable to this Swedish business. And it’s a combination of factors. As we mentioned, it’s the two gs and three gs delay and the impact it has on customers.

But it’s also the fact that the majority of the business in Sweden is done on a framework called the ADA, and that framework is to be updated with a new version towards the end of the first half of the new year. So naturally, there is a little bit of hesitancy in our customers not being so many contracts to the market. We probably expect the situation to be slightly different in the other half of 2025. The decrease in gross margin that readers might have noted is mainly attributable to the lowered sales. And with that, we turn to The UK, which as we have said many times, is probably the number one market for technology enabled care in Europe.

It has the highest level of penetration and also the biggest volume in terms of revenue. So sales increased 19.8% compared to Q4 of twenty twenty three. Service sales were at $51,300,000 up from $42,600,000 an increase of 20.4% and product sales amounted to 29,500,000.0, up from 24,900,000.0 in the same period last year, an increase of 18.8%. Gross margin positively improved following the higher sales and effects of the product mix also. With that, we turn to The Netherlands.

The Netherlands, as usual, delivers strong sales growth of 27.4% compared to the fourth quarter of twenty twenty three. Service sales grew by 37% up to 21,300,000.0 from 15,500,000.0 in the same period of last year. Product sales declined, but from very low comparable levels. The Netherlands market is mainly a services based market. The gross margin came in at 62,800,000.0 up from 57,000,000 while this is great and part driven by scale and sales, of course, it is also something that we see in The Netherlands, where it swings a bit.

For other markets, which primarily consists of DACH and France, we have Spain in the mix also, but as we have communicated, Spain is starting from very, very humble beginnings. Sales increased an impressive 149% compared to the fourth quarter of twenty twenty three. Service sales increased 175.1%, up from SEK2.1 million in Q4 ’twenty three to SEK5.7 million in Q4 ’twenty four. Product sales came in at SEK26.1 million, up from SEK10.7 million in the same period last year, which is effectively an increase of 144%. Gross margin improved to 60.7%, up from SEK47.4 4 percent in the same period of last year, mainly driven by the product mix.

Now of course, these are fantastic number. We are super proud. Our teams in France and Germany are doing a phenomenal job and we are really appreciated by the customers. But I like to also remind viewers here that the Q3 of ’twenty four was fairly soft for the other region. And with the smaller markets, we tend to have these swings.

I think we said that in the third quarter also. And with our markets out of the way, I hand over to David to talk us through the profitability. You get the magic remote here.

David Gerhardt, CFO, Carium: Thank you. Yes, thank you, Christian. And now an update on the profitability for the quarter. EBITDA amounted to 44,000,000 compared to 35,000,000 for the same period last year, giving an EBITDA margin of 19.1% compared to 17.8% last year. EBIT was $27,000,000 in the fourth quarter compared to $17,000,000 last year, reaching an EBIT margin of 11.6%.

As we communicated last quarter, we saw an increase in depreciation following the launch of the Eye Care Center. Despite this, we see good development on profitability, mainly driven by growth in sales, positive product mix and improved efficiency. In Q3, we secured profitability despite low sales and in Q4, we showed our ability to boost profitability with higher sales. With that, moving on to cash flow. Cash flow from current activities in the fourth quarter of twenty twenty four amounted to $35,000,000 compared to $54,000,000 for the same period in 2023.

Working capital increased $7,000,000 in the quarter in line with sales. However, during the full year, Careem increased its net working capital as a percentage of sales. This is partly due to increased financial lease receivables. Free cash flow was $70,000,000 and over the past year, we have accumulated $37,000,000 of free cash flow. Cash totaled $32,000,000 and the bank overdraft facility had unutilized amount of $50,000,000 resulting in available cash of $82,000,000 at the end of the year.

Net debt decreased to $165,000,000 at the end of the quarter compared to a net debt of $194,000,000 last year. Leverage was $1,100,000 to be compared to $1,400,000 for the same period last year. To summarize, we have sufficient cash generation to pursue our strategic opportunities. And with that, I hand over to Christian for some summary and conclusions.

Christian Wallen, CEO and President, Carium: Thank you, David. So since this is the fourth quarter, it’s also time to kind of summarize the year. And for us, as we look back to 2024, we see that we delivered sales of $871,000,000, up from $825,000,000 in 2023, a growth of 5.6%, which I personally believe is a fairly strong outcome given a lot of the headwinds that we’ve had with prolongations and delays on infrastructure changes and so on. EBIT for the full year amounted to 84,000,000, up from SEK59 million in 2023, which I think is also reflective of all the hard work in developing ourselves as a more efficient business. So really proud of that outcome.

Free cash flow, David mentioned it just now, amounted to SEK37 million, down from SEK62 million when we compare to the last year. And as David mentioned, it’s also a little bit of a tie up here in the working capital and the leasing receivables. So from our view, we think it’s a really, really solid year, namely the strong profitability is indicative of our performance. The net sales growth, yes, it was a challenge. We saw it in our two main markets.

All the ones unaffected by these market specific issues and challenges did really, really well, which is great. And on top of that, I think 2024 was such a landmark. We launched some new products and some new solutions that will be absolutely integral to our future success. And chief among them, I would name the ABBYY, the Mobile Social Alarm (NASDAQ:ALRM) for the sort of out and about or perhaps slightly younger senior and the Eye Care Center, which is a huge part of our technology foundation going forward. Basically, the digital backend that enables us to provide these great services and technology and orchestrate all the activity on it.

So really, really good year, and I’m really pleased to close it. In concluding remarks then, for the fourth quarter, we thought that growth was good with The UK product sales showing really good positive development. We saw phenomenal development in the other segment, DACH and the France, of which we are very proud, of course. And we attained the guidance on the lower range of the growth but on the higher end of the profitability. The challenges that persisted in Q4 was obviously the impact on the sales in Sweden.

But adding to that, we can also see that the upcoming new ADA 2025, as it is known, it probably creates an effect where people are waiting a little bit to see what it will be like. I think that’s fairly reasonable and something to expect impacting the first half of the year. So our priorities going forward is a strong focus on keeping The UK product sales high, working with the Swedish customers to mitigate as much of this delay as possible, of course, until we are sort of on greener pastures on the other end of a new framework, which we expect to be a part of. As we mentioned in the report for the fourth quarter, yes, the great performance we need to focus and work actively on in our current business, but it’s now also time for us to truly get serious about looking to expand our presence in adjacent markets such as the assisted living market to be much stronger in the direct to consumer side. We service a lot of end users in a direct relation today.

We can do that a lot better. And in addition, we are also opening up to exploring and evaluating acquisition opportunities. So as you can see on the bottom of the slide, as we look forward to the next year, last year, we presented our guidance for the upcoming year due as part of the Q4 presentation and report. And for 2025, we expect our net sales, our profitability and our free cash flow before acquisitions to increase compared to 2024. Due to, as previously mentioned, the impact of the Swedish market, which is, of course, big for us, awaiting this new major tender framework, this is where 80%, eighty five % of all business in Sweden is made, we expect the first half of the year to be softer and the second part of the year to be stronger in terms of the guidance.

And that concludes the presentation, and we would be happy to open up to any questions.

Matthias, Moderator/Host: Thank you so much, Christian and David. And we will now present Jakob Lempke of SEB, the bank. Please go ahead with your questions, Jakob.

Jakob Lempke, Analyst, SEB: Thank you. I hope you can hear me well. So starting off on the gross margin here in the quarter, which is very strong across all regions except Nordics, I would say. Is there any particular like high margin product driving that or anything else structures such as better efficiency, better contract pricing or something like that?

Christian Wallen, CEO and President, Carium: I can answer that. I think it’s a combination of a lot of things. It’s everything from renegotiating certain contracts. It’s a favorable product mix. Some of our newer technology, we are smarter in the manufacturing, so it has a good impact.

It is also, and I think this is something that is at times forgotten with us, The more we drive the sales, the greater we can push the pricing on production and components and so on, which is a very, very interesting play for us. It takes some time to reach volume thresholds for when the effects come in, but we can see it on some of our product lines, which is, of course, very favorable. But also the high sales, obviously, a big factor also.

Jakob Lempke, Analyst, SEB: Okay. And then on the outlook, you mentioned that H1 will be weaker and H2 stronger. And I understand that it’s mainly driven by the dynamics in Sweden. So just looking at Q1 and Q2 here, should we see it as sort of that Q4 is the sort of bottom level and it will be flat growth compared to Q4? Or is it risk that sales sort of deteriorate further from the Q4 level, you think?

Christian Wallen, CEO and President, Carium: Well, I mean, that is a little bit depending on how the market approaches this. I mean, Sweden is very important for us. And of course, if majority of the business is done in a framework environment and that framework is to be updated, I mean, if I were a Swedish customer, I’d wait, so to speak. That doesn’t take away our existing contracts and work that we are doing. So in terms of guidance, what we conclude for the full year is, of course, that we expect to do better and I have good confidence in our ability to do so.

But we do note that this will be a slightly softer first half and then the second half is to improve. However, on your question, if I understood it correctly, is will there be a continuation of Q4 onto Q1 and so on? I think if you look historically, the Q1 tends to, in a comparable sense, be a bit softer than the Q4. So I don’t think it will be the same story rolling forward, but I think the better comparison is Q1 of twenty twenty four.

Jakob Lempke, Analyst, SEB: But just to understand it, let’s say there are limited activity in Q1 and you implement no new contracts, is there risk that sales sort of decline further than from the Q4 level in The Nordics?

Christian Wallen, CEO and President, Carium: Yes, there is always a risk. On the other hand, we have really good performance in our Norwegian business, growing really well. So let’s say when we summarize the quarter, I think it’s actually too early to tell. We have a couple of these opportunities. I mean, they are obviously always fully transparent when it comes to these tender based markets that we see in The Nordics.

For example, we secured and won the Helsingborg contract, which is a pretty big one as part of our Q1 activities thus far. So I think it’s too early to say.

Jakob Lempke, Analyst, SEB: Okay. If we then move on to The UK, very good to see the return to growth here in the quarter and particularly the service sales, I would say. And just looking at the step up here compared to Q3, is there any new contract that has been

Christian Wallen, CEO and President, Carium: So The UK has seen a lot of really good contract wins throughout the fourth quarter, which is great, but the majority of those are not yet to be implemented. That happens in 2025. So we don’t really see any meaningful revenue from those in the Q4. So it is majority good sales, good activity with the customers, also perhaps a little bit of this hesitancy that is slowly fading away. People realize that there is a real urgency.

You can’t wait because what happens when you wait in the context of The UK is that things are not the same. They are actually deteriorating in terms of the service level of this infrastructure that our types of solutions are the ones that we hope that customers switch from. They actually deteriorate. So customers get more and more challenges and issues. So hopefully, there’s a bit of light in The U.

K. Product sales tunnel. But we also see good development in Sweden. We’ve made some adjustments in our UK organization and created some other focuses for certain talented people, and we can see some good effects coming out of that already.

Jakob Lempke, Analyst, SEB: Okay. Then on your ambitions to expand into assisted living, it would be interesting to hear just sort of the way you will enter the market. Is it through winning a larger tender or is it more maybe going to the private providers or how you will enter the market and also the sort of time line before you think it could contribute with anything?

Christian Wallen, CEO and President, Carium: That’s a very good question. And as it stands today, we operate about five, what we call, pilot sites, which are fully blown, fully operational senior homes that we are servicing. We do a couple in Sweden. We do a couple in The UK. They are slightly different in terms of how senior care homes are set up.

They follow different kind of ways of doing senior care. So what we expect to do, since the markets are a little bit different, in Sweden, it will be to enter into a framework for assisted living solutions, which is where the majority of the action happens, so to speak. That one is currently out for companies like us to bid onto and become connected to. The hand in date, I think, is in March. So it’s fairly close.

And in The U. K, which while a lot of the business is to the public sector, the local authorities and councils, it actually works much more like a B2B environment. So it’s very much a sales activity related to our already existing customers to see what needs they have. If we go to the TSA, which is the industry organization in UK, they point to out of all the care homes or facilities in The UK, about 20%, twenty five % of them are on digital solutions. The others are on ancient analog technology.

And if you compare that to the individual living or the dispersed living, people living in their own homes in The UK, about 40% are assumed to be on digital infrastructural solutions. So while there are fewer care homes, they are actually even more behind in terms of this digital shift. So we’ve developed some solutions. I know it sounds very tiny, but we have a really good site running in Monmouthshire, which has become a place where a lot of potential customers actually come to visit and look through how we’ve set things up because it’s really smart and it’s really good for both the seniors and the customers. So we have some innovative thinking that we want to take even further.

So it will be market by market. We will probably focus mainly on Sweden in a tendered sort of go to market route and in The UK, more in the B2B, but B2B style business to the public.

Jakob Lempke, Analyst, SEB: Okay. And just, I mean, if there’s tenders out now, you could potentially then win a tender this year and maybe see revenue contribution late this year or next year?

Christian Wallen, CEO and President, Carium: Yes. And Assisted Living works a little bit differently. It’s kind of business profile. It’s more that you start out with a lot of installation because that is required when you set something up. You are doing something to the facility and making sure that everything is configured and set up.

So you have more of a sort of upfront component to the revenue and then you have the recurring part, which we love, of course. And then you also have a different kind of sort of follow on sales. It requires maybe a bit more activity and close work with the customer at the facility. But what you do is that you implement additional solutions based on what you discover and also based on what type of seniors are in the care homes care because the needs can be quite different for different types of technology depending on their condition and state. So it will be really interesting for us.

We look very much forward to it, but we are at this sort of explorative stage where we are an operator, we want to own the customer as always, but we are learning a lot as we go along and so far so good.

Jakob Lempke, Analyst, SEB: Okay. And that’s all on the assisted living. Just a final question on other markets. It seems like it has been sort of a breakthrough year here in 2024. Maybe you can just share what you think has been the success factors behind that and also how you look at 2025 now with a quite strong year here in 2024?

Christian Wallen, CEO and President, Carium: So I think what makes me really proud about the development, apart from the fact that we have great people and we have taken on more great people, something like Donald Trump there, everything being great, what we did was that we made a strategic decision in 2023 where we said that if we want to really become the number one company in this sector in Europe, we need to have equal capital allocation of focus to the highest potential markets. And if we’re a little bit self critical, we’ve been very Nordics focused. That usually happens to Nordic companies, so it’s nothing strange. But for us, it was really important to say, let’s put the needs of these really, really strong markets, the DACHs, the Frances (BCBA:BBARm), the Spains, let’s put them slightly more ahead of the known and tried and true, where we already are strong. So the major contributing factor to this success is the fact that we’ve made a lot of adaptations to adapt our portfolio and our services to be more competitive in these markets.

And thus far, we’ve clearly seen a very good response to that. But it would not have happened without the great people who are doing their job in these places. So it’s a combination of those two. But it’s very intentional and you are always, as a CEO, you are always the happiest when you can see that you, together with the management team, you decide on something and then maybe it takes a year, but you get to see the outcome of that decision. And I think this is one such story.

Jakob Lempke, Analyst, SEB: Okay. And it sounds very promising and it sounds like you’ve done the right decision. And on that is Spain, you think that is something that could contribute in 2025 or is it too early still?

Christian Wallen, CEO and President, Carium: Well, Spain, I think we said that in the Q3 when we announced that we had set up sort of commercial operations or reopened them, that we expected it to contribute in 2025. Now what I would perhaps myself think is a bit interesting with Spain is that it is very binary. It’s very hard to put a number onto how much revenue is to be generated because Spain is kind of all or nothing. Either way, it’s zero or it’s a whole lot. So in that regard, I’ll stick to saying that they will be contributing in the year, but to the extent or how daring we are to be, that is too early to say.

We’re doing a good job. We’re having the right conversations. Sometimes the tendered opportunities in Spain, they are so big, you can’t win it all, but you win a fraction of it. So let’s see. Our intention is, of course, to have Spain contributing positively in 2025.

It’s also a very, very important market for Telecare. As I’ve said many, many times, one of the benefits of being in these different market contexts, it’s challenging for us as a company, but it’s also extremely good because all the demands are slightly different and all the markets do things in a way that we would be happy to put on export to some other market because it will give us an advantage. So Spain has a very interesting model. They are a lot more proactive. They are a lot more sort of outbound in how they view how technology enabled care is applied.

So it’s a lot of interesting things to learn from that ecosystem.

Jakob Lempke, Analyst, SEB: Okay. Sounds good. That’s all for me today. Thank you very much.

Matthias, Moderator/Host: Thank you. Thank you, Jakob Landcare of SEB. And we move on to ABG Sundal Collier and Alice Bier. Please welcome and ask your questions.

Alice Bier, Analyst, ABG Sundal Collier: All right. Hi. Thank you for taking my questions. So just first on the market in general, I assume that everyone in this space is affected by the market delays. But could you give any color on if you’re taking any market share or if everyone is equally affected?

Christian Wallen, CEO and President, Carium: In Sweden, you mean in relation to this framework there?

Alice Bier, Analyst, ABG Sundal Collier: Yes, both the framework but also just the infrastructure delays in The UK.

Christian Wallen, CEO and President, Carium: Yes, absolutely. When we talk to our sector colleagues, it’s more or less the same for everyone. And while we are the only, I think, listed company in this business, we have a competitor called Le Grand who have a subcomponent, huge French conglomerate, they are also public. But I think the best indicator of things was Tamsen, who is by far the largest company in our sector all over Europe. When their financial reports, Broken Year, were released a couple of months ago, their growth was flat.

It was zero. So I think that speaks volumes to how everyone is impacted. And they are a U. K. Company and are by far the, in terms of market share, biggest entity in The U.

K. So I think this goes for everyone.

Alice Bier, Analyst, ABG Sundal Collier: All right. Thank you. Very good. A couple of questions on the OpEx and costs. You wrote that profitability improved partly because of your work on efficiency.

OpEx was slightly down as a percentage of sales for the full year. Is there room for more cost efficiencies? Or should we expect OpEx levels to increase to support growth?

Christian Wallen, CEO and President, Carium: No. I think for us, I mean, you could argue that it’s a bit boring that you consistently state that, oh, it was due to efficiency, but that is the reality. We are very, very hard and serious about our work in constantly getting more and more efficient. If If you look back to the story of Carium as a stand alone entity and all the challenges that we faced from the onset, a lot of the gains made are the lever for that is to be really efficient and really focused. So we always think there is more to do.

And of course, we are always running projects on a market by market basis where we can see that we have efficiency gains to be had. And of course, if they are mini skewer, perhaps we aim for bigger fish. But that we will be constantly working on. And we haven’t even entered into how can AI make us more efficient and all that stuff that everyone is thinking about. So we’re still working with basics and we still think we have a lot to do.

So really looking forward to that. In relation to the OpEx, a little bit dependent on where the cost lands, of course. As we have signaled, we want to make sure that we retain our sort of number one position as the technology leader because we are at the heart of technology company. I mean, half a million people are dependent on our technology and that goes for the digital side, the hardware, the firmware and so on. So we want to make more investments into our technology because we see that it’s at the pivotal shift.

Everyone is moving to digital. They are not fully there yet in some other markets, but that also opens up to so many new possibilities that we want to capitalize on for service design and delivery and increased ARPU and what have you.

Alice Bier, Analyst, ABG Sundal Collier: All right. And just really moving on from that then. R and D costs, they increased by 36% for the year, I think. Is that a lot due to the Eye Care Center? And what should we expect from R and D going forward?

Is this a new run rate level? Or should it decrease?

Christian Wallen, CEO and President, Carium: Well, compared to some other companies who might have, I mean, we are very much a real company. We fund ourselves. So we fund our own journeys and thus, we need to be very disciplined and focused. We do see a willingness both from management and board and based on our strategy to increase our investments into R and D. But I think the promise to all shareholders is that we will do so very responsibly.

As you might know, we have a new CTO who joined now during the late autumn, so to speak, for winter, and we’re already seeing the effects of what does it mean to work in a more efficient manner, more focused, yes, we need to bring some more people about. But in the greater scheme of things, I think the investments are not they are nowhere near where they are not offset by us working really hard on the efficiencies.

Alice Bier, Analyst, ABG Sundal Collier: All right. Thank you. Just one more question on OpEx. We saw an increase in admin costs for the first time in, I think, eight quarters. Your headcount expanded a bit in other regions, decreased a bit in The UK.

How should we think about admin costs in 2025?

Christian Wallen, CEO and President, Carium: So I think the admin cost, as you’ve seen, we’ve had this great growth in the other regions. And of course, we also want to build a sustainable organization around that. So we are extremely fortunate in that we’ve been able to source some, we believe, maybe strongest talent in these markets in our sectors. And they actually want to come and work together with us on our mission. So that obviously increases the costs

Matthias, Moderator/Host: a little bit, but we think

Christian Wallen, CEO and President, Carium: it’s for a good reason. And it’s probably not sustainable to have this crazy level of growth without increasing costs somewhat in the other markets.

Alice Bier, Analyst, ABG Sundal Collier: Makes sense. And on cash flow, could you expand a bit on the cash flow and specifically how we should think about the increase in financial lease receivables?

Christian Wallen, CEO and President, Carium: I think that question has David written all over it. Yes. Thank you.

David Gerhardt, CFO, Carium: I would say, I mean, one reason that the cash flow increased in ’twenty four is due to the financial lease receivables. It’s also connected on how you will see the sales develop during 2024, where we see it’s a little bit maybe softer in the first half of the year, it’s dependent on if we classify a lease contract as operational or financial lease. We see that it’s going to be developing kind of the same, but we as we put in the guidance, we also see that the cash flow the free cash flow is going to improve over the year. And so my guess is that working capital will kind of be in line with sales increase.

Alice Bier, Analyst, ABG Sundal Collier: And you’ve talked about this before, but your work on the unprofitable contracts in The U. K, just looking for updates since the number of connections was down again. How much has been done in 2024 and how much is left to be done?

Christian Wallen, CEO and President, Carium: Well, I think when we close the books on ’twenty five, I think we would not be saying this anymore. So we still have some work to do. Contracts have, in The UK, they work a bit like this. They are fairly short as you enter into them, but they have quite good prolongation opportunities. And that compared to Sweden where you might have a slightly longer contract as you enter into it, but when it’s done, you need to basically go out to a new tender.

That is more flexible in The UK. This means that you can also argue on the pricing and so on. So I think for us, it will continue for another while. There are also some contracts that we know that they have to be retendered and we are not guaranteed to win them as it’s fierce competition in The U. K.

Market. So I would expect them to maybe drop a little bit more. But when we close the books on ’25, then I think we have to say that we are done. It’s possible also that they increase the situation in U. K.

Is such that some of the contracts that are out there, they’re also incredibly big. And winning one of those would basically have quite a substantial impact on the number of connections. So I think it’s a little bit hard to say. We are too early in the year to really have a firm opinion. As I think we have communicated to the market, we are not of the opinion that just having connections is the right way forward.

We’d rather have the right connections. And I think a better metric to really understand the impact of Carium and of course with a very clear connection also to our financial performance is how many people are actively reliant on hardware or services from us. Currently, that’s at 515,000. All over Europe, maybe that’s a better metric to report. As we always do, we only update our report structure with the first quarter of the new year.

So let’s see what pops up in there.

Alice Bier, Analyst, ABG Sundal Collier: All right. Understood. Very good. And I just have one final question. Your leverage is down quite nicely and you had strong solid free cash flow over two years now.

Could you share anything more about your plans for your capital allocation?

Christian Wallen, CEO and President, Carium: Yes. So I think as we now communicate, we have a couple of areas here where we see that we do believe that we can do a lot better. The assisted living side, we have the direct to consumer side. We also have investments going into our R and D, of course, and building the ecosystem that we want to enable customers to move quite freely within. But aside from that, as we now clearly state, we’ve hinted at it for a couple of these calls, it is now time for us to also look to the inorganic growth opportunities, try to see which ones are there, what opportunities do we want to explore or pursue, and that is obviously a part of the capital allocation.

Alice Bier, Analyst, ABG Sundal Collier: All right. Well, thank you for taking my questions.

Matthias, Moderator/Host: Thank you so much, Alex Bier of ABG Sundal Collier. And I know you have another meeting scheduled. We have to raise some of the viewers questions anyway.

Christian Wallen, CEO and President, Carium: For a lot of the viewers questions. Yes.

Matthias, Moderator/Host: First of all, last time you were here in Q3, you mentioned we had to talk about an important contract in Norway. How did that end? Yes.

Christian Wallen, CEO and President, Carium: It hasn’t ended yet, put it that way. So this was the second biggest contract in Norway. We bid on it together with two partners, so we were three together, all doing our separate parts of it. The current incumbent was, I think, five entities together. So this is quite complex.

And the situation is actually that we won the contract, but it was appealed. So it is now in the Norwegian court to see what happens with it. This is quite common in Sweden. Appeals are nothing strange in Sweden. In Norway, it is super rare.

So this barely ever happens, which is interesting, but the verdict is to come Friday. So hopefully, we’ll know tomorrow.

Matthias, Moderator/Host: So it could be a really good week from just very good. Who knows? Who knows? Okay. And then we have this question.

The gross margin in The UK is increasing by five percentage points sequentially. Is this due to the reduced customer base in The UK or temporary product mix effects?

Christian Wallen, CEO and President, Carium: I think it’s more to the product mix, I’d say. I mean, if we look if we roll back the clock not to ’twenty three, but earlier, we could see that product sales in The UKs were extremely strong in ’twenty two, even on the challenges there. In ’twenty two, ’twenty three, we had really good product sales up until the point where these prolongations were announced. So I think that is one

Matthias, Moderator/Host: of the main drivers that, that component is, of course, bigger. And another question, the service sales in The Nordics are down 6% sequentially. This is despite a large order from Norway. Have you lost a major customer or is it many smaller customers that you have lost to competitors?

Christian Wallen, CEO and President, Carium: No, it’s more to David’s question on the classification of how we are forced to take, so a contract in Sweden, it’s set up in a way where you bundle the connectivity, the monitoring services and the hardware. And for some of these contracts, we have to classify them as either operational or financial leasing, and that has implications on the revenue recognition. So Sweden is very much unchanged. It has not lost a lot of contracts. It’s rather growing pretty well and having a very, very good win rate.

But from a revenue recognition standpoint, it is something where you could have a bit of a swing. So it’s more of that effect that we’re seeing.

Matthias, Moderator/Host: Thank you. And one last question. Last year, you provided a clearer guidance for the year. You have shift why have you shifted to a more vague forecast this year?

Christian Wallen, CEO and President, Carium: Is H1 expected to be weaker compared to last year? Well, weaker, we would not like to have. Of course, we want to do better, but we want to perhaps also being a little bit respectful of how we approached last year. We came into the year with a very clear guidance. And of course, we thought we could do maybe even better.

But what faced us during the year was, of course, that we had a lot of headwinds that we could not control. These sort of delays and those things that had a real effect on our ability to perform. And thus, we were forced to revise the guidance. So we genuinely feel, we have very strong confidence that we on three metrics, the sales, the profitability and the free cash flow, will do better. We do think that the profile for the year will be that it is a softer first half, mainly related to the Swedish situation, whereas we expect the other parts to do pretty well.

Whereas in the second half, we do believe that things will be pretty strong. So yes, it is more vague. That is correct. However, I think it’s more appropriate given what we had during the last year. Okay.

Matthias, Moderator/Host: Thank you. And that will conclude today’s broadcast. Thank you, Christian and David for participating. Thank you

Christian Wallen, CEO and President, Carium: so much.

Matthias, Moderator/Host: And also thank you, everyone, that has been viewing. And please welcome again in about three months.

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