Earnings call transcript: Terveystalo Q1 2025 sees EPS rise 41%

Terveystalo Oy, with a market capitalization of $1.71 billion, reported a strong start to 2025 with a significant increase in earnings per share (EPS) by 41% year-over-year for the first quarter. Despite a slight decline in revenue by 1%, the company’s profitability improved across all business segments. The stock price rose by 1.37%, closing at $11.88, reflecting positive investor sentiment. According to InvestingPro analysis, the stock appears slightly undervalued, trading near its 52-week high of $13.90.

Key Takeaways

• EPS increased 41% year-over-year.
• Revenue declined slightly by 1%.
• Stock price rose by 1.37% following the earnings report.
• Healthcare Services segment grew nearly 5%.
• Company maintains a strong competitive position in the healthcare market.

Company Performance

Terveystalo showed robust performance in Q1 2025, with notable improvements in profitability despite a slight dip in revenue. The company’s focus on enhancing its service mix and channel strategies, coupled with disciplined investments in organic growth, contributed to this positive outcome. The Healthcare Services segment, in particular, demonstrated resilience with nearly 5% growth, even with one fewer working day in the quarter.

Financial Highlights

• Revenue: $360 million, a 1% decline year-over-year.
• Earnings per share: $0.2295, a 41% increase year-over-year.
• Adjusted EBIT rose by 20%.
• EBITA increased by 14%.

Outlook & Guidance

Looking ahead, Terveystalo expects full-year revenue growth and anticipates its adjusted EBIT margin to be at the upper end of the guidance range of 10.7% to 11.8%. Analysts tracked by InvestingPro maintain a strong buy consensus, with EPS forecast of $0.98 for FY2025. Despite potential indirect impacts from global economic uncertainties, the company remains optimistic about its growth prospects, supported by ongoing investments in organic expansion and service enhancements. The company’s strong financial health score of 3.18 out of 5 on InvestingPro’s comprehensive assessment framework supports this positive outlook.

Executive Commentary

• "We are primarily a private money business," stated Jusse Pajolen, CFO, emphasizing the company’s financial strategy.
• CEO Bill Lehiho noted, "Megatrends continue to support a longer-term increase in demand for healthcare services," highlighting the company’s strategic positioning.
• CFO Jusse Pajolen also remarked, "We are a cash machine and we’ll continue to be a cash machine," underscoring the company’s strong cash flow generation.

Risks and Challenges

• Challenging public sector market conditions could impact future growth.
• The healthcare staffing market is facing cyclical challenges that may affect service delivery.
• Economic uncertainties globally could indirectly influence the company’s operations.

Q&A

During the earnings call, analysts raised questions about the macroeconomic impacts on Terveystalo’s operations, the composition of healthcare services growth, and the cyclicality of the staffing market. The company addressed these concerns by highlighting its flexible operational model and strong competitive advantage in resource allocation.

Overall, Terveystalo’s Q1 2025 earnings demonstrate solid performance and a positive outlook, buoyed by strategic investments and a resilient market position. For deeper insights into Terveystalo’s financial health, valuation metrics, and growth potential, investors can access the comprehensive Pro Research Report available exclusively on InvestingPro, which provides detailed analysis of this and 1,400+ other companies.

Full transcript - Terveystalo Oy (TTALO) Q1 2025:

Kathy Kaxonen, Investor Relations and Sustainability, Terveystala: Good morning, everybody, and welcome to Terre first quarter results webcast and conference call. My name is Kathy Kaxonen. I’m responsible for Terre Verstala Investor Relations and Sustainability. As usual, our CEO, Bill Lehiho and our CFO, Jusse Pajolen, will present the results and we’ll follow that with a Q and A. We’ll take questions from the phone lines as well as through the webcast and from the audience, if there’s any.

But without further ado, over to you, Will.

Bill Lehiho, CEO, Terveystala: Thank you, Kati. So diving into Q1 very shortly through the key numbers. All in all, a solid start of the year and continuing on improvement path that we have laid out during last two years. Margin is up. Our adjusted EBIT is up by 20%.

EPS up by 40% against slightly dropping revenue line, which is then again due to softness in Sweden, softness in portfolios and some discontinued outsourcing contracts in portfolios. Healthcare Services still growing with healthy 5%, but all in all, flat this quarter in revenue. Very glad to still see our NPS customer satisfaction trending upwards as it has done throughout the improvement journey that we have conducted. So strong solid start for this year 2025. Looking at different businesses, if there’s one headline for the agenda, it’s improvement.

As we have communicated previously, we are looking for still incremental improvement in Healthcare Services, which is already on a very strong place. Q1 was one step in that journey. In Portfolio Businesses in Sweden, we are looking for more drastic performance improvement against tough market conditions in portfolios and in Sweden. I’m very glad to say that both of these businesses have been able to improve their relative profitability. First step in Sweden to see the real benefits of our turnaround agenda and turnaround program in our bottom line numbers, portfolios continue to do good work against fairly tough market conditions and incrementally improving their performance.

The agenda is solid. Improvement will be there across the board. Taking a slightly longer view on our strategic agenda and strategic KPIs. It’s been again a solid improvement in efficiency, organic growth, but also in underlying forward looking KPIs like NPS, customer satisfaction and people engagement index, where we also see all time high figures and positive trend going forward. Also Medical Quality measured with pay index trending nicely to positive territory and at all time high.

So all in all, we have not only been able to improve the financial performance step by step, but also underlying forward looking KPIs in our strategic agenda. With that one, I will hand over to Jus.

Jusse Pajolen, CFO, Terveystala: Thank you, Will. So good morning all. Happy to be here and proud to present our numbers for first quarter. So I’m Juso Bayonen, the CFO of TERVEST DALA Group. If we start on the group level, Heather says solid performance at group level, some might say even strong performance.

We have been doing quite well. If we look on the totals and we start from bottom up, our EPS went up 41% like Vile told. Our EBIT adjusted EBIT is almost 20% up and our EBITA is 14% up. So we have a throughout solid performance from the income statement KPIs. And what is more important, if we look on the picture, is that all of our business segments improved in their relative profitability.

We are getting the demand in, we have the improved operational efficiency and we have a favorable service mix, especially in the Healthcare Services, that yields now into our results. Then if we look on the top line, we have health care services having a healthy almost 5% demand against one working day less compared to previous quarter. We have the portfolio businesses where especially outsourcing contracts contributed to negative revenue development and then we have Sweden where we are working on our turnaround program and progressing as planned. But if we go a bit deeper into each segment and start with the Healthcare Services. So Healthcare Services continues to be the revenue driver and the profit driver in our group.

If we look into the supply and the booking rates, they are on a good level. What is good to understand on the demand is that the flu season continued to be strong. We had some 25,000 to 30,000 visits more contributing on the stronger flu season now compared to previous year. That helped our both the service mix and also having an impact on the customer mix, which on a big scale are fairly normal, but we see that in the total demand. If we then think about further our profitability and our revenues were supported by our service sales and channel mix and then the pricing and to improve our transparency towards markets, we have now updated how we show this one to you in the future.

So if we take a view on the growth and the revenue bridge, as said, almost 5% up. Our visits are moderately growing with somewhat 0.4 percentage points if we adjust for the working days. And then the rest of the growth is coming from the service sales and channel mix in total. So all in all, a robust result in Healthcare Services supported by organic growth and an efficient operation model. If we then go to see the portfolio businesses, we have seen that the publicly funded market remains cautious.

We see this one, especially in the staffing, where part of the decline in the revenues is still coming from our selection of customer contracts And then we have the outsourcing, where we are €10,000,000 down. We have earlier told that we will, this year, lose revenues in the ballpark of €25,000,000 It will be first half heavy and that estimate of EUR25 million has not changed despite this EUR10 million at the moment. Then, if we look on the consumer driven markets, we see dental is going up despite the headwind from the one working day less, we are almost 5% up and also massage services, we see that the demand is picking up. However, it’s good to note that these are coming against quite weak comparables when it comes to demand. So all in all, what is important is that we are improving our adjusted EBIT percentage.

We are now going back on the improvement, both on EBITA level and EBIT level in total in the portfolios. Our agenda is working, but we have some stickiness in the public sector market at the moment that creates headwinds in the revenue. Then if we go to Sweden. We have difficult market conditions. The Swedish economy has not been recovering and has been impacted by the global turmoil to a certain extent.

That has made our market environment difficult. But at the same time, we have been able to improve our efficiency. Our GAMA program is having a clear impact and it will continue to have the impact. So we are within our plan. We would obviously benefit from support from the markets, but our improvement plan doesn’t require that one.

So we are getting forward in here, we are improving our relative profitability and we will continue to do so. Then, if we look into our investments, our balance sheet and our investment levels are fairly normal. We have a slight pickup to €42,000,000 in the latest twelve months period. And as we have since CMD and already earlier communicated, we will prioritize organic growth investments and discipline in organic expansion. So disciplined M and A is part of our plan and then very focused organic growth driving investments are what we will continue to do and this €42,000,000 will modestly ramp up in the coming quarters or so towards the vicinity of 4% on the revenues or slightly above that one in the longer term.

If we then look on the cash flow, we have a two zero two million euros of operating cash flow on the last twelve months. It is a solid good performance, but it needs to be put into context that in ’twenty four, we made more profits. That comes with taxes that were paid out now. So we have a tax impact in here. And then if we look at Q4 numbers or then Q1 ’twenty four numbers, it’s good to know that the Q4 LTM has two strong quarters within that one.

So this is normal volatility within the cash flow that we are seeing. The profits that we are making convert in a very high ratio into cash. And then if we look on the balance sheet, we are net debt to EBITDA at 2.2 and if we would take against adjusted EBITDA, we would be at two. So our balance sheet is strong and we have all the powder needed to invest in our growth in the future. Then finally, let’s talk about guidance for 2025.

First, it is unchanged. So we are saying that the full year revenues are going to grow and our adjusted EBIT will be between 10.7% to 11.8% of the revenue, while previous year was 10.5%. The estimates are based on stable demand environment, employment levels and typical morbidity rates and we have the €25,000,000 reduction when it comes to the outsourcing contracts. So we reiterate what we have said. At the same time, having said that one, we all know that there is some global uncertainty and turmoil in the world.

There are the tariffs from Trump and there are different types of forces in play at the moment. We are not immune to those ones and there are scenarios where they could have indirect impact to us. So we don’t export to U. S, the tariffs don’t mean anything to us in that sense and what we buy will not be impacted by that one either. But the indirect impact, if Finnish employment levels would be starting to go down, if the employment levels in Sweden would start to go down, those could have an impact on our operations.

But we deem it fairly unlikely based on the megatrends on our services and based on the need and the value that we provide to clients that it would have a material impact and we are very comfortable to reiterate our guidance for this year. Then also, if you look now at our performance in Q1, the solid improvement when it comes to previous year performance, it is fair to say that if you take all the scenarios that are, at the moment, meaningful to us, the scenarios that are above the midpoint of the guidance are probably more likely to occur than those ones that are below the guidance. Obviously, it is up to you to put your own scenarios into place, but that is how it looks like to us. We are within the range, but potentially the upper part of the range is more likely at the moment. So with these ones, I’m happy to reiterate our guidance for 2025.

We are going to grow and our adjusted EBIT margin will be between ten point seven percent and eleven point eight percentage points. With these ones, let’s invite Kati on board and start the Q and A.

Kathy Kaxonen, Investor Relations and Sustainability, Terveystala: Thanks, Juso. Do we have any questions from the phone lines? The next question comes from Sami Sarkamis from Danske Bank. Please go ahead.

Sami Sarkamis, Analyst, Danske Bank: Hi. I have several questions. We’ll take this one by one. Firstly, starting from the guidance, you didn’t narrow the guidance range even though Q1 SAE sees a strong quarter should derisk the outlook. Can you talk about the reservations?

You mentioned tariffs and indirect impact, but are there other things that make you worried?

Jusse Pajolen, CFO, Terveystala: Well, if I start on that one, I don’t think we are worried. So I think that our guidance is robust and it is, at the moment, relevant. We all do need to acknowledge that there are also forces in play that are more unpredictable than maybe a year or two years ago when it comes to the whole macroeconomic environment. At the same time, what could happen? As I said, the employment levels are a topic that could have a midterm impact to our operations.

But as said, I think that it’s more likely that we are on the upper end of the range. So I could imagine scenarios also below the midpoint, but those ones seem to be a bit less likely at the moment than the other scenarios.

Sami Sarkamis, Analyst, Danske Bank: Okay, thanks. And then I would like to check a couple of things regarding portfolio businesses. Firstly, if we think about, the outsourcing business, was it so that, you’re not expecting, any further contract expiries after Q1, so this is sort of the level you will be having throughout the year?

Jusse Pajolen, CFO, Terveystala: Yes. From our we have been quite consistently and continuously showing the graph at the appendix of the presentation and €25,000,000 is the expectation of lost volume for this year. It is always an approximation, but that’s the ballpark number, it is correct. There are minor impacts, pluses and minuses coming from, for example, pass through items within such contracts, but that’s still our best understanding of the situation.

Sami Sarkamis, Analyst, Danske Bank: Okay. And what about then staffing? Are you sort of satisfied with profitability of the current staffing business and is that something you want to retain throughout the year?

Jusse Pajolen, CFO, Terveystala: Well, first of all, if you look at staffing, the market has been difficult, so and that is not then there was dollar staffing market. It is the total healthcare staffing market as we see it and as we have proxies on that one. And that is the main driver when it comes to staffing. On top of that, we have made some conscious choices on not to retender certain agreements during last year, which is which are now visible on the revenue line. Then what comes to profitability?

Our staffing is a good business. It is making benchmark profits for our purposes. We are happy with that one. And the operating model is fairly resilient on changes on the revenue levels. So we have no further need to discuss on that topic.

It is a good business but with an unfortunate market conditions.

Sami Sarkamis, Analyst, Danske Bank: Okay, and then finally dental and massage services, it seems that you finally turned the corner on those in Q1. Are you expecting sort of positive growth figures from now on?

Jusse Pajolen, CFO, Terveystala: From our current perspective, our guidance says that we are expecting improvement in all segments, so that one obviously refers to profitability and portfolios. But the current trends suggest that now there’s a turnaround on consumer driven demand, what comes to these services, and then it is still good to note that the comparables are from fairly weak demand point of time. So we are expecting this to continue improving.

Sami Sarkamis, Analyst, Danske Bank: Yeah. Okay. And then finally, on the cash flow, a bit slow start for the year. I think you mentioned taxis as one of the reasons. Any any sort of timing impacts?

And if you think about the full year cash flow outlook, how does it look relative to last year?

Jusse Pajolen, CFO, Terveystala: Yes, I think that in total, our cash conversion, the longer time span you take, our cash conversion is very, very stable. And I think that that will continue in the future. I have no reason to believe continue. As I already said in the Q4 quarterly release that we had an exceptionally good Q4 and for the full year 2024, we had also a good Q1. So there are always timing differences.

When you close balance sheet on March 31, that creates a bit of volatility. So now we had negative volatility earlier, we have had positive volatility and we have been fairly open about that one. I don’t think there’s anything drastic or more to say on that one other than that we are a cash machine and we’ll continue to be a cash machine.

Sami Sarkamis, Analyst, Danske Bank: Okay. Thanks. I don’t have any further questions.

Kathy Kaxonen, Investor Relations and Sustainability, Terveystala: There are no more questions at this time, so I hand the conference back to the speakers. All right. We have some questions from the webcast audience, maybe starting from the global macro environment and the tariffs that the Trump administration has imposed. Do they have any impact on the business going forward?

Jusse Pajolen, CFO, Terveystala: Yes. If I reiterate what I said on Sami’s first question, it is difficult to see direct impacts hitting us. It is easy to understand that indirect impacts may occur. So basically, we don’t export, we don’t import, we buy only for our own services, for our own needs, so direct impacts are not there. But indirectly, if Finnish economy goes into bad shape, if Swedish economy goes into bad shape and it impacts both the employment and the consumer demand, obviously, we are not in a void.

So we have protection on the services we provide, on the need for our services that makes us less volatile, but we are living in the same economy as everyone else.

Kathy Kaxonen, Investor Relations and Sustainability, Terveystala: Anything that you want to add, Bill?

Bill Lehiho, CEO, Terveystala: Well, maybe taking one step back kind of looking at the longer trends. One is to remember, first of all, that well, as Juso referred to, we have been very resilient business against different cycles. That continues to be the case. We are not in a bubble, but more resilient than rest of the guys, at least most of the guys. Then looking at the megatrends.

Regardless

Jusse Pajolen, CFO, Terveystala: of

Bill Lehiho, CEO, Terveystala: the cycle, megatrends continue to support a longer term increase in demand for health care services, and we are well positioned in that play.

Kathy Kaxonen, Investor Relations and Sustainability, Terveystala: Absolutely. And referring to the strategic agenda, of course, we are continuously working on the value created for our customers and the efficiency of the services to also be able to maneuver around the changes in the landscape better. Maybe then going into the portfolio businesses and the public sector. There’s a question if our exposure to the public sector contracts is becoming a liability considering the uncertainty and the budget cuts in the welfare regions.

Bill Lehiho, CEO, Terveystala: Well, first of all, no. It’s there was a time in or a place in time when our existing then existing portfolio was bit of a liability, and that was due to the fact that it was not hedged against inflation that the world had not seen for a couple of decades. But that was the only reason. Now the agreement portfolio that we have in place is solid. It’s robust.

It’s profitable and it adequately heads to different conditions and creating positive cash flow. We are looking positively on the public market, even though it has been fairly silent. But now we have the first large contracts being tendered coming into latter part of this year, which is interesting and sign that public market will start to open up.

Jusse Pajolen, CFO, Terveystala: And maybe just to remind everyone that public sector businesses are fairly small proportionately small when it comes to our total revenues. We are primarily a private money business. And I would even say that some of these well-being country cuts will give an opportunity for private sector to demonstrate how efficient we are. So let’s see how the games and plays fold out as we go forward.

Kathy Kaxonen, Investor Relations and Sustainability, Terveystala: Absolutely. So then a couple of questions on the top line. First, on the Healthcare Services specifically, Could you open up a bit also whether the 6.1% growth in the services and sales mixpricing in the Healthcare Services is more driven by price rather than the mix changes? And how should one think about those?

Jusse Pajolen, CFO, Terveystala: Yes. I think that, first of all, we have not opened up that one, and it is a fairly complex expectation to even open up. As you need to remember that we have in our mix, we have a channel mix. So whether it goes to remote or physical, we have a service mix. So whether it’s appointments, whether it’s diagnostics, whether it’s surgery.

And then we have a customer mix, whether it is a corporate customer, consumer customer, public sector customer or insurance customer. So the mix impact is fairly important part of this expectation. And also in that 6%, it is a fairly important part because now we need to remember that the other part of our pricing has some kind of a link to inflation and we have been in our CMDs and other financial events, we have been stating that we due to our service mix and due to our value to customers, we can be slightly above the inflation, also due to scarcity of resources when it comes to healthcare professionals. So then you can look a bit on the inflation and then you can think a bit on top of that one. And then you have the mix impact, which seems to be higher than the inflation impact, if we put it like that.

But as said, this is a fairly complex expectation.

Kathy Kaxonen, Investor Relations and Sustainability, Terveystala: Yes. So maybe then talking about the guidance on the top line. In the first quarter, the sales went down by approximately 1% year on year, yet we are still guiding for growth for this year. How confident are we that the sales will actually grow rather than remain flat this year?

Jusse Pajolen, CFO, Terveystala: Yes. At the moment, I can reiterate our guidance. We are expecting that we are growing this year. Obviously, there are the same disclaimers and variations as within the guidance in total, but that is our current best guess.

Kathy Kaxonen, Investor Relations and Sustainability, Terveystala: Yes. And of course, our main focus continues to be on the EBIT margin

Jusse Pajolen, CFO, Terveystala: correct. So we are in for EPS enhancement as per our financial targets. And that one, we have been very successful.

Kathy Kaxonen, Investor Relations and Sustainability, Terveystala: Great. Then going into back into the Healthcare Services. Once again, we had a record level quarter. When it comes to the EBIT margin, how much of room for improvement do we still see in this area going forward?

Bill Lehiho, CEO, Terveystala: Well, it’s a market which is a good place to be and a position which is a good place to be for Terraverse Tala. We have a good agenda in place for organic growth and efficiency both. And there’s additional potential to improve the performance. And it’s the internal agenda, for example, for the efficiency will take us quite far from where we are today. So I’m really confident that we can improve efficiency and performance based on that one.

But the rest is related to market conditions. We are not in a vacuum, and I’m sure rest of the guys and at least the green competitor will improve as well. It’s we are not in a bubble. But internally, there’s a lot to do. We have a great potential, a great agenda in place.

Kathy Kaxonen, Investor Relations and Sustainability, Terveystala: Absolutely. Anything that you want to add there, Juju?

Jusse Pajolen, CFO, Terveystala: No, I think Villa said it all.

Kathy Kaxonen, Investor Relations and Sustainability, Terveystala: Great. At the moment, we don’t have any other questions from the webcast. Do we have any questions in the audience?

Roni Pernheimer, Analyst, Indus: Roni Pernheimer from Indus. Maybe a couple of questions regarding the portfolio business, maybe about the staffing. The market seems to be hard at the moment. Do you see any permanent changes in the staffing market in Finland? Or is it quite transitionary market?

Bill Lehiho, CEO, Terveystala: If I start, so it’s a good question. Maybe one needs to look at how it then evolved over the last couple of years. It’s fairly from the outset, it’s a fairly low barrier entry business model, at least when you look at the business from outside. And post COVID and during COVID, there was influx of new entrants into that market, driven mainly by bottlenecks in public sector and bottlenecks in the nursing services. And that in a way encouraged new supply to come into market, which not of the supply was healthy.

Now what we are seeing is that the since the market has been turning, it’s saturating, the long tail of new supply is starting to drop out. So I would say it’s a cycle. But when there’s a cycle, there typically happens some permanent changes. But we trust in our model. We have been here for, let’s say, twenty years.

We can be more agile in directing our supply wherever the need is. We have excellent supply of professionals and we have sources where to source them. As Jules said, it’s a good business. There has been a difficult cycle, but we trust in that one.

Jusse Pajolen, CFO, Terveystala: And then it’s good to note that there are other synergies. So this is a supply driven environment. So what is not in the staffing is supply somewhere else. So this is it has an important part in our business.

Roni Pernheimer, Analyst, Indus: All right. Thank you. Maybe one more about the dental business where you have big ambitions. So maybe if you could talk about how your synergies with health care services has developed here

Jusse Pajolen, CFO, Terveystala: recently. Yes. If I start and Will can complement. I think that we are seeing progress what comes to synergies in health care services. We have different type of synergy potential in here.

We have the occupational health clientele, which is clearly a place where more and more clients would like to include dental into their health care plans. Then we have the consumer market synergies, especially brand driven, and then we have the back end synergies, which are more coming from the network. And as you know and see from our Healthcare Services results and capability to run that network, obviously, benefits also from that one. So all in all, we are seeing progress in that end, but I would also say that we have quite a journey to walk also that we have lots of room to improve.

Bill Lehiho, CEO, Terveystala: Clear, nothing to add.

Roni Pernheimer, Analyst, Indus: All right. No further questions. Thank you.

Kathy Kaxonen, Investor Relations and Sustainability, Terveystala: Great. I don’t think that we have any further questions in the audience either. So thank you, everybody, for joining us today, and have a great weekend once that arrives.

Jusse Pajolen, CFO, Terveystala: Thank you. Thank you.

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