Nordhealth : Annual Financial Statements 2023

Annual Report

2023

Nordhealth Annual Report 2023	1

2023 CEO letter to shareholders

Nordhealth Annual Report 2023	2

To our Shareholders:

Enhancing Care, Efficiency and Growth for Veterinary and Therapy Practices

Nordhealth is committed to revolutionizing healthcare delivery through innovative software solutions. Our flagship Practice Management Software (PMS), Provet Cloud for veterinary practices and EasyPractice for therapy practices, empower healthcare professionals to streamline operations, improve patient care and fuel business growth.

We are capitalizing on the shift from on-premise or hosted software towards cloud-based software. Cloud-based solutions offer clinics increased accessibility, improved scalability, enhanced data security, and reduced IT burden. Provet Cloud and EasyPractice are well positioned to be leaders in this transition in their industries, especially given the attractiveness of cloud-based software to veterinary clinics chains. We remain committed to helping clinics embrace this evolution and achieve long-term success by providing intuitive and fast software.

Mission-critical Software

Our PMS is a mission-critical software for veterinary or therapy practices, functioning seamlessly as both the front and back office system of record:

• Appointment scheduling and shift management: Simplify scheduling, optimize staff allocation, and ensure smooth clinic operations.
• Patient management and electronic health records (EHR): Store and manage patient information efficiently, enabling informed care decisions.
• Billing and invoicing: Automate billing processes, improve cash flow and minimize errors.
• Reporting and analytics: Gain valuable insights to make data-driven decisions and drive success.
• Government compliance: Streamline reporting for regulations like HelseNorge (Norway) or Kanta (Finland) with automated tools and comprehensive dashboards.
• Communication tools: Enhance communication with patients and staff for better collaboration.
• Inventory management and workflow automation: Reduce time spent on manual tasks and optimize resource utilization.

Clinics rely on Nordhealth as their core platform, integrating all essential tools and storing critical patient information. Switching costs are high, as evidenced by our low churn rate of 2.6% over five years. This loyalty reflects the mission-critical nature of our PMS. Nonetheless, high switching costs can also present a challenge in acquiring new customers.

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Multi Product

In 2023, we continued to expand our product offerings beyond our core PMS. New additions include integrated payments, treatment sheets, insurance integrations, and nordhealth.fi, a consumer booking portal. These features seamlessly integrate with our PMS products, minimizing friction and cost.

Our multi-product strategy fostered exceptional customer loyalty and a net retention rate of 114% over the past five years. Acquiring new customers is costly, so offering multiple products expands Average Revenue Per User (ARPU), Total Addressable Market (TAM) and develops deeper customer relationships, as clients often seek a single point of accountability. We remain committed to add additional products, ensuring our platform evolves alongside customer

needs.

Conclusion

The preceding year has been characterized by remarkable progress and achievements for Nordhealth, driven by our talented team and unwavering commitment to continuous improvement. Looking ahead, we are enthusiastic about the opportunities that lie ahead and confident in our ability to foster growth, deliver value to our customers, and generate long-term shareholder value.

We will continue to make investment decisions to ensure market leadership in the long-term. We will work hard to spend wisely and maintain our lean culture. We will balance our focus on growth with emphasis on long-term profitability. At this stage, we choose to prioritize growth over short-term profitability, as we believe scale is central to achieving the potential of our business model.

We will continue to focus on hiring and retaining talented employees. We initiated a Performance Share plan to attract and retain key employees, each of whom must think like, and therefore must actually be, an owner.

We extend our heartfelt gratitude for your continued support and trust, as we embark on this journey together. With your partnership and the dedication of our team, I am confident that Nordhealth will become a leader in the healthcare technology industry for years to come.

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Board of Directors' report

Nordhealth Annual Report 2023	5

Growth

By year-end 2023, approximately 60,000 healthcare users were utilizing our practice management software, a notable increase from c.50,000 at year-end 2022. This user growth translated into an implemented annual recurring revenue (ARR) growth of 23.3% in 2023 (in constant currency as of December 31, 2022) to EUR 36.6M. Signed ARR, excluding approximately EUR 4M additional ARR from CVS and Vets for Pets post-pilot rollout, grew to EUR 38.5M, marking an 11.3x increase over the last five years.

Profitability

Our EBITDA - CAPEX loss, serving as a conservative proxy for free cash flow, improved from EUR -12.3M in 2022 to EUR -6.6M in 2023. This improvement stemmed from operating leverage resulting from growth, evidenced by reductions in R&D and G&A costs as a percentage of revenue, as well as enhancements in go-to-market efficiency.

Therapy

In 2023, Therapy ARR grew 6.6% (constant currency), slightly below expectations. Although new customers ARR grew 9.4% year over year (or EUR 1.5M), growth was offset by a lower net retention rate of 97.2%. Key factors contributing to this low net retention included churn of Fysios and Coronaria removal of the Nordhealth Connect add-on. Despite challenges, such as a 6.7% deterioration of the NOK relative to the Euro, efficiency improvements across all therapy functions led to an increase in Therapy EBITDA - CAPEX (excluding Group G&A) from EUR -0.4M in 2022 to EUR 3.4M in 2023.

In January 2023, we made the strategic decision to sunset the development of a new therapy platform we had been developing from scratch, and instead decided to invest in order to make EasyPractice our new flagship practice management software for therapists. We prioritized the migration of Physica and Psykbase (Aspit) users, with migration of pilot clinics commencing in

H2 2023, onboarding 26 pilot customers by year-end 2023. Significant development efforts were made in 2023 to localize the solution for Norway and enhance EasyPractice functionality to accommodate the more complex workflows of larger clinics.

In 2023, we launched Nordhealth.fi, a booking portal enabling patients to find and book therapy appointments in Finland. The initial customers in Finland were onboarded and began using the platform in 2023. We plan to roll this further out to all Diarium customers in 2024.

Looking ahead, we foresee significant growth and expansion opportunities in the Therapy division, driven by the increasing global demand for rehabilitation services. We are committed to leveraging technology to improve patient outcomes and enhance efficiency in therapy service delivery.

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Veterinary

The Veterinary unit witnessed remarkable organic growth of 43% in 2023, surpassing rates observed in the past five years. Additionally, gross margins increased from 83% to 86%, indicative of improved efficiency and profitability. Notably, there was a substantial improvement in EBITDA - CAPEX (excluding Group G&A), from EUR -9.9M in 2022 to EUR -4.0M in 2023.

In 2023, we migrated 249 clinics, including Provet Net, Vetserve, Novasoft, and Sanimalis. We phased out Provet Win by the end of 2023 and plan to sunset Vetserve by the end of Q2 2024. Notably, we initiated the CVS pilot implementation and secured the largest deal in Nordhealth's history with the signing of Vets for Pets.

The past year marked significant progress and expansion in the Veterinary division, underscoring our commitment to investing in technology and talent in order to enhance our offerings and deliver greater value to customers. With our team's dedication and expertise, I am confident that Nordhealth will continue to lead veterinary software innovation for years to come.

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Consolidated Financial Results for the Group

The financial statements are prepared in accordance with Norwegian legislation and Norwegian Generally Accepted Accounting Principles. The Reporting currency is EUR. All numbers are presented in EUR thousands, unless otherwise stated. The figures in the tables have been rounded to the nearest thousand euros, so they may not add up to precise totals. The numbers in brackets within text refer to the value in the corresponding period a year earlier, unless otherwise stated except for balance sheet items which refer to the end of the previous financial year.

Total revenue grew by 19 (53) % in 2023 and amounted to EUR 36,825 (31,050) thousand. The share of recurring revenue of the total revenue in 2023 was 90 (91) % amounting to EUR 33,085 (28,216) thousand resulting in 17 (53) % growth.

Total personnel costs in 2023 amounted to 61 (72) % of revenues. The decrease is in line with growth in revenues and decrease in headcount during 2023 as a result of cost optimisation measures taken. Other operating charges amounted to 29 (33) % of total revenues.

Reported EBITDA amounted to EUR -1,248(-5,975) thousand in 2023.

Net financial items in 2023 totaled EUR 581 (549) thousand consisting mainly of foreign currency and money market fund revaluations.

Non-recurring items in 2023 amounted to EUR 537 (527) thousand and relate mainly to reorganisation measures continued during 2023.

Total non-current assets amounted to EUR 63,550 (70,342) thousand at the end of December 2023. Total intangible assets amounted to EUR 62,136 (68,710) thousand at the end of the period. In addition to goodwill, intangible assets mainly consist of capitalized product development costs.

Ongoing development activities focus on adding new features to existing products as well as on the localization of the products for new market entry.

Total current assets amounted to EUR 28,386 (44,552) thousand at the end of December 2023

Cash and cash equivalents amounted to EUR 5,052 (15,514) thousand. The company has EUR

17,119 (23,684) thousand of cash in fully liquid money market funds. The combined value of money market fund holdings and cash amounted to EUR 22,171 (39,198) thousand at the end of the reporting period.

Total equity at the end of December 2023 amounted to EUR 82,766 (98,630) thousand. The Company completed two share buyback programs during 2023 and acquired 1,146,637 shares under the program for a total consideration of EUR 2,387 thousand.

Total current liabilities totaled EUR 9,034 (15,995) thousand at the end of December 2023.

Net cash flow from operating activities in the full year 2023 was EUR -5,487(-6,525) thousand. Net cash flow from investing activities amounted to EUR -2,627(-2,089) thousand, with investments in tangible and intangible assets of EUR -5,723(-6,802) thousand. Net cash flow from financing activities amounted to EUR -2,348(-2,082) thousand.

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Financial results for Nordhealth AS

Nordhealth AS was incorporated on 6 April 2021. The financial statements of Nordhealth AS are prepared in accordance with Norwegian legislation and Norwegian Generally Accepted Accounting Principles. The Reporting currency is NOK. All numbers are presented in NOK thousands, unless otherwise stated. The figures in the tables have been rounded to the nearest thousand NOK, so they may not add up to precise totals. The numbers in brackets within text refer to the value in the corresponding period a year earlier, unless otherwise stated except for balance sheet items which refer to the end of the previous financial year.

Nordhealth AS does not have any revenues or employees. As of 2022 Nordhealth AS has paid board remuneration fees for external board members. Operating costs for 2023 amounted to NOK 6,433 (10,006) thousand and net financial items totalled NOK 250 (270) thousand. Net result for the year was NOK 9,976 (-9,736) thousand.

In 2023 cash flow from operations was NOK -8,269(-1,541) thousand. At the end of 2023 cash and cash equivalents amounted to NOK 2,295 (1,477) thousand.

At the end of 2023 total assets amounted to NOK 3,153,231 (3,170,578) thousand consisting mainly of shares in subsidiaries. Total equity amounted to NOK 3,151,949 (3,167,616) thousand.

The Company has no long-term liabilities.

Dividend payment

On 31 December 2023 the parent company's distributable funds totalled NOK 3,072,904 thousand. The Board of Directors proposes to the Annual General Meeting that no ordinary dividends be distributed for the financial year 2023.

Going Concern

In accordance with the Norwegian Accounting Act, the Board of Directors confirms that the annual accounts have been prepared in accordance with the going concern assumption. The confirmation is based on an estimated long-term profitable growth and Group's equity standing and strong cash position.

Research and development

The Group focuses heavily on developing its cloud-based flagship products. The acquisition of EasyPractice enables Nordhealth to focus its development efforts to make EasyPractice its flagship PMS for therapists and continues to develop Provet Cloud for veterinarians. Building customisable products enables the Group's ability to expand internationally. Maintaining current market leader position and to serve future demands requires the Group to deliver new technology and/or make the necessary updates to existing products. Failure to do so could result in both loss of existing customers and failure to attract new ones. In 2023, development expenses totalling EUR 5,184 (5,865) thousand have been capitalized and EUR 7,944 (7,349) thousand have been recorded as an expense.recorded as an expense.

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Impact on external environment

As a software company the Group's operations do not directly have any negative effect on the environment. Wherever possible, the Group chooses renewable energy sources in their operations. The Group's remote-first model reduces carbon footprint and effective collaboration tools reduce unnecessary physical travel.

The Norwegian Transparency Act

The Company is dedicated to ensuring that basic human rights and decent working conditions of everyone connected to its business are respected. The company has published a full report on the company web-pages at nordhealth.com.

Headcount and personnel expenses

People and their well-being are at the core of all activities. Responsibility is reflected in Nordhealth's operations in the everyday lives of employees. These include securing our employer's promises and employee benefits. Nordhealth as an employer emphasizes opportunities for professional progression, and a work-life balance in an inclusive culture. The Group's remote-first model is an opportunity to work from anywhere. This can only be achieved by ensuring that the general principles used when recruiting and onboarding strengthen equality and inclusion - without interfering with the background, nationality, gender or age of the staff.

Nordhealth had 395 (398) employees at the end of 2023 including EOR (Employer of Record) and Consultants. Employees represent more than 41 different nationalities in over 26 countries of all ages. Absence due to sick leave averaged to 1,8 (1,2) % in 2023. No accidents or injuries occurred during the year. As at the end of 2023, members of the management team consisted of 2 males and 2 females. The Board of Directors consisted of 3 males.

	Group	Group
	2023	2022
Average number of employees	384	400

Personnel by country 31.12.*	2023	2022
Finland	172	182
Norway	81	87
Other Nordic countries	51	43
Other countries	91	86
Total	395	398

* Including EOR and Consultants

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