Interview with Omda’s CFO Einar Bonnevie

For those who have not heard of Omda before, please tell us more about your business, what you do, and which markets you address?

Omda has established itself as a leading Nordic-based provider of specialized healthcare software solutions to healthcare providers and emergency services, where we are deep down into several niches, either clinical disciplines or emergency response. We deliver software to almost all the hospitals in the Nordic region, where we started as a Norwegian company but have matured into a Nordic company. We are also growing our presence in Europe and the rest of the world, whereas the rest of the world is the second biggest market, as a percentage of revenue, for Omda. The rest of the world mainly includes Spain, the US, and the UK as the most dominating countries. Furthermore, we have more than 500 customer contracts in over 27 countries, so we have become truly international. We are the biggest provider in Sweden in terms of both sales and employees.

Our stronghold is centered around our specialized software solutions within disciplines such as, women and child, cancer treatment, blood management, connected and medical imaging, health analytics, and emergency response. We do not focus on the administrative side of healthcare but rather on the clinical disciplines. For instance, cancer treatment is all about finding the right cure and protocol, which does not differ whether you are in Sweden, Norway, or Finland, making it easier to enter new markets. We are very niche-oriented and the more specialized, the better it is in the healthcare sector. Most of our installations are on-premise because our customers are large hospitals- and regions such as the Karolinska institute, that often run their own IT-systems. We have some solutions that are purely SaaS in certain areas, however, regarding the financial side of SaaS, the subscription model with recurring revenue, we are more SaaS-like.

Can you tell us more about your healthcare software solutions, their advantages, and how the products compare to competitors with similar solutions?

For instance, the cancer treatment solution. It was established in Oslo Hospital more than 25 years ago, meaning it was developed from the inside of the healthcare sector. Now, it is a de facto standard in the Nordic hospitals. It is about adding value to the patient, doctor, nurse, pharmacy, and society. If you are unlucky and diagnosed with cancer, what typically happens is that you need surgery, radiation, chemotherapy, or a combination of those. We focus on chemotherapy through medication management. For chemotherapy, the same medication treatment is not used in every type of cancer; even in one type of cancer, there are different types that need particular medication. Additionally, specific information regarding the patient is necessary for treatment, factors such as, e.g. male or female, weight, height, blood type, etc. This means that you take all the considerations and put them into a database with a decision support tool, where the system, based on all information gives the healthcare provider information about what is the optimized treatment for this specific person. It is all about the value chain within treatment, as there is information for the pharmacist on how to make the right cocktail of treatment, the oncologist who is treating you, the nurse who is administrating the cure, and for you as a patient with an app to give feedback to the hospital regarding how you feel.

The aforementioned is only one example, but we are very deep into the actual treatment of patients, which is why so many of our solutions are certificated through a so-called MDR (medical device regulation), which is an EU-wide regulative. For software to be classified as a medical device, you must pass specific tests and be certified by an independent third-party agent. If you are not certified, you are not allowed to provide software to hospitals; if you are a hospital, you are not allowed to use software that is not certified. This is a great barrier to entry, which is positive if you are already a supplier, like we are, but not so good if you are starting from the beginning.

What is your view on increased government funding to digitize the healthcare sector? And which operating segment do you see the most potential in?

We are prominent in the Nordics, which are governmentally funded. The US is the only country that we operate in that is not organized that way. However, in the US, the healthcare sector acts more as a public than a private sector because it has the same overall responsibility as in the Nordics. The governments want to digitize the healthcare sector further and the reason is straightforward: huge amounts are spent on healthcare, with the ageing population driving this spending. Healthcare can be divided into three things: “warm hands”, medication, and efficiency. We cannot fully affect the first two, but we can make the processes more efficient, for example, through resource optimization, meaning you get more out of what you have. There is a drive for that as demand is getting higher and the funding is not growing on a state level, meaning you can make healthcare more efficient through digital solutions.

Regarding our segments, regardless of what the government and politics think, there are a certain number of births, accidents, and cases of cancer every year. You can try to lower these, but there will always be an underlying demand for healthcare. The important driver for us is the ageing population; with age come more diseases that need treatment. Maternity has also increased with age as women today give birth at an older age than 20-30 years ago, and it gets more and more difficult the older you get. We operate in a slow-moving area, which grows 5-10% annually, which we have done since we started. There is one inflation- and actual demand component to the growth, which typically adds up to 5-10% per annum.

You have made several acquisitions in the past years. Have these been fully integrated, and are acquisitions a part of your strategy going forward?

You can grow 5-10% organically, which is good; if you want to grow faster, there are two ways: You can participate in many tenders, which is very costly and risky as there are low chances of success. Or you can acquire companies that already have contracts as suppliers to the healthcare sector. Therefore, are acquisitions a part of our strategy. When we started in 2008, we looked through the healthcare’s critical systems and discovered that it was a very fragmented landscape. Sooner or later, a consolidator will consolidate these businesses, so why not us? I started in April 2008, and by June, we had already made our first acquisition, meaning acquisitions were not an afterthought. We have made 15 acquisitions and two divestments in total. We currently have six business areas and want to continue and build on these, however, we have no preference regarding which of these the acquiring company operates in, as we are opportunistic.

The emergency segment is an excellent example of how we grow. We started with one emergency solution in 2015 when we acquired the small Norwegian company called Amis, with control room solutions, approximately doing 10 – 12 MNOK in sales. Later, in 2017, we acquired an ambulance software carve-out from SAAB, which gave us a presence in both Norway and Sweden through both control room and ambulance solutions. A while later, in 2021, we acquired Carmenta as a spin-off from Ericsson, which had an agreement with SOS alarm and other emergency providers. Additionally, in 2021, we acquired a New Zeeland-based company called Optima. Notably, we knew of all these companies because, in 2015, there was a national tender in Norway, and we worked together with SAAB, Optima and Carmenta. We have built our in-house database of all the companies we think could make a good fit when we grow. In the emergency segment, we started with 10 MNOK in sales; in 2023, we were close to 200 MNOK in sales.

Can you tell us more about the recurring revenue? How do you continue to grow ARR, and what is your view on your churn levels?

The annual recurring revenue (ARR) has two parts: one part is the inflation adjustments. There are typically some types of price escalators in most contracts. The other part is additional services, which can also be divided into two: one is the added functionality through add-on components to an installed system, which enables ARR increase. The other thing is adding users. For example, the system is going from being used in one hospital to three hospitals.

If hospitals want to replace something, you will have to go out with a tender; however, if you want to continue with something, you don’t need a tender. The tender duration is typically four years, plus one year, plus one year, etc. However, installing a regional or national-wide system takes many years. For example, we won a tender in 2009; the last installation was finished in 2016. Therefore, would it make sense for the hospital to go out on a new tender to replace it after four years? No, as it was just installed. The process is very long and takes a lot of time because of the complexity. Once you are in, unless you do something crazy, you will typically continue to be there, which is why we have such a low churn, less than 2% per annum on average.

Your profitability is starting to come back to 2020 levels. What is your strategy to continue and increase profitability further to meet your targets?

Two things affected our profitability. We IPO’d in 2020 with around 200 MNOK in sales and ended 2023 with over 400 MNOK in sales, where that growth is a combination of organic and the five acquisitions made. Typically, the companies we have acquired have been non/sub-performing and turnaround businesses, meaning we have, on average, added EBITDA of zero, which has been a part of the business idea. If they operate at zero EBITDA when we acquire them and then integrate them, you make it worse in the first phase. That is because you may let some people go, severance packages, etc, meaning you cut some costs that hurt you now but make it better in the future. The integration cost of these five acquisitions has affected profitability negatively, however; we stated in the IPO that this would happen. Now we are larger, so adding, for example, 50 MNOK in sales would have a smaller effect on the current 400 MNOK than on 20 MNOK.

The other thing was that we reorganized, which was the smartest thing we have done. We are now very decentralized, with seven business managers, equal to a CEO, in that business area. This reorganization caused some costs. To further increase profitability, if we can continue to be in the upper part of the 5-10% revenue growth while costs increase with inflation, say 5%, the profitability will increase going forward. Regarding future acquisitions, we are looking for targets between 5-50% of our size.

Where do you see Omda in three years?

When we went public, we set our target to reach 1 BnNOK in sales, which is still our target. If it is only up to us, we will reach it within three years; however, if we grow sales at 5-10% organically, we will not reach the target, meaning it would have to be acquisitions made and we have a long list of targets in our database. For the last two years, we have been interested in acquiring companies, however, our main goals were instead to maintain organic growth, refinance the debt, and restore profitability by demonstrating the power of the business model. Now that that is done, M&A will probably push higher on the agenda. 

Could you give three reasons as to why Omda is a good investment today?

• The “founding fathers” and other key people own >30% of the company, illustrating that management’s incentives align with all of the shareholders, and why we are focused on delivering great shareholder value going forward.
• In a world that is hampered by uncertainty, we are largely unimpacted, as the number of accidents, births, blood transfusions and cancer cases will continue. Therefore, we operate in a protected, resilient and non-cyclical area.
• If we succeed and make this a great investment, it also means that we provide good healthcare with emergency service, healthier babies, more treated cancer patients and more blood transfusions, which is excellent.