Nightingale Health H1 morning result: Cash is consumed slower than expected, cooperation projects are progressing

Translation: Original comment published in Finnish on 3/7/2024 at 9:16 am EET

Nightingale’s figures for the second half of 2023 were soft in terms of revenue, but better than we expected in terms of profitability and cash flow. Key projects for the company’s growth (Terveystalo and Pathology Asia) are, however, progressing, although we expect the earnings call to provide more details on these. At first glance, the review was slightly more positive than our expectations, especially due to the cash flow situation. In Japan, the company announced it had acquired Welltus, operated by its partners (Kirin & Mitsui), and will start operating the business itself. The earnings call can be followed on March 7, at 2 pm (EET) here.

A slight decline in absolute revenue before the ramp-up of important customers

Nightingale’ revenue in fiscal H1 (7/1-12/31/23) fell by 24% from the comparison period to 1.72 MEUR (Inderes' estimate: +4%), also slightly decreasing from the previous year half (1-6/23: 1.9 MEUR). Research customers were still responsible for most of the revenue, and the timing of their project deliveries brings a difficult-to-predict component to revenue, which we suspect explains the lower revenue than we expected. The progressing Welltus cooperation in Japan did not show any signs of growth yet (7-12/2023 Other countries' revenue incl. Japan: 283 TEUR, 1-6/2023: 350 TEUR), but presumably the Mass General Brigham cooperation was already reflected in the figures (7-12/23 US revenue: 597 TEUR). However, in terms of Nightingale’s growth, we believe that the most significant current cooperation (Terveystalo’s occupational health, Pathology Asia) will only be seen in the figures for the first half of the calendar year 2024, so the significance of the now reported revenue for the company’s investment story was limited in our view.

Cash was burned just like it should at this development stage

Nightingale’s H1 profitability remained clearly negative on all lines, with EBITDA and EBIT being -5.3 MEUR and -9.3 MEUR, respectively (Inderes: -6.7 MEUR and -9.9 MEUR). Despite lower-than-expected revenue, profitability was stronger than our forecast, and the company seems to have managed its cost level better than we expected. Expenses were lower than we expected, especially in terms of personnel and other expenses, and the company also recorded significant financial income (1.1 MEUR) with interest income enabled by its cash assets. At the end of December, net cash adjusted for lease liabilities amounted to 71.1 MEUR (Inderes: 68.7 MEUR, 06/30/23: 78.0 MEUR) and less cash was thus consumed than we expected, 6.9 MEUR. The company’s financial position remains strong. Nightingale uses its cash assets to build its growth and profitability is in line with this strategy.

The progress of key cooperation projects determines the growth pace in the near future

After last year's strategy update, Nightingale focuses on private and public sector customers. In the private sector, the company launched the Terveystalo cooperation at the turn of the year, where its technology is used in occupational medical check-ups. In the cooperation with Pathology Asia, the company’s technology is offered to a diagnostics group that operates extensively in Southeast Asia and, in this context, the company recently received regulatory approval to provide its services for healthcare in Singapore. The report did not provide specific information on these projects, which are key to the company’s business growth in the next 18 months. We expect the earnings call to provide more information on these. In Japan, the company’s partner Welltus has invested in marketing a service that utilizes Nightingale’s technology after building the distribution network. This cooperation seemed to be progressing slowly in light of figures, and Nightingale announced this morning that it had acquired Welltus at net cash value. Digesting the significance of this news requires detailed analysis. In addition to more information on the acquisition, we expect the earnings call to provide updated comments on the progress of its sales efforts in the public sector. We see significant business potential for the company in this sector if a functional service and commercial model can be built for the sector.