Doctor Care Anywhere Group PLC (DOC) Earnings Call Transcript & Summary

Good afternoon or morning, if you're joining us from the U.K. My name is Richard Dammery, and I'm the Chairman of Doctor Care Anywhere Group PLC. I'd like to begin, assist a customer in Australia by acknowledging the traditional owners of the land from which I'm joining this meeting, The Wurundjeri people of Kulin nation and I pay my respects to their elders past, present and emerging and indeed, the traditional owners of all first nations people on the lands we are meeting participants are today. I've been advised that we have the necessary quorum, and I declare the meeting open. I'd like to warmly welcome my fellow shareholders and guests here to our third AGM since the company's listing. Let me briefly introduce my director colleagues attending the meeting today, all of whom have had to join us virtually since we're spread geographically between Australia and the U.K. My colleagues biographies are contained in the annual report, so I won't repeat that detail here. Firstly, Romana Abdin, the Chair of our Remuneration and Nominations Committee. I'm not sure if you can see Romana on the screen, but I can assure you she is there. Simon Calver, who steps down at the conclusion of this meeting; David Ravech, who has been associated with DCA since quite early in this history. John Stier, currently Chair of the Audit and Risk Management Committee and who following the conclusion of this meeting will be your new Board Chair; and Vanessa Wallace, who is based in Sydney and will also step down at the conclusion of this meeting. Also in attendance today from the management team as our newly appointed interim CEO, Ben Kent; acting CFO, James Warren; and our Company Secretary, Bianca Foster; and from our auditors, Grant Thornton, I welcome Ed Thomas, the lead audit partner and will be available to answer questions through me on the conduct of the audits in the preparation and content of the auditor's report. I will now give a short Chairman's address reviewing our 2022 performance before handing over to Interim CEO, Ben Kent to speak about the plans for 2023 and beyond. At the outset, I should note that our annual report was released 3 weeks ago, and that describes comprehensively the challenges and achievements of 2022. There can be no doubt that 2022 was a challenging year for the company in a sector which has lost significant market support globally compared to 2020 and 2021. Levels of market support and access to capital are extremely challenging. But despite the people, the company had to deal with in 2022, we ended the year relatively strongly with revenues of GBP 29.8 million, representing a 19.3% increase on 2021, improvements in underlying gross profit and contribution margins, a reduction in nonoperating costs on a run rate basis, acknowledging that there's more to be done in this area, a 29% increase in activated lives to 868,900 with further growth potential given the company's existing base of 2.5 million eligible lives, a 40% increase year-on-year on -- a 40% increase year-on-year in consultation volumes totaling 614,200 for the period with 186,000 patients having their first consultation during this period, an increased uptake of the company's secondary care pathway that is referral for diagnostic tests and specialist review of results with 31,200 patients completing the pathway during the financial year '22. And that was up 82% from financial year '21. The company also saw a strong repeat user rate with 428,000 consultations delivered to returning patients in the financial year, representing 70% of total consultations. There can be little doubt of patients' value of the DCA service, our 2022 customer NPS score of 75.4 reinforces this view. In December -- last December 22, the company announced that we had secured a GBP 10 million full year loan from our joint venture partner, AXA. This loan, which was provided for general working capital purposes, is expected to support the company to become EBITDA positive in the first quarter of 2024 and to be cash generative soon after that. If you have followed the company's fortunes, you would have seen that the Board made a number of changes to the leadership group in 2022. The reasons for this were explained in the annual report, and we're pleased that there is now a new executive team in place led by Ben to drive the company forward through 2023. No doubt the team will continue to evolve and develop as the company's needs change over time. The Board is very grateful to each of the executive team members for their resilience and commitment through a very challenging period in 2022. Finally, I should say a few words about Board composition and governance. In late January, we announced that we would be undertaking an orderly transition of the Chairman's role from me to my colleague, John Stier, who joined the Board just before last year's AGM. When I stepped into the Chair at this time last year, it was intended to be as an interim measure following the departure of the Executive Chairman, Jonathan Baines. However, we quickly had to face into a range of headwinds and I agreed to continue in the role. This was not a way as easy being on the other side of the world and it should be self-evident that it's in the company's best interests to have a Chairman and CEO working in tandem together in the U.K. with the U.K. domiciled Board that connect in person regularly, is not plagued by time zone differences and can support the management team in real time. It has been well signaled that Simon Calver would leave the Board this year having only been reelected for 1 year in '22. And likewise, that Vanessa Wallace would step down once our Committee Chair role had been relocated to the U.K., which happened in late 2022. I'd like to take this opportunity firstly to thank our shareholders for their support and constructive challenge over the past 12 months; and secondly, to thank all my Board colleagues for their support and the tremendous efforts that they've put in since the company's IPO, but particularly last year in 2022. I don't think I've ever seen the board work so hard as this 1 did last year. And finally, I'd like to thank the whole DCA team for their willingness to tackle hard challenges head on. We would all greatly prefer to see the team's collective efforts reflected in the share price, but the reality is the new DCA team has an opportunity to consolidate the company's performance and improve market confidence by delivering on our plan and commitments. And I have every confidence this will happen. When it does, DCA will be 1 of the first major telehealth companies globally to reach breakeven at significant scale, and that alone will create significant strategic optionality. I'll now hand over to our interim CEO, Ben Kent, to say a few words about the current priorities of the company's goals for 2023 and 2024.

Thank you, Richard. Good afternoon and good morning to you. My name is Ben Kent. I joined DCA as Chief Executive in mid-February, having previously served as Chief Operating and Financial Officer in 2020 when we first took the company public on the Australian Stock Exchange. I'm very pleased to be back in the business. I'd like to take you through our business plan for 2023, the key assumptions, the things that need to happen for us to achieve that plan and how achievement of the plan will position the company. Our plan for 2023, we enter the new year with determination to consolidate the progress made later in 2022. My mandate from the Board is clear, to deliver on our plan and commitment to achieve steady growth focused on the U.K. so that we regain the confidence of our shareholders. I'll highlight 3 areas of focus for us in 2023, our platform, our new operating model and our operating efficiency. First, our platform. We continue to invest in our platform to improve its stability and resilience. During 2023, we plan to enhance our continuous monitoring tools, selectively replace elements of legacy infrastructure and will introduce automated scaling of our systems capacity so that we can flexibly meet increases in demand. In a complex technology platform like ours, which incorporates numerous third-party solutions, incidents are inevitable. So we will also continue to enhance our ability to anticipate and quickly respond to incidents when they happen, including automated incident management. Second, our new operating model. Health systems around the world are challenged by a shortage of clinicians, and so they're increasingly providing primary care services through a range of clinicians matching the level of clinician to the patient situation to make the most effective use of clinical resources. You may well have experienced this in your own local primary care provider. Our mixed clinical workforce follows that model, and we will expand our clinician resources by adding to our existing team of general practitioners, the capabilities of advanced nurse practitioners or ANPs. These are nurses with additional academic qualifications and experience who are able to diagnose, prescribe and refer patients to secondary care. We also plan to launch our Quick Consult service in Q4 of this year. This will give patients the option to get fast and easy questionnaire-based treatment for routine conditions. So we're adapting our patient pathways so that patients are guided to the most appropriate clinician to deal with their situation. Patients and payers and DCA will benefit from the increased flexibility and the reduced cost that this new model can provide. We plan to proceed with the launch of the mixed clinical workforce initiative in the second quarter of 2023, which will enhance clinician availability, and hence, our ability to deliver continuing consultation growth. So third, our operating efficiency. Reducing the company's operating cost base remains a major area of focus. The business made good progress through the second half of 2022, and my executive team and I will continue to focus on reducing operating costs throughout 2023. There are opportunities to increase automation in our patient experience function. This is our customer service team, which employs the largest proportion of our nonclinical workforce and also to carefully manage our nonoperating costs so that more of our gross margin performance flows through to the bottom line. We've set ourselves an exciting but challenging plan for 2023, progressing towards profitability and cash generation in 2024 is based on a range of assumptions but we are motivated by our ambition to be 1 of the first telehealth companies to achieve those milestones. I'm going to highlight 7 key assumptions that underpin our plan and comment on each of them. So the assumptions are minimum growth of 40% in demand for consultations, continued stability of our technology platform, the launch of the mixed clinical workforce proposition in Q2, being able to recruit and retain enough clinicians to meet patient demand and tightly manage our incentive payments to them, being able to drive productivity gains, and having no material unanticipated increases in nonoperating costs, being able to implement inflation-adjusted price increases pursuant to our agreement with AXA, and then finally, drawdown of tranches 2 and 3 of the AXA loan facility in 2023. Let me put a bit of color on each of those assumptions and describe our progress in the first quarter. So the first assumption, consultation volumes. We believe that there is unmet demand for our service given its popularity. So we're confident that as we increase the supply of consultations, we will see growth in demand to match it. At the end of February, year-to-date, consultation volumes were in line with our plan. Second assumption, our platform. Now very pleasingly, during this period, we've had no major downtime that has significantly affected client service, and we've been above our required service level throughout the period. And as for service level service credits, we're discussing with a the refinement of our SLAs so that they are focused on the most important measures for us, clinical safety, patient experience and commercial outcomes. Our third assumption about the mixed clinical workforce, launch preparation is in hand, and we're working through the patient pathway so that patients are guided to the most appropriate clinician for their situation. This is a very important change for our partners and our corporate clients as well. So there's an extensive engagement with them so that they and their employees are ready to use the new service. We'll need to roll out the new model at a pace that fits with their requirements. Our fourth assumption about the recruitment of clinicians, we have started the recruitment of advanced nurse practitioners, and this is generally on track. We have to manage the fine balance of recruiting ANPs in time to onboard and train them for the launch of mixed clinical workforce, but not so early that they're sitting on the bench waiting to be utilized. Our fifth assumption about operational efficiency, we've already taken the opportunity to streamline our triage processes, and we started the work to look at our patient experience processes in preparation for change later in the second half. We've also identified opportunities to contain nonoperating costs. So we're offsetting slightly higher technology spend in these early months of the year as we work through the important tech deliveries that support mixed clinical workforce and also our partners own product launches. Our sixth assumption of our price increases. We're working through the calculation of price increases that respond to inflation in our clinician costs for agreement with AXA over the coming weeks. And finally, our seventh assumption on funding. We've already drawn down the second tranche of the AXA loan, which takes the total drawdown to GBP 7.5 million in total so far with the final charge expected in the middle of the year. Now all of this activity relies on the expertise and commitment of DCA's people. Our clinicians and patient experience teams who look after our patients directly, our technology team who run the platform and build the new services that we're rolling out. Our clinical leadership to ensure we're building safe and effective services that meet regulatory requirements and patient need and all the rest of the team who support these activities. As Richard said, 2022 was a tough year for all of the team, and I'm very grateful for all that they achieved in difficult circumstances. I'm delighted to see the spirit and the positive intent in my colleagues and their ambition to deliver a top-quality health service for our patients. My commitment to them is that we create a positive culture and working environment in which they can be at their best and that we maintain a steady core throughout 2023 focusing on what we need to do to deliver our plan with no distractions. My executive team and I will be open and transparent with our people about the work to be done, the progress we're making and the challenges along the way. My thanks go also to the departing Board members for their leadership and support for DCA during 2022 and through their tenures as directors. I'd like to set out for shareholders the market guidance that we provided in our preliminary statement for 2022. So we updated our market guidance on our targets for 2023. Annualized revenue run rate of GBP 42 million to GBP 46 million by the end of June 2023, a gross margin 50% to 55% by the second half of 2023 and a contribution margin of 35% to 40% by the second half of 2023, and we're targeting to be EBITDA positive in Q1 2024 and cash generative soon after. I've already touched on some of the key assumptions and dependencies underpinning this guidance, and they're set out in our release to the ASX on the 28th of February. So I conclude by saying that our objectives for 2023 are exciting and challenging in equal part. Successful delivery will be reliant wholly on our people. And so my executive team and I are determined to create a collaborative workplace culture where our people can be at their best and play their part in DCA's success. We'll progress towards becoming EBITDA positive and cash generative through a combination of the change in operating model, growth in consultation numbers and optimizing operating and nonoperating costs. Delivery of this plan will create strategic options for your company. Our goal is to be 1 of the first telehealth companies to be cash generative and profitable with the capacity and capability to take on new clients and to expand the range of clinical services that we can provide, focused on our core U.K. market. Thank you very much.

Thanks, Ben. We'll now move to the formal business of the meeting. The agenda for today's AGM is set out in the notice of meeting dated the 6th of March 2023, which I'll take as read. Copies of this in our 2022 annual report are available on our website and the ASX company's portal. The minutes of the 2022 AGM have been signed and are available for inspection by arrangement through our Company's Secretary. You will have received instructions on voting and submission of questions as part of your voting pack. I will now talk through these. Today's meeting is being held online via the Computershare meeting platform. This allows shareholders, proxies and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting and the annual report, notice of meeting and other meeting materials are available on the platform. In addition, shareholders and proxies have the ability to ask questions and submit votes. Online attendees can submit questions at any time. [Operator Instructions] Please note that while you can submit questions from now on, I will not address them until the relevant time in the meeting. Please also note that your questions may be moderated or if we receive multiple questions on 1 topic, amalgamated together. Attendees who have locked in as a guest will not be able to submit questions to the meeting. To ask a verbal question, please follow the instructions written below the broadcast. Voting today will be conducted by way of a poll on each item of business set out in the notice of meeting. In order to provide you with enough time to vote, I will shortly open voting for all resolutions. If you are eligible to vote, once voting opens press the vote icon and all resolutions will be activated with voting options. To cast your vote, simply select 1 of the options. There is no need to hit a submittable enter button as the vote is automatically recorded. You will receive a confirmation notification on your screen. You do, however, have the ability to change your vote up until the time I declare voting to be closed. I will also show a slide with the votes and proxies received prior to the meeting for each resolution. The final votes for and against that resolution will be released to the ASX after the meeting is closed, likely tomorrow morning Australian time following verification by the returning officer Julian Musson from that share registry, Computershare. I now declare voting open on all items of business. The voting tab will soon be active. Please submit your votes at any time. I will give you a warning before I move to close the voting. The Board recommends that you vote in favor of all resolutions and to set out in the notice of meeting, I as Chairman of this meeting intend to vote all open proxies in favor of all resolutions. I'll turn now to the formal business of the meeting. We have 5 items before the meeting today, and I will invite questions and comments on each item as we move through them. The first item of business is to receive and consider the financial statements and reports for the year ended December 31, 2022. While we do not put this item of business to a vote, we would welcome any questions about the company's accounts or more generally. As I mentioned earlier Ed Thomas from Grant Thornton is also available to answer any specific questions you may have about the audit or related matters.

We have received some general questions in advance of the meeting. So I will address these now. We received a number of shareholder questions including the following: one, how do you explain the significant fall in the share price over the last 18 months? Let me say a few things about this. You may have seen in the annual report that we included a graph of the global telehealth sector's share price performance since 2021. It's showing on the screen now. DCA's share prices followed this sector trend despite the business continuing to grow. We believe that reaching sustainable profitability will change the market's assessment of the company. To do this, we need to execute our plans better than we did in 2021 and 2022 and demonstrate progress by ensuring that projects land on time, on budget and in line with the plan that Ben Kent, our CEO, outlined earlier in the meeting. We received another question. Are there still plans to set up shop in Australia? Now of course, we own a business in Australia, GP2U and PSYCH2U. However, our Australian strategy is under review. As noted in the annual accounts and in our recent ASX announcements, our focus is very much on the U.K. market to drive value over the short to medium term. A third question. You'll be well aware of the trend in declining average revenue per consultation, which developed over 2022. Can you help me understand why this is the case? I'll ask our CFO, James Warren to speak to this question.

Thank you, Richard. Well, as part of our variation agreement with AXA Health announced on the 15 December 2021, we agreed a blended price mechanism of AXA. This is based on anticipated mix of 20-minute GP appointments, 50-minute GP appointments, AMV appointments and core consult appointments. In Q2, Q3 and Q4 2022, the blended price was lower to reflect this anticipated mix. We introduced 50-minute appointments with no ANP or consulting 2022.

Thank you, James. The next question, where the SLA penalties included in the income statement, revenue line or COGS, cost of goods sold, and the answer is they're incurred against our revenue line. And I should say that I might refer to that is the GBP 750,000 of SLA penalties that we described in a number of our market releases. Next question is the trend in declining revenues continuing in financial year '23? And again, I'll let our CFO, James Warren, answer this question.

Thanks, Richard. That is an emphatic no. Revenue was flat in Q3 versus Q2. And this, as I mentioned previously, was due to lower blended price and capacity issues. Revenue grew in quarter 4 over quarter 3, and this was due to an increase in consultations and a consistent blended price that is -- blended price quarter-on-quarter. Revenue per consult is forecast to increase following the implementation of contractual inflationary increases as per the terms of our contract with AXA and as detailed in our release and as per -- as Ben mentioned earlier. H2 revenue per consult was also suppressed due to the SLA breaches as per Richard's comment previously.

Thanks, James. Next question, has DCA been able to make SLA levels in the first quarter of '23? The answer to that, as we said in the 2 addresses is yes. We have not accounted any outages since October 2022, which would be significant enough to incur service credit payments. Next question, is it realistic to assume you will be able to negotiate the inflationary price increases with AXA during the course of this year? Again, the answer to this question is yes, it's contractual clause in our arrangements with AXA, so it's 100% realistic. Next question. In relation to the guidance for financial year '23 revenues, the key assumption underpinning the guidance is for a minimum of 40% growth in consultations by at least 861,000 consultations for financial year '23 applying the average revenue per consult achieved in the second half of '22 of GBP 46 per consultation. This should get us to GBP 39.6 million. The guidance of GBP 42 to GBP 46 appears to imply a higher average revenue. Is this reasonable based on the first quarter's performance? And again, I'll ask James Warren to speak to this.

Thanks, Richard. So again, this is related to the contractual inflationary uplift, which will increase our revenue per consult in 2023. Also please note, as we mentioned previously, the contractual payments is from AXA did suppress our revenue per consult in H2 2022.

Thanks, James. Next question, the guidance will no doubt include a downward adjustment to average revenue per consult for the mixed clinical workforce rollout. Hence, I wish to confirm each of these factors has been taken into account for the guidance. And the answer to that question is all guidance's revenue figures reflect adjustments to revenue per consult as per the terms of our contract with AXA. Next question. Is it reasonable to assume you are looking for a buyer for GP2U? That's our Australian business, and while we don't have anything else to say at this point, we have set repeatedly and consistently now for the last few months that we see the growth future of this business being in the U.K. Does anybody have any other questions that I would like to ask of this side of business or otherwise? Is there anyone waiting to ask a question whether verbally or via our phone lines?

Chair, there are no questions via the phone lines.

Thank you. Well, if we have no further questions, I'll move on to the next item of business. The second item of business is the reappointment of the company's launches Grant Thornton. Does anyone have any questions in relation to this resolution? Is there anyone waiting to ask a question whether verbally or via our phone lines?

Chair, there are no questions via the phone lines.

Thank you. If we have no further questions, I'll move on to the next item of business. The third item of business is the reelection of David Ravech. This year, only 1 director will be seeking reelection. And you may recall that last year, David was elected for 12 months. This year, he offers himself for reelection for a full term with the Board's support and endorsement. Note that the company is now governed by a largely independent Board of nonexecutive directors with an independent Chairman. I'll now invite David to briefly address the meeting.

Thanks, Richard. As we've heard from Ben, very cogently, 2023 is a watershed year for Doctor Care Anywhere. We have 3 standout priorities introducing a mixed clinical workforce, continuing to build headroom for much higher consultation numbers on our platform and driving down operating costs as we strive to achieve profitability at the earliest opportunity and lead our sector into sunnier up plans of cash generation. I'm really looking forward to working with Ben whom I warmly welcome and our new leadership team in support of these imperatives. As always, excellent delivery will be essential. We have a new management team to lead us this year, and I have high expectations that they will have greater success than their predecessors. Many thanks, indeed, to Richard, Vanessa and Simon, who lead our Board with tremendous amount of work over the last year for which I'm very grateful. John, Romana and I will do our best to support management, achieve the success that DCA very much deserves.

Thank you, David, and thanks for your kind words. Does anyone have any questions in relation to this resolution? Is there anyone waiting to ask the question whether verbally or via our phone lines?

Chair, there are no questions via the phone lines.

Thank you. So if we have no further questions, that concludes item 3 regarding the election and reelection of the directors. The fourth item of business is the adoption of the 2022 remuneration report, before putting the resolution to a vote, I would like to remind shareholders that the voting exclusion applies to this resolution as set out in the notice of meeting. This is an advisory resolution, but the Board will take the outcome of the vote into consideration when reviewing the future remuneration policies and practices of the company. I'll now invite questions on the remuneration report. Does anybody have any questions? Or are there any questions verbally or via phone our lines?

Chair, there are no questions via the phone lines.

Thank you. There being no further questions, I'll move on to the next item of business. The next item of business is any other business. And I now invite attendees to raise anything else that they would like to have considered at this meeting using either the chat function or verbally. Is there anyone waiting to ask a question verbally or via our phone lines?

Chair, there are no questions via the phone lines.

Thank you. That being the case, this concludes all the items of business in the notice of meeting. I'll now give all shareholders a moment to finalize their votes. This voting will close in a moment. [Voting]

I now formally close the poll. As I said earlier, the final numbers of votes for and against each resolution will be made available to shareholders when we release the results to the ASX. However, on the basis of pre and proxy voting, I can now declare that on a preliminary basis, all resolutions have been passed and the preliminary results are now available to view on the screen. I now declare the meeting closed. Thank you all for your time and participation today.