Oneview Healthcare PLC (ONE) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Oneview Healthcare Full Year 2020 Preliminary Results announcement. [Operator Instructions] I would now like to hand the conference over to Mr. James Fitter, CEO. Please go ahead.

Thank you, Ashley, and good morning to everyone in Australia. Good evening to those joining here in Europe. I'm joined here in our Dublin office by Helena D'Arcy, our Acting Interim CFO; and Niall O'Neill, who is our Chief Strategy Officer. Thanks very much for your time this morning. I'd just like to draw your attention as always to the legal disclaimer at the front of the presentation. And I'm conscious that we had a number of people who are new to the company joining us for the first time today. So I just wanted to talk briefly about our vision, which obviously inspires us and our customers. Our vision is to power personalized, exemplary care experiences. And having been doing this with some of the leading hospitals in the world for nearly a dozen years now, I think both us and our customers understand that putting world-class technology in the hands of their patients only works if the technology is designed with the care team in mind. And the Oneview platform not only personalizes the hospital visit for the patient but provides real-time context to the care team and liberates them to focus on delivering world-class care. And never has that been more apparent than in the past 12 months as our care teams have obviously been under extraordinary stress during the pandemic. In terms of agenda today, I'm going to talk about the year-end review for 2020. I'm going to pass across to Niall, who is going to speak to strategy and vision that he's been so instrumental in driving for many years now. But obviously, 2021 is a very important year for the business. Helena is going to talk through our financial results and key trends. And then I'll come back and talk a little about the outlook for 2021. So this is a quite -- I could have picked any number of quotes along this line. But this one says that the COVID-19 pandemic has put the health care industry through the wringer. It's required new ways of working, new methods of communication, new solutions to our problems and innovative solutions to new problems. And I think that's particularly true. It's been a long time coming. And I think countless other industry insights have described the pandemic as a leadership moment for the industry that's really going to start to unlock much of the innovation inertia that has really plagued the industry. And we believe this new focus on virtual models of care is going to help us cross this chasm between nice-to-have technology and must-to-have technology. And we've certainly heard that firsthand from our customers this year who were extremely grateful that they had our platform installed. Another quote here, just as we've transitioned through the next slide, from the folks at Gartner talking about the proportion of IT spending that is migrating to the cloud. The health care industry in general has been slow to adopt the cloud. But again, I think you're going to hear from many industry experts that, that is in the process of changing and changing quite dramatically. So 2020 was a positive trend for us across all of our key metrics. We had 9% growth in live beds. We had 13% growth in recurring revenue. And all this whilst we brought our operating expenses down 44% year-over-year following the reorganization that took place in February last year. It's really been a bit of a year of consolidation. The revenue growth was slowed obviously by the impact of the pandemic, which we'll talk about in a second. But it's also been a chance for us to really focus our energies on product development, investing in our next-generation platform, some very significant process improvements in engineering, which we'll talk about in a second. And of course, it gave us the inspiration to launch Cloud for COVID in April 2019, which has really proved the foundation of the transition that's going on in the business today. So in terms of financial highlights, as I mentioned, recurring revenue is up to $5.1 million. Exit run rate at the end of December was $5.5 million. As I mentioned, we had some delays to regain access to hospital sites, both in Australia and the United States but obviously more prevalent in the United States. That's starting to fill a little now. We have teams on the ground, for example, in a couple of hospitals in the U.S. this week as those have shown some signs of getting back to business. Encouragingly, we've reported a high gross margins of 67% this year versus 60% last year due to the change in revenue mix. Obviously, we earned less gross margin on our hardware and installation services and very attractive margins on our software but very pleasing to see that trend. And as I mentioned earlier, we've seen really a sort of laser-like focus on cost control. We've brought our OpEx down across the board and used every available opportunity to do that. And that's had the effect of reducing our cash burn materially. In terms of technology and delivery, we've been through a really significant change in our technology leadership in August 2019 when our former CTO moved on. And we were left to hire 2 world-class technology leaders in JP Howe, who's our Director of Engineering; and Declan Bright, who's our lead architect. And they really presided over a very dramatic transition in our engineering processes and capabilities. And JP, Declan and Niall have really been the inspiration and driving force behind our strategy to transition the product to the cloud, which is really starting to reap significant benefits. The guys have also embarked on an offshoring project which is delivering great results. We're very fortunate to have a rich talent pool of engineering here in the Dublin market by virtue of the fact that so many U.S. tech companies count Dublin as their European headquarters. And that's created a very strong ecosystem of engineering. And that is both a blessing and a curse because the competition for talent is very, very intense. And certainly, we've witnessed that over the last couple of years. So we made a decision to diversify our capabilities in the Kiev market, which has been highly successful. We now have a team of our 14 engineers in Kiev, complementing the core team here in Dublin. It's been very successful because of the time zone. Obviously, there's only a 2-hour time zone difference between here and Kiev. And I think we've just been a beneficiary of attracting great talent from a very deep talent pool. But more importantly, retaining that talent at a time when obviously remote work has become the norm and the demand for remote engineering has hardened quite significantly in Kiev. But we've had an incredibly successful retention there, which I think is a testament both to the quality of people we've hired but also to our vision, which I think inspires them. You're also going to hear from Niall about the transformation of our data platform, which has been a very significant investment we've been making for the last few years. And that's starting to reap real benefits and great operational insights for our customers. We also mentioned the path to ISO 27001 certification, which for those of you who are not familiar, is an international standard on how to manage -- I want to call out specifically Richard Eibrand, who's our Head of Information Security and done a remarkable job of helping the organization get ready for that. It's an incredibly important time for us as we transition to cloud and become custodians of private health information and also the time when the prevalence of cybersecurity attacks is on the rise in health care. This certification has been great discipline to us as an organization. But it's also going to bring great comfort to our customers as we move forward. And finally, we've concluded a very significant investment in our hardware strategy, which is really around bringing best-of-breed Android hardware to market. And this spans Samsung tablets, WeTek set-top boxes, social mobile and ones which enable us to cater for all infrastructure eventualities and provide best-of-breed hardware to our customers. Despite the pandemic, we also added 3 new hospitals in 2020 in what was obviously a pretty challenging year around. First of those was OU Medical Center in Oklahoma, where we currently have a team on the ground. We began the deployment there. This is a facility that manages 680 beds. And the image on the top left here is their new tower, where we're currently deploying across 247 beds, which is the initial contract. But we're also in discussions to expand to their existing facility. And the tower at the bottom here is just showing the solution in the new tower there in Oklahoma. Just before Christmas, we were delighted to win the Children's Hospital & Medical Center in Omaha, Nebraska. And that is a 145-bed hospital, which is currently project mode. We'll look to start deploying during the second quarter of this year. And then finally, our partnership with the Sydney Children's Hospital Network continues to grow in strength. We have had 2 projects going on there at the moment. First of them is to renew the hardware and move in to our next-generation platform at Westmead Kids, which was our first deployment for them nearly 5 years -- or over 5 years ago. We've already got the next-gen product at Rainbow Kids. And again, we are, as we speak, in the midst of deploying another 135 beds in the Central Acute Services building, which is part of the Westmead redevelopment program. So I'm very enthused by those developments. In terms of our 2021 strategy and vision, I just wanted to re-share what I think is a very important slide from our [ 4C ], which really points to the very material improvement in the management of our cash outflows. And you can see the quarterly trends here. We've seen about a 70-odd percent improvement following the reorganization which took place just over a year ago. The market opportunity, I think what you're going to hear from Niall is that COVID has really -- as with all of our lives, it's transformed the way we do business. We've got customers that are looking at new virtual models of care. That's highlighted the importance of bedside technology. It certainly highlights the importance of video. And as we transition to a pure SaaS model, we've hired new SaaS sales leaders in both the United States and Australia, both of whom bring decades of experience selling cloud products to the health care sector and very important relationships. And what Niall is going to share with you is the work we've been doing around our partnership strategy and how that's going to help us as we go-to-market in 2021. So Niall, why don't I pass it across to you?

Thanks, James. So just moving to the go-to-market strategy. The U.S. market is a big market with around 6,000 hospitals accounting for over 900,000 beds. And our go-to-market strategy in the U.S. is to keep our sales team small and very laser-focused on around 10% of the market and to work with partners to extend our market reach in the remaining 90%. So that's around 5,500 hospitals. So I'm just going to talk to you about the key partnerships we've been working on and why they are important to this strategy. Starting with Microsoft. We've long been a Microsoft partner. And now I'll move to Azure and the Azure cloud. It's then aligned us with Microsoft incentives. And it enables us to fully benefit from the Azure co-sell program for the first time, which means that Microsoft sellers across hospitals and hospital systems in the U.S. market will support us in lead generation and moving opportunities forward towards cloud. We've also been a Samsung partner for a number of years. And our move to cloud now with our multitiered products, that means that we're now able to offer a bundled solution with channel -- with Samsung and via channel resellers. And this is at a scale that wouldn't be possible with a direct sales organization. And it wouldn't have been possible on our old, one-size-fits-all on-prem product either. And finally, we've partnered with virtual actual care companies. So James mentioned Caregility and Cloudbreak, who have complementary solutions that can be delivered on the Oneview platform. And this is enabling us to offer end-to-end solutions that are critically aligned to customer priorities at this time as well as driving collaboration and opportunity referrals between our sales teams. So just moving to the next slide and just to talk a little bit more about the Samsung partnership. So Samsung SDSA is Samsung distributor subsidiary in the U.S. market. They distribute Samsung's B2B products, tablets and mobile phones to enterprise resellers. So SDSA are going to be bundling our Cloud Start solution along with Samsung tablets and providing this to enterprise resellers that work with large hospital systems in the U.S. And those resellers will then be able to sell those under their existing procurement agreements with those organizations, with Oneview then fulfilling on the back end. So this is going to make it easier than ever for new customers to get started with Oneview. Cloud Start is the first tier in our new product suite. It's quick to deploy, a matter of days instead of weeks or months and also the basic level of functionality that includes enabling virtual care use cases at the website as well as engagement and infotainment use cases. And importantly, Cloud Start customers can then benefit from an upgrade path to Cloud Enterprise with all the additional functionality and integration that, that offers as and when they are ready. So just moving on to talk about tier migration and upsell. The idea of tier migration is really key to how we can grow the annual contract value of customer account. Cloud Start enables customers to get started faster with tablets at the bedside. Because there's no integration to the HR, we can get a customer live in a matter of days. So a customer might begin with Cloud Start. They might, for example, want to deploy virtual care at the bedside. They might want to deliver digital education to patients at the bedside or infotainment. And then over time, they could often move to Cloud Enterprise, which is the fully integrated, fully featured tier with TV, tablet and touch screens across the enterprise. And that would then enable them to benefit from additional Oneview solutions for things like our patient concierge and meal ordering solutions. And that's increasing our recurring revenue. So just moving to talk a little bit more about virtual care at the bedside. As James has mentioned, the pandemic has really highlighted the importance of having this communication technology at the bedside. In the absence of this type of technology, hospitals really had to scramble to put very tactical solutions in place to ensure that they could maintain communications with patients who are infectious and reduce the [ boom entry ] and minimize their use of PPE. So our partnership focus has really been ensuring that we can support these customer needs end-to-end and really align to this priority that they have and will continue to have. We partnered with Caregility to resell their virtual care platform globally. Caregility was recently voted as the best virtual care platform in the U.S. by KLAS, who are a leading health care technology analyst. And that's based on customer feedback. And the second partnership then is with Cloudbreak. Cloudbreak is a telehealth company. And we've partnered to offer their multi-language service to our U.S. customers. So this enables customers to add language services onto the Oneview platform for seamless translation for non-English-proficient and/or deaf patients and families at the bedside. And these partnerships are really all about helping our customers, their staff and their patients benefit from having this always-on, always-connected technology at the bedside that enables these communication use cases that are becoming critical to the operation of care. We're just moving on to talk about the data analytics platform. This is another really, really important innovation that has crystallized in 2020. We've been working on this since back in 2019. And in late 2020, we went live with our first customers who are now able to access their data directly from the cloud via self-service dashboard. This is a really key part of our strategy to help our customers measure and grow the value from the Oneview platform. And it's also, we think, going to enable us to create new data-driven product offerings. Because we're aggregating data across our customer base into the cloud, we're able then to offer benchmarking. So this is something that we're going to be offering in the future that will enable a hospital management team to compare their performance on key metrics to other hospitals in that system so they can see how they're doing against their peer hospitals within their system but also then anonymously to the best, worst and medium performers in the market. And we think this is going to provide a level of granular insight that hospitals don't have today and outside of certain government quality measures. And this is really going to help them focus and measure their continuous improvements in quality programs and ultimately drive greater ROI from their Oneview investments. So our customers are really excited about the data analytics capability and we are as well. We have hundreds of millions of data points in the platform today. And this is growing exponentially day by day. It just gives you a sense of the power of that data asset. And now I'm going to hand over to Helena, our Interim CFO, to take us through the FY 2020 results and key trends.

Thank you, Niall. I'll just start off with a short quote there from McKinsey summarizes the rationale behind our decision to go cloud. And it basically says that cloud is cheaper, it's quicker. So the trends we're seeing coming out of 2020 and in '21 are outlined here. Most importantly, we are completely focused on our core products and completing our migration to cloud. We have successfully offshored certain engineering capabilities to Kiev in the Ukraine, where we have found that there is a deep talent pool available at lower cost than in other countries in which we operate. Total operating overheads have decreased by 44% compared to the prior year. This was majorly driven by a headcount decrease of 60% since 2018 levels. We now believe we have rightsized the cost base of the business going forward. And the graph on the left shows the decrease in both people costs and other overheads. The graph on the right shows annualized recurring revenue continues its upward trajectory. Exiting annualized recurring revenue at 31 December 2020 is EUR 5.5 million. The Oneview solution went live in 9,259 beds at the end of December, with another 2,555 beds contracted and in the process of being installed. The growth rate in live beds is lower than in previous years due to COVID-19 preventing access to hospital sites to allow us complete installations. However, the growth rate will set the record in 2021 as we catch up on those installations and also transition to cloud. I now present here our 2020 income statement. Recurring revenue increased by 13% compared to the prior year due to an increase in live beds. Nonrecurring revenue was 22% lower than the prior year due to the impact of COVID-19, which prevented us getting on-site to complete installations. It's important to emphasize that these installations were delayed and not canceled and all affected installations have since been rescheduled. Gross profit margins improved to 67% compared to 60% in the prior year due to a higher proportion of software revenue, which attracts higher margins. Total operating expenses excluding restructuring expenses came to EUR 10.9 million compared to EUR 19.6 million in the prior year, a reduction of 44%, resulting in a significantly reduced operating EBITDA loss of EUR 6.2 million compared to EUR 15.4 million in the prior year. The company incurred restructuring expenses of EUR 1.2 million as it exited the Senior Living product in 2020 and also underwent a smaller strategic reorganization in late 2020. The net loss after tax was EUR 9.5 million, down from EUR 16.9 million in 2019. Moving now to the balance sheet. The group had cash on hand of EUR 6.8 million at the end of the year, which reflects the equity fundraise of AUD 8.7 million before costs, which took place at the end of the year and was strongly supported by both existing and new investors. Oneview is availing of anti-COVID-19 government support to which it's entitled and received a PPP loan which is fully forgiven in the U.S. of USD 434,000 in 2020. As recently as last week, our [ EUR 312,000 ] PPP loan, which is also eligible for forgiveness. The group also availed of JobKeeper assistance in Australia. Turning now to the cash flow statement. Cash flow statement shows net cash at the end of the year of EUR 6.8 million but also shows the reduced cash burn rate, which is generated by tight cost control initiatives and overall reduced costs. And I'll hand back now to James.

Thanks, Helena. Just a quick update on -- for those of you who know the company well, you'll be aware of our pursuits in the aged care space in the last couple of years. And we were disappointed to have to resort to the courts. But we have launched a legal plan in the Supreme Court of Victoria for breach of the collaboration agreement between ourselves and Regis Aged Care. And we're seeking damages for loss of opportunity or reliance loss in the alternative and for misleading and deceptive conduct. And the first hearing took place in the court last Friday. And I guess, as is traditional, the hearings have been adjourned for a month until the 19th of March. Finally, let me just turn to the 2021 outlook. And you'll be aware that at the time of the cap raise in November, we guided that 2021 revenues would be broadly in line with our expected operating expenses of EUR 10.4 million for the year. And we're today reaffirming that guidance, which would indicate a 40% to 45% revenue growth in 2021. The key drivers there are obviously the move to a full SaaS platform which is expected to shorten sales and implementation cycles. And I'm pleased to report we're seeing very positive trends on both the sales cycle and the implementation cycle. Niall's work has put in place a blue-chip partner ecosystem. And I really -- it's difficult to underestimate how much time and effort goes into forming these partnerships, finding the right partners. And the work that they have done over the last couple of years has allowed us to secure some projects that we think are really going to open a lot of new doors in the crucial U.S. market. We know that virtual models of care are front and center, top of mind for health care systems. We've included the source of the quotes we shared in the presentation for those of you who want to read more. It will give you a sense on the next slide. We also obviously are working on some very material expansion opportunities with existing customers, some of which have been waiting for the [indiscernible] set-top box for some time. Very excited to bring that product to market. And we're also incredibly enthused by the new sales leaders that we've been able to hire. Not often that you are able to get your first-choice candidates in both territories but we were able to do that. And as I mentioned before, both branding only will bring very strong categories in their respective territories. I'd also say in conclusion that the quality of the customer engagement we have with high-profile enterprise customers in both our key markets has never been better albeit our management team has never been busier. So we're very optimistic about the outlook for 2021. So I'll conclude my remarks there and pass it back to you, Ashley, to see if there are any questions.

[Operator Instructions] There are no phone questions at this time. I'll now hand back to Mr. Fitter.

Thanks, Ashley. We've got a couple of questions that come in on the webinar. So let me just take those in turn if I can. So the first one was a question asking why the market acquired enterprise at the get-go. And that really comes back to -- it's a very significant undertaking to lift the very complex integrations we have with the electronic medical record from the get-go. So the decision we took was -- we felt it was important to get a product in the market quickly, which provided the essentials of the pandemic, which were essentially virtual rounding, virtual visitation, virtual translation. And that allowed our customers to protect their care team by using Cloud Start at a high-quality video link between the care team and the patient at the bedside or between a clinician from a different location, the bedside. And of course, we all heard the harrowing stories of nurses who were being asked to broker end-of-life conversations on their smartphones with family members who are restricted from visitation. So we felt the immediate need was, "Let's get a product in the market. Let's provide that basic functionality." And it's really the feedback that we got from that process that gave us the inspiration to lift the whole product into the cloud. And as I say, without the sort of guidance from Declan and JP, I don't think that would have been possible. But we're really encouraged by where we're at in that journey and looking forward to getting that product out in the first quarter. Second question we had was are we targeting a reduced loss of EUR 3.4 million in 2021. We're absolutely targeting a reduced loss, the magnitude of which we'll determine a little bit on what the top line looks like. And obviously, we've done a lot of work to get our costs under control. So I think the trends are pretty clear on that front. And then final question is just could we please expand on new data-driven product offerings. Niall, I just want you to talk a little bit more about exactly what we're providing with that solution.