Oneview Healthcare PLC (ONE) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Oneview Healthcare Half Year 2021 Results Announcement. [Operator Instructions] I would now like to hand the conference over to Mr. James Fitter, CEO. Please go ahead.

Thanks, Lexie, and good morning to everyone in Australia. Good afternoon to those here in the States. I'm calling from our Chicago office. And with me on the line in Dublin, I have Helena D'Arcy, our Interim CFO; and Niall O'Neill, our Chief Customer Officer, who will also be presenting today. So just a quick reminder on the legal disclaimers and just a reminder that we are reporting -- our reporting currency is in euros unless otherwise specified in this presentation. And this, of course, is our first half results as we are at calendar year-end. So just a reminder of our mission and our vision, which is to power personalized exemplary care experiences. Never has our mission been more relevant than it has been in the last 18 months during a global pandemic. And of course, the pandemic has put extraordinary pressure on care teams. It's put obviously very challenging time for families who are unable, in many cases, to visit their loved ones. And I think it's really brought home the power of a bedside technology and, of course, also really focused on our ability to drive workflow and operational efficiencies for nursing. So the agenda today, we're just going to look at, obviously, the first half in review, our second half strategy and vision, the financial results and key trends. We'll talk a little bit about the ESG initiative we kicked off in the first quarter of this year. And of course, we'll conclude with the outlook for the second half of this year and into 2022. So the first half has been transformational for the company in many ways. As those of you who know the company well, we've transitioned our care experience platform to the cloud, becoming the first company in our space to do so. And that was obviously an enormous undertaking and something I'll speak more about shortly. As part of that, as we obviously become custodians of private health information, we've dramatically improved our security posture across the company with ISO 27001 in March. And last month, we completed our ISO 27701 certification which deals specifically with how we handle our customers' data and their private health information. We renewed our partnership with Epworth, which dates back to 2014. It's been a fantastic partnership, and we're really looking forward to moving them on to our next-generation platform. As you know from our earlier announcement, we signed our first cloud customer in Australia, which was also our first success with the public sector in Victoria. And perhaps the most striking thing about this was that the time from contract signing in June to go live in July was 39 days, which by health care standards, is incredibly fast. And again, I think revalidates one of the key drivers for our transition to cloud, which was to be able to sell faster, but also to implement faster. And obviously, that part of revenue is going to be incredibly important. Now I was going to give us an update today on the significant go-to-market partnerships that we've established with Samsung and with Caregility. And many of you will have seen on Friday, we announced a joint press release with Microsoft around transactable status in the Azure marketplace, which is also going to be incredibly important, and you'll hear from Niall exactly how that's going to work. And of course, the other thing that happened during the half year was a key customer testimonial from our friends at NYU Langone. And again, I don't think we can overstate the importance of referenceability in the health care industry. It's a massive industry, but everyone talks to each other. And again, we're incredibly proud of the partnership and just thrilled that NYU were so giving and sharing the value proposition of the work we're doing with them. So just a quick reminder of the 2 different product offerings we have in the cloud. So our first response when the pandemic initially hit in New York was to rapidly deploy something that didn't include the patient context. So it was assigned to a specific room. It didn't matter who the patient was in that room. But what it did is it provided an immediate ability for the care team to communicate with that patient, in this case, through Cisco Jabber, but it could have been any number of tele-health solutions. It provided generic educational content to patients. And importantly, it provided a streaming content to, again, try and distract patients at the time that obviously they're most vulnerable. The much bigger and bolder challenge for our engineering teams was to transition the entire product to the cloud, which is what we refer to as Cloud Enterprise. And this is where we are doing all of the work that we do in our on-premise solution, which is to customize and personalize based on what we know about the patient in the room. So in this case, we obviously know their demographics. We know their primary language. We know their diagnosis. So it allows us to give a much richer experience for the customers. So just to keep that in mind, the Cloud Start product is the product that we have been bundling with Samsung tablets in the United States. Cloud Enterprise is obviously much more sophisticated and requires a different integration capabilities at the bedside. So let's talk a bit about market conditions. I think there's 2 real key things here. The obvious one is that the pandemic has really helped to accelerate the demand for digital care. And you'll see throughout today's presentations, we've provided a few quotes around the speed of digital adoption, around the pace of cloud adoption. I think most of you are aware that the health care industry has been a late adopter to cloud. But out of necessity, that has really been ramped up in the last 12 months due to pressure on IT budgets and really in the need to be able to deploy without physically being on site. So I think based on the conversations we're having with major health systems here in the United States and in Australia, it's very clear that the value proposition of bedside technology has been substantially re-rated. We know from those conversations that we've moved up the priority list of capital projects, which has always been a challenge for us. I think many have described the product as nice-to-have product. I think it's very clear that we've crossed that chasm to more of a must-have product. Having said that, we know that health systems continue to be pretty occupied caring for their patients. I don't need to tell anyone in Australia around the acceleration of COVID there. And clearly, in the United States, we have some states that have seen very substantial deteriorations in recent weeks and months. So hospital budgets do remain under pressure. They're being continually reviewed. We are hearing in our sales channel, we have a number of opportunities, 1 specific one in Texas, 1 in Australia, where hospital leaders said just, listen, we're absolutely committed to deploying the Oneview platform. We'd like to get a better sense of what our new normal operating model looks like. So that may take some weeks and months potentially to work through the system. So what we've been doing to try and help is, first of all, enabling virtual care at all of our existing customer locations where possible. I think we really ingratiated ourselves to a number of customers with our speed to respond. And I think they are all incredibly grateful that they have made the investment in bedside technology. Niall has done some fantastic work around enhancing the value proposition through partnership. It's very clear that people don't want 2 tablets at the bedside. So I think the steps we've made to transition to Android to an open and scalable platform, the investment we've made in security has been incredibly helpful for our partnership development. And most importantly, we've been continuing to do everything we can to lower the total cost of ownership for our customers. That began with the hardware strategy, which is about to pay dividends and has obviously been accentuated by the transition to cloud. Just a couple of the quotes. I'd just point to the one on the right, from KPMG that says in the next 2 years, CEOs expect digitally-enabled services to be their organization's top priority in the next 5 years, 80% expect improving patient customer experience to be their top priority. So I think we feel very strongly like the next 5 years is going to be a very exciting time for the business. So let's talk a little bit about the numbers in detail. So we've seen improving trends in most but not all key metrics. We've seen 6% growth in our contracted beds year-over-year. And I should point out that includes the decommissioning of 300 beds in Cairns, which was the first, and to date, the only customer renewal we haven't been able to navigate, and that was really around just bad timing around the availability of our new Android devices. So adjusting for that, we would have been up around about 10% on a contract expansion in the midst of a pandemic. So I think credible. Recurring revenue is obviously disappointing. It's only edged up slightly, and this reflects the short-term impact of the delayed deployments that were impacted primarily by hospital access, but also by the supply chain disruption to the coax set-top box, which is currently being shipped as we speak. Security scalability and hardware foundations are all in place to support accelerated growth. And we really feel like we've got strong operational leverage. We'll talk a bit more about that. We're projecting 100% revenue growth in the second half versus the first half based on work that's currently in progress and current project scheduling. So a pretty significant acceleration coming, even notwithstanding market conditions with COVID. We've obviously been focused -- laser focused on cash burn, which has improved 61% year-over-year. Our operating expenses are down 9%, total revenues up 13%. And we've done some important work to strengthen the governance of the Board with Nashina Asaria joining the Board during the half. We now have 3/4 of our nonexecs active participants in the North American health care industry, which is incredibly impactful for our sales organization because we're able to leverage some of the fabulous relationships that those nonexecs have built up over many years. So just getting a little bit deeper into the numbers. As I mentioned, total revenue up 13%; annualized exiting recurring revenue of EUR 5.6 million based on the June number; continued focus on cost controls, reduced our operating expenses by 9%; improved EBITDA by 12%. And as I mentioned, significantly improved cash burn of EUR 2 million in the first half versus at EUR 5.1 million in the previous corresponding period. So let's talk a little bit about the operational drivers. We've had an extremely positive response to the cloud product launch in March. We're obviously only 1 quarter into that process. And I'll talk a little bit more about that in a second. Very important to understand what we've been doing on the OEM hardware side. We now have completed the testing of all the new hardware, which comprises this coax set-top box, which you can see on the top of the slide and the social mobile all in one, which you can see on the bottom of the slide. These are very important and significant investments that we've made, and we've incurred some degree of cost and a large amount of time from our engineering teams to ensure that this hardware is fit for purpose. We've just deployed the set-top boxes to a number of customer sites. We'll talk about a couple of them in a second. And we've received the first shipment of Android all in ones arrived in Melbourne last week. And this all in one is a really important -- it's health care-grade, certified for the health care insurer, but it's also GMS certified, and it's the first time -- well, it's the largest tablet of its size that has been certified by Google. And that is going to fill a very significant unmet need in the market. We've just been at the largest health care IT trade show in Vegas a few weeks ago, and there wasn't a single hardware vendor that's offering a 22-inch Android device at this time. This is going to enable us to convert all of our remaining Windows devices, which are currently deployed in 5,000 beds, which is around about half of our estate. We're beginning that journey with 1,400 are being converted at Epworth in the second half of this year. The reason that's so important is that we currently have across our footprint around the world, we have 20 different Windows devices that are being deployed. What that means is every time we upgrade our software, we have to regression test against those different devices. Those devices are difficult and time consuming to manage in the wild. When we are managing our Android devices, we currently have the Samsung tablets, the WeTek boxes, the social mobile all in ones. So it's going to give us huge operational efficiencies and drive a material improvement in our support in 2022. In addition to our ISO certification, we've also made a commitment to external PIN testing to enhance our security posture, and that's been extremely well received by customers. We've appointed a new marketing manager here in Chicago and enhanced our CRM capabilities, and I'll share some details of what that's -- how that looks in a second. So what does this mean for the second half? Most importantly, we are in active conversations with our 3 largest U.S. customers to migrate them to the cloud. One of them has already begun that journey. A second one, we have 4 workshops scheduled with another customer here in the Midwest this month to make sure we move them across. That's going to see us -- in addition, with our 2 largest customers in Australia, who both adopted cloud-first strategies, it really validates the decision, the product decision we made to move to the cloud. The fact we've had such a euphoric response for our major customers is incredibly important. And unsurprisingly, it's going to really help our Microsoft partnership because we're going to be moving significant business to Azure in the second half of this year. As I mentioned, the delivery of the new Android hardware is going to allow us to sunset our Gen 2 Windows platform next year. We've already sat down and explained that to all of our Gen 2 customers, and we have migration plans in place for all of them. That's obviously going to see us replace Windows hardware in over 5,000 beds next year. But most importantly, as I mentioned, it's going to dramatically lower our support costs and eliminate the need to support 2 different operating systems. As I pointed to earlier, we see a very significant acceleration in revenues and cash flows in the second half. We're reaffirming our previously issued revenue guidance of EUR 10.4 million. And as part of that, we've recently added 6 staff to our U.S. market, which is really consistent with the confidence we have in the U.S. sales pipeline. And as you may have seen a couple of weeks ago, we've announced to the market previously that the mediation with Regis is scheduled for the 16th of September. We'll talk a little bit more about that in a second. So in terms of commercial activity, a couple of key indicators to share here. On the left-hand side, we are in formal RFI or RFPs or pricing conversations with just under 10,000 hospital beds. This is a conservative number because we've excluded, for example, some high-profile tenders in the Australian market that are a model that we think is outdated where they're asking customers to provide -- so they're asking vendors to provide hardware and charge patients in return for an entertainment experience. We just think that in this day and age, that model is broken. So we've excluded those numbers from the calculations here. But as you can see, compared to a full year 2020 of just under 5,000 beds, very material acceleration in formal pricing requests in the business. And the point I made earlier about referenceability and the impact of the NYU webinar, you can see the number of unique hospitals visiting our website in the first 8 months of the year, and most importantly, the fact that they are revisiting the website on a pretty consistent basis is a very strong lead indicator around our sales pipeline. A couple of key contracts executed. As I mentioned, Northern Health, which has begun the rollout there already, and that will be finalized this month. We'll talk about Omaha in a second, which is our latest addition to the portfolio. And as I mentioned earlier, we're really proud and excited to extend the Epworth contract. So today is a big day. We've got a team of folks on the ground in Omaha, Nebraska, where we've today gone live in just under 300 new beds at the Omaha Children's Hospital. And again, I hope these pictures give you a sense of the impact our technology has. So you'll see on the left-hand side, the tablet that is controlling the television. They've gone with 55-inch televisions in the main across their enterprise. But you'll also notice on the bottom left that the pillow speaker, which is provided by the nurse call, is also enabled for patients. And this is more common in senior settings or adult hospitals where it gives the flexibility for the patient to navigate the Oneview experience on the television either by the pillow speaker or by the tablet at the bedside. And I've just got some inbound traffic from our project team to say, it's been an extremely smooth go-live, and this is the first deployment of new WeTek hardware in the United States. So why don't I pass now to Niall who's going to talk through a bit more on strategy and vision and where we're at with partnerships.

Thanks, James. So I'm going to start with Samsung. So as James mentioned, we signed a distribution agreement with Samsung, SDSA America, that's Samsung Business Services and Distribution subsidiary earlier in the year. And this agreement enables SDSA to distribute a year's subscription to Cloud Start, along with the Samsung tablet under a single SKU to their reselling network. And really, since then, our focus has been supporting the SDSA team as they've worked with their reseller network. So these would be large IT supply chain organizations in the U.S. market to enable them to contract Cloud Start with their customers. As this has entailed slowing down on terms and conditions, so our terms and conditions and user license agreements to their resellers and that's required them to build those into their reseller agreements. And that's something that SDSA and the reseller will be working through over the first half of the year. So we meet frequently with the Samsung team, and we're continually getting feedback from them and from their resellers. And one of the key pieces of feedback that we've got is that their resellers are anticipating more demand for Cloud Enterprise than for Cloud Start. And as James shared earlier, Cloud Enterprise is our fully integrated, fully functional cloud offering. So for larger organizations, that means more integration of hospital systems, that means more functionality and ultimately more value. And really, what we're seeing is that retailers are looking at their markets and they're segmenting based on accounts that they think will be Cloud Start customers. So these will be smaller organizations in that community. So -- and then the larger enterprise accounts that they believe will require Cloud Enterprise. So we're currently working as a priority with Samsung SDSA and their resellers to extend the go-to-market model to enable channel sales of cloud enterprise. There's more complexity from a sales perspective of Cloud Enterprise just in terms of the pricing model for Cloud Start, but we're working to find a model that will enable Cloud Enterprise to be sold through the channel. And then we continue to collaborate with the Samsung team on marketing initiatives. For example, we had co-meetings at HIMSS, the trade show that James mentioned recently, and we're also working on a number of co-marketing initiatives for the second half of the year. And then the other key go-to-market partnership is with Microsoft. So as James mentioned, last week, we announced that our cloud enterprise product offering is now available in the Azure marketplace. And what this means is that customers, Microsoft customers can procure Cloud Enterprise from the Azure marketplace. And this is an important development because it means that we're fully aligned with Microsoft's co-sell programs. And with these programs, Microsoft account executives are incentivized by Microsoft to a fair lead to partners and also to help partners close deals. And for customers, it means that they can simplify procurement of the SaaS software and by buying via Microsoft. So if you think about it as being a little bit like the Apple App Store or the Google Play store only for enterprise software. And for larger enterprise customers, it's also more economically advantageous for them to procure in this way because they're able to count the cost of Oneview towards that overall Microsoft commitments. And so this means they're getting greater leverage and better value across their broader Microsoft relationship. So we're currently working with the Microsoft teams in our target markets in the U.S. and Australia to raise awareness of the Oneview solution and also to engage account executives to support our active sales proceeds. And when you really think about the market, I mean, almost all of our target customers will be Microsoft customers at some level. And so this gives us a real competitive advantage in terms of finding and closing sales opportunity. So the last thing I want to talk about in terms of partnership is our Smart Room strategy. This is a strategy we've been working on for a while, but I think it's never been more prescient than now because of COVID, because of the way COVID has accelerated demand for technologies in the patient room. And this is really a multistep strategy for how the bedside technology platform and support care model innovation. And that's on the technology that we have available today, which is a step 1 to a future state, which is leveraging our artificial intelligence, which is step 3. And we're working with best-of-breed organizations such as Caregility, our partner, Caregility, in the U.S. market. They're actually a pure-play company to deliver on this strategy. And the promise of a bedside technology platform that is not single purpose, but is multipurpose. And that's really about providing our customers with just the greatest value from that infrastructure investment in the bedside technology platform. The step 1 is the virtual care model that we're delivering today already at our customers, including NYU Langone Health, OU Health in Oklahoma, for example. And through this, we're connecting patients with their caregivers and their families and remote interpreters from bedside tablets in partnership with Caregility, with Cloudbreak to offer language services and with other third-party solutions like Cisco Jabber. With step 2, we're bringing those virtual care use cases to the Oneview television, and this is all about not requiring additional hardware in the patient room to fulfill these virtual care use cases, not requiring a separate stack of hardware, but integrating it into the Oneview platform by having a camera and a microphone array that enables these use cases to be supported from the bedside technology platform. And because this audiovisual hardware is fixed, it's always there, it's always on, that enables new models of care. So for example, remote caregivers can support the nurses on the units. And this is really key because we're already seeing staff shortages, burnouts, nurse retention issues at U.S. hospitals and beyond. And this is where we're going to get worst as the pressure on the health care system grows. But using this technology enables new hybrid, physical and virtual care models. This is very much an emerging space, but it's something that we're seeing interest from already from innovative health care systems. And this is very much an active focus for us, and we're working together with Caregility to bring these use cases onto the television in the patient room. And then finally, with step 3, this is very much a future stage, so this is probably a couple of years out. But in step 3, we have sensors and artificial intelligence that enable continuous autonomous monitoring of the patient room. And so some of the better specific use cases of this would be for things like fall prevention, bedsore avoidance, reducing the number of adverse events that negatively impact patient outcomes, patient experience and ultimately hospital bottom line. And so just moving on to the next slide. This is just a quote from some research that Accenture did recently. It will just give you a sense of how health care executives are thinking about innovation, about digital transformation. This was a survey conducted this year of nearly 400 health care executives across 6 countries. And over 80% said the pace of digital transformation is accelerating. And 93% of their organizations were innovating with urgency. And these are clearly trends that are pertinent for us and for our digital health care bedside platform. And now I'm going to hand over to Helena, our Interim CFO, to take us through our financial results for the half year.

Thank you, Niall. This first slide just shows our cap table and ownership structure. Diving further into the figures, we present our income statement for the first half of 2021. Total revenue for the first 6 months of 2021 was EUR 3.4 million, up 13% on the prior year comparative period. The growth in recurring revenue has been hindered by a lack of access to hospitals due to the COVID pandemic and also some supply chain disruptions. However, we do expect recurring revenue to increase in the second half of the year as we have several large projects, which are now well underway and will go live in the second half of the year. Gross profit has decreased by 4% due to a higher proportion of nonrecurring revenue, particularly hardware sales, which carry lower margins. Operating expenses, excluding restructuring expenses, reduced by 9% over the prior year. The 1 expense category booking the trend here is D&O and PI insurance premiums, which are impacting businesses across the board. The operating EBITDA loss for the period is EUR 3.5 million, a reduction of EUR 0.5 million on the corresponding period in 2020. And the result of all these factors is that our net loss after tax has reduced to EUR 4.4 million, down from EUR 5.6 million in the first half of last year. Turning now to the balance sheet. The company had cash balances of EUR 5 million at the end of June. This includes a strategic investment of AUD 1 million. Moving now to cash flows. Total operating cash flows of EUR 2 million were 61% lower than the EUR 5.1 million figure for the corresponding period last year. This was driven by receipts from customers of EUR 4.8 million, up from EUR 3 million last year, whilst payments to suppliers and staff were EUR 6.7 million, down from EUR 8 million in the prior year. This reduced cash burn level reflects the impact of last year's cost restructuring. I'll now hand back to James to update on Regis.