Oneview Healthcare PLC (ONE) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Oneview Healthcare PLC Full Year 2022 Preliminary Financial Results Conference Call. [Operator Instructions] I'd now like to hand the conference over to Mr. Jim Fitter, CEO. Please go ahead.

Thank you, Winnie. Good morning in Australia, good afternoon to our shareholders in the United States, and good evening to those in Dublin. I'm here in Dublin with Helena D'Arcy, our Chief Financial Officer, I would like to welcome you all to today's call. Firstly, I'd just draw your attention as always to the legal disclaimer at the start of the presentation and then particularly with respect to the comments around forward-looking statements. Just wanted to touch on the vision here at Oneview Healthcare, which has never been more impactful. Our vision is to power personalized, exemplary care experiences. Is a company that was founded 14 years ago focusing very much on patient experience. It's become increasingly relevant every day that we really need to develop technology that enables care teams to be liberated and free to deliver exemplary care to patients at the hospitals in which we operate. And that's never been as ever it has been in recent years for all the obvious reasons. A quick reminder of the agenda today. We'll talk about obviously the 2022 year-end review, some work on our product innovation. Helena is going to cover the financial results in detail, and then we'll turn to market conditions and outlook, and hopefully leave a plenty of time for a few questions if there are any. So let's start with the year-end review. I'm not going to steal Helena's summary, and I know she's going to do a much better job than I am, but I just want to draw your attention to the headline figures here on Slide 6, but I'll defer any comment around those until we get to the financial results section. So please bear with us. In terms of operational highlights, 2022 was obviously -- continues to be another challenging year. And I think it's worth highlighting at the start of the call that the pandemic has obviously been a challenge for so many different industries have been impacted by what's transpired over the last few years, but we really are at the epicenter of that. We are dealing with hospitals that are at the forefront of the crisis. And for obvious reasons, that's had a pretty profound impact on our business. We're going to talk through that and go through a little bit of a visual history over the last couple of years, which I think is incredibly important. But turning to 2022, despite the post-pandemic challenges. We managed to grow our contracted beds by 23% to just under 15,000 beds. We signed a largest contract in Oneview's history in the midst of the post-pandemic recovery. We signed major renewals at 3 of our significant customers, 1 in Australia, and 2 in the United States. Perhaps most importantly, we've seen record growth in our U.S. sales pipeline with 104% growth in RFIs and RFPs year-over-year. We have over 10,000 beds live globally. We have our first U.S. cloud customers live at BJC in St. Louis at Kingman Regional Medical Center in Arizona and at Oklahoma University Health. And that, again, I think, reaffirms the investment we made in cloud during the pandemic. We managed to move 6 major software releases out during the course of the year on-time and on-schedule, which is a great credit to our engineering prowess. And we made the difficult decision like almost every other technology company in the world to trim our cost base in the fourth quarter. We've taken over 16% of the cost out of the business through a planned reduction in the cost base, which has had no impact on our ability to deliver high-quality services to our customer base. So let's talk a little more about what we've been through. You will recall, we raised just prior to the end of 2021, we had a $20 million capital raise, which was obviously with hindsight present timing. At that time, we were really looking to accelerate our investment, capitalize on the first mover advantage of the cloud product. And we've seen great results from that. That investment has led to a record pipeline of new opportunities in the United States. We've added over AUD35 million in new TCV from existing and new customers in 2022. In the fourth quarter, as we foreshadowed in our most recent quarterly, we were anticipating some key decisions for large systems where we've been in RFP, and we were thrilled to be selected as vendor of choice for 2 very high-profile systems on the East Coast of the United States, both of which are in active late-stage contract negotiations. We successfully negotiated settlement of long-standing legal case with Regis Aged Care, but what we consider a very positive development for the company. And certainly, delighted that it improved a major distraction to management time. Continued inflation of nursing costs and the associated work for challenges are obviously very well documented, but they have continued to validate the proposition of the Oneview solution, but placed unexpected pressure on hospital budgets. So we know that many of the customers that we had expected to make technology decisions last year was simply overwhelmed by the contract nursing workforce challenges, a lot of those decisions have been postponed into 2023. We are particularly encouraged by the fact that most of our pipeline customers have indicated to us that they have set aside budget for patient experience in 2023. A number of them specifically asked us to take a dockside surveys in the fourth quarter of last year as a precursor of repairing those budget dollars. So we enter 2023 with much optimism. We've talked a lot about the impact of COVID-19 on the health care system, but I was recently chatting to the analyst at Gartner, which is an organization we have a huge amount of respect for. And I don't need to read the statement here. But I think what we're seeing is, very strong external validation of the hypothesis that we've long had, that the workforce challenges are forcing health care systems to find new ways to deliver flavored models of care. And virtual nursing has become an incredibly important part of that. Interactive patient care is the category that Gartner referred to us as. And I will just call out the observation here that by 2025, they expect nearly 3/4 of all new global private patient rooms to take advantage of the kind of work we do. So as I mentioned, I think for a lot of us in the last 3 years has been a bit of a blur, it's used a sort of mingled into each other. So I thought just having a little bit of a visual of what we've achieved during the 3 years. It was very apparent, very early on in the pandemic, but we needed to change the way we do business. We needed to be very respectful of our customers' challenges. It was crystal clear that they're going to be preoccupied with saving patient lives, not necessarily investing in new technology. So on this graphic, what we've detailed here below the line are what we call the enablers, the work we have done, that we've chosen to do during the pandemic to make us a better, stronger company coming out of the pandemic, of course, not knowing how long it was going to last. And above the line, the commercial milestones we achieved despite the pandemic. And I think there's some really important items to talk about here. As those of you who know the company well, will know that in April 2020, our technology leadership team, Declan and JP, Niall, really recognized very early that we needed to use the opportunity that the pandemic was presenting to move to the cloud. We knew we weren't going to be able to get access to hospital rooms, we knew that speed to deploy was going to be critical. So they launched very quickly our cloud for COVID solution, which we deployed in NYU Langone in New York in 400 beds at the height of the pandemic. That was a huge achievement, a huge milestone, reaffirms the partnership we have with NYU. But it also gave us the catalyst to say we need to lift the entire product to the cloud. And that, of course, required a very significant investment in our back-end security. So achieving ISO certification, both 27001 and 27701 were hugely important milestones. And then we also made an investment in the OEM hardware that we have long talked about as a potential driver of expansion business. If we didn't have a coax set-top box, we would not be in a position to have won the expansion of business that we've just won with BJC. So this investment in hardware is challenging, it's difficult, it requires a capital on our part, but I think we've seen a very significant return on investment from those decisions. And of course, we signed our first Australian cloud customer with Northern Health in mid-2021. We renewed our long-standing partnership with Epworth, which dates back to 2014, and is now due to run through to 2027. And I think that really points to a stickiness of the business. The one thing we all know everyone on this call understands how challenging the sales cycle is, selling enterprise software into large health care systems is incredibly complex, but it's also incredibly rewarding, because it gives you the opportunity to build long-term partnerships with organizations like Epworth that stand the test of time, it really creates meaningful long-term value. In October 2021, we signed our first cloud customer in the United States with Kingman Medical, and we signed an extension for our first U.S. customer, UCSF at California, and that relationship, likewise, dates back to the opening of the hospital in 2014. So the end of 2021, I think there was a sense of optimism and a sense that perhaps the pandemic was slowing down. And then, of course, we had the arrival of the Omicron wave, and that really proves another setback to our customers' ability to invest in technology. And on top of that, of course, we have the war in Ukraine and all the associated inflationary pressures, supply chain challenges that came with that. We have obviously worked very hard to alleviate supply chain challenges. And as you'll hear from Helena, that has consumed some capital, but has left us in a very good position coming out of the pandemic. So again, the enablers, we continued to work on our security with surveillance audits, HIPAA compliance. We launched the first version of our patient feedback feature. We launched the first version to Digital Door Sign, which I'll talk about shortly. Completed that Gen 3 migration at Epworth. And then added, as I mentioned, some further extensions at Sydney Kids in Iowa, signed the largest contract in the company's history in May 2022 with BJC. Won a couple of small new logos in Pennsylvania and Chicago. And just in the last few weeks, we have a commitment from NYU to deploy a further 1,000 beds, which, again, is a fantastic endorsement of the product. So it's been a long journey. It's obviously been a particularly challenging time for revenue generation, but we feel as though we have used these 3 years extremely well to put the foundations in place for the future. So just turning to contracted beds. As mentioned earlier, we're now, we're just shy of 15,000 and we have got the 2 large expansions at our flagship North American customers. And again, I think that speaks volumes to the value that they're driving from the investment they've made in Oneview. We now have over 70% of our contracted beds are in North America, so we're very much becoming a U.S.-centric customer. And the level of engagement we have in the pipeline is the strongest we've had in the company's history with some very, very interesting customers. So let's turn a bit to product innovation. As I mentioned, we have had to respond in real time to fresh challenges being posed by the pandemic and the one that was most apparent was the need for hybrid nursing to be adopted. So in the same way, we've all moved our own businesses to a virtual care model. It's become very important for health systems to allow their care teams to connect with the patient in the room via the television, as you can see in this image here, with the camera mounted on top of the television and that capability is provided through our Virtual Care API. So we have a number of partnerships in this space. We are agnostic. When it comes to partnerships, we obviously need to be [indiscernible]. We have quite a public partnership with the [indiscernible] Caregility where we've done some really interesting work. But we're also working with 3 other major virtual care providers in the United States market, and will really be determined by the needs of our customers. So having an open API obviously enables that capability. Talk about the Door Sign in a second. Analytics is another part of the business that we've really doubled down on. Nicki Fetterman, who runs this business for us in the United States has done an amazing job working with customers to really understand what data they need in order to justify the investment we're making in our product, and we're seeing some really impressive results, which is speaking for itself. Patient feedback is something that we have long had on our road map and has finally come into fruition this year. Primarily, it's been delayed because we felt it was really important to understand the sophistication of patient feedbacks, the notification framework that allows us to trigger different surveys based on different market conditions, and we're seeing very good results from that innovation. Offline mode is another request from our cloud customers. Obviously, we want to make sure that in the unlikely event that the cloud environment is unable to be accessed that patients still have access to entertainment and that was delivered in the fourth quarter of last year. And the team continues to make significant improvements in scalability, because most of the conversations we're having now are with health care systems that have 1,000 of beds, 100s of bed. So the product development was really focused around the care team challenges. We know that nurses have really been struggling to deal with workload. There was a global nursing shortage prior to the pandemic. It's only been made worse during the pandemic. So the feedback we're getting from customers is what can we do to use integration with EMR to provide real-time notifications that help the care team to do their jobs. So we're surfacing precautions, notifications that are automated and delivered from the electronic medical record, which allows the care team to rely on them. So on the left, you'll see the Digital Door Sign, which has just been deployed at Kingman in Arizona, and My Stay Overview, which is about to go live this quarter, which effectively is the digitizing of the whiteboard or market board is sometimes now in the United States. And this is a great example of agile, collaborative product development. We just didn't sit here in Dublin and dream up what we thought this product should look like. We have taken the time and effort to send our product teams to meet with customers in the United States to effectively develop a solution. The whiteboard you see on the left-hand side of the slide is still commonplace in almost every hospital room in Australia or the United States. The feedback we got was that nurses felt they couldn't rely on the quality of the information, because they know themselves that they're too busy to keep the information up to date, keep it contemporaneous. So their ask was how do we automate that information so that they knew they could rely on it. So the team spent a lot of time sitting down with multiple U.S. customers, workshopping their needs and requirements. Nicki hosted a Nurse Focus Group, which meets on a quarterly basis and the customer community of practice that has really enabled us to build a product that we think is really fit-for-purpose and scalable and has had a fantastic reception in the market. Just wanted to add a little bit of perspective here from an article that was published last week that really caught my eye. It's something that we've long advocated the importance of virtual nursing. I'm not going to read this quotes, but I would encourage you to read the entire article, it gives a really good sense of the challenging and ever-changing framework that is providing a further validation for the work we do here at Oneview. Just a quick reminder of those contracts. As I mentioned, BJC has been a fantastic customer in the heart of St. Louis since 2016. We've been deployed there in 945 beds for the last 3 years. We've just commenced the expansion into 10 additional sites. So we've begun the Shiloh facility. We're going live at Belleville in the second quarter of 2023, and at Missouri Baptist in the third quarter of 2023. But we have a very structured and exciting rollout plan for BJC. And similarly, at NYU Langone, where we've been deployed in over nearly 700 beds for the last 4 years, we're really thrilled that they have given us a statement of works to expand to a further of 1,000 beds, of which 870 is scheduled for delivery in the next 6 months. So it's great to see the urgency that is now being reflected by our customers as they come out of the pandemic. And as I mentioned earlier, a couple of smaller logos in our home market of Chicago in the United States and the Cardinal Medical Center in Pennsylvania. So with that, let me pass the mic to turn to Helena, who is going to talk us through the financial results.

Thank you, James. The first slide there shows our capital structure and our equity and current market cap. Moving on to the income statement. Recurring revenue was up by 16%. Total revenue for 2022 was EUR 8.9 million, down 8% on the prior year. This reduction is due to lower non-recurring revenue. Some hardware revenue for the BJC expansion contract has been booked in 2022 as the implementation of the contract has commenced. The recurring revenue from this contract will start to be recognized later in the year and in stages as each hospital site goes live. The gross profit margin percentage is 5 percentage points higher at 60% this year due to the higher proportion of software revenue. The legal case, which the company took against Regis Aged Care back in December 2020 was negotiated and reached commercial settlement in April of 2022, and the proceeds of AUD2 million were received soon after. Operating expenses increased by 23%. At the time of our equity raise at the end of 2021, we did commit to investing in our sales and marketing capabilities, both in terms of headcount and also marketing expenditure. We are seeing validation of this spend and the large growth in inbound RFPs and also in our sales pipeline. We continue to incur very high costs for both our D&O and professional indemnity insurance premiums, this is in line with general insurance trends. The operating EBITDA loss for the year is EUR 7.15 million, 22% higher than last year. Higher non-cash share-based payment fair value charges are driving an increase in the loss after tax to EUR 10.9 million for the year compared to EUR 8.2 million in the prior year. Turning now to the balance sheet. Inventories increased significantly with the purchase of a large number of set top boxes in order to fulfill customer demand, which are scheduled to be delivered to customer sites later in this year. Prepayments also increased significantly due to advanced OEM hardware payments, which are payable at the time of ordering this hardware. The company finished the year with cash balances of EUR 6.4 million. Turning now to the cash flow statement. Total operating cash outflows were EUR 8.9 million, included in this cash movement are the Regis legal case settlement proceeds, the upfront OEM hardware payments, and the sales and marketing resource ramp-up costs. Due to supply chain delays, these OEM devices are expected to be delivered in early 2023. Once delivered to client sites, the proceeds of the sales of this hardware will then become receivable. In order to conserve cash, we instigated a headcount reduction program in the last quarter of 2022, which will result in annual savings of EUR 2 million, with no impact to customer service delivery. COVID has acted as a catalyst for the company to embrace hybrid working. On the back of this, we have downsized our office footprint with annual savings of approximately EUR 250,000. I hand back to you now, James.

Thank you, Helena. So let's turn now to market conditions and the outlook for 2023. And I'm very pleased to report that we are starting 2023 with a record sales pipeline in North American market. So as we've talked about, we know the pandemic has validated the business case for what we do. Last year was frustrating, because we knew we had demand that was unable to be fulfilled, because operational budgets were consumed by the workforce challenges. And that lingered longer, I think that either we or our customers expected. However, as I mentioned earlier, we know many of our prospective customers and existing customers set aside budget for 2023. Really thrilled, as I mentioned to be selected as vendor of choice for 2 very significant opportunities in the United States and looking forward to finalize those negotiations in the coming weeks. We also see a couple of really important drivers. I think the one thing that continues -- we continually hear from the market is, they want us to try and lessen the dependency on hospital supplied hardware. So we're doing some market testing at the moment with a very interesting new product initiative, which we think has the potential to significantly shorten the sales cycle and the implementation cycle, and most importantly, to expand our addressable market in a pretty meaningful way. So we're testing this with a couple of customers in the United States and Australia, and we hope to be able to share some more news around that in the middle of the year. The other thing that's increasingly apparent is the potential demise of the patient pays entertainment-only model in Australia, which is a model that has been around since the 1980s, it's what we call a legacy model, a [ dinosaur ] model that -- and unfortunately has proved a bit of a blocker to our product in the Australian market. But increasingly, we're hearing that patients are reluctant unsurprisingly to pay $10, $12, $15 a day for free TV. And the conversations we're having with many of the hospitals have adopted that technology is that they've now recognized that using the television in the room to deliver our virtual care services, deliver meal ordering, deliver educational content is a no-brainer. And I should stress that none of our customers globally charge patients for entertainment. They are driving all of the value they're driving from the Oneview solution is through improved operational efficiency. So it's a key point of differentiation, it's something that we believe is setting us up for potentially some material growth in the Australian market. As we foreshadowed last year, we are sunsetting our legacy Windows product in the middle of this year. That's going to drive further operational efficiencies for our engineering teams and hopefully lessen some of the hardware complexity and accelerate our regression testing. And then finally, as Helena has already mentioned, I think we were a little bit ahead of the curve in terms of our headcount reduction. It was pretty clear in the third quarter that we weren't going to see the sales conversion that we've anticipated. So we have strategically downsized the organization. But as Helena mentioned, there's been no impact on customer base teams, and that's going to drive real savings for us in 2023. So finally, I think just a couple of key points to reaffirm that the global pandemic as much of a human tragedy that has been for so many people. It has validated the value proposition of what we do. Virtual care is now a strategic priority for every major health system we talk to. We remain to our knowledge, the only cloud hosted care experience platform in the world, every customer we're talking to has adopted a cloud-first strategy. I think that's been another really significant validation of the work we've done, that health care in general was slow to embrace cloud, but there's been a dramatic acceleration in cloud adoption, both in the United States and Australia in the last few years. New South Wales Health, for example, have a cloud-only strategy moving forward for their vendors. We're incredibly proud to be the trusted partner of many of the world's most discerning health care systems, privileged to count 3 of the top 20 hospitals in the United States as customers. And we have a very strong information that we're going to add to that list, because we're currently actively engaged with 3 others of the top 20. And as I mentioned earlier, the validation from Gartner, a leading global analyst firm that they believe that the interactive patient care market is actively moving from early to mainstream adoption on their technology hype cycle. So we look forward to 2023 with much confidence, and I would be delighted to take any questions if anyone has any.

[Operator Instructions] Your first phone question comes from Tom Godfrey from MST.

Can you hear me okay?

We can, Tom.

I suppose just first question, I was keen to sort of get a sense, given the strength of the pipeline and the opportunity for a couple of those more material North American deals to land near-term. Just your sense of the speed to revenue on a few of those deals, just given where headcount is in the operation and the move to the cloud, like, how sort of quickly do you think we can convert those deals into, yes, I suppose, revenues and cash flows in calendar '23?

Yes. Good question. Look, the good news, Tom, is that, the customers are encouraging us to move fast. We've heard the term fast track a lot with the 2 customers where we are vendor of choice. And I think you know better probably than I do that there's a lot of inertia in health care decision-making and health care contracting. But I think there is a level of urgency coming out of it that is tied directly to the operational benefit that we can deliver to nursing. So this nursing is a huge pain point, it's something that obviously is front and center for every Chief Financial Officer of a health care system anywhere in the world. Chief Nursing Officers are under intense pressure to find a way to alleviate that pressure, and we're in a happy position that we can help them. So I think we'd like to think that things are happening faster than they would historically. And we've got a number of other major RFP decisions that we're expecting in coming weeks as well. So there's a lot going on.

Got it. No, that makes sense. And then maybe a follow-up question. I thought some of the comments just around some of the Australian market dynamics and the move away from legacy systems from a few of the key hospital groups was interesting. I suppose the other sort of element there is one of your listed competitors is under pretty well-documented financial stress. I suppose what's Oneview's Australian strategy in calendar '23? And how are you sort of going to leverage those, I suppose, positive market developments to drive growth in this market?

Well, I think it's a really fascinating junction, because that competitor speaks for about 18% of the Australian market. And that model that we are talking about earlier, which we consider the legacy model, is in somewhere between 15,000 and 20,000 Australian hospital beds. The challenge we've had is that, a lot of those contracts are long-term contracts that have pretty strict legally around the provision of alternative services whilst that vendor is in situ. So look, I think there's a pretty material opportunity there. I would stress that, obviously, the U.S. market is 10x the size of the Australian market. It's a market where we obviously see a more sophisticated level of digital maturity in terms of EMR adoption. But Australia is a very important market, we've got great customers down there. And I think the market dynamics suggest to us that there is a pretty interesting opportunity in learning.

[Operator Instructions] There are no further questions at this time, I would now like to hand the conference back to Mr. Fitter for closing remarks. Please go ahead.

Thanks, Winnie. I appreciate everyone's time this morning. I will be heading to Australia tomorrow morning. So if anyone does have any follow-up questions or would like to meet with the company, please feel free to reach out to myself or Helena, and we'll see if we get something scheduled. Thanks very much for your time.

That does conclude our conference for today. Thank you for participating. You may now disconnect.