Oneview Healthcare PLC (ONE) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Oneview Healthcare Half Year 2024 Results Announcement. [Operator Instructions]. I would now like to hand the conference over to Mr. James Fitter, CEO. Please go ahead.

Thanks, Ashley, and good morning, everyone. Good afternoon to those of you in the United States, and good evening to those joining from Ireland. Welcome to the half-year 2024 results presentation. Let me start by just the usual reminder the legal disclaimer that's in the presentation. I just want to remind everyone that we are a calendar year-end reporting entity. So we are reporting the first half results for the 6 months ended June 2024, and our reporting currency is Euros, not Australian dollars. Joining me today, 3 of the leadership team, JP Howe, our Chief Operating Officer; Niall O'Neill, our Chief Product and Strategy Officer; and Helena D'Arcy, our CFO. It would be remiss of me not to make a special mention of Helena. This will be Helena's last results presentation. For the company, she's stepping down at the end of September after a fabulous 6-year career at Oneview the last 4 years as CFO. Just on behalf of the Board and the leadership team, I wanted to publicly recognize the fabulous job Helena has done and wish her every success as she embarks on a career break at the end of September and wish every success in the future. So just a reminder, our vision to power personalized, exemplary care experiences. For reasons, I think most of you, our shareholders know that has never been more relevant in today's world. We'll talk a lot more about that as we work through the presentation. For some of you who might be a little less familiar with the company, just a brief company overview here. We are now contracted with over 100 hospitals across 24 health systems on 4 different continents using the Oneview platform. We have a very distinguished group of customers, including some of the most discerning health care systems in the United States. We count 3 of the top 20 hospitals in the U.S. as clients. We are enabling the connected patient room of the future with cloud-based modular SaaS products. We've made a really significant investment in cloud, which we'll talk shortly. Our philosophy is to land and expand in large enterprise health care systems. We have placed a huge emphasis on scalability, those that have a significant long-term contract value potential. Typically, our contracts are 3- to 5-year contracts. We're very proud of our very strong retention rate and customer lifetime value. Some of our customers now have enjoyed over a decade with us. Others are rapidly approaching on that date. But it's great to see the longevity in the portfolio as we continue to tackle the U.S. market and the Australian market. As I think most of you know, a strategic partnership with Baxter International and New York Stock Exchange listed partner to sell and service Oneview in their customer base in the U.S. market. We're obviously providing down on that today, but likely with how that is progressing. We continue to see this growing need for inpatient virtual care and bedside technology, which has really entered what are described as the mainstream phase according to the Gartner Hype Cycle. Quick run through the agenda. As you can see there, Niall, and GP and others will be sharing some views on different parts of the business. But I wanted to start with market trends. I think the workforce challenges are pretty well documented at this stage. Surveying up to 85% of U.S. nurses are planning to leave their current roles and 43% planning to leave the profession. Here in the United States, we have a projected national shortfall of over 350,000 nurses in 2026. So this is the problem of the day that is creating the financial challenges for hospitals. U.S. hospitals labor costs increased by more than $42 billion between 2021 and 2023 and now represent over 60% of all hospital expenses. So they need to find a different way to embrace technology and use that to take pressure off headcount and move to this new virtual model of care. We are the platform that enables that. Artificial intelligence, obviously, I don't need to tell you on this call is creating new opportunities. We are very invested in understanding what those opportunities are. You're going to hear from Niall today on the work that he's been doing with our customers to understand what their needs are, how the regulatory landscape is developing and what that means for the competitive landscape for us as a company. We've seen some very significant market and vendor consolidation, both within the health care systems with major health care systems continue to consolidate in the United States. We know that in Australia, the private hospital market is going through a dire time. So we're seeing some serious indigestion in the Australian procurement market. But in the United States, the consolidation is creating new opportunities for us. We're also seeing a vendor consolidation. Two of our 4 competitors have been acquired this year, which I think is a really interesting data point that I think speaks to the level of interest in our space. So let's get into the operational highlights. So first half of the year, we've added 4 major new logos, which I'll detail in a second, 3 of them are enterprise health care systems. Importantly, our contracted bed number is up 16% year-to-date. You might recall at the time of the last capital raise, we had said that we felt that virtual care alone, the virtualization of care was going to drive somewhere between 20% and 25% annual demand for our product. We've delivered on that in the first half of this year with 16% growth. If we just convert the beds that we're currently in red line contract negotiation, we'll hit that 25% growth rate if nothing else in the pipeline adds. So we're enjoying really good success at the contract level, where we're suffering a few challenges just around project delays. We'll talk about those in a second. The Baxter partnership is delivering unparalleled access for us in the United States. We couldn't be happier with how that partnership is developing. I think that feeling is mutual. If you were to speak to anyone at Baxter, I think there is a great collaboration on both sides of the partnership. To give you a sense that looks like even though we're in the dog days summer in the United States in this week and last week, we are meeting with Baxter at 5 major health systems spanning Florida, Tennessee, Kentucky and 2 in California, where we are jointly presenting to very significant Baxter customers. So given we're running into Labor Day, I think that's a pretty interesting sign. The nursing workforce challenges have really elevated the connected patient room from nice to have to must have, we'll look a bit more about how that's actually playing out. We are in negotiations for MyState Mobile with a major U.S. health system and a number of other smaller systems. So we're very pleased with how that market adoption has gone. Niall is going to talk a bit more about our AI strategy. On the negative side, disappointing side, we have seen some significant revenue delays in the first half of this year. As I alluded to earlier, we are seeing a lot of consolidation amongst health systems. Our largest contracted customer in the United States is about 1/3 of a way through an enterprise-wide deployment of our solution. In December last year, they're a 16 hospital system. They acquired a 14 hospital system. As a result, they have been working through the synergies of that acquisition and have paused our project spend on all capital spending projects for the first half of this year. We expect that's about to resume any day, but it's obviously had a meaningful impact on our first half revenues as have the ongoing construction delays at the Children's Hospital of Ireland, which we had expected to deliver in the first half of this year. So both of these are timing-related. They're incredibly frustrating. It's the nature of the industry we work in, but it does have a material impact on the numbers in the short term. So in terms of new logos, the previously announced Inova, Mercy and Nicklaus Children's. The most recent addition is Sharp HealthCare in San Diego, a very impressive health care system in the West Coast of the United States. The top 2 Inova and Mercy are direct sales from one of you, the bottom 2 are the first 2 sales via the Baxter channel. Both of them are for the digital door signed initially, but in keeping with our land and expand strategy, we are very optimistic that will lead to a broader partnership with those 2 organizations going forward. So turning to the financial highlights. As I mentioned, there's been some impact of the postponements on our recurring revenue. So you'll see our recurring revenue and total revenue up a fairly modest 8% and 7%, respectively. Despite that, our gross margins are up 20%, and our absolute gross margin is up 73% to an all-time high since we've been a public company. So there's encouraging signs on that front. The OpEx number is up 25%, which is in keeping with the strategy we set ourselves at the time of the capital raise last year. You'll recall, we set about an effort to expand our resources in order to scale into the Baxter opportunity. Back there have been through similar programs before with other vendors and made it very clear to us that they were going to deliver a step change in our business, and we needed to be ready for that. So we are very comfortable with the investment we've made, the people we brought on board. But obviously, there's a timing lag between those people joining and being trained and the impact of the Baxter pipeline, which we know is coming. This is just a graphic representation on Slide 12 of the gross margin. As you can see, it's trending up. this is a testament to the fact that as we continue to get higher out of the business, we expect to see these positive trends in gross margin continues. This was the genesis for our investment in MyState Mobile, and we'd be pleased with the outlook for the product, which now we'll talk to a little further. So I just wanted to remind us where we are on the cloud journey. We transitioned to cloud in full in 2020. We have been supporting 2 versions of the product since that time, the Windows product, which we call our legacy Gen 2 product and our current Android Care Experience Platform. We have now officially sun-setted all of the Windows device. So we have 100% of our customers running on Android. That obviously removes complexity and particularly around regression testing. We're currently delivering between 5 and 6 software releases a year. So being able to remove one of those operating systems from that progression testing has been extremely helpful. 60% of our customers are now deployed on the cloud platform and 100% of new customer sales are deploying to the cloud platform, which obviously speaks to the investment we made. [indiscernible] tenant was balance speed to value, and this is a small example of our latest enterprise customer, Mercy Health. We signed the first contract with Mercy for the Love Women's and Children's Center in Oklahoma on the 2nd of February and went live 8 weeks later on April 7. So that by health care standards is miraculous in terms of speed from contract to deploy and something we're very proud of. It's a great example and JP has written a blog post on this deployment, which I encourage you to have a read of on our website. We're currently now expanding to Ardmore, another site in Oklahoma across another 258 beds and that go-live is scheduled at the end of next month. So that's clearly driving the speed to value that we were aspiring to. Similarly, we have a very large project at Inova where we contracted to deliver over 1,900 beds. During the second quarter, we completed the customer scoping workshops. This is a very complex deployment because Inova will be the first customer that is taking the entire portfolio of cloud care experience platform. They are taking our digital whiteboard and our digital door signs. So again, a great example of upsell, which Niall's going to speak to later in the presentation. We currently have 3 other site deployments currently in the planning phase with Inova. So we expect to see a further acceleration of this project in the second half and similar with Mercy. So just a reminder of how we're delivering value. Obviously, patient care and experience was the genesis of the business. It's began lots of different ways that we're driving value. One of the most important is through our language portfolio. We currently support 28 different languages. This is incredibly important in non-English-speaking population where studies are showing the access to interpreter services during [indiscernible] they can reduce not just length of stay, but reduce 30-day re-admission rate materially. We've spoken in the past about the impact mail ordering has had. We published a very impressive white paper with Nebraska Children's in the first half of this year, showing that they went from 0 to 95% adoption of digital ordering, resulting in an 87% reduction in waste mails and a 75% reduction in employee time due to self-service mail ordering. This, again, we think, is one of the killer applications for MyState Mobile, and our vision for the future is that all patients will be operating their mails on their own device. Perhaps most importantly is the impact we're having on Care Team experience through service requests. This is alleviating staff burden by our own user group estimations every time the patient is using a service request on the Oneview platform, it's eliminating between 2 minutes and 12 minutes of nurse time per service request. So at a time when nursing remains under extreme pressure, this is extremely powerful validation of the platform. None of this would be possible without the data analytics platform. So we have made a very significant investment, and our customers tell us, we have one of the leading platforms in our space. It is a cloud-hosted data lake, which allows us to capture all of the patient activity, share those insights both via executive reports and increasingly through operational dashboards that allow for early intervention. If we have a dissatisfied patient in the room, the data is allowing the hospital to address that rather than allowing it to fester in a poor patient experience scores. So turning to the bed growth numbers that I alluded to earlier. As I mentioned, we're thrilled with the 16% growth in contracted beds in the first half. You'll see it's a significant jump up from where we were in December 2023. We have 1,556 beds in red-line contract negotiation with 3 health systems currently. When we deliver those that will get us to the 25% growth rate that we envisaged and this is prior to any meaningful contribution from the Baxter partnership. In addition, we currently have 11,100 beds that are in RFP or proposal. Last week, we completed our first joint RFP bid with Baxter, which was a seamless process and has been a joy for both sides to work on, and we're very excited about that specific opportunity. But I think you can see that the pipeline is represented here, informal RFP is powerful. The qualified pipeline is much more significant. This is a new chart we're sharing for the first time, which is the burn-up chart for our installation. I think there's been some confusion in the analyst community around how long it takes to get from a contracted bed to a live bed. Typically, we would expect that time frame to be 3 to 6 months. But for the reasons we talked about earlier around consolidation of the health system, construction delays, many of these things are beyond our control. These are not unique to Oneview. These are the challenges of selling into large-scale enterprise health systems. But what we've attempted to do here is sit down with our customers and our project teams and gives you the best estimate of when we expect these beds to be deployed. You can see we have layered in on the blue line, those beds that are in contracting, but this chart does not take account of any opportunities that are in the sales pipeline. So this is a dynamic chart. We would like to think it is a conservative assumption on go-live. But obviously, as these numbers change, we'll be updating them going forward on a half-yearly basis. So I hope you find that helpful. So turning to the Baxter partnership, just a quick reminder of the time line. It was just over a year ago in the second quarter of 2023 when we were selected after a very competitive process as Baxter's partner of choice. We signed the value-added reseller agreement in the third quarter of 2023 and Baxter had said at the time, look, we want to allow you time to get ready for what is going to be a step change in your business. They have said since the day we first met that they believe they would add between 3,000 and 5,000 beds per annum from their customer base. We have absolute confidence in that number. I think it's fair to say that there are a number of opportunities in the pipeline that could deliver that number in and of themselves individually. We have a very joined-up collaborative sales process, our sales leadership and Baxter sales leadership meets on a regular basis to run through the 30 most prominent opportunities in their pipeline. As of today, Baxter have over 100 opportunities in the internal pipeline, which I think speaks to the impact that they're having in creating value for us going forward. So just a reminder of where the Baxter team is focused. So Baxter, as I think we've spoken about in the past, has a number of businesses. We roll up under their Connected Care division. The Connected Care division is tasked with selling 2 major products that they sell. One is the nurse core system and the other is the unified care communication platform called Vault. That part of the business for Baxter represents about 25%, 30% of the market for Nurse core in the United States. So it's around 250,000, 300,000 beds. It's a huge opportunity for Baxter, obviously, to upsell the Oneview care experience platform to existing customers, but also a cross-selling opportunity for Baxter to non-Baxter customers to open a door for them. Obviously, a huge amount of synergy in terms of the work we're doing, taking pressure off the NurseCall system is clearly complementary to their family of products, and we've now trained over 100 Baxter salespeople who are working tirelessly to support our own sales organization and our sales organization is working aggressively to make sure that the Baxter team have the resources and the subject matter experts that they need in order to be successful. So whilst we haven't landed the major enterprise customer that we're all aspiring to, our confidence level of that happening has never been higher. We couldn't be more pleased with the way this relationship is building. So virtual care is the other key driver for the business. I think this is something we've talked about in the past; we try and drill on this a little bit further. The growth rate of virtual nursing across the United States is pretty pronounced, growing at somewhere between 30% and 40% per annum. You will recall that we had chosen to set up a virtual care API in the view that we want to be vendor agnostic. We want to give our customers the opportunity to choose their telehealth partner of choice. We think that's incredibly important, and it has been proven. I think our strategy has been highly successful. We could have chosen to build this capability ourselves, but the telehealth space is very competitive. I think you can see that in the share prices of companies like Amwell and Teladoc. So I think we made a very wise decision not to invest engineering dollars in that, but to create the conduit that allows us to deliver virtual care. I'm going to give you a sense of what that looks like. So on the left is a typical patient room at one of our enterprise customers. You can see the OneviewTV on the left. You can see the telehealth providers TV on the top right. You can see the telehealth camera is the white box to the left of that TV and the manual whiteboard, which is still commonplace in just about every hospital room in the United States and Australia. It's a very cluttered and complex deployment. As you can see, it's not scalable. That camera is very expensive. It requires its own compute device. So we now have a compute device for the Oneview platform and a compute device for the telehealth provider. On the right-hand side, you can see how we're simplifying that by delivering simply one TV. We're handling the HDMI switching over the air. When we get a message from the telehealth provider that they want to take control of the device, we pass control to them. The camera you see there is a very sophisticated camera. It has both a 5x zoom and a 40x zoom. For clinical care, it comes with a very elaborate audio array. There are much simpler cameras on the market. This is one of the vendors we work with, but many vendors have different solutions. But this is one that a number of our customers have chosen to deploy. So this drives to get eyes and ears in every room that is driving the business at BGC, at Inova and at Mercy Health. That is what we see as underpinning this sustainable 25% growth in going forward. So MyState Mobile, as you know, we have been piloting MyState Mobile in the Long Island community hospital for NYU Langone. It's been a very [indiscernible] experience for us. We are very fortunate that NYU has now deployed the Oneview platform across every room in their enterprise, and they have the financial resources to deploy hardware in every room. They see hardware in every room as a competitive differentiation. So whilst they have successfully piloted the mobile solution, they very much see it as an adjunct or an add-on to their existing products. So they are going to be deploying tablets and TVs in every room on the Long Island community hospital, but we're going to be offering MyState Mobile as an alternative modality, particularly for Gen Z and younger patients who obviously live on their mobile phone. So we've not yet got to the point where we have a customer that is going to go MyState mobile only. But almost every conversation with in currently, both directly and with the Baxter pipeline, including MyState Mobile as an additional modality. We do have one enterprise customer that is considering a MyState Mobile-only strategy, which we hope to be able to update the market on the second half. So very pleased with the investment. We see this as the future. It's the old adage that we're still looking for that pioneer, but we do think that once this takes on, we're going to see a fairly significant adoption fairly quickly. Just wanted to talk to people and culture because I think it's incredibly powerful at Oneview. I think this really speaks to the mission of our company. First of all, employee sentiment survey recently completed 91% of employees stated that they feel highly valued. That's something we're incredibly proud of. We run a very comprehensive onboarding and learning and development program. This is complex work. It does require time to invest and train our employees, which is why we're comfortable with the investment we've made in these people. The fact we have an employee turnover ratio of less than 5% in the first half, I think, speaks volumes. We are very invested as part of our AI investment in up-skilling our existing employees. We know there's a massive shortage of AI talent in the market. So the commitment we've made is that we want all employees first of all, to complete the responsible AI awareness program. Secondly, we've asked or tasked all employees were setting personal AI-specific development goals this quarter. We think that's going to be an investment that's going to pay back in spades. Now Niall will talk and JP will talk more of that shortly. We've also been investing in new leadership. So Nicki Fetterman, who's been with us for 3 years, has just been recently promoted in February to our VP of Account Management and Customer Success. This is an absolutely critical part of the business. As I alluded to earlier, it is so hard to be successful in enterprise health care systems in the United States. It takes an eternity to win the business. But the great thing is, once you've won the business, you typically build decades-long partnerships. Nicki's team is the team that is mandated with managing those relationships making sure customers are driving value from the solution. Nicki is the owner of our value framework and has done an amazing job making sure that we now have the position we're in, where major customers are scaling us across every bed in their enterprise. Dan Hulverson joined us in June really as a response to the somewhat overwhelming inbound flow of opportunity we have from Baxter. So Dan brings over 20 years' experience in health care spas in the United States. He has joined as the VP of Sales in North America to really work with Aaron Box. Aaron is our VP of Strategy and Innovation, who has been driving so much of the recent activity. But Dan has made an immediate impact. It's only with us for 3 months but I think he's going to really help solidify the sales success with Baxter. As I mentioned, Helena is stepping down at the end of September. We went to market and went through a fairly exhaustive search and are thrilled as we mentioned to the market last week to appointed Darragh Lyons as our Chief Financial Officer. Darragh has got an extremely impressive background as a Chief Financial Officer, but also in recent times, he has been working as a CEO from Mellon a publicly traded company in the U.K., which has been an investor in the health and life sciences businesses for the last decade. For the last 5 years, Darragh has been the CEO of that business. So he brings not just an exemplary career in finance, but a really interesting perspective around strategy and value drivers in health and life sciences, which is obviously going to be highly relevant for the work we're doing. So thrilled to have Darragh join, and I would appreciate your support. Darragh has been an executive and nonexecutive Board member of both Mellon and a number of their investee companies, and we have nominated Darragh to join the Board of Oneview Healthcare. We will be asked for your support in that appointment at the Annual General Meeting in October. We just shared a few quotes here, which I think speak to the impact of the work we're doing, which I think really allows us to have this fabulous staff retention. I'm just going to read one of them for you. The mission really resonates with me; delivering technology to patients at such a vulnerable time is powering. I love the flexibility of the workplace and the fact that people are so helpful and friendly across the company. I that's a really solid endorsement of the work we are doing. So, with that let me pass this across to Helena for her final run through of the first half financial results.

Thank you, James. That slide there shows our capital structure. Our market cap based on the latest share price is AUD 277 million. So turning now to our income statement. Recurring revenue was up by 8% compared to the first half of last year. This is due to a combination of, firstly, the increase in live beds and secondly, higher average revenues per bed per day. The sun-setting of Gen 2 has delivered higher Gen 3 revenues, and it should be noted that all of our customers are now on Gen 3. Higher revenues have also been derived from CPI increases on contracts which provide for this. Total revenue for the half year was EUR 4.7 million, up sorry, 7% on the first half of last year. We are expecting a material increase in revenue growth in the second half of the year as projects currently in installation will go live, large postponed expansion that James referred to earlier, will recommence in September, and installation work will commence on new logos that we signed earlier in the year. The gross margin has increased by 8 percentage points, and this is driven by a higher mix of software revenue. Operating expenses increased by 25%, and this reflects the additional hires made to ensure that the company is adequately resourced to support upcoming Baxter implementations. We had indicated this in the AUD 22.8 million equity raise that we carried out in the summer of last year. The operating EBITDA loss for the year is EUR 0.9 million higher than last year and the loss after tax increased by EUR 1 million to EUR 5.5 million. So moving to the balance sheet. The cash balance at 30th of June was EUR 6 million, reflecting the equity raise of last year. The capitalization of MyState mobile development costs is now complete as the product has moved out of development and has been actively marketed. Moving to the cash flow statement. The group had EUR 6 million in the bank at the 30th of June. Total operating cash flows were EUR 5.2 million, EUR 1.8 million higher than the prior year corresponding period. This is primarily due to the increase in headcount costs as we ramp up to fulfill Baxter resourcing. I would highlight that the majority of the company's cash receipts in respect of its annual customer renewals are receivable in the second half of the calendar year. A phased payment arrangement was formally agreed with the Irish revenue commissioners for the EUR 2.5 million COVID-related debt warehouse payroll tax liabilities, an initial 10% down payment of EUR 248,000 was made in April of this year, and the remaining balance will be repaid in 60 equal installments over a 5-year period with a 0% interest rate. That concludes the financial results part of the presentation. So I'll hand back to you now, James.

Terrific. I'm going to hand it across to Niall who's going to give us a quick update on product and innovation.

Thanks, James. So it's been a busy year or busy half year, I should say, for the product and engineering teams that Oneview with a number of major product updates delivered and underway. So starting on the left-hand side of this slide, we have MyState Mobile, which launched formally in Q1 of this year. That was an initial minimum viable product release for piloting assets, Langone's mitosis, as James mentioned, and then a subsequent iteration to add key mail-ordering capability. Obviously, mail ordering is a really important part of the value proposition. We now have the ability to support patients ordering mails using their own devices in MyState Mobile, which is enabling the enterprise opportunity that James referred to. We also launched the second iteration of our digital door sign. So this for a redesigned user interface, it brought new functionality, including greater configurability custom icons, localization, but non-English-speaking staff and interactivity with the ability to add what we call care flags at the doorway. So these are important things, but [indiscernible] members need to know about the patient, about the patient's care that are not driven by the electronic are we then this complements the precautions that are driven by the electronic a record. This is currently being implemented at Nicklaus Children in Florida and also Sharp's in California and Kimon Regional Medical Center will be upgrading to this new version as well in the coming months. We're also launching our new digital whiteboard. So this is an evolution of the MyState view product that we had previously shared. What this is doing is applying this new design system so you can see the consistency there the new digital door sign design and with the whiteboard design and that ensures consistency across those products in terms of things like the icon that staff need to be able to look at very quickly and understand. This can be delivered either as a software solution on the patient television or as a dedicated display. So typically, we'd find organizations that have existing hospitals will want to deliver this as a software solution. They want to leverage that patient television. But for organizations that are building new hospitals, they are generally specifying dedicated displays for the digital whiteboard in the patient room alongside the patient television. So this is fully configurable, so it allows customers to choose from a widget library. So each of those components you see on that screen are widgets. So really, what this allows them to do is create ease of information that are appropriate to the patient and family and staff need in different locations in the hospital. So for example, a pediatric unit would have a different view of information to a medical surgical unit, for example, or a labor and delivery unit. So this second iteration is currently in delivery, and this is going to be launching in Q3 of this year. This is going live at Inova health system in the second half of the year. This rounds out the connected patient portfolio that James spoke to. So we have the patient television, the patient tablets. We have the digital door sign, we have the digital whiteboard and we have MyState Mobile. Inova is going to be the first customer that will all of those different majorities and we'll deploy the full connected patient room, but they'll have patient television tablets, digital signs and digital white-goods. So just moving to the next slide. This is why this is important because really, this is all about driving upsell value. So the core platform per bed per day revenue is indicated on this slide. Obviously, this is showing relative in absolute value, but this is showing the per- day revenue value of the core platform, including [indiscernible]. what you can then see is the incremental per bed per day revenue for adding each of these add-on products. So a customer selects all of these add-ons, the incremental revenue is a 92% uplift of the core platform revenue. Customers can also opt to deploy products individually. So for example, we have customers like Nicklaus and Sharp, who are starting with just the door sign. in this case, that per day revenue for the product will be higher because it will include cloud and integration be built in. With this product portfolio, as I mentioned, we now have the ability to deliver the full connected patient room. But it's also important, I think to say that we can support different product mixes within an organization. This is important because you might have an organization, for example, that has a new hospital as an over building that will have the wiring, the infrastructure to support the full connected patient room solution. But then in all health care systems, you'll have older hospitals that won't necessarily have the infrastructure. They might want to just start with the patient television, for example, as we've seen with Mercy and all with MyState Mobile. So this portfolio really supports our land-and-expand strategy with enterprise health care systems. Because we are cloud-based, James spoke about the investment we've made in cloud, we can start small so we can start with one product to address a specific priority as we've done at Mercy, and then we can expand adding new products because we get that cloud infrastructure in place and the HL7 integration and the integration in hospital systems, that provides us with the foundation upon which we can then switch on new products and increase our per bed per day revenue. Just moving to our AI strategy, as James mentioned, we kicked this product strategy earlier this year. We've made that investment in that unified cloud data platform, which James highlighted earlier, and this provides us with a very solid foundation for AI, and we believe based on competitive intelligence that this is a differentiator for us. So, we've looked at what competitors are doing and also how the competitive landscape is changing. So, our traditional competitors are really making little use of AI. Although one has recently been acquired by an AI holding company, which indicates the opportunity in this area. But we are seeing emerging competitors to our leveraging and things like predictive analytics for use cases like content recommendation and also some experimental Gen AI for use cases like simplification of patient facing information. We're also seeing the EHR companies doubling down on AI. The initial focus there really is around care team productivity. So, think of reducing documentation burden to ambient listening and things like providing and suggest the sponsors to patient messaging. So, things like Microsoft Copilot office users for anyone that's used that very much the idea of copilot for the care team. But we believe there's a really significant opportunity for AI to drive better patient engagement and education. So, just thinking about a vision here, if you imagine having your own personal notes, you have infinite time to explain things to you in the language that you understand to be able to answer all of the questions that you have without judgment, without being rushed, without having to run off to look after the next patient, that Internet patients to really support you in all of your needs. If you're not an English speaker, for example, to be able to speak to you in your preferred language and we really see that as the opportunity to make sure that patients understand their condition, their care, their medication and to really help ensure that they're prepared for a timely and safe discharge. So, we interviewed all of our major customers in the U.S. and Australia in the second quarter of this year. This was really about understanding specific problems that were important for them to solve, which we believe could become viable to solve is AI. From this short list, we're now going through the due diligence to assess value and viability for a number of those problems. We have 4 customers who've indicated that they want to work with versus innovation partners to pilot AI-powered products and features 2 of those academic medical centers and to our integrated delivery networks all in the U.S. Clearly, quite commercially sensitive in terms of the actual problems and solutions that don't really want to give too much away at this stage. But suffice to say that we are targeting the launch of a pilot in Q4 of this year and then looking to bring product features to market in the first half of next year. The strategic department and our team, as James mentioned, we're really giving people the opportunity to up-skill in AI in a very exciting area. But there's also a huge excitement in our customer base as well of the potential for this technology to really advance towards our vision of powering truly personalized and exemplary care experiences. With that update on product innovation, I'm going to pass now to J.P. How, our Chief Operating Officer, to give an update on scalability.

Thank you very much, Niall. I think everyone can see there now that we have a very strong product suite with the different forms of modalities that we can deliver our care experience platform on. So, with that in mind, a lot of our attention has moved towards how we prepare to scale the business. So, we held a leadership offsite in Ireland at the end of June, where we identified many opportunities for improvements that would lead to value being added and our ability to scale our product. We identified Trey as the high priority that we want to focus on in the next while, where we will be then looking to channel our Australian-European technical teams to support our growth in the U.S. and to be working on the problem 24/7 or as much as possible. So, as Niall alluded to, we do have some engineering resources will be allocated time to work on our AI strategy for our product. But one of the core pieces of work that we're going to do for the next 4 or 5 months is really enhance an application that we have at the moment that is used to configure our platform. As you can imagine, we have a platform. With so many different integrations, the depth of functionality that we have and the high level of configuration we provide, there can be challenges we're configuring and managing the integrations for an initial install can take a bit of time. Our efforts are now to really make that quick, seamless and really to help us deliver speed to value a lot faster and have much smoother implementations. So, our teams will be focusing on that for the next few months. We are now also going to look at implementing a best-in-class PMO tool. That really is to focus on the standardization of how we run our projects, our workshops, how we document everything, how we forecast and plan our resources adequately and appropriately and that's going to be up and running by the end of September. The final area that we've agreed to prioritize from a scaling perspective is really to standardize on our deployments. What that means, again, is looking at how do we deploy our software in ways using Blue Green deployments, how we host our product in the cloud, how we minimize the downtime for the patients whenever we upgrade the product. So, we're focusing on those things. Any time we can reduce any of those elements reduce overheads and costs, that's going to help us scale more effectively. The intention is that if we do all of these things well, our dependency on highly skilled engineers, DevOps people, cyber liability engineers should come down, and we'll be able to put tools in the hands of skilled workers, but who probably won't be at the high end of the cost as well. So, with that in mind, one of the other things that we're trying to do is try and make everyone work more effectively, and we're leaning heavily into AI, as James and Niall have already called out. We have enterprise licensing in place for all of Microsoft's Copilot tools. Our developers are already using GitHub copilot to generate the scaffolding for all of the classes, all of the files that they're now creating as well as assistance for unit tests and integration tests. We are looking to align with ISO 42001, which is the latest standard for AI management systems and we're giving all the guidelines that you'd expect for staff usage. There're many AI-based productivity initiatives underway within the business. As James says, every staff member has been tasked with having an AI-focused goal for themselves over the next 3 months. The final piece of the puzzle that we're working on right now is we have implemented our own internal AI chatbot, which we call Doc. this is a screenshot of Doc where it is in our own walled garden. We have curated set of data that we've imported into Doc so, we know that the data is accurate and valid. It's available to every employee in the company and it's incredibly useful from an ability to gather knowledge on the depth of our product across our customer base, really assisting with the product team, our sales and marketing teams and bid documentation as well. What you have here is an example of a very simple question about how we can identify the savings in dollars that Oneview customers have had for me ordering. The intention is that in short order, we will look to make this available to our customers so that they can navigate and see what other opportunities our Care Experience platform can provide them. That's pretty much the AI initiatives. Over to you, Niall.

Much appreciated. I'm just going to finish with the outlook. So, look, obviously, a challenging first half for reasons we are under controlled. Having said that, I think as JP has just been talking about scalability initiatives, I think I can say for the first time in my 11 years at the company, the one thing I'm worried about is Dales, what we're really focused on is we know there's a change of business coming. The Baxter partnership could not be going better. We're getting unrivaled access to the U.S. market to health systems that we can only dream with getting access to before. It's going to deliver a significant step-up in our growth. We have, as a leadership team and a Board, we've identified that we need to make it as simple as possible. We want to continue to focus on our speed to value. We know that there's certainly been internal frustration around getting beds live as fast as we can. That's a challenge that is only going to be made easier if we can get to the promised land of Blue Green deployments, as JP mentioned. So, scalability is the focus. We need to make sure we convert these contracted beds to live beds as fast as we can. We know that health system consolidation is a double-edged sword. A great example is NYU Langone, who've been quite acquisitive in recent years. Every time they bought 3 hospitals in the last 5 years and every time, they buy one, they standardize on their technology platform and put one view in every room. That's what we're seeing with our largest contracted customers. The fact that our largest contracted customer has acquired the second health system, that second health system does not have a care experience platform. There's a very strong tendency amongst all of these big health systems to standardize on a single technology platform. So, whilst we have not yet had that conversation, we fully expect that if we continue to deliver value, and then it's going to open the doors to another 4,000 beds in that one customer alone. That second health system does not have a care experience platform. There's a very strong tendency amongst all of these big health systems to standardize on a single technology platform. So whilst we have not yet had that conversation, we fully expect that if we continue to deliver value, and then it's going to open the doors to another 4,000 beds in that one customer alone. The other thing I want to call out is we've been running pilots with major customers. The results are stunning. There's been some empirical evidence produced by people at McKinsey showing that the cost savings from deploying virtual nursing order of magnitude, 30% or 40%. We think in some cases, it might even exceed that. All that's going to do is provide fresh data points, fresh empirical evidence to validate why people are going to use the Oneview platform as the conduit for their inpatient virtual care strategy. So super excited about that. MyState Mobile, as we mentioned, is the future. It's the old adage, everyone wants to be first to be second. So we haven't got that pioneer who's ready to go all in on MyState Mobile as their only [indiscernible], but I have no doubt that, that day is not far from us. So I hope that gives you a sense of where we are. It's this complexity and scalability challenges that I think we've clearly got a product that's delivering value. We have a part that is giving us unrivaled to the U.S. market, and we are very excited to get these scalability initiatives underway to make sure that we can deliver to their expectations. So with that, I'll conclude my remarks and actually pass it back to you to see if there's any questions.

[Operator Instructions] Your first question on the phone is from Dan Hurren with MST Access.

Perhaps a question for Helena. Just to understand all your commentary around the delayed revenue. I'm just wondering to what degree have the costs associated with that revenue already been occurred? I guess I'm just trying to understand how representative first half OpEx is of the second half.

That's a good question. So in terms of OpEx, there's not really an impact because the main OpEx cost would be if we deliver the revenue would be labor in some way, shape, or form. But as we haven't delivered that revenue, we haven't performed much in the way of services against it and to add most of that revenue is hardware revenue. So in terms of costs, we have incurred some cash outlay. If you look at our inventory figure, it's higher than it was at the end of the year as we purchased the equipment in advance for both those projects.

I just want to elaborate on that and say look, clearly, from a cash flow perspective, we've got the hardware on the books now. When these projects resume, we'll obviously be delivering that hardware at margin to the customer base. Secondly, to Helena's point, because we take all of our personnel costs below the line, that will transpire the professional services piece effectively because we're not getting our professional services revenue until the project commences as well. So it's kind of a double whammy from that point of view.

Right. In other words, there hasn't been much product development cost associated with these that precedes the installation.

Exactly.

Just a question for James. There's been a lot of M&A in the sector as you point out. Are you seeing any change in competitive activity or any change in market dynamics as these sort of new players gear up or change hands?

Yes. Look, so as I mentioned, 2 of our competitors have been acquired. One was acquired by a vendor in the digital signage space who has no healthcare experience. So I mean they obviously see an opportunity in health care. So that's a curious in and of itself. The second one is GetWellNetwork, which has just changed hands for the third time in 10 years. As Niall mentioned, that was acquired by an AI holding company. I think perhaps more interesting is some of the M&A activity that's going on in and around us. So Stryker, which is one of Baxter's largest competitors just acquired a company called Care AI, which is a relatively small, relatively new entrant in the virtual care in-patient space. So interesting that they're leaning into that opportunity. So I think the bedside technology is clearly a much more interesting value proposition today than it's ever been in the past, but really around the workforce challenges that you are so familiar with.

If I could squeeze a third one and perhaps a bit more of a pointed question. AI chatbots, I'm not an expert on these things, but they are pretty much everywhere at the moment and I think pretty expensive to develop. Can you just talk through the process about your decision to develop one internally rather than still fit something that might already be out there?

Yes. So look, it's actually a pretty light touch from our point of view. I mean, I think I'm pretty involved in AI at the moment, I'm doing a course of a 12-month course at Oxford on this. What we've learned is that internal business automation process improvement is kind of where the low-hanging fruit is. So for us, being able to curate and load all of our product knowledge, all of our release notes, all of our annual reports, our 4 Cs into a proprietary version of Chat GPT and allow our staff to query that is hugely beneficial because it effectively is putting guardrails around that content and information. We're finding internally, it's driving really significant internal productivity because product manager is not getting bombarded with questions around the product. I think as JP mentioned, we want to get that ready for customers to be able to self-serve that information as well. I'm sure that content would be pretty helpful to the Baxter sales organization as well. So for us, it feels like a very worthwhile investment and not a huge cost to be honest.

There are no further phone questions at this time. I'll hand the conference back to Helena D'Arcy to address any webcast questions.

I have no questions on the webcast at this time.

Well, in that case, we'll wrap things up. As always, please don't hesitate to reach out directly if you have any follow-up questions, we'd be delighted to deal with them offline. Thanks very much for your attendance.

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