Oneview Healthcare PLC (ONE) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Oneview Healthcare PLC Preliminary FY '24 Results Presentation Call. [Operator Instructions] I would now like to hand the conference over to Mr. James Fitter, CEO. Please go ahead.

Thanks, Darcy. Good morning, everyone. Good afternoon in the United States, and good evening for those joining in Dublin. First of all, just a usual reminder around the legal disclaimer, particularly with respect to forward-looking statements, and a reminder that we are a December year-end and our reporting currency is euros. In certain circumstances, we have provided a dollar conversion. So please be wary of that. And for those of you joining on the phone, I will try and reference page numbers as we work through the presentation. Just a reminder, Oneview Healthcare's mission is to improve connected care experiences every day. And our vision is redefining the digital environment of care to make it accessible, seamless and reliable for all and never has that been more of a requirement in the health care world we live in today. Joining me this evening for the first time is Darragh Lyons, our new CFO. Darragh joined 5 months ago, absolutely thrilled to have him on the team. And Toni Pettit, our Company Secretary and Chief of Staff, is also joining from Dublin. So welcome to both of you. And as I said, been delighted to have Darragh on the team and he's made an enormous impact to the business in the short time he's been with us, and you'll be hearing a little bit from Darragh a little bit later this morning. The agenda is laid out here, which I think is pretty straightforward. So let's start with the year-end review for 2024. Shouldn't be too many surprises here based on the 4C we filed recently, but revenue for the year finished at EUR 9.9 million revenue, which was up 5%, impacted by 2 postponed customer [ deployments, which ] was the result of corporate activity. One of our largest customers in the United States acquired another health system of roughly the same size and stature and that led to capital delays on their deployments. But we are very pleased to report that, that customer has just begun, just sent us a purchase order for the next project that is underway with them. And secondly, the Children's Hospital of Ireland, which had been delayed, which again is now on track to be delivered in 2025. So a deferral of some pretty significant revenues from last year that will land this year. Our recurring revenue finished up 9% at EUR 7.2 million, EUR 7.6 million in December, which would have been up 15% year-over-year. Gross margins, very pleased with the 67% gross margin, pretty much in keeping with last year. And importantly, and thank you, all the shareholders on this call who helped us to strengthen the balance sheet, we finished the year with [Audio Gap] net cash. And as we've foreshadowed, very nice growth in both our live beds and contracted bed numbers, we finished both of them up 23% year-over-year, which was in keeping with the previous guidance, which suggested that 25% was a fairly sustainable growth rate for the business. In terms of [Audio Gap] 8 major new logos in the United States during 2024, which is a record for the company in any 12-month period. We'll talk more about that in a second, but that includes 3 integrated delivery networks, which are the very large health systems that obviously where we're focused. And we, as we previously announced, extended our value-added reseller partnership with Baxter for a further 2 years until mid-'27 and expanded that to include the Canadian market, which is also very promising. In terms of product, it was a really important year for the business. We added 3 new products to effectively complete our vision for the connected patient room, including [Audio Gap] television, the Digital Whiteboard and a Digital Door Sign, all of which round out the product portfolio. We've enjoyed commercial success with all 3 of those products in 2024, which is obviously very encouraging. And a little later in the presentation, Darragh will speak to the upsell opportunities that those products bring to us. So on Slide 11, I just wanted to talk a little bit about the big picture and the history of the company, which dates back to our first founding in 2008. I joined the company in 2013. At that time, we were a 10-person start-up. We enjoyed our first commercial success in 2014. And hopefully, what this chart shows is that in the last 2 years, we've added 14 new customers, which is more than we added in the prior decade. So a very impactful change in customer [Audio Gap] 2 years, 6 new logos last year, 8 new logos this year. And the drivers for that are really multifaceted. We've spoken to them at length in the past, but certainly the pandemic has renewed the value proposition for bedside technology in a meaningful way. The second is that we are a conduit for the virtualization of care, which is the primary trend sweeping the United States right now. The momentum that the Baxter partnership has added to the pipeline is nontrivial, and we'll talk more about that a little bit later. And importantly, operating margins for U.S. hospitals have really bounced back into the positive for the first time in 2023 and 2024 and allowed them to loosen the purse strings for capital investment. Now if we look at the breakdown of the logos that we secured in 2023, those 6 logos have 3,500 licensed beds of which we are currently contracted with 1,900, so about a 54% contracted rate. The 8 logos we signed this year or in 2024 have 11,700 licensed beds, of which we're currently contracted with 3,858 or 33%. So let's look at why that is so important, [ the reason ] is our land and expand strategy. So throughout the history of the company, we have had a really impressive track record of being able to convert what begin as small deployments into major deployments. So we've shared a couple of examples here of 5 anonymized customers. If we look at customer B, for example, we initially signed a contract for 925 beds. We have subsequently delivered a further 1,200 beds and are now contracted to deliver a further 3,000 beds. So what began as a 925-bed contract is going to end up delivering close to [Audio Gap] this is very typical where we begin with a proof of concept. In that case, it was an 87-bed proof of concept, which has now expanded to be a contract for 1,536 beds. So that's a powerful testament to the importance of getting in the door. We are very confident that if we get in the door, we are going to be able to prove our value proposition very quickly. I would say that there is a strong preference in the United States for proof of concept. The reason proof of concept is so important is that our back-end integrations, which are really unique selling proposition are extremely complex. And every customer has slightly different flavors of their electronic medical record, different integrations. They want to see those integrations live in a production environment before they commit across the enterprise. And I'm very happy to say that in the history of the company, we've never had [Audio Gap] we haven't been able to fulfill. So I think it's a really strong message. And of course, what that leads to is customer satisfaction and we're sharing here the customer maturity profile of our 10 largest customers. You can see here dating back to 2014, we have a number of partnerships that are now spanning over a decade. The average customer duration across the portfolio is nearly 7 years. I think that speaks to the value we're delivering, and ultimately, the quality of the product and our support model, which is something we're all extremely proud of. So the message is, if you can get in, it gives you the opportunity to expand. And once you've proven your worth, you are typically ending up with decade-long partnerships with very attractive gross margins. So in summary, it's a fantastic business. It's very hard to get in. It's also very difficult to be displaced. This little slide on Slide 14 is a really good example of why the Digital Whiteboard is so important. You can see in the image here of a manual whiteboard, which still populates just about every hospital in Australia and the United States. The pandemic exposed the frailties of that model because nursing understood that they didn't have the time or the energy to update the whiteboard. So we are seeing strong demand for the whiteboard across our existing customer base and almost every new prospect we're talking to is asking for pricing for the whiteboard out of the gate. So I think that's been a fabulous investment by the team. So what's going on in the big picture? Again, I don't think -- I think for those who have been following the company for some time, I think there are some pretty important trends, some alarming statistics. One in 4 nurses in the United States has indicated they're going to leave the profession by 2027. Next year alone, the nursing shortage in the United States is estimated at 326,000 nurses. [Audio Gap] estimates the global nursing shortage is going to reach 4.7 million nurses by 2030. And interestingly, in the States, according to the Urban Institute, the number of Americans aged 65 and older is going to double in the next 40 years, hitting 80 million by 2040. So the demand for hospital care is growing [Audio Gap] and the supply of quality care teams is going in the other direction, which is a huge challenge. And that is leading to this trend in the virtualization of care, which we've talked about for so long, and we'll drill into that a little bit further in the presentation. But just a reminder of how our Connected Care Experience impacts different stakeholder groups. Obviously, for patients and families, we are trying to empower the patient and their families to be more engaged in their own care by giving them tools that will provide calming and distraction content. For care teams, this is [Audio Gap] focus, how do we use the platform at the bedside to divert menial tasks away from nurses. This is something that's particularly important to Baxter, who are obviously a very significant player in the nurse call business. And the integrations that we've proven with Baxter are proving extremely [Audio Gap] as we move forward, and we'll drill a little bit further into that later in the presentation. So this is just a reminder of the Connected Care Experience room, where we have the Digital Whiteboard, which can either be a stand-alone device in the room or we can host it on the TV or on the tablet. So we don't require an additional piece of hardware in the room. We've spoken at length about the benefits of MyStay Mobile. We know that hardware and capital budgets are not where we want to be in the hospital. We were thrilled to commercialize MyStay Mobile in 2024 with the Children's Hospital of Orange County following on the back of NYU Langone's pilot and co-design of that product. [Audio Gap] is particularly relevant for new construction where pretty much every new hospital we're seeing is using the Digital Door Sign to share precautions directly from the EMR. The other thing that's really helping us is the [ data platform ] extensively and is providing a lot more data that is helping support the workflow issues I'm just talking about. So being able to track and monitor the time that a patient makes a service request, the time saved by averting a nurse call event is driving, obviously, nurse satisfaction, nurse engagement and providing us with a framework that's making it increasingly easy to help the financial side of the equation, which is obviously crucial. Virtual care, as I mentioned earlier, and I've been saying this now for the past couple of years, really is what's driving demand for bedside technology. So we have invested very significantly in our virtual care API. We are vendor-agnostic. We want to give our hospitals the choice of which partner they want to work with. The telehealth space is a very crowded space [Audio Gap] and we have had great feedback. Almost all of our large enterprise customers are deploying one of those telehealth providers. Oneview is acting as the conduit for that delivery, and that's exactly where we want to be. We're already in control of the television in the room. So we can allow the telehealth provider to remote in. We receive that message over the air and we are providing the -- effectively turning the television into a pane of glass that allows that telehealth consultation to take place on our platform. So I think that's been a hugely successful strategy for us. You can see the statistics here that nearly 2/3 of chief nursing officers in the United States believe virtual nursing will become integral to their care delivery model, and we are certainly seeing evidence of that in almost every conversation we're having in the U.S. And this is the connected patient room vision that Niall had set out [Audio Gap] years ago during the pandemic, we began that process by sharing virtual rounding, virtual visitation, virtual interpretation on the tablets. At a number of our customer sites today, we're now hosting pharmacy visits. For example, at NYU Langone, pharmacists are remote [Audio Gap] patient room and delivering what they call their meds-to-beds program where the patient's prescription medication is delivered to the room after the video consultation in every room at NYU, which is phenomenal. The adopting technology, as we mentioned, was using the television to facilitate those interactions. That's driving a lot of the work we're doing at Inova, at BJC and at Mercy Health. And as Niall has pointed out for some time, it was only going to be a matter of time before AI-enabled virtual assistance and computer vision would be augmenting that capability, which is [ excited ] to launch last week our Oneview Virtual Patient Assistant, which is called Ovie. And this has been a massive team effort. I really want to say a huge thank you to Niall, our Chief Product Officer; and Matthew Frank, our Product Manager, who conducted the market research. We did exhaustive market research with existing and prospective customers to understand the demand for this product. And our engineering teams led by Des and Declan and particularly Alex Pollan, who's been really involved in this, have done a fabulous job getting this product ready. We were able to [Audio Gap] health conference in Nashville last week, and it will be on display again at HIMSS, which is the largest health informatics conference in Vegas next week. I was fortunate enough to be able to demo this to a number of very high-profile customers in the U.S. last week, had fabulous feedback. Again [Audio Gap] we can use -- empower the patient to use the Virtual Patient Assistant to take pressure off nursing. And this is the ability to ask the common questions around when am I going home, what meds am I on? It's going to allow the patient to control the television experience. It's going to allow them to order their meals through voice. So this is a huge leap forward for us. We've spent a lot of time making sure we put the appropriate AI governance framework in place. And again, I want to thank Declan Bright, who's been leading that initiative. We've really gone all in, in terms of business automation of AI, but this is the first customer [ we're ] bringing to market. It is scheduled to be piloted at 2 academic teaching hospitals in the United States this year, and we're really looking forward to getting it in the hands of real patients and getting real feedback. So congratulations to all involved. So with that, I'm now going to pass over to Darragh, who is going to go through the financial results in a little more detail.

Thanks, James. So as James mentioned, our recurring revenue grew by 9% in 2024 to EUR 7.2 million with the increase driven by the additional deployments we made during 2023 and 2024. Our total revenue then for 2024 was EUR 9.9 million, which represents a 5% increase over 2023. And as James has mentioned, our 2024 revenue performance was significantly impacted by the postponement of 2 large customer deployment projects. One customer, which was delayed due to some corporate transactional activity, and then the Children's Hospital in Ireland, where construction delays has resulted in a later-than-planned opening date for that new hospital. We are confident, as James has said, that both projects will resume during 2025 and we will see that revenue coming through then. Our gross margin for 2024 then was slightly better than '23 at 67% as a result of a higher proportion of the higher-margin recurring revenue in 2024 over 2023. Our adjusted EBITDA loss then for the year was EUR 8.8 million and that has been impacted by the 2 delayed projects I just referred to and the advanced investment we made in resources to support the expected deployment activity we have in the U.S. from our Baxter partnership and our direct sales pipeline. So moving on then to our financial and capital position on the next slide. At 31 December, we had EUR 13.8 million of cash, and that was having completed a capital raise during the fourth quarter of 2024, which was comprised of an oversubscribed $20 million share placement and an oversubscribed $3 million share purchase plan raise. Our aggregate net proceeds from the capital raising of EUR 13.3 million or $22 million strengthens our balance sheet as we progress to deploy our contracted beds, grow our sales pipeline internally and through our relationship with Baxter and to progress some important innovation initiatives, including progressing our AI strategy that James has just walked through and making our deployment process more efficient through configuration tooling initiatives. Turning then to our commercial strategy on Slide 26. Our formula to build sustainable and growing revenue base is built on 3 important characteristics of our technology and business model. We are comfortable completing deployments across large enterprises. Our product is modular and we have a low customer churn. Taking the first of those characteristics on Slide 27, we have a track record of deploying our software at scale across thousands of endpoints in large enterprise customers and we are trusted to complete those deployments and technology integrations at that scale. This enables the first layer of our land and expand commercial strategy, which is included on Slide 28. We can initiate a customer relationship with hundreds of beds and scale to thousands as we deliver value and become a central part of the hospital's operating and technical workflows. The second layer then of that land and expand commercial strategy is related to product upsell. As I said, our technology is modular so customers can choose what modalities they would like initially and then adopt additional products over time. And as we could see then on the next slide, Slide 29, this gives us an additional 92% revenue upsell opportunity for customers that start with the care experience platform on TV and add additional products over time. So the services and value we bring to customers resulting in the low customer churn is the foundation for this dual-expansion opportunity. Retaining customers then with growing revenue is the basis for sustained and accelerating revenue growth, which makes our success and focus on adding new customer logos, all the more important and the basis for significant value creation potential for our shareholders over time. So I'll pass back to James who's going to talk through our operational execution.

Thanks, Darragh. Much appreciated. So our track record now has been growing very extensively over time. We're very proud to be contracted with over 135 hospitals across 24 health systems. Scalability and enterprise readiness is something that we've invested very heavily in with a really significant investment in performance testing, which is giving large enterprise customers the confidence [Audio Gap] in the enterprise. As I mentioned earlier, we have over 50 system integrations completed. Very proud of the fact that we -- as I said, we've never been asked to integrate into a system and failed that challenge. It's important to understand that the product is, like all good tech, it is user-friendly, it's intuitive. It's simple to use on the front end, but it's extremely complex on the back end. And it's that complexity that makes it difficult for competitors to rival the investment we've made in the business. To that end, over the past 3 years, we spent over EUR 29 million on product development [Audio Gap] the most extensive and expansive connected care platform in the market. And we've become a really critical part of operating workflows, a prime example here Epworth in Australia, where we're currently hosting over 17,000 [Audio Gap] on the Oneview platform. I think that speaks to the depth of the integrations we have with a customer like Epworth. Our global footprint is spanning 4 continents, again, which makes us unique. These connected care challenges are not unique to the United States or Australia. We've enjoyed success -- commercial success in Thailand, in Ireland and in the past in the Middle East. So we are really focused on the opportunities in the United States. We are, of course, very cognizant of the challenges facing the private hospital market here in Australia, but we still have some interesting opportunities in this part of the world, which we're pursuing. And I've asked Darragh as part of his new mandate to have a think about different geographies that may or may not make sense for the business. But I would point out that our real vision is working with our friends at Baxter to capture 15% or 20% of the U.S. market. So turning to the U.S. This is -- Slide 33 is showing the depth and breadth of our partnerships in the United States. I think in the early years of the customers -- of the company's success, we were very successful in California and New York, which are areas that tend to be characterized by higher disposable spending. Certainly, academic teaching hospitals in those places are very well funded. What's been really encouraging is we're now currently deployed across 15 states in the country, a lot of them in the Midwest in places like Arkansas, Iowa, Nebraska, Oklahoma, [Audio Gap] we leant into and embrace the technology vision that we have for their delivery of care. So super excited to see the growth of our U.S. customer base. In terms of opportunity in the United States, I think we shared in the past, there are roughly 900,000 hospital beds in the United States. The great significant chunk of those are controlled by the integrated delivery networks. As I mentioned, we added 3 of those to our portfolio last year. These are the systems that tend to span more than 2,000, 3,000, 5,000 beds a minimum, in some cases, much larger numbers than that. And as it happens, this is the part of the market where Baxter is particularly well placed and where we're seeing some significant benefits from the Baxter partnership. So turning to that. I think those of you who know the company well will have seen a fair bit of social media activity on LinkedIn. I've just come last week from a fantastic event, the ViVE event in Nashville, where for the first time ourselves and Baxter had a co-branded booth at the show, which you can see on the top right of Slide 35. This is the first time that we're aware of that Baxter have co-branded a booth with a partner like ours and the impact was massive. We had a huge amount of traction. Baxter has now trained over 100 of their salespeople to sell Oneview. We've completed our first product integrations into their Voalte Nurse Call system, which we were able to showcase last week and which we'll be showcasing again at HIMSS next week. Super excited about the pipeline of opportunity that Baxter has delivered. So we've already received 5 purchase orders, so 5 new logos from Baxter, 3 of those last year and 2 of those already in the first 6 weeks of this year. They currently have over 130 sales opportunities in their pipeline. So I think it's fair to say the year ahead is looking very busy. In terms of commercial execution, as we already mentioned, both our contracted beds and live beds are up 23% year-over-year. We added 8 major new logos in the United States, as I mentioned earlier, a record since the company was founded. This is the install burn-up chart that we shared for the first time in the half year results last year. And as we reported in the 4C, we finished December with a number 7% ahead of where we wanted to be. This is the key focus for the company in 2025. How do we get? Obviously, we're focused on continuing to grow our contracted beds, but obviously getting our contracted beds live as fast as humanly possible is going to be the key driver of value for the business. To that end, JP Howe, our Chief Operating Officer, who's doing a terrific job, has been given responsibility for end-to-end delivery in the United States and JP is looking at all sorts of ways to speed our delivery to revenue, including the investment we've previously announced in configuration tooling, automation of infrastructure, and of course, using the very many tools that are available in AI to help speed our configuration of our software at customer sites. And pleased to report that's going extremely well. Turning to the outlook. I think from a product point of view, we now have the most sophisticated product in the market. We have completed our product vision that Niall set out 2 years ago with the second-generation Whiteboard and Door Sign and the MyStay Mobile app. The Baxter VAR is giving us unparalleled access to the market. We are getting in front of customers that, frankly, we didn't know existed some years ago who often are managing 10, 12 hospital systems. So really pleased with the way the Baxter partnership is progressing. That's led to a record U.S. sales pipeline. As I mentioned, we have over 130 opportunities with Baxter. We have around 30 direct opportunities from our direct sales organization. We are tackling all of the pressure points that are so prevalent in the United States around nursing efficiency. And I think our market position, our reputation, our referenceability and as evidenced by the long-term tenure we have with our customers has really positioned us for great future success in the United States and elsewhere. Finally, 14 new logos added in the past 2 years. I'm always reluctant to use the term hockey stick. But if you look at the chart on Page 41, I think we've seen an exponential growth [Audio Gap] that's not a coincidence. It's one we began the partnership with Baxter. I think we have spoken at length at last year's AGM around how challenging it is to be successful selling enterprise software at scale, but we are really pleased with the progress we've made in the last 2 years. Super excited about [Audio Gap] and as Darragh mentioned, having a product portfolio now that gives us a 92% upsell opportunity with very sticky customers is going to lead to many good things. And my final slide is just an image of Inova Health, where we are currently deploying the core product, Door Sign and the Whiteboard, across their enterprise. They have been a dream customer. They are the #1 ranked health system in Washington, D.C. and Virginia and we are currently extremely active deploying across their enterprise and enjoying fantastic referenceability. So that's the conclusion of my prepared comments, but obviously delighted to take any questions if anyone has any.

[Operator Instructions] Your first question today comes from Daniel Hurren from MST Marquee.

Look, I'll start with the boring question. Just wondering if you could help us understand what sort of costs have already been incurred related to those 2 delayed deployments. Just trying to understand, perhaps sort of back out a little bit of the underlying profitability for it.

Darragh, do you want to take that one?

Yes, sure. So I suppose there hasn't been a significant amount of direct costs incurred on those projects to date in terms of actual OpEx. But I suppose what we have done, as we've referred to before, is built up that investment in the U.S. so that our deployment resources are, I suppose, complete and comprehensive for the expected pipeline of opportunity that we're seeing coming through from our direct sales pipeline and from Baxter. But we couldn't point to any specific direct losses incurred on those contracts to date. We do view them just as postponements, and we do expect them to recommence in 2025 and for us to see that revenue coming through.

Fair to say also, Darragh, that the hardware has already obviously been procured for those projects. So that, obviously, just when those purchase orders come through, the cash flow impact of moving that hardware off our books is going to be very helpful.

Yes.

Got it. And just, I guess, talking about the Baxter VAR and looking at the recent ViVE event, I was wondering if you could talk to sort of the size and the style of customers that are being delivered by the Baxter VAR versus the more traditional sales force. Is there any noticeable difference?

I think the early purchase orders from Baxter have been very typical of our own business where customers are saying, let's put a proof of concept in 50, 60, 80 beds, but they are enterprises. So just if I go back to my earlier comments. So of the 8 new logos that we added last year, together, they have 11,300 licensed beds in the States. We have only contracted with about 3,500 of them. So effectively an 8,000-bed expansion opportunity in those logos that were not yet contracted with. So hopefully, that gives you a bit of a sense that some of them are smaller in nature, but some of them are obviously larger in nature.

And the product suite that's coming through from those orders, is it broad? Or is it more of a beachhead single product kind of...

In fact, I think Baxter, I think every purchase order, correct me I'm wrong, I think of all the purchase orders received today, all of them have had at least 2, and in most cases, 3 of our 4 products included.

Great. That's really helpful. And just going to squeeze one more in. Just MyStay Mobile, just very interested to understand how that's positioning itself in the market and if that is attracting -- if the interest it's attracting is from existing customers looking for the add-on as per one of your slides? Or is it more of a beachhead product that's attracting new customers entirely?

Right now, it's more of an add-on for existing customers, Dan. I think folks see it as particularly a modality that the Gen Z and millennials can relate to. So at Children's Hospital of Orange County, who just merged with Rady's Kids last week, they are deploying it for kids and the use cases there are [Audio Gap] the outside the hospital use cases where a parent could order a meal for a child, for example, from outside the hospital or could see their kid's schedule when are they going in for their MRI. So I still -- look, we fervently believe that the future of our business is mobile first. We love the fact that it gets the capital out of the business -- the capital investment out of the business, I should say. But we have not yet found that pioneer who says, listen, we're going mobile only. And I think it's -- there are conversations happening with a number of customers around that strategy, but I think that's -- we're probably a little early to see that just yet.

Your next question comes from Wei Sim from Jefferies.

James, can you hear me?

I can, Wei. How are you?

Congratulations on a great set of results.

Thank you.

First question from me is just in regards to the kind of like the pipeline outlook, it sounds like you mentioned the merged hospital delay is back on track. So like I think BJC, our expectation was probably for March to see some resumption of that. So it sounds like it's slightly ahead of schedule. And then also you mentioned Ireland being back on track. I just wanted to confirm that's kind of like the Children's Hospital. And just in terms of, I guess, how we should think about the development of the beds burn up within those 2 contracts in particular, if possible?

Yes. We're still -- so we're obviously very pleased to have got purchase orders for both of those projects. So we've already delivered part of the hardware for the Children's Hospital of Ireland. The latest statement from the Irish government, correct me if I'm wrong, Darragh, but I believe they're going to have practical delivery of the building in June of this year. They're hoping to get their hospital open this year, but we will certainly deploy all of our hardware that's remaining to be dealt there and hopefully get some beds live this year. It's around 670 beds contracted there. And then with BJC, they're opening a new building called Plaza West. We've received the purchase order for the first component of the hardware for that. That building is scheduled for delivery end of this year. And we think that's the first early sign that the inertia that was a result of the merger between BJC and Saint Luke's is thawing and the engagement there is extremely promising.

Okay. That sounds great. The other question I had was in regards to gross margin, I noticed in the first half -- so maybe a bit more for you, Darragh, for this one. But in the first half that the gross margins saw a step up. And it looks like the full year number on the gross margin, it's kind of like reverted back to what we saw on the full year number for '23 at around 67%. Just how we should think about, I guess, gross margins expectations going forward?

Yes. So I think the full year number is probably more representative of what we would see going forward. The first half of the year had less than 25% of nonrecurring revenue. So the deployments, which, as you know, has much lower margins than the recurring revenue whereas in the second half of the year we did see a bit of a step-up in the nonrecurring element of revenue. So over 30% of revenue for the second half of the year was actually nonrecurring revenue, which is the lower margin revenue. So I think the sort of mid-60s or late 60s is sort of where we expect it to be going forward as we hopefully get a lot of those projects deployed, and therefore, have a decent portion of nonrecurring revenue going forward.

Okay. Understood. So is it fair to understand it that as we continue with deployment and as hardware comes through that we would see lower margins. But over the medium term, as I guess, we see maturity in that we've got more live beds happening and we have less of those nonrecurring revenues that margins should trend up towards over 70% over the medium term? Would that be a fair way to kind of like understand that?

It obviously depends on the overall trajectory. Hopefully, we'll continue to add lots of beds. But yes, I think the more beds we deploy, obviously, the more recurring revenue we have, which is a very high recurring margin revenue, which we want to have. So yes, but I think in the medium term, we should think about sort of the current margin rate as being likely to be the trend.

I think there are 2 other trends there. Sorry, if I could just -- 2 other trends to think about there. One is that Baxter are very keen to [Audio Gap] supply chain to deliver TVs and set-top boxes. So we are very strongly encouraging customers to procure hardware through people other than us where that's achievable. And then secondly, obviously, apropos my comments around MyStay Mobile. MyStay Mobile is a much higher margin product, but it's a very small part of the product mix today. I'd like to think in the fullness of time over the next 2 or 3 years, we might see a sort of significant change, hopefully, in the percentage of MyStay Mobile revenues.

Okay. Understood. Just to get some, I guess, granularity on that. How much is, I guess, the recurring revenue margin? Is that something that you're able to kind of give a bit more granularity on?

We haven't publicly disclosed that before, Wei.

[Operator Instructions] Your next question is a follow-up from Daniel Hurren from MST Marquee.

Just one more for me guys. Just if I have this right, it appears that your customer churn has actually settled down. But I was hoping you could characterize the nature of the churn you're seeing and the style of customer that is dropping out. I think previously, you've talked about being pretty deep legacy customers on old systems that were the fallaways. Is that still the case?

I would say the only churn [Audio Gap] is when our customers are financially challenged and don't have the ability. So obviously, we've -- our hardware has a defined life cycle, typically 3 to 5 years, which happens to be the length of the contract. So we've had -- the only material churn we've had in the business has been where customers were not in a position to refresh their hardware. And I think that's true of the portfolio today. And as it has and I guess unsurprising, almost tend to be lower-margin customers because they were effectively entertainment-only customers who weren't deploying the full -- and again, the irony being if they had the more sophisticated deployment, they might be driving more value out of their investments. So I would characterize the churn we've experienced over the years as being entertainment only, less well-funded institutions.

So relatively low-value contracts, I guess, logically?

Correct. Correct.

Okay. And sorry, I want to squeeze one more, I promise it's my last. Just hardware prices. I know these are a pass-through for you, but are hardware prices coming down, potentially making it more affordable for the customer?

Yes. I think they are. I mean, technology in general is certainly prices of TVs and tablets are coming down pretty much across the board. So yes, I think there is some -- so I think the bigger trend down, I think, is just the operating margins in the United States, which still are not back to pre-pandemic levels. I think they -- across the United States, the operating margins were slightly above 8% pre-pandemic. They turned negative post-pandemic and they bounced back to about 5.2% last year. So I think it's that return to [Audio Gap] that is creating a bit more conversion in the pipeline that we're seeing today.

[Operator Instructions] As there are no further phone questions, I'll now hand back over for the webcast questions to be addressed.

We've got a question here from Martyn Jacobs from Bell Potter Securities. Could you explain why gross margins declined from about 73% in the June half?

Yes. So I think that was the same question, Toni, as we had. So it was just the mix of recurring and nonrecurring in the first half of the year versus the second.

And then finally, from [ Louise Warner, Ashton Superannuation ]. What impact will Trump's tariffs have?

Good question. Darragh, do you want to take that one?

Thanks, James. Yes, I suppose we're all waiting to see what comes in, in terms of what he eventually might actually pass. We don't see it as a significant risk to the business right now based on what has been proposed. But I think we're in a wait-and-see mode like everybody else. I think the software, I think, and services have typically been exempted from anything that he has proposed on any jurisdictions to date. So from that perspective, we draw comfort, but obviously, it's early days.

And I would just say, as we foreshadowed in the 4C, we did -- we expedited some hardware deliveries of our all-in-ones into the United States, which I'm pleased to report landed ahead of the tariffs. So I think we were ahead of the curve on that one.

Thanks. No more questions were submitted.

Thank you. As there are no further questions at this time, we'll now hand back to Mr. Fitter for any closing remarks.

Okay. Thanks for your participation. I know [Audio Gap] for you analysts, but I appreciate your participation. Thanks for the questions. And if you have any follow-ups, I think you know where to find us. Thanks very much for your time.

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