Oneview Healthcare PLC

Thank you for standing by and welcome to the OneView Healthcare half year 2022 results announcement. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question via the phones you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast please enter it into the ask a question box and click submit. I would now like to hand the conference over to Mr. James Fitter, CEO. Please go ahead.

Thank you, good morning everyone and welcome to our first half results presentation for 2022. Just a quick reminder that we are at December year end so obviously these are our interim results for the first half of the year and also a reminder that our reporting currency is in Euros so all numbers we're referring to today will be Euros unless otherwise specified. I'm joined here this evening in Dublin by Helena Darcy, our Chief Financial Officer And Helene will be speaking to a bit more detail of the financial results later in the presentation. So let's get started. I wanted to start just by talking about putting 2022 in context. Obviously, we had a very successful capital raise in November last year. And at that time, we made it very clear that we wanted to accelerate the investment in our cloud product. We clearly feel we have a first mover advantage with our care experience platform. We also are very cognizant that the market is going through a fresh bout of digital transformation. And we felt that picking up our sales and marketing expense was a really important part of that project. And you'll see in the figures that we've increased our sales and marketing expense by over 100% first half of this year versus first half of last year. And that investment has proved prescient. We've got a very robust pipeline of new business, both in the United States and the Australian market, which we'll talk to in a bit more detail shortly. We are seeing continued inflation of nursing costs and workforce challenges that won't come as a surprise to anyone who follows the sector. And that's really had two impacts. One is it's really reinforced the value proposition of our solution. but it's also maintained unhealthy pressure on hospital budgets, which remain pretty challenged and unsurprisingly is forcing some delays in some decision-making, which we'll talk to shortly. Similarly, live bed growth has been delayed by supply chain challenges and the ongoing workforce management at certain hospital sites. And accordingly, we're gonna see a pretty significant portion of our expected 2022 revenue is going to be delayed until 2023. But I want to emphasize these are delays rather than any cancellations. So let's talk a bit about the highlights for the first half. So the most important metric was the growth in our contracted beds. We saw 26% growth year over year in contracted beds to just under 14,500 contracted beds. driven largely by a really important and groundbreaking expansion at BJC, which we have obviously previously released to the market, which we'll talk a bit about here this morning. We also had an important extension at the Sydney Children's Hospital Network, which is going to take that contract out to the end of 2024 and bring that to nearly a decade of collaboration with the Sydney Children's Hospital Network. So we continue to enjoy very robust renewals of key customer contracts, which obviously it's a very important part of our business. It's a very sticky business. And I think something that is something we're very, very proud of. We've seen as we foreshadowed in the four C's record activity for RFIs and RFPs coming out of the pandemic, we'll look at the impact that's had in terms of numbers, the growth in the sales pipeline, which likewise in our most recent four C, we We announced that the sales pipeline had grown by over 100% quarter over quarter. I'm going to talk a bit about some of the important work we're doing around return on investment and the validation of nurse time savings because that really is the story of the year right now is how can healthcare systems adopt technology to help augment the enormous pressure that physical nursing is under today. We continue to make really important enhancements to our security posture, which we'll talk a bit about. We've also implemented HubSpot across the company to try and improve our revenue forecasting moving forward. We've seen positive deployment of the OEM hardware, and importantly, at the time of the great resignation, we've got a 92% employee retention rate, which I think really speaks to the power of our mission and the quality of our people. So just a couple of financial, I'm not going to labour these too much because Alina's going to talk to them in more detail, but both recurring revenue and total revenue are up 15% year over year respectively. Our gross margin is up 23% and our actual margin is up by four percentage points, which is an important development. So operating EBITDA at 11% improvement, but cash operating expenses are increasing. 25% higher than they were in the first half of last year, which is a reflection of the investment we sought to make on the back of the capital raise. And importantly, we finished the half year with a cash balance of 10 million euros or close to 14.5 million Australian dollars. So as I mentioned, contracted beds have been the key growth, up 26%. You can see on this chart here now that we now have a very significant portion, nearly 5,000 beds that are contracted, not yet installed. And the challenge for us, of course, is to deploy those beds as quickly as feasible. That's been one of the challenges, is just getting access to hospitals as we strive to get those beds live Obviously, the ongoing workforce challenges have made that a little bit more difficult, we would hope. So you'll see there's fairly modest growth in live bed numbers to 9,500. And importantly, now 68% of our contracted beds are in the North American market, which has obviously been a very important focus market for us. In terms of commercial activity, and this is something we foreshadowed in the quarterly, we've seen particularly strong growth coming out of the pandemic. We talked in the past around a paradigm shift in the value proposition. We really think that is expressing itself in the form of these fairly high profile RFIs and RFPs that are coming through the system. I'd also say that this pipeline is actively engaged and we have got some imminent procurement decisions on close to 5,000 beds which we expect prior to year end. As we talked about in the last quarterly, the level of engagement is what is most encouraging, particularly what is usually a pretty quiet time in the United States coming into the Labor Day holiday. August has been a particularly busy period, and I'm heading back to the States next week for some very important final round presentations in the month of September. I wanted to talk a bit about the expansion at BJC because this is something that a lot of thought had gone into as far back as December 2020. We had identified a gap in the market where we didn't have a product that could be delivered across coaxial infrastructure. That had penalized this in a couple of high-profile RFPs where health systems are looking for us to be able to deliver a unified experience across their enterprise. So we identified at that time nearly 7,000 beds that we were uncontracted with with existing customers and sought to find a technology partner that could build this capability for us. And two years down the track, we're really proud of the investment we've made in that as evidenced by the fact that we've signed this 10-hospital expansion with BJC for a further 2,500 beds That wouldn't have been possible without this investment. And similarly, this investment is enabling us to talk to all of these customers about significant expansion opportunities. So I think it reinforces the investment we made. It demonstrates the value proposition that we're delivering to existing customers and certainly something that is delivering value for shareholders. So in terms of operational drivers, we do expect growth in live beds to resume post-COVID. It's been a little bit slower coming on stream than we would have hoped, really around the nursing challenges, which are pretty well documented at this point. We've already seen that 40% conversion of the expansion opportunities. We expect to deliver further on that as the year progresses. We would flag that implementation timelines continue to be delayed by supply chain, which is obviously beyond our control. We've seen some pretty aggressive movement by Helena to try and downsize our office space or optimize our office space as we move to hybrid working. I think that's something that's been very successful for us, and we've had significant downsizing of our real estate footprint, which has been very helpful and I think will bring some significant benefits in 2023. We also continue to focus on integrations around the telehealth capabilities, which we're going to talk more about in a second, and very pleased to be able to showcase that capability with our partners at Caregility, and that's something that is resonating with a number of the opportunities in the pipeline. We've successfully deployed over 1,000 of the new 22-inch Android all-in-one devices for the Epworth in Australia and are currently deploying them at Kingman in Arizona. And we have delivered on the new product delivery of the digital door sign for Kingman, which will be the first customer to take that new product. So some important drivers on the operational side of the business. As we talked about at the end of last year, we had made a very significant investment in information security and data privacy, and we've continued that commitment in the first half of this year. We've added the HIPAA seal of compliance, which we earned on the 8th of June of this year, and we continue to subject our software to external penetration testing every time there's a material change to the API. And we've just completed our latest surveillance audit for ISO 27001 in August. And again, this is something that I think brings great comfort to our customers and really speaks to processes that we put in place to ensure we're best of breed on that front. In terms of product innovation, we've had three software releases to date. So we've moved to a cadence of more frequent software releases We had previously been on a quarterly software release cadence, but we're now aspiring to get six product releases out this year. We had six last year, so there's been some real improvement in that side of the business. And that includes the release of the digital door sign, which is, as I mentioned, going live at Kingman as we speak. Patient feedback, real-time patient feedback has been something that's been extremely well received. Again, it's been taking at Kingman. And that speaks to the investment we've made in our data analytics piece where we've refreshed our executive reports, provided new dashboards, but also providing direct access to key data for customers to analyze on their own if they choose to go down that path. And I think that's, again, a very important differentiator for us. I mentioned the BJC expansion. I won't labor that point any further except to say we received the first purchase orders for the first two hospitals at BJC. I was in St. Louis a few weeks ago meeting with their leadership and it's very clear that their real drive here is to make sure they deliver a unified experience across their enterprise so we'll be in every bed when this project is completed and that's something that again is a motivator for all of our customers that we don't want to have a disjointed experience if a patient presents at one of their hospital's has a fantastic experience on the OneView platform and then finds themselves back in a sort of TV-only environment. That's not a great experience. So it's about providing consistency of experience across the enterprise, which is hugely important. Then we added two smaller logos during the half year at the Loretto Hospital in Chicago, which is another cloud enterprise deployment for 65 beds and Cardinal Medical Management, in Lancaster, Pennsylvania, and we hope that this will be the start of a growing relationship with Cardinal, who have some pretty significant expansion plans across the country. Now on the implementation front, I think you'll all be aware that Kingman Regional Medical Center is our first cloud enterprise customer in the United States. This implementation has been delayed for reasons beyond our control and beyond their control, but is going live next month. This is also the first customer that's adopting our new value framework for ROI tracking, so we've done some baseline analysis with the nursing staff around efficiencies that I think are going to give us some really important metrics to help deliver those results to others within the Mayo Care Network. You'll remember that Kingman was one of the founding members of the Mayo Care Network, and we see this as a very important test case for the new value framework moving forward. They're going to be the first customer live with the digital door sign and the first customer live in the United States with the real-time patient feedback. So let's talk a bit about the market conditions and the outlook going forward. So as we discussed last time we spoke, the pandemic has really led to a pretty dramatic shift in the perceptions of value for bedside technology. As hospitals are embracing these new hybrid models of care, They're seeking ways to use technology to augment the physical strain on nursing. So we've done some work with an outside consultant during the last six months to bring together a really interesting group of nursing leadership from six healthcare systems across the United States, none of whom are customers of the company, and we really wanted to test this hypothesis with people who are not customers and get a sense as to how they're responding to the challenges around absenteeism and wage inflation across nursing. And it was a very engaged conversation and I think has really helped validate the hypothesis that healthcare systems are continuing to struggle with how they can bring these hybrid care models into the patient room. And we believe we are uniquely placed to cater to that need. We've obviously long had the patient tablet and the television in the room. But I think perhaps the most significant change that we hear from nursing leadership is that the pressure that nurses are under to perform manual tasks. So, for example, almost every hospital room we visit still has a manual whiteboard in the room. Nurses are expected to maintain information about the patient on that whiteboard around allergies and conditions. And the simple fact is they don't have the time or the energy to deal with these manual tasks. So by automating those notifications and providing them either on the digital door sign or on the patient communication board is being seen as a really important change in workflow and liberating nursing to do what they really want to do, which is to perform at the top of their license. So I think this has been the most significant change in the market in the last six to nine months. Almost every customer we're talking to now is focused on how do we incorporate the patient communication board, either as a standalone device in the room, or perhaps more importantly, as an application that we can launch within the OneView platform on the television. So again, really reinforcing the value drivers. And we talked last time around how the connected patient room value case is changing. And I just wanted to share a couple of the dominant use cases. So I think virtual e-sitting is probably the one that is resonating most. We hear almost all of our customers in the United States talk about their desire to get eyes and ears in the room. to help with patient observation and virtual sitting. And this is removing what is a very significant physical cost that can be delivered through the television. Similarly, that patient observation for high-risk patients can be managed allowing nurses to manage six to nine patients concurrently. Typically, this would be done in a much more manual fashion. And this is having the added benefit around nurse retention. So what we're hearing from numerous customers is that the pressure on early retirement is making it extremely difficult. So by providing the tools that would allow a nurse who he or she might feel as though they're not really physically capable or motivated to continue walking the floors, but they're very capable of bringing their years of experience to patient observation and providing these digital tools as a way to do that. And similarly, how we can think about delivering on service requests to drive nurse improvement. So this is a pretty powerful chart just showing the impact of the escalating cost of nursing, which is running from pre-pandemic, less than 4% or 5% of wages to today. being as high as 38% of wages in the United States. That is forcing chief nursing officers and chief financial officers to have a complete rethink on their model. So again, we've worked with our existing customers to try to quantify the kind of impact we feel service requests can have on nursing time, how fulfilling those patient requests by sending that request to a more appropriate resource can drive efficiency. And we've done some work with a customer in Australia where we believe we can deliver the OneView cost on a cost-neutral basis if we can deliver a 3.5% improvement in nursing efficiency. So I think that's really helped to re-establish the business case and is giving us an important momentum in the sales pipeline. So why don't I pass across now to Helena just to give us a bit more detail on the financial results.

Great. Thank you, James. The first slide just shows our corporate overview, shows our equity and our current market cap. So diving into the results for the first half of 2022. Total revenue for the first six months of 2022 was 3.9 million, up 15% on the prior year comparative period. Recurring revenue was up by 15% and non-recurring revenue up by 16%. Annualized recurring revenue at the end of June totaled 6.3 million, and continues to grow as installations are returning to their pre-COVID levels and beds go live on a more frequent basis. It should be noted that no revenue has yet been reflected in these figures for the BJC expansion contract. Work is currently underway in two of the BJC hospitals and revenues will start to be recognised later in this year. Gross profit has increased by 23%. This is driven by higher revenues and also a higher proportion of OEM hardware sales. which has improved the gross margin percentage by four points from 59% to 63%. The legal case the company took against Regis Aged Care was settled in May of this year and the proceeds of 2 million Australian dollars were received in this accounting period also. Operating expenses increased by 25%. At the time of our equity raise last December, we did commit to investing in our sales and marketing capabilities, both in terms of headcount and marketing expenditure. We are seeing validation of this spend in the large growth in inbound RFPs and also in our sales opportunity pipeline. This increase in sales and marketing is primarily responsible for the increase in overheads. Comparing this year with last year, last year's employee cost figure did reflect a one-off COVID grant in the US of US$312,000. We continue to incur very high costs for both our D&O and professional indemnity insurance premiums. in line with insurance market trends. Although we had some success reducing our DNO premium at the recent renewal, this reduction was offset by a corresponding increase in our PI premium. The operating EBITDA loss for the period is 3.1 million, a reduction of 0.4 million on the corresponding period last year. Higher non-cash share-based payment fair value charges are driving an increase in the loss after tax to 5 million for the half year, compared to 4.4 million last year. Turning now to the balance sheet. Inventories increased significantly with the purchase of a large number of ELO and WETEC set-top boxes to fulfil customer demand and which are scheduled to be delivered to customer sites later in the year and early next year. Pre-payments also increased significantly due to advanced OEM hardware payments which are due at the time of ordering. The company had cash balances of €10 million at the end of June. Turning now to the cash flow statement. The closing cash balance of €10 million reflects the 20 million Australian dollar equity raise in December 2021, together with operating cash movements in the first half of the year. As we mentioned, there were some higher than usual items of expenditure, in particular the utilisation of a portion of the equity raise for upfront OEM hardware payments, and also to purchase set-top boxes, and also the flagged increased sales and marketing spend. The cash balance also reflects the proceeds from the legal claim against Regis Aged Care, which was settled and received in the first half of the year.

Okay. Terrific. Thanks. Thank you. So, turning to the outlook for 2022-2023, I think we are revising down our revenue guidance due to the timing delays, primarily due to the impact of non-recurring revenue and So we're bringing guidance down to between nine and 9.5 million for 2022, which is a significant lower number than we were previously. But we think it's simply a timing issue, something that will be reflected as we can get back in to turn the live bids on. We also know from our marketing and sales activity that we have the strongest pipeline we've ever had. As I mentioned earlier, we have a very engaged group of opportunities. that we expect procurement decisions from in the coming weeks and months. And I think we feel as though the level of engagement we have with customers is fundamentally different to where we were pre-pandemic. In certain cases, we're having weekly touch points with customers as they grapple with this ongoing challenge around workforce planning. And I think they all understand they need to make the leap towards embracing technology like ours, It's just finding the time to make the appropriate decision. So obviously, as we continue to transition to a sustainable SaaS model, we are aggressively monitoring spend and investment across all aspects of the business, as I'm sure you'd expect. So that concludes my formal comments, and I'd be delighted to take any questions.

Thank you. If you wish to ask a question via the phones, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type it into the ask a question box and hit submit. Your first question comes from Tom Godfrey from MST. Please go ahead.

Good morning, James and Helena. Thanks for taking my questions. Can you hear me okay? We can. Great. Maybe if we can just start with the supply chain delays and sort of your expectation around when implementation timeframes will normalize. And then I suppose as a carry on from that, the inventory investment in the first six months of this year, is it now sort of likely that the revenue attached to that falls into 23? Is that how we should be reading that?

No, not necessarily. I would certainly say that the, so Kingman was the project that was specifically impacted by a fairly unusual and technical part that was unavailable on their side, which has now been rectified. We still remain confident that much of the inventory that we've got on the balance sheet will be sold to customers in the second half of this year. And what we don't know yet is some of that inventory we've not yet received. So there's a little bit of uncertainty as to around when we will receive that from the suppliers. We certainly have enough inventory on hand to cater for existing demand. And I think we feel we're confident that we'll bring in significant revenue in the second half.

Got you, and so the delays are predominantly on the client sort of implementation side rather than it being anything in the supply chain? Yeah, okay.

Yeah, it's nothing on our side that we can't accommodate. We've got stock on hand. In this particular case, it was really, Kingman are also upgrading their nurse call infrastructure at the same time, and there was a delay there that delayed our own implementation because the two are so inextricably linked.

Got you. Okay. And then maybe just sort of flowing that through to the guidance downgrade, the three and a half mil, is that, it sounds predominantly non-recurring hardware and implementation revenue, but is any of that sort of software, or is it just a little bit of the sort of timing delay around live beds? There'll be a little bit of software.

A little bit of timing delay, Tom, but not materially. It's obviously, it's the impact of the BJC expansions that we thought might have happened sooner this year, and also another major US customer that has committed to expand to a further 1,000 beds that we had hoped would happen in the second half of this year, which is now going to happen in the first half of next year.

Got you. Okay. And then just in terms of 23, then it does sort of feel like quite a few projects could sort of hit implementation and a few decisions could be made on top of that. Is one of you sort of confident in the level of bandwidth required that could sort of be needed next year if all of these things do sort of line up and hit at the same time?

100%. Yeah. Look, I think we feel as though we've got great operational leverage. You know, as part of our investment this year, we have added some project management resource in the United States. So I think we could handle... a pretty material increase. We might need to add a project manager or two, but it would really be very much at the margin.

Got you. Okay, and then maybe final one from me just around the expected procurement decisions in sort of the coming weeks and months. Just the 5,000 beds, are you able to give us sort of any more colour around potentially how many projects this is? Are they new logos? And then sort of, you know, the timeline to implementation.

So we are talking about all new logos and any of those decisions that would be made in the coming weeks would be unlikely to impact our 2022 revenue. That's why we're really downgrading the 22 number because they're going to move into 2023. But because of the lumpiness of the opportunities, I think it's fair to say that There are very few opportunities in our pipeline that are not 1,000 or 2,000 beds each in nature at this time. So I think there's a very high level of engagement. As I said, we have a number of customers where we are literally in weekly conversation with them about imminent decisions. Now, of course, that doesn't mean we're necessarily going to be the vendor of choice, but we have a pretty high confidence level around those conversations.

Gotcha. That was sort of going to be my follow-on was just how competitive those processes have been, but it does sound like you've got a reasonably high level of confidence.

We do. And look, we've got over 20,000 beds in the sales pipeline as we speak, of which there are about 15,000 of them that are in RFP process, but there's another 5,000 that are not. And those can have a tendency to move a little bit faster and I think we know that RFP processes tend to be a pretty laborious, drawn-out type of process. But we do feel that we've got very encouraging activity in the pipeline at the minute.

Right. Thanks for taking my questions, guys. Appreciate the time.

Pleasure. Thank you. Once again, if you wish to ask a question via the phones, please press star 1. We'll pause for any further questions to register.

Thank you.

We've got a couple of questions on the webinar, so should we take those now?

Absolutely. I'll hand back for you to address the webcast questions.

Great. Thank you. So the first question is, while impressive growth in RFPs, how many do you think are serious and how many are just kicking the tires? Also, the growth of RFPs is driven by contracts coming up for renewal or new hospitals looking at the space. So let me take the first one first. Look, there's always a feeling that there's a certain element of voyeurism around RFPs. I would say that in this current crop of RFPs, I would describe them as pretty serious by our community. I think the pressures on nursing are so intense that hospitals are having to find a different way to do things. And it's a shame it's taken a global pandemic to really validate the value proposition, but I think it's a very high-quality pipeline at this time. It's not... In our renewals, we do not have any renewals that are currently... out to RFP. It's not common in our experience for renewals to go to RFP and we have a pretty impressive track record on renewals. So we have some important renewals that we're currently in negotiation with but they're not in the numbers that I've referred to today. Second question was around the cash flow statement. It was stated the investment in boxes was higher. Do you expect that to unwind in second half of 2022? We do expect to move a number of the set-top boxes currently on the balance sheet in 2022. Next question, given the longer than expected sales cycle and complexity in costs required to get to implementation, are you confident the current pricing is sufficient to meet your return on invested capital targets? It's a great question. I think the pricing is, I would say our pricing is competitive at the moment. I think we have understood that lifetime value is really important with a SaaS model. So, getting in and building relationships can last. In some cases now, we've got relationships that date back 12, 13 years. I think that has given us a better understanding of the long-term value of the relationship. So we have been a little bit less aggressive on hardware pricing because we think it's important to win the business. And I think we feel we genuinely have the best value software product available in the market. We feel we have the best security posture in the market.

So I think our pricing is very competitive. Any more questions on there? Harmony, any more questions on the fountains?

Thank you. There are no further questions on the phones. I'll now hand back for closing remarks.

Terrific. Well, as usual, I'll just say that if anyone does have any follow-up questions, we'd be delighted to chat offline. Feel free to drop us an email. Thanks very much for your time this morning.

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