Earnings Call: H1 2021

Aug 29, 2021

would now like to hand the conference over to Mr. James Fitter, CEO. Please go ahead. Thanks, Lexi, and good morning to everyone in Australia. Good afternoon to those here in the States. I'm calling from our Chicago office. And with me on the line in Dublin, I have Helena D'Arcy, our Interim CFO and Niall O'Neill, our Chief Customer Officer, who will also be presenting today. So just a quick reminder on the legal disclaimers and just a reminder that we are reporting currencies in euros unless otherwise specified in this presentation. And this, of course, is our first half results as we are at calendar year end. So just a reminder of our mission and our vision, which is to power personalized exemplary care experiences. And never has our mission been more relevant than it has been in the last 18 months during a global pandemic. And of course, the pandemic has put extraordinary pressure on care teams. It's put obviously very challenging time for families who are unable in many cases to visit their loved ones. And I think it's really brought home the power of bedside technology and of course also really focused on our ability to drive workflow and operational efficiencies for nursing. So the agenda today, we're just going to look at obviously the first half in review, our second half strategy and vision, the financial results and key trends, talk a little bit about the ESG initiative we kicked off in the Q1 of this year, and of course, we'll conclude with the outlook for the second half of this year and into 2022. The first half has been transformational for the company in many ways. As those of you who know the company well, we've transitioned our Carexperience platform to the cloud, becoming the 1st company in our space to do so, and that was obviously an enormous undertaking and something I'll speak more about shortly. As part of that, as we obviously become custodians of private health information, we've dramatically improved our security posture across the company with ISO 27,001 in March and last month we completed our ISO 27,701 certification, which deals specifically with how we handle our customers' data and their private health information. We renewed our partnership with Epworth, which dates back to 2014. It's been a fantastic partnership, and we're really looking forward to moving them onto our next generation platform. As you'll know from our earlier announcement, we signed our 1st cloud customer in Australia, which was also our first success with the public sector in Victoria. And perhaps the most striking thing about this was that the time from contract signing in June to go live in July was 39 days, which by health care standards is incredibly fast. And again, I think revalidates one of the key drivers for our transition to cloud, which was to be able to sell faster, but also to implement faster. And obviously, that path of revenue is going to be incredibly important. Niall is going to give us an update today on the significant go to market partnerships that we've established with Samsung and with Caagility. And many of you will have seen on Friday, we announced a joint press release with Microsoft around transactable status in the Azure marketplace, which is also going to be incredibly important. And you'll hear from Niall exactly how that's going to work. And of course, the other thing that happened during the half year was a key customer testimonial from our friends at NYU Langone. And again, I don't think we can overstate the importance of referenceability in the healthcare industry. It's a massive industry, but everyone talks to each other. And again, we're incredibly proud of the partnership and just thrilled that NYU were so giving in sharing the value proposition of the work we're doing with them. So just a quick reminder of the 2 different product offerings we have in the cloud. So our first response when the pandemic initially hit in New York was to rapidly deploy something that didn't include the patient's context. So it was assigned to a specific room, didn't matter who the patient was in that room, but what it did is it provided an immediate ability for the care team to communicate with that patient, in this case through Cisco Jabber, but it could have been any number of telehealth solutions. It provided generic educational content to patients And importantly, it provided streaming content to again try and distract patients at the time they're obviously at their most vulnerable. The much bigger and bolder challenge for our engineering teams was to transition the entire product to the cloud, which is what we refer to as cloud enterprise. And this is where we are doing all of the work that we do in our on premise solution, which is to customize and personalize based on what we know about the patient in the room. So in this case, we obviously know their demographics, we know their primary language, we know their diagnosis. So it allows us to give a much richer experience for the customers. So just to keep that in mind, the Cloud Start product is the product that we have been bundling with Samsung Tablets in the United States. Cloud Enterprise is obviously much more sophisticated and requires different integration capabilities at the bedside. So let's talk a bit about market conditions. I think there's 2 real key themes here. The obvious one is that the pandemic has really helped to accelerate the demand for digital care. And you'll see throughout today's presentations, we've provided a few quotes around the speed of digital adoption, around the pace of cloud adoption. I think most of you are aware that the healthcare industry has been a late adopter to cloud. But out of necessity, that is really been ramped up in the last 12 months due to pressure on IT budgets and really in the need to be able to deploy without physically being on-site. So I think based on the conversations we're having with major health systems here in the United States and in Australia, it's very clear that the value proposition of bedside technology has been substantially rerated. We know from those conversations that we've moved up the priority list of capital projects, which has always been a challenge for us. I think many have described the product as nice to have product. I think it's very clear that we've crossed that chasm to more of a must have product. Having said that, we know that health systems continue to be preoccupied caring for their patients. I don't need to tell anyone in Australia around the acceleration of COVID there. And clearly, in the United States, we have some states that have seen very substantial deteriorations in recent weeks months. So hospital budgets do remain under pressure. They're being continually reviewed. We are hearing in our sales channel, we have a number of opportunities, one specific one in Texas, one in Australia, where hospital leaders said, just listen, we're absolutely committed to deploying the OneView platform. We'd like to get a better sense of what our new normal operating model looks like. So that may take some weeks months potentially to work through the system. So what we've been doing to try and help is, 1st of all, enabling virtual care at all of our existing customer locations where possible. I think we really ingratiated ourselves to a number of customers with our speed to respond, and I think they're all incredibly grateful that they had made the investment in bedside technology. Niall has done some fantastic work around enhancing the value proposition through partnership. It's very clear that people don't want 2 tablets at the bedside. So I think the steps we've made to transition to Android to an open and scalable platform, the investment we've made in security has been incredibly helpful for our partnership development. And most importantly, we've been continuing to do everything we can to lower the total cost of ownership for our customers. That began with the hardware strategy, which is about to pay dividends and has obviously been accentuated by the transition to cloud. Here's a couple of the quotes. I'd just point to the one on the right from KPMG that says in the next 2 years CEOs expect digital and other services to be their organization's top priority. The next 5 years 80% expect improving patient customer experience to be their top priority. So I think we feel very strongly like the next 5 years is going to be a very exciting time for the business. So let's talk a little bit about the numbers in detail. So we've seen improving trends in most but not all key metrics. We've seen 6% growth in our contracted beds year over year. And I should point out that includes the decommissioning of 300 beds in cans, which was the first and to date the only customer year we haven't been able to navigate. And that was really around just bad timing around the availability of our new Android devices. So adjusting for that, we would have been up around about 10% on a contract expansion in the midst of a pandemic. So I think credible. Recurring revenue is obviously disappointing. It's only edged up slightly and this reflects the short term impact of delayed deployments that were impacted primarily by hospital access, but also by the supply chain disruption to the coax set top box, which is currently being shipped as we speak. Security, scalability and hardware foundations are all in place to support accelerated growth, and we really feel like we've got strong operational leverage. We'll talk a bit more about that. We're projecting 100% revenue growth in the second half versus the first half based on work that's currently in progress and current project scheduling. So a pretty significant acceleration coming even notwithstanding market conditions with COVID. We've obviously been focused laser focused on cash burn, which has improved 61% year over year. Our operating expenses are down 9%, total revenues up 13%, and we've done some important work to strengthen the governance of the Board with Nishina Asaria joining the Board during the half. We now have 3 quarters of our non execs are active participants in the North American healthcare industry, which is incredibly impactful for our sales organization because we're able to leverage some of the fabulous relationships that those non execs have built up over many years. So just getting a little bit deeper into the numbers. As I mentioned, total revenue up 13%, annualized exiting recurring revenue of 5.6% based on the June number, continued focus on cost controls, reduced our operating expenses by 9%, improved EBITDA by 12%, and as I mentioned, significantly improved cash burn of $2,000,000 in the first half versus $5,100,000 in the previous corresponding period. So let's talk a bit about the operational drivers. We've had an extremely positive response to the cloud product launch in March. We're obviously only 1 quarter into that process. I'll talk a little bit more about that in a second. Very important to understand what we've been doing on the OEM hardware side. We now have completed the testing of all the new hardware, which comprises this coax set top box, which you can see on the top of the slide, and the social mobile all in one, which you can see on the bottom of the slide. These are very important and significant investments that we've made and we've incurred some degree of cost and a large amount of time from our engineering teams to ensure that this hardware is fit for purpose. We've just deployed these set top boxes to a number of customer sites. We'll talk about a couple of them in a second. And we've received the 1st shipment of Android All in Ones arrived in Melbourne last week. And this All in One is really important. It's healthcare grade certified for the healthcare industry, but it's also GMS certified. And it's the first time what's the largest tablet of its size that has been certified by Google and that is going to fill a very significant unmet need in the market. We've just been at the largest healthcare IT trade show in Vegas a few weeks ago and there wasn't a single hardware vendor that's offering a 22 inches Android device at this time. This is going to enable us to convert all of our remaining Windows devices, which are currently deployed in 5,000 beds, which is around about half of our estate. We're beginning that journey with 1400 being converted at Epworth in the second half of this year. The reason that's so important is that we currently have across our footprint around the world, we have 20 different Windows devices that are being deployed. What that means is every time we upgrade our software, we have to regression test against those different devices. Those devices are difficult and time consuming to manage in the wild. When we are managing our Android devices, we currently have the Samsung tablets, the Weetick boxes, the social mobile and ones. So it's going to give us huge operational efficiencies and drive a material improvement in our support in 2022. In addition to our ISO certification, we've also made a commitment to external pen testing to enhance our security posture and that's been extremely well received by customers. We've appointed a new marketing manager here in Chicago and enhanced our CRM capabilities and I'm going to share some details of what that's how that looks in a second. So what's this mean for the second half? Most importantly, we are in active conversations with our 3 largest U. S. Customers to migrate them to the cloud. 1 of them has already begun that journey. A second one, we have full workshop scheduled with another customer here in the Midwest this month to make sure we move them across. That's going to see us in addition with our 2 largest customers in Australia who both adopted cloud first strategies, it really validates the decision, the product decision we made to move to the cloud. The fact we've had such a euphoric response to our major customers is incredibly important. And unsurprisingly, it's going to really help our Microsoft partnership because we're going to be moving significant business to Azure in the second half of this year. As I mentioned, the delivery of the new Android hardware is going to allow us to sunset our Gen 2 Windows platform next year. We've already sat down and explained that to all of our Gen 2 customers and we have migration plans in place for all of them. That's obviously going to see us replace Windows hardware in over 5,000 beds next year. But most importantly, as I mentioned, it's going to dramatically lower our support costs and eliminate the need to support 2 different operating systems. As I pointed to earlier, we see a very significant acceleration in revenues and cash flows in the second half. We're reaffirming our previously issued revenue guidance of $10,400,000 And as part of that, we've recently added 6 staff to our U. S. Market, which is really consistent with the confidence we have in the U. S. Sales pipeline. And as you may have seen, a couple of weeks ago, we've announced the market previously that the mediation with Regis is scheduled for 16th September. We'll talk a little bit more about that in a second. So in terms of commercial activity, a couple of key indicators to share here. On the left hand side, we are in formal RFI or RFPs or pricing conversations with just under 10,000 hospital beds. This is a conservative number because we've excluded, for example, some high profile tenders in the Australian market that are a model that we think is outdated where they're asking customers to provide so they're asking vendors to provide hardware and charge patients in return for an entertainment experience. We just think that in this day and age, that model is broken. So we've excluded those numbers from the calculations here. But as you can see, compared to a full year 2020 of just under 5,000 beds, very material acceleration in formal pricing requests in the business. And the point I made earlier about referenceability and the impact of the NYU webinar, you can see the number of unique hospitals visiting our website in the 1st 8 months of the year. And most importantly, the fact that they are revisiting the website on a pretty consistent basis is a very strong lead indicator around our sales pipeline. A couple of key contracts executed. As I mentioned, Northern Health, which has begun the rollout there already and that will be finalized this month. We'll talk about Omaha in a second, which is our latest addition to the portfolio. And as I mentioned earlier, we're really proud and excited to extend the Epworth contract. So today is a big day. We've got a team of folks on the ground in Omaha, Nebraska, where we've today gone live in just under 300 new beds at Omaha Children's Hospital. And again, I hope these pictures give you a sense of the impact that technology has. So you'll see on the left hand side, the tablet that is controlling the television, they've gone with 55 inches televisions in the main across their enterprise. But you also notice on the bottom left that the pillow speaker, which is provided by the nurse call, is also enabled for patients. And this is more common in senior settings or adult hospitals where it gives the flexibility for the patient to navigate the one view experience on the television either by the pillow speaker or by the tablet at the bedside. And I've just got some inbound traffic from our project team to say it's been an extremely smooth go live and this is the first deployment of new WETEK hardware in the United States. So why don't I pass now to Niall, who's going to talk through a bit more on strategy and vision and where we're at with partnerships. Thanks, James. So I'm going to start with Samsung. So as James mentioned, we signed a distribution agreement with Samsung, SDSA America, and that's Samsung's business services and distribution subsidiary earlier in the year. And this agreement enables STSA to distribute a year subscription to Cloud Start along with a Samsung tablet under a single SKU to their reseller network. And really since then, our focus has been supporting the STSA team as they've worked with their reseller networks. So these would be large IT supply chain organizations in the U. S. Markets to enable them to contract cloud start with their customers. So this has entailed slowing down in terms and conditions. So our terms and conditions, our end user license agreements to their resellers, and that's required them to build those into their reseller agreements. And that's something that SBSA and their resellers will be working through over the first half of the year. So we meet frequently with the Samsung team and we're continually getting feedback from them and from their resellers. And one of the key pieces of feedback that we've got is that the resellers are anticipating more demand for cloud enterprise than for cloud start. And as James shared earlier, cloud enterprises are fully integrated, fully functional cloud offering. So for larger organizations, it means more integration into hospital systems, it means more value. And really what we're seeing is that resellers are looking at their markets and they're segmenting based on accounts that they think will be cloud start customers. So these would be smaller organizations, things like community hospitals. And then the larger enterprise accounts that they believe will acquire Cloud Enterprise. So we're currently working as a priority with Samsung and STSA and their resellers to extend the go to market model to enable channel sales of Cloud Enterprise. There's more complexity from a sales perspective with Cloud Enterprise just in terms of the pricing model and for Cloud Start. But we're working to find a model that will enable Cloud Enterprise to be sold through the channel. And then we continue to collaborate with the Samsung team on marketing initiatives. For example, we had co meetings at HIMSS, the trade show that James mentioned recently. And we're also working on a number of co marketing initiatives for the second half of the year. And then the other key go to market partnership is with Microsoft. So as James mentioned last week, we announced that our cloud enterprise product offering is now available in the Azure marketplace. And what this means is that customers, Microsoft customers can procure Cloud Enterprise from the Azure Marketplace. And this is an important development because it means that we're fully aligned with Microsoft's show sell programs. And with these programs, Microsoft account executives are incentivized by Microsoft and to refer leads to partners and also to help partners close deals. And for customers, it means that they can simplify procurement of the SaaS software by buying via Microsoft. So you can think about it as being a little bit like the Apple or App Store or the Google Play Store only for enterprise software. And for larger enterprise customers, it's also more economically advantageous for them to procure in this way because they're able to count cost of 1 new towards their overall Microsoft commitments. So this means they're getting greater leverage and better value across their broader Microsoft relationship. So we're currently working with the Microsoft teams in our target markets in the U. S. And Australia to raise awareness of the OneView solution and also to engage account executives to support our active sales pursuits. And when you really think about the market, I mean, almost all of our target customers will be Microsoft customers at some level. And so this gives us a real competitive advantage in terms of finding and closing sales opportunity. And so the last thing I want to talk about in terms of partnership is our smart room strategy. This is a strategy we've been working on for a while, but I think it's never been more prescient than now because of COVID, because of the way COVID has accelerated demand for technologies in the patient room. And this is really a multistep strategy for how the bedside technology platform can support care model innovation. And that's from the technology that we have available today, which is a step 1, to a future state, which is leveraging our special intelligence, which is step 3. And we're working with best of breed organizations, such as Cagility, our partner Cagility in the U. S. Market. They're a telehealth pure play company to deliver on this strategy. The premise of a bedside technology platform that is not single purpose, but is multipurpose. And that's really about providing our customers with the greatest value from that infrastructure investment in the bedside technology platform. The step 1 is the virtual care model that we're delivering today already at our customers, including NYU Langdon Health, and OU Health and Oklahoma, for example. And through this, we're connecting patients with their caregivers and their families and remote interpreters from bedside tablets in partnership with Caagility, with Cloudbreak to offer language services and with other third party solutions like Cisco's Jabber. With step 2, we're bringing those virtual care use cases to the OneView television. And this is all about not requiring additional hardware in the patient room to fulfill these virtual care use cases, not requiring a separate stack of hardware, but integrating it into the OneView platform by adding a camera and a microphone array that enables these use cases to be supported from the bedside technology platform. And because this audiovisual hardware is fixed, it's always there, it's always on, that enables new models of care. So for example, remote caregivers can support the nurses on the units. And this is really key because we're already seeing staff shortages, burnouts, nurse retention issues at U. S. Hospitals and beyond. And this is where we're going to get less as the pressure on the healthcare system grows. So using this technology enables new hybrid physical and virtual care models. This is very much an emerging space, but it's something that we're seeing interest from already from innovative healthcare systems. And this is very much an active focus for us and we're working together with Cargility to bring these use cases on to the television and the patient. Room. And then finally, with step 3, this is very much a future state, so this is probably a couple of years out. But in step 3, we add sensors and artificial intelligence that enable continuous autonomous monitoring of the patient room. And so some of the specific use cases of this would be for things like fall prevention, bedsore avoidance, reducing the number of adverse events that negatively impact patient outcomes, patient experience and ultimately hospital bottom lines. And so just moving on to the next slide. This is just a quote from some research that Accenture did recently. It will just give you a sense of how healthcare executives are thinking about innovation, about digital transformation. This was a survey conducted this year of nearly 400 healthcare executives across six countries. And over 80% said the pace of digital transformation is accelerating and 93% said their organizations were innovating with urgency. And these are clearly trends that are personal for us and for our digital health, their website platform. And now I'm going to hand over to Helena, our Interim CFO, to take us through our financial results for the half year. Thank you, Niall. This first slide just shows our cap table and ownership structure. Diving further into the figures, we present our income statement for the first half of twenty twenty one. Total revenue for the 1st 6 months of 2021 was CHF 3,400,000, dollars up 13% on the prior year comparative period. The growth in recurring revenue has been hindered by a lack of access to hospitals due to the COVID pandemic and also some supply chain disruptions. However, we do expect recurring revenue to increase in the second half of the year as we have several large projects which are now well underway and will go live in the second half of the year. Gross profit has decreased by 4% due to a higher proportion of non recurring revenue, particularly hardware sales which carry lower margins. Operating expenses excluding restructuring expenses reduced by 9% over the prior year. The one expense category booking the trend here is D and O and PI insurance premiums, which are impacting businesses across the board. The operating EBITDA loss for the period is €3,500,000 a reduction of €500,000 on the corresponding period in 2020. And the result of all these factors is that our net loss after tax has reduced to €4,400,000 down from 5.6 £1,000,000 in the first half of last year. Turning now to the balance sheet. The company had cash balances of £5,000,000 at the end of June. This includes a strategic investment of AUD1 1,000,000 Moving now to cash flows. Total operating cash flows of £2,000,000 were 61% lower than the £5,100,000 figure for the corresponding period last year. This was driven by receipts from customers of £4,800,000 up from £3,000,000 last year, whilst payments to suppliers and staff were £6,700,000 down from £8,000,000 in the prior year. This reduced cash burn level reflects the impact of last year's cost restructuring. I'll now hand back to James to update on Regis. Thanks, Selena. So just a reminder, the Regis case is scheduled for mediation on the 16th September. Our litigator had advised us that the commercial court in Victoria has a strong preference for mediation. So this was exactly the result that he was anticipating. So we're looking forward to that conversation in 2 weeks' time. Just turning to ESG, we began initiative in the Q1 of this year to address environmental, social and governance practices. I think it's really important for us as a company. I think our mission is very clearly aligned with doing well. Our technology has a massive impact. It's a terrible cliche to say that your technology makes a difference to people's lives, but I can tell you from the go live at Omaha today, already we've had 3 Spanish speaking families expressing their gratitude for being able to use the virtual interpretation services available on the OneView platform. I think everyone who works at OneView is motivated by our mission. It's been an incredibly powerful tool to attract talent and to retain talent. And I think we're very proud of the commitment we've made. Our purpose statement really speaks to that. It's available on our website and a copy here in the presentation for those of you who are not familiar with it. And perhaps more importantly, we've engaged with an outside consultant to monitor our progress against the World Economic Forum's standards. This is our 2nd quarter update, which again is also available on our website. But we've also produced, for example, a report looking at our key ESG metrics, we're providing information around our gender balance, our gender pay, diversity, and we're very proud of the progress we've made on that. We've obviously also addressed agenda diversity on the board with Narsheena's appointments, which we're delighted with. We haven't obviously, as far as the planet's concerned, we don't have a massive footprint on that account, which is why you don't see too much progress in that category. But we're very pleased with the progress we've made, and we'll continue to invest in this as we move forward. So turning to the outlook for the second half. As I mentioned, our full year revenue guidance is on track, notwithstanding fairly significant disparity in the first half and the second half. The key drivers are around our go to market strategy, which is building momentum. The progress we're making with Microsoft is very, very important. As Niall mentioned, there's barely a customer that we're targeting that's not a Microsoft partner in the United States. Virtual models of care are a reality now for health care systems, both in the United States and in Australia. We now have the ability to deliver on the long promised expansion opportunities with existing customers, and we have some very exciting conversations going on around the new Android hardware. From a risk point of view, we know hospital budgets are under pressure, and we know there's the risk of further worsening of COVID in our key markets. But certainly, we feel as though there's an exciting second half coming. In conclusion, we've had new technology leadership for just under 2 years now with Declan, our Chief Technology Officer, Declan Bright and JP Howe, our Director of Engineering and Operations. They've really transformed the company during the COVID year. So I think we've really capitalized on the fact that customers have been pulling back from purchasing, but it's given us an opportunity to reaccelerate our security posture, deliver cloud and all whilst utilizing a much lower cost structure. So we've got the foundations in place to accelerate new feature development now. We've signed and are working on these important go to market partnerships, and we see that as a great way to accelerate our growth as we come out of the pandemic. So that's the end of my formal remarks. And as always, we'll be delighted to take any questions. It appears we are showing no questions today. I'll hand the conference back to Mr. Fitter for closing remarks. Thanks, Lexi. It is early on Monday morning. So if anyone feels like asking a question after their coffee, you know where to find us. But thanks again for your time this morning and thanks for your support. That does conclude our conference for today. Thank you for participating. You may now disconnect.