ONE is moving into the growth stage having proven out its tech products in a hard to enter sector (hospitals).
Opened: 13-Jan-2022
Closed: 22-Sep-2023
Shares Held at Open: 8,525,000
Shares Held at Close: 8,818,333
Reason Memo Closed: Sales Objective Acheived
What does ONE do?
Oneview Healthcare (ASX:ONE) is a health tech company that provides hospital patients a “virtual care and digital control centre” at their bedside. ONE’s products are cloud-hosted patient dashboards that help make hospitals more efficient and patients more engaged in their own care.
What is the macro theme?
The pandemic has rapidly accelerated the trend towards healthcare modernisation, and we believe any product or service that brings efficiency to healthcare systems will be highly sought after. As big tech companies like Google, Amazon and Microsoft look to enter the health tech space, companies with an early-mover advantage should thrive or become takeover targets in their own right.
[Memo Assessment - 22-Sep-2023]: Sentiment = Strong
We saw ONE develop an incredibly strong sales pipeline as a result of the pandemic as evidenced by its large number of RFP/RFIs which it is now in the process of converting into sales. We see this sales pipeline as indicative of the strength of the macro theme.
In addition, this sales pipeline grew as a result of nurse shortages in the US during the pandemic, which led hospitals to seek new ways of improving efficiency through the adoption of tech like ONE’s offering.
Our Big Bet for ONE
ONE will sign on enough new hospital beds at an accelerating rate to achieve a $1Bn valuation (based on 5x to 10x forward ARR multiple) and be acquired by a large health tech provider.
Why did we invest in ONE?
Proven tech, liked by customers
ONE is moving into the growth stage having proven out its tech products in a hard to enter sector (hospitals).
[Memo Assessment - 22-Sep-2023]: Grade = A
We see the Baxter International deal as evidence that ONE is firmly in the growth stage and has the big brother it needs to rapidly expand.The fact that the largest hospital bed supplier in the US wants to sell ONE’s products to its customers validates ONE’s value proposition.
$20M capital injection to fund rapid growth
ONE completed a capital raise late in 2021 and with a war chest to fund its growth we look forward to ONE becoming cash flow positive and quickly increasing the number of contracted beds it has in the US.
[Memo Assessment - 22-Sep-2023]: Grade = A
ONE secured $20M in a placement at ~27 cents. This placement caused minimal dilution to existing shareholders and funded the company’s growth through a rough bear market for small caps tech stocks.
Under promise, over deliver
ONE’s management team has delivered everything they said they would since we invested, so we are confident they will hit their revenue projections and US market share objectives in 2022.
[Memo Assessment - 22-Sep-2023]: Grade = A
ONE introduced its Bring Your Own Device (“BYOD”) solution over the course of this Investment Memo which was a major positive surprise. ONE did very well at delivering in this regard.
What do we expect ONE to deliver?
Objective #1: Fast revenue growth and contracted beds in excess of 15,000
For ONE, ‘contracted beds’ is like an ‘active user’ metric for a tech company. We think this will be the basis for judging ONE’s success in 2022. More contracted beds = more revenue. We want to see ONE hit a total of 15,000 in 2022, primarily out of the USA.
[Memo Assessment - 22-Sep-2023]: Grade = A
While ONE took an extra quarter to deliver on this metric, we think it made significant progress in the US market and is now primed for more growth via the Baxter International value added reseller agreement.
Objective #2: Increased sales/marketing spend leading to more deals with major hospital networks
ONE now has a proven tech product that is valued by its clients. As of this memo, ONE spent less than 10% of its receipts from customers on advertising and marketing - if its to quickly accelerate contracted beds (revenue), we think upping spend in this area is crucial.
[Memo Assessment - 22-Sep-2023]: Grade = A
While following the 2022 $20M capital raise ONE did increase sales/marketing spend which played a big role in driving its sales pipeline, ONE had to subsequently reign in its sales/marketing spend as the 2022 tech wreck played out on the markets.
Although this wasn’t exactly what we wanted to see when we wrote our Investment Memo, we think that the pivot was a prudent move given the market conditions.
That is why we gave them an A for this Objective.
Objective #3: More sales through Microsoft and Samsung partnerships
As Samsung tablets are the device which works with the ONE product - Samsung sales reps should be incentivised to push ONE’s product. Likewise, since Microsoft’s Azure Marketplace is the cloud platform that ONE has opted to work with, we would like to see sales growth through this channel.
[Memo Assessment - 22-Sep-2023]: Grade = C
It does not appear that partnerships delivered significant value for ONE (yet), but could still prove valuable in the future. We have now added “Distribution Risk” to our next memo to highlight some of the challenges of leveraging a third party to drive sales for the company.
Objective #4: Material contribution to revenue from upsells to older coaxial wired hospitals wings
ONE is now providing “coaxial set-top boxes” which allow older hospital rooms that are wired up using legacy coaxial cables to use ONE (where previously they couldn’t) - we we want to see a wave of sign-ons of older hospital rooms that previously couldn’t use ONE, enough to materially impact topline revenue.
[Memo Assessment - 22-Sep-2023]: Grade = A
These coax setups helped ONE secure additional business and revenue over the course of this IM and will continue to help ONE get its platform into more hospitals.
What could go wrong?
Sales risk
Despite a strong customer retention rate and the endorsement of the product by prestigious hospitals, ONE could lose key clients or not seal as many deals in the coming 12 months, hurting their revenue and share price.
[Memo Assessment - 22-Sep-2023]: Risk = Decreased
ONE’s deal with Baxter International has potentially decreased sales risk as ONE now has a clear avenue to significant market penetration and will potentially have to do less leg work with Baxter helping drive sales.
Competition risk
ONE has an early mover advantage, but it is not alone in the space it operates in. We think ONE has a really powerful product that should be helped by its traction at some of the most prestigious hospitals in the US. That being said, a big tech company could launch a competitor product.
[Memo Assessment - 22-Sep-2023]: Risk = Decreased
ONE continued to develop its product “moat” by investing in new innovations and technologies that will reduce risk from other competitors in the market - in particular the launch of its BYOD solution.
Since this memo ONE has entered at least 5 new hospitals.
Given how slow hospitals are to adopt new technologies, each new hospital partner reduces the competition risk for ONE.
Funding risk
Although ONE raised $20M in November 2021, growth companies need cash to achieve their goals. If ONE doesn’t use the money from this raise wisely, then share price pain could follow. This was ONE’s third capital raise since it listed in 2016.
[Memo Assessment - 22-Sep-2023]: Risk = Decreased
ONE completed another $20M placement in July and an oversubscribed SPP at 18c. We see this as providing a great runway for the company as it approaches operating cash flow positive status.
Technology risk
ONE will need to add functionality to its products over time as the health tech industry advances. ONE has flagged that a range of additional features are in the pipeline, and the successful roll out of these features could help it reduce this particular risk as hospitals become more advanced.
[Memo Assessment - 22-Sep-2023]: Risk = Decreased
ONE is rapidly improving its offering, not least of which is its BYOD solution. We also believe ONE will be able to take advantage of AI more in the future to build out its offering and extend the capabilities of what is already a highly valuable product. AI could mean more features and less overheads on product development.
What is our investment plan?
We have invested in ONE twice since we announced it as our Tech Pick of the Year for 2021 in March last year.
The first time at 6 cents and the second time in the recent cap raise at 27 cents.
ONE experienced a significant share price re-rate during 2021 after it announced several new contracts and the health tech sector became hot. As per our usual investment plan we partially de-risked our position selling 22.37% of our total holding, achieving a partial free carry.
We plan to hold a position in ONE for the next 3-5 years (and beyond) as it progresses its plan to gain significant market penetration in the lucrative US healthcare market, and may look to take some profit by selling up to ~17% of our holding if the company successfully delivers on the key objectives listed above and the share price hopefully re-rates again.
[Memo Assessment - 22-Sep-2023]: Grade = A
During the memo we sold around ~15% of our Total Holdings, in line with what we planned. We also increased our Investment at the 18c placement price.
Disclosure: The authors of this memo and owners of Next Investors, S3 Consortium Pty Ltd, and associated entities, own 8,525,000 ONE shares at the time of writing. S3 Consortium Pty Ltd has been engaged by ONE to share our commentary on the progress of our investment in ONE over time.
Opened: 22-Sep-2023
Shares Held at Open: 8,818,333
What does ONE do?
Oneview Healthcare (ASX:ONE) is a health tech company that provides hospital patients a “virtual care and digital control centre” at their bedside.
ONE’s products are cloud-hosted patient dashboards that help make hospitals more efficient and patients more engaged in their own care.
What is the macro theme?
Nursing shortages brought on by the pandemic highlighted the systemic issues in healthcare systems. The trend now is for these institutions to modernise by adopting new healthcare technology.
Big tech companies like Google, Amazon and Microsoft are looking to enter the health tech space and companies with an early-mover advantage should thrive or become takeover targets in their own right.
Our Big Bet for ONE
ONE will sign on enough new hospital beds at an accelerating rate to achieve a $1Bn valuation (based on 5x to 10x forward ARR multiple) and be acquired by a large health tech provider.
Why did we invest in ONE?
Proven tech, liked by customers
ONE is moving into the growth stage having proven out its tech products in a hard to enter sector (hospitals). Customers are sticky and sign long term contracts.
Value Added Reseller agreement with largest hospital bed supplier in US
ONE now has an initial 2 year “value added reseller agreement” with the largest hospital bed supplier in the US (Baxter International).
Under the agreement, Baxter will sell ONE’s technology to certain customers in Baxters’ current customer base (~75% of the US hospital bed market). Given the market reach of Baxter, this agreement could unlock significant growth in contracted beds for ONE.
Well funded to grow further
ONE completed a $20M placement in July 2023 that should provide the company with the funds it needs to become a sustainable operating cashflow positive business and further penetrate the US healthcare market.
Potential faster growth from “bring your own device” (“BYOD”) solution
ONE is developing a platform for patients to use their own phone or tablet.
This upgrade in ONE’s tech could remove the hardware costs associated with setting up ONE in a hospital potentially increasing ONE’s margins, reducing how long it takes for ONE to close a deal - and most importantly, helping hospitals more rapidly improve the patient experience.
Nursing shortages driving demand for healthcare solutions
Since the pandemic nursing shortages in Australia and the US have worsened.
These shortages put pressure on healthcare systems which causes more stress and ‘burnout’ for existing nurses.
Due to these issues, hospitals are now looking for technology to better improve their healthcare service and reduce the burden on nursing staff.
Although hospitals are notorious technology laggards, we think that the nursing crisis will be the impetus that drives change in these institutions and improves the healthcare system overall.
What do we expect ONE to deliver?
Objective #1: Repeat sales success and hit 25,000 beds
For ONE, ‘contracted beds’ is like an ‘active user’ metric for a tech company. We think this is the basis for judging ONE’s success.
More contracted beds = more revenue.
Building on ONE’s previous 15,000 bed achievement, we want to see ONE hit a total of 25,000 in CY2024, primarily out of the USA.
ONE is projecting growth of 20-25% across this metric in FY23 excluding the potential beds from the Baxter agreement and BYOD solution.
Objective #2: More deals with major hospital networks through Baxter agreement
We want to see ONE sign more deals with more hospitals.
Given Baxter’s large share of the US hospital bed market - we think Baxter is the ideal partner for ONE to achieve this goal.
Baxter can introduce ONE’s products to major US hospital networks that already have Baxter’s products.
The Baxter value added reseller agreement has started and the market launch is expected in Q3 CY2023, and we are hoping to see sales traction from this agreement in Q1 CY2024.
Objective #3: More progress on BYOD solution
With sales and marketing activities already commenced for the BYOD solution, we expect the product to become available in Q1 CY2024.
This includes the launch of the product through a pilot program in the US with an existing US hospital customer - NYU Langone.
If the pilot program is agreed and is successful, we’d want to see ONE expand the program to eventually capture a large potential market in the US and other key markets.
What could go wrong?
Sales risk
Despite a strong customer retention rate and the endorsement of the product by prestigious hospitals, ONE could lose key clients or not seal as many deals, hurting their revenue and share price.
Large institutions like hospitals don’t tend to adopt new technology very often and the sales cycle can be long. This feature of ONE’s customer base can cause delays in sales that drag out over a long time,
Marco factors in the market including a recession can cause a reduction in spending on new technology, affecting ONE’s ability to make sales.
Distribution partner risk
A key part of ONE’s strategy is to sell its products through a distribution partner like Baxter, Microsoft or Samsung.
Although ONE has a strong relationship with these companies, if they move slowly - or don’t prioritise ONE’s products when making a sale - then it could reduce the sales outcomes for ONE.
Funding risk
Although ONE raised $20M in July 2023, growth companies need cash to achieve their goals. If ONE doesn’t use the money from this raise wisely, then share price pain could follow. This was ONE’s fourth capital raise since it listed in 2016.
Technology risk
ONE will need to add functionality to its products over time as the health tech industry advances. The BYOD rollout may not go as planned.
Also, ONE has flagged that a range of additional features are in the pipeline, and the successful roll out of these features could help it reduce this particular risk as hospitals become more advanced.
Market risk
Tech stocks could fall in value again. Even if ONE does everything right from an operational standpoint, the market could always sell off or favour different sectors.
What is our investment plan?
We plan to hold a position in ONE for the next 3-5 years (and beyond) as it progresses its plan to gain significant market penetration in the lucrative US healthcare market, and (as always) may look to take some profit by selling up to ~20% of our holding if the company successfully delivers on the key objectives listed above and the share price hopefully re-rates again.
Disclosure: Disclosure: S3 Consortium Pty Ltd (The Company) and Associated Entities own 8,818,333 ONE shares at the time of publishing this memo. The Company has been engaged by ONE to share our commentary on the progress of our Investment in ONE over time.
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Feb 28, 2024 |
11 min
The market looks like it is rewarding the progress ONE made in 2023 laying the groundwork for a jump in growth during 2024.
Baxter is Coming… and so is BYOD.
Jan 11, 2024
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10 min
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Jun 19, 2023 |
11 min
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Apr 28, 2023
Apr 28, 2023 |
7 min
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1 min
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