Pro Medicus Limited (PME) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Pro Medicus PME Full Year Results Conference. [Operator Instructions] I would now like to hand the conference over to Dr. Sam Hupert, Chief Executive Officer. Please go ahead.

Thank you. Good morning, everybody, and thanks for joining us. I'll quickly go through the presentation and then, by all means, feel free to ask some questions after that. As most people know, we are a health care IT company specializing in enterprise imaging. We focus in 3 jurisdictions, Melbourne, Berlin and our office in the U.S. in San Diego, and the bulk of our staff are technical or software engineers, over half of them. We have 2 product sets: Visage RIS, which was our first product, largely sold here in Australia. It does all the practice management, billing, accounting scheduling for some of the largest groups in the country. And Visage 7, which is what we sell globally. It is product we sell into the U.S. It is a product that radiologists use to call up images, enhance and manipulate them and make a diagnosis, and it's a clinical product. In terms of our results, this -- the full year, we thought that all of our key metrics are headed in the right direction. The revenue was up, even despite COVID, about 23.9% if you take out the one-off capital sale that we had in Europe in FY '19, which we had discussed in previous half and previous year. Profit after tax up 20% but underlying profit pretax, up 33.4%, which we thought was a good metric. Another key number for us, particularly in these times was our cash reserves, which improved by over 34%. We remain debt free. Our margins continue to grow, even though they were previously above 50%, and so we've paid a full year -- the full year dividends at $0.12 a share, $0.065 and $0.06 for the second half, making an increase of about 14.3%. So again, we were pretty pleased the way all the key metrics worked. In terms of the year in review, back in July, we did announce that we had completed Partners HealthCare, which is now called Mass General Brigham, in record time, about 6 weeks in 3 to 4 tranches. We did contract with Ohio state, which we have just recently put in, and I'll get on to that. We announced a contract in December with Nines. We also started our first cloud-based clients where we believe there will be a lot of future upside for us. And then in June, we signed one of our biggest contracts to date, certainly on a per year basis, with Northwestern Medicine. And our pipeline, which I'll talk about a little later, continues to go strongly. So some good implementations, 3 good but different sales. And importantly, the pipeline for the future remains strong. In terms of the revenue split, those that have been following us would have seen this graph year-on-year. Again, the interesting part of the salmon pink color at the bottom, which is recurring transaction revenue, which grew strongly. And the blue part is some of our support contracts year-on-year plus some other recurring income. So pretty much every division grew relatively strongly during the year, and we are very pleased with that because, particularly the pink and blue sections form the base for next year upon which various contracts that came on during this year, and those will be coming on in FY '21 will also layer on top of this. The operational model, we think it has proven it's working very well. It is delivered as software as a service, whether the software is hosted on their own networks or in the cloud. We now use it for the risk contracts in Australia, and that was Helios contract. Our forward revenues increased with Northwest and some others to approximate -- to over $210 million over 5 years. So the last time we reported this, it was at about $195 million, so it continues to grow. And I think the important thing is the annuity-style revenue gives us greater predictability going forward. The exam rate revenue grew despite a dent because of COVID in late March, early April, that I'll get to in a minute. It still grew by 31% year-on-year. We do expect that growth to continue because we'll have full year contributions from Duke and also for Mass General Brigham, which was about 11 months. Duke went live in February this year, so only 4 months. And then we'll have OSU, which has now gone live and Northwestern and others contributing to 2021. So we know it will be strong -- all things being equal, it will be stronger than 2020. And we are seeing some growth from existing clients, and there have been some smaller M&A where clients have bought adjacent hospitals and things that will add to that growth. And we also believe that there will be adoption of some of the new products, particularly the open archive and enterprise imaging that will help. Professional services, that as people who follow us know, this is all our training and implementation. We do charge for that. It is now recurring in nature because of the accounting standards that changed the last financial year. They are -- contribute to roughly 10% of the value of the contract depending on each contract. But certainly, it will decrease as a total percentage of revenue as exam revenue continues to outstrip it in growth but still material for us. And as I said, it varies from client to client but roughly about 10%. So we believe the business has good operating leverage. We have no CapEx in that we don't sell hardware per se. All of our training and installation that charges professional services, we believe we have a very highly contained cost base. And our margins continue to grow as our footprint increases, and I think, as I said, even with recent events, the margins are now at about 52.5% in terms of EBIT margins. We often get asked what was the impact of COVID, and we look at it through 2 prisms. One is operationally. First of all, we were able to transition 100% of our global team to work from home in mid-March, and that's pretty much how the company still works. We are able to operate at 100% capacity, so there was no diminution of services and importantly, our sales and marketing efforts continued throughout. We did sign the Northwestern deal pretty much in the thick of things in the beginning of June, and I think it sort of validates that. And the other thing we're finding is the thinness of our technology, the ability to demonstrate it remotely at high resolution has really helped us, and we've done a number of very large-scale remote demonstrations, which previously would have been done over multiple days on site, it's now being done remotely. So we have seen some new opportunities come in into our pipeline even during the COVID period. In terms of the impact of numbers, I think through most health organizations deferred elective procedures, including imaging in late March and early April as they were trying to repurpose a lot of the hospital -- a lot of hospital facilities for the anticipated deluge of COVID patients. Clearly, some regions were affected more than others. And then the worst affected regions, volumes declined rapidly by over 75%. But thankfully, the recovery was steady and started in the second half of April. We now have most of our clients globally, what we call normal volumes that is greater than 90%, some back at 100%, and in some certain modalities like breast imaging, which was highly discretionary in terms of screening, it went down the most and in some cases now is back over 100%. So some of the catch-up or expectation of catch-up, which is the deferred examination still need to be done. The vast majority of them won't be canceled, they'll just be rescheduled. And we're starting to see that flowing through breast imaging a good case in point. In terms of the products, quickly going through it, the Visage RIS. We have released the major updates during the year. Importantly, our 2 main contracts here in Australia with I-MED and Helios have progressed well in terms of the rollout. Helios is now nearing completion. And the upside by organic and M&A growth through I-MED, we're starting to see some of that coming through. So we've regained our position as the undisputed market leader. In terms of Visage 7, we continue to be the #1 in the 3 key areas: speed, functionality and scalability. We don't see any technology in the market that has been able to rival ours in these key areas. We're seeing the key drivers of data -- asset data set explosion continue. If anything, it's getting more acute, particularly in areas such as breast imaging, where files can routinely be between 6 and 10 gigabytes a study. And that is causing the more traditional systems to crack under the data load. So legacy technologies effectively not much has changed for them in about 15 or 16 years. They take a file, compress it and send it to a workstation where they uncompress it and then manipulate it on that workstation. Our technology is very different. We don't do that. We don't send it. We take it and in the, what we call the back end server in near real time, do the manipulation enhancements, 3D modeling and then stream the pixels. And so we're much better suited to the large data sets that are now becoming more the norm than previously was the case and hence, huge differentiation in how the technology actually works. In terms of the contracts, Ohio State, a $9 million over 5 years. It is the transaction model that we use in the U.S. Ohio is a regional center, but it also has a teaching hospital and I think it's the first of our sites to go 100% -- to live 100% remotely, which was completed at the beginning of this month, and it proves that we do have the technology and the capability to bring a large sophisticated client live without any on-site presence if need be. So for the time being, most of our future implementations will be 100% remote, clearly, until things change with COVID. Nines, we announced, again, $6 million deal. It is a start-up, so we expect volumes to step up. It went live, again, earlier this month, and it was trying -- Nines is important because they're leveraging AI to provide a teleradiology experience and using Visage 7 as a platform inside Google Cloud. So it opens up a whole new remote reading AI, AI implemented and supplemented platform that we think will win some share of the market as it goes forward. And then finally, the last one we did, which was Northwestern, again, transaction-based model. I think the thing with Northwestern, it's just been voted in the top 10 hospitals in North America. It has a very well-respected medical school, so all the trainees there will be exposed to Visage as they graduate and come out into the broader medical community. It does add to our growing base of Tier 1 institutions using our product. And that implementation is scheduled for early Q3 and FY '21. Again, one thing to sell it, another thing to put it in, we're able to fast track our implementations. And as I mentioned, OSU now being the first 100% remote implementation. So they are all continuing. We are also, and have just recently gone live at some of the sites for Mass Gen Brigham Phase II. So all of our implementations are still proceeding despite COVID restrictions. One thing we have always been known as arguably the most expensive, but we believe we deliver the best return on investment. Again, I won't go through all the areas, but they are a mix of financial and clinical, so it's very important that not only does it make the radiologists more efficient, but they have to be equally, if not, more accurate. And I think the next slide shows an interesting set of things on social media, where the radiologists at the top on the left is talking about differentiating a renal catheter or catheter inside a tube [ at the polar ] ACE, [ tying in it ]. One of the radiologists that uses Visage, Eric Pepin, wrote back that on some PACS, you can do a curved reformat, which is quite a sophisticated 3D process. You can do it in Visage in a click of a button. And whereas others, it's possible to do. You'd have to use another specialized workstation product or go to another workstation to do it, and I think this highlights the fact that we can do a lot of things pretty much at click a button that most other products can't, so again, a good example of the clinical ROI of the product. Just quickly going through the growth strategy. As we've said before, it's multipronged, expanding our footprint. So we had 3 new clients in the year, and we're hoping to bring more on this coming year. Transaction growth from existing clients, again, pre-COVID that was occurring, and we see it coming back now. And we're also looking at some of the new products that we've been able to bring to market, particularly enterprise imaging, the open archive and the worklist, which I'll get to in a minute. We have made commentary around the pipeline. It has continued to grow. Clearly, Northwestern was in there when we -- before we announced it and -- but there are numerous others that have been in the pipeline for a while and have all been progressing even through the COVID lockdown. And pleasingly, even through COVID, we've had a number of new opportunities come into the pipeline. So it has grown not just in terms of the quantity but also quality. And some of those opportunities are looking at more than one Visage product and some are looking at cloud. So there's a very good mix of opportunities in the pipeline across multiple segments, multiple products. We did talk about Visage Open Archive. We do think we'll see more of this in the coming year, more sales of this in the coming year. And as I mentioned, there are some of the opportunities that we'll be looking at fewer and archived together as one package from the get-go. The enterprise imaging, we have made some more progress with some more proofs of concept, and we have responded to a number -- a small number but beginning number of RFPs specifically put out for departments outside radiology, so that we find that, that will be promising. And then we mentioned worklist, which is the third component. We've only recently bought that out into the U.S. It allows us to offer a single vendor solution if people require it. And there has been some keen interest in it even at this early stage. And then cloud, we -- Visage just quickly finish off, highly optimized for cloud. It's the same ultrafast performance. It's the same product. It just means groups don't need to build out their own infrastructure. And from an implementation point of view, we can actually spin up an instance in the cloud within 24, 48 hours, whereas a typical hardware purchase cycle for a larger health system is somewhere between 3 and 4 months. So we will -- we believe we will see more and more people up cloud as it becomes more mainstream. But again, if they prefer on-premise, that's not an issue for us. We can do either of them just as easily. And finally, the AI Accelerator, we have had some good progress over the last 12 months. We think it is a unique offering, particularly for our more academic clients because it does allow them to do some of their research based on the Visage platform, which has been so important for them. We are seeing that the whole AI market is still in evolution. It's still trying -- people -- there are number of avenues, and we have product that we think will suit multiple avenues, including third-party and Visage-developed algorithms. And clearly, with our academic clients, the opportunity for commercialization and joint development is something that we are pursuing because we think that, that will help us. We have a leadership team, Malte and Detlev, the 2 co-founders of the Visage platform, Head of the AI Research. They're both PhDs, both researchers in terms of what they did back in their studying days. And we have a clinical research manager, MingDe Lin, based out of Yale in North America, but he will then have work to do outside Yale and with all the -- with the other institutions that we're doing research with. Finally, we have a breast density AI algorithm that has now gone in FDA approval. We're just in the process and waiting to hear the net result of that. If we -- assuming we do get FDA approval, and there's no reason to believe we won't, we will be commercializing that product and putting it out to market sometime in this financial year. So finally, we thought it was a good year all in all. Our footprint in America continued to grow the transaction revenue 31% year-on-year despite some of the headwinds of COVID at the end of March, early April. We still believe our technology is well ahead of the rest of the market. We believe we have an unparalleled value proposition. Our pipeline continues to grow, and we are strategically positioning Visage AI Accelerator to leverage the AI market as it becomes mainstream. And thank you.

[Operator Instructions] The first phone question today comes from Garry Sherriff from RBC.

First one, just FX on revenue growth. Can you quantify what the impact was, I guess, sequentially and also year-on-year, please?

Gains and losses through the year, the loss we had for the year was mainly based on the U.S. dollar pretty much being at the same rate it was this time last year. So 30th of June 2019, and our cash reserves. In terms of revenue, there was some year-on-year growth in that regard, but it's only maximized by the month-to-month amount of the U.S. dollar rate. So I can come back to you to quantify that because I don't have that on hand at the moment.

No trouble. The deferral of elective exams due to COVID that you mentioned, the $1.2 million NPAT impact, I just wanted to clarify what the sales impact was. And also wanted to confirm, is this just for a portion of exams over and above the guaranteed minimums? Because you guys do have contracting structures, which have guaranteed minimums. So I just wanted to confirm that impact is, I guess, over and above the guaranteed minimums. Are you still getting your guaranteed minimum payments? It was really that hit is the amounts over and above your guaranteed minimums.

Correct. Correct. The trading volume's before COVID hit. So as you know, a lot of our clients have been implemented for many years, so we have a lot of baseline of what their quarterly numbers are. The revenue hit, that was around $2 million, $2.5 million. Clearly, there were some operating expenses to offset that, and the $1.2 million is an after-tax figure. So there's obviously a tax implications there, but that's how we arrive that figure from the implementation.

Contract renewals, I know there's a few coming up over the next 12 months. Can we maybe just get an update on those core renewals? To your knowledge, are any of those contracts out for tender? And if there's any sense on potential pricing upside that you can talk to, that would be nice.

Yes, I could answer that. No, none are out for tender. Certainly in some areas, and one of the key ones was in California with -- because they've been -- they were one of the hardest hit with COVID and still are, more so than even the East Coast. Those discussions are ongoing but had taken a bit of a backseat. And so we're extending them. But they're all ongoing. None have gone out to tender. And yes, as we've said before, we are looking at some price recalibration simply because the price per transaction that we now charge is significantly more than it was 5 or 6 years ago. But yes, discussions are all ongoing.

The next phone question comes from Josh Kannourakis from UBS.

Sam and Clayton, just a couple of quick questions for me. You mentioned around some of the organic and M&A growth within the exam volumes. So I was just wondering just in terms of the start of the year, if you could talk a little bit more in terms of the trends potentially around those deferred exam volumes that you may have lost in the second half? And just maybe if you could give a little bit more clarity around maybe specific areas where you're seeing some of that organic and M&A-driven growth in your existing clients?

Yes. Well, some of it we knew -- so the clients will tell us 6 to 8 months, sometimes a year out that they've acquired a regional hospital in the area, and it's going live in a year. So we know some of that's coming down the pipe. And clearly, if it was meant to be put in around COVID for a lot of people, it wasn't even us that held them back, but they were so -- they were so consumed with repurposing and worrying about that they'll use it, some of those got pushed out, but not by much. They're all back on deck. And look, in terms of the work that was deferred, I think one of the best examples is breast screening. That was the area that got hit the hardest, went down the most. And as we look at it now, some areas are over 100%. The 100% was clearly -- the numbers pre-COVID averaged over 6 months. And so they've gone above that. So clearly, they're playing -- they're already doing some of that catch-up. Exactly how quickly that occurs will really depend in certain regions like California may be slower, but on the East Coast, it's pretty much business back to usual. So we do anticipate getting some of that deferred work within the first half of this year. Now clearly, all of that's predicated on not having a massive second wave and everybody having to stay at home. But clearly, we're starting to see those trends, and we're starting to see them emerge not just in breast imaging but in pretty much everything that they do. I think the practices have become a lot more adept at dealing with patients in the COVID environment as well. There are certain overheads there, and I think they've done pretty well. So we are anticipating a few things. Those organic M&A, look that will continue. The broader the base of clients we have, the more we'll see it. And then, of course, the deferred work coming into this is mixed. We're starting to see that. And all things being equal, we anticipate we'll see more.

Great. And just on the comments, Sam, you mentioned around some of the enterprise imaging. You mentioned a couple of tenders around, sounds like around some of the other ologies. Would you be able to give a bit more context about that? And just maybe give us some detail on the go-to-market strategy there and timing on your expectations of those developments.

Yes. They've come largely, as you would expect, from existing clients, and it's what we had expected. Some of them have put out RFPs for other ologies, and we've been involved in those RFPs or proof of concept. So I think that's very encouraging. Unfortunately, for confidentiality, I can't actually say who they are. But it's a good step, a, that were considered; and b, once we've done the demonstrations, they're going further down the path. So there was a little hiatus again in all of that with COVID because the hospitals were scrambling, particularly in Phase I, but that's all resumed back in earnest. So look, it's steady as she goes, but we're pleased with that.

The next question comes from Sarah Mann from Moelis Australia.

Just a question around marketing going forward. So obviously, I think in the past, clearly conferences had been, specifically RNA had been an important part of your marketing strategy. Obviously, you're much better known in the market now. But just interesting -- interested in, I guess, how you think about the role of conferences in the future. And if it's going to be different, do you anticipate kind of changing your marketing strategy at all?

Look, it will be different at least for the foreseeable future. Earlier in the year, there was one called HIMSS, which we attend, but it's nowhere near as big as RSNA and that got canceled in the last minute. So there was pretty much no activity around that. RSNA have announced it will be virtual. And as you've mentioned, maybe 5, 6 years ago, as we were building our name in the U.S., that may have negatively impacted us. But we don't believe -- so this year, what we are seeing is because we're able to demonstrate the technology as if we're there because it's so light, so thin that even at high res you can demonstrate it remotely, most probably it favors us, to be honest. So we are doing a lot of our demonstrations and marketing large scale that would normally be done over multiple days on site. We're doing it over multiple days, 100% remote. And I don't believe our competitors with the more standard technology can do that. Screen sharing is a poor second cousin. So look, we will be changing some of that. Clearly, we won't be having the big spend on a booth and stuff going to Chicago this year. We will do some sponsorships, but the dollar value would be a lot less. And we are using electronic means to reach out. But I think the main thing is once they're interested, we can actually do as pretty much as good a demo remotely as we can do on site. I think we're unique in that regard, so that will help us. And the other thing is clearly COVID has heightened everybody's awareness of telehealth, telereporting, stay-at-home radiologists where you have to. And again, we see that trend only being positive for us going forward because most of the systems couldn't do it readily, whereas we could. All our clients just click the switch when home as long as they have a workstation at home. It was really no different to being in the office. So we think all those things that we will market that and the ability to demonstrate will help us more so than others.

And in terms of, I guess, like a redirection of spend in the U.S. health care, I mean, you kind of alluded to the importance of telehealth and remote reading capability. Like do you have a feel for -- is there going to be kind of a redirection of spend? And which areas are kind of going to be the winners and losers?

Well, you'd have to imagine, and we have heard anecdotally that every large health system will have to have an action plan in case something like this ever happens again. And radiology imaging is -- it's a key part of it. So I think it has highlighted to those that couldn't easily do it, that had to scramble, that have to get more bandwidth, that had to do things -- they could sort of get through, but it wasn't the same experience as being in the hospital. And I think, if anything, as I said, I think that's helped us, and there will be more spend in this area. But look, it's early days. It's only what we hear and some of the new prospects, that's what they've mentioned.

The next question comes from [ Alex Sal ] from [ Kobuta Management ].

So my quick question is you briefly mentioned about fiscal 2021 revenue and the way to think about it is that you will be supported by the 12 months of Duke versus 5 months of Duke, I believe, in fiscal '20 and then supported by a full 12 months of OSU. And then it sounds like it's more like 3 months of Northwestern Memorial, assuming that is implemented in Q3 fiscal 2020, '21. And then there -- is there 12 months of Nines versus 6 months of Nines? I wasn't so clear on when Nines was implemented. So...

Yes. Well, Nines is a start-up. So if you take someone like Northwest and they have established volumes, so as soon as we put them in, that volume comes on stream. Nines is going to build. But we are putting in also Phase II of Partners, which was 30% Partners or now Mass General Brigham or Mass Gen Brigham as they're called. So that was 30% of Phase I. So we'll get 12 months of Phase I. We -- previously, we got 11 -- a bit under 11 and we'll get over 6 months of Phase II because that will be complete by end of calendar year. So it'll be all of those plus anything else that we if can -- if we get new contracts and can implement them because we're just at the beginning of the year, they will all go into the mix. Plus, as I said, any work that's been deferred that's done this year, et cetera, so there'll be a mix of things that will contribute to that.

Got it. So just to confirm on Partners. So it's for fiscal '21, it will be 12 months of Phase I plus Phase I to Phase II versus just above 6 months of Phase I in fiscal '20?

It was 11 -- about 10.5 months because it got phased in from...

Okay. Yes. Great. When is the Partners HealthCare Phase II going to be completed? Just curious -- implemented.

This calendar year, December.

So we've already implemented 3 out of the 5 hospitals that they've earmarked for Phase II or a number of different minor hospitals, but 5 main regions. We've implemented 3 out of 5 already. So it will be more like around 10 months of Phase II for the full year.

The next question comes from Peter Meichelboeck from Select Equities.

Just quickly, just in relation to the COVID-19 impact, are any of the clients at the moment below their minimums?

No.

Right. And also, was there any -- has there been any sort of impact on sort of cash payments or anything like that from any of the clients given what's happened in their operations?

No, quite the opposite. We've actually received them all in on time, and we had some with extended trading terms of now fully paid through. So pleasing, even during these times, that cash conversion has been very high.

Right. Just a quick one on Northwestern. Has the implementation -- I think you're saying third quarter fiscal '21, has that sort of drifted? I thought it was about second quarter. Has that moved at all?

It only moved from their side because of some logistic issues around hardware and provisioning. So it's been a minor slippage, but having said that then, in terms of the project planning, they've compressed the go-live. So once we start, it will actually roll out quicker than the original plan to compensate.

Okay. And then just finally on the contract renewals. Should we be expecting the renewals well as they occur to be on sort of similar time frames as their existing contracts, do you think?

I would think so, but we don't think there'll be less. Some may want more. But at the moment, the ones we're speaking to, I think the initial thought process is similar time frame years.

And is there any further thoughts or any thoughts on -- with renewals of the pricing structure on them maybe sort of rising prices over that -- over the new time period rather than flat pricing?

No. I think at the moment, and look, it's possible. If someone wanted that, we could. I think the way we're structuring is flat pricing but at a higher price point. But look, again, with the renewal, as long as it sits both parties, so we're amenable to either. It will be a similar period at this point, but others may want longer, may want step pricing. We would certainly assess that at some time. But that's not what's presented at the moment.

The next question is from Julian Mulcahy from Evans & Partners.

Just first question on the deferred revenue figure. It's down about [ 1.5 ] from last year. Is there anything behind that? Or is it -- were you just annualizing the run rate at the end of the year? Or is there something more to read into that?

No. I mean it's just -- it's a pure factor of what has been built to date versus what's released through the deferred revenues that came in last year for the new revenue standard, will be released over a period of time from all the customers that still have an existing term to their contract. So as that -- that will go up and down depending on what comes off over time versus what new professional services we raised through the period. So clearly, through this period, we've released more revenue than we've put into deferred revenue.

Right. Okay. And with the pipeline, it's good to hear that the pipeline continues to grow. With all the disruption that's going on, do you think that the decision-making process for the hospitals just gets pushed out at least in the 6 months, even from a year?

Not that we've seen. There were -- as we mentioned, there were a fair number of opportunities that were in process pre-COVID and clearly Northwestern being one of them, and that's gone from pipeline to contract. But there are others, and they've all pretty much continued. There may have been a week or 2 where that particular institution was involved in doing like an army style hospital in their region that you saw in all the news and therefore, maybe that sort of slowed them down a bit. But not that we've seen. We have heard of deferrals more in the smaller end of the market, but that's not been our opportunities. And particularly in the last, I'd say, 4 weeks, maybe 4 to 5 weeks, we've seen more activity come into the market. So we've had a number of new RFPs, a number of new people come to us. So yes, it's pretty much been business as normal, if not, maybe even a bit stronger than normal for this time of year.

Moving on to the webcast questions. The first webcast question is from [ Stella Wang ], private investor: "Did any of the U.S. customers imaging volumes on Visage fall under the minimum baseline volume, the fixed pricing line in the contracts?"

Yes. No, I think someone else asked that. The answer is no. Bear in mind, the minimums occur on the anniversary of when they go live, so that they don't all start 1st of July, for instance, and some of the clients pre-COVID had already gone past their minimums because they've grown over the years. So the answer is no, no one did below the minimums.

The next webcast question is from [ Andrew Bartley ] from Ian Martin Advisory, who would like to ask: "Your streaming tech is very interesting. Is there plans to use it for other applications, maybe a generic provisioning platform?"

It's something we've talked about, but there are no hard and fast plans at the moment. Our main aim at the moment is to expand within health care simply because it is such a big market. But there is no technical reason that couldn't be used in other markets, such as some of the geosciences, even potentially gaming, et cetera. But at this point, they're just concepts. We don't have a plan for that. But clearly, we'd look at it in the years to come.

The next webcast question is from [ Robert Bolton ] from BSF, who would like to ask: "How has the company achieved a negative currency adjustment when the Australian dollar has been below both the U.S. and euro all year?"

Yes. As I mentioned before, despite it trading underneath the U.S. dollar for the majority of the year, it's really what our currency is at 30th of June 2019 and what it is at 30th of June 2020. And remarkably, though, despite of it being under lower throughout the year, it came back to pretty much exactly the same position, a slight decrease. So our holdings of cash in U.S. dollars were marked as a lower amount, hence the currency loss through the year. That, coupled with some hedging options and forward contracts that negatively impact on the gains and losses, was why we recorded that at the end of the year.

The next question from the webcast is from [ Simon Taylor ] from [ ES Super ], who would like to ask: "How sticky are customers to their existing platforms or to Visage? What features convinced them to change, technical performance of your system, quality of the user interface and cost?"

Well, we believe customers are very sticky. Some of the customers we acquired last year and even this year in Northwestern had, had existing systems. So Mass Gen Brigham's good example. Mass Gen had [ Exa ] for over 20 years, Brigham had GE for over 15. So it's a big decision to change. I think the decision is made purely because, in some cases, they have to. The images are getting so big, their existing systems just aren't coping. And our technology is very well suited, ideally suited to large files. So they're the things that happened, and so people are buying it purely on its capability, on its speed, its ability to handle large files. And also scalability so that it can work for a huge organization like a Northwestern or Mayo or whatever. So it's a mixture of those factors. And we think in terms of cost, we are often told and pretty much routinely told we're the most expensive. So I think it's because of the value we offer, not so much that we're cheaper, but we give back a lot in terms of the product. So it's a technology itself, and it's the return on investment.

The next webcast question is from [ Robert Bolton ] from BSF, who would like to ask: "Why is the payout ratio only 54% when future revenue streams seem a short subscription model?"

I think as a company, our guide internally is roughly around 50%. Clearly, every half, we look at a number of factors. The first is what do we need to invest in the business going forward, first and foremost, and then we also look at things such as opportunities. Will there be opportunities in M&A? And we've clearly told the market we're looking. Some of the valuations pre COVID were very toppy. We think some are coming down and will continue to go down. So it's a balance between what we need for the business, what we need, if there is an acquisition, and then dividend payout. So our normal guide, our normal range is around 50%. And given that we had good cash accruals, we've got no debt, and we've got a few years of operating expenses just sitting in cash, we thought we would maintain that dividend payout ratio.

The next webcast question comes from Ian Martin from New Street Research who would like to ask: "Can you talk about the challenges of integrating acquisitions in overseas markets? How well is this going? Are there operational learnings that you can apply from the U.S. into Europe, for example?"

Well, we've only acquired from Visage back in February 2009, so I can only talk from that experience. Clearly, it took us from a purely Australian-based company to global. So we've been able to have offices in Melbourne, Berlin, San Diego and work as a truly global company. In terms of -- if you're thinking about experience with clients and if that's what you mean by acquisition, then clearly, what we've done in the U.S. is 100% transferable in terms of our methodologies and technology to Europe, to Australia or anywhere else in the globe. So yes, certainly, the U.S. experience has been very valuable.

The next webcast question comes from Claude Walker from Ethical Equities, who would like to ask: "Hi, Sam. Has the company failed to win any of the contracts that it tended for during the last half?"

No. Clearly, there's always in a market, contracts that go on where you're either not included for various reasons or -- and that happens, I'm sure, to our competitors, where we're involved in something, and they may not. But any of the major tenders that have been out in the last half? No, we've not lost them. And the ones that we've been working on outside Northwestern, which was most probably one of the biggest in the market, they're still in the pipeline.

The next webcast question comes from Ian Lee from Allianz Global Investors, who would like to ask: "Sam, understand you have a lot of work potential in the U.S. Are you identifying other potential markets?"

Yes. Well, I think the next market for us are the two, Australia and Germany simply because we're here, but also because people are getting a renewed interest in the Visage PACs technology. Clearly, in Australia, the RIS, we've got I-MED and Helios, and we are picking up work from smaller groups, but I'm talking about the clinical product. We think that both those markets will start to evolve for us, more so in the next 12 to 18 months. They look at America rather than the other way around. And particularly in Europe and Germany, they're starting to look at IT more through an American lens than they have traditionally. So they would be the 2 main markets, Europe, focused on Germany to begin with, and Australia.

The next webcast question comes from [ Nick Wheel ] from Milton, who would like to ask: "Could you provide any light on the competitive landscape? Additionally, any light on tenders throughout the year if you participated and how you went in them?"

Well, I think the competitive landscape is, first of all, it's huge. It's a big market, and everybody wants to be in it. Three buckets of competitors, those that make equipment, Siemens, Philips, GE; those that came from film, Agfa, Fuji, used to be Carestream, but that's been sold to Philips; and independents like ourselves, Sectra and Telerad and there are hundreds of them. So it really depends on which level of the market we're talking about as to who we compete against. I think if you look at our past 5 years, particularly in the larger tenders that come out, we've won the lion's share of them against everybody else. But as I said, there are plenty of small deals and deals that go on that are just renewals, you never get to see but certainly, the ones that have hit the street, as we call it. And so we think that our batting average is well above the norm, and we do talk about our pipeline. So clearly, some of those RFPs that came out a year ago or in the last 9 months are still in there. And as we said, we haven't lost any, but clearly, it remains to be seen how many we win. But certainly, we seem to have gone pretty much in the broader end of the market, pretty much all of our competitors combined at this point.

The next webcast question comes from [ Andrew Bartley ] from Ian Martin Advisory, who would like to ask: "What are the management challenges regarding cloud management on a global scale? How do you deal with local regulation, privacy, et cetera, when cloud is global?"

Well, in terms of the technical challenges, none, because our product is designed for cloud, whereas a lot of our competitors just put their existing technology in cloud, and it just doesn't work well. And it's far too expensive because the way you pay for storage and other things depends on how you store. So I think from a technical point of view, we're highly optimized. It works just as quickly, et cetera. From a privacy point of view, it depends where you are around the globe. The pendulum has swung in the U.S. A number of large health institutions have opted for cloud about a year ago. Mayo went all in for 10 years with Google Cloud. And we're seeing a swing towards cloud adoption even from the large academics, not all, but some, whereas in certain other jurisdictions, I think Australia included, the cloud provider needs to have the service in Australia now. The big 3, Amazon, Microsoft and Google, pretty much have that, so it's not such a problem. And we would only use the big 3, so I think that gets around that issue. And same thing in Europe. If you went to Europe, you'd find all the big providers would be in all the major countries, so you wouldn't have that issue with foreign jurisdiction.

The next webcast question comes from Louis Aboud from LHC Capital, who would like to ask: "Sam, Clayton, have you settled on a pricing for your breast density algo? Can you give us an idea of the potential value relative to the price per viewer study?"

We haven't as yet. I think what we're waiting for is we're waiting for final FDA approval. So we don't want to sort of jump the gun on that one. Certainly, we would look at it in conjunction with certain clients and then work out a value for it. But the interesting thing about breast density is determining it at the time you see the patient or possibly even looking at their past films before they come, their past images, can provide significant benefits to the practice because if there's certain density or above, you need to do additional tests, so ultrasound or breast MRI. And clearly, that's additional revenue to the practice. So there's a cost justification for it being in place. But having said that, we haven't priced it at this point, but as soon as we get FDA, clearly, that will be our next project.

The next webcast question comes from [ Stella Wang ], private investor who would like to ask: "Does the company have any visibility on how big the health systems did during the year 2010 when the high U.S. unemployment reduces the health care affordability? If there was a material decline, would you expect that to impact on Visage's existing contracts and pipeline conversion?"

We don't have exact numbers from what happened in 2010, and clearly, some of the hospitals had suffered a temporary hit. It wasn't just radiology. It was everything, elective surgery, et cetera, during the peak of COVID. I don't think it would greatly impact us simply because radiology still needs to be done. And the cost -- our cost compared to the whole cost of the test, whether it's charged to Medicaid or whether it's private, would not be that material if they wouldn't do it. So yes, they may have a change in the mix of how patients are insured, but I still think the same -- roughly the same number of tests would need to be done. And as I said, the area we work in is largely nondiscretionary, so we don't believe there will be a significant impact. And certainly, at this early stage, we haven't seen it.

The next webcast question comes from John Hester from Bell Potter, who would like to ask: "Have Partners HealthCare given you any feedback on return of investment or quantified efficiency gains following their experience with the Phase I implementation?"

They have, and it's all been positive. Now some of it's anecdotal. Clearly, they're able to do things they previously weren't able to do or they're able to put through more cases. I don't know if they've done a whole group analysis of every single benefit, but we have heard from various departments. We have heard from the 2 project -- medical project leads who are both doctors, 1 at Mass Gen, 1 at Brigham, that there have been significant benefits. But as I said, some of it, we've been able to quantify some as -- some of it's more anecdotal. But I suppose, proof of the pudding is they're going to put in Phase I, and if that was successful, put in Phase II and they're putting in Phase II. So that's probably an important bottom line on that one.

Another question from John Hester from Bell Potter: "You are continuing to spend $7 million on R&D each year. What are the key areas of development consuming this spend? What is the realistic timings for new revenues from this expenditure?"

Well, there are 3 buckets. One is continuing enhancing the core product. Clearly, when you deal with some of the clients we deal with, they like to stretch the envelope clinically, always new things coming out. So the product is not static, the core product keeps being developed, and we spend a fair amount on that development. And we release 2 major releases a year. And then we're doing some more spend on extending the product set, as we mentioned in our enterprise imaging in the other ologies, cardiology, ophthalmology, in particular. And then clearly, we're putting multiple irons in the fire around AI. Now some of that will be a spend in joint research, development collaboration with some of our key academic clients, and I think you'll see that increase as we formalize it with more and more of our clients, and we get more, so someone like a Northwestern being a case in point. So some are for here and now. Some are adjacent products, the R&D and some are, what I call, a bit over the horizon products, where we're setting the scene to be in the slot or multiple slots for AI when it becomes mainstream. So it's across those 3 areas.

The next webcast question comes from [ Nigel Biel ] from [ Biel Superannuation Fund ], who would like to ask: "Just a question on the mechanics of major implementations. Typically, do the clients have to source extra hardware in order for your systems to be installed and run? Or are there extra demands on the hardware typically trivial in comparison with the existing capacity?"

Usually, they buy new hardware, and that's solely because often they're hardware resolved. It is all industry standard. We don't have any proprietary hardware, so it's all off the shelf, Dell, HP or Cisco, depending on what their preference is. And the key thing that's a key cost for them is the same for everybody, is storage because they have to store these images, minimum 7 years, some for life. And clearly, as the image sets get bigger, you need more disk, but that's the same for all of our competitors as well. So they buy their own hardware, or if it's cloud, then you don't buy anything, but you effectively rent it. So it depends on what they've currently got. Now if we did an archive like we did at Mercy, where we migrated their old archive to Visage, we were able to repurpose their disk storage as we were migrating and taking off the old system onto ours, reusing the disks as we go. So it really depends. But yes, there's an upfront if you're doing it on-prem hardware, and it's really storage is the big one. But having said that, the actual hardware that runs and does all the streaming when that's probably significantly cheaper and require far, far less servers than any of our competition.

Moving back to the phones. We have a question from Michelle Lopez from Aberdeen Standard Investments.

Just if I could follow on just from your comment just now around that second bucket of R&D being around the extended product set, we've been talking about sort of cardiology, ophthalmology for a little while now. And just wanting to understand the success that you've had or where, I guess, the barriers are for you to move forward. We're not -- I know there was 1 in trial at 1 hospital. Whether you're progressing with those? Or what the barrier is there, please?

Yes. Look, we are progressing, and as I said, some have actually put out RFPs, which means they're going to market, and we're included in that process as a result of those trials to show that we could do it. And clearly, it's early days. I think the main barrier is -- well, there's 2 now. One was it's a mindset thing. They used to have separate systems for each department. And cardiology, particularly the ultrasound area of it, has some nuances that are specific to cardiology, all to do about measurements, measuring what we call injection fractions and other things. So for it to be 100% suitable, it needs that additional functionality. So -- and then the second barrier, more so than everything, was departmentalized is clearly, the last few months, some hospitals are just working for month-to-month, just now they've come out of COVID. So that process of new IT other than what's necessary in radiology had taken a bit of a back burner, but we're seeing it come back again, particularly in the last 4 weeks. So look, we've always said it's going to be take a while. Ideally, we'd love to get one hospital that uses it in multiple ologies and a large one to be a proof that it can be done and then leverage that to the others. And yes, it's all progressing, but clearly, there's nothing major at this point. But we think we've made pretty good progress in the background.

Moving back to the webcast questions. [ Kurt Larsen ] from North Capital would like to ask: "Did COVID affect the timings of the new contract wins? Or do you expect an increase in cadence of the new contracts post the initial March, April COVID lockdowns?"

Yes. Look, I think I mentioned in the presentation, it did for a little in some cases but really only a short while. And usually, that was when was all hands on deck trying to repurpose something like one would be client was part of the field hospital or something like that but pretty much back on track. And as I said, the last 4 weeks, maybe 5 weeks, it could even be 6, I'm losing track at time nowadays, we've actually seen an increased cadence in inbound RFPs and inquiries and even some that had sort of we'd seen a while ago that had just sort of slowed pace have picked it up again. So no, I think, look, we think we're in a good space when it comes to the pipeline. Clearly, if there was a massive second wave that shut everything down, that may impact it, but we haven't seen that at the moment.

The next question is from [ Michael ], private investor who would like to ask: "Do the new products you talked about earlier, cloud, AI accelerator, workflow, expand the TAM from the core PACS, RIS, EI?"

Very much so. The workflow is an addition. Here in Australia, it's included in the RIS but in America, because of the way the market is structured, it's different. So it's an additional option, so we charge for it. I think the important thing about it is with our archived viewer and now the worklist, if a client wants a single vendor solution, even though it's modular, we're not excluded from that mix. So it certainly expands that. In cloud, we think will be -- there are certain groups more in the midsized and lower part of the market, where they just don't have the wherewithal to stand up their own hardware and manage it. And cloud is a very attractive option because you can just spin it up. And a good example was Nines, not even so much that, but they're just starting out, being Palo Alto based, they're clearly cloud focus. But the fact that they could spin it up in the cloud and build the volumes without having to worry about prepurchasing hardware was a big thing. And I think we'll see more of it to be honest. So the answer is, yes, definitely, it expands our market.

The next webcast question comes from Jacob Ballard from Canaccord Genuity, who would like to ask: "Is your breast density AI product a competitor to the ASX peer Volpara Health Technologies products?"

That's a good question. Look, it's hard for us to say. Certainly, the actual breast density quantification part of it would be. I think Volpara also has a number of products that they wrap around the breast density piece in terms of how a screening mammography practice would run. But yes, it could potentially be, but it could also be that it just service is a different part of the market that may not want the whole full Para suite but do need breast density. And so we could easily coexist in different parts of the market, but -- so it's yet to play out. So I can't answer that question 100%. But in some areas, it would be a competitor. Other areas, we would address different parts of the market with it.

At this time, we're showing no further questions. I'll hand the conference back to Dr. Hupert for closing remarks.

I just wanted to say to everybody, thank you for joining us. I appreciate all your questions. And if there's anything further, please feel free to contact either Clayton or myself, and we will be doing some further presentations post the results season starting in the first -- at the end of first week of September. And so I think that's about it for us. And thanks, everybody, for participating.

Thank you.