Pro Medicus Limited (PME) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Pro Medicus Limited Half Year Results Briefing. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Dr. Sam Hupert, CEO. Please go ahead.

Thanks very much. Good morning, everybody, and thanks for joining us. As most of you would know, we are a company in 3 jurisdictions. Melbourne, our corporate headquarters, Berlin, where we do all the R&D and support center for Visage product and the U.S., which is our main market where approximately 90% of our revenue is derived from. We have 2 product sets. Here in Australia, we developed a Visage RIS, which does all the scheduling billing back office interface to payers for some of the radiology groups in Australia. The Visage 7 product, on the other hand, is a clinical product. It's the radiologist desktop and it's the one that we are selling in the U.S. . In terms of the results, we felt all of our figures headed in the right direction. Revenue was up 28.4%. Our underlying EBIT was up circa 30%. Our EBIT margins period-on-period increased. Our cash investment -- cash and investments went up by 5.3% despite a buyback increased dividends and an investment of $10 million that we made during the period. And our interim dividend went up 28% to $0.32 per share fully franked. So we felt that everything is moving in the right direction. In terms of the highlights, it was another record half. We won 7 new contracts totaling $280 million at minimums. Putting that in perspective, just 2 years ago, that's what we would sell in an entire year. we reviewed -- renewed the FMOL contract. We had our first very material sale of our cardiology suite to Colorado. We completed 6 cloud-based implementations, our SMA 25 visibility as to date. We have made significant progress with the other ologies, radiology and pathology to name 2 and we believe we've formed a very strong base for growth in second half FY '26 and beyond. Some of the highlights, as I mentioned, you see new Colorado was $170 million deal early in July. We followed that up with a very important client in University of Heidelberg, which I'll talk about a little later. We won a $44 million 5-year contract with the group ARM, which is their management name, but the name that co-partner market is a Radiology Associates of North Texas, the largest private reading group in the U.S. Then in November, we had 3 contracts that together gave us nearly $30 million at minimum and finished off the year with [indiscernible] adding the archive to the viewers, which is a $25 million deal taking into. So a busy half. In terms of revenue splits, the salmon color is recurring transactional revenue. The blue is recurring again, which is more of our support licenses from our previous capital model -- and again, all of our splits in the revenue went up as predicted in the first half. In terms of the model, it is a highly scalable model. We think we're one of the most scalable in the market. there is no CapEx hardware or cloud. It's a software-only model. We charge for our training and installation, we have a very highly contained cost base, and hence, the reason the margin continues to grow as our footprint increases. Just putting that in perspective, we believe our margins are somewhere around triple our nearest competitor. In terms of the transaction model, most of you would be familiar with this. It is based on minimums, our forward revenue for 5 years based on minimums, has broken through the $1 billion mark for the first time. There's a lot of upside as client examination volumes grow and our clients grow well above industry average. So we feel it's an annuity staff stream with far greater predictability. In terms of our investment during the half, many of you will be familiar, we made a $10 million investment, which is a hybrid of debt and equity in another ASX listed company in Medical. It's a 2-year term. for the investment. It has a coupon rate of 12.5% per annum. But if the share price goes up from our entry point. If it doubles, we get back $20 million. And if it goes beyond that, there is an equity component based on the share price of our entry and the bank share price. And as we sit at 31st of December, that has provided an unrealized gain of approximately $150 million. or a market. Well, we are -- we have the largest footprint in the academic medical center market in the U.S. We do 11 out of the top 20 hospitals as rated by U.S. News and we see that we're now expanding not only at that level, but also at the next level down, a lot of the regional academic medical centers like UI, Kentucky, et cetera, that we picked up in the past 12 to 18 months. So a very important space for us. But the biggest space is IDNs. It's about 40% plus of the U.S. market. We are increasing our footprint at ends of all sizes within that space. And again, with things like Colorado, which is a mixture of ID and an academic that we saw good growth in the half. The private market is an interesting one. It was 1 that was previously dominant. There was a lot of M&A activity up to about 20, 23 when interest rates started to rise. But we have been quite successful there. Flat ranges, as I mentioned, the largest radiologist and private reading group in the U.S., and we secured a $44 million 5-year deal at minimums. That adds to the 2 deals we made in the previous financial year, in Lucent and July. So again, we're now looking at about $115 million at minimums in this market at grade. So we think this will become a material market for us alongside the atomical centers and IDNs. In terms of Visage RIS risk, that continued its growth. We sell it mainly here in Australia and in Canada, we do have long-term contracts with some of the largest radiology players here in Australia, and we are seeing increasing uptake of the RIS, particularly as new groups performing as sliver groups are coming to us. So what makes us so special. Many of you have heard me say this many times before, but it still holds true. The 3 key elements of the systems speed, functionality and scalability, we are #1 in all these 3 areas, and it's the sum of all these parts that may visit what it is. It -- we've seen relentless increase in the size of data sets. One of the areas in particular over the last 12 months has been an area in CT or photon counting CTT, the [indiscernible] produced orders of magnitude larger than standard CT and it will become the new default standard. So we do see past sizes increasing relentlessly as new modalities and refinements of modalities are being reduced. That helps us because pretty much all of our competitors still use the compress and send methodology. The files compressed, sent down the network, unpacked with local radiologists work station and all of the 3D manipulation enhancement is all done locally on that workstation. The problem with that model is the fastest, it's just getting too big. The gigabyte is a new mega and it's just taking too long on clogging up the networks. We, on the other hand, have a unique proprietary streaming technology that we Visage developed in-house. And it's the basis of all of our speed and flexibility. It allows even the largest data sets to be visualized sub 2 seconds and in 95% basis. sub 1. It is a huge advantage for us, particularly nowadays where remote reading and home reading has become so prevalent around the world. The sales again going through than some of you may have seen this before, but University of Colorado. It's our second biggest deal. It's $170 million segment largest in company history. I call it full stack plus 1 because it includes cardiology. So all 3 core products, that's Worklist archive plus our new cardiology offering, which is also making this a material sale for that new product. They are a highly respected hospital systems, as I said, a mixture of IDN and academic, and that we are looking to implement that within the next few months before financial year-end. The second one is slightly different. Again, European, it's University of Heidelberg. It is a top general medical school and teaching hospital Heidelberg is one of the oldest, if not the oldest universities in Europe, possibly the world, still operating. The other thing is it's affiliated cancer center is the largest cancer research center in Europe. So very hard profile that will increase our footprint in Germany and in Europe because of the network effect of the top university and hospital that it is. In terms of -- we are the value product, our highest charging product in the market, and we think that's where we should be. We provide the most sale, the greatest and proven return on investment. -- not only is it financial, but it is clinical. In other words, we allow radiologists to do what the wise would take too long to do with other systems or couldn't do with other systems, which is incredibly important for us. It's 1 thing to have the health softer, but it's another thing to put it in. We have a highly optimized fast-track implementation methodology. We believe we can complete large-scale projects and under 20% of the time of industry norm and certainly many of our competitors. It is a huge saving for the clients, and it's a huge saving for us. We have used a highly optimized hardware model with people on site for training and people remote, which gives us the flexibility depending on whether the radiologists are at time inside the hospital in times of training and is a key differentiator. And I think it's becoming an even bigger differentiator now than it was maybe even 2 or 3 years ago because there is there are a number of our competitors that are having massive issues with implementations and timing of implementations, where sometimes they're delayed 2 to 3 years from time. So again, a huge strategic advantage for us. We are also solving what's most probably the biggest issue facing radiologists, meters in general, but radial just in particular. -- the acute shortage with Bernard as new epidemic. We are able to address that. We can increase productivity of radiologists out of the gate day 1, they start using the system by north of 25%, sometimes as high as 40% or 50%, and this has paid huge dividends for the systems that have implemented us. As I mentioned, the important thing for us, it's not just a matter of finances and efficiency. It's also the fact that we do move the needle clinically. Our growth strategy remains intact. We are expanding our footprint quite rapidly. We're now over 10% of the U.S. market. we are seeing above industry average transaction growth from existing clients because of what we enable. The new product offerings in cardiology and so pathology are starting to pay material dividends. We are extending our footprint in other markets at Harte in Germany, for instance. And we are releasing -- leveraging our R&D capability in terms of new add-on technologies, which includes around report generation and AI. So all of these principles of growth for us remain intact. North American market, we estimate roughly 670 million exams performed per annum, growing on average between 2% 3% a year. We believe we, from a product perspective, can address 100% of that, and we're unique in that regard. In terms of when is a deal too small, it to be commercially viable -- we think that the tail is about 15% of the market for less. And that 15% is diminishing as the smaller players find it difficult to stand alone and are absorbed into latter health systems because of security, governance and the cost of doing business is just getting more -- so we're currently, as I mentioned, about now over 10% and growing. So we do have a very large addressable runway, which we're going after. In terms of the pipeline, we feel is very robust at the moment. There are a lot of opportunities in there, those opportunities across all 3 market segments and across all sizes of opportunity, which is important -- we think there's been a very strong network attack from implementations in all 3 sectors of the market, which gives us an advantage at the and we have many prospects coming through various stages of the cycle. In terms of the products, the first 1 was a few -- we did release a number of years ago, a visit 7 open a part. It's a key part of our cloud strategy. And I'm pleased to say that most clients nowadays take both the viewer, the part and also the workflow product full stack. Not only does this increase the TCV for us, it makes the implementation so much easier because we don't have other third parties to deal with and we are seeing more and more and more of that in our sales and particularly in the last 24 months. Cloud is huge for us. We have not put in an on-premise implementation in the U.S. around about 5 years now. We believe we are the only truly cloud-native application currently in the market. And we think that has made a significant difference for us in terms of competition and our ability and speed at which we can implement. We are cloud vendor agnostic. We have large-scale implementations in AWS, Azure and Google GCP, which gives us a lot of flexibility that orders just don't have. In terms of our strategy, Enterprise Imaging, or one fewer for modalities, we are moving much, much closer to that with our new product suite. We now do radiology, cardiology and soon to be released pathology. We also do reflected light and videos, which will cater for all the other ologies like dermatology, ophthalmology. So we think we have moved a fair way down the track to being the only truly single platform for the entire edge enterprise. And we think that will increase our ad proposition going forward, particularly since all of it is cloud. So the end game is what we see here on the -- on this slide, it is cloud. It's got Visage 7 as the center of everything for all clinicians, in all ologies. It is also the repository of data for AI and generation of foundation models and AI algorithms and it is the conduit for all image within the health care enterprise and we are getting very close to delivering on that entire scenario. Cardiology, as we mentioned, we've had our first really big sale with in Colorado, it is at the same basis Visage 7. It's ultrafast and gives immediate access to the cardiologists for large data sets, which they need. It also has all the intraoperability with third-party reporting systems such as Epic Cube, which is used by so many of the clients. We see this, as I mentioned before, full stack plus 1. So again, an ability to increase the total contract value -- we have in the pipeline, numerous opportunities, RFPs, that are for both radiology and cardiology, and we're seeing very strong interest on the existing user base in the cardiology offerings. The last of the major ologies, digital pathology, we announced the release of that last year. We are going through the validation approval process for that. The important thing for us, again, it is the same visit platform. It is the same code base -- it's not a whole separate development. It's part of a standard development, and we've had an extreme amount of interest in that from prospective and user base. So the last question, the topic du jour is where I'm sure all of you have seen in the press recent -- of late is AI is at a disruptor or not. And I thought this was an interesting quote from the ABC just from last week. But it basically says software is a sinkhole, AI may revolutionize the way we work could very well lay waste the business empires themselves only recently over through the old world order. And there's been a lot of headlines similar to this -- our view is that we think this is a gross generalization and overstatement of AI capability. certain 1 of the concerns around massive infrastructure investment by some of the hyperscalers in AI and data centers does not apply to us quite the opposite. We are a capital-light model with software only. We don't have any CapEx or data center build out pathway. As a matter of fact, we think will be the beneficiaries of the bill out done by others. The other thing is our software is proprietary. It wasn't developed on an easily or regularly available toolkit or platform. It is deeply technical and highly visualized and very domain specific. So it's not a generic software stack, and it's not 1 that others know of technology because we have not only entered it, but we haven't published a road map of what we've done and to date, no one has been able to emulate our technology stack, even though it's been in the market over 16 years. But having said that, our solution is more than just software. It's assisted some methods we've built around it. all the training, the right implementation that I mentioned. We often train thousands of tech, radiologists and clinicians in a single go live, and it's all around how we distribute it and support it because health care is a highly regulated environment, you can't just with upper program and there you go. It has to go through a whole regulatory call and be validated. And importantly, it is a mission-critical solution because patient safety is at stake. So it's not a simple drag and drop and you've got visage mark to -- in terms of other moats that we have, unlike a lot of other SaaS companies, we have long-term contracts with our clients. They can't just cancel a win or a month or 3 months' notice. And as I mentioned before, we have over $1 billion at minimums of contracted revenue in the next 5 years. And we foresee that, that will continue growing. The AI tools that are around tend to focus likely to focus on system design rather than coding. That suits us because we use tools extensively throughout Visage in Pro Medicus. We have fewer smarter developers that are highly optimized to use of these tools. And then on top of that, we also have the in-house capability to develop AI, which we've done previously and continue to do. And finally, the last comment I'll make is that AR was predicted to replace radiologists and therefore, would there ever be a need for Prometic's disaster in the future. I think that's proven to be widely over optimistic, at all manpower studies is recently is 1 published overnight. But predicting that AI will allow the catch-up of the bag but will not replace radiologists, if anything, that will help generate more work for radiologists. So we think we're ideally placed the benefit from AI and I'm happy to any questions on that in the next few minutes. nzs These are some of our developments. We have breast cancer detection in FDA, the investment in Lucid, the investment in D and long AI that I mentioned before, the collaborations through a number of top AMCs, the latest being CSF joins Mayo Land NYU. And we have a growing number of third-party AI integrations to offer to our user base. This is our leadership team, Malte Westerhoff and Delev Stalling are the 2 co-developers of the Visage platform. They're both PhD scientists in health care and health care data analysis and they lead a whole team that does not only our development but our efforts in AI, both in terms of using it and in production of our own algorithms. I'll finally finish off with something that we are seeing more and more use cases for that, the Apple Vision Pro the 3D and googles. if we were one of the first, if not the first, to have software ready for it. And this year, an unprecedented curve, Apple did a joint development with us a point -- session with us at the -- at their key Chicago Apple Store. Apple are very protective of the brand of their store, the technology, it took 11 months to organize, but it was a wildly successful event. This is a picture of it. You see less than half of the audience. We estimate 300 to 400 people turned up to listen to 3 radiologists talk about how they actually use in the real world the Apple Vision product and technology. So there's quite a future risk. And finally, RSNA it was our biggest invest. This year, we had 62 people, which we needed full time and the stand that you see is pretty much the entire product is the footprint of our stand at RSNA. So it is growing every year and paying significant dividends in terms of new leads and new opportunities that we see. So just finishing up, it's been the most successful half in our company's history. Majority of sales are full stack, and we see that continuing our proven implementation and support capability are really key strategic strengths as is cloud. We think we have an unparalleled value proposition and our North American footprint and pipeline continue to grow strongly. Cardiology, full stack plus 1. We feel that we will see more of these deals coming through the pipeline. Pathology, again, very well received to those that we've shown it to. We believe we are ideally positioned to leverage AI. It is a plus rather than a threat, and we do see increase in use cases. for Visage RIS and Apple Vision Product. I'll leave it there and obviously, happy to take any questions.

[Operator Instructions] The first question today comes from Annabel Li from Goldman Sachs.

I've just got 2, and I'll ask them one by one. So first on timing, we clearly have very strong visibility on your contracted revenues. But just from a timing perspective, are you able to give us some more detail around the drivers that we'll see into the second half and potentially into 2017? And then just confirming that revenue growth in that second half should start to accelerate as more of these contracts come online? And then just a follow-up on that one. With commentary that there are 3 more Trinity cohorts that will go live in the second half. Was that just in line with your prior expectations?

It is. And at our AGM, which was in November last year, our Chairman said that we were ahead of our internal budgets than we were right now. We knew that particularly Trinity, which is one of the biggest go lives -- one of the biggest contract wins in the history of our industry. We knew that the first cohort would only go live at the end of October. That was a time set by them, not by us. So we received -- there was only 2 months, and we knew that was going to be the case. There are 5 cohorts in the first tranche, and we have completed the second cohort in January. So all of that is totally on track in terms of our timing. Because there's such large -- each cohort is as large as a huge academic institution they're very, very large. So each of those will contribute very significantly to the second half as well as anything else that we put in during the second half. We've got scheduled for another 7 -- well, besides Trinity, another 5 implementation -- not 5, another 3 implementations on top of the Trinity ones. So there's plenty to go on in this half, but I think the main thing for us will be the step-up in revenue from cohort 1 and cohort 2 in Trinity, both of which are completed.

And just to your question about Trinity, Yes, there are 4 cohorts that would be complete by the end of 30th of June, which was exactly how we thought that would be another one early July. So 5 cohorts by then and fully completed by October next year -- October this year, sorry. .

Got it. And then just my second question on AI. As you mentioned, we're seeing some very since advancements in AI. How might this have changed your thinking around the opportunity for PME like ramping up investments now versus a little bit later on? And I guess if you could share any key milestones that you might be thinking to in this business for years.

Yes. As I said, we -- we see through multiple prisms. One is we use it ourselves in our own development and have for quite a period of time, as we said, it does assist code. So it's not like something someone else has, and we don't quite be opposite. But then we also see the market for AI in our industry evolving to being very material, and we think we're very well positioned to benefit from that. So AI will be used throughout radiology in various steps not all at once, but I think it will become prevalent. But importantly, I think it will become prevalent as an aid to radiologists rather than a replacement. So I think the opportunity for us is to use our own development, which we have been doing. and we have highly optimized that. And on the business side for us, clearly, we are looking to position ourselves as a key player in that space in radiologist that rolls out.

The next phone question comes from Garry Sherriff from RBC.

A couple of questions, one on AI and the other one on your Department of Defense opportunity. If I start with AI, how should we think from a contract term perspective, mainly because if I think about health care customers as with everybody in this AI environment, are they seeking flexibility longer term just given the advances in AI impact soft, what do you think I guess, maybe not this current renewal period. But if I roll forward 3 to 5 years, do you think there's a risk that some of your customers might seek shorter renewals rather than be locked in for a 5- to 7-year contract terms. So that's the first question, if there's been any conversations around that. And I guess related to that is also price, your margins are triple, your nearest competitor, which naturally attracts capital from other players. Do you think, again, that price could be potentially impacted longer term, given what's going on in terms of AI advances and competition?

Yes. So on a contract length, we're seeing exactly the opposite. So we've, in recent terms, written contracts 10 years out. We don't know any client that would even imagine writing their own product to replace us. What some will do and haven't always done is develop things in-house. It could be -- and they jump to us. So they develop their own AI algorithms in very niche and bespoke areas. And that has always occurred. There's nothing new in that. So if we think of anything we -- my view is we're actually seeing longer-term opportunity in our contracts. So that was the first one. And the second question, sorry, Garry.

Yes, more to do with price again.

Yes. If anything, I think it will help us extend our price because we are building AI into our platform as part of the core offering, which allows us to make it even more automated, even further ahead of others. So I think AI in terms of price, I think AI in terms of neex product will all be incredibly positive for us.

And the next one on an update on that Department of Defense opportunity. Anything you can provide status, any updates that you're aware of, you can let us know about?

I think just that we are progressing. We're nearly complete -- having our Vision 23 in cloud, they did upgrade during the first half to work with. So we'll have full stack in cloud, we always envisage somewhere around February, early March, and that's on track for that. And we think that will be the poster child for all the others. So yes, there's something we are close to the Department of Defense, looking at opportunities. You may have noticed that they had selected another vendor for a large telehealth, teleradiology opportunity and they're not progressing with that. So again, maybe that will come out to market too, which would be of interest to us. So yes, we think that it is progressing well and all the steps we've taken with the FedRAMP authority to operate are all starting to come together in our favor.

The next phone question is from Josh Kannourakis from Barrenjoey.

The first one is just on pipeline and the second one, a bit of an extension Firstly, with regard to pipeline, I think last time when we saw some of the major contracts, Trinity, obviously kept a very close eye on the implementation and the success of the rollout with Baylor Scott & Wine. When you look at the pipeline currently, and you've obviously progressed and done 2 of the big go-live at Trinity, how do you see the opportunity opening up into some of those other top 20 sort of top 20 or so hospitals in the U.S.? And maybe if you can give any feedback on where you're at in that domain.

Yes. Look, there's no doubt that success at Baylor, even in early stages the first 2 cohorts and I mean each cohort is bigger than any go live, single go live attempt by anyone. So we're resetting the boundaries. All of that is resonating in the industry, and it's definitely being positive for us as a network effect because people go, well, if you can do Baylor, you can do [indiscernible] you can do Trinity and that you're somewhere between Baylor and Trinity and SaaS, we can do that too.they've all been flagship implementations. No question about that.

Okay. That's really helpful. And you talked a little bit just on the pipeline around the outpatient and the reading clinics. That seems like that market is growing. And obviously, with some of the shift in terms of reimbursement and things like that, that's becoming more important and a lot of them are on older systems like Intelerad, which has been -- just some more comment maybe on that in terms of how you see the opportunity staging up in pipeline on that front.

Well, it's moving very quickly for us and in a positive direction, simply with -- Rand is one of the most highest profile of the fully private groups. It's incredibly well known. The thing about groups like ramp, they won't take our card because they're not the archive of record, the hospital is so they don't meet it. But their volume expansion can be considerable. So we think that, that particular contract has a lot of upside in it. So we are seeing a lot more interest in the ambulatory market, pure ambiguity. But having said that, a lot of our larger hospital clients are building centers or partnering with a provider for outpatient centers around their hospitals. And all of that has been good business for us as well. So from something where we really didn't have much of a looking about 3 years ago, that private space is growing very nicely for us, and we think that will continue.

Great, and just on AI, I'll take a different take on the prior questions. You've probably gone in a bit of detail on that. In terms of your ability to monetize, I think, one thing, often think about as a network across the academics and other major hospitals where they're trying to bring their IP to the real world and also using that network as a sort of validation rather than getting external validation outside the U.S., how important do you think that will be going forward in terms of segregating the different tiers potentially of algorithms? And have you seen much progress from those academics in terms of trying to bring some of these goes to market?

Yes. Well, I think the whole thing about algorithms is that who created them, who curated the data and how up to date they are. They're not a set and forget. And I think that's where the key academic centers have an enormous head start over others. And as you know, we tap into a number of them. So we see that they will serve multiple roles like the breast cancer detection algorithm that we are releasing with obviously, a lot of work in background, a lot of clinical work and a lot of validation. We've had it validated in a second Tier 1 academic -- so secondary validation, which we can do quicker than anyone. So I think all that will be, as you say, not only a source of rims but a primary secondary and possibly tertiary validation and the more validation you have by Tier 1 names, clearly, the more the higher level of confidence in that algorithm by the people look to buy. So yes, I think all of that is working in our favor. And the first model of that will be the breast cancer detection that's currently in FDA.

The next question comes from David Lowe from UBS.

Sam, just a quick first question. Just the model -- the contract model that you have, as AI increasingly plays a role in assisting radiologists what does it do to your per click model? I mean is there any challenges there? Is that built into the contract that it wouldn't have an impact?

No. Basically, we look at AI for radiologists in sort of 2 camps. One sort of the bonnet that is built into the application, makes things quicker and will allow us to maintain our pricing and possibly increase it due to the value that, that gives. The second is around assisting a radiologist, second set of eyes as we call it, -- and there, we will look to charge on an opt-in basis. So they decide to use the breast cancer detection algorithm that's currently in FDA, if a client decides to use it, there will be a cost based on a per click for using it. So 1 embedded, and we think that will allow us to increase price. The other one is an opt-in where they pay for this to use it.

Yes. I guess I was worried that mine increasingly screening can to a lot of images and then draw attention to the ones that the radiologist should look at and that might have implications the way you set up the contracts, I take it, you thought of that.

Yes, yes. No. And to be honest, at the moment, some organizations talk about drowning in the workloads. So anything that could even just get from Square, which is what I think no talking about wouldn't take away from what we're currently doing in terms of volume.

Okay. Great. And then look, the other question just on competitive dynamics. We're not really seeing your competitor sort of they're also winning plenty of contracts. The way you describe things is pretty compelling. Do you think the reputation of Visage and Pro Medicus versus any of your peers as an obvious 1 there has moved at all in the last 12 months? Do you think there's still more education requirement. I mean, I heard what you said about network effects. But I guess I'm trying to understand those dynamics and whether there is a clear differentiation there.

I think there is. I think there's a big differentiation. And I think those that actually try before they buy, we'll see the difference being far bigger than they imagined. And we've seen more of that. And I think it's also reflected in how we can implement the technology work, the cloud works. I mean we know of others, I won't name names, but they've signed contracts and then 3 years later and nothing has been implemented. That's not us. So I think there is a difference. Not everybody, you can't win them all, but I think as we put more and more in the delta between us and others get bigger rather than smaller.

If I could squeeze just 1 more in on what you've said there. I mean is there any opportunities there where other implementations are clearly running behind schedule for Visage to place those who won the contract?

We hope so yes. .

If they come back out to market, yes.

And we've seen that before a number of times where people have gone for something else, something cheaper, something they thought would work and the patent and then we win that contract.

Trinity is the one, case in point, where it had been won previously by another group. And clearly, weren't satisfied with the implementation and came to us.

And you're right, depending on how the contracts are written, if groups are unable to deliver eventually, one would hope that the institution will go enough is enough, we've waited long enough, but all I know is that we can and we noted others having difficulty, and I think that's telling.

The next question comes from Andrew Paine from CLSA.

Just on FX. Just wondering if there was any impact in the first half? And also the outlook into 2 half '26? And then just also how that's assumed in terms of your forward revenue guidance over the next 5 years?

Yes. In terms of the half, that's been not a lot. It's an average of the 6-month period. And although the Australian dollar has appreciated since December. The average was pretty similar to the prior period. In terms of forward-looking, well, if I could predict FX, I wouldn't be here. But clearly, as we said today, it's higher than what we did in the half. Our 5-year forward revenue takes into effect FX as of today pretty much. .

Okay. So that's got $0.70, $0.71 in that.

Yes.

That's great. And then just also, just staying on the kind of competition dynamic at the moment. Obviously, there's been the acquisition by GE of Intelerad. Are you seeing any evolution of competition within the space post-acquisition and changes in the dynamics at all?

Well, we think -- to be frank, we think that acquisition is going is, has been really and will be good for us. There'll be some that field, which is my feeling that a software company that's meant to be agile and nimble doesn't sit well inside our modality, then it's a lot more structured. So yes, I think the dynamic will fit us and some of the opportunities that we're seeing in our pipeline sort of reflect that. .

Okay. So in terms of the Intelerad by themselves would be a stronger competitor because they're more nimble versus going into a large company like GE?

Correct. But I think they've also -- they originally founder led. There were 4 founders that they sold out to private equity quite a number of years ago and since that I think that potency has decreased in the market considerably, but this, I think, will be an even bigger and even bigger leg up, but that's a personal view. And we've seen the first window of it. So it will be interesting to see how that dynamic plays out. .

The next question comes from Paul Mason from E&P.

I've got 2 related to AI. For the first one, I was just interested to understand a bit more like with all the AI diagnostic tool partnerships that you've got underway. What proportion of like radiologists diagnostic problems that they have to sort of think about? Like my understanding is there's like maybe like 10,000 different potential diagnoses a radiologist might make. Like what proportion of that would you have covered like with the pipeline of your development? And then the second 1 was just if you could maybe flesh out for us a little bit. Like currently, Pro Medicus has very big advantage around how much radiologist productivity comes out of using our tool because of how fast images load. What you think that would look like if you had like complete coverage of like diagnostic assistance inside the platform?

Yes. So look, the number of -- you're right. I think there are about 2,400 and something differential diagnosis that maybe there's even more when you look at the various body parts. So I think AI traditionally has been more single diagnosis, single body part. We're seeing a broadening of that in the market where some AI will look at a body part and have multiple diagnosis, so they cover multiple basis. The problem with that is the FDA needs to clear each one independently. So the best 20 things they independently clear 20 different algorithms. Now that is slightly changing. So I think we're at the beginning of that journey, not us, the whole industry. But we are starting to see real-world application of AI as the next diagnosis, some specific cases have reimbursement, which obviously is easier for organizations to implement because they pay for it. so that helps too. But we're at beginning of that journey. In terms of efficiency, I think anything that the AI gives sits on top of our 25% plus. So it doesn't -- you don't get 20x percent out of visas and then you use AI and it soaks up some of the advantage we have. It's all additive -- absolutely 100% additive. So yes. So I think we're fairway away from everybody part being covered. But the industry is moving quickly, and all of that we see will benefit us, but certainly not detract from the speed that we give on the platform that always is on top of.

And maybe just like a follow-up on that then. Just in terms of your ability to actually drive that versus needing to come out of like the academic institutions that you've sort of talked about, like do you have an ability to sort of forge ahead with that? Or do you need like a partner hospital to actually decide they want to develop something before you can go into it because of where the data is sitting?

No. We -- if you look at what we did with the Lucid, which is in cardiac CT, we will be partnering with them. We don't need anything from the academics we're taking an FDA-approved products from a third party and taking a pass through by putting it through the platform, and you'll see more and more of that. Where we use the academics is in the areas where we develop or codevelop, in other words, it's a build or partner type scenario with every algorithm. And so we have a mix shift and the mixture is always dynamic depending on who is doing what. But we always feel we will be the point in the middle of whether something we do to CSF or something we partner with another third party that will all be on cards.

The next question comes from Christine Trinh from Macquarie Capital.

Just a couple. Firstly, on the margin piece, slightly better year-over-year. but less of an expansion than what we saw in the first half and, I guess, less than what the market was anticipating. But can we just get a bit of your thoughts on ongoing margin improvements, seeing pieces in there? I know you mentioned RSNA, but a bit of a breakdown in terms of what are your expectations for sales force or other cost contributions would be great. That's my first question.

Yes. Clearly, revenue increased and helped with the margins, so they did go up. We did say 6 months ago, we think the margins can increase, but don't expect them to shop through it too much higher. We might be able to eke out a few percentage here or there. costs in the first half, clear [indiscernible] there. So it's always lower than the second half. Employee Benefits was also a little higher this period. We had new employees that have started -- we had some mark-to-market LTI and STI that had to increase. So they are in this half that won't be repeated in the second half. But as I said, pleasingly, the EBIT margins to increase. .

And then just on AI developments, one of your competitors came out with a set of tools, essentially at reporting and diagnostics support. Is that something kind of you're building into the base Visage platform? Or is it in the pipeline? Like things like [indiscernible] and AI kind of voice recording?

Yes. We've already done that. We showed the RSNA the generative AI tools that we have that can look through into our checking and reports and also if you dictate just findings generate the clinical summary. So we're already there with that, and we're extending that capability in the reporting side. So yes, they may have announced, but we've really done it. .

Perfect. And then just one last one for me. On Trinity contracts. Apologies if I'm going over anything obvious. But just so I'm clear on the first tranche, your 5 cohorts will be complete by July. So just how much that represents in terms of a full contract? And then just an update on the following tranches, timing, contributions and what else?

That will be about 80% done, maybe a bit more, 85%. So we'll hit the new financial year, which will still be under their 1-year minimum at about 85%. So that will be good going into -- the last 2 cohorts to Trinity go live in August and then October. So that will be fully completed within 12 months of go-live which, again, as Sam mentioned, is unheard of in the industry. Proofs of that size in the past. We've had other competitors take 3 or 4 years even to start. So whilst I think it has been missed a little bit in the market about the timing of it, we'll sort of stuff, obviously, for a better second half and then a better going into FY '27.

The next question comes from Sarah Mann from Moelis Australia.

First question from me is just on the pipeline. Obviously, you've called out that you've had a couple of cardiology wins in there. But today, just curious when you look forward, like what percent of the pipeline or just a rough idea, any color around how many of the clients are looking for your full stack plus 1?

Yes. Well, it's actually material. I don't know the exact number.

And it can change because sometimes people don't want it in their RFP and they look at it. So it is fluid. It can move around. These RFPs, as you know, can be 18 months to 24 months. So things can be added.

Yes. But we know that there's some already where it is in the RFP, and we're seeing a lot more of that than we would have seen maybe even 12 months ago. So look, we're not saying every single deal will happen. But we do believe we will see more of it, not less. That's for sure.

Got it. And then on the pathology opportunity as well. Can you give us a feel for approximate time line of when you think you're going to be able to launch that and I guess, curious as well in terms of the discussions you're having now that you've, I guess, kind of prototype at RSNA, how many of the people in the tender pipeline are interested in the pathology aspect as well?

So the launch is imminent. We have one client that we know we will be able to put it into which they do our own internal validation, therefore, doesn't mean regulatory. So that's within the next few months or less. What we have seen is not so much people putting a piece of pathology, or with pathology included, but it's an important decision maker. They're looking at vendor. So I'll say we're not looking at it for 12 months or 18 months, but we need to know that you'll have that sort of thing -- and I think the fact that we've announced that they've seen that validation and up for them. So I think you will see more and more throughout the year, but it's not that people are just it's not like cardiology, whether it's here and now. I think you'll see more and more looking at it within the 12-, 18-month period, but it's important for them to know you have it now. So Clearly, it's a very important thing for us strategically.

The next question comes from Peter Meichelboeck from Select Equities.

Just a couple of questions. Firstly, in relation to the buyback, obviously, the share price come back a fair bit since the first part of the buyback, now that the results are out of the way. Just wondering what your thoughts are on the buyback going forward are? .

Well, clearly, that's a decision for the Board. And we obviously would look at that. If we thought that the buyback made sense at a higher price that I think it's telling you something. But again, I can't comment fully on that until we as the Board sits together with I'm sure we will. .

Great. And just second one, in terms of renewals, you called out the renewal that you had in the in the first half, we've done MRL. Anything else coming up for renewal in the next 12 months?

Yes, we have a few. And I think we've mentioned before at Mayo CLinic and Mass General and few others are coming up. So there have been a few that we're working on. I will use another one. So yes, all moving forward.

Are you in sort of discussions or active sort of discussions there on those ones or?

Yes, absolutely. .

Yes.

Moving to the webcast questions. The first webcast question is, do we have a sense of the likely uptake of PME's cardiology add-on? And how potentially significant is it longer term?

I think it's going to be very significant for us. One is in its own right. So we -- as we've just mentioned, we won new Colorado, which is a big one with cardiology and we are seeing a trend in the RFPs. I think the second thing is it's important strategically because people are looking at the broader enterprise and the fact that we can do cardiology and to do pathology on the same platform, and I stress that because no one else can do that, that they I think strategically, they're very important for us. .

The next question is, does Pro Medicus see its relationship with 4 medical growing? And what does the future hold then?

Well, as you know, most of you would know I was on the 4D Advisory Board. So I'm familiar with their technology. We have made the investment, which today, as it sits is a good investment. And we also said when we made the original deal that there was potential to put the technology in our platform. So again, it's something we're looking at in a month other algorithms, as we mentioned before, third-party algorithms on the platform and the PC could potentially be one of those. .

The next webcast question is how do you interpret the PME share price over the last full year, ignorance regarding AI, misunderstanding future income commitment, competition potential changing.

Well, I can't -- we don't control the share price, but certainly, we do believe there has been a lot of generalizations and misapprehensions around AI in general and its role in terms of software disruption. I think it's been totally over simplified and almost exaggerated. And we've put our view forward on that as have others. We also think we have the most future commitments of any company and certainly the most in our history, which we've now announced over $1 billion. So take that for what it's worth. We do think -- we're sitting in a good position with no future contracts at minimum with that increasing day by day.

The next question is, what is the view on realizing the $149 million 40x gains given the huge volatility in share price and markets, what is the thoughts around keeping and why versus realizing with the contract pipeline, what percentage is in negotiation phase by value?

Well, in terms of realizing the 40 gains, it's a 2-year loan proposition, debt and equity. So it's only real opt for 2 years. We can't break that before then. So there's no chance of realizing that before end.

Yes. It's purely -- we -- through accounting standards, have to show its value as of 31st of December. But clearly, the ultimate value will depend on the share price in end of July 2027. .

The next question is, what is the fast track implementation cycle in days? It seems that it is not translated in ramp-up of use or sales.

I certainly think in terms of days, we don't have -- 1 track what we know is we've implemented things within 3 to 6 months where others have taken new years. Clearly, the bigger ones like Trinity, new Colorado, we specified it in the announcement when we saw them toward day would be longer than normal, and that's generally based on them, not us. which is getting their ducks in a row, making sure they have radiologists available to train just hydro organization. So it's still a fast track implementation compared to the competition. It's just sometimes for others. It takes longer for our customers to get organized.

Yes. And also on translation to sales, I've actually disagreed with that, quite the opposite. We have in this half, sold more than just 2 years ago, we did in the whole year. So it is translating to increase sales. We've had record last year with Trinity and others, and we're well on the track this year to just shy of $300 million in new sales. And that's a minimum. So it has definitely translated to improved sales, no question on that. .

The next question is regarding the VISN 23 extension. Is it for a 5-year term? What is the total per annum minimum revenue from this contract now, what is the potential in expanding to other VISN?

Yes, it is a 5-year deal. When we originally signed them in 2013, it was for a bit under $3 million, $4 million over 5 years, and it's now around $11 million. So you see, it's more than doubled, a bit over $2 million per annum. So it's more than doubled in 10 years that we've had them. They've taken additional product plus they have more licenses than they've ever had. In terms of expanding into other VISNs, I think Sam spoke about the opportunity there. And we are looking to move VISN 23 into the GovCloud secure government cloud with AWS and that should be completed by the end of March. And then we have a reference site for other opportunities in that space.

So we think there's good potential because the government has said everything needs to go into this GovCloud. And we feel we're one of the few, if not the only one that has been able to show that we can do it. So clearly, we are speaking to the under VISNs, and we are going to be using VISN 23 as the example or post the chart with how we think it should be done.

The next question is, given the significant share price decline we've seen today, despite what appears to be a solid operational result, can you help us understand what it is you believe is driving the market's reaction and specifically, from your perspective, what individual investors should do now, should long-term holders stay on board? And what key upcoming catalysts or indicators should reassure us of future growth?

I can't comment on share price. My view has always been share price as a market tone, and I let the market decide that. But I think our view is that we have shown, hey, we've grown 30% with our biggest implementation only coming at the end of the period and 30% off a big base. We've had our second highest dollar value of sales in the half over and the year is not finished. And we know that we will have completed, we've already completed 2 major cohorts of Trinity, our biggest client. So we think that the base has been well set up. We have said at our AGM that we expect the second half bars to be stronger, and they are the reasons why. And we're on track for that because the other 3 chorts of Trinity or measuring to exactly the plan -- and yet, we think the pipeline is strong. And so therefore, we're hopeful that will be more opportunities to add to that $1.80 billion that's sitting there over the next 5 years as a minimum.

Our second biggest contract also in new Colorado goes live in April, which includes both radiology and cardiology. So again, sets us up for a good reference side, other cardiology opportunities, but also [indiscernible] given the size.

The next question is, does cardiology suffer the same issues as radiology?

It has the same sort of issues around data size. Cardiology with ultrasound and video clips now the studies that regularly are per gigabyte each -- so what makes us good for radiology in terms of speed, the scalability applies equally well to cardiology. So that's why we think it will be a significant contributor for us going forward.

The next webcast question is, has the company lost any tenders to the competitors since August of last year? And if so, why?

We have. We -- I wish we could win every single RFP, but that's never really been the case. We have lost a few. Invariably, it's been around price, which I think is a false economy because radiology generates so much income for the institution that you really want to give you radiologist tools. But yes, we've lost a few, but it's always been around price.

The next question is, would you be able to please describe in a little bit more detail what you mean by third-party AI integrations Furthermore, is there a good usage of those integrations in production?

Yes. So something like with Lucid. So Lucid have AI for cardiac CT. And what we would do is not just sell it as a stand-alone, we would sell it so that the output of it could be viewed within Visage as part of looking at that particular study. So it would just make it more seamless. Any of our integrations would make it far more seamless and intuitive for the radiologist to use. And that has been one of the big problems with AI in general, that some radiologists feel it's not well integrated and therefore, takes additional steps and actually slow them down rather than speed them up. And we think the integration is secure. .

The next question is, how will AI be implemented on Visage? Will it help triage images flagging scans with potential critical findings, intracranial bleeds and move it up the stack for the radiologist. How will revenue be generated, subscription or per use model?

Yes. I think that sort of prioritization, we can already support. There are third-party AI algorithms to do exactly that. They prioritize their signs of bleeding. That's what we think is low-hanging fruit. I think the integration that we're looking at is even more sophisticated like if there is a lead where in the brain is of which images inside the stack have the bleed and can we open the images to at that point. That's an example of a much higher degree of integration and the latter that we're looking at. So as I said, the more integrated, the more seamless it is, the more it will be adopted. .

And in terms of the model of the mode, more likely fee per study, so similar to what we do already so to discrete AI that we sell on top of our current offering it would be in that methodology. If it's within our product, we were just part of the cost stack.

The next question is, is there a pipeline of investments along the lines of the 40x model?

We have been approached by a number of companies, as you would expect over the years. We we have a person, [ Tim Korn ], who's joined us recently as our Chief Strategy Officer to look at exactly those sorts of opportunities. But look, again, we're very selective and we'll only look at opportunities where we thought our involvement put a value. But yes, we potentially see that there could be others going forward. .

The next question is, could you see 4DMedical as a potential bolt-on to Pro Medicus? Would it complement your current offering?

I think I referred to that a little earlier, but basically, we would see it as a third-party algorithm as we do others like what we're talking about Lucid in cardiac CT and there's a whole raft of other third parties in and around both the cardiac and noncardiac space and could potentially be one of those. p.

The next question is UC Health will implement in a few months year-end. So how do we look at UC Health revenue contribution in 2H 26? In general, do we think of how the implementation at this stage? Does cardiology impact the speed of implementation?

In terms of the contribution by U Colorado, yes, it starts in April and finishes around July. There's 3 phases. So it will have a small bush of revenue in the second half of '26, but clearly, pretty much full revenue for '27. In terms of the impact on speed, it doesn't affect it in this case because we're remaining both at the same time to both radiology and cardiology. We're not doing radiology and then 6 months later coming back and doing cardiology. It's all at the same time. . So I think the implementations are exactly where we thought they'd be at this stage, which, again, I think may have been misinterpreted in the market.

The next question is great AI investments to third parties. Can you provide more color related to those in-house capabilities to develop AI? What is the perspective of in-house AI development?

We have the capability to do it in-house or with our clinical partners, and we've shown that in the past. It really depends on the opportunity in the AI. So and whether someone's already got something out there in the market and therefore, we just replicate that. So it really depends on the opportunity. We do see most of the applications being third party just because they're literally going to be thousands of them. But that won't be static either. There will be times when we develop things become when we develop it. in a year or 2 and use third party in between, it really is what suits the client best, that's how we would approach it. SP1 The next question is -- you've locked in contracts at 80% of planned volumes and have had substantial overage in the past. Are you seeing the same level or growing overage from your contracts? Can you give any additional color to the percentage attributed to cardiology in the recent 2 contracts announced over a medium and long term, how do you see revenue segmentation based on radiology, cardiology, pathology will radiology always be 80% of revenue?

Yes, we are still seeing averages in our volumes. So we still see them on a quarterly basis, and we always get overages from the contracts. -- if the planned minimum is 80%, they tend to do the 100% within the first quarter and then grow from there. So we're seeing larger than the industry standard in terms of growth. In terms of the contribution from cardiology, we mentioned with new Colorado, it was around 13% of the total contract value. So significant material in that way. Vancouver Clinic was pretty similar around 10% to 12%. So it is a fair size of it. the revenue segmentation, I think radiology has a massive head start literally 10% of the market. So clearly, it's a bigger base. So Will it be in the revenue not going to be greater than that because it's not based on the minimum, it's based on what they've previously done. But cardiology and pathology or cardiology is are already starting to grow and pathology will follow suit.

Yes. So in any particular deal, we think that radiology will be between 70% plus. If you add cardiology and pathology that may take between 20% and 30%. But clearly, that's as we see it today, it could become bigger, pathology becomes bigger. .

The next question is stripping out the $149 million noncash gain from 4DMedical, does that impact figure mean we are seeing the lengthening of sales cycle in North America?

No. I think all it's showing is that we reached 30%, knowing 30% NPAT, knowing that one of our biggest implementations, there would only be 2 months with in the first half, that's in auto. Obviously, it will contribute 6 months' worth in the second half and the second cohort of Trinity will contribute bit over 5 months. So that's why we think there'll be a second half bias.

And just on that, the $149 million is a pretax amount. So it's not a risk of taking the NPAT of $171 million and take $149 million from that. I've seen some commentary around that with some profits only 20. That's not the case. That's obviously going to take effect on it as well. So just to be clear, the $129 million is a pretax noncash guidance.

The next question is, with the share price reacting negatively today, what specific business metrics or milestones should individual investors track over the next 12 to 24 months that you believe would naturally translate into share price growth if delivered?

I think the things we've talked about today, the fact that we've been able to grow first half by 30%, and we know that it's a stronger second half, and we've talked about that. The fact that all our implementations are large ones. -- the Trinity cohorts and new Colorado, 2 of our biggest deals ever in our history, they're all on track to get implemented within the next few months and deliver material revenue step-up. . And then the fact that we've sold in 6 months what we used to sell in 10 years and all of that revenue is ahead of us as well. I think they're all the signpost along the road.

The next question is, can I clarify regarding the volume-based pricing model, please? The volume is the total images going through the whole workflow, including what AI tools screen initially and what human radiologists look at without the AI's initial assessment.

When we talk about volumes, we're talking about our exam volumes that we get for radiology, Clearly, for cardiology, pathology, AI, that's separate to that. So we don't include that when we're talking about our volume-based pricing. If we have a model that's for AI or something else, we would charge that separately on a more likely volume-based methodology. But when we talk about our volume of numbers, is clearly what we do for radiology.

And the other thing is, at the moment, we don't know if any autonomous, fully autonomous reading that even if they're exams sort of densely normal by AI, they usually looked at by radiologists. But our volumes are the ones looked at by radiologists, which is the volumes created. .

Thank you. The next question is, revenue split in the last 3 years has been 45 -- sorry, 46 to 54, 1H to 2H. Do you expect the same larger or smaller split in FY '26, excluding the impacts of FX?

Yes. We spoke about it at the AGM, and I think we mentioned it on this call, that we expect it to be bigger than prior periods. So how much that will be, we'll have to wait and see. But we certainly think the second half will be bigger because of -- I know I keep saying it, but implementation of Trinity and the different phases of that.

The next question is, did any of the cost lines grow greater than expected?

Not really. No. I mentioned around the salaries, advertising is already -- is a larger cost in this period because of RSA. But in terms of salaries and new employee costs, it grew in line with what we expected. And pleasingly, like I said, our EBIT margins still continue to grow. p.

The next question is, can AI usage drive even more efficiency in a radiologist workflow if the viewer and reporter are connected.

Certainly, integration does do that. It really depends on the integration, although we have seen that even an unintegrated viewer and reporting that we can eke out quite material efficiency. So it really depends on the outpatients themselves. .

The next question is, what is the average price per scan? And how has it trended over the last 12 months? How do you forecast that average price per exam scan going as you get into these other ethologies .

We don't actually give out the average price per scan other than to say that the cost or the price has been going up. over the years, we think because we can prove additional value. So those are bought years ago, we would have bought it at a lower price point than today. And again, is you can't keep raising price forever, but we've been able to incrementally raise it year-on-year. And I think we don't see that per se changing in any material way. .

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

Just to say thanks very much, everybody, for joining us, and appreciate the interest. Thank you.