Hi, and welcome to the Pro Medicus Limited Full Year Results Briefing. All participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. If you wish to ask a question via the phones, you will need to press the star key, followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please enter it into the Ask a Question box and click Submit. I would now like to hand the conference over to Dr. Sam Hupert, CEO. Please go ahead.
Thanks. Good morning, everybody, and thanks for joining us. As most of you know, we are a healthcare IT company specializing in imaging and radiology information systems. We work in three jurisdictions: Melbourne, our corporate office, and where we develop the RIS product, Berlin, which is our development center for Visage, and US, which is our key market. We have two product sets. I won't labor too long on this. The RIS, which is largely Australian-focused, more around the business side of radiology, and Visage 7, which is a clinical product. It's the desktop that radiologists use to call up images, enhance them, and make a diagnosis, and it's the product set we sell in the US. In terms of the year, just a few highlights. It was a record year. Transaction revenue was up over 44%.
We won seven new contracts in North America. We had a material renewal with the University of Florida, which was a seven-year, $15 million contract. We also were busy on the implementation front, having completed eight cloud-based, fully cloud-based implementations. RSNA, the biggest trade show we attend, was. Which was in November, December 2022, was our busiest to date, and we've made good progress with adjacencies in terms of other ologies and AI. In terms of the figures, I think it's fair to say they all moved materially in the right direction, in revenue, profit and significant increase in cash reserves. We now have over AUD 120 million with no debt, and as a result, we've announced our largest dividend, which is AUD 0.17 per share, fully franked.
In terms of the revenue split, many of you have seen this chart before. The salmon pink color is transaction recurring revenue, and it's had a material jump from year to year, particularly between FY 22 and 23. The blue section is also recurring. It's our more service contracts from some of our older, more capital-based licenses. The green is professional services, and the yellow is more migration. Particularly pleasing was the recurring revenue in the pink, the transaction revenue, which we forecast will increase year on year because the current year forms the base for the next year. In terms of some sales highlights, as I mentioned, there was a new Florida renewal.
There was back in August 2022, we announced three smaller clients from different areas, just to show that we do address that market segment. one's a children's hospital, one's a small IDN, and one is a private practice. We had a number of sales, which three were for more regional IDNs, mid-sized regional IDNs in Luminis Health, Samaritan Health Services, and Gundersen Health System, and UW Medicine, which is a Tier 1 academic based out of Seattle. Not only a good mix of opportunities, but a good mix of markets. The operational model we have used it in the vast majority of U.S. contracts. it, it has been very successful for us, particularly underpinned by minimums. Our forward revenue has now increased to $468 million over five years.
That's making an assumption that our renewals are renewed, and renewed at the same dollar value as they currently are. Today, we've been able to do all the renewals at a higher dollar rate per transaction, but we don't factor that into this figure. I think, you know, the message is it's pretty much an annuity-style revenue stream, therefore, greater predictability. Operating leverage. It is highly scalable. Our margins did go up again, this time, which was pleasing. I have made some commentary around margins in the open briefing and happy to take questions on that a bit later.
Certainly they are, you know, far more-- far greater than any of our competitors, by multiples, and I think that's due to not only the efficiency of the team, but also the quality of the software that allows us to be so efficient. The exam transaction revenue, as I mentioned, recurring in nature. We did expect growth in 2023 because we had some, we had some new clients come on board, and a lot of these were, were 6-7 months of revenue, and in Luminis case, even less. They will all contribute a full year of transaction revenue for 2024. We have some new sites coming on that have been sold in University of Washington, Gundersen Health System, and others. We are seeing pretty much across the board organic growth from the client base.
Part of that is organic growth of the industry. Our clients are growing above industry levels. We see further upside in transactions from ancillary products such as archive and workflow. The top hospitals, an interesting change in how they rate them. They now do 22, I'm not sure why, from 20, and they're rated in alphabetical order instead of where they actually rate. We still do 9, which is significantly more than any of our competitors. We think that sort of validates the quality of the software and how it translates, particularly to the academic space, where clinical needs are most probably at their highest. The other area we have talked about a fair bit in the past is the RDM space.
Originally, we were a lot of people pigeonholed us into academics, but actually, our footprint in RDMs is, if anything, is even bigger. It is the biggest segment of the market. We did have a number that were material in the past in Mercy, Sutter, Intermountain, and MedStar, and we've added another four RDMs to the list that in this past year, so. We think there's been an increasing network effect in this market segment, and certainly, it's an important one for us. Visage RIS, the product that we originally founded the company on, that again, we have some material sites here in Australia with the two biggest radiology sites in I-MED and Lumus, previously known as Primary Health Care Imaging Services.
We did see good growth in the Australian business. A part of that is new practices starting, part of it's organic growth from existing customers. In terms of what makes our product, number one, we think it's the three things that are really key and showing to be even more important, as the industry changes, I'll get to that in a minute. Certainly speed, the functionality, where we're the only ones that can do 2D, 3D in one desktop. The scalability, because these organizations are becoming quite large. It's important that they have one system, not multiple, which has been the case in the past.
Things that are changing the industry, again, the data sets are getting bigger and bigger, year on year, new types of modalities, those that are, that are already existing, higher resolutions, and as many of you would have heard me say, the gigabytes. Oh, the gigabyte's the new megabyte, so it's not uncommon for us to deal with, you know, data payloads of 8 to 10 gigabytes and upward for a single examination and comparisons. Why do we-- why are we different? Fundamentally, pretty much all of our other competitors take the file, they compress it, and send it down the network. A highly configured workstation at the other end unpacks it, and all the image manipulation is done locally. We don't do that.
The files are just getting too big for that, particularly in areas of breast imaging, PET scanning, and functional MRI. Our technology is completely different. It is proprietary. It has been what we founded Visage on when we acquired it back in 2009. We take the images in near real time. We do the rendering, the advanced visualization, 3D, and actually just stream the pixels. It's a totally different technology stack, and I think it is getting more and more differentiated over time, as others are finding the datasets, tending to choke existing systems. This diagram, I think, is a very good summary of the sort of ecosystem that we are looking to create.
Clearly, there's cloud in the middle, which is, all of our implementations over the last two years have been cloud-based. We are looking to have, well, obviously, the archive, the viewer at the top, and hanging off that, the other ologies and also the research AI. It is one core that can support multiple applications in and around, what our clients do, are looking to do. The contracts that we announced, again, this one, the first one, was really to show that we can address, some of the smaller end of the market and still make that successful commercially.
3 clients, very different Montage, a, a regional RDM, by a private group that actually were exposed to Visage right at the very get, get-go because they read for one of the larger RDMs that use us, and the The Children's Hospital of Philadelphia, which is an academic. University of Florida renewal, again, as I said, 7, 7 years, $15.5 million, which was at a higher per transaction cost than previously, it was for a full-term renewal. Then the, the sales, again, we've announced them all, but the important thing about them is that they're very good regional centers. They are full stack. They take all 3 products. They are cloud, they increase our footprint in this mid-sized RDM market. UW, it's slightly different. It's an academic.
It's got one of the best-regarded radiology residency programs in the U.S. Again, it's full stack with archive, and it increases our presence, not only in the academic market, but in the Northwest, around Seattle, where this was our first major sale. Samaritan, Oregon, again, increases our footprint in the Northwest. Again, an RDM, again, full stack. The last one that we announced is Gundersen. It's a seven-year, $20 million. It is a tri-state system, based around Wisconsin, Minnesota, and Iowa. Again, a similar pattern to the others, which is something we're seeing more and more of. That is all three products, cloud, and again, it increases our footprint in this mid-sized RDM space. It's one thing to sell it, another thing to put them in.
We have, for many years now, talked about our fast track implementation. If anything, it's getting even quicker. We are doing more. We do some hybrid on-site and remote, which has been incredibly, incredibly efficient, not just for us, but for the client. It is a key differentiator, 'cause in the past, groups were worried about implementation risk and time to implementation of years, not weeks, not months, or in a lot of cases, in weeks. It is equally as important as the application itself in terms of our offering and how we can get our clients live very quickly. Here are the, a list of the key implementations. We did eight for the year, here's seven of them. Pretty busy.
The important thing is we've been able to clear the decks, to do the clients that we've now sold and contracted, yet to be implemented, such as, Samaritan and Gundersen. We are known as the most expensive application in the market, which is where we want to be, because we believe we can support that by providing the greatest value or return on investment. We look at it through two prisms. One is financial, which, you know, these, these places are businesses, even the not-for-profits. So therefore, it has to stack up financially, and we think we have a very compelling ROI in that area. Also clinically, because we allow clinicians to do things that would either they couldn't do previously or would take so long they, that they wouldn't do it.
You know, some segmentations could take 6 minutes. We do them in 2 mouse clicks in under 3 seconds. We take away that barrier of not doing it, and therefore, we believe we get a better clinical outcome through our application than others. We do move the needle. 2 examples that I'll go through just quickly. One is that we've been working with quite a while. It's with Dr. Mariam Aboian at Yale. It is in an area where we are using AI to automatically segment gliomas in children, tumors in children, which has previously been incredibly difficult and incredibly time-consuming, taking up to hours, where we can do it in, you know, 1 or 2 minutes.
The role AI has had in the accuracy of, of the segmentation, and, and we're now presenting a number, or Mariam's presenting a number, has presented and will present a number of papers as to how this has impacted their ability to track therapy over time, and why it's so important. On a completely different tack, NYU Langone, we worked with them to develop a thing called Video Reports. It's based on, it's based on informing the patient of, you know, what is in their X-ray, because as, as they said, there it, it is the radiologist, the most important doctor you've never met, because most people don't ever meet the radiologist and don't really fully understand the results of their tests, and this allows them to do it.
It's been incredibly successful, not just with the radiologists, but also with the referring clinicians and the and the patients themselves. The last clinical side that I'll talk about is burnout, the new epidemic since we last mentioned this. I think the acute global shortage of radiologists has just keeps getting more and more acute almost by the day. There's not a country that doesn't have a shortage, and particularly in the U.S., we see massive shortages to the point that they're now calling it the new epidemic. Burnout, efficiency, call it what you want, the whole concept is, there is a shortage of radiologists.
One of the key theories was that intake into radiology residency programs went down significantly about four or five years ago, because everybody was worried AI would take over, and clearly it hasn't. Second thing is the, the datasets are getting larger. There are more images to look at. Then post-COVID, there's a very strong push towards a work-life balance, particularly work from home, as part of the mix. Most radiologists coming into the workforce are either looking or insisting on that as part of their package. Effectively, we're now seeing for the first time, many groups struggling to handle their current workload, and we actually know of groups that have started to cut back on some of their existing contracts where they would agree for a third party, simply because they don't have the manpower, to service those contracts.
What's the solution? We think we have a fantastic solution, and I think our tagline platform for the future, powered by speed, encapsulates it all. We have seen unprecedented efficiency gains once a client moves from an existing system or legacy PACS to Visage. Speed is a key part of that formula, just that much faster. There are many other efficiency gains, having one desktop, not having to open multiple applications, if you're doing 2D, 3D, you know, it's throughout the actual application. We routinely see very material gains, usually north of 20%. In one case, a client had clocked it up to 50%, but whichever way you put it, it is very material, and we believe a key plank to solving this acute shortage of radiologists.
We've actually even heard recently that some of our larger academic clients are actually when they're advertising new positions for radiologists, mentioning Visage as a draw card for new, for new residents and qualified radiologists to join the institution. Growth strategy, you've seen it before. It's we are enacting on all of it. Our footprint continues to expand. We've had increased transaction growth. We are bringing out new product offerings. We are looking to extend, particularly, our first blush into Europe, and we're leveraging our R&D, particularly around AI and cardiology, which I'll get to in a minute. The pipeline, we've made comment on that, both in our announcement and at the briefing. It's very strong.
It's across multiple segments of the market and multiple size opportunities, pretty much all of them cloud-based, which is what we see, and we think we have a strategic advantage in that area. Open Archive, as I said, this has become a very important product for us. It allows us to offer full stack, which we're seeing more of. That helps us because there are fewer third parties to deal with. It's better for us, better for the client, and it simplifies the implementation and ongoing support. It's a key component not only of our cloud strategy, but also a way in which we can transition some of the on-premise clients over time into cloud, so that we can take over the archive and also smooth that transition pathway for them.
Workflow, the most recent component, it, it has been sold in 10 of the last 10 contracts, so clearly, highly sought after, and again, a very important part of that full stack philosophy. One Viewer, this is the entree into looking at more than just radiology. We are able to look at reflected light, photo, videos. Again, we see this as one of the key areas where we can differentiate our offering as compared to others. Our first area of, of interest is cardiology. It's, it, it shares a lot of commonality with radiology. It does have some additional functional requirements. We did show this a while back. This is now out in the field, the ejection fraction, and we are moving closer to our first commercial sites for a cardiology offering.
Last, earlier in the year, we also won, KLAS Award for the best viewer that does more than one ology. Clearly, we are making significant progress within our client base towards that. Cloud, finally, I'll quickly mention that as, as most of you know, we are fully cloud-native or engineered. We have complete deployments in the cloud of large scale. As I mentioned, all of our implementations in the last year and the previous year have been cloud-deployed, so it, it certainly has been a game changer for the industry and for us. We do believe we have strategic advantage in that others, our competitors, have not been able to offer that capability.
The other strategic strength we have is that we work well and have large-scale implementations with all three major cloud companies, AWS, Microsoft Azure, and Google GCP. We give client flexibility if they have an existing contract with one of those three. Finally, onto AI. I've, I've mentioned this before, we see multiple uses of AI in radiology. Diagnostic images is incredibly well suited to the AI applications. As FDA clearances in healthcare, the vast majority of them are in the imaging space, and we see all these use cases coming to be. I think the biggest one would be aid to diagnosis or a secondary opinion. Fully automated diagnosis, I think it's a number of years off yet, but in certain areas, I think will become a reality.
We have our team, our head of research, our CTO and head of development, the two cofounders of the Visage platform. They are PhDs in healthcare imaging and informatics, and we have two others that are on the ground managing our research collaborations and our AI, our AI interfaces with some of the third party, Ming Lin and Raj Moli, both both PhDs, and Raj is also an MD. Finally, we have a product set, multiple irons in the fire. Many of you have seen this, so I won't go through it in great detail. When the inflection point comes for mainstream AI adoption, we think we're incredibly well positioned because we have multiple avenues through which we'll be able to maximize our presence and commercialize that in the AI space.
Finally, we are getting much closer to the commercialization of our breast density. We've had some papers written. The clinical validation shows its accuracy is pretty much one of the best, if not the best, in the business. We think that it can become a material product for us going forward. Finally, I'll just skip this one. Mention the RSNA, because it is the biggest conference. 2022 was huge. We're anticipating a big turnout for 2023 in late November. As I said, our investment in terms of footprint, real estate, and people, has been the biggest to date, and we're already starting to see returns on that investment in terms of inbound queries. In summary, it's been the most successful year in the company's history.
Our North American footprint continues to grow strongly. We expanded portfolio with full stack, has been incredibly positive for us. The ability to implement as a mixture of both remote and on-site has been huge. Cloud has been very big. We think that we are continuing to show the value proposition, both clinical and financial. We have a very strong pipeline that continues to grow, and we think we're well positioned to take advantage of the adjacencies in AR and other ologies. I'll leave it there. Thank you, and open up the floor to questions.
Thank you. If you wish to ask a question via the phones, you'll need to press the star key followed by one on your telephone keypad. If you wish to ask a question via the webcast, please type it into the Ask a Question box. Your first question comes from Garry Sherriff from RBC. Please go ahead.
Morning, Sam and Clayton. Can you hear me okay?
Yeah.
Yeah. All good. Thanks, Garry.
Perfect. Quick one on AI. In terms of market acceptance, do you think the European market or the US market is perhaps more likely to adopt at, at a first port of call? The, the reason I say it is, I saw this month there was a big study in Sweden, which had, what? 80,000 odd mammogram screenings, and it had some really positive results in terms of, you know, a massive reduction in reading workloads, and also the clinical improvement was supposedly 20% better if you're using AI with human reading, as opposed to just human reading by itself.
Just checking, do you think, you know, it's come out of Sweden, do you think the European market is perhaps a, an early adopter ahead of the US or vice versa? Any, any insights from that AI positioning would be, would be helpful.
Yeah. Look, I think they're equal. There's a lot of trials like this, research trials, going on in both continents. It's all over the U.S., all, you know, every single academic institution. Now, it may not be in breast imaging, they may have another specialty, but we see a lot of it. We know that some of the Nordic countries have been very on the front foot when it comes to areas around breast imaging, so that's why this, this Swedish trial didn't surprise us. As I said, a lot of it is in-hospital trials. I don't know how much whether in Europe it's been more commercially accepted than the U.S. My gut feel is it's all still to happen.
Understood. Next question, just on, again, the another organic revenue stream or future revenue stream, sales into new departments like cardiology. Maybe just, the latest update or timing around that, if you could?
Yeah. Well, in, in, in my open briefing, I mentioned we had hired or hired a while back, someone it, that is, you know, specialized in that space. That's enabled us to bridge the feature function, delta that we were looking at. We are still on track, we believe, to have commercial contracts, in place within the next six months, possibly earlier, just depending on, you know, what pans out. We are, put a lot of work into it. We're a lot closer, and we think that we will have a compelling offering.
Thanks, Sam. Last question, just for me on a question that often comes, comes from the investor base is, you've got these very long-term existing customers, which have, many of them have now renewed. People are really interested, or the market's really interested in the rough sense of annual, both volume growth that you see from these customers and also organic price growth. If you can give us just some high-level ranges that might, that might be very favorable. Thank you.
I think the industry grows at roughly 3%-4%. It's a bit hard to get an exact handle on it because the U.S. government, I'm talking about in the U.S., and I think it's global, don't produce one set of figures. That's organic. We think our clients, on average, are above that. They vary client to client. Some are like the new hospitals, and their volume will go up 8%, 9%, 10% as soon as that hospital comes on stream. Some that will be more organic, they own open, smaller centers. I think we're pretty clear that growth of our client base is definitely above the industry average. As I said, that it, it is all contributing to that transaction revenue increase.
Clearly, new clients have come on stream through years, also there is this increased momentum with our clients because it's an enabler. That's the key thing. They're able to actually open new sites and manage them through Visage, where they-
When we do renew, we have been able to get an uplift, and that's somewhere between where the market is now and what we're selling to new customers and where they originally started. We've, you know, we've said that that has sometimes moved 60%-70% upwards. It's, it's fallen somewhere in between there. For one or two clients that we renew, it could be, you know, 25%-30% or more. Yeah.
Yeah, perfect. Thanks very much.
Thank you.
Your next question comes from Josh Kannourakis from Barrenjoey. Please go ahead.
Hi, Sam and Clayton. Thanks for taking my call. First question, just around revenue. Extremely strong result, especially in the exam and license fee revenue into the H2. Can you help us just bridge that out? Is that a good sort of base level, in terms of looking into the next year? As you mentioned, the organic growth, is there any specific, you know-... growth in terms of hospital acquisitions or anything that went in there? Maybe you can just give us a little bit more context around that, and then just helping us bridge out into the new contracts and, and implementation timings into next year.
Yeah, Josh, it was a bit of all of the above, so a little bit of organic growth. Clearly we mentioned the implementations at Novant, Inova, and Allina. We did have some revenue in the H1, but we got a full 6 months worth of revenue for all three of those customers, and they were large customers. Getting them on board, you know, gives us that exam volume growth in the H2, as well as some additional sites at the UC. We, we have finished all 5 campuses, so we had 1 or 2 that were done in the period, and also a smaller one in the Children's Hospital of Philly.
That combined, there was 3 major ones where we got full 6 months, plus new implementations that sets us up for the new, new year. To your first question about, does that set us for a base? Yes, it does, for the new financial year.
Okay, that's really helpful. Just within the actual portfolio, like, obviously there's a few other things going on. Intermountain, you know, acquired SCL Health, huge acquisition, you know, the other year. I mean, have you heard anything on that front, or are there any other sort of inorganic, sort of, underlying hospital growth that we should be aware of that could impact you guys over the next few years?
Well, we don't know any that, that would impact us negatively. They can only be positive.
Sure.
Multiple departments that we're working in, that number may move to sort of 10-12 in a year rather than, you know, in previous, you know, a few years ago, 3 and 4 for the whole year. The cost base is increasing, but we are obviously covering that with revenue at the moment.
Also all the cost base increases, not only for supporting new clients, but supporting some of the adjacencies. Like we mentioned, we've got someone on more specialized in cardiology and other bits and pieces, and all the things I think we've flagged to the market beforehand.
Got it. Final one, really quickly, just on cardiology, obviously good news that that's still on track and, and, you know, hoping across getting commercialization next six months. Just to give us some, maybe a little bit of added context, is that planned on likely being with people that currently have the product in their hands at the moment or trialing the product? Or is that also talking about potentially new customers on top of that?
Potential new customers for the application, existing Visage customers.
Okay, awesome. Thanks again, guys. Great stuff.
Thank you.
Thank you. In the interest of time, we do have to ask that participants limit themselves to asking two questions at a time. Your next question comes from Melissa Benson, from Wilsons. Please go ahead.
Good morning, Sam and Clayton. Thanks for taking my questions. I just had one first for you, Sam. It was on your prepared remarks. You talked about a renewed interest from the corporate market.
Yeah.
I guess what I was wondering is, you know, what kind of customers are those? Is that kind of the private radiology clinics or the for-profit IDNs? I guess the second part to that is, you know, why had perhaps that engagement dropped away? Has there something kind of changed in that section of the market as to why they're reengaging?
I think, first of all, that, that section of the market, well, it's, it's, it's a mixture of for-profit IDN plus, plus private group, plus private equity-backed group. It's sort of a blend across a, a large swathe of the market. A lot of that had gone, as Sean, my head of sales, said, into deep freeze, 'cause there was a lot of private equity fuel acquisitions. Groups basically didn't want to change their systems. I think two things have happened. There've been consortia of groups get together that didn't want to sell out, and they realized they have to have a, you know, better toolkit 'cause they've, they've got to increase their efficiency. That's pretty much it. And some of the corporates, now not all of them, it's...
As I said, it was something where that section of the market was largely dormant, and we're now starting to see some green shoots there. How material it becomes for us and, you know, whether that then gets swallowed up by some of the hospital market, I think all of that's still to play out.
Thanks. That's helpful context. Just my second question, you mentioned in the presentation around commercializing Breast density.
Yeah
That could be a material product. Should we think of that as just being integrated into your existing viewer, like it's an add-on kind of for all existing customers, or that...
The breadth is much wider as well.
Yeah, look, the, the thing with all of this is, you know, these, these clients, some of them are two years in the pipeline, some of them in the past have been longer. When they actually drop, you know, it, it, it, it just. It's just when it happens. Let's have a look. Since we, since the full year, we announced another very material contract in Memorial Sloan Kettering. Had that dropped three weeks earlier, it would've been in FY 2023. It now gets us out of the gate, you know, at a fair clip in FY 2024. You know, looking at it year by year, I think, you know, and, and I know you have to do that, you know, it just really depends where they, where they drop.
I think our commentary around the pipeline is the, the amount of opportunity we have in there, and that, as you know, that's where they're either in an RFP process or a known sale process where they might do a trial and not an RFP, but they will be buying something. That pipeline has increased.
Right. Is there any budgetary or just regulatory changes that are holding up the, them signing the contracts?
No. No. In the past, you know, it was like an example was NYU and Northwestern. We've been. They've been, both of them, looking at us for over 5 years, and they dropped within 1 month of each other. Why? No rhyme or reason, just happened.
Right. Cool. Thanks, guys.
Thank you. Your next question comes from Sarah Mann, from MA Moelis Australia. Please go ahead.
Morning, guys. I'm just interested in, I guess, getting an update on the competitive landscape, if you're seeing any changes there. I guess, particularly in the context of what appears to be the transition to cloud, that clearly is beneficial to you guys. I guess, just interested in what your competitors are trying to do to kind of close that gap.
Well, clearly, I think the pressure's on everybody to get into cloud. Some people will say they're in cloud, but the reality is they're not. They're just storing data in there. You know, cloud is, is a word that they use, but the whole application doesn't sit in there and, and allow them to outsource all the hardware that they otherwise would have in their own data center. The first thing is, one has to be careful of what people call cloud. Ours is full cloud, full deployment. Look, we, you know, we hear what you hear, plus a little bit from the industry that, that tells us we don't believe anyone's there yet.
In some cases, if they were to deploy in cloud, the cloud costs would be multiples of what we do, because you pay per CPU per second, and if they're just not efficient in using those resources, the actual total cost of ownership, in which includes the cloud fees, could be very material. I think there are a few, you know, few areas that people need to get through. As far as we know, no one, in terms of major competition, are fully cloud capable at this point. Even if they were, that doesn't give them all the other secret sauce we have in terms of 3D and streaming. It just puts their legacy application in the cloud. So we think we have two assets, the most modern application streaming platform, plus it's cloud-based.
No, no, that makes sense. I, just a question on, I guess, broader geography. Clearly there's still lots of growth in the U.S., but just interested in any thoughts around, I guess, going harder in Europe or anywhere else?
Yeah, look, we, we will be putting some more resources in, but I, I think the U.S. is. Everybody knows it's the biggest, but there's more to it than that because each opportunity is very big. In Europe, you don't have opportunities the size of Northwestern or Mayo, that if you do, you only have one or two. The second thing is, there's a whole layer of complexity in Europe, which is it's all government funded.
As you know, we, we have this thing about not responding to government RFPs here. It's not that dissimilar in Europe. There's, there's a lot more overhead in trying to get a deal that's much smaller. Having said that, we're not ignoring it. It's just bang for buck. The U.S. is the best place, and in terms of our runway there, it's most probably the largest. We will be putting some more resource in, but nowhere near the amount of resource we put into North America.
Great. Thanks very much.
Thank you. Your next question comes from Peter Michael Bok, from Select Equities. Please go ahead.
Hi, guys. thanks very much for taking my questions. Just a couple. On renewals, if I'm looking sort of over the next 12 months, can you give us a bit of a feel for, like, exactly which contracts are up for renewal and sort of a bit of an update on sort of timing and on that? That would be great.
Yeah, I think for this financial year, the one we're currently in, the FY 2024, we don't have any that are due, but towards the back end of that, we have Mayo Clinic, and then Mercy Health and Franciscan, which were done very close together. They're the three main ones, which will sort of be back end or the start of next financial year.
I gather no sort of discussions have started yet on that or?
The only thing that's different with both those contracts, and they're the only two, so I'll put it to MOL and Mercy Health together, because it was the same buying group, is we negotiated a renewal window, but it was at a higher fee, and if they. The window is shorter. If they, and this was done when we wrote the contracts, if they accept that, then there's no need for negotiation. It's just, "Yes, we'll accept that." That will roll forward a few years, and then, and then it's an open negotiation after that.
Right. Okay. Just the second question, you, you mentioned several times about how busy you had been in terms of implementations, et cetera, and clearing the deck, et cetera, that you referred to. Can I just clarify, were any implementations delayed at all in because you were so busy or from your side of things or...?
No.
No. Okay.
The only, the only one we, we did, as Clayton said, we did, two of the UCs. They were actually scheduled. You know, we- when we announced UCs, we, we did mention it would be an 18-month implementation, and that was for logistics on their side, not ours. The last one, UCLA, went live in the March-April period, pretty much on time. I think they delayed it two weeks because they were waiting for something, but they're fully live. So all five UCs are on, and it was within the, as, as I mentioned, it was all within the specified or came time frames. We, we have not been responsible for any delays for any of the implementations. Great. Thank you.
Thank you. We will now address your webcast questions. Your first question comes from Curtis Larson, from North Capital, who asks: Can you make an educated guess as to when you might see material AI revenue? Similarly for cardiology.
Yeah, I think the key question is material. We're saying we're gonna see our first revenue, we believe, within six months, maybe earlier. You know, these things always take a little longer than one expects, but I think we're getting much closer. I think once we show a material client that is using it in the ROI, then I think that will take us to a different level in terms of being able to sell it to others.
I can't give you an exact date, but I think a very important step to getting material revenue, and material can mean material in its own right or material compared to our other revenue. The first step will be getting the key reference sites in place. I think we're, you know, as I said, we're hopeful to do that within the next few months. And then I think there'll be a shorter timeframe before others, look at, look at the application.
Thank you. Your next question is from Stella Wang, a private investor, who says: There has been fast development of blood test-based cancer detections, such as MCED, that may detect breast cancer as well as mammogram. Do you see, in medium terms, blood tests disrupt radiology and screening programs and reduce imaging volume?
Look, it's possible. again, at this point, we're seeing a rise in screening volumes. We're seeing a lack of radiologists that can read breast imaging, 'cause it's arguably one of the hardest. It's literally a needle in the haystack stuff. We don't see anything in the medium term, but clearly this could be another indicator. You know, I've heard of it, but I don't know how 100% accurate it is. Will, will it pick up everything? Are women prepared to not have a mammogram and fall outside that square if it's not picked up? I mean, they're the sorts of things that will play out over time, but at the moment, we've, we see mammogram and screening mammography volumes increasing to the point that groups are finding it difficult just to handle the volume.
Thank you. Nicholas Lim from Cecil Street Capital Management asks: What do you estimate the market size is going to be for PACS and RIS in 10 years' time? What share of each market do you expect to have? Do you plan on increasing headcount anytime soon to reach the broader market?
Yeah, well, the last bit is easy. We, we are increasing headcount every year. I think, you know, we have done so incrementally. We haven't been like maybe some other start-up tech companies that... and even some of the established ones that have these massive headcount increases and then have entrenchments. We've been doing it, you know, steadily, step by step, and we're gonna continue. I think, the RIS market is a good business here in Australia. It's, it's largely, you know, largely regionalized because each country has different billing, insurer, rules, interfaces, whereas PACS is global. I would say PACS, it is and will continue to be our biggest product. I think imaging will take a, a bigger and bigger proportion of, of the diagnostic record. They talk about an EHR, electronic health record.
They now talk about an IHR, imaging health record, that imaging is gonna be a bigger and bigger part of. That's photos and videos as well, a bigger part of the health record. I think if anything, that PACS market will increase materially over the next 3-5 years, maybe beyond.
Thank you. Claude Walker from A Rich Life asks: With 8 new implementations and a record number of wins in FY 2023, I'm wondering if it is possible to keep up this rate of new customer implementations over the next few years, or was FY 2023 a somewhat lucky year with large new contracts and implementations?
Look, we are always refining, and thanks, Claude. We are always refining our implementation, the technology, the software, the methodology of training, how we do it, how we support, with the whole aim of being able to do things even quicker than we're currently doing it. We all are also, with that increasing headcount in terms of clinical implementation, usually, they're ex-radiographers, technologists, that, that teach the radiologists how to use it, take questions on application questions.
How do I do this? How do I trace a vessel? We have been steadily increasing those numbers to support, new client, new implementations, and we've also been increasing our technical support people who do the implementation. Increasing headcount plus refining the process, I think, and cloud. Cloud is a really big thing because you don't have a hardware purchase cycle. It's far more standardized environment.
All those things mean we're actually implementing quicker for the same size client than we did before. Again, it's like anything, the more you refine it, the, the more, the more you can do. You know, it is, it is, it is a very key focus of ours, because we don't want to be in a position where we win stuff and then there's a huge delay in putting it in. That, that doesn't work well for anybody.
Thank you. Your next question from Sam Clark from CLSA. "Hi, team. Just wondering if you could give a little more detail around the pipeline, noticing that usually we see a commentary suggesting pipeline is strongest it has ever been. Is this a function of winning a lot of work recently that is therefore pulled from the pipeline and hasn't been refreshed yet? Or are you sensing a bit of a slowdown in the RFPs, given you have had such a good run as of late?
No, it's true. Once they come from pipeline to contract, they come out of pipeline. We are telling the market that there have been new opportunities that refresh that. No, the pipeline, it's not that we've had a good patch and now, now it's less than it was before. I think our message is it, it, it's been replenished, and, and if anything, the number of inbound opportunities over the last maybe 12, 18 months has increased. Yeah, it's increased across multiple segments of the market. Also, we, we can show that we can address areas of the market that maybe people previously thought we couldn't. More of that mid-size RDM, where we can actually do full stack cloud, and it, and, and it makes a lot of sense for us commercially.
It's quite a broad market, and we're showing, you know, good success in that, so we're getting more interest in that part of the market as well. As I mentioned earlier, green shoots out of the private corporate market. Where that leads, no one's quite sure yet, but that wasn't there maybe 2 years ago.
Thank you. Lindsay Sherman from Simlin Pty Ltd asks, "You mentioned that profit margins have increased. Can you disclose the actual margin percentages from H2 ?
Yeah. The margins have increased. They were 40, were 66, that was EBIT margins. They've moved to 67 and a touch over 67. That includes an increase in headcount, so we have been able to cover that, like I said, with revenue from, from customer contracts.
Thank you. Your next question is from Claude Walker, from A Rich Life. Traditional question: "Were any contracts lost out of the pipeline to competition since I last asked in February? And if so, why?
No. N-none that we've... you know, there've been a lot, but we're in the pipeline. You, you do responses, and clearly you're waiting to see what happens. But none, nothing material, nothing I can, I know of, and I know most of the opportunities, have been lost from the pipeline.
Thank you. There are no further questions at this time. I'll now hand back to Dr. Hupert for closing remarks.
Well, I just wanted to say thank you, everybody. It's almost perfect, just finishing on the hour. Thanks for all your questions and your involvement, and we appreciate the interest. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.