Thank you for standing by, and welcome to the Pro Medicus PME half year results briefing. All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, 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 very much, and good morning. Thanks everybody for joining us. For those that are new to us, we're a medical IT company that specializes in enterprise imaging and radiology information systems. We work in three jurisdictions, Melbourne, our home office, Berlin, our largest R&D center, and San Diego, U.S., our largest market. We're very heavily engineering and R&D focused, and the majority or the bulk of our staff work in the engineering and technology part of our business. In terms of our product set, we have two core products, Visage RIS, which was the product we originally developed here in Australia. It does more the commercial side of radiology, the billing, scheduling, interface to Medicare and payers. Visage 7, which is the clinical product, which is the desktop that radiologists use to call up enhanced images and make their diagnosis. It's the product we sell globally with the key markets for it being the U.S. or North America. In terms of our results, we released them this morning. We thought they were solid results. All of our key financial metrics are headed in the right direction. Obviously underlying revenue went up with a result in underlying profit going up 52.7%. Part of that was not just due to the increase in revenue, but also an incremental increase in our EBIT margins, which we'll talk about a little later. I think we're also very pleased that we're able to continue to accrue cash and as a result had a material increase in our dividend payout of AUD 0.10 per share, fully franked. In terms of the highlights, we had a busy half. At the beginning, we renewed one of our earlier contracts with Allegheny Health Network, one of the large healthcare systems in Pittsburgh. The renewal was for another five years, which we think shows their confidence in our product. We also implemented one of our biggest sites to date in Intermountain Healthcare in the September, October timeframe that is fully deployed in Google's GCP cloud. In October, we announced equal biggest deal to date with Intermountain in dollar terms, which was Novant Health, and we're in the planning phase of implementing that in this calendar year. Towards December, we had an extension of a German government contract where we originally had our first contract with them. This is the fourth extension into a new region in Germany. A $1.3 million capital sale I'll talk about a little further on. Then we also started our major deployment for the University of California, where previously we had won all five academic campuses, and UCSF, the first of the campuses, was fully deployed in December. We'll talk about a little later, our pipeline continued to grow strongly during the half. Busy on all fronts. In terms of the Novant deal, it's a $40 million seven-year deal. It is a cloud-based implementation. We are replacing a number of legacy systems that they have throughout their network with one single platform. Pleasingly, it's for two of our products, the cornerstone product being the Visage 7 Viewer, and in addition, they're taking our workflow product, which we find encouraging and a trend that we see growing. It certainly extends our rapidly growing footprint in what we call the IDN or the sort of non-academic hospital market space, because we are known for our penetration of the, you know, tier one academics. But, you know, sites like Intermountain, Novant, and previously Mercy and Sutter give us quite a large and material footprint in this IDN market. It is our standard model being transaction-based, so as they grow, we grow with them, so there is upside in that contract. The German government contract, as I mentioned earlier, it's the fourth extension. The government there buy on a capital basis. They have budget, and it needs to be spent in one period. It's AUD 1.3 million net of hardware because they buy it as a bundle. There will be annual support that follows that in a separate contract, and it increases our footprint, particularly in Germany, where it's in a whole new region that we previously were not represented in before. In terms of the Allegheny renewal, as I mentioned, five years, same term as the original contract. There is an increased cost per transaction, which we've been able to negotiate. Our price per transaction has risen materially over the ensuing five years, and we've struck it as a fair balance in between what they used to pay and what they now pay, which we think is fair for both parties. And we think the fact that they've gone for a complete five-year renewal confirms their confidence, not only in our product, but the ROI that it delivers. In terms of the revenue splits, those that follow us would be familiar with this graph. The salmon color at the bottom shows transaction revenue, which as you see grew very strongly period on period, half to half. And a number of that was because of implementations, large ones, that we had completed at the end of the previous half. Even that, those areas in blue, which are recurring as well, but more support contract-based, in the older, more capital-based model, that continued to grow strongly and we represent the one-off sale in the bright orange. All in all, I think a significant jump in transaction volumes, which sets up the base for future halves going forward because anything new that we implement or sell will sit on top of this. Again, those familiar know the operational model. It's used in the vast majority of our contracts. We now use it for the RIS in Australia, and we base the forward revenue, which is based on a five-year window, which has now increased to about AUD 382 million. A material increase from last time we reported that figure. We see the transactions as they grow, provide us with greater predictability and in very much in effect, an annuity-type type revenue stream. It, as I mentioned before, it was materially increased, somewhere around the 37% period on period. We do believe that it will continue to grow in the second half as we get a full six months from those that we implemented in the first, namely Intermountain, which is very large at UCSF. We have some new sites coming on in this second half, of which we've already done UC Irvine and U Vermont, and UCSD goes live in March. They will all contribute to the second half. We see, as other products come into the mix, further upside, particularly with Workflow and Archive, which are also transaction-based products that we sell. In terms of professional services, again, we do spread these over the life of a contract. The amount in the half was relatively as planned. Again, a lot of that has to do with when we actually implement the various sites. We see that continuing in a very consistent manner. Based on the results, we believe we have, you know, strong operating leverage. It's a highly scalable offering. We have a contained cost base, and our margin continues to grow as our footprint increases. It has increased from 62%-65%. Even though we've had increased cost base, which was all projected and planned, the revenue has outstripped that. In terms of COVID, we are still largely work from home, particularly in Australia, a bit less so in the U.S., and 50/50 in Germany. We are operating at 100% capacity. We've had very strong sales and marketing efforts. I think the strength of our technology, the ability to demonstrate and implement it remotely has been key to some of that. We have had continuing increase in new inbound opportunities. You know, people were concerned that with COVID, some of the health systems would step back, but we've seen the opposite. I think one of the key reasons is we do allow radiologists and other clinicians to actually work seamlessly from home or in the office. We've seen more and more where there's a split and in some cases, a bigger increase in the working week from at home, depending on, you know, the situation with COVID in the various jurisdictions. We have seen the American, particularly in America, exam volumes back or in a number of cases, above pre-COVID levels. In terms of the RIS, as I mentioned, this is our practice management system. Our main market for that is here in Australia, where we have long-term contracts with Primary Health Care, Healius or Lumus as in our call, and I-MED. The HIS rollout is now complete, and we still see some organic growth opportunities, particularly as these businesses get a bit bigger and more and more smaller to mid-size breakaways that sort of become independent tend to use our platform. In terms of Visage 7, we still believe we have a significant technology advantage over our competitors. We have said in the past 18 to 24 months, you know, it may have even extended a little further, particularly with all the activity we have and capability around cloud. But three things still keep us at number one. They are the speed of the system. In other words, it's completely on demand, regardless of the size of the datasets. The functionality, where in one desktop, we're able to do anything from a simple 2D chest X-ray through to the most complicated and sophisticated 3D, 4D, which is moving 3D and fusion, such as PET scanning and breast imaging. The product is incredibly scalable, which is important as the clients get bigger and the datasets get bigger, to have one system that can cater for the entire organization. What's driving adoption? Well, the datasets continue to get bigger. Even since we last spoke, there are new tests, new modalities that are producing bigger and bigger data files. The standard method of handling these large files no longer is coping. We call it compress and send. The clients would, the images would come out, they would compress them as much as they can without losing any fidelity. A workstation that was heavily configured at the radiologist end would uncompress that image and all the manipulation would be done locally. The problem with that is the files are just getting too big and can no longer be done on demand. Whereas with us, we use totally different and proprietary technology or methodology where we actually take the files in near real time, do all the sophisticated 3D rendering, and then we just stream the pixels on-demand to the clinician. So regardless of file size, we're able to provide full diagnostic quality anywhere on demand, and on demand being around a second or less. Some of these files are 6-8 GB, and sometimes they're multiples of them, particularly if they're prior exams that they compare the current examination to. The other strength we have over and above the technology, but related to it, is the fast-track implementation. I think that has been a key factor for us. We deliver in, I say, in under a quarter of the time, sometimes in under a tenth of some of our competitors. It's a huge cost saving for the client, and it's much better for us because it frees up staff to go from one implementation to the other. The other key thing we found is one of the biggest barriers to change previously was the concern around implementation risk. We have never missed a date or never had a failed implementation, regardless of size or complexity. For instance, Intermountain, which is across multiple states, many hundreds of radiologists, I think well over 400, many hospitals and clinics. There were two one-week segments of go live, one in the end of September, one in October. The organization went from multiple systems to one cloud-based system across the whole organization. That's how quickly we're able to do it once we start the go live process. We've noticed, particularly with COVID, we now have a highly optimized hybrid model that works very, very well, a mixture of remote and on-site. We see this ability to rapidly implement and remove the risk of implementation as a key differentiator for us. As most of you know, we are a premium product. We do charge a premium price, but we believe we provide the highest value or the best, most proven ROI. That's both financial, which is very important, things like infrastructure savings, radiologist efficiency, dollars and cents. We also, clearly we are a clinical or medical product, and clinical ROI is very, very important, particularly for the types of clients that we have. We believe that we very much move the needle when it comes to clinical outcomes. We enable our clients to either do things they could otherwise not do, or it would take them too long if they could do it. Certain things that they may need to do could take 15- 20 minutes to do on another system. We can do it in two-three seconds, with one or two mouse clicks. We take away that disincentive for them to do the things that they need to do. We have, and for those that saw our AGM presentation, we did give things. Some of the clinical ROI can be something as simple as it makes it very, very quick. In this particular instance, what they're talking about is there's a blocked urethra, which is the tube that comes from the kidney to the bladder. They're saying, "You need to have a look at it in a particular way," what they call a curved planar reformation. In other systems, it could take minutes. In Visage, it's two mouse clicks. They always do it, and therefore gives them that extra certainty in the diagnosis. We have literally hundreds of examples like this, where we make a tangible difference to a radiologist day all day, every day. We also had another example where the thinness of our application was able to help, where in Boston, they realized that certain ethnicities were not getting the diagnosis of mammograms immediately, simply because of where they were in the community. They set up an ability to read all the mammograms centrally, pretty much in real time, so that they then found that those patients got the same level of care, the same immediacy of care, regardless of where they were. Now, all of that is based on our Visage technology. Actually, the picture of the mammograms that are there on this, in this picture are actually all displayed on Visage. Again, where they were able to use the technology to change what they were doing, and as the last sentence says, it removed the racial and ethnic disparities that they were seeing, particularly in certain parts of their community and catchment area. The last one was, we're working very closely with a top pediatric neuroradiologist at Yale. This is all to do with child tumors, brain tumors, and the way that we are able to measure them and actually determine the consistency of the tumor. Again, it used to take somewhere around 45 minutes to multiple hours to do per examination. We're able to do it in under three minutes and more accurately. It's something that we're looking to develop not only for this purpose, but for other purposes and other tumors, because working out whether medication or treatments are working usually has got to do with, you know, anatomical comparison. In other words, has the tumor shrunk or not? Tumors are not too deep and they're not regular. Being able to use these tools certainly makes a very significant difference. In terms of our growth strategy, clearly, it's multifactorial. We are looking to expand our footprint with new clients, and we've done that. We are seeing strong transaction growth from existing clients. The more they grow, the more we grow. The beauty of the model is it's very fine-grained. If they do 100 more tests, we get 100 more transaction clicks. If they do AUD 1 million more, we get AUD 1 million more. We are seeing some of our clients not only grow organically, but through an M&A, and that certainly is benefiting us in the long term. The new product offerings, we had a cornerstone product, which is our Visage 7 Viewer, which is our most expensive product. We have, over the last few years, supplemented that with both archive and worklist. We are seeing a number of opportunities where they're taking more than one product. Recently, MedStar, a big IDN around the Washington, Baltimore area, took all three. Intermountain took the archive and the viewer. Novant took the viewer and workflow. Clearly that has a positive impact in terms of the total contract value, and our ability to provide a more integrated service. We are leveraging our R&D into other products, which we'll talk about in just a second. In terms of pipeline, it has grown. We are very pleased with it, not just in terms of the number of opportunities, but the spread. A mixture of academic, and IDN or non-academic. We're also seeing a return to the market of some of the commercial opportunities, the for-profits, and for the first time, some of the private imaging center market opportunities, which really went into effectively deep freeze with COVID because these practices were very, hard hit. Usually partnerships, but we are seeing them come back nowadays. That has turned out to work well. In terms of the additional products, Open Archive, this is the software that manages the storage of the images. It's not hardware, it's storage and retrieval. We have seen it in some additional sites that we're now doing and it's started to go very well. Examples were the first one was from Mercy back in 2016-2017. We now have sold it to people like MedStar, Intermountain, and it was part of the German government sale. It has been. We are seeing it more and more in our sales. We see opportunities for it in the pipeline. Pleasingly, we are getting inquiries from existing clients that had third-party archive and now looking to see whether they can replace what they have, which is aging, with some of our technology. The second product was the workflow. This is the most recent. We released it in 2020. As I said, it's already paid good dividends for us. I think the important part of having the multiple products is it does allow us to incredible flexibility because clients will need obviously the viewer, but they may need workflow because they don't have a solution for that, or they may need all three and want a single vendor solution, as was the case with MedStar. We're able to provide all three options, just purely viewer and workflow, viewer and archive, and certainly, of course, all three together. We have continued to make progress on our One Viewer that is looking at departments outside radiology. At RSNA, which is a big conference in November, December of 2021, which was in person, we did show some new cardiac specific functionality to do with ejection fractions. We are moving towards greater presence outside pure radiology within the hospital. We're not there yet, but I think we're closer than any of the other competitors. It is using the same technology, same platform. We have made some progress in that area. One of the most exciting things that has happened is really public cloud. Years ago, people talked about it, but no one ever really did it. In the last 18 months, we've seen this massive momentum shift towards cloud. We believe we're one of the few, if not the only companies, that can provide a fully cloud-based offering, you know, that can scale. We've already proven that. Five of our last sales have been cloud-based, you know, groups such as MedStar, Intermountain, UCs. They're already been implemented. They're in and working. It is a proven option. Interestingly, people were concerned about performance in cloud. If anything, it's even quicker than on-premise. There's no downside to it. It's incredibly scalable and it is opening up a lot of opportunities for us, and we are seeing increased interest in RFPs where cloud is mandated as part of the RFP response. This diagram shows it all. It has massive elasticity. You dial up what you need when you need it. We're able to do incredible parallel arrays and streaming so that the actual speed the clients witness is, as I said, in many cases, not all actually quicker than on-premise. The beauty is, it is incredibly secure simply because the cloud providers spend tens of billions a year on securing their cloud environment, more so than you could do on-premise. We think scalability and security, plus the ability to offload management to a third party are key attractions of cloud, and we see that this particular momentum shift, if anything, increasing, not decreasing. Finally, I'll finish in just a second, but obviously, the area of AI that we've talked about before, we do have a product set called Visage AI Accelerator, and it is a unique end-to-end solution. It is a highly optimized sandbox version of production Visage, and it enables organizations to do research based on Visage, and then translate that research seamlessly into production, which they've never been able to do before. We've used it ourselves, and to prove the concept, we did a breast density algorithm from scratch, using radiologists at Yale, and we were able to cut the time from the original concept to FDA approval down by a third or a quarter of what would normally be the case. We also see it as a platform by which we can work with other third parties, be they either academic clients that we're associated with or other VC-funded startups that will have algorithms that could sort of fit in and integrate to our AI ecosystem. Important thing is, it's led by Malte Westerhoff and Detlev Stalling, two PhDs that actually developed the Visage platform. Malte is our global CTO, Detlev is the head of development. We have two PhDs that work in this, not only with ourselves and our research partners, but also with some of the industry, and that's MingDe Lin and Raj Moily that so round out the team. MingDe Lin and Raj Moily are based on the East Coast of the U.S. Finally, the research collaboration agreements, they're all going very well. Some of you may remember that we were looking to set up a R&D center at NYU Langone, which we did, despite some of the difficulties around COVID and visas. That center started in August and is already starting to deliver product. We highlighted a new product that allows radiologists to show a patient a video of their pathology. In other words, they'd show a normal MRI of the shoulder and then show them theirs and indicate where the issues are. We already have some research collaborations around AI, both with NYU and Mayo that are currently ongoing. Again, our breast density, you may remember, got FDA cleared in February 2009. It's in production in one site, and we believe we'll be looking to commercialize that in this half, and make it available to other clients. The beauty is, all of our Visage systems are the same technology, so it's very simple to implement on any Visage client that wants to have it. Finally, I think this picture looks quite complex, but I think it shows our entire ecosystem. It does show the Visage Viewer that extends to all radiologists and clinicians. The concept of One Viewer for all the other ologies, and that is all interfaced to things such as the Visage Research Server and AI Accelerator, the cloud, and our archive and other products. How they all fit into one seamless product offering that you can buy in modules, I think is gonna be very important in terms of our future in the market. Thank you, and I'll hand it over for questions. Thank you. If you wish to ask a question via the phone, 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 type your question into the ask a question box. Your first question comes from Bosco Lam from Goldman Sachs. Please go ahead. Hi, Sam. Can you hear me? Yes. Yes. Great. Now, thanks for taking questions. Just two questions on our end. One, could you give us an update on where the Sutter and Wellstar renewal processes and where those currently stand? The only renewal we have currently under negotiation is, as you mentioned, Sutter. That's progressing. It is a closed negotiation. It's not an open RFP. We're hopeful to you know have something relatively in the near future. Like with all negotiations, you know, they have their own timing. It's still ongoing. Yeah. Gotcha. Would it be fair, though, to say that we can expect this sometime maybe this year? Or, would that still be too early to tell? Yes. Yes. This calendar year. Yeah. Okay. Great. The other question I had was just on competition. We've been hearing a few new platforms being discussed over the year or so, and our channel checks would suggest that they don't stack up to Visage technology technologically. Mm-hmm. There's still a slightly higher cadence of competitor activity more recently. Would you say that characterization is fair, or is that- i mpacting your conversations with any of your customers at all? Look, there's always gonna be competition and, you know, if some leave the market, new ones come. That's normal. It's a big market. We have not felt any impact from the startup community. I think, you know, it's easy to say things. It's far harder to do. Then there's certain stages along the way. There's a regulatory cycle with FDA that's quite, you know, it's material. It's not like having a drug trial by any means, but it is still quite material, and it can't be used diagnostically till you get through that. Then you've got what I call a commercial hardening cycle. You know, how you put it in, how it scales. Just because it's cloud-based doesn't mean it scales at all. It, the software has to be optimized. Look, while I don't know the exact groups you're talking about, certainly in terms of our market opportunities across the scale, we haven't noticed, you know, those competitors. Now, they may start at the beginning of an RFP, 'cause we don't know who's on the starting line. We only get to know who we compete against pretty much towards the pointy end. I can't remember any of these newer ones that we've heard about. Like I said, I'm sure they exist, but we haven't seen any impact from them. You know, there's more to it than just announcing a product. Gotcha. Great. Well, thanks for taking all my questions. I'll hand it over. Your next question comes from Josh Kannourakis with Barrenjoey. Please go ahead. Hi, Sam and Clayton. Thank you for taking our call and questions. First question from me, just around the cloud implementation. Obviously, that's been a big tailwind for the business. Mm-hmm. In terms of the speed of implementation, is it also impacting the speed at which you're getting back up to, you know, 100% of their potential volumes? I'm just interested if you could give some context around that in terms of some of the recent, you know, implementations in the first half. I think the answer is yes. Compare it to an on-premise. There are two parts before you actually, quote, "go live." Part of it's a hardware purchase cycle, and now that could take nine months, six-nine months. Even though we can specify it up front, it could take a client six-nine months to, you know, what they call rack and stack it and get it ready for us to, you know, put our software on. Cloud, we can do in under a week, you know, two days. That's one cycle. Then, you know, the organization has to get themselves ready. You know, they have to make sure radiologists are around for training and, you know, do all those sorts of things. Then the third part is, particularly if there's an archive, moving the data and normalizing it and putting it into the cloud. We found that that's actually quicker than doing it on-premise simply because the pipes and bandwidth are quicker. Cloud is quicker for us, but there's still always a period that the organization itself needs to do things outside the technology to become ready. That that's most probably standard, whether it's cloud or on-prem. No, we have found, you know, with Intermountain, we were able to do it very quickly. Not only that, we had two one-week go live periods and basically did about 25% of the organization in a one-week window, mid-September. Early October, we did the other 75% as a big bang. I think while you can do that with on-prem, it's most probably easier cloud. Okay. Okay, great. Just in terms of commercialization of some of the newer products, can we just talk about, I know cardiology, you know, some of that product's on trial with some of your existing customers. Mm-hmm. Where that product's at in the journey, how far progressed it is versus where you'd like it to be and, you know, the outlook for cardiology standalone or cardiology or broader enterprise deals in that regard? Yeah. Look, as we've mentioned before, we already do a fair bit of cardiology 'cause there's a big intersect. You know, there's MRI and cardiac CT, and of course, cardiology uses a lot of ultrasound. But they do have certain specialized requirements, and we've already started to close that gap. What we released at RSNA just a few months ago was a key part to filling out the product spec of, you know, what would be a complete cardiology replacement PACS. I think we are making good progress. Would I want it quicker? I want everything quicker, but you know, it takes time to not only do, but get validated by clinicians. Look, I think we're on the way. We're not quite there yet, but I think we're progressing where we were, you know, maybe three-four months ago. Your next question comes from Garry Sherriff with RBC. Please go ahead. Morning, Sam and Clayton. Thank you. A few questions. Firstly, in relation to consolidation. Have you seen any client consolidation over the last six months that benefit you? Yes. We've seen a few. When you say consolidation, there's consolidation and announced consolidation. Two things. I'll give you an example that's in the public space. Novant has bought another health system, and that actually has got regulatory clearance, and will go ahead at some stage within the next, I don't know, you know, six to eight months because it takes a while to start integrating. All things being equal, we believe we'll see some benefit from that. Intermountain has also announced a large acquisition. Now, that's still going through the process. Assuming it gets cleared and they look at extending the platform, that could be very material for us. We always see smaller things where community hospitals are, you know, merging with one of our clients. We saw that, you know, with Mass General Brigham, and we see it with others. There's, you know, smaller stuff that's good, but business as usual, and there've been a few large ones. That's the hospital space. Clearly, there's been a lot of private equity funded consolidation of the private market. They're starting to look at what do they do with the technology. Bigger is better for us simply because we can cater for it. Whilst it's early days, yes, I think consolidation is occurring in the hospital space, and it's our clients tend to do a lot of the buying or the larger guys. There's consolidation in the private market, which may or may not be beneficial for us, but certainly would put those groups into our sweet spot. With Novant, just following on with that, regulatory clearance. Have you got a sense on just the size of incremental volume you may well see, just given, I guess, the rough size of that acquisition that they've been cleared for? Look, I don't have an exact handle on it, but it's material. It's over 20%. You know, again, we are yet to implement Novant, you know, we're in the process. I think we'll get a better idea once we actually get in there. But we do know that it is material, and that they were looking, you know, at least in their discussions with us, they were looking to, you know, extend the platform once they have it into their current organization. Yep. Perfect. Next two questions are in relation to cost. It may well be for Clayton. Looking at wages, they're up about just over AUD 1 million on PCP. The question I have is, have you seen any wage cost escalation or is that really just pure new headcount being annualized? And how should we think about the wage cost base for FY 2023? Thanks, Garry. Yeah, it's a little bit of both. There are additional new headcounts. In the U.S. and in Berlin, we have new staff members, new implementation staff, new technical staff, new development staff. It's a little bit. I think going into the second half into FY 2023, we'll see some of that, you know, wage increase, so across the board, from this industry. We're not, you know, not the lone rangers in that regards in terms of where wages are going. There will be some of that going into FY 2023, more so than any other year, I think. Okay. Then the second question is in relation to the investment costs. The development costs were up about AUD 700 thousand. I guess a similar question. How should we think about that growth into FY 2023? It would be great. Yeah. In terms of development costs, we talked about the R&D hub in New York and building that out. We've started that process. It'll continue into the new year. Some of that is, you know, additional developers, but again, some of that wages expected to go up in the new year. We will grow that out in both the New York hub and the Berlin office. Your next question comes from Sarah Mann with Moelis. Please go ahead. Morning, Sam. Morning, Clayton. First question for me is just a bit of a follow on. You've mentioned that the size of, you know, the pipeline is growing and that the spread across, I guess, the different parts of the market is also growing. Yeah. One of the ones that you called out is clearly, you know, the private market starting to come back. Can you give us a feel for the approximate size of some of those potential customers versus some of the larger IDNs or academic teaching hospitals at all? Yeah. The private market, I suppose you could divide into two. You could look at groups, you know, the groups that were, and some of those are banding together in, you know, sort of associations that they're not partners, but they're part of a group. And there's been a lot of private equity backed consolidation, massive amounts. You know, Radiology Partners, US Radiology, where they buy controlling stake in a private practice. Those two are sort of moving to slightly different agendas. But that whole market is consolidating. Seeing small private practice groups, while they do exist, they're becoming fewer and fewer, so they're going into one or the other camp. I think we're starting to see those larger ones starting to look at technology a bit more actively because they bought the practices and they've got bits and pieces of everything. I think they realized to really get some synergies out of what they're doing on scale they would need, you know, most probably a cloud-based, you know, platform. You know, that's all emerging. Both groups are becoming quite sizable rather than a whole lot of smaller single private practices. Got it. Some of the bigger ones could be, from a volume perspective, like a larger, some of your big academic teaching hospitals. Is that fair? If they did all of it larger. It depends whether they're looking to do things like just sharing across the network or whether they wanna put the day-to-day production of all their practices on the network. I think all of that, you know, within the industry is evolving. Yes, they are very, very large. Now that's assuming they stay their size and don't break up. I mean, you know, roll-ups have had various sort of endpoints in the past, but at this point, some of them are very, very large. If they put it all on or, you know, like I said, they may only put part of it on, that's yet to be determined. Excellent. That makes sense. Just the question on AI. You mentioned that you're close to commercializing your breast density or at least to connect it. Yeah. Outside of Yale people with your breast density algorithm. Yeah. Can you talk a bit about how we should think about the monetization around that? Are you gonna go beyond implementing it in your existing customers? Like, would you look to potentially offer it to people who are using different platforms but want access to your algorithm? Yeah. Well, at this stage, look, I think crawl before you walk or walk before you run, rather. We would most probably put it out to existing clients because, you know, it'd be easy for us to integrate. Like I said, once we've integrated at one site, it would be pretty much the same at the others. Then, you know, like most AI at the moment, there is no fixed, you know, pricing model or revenue model. We think it will be transaction-based. I think that makes the most sense, but clearly we haven't tested the market with that yet. I think, you know, there are a few steps to go through, but they're all sort of discovery steps rather than any great R&D or regulatory. I think we'll put it out or offer it to you know, a limited number to begin with, make sure it sort of does what it's meant to do, the way it's meant to do, and then look to sort of package and price it from there. Now, is there anything that stops us taking it to a non-Visage client? Fundamentally not, but I think that would be a second step, certainly not in the initial phase. Your next question comes from Mathieu Chevrier with Citi. Please go ahead. Hi. Good morning, Sam. Good morning, Clayton. Thank you for taking my question. My first one's just on the contract renewal. In the release you say that they're a bit like new contracts, but I had a look at the Allegheny renewal. That used to be $11 million over five years, and it's now $12 million? Yeah. Can you just walk us through what's behind the increase in the value of the contract? Yeah. The increased value of the contract was actually more than it seems, but you know, currency can impact it over five years. Effectively, we've kept minimums at the same number, right? Even though they're doing more. Their minimum commit is the same as it was five years ago, but the actual dollar value per transaction is higher. It was actually higher than, you know, in US dollars, it's actually higher than $1 million, but the currency difference over the five years in AUD is roughly AUD 1 million. Now, clearly, if you know, they continue to do more and they've grown, that the value of that contract will actually be more in the second five years than the first, more than the million-dollar delta. Effectively it's, you know, it's like it's the whole term again. It's not an extension, it's a complete five years again. Yeah. Okay. Thanks. Thanks for that. Just in terms of, you know, your footprint in that network, are you know, used across the entire radiology practice or have you expanded, you know, your footprint within the radiology? Oh, no. Allegheny at the moment is diagnostic imaging. You know, they from when we originally saw them, they've increased their footprint, but by merging some hospitals. As I said, the delta between the minimums and what they actually do is bigger now than it was five years ago. I think that acquisition occurred maybe three or four years ago. I can't remember. But we've already done that. Yeah, pretty much all their radiology assets. In terms of the EBIT margin, I mean, obviously it's, you know, costs are not following the revenue line, which is, you know, a good thing. Obviously your EBIT margin keeps expanding. Where do you think that would land? 'Cause it seems to keep moving upwards and upwards. I was just wondering in terms of areas where you think you could eventually spend more money, what could, you know, what costs could actually go up over time and into what areas? Is, for example, pathology an area of interest for you? Look, as I mentioned in my commentary, I think, you know, EBIT margins are important, but a secondary metric for us. If we saw an opportunity on, you know, let's say not even pathology, but if we need to spend more money, and pathology could be longer term, but, you know, here and now, more money on some of our AI activities or some of our, you know, cardiology activities, then we would. We've done that. Like we've, you know, got the New York hub, we've established that. We are gonna put some more resources into it. You know, as we sit here today, you know, the revenue outstripped even that. We don't think, you know, we think it's possible that the margins could go up and down in increments just depending on when we do the spend. Do we expect it to go to 90%? No. Do we expect it to drop to 50%? No. It'll, you know, it'll oscillate around these sort of areas, give or take, depending on just what opportunities come up and how much we invest in them, and clearly how quickly we can get some of our clients up. If you look at things like Novant, one of our biggest deals at the moment, we're not receiving any revenue for it because it's still in that pre-implementation phase. When that kicks in, that will have a material impact on revenue. Even if we spend more, if it's not as much as the revenue, the margins will still go up. Got it. Just one final one on the pipeline following the RSNA late last year. Yeah. How would you qualify it relative to what it was in terms of mix of different types of clients? Yeah, look, RSNA was a really interesting one because they forewarned us that registrations would be down. It was an in-person conference, but, you know, it had restrictions in terms of you have to wear face masks all day. You know, there was you had to be double vaxxed. So numbers were down, you know, they say 50%, some people think as much as 60%. But our booth was as busy as it's ever been, and I think we were relatively unique in that regard. The other thing that we noticed is that if you looked at the people that came, a higher percentage were new opportunities, 'cause we always have a mix of, you know, new opportunities, existing clients coming to see us, et cetera. For some reason, I think it's got to do with the, you know, people that were there for a reason, 'cause you could do the clinical side and the academic side, and all the lectures remotely. If you're just coming for that, most people didn't come. It was really if they came for a purpose, you know, to look at systems or buy equipment. Yeah, it, you know, turned out exceptionally well for us. It was as busy as we could remember. The team were hammered all day, every day. Yet, when you went out into the foyer where normally there'd be a zoo of people and take you know, 45 minutes to get a cab, there were cabs waiting you just go in one. It sort of looked like a conference of two halves. The other thing is the mix of people that came to see us were, you know, across all sectors of the industry. Some of the corporates I mentioned, some of the for-profits, not-for-profits. It wasn't just that we were busy, but it was busy across the spectrum. You know, pleasingly, it turned out far better than we would have thought maybe four or five weeks before the conference, where numbers were looking down. You know, that really didn't impact us. It was as successful a conference as we've ever had. If you do have a question on the phone, that's star one. Your next question comes from Julian Mulcahy with E&P. Please go ahead. Hi, Sam. I've got two questions, so I'll fire them both off first before the moderator cuts me off. The first one in relation to the breast density algo. I'm just interested in your kind of read on the radiologist end of it, because there's certainly, you know, there's lots of development. There's like nearly 200 now approved. But from the radiologist point of view, are they gonna kind of see it as maybe creating more work for them because they'll have to, you know, spend more time, you know, looking at scans that they may have missed? That's the first question. The second one, have you missed out on any contracts, you know, say, in the last six months? On breast density, no, they'll actually make it quicker, but not so much just that it's quicker. It makes it more objective. Because if you have five different radiologists look at it is a very subjective thing, density. It's something that you estimate, you can't measure. So it makes it a lot more objective using the algorithm, and it also means that it takes them less time because the algorithm, it basically gives you the results as you open up the study. The other thing is it also helps even before it gets to the radiologist because you have to do it for every patient. Now, yeah, if the patients had a mammogram or a tomosynthesis before and they had dense breasts, they're gonna have them again. The question is, has the density changed? So that's the big one. If it's someone new to the center, what is the density? Like I said, it does that on the fly. I think it actually speeds, and I'm sure it speeds things up, not slow it down. But look again, till we put it out into a, you know, a more spread user base, we won't know the full potential that it has. We only know what we know and see of where it is at the moment. In terms of losing opportunity for the ones that we've competed against, no, we haven't lost anything that I know of in the pipeline. Now, there'll always be things where there's a renewal that never comes to market or where there's this usually small RFP that we just don't get on the starting line of, but thankfully they're few and far between. I can't remember a recent major one that we've actually lost. Not in six months. Okay, thanks. Maybe not since last announcement? No. Your next question is online from Scott Williams. He asks, "Do contracts have any provision for price increases in line with CPI movements?" We particularly in the U.S. with a transaction-based model, we bake that in. We fix the price for the length of the contract, knowing that it will be fixed. They're usually between five or seven years, so we bake that in rather than ratchet it up every, you know, year or two. I suppose the answer to that is no, it's a baked-in amount and fixed for the life of the contract. Michael Porter asks, "What overseas bid opportunities are there?" Michael, if you're listening, sorry about that. Don't quite follow the question, but we 85% or about 80% of our revenue comes out of North America. That's overseas. I suppose outside the U.S., we did win that German government contract. I suppose the key growth area for us is Germany, because we're there and also because it's most probably one of the best funded health systems. Having said that, the system will work anywhere and, you know, anywhere in the East, China, Japan, et cetera. It's just a matter of understanding the local market and, you know, having representation there. Clearly longer term, we would look outside even Europe. You know, given that everything's busy for us in the U.S., that's our main focus. "You refer to thinness and software-only nature of Visage 7 from the point of view of Pro Medicus. For new and prospective clients that wish to implement the system, presumably there is also a hardware acquisition issue. Do the recent supply chain constraints for GPUs, et cetera, cause delays in decision making, acquisition or implementation for clients?" We haven't noticed any. I think part of that is because our last five big deals are cloud-based, so they don't buy anything. It's all, you know, they rent public infrastructure in either Google GCP, Microsoft Azure or Amazon AWS. For those that are on premise, I'm just trying to think back. I don't think there's been a huge impact, but the last big one was, you know, back in September 2021. We haven't noticed any, but I think part of that may be because the majority of the new work is cloud-based. Ian Lee asks, "How does archive revenue compare to viewer? What's the decision process on archiving in the hospital?" Answer the first part, Sam, and can do the decision making. In terms of archive revenue, there are two components to it. There's a data migration process where we have to migrate data from their existing archive to our system, and that's like a professional service job. Similar to the when we do the viewer or the worklist amount of professional services. With the archive, it's a bigger piece of our time in the data migration process. It's roughly around 20% of the total contract value. That archive revenue is able to be brought into the current year, so it doesn't have to be deferred over the length of the contract. In terms of the rest of the archive revenue that we receive, it's on a per transaction per exam basis. Similar to the viewer in terms of a client comes to see us and we charge per exam. When we archive that exam, it also has an exam fee. It's spread. The rest of the revenue is spread across the length of the contract. In terms of the decision process, a number of the health organizations had invested in what they call a Vendor Neutral Archive, which ours is. What that means is the data that's stored in it is in a standard format and can be migrated from archive to archive or any standard viewing technology can view those images. The decision processes, there were a few. One is how old their existing archive is and who the vendor is or was. Simply because some of the standalone vendors have, you know, their market share has diminished. One, the second biggest one was called TeraMedica, got bought by Fujifilm years ago. So people outside buying Fujifilm tend not to use it. So, you know, if they have TeraMedica, they may look at something else. I think the other big thing is cloud. If they go to cloud, they say, "Well, does it make sense to have the archive, you know, in the data center, when we're going everything else to cloud?" They're the two pivot points and also what they had. In the case of Intermountain, they had multiple systems because of acquisitions in the past. The opportunity was if we put everything in the cloud, which is ours, then we clean up all of that, including the archive. That's exactly what we did. It just depends on the client, and it depends on what the technology is and how old it is. Owen Rask says, "Hi, Sam. Another great period. Well done. I think some of the long-term investors listening to this call will now get dividends in excess of the purchase price on their shares. On that, the war chest is great to see, as I think it adds optionality, especially with uncertainty around tech valuations globally. On M&A, can you speak to the types of opportunities that may be of interest to you? Cheers. Owen Rask." Yeah, Owen. Thanks for that question. Look, prima facie, our preference is to buy a capability that we can bolt on, or a development team. In other words, we're not looking to buy a competitor for market share, because usually that's very problematic. I think some of the areas would be in the adjacencies that we talk about. It could be something, you know, where they do things in cardiology or more likely somewhere in the AI space where, you know, they have some good technology, we could put it onto our platform, and we could build out that product. Because a lot of the AI at the moment is very organ- and disease specific. They'll only do one or two things rather than, you know, the whole mapping of what you need for that particular modality. They're the ones we're looking at. Valuations are important, and there has been a little bit of a rerating in the last three-four months. If that continues, clearly that benefits us simply because we have the retained earnings that we would use if we saw something that we could add value to. We're on the lookout. We haven't found anything just at this point, you know, the trend at the moment seems to be working in our favor in terms of valuations. Claude Walker says, "Thanks very much to the entire Pro Medicus team for these results. Now that Pro Medicus is getting larger, are there an increasing number of contracts that are too small to announce to market individually? The company has been standout with winning the biggest and best hospital networks. Are you also winning smaller contracts with small and medium-sized customers? If so, does this segment have much potential? If not, why not? Thanks for taking my question." Thanks, Claude. Well, look, we always get clients, new clients that are smaller. And we don't announce them because of materiality, but that doesn't make them any less attractive to us as a business. I think a few things. There are fewer of them overseas. As I mentioned, there's been massive industry consolidation, and there have been, you know, a few private equity-backed aggregators that have been quite aggressive in the market. So they're mopping up a lot of these opportunities. But having said that, there's still some out there. And I think cloud-based offering is a lot more attractive because, you know, they don't have the wherewithal anymore to, you know, stand up computers in data centers, you know, security. Cybersecurity, you know, is front and center, and you need very specialized people and capability. I think cloud keeps those people in our mix. We're seeing some of that. As I said, a lot of these groups are sort of amalgamating into bigger consortiums, either sort of like a cooperative type thing or they're getting bought out by private equity. There still are some. Hing Lam says, "Historically, group revenue has been seasonally weighted approximately 50%-50% between 1H, 2H. Are you expecting this again this year, or do you expect it to be more 2H weighted?" I think in the past it has been weighted second half compared to first half, and that's just purely to do with implementation. I'm not sure if it's completely 50-50 in the past. It's probably, again, more weighted to the second half. We do expect that trend to continue, although we have to make up the AUD 1.35 million for the German government contract that we announced. In saying that, things like Intermountain having an additional three months of earning only three months' worth of implementation within this half. We'll have a full six months. As Sam mentioned, new Vermont, new California, some of the new sites and Novant and any of the other sort of deals that we may get along the line. We do expect it to be weighted second half, although it does have to make up for the shortfall in the capital sale in the first half. "Sam, are there any significant macro factors on the horizon concerning you, either regulatory, economics or otherwise factors that may affect hospital funding?" Not that we know of, John. You know, we did put out some commentary because people ask us about interest rates and things. Look, we tend to be, the industry is to a large degree, insulated from the shearing forces simply because healthcare spending is largely non-discretionary. I mean, if you need to spend and you have a child that's sick, you spend. Or you're sick, you need treatment. The second thing is, clearly a lot of our clients, particularly, you know, the bigger hospital sites, et cetera, are incredibly well-funded and, you know, interest rates per se don't impact us 'cause we don't have debt. The key macroeconomic one about, you know, inflation and debt. Sure, there'll be maybe some peripheral effect, but we don't see that as being major. In terms of regulatory, we don't see any material change. Clearly everything we do goes through a regulatory cycle, both in the U.S., Europe, and here, and we're geared for that. We don't see too much. Nothing other than the usual competition scale, et cetera, that any business has. Nothing, certainly none of the storm clouds that could impact, you know, some more discretionary spending, you know, particularly around consumers and things that we don't see that will impact us. John Hester also asks, "Outside of Australia and Germany, is there a compelling business case to enter any markets? U.K., for example." Look, I think there will be. Those markets are changing. In the past, the problem with them is they've all been government-funded, government-run, and decision-making processes were usually done by non-clinicians, believe it or not. Now, I think that will change, and I think the presence of public cloud and the American model will become more prevalent. It's not quite there yet. I think it's closer in the U.K. It'll take a few more years in Europe. But look, I think those key things will work in our favor, because those markets look at the U.S. and what they've done in the past, not vice versa. I think we've had, you know, pretty strong success in the U.S. that would set us up pretty well, in terms of reference ability. Not quite there yet, but I think, you know, it's moving towards our sweet spot longer term. "Has Pro Medicus lost any of its long-serving German-based Visage technical team since the last report?" No. No. Matter of fact, we have the vast majority of the people that came on board when we acquired Visage in 2009 are still with us. There were one or two that transitioned because we acquired a product in 2009 that we sold off, and they went with that product. In terms of key technical people, no. We, you know, we've had terrific retention rates. Hing Lam says, "Did European sales revenues of AUD 3.4 million during the half include some or all of the AUD 1.35 million German contract renewal?" Yes. Sorry, all of that contract extension to the German government was all in those European sales for the first half. Thank you. There are no further questions at this time. I'll hand the conference back to Dr. Sam Hupert, CEO. Thanks very much. Well, thank you, everybody for joining us and for those that asked questions. Appreciate the interest and, if there are any further questions that anyone can think of later in the piece, please feel free to email them to either Clayton or myself. Thanks once again for joining us. Thanks, everyone. does conclude our conference for today. Thank you for participating. You may now disconnect.