Pro Medicus Limited (PMCUF) Q4 2023 Earnings Call Transcript

Pro Medicus Limited (OTCPK:PMCUF) Q4 2023 Earnings Conference Call February 14, 2024 7:00 PM ET

Company Participants

Sam Hupert – CEO

Clayton Hatch – CFO

Conference Call Participants

Garry Sherriff – Royal Bank of Canada

Josh Kannourakis – Barrenjoey

Andrew Paine – CLSA

Melissa Benson – Wilsons Advisory

Wei Sim – Jefferies

Sarah Mann – MA Moelis Australia

Operator

Thank you, for standing by. And welcome to the Pro Medicus Ltd. Half Year Results Briefing. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. [Operator Instructions]

I would now like to hand the conference over to Dr. Sam Hupert, CEO. Please go ahead.

Sam Hupert

Thank you. Good morning, everybody. Thanks for joining us for this half year presentation. So those who are not familiar with us, we are healthcare company, specialized in — an IT company, specializing in healthcare IT. We have three jurisdictions, Melbourne, Australia, our corporate office, and where we do development for our RAS product. Headquarters in Europe, in Berlin where we do R&D for the Visage product and U.S., which is our largest market.

We have two products, the RAS which is mainly Australian based, although we do have some clients in Canada, and the Visage 7 product, which is a clinical product used by radiologists and clinicians to look up images and make diagnosis, which is the product we sell globally and particularly in the U.S.

In terms of the first half results, I think summary, it what’s another record have for us. Everything went in the right direction. We had four large contract wins with a cumulative contract value of greater than $200 million at the minimums, which is our biggest half of sales. Today, we completed four major implementations in the half, our major conference in RSNA, the ’23 conference in November, December of last year was our busiest day. We made material progress with other ologies in AI. And so we believe this first half performance base, is very strong from the second half, and beyond this I’ll discuss a little later.

In terms of all the figures, I won’t go through each one. But I think materially improvements in revenue, profit after tax and underlying profit. Cash reserves grew, usually they grow a little bit more in the second half than the first, but there’s still a good uplift. And because of that, and in the sense that we don’t have any debt, we announced an interim dividend of $0.18, which is up 38.5%.

In terms of the revenue splits, a lot of you if you’ve been following us for a while know the graph, the pink bar is recurring transaction revenue, which grew materially and we believe, pretty sure will grow even further in the second half. And I’ll discuss that in a minute. The blue bars are also recurring, but more support contracts from the older style of licenses that we had. The green is professional services, and the yellow is data migrations. And because we are selling a fair amount of full stack, all three products that includes the archive migration column is continually growing.

In terms of the highlights, as I mentioned before, very keen implementations we came out of the gate, fairly early in July with Memorial Sloan Kettering, one of the two top cancer centers in the U.S. and one on the top, globally. Then, in September, our biggest contract to-date with Baylor Scott & White, the largest amount of profit. In Texas, it’s a 10-year contract with 140 million minimums, followed the next month by South Shore, a regional lobby [ph] in the southern part of Massachusetts, and then towards the end of the year, with Oregon Health and Science to one academic in the state of Oregon.

Then, of course, RSNA, as I mentioned before have busiest to-date, we had the biggest presence, the biggest number of attendees to the stand. And again, that resulted in a very positive flow of new leads. And we completed four implementations which are particularly important for us with the full new sales coming up, so we could clear the decks and get ready to start implementing them in the second half.

In terms of the transaction model, most of you know this is a per click model, it is underpinned by minimum commitment on the taper pay basis, usually about 80% of the previous 12-months volumes at the time of writing the contract. So, we now have increased our forward revenue with the contracts we’ve had to a minimum of $608 million over five years, which has been a material uplift, largely due to the all-new sales. And we do see upside as the client examinations grow. So we believe that that 608 is an absolute minimum full theory.

We have a lot of operating leverage, we have a highly scalable offering. It’s a software only model, we don’t provide hardware, training and installation was charged as professional services. So again, that’s quite a high margin business as well. We have a contained cost base, so our margin continues to grow as our footprint increases.

The client base, we have maintained the position of 9 out of the top 20 hospitals. This used to be ranked in how high in the order they were, but it’s now ranks automatically. I think our next nearest competitor has three or maybe four. So, it’s we do have the lion of share of the top 20. Something no one has been able to achieve in a 10-year time window.

We don’t just do academics, we do an air filled audience or integrated delivery networks. These are large hospital networks and medium sized hospital networks. The key difference between they don’t have a university of teaching hospital as part of the network. They are often very large, sometimes larger than the academic centers. And we had a number with Mercy, Sutter Hills, Intermountain, and Medstar previously.

But if you’ve followed us over the last 18 to 24 months, we’ve had an increasing number of IDN’s become clients such as Novant and Ova, Avana [ph], and recently, some of the ones in the last few months that have increased their penetration. So we’ve had six sales IDN’s in the last 18 months all six opportunities to be cloud deployed suddenly are having seen an increased network effect in this segment, which is the largest segment of the market in the U.S.

Beside the risks, this was our core product that continues to develop a new versions coming out. We have a number of long term contracts, with the two biggest — with Lumus previously, primary healthcare and I-MED the largest radiology group in the country. The Lumus rollouts are complete, there’s some upside bioorganic M&A. And we are fielding interest in new opportunities, particularly as the market starts to reconsolidate. And some of the radiologists coming out forming new groups, we’ll look at both our risk and Visage PACS.

In terms of Visage PACS, or Visage 7, we continually benchmark ourselves against the industry. And we’re highly confident that we are still number one in terms of speed, functionality and scalability with three key pillars that determine the success and capability of a product in the market. We see the massive data explosion continuing assisting us simply because the old technologies can’t deal with these ever increasing data sets where the gigabyte, there’s some new megabyte. And it’s not uncommon to have symbol exams in the five gigabyte plus anymore, some punching up to eight or nine gigabytes per test.

So why doesn’t the old technology work, basically relies on compressing the file as much as possible without losing any fidelity and sending that file down the network to a heavily configured workstation, then unpacks that file and does all the image manipulation, rendering, 3D local again. The problem with that is for faster just getting too big for that to be done on a demand or timely manner.

Our technology is very different we rely on. We have rather our own proprietary streaming technology that we developed in-house many, many years ago. It allows us to in near real time, compute the 3d models do the rendering and just string the pixels to the radiologist. So in most instances in 99.9 something percent of time, we’re actually able to provide full diagnostic capability remotely sub one second.

The solution is actually a whole ecosystem of product. It’s all based on the core Visage offering, the Visage 7 offering. This could be either on premise but of late in the last three years, it has all been cloud based. It is the same product that streams data not only to radiologists, but all referring physicians throughout the organization, it does all modalities, all imaging tests. And for those that that are part of that ecosystem, particularly the academics, we do have the AI accelerated, which is again, all part of the same streaming platform, which is very, very expandable. And as I’ll talk a little later, the Visage Ease, which is the remote capability, now with the new Apple Vision Pro being supported.

In terms of the recent sales, the first one Memorial Sloan Kettering, it was a 7-year $24 million contract. It is currently in the process of being implemented. The rollout is scheduled to be completed mid second half financial year. And we increasing our footprint in the Tier 1 academic space with this pint in the Upper East Side of New York. The next big sale, well our biggest to date, as I mentioned was Baylor Scott & White, it is the full stack Viewer, Workflow, and Archive. It is the largest non-profit system in North Texas. The rollout in terms of data migration since commenced, and we believe that the first sites will go live towards the middle of this calendar year. And so we will start to see some material revenue into the first half of FY ’25.

South Shore, NAV of $16 million transaction, a regional [indiscernible] based in Southern Massachusetts, again, we believe that this implementation will be completed – deployed and completed towards the end of this financial year, in the next few months.

And then finally our HSU, academic in the State of Oregon, this one will actually been done towards the second half of the calendar year. So again, will start contributing revenue in the beginning of FY ’25 for us. So, four very material contracts, all of the revenue from these contracts still ahead of us. And we believe cumulatively, they would provide a very serious step up in terms of transaction numbers, particularly going into the beginning of FY ’25 and beyond.

It’s one thing to sell, it’s another thing to install, we continue with our Fast Track implementation. As I mentioned, we had full material implementations in the first half, and a full roster for the second half. We are able to implement with a mixture of onsite and remote, well under a 0.25 of the time, sometimes we’re under a 10th of the time of industry norm, so huge savings for clients. And it allows us to maximize the utilization of our implementation teams, by having them go alongside do the work within a week or two, come back and refresh and be ready for the next implementation. So it has a number of advantages, not only for us, but also for the client.

The ROI, in other words, why would people buy us, we are known to be the most expensive in the market. I think we continue to prove our value proposition. As the more we do, the more we prove it. And I think it’s in really two areas. There’s the financial ROI, in terms of infrastructure equipment, and specially radiologist efficiency, where we believe we increase efficiency, orders of magnitude larger than more than our nearest competitors. But then there’s also the clinical component, we allow radiologists to do things they otherwise could do that would take too long. So don’t do it, or give them new capability. So provide a better platform for diagnosis.

So we do move the needle clinically. There have been some examples I’ve shown before. Some interesting work we did with Mariam Aboian, who is a top pediatric neuro radiologist, previously at Yale. Now at another client in the Children’s Hospital of Pennsylvania, some groundbreaking work in signaling tumors in children and we’re going to be using a lot of that technology under the bonnet as we go forward with new versions of Visage.

Something completely different, project with NYU Langone where we have a research agreement with the Chair of Radiology so patients. We’re not close enough to the diagnosis, they never saw the radiologist. They couldn’t quite understand, you know what they saw on the images even though it made available. So this concept of video reports or radiologist can dictate and film a short 32nd to one-minute synopsis of the case and diagnosis that is made available to the patient electronically is they’re found to have excellent patient engagement and a lot of very strong and good vibe from the referring clinicians.

The other key thing that we work on is, become endemic in the industry that is burnout, this global acute shortage of radiologists, the fact that we can increase productivity between 20 and up to 45 plus percent, depending on the situation certainly addresses this, it’s been a key selling feature. And one that we think gives us a strategic advantage in the market as compared to others.

Our growth strategy, again, we have multiple irons in the fire. I think all of these are currently in play, we are expanding our footprint quite rapidly as witnessed by busier sales half, in the first half. We are getting above average — industry average growth from all of our existing clients. So they’re growing greater than the mean, which also helps us. Some of that is just through efficiencies, some it’s through M&A. And we see that continuing, we are bringing new products to the market. And we are looking at new geographies, particularly with the adoption of cloud becoming a little bit more prevalent outside of the U.S. which we think will be a positive for us.

Pipeline. My commentary in the interview, pipeline is robust, even though we’ve had a biggest sales art in the company’s history, that’s been replenished with new opportunities, importantly, of different sizes and across different segments of the market. So we are starting to spread our wings across a much larger top of user base, not only academics and IDN’s is but also in the corporate space. And so we believe that we are unique in the one product can address the largest percentage of the market which we now deemed to be in excess of 80% of the total addressable market.

The product set, the view was our core product joined by the Archive a number of years ago, the outcome has been very strategic for us, particularly as clients looking to transition to cloud, our Archive is fully cloud based. It’s highly optimized for cloud and storage, and provides a very, very cost effective performance solution. So that’s why we’re seeing more and more of our sales, particularly the recent launch of full stack where they do take not just the view but the Archive. And the next product, the Workflow, which is the list of the radiologists use that tells them which cases to read. This is our most recent product, but one that we have started to get very good penetration not only in just the new opportunities, but we’re also back selling to a number of existing clients, because it is a best-in breed product.

As I mentioned cloud, we think we highly differentiated as the indicators, we’re one of the only one of the true cloud native, not only cloud native, or cloud engineered products in the market. Over the last three years in the U.S. we have only had cloud both performing cloud implementations. So not a single on premise one. We think the market has definitely shifted in a very big way towards cloud and the fact that we have not only a large user base, but a proven capability in cloud, has been a very important strategic plus for us.

The One Viewer product, mainly we would have seen our first foray into this which was cardiology and particularly on cardiac ultrasound. We did showcase a broad suite of cardiac ultrasound capability at our estate 2023 in December. December — November, December last year, it was incredibly well received and we are looking to now see that product commercially into the market. We have a number of key clients that are using part of this capability to you know, bench test that and the feedback has been very positive to-date.

AI. Again, it’s, it’s a hot topic in every industry but in healthcare in particular. And in healthcare imaging, which is ideally suited to AI. We do see a large number of use cases, so it could be embedded in software or imaging equipment. It has originally been used to prioritize cases, read through a whole lot of PCTs and put those with where the AI believes that there’s some of the methodology, or at the top of the list considered the most important to read quickly, we are seeing areas where large scale screaming is using AI as an adjunct, it’s just not enough radiologists to go around. We think the biggest area will be the second set of eyes, or an aide to diagnosis where we have seen a number of use cases starting to open up, some of them with possible reimbursements in the future, which I think will certainly accelerate the adoption of some of these technologies.

And then new diagnostic tools. So tools, we humans cannot see the result. And one of these is the FFR in cardiac CT, that can measure the pressure gradients in a coronary artery on both sides of the blockage, the greater the pressure, the larger the problem. And in future, there’s always the possibility of automated diagnosis using AI in certain cases.

We do believe our platform is very well suited. We do believe that because we have GP and technology. We have an open AI interface API’s that we are well placed for when AI becomes even more mainstream to become a major player in this market. Just for the sake of time, I’ll go just to the new kid on the block. Visage Ease VP, VP for Apple Vision Pro.

Many of you will have heard that Apple released its new set of spatial imaging headsets called the Apple Vision Pro. As one competitor mentioned on the internet, it’s like going from the Flintstones to the Jetsons. So key thing for us is we were one of the first we’ve been working on this project for quite a number of months, we’ve been able to port part of our Visage Ease product, which is used on iPhones and iPads to the Vision Pro operating system, so that it is a native application for the Apple Vision Pro at launch.

So it was launched on the 5th of February. Cinematic rendering engine natively embedded. So it’s ideally suited in terms of our rendering and our streaming the device. For those who haven’t seen it supports visual screens for more than 4k resolution per eye. It has true immersive spatial experiences for diagnostic imaging, we believe that will be a very interesting platform for AI integration. So immersive imaging and AI we think are very interesting technologies that can work incredibly well together. And as one of our clients, in San Diego was our launch client for this product, and other key Visage clients are now in a position we’re looking to pilot the technology, which as I mentioned, was released on 5th.

I think one of the key things about it is not only will it extend where medical imaging goes particularly longer term as multiple versions of the Visage, the Apple Vision Pro release. It also I think underpins our belief that our technology is months ahead of our competitors if not more, simply because we are now able to take full advantage of these very new and exciting technologies on release. And part of that a large part of that is purely the platform and how it’s configured.

Finally, RSNA in ’23, it was our biggest ever our biggest stand. We had a 64-foot scream, if you can see that the top, so we certainly were very visible. We have the largest number of visitors to the booth and as a percentage of those visitors that highest percentage of new opportunities that we have had, certainly over the last few years, so all very positive, very good feedback, high percentage of new opportunities as well as very good attendance from existing clients, looking to see what’s new coming out. So we were exceptionally pleased with the net effect of that.

So in summary, massive, successful up in our history. Our Northern American footprint improved very strongly with those four big sales in the half. The full stack solution certainly as pay major dividends for us. Our implementation capabilities, both remote and on-site, is proving to be a boon. And as much as we can do more implementations was possible maybe even two years ago. Cloud has been a huge strategic advantage for us. We think we continue our unparalleled value proposition. Our pipeline is growing strongly across a very broad range of opportunities. We believe we’re well positioned to leverage AI. And we think that another key set that will play out in futures, obviously, the least, the launch of Visage Ease for Vision Pro.

On that, I’m going to finish the presentation and certainly, we want to take any questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first polling question comes from Gary Sheriff from Royal Bank of Canada, please go ahead. Pardon me, Gary, your line is now live.

Garry Sherriff

Good morning. Sorry, Sam and Clayton, two quick questions, one on the Co Visage pipeline, and the second one on sales outside of Radiology. In terms of the Visage pipeline, can you maybe just give us a sense any deals as big as Baylor Scott White in the current pipeline? And in terms of your RFP? Can you maybe just give us a sense of a number or percentage of RFPs that you’ve been shortlisted for? That’s probably the first question.

Sam Hupert

Yeah, well, we certainly we’ve got them across a broad spectrum. And the spectrum can be looked at through two prisms. One is market segments. So they’re across all market segments. The second is size. So without specifically referring to Baylor, there are a number of material ones in there as well as a good smattering of medium sized ones. So, you know, I think the important thing is to us, it indicates that our TAM is really much bigger than people realize, initially, because people thought, with our price point, our technology, I mean, the really big guys that take it. And we’ve shown that that’s not the case, they thought maybe only the academics would take it. And I think we’ve shown that’s not the case. So big spread, both in terms of market and also SaaS.

Garry Sherriff

Understood, and then those RFPs or number of percentage in that pipeline that you’ve been shortlisted for roughly?

Sam Hupert

Yes, we don’t give that number out. But, you know, the fact that the pipeline continues to grow. And obviously, some of these opportunities as, you know, could take two years. So at various stages, I think we have seen an increase in frequency the inbounds over the last 18 months. I think a few reasons for that. I think cloud was a big one data set sizes. Maybe some of the organizations have gone through the transition to electronic health records. And now, imaging is next, because it’s a key part of it. But certainly there’s been an increased cadence of new RFPs.

Garry Sherriff

Thanks, Sam. And in terms of those sales to cardiology, so I guess the timing appears a little bit behind your expectations over the last, call it 18 months. Has there been any impediments or holdups to launch and commercialize the cardiology sales? I mean, what’s the latest plans and timing I guess on revenue contribution, I know you’ve clearly been outlined or you’ve outlined demonstrations at our SNA and you also talked about the investment that you’ve made with the lucid but just trying to get a sense on impediments or holdups in terms of commercialization and maybe the latest timing on revenue contribution from cardiology sales?

Sam Hupert

Look, we think it’s imminent, we are — and you mentioned the lucid investment, we are looking at multiple claims to that strategy of which lucid is another plank. So there’s a fair bit of work going on, in and around all of this. It’s not just the cardiac ultrasound, there are other bits and pieces that hopefully will come to the full, as we continue. So we are — we do think it’s, it’s eminent, we do have more people actually using it existing clients, testing it in different environments, which is a positive for us. So, whilst I don’t have an exact date, I don’t want anyone to think that this thing has stalled in any way, shape, or form and fashion. We’ve just it just taking a little touch longer. But I think other things are happening in and around it as well.

Garry Sherriff

Very clear. Thanks, Sam.

Operator

Thank you. Your next question comes from Josh Kannourakis from Barrenjoey. Please go ahead.

Josh Kannourakis

Hi, Sam, and Clayton, thanks for taking my call. First question just around some of the volume growth that you’re seeing in the business. And I guess the outlook for some of the organic growth around your clients as well, could you give us a little bit more detail around that?

Clayton Hatch

Yes, we’re definitely seeing exam volumes increase. And you know, Sam mentioned that, during his presentation, we are seeing that it’s higher than industry standards. Exam revenue went up around 9%. But we obviously had some implementations through that period, but more to the back end, we think that will increase again into the second half as we roll out, Memorial Sloan Kettering and Baylor Scott White, South Shore, et cetera. But the organic growth we’re seeing through our existing client base is going higher than industry standards, which is around 3.5%. So that is pleasing to know.

In terms of acquisition, we have seen some of our existing customers take on new hospital groups, and we get some of that uplift. Some of it is, you know, 12 to 18 months after they make the acquisition because they generally need to get in their electronical record and other software. But then we start seeing that exam grades come through, so we are seeing it. And pleasingly with our exam volume operational model, we can see that come through to revenue pretty quickly.

Sam Hupert

And then anything else. So Josh’s, if anything, and this is maybe a bit anecdotal, we think that at times, not only are continuing to grow quicker. So there was this gap, originally, this athlete, but you know, it’s not very rare a week or a month, we don’t get that NYU is just opened a massive new center in Long Island or, you know, another client just annexed to hospitals, or it seems that the rate of increase if anything was going up. Now, there’s obviously multiple reasons for that. We think one of them is our technologies and the enabler. So, you know that the rate of increase of the organically within these groups, we think is actually growing, rather than just being a one off and then staying static.

Josh Kannourakis

Got it. Now, that’s very helpful. Secondly, just around the pipeline, you obviously mentioned, so we’ve got the U.S. if we sort of go into some of the subdivisions of this, you know, the sort of outpatient clinic and providers and the like, are a big part of that both here and also, I guess, in Australia as well. That’s pretty much been dominated by intelli read, I’m interested just in any feedback you’ve got and what you’re seeing in those in markets. And obviously, there’s a bit of noise before the end of last year, Sam, I think which we talked on around that AWS related announcement with that partners, but more than more so keen to just understand what you’re seeing in those in markets and whether you’re seeing any change in sentiment around your sort of opportunity there?

Sam Hupert

Yes, it was an area as we mentioned till recently, as Sean Matt itself said was embedded freeze. A lot of these private groups were looking to sell it to corporates. There was some nice like a frenzy and who’s buying who, which is now abated, I think we have started to see an opening up of opportunity in those markets. And I think not talking against another competitor but the compression send model is starting to crack and even for remote reading where they have to send all the files, it’s becoming, you know, it’s becoming harder and harder to do.

So, we’ve made some inroads into that market. I think we’ll make more I think our products ideally suited. And in time, I think people will understand that the key thing for those remote reading groups is radiologists efficiency, because that’s exactly what they do. That it’s just radiologists reading, they don’t own the equipment, et cetera. So the more they can do perennial punches, the better off they’ll do. So, excuse me, I think we see opportunity there.

Josh Kannourakis

Fantastic. Thanks, Sam. Incredible. Appreciate your time.

Operator

Thank you. Your next question comes from Matthew Chavez [ph] from Citi. Please go ahead.

Unidentified Analyst

Yes, good morning. Thanks for taking my question. My first one was just around your commentary, regarding the TAM. I was just wondering if you could give us a few insights into your numbers about how you think about it and the 80% you mentioned.

Sam Hupert

Yes, so there is a bigger that we’ve been able to triangulate nice things and others have done similar exercise, because I’m like here in Australia with the government tells you how many tests are done in the U.S. It comes from multiple data sources. We think this around 600 to 650 million diagnostic imaging exams, done and granular roughly around 3% a year. And then we looked at all the various markets in terms of academic medical centers, IDN’s, and in the corporate market, we just talked about and said, well, is the product suitable? Can it work across all these markets as one product? And I think our answer is absolutely. We’re 100% sure that.

Then the question was really a commercial one. Why does it deal too small? And I think two things that have lowered the bar there significantly for us. One is cloud, because if they had to go through a hardware purchase cycle, it just takes too long. And the other one is full stack, because that increases the total contract value. So we then did an analysis of the markets and all the data we could get. And we believe it’s 80% plus in terms of addressability, through either commercial, or product prisms.

Unidentified Analyst

Got it. That’s clear. And then another one on, you know, class, though these ranking and you notice that a competitor of yours is taking the number one in terms of Universal Viewer. I was just curious to get your thoughts on that?

Sam Hupert

Yes, so class, class is an organization unto itself. If I can put it that way, we tend not to use their reports. We feel the market should actually make its own decision based on product. So last year, when we were included, it was actually a bit of a surprise. Because we didn’t do anything for that. That was just the interview of various clients. So, I don’t — we don’t put too much stock into whether we’re one or two. I think the fact that we’re gaining market share and rapidly getting in against competitors, I think to us is more important.

Clayton Hatch

I think we’ve also been categorized in a category under Universal Viewer that, we actually think we could be in a different area because we’re obviously doing PACS replacements that possibly the category that we’re at steam for a starting point is not the correct one. We are replacing people’s PACS. So should be included in the PACS category. But as I mentioned, there’s sort of a, an entity on their own. So, they come out we don’t really deal with them much. So.

Unidentified Analyst

Got it. Thank you. I’ll jump back in the queue. Thanks.

Operator

Thank you. Your next question comes from Andrew Paine from CLSA. Please go ahead.

Andrew Paine

Yes. Good morning, everyone. Thanks for taking my question. You mentioned that you increase staff numbers to support new contracts. Just wondering if this step up will suffice. Should to bring in more high value contracts? And does this cover some of the starting AI and its adjacencies, essentially just trying to go to the ramp up over the next few years in this area?

Sam Hupert

Yes, well, it’s really all of the above. So, we have budgets for increased kind of new here, we don’t specifically hire for an implementation. So we, we didn’t hire five people, just the Baylor, it’s purely as we find them. And looking forward, it takes a while to train people to bring them, for them to understand the application. So it’s not a thing, we could hire someone today and immediately have them up to speed tomorrow. So, this was all planned, it wasn’t just for Baylor, it was Baylor plus other opportunities. And those opportunities are across every segment of the market and every application that we’re looking at.

So, if we do staff, which we plan to specialize in cardiology, obviously, there has to be people that helped support that in amongst the general imaging. So, it’s for all the applications going forward. And said, a lot of it is to be ready for future growth we believe will be coming.

Andrew Paine

Okay, so sorry, you don’t think there’s going to be those large step ups in the future like that, that can kind of supply the next year or two? Or is this ongoing investment?

Sam Hupert

It’s a stepwise ongoing investment that we’ve always done. It’s really just to say the cost basis is going to keep going up, but less than the revenue. That’s basically what’s been happening. And this is just a continuation of that process. We have bought on some people that specialize in areas as someone that specializes in, you know, cardiology, as a focus, we bought that person on over a year ago. But they’ve been general staff as well. So totally in anticipation of not just increasing volume, but increased diversity of our offerings.

Andrew Paine

Okay, that’s great. And then just on AI. Just trying to think, of any changes to your AI strategy, just thinking about the in-house AI development, versus external bolt-ons, and, essentially, do you think that there’s any M&A requirements that you need to see in this space?

Sam Hupert

I believe we always viewed it as a multi prong strategy. One is we’ve got the platform and that that’s a big task. But then the question was, where did the algorithms come from? Yes, some that we developed ourselves, some we will develop with our academic partners, so that, those processes afoot there, and then some that will be third party, a third party doesn’t necessarily involve an equity participation. But in the case of Elucid, we thought, this, this is an area that we see growing rapidly. We liked their technology, they were in a series, see funding round them, and we thought it would be a good investment. So it’ll be all of the above. And we’re looking at those opportunities as a group all the time. So we have people assessing all these things, do we build, do we partner to really this third party?

Andrew Paine

Okay. That’s great. Thanks.

Operator

Thank you. Your next question comes from Melissa Benson from Wilson’s Advisory, please go ahead.

Melissa Benson

Good morning, Sam Clayton. My first question is just on competitive landscape. So if we think about RSNA last year, we saw that Philips launched kind of a new cloud based enterprise imaging health suite with Amazon. And I think the reason I bring that up is we haven’t seen those legacy players really step up to the plate, if you like. So I guess just any thoughts you had on, I guess, that particular product, but also what you’re seeing competitively? And if you think there’s a bit of a shift where those legacy players are starting to at least attempt to compete on product offering again.

Sam Hupert

Yes, interesting to be cranked up into our technology leaders actually increased. So we don’t know of anybody I mean, there’s marketing announcements. And, you know, that’s one thing, but certainly out in the field, if anything, we’ve seen the technology gap widened. And I think with the release of this new Visage Ease for the Vision Pro, it’s just a whole step again. So, no, we haven’t noticed any increase in the competitive landscape in terms of product capability, I think, if anything the opposite.

Melissa Benson

Okay, that’s helpful. And the second question was circling back to the Elucid investment. You know, I think you mentioned you know, they have very specific kind of cardiac CT algorithms and things like that, but also that they’re amenable to reimbursement. I mean, how important do you think having AI algorithms that have specific reimbursement attached is going to be to, I guess commercializing some of these opportunities?

Sam Hupert

I think, particularly to algorithms like this, where the reimbursement is material, very material, very important, because they’re very expensive tests. They’re not done on every single cardiac CT. But whether there’s an indication, it can save not only the patient at the hospital, a fair amount of downstream cost. So the cardiac CT will look at someone’s coronary arteries. The two additional AI components will basically help to decide whether that person needs angiography, which is very expensive and invasive or not. So the reimbursed cost material and I think between the two, could be somewhere around $800 to $2000 U.S. for CT. So, in this specific space, where it’s very specialized, I believe that your sense of reimbursements incredibly important. If it’s something a bit more that you need to do all day, every day, like breast density, maybe it’s the other end of the dollar, the test, yes good to have a reimbursement. But I don’t think that will stop people from using it. If it didn’t.

Melissa Benson

That’s understood. Thank you.

Operator

Thank you. Your next question comes from Wei Sim from Jefferies. Please go ahead.

Wei Sim

Hi, Sam. Hi, Clayton. Thanks for taking my question. My first one is just regarding, you know, that time consideration and 80%, I’d be keen to understand just, you know, how much price comes into consideration here. And, you know, as you kind of pointed out, it’s been noted that relative to other solutions out there that permitted, this is materially more expensive. But, how should we think about this, whether you’re too expensive, or the other systems are too cheap? And any other data points that you use to kind of like think about the pricing equation and how that plays into the time consideration? Thanks.

Sam Hupert

Yes. I think key, the hard available is offering is auto scaling, although auto, so I can, because we charge for tests, because cloud is really charged for watching use, this small guys, and no longer a disadvantage, because in the old days, they had to buy hardware, you couldn’t buy a half or a third of the server, certain software components that people would sell, they’d have to buy a whole thing, but only use quarter on that.

With us, you don’t do any of that. It’s you only pay for what you use. The advantage, in terms of benefits of the small gap is exactly the same. It’s just, they get the same efficiency, all right, so it’s not over 5 million in exams, it’s over 800,000 exams, but they only pay for what they use. So I think the auto fitting auto scaling components of the offering is incredibly, it’s fundamental to that end of the market.

And as I said, they get the same percentage benefit. Same thing. So that’s why we’ve seen a number of those smaller mid-sized IDN’s, like, Luminis, Samaritan Gundersen, South Shore, these are groups where people thought are — they would never be able to buy bizarre, I mean, the Mayo Clinic’s of the world, but clearly that’s not correct. So, I think the important part is the auto scaling or auto sizing part of the equation. And these groups need the sophistication just because they’re small, doesn’t mean they’re not sophisticated. So, that’s why we think our TAM is much bigger than the market that’s probably initially thought.

Wei Sim

Okay. And my second question is just on Slide 18 of the deck, under the one view, I’ve noticed that we’ve got ophthalmology. There’s just curious to see if there might be any, any progress on the development of other ologies outside of Radiology, well, the three listed above at this point in time? Thanks.

Sam Hupert

There is, so, I think, probably ologies, like a first cousin to radiology and a lot of its imaging methods, nearly all of it uses radiology modalities, ultrasound, CT, MRI, et cetera. The further you get away from that, it’s more reflected light by those videos. Ophthalmology, dermatology’s, are very good examples of that, where they tend not take an x-ray type images. So yes, and we are ideally suited to that net effect when we won LMU in Munich. The first view, this was looking at videos, our finest videos of operations, or QA and teaching purposes, nothing to do, radiology initially. So yes, we think it’s ideally suited and we’re looking at various opportunities that have the same platform can be used across for us.

Wei Sim

Great, thank you. I’ll jump back in the queue.

Operator

Thank you. Your next question comes from Sarah Mann from MA Moelis Australia. Please go ahead.

Sarah Mann

Good morning, Sam, and Clayton. First question for me is just, with regards to contract renewals. So, clearly, you’ve had a good track record with being able to increase price. But just thinking about, I guess, some of the contracts that are coming up for renewal over the next three years, a lot of them are — well, I think almost all of them are on prem. Just interested in how some of those customers might be thinking about potentially shifting to cloud given that that’s clearly hot topic of discussion at the moment. And, you know, if that kind of does progress, what that also might mean for transitioning to a water product fleet?

Sam Hupert

Yes. There’s certainly this big move towards cloud and needing district. So I think it’s fair to say that a reasonable percentage of existing on-prem clients will look to cloud transition as part of a broader transition of the enterprise. But not all, but I think it’s, it would be a material percentage. And once I do that, then that certainly opens up the question of Archive, because then the way we store data in Cloud is very different to on premise. And I think, number of opportunities where people had Viewer only on premise, will transition over time to Viewer plus Archive plus potentially worthless in the cloud. So definitely something that we see will happen. The timing really depends on a number of things like when they’re armed when it comes to end of life when their contracts are rolling off, et cetera. But I definitely think we’ll see more and more, make that transition to cloud.

Clayton Hatch

I think renewals or the timing of renewals, and the pricing discussion of going from one price to a new pricing because of renewals, they sometimes just want to get that out the way and that negotiation done, and possibly with the view to say, you know, in the next five or six years of this new renewal contract length, we will be moving to cloud, but let’s have that discussion afterwards. So get the renewal done with a view to move to cloud and as Sam mentioned, and hopefully add on additional product from there.

Sarah Mann

That makes sense. Thanks, guys. And then the other question was just a comment that you’ve made about cloud opening up new geographies outside of the U.S. Just curious in terms of like how you’re kind of approaching which geographies is priority, like, clearly you’ve got a presence in Germany. Is that kind of the main focus for now? Or are there other key markets? And if there are other markets, will you need to add kind of extra staff to target them?

Sam Hupert

Yes, so the as I mentioned, Europe, we’ve talked about this a fair bit. There are a few things about Europe, one, health is government funded all across all the countries. So there’s a large bureaucratic layer, the opportunity, each one is smaller. But we think that with cloud, it will be a bit of an icebreaker, it will open up these opportunities. Because the big cloud vendors stopped being able to work within Europe, because of privacy rule, rulings, whereas now I think the U.S. government and the EU have come to an agreement now that they can progress. And, we think that there will be a move into cloud in Europe. It’s a few years behind the U.S., but definitely will be this movement. So with the two things happening, our feet, it takes away some of the impedance.

Now, again, the cloud providers that they mesh is the global they’re everywhere. And, it’ll be maybe think a little bit more opportunistic, but there will be some opportunities where they will have a presence in a totally different geography, where they are looking at a solution within healthcare. And we may be part of that solution, because technically, there’s no reason we couldn’t be anywhere. It’s just purely from a cost of sale point of view, we’re not going to have people on the street in every single jurisdiction everywhere. So this would actually help us. So yes, we’re seeing very early blush in the interest across multiple jurisdictions largely generated by cloud providers been in most jurisdictions.

Sarah Mann

Great, thanks very much, guys.

Operator

Thank you. We will now address your webcast questions. Your first webcast question comes from David Lowe from JP Morgan, who asks, could you please comment on the trend and the average price best study over the last 12 months and the expectation for 2024? Will the price per click rise faster than inflation?

Sam Hupert

Yes, I think we’ve shown in the past that on renewals, we’ve spoken about pricing has gone up 50% 60% over the last five or six years. So it’s not an exact 10% per year. But we have been able to gain pricing increase and mainly through referenceability and additional product. That trend we expect to continue and it has done over the last four months. But we expect that to continue into 2024.

The other thing we’ve been able to do is with full stack solution, we were initially sort of one on one and one equals a lower amount. But we’ve now been able to gain higher price per click through all three components. So that adds up to a higher amount as well, which does, it is moving quicker than inflation. So we do feel that our pricing is beating inflation on a yearly basis. But we bear that in mind for each new contract.

Operator

Thank you. Your next question is from David Bailey from McQuarrie, who asks, cloud deployment has been a feature of all new contracts from late 2020. Can you provide an overview as to how Visage cloud PACS could differ to other offerings, and the benefits of cloud versus onsite deployment? Recognized/considered as part of RFP discussions?

Sam Hupert

Yes, I’ll answer the second question first. 100% yes, but pretty much every RFP as a cloud option, or we’re seeing more and more and more than just mandate cloud. So, being cloud capable, is incredibly important. That is cloud cloud and cloud as they say. The difference between us and our competitors is we’re 100% in the cloud, and 100% of demand. So, the way cloud uses storage and compute is totally different to on premise.

So it’s not like we’ve just taken something and forklift it into the cloud, which I believe others have done or partially forklift at their operations in the cloud. So, definitely very different, very different technology stack. And the fact that we can be complete 100% cloud with absolutely no hardware, on premise, even in the largest organization, I don’t know of anyone else that can actually do that. They can only do parts, which to me is not really clouds, it’s like, part cloud.

Operator

Thank you. Your next question comes from Stella Wang, who asks, excluding the net currency loss this period in PCT [ph] EBIT percentage actually increased again. Where can the company invest more in OpEx to support the accelerating growth? And she also asks in class 2024 for report, Visage somehow slipped from one to two position behind AXA [ph], with scores declining from 90.2 last year to 84.9. Could you please help us understand this mismatch between lowest score, but clearly strong pipeline momentum? Thank you.

Sam Hupert

Yes, I think we answered the second part of that question on the class. And we think our opportunity strong pipeline is a mismatch to that. The ranking, but we’ve commented about that. In terms of investment, we are investing more into headcount and you can see that in our employee salary lines, and in terms of the expenses, advertising clearly gone, we’ve increased that as well as our presence has grown through North America in many conferences, but obviously mainly in the RSNA conference in Chicago, but we will be continuing to invest and we don’t feel like we’re missing out on opportunity, whilst we are accelerating growth.

So, headcount will increase, we will keep investing in people. And that’s our main one, we don’t have a capital expense, where we need to redevelopment or redevelop any of the product, both, the risk product here in Australia, but also the Visage 7 platform, we think we’re investing in that how we see fit, and as more opportunities come to market.

Operator

Thank you. Your next question is from Claude Walker, from a Rich Life, who asks, Hi, Sam, the company seems very well positioned for the future. But what would you say is the number one risk or barrier that could stop Pro Medicus, from profiting from the future implementation of AI, diagnostic algorithms?

Sam Hupert

I think we are incredibly well positioned is a market this emerging, I know, there’s a lot of press around it. But in reality, the market is really just starting. So we’ve put a few irons in the fire. And I think one of the key ones is the platform itself, that it can natively show the output of AI. And that’s what radiologists want. They don’t want separate applications. And that has been one of the reasons the market hasn’t really taken off. They’ve all been separate.

I think we’re also well placed in assessing the actual, you know what AI is out there, and how to actually develop it ourselves, as well as with our partners. So that we have a three pronged strategy there, develop ourselves, I love breast density, work with some of our academic partners and their project support. Clearly, we haven’t discussed them in any great detail because they’re still in development.

And then there’s third party and as I mentioned that the first one that’s become public is Elucid, but we have been looking at a number of others where they have well suited AI, and how we can integrate that into the platform, because those companies trying to bring it in front of a radiologist by themselves is proving to be incredibly difficult. So, we think we are incredibly well suited to benefit from the uplift in AI as and when it does occur.

Operator

Thank you. You have another question from David Lowe from JP Morgan, who asks, potential customers in the corporate space was mentioned on the call. Could you please elaborate on this customer strategy?

Sam Hupert

Yes, the corporate space is made up of largely two bits, the biggest part radiology reading groups. So in the U.S. the fee for a radiology exam, or diagnostic imaging exam is two parts. One is called the technical fee. That’s actually for taking the images owning the equipment. The actual technologists are radiographers that take pictures. The second part is what they call the professional component, which is the actual radiologists reading the exams. And they two separate things, even if the same group does them.

So there is this radiology reading group infrastructure in the U.S. of groups that read works for other parties for hospitals, usually for large hospitals. And that has been an area where we haven’t focused on matching the past but we’re seeing some more green shoots in that area because people are realizing efficiencies. That’s the one tool they have. Because it’s purely around radiologist productivity. So we’re starting to see a lot more interested in that area, which is a different market segment to maybe a hospital IDN.

Operator

Thank you. You have a follow up question on the phones from Matthew Chavez from Citi, Matthew, please go ahead.

Unidentified Analyst

Yes, thank you. Just a quick follow up on cardiology. I was just curious to get your views on the TAM for that and the potential pace of uptake given that you have a reasonable installed base in radiology now? Thank you

Sam Hupert

Cardiologist multiple things. So there’s cardiology ultrasound, which was the mainstay of the past. I think cardiac CT is rapidly increasing, in terms of frequency and there’s even talk that it should become a screening test because the biggest cause of mortality in the world is cardiac events. And this is a very on the rise technology as is cardiac MRI. So, the landscape, most of it, but we think the TAM is roughly around 20% to 25%, of radiology. The clear thing around it is that fewer tests have high dollar value.

Unidentified Analyst

Got it. And just on the uptake that you may see from that product, when it launches given your installed base in Visage?

Sam Hupert

In that main thing is to get one or two key clients using it, and using them as a reference site. And, you know, we’re in that process at the moment with a number of clients using the applications that we’ve developed in slightly different ways, which is what we want, so that we can have a broader user base and experience. And then it’s a matter of really proving the value of each value to the existing client base. But certainly the thought process now is very different to what it used to be.

In the past that was always separate siloed systems. And now it’s the exact opposite. Can we get one system that covers multiple bases? Because just managing and securing systems is a big ask. So the fewer you have more cloud based they are, the more secure they are. So that’s, again, another thing driving.

Unidentified Analyst

Understood. Thank you very much.

Operator

Thank you. There are no further questions at this time, I’ll now hand back to Dr. Hupert, for closing remarks.

Sam Hupert

Just wanted to thank everybody for participating today and the questions. If there any other further questions from the analysts on the line, by all means, please feel free to contact us via email. And thank you everybody for joining us.

Clayton Hatch

Thank you.

Operator

That does conclude our conference for today. Thank you for participating. You may now disconnect.