Pro Medicus Limited (OTCPK:PMCUF) Q4 2022 Earnings Conference Call August 17, 2022 9:00 PM ET
Company Participants
Sam Hupert – Chief Executive Officer and Managing Director
Clayton Hatch – Chief Financial Officer and Company Secretary
Conference Call Participants
Chris Cooper – Goldman Sachs
Josh Kannourakis – Barrenjoey
Garry Sherriff – Royal Bank of Canada
Melissa Benson – Wilsons
Julian McCaulkey – E&P
Sarah Mann – Moelis Australia
Mathieu Chevrier – Citi
Operator
Thank you for standing by and welcome to the Pro Medicus Full 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
Good morning everybody. Thanks for joining us. As most of you know, we are a healthcare IT company specializing in enterprise imaging and radiology information systems. We work through three jurisdictions, Melbourne, which is our head office; Berlin, which is our R&D center for the Visage product set; and U.S., which is our main market. We have two product sets, the Visage RIS, which is practice management, does the billing and business side of radiology, largely Australian based with some clients in Canada and the Visage 7 product suite, which is our the main product or the key product set that we sell into globally, but mainly into the U.S.
In terms of our results, we were extremely pleased. We thought all of our key metrics, headed definitely in the right direction. I think, significant boost in revenue. Our profit after tax increased by 44%. We — our EBIT margins, which were most probably industry leading for the last few years, have increased a few additional percentage points. Pleasingly our cash balance increased by 46.5%. And as a result, our full year dividend was up by 47% and is $0.22 fully franked.
In terms of the highlights for the year. We won a number of material contracts, certainly very large, not only for us, but for the industry in general. In October, 2021, Novant, which is a large integrated delivery network. It was a $40 million, seven-year contract. It was followed by an extension of the German government contract we signed in 215, it’s the fourth extension and brings our software to a new region in Hamburg in Germany. Another large IDN Inova, which was $32 million and eight years and Allina, which we announced in June, which was $28 million and seven years. And I think it’s important to reinforce that these are the minimum contract commitments. Usually we receive a material amount of revenue over and above that.
The other pleasing thing that happened in the year were two major renewals, both for long contract terms, one for five years, one for seven years with a combined minimum value of $47 million. And throughout the year, we continue to get a lot of inbound interest and our pipeline grew accordingly.
In terms of where we sit, clearly in the Tier-1 academic space, we have doubled the number of clients over our nearest competitor. The top 20 day change each year, may always remains number one, but we’re pleased to say that we still are incredibly well represented in that space with a growing presence in the non-academic or IDN space.
Again, most of you will know our model is transaction based. We use it for — virtually all of our U.S. contracts and now for our RIS contracts in Australia, the forward revenue, which is the revenue we know we are going to get as a minimum from the contracts we have, assuming that renewals renew at the same rate they were originally, even though now we are renewing at high rates has increased significantly to about $420 million over the next five years. So, we see a bigger annuity stream with greater predictability.
In terms of the exam revenue from year-to-year, it did have a very — our biggest increase of 65%, 61% on a constant currency basis. And we did foreshadow this to the market. I think we did say that we knew that we’d had a number of material implementations towards the end of FY ’21, Northwestern, NYU, MedStar. And then we also had Intermountain and the UCs in the first half of FY ’22. And then we see that we believe that will increase. So Intermountain, UCs and others will give a full 12 months, which clearly will base material given their size. And we have three very large contracts coming online in the first half Novant, Inova, Allina and some others, which are a bit smaller.
So we also expect growth from existing clients, which we’ve seen throughout the period, and further upside as we get adoption from some of the other Visage 7 products, namely Archive and Worklist.
Professional services, I think not much has changed here other than they’re roughly 10%. They’re recurring in nature because we spread them over the life of the contract. And you’ll see when we do the split of revenue that, they are — they do go up and down a little each year, but within a relatively narrow band, but are continuing to grow.
So, we do believe we have very high operating leverage. We have contained our cost base, how much grows our footprint increases. And I think the next slide clearly shows that that from 2018 to ’22, we’ve gone from low to mid 40% EBIT margins to now at 67%. We’re — again, we think we’re multiples of our nearest competitor. And obviously, we are very pleased with that.
In terms of — we often get asked about COVID and it has been more prevalent in the news of late, particularly here in Australia. It has not impacted us negatively. We are globally working as a mix of in-office and work-from-home. We are operating at a full 100% capacity. Sales and marketing efforts continue unabated clearly as witnessed by the sales and renewals. We think the thing that’s about technology has enabled us to do a lot more remote demonstrations, particularly from cloud, which is important. And we have seen an increased number of new opportunities coming to the pipeline over the past 12 to 18 months, despite COVID restrictions in various jurisdictions around the world.
Part of that would be because we enable radiologists to work seamlessly from home. And even in those areas, no longer lockdown because of COVID. We are seeing more work-from-home than we saw in pre-COVID levels, maybe two days a week. But it’s still material. And exam volumes are back at or above pre-COVID levels. So, pretty much zero impact from us. If anything COVID has been a bit of a tailwind in terms of proving our remote capability and inbound RFPs.
Visage RIS, we had another good year with that. There was some incremental growth. We are still rolling out some of the larger contracts we had. I-MED and Healius is now complete. We are seeing some organic growth via M&A, so some of our clients are expanding their territories and that all just feeds into the original master contract. So we are — we are undisputed market leader in this segment.
In terms of the core Visage product set, every year or every half year we review where our technology stack stands compared to competitors in the market. We have previously said that it was roughly 18 months ahead. We think it could even be more because we don’t know of anyone at this point that has come to the point we were a number of years ago and obviously, we’ve continued to invest in our technology and moving forward. So, I think we can fairly lay claim to the fact that we are number one in terms of speed, functionality and scalability, which are the key factors that clients look for when looking to get a new system.
The things that are driving market adoption. As we said, we’ve seen more inbound RFPs. We think there seem to be more healthcare institutions, particularly in the U.S. looking to change or update their systems, their imaging systems. And we think that the drivers, which we’ve talked about many times before, remain the same, clearly the data set explosion, it continues relentlessly. And legacy technology just wasn’t designed for those size files. We call it compress and send basically, a system would take a file from a CT scanner or MRI scanner, compress it as much as they could without losing fidelity, send it down the network where the workstation where the radiologist would sit — was sitting would have to unpack that, have a few gigabytes of software in order to manipulate the images, and then make the diagnosis. And the trouble with this model is simply, the files are just getting too big, even if you’re on a local high speed gigabit network. So, we do it very differently. It is proprietary technology.
As I mentioned, we don’t believe anybody has been able to replicate this in production. As we sit here today, we actually stream the pixels rather than moving the farb [ph]. And someone asked me recently, and it’s a good point. The — there is a huge cost saving in hardware, not only in the number of servers you need, et cetera, but also the radiologists, because we don’t need a heavily configured workstation with a lot of memory and disc at the radiologist end, we can use anything because all of the processing is done centrally. So, anything that can display the necessary number of pixels, is fair for us. So the actual cost in these large organizations of refreshing radiologists workstations every three to five years is, is very material. And clearly with us, they don’t need to do it. So, another major advantage.
In terms of the contracts, Novant, as we said, was a $40 million, seven-year contract. Within Intermountain is our equal biggest to date. It is a fully cloud — it will be fully cloud deployed. And it is for multiple products in as much as it’s for our Visage 7 Viewer and Workflow. I think it certainly helped extend our rapidly grown footprint in the IDN market. We’ve already well represented there with large clients like Sutter, Mercy, Wellspan, and MedStar and others. But this is suddenly increased our presence and like all of our U.S. based contracts, it’s transaction based with potential upside.
We did announce the fourth extension of the original contract signed in 215. It is a capital license, simply because the government has to buy that way. But the $1.3 million doesn’t include a material annual support contract that we get every year to support that growing user base for this client.
Inova was another IDN again, on the east coast, again, cloud based. It is a combination of Inova’s hospitals and they joint private practice venture and Fairfax Radiology Consultants. So it’s a mix between inpatient and outpatient. We replace two key competitors, current competitors that are active in the market. One at Fairfax, one of Inova’s hospitals. And again, it’s a transaction based model with outside.
Allina, the last of the three contracts in the Minneapolis region close to where Mayo operate. It’s again, $28 million, seven-year contract. It does include Workflow. Again, it is cloud based, and it is a transaction based model. So three relatively similar, but slightly different contracts, all of them material.
And the other thing was the renewals. We have a combined minimum value of $47 million. Sutter is for seven years, which the original contract was for six in which the first year was a phase in year to do the implementation. Wellspan is for another five. Both of them were at an increased per transaction fee. And we feel that the commitment we are getting from our clients when they renew, is more than industry standard, usually, the industry renews for two or three years, whereas here they’re showing long-term commitment. And we think that is an endorsement of our offering and our technology.
In terms of the — one thing is to Sutter, the other thing is to put it in many of you seen this slide, but we do think it is a material advantage we have in that we can fast track and continue to deliver these systems in large scale. Last year when we did Intermountain, which is one of the larger IDNs in the U.S. landscape, the changeover occurred over two, one week periods where they thought originally it would take over two years. It was across three states and many hundreds of radiologists and thousands of technologists. So, it is very much a strength of ours. It is dependent on our technology and how we are able to deploy it optimally, and as we’ve said previously with COVID, we now have a highly optimized model that is a hybrid between onsite and remote, which we think works incredibly well.
The key implementations, we did talk about MedStar last year. It was sort of on the border of the financial year crossing. So, the bulk of it went live in early July. We mentioned just before Intermountain in October, and we have done three out of the five UC campuses. They were all done on time. And that was UCSF in December, UCI in January and UCSD in March. And in between we did the bulk of University of the Vermont. So, active. These are only the main implementations. In background, we’re always doing a number of other implementations for existing clients, where they open another new Greenfield sites or make bolt-on acquisitions.
One of the things that we’ve always talked about is the price — our price point, where we are at the value end of the market. We think we charge the most, but return the most to our clients. As I mentioned, there’s significant IT and infrastructure savings, radiologist efficiency that no one has been able to match. And I think importantly, we also provide a clinical ROI. If that is — we enable the doctors to do things they otherwise couldn’t do, or if they could, it would take so long that they normally don’t do it. And I think that has been, again, a key feature of the application.
This is an example of it. It’s where — if you’re looking for a stone in the ureter, you need to do this [indiscernible], and it could take quite a while with standard systems. It’s literally just a few clicks and less than a few seconds with Visage, so good clinical practices, you should do it. And again, we find that most of our clients do it because it’s so quick and simple.
The growth strategy. Again, we are executing on that. It’s to expand our footprint to new clients, which clearly we did in the past year and continue — planning to continue to do this coming year. We have had transaction growth pretty much from all of our existing customers. Well above there 100%, they told us they did when they first came on the contract. Some of it is quite material in terms of bolt-on acquisitions. Some is opening new Greenfield sites, but we’re able to garner all of that upside because of the fine grain nature of how we build, which is per test. We are bringing out new product offerings. So, we have — we now have in our core stack, the Viewer, the Archive and the Worklist, which we’ve now sold to a number of clients. And I’ll get to that. We are looking at extending further into Europe, and we are leveraging our capability to introduce some new next-generation products such as the video reports that we’ve released with NYU that I’ll get to in a minute.
In terms of the pipeline. Again, we think it’s very robust. It’s not just in terms of quantity, but it’s in terms of quality and market spread. For the last six to 12 months, we have been noticing renewed interest from the — full profit sector, which was the hardest hit by COVID and a sector that really went into a shell a bit. And we are seeing renewed interest, as well as in the academic space, the IDN space and across clients, both mid and large size. So, it’s about as big as spread as you can get. And we have seen increased inbound in RFPs, particularly over the last 12 to 18 months.
The Archive. As we mentioned, this is the ability to store the images electronically. We’ve had three recent sales where they’re both — Viewer and Archive and there can be material uplifts. So, MedStar and Intermountain were two cases in point, and we are seeing more interest in our Archive product. It is charged on a per transaction basis. So, again, as the client grows, the fees from Archive and Viewer grow with it.
Our newest product, which we released in RIS in 2019 is the Workflow. It is based on over 30 years experience with Workflow that we’ve had here in Australia. It does allow us to offer a single vendor solution. It is transaction based. And again, as I said, we’ve had it — it has been bought by three recent clients in MedStar, Novant and Allina, as they contracted with us. So they’ve contracted for multiple products, which we think is a trend we’ll see increasing and clearly advantages us. And we are seeing strong interest from our existing clients in our Worklist product as a possible add-on to the Visage implementations.
The one Viewer, this was the ability to extend outside radiology. As many of you know certain departments take what we call DICOM images or radiology type images that are sub-specialized cardiology being the main case in point. And we have progressed our efforts in that area. At the RSNA 2001, we show to work in progress that we’re in the process of commercializing into our product stack. It is ejection fraction, which basically is how much of the volume of blood in the left ventricle is empty with each heartbeat. It’s a very important function in assessing viability of ventricle and cardiac failure. It’s very specialized to really the cardiac area and it’s filled a functionality gap that brings us much closer to a full cardiology offering that is based on exactly the same Viewer in technology, as the Visage 7 product.
CloudPACS, we’ve trademarked that name again, huge momentum swing towards cloud, particularly over the last two years. We are cloud native. We believe we’re the only product that is, and we’ve been able to prove it with very large scale implementations MedStar, Intermountain, UCs, Vermont, to name a few. And I think proof of the putting is seven of our –last seven of our major implement or sales are all CloudPACS. And we are seeing pretty much that theme in most, if not all of the RFPs that we are getting.
So, the last few things with the Accelerator, this is our platform for AI that we use in some of our research collaborations and use for ourselves. Again, that we have been active on the number of fronts with some of our collaboration partners and internally and the building out not only the capability of the platform, but it’s use in some of the joint collaborations and joint research projects that we’ve undertaken, which have increased — the number of them have increased over the last six months, which is what we anticipated.
In terms of who leads it? Malte Westerhoff, our CTO and Brad Levin, our Head of Development. They are ideally suited to this function because they come from — they are both PhDs in healthcare imaging, processing and manipulation. That’s what they’ve trained in. And we have two people based in the east coast of the U.S. MingDe who is a PhD that sort of interfaces on our research projects and Raj, who is an MD and PhD that assists MingDe and assesses not only the research side of the projects, but how we could potentially commercialize those going forward.
We have announced previously the research collaborations agreements with NYU Langone, Mayo and Yale. We have established our New York research hub. It was a little more difficult than we expected because of COVID restrictions. We couldn’t get our people from Germany in until August last year. But since then we — that hub is going well. We have an additional staff member that’s joined us a few months ago, based in New York. And we are working on a number of interesting projects of which one was announced that RSNA last year, which is the video reports whereby radiologist can create a one minute report with a video showing the patient the pathology in their particular test and the patient can download it and look at it on their iPhones, et cetera. And it’s proved to be incredibly popular. And it’s now been released in our standard product stack.
The breast density AI, many of you know, we did have an FDA cleared in February, 2021. We have been using it at Yale, the accuracy of it over the period it’s been there is — it agrees with consensus of far radiologists, even more so than any one individual radiologist. So the accuracy is exceptional, and we’re now in the process of deploying it to a second existing site, which will be our next step towards commercialization.
Finally, we have been very busy. The world is slowly returning post-COVID to normal. RSNA was the first in-person conference in ’21, first in-person conference since 2019. We had a large presence U.S. and European teams. And despite there being conference attendance down over 50%, we were fully booked the whole time. We were as busy, if not busier than 2019, which was very pleasing. And interestingly there a higher percentage of new opportunities as compared to a split between new opportunities and existing clients. And the opportunities were across a broad range of market segments for profit, not profit, IDNs and academics. So a really good mix.
We’ve also attended these other major conferences plus others, [indiscernible] the two others besides RSNA, not as big, but still important. And then some of the subspecialty conferences where we are well represented with our technology, such as the breast imaging conference, the neuroradiology conference, and one of the key conferences in Berlin or in Germany.
So, in summing up, it has been easily the most successful year in our company’s history. Very pleased with the transaction volume increase because that FY ’22 forms the base on which we built FY ’23. We did have strong contract wins and renewals. We — the expanded product portfolio is paying dividends. Cloud is incredibly strategic for us. And as I said, we were able to establish our office in New York and that is growing. And importantly, our pipeline continues to grow and hopefully puts us in a very strong position going forward, both this year and into the future.
Thank you. And happy to hand it over to questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]
Your first question comes from Chris Cooper with Goldman Sachs. Please go ahead.
Chris Cooper
Morning, Sam and Clayton. Thanks for taking the question. Firstly, you commented there, Sam, you said that you’d seen increased inbound from RFP over the last 12 months. Can I confirm whether that comment applies across all customer segments, or is that a reflection of the other comment you made the renewed interest you’re seeing in the full profit sector? That’s my first question.
And if I’m limited to two, I will ask you please just on the renewal profile. So, obviously, very good to see Sutter and Wellspan get done on what looks like for favorable terms. What is the sort of forward profile for further renewals over the next year or two at this point? And is there any reason at all we shouldn’t be thinking about those being achieved on similar terms?
Sam Hupert
Well, the first one, the inbound has been across all segments and not only the segments, but various sizes, so midsize and large, it’s not just large ones, it just small ones. It’s a mixture. So, it’s not just full profit, but across all the segments we dearly. And as you know, some of the segments they’re not black and white. I know there’s a good case in point, it’s hospital plus imaging centers. And — so yes, it’s been across all segments.
I think the next major renewal will be U of Florida, which is coming up. And then after that, I don’t think we have anything material for 12 months or longer. So far we’ve been able to renew all of those that have come up. So clearly we are very pleased with that, and we don’t have any indication that we won’t be able to renew the ones or the one that is coming. So, still ahead of us, but we don’t have any sort of gray clouds over it that would indicate that they won’t renew.
Operator
Thank you. Your next question comes from Josh Kannourakis with Barrenjoey. Please go ahead.
Josh Kannourakis
Hi, Sam and Clayton. A couple of questions from me. Firstly, just on the pipeline and outlook. I noticed in the REM component of the annual report, you had, an annual contract value measure in terms of payment, which despite it being a very strong year, I think you noted was slightly below the top of the target, but below the threshold. Is there any way you can give us a little bit of context as a — just to help us, give a bit of a guide of how that looks for FY ’23 and what you guys are sort of thinking in that respect for ACV?
Sam Hupert
Yeah. Look, when you do ACV, you are looking minimum of 12 months into the future. And you’re also — it’s very dependent on timing. And as you know, even if you are selected as a vendor of choice, can take five, six months in contracting alone. So opportunities can flip either side of the 30th of June quite easily. And so, I think, what we are saying is, the ACV target we make sure it’s not a given, is that we’re not just going to get it by default. So, it has a stretch component in it.
I can’t comment on FY ’23, because we haven’t announced that to the market, but obviously we take into account that we’ve had more inbound RFPs when we look at that whole component going forward.
Josh Kannourakis
Okay. Got it. Thanks Sam. And just in terms of the new products, I guess, it’s a question that fits into the cost base a little bit, but also a couple of your comments — around comment new products at geographic expansion. In the context of both of those things, new products and greater expansion into Europe and other regions, how should we be thinking about the cost base into the future, obviously extremely high margins in the second half of the year? Thanks.
Sam Hupert
Well, look, a lot of the R&D, so our newest product is our Worklist. It is — has some of the DNA of what we do for Worklist here in Australia with the RIS, but it’s on the same technology stack as the Visage 7 product. So, a lot of R&D has gone into that. And obviously, that’s all been in FY ’21 and FY ’22 figures. And clearly every time you have an additional product, it’s not a set and forget, you’re always looking to enhance it. But I — we don’t think that having the multiple products will materially change our cost base anymore than having more clients because you need to service them. So, we’ve been able to develop and implement those products very efficiently and any increase in cost base in doing that has been more than matched by the increased revenue.
Josh Kannourakis
And Sam, just on that question, so same question in that respect of the new products on cardiology. Obviously, you mentioned that that’s progressed on the ejection fraction side. How far do you think you are from, I guess, having the ideal product that you believe as a standalone cardiology product to bring to market?
Sam Hupert
Yeah. Look, I think we close, but I’ll just define ideal because what is a — more than adequate feature function set for one organization may not be for another. It’s not that there’s a hard line and if you get there, that’s it. So, I think, look, I think people understand where we are heading, our clients and I think they’re very pleased with that. I think they understand the benefits of having the one platform, the thinness, because in cardiology, the Visage is, are going berserk just like that on radiology because it’s simply the mentality.
So, look, I think we are getting — this gets us a lot closer and obviously shows that we have the smarts to be able to do cardiology specific type applications within our own platform. And I think the two key things.
Josh Kannourakis
Great. Thanks Sam.
Operator
Thank you. Your next question comes from Garry Sherriff with Royal Bank of Canada. Please go ahead.
Garry Sherriff
Morning, Sam. First question on the expected timing of revenue contribution, particularly for those big three contracts Novant, Inova and Allina. I know in the past you’d mentioned that Novant, I guess, had been held up a little bit again on the client side due to data migration issues, but love to get a view firstly on that revenue contribution expectation for FY ’23 for those contracts, if possible.
Sam Hupert
Yeah. Look, they’ll all be implemented in the first half. You’re right. Novant was held up. We had hoped to do it a bit earlier. It was held up at their end, because of the large data migration project that we’re not doing, it was — they’re doing internally and it’s taken a little longer and they wanted to have that complete before we get in. But at this stage, we believe all three are very keen and have internal requirements at their end that need these things to be done before calendar year-end. So, all things being equal though, all three will be implemented in the next few months.
Garry Sherriff
Perfect. And the next one on an update on timing around again, Josh started to talk about it around cardiology or sales into new hospital departments outside of radiology, just an update on timing there and also for sales of the AI imaging platform.
Sam Hupert
Look, AI imaging, as I said, we’re already moving it to a second site and that’s in anticipation of them being able to use it and being happy with it and commercialization. So, there has been a material move there.
In cardiology, look, we have some things in trial of various organizations and clearly, this particular ejection fraction piece, I think will bring us closer to that point. How long is it? A lot of it also depends on them, how quickly they can test it and use it, and they need to test it in pre-production being a clinical product and a new one. It’s not something you can just drag and drop in. So, I can’t give you an exact date. Other than, this closed bit — this was a big piece of functionality that I think just significantly improved our prospects in that space.
Garry Sherriff
Thank you very much. Thanks Sam.
Operator
Thank you. Your next question comes from Melissa Benson with Wilsons. Please go ahead.
Melissa Benson
Morning, Sam and Clayton. Thanks for taking my questions. The first one is just touching again on that one Viewer product that you’ve shown. I guess, this is more of a hypothetical question in the — when you’re in a cardiology space, is there more kind of pricing power? And do you expect that to be kind of a higher priced product in that market?
Sam Hupert
I do because cardiology is not as big by volume, but it is as sophisticated. So, within the market then, cardiology, specific products tend to be priced a little higher. And bear in mind when we price in the general radiology market, we price across all modalities. And so, it’s a blended average price. So, for chest x-ray most probably is deemed as a percentage a lot, whereas for an MRI, it’s not, whereas in cardiology, you don’t have that variation as much. But yes, it would be at a — I believe a higher price than what we would charge for radiology. That’s there.
Melissa Benson
Understood. And the second question was actually around the RIS performance. That was kind of — the growth was ahead of what was perhaps expected. So, you mentioned, there’s been some kind of consolidation, particularly in the Australian market with Healius and I-MED. Is that kind of a tailwind that you expect to kind of continue impacting that business in a positive way and more generally, I guess in the U.S., are you still seeing quite strong consolidation tailwinds?
Sam Hupert
Yeah. Look, in Australia, the clients you mentioned, namely I-MED and Healius, they’re big fish in a small pond. They are expanding and wherever they go into new sites, we pick those up. Clearly, we’re not — we don’t control how and when, but whatever business they pick up the way we actually — the way we charge our pricing model, is fine grained and picks it up. So that’s all been good. And we don’t see any evidence of contraction quite the opposite. But again, the pond in Australia is relatively limited.
U.S. on the other hand, I think uniformly, we’ve seen an uptick in volumes from pretty much all of our clients, particularly in the last six months. Clayton.
Clayton Hatch
Yeah.
Sam Hupert
Now why that is, it’s a mixture of organic, it’s a mixture of bolt-on acquisitions. It’s a mixture of new sites. And we are seeing more consolidation and most of it is being driven in the private space, with private equity backed buyers. But we’re also seeing our clients, they’re all looking at new sites, new departments, buying regional hospitals, got hit hard with COVID. So, they’re expanding as well. And as you know, the way the contracts are stretched, we just pick up that work as soon as they put it in. So — and maybe just in general, they’re doing more radiology. It seems to be back on an organic growth path that maybe is bigger than we’ve seen over the last four or five years.
Clayton Hatch
And just touching on Australia, Melissa, the Healius contract is also on a transaction basis. And the prior year we were still sort of implementing the last few sites. So, they didn’t get a full 12 month revenue as we got this year. So that’s also incrementally increased. And as Sam mentioned, as I-MED or others go into new sites, there’s additional license revenue there.
Melissa Benson
Great. Thank you so much.
Operator
Thank you. Your next question comes from Julian McCaulkey with E&P. Please go ahead.
Julian McCaulkey
Hi, guys. Firstly, you mentioned that exam transaction volumes are up 65%. What were the sort of changes for support and professional services?
Clayton Hatch
In terms of volume or?
Julian McCaulkey
The bulk revenue.
Clayton Hatch
Professional services were in line slightly ahead of growth — ahead of last year, sorry. And the license revenue was up around 10%, 15%, which was mainly driven through the additional contract with the German government and the support contract through Munich University in Germany as well.
Julian McCaulkey
And with — you’ve previously mentioned, Sam, that a lot of your clients had Archive contracts that were due to expire over the next set of years. So what’s your progress on potentially selling Pro Medicus Archive to them?
Sam Hupert
Look, the more Archive and Worklist we put out either with new clients or existing clients, the bigger the reference space. And so yeah, look, there’s been a lot of interest, in both Archive and Worklist. Worklist is — Archive is almost transparent to radiologists. They never see it. They only feel it if it doesn’t work. Whereas Worklist is a bit like the Viewer, it sort of dictates their desktop. And so, we are — as we put in more and more and the product, gets disseminated more and more.
We are having a lot of interest in Worklist. And I think one of the other factors is there used to be three independent Worklist providers. Medicalis that got sold to Siemens a number of years ago. There was Clario that Intelerad bought a number of years ago. And then about two years ago, Nuance bought Primordial, which is one of the bigger ones. And now as you know, Nuance has been bought by Microsoft. So the small and nimble more independent Worklist, the vendors are disappearing and that’s crowding a vacuum that we’re looking to fill.
Julian McCaulkey
Okay. Thanks guys.
Operator
Thank you. Your next question comes from Sarah Mann with Moelis Australia. Please go ahead.
Sarah Mann
Morning guys. Just to question on pricing. So, obviously, you’ve had a couple of contracts that you’ve renewed at higher price points. Just wondering with inflation in the U.S., does this impact kind of the renegotiation process i.e. is it potentially, maybe even easier for you guys to get through bigger price increases going forward in a current environment?
Sam Hupert
I wish, but no.
Sarah Mann
Okay.
Sam Hupert
But effectively what we’re saying, and I think there are a few points. First of all, they wouldn’t renegotiate anything with us if they weren’t happy, if we hadn’t done our job. And part of that is making sure that they’re on the latest version. So, when they come to renew, they don’t go, it’s like an old car, it’s four years old. And so they’re on the latest versions and they feel we’ve done what we said we do.
And the other thing that they feel is that we keep giving ongoing benefits and clearly that’s important to them in terms of any of the financials, because we are more expensive than, than the rest of the market and intentionally so. So, look, there’s always a negotiation. Everybody wants to pay less, our clients included. But we have been able in all of our renegotiations to land on a midpoint that we thought was fair, particularly since some of these people were early adopters and we believe they should have an ongoing benefit. And so, the fact that they’ve renewed for effectively contract lens and some cases even, I think, sort of validate that are underpin there.
Sarah Mann
Okay. And then in terms of expansion offshore. So, I mean, here, you’ve been in Germany for a while. What is your strategy around going more broadly into Europe and I guess what needs to happen in the U.S. before you start going? A bit harder in Europe.
Sam Hupert
Look, I think, U.S. is the biggest market, but it’s also the most active, there’s a lot going on there. There are a lot of groups looking to buy systems, as we’ve mentioned in terms of pipeline. And there’s less impedance. Whereas once you go to Europe, and even, I dare say here in Australia, you’re dealing with government and once you deal with government, there layers upon layers, you have to navigate through. And it just makes it much harder and the opportunities, each one, is actually smaller, but that doesn’t mean we shouldn’t be doing it. And we think there are a few things that have happened, particularly recently that will help us a lot.
So, Europe doesn’t have healthcare in cloud pretty much, well on premise, but like the U.S. and like Australia, what the advantages of cloud are so compelling that they’ll need to go. But in the past, there’s been an issue with the large cloud providers in Europe. Simply because if — the U.S. government asked AWS or Microsoft or Google, they would have to provide data, which contravened some of the data privacy laws in the EU, and there is now a new treaty being — literally being negotiated to enable the big three to work unencumbered within Europe. And we think that will help us simply because we’re already cloud capable. We are already there. And what makes product good in America, makes it good in Europe.
So, that certainly — that will facilitate a lot of things. And the big cloud providers have to deal with government. They’re big, they’ve got teams dealing with it and maybe could help, navigate through some of the bureaucracy that otherwise is incredibly time consuming.
Sarah Mann
Great. Thanks so much for that.
Operator
Thank you. Your next question comes from Mathieu Chevrier with Citi. Please go ahead.
Mathieu Chevrier
Good morning, Sam. Good morning, Clayton. Thank you for taking my question. I hope you guys are well. The first question I had just with regards to the competitive environment and what you’ve been seeing since we last spoke six months ago.
Sam Hupert
Look, I think, as I said, we fill our technologies if anything has gotten even further ahead and whilst we will always have competitors. And you can’t win every single deal. Some people have long hill preferences from — they must buy product A or B. We’ve noticed some of the competitors when we started years ago have sort of diminished in their presence. I’d say some of those that came from the film base, ag for Fuji days that we seem to be successful against them. And so, really we haven’t seen any new competition come on board. There’ve been a few startups that have been touted, but with FDA approval and other bits and pieces, they may be years away before even being commercializable yet alone on big scale.
So, look, there’s always competition. We think — given our sales history, we are actually increasing our league, not the other way around. But clearly we’re not looking to be complacent quite the opposite. We think now’s the time to put the foot on the accelerator even harder. And big efforts we’re doing with our New York R&D, they’re not all around AI, they’re around feature function in the product, the R&D back in Berlin, and the stuff that we’re looking to do AI wise through partners and particularly with the research collaboration agreements, all part past all of that keeping even further ahead than we were previously.
Mathieu Chevrier
Understood. And in terms of going to Europe, I just wanted to just focus back on the U.S. and perhaps you can give us an idea of where you think you are in terms of penetration rate and what the way forward could look like in terms of potential penetration rate over the next few years.
Clayton Hatch
Yeah. I think in terms, of example, and we’ve spoken about this a little bit. We we’ve said we’re a bit over 5% and we think we’re still around that. The market — and some of the data we’re getting back is actually the market’s grown. We’ve been using something around 500 exams annually for the U.S. market. I think it’s closer to toward 600, 650 million. So we’re still around that 5%. So, it’s still very early stages.
In terms of the future, I think, as Sam mentioned about pipeline, we think we’ve got a great opportunity to continue to grow that and keep expanding our opportunity in the U.S. market. So, there’s plenty of runway in terms of opportunity there. We’ve got some good — great clients in different segments of the market. But certainly by no means saturated in terms of the market penetration.
Mathieu Chevrier
Yeah. Okay. And if I can just squeeze one last one, with regards to changing economic conditions. Obviously, there’s a lot of people forecasting a potential recession, and I was just wondering how that could potentially impact you in terms of volume and then hospital budgets and spend, especially that you’re obviously a premium solution compared to the other providers.
Sam Hupert
Look, we haven’t seen any downward pressure at this point, because we think — in our commentary, we are in an area where it’s largely non-discretionary. Our clients incredibly well funded. They have to provide healthcare to a scale and level. So, we haven’t seen any impact over the last six months. From a business point of view, people talk about wage inflation and — yeah, so, I mean, we are not — we don’t live in a vacuum, but because we’re very efficient in terms of staff numbers, the impact of that on us is very tightly contained.
And then, interest rates per se, for us as a business, they don’t impact us because we don’t have any debt to service. So, as much as you can be, we have been very strongly isolated from the impacts of the recent events with inflation and interest rates. And we have no indication in terms of our pipeline and everything else that that is changing.
Mathieu Chevrier
Okay. Thank you.
Operator
Thank you. We will now move to the webcast questions. [Operator Instructions]
Your first webcast question comes from Claude Walker [ph], who says thank you for the great results and for including more information, the company’s investment in depth and hybrid securities. What is the company’s RIS first reward analysis regarding these investments? How likely would it be that the company could lose money from this practice?
Sam Hupert
Yeah. Thanks very much Claude. In terms of looking at this, obviously the board look at the RIS reward on an ongoing basis. When those were first entered into in very low interest rate environment, it was used as the mechanism to increase interest. So the cash holdings that we had, and those discussions are ongoing. Clearly, as interest rates increase, term deposits look more attractive and could be an area where we can certainly park some of the additional cash that could be used in future spending either in terms of acquisition or in terms of working on the business and retaining some for development of our products.
In terms of losing money, we do have a policy around the grading of the securities, triple B, negative, plus. I think our policy talks around 80% of that, but it’s in the mid 90%s in terms of where we hold that at the moment. Any loss that’s made at this stage is unrealized. So, it’s only fully realized if we were to get out of those opportunities. We think some of those — some of those debts and securities will come back to their coupon rate once they get closer to maturity.
Operator
Thank you. The next webcast question comes from Judith Fraser, who ask, what percentage of the U.S. market do you think you have currently captured? And do you have a target which you think you can achieve over the next five years?
Sam Hupert
Yeah. I think as Clayton said, we — when we look at the market and we’ve been doing a fair bit of analysis on it lately, the number of exams that come through from all the data points is actually bigger. So, runways is longer. So, we were assuming around 500 million, we’re now saying it’s north of 600 million. And based on that, we’re a bit over 5% and growing, which doesn’t sound like much, but there are very few companies that have done that. Certainly not in the time that we’ve been able to do it.
So, I think, that — plenty of runway to go. And we — not only is it just the volume, but we think that the product is the only one that will — without modification can actually service all the different segments of the market. So, even, for some people there’s 600 million, but they could only address maybe 50 or 60 million because of the technology itself. We think we could address pretty much close to 100%. And then the only other consideration is, the cost of sale when is small, too small. And again, that’s changing because the small guys are either merging or they’re getting bought out. So the number of small groups is diminishing, which it works in our favor.
Operator
Thank you. Your next webcast question comes from Ray David, who ask, could you talk about the outlooks for cost? For example, are you planning on investing more in resources/staff in FY ’23 and what sort of cost growth should we expect?
Clayton Hatch
Yes we are. I mean, we have been investing in resources and staff in the current year, so the cost base has gone up around 20% in the past year. I think what’s been able to — pleasing our even margins have still been able to go up. So, we’ve obviously had revenue to be able to cover that. And the incremental EBIT we get on the revenue is much higher. We will be looking to increase resources in FY ’23. It’s in all three jurisdictions and it’s all — in all different departments around technical staff, clinical applications and project management and support. So, it will grow. But we are — we do believe we should be able to maintain our margins going forward.
Operator
Thank you. Your next question comes from Abby High [ph], who ask, how does the Visage product work alongside EMR providers, for example, Serna [ph]?
Sam Hupert
Yeah. Look, we — in all of our hospital environments, we integrate tightly with the EMR. The main months we see are epic. We do have some large clients that have Serna, I think, MedStar Intermountain and we integrate with that. So, clearly, it’s a standard requirement of ours. We have very tight level of integrations with all the major EMRs.
Operator
Thank you. Your next question comes from Ian Lee who asks, given the scale benefits, is there a cap on the margins? Can you please discuss the TAM on each of the segments, any comments on the potential contracts in the pipeline for this year?
Sam Hupert
Look in terms of cap on margins, we thought when COVID hit and — are in the mid to low fifties that we would — and then we didn’t have major costs like conferences in-person and travel obviously stopped. And the margins went to the low 60%. We thought they would gravitate back down somewhere in between when all of these costs came back, but they haven’t. And so, we’ve been able to incrementally grow them.
But having said that, we are at multiple multiples of, in terms of EBIT margins, over our nearest competitor. So, they are industry leading. And as Clayton said before that we don’t expect them to shoot up. We don’t expect them to materially decrease. They could go up and down a few percentage points in this range, just depending on timing of when we bring on additional staff, which are all planned FFO, when revenue comes in from the new contracts.
In terms of TAM for each of the sections, like I said, it’s impossible because some clients span multiple sections. All we are saying is that we think we have the biggest addressable TAM in the U.S. simply because of the product set, being able to address any part of the market from a product perspective.
Operator
Thank you. There are no further webcast questions at this time. I’ll now hand back to Dr. Sam Hupert for closing remarks.
Sam Hupert
Thanks very much. Well, thank you everybody for joining us. Hopefully, we’ve been able to answer the majority of the questions you’ve put to us. And as I said, thanks once again.
Clayton Hatch
Thank you.
Operator
That does conclude our conference for today. Thank you for participating. You may now disconnect.
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