Pro Medicus Limited (PMCUF) Q2 2023 Earnings Call Transcript

Pro Medicus Limited (OTCPK:PMCUF) Q2 2023 Earnings Conference Call February 14, 2023 7:00 PM ET

Company Participants

Sam Hupert – Chief Executive Officer

Clayton Hatch – Chief Financial Officer

Conference Call Participants

Gary Sherriff – RBC

Josh Kannourakis – Barrenjoey

Melissa Benson – Wilsons

Andrew Paine – CLSA

Mathieu Chevrier – Citigroup

Sarah Mann – Moelis Australia

Peter Meichelboeck – Select Equities

Curtis Larson – Norse Capital

Claude Walker – A Rich Life

Prasad Patkar – Platypus

Iain Wilkie – Morgans Financial

Operator

Thank you for standing by. Welcome to the Pro Medicus 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

Thanks, and thanks everybody for joining us on this presentation. For those that have not met us before, we are a healthcare IT company, specializing in enterprise imaging and radiology information systems. We work in three jurisdictions, Melbourne, Australia, our corporate office; building in Germany, our R&D base for the Visage product; and US, which is our largest market.

The company has two product streams, Visage RIS, which has the practice management side of the practice, billing, scheduling and interface to pay; and Visage 7, which is the clinical side that fits the radiologist desktop, and it’s the product we sell in North America.

In terms of the half year results, I think a few key things. It was a record half for us. We had four contract wins in North America plus a major renewal U of Florida. And importantly, we completed three very large-scale implementations in Inova, Allina and Novant. We had the RSNA, which is a big conference in Chicago at the end of November, beginning of December, and I think it was our busiest today.

We are progressing well with our biologies and AR, which I’ll talk about a little later. And we think the first half means the base for a stronger second half, and we’ll talk about that as well.

In terms of the key financial metrics, again, we feel they’re all headed in the right direction. Again, the profit after tax grew by over 13% period-on-period and revenue was up 28.3%. And because of that, we declared a fully franked dividend, interim dividend of AUD 0.13 per share, which is up over 30% period-on-period.

In terms of the revenue split, the salmon color at the bottom is transaction revenue, which, as you can see, grew as expected with the blue, which is support revenue, which is also recurring did grow as well. And in total, the revenue grew and we think in a healthy fashion.

In terms of the actual highlights themselves, as I mentioned, we did have the U of Florida renewal, which was actually at a higher per transaction rate and for a longer period in the original contract. We had three sales we announced as a group back in August, again, to show the segmentation of the market that we deal in. It’s not just the high end, but also in the medium and some of the smaller practices and things such as all three products or full stack and cloud in over there. We did announce a new midsized IDN contract in Luminis Health. We did the three implementations and, as I mentioned before, RSNA 2022 was our most successful today.

The operational model used in the vast majority of our contracts, particularly in North America and Australia, again, it continued to deliver results. We saw upside as our client volumes grew, and it is providing us with an annuity sale revenue stream with far greater predictability. We believe we show good operating leverage. It’s a highly scalable offering. We don’t have any CapEx in as much as we tend not to provide hardware and cloud no hardware at all. Our training and installations of charges professional services, we have continued to contain our cost base. And as in previous periods, the margins continue to grow as our footprint increases.

So financial year 2023 year-to-date, we are tracking ahead of budget. I think our Chairman mentioned that in November, and that continues to be the case. We are seeing client volumes like-for-like at above pre-COVID levels, indicating growth either organically or through acquisition. We’re seeing the ramping up of the three major contracts that we implemented in the first half and supplementing that several of the small implementations, including Montage Bay that we announced back in August.

And then early in the New Year, we’ve got to abrogate fairly quickly announcing it to a major academic in new Washington based out of Seattle and Samaritan Health and other midsized.

In terms of the markets we work in, clearly, we still are the most successful in the Tier 1 academic space. New Washington will add to that in this half, because they are regarded in the top 20 hospitals in the US and they have a particularly strong radiology program, and we continue to work on opportunities in this academic space.

I think the other thing that’s really occurred – it seems more prevalent even though it was occurring in the background is our penetration of the integrated delivery network space or IDN space. It is the largest single segment of the market. We did have existing clients in that space in Mercy, Sutter, and more recently MedStar. But we have gained fair momentum in this space with six sales over the last 18 months.

All of the sales have been from more than one Visage product, the trend that we see as positive and continuing. All six opportunities the fully or will be fully cloud deployed and we are seeing an increased network effect in this market segment.

In terms of the RIS, it contribute to growth in the Australian business, which was up approximately 10%. The key contracts that we had with Lumis previously, primary care, and I mean, the two biggest providers in Australia. The Lumis rollout is now complete. It is transaction-based. And as they continue to add new practices, we get some of that upside. There is increased market interest in new opportunities. And I think it’s clear to say we are the undisputed leader of RIS in Australia.

So what makes this different from others, I think we are number one in the three key areas of speed, functionality and scalability and we believe, if anything, we’ve extended our lead in terms of technology leadership and our domination of these three rapids. Things that are driving adoption, including large data sets, many of you have seen this slide before, but we just saw a very interesting analysis in the US, where breast imaging and screening is rapidly transitioning breast tomosynthesis from 2D mammography. That is creating a massive data silos for practices simply because mammography’s in hundreds of megabytes. Breast tomosynthesis, which is like multiple mammograms in one image is in the gigabytes. And we’ve seen a massive transition to DBT or breast tomosynthesis. So, we see breast imaging, there’s almost a canary in the coal mine when networks crack within an organization, imaging networks, it’s almost always best imaging that is the first one to crack the network and make it too slow to use and hence one of the things working in our favor.

Legacy technology. The reason for that is it’s compressors. You have to compress the file, send it down the network and a workstation at the other end has to or impact that file and then do all the manipulation locally. The other thing is the entire farm must be there for that manipulation to occur and the part is just getting too big regardless of bandwidth.

Our model is totally different. We don’t know if anyone has been able to replicate it. And what we do is we take the pile near real time, where did that file to all the 3D advanced visualization and then stream the pixel. So we don’t actually move the far. It’s one of the key ingredients behind the on-demand nature of our product that’s virtually instant and one of the key features that will allow us to work so well in the cloud.

So, if you look at our map of Visage 7 streaming technology, you see the — at the top, we have all the other ologies hanging off it. We have research pads, and we have a whole number of other modules, including our archives and workers. So the whole concept is the streaming technology that’s streaming back in is the central piece of the entire suite of product that hangs on and around it.

The three different contracts that we won, Montage Health, a regional private radiology group that was very familiar with our product as they have been reading for Sutter Health now five years and using the business platform and decided to then acquire it for their own part practices. And CHOP, which is the only one of the three yet to be implemented, that will be implemented within the next six weeks. That is the Children’s Hospital of Philadelphia, one of the top children’s hospitals in the US.

So I think these three deals do indicate that, we can address a far bigger market segment than people thought before, and we can get to the small and medium-sized IDNs as well as the larger ones that we’ve traditionally dealt with. University of Florida renewal, again, $15 million contract. I think the key thing is both sites now on a transaction-based model, whereas one was on a more capital model before. So there’s no been put on to the same model and they’ve renewed for a longer period than the original contract.

Luminis Health, this was the last one we did in the half. It’s a 7-year $15 million transaction phase contract at minimums. It is a well-regarded IDN based at Maryland. It is the full stack, which is all three products, fewer workers and apart. It is to be fully cloud deployment, as I mentioned earlier, I think certainly helps increase our footprint in a very large midsized IDN market.

It’s one thing to sell it, another thing to put it in. We believe that one of our key strengths is the way that we are able to seamlessly and rapidly implement these systems, taking what used to be, in some cases, a two-year plus process and bringing it down literally to weeks, months and weeks. All of our implementations are on ahead of schedule. Those — that we’ve recently sold all being scheduled for — at the end of this half or early next half. And then as I mentioned, were three big IDNs that we implemented back in the first half, it’s clear the bets to enable us to take on new business. So why the people buy us when we’re the most expensive, and I think it’s becoming more and more prevalent in the market that we have a proven ROI and that ROI is not just financial but also clinical, which is equally, if not more important, we allow the radiologist to do more or do things they otherwise couldn’t do or would take too long to do previously.

So clinical outcomes is a key one for us. We believe we are moving the needle. There are a few examples that we talked about initially, at our AGM. And just to reiterate, we are doing some very interesting work with Dr. Maria McLellan [ph] in IOT, is a top pediatric neuroradiologists. And we are doing work that will allow us to segment, in other words, core out a tumor in 3D. Currently, most of the measurements of tumors very poor approximation fixed plant 2D. And we are seeing very interesting results around that and greater accuracy, and there are some trials around that being done at the very moments.

And then we do things that are not just AI related. We did do a joint development with NYU Langone, where the head radiologist or the Chair, Dr. Michael Recht always believe that patients really don’t understand what a radiologists does. So they had an Instagram that said, your radiologist is the most important doctor you’ve never met, which I thought was very clear.

So this allows radiologists to do a quick one-minute video of a normal anatomy and normal x-rays and MRI of the shoulder and then show the patients MRI and what — where the pathology is or where the anatomy is slightly different. And that’s accessible by patients through the NYU portal, and it’s been a resounding success, not just with the radiologists, but also the patients and the referring clinicians.

Then the topic, usually is a hot topic in radiology at the moment as it is in other areas of medicine but radiology, in particular, is the concept of burnout radiologists seen as to read many, many, many more images in the same amount of time, and it’s putting an enormous stress on the system, and you can pick up any radiology magazine it will be in front of the center.

I think what we’ve been able to do is certainly we’ve been able to – and we’ve been able to measure this increased radiologist throughput and productivity in some cases, by up to 50%, but pretty much in all cases, 25% plus. Now this is same radiologists, same type of exams. They’re just able to do more in a day or in their parlance they don’t feel as tired at the end of the day, but in essence, they’ve actually done more than they used to be able to do. So it is becoming a very important factor in purchasing decisions and it’s a key differentiator between our technology and others.

In terms of our growth strategy, many of you will have seen this slide, we are — the key thing is to expand our footprint to new clients, which we continue to do with the additional sales that we get. Transaction growth in the existing numbers, as we mentioned, like-for-like, they’re greater than pre-COVID levels. So all of our clients are doing more work organically, some of its industry growth, some of above-industry growth. Some of it is by an acquisition. We have new product offerings, and we started in the US years ago with the Visage 7 Viewer. We then supplemented that with the Open Archive and then 18 months ago, with the Visage Workflow manageable workplace. And as you would have noticed in our recent sales, we’re getting a number of clients increasing number that will take all three, which obviously increases the total contract value. But it has another benefit for us. It makes the implementations that much easier, because we don’t have to interface to third parties. We don’t have that complexity, which we can and do handle, but clearly, it’s easier if we have all of the bits ourselves.

I will talk a little bit more about extending to new geographical markets, Germany being the key one at the moment. We have had a number of recent wins over the years in that market, and we are looking to leverage off those swings, particularly in the German market and then the broader European market as the market opens up, particularly with cloud. And we’re looking to leverage some of the R&D capability in the RFPs [ph] and AI.

North American pipeline, we believe it’s been — it’s extremely robust at the moment. We’ve seen increased intake of RFPs, particularly over the last 18, 24 months. We had our best RSNA and IAs. We had the greatest number of leads generated and we’ve already received some RFPs as a result of that, which is a lot sooner than we would normally expect given in the conference finished in December, which is pleasing.

Visage 7 Open Archive, I think, again, very instrumental to us. We are seeing more and more clients take it, particularly over the last two years. We do see an opportunity selling it back to existing clients as their contracts start to roll off with their third party vendors. And it is a very integral part of our cloud offering and full stack solution.

Workflow, similar, it’s the newest of our products. It has been — we have been — we have sold that in six out of our last six major contracts, so clearly, a product that the market wants. It has the speed and performance of both the Archive and in particular, the Viewer. And so again, it’s a differentiator in terms of our ability to provide full stack solutions to those clients that wanted and we extend [ph] positive traction with it.

One Viewer, this is the one product that can go across other -ologies. We have made good progress, particularly in the area of cardiology, which is quite extensive. We currently do a number of disciplines and modalities in cardiology, including MRI and CT, and we do ultrasound, but it is adding in the cardiology specific functionality to bring it out to a full suite.

We did highlight an injection fraction product, which is we’ve been pivotal to coming to that point of having a comprehensive cardiology offering that we highlighted at RSNA 2021 if now is in production as part of the normal product suite, and we are looking to then promote other cardiology specific functionality in the not-too-distant future.

Then in the most recent was KLAS, which is the rating agency ranked number one in Universal Viewer. I think two things about that, for it’s been number one, it must cut across more than one discipline, so radiology and something else. So clearly, we are being used across more than just radiology, and it does allow for both diagnostic and review purposes. It’s the first time that we’ve been reviewed by past. And clearly, we think this is the way the industry is going away from the, sort of, core packs as they used to call to a more enterprise type viewing platform. And so we think this will give us a little bit more. And people will know us more in this market because of this recent rule.

Cloud PACS, this is the other trend. It’s been massive in the last two years, pretty much all of our deals that we’ve done have been cloud-based and the majority if not all of them in the pipeline either having cloud mandated or is an option. It gives the same ultrafast performance or if anything, it’s actually even quicker than on-premise, which is counterintuitive, but we’ve seen [indiscernible] from all of our clients today.

We think it’s — we are the only ones that can be — that can actually truly put an institution’s radiology business in the cloud at scale. We’ve proven that over the last two years. And importantly, we currently have large-scale implementations in Amazon’s AWS, Microsoft, Azure and Google GCP. So if a client has a preference or an agreement with one of the big three, we’re able to facilitate that without forcing them into one cloud or another, when we — we see that as a massive advantage.

This has recently released. It was a joint promotion Visage — between Visage and AWS. We are seeing more and more interest from the cloud providers because radiology is clearly one of the biggest areas in healthcare cloud. And as I said, we believe we are leading the charge to bring large institutions into cloud.

Finally, last few things, AI which again, I know has been a hot topic, particularly, lately with all the press about Regenerative AI. But certainly, we see AI and radiology has been key in the future. It is still emerging. But we see it being embedded in equipment. We see it to prioritization so that [indiscernible], which is the CTs does the patient have trauma or blood in the head bring that to the top of the list.

We see it as a second set of eyes, and we see it has functionality in screening and maybe wonder in the mid-term or longer term to an automated diagnosis. So certainly, we think it will emerge. It’s a question of when and how. Those who have been following us know that we have certain tools included in the AI accelerator, which we use with some of our academic clients and allows us to do commercialization with third parties.

And we have a dedicated team of to two founders [indiscernible] both PhD in Healthcare Informatics, and we have two people on the ground in the US doing fair bit of work in background to make sure that we’re ready for the near stage of AI.

And finally, we too have a research center that we established in August 2021 NYU Langone. It took us a little longer because of COVID. That is starting to be fruiting the number of collaborations, including the video reports and [indiscernible] some projects that we’re currently working on.

Finally, at RSNA, I leave you with two thoughts. Our biggest presence today, both in terms of footprint and staff numbers, and we generated more leads than any other year. Just to give you an idea of extended the booth and the then — we go to this is a picture of our booth. It’s quite a substantial effort at the back. There are two meeting rooms that are one of that will hold about 30 people that we built specifically for the conference and you can see to the left with the design across it. There’s a table in there that sits 12 people plus a fee rate. So it’s quite expensive. So we did make our biggest investment. We believe has been indicated simply because we’re able to do more demonstrations and again, get more leads than any previous year. And in terms of our staff, there’s just a quick – yours truly myself in the middle of the blue, but there all the rest. So it is quite a big logistic exercise for us.

So finally, finishing of most successful in Company’s. North American footprint continues to grow strongly. The full stack solution is being taken up by more and more clients, and we said they’re continuing proven remote implementation and support capabilities. So even they were post COVID, we now have hybrid model. Cloud is a massive advantage for us that we think will push us even further ahead of competition. And we think we have an unparalleled value proposition both clinical and financial ROI.

Anyway, I’ll finish there. Thank you very much. And we’ll open up to and your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your next question comes from Gary Sherriff, RBC. Please go ahead..

Gary Sherriff

Good morning, Sam and Clayton. Just confirming you can hear me okay?

Sam Hupert

Yes.

Clayton Hatch

Yeah.

Gary Sherriff

Two questions. First one, cash flow that investments in financial assets that’s gone up materially in the first half to AUD 13 million versus AUD 1 million in PCP. Maybe just remind us what exactly is that spend? And how should we think about that on going forward?

Sam Hupert

Yeah. The overall financial assets haven’t gone up that much. So, it’s just what we sold. If you’re looking through the cash flow, that’s just purely the amount that we bought over that period, but it’s offset by amount that we’ve sold during the period as well. So the investments are 12.9%, but we’ve sold 11.1% through the same period. Overall, we still have AUD 29 million of other financial assets compared to AUD 27 million last – same period in June.

Gary Sherriff

Got you. Okay. So it’s just netting off one another. That’s no trouble. The next question I’ve got, just in regards to that tax paid, that really jumped up. I know that’s not – that’s outside of your control. Again, how should we be thinking about that? It is a big jump what it was on PCP, AUD 12.5 million versus AUD 4.5 million last time?

Sam Hupert

Sorry, what was that, I missed that, Gary. Which will –?

Gary Sherriff

12.5 year tax paid last – this year versus AUD 4.5 million last year, just a very big jump. Is there anything changed there? I know, it’s out of your control largely, but just trying to check on that?

Sam Hupert

Yeah. Purely, especially after 30 June, the first half, you’re doing pay as you go as you go throughout the period. And then if you lodge your return or you think you know what your return will be for 30th of June within the first half, and there’s some additional tax to pay, that’s when you’ll have to pay it. Unfortunately, we’re making – fortunately, we’re making more profit, but unfortunately, we’re paying more tax.

Gary Sherriff

All fine. And last one, just on new products. When should we expect some first material revenues, I guess, other ologies and AI revenue?

Sam Hupert

I think we’ve always said this calendar year. So, just to clarify on that, we’re talking about first revenues, how material that will be? Obviously, we’ll have to wait, but we are still aiming for this calendar year.

Gary Sherriff

So, this calendar year, Sam, for revenues, but not necessarily, I guess, material from product.

Sam Hupert

They could be — I just want to temper it because it’s one of those things how long is a piece of stream, but we are getting close to commercialization on a few things. And materiality is the fact that our other revenues are going up quickly. So, look, it could be material. I’m just saying we’re looking at first half of this year.

Gary Sherriff

Okay, good. I’ll jump back into the queue. Thank you.

Sam Hupert

Thank you.

Operator

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

Josh Kannourakis

Hi, Sam and Clayton, thank you for taking my call. First question, just with regard — obviously, you talked about the big RSNA best ever RFPs coming a little bit sooner. You’ve won $84 million worth of contracts to-date. Historically, there’s sort of been a bit more in the second half. How should we think about, I guess, the pipeline into the second half of the year? And just what visibility you have on some of the progression of those contracts and RFPs into the second half 2023?

Sam Hupert

Yes. Look, it’s slightly continuum. So, we’re actually working on some of the opportunities from the previous year, gives us these opportunities usually 12, 18 months, sometimes longer, they’re bigger and they’re all continuing.

I think the important thing is we are seeing more inbound. So, as we as we contract with a number like Luminus and the others before, recently UW and Samaritan, clearly, they drop out of the pipeline and to have a robust pipeline, we need new things coming in. And so I think we’re happy that our conversion rate is still very, very high, much higher than the industry and then there are new things coming in to replenish it.

And I think the other thing about the pipeline is — in the past, we may have been the pitch on hold, Tier 1 academics, the 30, 40 of those, we’ve got 10 you now have much runway left. And I think some recent sales showed us a spread of opportunity across different market segments and the pipeline reflects that spread. I think that’s important as well.

Josh Kannourakis

And Sam, just to follow-up on that first question. You mentioned, obviously, the relationship and the interest from the cloud providers. Are you starting to see any leads from some of those major cloud providers? And how do you sort of see that relationship developing over time? Obviously, they’ve got significant sort of hooks into government and other big institutions. So, interested to see how you think that could develop over time.

Sam Hupert

We don’t expect any cloud provider to exclusively work with us. I don’t think that’s the case. But the more success we have in the world business we do in the cloud the broader the cooperation. So, I think it is fair to say we are receiving broader cooperation from the cloud providers’ success to get success.

And also we’re one of the few, not only ones have proven that we can put large-scale implementations in their cloud. So, it’s a known industry. So, we are working collaboratively with all three of them. And I think the AWS video as part of the joint — a part of the marketing budget that they allocated towards us for that joint collaboration. So, yes, we can’t predict what will come our way. But, certainly, we are hopeful that there will be certain needs coming.

Josh Kannourakis

Thanks, Sam. Just second one for Clayton, the margins, Clayton, just into the second half. Obviously, you’ve got the RSNA impact. You might also mention just around that change in capitalization, obviously, impacted the first half by $1.25 million. Just how should we sort of think about the cost profile into the second half of the year and any other investments that you’re expecting?

Clayton Hatch

Yes, yes. In terms of the capitalized, that will be repeated in the second half compared to prior periods. So that will continue. Clearly, RSNA won’t. So costs should be relatively flat or go down slightly, obviously, from the marketing spend from RSNA.

But in terms of margins, we’re clearly with the three implementations with Allina, Inova and Novant. And Novant being mid-December. So you didn’t get much revenue from that, that should help increase the margins from the second half.

Josh Kannourakis

Awesome. Thanks. I’ll give someone a go. Appreciate, you taking the time.

Clayton Hatch

Cheers. Thanks, Josh.

Operator

Your next question comes from Melissa Benson with Wilsons. Please, go ahead.

Melissa Benson

Good morning, guys. Thanks for taking my questions. The first one is just, perhaps, for you Sam, about the One Viewer, and you’re speaking to adding kind of more cardiology features to that product.

Sam Hupert

Yea.

Melissa Benson

How should we think about — how should we think about the pricing of that product in the sense of it being relative to, like — are you guys adding kind of a price increase if they do have those cardiology features? Are they kind of optional? And as you add more kind of comprehensive features, will that be the case, or is it all captured within your standard kind of viewer price?

A – Sam Hupert

Yes. No, we’re looking to sell it as a separate offering in terms of cardiology, because they feature function that if you not using it for those modalities, you most probably wouldn’t need it in a standard offering. It is on the same platform as purely a licensing.

In terms of the pricing, that’s yet to be determined, but I think, our research, and I think even yours in the market that has shown that there is a higher transaction fee for cardiology specific software, but it’s still to play out. I think, the main thing is, it will be an extension of the same platform rather than a separate product, and we do think it will have its own pricing with it.

Melissa Benson

That’s helpful. Thank you. And perhaps one, just to clarify with Clayton, around the — you mentioned the change to the treatment of R&D expense. If you could just kind of clarify what the change will be moving forward, how R&D is kind of captured versus the past?

Clayton Hatch

Yes. It’s just a lower amount. It’s an application of how we view the capitalized development costs. So it will be similar to this half. So to be — the second half will pretty much repeat what the first half was. And then, going into next year that will consist of lower amortization.

Melissa Benson

But is that in the sense that you guys are kind of getting to a point where you’re comfortable, you’re not needing to invest more in R&D or that’s being captured in other expense lines?

Clayton Hatch

No. We seeing some could increase the amount of development staff we have, it’s the amount that’s applicable for capitalization.

Melissa Benson

Yes. Okay. Got it. Thank you.

Operator

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

Andrew Paine

Yes, good morning. Thanks for taking my question. Just following on from an early one, talking about the volume of contract wins in the near and medium term. Just trying to think about this in the context of whether there could be an inflection point where you do see some accelerated adoption by the remaining IDNs as they look to deploy the software, especially leading up to AI and cardiology becoming more prevalent.

Sam Hupert

Yes. Look, I think the market is $1 million. You don’t have this massive inflection clonally nothing happens in all of a sudden that everything happens. The organizations do come out. Finally, latent piece, usually where they can exist with their current system. They love it very likely, [indiscernible] most case but on optomotoses. But we are seeing more and more of those coming. And I think a few things are driving and data sets being the big one and breast imaging being the sort of canary in the coal mine for these data sets. So we are seeing an increase.

I think the second key driver is security. And I think people have realized cloud is far more secured than on-premise for multiple reasons. And so those two 2 things are pushing more and more people to look to replace their system maybe sooner than they otherwise would have been hence the increased numbers of RFP.

And as we mentioned, look, we think cloud is a huge trailer. And as far as we know, I think the market knows. To date, we’re the only ones that can actually take these organizations and transparently migrate them into public cloud. And if anything, as I mentioned, performance is even higher switches care intuitive to having [indiscernible]. So, I think cloud large data sets to increase cadence of opportunities going forward.

Andrew Paine

Sure. That’s great. And just also looking at some commentary from one of the competitors in the tax space. They recently said that they think they’ve overcome the functionality gap between their product and visage when you compare it to a couple of years ago. Just wondering to kind of get your comments on the state of the competition today and how you see that evolving in the coming years?

Sam Hupert

Yes, that’s an interesting one. We’ve always thought we’re 18 to 24 months ahead. And if anything, we think that gap is actually won. We don’t know anybody that has been able to provide reliably the streaming platform that we have, which is so fundamentals of being an on-demand system. We also don’t know anyone that’s been able to integrate into one product everything from basic to test its rate to very advanced visualization of Fusion 3D, 4D.

So look, again, I can’t talk for others. I know what we see in the market, what we compete against and pretty much most of them are still in question send, but pretty much most of them are largely 2D and current all the advances. And then you’ve got scalability. It’s one thing to do it in a one thing to do it in a small practice. But when you get to the large size of the [indiscernible] clinic or an NYU, scalability is mandatory, and most people can’t scale to even the quarter that.

Andrew Paine

That’s great. Thanks. I’ll jump back in the line.

Operator

Your next question comes from Mathieu Chevrier with Citigroup. Please go ahead.

Q – Mathieu Chevrier

Good morning, Sam. Good morning, Clayton. Thanks for taking my question. My first one was again on competition. We saw GE Healthcare being spun off. And then Philips was undergoing a restructuring. I was just wondering if you’ve seen changes in behavior or level of investments from these players and others in the last few months?

Sam Hupert

In terms of the equipment manufacturers, no, we haven’t seen any change in response from GE. I think whilst they’ve been active with their equipment, certainly, this area of intermatics, we really have not seen anything. And I think Philips, their major player was somewhere around two years ago when they bought Carestream, product at intermatics business. And I think the major thing we see there is then trying to just hold on to market share, but we haven’t seen any new product offering, and we certainly haven’t seen cloud from either of them.

So whilst it’s possible in at, they had something. And usually, they sort of telecasted, as I call it, at RSNA well in advance of its release. We haven’t heard of anything and we’ve not heard of anything from our client side that out of these two are looking to bring on a new platform.

Mathieu Chevrier

Understood. Thank you. And then, Sam, you mentioned previously that there could be potential changes to EU privacy laws that could help the adoption of the cloud across health care in Europe. I was just wondering if you had any update on that, if you could give us, and I’m sorry if I missed it earlier.

Sam Hupert

Yes. Look, we here it is all progressing. I think it still needs to be ratified the transient. Certainly, the care providers, the big three, we’re speaking to all lying off Europe as we speak, which is not surprising, because clearly, there’s a lead time for them, but I think they’re looking at it as a new greenfield site certainly for cloud. There might be some things that need to be done slightly differently. You might need something like a German telecom in the involved some on local. Again, I’m not the one the ground, but certainly, we do get the distinct impression that is progressing.

Mathieu Chevrier

Understood. And then maybe I can just clarify quickly on the pricing strategy or what you can say about the pricing strategy of cardiology. I’m sorry, if I missed it earlier. I think you mentioned it would be included in the overall platform price. Am I correct?

Sam Hupert

No, it would be separate. So price is — it’s just based on the same technology platform. So you don’t need new hardware it’s purely licensing softly in functionality.

Mathieu Chevrier

Okay. Understood. Thanks very much.

Operator

The next question comes from Sarah Mann with Moelis Australia. Please go ahead.

Sarah Mann

Good morning guys. Just pause to ask the question on pricing as well. So you were in an inflationary environment. Are you seeing any of your competitors use that to kind of step up pricing?

And then secondly, like when you come to kind of contract renewals, although I guess, new contracts, does that kind of give you an extra like to increase pricing again you normally do?

Sam Hupert

Yes, I’ll answer the second one first. I think the main thing that allows us to step up is that our clients know what we charge for the software in the current market app what they pay for it. So there’s a clear delta and it’s gone up about 70-plus percent. And so I think that’s the main lever. Inflation, yes, some but it is pretty reason.

In terms of competitors, look we never see their quotes. I think it’s possible, but I think some of them we hear the opposite. We hear that some of them have dropped prices because they’re finding it hard to compete on ROI on technology. But as I said, that’s anecdotal because we don’t see the quotes ourselves. We are still told we’re the most expensive that only thing I can confirm 100%.

Q – Sarah Mann

Got it. Okay. Cool. And then the other question was just on the cost front. So I mean you’d flagged clearly you are adding headcount and we’ve seen in the numbers. Just wanted to understand like how much of the increase came from headcount versus, I guess, wage increases? And then how you kind of see that playing out because clearly the layoff in tech. I mean, hopefully, that meant some of the pressure comes off slash maybe you can hire more people. So just trying to understand that?

A – Clayton Hatc

Yeah. I think the majority — thanks, Sarah. The majority will come from headcount. We flagged at the AGM that we’ll be bringing on some corporate costs and some new people. We also flagged that we’d be increasing headcount across all three jurisdictions, which we’ve done, so US implementations and sales and also in Europe, product development and support. And so that’s been the majority of it. I think we mentioned wage inflation, there’s been some, but the majority would be through headcount.

Q – Sarah Mann

Got it. And so maybe if you wanted to add extra people, you should be able to — if the pressure is coming off, and there’s more people available that just potential benefit, I guess, going forward?

A – Sam Hupert

Yeah. We see that more in the US. You read every day in the paper, someone is laid off 10,000 or 15,000 people in there, it’s hard to believe, but it’s true. We see that more in the US. There has been some repercussions here, but it’s still early days. But again, look, we’re a bit over 100 people, so any inflationary pressures mitigated clearly by the numbers. And yes, I think if anything, we felt a little bit of easing in the job market simply because it’s not as hot as it was let say 12 months ago.

Q – Sarah Mann

Right. And sorry, last question for me. Just on like M&A, which I guess kind of ties into the comment about tech before like I mean pricing clearly has come down. Can you give us an update on your strategy around, I guess, potential M&A in the AI for tech space?

A – Sam Hupert

Yeah. Look, you are right, prices have compressed. I think that’s given. Have they compressed them and can you still find value that — they are the two magic questions. Look, we are looking at more and more opportunity. We have Nick Peace join us in June, July last 2022, largely tasked with that. He worked at RSNA. We were actually close to all the AI vendors. And he and Clayton went down with two AI guys or the two guys we have and looked at a lot of stuff. So look, we are spending more time and resource on it. We will be very, very picky. If we don’t find anything, we still think we can satisfy our growth requirements and ambitions organically. But we feel it’s incumbent on us to look with the way the market is going, makes it more attractive. It doesn’t guarantee as an opportunity.

Q – Sarah Mann

Great. Thanks very much guys.

Operator

Your next question comes from Peter Meichelboeck with Select Equities. Please go ahead.

Peter Meichelboeck

Hi, guys. Just a couple of questions. Just you specifically mentioned the network effect, particularly in the IDN space, I mean other was thought of that sort of would be felt through sort of morning coming requests, et cetera, and things like that. But I’m just trying to get a sense of how else that might be felt. I mean, I’m wondering, in particular, does the network effect? Have any — does it help you get through your pricing with people perhaps a little bit easier than it was earlier on?

Sam Hupert

Yes. That’s actually exactly it. So sometimes in the past, we get — well, of course, Mass General or Mayo or MI [ph] would buy you guys, they buy [indiscernible]. They had big endowments a lot of money. We’re a much smaller regional IDN, and we can apology because it’s clearly, the more we get, the more we improve the ROI in that segment of the market. It’s just as compelling.

And one of the key things people forget is our solution, both in terms of the software and the cloud you only pay for what you use, right, which has never been the case in the industry before. So the smaller guys prejudice they have to buy this hardware and data center fundings fraction of it. So I think exactly as you’ve said, the fact that we can show more and more coming on board more and more the ROI in that segment of the market that sort of takes away some of the concern that we only for the big guys.

And there are a large number of them just like any other group they do talk a lot and reference ability is very important. So the more we get — I won’t say easier, but maybe I’ll use the word less hard than its proper English, but it does pave the way for a simpler, a more simplified sales process.

Peter Meichelboeck

Right. That’s great. And just one other question I had was, I suppose, over the years, you’ve spoken about sort of the potential to sort of pick up on the extra exam volumes, I guess, from your existing client base as they — there’s a bit of consolidation in the industry and they pick up additional competitors, et cetera. Are you able to give us a sense of what does additional volumes sort of might be by now.

Sam Hupert

Look they vary enormously from time to time. Some of the small ball home — so we’ve had two Mercy and Northwestern where they bought quite a large hospital of roughly 10% of the work on top and in both cases that were almost out there. So we’ve got sort of — we’ve been able to take up that volume as it comes.

And what we are finding is that every single client is growing pretty much at industry rates or above. So a lot of them are actually able to do things they couldn’t do before or in some cases, they take the radiology in house where they couldn’t. So we had one client that had massive big city hospitals that be more regional hospitals that had to have an outside where were the bank paid for to read those exams. They’ve now been able to take them all in-house with the same radiologist.

So there’s all of those elements going on. We’d like for clients to make a huge acquisition and enrollment that would be a project. And look, as I said, some really see bolt on, some of it more material, it just depends on the plant.

Peter Meichelboeck

That’s great. Thanks guys.

Operator

Your first webcast question comes from Curtis Larson with Norse Capital.

Curtis Larson

Do you see much growth in existing clients taking up additional modules, eg, Archive and Workflow, that they did not initially subscribe to or do customers tend to stick with the modules they took when they signed the contracts?

Sam Hupert

We do see this as a growing field for us, particularly in areas such as Archive and Worklist, which are the two addition modules for two reasons; one, the original vendors, some of them the full and by the way side, and some of these contracts roll off, we think we can pick up some of that work.

And the other, I think, driver for them is moving them to cloud. So most of the organizations that are on-premise had some plan within the next few years to migrate to cloud. And that, in their mind, there’s a logical step is for when to maybe put use our Archive, put it in cloud or the worker vendor that they’ve got no longer independent, that will push some. So the answer is, yes, we do see this as a future opportunity with pretty much every client that doesn’t have all three.

Operator

Our next question is from Claude Walker with A Rich Life.

Claude Walker

How much overlap is there in terms of the customer needs satisfied by the Workflow products versus Visage RIS? For example, would a Visage RIS customer also by Workflow? Also, are you able to give us any sense of how much the Workflow product contributes to PACS revenue?

Sam Hupert

Yeah. Well, thanks, Claude. The answer is usually not. So the people in Australia that use desired PACS, and that’s an emerging number. They use the Visage RIS, because it was their first, tenant satisfies their requirements, in the US, we don’t sell the RIS. So we did our own Worklist, which we did not have one. So there are two separate markets and in the US, it’s all workers in Australia. Currently, it’s all the resources.

In terms of dollar value, the harsh dollar value product is the Viewer then the Archive and the Workflow. But having said that, the Workflow, we are bringing — looking to bring up some additional modules to it, which will increase the total contract value for Workflow if they take those modules. So they’re in process. We’ll announce the market when that happens. So you could find Workflow come up with additional modules to round out, but at the moment, it’s the least expensive of the three, but incredibly well-supported by the market.

Claude Walker>:

And the second question is, Has Pro Medicus lost RFPs out of the pipeline since the last report? If so, why did the company lose that opportunity?

Sam Hupert

Not since the last report, no. We’ve lost on two small ones usually around cost. But no, not the major ones, no.

Operator

Your next question is from Prasad Patkar with Platypus.

Prasad Patkar

Hi Sam and Clayton, can you please confirm, how much more product development has to be done for you to make a headway into the other urges?

Sam Hupert

That’s an interesting question, because it really depends on — so first of all, the platforms ideally suited, we can show every target that every image type; radiology, images, CT, ultrasound, MRCT, which are all becoming part of cardiology. And in most cardiology systems, those different modalities are actually handled by different software vendors.

The second thing is we can show all reflective live, photos, videos and what makes each footage radiology images it’s just as applicable to those. So it’s really a matter of how much feature functionality do you need in certain areas to get version 1.0, so cardiology. But having said that, if you look at really the sort of what’s behind the class sort of award, we are being used across more than one department because you have to be the universal dealer to satisfy the category.

I think it’s more being used in more diagnostic instances rather than review because it’s a diagnostic instance that you can charge the motor. So look, we think we’re getting closer. But like everything, once you get to version 1.0, someone will say that’s great, but we need this in the 1.1, 1.2, et cetera. So it’s not a set and forget, but we are looking at, as I mentioned earlier, hopefully, commercializing sometime this calendar year or towards middle hopefully.

Operator

Your next question is from Iain Wilkie with Morgans Financial.

Iain Wilkie

You mentioned IDNs are the largest segment of the market, but is that by hospital number or by patient volumes? Number of conflicting reports in the market, which say teaching hospitals are 25% of the buildings, about 50% of the patient volumes and IDNs are 50% of the buildings about 25% of volumes. What do you guys see?

Sam Hupert

When we did the analysis, I think it was by — we don’t look at buildings because we charge our patient volume, so that totally dependent volume too. And as you said, it’s very difficult to find any two reports that you can triangulate the data from and get a reasonable amount. But we do see — and look, IDNs is a loose-ish firm but basically, in our mind, means nonacademic hospital groups.

Now usually, they have community centers, outpatient centers. That’s why it’s called an integrated delivery network rather than just the hospital network. But no, our research indicates a fab volume by our biggest. But either way, we play equally well in other stations that turns out they’re equal. That’s fine too.

Operator

Your next question is a follow-up phone question from Melissa Benson with Wilsons. Please go ahead.

Melissa Benson

Thanks for the follow-up. And this is actually related. I’m just wondering, Sam, you mentioned kind of the volume of diagnostic imaging that you’re seeing in the system is well above COVID levels. I mean is that in your mind kind of a catch-up, or you’re seeing kind of — we’re seeing a fundamental shift in organic volume growth, like maybe that 3% per year level is no longer appropriate and that’s jumped up or — or is there a bit of a catch-up?

Sam Hupert

I think, and again, we don’t have hard and fast evidence, but I think most of the catch up is incurred because things in the US, particularly return to normal pre-COVID even in Australia. So you think if someone was overdue for screening mammogram, they wouldn’t have had it by now.

Now I can’t say that empirically, but it’s the sort of — that’s what we feel in the market. I think it’s purely that our clients are able to signal, and I think most of them are growing at baseline in an industry of organic growth, which is mid to low single digits. But I think they’re growing more than that. So clearly, they’re either doing more work or they’re opening more centers or able to just do more in a time, which we think they are. So it’s all of those things.

Melissa Benson

So it’s more that there’s kind of not infinite demand, but it’s more just the ability to kind of fill that it seems to be that, I guess same product?

Sam Hupert

I’ll give you an example. We — one of our key ROI drivers in CT as we enable them to do up to 20% more CTs a day with the same equipment, same start — so if they have that demand, they can actually do more seen if they do 10% more, it’s still material. Now, I know, it’s a Dallas still a big one. So they’re all sort of different reasons, but we are finding there actually, and I’m doing like-for-like that they’re actually doing more now than they did pre-COVID consistently doing, we thought maybe like you’re alluding to, we’d see a little bit of a hump and then it’s come back. We’ve seen the hump that it hasn’t come back.

Melissa Benson

Thanks.

Operator

Your next question is a follow-up question from Andrew Paine with CLSA. Please go ahead.

Andrew Paine

Yeah. Hi. Thanks for the follow-up. Just a quick one. Just looking at the revenue of greater than AUD 450 million over five years, it’s the same as the — what you said in at the AGM late last year, and you’ve had a few contract wins. I would have expected that sort of go up? Just checking if that’s just an estimate or something else is going on there?

Sam Hupert

Yeah. Look, that’s an estimate or the amount, but it’s up to the end of December. So we’ve had the Washington and the America. It’s American sense. So that figure will actually be higher than that now. But we just take it to the end of the period at the end of the December period.

Andrew Paine

Okay. That’s great. That’s all I had. Cheers.

Sam Hupert

Thanks, Andrew.

Operator

Thank you. Just on the webcast question from Sally Warneford with Greenford. Is there an opportunity in pathology and histopathology in otology for PACS or AI?.

Sam Hupert

The answer is absolutely, but it is related to different fields. So the platform is ideally suited pathology creates even bigger files and radiology there massive because they’re multipixel depth than they’re covered. But I tell me the pathology most of it in terms of volume is largely by chemistry like Blue house cholesterol, none of that requires a pack or visualization system really is for histopathology and blood firms.

So look, it is a separate area. Is it suitable platform, yes, it would be a development into the other ologies. So clearly, it’s related but not exactly the same. And I think the one thing with pathology is the volumes that they do are a price more because some subset of pathology. But look, definitely something we could look at, something the platforms will set but it’s not just the drag and drop.

Operator

Next question is a follow-up phone question from Peter Meichelboeck from Select Equities. Please go ahead.

Peter Meichelboeck

Hi guys, just actually something probably for Clayton. Just on the cash flow, the trade receivables, balance sheet cash flow. The trade receivables jumped and I know there’s that point there around the increase in new customers with installations towards the end of the period. Would I be right in assuming that the cash flow from that should come in in this next half or the one we’ve been able to move into?

Clayton Hatch

Yes, that’s right. Yes.

Peter Meichelboeck

Right. Okay. And just on the cash flow, it’s a bit of a follow-up from an earlier question just on the tax. Am I right in thinking that that big jump in the taxes is a bit of a timing issue between the hubs or–?

Clayton Hatch

Yes, during the year, you pay as you go, so it depends how much you’re paying based on the previous years, so it’s — the correct amount of taxes just a bigger jump in the period.

Peter Meichelboeck

Okay. Thank you.

Operator

Thank you. We’ve come to the end of our Q&A session. I’ll now hand back to Dr. Hupert for closing remarks.

Sam Hupert

I just wanted to say thanks everybody for joining us this morning. Really appreciate the questions and if there are any others remaining, you’d like to email them to us, if we can, we’ll look to respond to that. And once again, thanks for joining us.