Pro Medicus Limited (PMCUF) Q4 2023 Earnings Call Transcript

Pro Medicus Limited (OTCPK:PMCUF) Q4 2023 Earnings Conference Call August 14, 2023 9:00 PM ET

Company Participants

Sam Hupert - CEO

Clayton Hatch - CFO

Conference Call Participants

Gary Sherriff - RBC

Josh Kannourakis - Barrenjoey

Melissa Benson - Wilsons

Wei Sim - Jefferies

Julian Mulcahy - E&P

Sarah Mann - MA Moelis Australia

Peter Meichelboeck - Select Equities

Operator

Thank you for standing by. And welcome to the Pro Medicus Ltd. 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

Thanks. Good morning, everybody. And thanks for joining us. As most of you know, we are a healthcare high tech company specializing in Imaging and Radiology Information Systems. We work in three jurisdictions, Northern our corporate office and where we develop the RIS product. Berlin which is our development center for Visage, and U.S. which is our key market.

We have two product sets, one [indiscernible] the RIS which is largely Australian focused more around the business side of Radiology and Visage 7 which is a clinical product, it's the desktop that radiologists used to call us images, enhance them to make a diagnosis. And it's the product we sell products that we sell in the U.S.

In terms of the year just a few highlights. It was a record year transaction revenue was up over 44%. We won seven new contracts in North America. We had a material renewal with the University of Florida, which was a seven year $15 million contract. We also were busy on the implementation front having completed eight cloud based fully cloud based implementations. RSNA the biggest trade show we attend was in which was in November, December last year 2022 was our busiest to-date, and we've made good progress with adjacencies in terms of other ologies and AI.

In terms of the figures, I think it's fair to say they all move materially in the right direction. In revenue profit and significant increase in cash reserves, we now have over $120 million with no debt. And as a result, we've announced our largest dividend which is $0.17 per share fully franked.

In terms of the revenue split, many of you have seen this chart before, the salmon pink color is transaction recurring revenue and added material jumps from year-to-year, particularly between FY ‘22 and ‘23. The blue section is also recurring. Its more service contracts from some of our older more capital based licenses. The green is professional services and the yellow is migration. So particularly pleasing was the recurring revenue in the piece of transaction revenue, which we forecast will increase year on year because the current informs the base for the next year.

In terms of some sales highlights, as I mentioned, there was a new Florida renewal. There was back in August ‘22, we announced three smaller clients from different areas just to show that we do address that market segment, one is the children's hospital, one is the small IDN, and is the private practice. And then we had a number of sales, which three were more regional IDNs, midsize regional IDN's and Luminis, Samaritan and Gundersen and UW, which is a Tier 1 academic based out of Seattle. So it's not only a good mix of opportunities, but a good mix of markets.

The operational model, we have used it in the vast majority of U.S. contracts. It has been very successful for us particularly underpinned by minimums for revenue is now increased to $468 million over five years. That's making an assumption that our renewals are renewed and renewed at the same dollar value as they currently are. But today, we've been able to do all the renewals at a higher dollar rate per transaction. But we don't factor that into this figure. And I think, the message is its pretty much an annuity style revenue stream, therefore greater predictability.

Operating leverage, it is highly scalable. Our margins did go up again, this time which was pleasing. And I have made some commentary around margins in the open bracing and happy to take questions on that a bit later. But certainly they are far more -- far greater than any of our competitors by multiples and I think that's due to not only the efficiency retain, but also the quality of the software that allows us to be so efficient.

The Exam transaction revenue, as I mentioned recurring in nature, we did expect growth in ’23, because we had some new clients come on board. Now, a lot of these were six to seven months of revenue in illuminous case even less, they will all contribute to a full year of transaction revenue for ‘24. We have some new sites coming on that has been solidly Washington, Gunderson and others. And we are seeing pretty much across the board organic growth from the client base. Part of that is organic growth of the industry. Our clients are growing above industry levels. And we see further upside in transactions from ancillary products, such as Archive from Workflow.

The top hospitals, an interesting change in how they rate them then added 22, I'm not sure why from 20. And they raised it in alphabetical order instead of where they actually rate. We still do nine, which is significantly more than any of our competitors. And so we think that sort of validates the quality of the software and how it translates particularly to the academic space with clinical needs, and most probably at their hearts.

The other area we have talked about a fair bit in the past as the IDN space. Originally, we have a lot of people pigeon holed us into academics, but actually our footprint in audiences. If anything is even bigger, it is the biggest segment of the market. We did have a number that were material in the past in Mercy, Sutter, Intermountain and the Medstar. And we've added another fourth IDNs to the list that in this past year. We think there's been an increasing network effect in this market segment and certainly it's an important one for us.

Visage RIS, the product that we originally founded the company on that, again, we have some material starts here in Australia with the two biggest radiology starts in I-MED and Lumus, previously known as Primary Healthcare imaging services, we did see good growth in the Australian business, and part of that is new practices starting part of its organic growth from existing customers.

In terms of what makes our products number one, we think it's the three things that are really key and showing to be even more important as the industry changes. And I'll get to that in a minute certainly Speed, the functionality where we're the only ones that can do 2d 3d in one desktop, and the scalability because these organizations are becoming quite large. And it's important that they have one system, not multiple, which has been the case in the past.

Things that are changing the industry. Again, the data sets are getting bigger and bigger year-on-year, new types of modalities, those that are already existing higher resolutions. And as many of you will have heard me say that gigabytes, the gigabytes, new megabytes. So it's not uncommon for us to deal with data payloads of 8 to 10 gigabytes and upward for a single examination and comparisons.

So why don't we -- why are we different fundamentally, pretty much all the other competitors take the fall, they compress it and send it down the network. A highly configured workstation at the other end unpacks it and all the image manipulation is done locally. We don't do that, the files are just getting too big for that, particularly in the areas of breast imaging, PET scanning, and functional MRI.

So we have technologies completely different. It is proprietary. It has been what we founded Visage on when we acquired it back in 2009. And so we take the images in near real time we do the rendering the advanced visualization in 3d, and actually just stream the pixels. So it's a totally different technology stack. And I think it is getting more and more differentiated over time, as others are funding the data sets tending to choke existing systems.

This diagram, I think it's a very good summary of the sort of the ecosystem that we are looking to create. Clearly there's cloud in the middle, which is all about implementations over the last two years have been cloud base. We are looking to have what obviously the Archive viewer at the top and hanging off that the other ologies and also the research AI. So it is one call that can support multiple applications in and around what our clients do looking to do.

The contracts that we announced, again, this one, the first one was really to show that we can address some of the smaller ends of the market and still make that successful commercially. Three clients very different Montage, a regional IDN, Bay, a private group that actually were exposed to Visage right at the very get go, because they read for one of the larger audience is us. And the Children's Hospital, which is the Children's Hospital of Philadelphia, which is an academic.

University of Florida renewal. Again, as I said, seven years, $15.5 million, which was at a higher per transaction costs than previously. And it was for a full term renewal.

And then the sales. Again, we've announced them all. But the important thing about them is that they're very good regional centers, they are full stack, they take all three products, they are cloud, and they increase our footprint in this mid-sized IDN market.

UW is slightly different. It's an academic, it's got one of the best regarded radiology residency programs in the U.S. Again, full stack with Archive and it increases our presence, not only in the academic market, but in the Northwest around Seattle, where this was our first major sale.

Samaritan, Oregon, again, increases our footprint in the Northwest. Again in IDN, again, full stack. And the last one that we announced is Gundersen. It's a $7 million -- seven year $20 million. It is a tri state system, based around Wisconsin, Minnesota and Iowa. Again, a similar pattern to the others, which is something we're seeing more and more of that is altering products, cloud. And again, it increases our footprint in this midsized IDN space.

It's one thing to sell, it's another thing to put them in, we have for many years now talked about our Fast Track implementation. If anything, it's getting even quicker. We are doing more, we do some hybrid onsite and remote, which has been incredibly efficient, not just for us, but for the client. And it is a key differentiator because in the past, groups were worried about implementation risk and times implementation of years, not weeks, not months, or in a lot of cases in weeks. So it is equally as important as the application itself in terms of our offering, and how we can get our clients life very quickly.

Here are the list of the key implementations. We did eight for the year here, seven of them. So pretty busy. The important thing is we've been able to clear the decks to do the work the clients that we've now sold and contracted yet to be implemented such as Samaritan and Gundersen.

We are known as the most expensive application in the market, which is where we want to be because we believe we can support that by providing the greatest value or return on investment. We look at it through two prisms. One is financial, which these places of businesses even they're not for profits. And so therefore, it has to stack up financially. And we think we have a very compelling ROI in that area. But also clinically, because we allow clinicians to do things that would either they couldn't do previously, or would take so long they that they wouldn't do it.

So you know, some segmentations could take six minutes, we do them in two mouse clicks and under three seconds. So we take away that barrier of not doing it and therefore we believe we get a better clinical outcome through application than others.

So we do move the needle. Two examples that I'll go through just quickly. One is that we've been working with quite a while it's with Dr. Mariam Aboian at Yale. It is in an area where we are using AI to automatically segment climb in children tumors in children, which has previously been incredibly difficult, incredibly time consuming, taking up two hours where we can do it in one or two minutes. And the role AI is having the accuracy of the segmentation. And we're now presenting a number of [indiscernible] presenting a number -- has presented will present a number of papers as to how this has impacted their ability to track therapy as a time and why it's so important.

And then on a completely different tech. NYU Langone, we worked with them to develop a thing call video reports. It's based on informing the patient of what is in their x-ray because, as I said, there -- it is the radiologist and most important doctor you’ve never met, because most people don't have meet the radiologist and don't really fully understand the results of their tests. And this allows them to do it. And it's been incredibly successful, not just with the radiologists, but also with referring clinicians and the patients themselves.

So that the last clinical side that I'll talk about is Burnout, the new epidemic, since we last mentioned this, I think the acute global shortage of radiologists has just keeps getting more and more acute almost by the day. There's not a country that doesn't have a shortage and particularly in the U.S. We see a massive shortage to the point that they're now calling it the new epidemic. So Burnout efficiency, call it what you want. The whole concept is there is a shortage of radiologists.

One of the key theories was that intake into radiology residency programs went down significantly about four or five years ago, because everybody was worried I will take over and clearly it hasn't. The second thing is that the data sets are getting larger than more images to look at. And then post COVID there's a very strong push towards a work life balance, particularly work from home as part of the mix. And most radiologists coming into the workforce, either looking or insisting on that as part of their package. So effectively, we're now seeing for the first time many groups struggling to handle the current workload. And we've actually know groups that have started to cut back on some of their existing contracts where they were agreed for third party simply because they don't have the manpower to service those contracts.

So what's the solution? We think we have a fantastic solution. And I think catch line platform for the future powered by Speed encapsulates it all. We have seen unprecedented efficiency gains once a client moves from an existing system or legacy packs to Visage. Speed is a key part of that formula just that much faster. But there are many other efficiency gains having one desktop not having to open multiple applications, if you're doing 2d 3d, it's throughout the actual application.

So we routinely see very material gains, usually north of 20%. In one case, the client had popped it up to 50%. But whichever way you put it, it is very material. And we believe a key plank to solving this acute shortage of radiologists. And we've actually even heard recently that some of our larger academic clients, actually when they're advertising, new positions for radiologists mentioning Visage as a draw card for new residents and qualified radiologists to join the institution.

Growth strategy, you've seen it before we are enacting on all of it. Our footprint continues to expand, we have increased transaction growth. We are bringing out new product offerings. We are looking to extend particularly our first blush into Europe. And we're leveraging our R&D, particularly around AI and cardiology, which I'll get to in a minute.

The pipeline, we've made comment on that both in our announcement and in briefing. It's very strong across multiple segments of the market, and multiple size opportunities, pretty much all of them cloud based, which is what we see and we think we have a strategic advantage in that area.

Open Archive, as I said, this has become very important product for us. It allows us to offer full stack which we're seeing more of. And that helps us because there are fewer third parties to deal with. It's better for us better for the client. And it simplifies the implementation and ongoing support. And it's a key component not only of cloud strategy, but also a way in which we can transition some of the on premise clients over time into cloud so that we can take over the Archive and also smooth that transition pathway for them.

Workflow the most recent component. It has been sold in 10 of the last 10 contracts. So clearly, highly sought after and again, a very important part of that full step philosophy.

One Viewer, this is the entree into looking at more than just radiology, we are able to look at reflected light photo videos. And again, we see this as one of the key areas where we can differentiate our offering as compared to others. So our first area of interest is cardiology, it shares a lot of commonality with radiology, it does have some additional functional requirements. We did show this a while back, this is now out in the field, the ejection fraction. And we are moving closer to our first commercial sites for cardiology offering.

Last -- earlier in the year, we also won classic award for the best viewer that does more than analogy [ph]. So clearly, we are making significant progress within our client base towards that cloud.

Finally, I'll quickly mention that, as most of you know, we are fully cloud native or engineers, we have complete deployments in the cloud of large scale. And as I mentioned, all of our implementations in the last year and the previous years have been cloud deployed. So it certainly has been a game changer for the industry and for us. We do believe we have a strategic advantage and that others our competitors, have not been able to offer that capability. And the other strategic strength we have is simply work well and have large scale implementations with all three major cloud companies AWS, Microsoft, Azure and Google GCP. So we give clients flexibility if they have an existing contract with one of those three.

Finally, onto AI, I've mentioned this before, we see multiple uses of AI in radiology, diagnostic image is incredibly well suited to the AI applications. As FDA clearances in healthcare, the vast majority of them are in the imaging space. And we see all these use cases coming to be I think the biggest one would be age diagnosis or a secondary opinion, fully automated diagnosis. I think it's a number of years off yet, but in certain areas, I think will become a reality.

We have our team, our Head of Research, and multiple, our CTO and Head of Development, the two Co-Founders of the Visage platform. They are PhDs in healthcare, imaging and informatics. And we have two others that are on the ground managing our research collaborations, and our AI, our AI interfaces with some of the third parties and Ming De Lin, and Raj Moily both PhDs and Raj, also Ming De Lin.

Finally, we have a product set multiple irons in the fire. Many of you have seen this so I won't go through in great detail. But when the inflection point comes from mainstream AI adoption, we think we're incredibly well positioned because we have multiple avenues through which we'll be able to maximize our presence and commercialize that in the AI space.

And then finally, we are getting much closer to the commercialization of breast density with having some papers written the clinical validation shows its accuracy is pretty much one of the best, if not the best in the business. And so we think that it can become a material product for us going forward.

Finally, I’ll just skip this one, mentioned the RSNA because it is the biggest conference 2022 was huge. We're anticipating a big turnout for ‘23 in late November. And as I said, our investment in terms of footprint real estate and people has been the biggest today and we're already starting to see returns on that investment in terms of inbound queries.

So in summary, it's been the most successful year in the company's history. Our North American footprint continues to grow strongly. We expanded portfolio with full stack has been incredibly positive for us. The ability to implement as mixture of both remote and onsite has been huge. Cloud has been very big. We think that we are continuing to show the value proposition both clinical and financial. We have a very strong pipeline that continues to grow and we think we're well positioned to take advantage of the adjacencies in AI and other ologies.

I'll leave it there thank you and open up the floor to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Gary Sherriff from RBC. Please go ahead.

Gary Sherriff

Morning Sam and Clayton, can you hear me? Okay?

Sam Hupert

Yes, good. Thanks, Gary.

Gary Sherriff

Perfect. Quick one on AI. In terms of market acceptance, do you think the European market or the U.S. market is perhaps more likely to adopt at a first port of call? And the reason I say it is, I saw this month there was a big study in Sweden, which had won 80,000 odd mammogram screenings and had some really positive results in terms of a massive reduction in reading workloads. And also, the clinical improvement was supposedly 20% better if you're using AI with human reading, as opposed to just human reading by itself. So just checking, do you think you know, it's come out of Sweden? Do you think the European market is perhaps an early adopter ahead of the U.S. or vice versa? Any insights from that AI positioning would be would be helpful.

Sam Hupert

I think that there's a lot of trials like this research trials going on in both continents. It's all over the U.S., every single academic institution that may not be breast imaging, then they have another specialty. But we see a lot of it. We know that some of the Nordic countries have been very, on the front foot when it comes to areas around breast imaging. And so that's why this Swedish trial didn't surprise us.

But as I said, a lot of it is in hospital trials. I don't know how much whether in Europe it's been more commercially accepted than the U.S. market feelers, it's all still to happen.

Gary Sherriff

Understood. Next question just on again, the another organic revenue stream or future revenue stream sales into new departments like cardiology, maybe just the latest update or timing around that if you could?

Sam Hupert

Yes, well, in my I've been breaking I mentioned we had hired or hired a while back, someone that is specialized in that space. And that's enabled us to reach the feature function, delta that we were looking at. So we are still on track, we believe to have commercial contracts in place within the next six months possibly earlier, just depending on what pans out. But we're put a lot of work into it. We're a lot closer. And we think that we will have a compelling offering.

Gary Sherriff

Thanks, Sam. Last question, just for me on a question that often comes from the investor base is, you've got these very long term existing customers, which many of them have now renewed, and people are really interested or the markets really interested in on the rough sense of annual both volume growth that you see from these customers, and also organic price growth. If you can give us some high level ranges, that might be very favorable? Thank you.

Sam Hupert

Yes, I think the industry grows at roughly 3% to 4%. It's been hard to get an exact handle on it. Because the U.S. government -- I'm talking about the U.S. and I think it's global, don't produce one set of figures, that's organic. We think our clients on average, are above that. They vary client to client, some are like the new hospitals and their volume will go up 8%, 9% 10%. As soon as that hospital comes on stream, some that will be more organic than open smaller centers.

But I think we're pretty clear that growth of our client base is definitely above the industry average. And as I said that it is all contributing to that transaction revenue increase. Clearly new clients have come on stream for years. But also there is this increased momentum with our clients because it's an enable, that's the key thing. They're able to actually open new sites and manage them through desires where they couldn't before. And then you know, pretty much every major client has experienced that.

Clayton Hatch

And Gary Clayton here. In terms of pricing per exam, that's clearly dependent on how many renewals we have in a particular year. So not all customers will change once they have a contract in place. That's the exam rate. When we do renew, we have been able to get an uplift and that's somewhere between where the market is now and what we're selling to new customers and where they originally started. And, and we've said that that is sometimes move 60%, 70% upwards, it's fallen somewhere in between there. So for one or two clients that we were you it could be 25% 30%.

Sam Hupert

Of all. Yes.

Gary Sherriff

Yes, perfect. Thanks very much.

Operator

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

Josh Kannourakis

Hi, Sam, and Clayton, thanks for taking my call. First question just around revenue. So extremely strong result, especially in the exam and license fee revenue into the second half. Can you help us just bridge that out, is that a good sort of base level in terms of looking into the next year, as you mentioned, the organic growth? Is there any specific inorganic growth in terms of hospital acquisitions or anything that went in there, maybe you can just give us a little bit more context around that, and then just helping us bridge out into the new contracts and implementation timings into next year?

Sam Hupert

Yes, Josh, it was a bit of all of the above, so a little bit of organic growth. But clearly, we mentioned the implementations that Novant. I know that an aligner. So we did have some revenue in the first half. But we got a full six months’ worth of revenue for all three of those customers, and they were large customers. So getting them on board, you know, gives just that exam volume growth in the second half, as well as some additional sites at the UCs. So we have finished all five canvases. So we had one or two that were done in the period, and also a smaller one in the Children's Hospital of Philly.

So that combined, there was three major ones where we got for six months, plus new implementations that sets us up for the New Year. So to your first question about does that set us for a base? Yes, it does for the new financial year.

Josh Kannourakis

Okay, that's really helpful. And then just within the actual portfolio, like obviously, there's a few other things going on Intermountain, Quad HCL [ph] healthcare, huge acquisition the other year. I mean, have you heard anything on that front? Or there any other sort of inorganic sort of underlying hospital growth that we should be aware of that could impact you guys over the next few years?

Sam Hupert

Well, we don't maybe that will impact us negatively, they can only be positive. So as I said, so a good example was Northwestern. About 12, 18 months ago, told that bit longer, told us about a new hospital, and we put it in and then 10% of the volume. Again, with these really large mergers, it usually takes a few years before they try and consolidate IT platforms. It's not the thing that they do almost immediately, particularly if it's another whole system, but if anything, then the Intermountain acquisition, well I've been neutral, positive for us, it won't be negative.

Josh Kannourakis

Yes. It's obviously a pretty chunky one. So think, positive. Okay, that's great. Second question, just around on the cost side. So, we always criticize you guys, maybe, for not spending enough. Obviously, there's a little bit of a step up in the first half, can we just talked about how we should be looking at the cost base, maybe moving into ‘24. And some of the cost considerations in terms of investment in life.

Clayton Hatch

Yes, I think we -- you can see it in the numbers, there was an increase in the cost base and the gross salary, we've seen that across the board. We've done it in multiple areas, multiple departments, both in implementations, but also technical support and development. So we have seen a step up and in hiring and therefore our cost base, we expect that to continue into the new year, again, in all different areas, and as we move into, you know, other departments and progress further with AI, so again, ones and twos but now that we've got multiple departments that we're working in that number may move to sort of 10 to 12 in a year rather than in previous few years ago, threes and fours for the whole year. So the cost base isn't is increasing. But we are obviously covering that with revenue at the moment.

Sam Hupert

And also all the costs base increases, not only for supporting new clients but supporting some of the adjacencies like we mentioned we've got someone on more specialized in cardiology and other bits and pieces and all the things I think we've played to the market for them.

Josh Kannourakis

Got it. And final one really quickly just on cardiology obviously good news that's still attractive and hoping across getting commercialization next six months just to give us a little bit of added context. Is that planned unlikely being with people that currently have the product in their heads at the moment or the trialing the product, or is that also talking about potentially new customers on top of that?

Sam Hupert

Potential new customers for the application that existing Visage customers.

Josh Kannourakis

Okay, awesome. Thanks again, guys.

Operator

Thank you. In the interest of time, we do have to ask that participants limit themselves to asking two questions at a time. Your next question comes from Melissa Benson from Wilsons. Please go ahead.

Melissa Benson

Good morning, Sam and Clayton. Thanks for taking my questions. I just had one first for you, Sam. It was on the on your prepared remarks, you talked about a renewed interest from the corporate market. And I guess what I was wondering is, what kind of customers are those? Is that kind of the private radiology clinics or the full profit IDN? And I guess the second part to that is, you know, why had perhaps that engagement dropped away has there something kind of changed in that section of the market as to why they're reengaging?

Sam Hupert

I think, first of all, that section of the market will, it's a mixture, full profit IDN plus private group -- plus private equity backed group that sort of a blend across a large slice of the market. But a lot of that had gone has Sean Lam, Head of Sales said in today's trades, because there was a lot of private equity and few acquisitions. So groups basically didn't want to change their systems.

And I think two things have happened. There's been console year of groups get together that didn't want to sell out. And they realized they have to have a better toolkit, because they've got to increase their efficiency. That's pretty much it. And some of the corporates now, not all of them. As I said, it was something where that section of the market was largely dormant. And we're now starting to see some green shoots there. How materialism becomes for us, and whether that thing gets swallowed up by some hospital market. I think all of that still play out.

Melissa Benson

Thanks. That's helpful context. And just my second question, you mentioned in the presentation around commercializing breast density, and that could be a material product. Should we think about it just being integrated into your existing Viewer like it's an add on kind of for all existing customers, or they would explicitly purchase it as a separate product?

Sam Hupert

The latter. We again sell this as an add on.

Melissa Benson

Thanks very much.

Operator

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

Wei Sim

Hi, Sam. Hi, Clayton. Just one question for me, just in regards to one of the call outs in the commentary on the German hospital capital contracts. I'm just curious as to, the renewal timeframe for that. So is this something that we still have, and it's just that we -- the revenue is lumpy from it, or it's something that they've decided to go with someone else? As you have alluded to that I was actually having a look at some of the geographical revenue breakdowns in this year's annual report versus last year's, and it seems like there's some movement in terms of the numbers. If we get some clarification around that? Thanks.

Clayton Hatch

In terms of the moment from last year, I'll maybe take that offline and go through that. But you if you need Wei. That in terms of the German government sale that was done in last year and taken, the license revenue was taken in that year. As we mentioned, it wasn't replicated in terms of there wasn't another sale to them, or an extension to that sale to the German government. But there's still a customer and they still play support. Now support for that is around 15% to 20% of that capital sale, but it's not as big. So that's why we talked about the decrease in the European operations.

Sam Hupert

Yes, and the reason for that is, the German government can only buy through one mechanism. And it's more around the traditional capital sale mechanism. That by their charter, they can't at this point buy on a transaction based basis. They have to buy pay for it within the fiscal year. And then it's ongoing. So this was really a client that we acquired once a number of years ago, they've just kept extending the contract to new regions. And this was one region. So if anything, they're growing with us not shrinking.

Wei Sim

Okay, that's perfect. Thank you.

Operator

Thank you. Your next question comes from Julian Mulcahy from E&P. Please go ahead.

Julian Mulcahy

Just a couple of for me firstly, has there been some reclassification of what's the net support baseline revenue line? Because if you honestly have hearty basis, living in the first half, six and the second half, and it seems to have moved up early [indiscernible].

Clayton Hatch

No, there wasn't really look at that. But no, there hasn't been a reclassification on our end.

Julian Mulcahy

But that support baseline and there's normally been a little bit higher in the second half to the first half. Why would it change so dramatically this year?

Clayton Hatch

I'll have to look into that Julian, but there wouldn't be a major reason apart from where we're getting more support revenue from customers like the German government and other customers like [indiscernible].

Julian Mulcahy

Right. And just the renewal rate. Look at like the last three years in U.S. dollars. It was $104 million in FY ‘21. Then it was $73 million in FY ‘22. And then $60 this last year. Now, clearly the share prices, assuming their acceleration at some point. When do you think that starts to occur, given the commentaries consistently been at the pipeline's getting bigger and the breadth is much wider as well?

Sam Hupert

Yes. The thing with all of this, as you know, these clients, some of them are two years in the pipeline, some of them in the past have been longer. So we may actually drop. It's just what had happened. So let's have a look. Since we -- since the full year, we announced another very material contract and Memorial Sloan Kettering had that dropped three weeks earlier, it would have been in FY ‘23. And now gets us out of the gate at a fair clip in FY ‘24.

So, looking at it year-by-year, I think -- and I know you have to do that. You know, it just really depends where they draw, I think our commentary around pipeline is the amount of opportunity we have in there. And that, as you know, that's where they're either in an RFP process, or a known sale process, which they might do with trials, not an RFP, but they will be buying something that pipeline has increased.

Julian Mulcahy

Right. But is there any budgetary or just regulatory changes that are holding up the then sign the contracts?

Sam Hupert

No. In the past, it was like, an example was NYU and Northwestern, we've been having both of them looking at us for over five years. And they dropped within a month of each other. Why? No rhyme or reason just happened.

Julian Mulcahy

Right. Cool. Thanks, guys.

Operator

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

Sarah Mann

Good morning, guys. Just interested in I guess, getting an update on the competitive landscape, if you're seeing any changes there, I guess particularly in the context of what appears to be the transition to cloud that clearly is beneficial to you guys, I guess, just interested in what your competitors are trying to do to kind of close that gap?

Sam Hupert

Well, clearly, I think the pressure is on everybody to get into cloud. And some people will say they're in cloud. But the reality is they're not. They're just storing data in their -- cloud is a word that they use, but the whole application doesn't sit in there and allow them to outsource all the hardware that they otherwise would have in their own data center.

So the first thing is one has to be careful of what people called Cloud, as his full cloud full deployment. But we hear on using, plus a little bit from the industry that tells us, we don't believe anyone's there yet. And in some cases, if they was deployed in cloud, the cloud costs would be multiples of what we do, because you pay per CPU per second. And if they're just not efficient, using those resources, the actual total cost of ownership, which includes the power price could be very material.

So I think there are a few areas people need to get through. But as far as we know, no one in terms of major competition are fully cloud capable at this point. But even if they were, that doesn't give them all the other secret sauce we have in terms of 3d and streaming. It just puts their legacy application in the cloud. So we think we have two assets. Most modern application streaming platform, plus its cloud base.

Sarah Mann

That makes sense. And then just question on, I guess, broader geography. So clearly, there's still lots of growth in the U.S. But just interested in any thoughts around I guess going harder in Europe or anywhere else?

Sam Hupert

Look, we will be putting some more resources in. But I think the U.S. is everybody knows it's the biggest. But there's more to it than that. Because each opportunity is very big in Europe, you don't have opportunities, the size or Northwestern or Mayo that if you do only have one or two.

The second thing is there's a whole layer of complexity in Europe, which is it's all government funded. And as you know, we have this thing about not responding to government RFPs. Here, it's not that similar in Europe, there’s a lot more overhead in trying to get a deal that's much smaller. But having said that, we're not ignoring it. It's just bang for the buck. The U.S. is the best place. And in terms of our runway there, it's most probably the largest, so we will be putting some more resources, but nowhere near the amount of resource we put into North America.

Sarah Mann

Great. Thanks very much.

Operator

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

Peter Meichelboeck

Hi, guys. Sam, thanks so much for taking my questions. Just a couple on renewals. If I'm looking sort of over the next 12 months, can you give us a bit of a feel for exactly which contracts are up for renewal and a bit of an update on sort of timing on that? That would be great.

Sam Hupert

Yes, over the next, I think for this financial year, the one we're currently in the FY ‘24. We don't have any that adieu, but towards the back end of that we have Mayo Clinic, and then Mercy Health and Franciscan, which were done very close together. So they're the three main ones, which will sort of be back in or the start of next financial year.

Peter Meichelboeck

And, like I don’t know, sort of discussions have started at all?

Sam Hupert

No, the only thing that's different was both those contracts, and that the only two. So I’ll put it Mayo and Mercy together because it was the same buying room. Is we negotiated a renewal window, but it was at a higher fee. And if they can, and the window is shorter. If -- and this was done when we wrote the contracts, if they accept that, then there's no need for negotiation and associates will accept that, that will roll forward a few years. And then it's an open negotiation after that.

Peter Meichelboeck

Right. Okay. And just the second question. You mentioned several times about how busy you had been in terms of implementations, et cetera, and clearing the deck et cetera, that you referred to. Can I just clarify whether any implementations delayed at all in time because you were so busy or from your side of things, or…?

Sam Hupert

No. But the only way we did, as Clayton said we did two of the UCs, they were actually scheduled. When we announced UCs when we did mention it would be an 18-month implementation and that was for logistics on their side. The last one UCLA went live in the March April period, pretty much on time, I think they delayed it two weeks because they were waiting for something and but they're fully live. So all five UCs are on and it was within the as I mentioned, it was all within the specified or came timeframes. We have not been responsible for any delays and implementations.

Peter Meichelboeck

Great. Thank you.

Operator

We will now address your webcast questions. Your first question comes from Curtis Larson from Norse Capital, who asks. Can you make an educated guess as to when you might see material AI revenue? Similarly, for cardiology?

Sam Hupert

Yes, I think the key question is material, we're saying we're going to see our first revenue, we believe within six months maybe earlier. These things always take a little longer than one expects, but I think we're getting much closer.

I think once we show a material client that is using open the ROI, then I think that will take us to a different level in terms of being able to sell it to others. So I can't give you an exact date. But I think a very important step to getting material revenue. And material can mean material in its own right or material compared to our other revenue. The first step will be getting the key reference sites in place. And I think we -- as I said, we're hopeful to do that within the next few months. And then, I think that they show the timeframe before others. Look at the application.

Operator

Thank you. Your next question is from Stellar Wang, a Private Investor, who says. There has been fast development of blood tests based cancer detection, such as MCED, that may detect breast cancer as well as mammogram. Do you see in medium terms, blood tests disrupt radiology and screening programs and reduce imaging volume?

Sam Hupert

Look, it's possible. Again, at this point, we're seeing a rise in screening volumes. We're seeing a lack of radiologists that can read breast imaging, because it's arguably one of the hardest, it's literally a needle in the haystack stuff. So we don't see anything in the medium term, but clearly, this could be another indicator.

And you know, I've heard of it. But I don't know how 100% accurate it is. Will it pick up everything and how women are paid to not have a mammogram and fall outside that square if it's not picked up? I mean, there’s the sorts of things that will play out over time. But at the moment, we see mammogram screening mammography volumes increasing to the point that groups are finding it difficult just to handle the volume.

Operator

Thank you. Nicholas Lim from Sesame Street [ph] Capital Management asks. What do you estimate the market size is going to be for PACS and RAS in 10 years’ time? And what share of each market do you expect to have? Do you plan on increasing headcount anytime soon to reach the broader market?

Sam Hupert

Yes, well, the last bit of things is that we are increasing headcount every year. And I think, we have done so incrementally. We're not -- we haven't been like, maybe some other startup tech companies. And even some of the established ones that have these massive headcount increases, and they've had retrenchments, we've been doing it steadily step by step, and we're going to continue.

I think the risk market is a good business here in Australia, but it's largely region why it’s because each country has different billing insurer, rules, interfaces, whereas tax is global. So I'd say tax, it is and will continue to be our biggest product.

I think imaging will take a bigger and bigger proportion of the diagnostic record. They talk about an EHR electronic health record, they're now talking about an IHR imaging health record, that imaging is going to be a bigger and bigger part of all and that's photos and videos as well, a bigger part of the health record. So I think if anything that PACS market will increase materially over the next three to five years, maybe beyond.

Operator

Thank you, Claude Walker from A Rich Life asks. With eight new implementations and a record number of wins in FY 2023. I am wondering if it is possible to keep up this rate of new customer implementations over the next few years, or was FY 2023, a somewhat lucky year with large new contracts and implementations.

Sam Hupert

Look, we are always refining and thankful. And we are always refining our implementation, the technology, the software, the methodology of training, how we do it, how we support with the whole aim of being able to do things even quicker than we're currently doing it. We all are also, with that increasing headcount, in terms of clinical implementation, usually, they're ex radiologists, technologists that teach the radiologists how to use it. Take questions on application questions are how do I do this? How do I trace a vessel? We have been steadily increasing those numbers to support new client new implementations. And we've also been increasing our technical support people who do the implementation.

So increasing headcount plus refining the process, I think -- and cloud, cloud is a really big thing, because you don't have a hardware purchase cycle. It's far more standardized environment. All those things, mean we're actually implementing quicker for the same size clients than we did before. And again, it's like anything, the more you refine it, the more you can do. So you know, this is a very key focus of ours because we don't want to be in a position where we wind stuff, and then there's a huge delay in putting it in. But that doesn't work well for anybody.

Operator

Thank you. Your next question from Sam Clark from CLSA.

Hi, team just wondering if you could give a little more detail around the pipeline noticing that usually we see a commentary suggesting pipeline is strongest it has ever been. Is this a function of winning a lot of work recently that is, therefore pulled from the pipeline and hasn't been refreshed yet? Or are you sensing a bit of a slowdown in the RFPs? Given you have had such a good run as of late?

Sam Hupert

No, it's true. Once they come from pipeline to contract, they can had a pipeline. But we are telling in the market that they have a new opportunity that refresh that. So not at the pipeline, it's not that we've had a good patch. And now it's worse than it was before I can get messages. It's being replaced and if anything, the number of inbound opportunities over the last 12 months, has increased.

So -- and it's increased across multiple segments of the market. And also, we can show that we can address areas of the markets that maybe people previously thought we could move that midsize IDN, where we can actually do a full stack cloud. And it makes a lot of sense for us commercially. That's quite a broad market. And we're showing good success in that. So we're getting more interested in that part of the market as well.

And as I mentioned earlier, green shoots out of the private corporate market. So where that leads, not quite sure yet, but that wasn't there maybe two years ago.

Operator

Thank you, Lindsey. Lindsey Sherman from [indiscernible] PTY Ltd. asks. You mentioned that profit margins had increased. Can you disclose the actual margin percentages from into?

Clayton Hatch

Yes, so the margins having increased they were 40 -- were at 66, that was EBIT margins, they moved to 67 and a touch over 67. That includes an increase in headcount. So we have been able to cover that, I am going to say with revenue from customer contracts.

Operator

Thank you. Your next question is from Claude Walker from A Rich Life. Traditional question. Were any contracts lost out of that pipeline to competition since I last asked in February? And if so why?

Sam Hupert

Not. None that we've been -- there's been a lot, but we're in the pipeline, you do sponsors and clearly you're waiting to see what happens. But nothing material, nothing I can I know. And I know most of the opportunities have been lost from the pipeline.

Operator

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

Sam Hupert

Well, just wanted to say thank you, everybody. It's almost perfect. Just finishing on the hour. Thanks for all your questions, and your involvement and we appreciate the interest. Thank you.

Operator

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