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Earnings Transcript for PME.AX - Q4 Fiscal Year 2020

Operator: Thank you for standing by and welcome to the Pro Medicus PME Full Year Results Conference. All participants are in a listen-only mode. [Operator Instructions] I would now like to hand the conference over to Dr. Sam Hupert, Chief Executive Officer. Please go ahead.
Sam Hupert: Thank you. Good morning everybody and thanks for joining us. I’ll quickly go through the presentation and by all means feel free to ask some questions after that. As most people know we are a healthcare IT company specializing in enterprise imaging. We focused in three jurisdictions, Melbourne, Berlin and our office in the U.S. in San Diego, and the bulk of our staff are technical or software engineers over half of them. We have two product suits, the Visage RIS which was our first product largely sold here in Australia, it does all the practice management, billing, accounting, [should link] to some of the largest groups in the country and Visage 7 which is what we sold globally is a product we sell into the U.S. It is a product that radiologists use to call up images, enhance and manipulate them and make a diagnoses, you know it is a clinical product. In terms of our results, the full-year, we thought that all of our key metrics headed in the right direction. The revenue was up even despite COVID about 23.9%, if you take out the one-off capital sale that we had in Europe in FY 2019, which we had discussed in previous half and previous year. Profit after-tax up 20%, but underlying profit pre-tax up 33.4, which we thought was a good metric. Another key number for us, particularly in these times was a cash reserve, which improved by over 34%. We remain debt free. Our margins continue to grow even though they were previously above 50%, and so we've paid the full year dividends of $0.12 a share, $0.65 and $0.60 for the second half, making an increase of about 14.3%. So, again, we were pretty pleased to lay all the key metrics worked. In terms of the year-end review, back in July, we did announce that we had completed Partners HealthCare, which is now called Mass General Brigham in record time, about six weeks in three to four tranches. We did contract with Ohio State, which we have just recently put in and I'll get onto that. We announced a contract in December with Nines. We also started our first cloud-based clients, where we believe there will be a lot of future upside for us. And then in June, we signed one of our biggest contracts today, certainly on a per year basis with Northwestern medicine and our pipeline, which I'll talk about a little later, continues to go strongly. So, some good implementations; three good different sales, and importantly the pipeline for the future remain strong. In terms of the revenue splitter, those that have been following us, we have seen this graph year-on-year. Again, the interesting part to the [indiscernible] pink color at the bottom, which is recurring transaction revenue, which grew strongly, and the [blue color] is some of our support contracts a year-on-year, plus some other recurring income. So pretty much every division grew relatively strongly during the year, and we were very pleased with that because, particularly the pink and blue sections form the base for next year, upon which various contracts that came on during this year and those will be coming on in FY 2021 will also layer on top of this. The operational model, we think it is proven, it's working very well. It is delivered to the software as a service, whether the software is hosted on their own networks or in the cloud. We now use it for the risk contracts in Australia, and that was the Healius contract. Our full revenues increased with Northwestern and some others to approximate to over 210 million over five years. So, the last time we reported this, it was about 195 million so it continues to grow. And I think the important thing is the [indiscernible] revenue gives us greater predictability going forward. [The exam] revenue grew despite a dint because of COVID in late March, early April that I'll get to in a minute, it's still grew by 31% year-on-year. We do expect that growth to continue because we'll have full-year contributions from Duke and also to Mass General Brigham, which was about 11 months. Duke went live in February this year, it’s only four months, and then we'll have our [issue], which has now gone live and Northwestern and others contributing to 2021. So, we know it will be strong, all things being equal, it will be stronger than 2020. We are seeing some growth from existing clients and there have been some smaller M&A where clients have bought adjacent hospitals and things that will add to that growth. And we also believe that there will be adoption of some of the new products, particularly the open archive and enterprise imaging that will help. Professional services that is – people who follow us know this is all our training and implementation. We do charge for that. It is now recurring in nature because of the accounting standards have changed last financial year. It contributes roughly 10% of the value of the contract depending on each contract, but certainly it will decrease as a total percentage of revenue as exam revenue continues to outstrip it in growth, but still material for us, and as I said, it varies from client-to-client, but roughly about 10%. So, we believe the business has good operating leverage. We have no CapEx and that we don't sell hardware, per se. All of our training and installation are charged as professional services. We believe we have, you know, very highly contained cost base. And our margins continue to grow as our footprint increases. And I think as I said, even with recent events, the margins are now at about 52.5% in terms of the margins. We often get asked what was the impact of COVID and we look at it in [two – three, two prisms] one is operationally. First of all, we were able to transition a 100% of our global team to work from home in mid-March, and that's pretty much how the company still works. We're able to operate at 100% capacity. So there was no diminution of services, and importantly, our sales and marketing efforts continued throughout. We did sign the Northwestern deal pretty much in the thick of things in the beginning of June. And I think that sort of validates that. And the other thing we're finding is the thinness of our technology. The ability to demonstrate it remotely at high resolution has really helped us and we've done a number of very large scale remote demonstrations, which previously would have been done, you know, over multiple days on site. It's now being done remotely. So, we have seen some new opportunities coming out into our pipeline, even during the current period. In terms of the impact of numbers, I think, you know, through most health organizations, the third elective procedures, including imaging in late March and early April, as they were trying to repurpose a lot of the hospital – a lot of hospital facilities for the anticipated deluge of COVID patients. Clearly, some regions were affected more than others and in the worst affected regions, volumes declined rapidly by over 75%. But thankfully, the recovery was steady and started in the second half of April. We now have most of our clients globally, what we call new normal volumes, that is greater than 90%, some back at 100%, and in some certain modalities like breast imaging, which was you know, highly discretionary in terms of screening. It went down the most and in some cases now is like over 100%. So, you know, some of the catch up or expectation of catch up, which is the third examinations still need to be done. The vast majority of them won't be canceled, they'll just be rescheduled and we're starting to see that flowing through breast imaging a good case in point. In terms of the products quickly going through the Visage RIS, we have released major updates during the year. Importantly, our two main contracts here in Australia with I-MED and Healius have progressed well in terms of the rollout. Healius is now nearing completion. Helios is now nearing completion and the upside bioorganic and M&A growth through I-MED we're starting to see some of that coming through. So, we've regained our position as the undisputed market leader. In terms of Visage 7, we continue to be the number one in the three key areas
Operator: Thank you. [Operator Instructions] The first phone question today comes from Gary Shepherd from RBC. Please go ahead.
Gary Shepherd: Good morning Sam and Clayton and thank you for taking my questions. First one, just FX on revenue growth, can you quantify what the impact was? I guess sequentially and also year-on-year please?
Clayton Hatch: [Technical Difficulty] gains and losses through the year. The loss we had for the year was mainly based on the U.S. dollar pretty much being at the same rate it was this time last year. So, 30, June 2019 in our cash reserves. In terms of revenue, there was some year-on-year growth in that regards, but it's only maximized by the month-to-month and out of the U.S. dollar rate. So, I can come back to you to quantify that because I don’t have on hand at the moment.
Gary Shepherd: No trouble. The deferral of elective exams due to COVID that you mentioned, the $1.2 million impact, I just wanted to clarify what the sales impact was. And also wanted to confirm is this just for the portion of exams over and above the guaranteed minimums because you guys do have contracting structures which have guaranteed minimum? So, I just wanted to confirm that impact is, I guess over and above the guaranteed minimum, i.e. still getting your guaranteed minimum payments. It was really that hit is the amount over and above your guaranteed minimums.
Clayton Hatch: Correct. Correct. They tried to get volumes before COVID hit. So, as you know, a lot of our clients have been implemented for many years. So, we have a lot of baseline of what their quarterly numbers are. The revenue hit to that was around 2.5 million. Clearly there was some operating expenses to offset that. And the 1.2 million is an after tax figure. So, there's obviously a tax implication there, but that's how we arrived that figure from the implementation.
Gary Shepherd: Contract renewals, I know there's a few coming up over the next 12 months, can we maybe just get an update on those core renewals, to you knowledge are any of those contracts at the tender and if there's any sense on potential pricing upside that you can talk to that would be nice? Thank you.
Sam Hupert: Yeah, I could answer that. No, none of its tender. Certainly in some areas, and one of the key ones was in California with because they've been, they were one of the hardest hit with COVID, and still are, more so than even the East Coast. Those discussions are ongoing, but you know, had taken a bit of the back seat. And so, we're extending them, but they're all ongoing, none have gone out to tender. And yes, as we've said before, we are looking at some price recalibration, simply because the price per transaction that we now charge is significantly more than it was five or six years ago. But yeah, discussions are all ongoing.
Operator: Thank you. The next phone question comes from Josh Kannourakis from UBS. Please go ahead.
Josh Kannourakis: Hi, Sam and Clayton. Just a couple of quick questions for me. You mentioned around some of the organic and M&A growth within the exam volumes, I was just wondering, just in terms of the start of the year, if you could talk a little bit more in terms of the trends to potentially around those deferred exam volumes that you, you know, may have lost in the second half? And just maybe you could give it a little bit more clarity around maybe specific areas where you're seeing some of that organic and M&A driven growth in your existing client?
Clayton Hatch: Yeah, well, some of that we knew – so the clients will tell us six to eight months, sometimes a year out that they’ve acquired a Regional Hospital in the area, and it's going live in a year. So, we know some of that's coming down the park. And clearly, if it was going to be putting around COVID for a lot of people, it wasn't even us to tell them back that they were so, you know, they were so consumed with repurposing and worrying about the deluge that some of those got pushed out, but not that much. They're all back on deck. And look, in terms of the work that was deferred, I think one of the best examples is breast screening. That was the area that got hit the hardest went down the most and, you know, as we look at it now, some areas are over 100%. Now the 100% was clearly the numbers pre-COVID averaged over six months. And so, they've gone above that. So, clearly they're playing, they're already doing some of that catch up. Exactly, you know, how quickly that occurs, will really depend in certain regions like California may be slower, but you know, on the East Coast, it's pretty much business back to usual. So, we do anticipate getting some of that deferred work within the first half of this year. Now, clearly, all of that’s predicated on not having a massive second wave and everybody having to stay at home. But clearly, we're starting to see those trends. And we're starting to see them emerge, not just in breast imaging, but you know, pretty much everything that they do. I think the practices have become a lot more adept at dealing with patients in the COVID environment as well. You know, there's certain overheads there, and I think, you know, they've done pretty well. So, we are anticipating few things. Those organic M&A, look that will continue, the broader the basic clients we have, the more we'll see it. And then, of course, that deferred rate coming into this into this used mix. We're starting to see that, and you know, all things being equal, we anticipate we will see more.
Josh Kannourakis: Great. And just on the comments Sam, you mentioned around some of the enterprise imaging, you mentioned a couple of tenders around [indiscernible] and some of the other [indiscernible] would you be able to give a bit more context about that, and just maybe give us some detail on the go to market strategy there, and you know, timing on your expectations to those developments.
Sam Hupert: Yeah, they've come largely as you would expect from existing clients. And it's what we had expected. Some of them have put out our pace for [indiscernible] and we've been involved in those RFPs or proof of concept. So, I think that's very encouraging. Unfortunately, for confidentiality, I can’t actually say who they are, but, you know, it's a good step, either we consider and be the once we’ve done the demonstrations, you know, they're going further down the path. So, you know, there was a little hiatus again, in all of that with COVID, because the hospitals were scrambling, particularly in Phase 1, but that's all resumed, you know, back in earnest. So, look, you know, steady as she goes, but we're pleased with that.
Operator: Thank you. The next question comes from Sarah Mann from Moelis Australia. Please go ahead.
Sarah Mann: Good morning, guys. Just a question around marketing going forward. So, obviously, I think in the past, clearly, conferences have been, specifically RNA has been an important part of your marketing strategy, obviously a much better known in the market now, but just interesting – interested in I guess how you think about, you know, the role of conferences in the future, and if it's going to be different, do you anticipate kind of changing your marketing strategy yield?
Sam Hupert: Look, it will be different, at least for the foreseeable future. Earlier in the year, there was one called HIMSS, which we attend, but it's nowhere near as big as RSNA and that got canceled in the last minute. So, there was pretty much no activity around that. RSNA has announced it will be virtual. And as you've mentioned, maybe five or six years ago as we were building our name in the U.S., that may have negatively impacted us, but we don't believe so this year. What we are seeing is because we're able to demonstrate the technology as if we're there because it's so light, so thin that it's, you know, even the [indiscernible] you can demonstrate it remotely. Most probably it faces us, to be honest. So, we are we are doing a lot of our demonstrations and marketing large scale would normally be done over multiple days on site. We're doing it over multiple days, a 100% promote. And you know, I don't believe our competitors with the more standard technology can do that screen sharing is, is a poor second cousin. So look, we will be changing some of that. Clearly, we won't be having the big spend on a [booth and stuff] going to Chicago this year. We will do some sponsorships, but you know, the dollar value would be a lot less. And you know, we are using electronic means to reach out, but I think the main thing is once their interested, we can actually do pretty much as good a demo remotely as we can do on site. I think we're unique in that regard. So that will help us, and the other thing is, clearly COVID has, you know, heightened everybody's awareness of telehealth, tele-reporting, you know, stay at home radiologists where you have to and again we see that trained only being positive for us going forward because most of the systems couldn't do it readily, whereas we could all our clients just flip the switch when home as long as they have a workstation at home was really no different to being in the office. So, we think all those things that we will market that and the abilities to demonstrate will help us more so than others.
Sarah Mann: Thanks. And in terms of, I guess, like a redirection of spend in the U.S. Healthcare, I mean, you kind of alluded to the importance of, you know, telehealth and remote rating capability, like do you have a feel for, you know is there going to be kind of a redirection of spend and which areas are kind of going to be the winners and losers?
Sam Hupert: Well, you'd have to imagine, and you know, we have heard anecdotally that every large scale system will have to have an action plan in case something like this ever happens again. And radiology imaging is, you know, it's a key part of it. So, I think, it has highlighted to those that couldn't easily do it. The Tech, the scramble that had to get more bandwidth that had to do things. They could sort of get through, but it wasn't the same experience as being in the hospital. And I think if anything that there's – I think that's helped us. And there will be more spend in this area, but look, it's early days. It's only what we hear and some of the new prospects. That's what they've mentioned.
Operator: Thank you. The next question comes from Alex Sal from [indiscernible] Management. Please go ahead.
Unidentified Analyst: Hi, Sam and Clayton. Good to hear from you. So, my quick question is, you briefly mentioned about Fiscal 2021 revenue and the way to think about it is that you will be supported by the 12 months of Duke versus five months and Duke I believe in Fiscal 2020 and then supported by a full 12 months of OSU, and then this sounds like it's more like three months and was what's the memorial assuming test is implemented in Q3 fiscal 2021? And then there's –is there 12 months of Nines versus six months in Nines. I wasn't so clear on when Nines was implemented? So…
Sam Hupert: Yeah, well Nines is a start up. So, if you take someone like Northwestern they have established volumes. So, as soon as we put them in, that volume comes on the string Nines is going to going to build, but we are putting in, also Phase 2 of the partners, which was 30%. Partners are now Mass General Brigham or Mass Gen Brigham, as they call it. So that was 30% of Phase 1. So, we'll get 12 months of Phase 1. Previously we got, you know, 11 – a bit under 11. And we'll get over six months of Phase 2 because that will be complete by the end of calendar year. So, it'll be all of those plus anything else Excuse me that if we can, if we get new contracts and can implement them, because we're just at the beginning of the year, they will all go into the mix, plus as I said, any work that's being deferred that’s done this year, etcetera. So, you know, there'll be a mix of things that will contribute to that.
Unidentified Analyst: So, just to confirm on partner, so the fiscal 2021, it will be 12 months of Phase 1 plus six months of Phase 2 versus just above six months of Phase 1 in Fiscal 2020?
Sam Hupert: It was 11, about 10.5 months because, you know, it got phased in from…
Unidentified Analyst: Okay.
Sam Hupert: Yeah, great.
Unidentified Analyst: When is the partner’s healthcare Phase 2 going to be completed, just implemented [indiscernible]?
Sam Hupert: This calendar year, December.
Clayton Hatch: So we've already implemented three out of the five hospitals that they've year-marked for Phase 2, the number of different non-hospital departments in main regions, we've implemented three out of the five already. So, it'll be more like around 10 months of Phase 2 for the full year.
Operator: Thank you. The next question comes from Peter Meichelboeck from Select Equities. Please go ahead.
Peter Meichelboeck: Hi guys, just quickly, just in relation to the COVID-19 impact, are any of the clients at the moment below their minimums?
Sam Hupert: No.
Peter Meichelboeck: Right. And also was there any – has there been any sort of impact on cash payments or anything like that from any of the clients given what's happened in their operations?
Clayton Hatch: No. Quite the opposite. We’ve actually received them all in on time and we had some with extended trading terms of now, you know, fully paid through. So, pleasing even during those times that cash conversion has been very high.
Peter Meichelboeck: Right. Just a quick one on northwestern, has the implementation, I think you're saying third quarter fiscal 2021, has that sort of drifted? I thought it was about second quarter, is that moved at all or?
Sam Hupert: It only moved from their side because of some logistical issues around hardware and provisioning. But it's been a minor slippage, but having said that, then in terms of the project plan, they've compressed the go-live. So, once we start, it'll actually roll-out quicker than the original plan to compensate.
Peter Meichelboeck: Okay, and just finally on the contract renewals. Should we be expecting renewals although as I could beyond a similar timeframe will be – as I occur – beyond a similar timeframe since they are existing contracts, do you think?
Sam Hupert: I would think so, but you know, we don't think there'll be less. Some may want more, but at the moment the ones we’re speaking to, I think, you know, the initial thought process is similar time frame yes.
Peter Meichelboeck: And is there any further thoughts or any thoughts on renewals of the pricing structure and then maybe sort of rising prices over the new time period rather than flat pricing?
Sam Hupert : No, I think, you know, at the moment, and look it's possible if someone wanted that we could. I think the way we're structuring is flat pricing, but at a higher price point. But look, you know, again, with a renewal, as long as it suits both parties, so we were amenable to either, you know, it'll, it'll be similar period at this point, but others may want longer and may want step pricing. We would certainly assess that at the time, but that's not what's presented at the moment.
Operator: Thank you. The next question is from Julian Mulcahy from Evans and Partners. Please go ahead.
Julian Mulcahy: Hi, guys, just first question on the deferred revenue figure is down about 1.5 from last year, is there anything behind that or was it – were you just annualizing the run rates at the end of the year? Or is there something more to read into that?
Clayton Hatch: No, I mean, it's just, I mean it’s a pure factor of what has been built to date. This is what's released through the deferred revenues. Deferred revenues, they came in last year from the new revenue standard will be released over a period of time, from all the customers that still have an existing term to their contract. So, as that will go up and down depending on what comes off over time versus what new professional services we rise through the period. So, clearly, through this period, we've released more revenue than we've put into deferred revenue.
Julian Mulcahy: Okay, and with the pipeline, it's good to hear that pipeline continues to grow. With all the disruption that's going on do you think that the decision making process is from the hospitals just gets pushed out, you know, at least in six months, even from here.
Sam Hupert: Not that we've seen. There were, as we mentioned, there were a fair number of opportunities that were in process pre-COVID, a clearly Northwestern being one of them. And that's gone from pipeline to contract, but there are others. And they've all pretty much continued. There might have been a week or two, where that particular institution was involved in, you know, doing like an army style hospital in their region, you know, that you saw in all the news, and therefore, maybe that sort of slowed them down a bit, but not that we've seen. We have heard of deferrals more in the smaller end of the market, but that's not been our opportunities. And, you know, particularly in the last, I'd say four weeks, maybe four to five weeks, we've seen you know, more activity come into the market. So, we've had a number of new RFPs, a number of new people come to us. So, yeah, it's pretty much been businesses normal, if not maybe even a bit stronger than normal for this time of the year.
Operator: Thank you. Moving on to the webcast questions. The first webcast question is from [Stella Wang], Private Investor.
Unidentified Analyst: Thanks, guys. Did any of the U.S. customers imaging volumes on Visage fall under the minimum baseline volume, the fixed pricing line in the contracts?
Sam Hupert: Yeah, no, I think someone else asked that. The answer is no. Bear in mind, the minimums occur on the anniversary of when they go live. So that they don’t all start first of July for instance. And some of the client’s pre-COVID had already gone past their minimums because you know; they've grown over the year. So, the answer is no, no one did below the minimums.
Operator: Thank you. The next webcast question is from [Andrew Bodley] from [indiscernible], who would like to ask…
Unidentified Analyst: Your streaming tech is very interesting, is there plans to use it for other applications, maybe a generic provisioning platform?
Sam Hupert: It’s something we've talked about, but they know hard and fast plans at the moment, our main aim at the moment is to expand within healthcare simply because it is such a big market, but there's no technical reason that couldn't be used in other markets such as some of the geosciences, you know, even potentially gaming etcetera, but at this point they're just concepts we don't have a plan for that, but clearly would look at it many years to come.
Operator: Thank you. The next webcast question is from Robert Bolton from BSF. Who would like to ask…
Robert Bolton: How has the company achieved a negative currency adjustment when the Australian dollar has been below both the U.S. and euro all year?
Clayton Hatch: Yeah, as I mentioned before, despite it trading underneath the U.S. dollar for the majority of the year it's really what our currency is at 30, June 2019, and what it is at 30, June 2020. And remarkably though, despite it being under, you know, lower throughout the year, it came back to pretty much exactly the same position, a slight decrease. So our holdings of cash in U.S. dollars were marked as a lower amount, hence the currency loss through the year. That coupled with some hedging options and forward contracts that negatively impact on the gains and losses was well recorded that year.
Operator: Thank you. The next question from the webcast is from [Simon Taylor from EF Super] who would like to ask…
Unidentified Analyst: How sticky are the customers to their existing platforms or to Visage? What features convince them to change technical performance of your system quality of the unit, the user interface or end cost?
Sam Hupert: Well, we believe customers are very sticky. And some of the customers we acquired last year and even this year in Northwestern had had existing systems. So, you know, Mass Gen Brigham is a good example. Mass Gen has access for over 20 years. Brigham had GE for over 15. So, it's a big decision to change. I think the decision is made purely because in some cases, they have to – the images are getting so big, their existing systems just aren't coping. And our technology is very well suited, ideally suited to large files. So, they're the things that have happened and so people are buying it purely on its capability, on its speed and its ability to handle large files. And also scalability so that it can work for a huge organization like a Northwestern or Mayo or whatever. So, it’s mixture of all of those factors. And we think in terms of cost, we are often told pretty much, [indiscernible] told we’re the most expensive. So, I think it's because of the value we offer, not so much that we're cheaper, but we give back a lot in terms of the product. So it's the technology itself and it's the return on investment.
Operator: Thank you. The next webcast question is from Robert Bolton from BSF. Who would like to ask…
Robert Bolton: Why is the payout ratio only 54% when future revenue stream seem assured subscription model?
Sam Hupert: I think as a company our guide internally is roughly around 50%. Clearly, every half we look at a number of factors. The first is, what do we need to invest in the business going forward, first and foremost. And then we also look at things such as opportunities. Will there be opportunities in M&A and we’ve clearly told the market we're looking. Some of the valuations pre-COVID were very toppy. We think some are coming down and continue to go down. So it's a balance between what we need for the business? What we need if there is an acquisition and dividend payout. So, our normal guard, our normal range is around 50%, and given that we had good cash accruals, we've got no debt. And we've got a few years of operating expenses just sitting in cash. We thought we would maintain that dividend payout ratio.
Operator: Thank you. The next webcast question comes from Ian Martin from New Street Research. Who would like to ask…
Ian Martin: Can you talk about the challenges of integrating acquisitions in overseas markets? How well is this going? Are there operational learning’s that you can apply from the U.S. into Europe for example?
Sam Hupert : Well, we've only acquired Visage back in February 2009, so I can only talk from that experience. Clearly it took us from a purely Australian based company to global. So we, you know, been able to have offices Melbourne, Berlin, San Diego and work as a truly global company. In terms of, if you're thinking about experience with clients is that what you mean by acquisition, then clearly what we've done in the U.S. is 100% transferable in terms of our methodologies and technology to Europe to Australia or anywhere else in the globe. So, you know, yes, certainly the U.S. experience has been very valuable.
Operator: Thank you. The next webcast question comes from Claude Walker from Ethical Equities. Who would like to ask…
Claude Walker: Hi, Sam, has the company failed to win any of the contracts that attended for during the last half?
Sam Hupert: No. You know, clearly there's always in a market contracts that go on where, you know, you're either not included for various reasons or, you know, and that happens, I'm sure to our competitors where we're involved in something and they may not, but any of the major, major tenders that have been out in the last half. No, we've not lost them and the ones that we've been working on outside Northwestern, which was most probably one of the biggest in the market, they're still in the pipeline.
Operator: Thank you. The next webcast question comes from Ian Lee from Allianz Global Investors. Who would like to ask..
Ian Lee: Sam, understand you have a lot of work potential in the U.S., are you identifying other potential markets?
Sam Hupert: Yeah, well, I think the next market for us were the two, Australia and Germany simply because we're here, but also because people are getting a renewed interest in the Visage PACS technology, clearly in Australia, the risks we've got I-MED and Healius and we are picking up, you know, work from smaller groups, but I'm talking about the clinical product. We think that both those markets will start to evolve for us, you know, more so in the next 12 months to 18 months. They look at America, rather than the other way around, particularly in Europe and Germany, they're starting to look at our team more through an American lens and they have traditionally. So, they would be the two main markets, Europe focused on Germany to begin with, and Australia.
Operator: Thank you. The next webcast question comes from [Nick Wheel from Milton]. Who would like to ask…
Unidentified Analyst: Could you provide any light on the competitive landscape, additionally, any light on tenders throughout the year, if you participated and how you went in them?
Sam Hupert: I think the competitor landscape is, first of all, it's huge. It's a big market and everybody wants to be in it. Three buckets of competitors, those that make equipment, you know, Siemens, Philips, GE, those came from film. Fuji used to be clear string, but that's been sold to Philips and independence like ourselves [indiscernible] and you know there are hundreds of them. So, it really depends on which level of the market we're talking about as to who we compete against. I think if you look at our past five years, particularly in the larger tenders have come out, we've won the lion's share of them against everybody else. But as I said, there are plenty of small deals and deals that go on and just renewals, you never get to see, but certainly the ones that have hit the street, as we call it. And so, we think that our betting averages is well above the norm and you know, we do talk about our pipeline. So, clearly some of those RFPs that came out a year ago or in the last nine months are still in there, ad as we said, we haven't lost any, but clearly remains to be seen how many we win, but certainly we seem to have done pretty much in the broader into the market pretty much all of our competitors combined at this point.
Operator: Thank you. The next webcast question comes from [Andrew Bartley] from Ian Martin Advisory. Who would like to ask…
Unidentified Analyst: What are the management challenges regarding cloud management on a global scale? How do you deal with local regulation, privacy etcetera, when cloud is global?
Sam Hupert: Well in terms of the technical challenges, none because our product is designed for cloud, whereas a lot of our competitors just put their existing technology in cloud and it just doesn't work on, it's far too expensive because the way you pay for storage and other things depends on how you store. So, I think from a technical point of view, we're highly optimized works just as quickly, etcetera. From a privacy point of view, it depends where we are on the globe. The pendulum has swung in the U.S., a number of large health institutions have opted for cloud about a year ago. Mayo went all in for 10 years with Google Cloud. And we're seeing a swing towards cloud adoption, even from the large academics, not all, but some. Whereas in certain other jurisdictions, having Australia included the cloud provider needs to have the servers in Australia now the big three, Amazon, Microsoft, and Google pretty much have that. So, it's not such a problem and we would only use the big three. So, I think that gets around that issue and same thing in Europe. If you went to Europe, you'd find all the big providers will be in all the major countries, so you wouldn't have that issue in foreign jurisdiction.
Operator: Thank you. The next webcast question comes from [indiscernible] from LHC Capital. Who would like to ask…
Unidentified Analyst: Hi, Sam, Clayton, have you settled on a pricing for your breast density algo? Can you give us an idea of the potential value relative to the price per view or study? Thank you.
Sam Hupert: We haven't as yet. I think what we’re waiting for is, we're waiting for final FDA approval. So, you know, we don't want to sort of jump the gun on that one. Certainly, we would look at it in conjunction with certain clients and then work out a venue for it, but the interesting thing about breast density is determining it at the time you see the patient or possibly than looking at the past films before they come with the past images, you know can provide significant benefits to the practice because you know if there's certain density or above, you need to do additional tests, so ultrasound or breast MRI, and clearly that's additional revenue to the practice. So, there's a cost justification for it being in place, but having said that, we haven't priced it at this point, but as soon as get FDA, clearly that will be our next project.
Operator: Thank you. The next webcast question comes from [Stella Wang], Private Investor. Who would like to ask…
Unidentified Analyst: Does the company have any visibility on how big the health systems did during the year 2010 when the high U.S. unemployment reduces the health care affordability? If there was material decline, would you expect that to impact on Visage’s existing contracts and pipeline conversion?
Sam Hupert: We don't have exact numbers from what happened in 2010, and clearly some of the hospitals had, you know, suffered a temporary hit. It wasn't just radiology was everything, elective surgery, etcetera during the peak of COVID. I don't think it would greatly impact us simply because radiology still needs to be done and the cost, our cost compared to the whole cost of the tests, whether it's charged to Medicaid or whether it's private, would not be that material that they wouldn't do it. So, yeah, they may have an interest in changing the mix of how patients are insured, but I still think the same, you know, roughly the same number of tests would need to be done and that – as I said, the area we work in is largely non-discretionary. So, we don't believe there will be a significant impact and certainly, at this early stage, we haven't seen it.
Operator: Thank you. The next webcast question comes from John [indiscernible]. Who would like to ask…
Unidentified Analyst: Have Partners HealthCare giving you any feedback on return of investment, or quantify efficiency gains following their experience with the phase one implementation?
Sam Hupert : They have. And it's all been positive. Now some of its anecdotal. Clearly, they're able to do things they previously weren't able to do or they're able to put through more cases. I don't know if they've done a whole group analysis of every single benefit that we have heard from various departments. We have heard from the two medical project leads, you know, who both doctors want to [indiscernible] that there have been significant benefits, but as I said, some of it, we've been able to quantify some is – some of it’s more anecdotal, but I suppose proof of the putting is, they're going to put in Phase 1 and if that was successful, Put in Phase 2 and they’re putting in Phase 2. So, that’s mostly probably an important bottom line on that one.
Operator: Thank you. Another question from John Hester from Bell Potter.
John Hester: You are continuing to spend 7 million on R&D each year. What are the key areas of development consuming this spend? What is the realistic timings for new revenues from this expenditure?
Sam Hupert: Well, there are three buckets. One is continually enhancing the core product. Clearly when you deal with some of the clients, we deal with, I like to stretch the envelope clinically, always new things coming out. So the product is not static. That core product keeps being developed. And we spend a fair amount on that development and we released two major releases a year. And then we're doing some more spend on extending the product set, as we mentioned in the project during the other [indiscernible], cardiology, ophthalmology in particular. And then clearly, we're putting multiple lines in the fire around AI now some of that will be a spending, joint research development collaboration with some of our key academic clients and I think you'll see that increase as we formalize it with more and more of our clients and we get more. So you know someone like a Northwestern being a case in point. So, you know, some are for here now. Some are adjacent products, the R&D and some are, what I call bit over the horizon products, where we're setting the scene to be in the slot or multiple slots for AI when it becomes main strength. So, it's across those three areas.
Operator: Thank you. The next webcast question comes from Nigel Beale from Beale Superannuation Fund. Who would like to ask…
Nigel Beale: Just a question on the mechanics of major implementations, typically do the clients have to source extra hardware in order for your systems to be installed and run or are there extra demands on the hardware typically trivial in comparison with the existing capacity?
Sam Hupert : Usually they buy new hardware. And that's solely because often their hardware is old. It is all industry standard, we don't have any proprietary hardware. So, it's all off the shelf. They're like HP or Cisco, depending on what their preference is. And the key thing that – the key costs for them is the same for everybody is storage, because they have to store these images, minimum seven years, some for life. And clearly, as the image sets get bigger, you need more disk, but that's the same for all of our competitors, as well. So, you know they buy their own hardware or if it's cloud then you don't buy anything, but you effectively rent it. So, it depends on what they've currently got. Now, if we did an archive like we did at Mercy, we migrated their old archives to Visage, we were able to repurpose the disk storage as we are migrating and taking off the old system onto ours. We're using the disks as we go. So, it really depends, but yes, there's an upfront if you're doing an on prem hardware, and it's really storage is the big one. But having said that, the actual hardware that runs and does all the streaming, we're most probably significantly cheaper and require far, far less servers than any of their competition.
Operator: Thank you. Moving back to the phones. We have a question from Michelle Lopez from Aberdeen Standard Investments. Please go ahead.
Michelle Lopez: Hi, good morning, Sam and Clayton. Just if I could follow on just from your comment just now around that second bucket of R&D being around the extended product sets, we've been talking about sort of cardiology, ophthalmology for a little while now and just wanting to understand the success that you've had, or where I guess the barriers are for you to move forward. We're not – I know, there was wanting trials at one hospital, whether you're progressing with those or what the barrier is there, please?
Sam Hupert: Yeah, look, we are progressing and as I said some has actually put out RFPs, which means they're going to market and we're included in that process as a result of those trials to show that we could do it. And clearly, it's early days, I think the main barrier is, well, there's two now one was, you know, it's a mindset thing, they used to have separate systems for each department. In cardiology, particularly the ultrasound area of it has some nuances that are specific to cardiology all to do about measurements, you know, measuring what we call ejection fractions and other things, so that you know, for it to be 100% suitable, it needs that additional functionality so, and then the [second area] or more so than everything was departmentalized is clearly the last few months. Some hospitals are just, you know, working from month-to-month, just now they’ve come out of COVID and so that process of, you know, new IT other than what's necessary in radiology had had taken a bit of the backburner. But we're seeing it come back again, particularly the last four weeks. So, look, we've always said it's going to be take a while. Ideally, we'd love to get one hospital that uses hidden [multiple ologies] and a large one to be, you know, proof that it can be done and then leverage that to the others. And yes, it's all progressing, but, you know, clearly there's nothing major at this point, but we think we've made pretty good progress in background.
Operator: Thank you. Moving back to the webcast questions. [Kurt Larsen from North Capital] would like to ask?
Unidentified Analyst: Did COVID affect the timings of the new contract wins or do you expect an increase in cadence of the new contracts post the initial March/April COVID lockdowns?
Sam Hupert: Yeah, look, I think I mentioned in the presentation that did for little in some cases, but really only any a short while and usually that was when was all hands on deck trying to repurpose something and like one would decline was part of the field hospital or you know, something like that, but pretty much back on track and as I said, last four weeks, maybe five weeks could even be six. I'm losing track of time nowadays. Actually seen an increased cadence in in-bound RFPs and any inquiries and even some that had sort of we’d seen a while ago that had just sort of, you know, slowed pace have picked it up again. So, now I think we're in a, you know, we think we're in a good space when it comes to the pipeline. Clearly if there was a massive second wave that shut everything down that may impact it, but we haven’t seen them at the moment.
Operator: Thank you. The next question is from [Michael, Private Investor]. Who would like to ask…
Unidentified Analyst: Do the new products you talked about earlier, cloud, AI, accelerator, workflow expand the TAAM from the core, PACS, RAS, EI?
Sam Hupert: Very much so. You know, the workflow is a, you know, an addition here in Australia, it's included in the risk, but in America, because of the way the markets structured, it's different. So, it's an additional option. So, we charge for it. I think the important thing about it is with our archives, fewer and now the worklist, if a client wants a single vendor solution, even though it's modular, we're not excluded from that mix. So, it certainly expands that. In cloud, we think we'll do, you know, there are certain groups more in the mid size and lower part of the market, where they just don't have the wherewithal to stand up their own hardware and manager and cloud isn't a very attractive option because you can just spin it up. And a good example there's Nines. Not even so much that, but they're just starting out being [Palo Alto] based that clearly cloud focus, but the fact that they could spin it up in the cloud and build the volumes without having to worry about pre-purchasing hardware was a big thing. And I think we'll see more of it, to be honest. So, the answer is yes, definitely it expands our market.
Operator: Thank you. The next webcast question comes from Jacob Ballard from Canaccord Genuity. Who would like to ask…
Jacob Ballard: Is your breast density AI product a competitor to the ASX peer Volpara Health Technologies products?
Sam Hupert: That's a good question. Look, it's hard for us to say, certainly, you know the actual breast density quantification part of it would be. I think Volpara also has a number of products that they wrap around the breast density pace in terms of, you know how a screening mammography practice would run. But yes, it could potentially be, but it could also be that it just services a different part of the market that may not want the whole Volpara suite, but do need breast density. And so, you know, we could easily coexist in different parts of the market. But so, it's yet to play out. So we – I can’t answer that question 100%, but in some areas, it would be a competitor of other areas, we would address different parts of the market with it.
Operator: Thank you. At this time, we're showing no further questions. I'll hand the conference back to Dr. Hupert for closing remarks.
Sam Hupert: I just wanted to say to everybody, thank you for joining us. I appreciate all your questions. And if there are anything further please feel free to contact either Clayton or myself. And we will be doing some further presentations post the results season starting in the first – at the end of first week of September. And so, I think that's about it for us and thanks everybody for participating.
Clayton Hatch: Thank you.