Company Interview / Pro Medicus surges, eyes further growth

Key topics discussed:

Successful fiscal year and financial growth of Pro Medicus (aSX: PME)Significant business opportunities in North AmericaExpansion plans for the imaging platform, Visage Seven

Sam Hupert, CEO of Pro Medicus (ASX: PME), shares the strong financial standing of his company, highlighting their fruitful year of increased revenue and profit. With a sense of optimism, Sam mentions that the upward trend can sustain, emphasising the sustainable financial growth model of the company. Recognising their success, Sam acknowledges that sales records set in FY 24, driven by retained client relationships, have become the foundation of their growth.

Pro Medicus (ASX: PME) sees North America as an essential market because of its dynamic nature, especially in the healthcare industry. Sam mentions a 7% holding in this market, leaving plenty of room for expansion. He notes the potential for growth in other locations like Europe and Asia but currently finds most activity in America. Regardless of location, Sam is keen on seizing any arising business opportunities.

The technology aspect of Pro Medicus (aSX: PME) comes into conversation as Sam talks about broadening the functions of their imaging platform, Visage Seven, beyond radiology to serve other sectors. He also discusses the potential of AI in healthcare, believing that its mainstream and commercial use is nearing. Despite their impressive achievements, Pro Medicus isn't resting on its laurels. Their future plans include managing larger datasets, transitioning more towards secure cloud technology, and playing a significant role in the eventual commercial adoption of AI in healthcare

Full unedited transcript:

0:00

We're also closely following Pro Medicus, which is posted a profit of $82.8 million for the full financial year. That's up 35.3% from in 2023. Pro Medicus will pay out a dividend of $0.22 per share to shareholders. Revenue from ordinary activities rose more than 29% to $161.5 million. Pro Medicus forecasting a strong full year 25 and sees more opportunities due to improved prospects in North America for visage seven, its imaging platform. Let's get the numbers and more details now with Pro Medicus MD and CEO Doctor Sam Hubert. Thanks so much for joining us. In your words, Sam, what do you think were the highlights from the year?

0:41

I think we had a very strong year. As you mentioned. Our financials all headed in the right direction. Revenue, profit. Uh, our retained earnings went up significantly, but we also had a record year of sales, which augurs well for FY 25 as as these systems are implemented. And we also had a record year of implementation, so we made sure we kept on top of, um, you know, our, um, implementation timeline so that we don't have backlogs coming into this year. So pretty much everything moved in the right direction. So we were very pleased with it. Underlying profit by more than 35%. Is that kind of growth sustainable?

1:25

Every year the uh the base gets bigger so the number gets bigger. But we do believe there are a few extenuating circumstances. As I mentioned, we, uh, we have already locked in, um, some of that growth with the contracts we won in FY 24. Our base gets bigger every year. We haven't lost a client. We've had 100% retention. Um, so whilst it's always, you know, a steep hill to climb because it is a big number, it's definitely doable with, with our business model and the fact that we've already pre-sold most probably the most we've ever had, um, coming into a new financial year. Well, talking of sales, I mean, North America accounts for a lot of your underlying business, I guess. Sam, what sort of sales opportunities are you pursuing further?

2:14

So North America is the world's biggest market. I think most people know that. But it's also the most dynamic, particularly when it comes to healthcare. It spend uh, it's not government based. A lot of the large organizations are not for profit. So there's not that bureaucratic impedance, as I call it. Uh, we have about 7% of that market which, which is material. Um, but, you know, that means there's a lot of runway ahead of us. So I think, um, you know, we do need to them and are planning to win more work. And, you know, having a base of reference base makes it it makes it a lot, uh, you know, makes it a lot easier. Never makes it easy. But, um, so we think, you know, there's a lot of market ahead of us that will help us fill that, uh, fill that gap in terms of new sales and is some of that opportunity potentially in the likes of Europe and Asia.

3:11

We basically saying mostly in America that's that's where the main activity is. But there's nothing to stop us if there are opportunistic opportunities where, you know, someone is definitely looking at a system, there's nothing to stop us from implementing there. And we do have a base in Europe. We have our R&D office in Germany, and we have some large government clients in Germany, so we can build on that when we look as well. In terms of your cash and other financial assets, nearly 30% higher than last year, what's your plans to sort of deploy some of these?

3:47

Well, our first always, first and foremost is to invest in the business in terms of making sure, um, of our R&D capability keeping ahead of competition, which I believe we've been able to do. I think it's also important we have enough numbers on the ground to service our growing user base, both from a technical and clinical point of view. Um, so that's the number one, um, use of the money. Then, uh, we return dividends. Roughly 50% of profits, fully franked. Uh, but we still have enough dry powder so that if there are any investment M&A type opportunities that we feel we could add value, we certainly will look to do that. When you talk about dividends, you have seen a 33% increase. I believe in terms of total dividends for the year. Again, is that sort of payout or growth sustainable?

4:41

We believe so and follows obviously the profit growth. So our guidelines roughly 50% of profit after tax. And we've been able to maintain that for many years now including this year. So we don't see any reason why they can't continue. Let's talk about some of your technology I guess as well. So visage seven you're seeing being adopted beyond radiology. What are the hopes for that.

5:07

Well, radiology is the big lift when it comes to imaging. It's about 70 plus percent of the, you know, imaging loading in a health care enterprise. But then there are many others, like cardiology, which is a first cousin, as one would think of radiology. And now a lot more images, both in terms of photos and videos, are becoming an integral part of the record. So our view is to try and expand the product into those what we call other ologies and be the one imaging platform for a healthcare enterprise. Now, it's never been done before. Uh, cardiology will be our first step. It's the biggest one. Uh, and then after that, we will look at the other ologies in turn. So, uh, it's an adjacency. Our first thing is really to get the radiology piece or diagnostic imaging piece in first. It's the big lift. But, um, we do see opportunity uh, in the future, um, of these other

6:07

ologies coming on stream as well. How much how might looking towards AI as well and adopting that.

6:15

Well that's the multimillion, multibillion dollar question. I think AI is talked about in every industry, but health care was one of the first adopters of AI. Um, it's gone through its excitement phase. It's gone through a disappointment phase. And I think

6:34

we're starting to see some traction for AI commercially within healthcare, and particularly in, in imaging. Uh, 80% of the FDA cleared algorithms in healthcare are imaging related. So we see that it's we're at that near that point where it starts to become mainstream and commercial, but we're not quite there yet. But when it does come, clearly it will come through multiple avenues. And we're positioning ourselves to be a participant in in the avenues that we can see. Let's talk as well in terms of what you've got in your pipeline, you mentioned that it has been a good year in terms of contracts and sales. What else is in the pipeline, I guess, for full year 25.

7:20

Well, we we've noticed since Covid in particular, um, and maybe even more so in the last 18 months, a lot more organizations are putting out RFPs. So there was nothing that really forces them to come to market other than their own. Technology is getting long in the tooth or not suiting their needs, and we've seen an increased cadence of that. I think two factors are the main ones. One is the data sets are just getting so much bigger that legacy technology just cracks under the load. It's not uncommon for certain tests to be multiple gigabytes, um, each. And if you had one of those tests before, um, you need to look at two of them together. So it's not uncommon to open eight, ten, 12GB of data in, in one, you know, one examination and it's comparison. So big data sets and the other really big um, movement and paradigm shift has

8:20

been towards cloud and I think security is one of the key drivers behind that, simply because On-premise has been shown to be nowhere near as secure as, you know, a good a good cloud implementation. So how much are you addressing the concerns about security and safety and spending into that aspect as well? Well, we haven't done an on premise implementation in the US in four years, and I think we're the only ones. We are fully cloud engineered, so, uh, all of our clients can just offset all that technical debt in terms of, you know, on premise data centers and staff, and it's purely just the connection to the cloud. And then we manage everything else. So I think that's a very major step towards a far more secure environment than the typical on premise that had been the case historically. Now, Sam, somebody that had held your stock from the listing would be doing very

9:20

well even if they've just held it for the past year or five years. Um, you know, I know you can't control the market, but you must be encouraged when you see these kinds of returns. Again, with your thoughts on that. I know you can't control the market. Do you think you're sort of sitting at fair value?

9:36

Well, again, I leave the value to the sort of the market and the analysts and the experts that cover it. I think there are a few things. It really depends on which prism you look at us through. If you look at us through the, you know, the standard, uh, pe um, then you'll get one equation. But having said that, there are many companies that are growth companies that have no eith that it's just pure revenue figure. So I think we're a little unusual. We're a hybrid. So on the front end we're growing at 30% plus a year. And that's not just revenue but also profit. Uh, on the back end we're very conservative. We don't have uh, we don't have any debt. We accrue cash and we pay dividends so that hybrid nature makes us maybe a little, um, Difficult to value, but I think as I said, it works well for us as a business. And, you know, then there's the the US investors that tend to look more. You've

10:36

got seven plus percent of the market. What's to stop you from getting to 15% and beyond that. So they look at it more from a future market shares perspective. And each of those each prism gives you a, I suppose, a slightly different answer.

10:54

Well, a lot of analysts that we speak to, including James Gerrish from Shore and Partners, I think, are saying it's hard to do anything but write a buy on PM. The market, certainly at the same point, seems to agree. And I guess to that other point, whether or not it's expensive is a question, as you say, is for the market. But I wanted to ask you as well, Sam, you know, and this was one that came from one of our viewers that asked me to ask you this. How are you enjoying the role? And if you had to leave, who do you think could replace you? Oh, well, I've been in the role for 40 something years. I did I did step back as CEO in 2007. Uh, because I felt maybe I'd been CEO since the formation of the company. And maybe someone would be better, uh, capable of handling, particularly overseas expansion. Uh, I did come back in 2010, and I was ostensibly for about 2 or 3 years, but clearly I'm not good at counting because I'm still here. I think a lot of the role that

11:54

that that excites me and I'm sure excites a lot of our staff is not the not purely the financial side, which clearly is important, but we are a clinical product. I am a clinician. That's my background, and I think being able to move the needle in what radiologists can do and how they do it, uh, particularly around some of the research projects, uh, you know, in and around I but not exclusively, I, I think are very rewarding. So at the moment, I think, you know, seeing that develop has been, uh incredibly gratifying, not just to me, but I think to all to all of our staff.