Record result for Pro Medicus as revenue growth outstrips projections

Record result for Pro Medicus as revenue growth outstrips projections

Founder-led health imaging software company Pro Medicus (ASX: PME) today announced record half-year results propelled by revenue growth in all its key markets.

Revenue grew 40.3 per cent to $44.3 million, while net profit rose 52.7 per cent to $20.68 million. This leaves the business debt-free and with cash reserves up $14.91 million to $76.17 million.

“We thought it was a good result with all our key financial indicators heading in the right direction, not just revenue growth but also profit growth, margin expansion and retained earnings,” Pro Medicus chief executive Dr Sam Hupert said.

“There were two key drivers behind the result. Firstly, the jump in transaction revenue from our US contracts, as several large implementations came on-stream towards the second half of FY21, such as Northwestern, NYU and Medstar.

“Secondly, the extension of the German government contract to a fourth hospital. Renewals of contracts should also not be underestimated; they are like a whole new contract.”

Pro Medicus provides radiology information systems (RIS), picture archiving and communication systems (PACS) and advanced visualisation solutions across the globe, but its key jurisdictions are the US, Australia and Germany.

Its cloud-based Visage 7 platform, mainly built for radiologists, is a high-speed viewer that allows clinicians to interpret scans of the body quickly, efficiently, and with higher degrees of accuracy.

During the past six months, Pro Medicus announced a $40 million seven-year contract with Novant Health, a community-based integrated delivery network that spans three US states, and a $12 million five-year contract renewal with Allegheny Health, a health network in Pittsburgh, Pennsylvania.

The deal with Novant is on par with Pro Medicus' largest sale to date which was with Salt Lake City-based Intermountain Healthcare in January 2021.

The Novant agreement will allow Pro Medicus to bolster its presence in the non-academic, cloud computing space, and was also the fifth cloud-based North American contract in a row, signifying a momentum shift towards cloud sales.

“We think they are a few key drivers for this, the main ones being elasticity/scalability where you can scale up or down computer resources on-demand and data security with cloud providing a safer, more manageable environment than on-premise,” Dr Hupert said.

“Cloud also provides us a significant strategic advantage in that we are one, if not the only, fully Cloud-native solution proven to work at scale.”

With earnings before interest and tax (EBIT) rising close to 59 per cent 12 months ago, the business maintained this was primarily driven by a decrease in the business’ cost base due to COVID - with no in-person conferences, the company's most significant expense, or travel expenses.

However, as the business’ cost base increased, revenue growth far outstripped projections, helped by a mix of on-site and remote presence sales implementation capabilities.

As Pro Medicus looks to expand its product range in North America, Hupert believes this could have a material impact on the total contract value per sale.

“Our expanded product portfolio provides us with unparalleled flexibility in terms of meeting client needs, including providing a single-vendor solution if required as we did for Medstar,” Dr Hupert said.

“And, it has certainly paid dividends with an increasing number of recent sales and opportunities in the pipeline being for more than one of these products.”

Unlike the US market, the European market is viewed as a medium to long-term opportunity as the board believes European health networks haven’t yet embraced cloud to the same extent as their counterparts across the Atlantic.

Dr Hupert says the business is protected from rising bond rates and inflation affecting other technology companies, and may even benefit Pro Medicus in the longer term.

“Healthcare is largely non-discretionary and therefore, as an industry, is to a large degree insulated from fluctuations in interest rates,” Dr Hupert said.

“Our clients are well-funded, and we provide mission-critical systems for them.

“Our balance sheet also protects us from increasing interest rates as we have no debt.”

Dr Hupert is not surprised there is currently unprecedented merger and acquisition (M&A) activity in the industry; for example, Microsoft recently acquired Nuance for USD$19.7 billion, as healthcare accounts for 17 per cent of US GDP.

He believes Pro Medicus is well-positioned in the market as imaging is becoming a more significant part of a patient’s healthcare record, estimated to be over 90 per cent by volume, and is enthusiastic about the future pipeline of work for the business.

“Our pipeline remains strong with very healthy representations across academic, non-academic / IDN, corporate and private market opportunities,” Dr Hupert said.

“Many are for more than one of our products, and increasingly we are seeing opportunities that have cloud-first policy which favours us, as we believe we are the only company to have a proven, fully cloud-native offering that operates at scale.”

Pro Medicus declared an interim dividend of 10¢.

Shares in Pro Medicus Limited (ASX: PME) rose 8.53 per cent, as of 12.15 pm AEDT, on the back of the published half-yearly results.

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