Sam Huppert is a CEO who tends to be very precise and efficient in his communications and use of language. I've therefore been forensically examining his interview in the Monday ASX-release.

The following statement about Monday's UMMS contract win attracted my attention:

"...the UMMS, whilst not as large as BIHL, is also a strategic win for us. Not only are they a well-regarded health system in the Maryland area, bolstering our growing presence in the region, but they were also a key reference site for one of our key competitors for many, many years, so it was a good one to win." Have UMMS ever disclosed who their previous provider was? (I would think this should be easy to discover, as Sam refers to it as a "Reference Site."

Aided by my BA, I did some digging.

UMMS does not seem to have formally disclosed a single prior enterprise-imaging incumbent. Publicly available evidence suggests a mixed legacy environment, with Intelerad/Clario (Interad acquired Clario in 2018) the strongest candidate for the “key competitor reference site” Sam Hupert was referring to; Merge/Merative also appears in the historical/public trail, although I don't think Sam would site these as a "key competitor".

The most recent evidence pointing to Intelerad, is a 2026 radiology job listing from a UMMS facility, citing that they use "Intelerad PACS and Clario Systems". (Sounds like the new starter is going to require some retraining, perhaps!)

There is probably no win more satisfying in a competitive market, than winning a key competitor's reference site.

Again, this is a thesis-affirming nugget, as the market share assumptions in my valuation assume that $PME progressively wins sites held by competitors when they look to renew/expand/consolidate to full-stack along the system replacement life cycle over time.

The two examples I've posted this morning are reasons why I don't just gloss over the smaller announcements and resist the temparation to look at the low $-value and go meh. There is quite a bit of insight to be extracted from the details, and it is why I think Sam marks some of these announcements as price sensitive, which you wouldn't do, based on the $-value alone.

Another day, another $PME contract renewal, coming on the back of Monday's announcements.

ASX Announcement

The contract, wth Ohio State University Wexner Medical Centre / 5-yrs / A$16m, though small, is instructive to dissect insofar as we can.

OSUWMC initially signed a 5-yr A$9m deal in 2019, for the Visage 7 Viewer/PACS. (We can think of this as around A$11.4m in today's money.)

So today's 5-year deal of $16m is a 40% expansion of this customer's business, expressed in real terms, where the expansion comes from multiple sources:

• Full stack Visage 7 Workflow add
• Volume and price
• Cardiology

I'm particularly encouraged to see the cardiology component also added, coming only 2 days after a non-profit, communuty health network TidalHealth also contracted for the cardiology module. (If you haven't read the Sam Huppert interview in the earlier release, it is very instructive to read about why he thinks the cardiology offering is resonating with customers.)

Taken together, these two deals indicate that $PME's broadening of the offering beyond radiology to other "-ologies" is widening the customer based to which $PME appeals. In Tidal's case, specifically beyond the high-prestige Academic Medical Centres, and into the community-based and private networks.

I say that I am encouraged by this because it is this broadening of the product-market fit that lies at the heart of the ultimate market share assumptions embedded in my various valuation scenarios.

So this week's announcement - while not ground-shaking like the Trinity deal - are highly thesis-affirming.

(As an aside, so far, my two now largest RL ASX holdings ($PME and $TNE) are bucking the general trend of the SaaS sector slump, with both now either just under or just over my mid-case valuations.)

Disc: Held

Three ASX announcements dropped simultaneously this morning. Viewed together they paint a picture of a business firing on all cylinders heading into the end of FY26. That said, I have to point out that the thesis and valuation for $PME require this kind of ongoing performance.

What was announced

• TidalHealth (3-hospital, Delmarva region): new 7-year, A$16M contract. Full Stack + Visage 7 Cardiology Imaging, cloud-based, go-live targeted Q1 CY2027.
• Allegheny Health Network (14-hospital Pittsburgh IDN): 5-year, A$28M renewal;  AHN's third consecutive renewal. Adds Visage 7 Workflow; renewed at increased minimums and higher fee per transaction.
• CEO interview (authored by Oxygen Financial PR, authorised by the Board): a wide-ranging Q&A covering pipeline, AI, implementations, AUD FX, cardiology adoption, and the 4DX investment.

FY26 sales and renewals context

The numbers disclosed in the interview are striking. Hupert confirms total contract value sold in FY26 has now exceeded A$400M. This is described as more than double the equivalent figure two years prior, and one of the best sales years in the company's history. Renewals alone have reached A$125M for the financial year, including Northwestern Medicine, MedStar Health, and now AHN. All renewals were for the full contracted term, with increased per-transaction pricing and in several cases upsell of additional modules. This is an early and direct rebuttal of the "SaaSpocalypse" thesis that AI disruption would cause clients to renew short-term or defect (But it is early days, of course, so I am not being blinkered to the risk).

The recently disclosed pipeline of new wins includes:

• Beth Israel Lahey Health (BILH): A$90M, 7-year, Full Stack, cloud; one of Boston's two dominant health systems, described as a "major strategic win" cementing PME's position in New England
• University of Maryland (UMMS): A$23M, 5-year; strategically notable as a former competitor reference site
• TidalHealth: A$16M, 7-year (announced today). Small beer, but a new client (I think?)

Revenue timing

This is the most analytically important section of the interview. Hupert is explicit that while PME will recognise some revenue from the wave of H2 FY26 go-lives (Trinity cohorts 2–3, BayCare, University of Colorado, University of Heidelberg), the vast majority flows from FY27 onwards. He expects a material step-up in H1 FY27 transaction volumes, by which point PME will be capturing ~85% of Trinity revenue, plus 100% of Colorado and 100% of BayCare in full run-rate.

BILH and UMMS are scheduled to commence implementation in H2 FY27, meaning they contribute partially in FY27 and build the base for FY28. The analogy offered is the H1 FY2022 step-up following NYU, Northwestern, and MedStar implementations in the final two months of FY2021, a pattern the market has seen before, and which ultimately resolved into strong reported growth.

The implication is clear: FY26 reported revenue will likely understate the contracted earnings power. Analysts who front-loaded implementation revenue into H1 FY26 will have been wrong on timing, not on the business.

AI: threat neutralised, opportunity framed

Hupert's commentary on AI is confident without being dismissive. His key points:

• PME's platform is already optimised for AI-enabled workflows at scale, with >10% US market penetration including leading academic institutions
• The tech stack is proprietary, built from the ground up, and has resisted replication attempts for 17 years, AI does not lower that barrier
• PME runs a small, elite developer team; AI acts as a force multiplier (he invokes the "40x developer" framing) rather than a headcount reduction driver
• The wave of full-term, price-escalating renewals is itself evidence that customers are not treating AI as a near-term substitution threat to enterprise PACS/workflow infrastructure

Cardiology: genuine product traction

Three separate data points across these announcements confirm cardiology is no longer a niche add-on. TidalHealth (a 3-hospital regional system) chose Full Stack + Cardiology on a new win. MedStar added Visage 7 Cardiology at renewal. The interview confirms the demand driver: health systems want a single unified enterprise imaging platform rather than managing separate specialty viewers. The Visage 7 cardiology module integrates with Epic Cupid for structured reporting, which is a meaningful workflow consolidation argument in Epic-heavy US health systems.

FX headwind acknowledged

With ~90% of revenues USD-denominated, the strengthening AUD over the past six months is having a translation impact on reported AUD revenues. Hupert notes PME does hedge and has a natural offset via US cost base, but is candid that AUD appreciation is a headwind for the reported numbers, as it is for all ASX companies with USD earnings. Worth keeping in mind when interpreting FY26 results relative to contract TCV figures.

4DX investment

Brief but worth noting: the 4D Medical convertible note matures 31 July 2027. Hupert describes it as "likely a very good investment" based on the current 4DX share price, and signals openness to further strategic investments and collaborations. Given PME's balance sheet, this is consistent with a disciplined but opportunistic capital allocation posture.

My Key Taekaway

Today's announcements offer significant support to the existing investment thesis. The combination of a record sales year (>A$400M TCV), 100% renewal retention at higher prices, cardiology gaining genuine traction, and a clear H1 FY27 revenue step-up in line with the previously-disclosed implementation schedule is about as clean an operational update as we could ask for. The primary near-term consideration remains the AUD/USD translation drag and the risk that consensus still hasn't fully adjusted FY26 revenue expectations to reflect the back-end loaded implementation schedule. For long-term holders, neither changes the compounding trajectory of the business.

Disc: Held

I was pleased to get an explict and contrasting valuation of $PME from @DrPete to my own admittedly bullish view, that I thought it might be helpful for members to view a comparative analysis of the two valuations.

To do this I uploaded both valuation straws to my BA (Claude.ai) with the following prompt:

"Attached are two valuations from Strawman.com for ProMedicus (PME). One is by mikebrisy and one is by DrPete. Compare and contrast the two analyses, highlighting the key assumptions and the merits and limitations of each."

Here is what Claude came back with, and I think it does a great job to surfacing the different perpsectives one can take for trying to understand the value of $PME. It makes it crystal clear to me that unless you are prepared to believe that $PME is going to be a long term (multi-decadal), global leader in medical imaging software, you should probably NOT be investing at today's price. (I do, so I have).

Over to Claude:

=========================================================================

Now I have a thorough understanding of both analyses. Let me write up the comparison.

Here's a detailed comparison of the two ProMedicus valuations:

Methodology

mikebrisy uses a full 20-year discounted cash flow model, built from the bottom up with explicit revenue growth assumptions, three opex growth scenarios for each of three revenue scenarios (9 combinations in total), a terminal/continuing value, and sensitivity analysis on WACC and capex intensity. This is a considerably more rigorous and structured framework. It attempts to capture the entire growth lifecycle — US dominance first, then gradual global rollout into developing markets over two decades.

DrPete takes a simpler, more intuitive approach: he constructs a bull and bear case, each with revenue, margin and PE multiple assumptions for FY30, then equally weights them to arrive at a fair value. He explicitly avoids a DCF, instead using a forward PE multiple as a proxy for terminal valuation. This is more accessible and transparent, though it sacrifices nuance.

Revenue Growth Assumptions

Both analysts broadly agree on near-term growth (~24–30% in the next few years), but diverge sharply on how long it lasts and what drives it.

mikebrisy models sustained high growth to 2035 (18–22% p.a.) and meaningful growth to 2045 (10–14% p.a.), underpinned by a detailed thesis: US market share growing from ~10% to a dominant global position, followed by sequential penetration of other developed markets and eventually middle-income developing countries. By 2045, he assumes PME could hold 24–48% global market share — a wide range, but justified by reference to other enterprise SaaS leaders. He also explicitly incorporates AI as a tailwind, seeing PME as the trusted clinical platform through which AI tools will be delivered.

DrPete models only to FY30. His bull case assumes ~27% CAGR to $720m revenue (roughly double current market share), while his bear case assumes growth slows to 15% by FY30, reaching $575m. He doesn't attempt to extrapolate beyond five years, arguing that hard growth constraints start to bite within a decade. His framing of the TAM (~$2b growing to $3.6b by FY30) is notably more conservative than mikebrisy's implied global TAM, and he doesn't explicitly model post-FY30 cash flows at all — the forward PE is doing that work implicitly.

Profitability and Margins

mikebrisy works from the revenue side down, modelling opex growth at graduated rates across the three time horizons. The key mechanic is operating leverage — opex grows much slower than revenue over time, expanding FCF margins naturally. His capex assumption of 5% of revenue (with a 10% sensitivity) is conservatively above current levels (~3%), reflecting anticipated reinvestment as global rollout proceeds. He doesn't explicitly state a net margin target, but the structure implies margins expand significantly over the forecast period.

DrPete uses a simple NPAT margin assumption: 50% in both bull and bear cases (or declining to 40% in the bear case). He flags this as a "big IF" given that competition will eventually compress margins. This is a cruder assumption but it reflects a genuine concern — PME's current ~50% NPAT margins are exceptional and historically difficult to sustain as incumbents attract competitive attack.

Discount Rate and Risk

This is perhaps the most significant divergence in the analyses.

mikebrisy uses a 9% WACC (with sensitivities at 8.0% and 8.5%), noting that depending on methodology, PME's WACC could be argued as low as 7.5%. A lower discount rate materially inflates the DCF valuation — especially over a 20-year horizon. His choice of 9% reflects a quality-adjusted cost of capital appropriate for a highly predictable, capital-light SaaS business, but it does embed an assumption that PME's risk profile remains low throughout the full forecast period.

DrPete uses a 10% discount rate for his "fair price" and 15% for his "buy price", explicitly building in a margin of safety. He doesn't discuss WACC in detail, but his implicit view is that investors require a higher return hurdle to justify the price paid, given the uncertainty embedded in a 5-year+ projection.

Terminal Value / Exit Multiple

mikebrisy's DCF uses a continuing value growth rate of 3.5%, which is the key driver of value in any long-horizon DCF. This is a reasonable assumption for a global software business at maturity, but it compounds significantly across 20 years of modelling.

DrPete uses a forward PE multiple of 50x (bull) or 40x (bear) as his exit multiple at FY30. He acknowledges these are generous relative to what fundamentals alone would dictate (he'd apply 30x to a company growing 15%), but argues the weight of PME's history will sustain an above-market multiple. Implicitly, this PE is doing the work of a terminal value, but it introduces circularity — if the market derate happens to occur before FY30, the calculation breaks down.

Risk Identification

Both authors identify similar risks, but weight them differently.

mikebrisy lists: opex step-up in global rollout, AI disruption (as a risk, not just a tailwind), cybersecurity failure, founder succession, competitor response, and higher reinvestment costs. He then largely accepts these risks as manageable, remaining a holder accumulating on weakness. His "when I'd sell" triggers are precise and operationally grounded: deteriorating win rates, pricing pressure on renewals, AI-native competitor wins, or unexpected founder exits.

DrPete lends more weight to the downside risks in his probability weighting. He explicitly argues the market is ignoring the bear case, and that even a 25% probability assigned to his bear scenario makes today's price hard to justify on a fundamentals basis. His key concern is that PME is priced with optimism — not priced to perfection, but close enough that the margin for error is thin.

Key Merits and Limitations

mikebrisy — Merits:

• Rigorous multi-scenario DCF with explicit opex modelling across three time horizons
• Long-term thesis grounded in a credible global market evolution narrative
• Thoughtful treatment of AI as both risk and opportunity
• Detailed sensitivity analysis (WACC, capex)
• Clear sell triggers that are observable and forward-looking

mikebrisy — Limitations:

• A 20-year DCF for any company is highly sensitive to terminal assumptions; small changes in continuing value growth rate or WACC move the valuation enormously
• The 9% WACC at the low end of sensitivity is arguably aggressive for a stock trading at 100x+ earnings
• Global market share assumptions of up to 48% by 2045 are ambitious and rely on PME successfully executing a major strategic evolution beyond its current US focus
• The images of the actual model outputs didn't render in this format, so the precise scenario outputs can't be independently verified

DrPete — Merits:

• Simple, transparent framework that is easy to stress-test
• Explicit probability weighting of bear case is intellectually honest and often overlooked
• Conservative discount rates provide a genuine margin of safety
• Short time horizon (5 years) reduces compounding forecast error
• Correctly identifies that sentiment and fundamentals can diverge materially

DrPete — Limitations:

• A 5-year PE-based valuation captures very little of the long-term value creation thesis for a hyper-growth SaaS business — most of PME's intrinsic value lies beyond FY30
• Equal weighting of bull and bear cases is arbitrary; there's no explicit probabilistic rationale for 50/50
• The forward PE multiple at exit (40–50x) is itself a valuation assumption that simply defers the question
• No explicit modelling of cash flows, capex, or working capital
• Doesn't model PME's international expansion opportunity at all

Summary Judgement

The two analyses reflect genuinely different investment philosophies as much as different valuations. mikebrisy is a long-term business analyst who believes in PME's structural opportunity and is willing to model the full lifecycle of that opportunity, accepting that uncertainty is the price of a 20-year view. DrPete is a value-oriented investor who distrusts sentiment premiums and demands a margin of safety grounded in nearer-term fundamentals.

Neither is wrong in their approach. The gap between $94 and $165 is largely explained by three compounding differences: a longer modelling horizon, a lower discount rate, and a higher probability assigned to the bull case. Investors who agree with mikebrisy's thesis on global market evolution and AI integration, and are comfortable with a 9% hurdle rate, can rationally hold at current prices. Those who share DrPete's scepticism about sustained hyper-growth and prefer a higher margin of safety would do better to wait for a more significant pullback.

To start the ball rolling on the Stock Spotlight for $PME, I have undertaken an analysis of the firm's competitive market position.

The current draft report is available via this link. I may update it (add to, amend etc.) but I thought it worthwhile making the draft available early.

PME Competitive Positioning

As I add to and improve the report, I will do so by replacing the link above with the latest document.

I learned some new insights in doing this. Overall, the insights have not changed my current view on valuation, although one comment is worth making.

My Low and Base revenue growth scenarios are consistent with $PME and Sectra both succeeding and together dominating the global market with a combined market share by 2035 of 30%-40%. My high revenue growth scenarios are probably only consistent with $PME going on to win in the longer term, as ultimately its global market share by 2045 gets to 48%, expanding from 18% in 2035. No-one can possibly know or even guess what happens out that far into the future. But the point is that valuation much above $200 really do require $PME to be the undisputed leader. In that context, it will be interesting to monitor how the risks and key indicators identified towards the end of the report pan out over the years ahead.

-----------------------------

Methodology

I used the following methodology to draft this report.

1. Generated an initial report and iterated it several times with ChatGPT.
2. I then fed the report into Claude and requested a "critical appraisal" of the report.
3. I then requested Claude to redraft the report, addressingall the areas for improvement it had identified, and to explicitly call out areas of weakness in the analysis.
4. I then manually reviewed and edited the report, although I have further work to do on this.

The result product is IMHO a far higher quality of analysis than the initial single LLM product, which had several weaknesses including: 1) quoting statements in some sources as facts; 2) failing to identify sources of bias in citations; 3) minor hallucinations.

Update: resubmitted so that it is linked to Company page and will notify follows of $PME

I've pulled this Chart of "X". It is prepared by Carl Coplingua (@CarlCapoligua), and it shows both the short run and longer run technical trends.

Source: Carl Capolingua (@CarlCapolingua of X.com)

Interesting to see on the bottom line that there is still no shortage of "supply" i.e.,sellers looking to offload.

I'd be happy to increase my RL position - probably up to another +50% at the right price. I did nibble some more today at $107.96, but I think now I'm going to be guided by the technical analysis. I've been buying all the way down from $178.

I'm stubbornly of the view that at some point, this is going to be terribly oversold, and I am happy to place a decent wager on that (evenutally 10-15%).

At today's close it is on about a 50x Forward FY26 P/E, a long way from where it was trading in the middle of last year at 200x.

During this week's Strawman Meeting, we discussed valuations and taking a long term view as an edge in long term investing.

And, lo and behold, once again I am confronted with the worst investing decision in my life - that of doing some "analysis" on $PME in mid-2023 and concluding that at $70, it was too expensive.

And so, today it announces another monster contract ($300m for 10 years) and to stop myself feeling terrible, I've done a quick update. By the way, on that news the SP jumps $2bn! (As an analyst, when I'm feeling glum I do some analysis - it makes me feel better!)

So the structure of this analysis is as follows:

1) Quick DCF

2) Quick market analysis

3) Conclusion and discussion

1) Quick DCF

So, having looked at the accounts over the last 3-4 years, i've decided to run out a DCF for 20 years. It's pretty easy to model.

First 10 years, revenue CAGR 27%; Opex CAGR 20%

Next 10 years, revenue CAGR 15%; Opex CAGR 10%

Common assumptions:

• Ongoing capex at 5% of revenue (assuming they both update and extend the platform to take over more and more of the total available market of medical imaging software)
• Depreciate 34% of relevant LT assets pa (PPE, Intangibles, Leases)
• SOI growth at 0.15% p.a.
• Tax: 30%
• Cashflow growth beyond the explicit period 5% (note: you usually don't run more than 4%)
• WACC = 9%
• 100% equity funding (no debt) + a sensitivity with LT Debt:EBITDA = 0.5

Valuation $200/share

Of course, you can bump this up a bit if you add a little gearing to the balance sheet. If I add 50% of EBITDA as long term debt, I then get:

Valuation $218/share

As ever, you can get all sorts of valuations by tweaking the parameters, and I have omitted a few things (like deferred taxes etc. and adjusting the WACC in the leverage case). Playing with this model, I can get valuations down as low as $160 and up north of $230,but that's not the point of this thread. That comes next.

2) The Market

I'm reasonably confident that the global market for medical imaging software can be estimated to be in the ball park of A$5.6bn (fairly wide range of sources around this, but it's in the ball park).

Now $PME is not playing in this total market, but for the sake of this analysis (just like with $WTC), let's assume that over time it expands from its current focus to dominate the wider market.

So, today its market share is only 7%. Lot's of running room.

We know this market is growing at 7-8% per annum, and if I assume that for the next decade it grows at 8% pa, and thereafter at a more modest but still healthy 5%pa, then in 2045 the global market has become $18bn.

In 2045, with my DCF assumptions, $PME's market share has become 46%.

Now that would be a truly dominant market share when you look at how fragmented the market is today and some of the big names playing. (GE Healthcare, Siemens, Agfa-Gevaert, Hologic, Pie Medical, AQUILAB, MIM Software, Merge Healtcare, ScienceSoft, Acuo Tech. to name the big players) Most a equipment makers who develop their own software to use witht he equipment, with overlapping functionality for $PME. So that's a big source of $PME's competitive advantage, as its machine-maker agnostic.

Just to be clear, my market size analysis is for SOFTWARE only. Not the hardware. The global hardware market is worth north of A$70bn.

3) My Conclusion

These are just quick, rough calculations you can do in a few minutes. They're broadbrush. They are almost certainly wrong.

BUT, I just have to believe too much to have a conviction that $PME represents a good investment at $228, let alone $248,

There are too many other established players investing to compete for me to believe that $PME will eventually own some 50% of the total addressible market. It's a long bow to draw. Of course, if you are prepared to believe that, then equally, the analysis shows the valuations are justified for the long term. Afterall, maybe they do become the Windows of Medical Imaging! In software, there are precendents, e.g., Google for search.

I would consider investing today in $PME around $120-$150. I'd have to do a deeper dive to find my entry point, but that's a ballpark based on what I've done in 30 minutes. (My CommSec alert is at $170 ... don't think it will triggered any time soon.)

I don't believe today's news of a $300m, 10-year contract warrants a SP movement of +$2bn. These are the kinds of deals $PME MUST bring in, if it is to justify any valuation north of $150. Of course, the SP move could be rational if the market is efficienctly assessing this deal as increasing the chances of success that $PME is going to eventually dominate this market.

So, there you go. Let's see how well this post ages. And above all, do your own research!

Well done to all you have invested in $PME - my hat off to you, and this post shows how analysis can get in the way of being a great investor. But I am going to stick to my process - it serves me well more often than it lets me down.

Reflection

As a personal anecdote, a friend of a StrawPerson at last week's Brisbane drinks had just bought their first ASX shares. $PME at the recommendation of a friend at (I recall) about $217. As I drove home in my Uber after the drinks, I wondered what the conversation would be in a year's time. It didn't cross my mind they'd be up 14% in one week!

Disc: Not held, never have. ;-(