Just what the doctor ordered: PME jumps 12% on FY26 results

Former market darling Pro Medicus (ASX: PME) has delivered a result that should have investors paying attention again. 

Double-digit growth on earnings and revenue was the headline grabber, but total FY26 dividends also rose 25.5%, fully franked, and record contracts were also standouts. 

But what is perhaps more interesting is how it is leaning into AI. Pro Medicus has so far been one of the victims of the so-called SaaSpocalypse, but Wendy Herringer from Ziller Funds Management says its FY26 earnings call suggests it is now well-placed to be a beneficiary. 

The one thing that we've been talking about in software is how quickly companies are adopting AI," said Herringer.

"We're looking at the economic moat behind these businesses, and we feel that founders - because they've built these businesses from scratch - their ability to embed AI in a considered way is going to be a really important sign of how these businesses navigate this new environment."

"If you stand still, you're going to miss the boat, and for us the founder's ability to navigate challenging periods and technological changes is key."

We spoke to Herringer about the key numbers and big developments from Pro Medicus's FY26 results. 

PME FY26 results

• Revenue up 22.9% to $261.7m vs $261.6m ests (in line)
• Underlying EBIT up 24.4% to $196.1m vs $191.0m ests (3% beat)
• EBIT margin up 90 bps to 74.9%
• Underlying NPAT up 24.1% to $144.7m, with reported NPAT up 130.3% to $265.3m
• On a constant currency basis, underlying NPAT up 32.5% to $154.5m, exceeding the company's 30% EBIT and NPAT growth targets
• Total FY26 dividend up 25.5% to 69c fully franked, with a final dividend of 37c,
• Remains debt-free with cash and financial assets up 19.7% to $252.3m
• Signed 10 new contracts worth a minimum $407m and renewed 6 of 6 contracts worth $141m on 5-year terms, all with higher minimums and increased fees per transaction
• Trinity implementation largely complete and ready for full-year contribution in FY27, with US market share around 11%

Do you currently hold PME and what do you rate it?

We do hold Pro Medicus. 

We really like the founder, we think the business is very compelling and then the final hurdle for us was just on the valuation.

The SaaSpocalypse gave us a brilliant opportunity to get into the business that we've admired for a long time. So yes, we are investors. 

Admittedly, we have actually been trimming that a little bit because it has been a strong performer for us as we've added, but we'll look to see when we can find good opportunities to add to it because it's definitely a name that we like long term.

What mattered most from the result?

They have been really good at communicating with investors to help frame the long term opportunities and how they are leaning into AI.

There were a few key things that we were looking for, and I think that they really hit all of them. 

The first one is the economic moat and there the AI story is very much a benefit for them, not a negative, and they framed that really well in a couple of ways.

They renewed six out of six contracts. That is unheard of in the software world - getting 100% retention. So that for us tells us that they're still very happy clients.

And these are very risk-averse hospital clients that, if there was any concerns around what the market could look like in five years' time, they wouldn't be renewing for five years.

Secondly, they actually feel more confident on their ability to lean into AI than they did even two months ago, which I think was really important.

They've just announced a reporting tool, which is really exciting, and they're talking about incremental pricing on that, and then they've made some acquisitions recently that show you they're leaning into AI selectively.

They did also highlight that their customers are very much slowly leaning into AI. They want to see what data they're using, how useful it's going to be, how accurate it is. This is mission critical stuff. You can't just get it half right. You need to be 100% right. 

They've had their second strongest year in history in terms of signing new contracts. That for us all tells us that the moat is incredibly strong, and that AI is very much a benefit to them.

How do those outcomes affect the outlook?

Cardiology is a market where you've got very large, and complex data segments similar to radiology, but just underserved. In pathology, they talked about testing it out in Europe and rolling out to the US.

So you've got two new markets, plus AI, that they're going to be monetising. 

In the long term, you've currently got 11% penetration in U.S. hospitals, but as they mentioned on the results call, the dream target is more than 90%. 

So the U.S. is fully addressable as far as they're concerned, and even the smallest customers can't really stand on their own anymore. So you probably find that the part of the market that they maybe couldn't address gets swallowed up, and then the rest of the market still becomes addressable. 

The barrier to success is really just how fast people implement contracts. Once again, you've got a market that's very risk averse - it moves very slowly. These guys are really at the sweet spot of being able to tackle the growth rate. 

I think the long term opportunities for Pro Medicus is phenomenal. They talked about 30% growth for next year, and that's a really compelling number. 

There's not many places in the world where you can get 30% growth year over year.

What should investors be watching from here?

If you think of every contract that comes in, it actually gives you a decent base to work off in terms of what the revenue over the next five years looks like.

So we're going to be wanting to see more renewals of contracts - the same story and the same 100% retention rate. Pricing going higher, more contracts taking the full stack, maybe even including cardiology. We'll be wanting to see more trends like that.

I think how they adopt AI will also be really important as far as navigating concerns in the market, and I think they're doing a good job of communicating that.

So those are probably the two things I'd be watching out for. 

What could you be wrong about?

In terms of our thesis, we feel that cardiology and pathology does bode well for Pro Medicus in that it's the same pain points, the same systems, and the one interface that works well with all of those different segments.

Where we could be wrong is if get you get some clients that decide that there's cheap alternatives with AI. You might see one customer that doesn't renew, and everyone will be spooked. 

But I think that that probability is quite low because of the nature of this business. It's very different to a typical software business. It takes three years or longer for a negotiation with a customer to go live and actually be getting $1 through the door. 

It's a really long process - a really long RFP process - and so I think their ability to understand where the pain points are and to navigate through those those discussions will be positive.