Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Integral Diagnostics Ltd (ASX:IDX, Financial) achieved a 6.6% increase in revenue to $469.7 million.
- Operating EBITDA grew by 7.4% to $91.5 million, with an improved EBITDA margin of 19.5%.
- The company declared a fully franked final dividend of $0.033 per share.
- IDX reduced its leverage by 0.3 times to 2.6 times, showing improved financial stability.
- The proposed merger with Capitol Health Limited is expected to bring significant benefits and synergies.
Negative Points
- Statutory net profit after tax showed a loss of $60.7 million due to impairment in New Zealand.
- High labor costs driven by inflation and labor market supply constraints impacted margins.
- The company faced prolonged cost pressures, particularly in the first six months of FY24.
- IDX experienced a decline in volume by 0.5%, attributed to patients seeking bulk billing alternatives.
- The company had to undertake a restructure in late 2023 due to cost inflation and pressures.
Q & A Highlights
Highlights of Integral Diagnostics Ltd (ASX:IDX) FY24 Earnings Call
Q: What factors influenced the incremental EBITDA margin in FY24?
A: Ian Kadish, CEO: The inflationary impact on consumables, particularly in high-cost modalities like PET/CTs, affected margins. High inflation in nucleotides and contrast media, along with labor CPI, impacted costs. We expect inflation to decrease over time, which should improve margins. Craig White, CFO, added that labor cost pressures and increased technology investments, particularly in cyber security, also influenced margins.
Q: Can you explain the lower-than-expected CapEx in FY24 and the guidance for FY25?
A: Craig White, CFO: Some projects experienced delays, such as the Smith Street site on the Gold Coast, pushing expected spend into FY25. The guidance for FY25 is $40 million to $45 million, with historical trends suggesting spending at the lower end of this range.
Q: What administrative synergies are expected from the merger with Capitol Health?
A: Craig White, CFO: Administrative synergies will come from process improvements, particularly in billing. The merger will also enable better pricing and lower margins due to reduced gearing.
Q: Why did IDX's revenue growth in Australia underperform compared to peers?
A: Ian Kadish, CEO: The primary reason is the cost pressures faced by families, leading them to seek bulk billing alternatives. This was particularly noticeable in areas like Victoria and Queensland, where competitors offer more bulk billing options.
Q: What are the expectations for labor costs and efficiencies in FY25?
A: Craig White, CFO: While no major restructuring is planned, we aim to achieve operating leverage by containing non-clinical costs. The merger with Capitol Health is expected to bring additional synergies, particularly in labor costs.
Q: What is the outlook for gap payments in FY25?
A: Ian Kadish, CEO: We will monitor market dynamics and adjust gap payments accordingly. While no large-scale increases are expected, adjustments will be made based on supply-demand dynamics in each market.
Q: How will the changes to MRI licenses affect IDX's business?
A: Ian Kadish, CEO: The changes are expected to be beneficial, particularly for practices with partial licenses that will be upgraded to full licenses. This will allow for increased MRI utilization and potentially adding new MRIs at busy sites.
Q: What are the expectations for New Zealand's contribution to revenue and margins?
A: Craig White, CFO: New Zealand contributes about 12-13% of revenue and has EBITDA margins above 30%. We expect continued solid growth in both Australia and New Zealand.
Q: What is the impact of the deregulation of MRI licenses in 2027?
A: Ian Kadish, CEO: Increased competition may make it challenging to implement co-payments in some areas. However, the demand for MRI is expected to grow, driven by increased utilization and new indications for MRI scans.
Q: What are the expectations for technology costs in FY25?
A: Craig White, CFO: While technology costs will continue to be significant, particularly in cyber security, we expect the rate of increase to stabilize. Investments in clinical and corporate platforms will continue to drive efficiencies.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
