Release Date: February 19, 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 solid organic revenue growth of 7.2% in the first half of FY '24.
- Operating EBITDA increased by 8.7% to $43.2 million, with a slightly higher EBITDA margin of 18.7%.
- The company served 600,000 patients and performed over 1.3 million exams in the first half.
- IDX declared a fully franked interim dividend of $0.025 per share.
- The teleradiology business, IDXt, continues to grow, now accounting for about 15% of revenues and offering higher margins.
Negative Points
- Operating net profit after tax declined by 5.6% to $7.4 million due to prolonged cost inflation and higher interest rates.
- Statutory NPAT declined by $66.8 million, driven by a non-cash impairment of the New Zealand business.
- Free cash flow decreased by 41.3% due to timing of working capital movements.
- Net debt-to-EBITDA ratio remains high at 3.0x, although slightly improved from 3.1x the previous year.
- The company faces ongoing labor cost pressures, particularly in regional areas, driven by inflation and labor market supply constraints.
Q & A Highlights
Q: Can you go through some of the key drivers for margin improvement in the second half? Is it based on growth or cost moderation? And how does this look in New Zealand versus Australia?
A: Craig White, CFO: The margin improvement is driven by solid revenue growth, cost control, and seasonal factors. The 0.5% Medicare increase from November and CPI-related increases from insurers in New Zealand will impact the second half more. Ian Kadish, CEO: Revenue growth and operational leverage give us confidence in achieving or slightly exceeding last year's second-half margin.
Q: Do you expect to be tracking ahead of the market in terms of growth?
A: Ian Kadish, CEO: We have seen a strong start to the second half, but comparisons with Medicare stats are not straightforward due to our regional focus. Craig White, CFO: Both Australia and New Zealand have had a solid start to the year.
Q: What is the timeframe for reaching your target leverage ratio of 2.5x net debt to EBITDA?
A: Craig White, CFO: We expect to reduce leverage gradually over time. The journey to 2.5x will take longer than initially thought, but it is gradually reducing.
Q: Are you seeing labor supply pressures across both regional and metro clinics? What percentage of your clinics are regionally placed?
A: Ian Kadish, CEO: We don't have an exact percentage, but our strongest market shares are in regional areas. We are seeing labor supply challenges slowly dissipate, particularly with international medical graduates returning to regional areas.
Q: Can you provide more detail on the cost reduction initiatives and their timing?
A: Ian Kadish, CEO: The changes were executed in the first half, with results mainly seen in the second half. Changes were made to middle and senior management levels, integrating roles to improve decision-making and efficiency. Craig White, CFO: The restructure aims to flatten the organization, improving both efficiency and effectiveness.
Q: Are you seeing any impact from inflationary pressures on volumes or your ability to charge co-payments?
A: Craig White, CFO: We haven't taken significant out-of-pocket increases in FY '24, unlike FY '23. We are not seeing material impact on demand due to patient concerns about the ability to pay.
Q: What are your growth rate expectations for the New Zealand business going forward?
A: Craig White, CFO: We expect growth slightly less than 5% revenue CAGR and moderated EBITDA margins around 30%, which formed the basis of the impairment taken.
Q: Do you still expect EBITDA improvement over the medium term to pre-AASB 16 levels of around 24%?
A: Craig White, CFO: We expect continued margin expansion over time, driven by solid revenue growth and moderating costs. Ian Kadish, CEO: Technological advancements, particularly AI, will significantly improve efficiencies and radiologist productivity over the medium term.
Q: What is the expected interest expense for FY '24?
A: Craig White, CFO: The effective interest rate for the first half was around 6.8%. We have guided to fully finance costs of around $22 million, including adjustments for AASB 16.
Q: What is the contribution of telehealth to margins, and how do you expect it to impact margins in the longer term?
A: Ian Kadish, CEO: Telehealth accounts for about 15% of revenues and has stronger margins due to being asset-light. We expect continued growth in telehealth, which will benefit both revenue and margins.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
