This article first appeared on GuruFocus .
Release Date: August 17, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Underlying EBIT margin improved to 9.4%, above the top end of guidance, with second-half margin at 11%.
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Underlying NPAT grew 4.3% and EPS rose 8.5% despite a challenging market.
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Returned $47 million to shareholders via dividends and buybacks, with a 5.5% yield and 69% payout ratio.
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Return on invested capital improved to 25.2%, above the 75th percentile of the ASX 300.
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Strong cash conversion of 119.2% of EBITDA into operating cash flow, with free cash flow of $64.7 million.
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Operational efficiencies delivered: 10.4% increase in lab panels per FTE and 13% logistics efficiency gain, reducing kilometres by nearly 1 million.
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Non-Medicare revenue now ~20% of total, with commercial contract revenue up 17% and genetics/non-MBS up over 7%.
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Single national laboratory information system (LIS) provides a structural competitive advantage, enabling rapid deployment of billing and automation initiatives.
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FY27 guidance reflects margin stability despite headwinds, with a strong pipeline of new profitable collection centres and growth initiatives.
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New CEO Greg Horan brings extensive healthcare experience and a focus on disciplined execution and value creation.
Negative Points
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Revenue declined to $736 million, down on the prior corresponding period due to low market volumes and fee cuts.
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Absorbed approximately $14 million in net Medicare fee cuts (vitamin B12 and urine testing) and faced sluggish GP consultation market.
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Incurred $1.8 million in gender undervaluation costs and faced annual wage increases of 3.5% plus superannuation rise.
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Free cash flow decreased to $64.7 million from the prior year, partly due to lower revenue.
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Statutory NPAT was $24 million, significantly below underlying NPAT due to one-off items including a $6.2 million AIC settlement and $4.2 million prepayment write-back.
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FY27 guidance includes continued wage pressure, with an estimated $7 million impact from gender undervaluation for collectors and health professionals.
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Market volumes remain below long-term trends, with GP attendances and pathology episodes still sluggish.
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Some public hospital work was insourced by the state, reducing revenue.
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The company exited unprofitable collection centres and contracts, leading to a short-term revenue decrease.
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Net debt increased to $37.4 million, though still conservative at 0.5 times EBITDA.
Q & A Highlights
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Q: What is the FY27 guidance and what are the key assumptions behind it? A: Greg Horan (Incoming Group CEO) provided FY27 guidance of revenue between $745 million and $765 million, underlying EBIT of $67 million to $73 million, and an implied EBIT margin of 9% to 9.5%. The guidance assumes modest market growth, continued wage pressure, and the impact of non-industry funding settings, excluding the final stage of gender undervaluation for pathology collectors. It reflects benefits from initiatives like upfront episode billing, price increases on non-MBS funded tests, Lab of the Future, AI initiatives, and workforce alignment to activity.
Q: Can you elaborate on the $14 million EBIT impact from Medicare fee cuts and how the company offset it? A: Melinda McGrath (Group CEO) explained that the $14 million impact came from large Medicare cuts to vitamin B12 and urine testing, partially offset by indexation. The company offset this through operational redesign, including optimizing collection center portfolios, exiting unprofitable contracts, and implementing AI and automation projects. Matt Cordingly (CFO) added that the offsets came primarily from labor cost vigilance, operational efficiency in labs, and procurement focus on consumable costs, all of which are structural changes, not one-off savings.
Q: What is the impact of the Fair Work Commission gender undervaluation ruling on FY27 labor costs? A: Matt Cordingly (CFO) confirmed that the combined impact of collectors and health professionals from gender undervaluation is approximately $7 million in FY27. He noted that the $5 million impact for phlebotomists is embedded in guidance, with a more modest increase expected on January 1st when Fair Work updates their rate card. The company expects to offset this within the guidance range provided.
Q: How is the upfront billing initiative progressing and what is the potential upside? A: Melinda McGrath (Group CEO) described the billing project as exciting but challenging, requiring programming of the lab information system and matching billing at the backend. The patient walkout rate when given informed consent is very low at around 8%, and those patients would not have paid anyway. The company is targeting high-volume tests and sees this as an untapped opportunity with compounding benefits into future years. Greg Horan (Incoming Group CEO) added that incremental benefits will start hitting the P&L in FY27 and continue to grow through FY28 and beyond.
Q: What drove the improvement in consumables cost as a percentage of revenue, and is it sustainable? A: Melinda McGrath (Group CEO) attributed the improvement to strong contract and inventory management, driving down price per test and usage. There was also a slight mix change impact, but the majority was deliberate procurement changes. Matt Cordingly (CFO) confirmed the level is sustainable, noting the company is working hard to offset costs across all spend under influence and expects to drive it down further.
Q: What are the assumptions for MBS growth in FY27, and will there be a benefit from cycling the vitamin B12 changes? A: Matt Cordingly (CFO) stated that MBS growth expectations are modest and largely in line with FY26, though hopeful for improvement towards the top end of the range as GP attendances pick up. He confirmed the company will get some benefit from cycling the vitamin B12 changes that came in July 2026.
Q: How is the company managing price increases and demand elasticity for non-Medicare revenue? A: Melinda McGrath (Group CEO) explained the company is very cognizant of not "shooting ourselves in the foot," so they are targeting carefully, piloting, and measuring patient walkouts and price elasticity. The walkout rate is low at around 8%, and those patients would not have paid anyway. The company is targeting high-volume tests, which provides good bottom-line benefits with a compounding effect into the future.
Q: Can you provide more color on the $8 million of savings targeted for FY27 and whether it's included in guidance? A: Greg Horan (Incoming Group CEO) confirmed the $8 million savings are included in FY27 guidance and expected to compound into FY28 and beyond. Matt Cordingly (CFO) elaborated that the savings come from operational initiatives like Lab of the Future, Consolidated Skin Lab Project, AI/OCR automation, and revenue initiatives, though the company does not break them down piece by piece.
Q: What is the annualized impact of exiting sub-economic contracts in FY27? A: Matt Cordingly (CFO) stated the annualized impact will be similar to the $14 million figure, but noted it's not all from contracts. The impact is broken up into collection centers and contracts the company no longer has, and it is embedded in the FY27 guidance.
Q: How are the labour FTE efficiencies of $13.4 million targeted, and who took over the exited contracts? A: Matt Cordingly (CFO) explained that FTE reductions are not specifically targeted at ACC closures but are reviewed holistically across the business. Efficiencies come from laboratory efficiency, matching labour hours to volume, flexible workforce management, and the shared services office in Malaysia. Melinda McGrath (Group CEO) added that the exited contracts would not be profitable for anyone else, otherwise the company would have kept them.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
