Transcription of Finance News Network Interview with LifeHealthcare Group Limited (ASX:LHC) Managing Director and CEO, Matt MuscioCarolyn Herbert: Hello I’m Carolyn Herbert from the Finance News Network and joining me from medical device company, LifeHealthcare Group Limited
(ASX:LHC) is Managing Director and CEO, Matt Muscio. Matt, welcome back.
Matt Muscio: Thanks Carolyn.
Carolyn Herbert: First up to your financials, you’ve just released your first half ’17 results. What were the highlights?
Matt Muscio: We were pleased with the progress that we made, both on the growth of the company, but also on some of our key innovation initiatives. On the financial side, we had above market growth again with revenue of $61.7 million, which was growth of 13.4 per cent on the prior comparable period. We had underlying EBITDA of $9.1 million, which was growth of 7.3 per cent, despite some margin decline from foreign exchange. Looking forward, however, with a 12 month hedging policy, we look forward to a small tailwind as we go into the next financial year.
We also made some progress on some of our key balance sheet metrics. Some of the commitments that we put forward at the end of the last financial year, we had a 500 basis point improvement in our networking capital to revenue ratio. We also had cash conversion of 80.2 per cent. When you look at our historical cash conversion in our first half, it’s typically weaker. So that was a good result also.
Carolyn Herbert: What drove the results?
Matt Muscio: There were a number of key initiatives that drove the result for us Carolyn. When you looked at the underlying implant growth, we continue to grow above the market at 12.8 per cent. This was underpinned by a growth of seven per cent in the new active surgeons that we report on. We also then had penetration in complex orthopaedics and we had share conversions, through our minimally invasive and 3D printed spine portfolios.
We continue good momentum in robotics. We had two additional robotic units that were rolled out in the first half of the financial year, giving us a footprint of six units in the marketplace now. This is a strong complimentary portfolio for our minimally invasive spine, particularly with the XT system that we’d rolled out from K2M Group Holdings Inc. (NASDAQ:KTWO), in the previous year. We had good growth in our cardio, interventional cardiology and respiratory technologies, following the acquisition of Medical Vision Australia in 2015.
And finally, we were pleased to expand on our intraoperative CT footprint. We’re going to put a CereTom cranial CT scanner, into the first mobile stroke unit in Australia. And we’ve also confirmed the placement of a BodyTom intraoperative CT at the Epworth, Richmond in the fourth quarter.
Carolyn Herbert: Robotics and diagnostic imaging are emerging areas of innovation in this space. So what’s LifeHealthcare’s involvement?
Matt Muscio: We’ve always been focused on the innovative areas of technology. And for us, as we look at areas such as robotics and diagnostic imaging, not only do we see an opportunity for the company to grow capital and implants sales, but this is really an opportunity to also see superior patient outcomes. And improved health economic outcomes for the system. For us on robotics, with our partnership with Mazor Robotics Limited (NASDAQ:MZOR), we’ve been able to deliver improved patient outcomes, both through less invasive surgery, reduced revision rates, giving surgeons increased accuracy of surgery. And that plays out in terms of giving better health economic outcomes, with reduced wastage of implants that might need to be misplaced, or resized during surgery.
There’re also reduced revision rates from misplaced screws and through that minimally invasive surgery, we get shorter length of stay. So following on from placing two units into the market in the second half of last year, we’ve put a unit into Wollongong Private and another one into Epworth, Richmond. And with that footprint we’ve now got, it gives LifeHealthcare the leverage with our spine expertise, to continue to grow above the market in that space.
Turning to diagnostic imaging, as you see imaging becomes smaller, more mobile and you’ve got higher quality of images, it really does open up some exciting opportunities. As your viewers would be aware, stroke is one of the leading causes of death and disability in the community. When you look at ischemic stroke, which is a clot or a blockage within a cranial vessel, this represents about 87 per cent of strokes. Compared to haemorrhagic strokes, which is a rupture, ischemic stroke patients can be very effectively treated with a clot busting medication, if they have an accurate diagnosis and a timely application of the treatment.
The CereTom cranial CT scanner has been successfully installed in ambulances, in both Europe and North America. This means that the ambulance team can diagnosis a patient onsite. They can wirelessly transfer the images through to neuroradiology departments, and get that accurate diagnosis and start treatment immediately. So we’re really excited to be putting the first CereTom CT in the southern hemisphere, into an ambulance. We’ll be doing that in partnership with Ambulance Victoria, the Royal Melbourne Hospital and the Victorian Government. And this is going to make a real impact to patients’ lives in Victoria and to the cost of rehabilitating patients, who have suffered ischemic stroke.
Carolyn Herbert: Can you give us an update on LifeHealthcare’s partnership with K2M and your recently announced agreement?
Matt Muscio: We were very pleased to announce earlier this month of a new five-year agreement with K2M. We’ve been in partnership with K2M since 2010. And through that relationship, we’ve yielded significant growth and actually even been able to obtain number two market share position, in spine in Australia. K2M’s a globally recognised innovator in spine. They’ve led the way in deformity and now in minimally invasive and 3D spine solutions.
With our partnership we’ve delivered a number of key initiatives, including the EVEREST XT minimally invasive spine platform, as well as other key educational platforms, such as Deformity Down Under. And some of these are specifically fit to Australian and New Zealand spine clinicians’ requirements. We’re excited that this new announcement, this new agreement, puts us in place to make ongoing investments, both K2M and LifeHealthcare for us to strive towards our shared goal of number one market position in Australia and New Zealand.
Carolyn Herbert: Finally Matt. What’s your outlook for the second half of FY17?
Matt Muscio: LifeHealthcare continues to be well positioned for sustained above market growth, both through expansion of our active surgeons and in new product introductions. We also see the opportunity for ongoing improvements in our key balance sheet metrics. For the second half, we see a more modest growth, on what was a very strong comparable period in the second half of last year. But with stable gross margins and with maintenance of our ongoing operating expenses, we see improved EBITDA ratios in the second half.
So with our trading up to the end of March and with that all being on track, we’ve reaffirmed our guidance of mid to high single digit revenue growth. And low to mid single digit EBITDA growth.
Carolyn Herbert: Matt Muscio, thanks for the update.
Matt Muscio: Thanks Carolyn.
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