Integral Diagnostics Limited (IDX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Integral Diagnostics 1H FY '20 Results Call. [Operator Instructions] I would now like to hand the conference over to Dr. Ian Kadish, CEO and Managing Director. Please go ahead.

Thank you very much, Lexy. My name is Ian Kadish. I'm the Chief Executive Officer and Managing Director of Integral Diagnostics. I'm joined this morning by Craig White. Craig is our Chief Financial Officer. It's our privilege this morning to be talking to you about our H1 FY '22 results. And we also have the privilege of discussing with you an exciting acquisition that we announced this morning, together with its associated capital raise. We plan to spend 15 to 20 minutes on the H1 results, given that these results were in the main release on the Australian Stock Exchange on 27th of January when we posted a market update and then to spend about 20 minutes discussing the acquisition and associated capital raise and then have 20 minutes at the end for questions and answers. Our vision at Integral Diagnostics is to build a healthier world. And the way we do this is by delivering the best health outcome for every patient that we serve. We always put our patients first. We demonstrate medical leadership by improving outcomes with evidence-based care. And at Integral Diagnostics, everyone counts, we work safely and inclusively in respect to each other. We ensure that we create value not just for shareholders, but for all stakeholders. And we embrace change, and we've never had to do this more than in the last 2 years, where everyone has faced this worldwide pandemic. We served 484,000 patients last year. We adapted to changing COVID-19 variance initially during the Delta wave and then later during the Omicron wave, and we continued to invest in creating safe environments by patients and our staff. We invested $14.6 million in new capital expenditure last year, building a new center at Benowa on the Gold Coast, which accounted for almost half of our growth capital expenditure during the first half. We continue to develop and to implement technology to enhance our patient and referral experience. Prior to the acquisition, we have 232 reporting radiologists, 152 of these radiologists are employees of IDX, 78 are contractors. And importantly, 98 of our current radiologists are shareholders in the business. We continued the development of IDXt, which is Integral Diagnostics tele-radiology reporting platform to provide services to external clients as well as internal clients. The external clients were a new service provided by IDXt during the first half of this year and as heavy medicine became more important, tele-radiology has become an integral component of telemedicine. We also commenced the development of group wide subspecialty reporting to capitalize on the specialist expertise we have within IDX. We continued our focus during the half delivering our ESG strategy. We also implemented an employee recognition program, and we invested heavily in supporting our people during the many COVID-19 mandated absences. We conducted a temperature check survey with our employees in October to follow up with a survey that was conducted in July, and we demonstrated improvement in employee engagement scores. Our operating NPAT unfortunately declined by 21.7% to $13.0 million profit in the first half. Our operating diluted earnings per share declined by 22.8% to $0.064 per share. We have declared a first half '22 fully franked dividend of $0.04 a share. We commenced the integration of the X-Ray Group acquisition in Albury-Wodonga, on the 1st of November of last year. And we also have continued the integration of Ascot Radiology over in Auckland, New Zealand. We invested more than $10 million in growth initiatives in the first half, including the development of 3 new stacks. We managed workflows and personnel systems that we could continue to operate in a COVID-19 environment. And we continue to be active in work in our opinion and with the industry and industry bodies in New Zealand to address the non-arm's length referral practices that have developed in Auckland. We also were forced me to appoint our Chief Financial Officer, Craig White, to commence the test on the 24th of January. Craig came to us from Genesis Care. We as the CFO there for some time. So it's terrific that we have been able to secure a Chief Financial Officer with health care as well as financial expertise. Moving to the financial highlights for the first half of '22. We grew our revenue by 5.7% despite the challenging COVID-19 environment. But our earnings lines were all declined by 48.7% in terms of statutory NPAT to $10.2 million of earnings. Our operating net profit after tax declined to $13 million by 21.7%. Our EBITDA declined by 7.1% to $39.5 million, and we saw a decline in our operating earnings per share by 23% to $0.064 per share. Our free cash flow also declined by about 25%, and our net debt to last 12 months EBITDA on a pre-AASB 16 basis was at 2.5x at the end of the first half. We were principally affected by COVID-19 across all the geographic areas that we serve. Impacts specifically -- impacted specifically by the restrictions on elective surgery, by patients reluctance or inability to attend health care services, and importantly, by staff shortages that required us to sometimes close sites or reduce operations. Our employee costs increased due to the increased lead the increased use of sick leave most significantly, a reduction in annually taken in large part to replace those who were on sick leaves and then border restrictions impacting staffing, and this particularly impacted our businesses in Western Australia and Auckland that are dependent on the ability to source cross-border staff but also our border practices on the Gold Coast and in Tweed where we crossed the Queensland, New South Wales border and in our new practice in Albury-Wodonga, where we, again, straddle New South Wales, Victorian borders and the Board of closures are particularly disruptive in these practices where both staff and patients are used to seamlessly tracking the [indiscernible]. We increased consumable costs due to ongoing use of personal protective equipment, and we saw supply chain disruptions for equipment delivery and repairs, and this caused delays in some of our organic growth initiatives and also increase the downtime of some of our equipment. As a company, we're fully committed to maintaining and supporting our excellent team of radiologists and related medical specialists and technical staff through COVID-19 to continue the delivery of high-quality services to patients as demand returns. We declared a fully franked dividend of $0.04 per share, it's down from $0.055 per share last year this time, but it remains consistent with our historical payout ratio of 70% of our statutory net profit after tax. Moving on to the next page of our investor presentation in the first half. We have produced a slide at ways over the course of the past several years. And what's very evident in this slide is that the Medicare outlays have come back strongly in calendar year -- in calendar year 2021 on a 12-month rolling basis. So the industry is recovering from the depth of COVID-19 impact early in 2020, and we're seeing that kind of recovery come back in the industry expectedly and prices. Our shareholder returns demonstrate a strong track record part of a fully franked interim dividend that has been growing for the past several years, and declined this year to be $0.04 a share. Important to note that we have remained in line with the payout ratio of 70% of statutory impact. Our dividend record date is the 2nd of March 2022, and the payment date will be the 4th of April 2022. I'm going to hand over now to Craig White, our Chief Financial Officer, to take us through the financial performance.

Thanks, Ian, and good morning, everybody. I'm just taking you to Slide 8 of the pack headed results for first half FY '22. Ian has already touched on some of these. I think the key additional point I'd just like to make is that the results are essentially in line with the market update announcement that we provided on the 27th of January. Despite the COVID-19 impact on the first half profit result, it was pleasing to see that we saw a 5.7% growth in operating revenue. Our free cash flow remains solid at around $25 million. And clearly, that's helpful in contributing to funding our growth initiatives. As Ian mentioned, on a pre-AASB 16 basis, leverage at 31 December 2021 stand at 2.5x. But post the acquisition of Peloton and the $90 million capital raise, that leverage does reduce to 1.9x. Just turn to the next slide on revenue, to take you through a little bit more detail here. The 5.7% growth in operating revenue was essentially driven by 3 items: $3.5 million of organic growth, $3.9 million attributed to the acquisition of Ascot Radiology, where we had an additional 2 months contribution and $2.4 million from the X-Ray Group, where we had 2 months' contribution following that acquisition. In terms of organic growth, it was pleasing to see that we saw 5% organic growth in Australia against an industry of 4.7%. Both those numbers obviously impacted by COVID. And I think it's also important to note that IDX's growth rate is off a higher base than that for the industry given the more regional nature of IDX's operations, which were less impacted by COVID-19 than the prior year. In New Zealand, we've called out an 18.1% organic revenue decline, principally driven by COVID and really reflects the absence of any COVID-19 impact in the first half of FY '21, so the prior corresponding period. In line with historic trends, we've seen average fee per exam increased across the group by 4.4% in first half FY '22 and that really reflects a continued mix shift to higher-value modalities, such as MRI, CT and PET scans. Turning to Slide 10 on operating expenditure, fundamentally driven by the decline in revenue, which has been affected by COVID, we've seen a 2.9% increase in operating expenditure as a percentage of revenue. Principally, as Ian called out driven by employee costs and in particular, reduced annual levers, staff and doctors have not been able to take leave in a COVID-19 environment, a significant increase in additional sick leave and increased cost of staff allowances as we've sought to ensure that our various practices are property staff despite some of the border restrictions that Ian referenced earlier. In terms of consumables, we've seen a 0.3% increase in substantial revenue driven by 2 factors: one, the mix shift towards higher-end modalities, but also an increased use of PPE due to COVID-19, and we'd expect that over time to reduce. There's been a small increase in depreciation, reflecting additional growth capital investment and also the extra 2 months of the Ascot Radiology and X-Ray Group acquisitions. And certainly linked to the debt-funded acquisitions. Finance costs across the group has gone up by $0.7 million. Just turning to the next slide on capital management. Integral Diagnostics continues to have a very strong balance sheet. We have significant liquidity headroom available under the group's debt facilities of 172 million headroom, and that excludes an additional $105 million, which is available to us under an accordion facility as part of our overall club facility. As I mentioned, leverage on a pre-AASB 16 basis at a 2.5x at 31 December 2021, but reduces to 1.9x following the Peloton acquisition and the $90 million capital raising. Just one other point I'd like to call out on this page, and that is that the balance sheet reflects the provisional accounting for the X-Ray Group and that will be finalized within the required 12-month period from data acquisition. Just turning to cash flow and cash conversion on Slide 12. Previously called out the fact that the group continues to generate strong free cash flow to support growth initiatives. If we look at free cash flow conversion net replacement CapEx, but on a pre-AASB 16 basis, then cash conversion sits at around 90%. And obviously, as I mentioned earlier, we have continued to invest in growth CapEx, which is about $6.8 million higher in the first half FY '22 versus first half FY '21. Ian, I think I'll hand back to you now just to talk to CapEx and some of the growth initiatives.

Thank you very much, Craig. As Craig indicated, we are investing for growth again. You'll notice on the page for capital expenditure, we have committed $10.4 million to growth CapEx. This is relative to the $3.6 million that was committed last in this prior comparable period. It's a significant increase, and it demonstrates the confidence that we have in the business in terms of our greenfield and brownfield investments. Our most significant greenfield investment, as called out earlier, is the Benowa Greenfield on the Gold Coast where we invested almost half of our growth capital in during the first half is a $4.5 million investment. It's an exciting development for us on the Gold Coast and complement a clinic offerings on the Gold Coast very, very nicely. It's a full comprehensive clinic with MRI, CT and the full suite of services. We also invested in a greenfield in Perth for the first time. It's Arconic Greenfield, and that's a $1.3 million capital investment for us. Moving on to the regulatory environment, which we see as stable in both Australia and New Zealand. As at the date of this presentation, there are no further licenses or plans for the deregulation of MRI licenses that have been announced. Licenses are sometimes announced during a federal election year. In the back of last year, we did receive a 0.9% increase -- indexation increase from Medicare. This was lower than what we had anticipated given the fact that CPI for the period was 3.8%. And in fact, half CPI was higher at 4.8%. Indexation applies to all items except met for the MRI and PET items. As of this year, indexation will be applied to MRI items as well, starting from the 1st of July 2022. However, at the same time, Medicare has reduced the stock billing incentive for MRI to 95% of the Medicare benefit schedule from the 100% that it was at previously. Medicare do expect to deliver a $107 million savings over the full year forward estimates. FDG PET for the early detection and diagnosis of Alzheimer's disease was introduced onto the MDS from the 1st of November, and this is expected to be an exciting development, not just for us, but for all patients and their families that are impacted by Alzheimer's disease, the ability to detect disease earlier and to treat disease with the new treatments that are available should make a real difference to patients and to providers like ourselves that have the ability to make the early diagnosis. The New Zealand indexation is provided across all the contracts we do have. So we do see CPI type adjustments in all of the contracts we have in New Zealand. And we expect that the DI market in New Zealand will continue to grow, driven by aging demographics and the adoption of new technologies to improve patient outcomes like the PET technology just referenced. There has also been an emerging market practice in New Zealand over the past 6 or 8 months or so, where others are acquiring ownership interest in radiology practices. And this has the potential to change the competitive dynamics as refers will then have a vested interest in the facilities that they refer to. I expect that the regulators and the payers in New Zealand will review these practices against their own guidelines and will take the necessary actions to ensure that patients' interests are protected that patient choice is retained and that patients and payers are not subject to overservicing and unnecessary imaging. We're working with the industry body in New Zealand to ensure that our voice and the patient voice for it. We're working with the body for the New Zealand Institute of independent radiologist. Management strategy remains consistent. Good medicine is good business. Our organic and our inorganic growth strategy and our focus remains the same despite COVID-19 impacting our near-term performance. Our drivers of strategy are organic growth, business integration and further efficiency gains to accelerate the use of digital and AI technology to improve the experience for patients and refers to drive our ESG agenda to nurture and develop leadership with culture across our people and to evaluate and continue to execute on further strategic acquisitions. The company is fully committed to maintaining and supporting our excellent team of radiologists and related medical specialists and technical staff. Through COVID-19 to continue to deliver high-quality services to our patients as demand returns. Prior experience operating in a post COVID-19 restrictive environment has seen a return to historical levels of operations and a period of capture of pent-up demand, which has resulted in resulted in higher volumes of exams for some months, maintaining our workforce and infrastructure to ensure that IDX is well positioned to service this increased demand when it returns remains a priority for us. The company also maintains its focus on executing both our organic and inorganic growth strategy, in line with our values to deliver the best health outcomes for our patients. We believe that the underlying fundamentals of the radiology industry remains strong, and the company is confident that patient volumes and historical growth patterns will over time, return to pre-COVID-19 levels and that the continued investment in our workforce and infrastructure is going to position us well. While second half performance to date continues to be impacted by COVID-19, there are some early signs that patient volumes are returning, especially in our Queensland operations, albeit that the impact of COVID-19 in the second half still does remain obsessed. I will move on now to discuss our recent acquisition and our capital raise, and we will then open up for questions. We announced this morning that we have acquired Peloton Radiology for $66.5 million payable is 90% in cash and 10% in new ordinary IDX shares. In addition, there is a retention-based earn-out by $4 million, which will be subject to the business achieving certain retention and integration objectives and is payable in 2 tranches. $3 million on the 1st of July 2023 and $1 million on the 1st of July 2024. The acquisition multiple is 8.8x pro forma FY '22 EBITDA, including the upfront consideration and the [indiscernible] expanded by a fully underwritten entitlement offer and IDX chart. We expect to deliver low single-digit pro forma FY '22 EPS accretion before ongoing synergies and one-off integration costs. The completion of the acquisition is expected in calendar year 2022, subject to the satisfaction of conditions precedent, including ACC approval. Peloton Radiology is a scale provided diagnostic imaging services with a strategic presence from Brisbane up to the Sunshine Coast in that high-growth coronal of Southeast Queensland. It's a highly diversified practice with a high-end modality mix that includes litter medicine CT and partially licensed MRI. It comprises 9 wholly owned clinics in good locations that complement our clinics that are further at the Sunshine Coast and joins us to the Peloton clinics down in Moreton Bay and Brisbane itself. Peloton brings with it an experienced team of 12 radiologists and 190 employees. It enhances our presence in that high-growth corridor in Southeast Queensland. It provides us with several more centers of excellence in areas like breast imaging and women's diagnostic services. It also meets our investment criteria, not just for EPS accretion, but also meeting our return on capital hurdles as well as being a strong clinical and cultural fit. The group has a strong clinical leadership record and a track record of delivering good patient outcomes. We're excited about the acquisition and looking forward to discussing the acquisition with the market. Funding for the acquisition is via a fully underwritten entitlement offer to raise about $90 million offered at $3.44 per new ordinary share, the upper cross for the entitlement offer. New IDX shares issued to Peloton Radiology vendors, at $3.44 per share will be issued at the completion of the acquisition. The new shares will not be eligible for the interim dividend of $0.04 a share relating to the first half that ended on the 31st of December. The offer price of $3.44 represents a 10% discount to the ex rights price of $3.82 and represents an 11.1% discount to a dividend-adjusted closing price of IDX shares on Tuesday, the 22nd of February. The upper provides us with additional balance sheet flexibility to support investments in identified bolt-on M&A opportunities that are in line with our strategy. Our net debt to last 12 months pro forma adjusted EBITDA is expected to reduce to 1.9x on a pre-AASB basis. IDX shares will be issued to certain pellets and radiology non-radiologist vendors as consideration for the acquisition and will be subject to escrow arrangements for roughly 3 years. Importantly, the acquisition is subject to conditions precedent, including a confirmation of the relevant regulatory approvals, including the Australian Competition Commission, consent to assignment and material property leases, confirmation that Peloton Radiology holds all the required licenses and no material adverse change in Peloton Radiology. I'm going to go through some of the pertinent details of the of the acquisition clinic over the next few slides just to provide an overview of the assets and the business that we're acquiring. Peloton has a high-quality, well-invested fleet for 3 MRIs and all of these MRIs have a partial license. Partial licenses are good and appropriate for most, if not all, GP referrals and cannot be used for some specialist referrals too. They have 8 CT machines. They have 190 employees across the Peloton clinics and 12 long-tenured radiologists comprised the Peloton Radiology staffing complement. The radiologists have skills in a broad range of specialties, including musculoskeletal and sports imaging. Head and neck and urological imaging and geography and interventional radiology, breast, abdominal nuclear medicine and cardiac imaging. The brand has a good reputation for excellent quality care in South East Queensland Corrigo. The next page outlines some of the reasons that we consider Peloton to be an attractive strategic acquisition for us enhances our presence in the high-growth corridor in Southeast Queensland. The Sunshine Coast population is projected to grow by 167,000 people between 2021 and 2041. That's an increase of almost 50% over the current population in the year. We see numerous additional growth initiatives through the combined group, both Peloton and ourselves in areas where Peloton has been doing a lot of work in the gastroesophageal reflux study in breast AI and in general premium breast care technology that they offer. -- and increasing capacity -- equipment capacity in Southeast Queensland, where we can load balance between the MRIs and CT that we have in our fleet and the MRIs and CT intelligent fleet. We expect that the acquisition will deliver low single-dose digit pro forma FY '22 EPS accretion before ongoing synergies and one-off integration costs. The group is a good strong cultural fit, focused on clinical excellence in diagnostics and on delivering good patient outcomes. The leadership team of Peloton have a combined 50 years of experience managing the business. And the potent radiologists currently report more than 230,000 reports every year on the Sunshine Coast and in North Brisbane and in the Brisbane CBD. Moving on to Page 12 of the acquisition deck. We can see that Peloton radiology comprises four major businesses, the largest business within the group and the Keystone business for the group on the X-ray and imaging clinics along the Sunshine Coast from Calandra, Kulim, Curo, Kawana, [ Marusia do and Bira ], the Citi scan clinic in the Brisbane CBD -- the DIFW or the Diagnostic Imaging Center for Women co-located with the CT scan practice next to the Queen Street Mall in the Brisbane CBD an excellent location for both practices. -- and the line clinic in Margate in the Northern Bay region of Southeast Queensland. The elderly population, which is our target market as a radiology business, our target market is that population, 65-plus or even 85 plus, which are the highest users of our services. And it's that population that is expected to grow the most. It's expected to grow in the Sunshine Coast at 21% and for the population 65 and over versus 15% for the general Australian population above the age of 65 across Australia. And importantly, the population above the age of 85 is expected to grow by 2.5%, which is materially above the 2% expected in the general Australian population above the age of 85. The average age on the San Cantos is 42 versus an average age of 58 in the general population. The business satisfies RDX investment criteria, as you can see on Page 13, and we also have identified multiple future growth avenues. These include optimizing our equipment and capacity utilization across the combined IDX and Peloton fleet using our call centers to direct patients to the most appropriate services. Utilizing the IDXt tele-radiology support service for the afterhours and some specialty expertise that can be provided to the Peloton group to assist in their growth. To utilize the buying power that IDX has particularly with the large multinational vendors to integrate our back office and IT support across the 2 businesses, to expand some of the successful offerings that Peloton has into the rest of the IDX offering. Offering life there [ gastroparex disease ] studies as well as their best diagnostic services. And then to offer Peloton radiologists, the ability to do some specialty affording from the IDX Hospital and specialist network. We believe that the valuation that we paid for this business has been very disciplined at an acquisition multiple of 8.8x their pro forma FY '22 EBITDA. And the synergies utilize IDX's cost structure at quite areas such as equipment service contracts, medical consumables and IT software to deliver the identifiable synergies. We have an integration plan that we have discussed with the vendors and agreed. It minimizes disruption to operations, it ensures that we retain the best of both businesses in terms of key people. It involves clear lines of leadership and communication and establishes a clear and demonstrable path to optimizing the network benefits for the combined group and to establish the synergies. The radiologists have been incentivized in terms of an offer that we have put to key radiologists and we'll be meeting with more so that their interests are aligned with ours. We have commenced these negotiations on completion of the acquisition, certain of the Peloton Radiology vendors and some of the nonvendor radiologists will be receiving escrowed IDX shares to ensure that their interests are aligned with interest of other IDX shareholders. And the Peloton radiologists will gain access to IDX's share plans, so if we can further enhance our alignment with them over the medium and long term. The earnouts are designed to align the interest of the vendors, the radiologists in the Peloton Group, and IDX. We'll also be on the operational side, aligning our radiology information system and our picture archive and clinical systems or PACS systems. We will be streamlining our accounting software and reporting processes across both businesses consolidating some of the back-office processes around risk management, insurance, human resources, and IT. And we will be aligning our clinical leadership and governance with clinical radiology with Peloton Radiology to form a part of the Integral Diagnostics clinical leadership team. We will be utilizing IDX's cost structure across areas such as equipment, service contracts, medical consumables and IT software to deliver these identifiable synergies. After the acquisition, we will continue to operate in 6 key geographic markets because Peloton is an extension of our current market on the Sunshine Coast down into Brisbane. It aligns nicely with the Sunshine Coast practice that we already have and get closer to joining the 2 practices we have up in Queens -- the 2 current practices in Queensland being the Imaging Queensland business we have, and the South Coast Radiology business. It takes our total number of employees at IDX up to 1,682 and employed radiologists up to 160. We will now have 7 partial MRIs in addition to our 14 full MRIs once we add the 3 partially licensed MRIs that the Peloton group brings. We have a total of 36 MRIs across the group, bearing in mind that the MRIs in New Zealand do not need Medicare licenses to operate. In Australia, we also operate some MRIs that do not have licenses where we charge privately for the services provided on those magnets. I'll hand over now to Craig to take us through some of the details of the entitlement offer.

Thanks, Ian. I'll just turn to Page 17 of the presentation. So the entitlement offer is structured as a 1 for 7.75 pro rata accelerated non-renounceable entitlement offer. As we've mentioned previously, looking to raise $90 million. The new shares will be issued at a share price of $3.44 as Ian mentioned previously, which represents a 10% discount to TERP or an 11.1% discount to the dividend-adjusted closing price of IDX shares on the 22nd of February 2022 of $3.87. The proceeds from the entitlement offer will obviously be used to partially fund the acquisition of Peloton Radiology, but we'll also provide additional balance sheet flexibility to support investment in identified bolt-on M&A opportunities that are -- continue to be aligned with IDX's strategy. So when we think of the $90 million total capital raised, the net proceeds -- net of transaction costs would be about $85 million, $60 million of that $85 million will go towards the acquisition of Peloton Radiology with $25 million going to the balance sheet to support future growth initiatives, including the identified bolt-on opportunities. the institutional component of the offer is open until midday tomorrow, Thursday, the 24th of February, and the retail component of the offer will open at 10 a.m. on Tuesday, the 1st of March. You'll see on the following slide that the entitlement offer timetable as just outlined there. I won't go through that in detail, but it's there for your reference. And with that in, I'll pass back to you, Ian. Thanks.

Thank you very much, Craig. And I'll ask Lexy, if you're still there, Lexy, to open up the line for questions, please.

[Operator Instructions] Your first question comes from Lyanne Harrison from Bank of America.

I'm going to start with Peloton given that we ended there. You spoke of synergies and integration costs. Can you give us some indication of the magnitude of synergies and over what time period? And also, what sort of integration cost should we be factoring against that?

Thanks for the question, Lyanne. We haven't called out the specific synergies that we're expecting to generate. But I think it's fair to say that when we make acquisitions like this, we do expect synergies along the lines that we've spoken about earlier. We just haven't quantified them for the market because we would need to do a little more work to ensure that some of those synergies are realizable, and when they're realizable I mean there's a fairly wide range of synergies that we've looked at. We're confident that we will deliver synergies. But we just don't have enough detail yet to provide any numbers around it.

I was just going to add, Lyanne. I think one of the areas without giving you a specific number, I think we certainly see some opportunities in terms of revenue. And the way that Peloton Group currently go about their billing and just ensuring that the billing is in line with what we're entitled to bill for the services provided. But I think that would certainly be one area that we've looked at and see opportunity.

Okay. And then if I could move on to first half trading. And certainly, wanting to understand better in terms of as we come out of -- all different regions have come out of COVID lockdowns, what you're witnessing there in terms of the recovery of activity. And I guess, you mentioned Queensland patient volume is returning. Can you also talk about some other geographies as well?

Sure. Happy to do that. Queensland volumes are returning nicely. Queensland was impacted the most by the Omicron variant of COVID-19 in mid-December, late December, and then that impact continued into January. We've seen volumes coming back nicely in Queensland over the past few weeks. We're still waiting on the impact, if any, of Omicron in Western Australia, particularly. And we have seen impact in New Zealand from Omicron as well. We've not seen a bounce back in those areas yet, although Western Australia is not really down much. New Zealand was down in the first half. In Victoria, we were not impacted in calendar year 2020. So when we look at our calendar year 2021 numbers, because we were relatively unimpacted the previous year, we have not seen as much of an improvement year-on-year than what businesses that would be more oriented to Melbourne would see. Our businesses in Victoria are regional for the most part. We're in Ballarat and Geelong, in Melton and Sunbury, and Warrnambool. And those regional areas were impacted this year by Omicron, but were relatively unimpacted in calendar year 2020 or the first half of '21 financial year. I'm not sure how much more detail we can really give geographically, but that's really a rundown of each area.

Are you able to give us some indication, particularly, I guess, Victoria, Queensland, and New Zealand? Previously for New Zealand, you called out in previous announcements, whether it was X percent below normal. Are you able to share any of that with us today?

No, we're not giving any more detail than what we did call out already. So we have called out New Zealand revenue was down in the first half this year compared to last year. And that's down predominantly due to Omicron. Omicron has impacted our New Zealand operations quite significantly. We were given the instruction by the Ministry of Health in New Zealand that we were not allowed to scan except if life or limb was threatened for a big chunk of the first half, September, October, November kind of the time frame. So our New Zealand businesses were impacted significantly by Omicron in the first half. And then to a significantly lesser extent, we were also impacted by the opening of a referrer-owned practice in Auckland, where referrers have an incentive to refer to their own practice, and that did impact our numbers but to a much lesser extent than COVID did.

Okay. And just one last question for me on cost pressure. So obviously, you saw cost pressure and employee cost. How are you, I guess, addressing that in the coming 6 to 9 months around managing those cost pressures going forward?

Yes. Lyanne, I'll comment on that. I mean I think the first thing is that we would largely see these cost pressures being transitory. So the reduced annual leave, the increased sick leave, the increased allowances to staff, to move staff around to properly resource our practices. I think as Omicron and COVID passes, those cost pressures should abate. I think the other thing I'd call out is we do have reasonably high fixed costs in the business, costs for staff do flex to some extent with revenue, but there is still a big fixed cost portion there. So we experienced that sort of negative operating leverage on the way down. But as we recover from Omicron and COVID, we would expect the reverse to be true that you should see that positive operating leverage come through. And for improved -- some improvement on the revenue line, we would expect a much greater improvement on the profit line. So hopefully, that gives you a bit of a sense to how we're thinking about it.

Your next question comes from Craig Wong-Pan from Royal Bank of Canada.

First question, just on CapEx. I was wondering whether your existing guidance for $20 million to $24 million of growth CapEx in fiscal '22 still stands? Is that kind of how much you're looking to spend this year?

That's correct. Yes, there hasn't been a significant change in that.

Yes. Okay. Great. And then just on Peloton, picking up from Lyanne's question on integration costs. Could you share how much you expect to incur there?

This is specific in relation to Peloton Radiology?

Yes.

Yes. We -- look, I think -- I don't think that's something that we've sort of disclosed. We treat it, obviously, as a below EBITDA line item. But I think we've sought to make sure that we're properly resourced to make sure that the integration of the acquisition is successful. And I think probably a good guide is the sort of integration costs that we've incurred in regard to prior acquisitions. So we spent around $2.8 million below the line in the first half. I think I'd probably use that as a guide.

Okay. And then last question, still on Peloton. Could you say how much revenue that business has? And what type of growth rates it was achieving prior to COVID?

We haven't disclosed the revenue or growth rate numbers for Peloton historically. But suffice to say that its margins are accretive to ours. So its margins are slightly stronger than what our margins are, and that the business is in a high-growth area.

Your next question comes from John Deakin-Bell from Citi.

Ian, just on Peloton, why haven't you disclosed the revenue, is that a secret?

John, we don't disclose revenue for any of the acquisitions we've done, John. We haven't disclosed revenue in the past. The only exception to that has been for New Zealand just because we report New Zealand separately as part of our segmental reporting. But otherwise, we report our earnings and we don't share the marginal revenue information.

So when you say the margin will be higher than your historic, does that mean the pro forma FY '22 Peloton margin is higher than your historic margin or your current margin which is depressed because of COVID, can you just give us a little more color?

Sure. Happy to do that. So Peloton's margins are slightly higher than ours, both in a COVID environment and in a non-COVID environment. They've been impacted by COVID, but less so than what we've been impacted by COVID. And their margins are slightly higher than our margins, both during COVID. In fact, there's more of a difference during COVID because their business is -- they have less operational leverage in their business than what we do. In other words, a lot of their radiologists are paid as a percentage of revenue compared to our radiologists that are paid salaries. So during periods of downtime like COVID, they're less impacted than what we are. But during periods where the demand comes back and where we service the pent-up demand, that's where we see our operational leverage come to the fore, and that's where a business like Peloton's margins would not increase as much as our margins would when the demand comes back. I hope that that's helpful.

That's helpful. And just maybe a little history on Peloton, who did you buy from? And how long has it been going for?

We bought Peloton from a family office, private equity vendor consortium plus some radiologists and others in the medical field who had invested in radiology businesses in Southeast Queensland. They initially invested in the business, I think, about 5 or 6 years ago, maybe a little more, and they acquired initially the X-Ray & Imaging group on the Sunshine Coast. They then expanded into Brisbane with the acquisition of the CitiScan group right next to the Queen Street Mall in Brisbane CBD. They subsequently acquired the Diagnostic Imaging Center for Women and moved that practice to colocate that right next to the CitiScan practice in the Brisbane CBD. And more recently, they acquired Lime Radiology in Moreton Bay. So those are the practices that comprise the group. Some of those practices aligned, for example, we have previously looked at ourselves because we find those practices as attractive practices, and had some knowledge of those practices prior to their acquisition by Peloton.

So it's been a recent consolidation of the practices over a 5-year period, I guess...

Over a 5-year period, yes.

Yes. And can I just clarify on New Zealand. You've made some comments about that. And I just want to fully understand what you're talking about because obviously, historically in Australia, medical practices have bought imaging practices with varying degrees of success. Obviously, Sonic still have both, and Healius until they sold the medical business. I'm just trying to understand how important this could be in the New Zealand market and why the industry body would -- what authority they would have to try and stop this from happening?

it's difficult to say at this stage the kind of impact that it would have. And the difference it has from the kind of integrated offerings we see that Healius and Sonic have in our market is that the practice here is limited to orthopedic surgeons who are referring specifically for MSK MRI procedures, which are well-reimbursed in New Zealand. And if they have a direct ownership in the practice themselves, then there is an incentive for them to refer to the practice because they're getting a benefit from each referrals that they make themselves. And the practice for us -- this kind of practice for us does not make sense because it takes away the professional requirement that all doctors have to always do what's best for the patient. And here, there is a risk that, that choice is removed from the patient, that there is a risk of over-servicing as referrers refer more to their own practices because they're essentially getting some reimbursement back from every referral they make to their practice. And that's why we'd like to stop this in New Zealand using the regulatory and the industry bodies and working with them to ensure that everything is done in the best interest of the patient. Australia and the U.S. and most countries in the OECD have very stringent anti-kickback registration in place. The Stark anti-kickback provisions in the U.S., for instance. The private health insurance laws here in Australia that prevents referrers from receiving any kind of inducement for referrals that they make. New Zealand does not have that kind of regimen in place. But each one of the major players in New Zealand do have, in their guidelines, wording to -- similar wording to what exists in our private health insurance act here in Australia or the Stark antikickback provisions in the U.S. So we're just working with these payers to do what the guidelines say that they should be doing.

And just finally back to Craig, I just want to clarify if possible you've confirmed that CapEx number is all the moving parts. Maybe just give us some guidance for depreciation and amortization, and potentially interest for the FY '22 year, maybe ex the Peloton acquisition.

Yes. I mean, I think in terms of depreciation, John, we think of probably replacement CapEx being roughly in line with depreciation. And obviously, you've got to add on the depreciation coming from growth CapEx, whether it be sort of through organic initiatives or inorganic like the acquisitions. I think if we just exclude Peloton, you can see first half depreciation. I don't think you can see a material change in that number in the second half as a rough guide, okay? And in terms of financing costs, again, in terms of how we would be thinking about that, clearly, a lot depends on when the Peloton Radiology acquisition finally completes, and we actually draw on the funds that we're raising through the capital raise. That's -- to be honest, it's a little bit difficult to be too specific on that. But I think fair to say you can probably take first half interest expense and then assume we're going to get some savings from having raised the capital and perhaps completion will occur in the last quarter of FY '22.

Your next question comes from Steve Wheen from Jarden.

I just wanted to understand the pro forma EBITDA that you've used from Peloton versus what's happening with IDX. IDX is obviously experiencing COVID-related pressures. And as a result, that sort of flagged in your sort of start to the second half of the year and yet the pro forma is not factoring in any COVID-related impact. Could you just sort of explain why there is that difference of stands between the 2?

I can perhaps comment on that. Steve, I think the -- so obviously, if we just think about the $8 million that we're calling out the pro forma EBITDA for Peloton Radiology, we have got actuals in there for the 7 months. So those actuals were probably most affected in December and January by COVID, being a Queensland-based business. Ian talked earlier about the spread of Omicron as the border opened up. We've also talked ourselves about the fact that we're seeing some green shoots in recovery in our Queensland business, particularly SCR, which is close to the New South Wales, Queensland border. So I guess, when you take those 2 together and you look at the 5-month forecast, that's assumed in that $8 million. We're assuming that we are going to be returning to a more normal environment in terms of trading without further impact of COVID. So hopefully that...

Yes. No, that does. And so it is your expectation that the COVID impact is not going to -- I mean, I guess it does surprise me that you think February wouldn't be impacted. And I guess where this is headed is, does that just mean that the chance of you having to pay the earnout is probably reduced?

No, the earnout is paid based on some integration criteria and on the retention of radiologists. So it's not based on earnings. But we've looked at, Steve, their earnings on a consistent basis to what we've looked at ours. So their impacts of COVID to date and our impacts of COVID to date, and the trajectory that both companies have seen through COVID and pulling out of COVID over the next few months, which we believe to be the case for both businesses, and we've treated that consistently across the 2 EBITDA projections.

Yes. And so that rapid recovery that you're seeing in Queensland, is there any reason you wouldn't expect to see that elsewhere?

We would also expect to see that kind of recovery in Victoria, too. But Western Australia and New Zealand are a little different in that they've not really experienced an Omicron wave the way the rest of the country has, the way the rest of Australia has. New Zealand has started to see Omicron and they have over the past several weeks, but it's not been nearly as impact -- nearly as severe as it was in Queensland in December and January, for instance. And Western Australia is only recently seen Omicron coming through the border. We are less exposed though in Western Australia to Omicron what we would be in other parts of the country because our practices in Western Australia are largely based at large public hospitals, and we're doing a lot of public work in Western Australia that's not impacted nearly as much by COVID as what the private clinics are.

Yes, that's clear. Can I just move on to the margin comment that Peloton, obviously, you're saying it's slightly above what you're seeing. Does that then -- is that the reason, therefore, that the synergies that Craig mentioned are probably more likely to be only revenue synergies as opposed to cost synergies?

I think that that's partially true. But there are cost synergies as well, but there would not be as many cost synergies as we would see in a less-efficiently run business.

Yes. Okay. And then somewhat related, there was a bit of a focus by the Australian government on co-claiming activities amongst MRI scans. I just wondered if you've seen any sort of further finalization of that -- of those restrictions and requirements by the government?

We've not seen any finalization of it, but we are aware that Medicare still has some of those investigations ongoing. At IDX, we're less exposed and less affected than what some of our competitors are.

And the approach from Peloton to co-claiming is consistent with the way IDX approaches it?

It is consistent. And to the extent that it hasn't been in the past, that's been for the vendors account.

Yes. Got it. Okay. I just also wanted to pick up on some of the license renewals -- sorry, contract renewals that were underway sort of at the last result. So in particular, Pindara, has there been an outcome to that recontracting?

There's not been a long-term outcome, but we have secured with Ramsay, and I was speaking to Ramsay about the longer-term contracts that all 5 Queensland facilities we have, so we -- the contract currently is extended until January of next year. And we're in discussions with Ramsay around longer periods.

Okay. And so that would then fold in additional potential hospitals to your business. Is that right? Or are they existing contracts with the same Ramsay hospitals?

We currently have 5 Ramsay hospitals in Queensland that we're providing services to. And 1 of them, we have a long-term contract with. And the other 4, we're in discussions extending the contracts at all of them. They're all under contract that we're looking to expand.

Okay. Just 2 more questions for me, if I can. Given this has come out of private equity, any expectation around additional CapEx for the Peloton business that you think that will be necessary?

We've looked at this in some detail, together with the previous vendors and business and together with the radiologists that are working in the business now, and we have identified some CapEx expenditures that will be required, and we factor that into our growth calculations going forward.

Okay. Can you quantify what that CapEx might look like?

We haven't called it out, Steve.

Is it material?

No, it's not out of what would be expected for similar businesses of ours. And to the extent that we do invest more CapEx and we may in 1 or 2 areas, it would be for growth.

Your next question comes from Chris Cooper from Goldman Sachs.

Ian, just a follow-up on your comments on the trading conditions in Victoria, please. I was just a little confused by the statement you made suggesting there's no negative impact in calendar '20. Did I misunderstand that comment? I appreciate there's some big differences to Queensland here. But just struggling to see why you're not seeing a quicker rebound in Victoria than you currently are.

Chris, simply because in Victoria, we're in the regional areas that were not impacted in the prior comparable period, the same way as Melbourne was. So if we look at the few practices. We are very few in Melbourne itself, North Melbourne, West Melbourne, those practices were significantly impacted last -- in the prior comparable period and in this period. So we did see an improvement over the low base that they had in the PCP in those Melbourne practices. But when we look at the bulk of IDX business in Victoria, it's in cities like Geelong and Ballarat, and regional areas of Melbourne that in '20, in the prior comparable period were not impacted. So the improvements that we would see this year would be less because we're comparing it to a much higher base because of the fact that we were not impacted in the prior comparable period, if that's making sense. So essentially, what I'm saying in Victoria, for those competitors of ours that have predominantly Melbourne businesses, we would expect to see better growth whereas, for businesses like ours that are more regional, we've not seen the same kind of growth. We've experienced organic growth of about 5% across all our Australian businesses. That organic growth would have been higher had we been impacted more in Victoria during calendar year '20 the same way other people were.

Okay. So perhaps just ask in a slightly different way, rather than looking at sort of year-over-year comps in terms of percentages. Is there any reason why in total volume terms Victoria doesn't recover to where it was pre-COVID in the way that it sounds like Queensland is?

Victoria's recovering. I mean on the revenue side, the whole of Australia in the first half, for us, generated 5%, which we're happy with, that's slightly above industry growth of 4.7% in Australia over the same period. Some of that's generated in Victoria. A lot of it in Queensland, given that Queensland comprises such a larger proportion of our business. So we're seeing that 5% growth overall in Australian practices, 5% organic growth. That's pure organic growth. So from a revenue side, it's -- there is the growth year-on-year. What impacted us during Omicron specifically was the amount of sick leaves we had. Sick leaves in Victoria, sick leaves in Queensland. And for all the sick leaves we had, we had to replace those on sick leaves by using up annual leaves that -- others would have been on annual leave, which had to be canceled to use up the sick leaves. So essentially, it was a double whammy for us to cover all that sick leaves. On some days, in mid-, late December in Queensland alone, there were more than 100 people away on sick leave in our business.

Okay. Understood. Just one on employee expenses. I mean, clearly, we saw a big step up. I think that's very well flagged and to be expected. You told us in August, the majority of that would be permanent. But Craig, I believe you said in this call that a fair bit should also be considered transitory. Could you just help clarify my understanding there? And maybe just give us some guidance around employee expenses. I think it's going to be a pretty important line for us to focus on.

Yes, sure, Chris. I mean I think just to reiterate probably my previous comment, I think the piece that we see as transitory is the reduced annual leave, the increased sick leave and the increase in staff allowances. So as borders open, movement of staff becomes easier and Omicron recede. Then all those costs should normalize and reduced. I think I did also talk to the fact that, obviously, we do have a significant fixed cost elements in the business, and I'm not sure what was said at the full year, but if Ian has made any comments around that full year would have related to that fixed cost portion. So does that clarify things for you?

It does. So in terms of us modeling this going forward here, I mean, is it reasonable to assume a sort of mid-single-digit growth in employee expenses for the next couple of years? Or should we be thinking about something a bit different to that?

I think, to be honest, Chris, I don't want to be giving forward guidance here. But I think we'd be disappointed if we saw mid-single-digit growth. So that's all I would say for me.

Okay. That's helpful. And just final one, just a clarification on the intentions with the raise. So I believe we're talking about here potentially $25 million excess above what you intend on spending on Peloton. So is the assumption here that all of this is going to further bolt-ons? Or are you going to be looking to hold some back for sort of internal CapEx programs or maybe a bit of deleveraging?

Our additional opportunities that we do see that we do -- that we have raised funds to be able to execute on. It's a lot easier to execute on acquisitions when you have funds certain and are not subject to having to do another capital raise.

And I think I would probably just add to that, Chris. I think the way to probably think about that additional $25 million is really in terms of making sure that the capital structure of the group is appropriate. And so we talked about the fact that post-Peloton leverage comes from 22.5x at 31 December '21 down to 1.9x. I think as a group, we probably think of leverage in the range of 2 to 2.5x as being where we might want to be. So we've got that additional equity, and we've also got significant debt facilities to ensure that we've got an appropriate capital structure for the group.

Your next question comes from Thomas Yeo from Barrenjoey.

Just one for me. In terms of the Medicare about billing incentive changes on MRI in FY '23, I believe the initial assessment of the impact was about $300,000 to $400,000. So at this stage, is there more clarity on how material or immaterial the impact be?

No. I think that, that number still holds. I think that the impact would probably be in that kind of range. But we are looking at our billing policies. We did implement -- we did expand our bulk billing policies during COVID to help the communities in which we operated and also to ensure that we're utilizing the capacity we had. So we did start doing more bulk billing. We will move more towards normalized pricing policies as the impacts of COVID abate. And as we move more towards a normalized pricing for ourselves by implementing private and gap bills, where we have in the past, we'll see impacts like the impact that you're talking about on bulk bill MRI incentives abated because that incentive reduces, but only for bulk bill MRIs, not for MRIs where you're charging a gap in any event.

Yes. Understood. And maybe just a follow-up. Is there any discussion in terms of what indexation will be like in FY '23? I understand that currently, it's about 90 bps compared to CPI of maybe 3% to 4%.

We would hope there would be closer to where CPI is. We expected that last year as well, and it came in well below CPI and even further below health care CPI. Hopefully, this year, it's a lot closer.

[Operator Instructions] Your next question comes from Rod Sleath from Rimor Equity Research.

I might just immediately follow on from the last question to start with. Just given that level of indexation, although it's great that we now have it that was so low. Is there any sort of clarity on what the decision process of what the level of indexation will be in any given year? Is there any sort of mathematical calculation that you are privy to that you can share with us? Or are you literally just sitting there going, well, we have no idea what it will be going forward?

Well, it's supposed to be similar to what we experienced in terms of wage inflation. But it was a lot lower than that last year. So either there's some catch-up, which will happen this year or it's related to something that we're not across or not as across. But we were surprised as well as, I think, most people in the industry, but in fact, not just radiology, but health care because the increase pertains to all the Medicare expenditures, doctor-related expenditures. And we were surprised at the 0.9% increase when the inflation rates were so much higher, and when health care CPI, in particular, was so much higher.

Absolutely. So with your expectation to be if something like happened -- that happened again that there would be some strong lobbying would began to take place?

Yes.

Yes. Okay. Then if I can quickly come back to Peloton, and I do apologize, I did miss a portion of the Q&A. So if these questions have been asked already, I apologize. Firstly, I just wanted to double-check. I mean, you referred to 8.8x EBITDA multiple for the acquisition price. I presume given that it wasn't said otherwise that, that is a post-AASB 16 EBITDA number. If that is the case, I was just wondering, are you able to give us some...

So just to be clear, Rod, that's a pre-AASB 16.

Perfect. That makes the rest of that question completely invalid then. I'll move on. Craig, you did kind of hint that you felt there was some underbilling taking place at Peloton versus what Peloton is potentially entitled to? Are you able to expand on what that means? Is that versus actually Medicare codes that could be used that aren't used?

Yes. There's not much more I would say, Rod. I think this is -- the point really was just about the fact that Peloton Radiology is providing services to patients. And we just want to make sure that the billing for that is in line with what the company is entitled to bill.

Yes. The Medicare code is complex and businesses like ours are able to invest in the kind of expertise we need to understand the code well and to build efficiently and according to the code, according to the Medicare benefits.

Okay. Great. And also on Peloton, I just wanted to come back to the fixed versus variable remuneration for radiologists. I mean my understanding is that the Integral Diagnostics model historically has been, as you suggested, a fixed cost remuneration with the potential for radiologists to become equity holders, and therefore, they're very closely aligned to shareholders in terms of the overall business doing well. And it sounds like from what you said that Peloton has operated on this variable as a portion of revenue remuneration for presumably at least senior radiologists. Is that something that you will look to change within Peloton given that it sits slightly differently to the current model?

No, we would not be changing the radiologist reimbursement mechanisms. We're working with the radiologists to ensure that our interests and their interests are aligned and have undertaken not to make any changes to their current work practices or reimbursement mechanisms for the duration of -- for the next several years. The Peloton model works very, very well as we just saw in times that revenue does come down like during COVID, whereas when revenue comes back and it's strong, then we get operational leverage at IDX that businesses like Peloton that reimburse their radiologists on a percentage basis, don't see that kind of operational leverage coming back.

Sure. Okay. And if we then look at the relationship between Imaging Queensland and Peloton, do you think that there's a different competitive incentives between those 2 businesses versus where you've made other add-on acquisitions where there's some geographic overlap?

We think that the businesses are aligned in a lot of ways. They -- there is -- the areas where there is overlap in the practice, there are opportunities to expand services to patients and to make it easier for patients to access radiology services. For instance, if we managed to improve our capacity utilization, it will reduce waiting list in both practices. By implementing a core center that can help patients find the most appropriate facility close to where they are, where the waitlist is shorter will be beneficial to patients and to ensure that we're using our capacity optimally. We've seen that work very well in other areas where we have a fair number of practices like the Gold Coast, for instance, where we're able to help patients find the most appropriate facility closest to them that can provide them with the kind of specialized service they need.

So can I take that to say anything you can do to manage capacity effectively between those 2 businesses is ultimately a benefit to the radiologists, whatever the remuneration that they're on?

Yes, to improve access, to improve patient access, helps radiologists. It helps patients, it helps the business. To reduce waiting list, similarly, helps everyone.

Absolutely. Okay. Can I just jump the pond and looking at what's happening in New Zealand with regarding to the new competition in Auckland. Obviously, in that Auckland area, you have some historically pretty high margin, highly specialized business with some pretty highly qualified radiologists. Are you able to expand on what specialties are seeing the competition arise from the specialists who have put in place their own radiology services? And I guess to add on to that question, have you actually lost any radiologists to this new competition?

Certainly, we've not lost radiologists to the new competition. and the new competition is limited to MSK-type services, the kind of services that orthopedic surgeons and spinal surgeons referred to. We don't expect they're going to expand much beyond those 2 specific areas, at least not in a material way.

Yes. Okay. Great. All right. And then my last one, and I know this is in some ways not directly relevant to you, but on the Sonic conference call, they were talking about their acquisition in Melbourne, I think it's -- sorry, Epworth Imaging. And the way they described it and what they want to do with that business, it felt like that they feel that they have a hub in the Epworth business, which is unrealized and is therefore not generating the level of margin that they think the business should. And therefore, they're looking to expand -- my reading of what they're saying is they're looking to expand spokes into community imaging from the hub to hopefully make more use of that hub. When -- now I know that's not directly competing against the bulk of your Victorian business. But I'm just interested in when a company makes the decision to take that route, how easy is it to actually win business when you are really putting in some greenfield operations in areas that are presumably already well-serviced? How do you -- and has anyone really been successful in that model of trying to take business? And I guess that's -- sorry, I'm not asking the question well. I guess it really comes back to how sticky are referrers with their current providers.

Referrers are fairly sticky to their current providers. And what we have found is that if we can meet all the needs of a referrer in a particular area, the referrer becomes more sticky. And to the extent that you can provide all the services so the referrer does not need to think of where to send the patient the referrer ultimately only needs your referral pad on his desk or her desk, and your app open on their computer. And that's where you'd ultimately like to be. So that's why the hub-and-spoke methodology for us works very well. And that's why providing referrers with a comprehensive service works very well. So service that does everything from basic X-ray and ultrasound through to CT, MRI, and nuclear medicine. So the referrer knows that whatever he or she is referring to, those services can be provided by us and that we have enough clinics in the area that makes it convenient for their patients. We have found that to be a key ingredient to our success over the years. And if that's what Sonic are looking to do, then they're looking to emulate something which we've shown works quite well. And I believe that there is enough growth in radiology generically to support additional greenfields to go around -- surround hub-like sites. Remember that our industry grows at 7% a year and has done that historically for many years. And going forward, we don't see any reason that, that top line growth trajectory should change. In fact, there are a lot of exciting developments in radiology and nuclear medicine today that argue for that kind of growth to continue on the top line. And that means that we will continue to see developments, greenfield and brownfield-type developments in the market to accommodate the increase in demand over time.

There are no further questions at this time. I'll now hand back to Dr. Kadish for closing remarks.

We have gone well over time, but I think it's been very well worthwhile and much appreciated from the engagement from everyone on the call, and we do look forward to meeting with you all over the next several days. Thank you all very much.

That does conclude our conference for today. Thank you for participating. You may now disconnect.