Monash IVF Group Limited (MVF) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Monash IVF Group Limited FY '26 Half Year Results Call. [Operator Instructions] I would now like to hand the conference over to Dr. Victoria Atkinson, Chief Executive Officer and Managing Director. Please go ahead.

Thank you, and good morning, everyone. My name is Dr. Victoria Atkinson, and as the new CEO of Monash IVF, I would like to welcome you to the financial year '26 half year results presentation. I'm joined by Malik Jainudeen, our CFO. And at this time, I'd like to acknowledge the resignation of Malik and to thank him for his 11-year contribution to Monash IVF, including as interim CEO during 2025, where he led the business in producing the results you will hear today. Malik will remain with the business as we recruit the new CFO, a process that has commenced in earnest. For Monash IVF, the first 6 months of 2026 has been a period of stabilization, operational reset and forward positioning. The Australian assisted reproductive services sector was broadly flat in the half, down 0.2%, likely reflecting affordability pressures and macroeconomic constraints impacting patients. Segmentally, Western Australia, South Australia and Queensland showed growth with plateauing in Victoria. New South Wales demonstrated ongoing market softening. Encouragingly, we saw sequential improvement across the period with early signs that industry conditions are strengthening. Against that backdrop, I am pleased to announce that Monash IVF delivered an underlying NPAT of $10.4 million, which falls at the upper end of our November guidance while strengthening governance, embedding cost discipline and progressing our strategic priorities. Our pregnancy rates per cycle again improved year-on-year, a reflection on the unrelenting drive from our fertility specialists to deliver world-leading medical care to our patients. And I would like to take this opportunity to thank our doctors for their skill, care for our patients and unwavering support over the last 6 months. They are the heartbeat of our organization. Operationally, we are nearing completion of our final major infrastructure project, the new Brisbane clinic and day Hospital, which will open in Q4 of FY '26. This marks the conclusion of a significant capital cycle and positions us for improved capital efficiency and organic margin growth. The results presented today reflects a business that has absorbed disruption, reinforced its purpose and is positioned for meaningful organic growth. I'll now move to Slide 4. Since 1991, more than 71,000 babies have been born through our services here at Monash IVF with a baby born from Monash IVF every 2.2 hours. 74% of these babies brought about the creation of entirely new families, while 26% were welcomed into families as siblings. Our clinical pregnancy rate per embryo transferred for women under 43 continues to outperform and increased against 0.6% to 40.7%, continuing a multiyear trajectory of improvement with a 49% pregnancy rate for women under 35 years of age. This performance reflects a relentless focus on complex patient care, state-of-the-art science, investment in technology and a deep collaboration between our scientists and fertility specialists. This excellence in delivering on our core purpose lies at the center of everything we do and forms the foundation of patient trust and business outcomes. We remain the #2 provider by stimulated cycle market share nationally and the only ART provider with clinics in all mainland state capitals as well as Asia. Moving on to Slide 5. The structural demand drivers for assisted reproduction remain intact. Globally, we continue to see rising infertility rates with the World Health Organization estimating 1 in 6 or 18% of the population will experience infertility due to lifestyle factors, increasing maternal age and increasing obesity rates. Sector tailwinds more locally include improved government funding and access to IVF services, improving success rates and expansion of target populations. And these factors will continue to support long-term demand. Emerging drivers are expanding the addressable market through evolution of patient pipelines, including genetic carrier screening, fertility preservation procedures such as egg freezing, LGBTQIA+ and single parent family formation and corporate partnerships. We expect FY '26 to remain relatively stable with industry growth returning from FY '27. And now on to Slides 6 and 7. As a new leader in this business, I have spent time listening and learning about the context around the numbers you will hear today, and I do so as both a doctor and as CEO. I have many thoughts and questions. However, this slide represents my initial observations and priorities. First, safe quality care and strong doctor partnerships have ensured our organizational resilience. I've spent extensive time with our clinicians, in our laboratories, in our operating theaters and have been impressed with the level of maturity in clinical governance and safety. These are nonnegotiable and I will anchored to clinical excellence and therefore, business performance. Second, while clinical outcomes are strong, the patient experience has been uneven with the complexity of fertility care being felt more than it should by some of our patients. We are using AI to better understand our patient feedback and journey. And as the only IVF provider with in-house genetics, ultrasound and fertility services, we are perfectly poised to deliver an elevated and integrated and connected patient experience. Third, there are meaningful organic and margin growth opportunities across both Asia and Australia. As we close out a period of nonorganic growth and capital deployment, there is an opportunity to scale operational excellence across our business. We have areas of our IVF business in New South Wales and Victoria that have underperformed, and we have strategic and operational work plans in place to not only recover performance but to leapfrog the market in creating compelling patient value propositions unique to Monash IVF. And finally, leadership refresh is presenting the opportunity to reimagine our strategy and align leadership from the Board and executive right through the business. And I would like to take this opportunity to thank the Board for their support in my transition into the CEO role. The focus for the next 6 months is straightforward: restore performance in the core, sharpen strategic execution and ensure leadership alignment to deliver sustainable returns. Our first priority is to reignite volume and margin growth in the core IVF business. That begins with restoring performance in Victoria. Building on outstanding clinical pregnancy rates of 49% in Victoria, we are currently reimagining the operating model and value proposition for our patients and clinicians alike. This should have significant impact on improving patient experience and attraction, specialist engagement and overall clinic performance. We are embedding data-led operational excellence across the group, improving accountability, transparency and performance management. This will be measured at the revenue, EBITDA and margin level. At the same time, we will continue to scale genetic offerings, which represent a structural growth driver and an important enhancement to our integrated care model. In Asia, the focus is on consolidation and optimization, creating a more unified service model that delivers both growth and efficiency rather than pursuing capital-intensive expansion. Secondly, we are renewing and clarifying our medium-term strategic direction. In Q4, we will deliver and commission new clinical facilities in Brisbane and Clayton. These investments uplift our service proposition and complete a significant infrastructure cycle. The focus then shifts to optimizing asset utilization and performance. We are progressing the development of our 2030 strategic plan, encompassing all service lines with a clear emphasis on clinical safety and outcomes, compelling patient and doctor value proposition, return on invested capital, margin expansion and organic growth opportunities. Innovation will remain central but targeted, enhancing premium service offerings to improve patient experience and drive sustainable volume growth. Finally, sustainable performance requires leadership alignment, and we are creating a diversified leadership capability and structure that cascades throughout the business. As a key component of this, we are amplifying our medical leadership structure, bringing medical leadership closer to the executive to ensure the voice of the doctor is present in key conversations. Our doctors are the link to our patients, to evidence-based clinical care, to research and innovation. Our patients tell us that our doctors are fundamental to their trust in us and their experience of us, and I look forward to collaborating closely with our medical directors. We are building a high-performing executive leadership team with clear accountability for delivery and ensuring alignment across our newly formed senior leadership team, encompassing scientific, operational and clinical governance leaders. These near-term priorities are designed to create targeted momentum for the remainder of FY '26 and to create a launch pad for our new strategic plan. Now on to Slide 10. I will turn to the financial and operational performance summary. For the half, revenue was $137.9 million, down 1.8% on the prior comparative period. This reflects softer domestic IVF volumes and market share impacts, partially offset by price growth in selected markets and continued momentum in genetics and international operations. Underlying NPAT was delivered at the upper end of guidance at $10.4 million with underlying EBITDA of $30.2 million and a margin of 22%. The margin decline of 3.5 percentage points reflects industry softness, market share in domestic IVF, nonrecurring costs related to legal and compliance matters, wage inflation and investment in strengthened clinical governance. Importantly, we are actively addressing margin recovery through both revenue and cost base initiatives, targeting both short-term efficiencies as well as longer-term productivity initiatives. Acting on a commitment made at the AGM, the Board has declared a fully franked interim dividend of $0.012 per share, reflecting confidence in the group's balance sheet strength and cash flow profile. For FY '26, we now expect underlying NPAT of $20 million, delivering on full year guidance. Anticipated patient price increases, market share recovery in FY '27 and operational efficiency have Monash IVF ready to deliver both earnings and margin growth. Group stimulated cycles were 5,862 for the half, down 9.9%. Domestic market share was 19%, down 2.5 percentage points, primarily reflecting softer new patient registrations in New South Wales and Victoria. However, in early 2026, patient inquiries are trending upwards and showing signs of forward momentum. Frozen embryo transfers were largely stable, showing a small decline of 1.1% on a background of outperformance in FY '24 and '25. This represents critical retention of returning patients and represents consumer confidence in creating siblings through Monash IVF. Specialist retention remains incredibly strong, and we ended the half with 168 medical specialists across the group with a diversifying medical expertise across the subspecialties of fertility medicine, clinical genetics, obstetric and gynecological ultrasound, surgical gynecology, oncofertility and andrology, all male infertility. The depth and strength of our medical specialists is unique to Monash IVF and something that equips us to provide comprehensive and high acuity fertility care. We continue to attract high-caliber specialists with a well-rounded value proposition, spanning clinical support, diagnostics, embryology, research, innovation and commercial offerings. In summary, the first half of 2026 reflects a refreshed and optimistic business that has stabilized operationally, maintained financial discipline and improved clinical performance. Monash IVF is perfectly positioned to provide world-leading care for our patients and to lead market recovery in FY '27. I'll now hand over to Malik for the financials.

Thanks, Victoria, and good morning, everybody, and thank you for joining the call. As Victoria said, it's been a big 6 months considering the circumstances, and the result is a solid result considering the negative media that has occurred over the last 6 months, and the business is well set up for future growth. As Victoria noted, at the AGM, we suggested earnings was going to be between $10 million and $10.5 million, which was delivered at $10.4 million. If you turn over to Slide 14, it provides a summary of earnings as well as illustrating revenue declining by 2% and EBITDA down by 15%, and I'll go through some of the detail on the next few slides. If you turn over to Slide 15, we have a waterfall that illustrates movements in revenue during the period. And again, I'll touch on a couple of points that Victoria mentioned in a little bit more detail. If you read the waterfall from left to right, you'll see that the largest bubble there is a decline of $8.3 million in revenue, and that's on the back of market share declines of 2.5%, which really drove the 11% decline in domestic stimulated cycles during the period. It was the bulk of markets that did decline in market share, except for South Australia and Western Australia. If you look at new patient registrations and how it is converting to stimulated cycles, the behavior of that is pretty consistent with pre-incident. So it's behaving in a similar fashion. So we're pretty confident in terms of how our patient -- new patient registrations are converting to stimulated cycles. If you look at the returning patient pipeline, again, really solid. And if you look at FET activity, which is down by 1%, essentially those are returning patients utilizing their embryos, which again is pretty solid considering the circumstances. What did have a negative impact on leverage, particularly down to the bottom line was the fact that we did not put prices up in most of the country being particularly Victoria, New South Wales and Queensland, and that was very much a short-term response to the circumstances at the time. Prices went up in South Australia and Western Australia and patient behavior was really strong given those 2 states performed really well. If we look at domestic IVF revenue, we declined in Australia. However, we did experience growth in international markets. And if you look at the detail, we saw stimulated cycle growth in Johor, in Bali and Singapore, which again proves up the thesis about Southeast Asia having a lot of potential in terms of future growth. If we talk about Kuala Lumpur, our largest part of our Southeast Asian business, it's coming off really strong growth in the prior comparative period. And what's pleasing is it held its position and now it's set up for a reasonable growth going forward with the patient pipeline looking very solid. If you look at the ultrasound business, you may have seen that scans declined by 3% that had a $300,000 negative impact on earnings. And when you dig into the detail, the Sydney market continues to be challenged, whilst Melbourne is reasonably flat. But again, it's coming off a really strong prior comparative period, which is pleasing. If we look at genetics, again, looking at some of the details, there's a lot of green shoots in that. We've spoken about reproductive genetic screening as being a future driver for growth in this business. And PGTM cycles, which essentially is the conversion of reproductive genetic screening testing into IVF cycles was up by 25%. And then a future lead indicator for that is feasibility studies, which are also up by more than 20%, which indicates that PGTM cycles should be growing again in the next 12 months, which is very pleasing. Turning over to Slide 16, just illustrates the EBITDA movement compared to last year. And as I noted earlier, EBITDA is down by 15%, and you'll naturally have a negative flow and effect from a decline of revenue of 2%, stimulated cycles down by 11%. And with no price increases on certain markets on the East Coast, you're naturally going to have some negative flow down to EBITDA. If you look at the detail, the decline in market share had a $2.8 million impact on EBITDA. Whilst we didn't cover all our inflation in the cost base, that had an impact of around $1.6 million on the EBITDA line. Day hospitals was down by $0.3 million, largely due to lower IVF procedures as well as ultrasound was down by $600,000 due to a decline in scans by 3%. If you turn over to Slide 17, just a short illustration of cash flows, you'll see that conversion of EBITDA to operating cash flow at pretax as well as a post-tax level was strong compared to last year. But noting last year, we had the heavy class action settlement payments, which had a negative impact on working capital. Also, a reduction in revenue during the year had an impact on working capital, and you may see that in the balance sheet, the deferred income receipts was down on last year, naturally having a flow-on effect to operating cash flow in a negative sense. If you look at capital expenditure, it was $10 million for the half year. We're expecting around $16 million to $17 million of capital expenditure for the whole year. And as we come to the end of our long infrastructure program that commenced about 4 years ago, where we've refreshed the majority of our major clinics in all our capital cities. In terms of CapEx for next year, returning to more of a business as usual level of around $10 million for the year. If we turn over to Slide 18, just a little bit of information on the balance sheet. As Victoria said, the balance sheet is strong. It's stable. Net debt at $95 million, leverage ratio at 2x EBITDA, and we anticipate the net debt will hold at around $95 million come 30 June, and the leverage ratio will also be sitting at about 2x come 30 June as well. As Victoria mentioned, we've declared a dividend of $0.012 per share for the interim period. Intention is remain to declare dividends going forward, subject to business performance over the next 6 to 12 months and into the future. You may note that the debt facility has increased from $100 million to $110 million, indicating that the business can still comfortably access debt to grow the business going forward. I will hand over to Victoria, and I look forward to questions when we get into Q&A.

Thanks, Malik. I'm just going to give some operational color and context to some of the figures Malik has mentioned, starting with Slide 20. Our day surgery episodes decreased by 4.6%, largely reflecting the reduction in IVF procedures. But pleasingly, gynecology day surgery episodes increased by 12.5%, representing a deliberate expansion in the scope of the strategic offering in our day surgery network. We anticipate both volume and margin growth as we complete building works and scale efficiencies across our day surgery network into financial year '27. Importantly, financial year '26 will also mark the closure of the original Clayton IVF and day surgery unit. Commissioned in 1991, this facility is no longer fit for purpose, and we have identified a new premium site in Clayton that will work in synergy with our Cremorne flagship surgical facility to offer state-of-the-art patient services into FY '27. In our Diagnostics business, ultrasound volumes showed a small decline of 3.1%, primarily impacted by sonographer workforce constraints in Sydney. A multiyear recovery plan commenced in FY '25, targeting strategic recruitment initiatives, training pipelines and internal upskilling programs. A significant contribution to these recovery plans comes from expanded sonographer training capacity through the introduction of a direct entry O&G sonographer training pathway in collaboration with Western Sydney University. Early signs of return on this investment are emerging to support a recovery in Q4. Our genetics business, as Malik mentioned, continues to grow and with pre-implantation embryotic genetic testing numbers up significantly. PGT-A, which is used more generally as a chromosomal screen in higher volumes, was up 31% with the more comprehensive PGTM screening used in more complex cases and also up 26%. This represents an increased appetite by patients for screening as well as the addition of a renowned clinical geneticist to our medical specialist cohort. This market-leading clinical expertise in combination with high barrier to entry, good margins, increasing numbers of tests offered and yet decreasing turnaround times for results as well as increasing patient requests for these services has created a compelling value proposition. Additionally, we are uniquely placed at Monash to leverage the intersection between our higher acuity ultrasound business and our genetics service. Increasingly, we are delivering genetic testing in combination with ultrasound visualization of early fetal anatomy, making interpretation of fetal health in early pregnancy, a 4-dimensional diagnostic. This is an offering unique to Monash IVF and represents the future of pregnancy care. Our international IVF business, as Malik alluded to, shows solid growth under a unified operating model with stimulated cycles up 6.4% in Singapore and 26% in Johor Bahru and revenue per cycle growth of 7% in our busy KL clinic. We expect to see continued positive growth in the Asian business, creating a high-performing platform to explore further opportunities across the region. Slides 21 and 22 speak to our science and innovation. Laboratory processes have continued to strengthen and increased patient involvement in embryo identification has been a positive development. Embryologists are now directly communicating with patients at multiple points in the embryo journey with a system pilot that has patients now participating in the electronic witnessing of embryos through a mature patient scanning app. The patient experience has expanded to include areas of the embryo journey previously invisible to them. The mitochondrial donation research program in partnership with Monash University has progressed to the preclinical research and training phase, following receipt of a significant MRFF grant funding package. The Felix Sperm separation trial with Memphasys has been completed with TGA registration secured and a plan to progress clinical use. Monash IVF are also the principal investor in Symex, similar to the continuous glucose monitoring technology now in widespread use in the treatment of diabetes. We are progressing wearable hormone tracking technology with the potential to reduce the disruption to patients from frequent blood testing during the IVF journey. We currently have 56 research studies underway. Importantly, research now operates within an enhanced governance and reporting framework led by our Chief Scientific Officer. Since 1971, Monash IVF has had a deeply ingrained tradition of research and innovation, and it remains a key touchstone of our value proposition to doctors, scientists and our patients. It is a disciplined, translational and governance-led program. Turning to the FY '26 and '27 outlook. In closing, the first half of FY '26 has been a period of stabilization, operational discipline and renewed strategic focus. We have delivered earnings at the upper end of guidance, reintroduced dividends, strengthened our operating controls and maintained balance sheet flexibility as we complete our final major infrastructure investment in Brisbane. Net leverage remains appropriate, covenant headroom is strong, and we are managing capital judiciously. Importantly, the foundations of the business are sound. More broadly, industry conditions are stabilizing. Our clinical outcomes continue to show market-leading and continuous improvement, and our fertility specialists remain engaged and committed. Pleasingly, we are seeing early signs of recovery in patient activity, but we are not relying on market recovery alone. We are actively reshaping the business and our value proposition, redesigning a modern, connected patient journey, refreshing our operating model, rightsizing the cost base, modernizing systems, strengthening governance and delivering a 3-year strategic plan that aligns science, patient experience and financial performance. We have a keen focus on organic growth, optimizing return on investing capital, earnings growth and margin expansion. I am confident in the capability of our leadership team, our doctors and our people, and the organization is aligned, energized and accountable. The past year has been one of reflection and reset for Monash IVF, acknowledging the incredible strength of a pioneering organization whilst looking to the future with a renewed sense of purpose. And I want to thank our staff, our doctor partners and most of all, our patients for their trust and belief in Monash IVF. FY '26 is a story of renewed momentum, and I look forward to delivering full year results later this year. I'll now take questions.

[Operator Instructions] Your first question comes from David Stanton with Jefferies.

I note that -- and stop me if I'm wrong here, I know that you're basically talking to flat second half FY '26 market growth. That's your best forecast. And you also -- I note, have flat new patient registrations. Given that sort of background, would it be fair to say that, one, you think maybe you are close to getting over these market share losses? And two, on that basis, should we be thinking about a target of flat growth, at least in Australian volumes in the second half?

Dave, it's Malik. In terms of expectations for, say, the next 12 months, we think the industry has hit a bottom plateau, let's say. We think there's potential for growth in the next 12 months, returning back to historical growth levels of circa 2%, 3%, 4%. We can somewhat see that in the broader pipeline put aside our market share. I'll hand over to Victoria for her thoughts. But we think the industry is pretty solid at the moment and it's holding its position in what is pretty challenging conditions out there. And just -- as I've always said, Dave, in terms of how our pipeline operates, cycles today reflects what sentiment was 12 months ago. So I think sentiment is somewhat looking better.

Yes, I'd agree with that, Dave. I think the other thing is what is within our control is rightsizing our cost base, and that's a very clear focus for management over the next, I suppose, 5 months now. But there is considerable upside to margin growth whilst we look to lead the market recovery. But as I say, new patient registrations are flat. However, inquiries and leads have definitely picked up, and we think there are green shoots in growth, but being conservative expectations over the next few months, given the lag time on seeing those turn into NPRs and cycles means that we're probably looking to the early part of '27 to see that realized.

Okay. Sorry, just to sum up then, you're basically saying market share declines likely for second half '26, but into '27, things should improve in both the market and also your share within that market. Fair enough?

Yes. So it will be market share declines when comparison to second half last year. But we do think market share outcomes in the first half should hold in the second half.

Understood. Understood. And I guess, as you say, you have taken a hit in terms of your place in the market. How do you sort of -- how do you build that going forward? Can you give us sort of broad brush, big picture kind of idea on that, please? And that's my final question.

Thank you. Look, I think that's twofold. I think the first bit is how do we actually hold our clinical excellence and clinical outcomes. I think patient experience and patient journey and the value proposition we offer to our patients and our doctors is absolutely pivotal right now. And we've seen that maintain, and we are -- that is a very big focus for us at the moment. The bit over the top is always patient market sentiment, and we're seeing that turn. And that's the restoration of trust in the brand, trust in what we do. And I think that is a combined effort of just excellence in clinical outcomes and patient experience as well as a clear focus on how we start to market, which was rather paused for reasons that I'm sure you understand, but we are looking with a renewed vigor at how we market ourselves and look to actually gain market share. And we've got some really clear strategic ideas that we are capitalizing at the moment to leapfrog our value proposition in the market.

The next question comes from the line of Tom Godfrey with Ord Minnett.

Can I just start on pricing? Obviously, the decision not to take price across the [indiscernible] board. I'm just sort of wondering how you're positioned going forward given sort of improving conditions across those states to take pricing in FY '27?

Yes. We're doing a piece of work around that at the moment given there have been other pricing movements within the marketplace. We are definitely having that discussion with our Board in about a couple of months' time. We will be looking to recommend price increases in some markets, potentially all markets, but we're doing that work at the moment and engaging with our stakeholders around what that looks like. But I think we can expect some form of market -- of price increases into FY '27.