Integral Diagnostics Limited (IDX) Earnings Call Transcript

Thank you for standing by, and welcome to Integral Diagnostics FY '22 Results Call. [Operator Instructions] On the call, we have with us Dr. Ian Kadish, Chief Executive Officer and Managing Director; and Mr. Craig White, Chief Financial Officer, Integral Diagnostics. I would now like to hand the conference over to Dr. Ian Kadish. Please go ahead.

Thank you, Nir. My name is Ian Kadish. I'm the Chief Executive Offer and Managing Director of Integral Diagnostics. I'm joined here this morning by our Chief Financial Officer, Craig White. Our presentation today is divided into 3 sections. I will provide an overview of FY '22. Craig will follow with some more detailed information on our financials, and I will then come back with the regulatory update and our strategy for FY '23, including our focus for the next year. And we'll then have a question-and-answer session at the end. Integral Diagnostics is a values-driven company. We've put our patients first always. We are led by the medical science. At Integral Diagnostics, everyone counts, we look to create value importantly for our shareholders, but also for other stakeholders, including the environment. And we look to embrace changes during the year, a COVID impacted year that we just had, the year called on us to embrace change, more than any other year to date. In terms of delivering on our values, we served 800,000 patients last year with more than 2 million exams. We invested $31 million in CapEx, and we opened 3 new clinics at Benowa in the Gold Coast at Burleigh Heads also on the Gold Coast, and we also opened our first clinic in Perth. We have 245 reporting radiologists in the group, and we continued the development of our teleradiology platform, which started right at about the same time as COVID did. Teleradiology, is where we provide radiology services remotely to referrers and patients within our group and also importantly now, externally, as well. We have 1,868 employees at IDX now, we've developed a diversity and inclusion strategy and an action plan and a diversity and inclusion, and we invested heavily during the year on supporting our people during the COVID mandated absences. We unfortunately saw our operating diluted earnings per share decline by 46% to $0.102 a share, and we have declared an FY '22 fully franked dividend of $0.07 a share. We acquired Peloton Radiology and Horizon Radiology over the course of the second half. And we also announced the acquisition of Exact Radiology as well. And we managed our workflows, our personnel and our systems to adapt to upgrading in a COVID-19 environment. And importantly, this year, in January of this year, we appointed Craig White, our Chief Financial Officer on the 24th of January. Moving to our financial highlights. We saw a 2.8% growth in operating revenue despite the COVID-19 impact affecting our near-term performance. Our statutory NPAT declined by 53% to $14.6 million. Our EBITDA declined by 20% to $74.8 million. And we ended the year with a strong balance sheet and a net to EBITDA ratio of 1.6x. The upgrading performance was significantly and adversely affected by COVID-19 across the entire year and together with influenza in the second half. The diagnostic imaging industry as a whole saw its toughest year in a long time. In Australia, the Medicare benefits for the states in which we operate declined by 0.3%, and that's compared to our small growth of 0.1% in the Medicare business, but overall organic growth was about 1.6%. We do provide services in the higher-growth states of the country because when we do look at the Medicare reimbursement Australia-wide, that's down about 2.8% over the financial year. We declared our fully franked final dividend of $0.03 a share, bringing our total dividend up to $0.07 per share compared to $0.125 last year, which reflects the COVID-19 impact on our performance. COVID-19 impacted performance in 2 major ways. One is, it reduced patient activity due to restrictions on elective surgery and also patients reluctant or their inability to obtain health care services. And to staff shortages caused by the high levels of sick leave and personal leave and requirements to isolate. An increased sick leave and other increased employee costs over the period through a reduction in personal leave, a reduction in lead taken and through border restrictions impacting our ability to move staff freely across the interstate borders, we saw employee costs increase over the period. Consumable costs also increased due to the ongoing use of personal protective equipment, and we had supply chain disruptions over the course of the year, resulting in delays to organic growth and increased downtime of our equipment compared to prior years. But we're fully committed to maintaining and supporting our excellent team of radiologists and related medical specialists and technical staff through COVID-19 and to continue the delivery of high-quality health care services to our clients as demand returns as it will. Looking at the next slide, showing the DI industry COVID-19 impact, graphically. We can see that since December of 2014 and even prior to that, the industry was very stable in terms of our growth and our long-term average growth rate exceeded 6% over the course of the last decade and even longer. And then during last year, in particular, last calendar year, we saw Medicare statistics, Medicare reimbursement and also the number of tests being done. The top line we're looking at here shows the Medicare outlays, the reimbursements to the industry. The bottom line, we're looking at shows the number of tests that are done in the industry. And you can see that both declined significantly during the prior calendar year, but declined during COVID, improved during the -- during calendar year 2021 and then declined significantly during the first half of calendar year 2022. Our EBITDA earnings are shown graphically on the next slide, where you can see that our earnings increased fairly consistently until financial year '21. And then we saw the 20% decline due to the COVID impact across our group in the last financial year. Similarly, we've reduced our dividend paid from $0.125 to $0.07 per share of the course of the full year. It's a fully franked dividend and the reduction is due to the impact of COVID-19 at the period. I'm now going to hand over to Craig White, to take us through the financials.

Thanks very much, Ian, and good morning, everybody. Just taking it to the slide headed, Results for FY '22. These results are basically in line with what we announced to the market on the 27th of July, with the market update. As Ian has talked about, we had 2.8% growth in operating revenue, and I'll take you through a little bit of detail in regards to that on the next slide. A significant drop in operating EBITDA and a contraction in the EBITDA operating margin driven by COVID, the impact on volumes on a high fixed cost base. And we've seen that negative operating leverage in FY '22, which we expect to reverse over time as we go forward and come out of a COVID-19 operating environment. You'll see that there are -- there is a difference between our operating NPAT of 21.7% and our statutory NPAT of 14.6%. That's largely explained by 2 items being transaction costs related to acquisitions in FY '22 of $5.5 million and the amortization of customer contracts in regards to historic acquisitions of $2.2 million, that explains the bulk of the difference with the remaining amount due to share-based fund expense. Free cash flow of $49.1 million represents 78.3% conversion before taking into account replacement CapEx. And as Ian mentioned earlier, we ended the year with net debt to pro forma EBITDA on a pre-AASB 16 basis of 1.6x, which is consistent with the way that we measure it to bank covenants that we were in full compliance with at 30, June '22. Turning to the next slide on revenue. I think the key call out here is really the fact that despite the impact of COVID in the business, organic revenue growth in Australia was 1.6% positive, which compares favorably to the Medicare equivalent industry weighted average numbered negative 0.3% for the states in which we operate. But if you look at it more broadly, across all of Australia, the Medicare industry decline was negative 2.8% against our organic revenue growth of a positive 1.6%. So in a tough environment, overall, a good result. If you look at where the revenue growth came from, we had an additional 2 months of revenue from Astra Radiology. It was acquired in the prior year. That contributed $3.6 million. The X-Ray Group that was acquired and completed on 1st of November 2021, contributed 8.9% for the 8 months that was part of the group. And offsetting that was the organic revenue decline in New Zealand of $3.4 million, again, reflecting the impact of COVID and also the impact, to some extent, of the competition we have from some of our referrers who have moved into owning their own radiology practices. Pleasingly, we saw again average fees per exam increasing by 4.3% in FY '22, which is reflective of an ongoing trend or move towards higher-end modalities of CT, MRI and PET scans and to a much lesser extent, the 0.9% Medicare indexation that applied on CT, ultrasound and x-ray from 1 July 2021. Turning to the next page on operating revenue. As I mentioned earlier, we saw significant operating leverage or negative operating leverage impact on the business in FY '22 with operating costs increasing by 5.8% as a percentage of revenue. Given the relatively high fixed cost nature of the business on those lower revenues that were COVID impacted. You can see that the bulk of that 5.8% was reflected in employee costs increasing by 4.4% of revenue or $21.6 million. And over time, we would expect that we would see a reversal of that operating leverage to more favorably impact the business, albeit with a more gradual recovery. Importantly, I just wanted to address depreciation of $20.6 million in FY '22. That depreciation of $20.6 million needs to be considered together with the AASB 16 adjustment of $13.1 million in looking at our total depreciation and amortization expense that forms part of operating NPAT. And we will no doubt talk about that later on in the call. Turning to the next slide on capital management. As Ian alluded to, we ended the year with a strong balance sheet. Net debt of $101.5 million against $138.6 million in the prior year. Leverage of 1.6x EBITDA on a pre-AASB 16 basis compared to 1.7x in the prior year. We have significant liquidity headroom available under our group debt facilities of $173.6 million. And in addition to that, we have a further reporting facility of $105 million. You'll note that our cash balance at 30 June at $123.2 million was significantly higher than the prior year, but that represents cash that was held pending completion of the acquisition of Peloton Radiology and Horizon Radiology, the following day on the 1st of July, 2022 at the beginning of the new financial year. Turning to the next slide, on cash flow and cash conversion. As mentioned before, if we look at our free cash flow of $49.1 million, that represents $78.3 million -- sorry, 78.3% from a conversion perspective before considering replacement CapEx lower than the prior year at 89.1%. But if you look at those same numbers on a pre-AASB 16 free cash flow basis, then conversion, again before replacement CapEx would be much higher at 98.4% against FY '21 of 104.3%, reflecting strong underlying free cash flow conversion of the business. Turning to capital expenditure. This was largely in line with our overall strategy. CapEx ended the year slightly below budget, reflecting some of the challenges of deploying CapEx in a COVID-19 affected environment. However, we invested $31.3 million across the year split between $21.9 million in growth and $9.4 million in replacement CapEx. As Ian alluded to, the key investment from a growth perspective went into opening 3 new sites being Benowa, which is a greenfield on the Gold Coast, where we invested $5.5 million; O'Connor, which is a greenfield in Western Australia, where we invested $5.4 million; and Burleigh Heads, greenfield on the Gold Coast at $1.8 million. I'll turn now to replace our regulatory update and hand you back to Ian to take you through the rest of the pack. Thank you.

Thank you. Thank you very much, Craig. In terms of regulatory activity in Australia, the major change we saw over the past financial year was the announcement that MRI licenses in regional and rural areas would be deregulated from the 1st of November this year. So you would no longer need licenses in regional and rural areas to be able to bill Medicare for MRI services. Indexation of 1.6% was announced this year higher than last year, but well below inflation. The bulk billing incentive on MRIs reduced this year to 95% of the Medicare benefit schedule from 100% in 1st of July 2022. Importantly, this only impacts those services, which we bulk bill. And we don't bulk bill all of our Medicare MRI services. On the 1st of November last year, a new PET item was introduced for the diagnosis of Alzheimer's disease, a very large addressable market. Time restrictions for CT scans for colorectal studies were reduced. And it was also made easier for MRI of the prostate to be paid for by Medicare because of the expanded population, where MRI prostate requires a positive prostate-specific antigen and a family history. And there's very large addressable markets for both of those, particularly for MRI prostate, also for Alzheimer's disease and less so, but importantly, for colorectal disease, too. So these are useful changes for patients and for the industry that Medicare introduced. Importantly, from the 1st of July this year, Medicare introduced a more significant change -- an even more significant change, which is the 2 new PET items that were introduced for prostate cancer that will allow for initial staging of the disease and also allows for better management of prostate disease. In New Zealand, there is limited indexation of pricing this year in New Zealand, but we're continuing to negotiate on price with some of the funders. The emerging market practices in New Zealand continued to be challenging where we're working with the New Zealand Institute of independent radiologists on trying to manage non-arms-length deferrals in that country better so that quality can be maintained and that patient choice can be retained, and that patients and payers aren’t subject to unnecessary imaging. Our strategy is still good medicine is still good business. We will be growing our existing business and margin. And importantly, we're going to be focusing now on integrating our strategic acquisitions that we recently made, and there are no further acquisitions that we're contemplating at this time. We're fully committed to maintaining our specialists and technical workforce to support the delivery of high-quality services to our patients as demand returns. While the prior experience of operating in a post COVID environment shall return to historical levels of operation and a pent-up demand coming back. The very disruptive nature of Omicron has meant that we are yet to experience this recovery, and we expect that it will be more gradual. The underlying fundamentals of the radiology industry are strong though, and we're confident that patients volumes and historical growth patterns will over time, return to those pre-COVID-19 levels. Our focus in FY '23 is on organic growth, integrating the recent strategic acquisitions and some select brownfield and greenfield opportunities that are outlined in a bit more detail on the next page. And we expect to be spending in FY '23 on replacement and growth CapEx between $30 million and $40 million. As you'll see on the map of Australia and New Zealand on the next page, we are looking to drive organic growth, both through the selective price increases, through cost efficiencies and through some selected brownfields and greenfields. These major brownfields are the Smith Street expansion, where we're going to be upgrading our PET-CT in Southport and moving that over to Smith Street and upgrading the PET-CT to digital PET, the MRI, CT and mammo in Smith Street into a world-class comprehensive diagnostic imaging center. Smith Street center has excellent visibility. It's been an outstanding success story for us over time. We started there with the greenfield in financial year '18. We added an MRI there over time, and we're now going to be expanding it to a world-class diagnostic imaging center. There are about 50,000 cars that pass by Smith Street, the entrance to the Gold Coast, every day. We also -- we will also be expanding our presence in Ballarat with a $5 million upgrade to that PET-CT and a cardiac CT and expansion in our oncologic imaging capabilities. In Auckland, we're introducing an additional PET in South Auckland that will bring 2 PET-CTs -- 2 of our PET-CTs into that market. We'll be upgrading the current PET-CT to a digital PET, to account for and provide services for the increased market that we're seeing for nuclear medicine and particularly PET services. And in Bunbury in Western Australia, there's a $2 million upgrade to the MRI we have in Bunbury as we upgrade that to a 3T. There are 3 greenfields we're looking at over the course of this year, one in Torquay in Victoria, one in Pimpama on the Gold Coast and we're also looking at a new greenfield at Waitia Shores in Auckland. Our focus in FY '23 is to accelerate our use of teleradiology, digital and AI technologies, where we will continue to identify success and to implement AI software that expedites diagnosis, improves efficiencies and saves lives. Software like our stroke detection software that picks up a stroke before the radiologist has even seen the scan and put that scan right at the top of the radiologist's workplace so that it becomes the next scan that the radiologist looks at. And for diagnosis like stroke, this is particularly important to be able to get in very quickly given that first golden hour to, to be able to intervene and to change the course of the patient's diagnosis and treatment. We'll be looking to leverage our teleradiology offering, our own IDXt, and also through our JV with U.K.'s Medica Group to provide radiology services in geographies where we do not currently have an onsite presence, and we did that for the first time in the second half of last financial year. We'll be offering subspecialty capabilities across the group as we roll out our enterprise-wide reporting platform and we'll also complete the rollout of our electronic referrals and our radiology patient app. In terms of driving our ESG strategy, we're developing a carbon neutral emissions target and a pathway to Net Zero. We're implementing a diversity and inclusion plan, which includes paid parental leave. And we're working with Radiology across Borders to improve diagnostic capabilities in developing countries. And we are going to nurture and develop our patient-centric culture and leadership program by implementing an IDX employee well-being framework and by promoting our proud patient-centric culture and values to the 344 doctors and staff who have joined IDX over the past year. And finally, we are focused on integrating our recent acquisitions well, and we're not contemplating further acquisitions at this time. And at this point, we're happy to go over to the question and answers. Operator, if you can let us know through the question.

[Operator Instructions] Your first question is from the line of David Stanton from Jefferies.

Thanks very much for taking my 2 questions. Look, I wonder if you could start by giving us some further color on the scale of cost inflation that you expect in FY '23, in particular, wages precious plays?

Thanks, David. Cost inflation is impacting us across the board, so both labor and consumables, as we called that. We're facing the same questions for labor that other industries are for nonclinical labor, for front office staff for receptionists and others. And we're seeing CPI-type adjustments in those areas. In terms of the clinical area, similarly, we're seeing inflation -- cost inflation in the clinical areas. With respect to radiologists though, what we do try to do with regard to our radiology workforce is to quite keep our radiologist costs constant as a percentage of revenue. So as revenue increases and the workload increases, we do expect radiology costs to increase proportionately with that. But the cost in other areas, in fact, across the board, labor and nonlabor areas, we are seeing and have seen for the past few months, cost inflation coming through.

And my second question, and I'll get back in the queue after that. As Craig pointed out, depreciation and amortization was, call it, $37 million in '21, of which depreciated $21 million; amortization, including right-of-use assets at 16%. Can you give us, Craig, perhaps some color on what should we be thinking of in terms of an increase in depreciation given the acquisitions and investments you've made into '23 and the amortization also, number, what should we be thinking that for '23, please?

Yes. Thanks, David. So look, perhaps just if I could ground FY '22 first, and then I'll talk to FY '23. But I think importantly, when you look at what we include in operating NPAT versus statutory NPAT, it's important to understand that the elements that are deducted as an expense in arriving operating NPAT are depreciation of $20.6 million and $13.1 million of that amortization expense that you referred to. The remaining $3 million of the amortization expense we treat below the line. It relates to the amortization of customer contracts, which is all part of the acquisition accounting for acquisitions. So effectively in arriving at operating NPAT in FY '22 we deducted a total of 20.6% to 13.1% to 33.7% to arrive at operating NPAT of 21.7%. So that's FY '22. I think as we think towards FY '23, obviously, the picture is a bit more complicated than probably prior years by virtue of the fact that we have a number of new business cases for select brownfield and greenfield investments, which is obviously consistent with what we've had in the past. But we've also got the 3 acquisitions of Peloton Radiology, Horizon Radiology, both of which have completed and also Exact Radiology, which, as you know, has been announced but not yet completed, and this all subject to some conditions and precedent. So it becomes a little difficult to give you a firm number, but I would say that in FY '22 depreciation and amortization of $33.7 million, I would be thinking towards a number of around $40 million for FY '23. On the assumption, that Exact Radiology completes, on the assumption that we execute business cases in FY '23 and are not sort of frustrated in those efforts by impacts of COVID or sickness or supply chain constraints. But directionally, I would say around $40 million is probably a good number for both depreciation and amortization in FY '23. And I should just say that, that amortization number relates purely to the AASB 16 adjustment for the leases. So it's the right of use assets. And if you like further information on that, please just have a look at Note 6 of the annual report, and there's full disclosure of those balances in that note.

Your next question is from Steve Wheen from Jarden.

I just wanted to, historically, you give a trading update for the months of sort of July and August. Just wondering if you can help us sort of understand what's happening so far in this half and maybe specific commentary around Australia versus New Zealand in that context, given New Zealand was so dramatically impacted by those Stage 4 lockdowns.

Yes, it's still too early to say, Steve, in terms of performance in July and August, relative to where we were trading in the months leading up to July and August. So there's not really anything we can -- any additional information that we can give out there. Similarly, with regard to New Zealand, we've called out that there's only limited indexation in New Zealand for next year. There's additional competition in the New Zealand market from the referrer owned practices. And we do expect New Zealand similar to Australia to get back onto the long-term trend of diagnostic imaging growing as it did in the past, although it is important to bear in mind, in New Zealand now there is some additional competition that will probably work its way through the market. But there's not much more color we can give on that.

So is that just a comment that things haven't improved or deteriorated, it's roughly the same? Or can you directionally say, are we getting better or worse from here?

That's -- right now, it's roughly the same. We're not -- yes, it's still too early to say whether things have turned around. What we have seen in the past, if we look at July of last year, we did see pent-up demand coming back in New Zealand, particularly. But that's not -- we're not calling that out this year. It's just too early to say whether there's been any real significant change. Patients are going to continue to need radiology services. Screening services have decreased for the past 2.5 years. There will be that pent-up demand coming through at some point and patients will be presenting later in their disease and probably sicker and in more need of diagnostic services, but we've not seen any of that. We're not seeing any of that coming through as yet, but we do expect it will come through.

The next thing I just wanted to ask about is, in terms of the gearing that you've quoted across the pro forma earnings. How does that look from a gearing perspective when you incorporate the pro forma earnings of all the acquisitions that you've flagged to date? Just trying to understand what it looks like now post [ balance ] date.

Yes, Steve. So I think you should be thinking of a number based on the high 2s. I think when we originally were looking at these acquisitions, forecast performance for FY '22 is a little stronger. So we were probably around, I think, at 2.6, 2.7. We're around 3 mark post completion of those acquisitions.

Last one for me, just on the earn-out provisions. Just if you can give any sort of color around the timing of that litigation will be resolved. And then the second part of this is, I noticed there's a remeasurement of your earnout. Has that remeasurement benefited the statutory NPAT or did it go into the operating?

Maybe I'll take the first part of the question, Steve, and then I'll hand over to Craig for the remeasurement part. We don't expect any -- we're not expecting any change in our earn-out provisions. The earn-out provisions that we have in there are the most realistic, we believe, estimate of the provisions that are there. So we're not expecting there to be a significant change on that. I'll ask Craig if he can comment on the restatement.

Yes. Steve, can you just perhaps clarify your question around the remeasurement?

Yes. Sorry, I was just trying to understand where it appears in the P&L and whether you've classified it as -- my interpretation is that it's a reversal of the liability back into the P&L. And so I was just curious, is that at an operating level? Or is it below the line?

No, it is at the operating level. It was 1.8% reverse 0.9% in the first half and 0.9% in the second half.

Next question is from John Deakin-Bell from Citi.

My question was, firstly, just on New Zealand, where you've talked about the increased level of competition. And yet I see you're doing a greenfield expansion there, putting more capital in. Can you just give us an update? I know you've talked about this -- what you perceived to be a conflict and you're talking about that to the regulators there. But can you just give us an update as to exactly where that's at? And is there any reason why the level of competition might continue to increase over the next 2 or 3 years?

Thanks, David. The competition in New Zealand is most acute at the high technology -- in the high technology area, in MRIs in particular. The competition has not changed significantly in the X-ray, ultrasound and CT areas. We are focusing more on becoming more attractive to GPs in that market. Historically, the IDX offering in New Zealand has been very specialist oriented, which is more directed towards those high technology areas. But we're focusing now more on the GPs and both the greenfield and our recent acquisition of Horizon Radiology in New Zealand are very much focused on that GP market so that our mix in New Zealand will come to reflect our mix in Australia a lot more, where we have a about -- in Australia, we have about 50% GP referrals and 50% specialist. We don't expect to get quite there in New Zealand. But we do want to get closer to GP referrers in that market. And Horizon Radiology has been an important stepping stone for us to get closer to those GPs, and as will the new greenfield test that we're putting in at Waitia Shores.

Would it be fair to say that the margin in that GP area is lower than that of the specialist MRI area?

The margin is lower in the GP area, but access to the GPs and getting close to GPs is important. And GPs in New Zealand are increasingly able to refer to high-tech now, which they were not able to refer to in the past. So for instance, GPs can now refer for knee MRIs in New Zealand, which GPs in Australia cannot refer patients over the age of 50 for knee MRIs, but in New Zealand GPs can. So it is important for us to get closer to the GPs, particularly as the market is changing and GPs can move more to those higher acuity services.

And just on the CapEx, just to clarify, Greg, you said FY '23 replacement and growth, $30 million to $40 million, and then I look at the next slide, and I add up $17 million for the growth, but it doesn't tell me how much the greenfield there. Can you just give us a split between what you think the growth in the replacement CapEx would be?

John, we've provided a lot more detail to than usual on the CapEx -- on the growth CapEx in particular. So we're not keen to get more granular on that or more granular on those greenfield investments. But it is correct that we are looking to spend over the course of the year between $30 million to $40 million. And you're absolutely right that a big chunk of that is accounted for by the brownfield that you see just there on the page.

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

Just with the higher cost and the staff shortages you experienced during FY '22, I was wondering if you saw any improvement in staff absences or those kind of later costs towards the end of FY '22 and how that's kind of tracking to July and August?

Staff absences have continued throughout FY '22, particularly in the second half. And yes, we're not calling out any change for the -- what we've seen in the beginning of FY '22. So there are a lot of stuff are away because of both COVID and also because of the flu. And to date, we're not calling out any change on that. We do hope that there will be some change in that regulatory side, for instance, that it will be no longer been mandated to take 7 days of work for COVID. We're expecting that to come down to 5 days. That will help. Hence, over time, we obviously are hoping for the impact of COVID and flu to abate, but we're not putting out anything at this point.

And my next question is on one of your initiatives on organic growth, you mentioned selective price increases. I was wondering if you can quantify what the potential impact there is into FY '23?

Craig, we're not going to put a particular number to it. I think we've called it selective, by that, I think we mean that we're looking at this probably through a lens of where we provide value to patients. And obviously, we're seeing the cost inflation. And just like any industry, we need to be able to recoup our costs where we can. So we're -- in the respect of business units in states where we operate, where we might have bulk billed in some cases, there'll be an out of pocket to recover some of these cost increases. But it is selective. Just bear in mind that every single market that we operate in has its own dynamics.

Craig, we do charge more [ gaps ] than our competitors generally do. So we are able to change our pricing more flexibly than what the bulk bill operators are committed to bulk billing, who are much more locked into the Medicare schedule than we are. So [indiscernible] increased prices selectively.

And then my last question, just on the delay to Exact Radiology. I think it was initially planned for early fiscal '23 than first quarter now in the second quarter. I just wanted to understand the kind of delays there.

The conditions precedent need to be fulfilled, and we're waiting for the performance of conditions precedent to be able to execute on Exact. We're -- we did announce Exact. We do like the acquisition. But as with all our acquisitions, we do have important CPs that need to be met before we proceed.

And I might just add to that, Craig, the acquisition of Exact was an acquisition of assets rather than shares. So there's a number of CPs there in terms of assignment of leases, assignment of some of the other important agreements and so on, and we're working through that.

Your next question is from David Bailey from Macquarie.

And just on MRI deregulation. Just any initial thoughts you might have around outcomes for IDX, where you think it's an opportunity or some risk to come through that as well.

Thanks, David. It is both. There are both closed and kind to MRI deregulation in the regional and rural areas. So on the private side, it does give us an ability in several of these areas to be able to introduce MRIs in these areas and be able to bill Medicare from those MRIs. We also have MRIs already in some of these areas that from November, we'll be able to start billing Medicare, and they were not able to do that in the past. So on the partnership side, it does give us an opportunity to bill Medicare for MRI services for investing in new MRIs that we may introduce into the market. On the negative side, though, it does also allow competitors to do something similar. So we do lose one of our moats in these areas, in terms of the areas where we already have licenses and where those areas become open to competitors to bring MRI into those areas. Importantly, though, in addition to the MRI license in those areas, we also have the staff, the radiologists, the radiographers, the technical staff to operate these machines, and we're already set up and geared up in these regional areas to provide the service. So there are additional moats to competition coming in. But it's important to raise that there are both pros and cons to MRI deregulation in the regional areas. Yes. We don't expect the net impact to be material either way.

Just on the Gold Coast, a little bit of capital being deployed there. Just on the [ midstream ] side of that to give you increased exposure to the Gold Coast unit hospital, and then could you also give us a bit of an update as to the performance of Benowa, how that site is going.

The Benowa site is doing very well. We're very happy with how we're doing in Benowa and it is a site that was a greenfield. The first one that we introduced over the course of last financial year in October, and we're happy with the progress at Benowa. With regard to the lease at Pindara and the other leases with Ramsay, they're still in negotiation. That's the Pindara lease and also 3 leases at Ramsay hospitals in Central Queensland and on the Sunshine Coast.

Next question is from Saul Hadassin from Barrenjoey.