Healthcare companies are often seen as defensive investments during volatile times due to the non-discretionary nature of the majority of the industry’s spend. Beyond this inherent defensiveness, the sector also offers pockets of growth, particularly for companies leveraging advancements in technology.

Digitalisation and technological advancements (both hardware and software) in healthcare are driven by a two-sided demand pull: commercially, innovators see the opportunity to create solutions that enhance healthcare for practitioners and patients; simultaneously, practitioners and patients are demanding better healthcare solutions.

Austco Healthcare Limited (ASX: AHC) exemplifies this duality. While the COVID-19 pandemic interrupted many businesses across various sectors, including healthcare, Austco faced significant challenges. Despite these hurdles, the company has emerged stronger, focusing on higher-margin software and service agreements and continuing to innovate in healthcare communication solutions. In this company spotlight, we explore Austco’s recent progress, strategic growth initiatives, and contract wins, showcasing why it’s a company to watch.

About Austco Healthcare

Austco Healthcare is an international leader in healthcare communication solutions, dedicated to enhancing outcomes for patients, residents, and caregivers across various care environments.

The company’s innovative products and customer support reach over 60 countries, affirming its global footprint. Headquartered in Australia, Austco Healthcare operates through subsidiaries in six countries and supports over 5,000 healthcare facilities via its global reseller network.

Austco has continued to grow both organically and via acquisition.

The company has acquired several existing businesses and is looking to expand its foothold in Australia and increase its direct sales capability. Austco recently completed its acquisition of Amentco. Amentco is a security and healthcare solutions provider and is a certified Austco Nurse Call reseller. Amentco specialises in providing integrated nurse call, security, access control and complementary systems to small and medium-scale enterprises in public and private sectors.

Austco has two primary solutions:

Nurse Call System

Austco’s solutions go beyond traditional “button and light” systems, embodying cutting-edge technology.

The company’s premier nurse call system, Tacera, offers a comprehensive range of features designed to meet the needs of modern healthcare environments. This includes pendants, pillow speakers, call points, pull cords, annunciators, lights, touchscreen stations, and audio devices. Tacera’s versatility and advanced functionality make it a preferred choice for healthcare providers seeking reliable and efficient communication solutions. In addition to Tacera, Austco offers Medicom, a simpler and more cost-effective nurse call solution.

Medicom retains the essential features necessary for effective patient-caregiver communication, making it an ideal option for facilities with budget constraints without compromising on quality and reliability.

Alarm Management & Reporting Analytics

Austco’s expertise extends into alarm management and reporting analytics through its Pulse platform.

Pulse Mobile, a smartphone application, empowers nurses to manage alarms and control the nurse call system remotely. This capability enhances workflow efficiency and ensures that nurses can respond promptly to patient needs from anywhere within the facility. Pulse Reports, the reporting analytics component of the platform, provides healthcare staff with access to nationwide health system data.

The ability to run custom automated reports and measure performance against protocols from a single interface facilitates streamlined communication between departments and supports data-driven decision-making.

Margin Improvement

Historically, Austco’s revenue has primarily come from one-off contracts with hospitals, typically secured during the construction phases of these facilities.

Recognising the need for more stable and higher-margin revenue streams, Austco has been shifting its focus toward software sales and service and maintenance agreements (SMA). Post-pandemic, Austco experienced a resurgence in software sales, bolstered by the renewed ability to engage directly with customers. North America in particular has emerged as a lucrative market, experiencing significant growth in software and SMA revenue.

Management is optimistic about the sustained demand for higher-margin software and SMA offerings, as customers increasingly recognise the value of ongoing support and software upgrades throughout the lifecycle of their product deployments.

The availability and cost of raw materials posed significant challenges during the COVID-19 pandemic, affecting Austco’s supply chain and overall gross margin.

In 2023, the gross margin increased slightly from 52.5% to 53.4%, before declining in the first half of 2024 due to lingering supply chain issues. As Austco moves past the higher-cost inventory, there is optimism for a return to improved gross margins.

This improvement revealed itself in the company’s third quarter trading update with the Q3 gross margin jumping to 57.5%.

Financial Updates & Contracts

Following Austco’s third quarter trading update, the company provided further insights for the full financial year ending 30 June 2024.

On an unaudited basis, Austco expects its FY24 revenue to reach approximately $58 million, representing a 38% increase compared to FY23’s revenue of $42 million. Operating earnings are projected to be between $7.5 million and $8.0 million, marking an impressive increase of 108% to 122% over the FY23 operating earnings of $3.6 million.

The market reacted positively to the update with shares rising upon release.

The company’s order book has reached a record $46.2 million as of March 2024, highlighting the strong demand for Austco’s advanced healthcare communication solutions. The open sales orders represent commitments from customers that have yet to be fulfilled and recognised as revenue. The significant buildup of orders during the pandemic, due to site restrictions impacting product delivery, is now being addressed as operational conditions normalise.

This backlog indicates a promising future revenue stream as these orders are progressively fulfilled.

In a recent contract win, Austco secured a $5.0 million deal to supply the new Surrey Hospital in Vancouver, British Columbia, with its leading Tacera alarm management and clinical workflow solution. The new hospital will feature over 650 beds, including specialised units for intensive care and neonatal intensive care, and a new emergency department set to be the second largest in Canada. The hospital, designed to meet the growing healthcare needs of Surrey’s expanding population, will be equipped with over 513 full IP patient stations and 559 clinical workflow terminals.

Revenue recognition from this project is expected to commence in FY25.

TAMIM Takeaway

Austco Healthcare’s resilience and innovation amidst the operational challenges posed by the COVID-19 pandemic have set the stage for substantial growth in the healthcare communication solutions industry.

The company’s strategic shift towards high-margin software and service agreements has fueled impressive financial growth, highlighted by its robust FY24 revenue and operating earnings projections.

With a record order book and notable contract wins, Austco’s future appears bright. Its advanced Tacera platform and extensive global presence underscore its commitment to enhancing patient care and clinical efficiency. As Austco navigates past supply chain challenges and capitalises on its technological advancements, it remains a compelling business to watch in the healthcare sector.

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Disclaimer: Austco Healthcare Limited (ASX: AHC) is held in TAMIM Portfolios as at date of article publication. Holdings can change substantially at any given time.