Is there more than meets the eye to Healthia’s expansion into optometry?

With 13.2 million Australians suffering from long term eye problems, the rationale behind Healthia’s (ASX: HLA) $43m acquisition of The Optical Company was a logical opportunity to expand and investors have taken notice with HLA shares trading at all-time highs over the past month.

While it may appeared a simple tack-on acquisition, such price movement may have been driven by their track record when previously consolidating the fragmented podiatry and physiotherapy sectors.

Frames and Distribution Business
The inclusion of Australian Eyewear Distributors (AED), a frames distribution business, has been key to The Optical Company’s $5.6m underlying EBITDA where they have significantly greater ownership over their supply chain than independent operators.

The model follows a similar setup to Healthia’s Feet & Ankles division which is supplied 3D-printed orthotics by iOrthotics as a high-margin product that can be easily supplied to their podiatry customers, coupled with their retail footwear business.

AED has both wholesale and online offerings which cover both designer and inhouse brands, high-margin products where a single pair of frames will range from $99 upwards. Further securing recurring revenues for Healthia, frames are commonly purchased by those who wear glasses more regularly than their product lifespan courtesy of private health insurance customers who have annual rebates that lapse if not used each calendar year.

Given Healthia’s industry-leading expertise in 3D-printed healthcare products, 3D-printed frames may be closer to reality than the market realises.

Multi-Purpose Clinics and Audiology
One of the key drivers behind Healthia’s organic growth is the optimisation of clinic floor space whereby a physiotherapy clinic can be expanded to include podiatry and other company owned services.

At present, The Optical Company only offers optometry services but wheels are in motion to introduce audiology services which would come at minimal expense to Healthia using the same multipurpose clinic model. Although audiology services are less common than optometry, adoption is expected to grow alongside Australia’s aging population, notably where there is a higher population of elderly Australians in Queensland.

Increased screen time due to the rise of smart devices and laptop computers has resulted in greater need for optometry services. Meanwhile, the long-term effects of modern listening devices (headphones and earbuds) are not fully known, and could further the need for audiology care in the future, potentially at a younger age than current hearing device needs.

While audiology will be the initial service integrated into optometry clinics, Superclinics are a common trend in the United States where multiple allied health services are rolled into one location, providing ease-ofaccess to customers. The concept of Superclinics is something Healthia is already exploring with a new clinic in Bundaberg purpose-built to offer physiotherapy, occupational therapy, podiatry, exercise physiology, clinical Pilates, remedial massage and personal training all from one location.

Cross Referral & Loyalty Incentive
In our data-driven world, Healthia has harnessed the use of data analytics where marketing support services appear to be one of the key attractors to clinic owners that enquire about joining the Healthia network. Through the collection of demographic, health insurance and spending data, Healthia is able to promote better patient outcomes with predictive analytics that suggest when it might be a good time to visit the podiatrist or physiotherapist for a checkup.

Key to realising the full potential of this marketing support will be integration of The Optical Company into Healthia’s operating systems. The process endured headwinds when merging their physiotherapy and podiatry clinics into the single national system but once overcome, organic growth jumped from 2% in FY19 to 5.3% in FY20.

With that experience, Healthia has flagged integration of The Optical Group into their company-wide system over the coming six months which will provide opportunities to cross-refer patients between all three operating divisions where Healthia has also flagged plans to launch a loyalty program.

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