Revenue down 45.8% as Medicare coverage loss halves US diagnostic income

Management notes that Medicare revenue cannot be recognised until the coverage appeal succeeds — a process expected to take a further six to nine months — meaning the missing revenue is deferred rather than permanently lost, but it is absent from this period's financials nonetheless.

Operating cash outflow widened to NZ$19.0M from NZ$12.5M in HY25, leaving cash and equivalents at NZ$15.1M, down from NZ$21.9M. Total equity fell to NZ$26.9M from NZ$40.7M, reflecting consecutive loss periods.

Management distinguishes between test sales (which continue) and Medicare revenue recognition (which is suspended pending appeal). US test sales per sales FTE reached 403 in Q2 FY26, up 5.8% on Q1 FY26, suggesting underlying demand has not collapsed. Whether volume momentum translates to recognised revenue depends entirely on appeal timing, which remains outside the company's control.

Cash runway against burn rate. At NZ$15.1M cash and NZ$19.0M operating outflow in a single half, the runway at this burn rate is less than one full period. Even accounting for the company's claim that Q2 improvements are under way, any material slippage in the Medicare appeal, a rights issue, or a capital raise becomes a near-term necessity rather than a medium-term option.

Capex collapse signals operational retrenchment. Capital expenditure fell 80% to NZ$0.1M from NZ$0.5M, representing just 1.1% of operating revenue. While this conserves cash, it reflects a company operating in a holding pattern rather than investing for growth, consistent with management's own language from the prior comparable period.

FY25 showed a broadly even first-half/second-half revenue split (50.2% first half), and the implied second half of FY25 was NZ$10.9M. HY26 at NZ$5.9M is therefore running well below even last year's already-reduced second half. The annualised HY26 revenue run-rate implies a full-year NZ$11.9M, against FY25 actual of NZ$21.8M — a year-on-year halving.

Management's assertion that the company "enters the second half of FY26 in its strongest position yet for a positive update" rests entirely on the Medicare appeal progressing. Without a timeline or probability attached to that outcome, investors cannot assess what a second-half recovery actually looks like or whether current cash is sufficient to reach it.

There are no tax distortions (effective tax rate is 0.0% in both periods, reflecting unrecognised deferred tax assets), no discontinued operations, and no non-recurring adjustments to unpick. Free cash flow pre-lease of negative NZ$19.1M tracks the reported NPAT almost exactly (FCF/NPAT conversion of 99.9%), confirming the loss is cash-backed and not a timing or accrual issue.

The partial offset is that the NZ$19.0M operating outflow includes sustained cost base expenses (staff, laboratory, regulatory) that would not disappear even if revenue recovered. This means a partial revenue recovery from a successful Medicare appeal would improve the loss meaningfully — but only if the cost base does not re-expand as volumes recover. Inventory rose 44.8% to NZ$1.9M against a backdrop of falling revenue, which is worth watching as a small indicator of forward test volume expectations but is not yet a material balance-sheet concern at this scale.

This briefing cannot assess the probability or timing of a successful Medicare coverage reinstatement, which is the single variable that most determines Pacific Edge's near-term financial viability.