Nanosonics (ASX:NAN) share price sinks amid 45% half-on-half profit decline

Nanosonics' shares are sliding on Tuesday…

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Key points

  • Nanosonics has released its half year results
  • The infection prevention company delivered strong growth compared to the COVID-impacted prior corresponding period
  • Its earnings were down sharply from the second half of FY 2021

The Nanosonics Ltd (ASX: NAN) share price is sinking on Tuesday morning.

At the time of writing, the infection prevention company's shares are down 6% to $4.45 following the release of its half year results.

Nanosonics share price sinks amid softening performance

  • Revenue up 41% over the prior corresponding period to $60.6 million
  • Global installed base up 12% to 28,160 units
  • Operating profit before tax up from $0.2 million to $3.3 million
  • Profit after tax up 160% to $3.9 million
  • Profit down 45% half on half

What happened during the first half?

For the six months ended 31 December, Nanosonics reported a 41% increase in revenue to $60.6 million. This comprises a 102% increase in capital revenue to $19 million and a 23% lift in consumables and service revenue to $41.6 million.

However, due to COVID impacting the prior corresponding period, a better reflection of the company's performance is achieved comparing it to the second half of FY 2021. Management revealed that revenue was up 1% compared to the prior half, with capital revenue up 10% but consumables and services revenue down 3%. This reflects some disruption on ultrasound procedure volumes associated with increasing infections rates from the Delta and Omicron variants of COVID-19 including hospital staff shortages in particular in North America.

It was a similar story for Nanosonics' earnings. While they were up strongly over the prior corresponding period, they were down sharply half on half.

The company reported profit after tax of $3.9 million. This was up 160% over the prior corresponding period but down 45% over the second half of FY 2021. This was driven by an increase in all aspects of its operating costs. This reflects increased spending directed towards expanding capability across all regions, as well as an increase in research and development expenditure.

Management commentary

Nanosonics' Chief Executive Officer and President, Michael Kavanagh, commented: "The first half of the 2022 financial year has seen strong growth compared with the first half the 2021 financial year, which was materially impacted by COVID-19."

"Despite the significant and rapid increase in infections in the first half of FY22 associated with the Delta and more recently the Omicron variants and the associated impacts on hospital staff shortages and procedure volumes, the Company maintained the positive momentum achieved in the second half of FY21," he added.

Outlook

As previously announced, Nanosonics expects to be impacted by the revision to its sales model in North America. However, it is still expecting to deliver double digit sales growth for the year.

It explained: "The impact is expected to be in the range of $13.0 million to $16.0 million and primarily associated with GE transitioning from a stocking distributor to the new pass-through sales model."

"Assuming the positive market recovery trends experienced in the second quarter of FY22, which have continued in January, in particular in North America and Europe for new installed base growth and consumables usage, we maintain double digit revenue growth expectations despite the FY22 H2 North American revenue impact of the revised North American sales model."

However, this growth is unlikely to flow to the bottom line, with management predicting a further increase in its operating expenses during the second half.

It advised: "Operating expenses for the first half were $42.7 million and with the addition of the extra resources in North America associated with the revised sales model, total operating expenses are now likely to be approximately $93.0 million."

This compares to operating expenses of $70.8 million in FY 2021, which represents an increase of 31.3%.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Nanosonics Limited. The Motley Fool Australia owns and has recommended Nanosonics Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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