Why are investors selling the Virtus Health (ASX:VRT) share price post-earnings today?

Virtus Health shares are in the red today as the company released its financial results for the half-year ended 31 December 2021.

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Key points

  • Virtus Health reported its half-year earnings today
  • Investors were seeking more from the company's earnings and have sold off the Virtus Health share price in droves 
  • The Virtus Health share price has gained more than 16% in the past 12 months

Shares in Virtus Health Ltd (ASX: VRT) are on the move today after the company released its interim report and financial results for the half-year ended 31 December 2021.

At the time of writing, the Virtus Health share price is trading down in the red at $7.29 apiece.

Investors were seeking more from the company today, as net profit came in lower and the company failed to provide any firm earnings guidance, must to the dismay of investors on Tuesday.

Virtus Health share price tanks amid mixed earnings growth

Key takeouts from the company's earnings results today include:

  • Group revenue of $171.3 million up 1.8% from the prior corresponding period (pcp)
  • Reported earnings before interest, tax, depreciation and amortisation (EBITDA) of $37.9 million, versus $59 million
  • Reported net profit after tax (NPAT) attributable to equity holders is $15.1 million, down from $29.9 million
  • Improved leverage (Net Debt/Adjusted EBITDA) ratio of 1.3x at 31 December 2021
  • New clinic developments in Australia and Europe progressing towards completion
  • Restructure of Virtus Fertility Diagnostics & Reproductive Genetics service completed
  • 12 cents per share interim dividend for 1HFY22, fully franked

What else happened last period for Virtus Health?

The company notes that its fresh cycle activity in Australia increased by 1.3% over the prior year, compared to "an increase in Virtus Health's available Australian market growth of 3.4%".

Premium service volumes increased by 1.2% during the period with growth secured across all regions. This represents approximately 80-85% of Virtus Australia and builds on 28% growth in the pcp, the company says.

Overall, EBITDA in the Australian segment decreased by $12.5m compared to the pcp, underscored by a $2.8 million gain in employee costs. Gross margins were also impacted by around $2 million from COVID-19 related costs.

Virtus Health says its international operations "also demonstrated resilience", yet recognised that EBITDA decreased by approximately $1.5m compared to pcp in this segment.

The company also managed to reduce its net debt from $108 million to $76.5 million as at 31 December 2021.

Even with the mixed results, Virtus Health's board declared an interim dividend of 12 cents per share, fully franked. The interim dividend will be recorded on 24 March 2022 and paid on 14 April 2022.

"The interim dividend represents a payout ratio of approximately 65% with the target forward dividend payout ratio to be based on a full year dividend range of 45-55% to enhance balance sheet flexibility for investment in organic and inorganic growth initiatives", the company said.

Management commentary

Speaking on the results, Virtus Health Group CEO, Kate Munnings said:

It was a resilient performance across all our services globally, in the face of ongoing COVID-19 operating restrictions and heightened infection control requirements. These results are a testament to all Virtus Health staff and specialists who have worked extremely hard throughout the period to progress Virtus's ability to help more people become parents.

What's next for Virtus Health?

Virtus Health did not provide any specific earnings or revenue guidance today. It says it is focused on "growth investments in FY22 and FY23" in areas of precision fertility, genetics capability and infrastructure.

It hopes to realise a collective incremental EBITDA of $5-10 million per annum from FY23 onwards "from a mix of revenue and efficiency".

It suggested that operating expenditure will increase over the next 12 months "but with greater fixed cost margin leverage going forward", without going into any detail to define what that means.

Nevertheless, the company is motivated to perform well into the coming periods.

"H2 started with a disrupted Jan-22 due to Omicron, primarily in Australia in Dec21 & Jan-22, with International
impacted to a lesser but longer extent over Q2 & Jan-22. We have confidence in the ongoing resilience of the sector, but deferrals and cancellations may not all be caught up within H222", it remarked.

Virtus Health share price snapshot

The Virtus Health share price has gained more than 16% in the past 12 months and is up over 6% this year to date.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Virtus Health 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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