While the pandemic probably helps Nanosonics longer term (increased awareness of infection control), it did knock the business around in the first quarter of FY21, sending revenue for the half down 11%.
In part, GE Healthcare (a major wholesaler) reduced purchases due to "impacts of covid on its inventory", which basically says lower sales through that channel. And that's due to a big drop in ultrasound proceedure volumes, with hospital resources -- particularly in US -- focused on the Covid-19 response.
Most of the damage was borne in the first quarter, though, with the company bouncing back strongly in the last few months of 2020.
The much stronger AUD also had an impact.
Geographically, it was North America that really floundered, with revenue dropping 38% in the first quarter, before largely recovering in the next. Interestingly, Europe & Middle East and Asia PAcific both saw growth over both quarters, with revenue in these regions up 50% and 8%, respectively, for the entire half. (though these segments represent only ~14% of total revenue.)
Despite the challenging half, Nanosonics continued to invest in its growth strategy, with operating expenses up 8% to $33m in H1. For the full year they are expected to come in around $75-$78m -- a ~20% increase on 2020.
Combined with the lower revenue, pre-tax profit was all but wiped out, coming in at just $0.2m vs $6.7m in the previous corresponding half.
Free cash flow also took a hit, down $2.4m compared to an inflow of $10m in the last first half, due appraently to timing effects of payments and receipts. Still, the company has a genuine fortress balance sheet -- almost $88m in cash with no real debt.
Part of the added costs were associated with R&D, something the company has invested over $50m in since 2017. It was up another 12% this year. That's fine, but we've been waiting for new products for a while now and it would be good to see some more progress here. There's a lot of intangible value to write down if they dont get a good return on all that money.
At any rate, it's good to see the impacts of covid appear to have been short-lived. Total revenue grew 48% in Q2 relative to Q1, and i-MED's 200+ unit upgrade will occur in the current half. GE has also resumed purchases. Revenue from consumables was up 29% in the same period, and in constant currency terms was a new company record.
Importantly, the Global installed base was up 12%, and 6% in the last 6m to just over 25,000 units. Q2 installs were up 38% on the first quarter.
Consumables sales are, of course, the best margin sales, and they were essentially flat with a 2% decline in US revenue being partly offset by an 11% increase in consumables revenue for Europe& Middle East. As procedure volumes continue to track up, there should be a return to growth in the current half.
Loking ahead, the company didnt give any guidance, other than to say they expect market conditions to continue to improve, and that the company remained focused on its strategy of (essentially) new products and new geographies, and cementing Trophon as the standard of care in hospitals.
Bottom line, it was a disappoing result -- especially for a business that is trading at 20x sales (traling 12m basis).
That being said, you can hardly blame management for COVID, and that really does seem to have had a legitimate impact on non-essential ultrasound proceedures, as well as a big interuption to sales cycles. The business appears to have recovered very well in the second quarter and has good momentum going into the second half.
I expect Nanosonics to be around and much larger in another 5-10 years. The company has been very good to me over the years, and i think there's still some value to be had for long-term investors.
But I would like to see an acceleration in the pace of growth from the core offering, especially outside of the US, as well as the release of some new products. We need to see some jutsification for all that investment.
Disc: held
Results here
