Earnings Transcript for NAN.AX - Q4 Fiscal Year 2021

Operator: Thank you for standing by and welcome to the Nanosonics Limited 2021 Full Year Results and Investor Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Michael Kavanagh, Managing Director and CEO. Please go ahead.

Michael Kavanagh: Thank you very much and very good morning everybody and thank you all for joining the call this morning. I am joined remotely by McGregor Grant, our CFO. Well, by now you all have seen the FY 2021 results announcements, which I believe demonstrates how the company has successfully adapted to the challenges of COVID-19 and overall delivered an excellent set of results in particularly in the second half of the year as the market conditions improved. There are really three key takeaway messages I'd like to convey from the comprehensive set of results and information contains in the release, and you'll find the investor presentation, the annual report and sustainability report, which were all posted this morning. And the first message really is around how the organization did experience a significant recovery in the second half of the year over the first half as market conditions improved. And this recovery was experienced across all key measures of the business, including installed base growth, total revenue growth, capital revenue growth, and consumables and service revenue growth. And that revenue growth was even more pronounced when you look at it on a constant currency basis. The second message I wanted to leave you with is that there is still a significant opportunity for growth in the trophon business. And the opportunity in North America is larger than our original estimates with the total addressable market in that market now estimated to have increased by 50% to 60,000 units. In addition, the fundamentals for adoption in Europe have strengthens where coupled with our investments in the region, we witnessed excellent growth for the year despite the region essentially being in lockdown for the full year and that's very encouraging for the future. And the third message is in addition to the significant trophon on opportunity, Nanosonics has an exciting pipeline of new products. We just launched AuditPro, which brings significant benefits to customers, as well as opportunity for Nanosonics as we enter the new and important space of digital connectivity and data in infection prevention. And of course, in addition, this morning, we announced the next platform technology for the company that the company is working on, which is addressing what is probably recognized as the most significant issue in instrument reprocessing today, and that's endoscope reprocessing. And in particular, addressing this significant technical challenges associated with the cleaning phase of endoscope reprocessing that I'll talk about a little bit later. So what I'd like to do is just provide a bit more detail on each of these three areas, and then I'll hand over for questions. So, as I mentioned, the first key message is really around the significant recovery achieved in the second half of the year. And as you all have seen full year revenue for the year was $103.1 million. That was up 3% on prior corresponding period. In constant currency, however, total revenue was up 12%. But more importantly, looking at the revenue outcome in both halves, it does provide very important insights. And as market conditions improved in the second half and particularly in North America where access to hospitals improved and ultrasound procedure volumes trended back to pre-cold level -- pre-COVID levels, we saw revenue growth 39% over the first half to $60 million. And if you look at that on a constant currency basis that growth was actually up 50%. And as you all know, the installed base is probably one of the most important metrics for the business. And despite the impact of COVID-19, the global installed base increased 13% to 26,750 units. So that's an increase of over 3,000 units for the year with all regions, I'd say, performing very well in that growth. Again, the second half of the year saw a significant recovery in new installed base adoption as the market conditions did improve, and particularly in North America with 1,650 new units installed. So that was a growth of 20% on the first half. So back to a very positive growth momentum trend deed in the second half. And if I look at that by region in North America, the installed base increased 12% or just under two and a half thousand units for the year where we now have 23,000 -- nearly 23,500 units installed across over 5,000 institutions. And the second half installed base was up 20% over the first half with 1,360 units installed in that second half. And that second half run rate annualized is just over 2,700 units, which is getting back close to the pre-COVID annual installations we've always been aiming for, which as you know, is between 2,700 and 3,000 units per annum. Indeed this, when I look at the second half installed base in FY 2021, it was actually greater than the first half of FY 2020, where there was no COVID impact. So, again, demonstrating the underlying strong fundamentals for adoption in the North American market. In our European region or EMEA region, despite COVID related restrictions really prevailing for the full financial year, the installed base grew 35% for the year where the total installed base now reaching just over 1,500 units across the region. And this growth, I believe, reflects the strengthening fundamentals for adoption of trophon across the region and in the investor presentation you'll actually find some details around all those guidelines that now exist, where supporting automated high-level disinfection and they continue to emerge. Obviously, there's now a growing understanding of the risks of cross-contamination and of course, we're continuing to increase our investment in our infrastructure across the region. And both halves actually not just H1 -- H2 over H1, both halves of the year in the EMEA region demonstrated excellent growth compared to prior corresponding periods where H1, the first half for example, was up 54% on the pcp. And the H2 was actually up 73% on pcp. So, certainly, we're beginning to gain a fair amount of very positive traction over in the European region. And in Asia-Pacific, despite the Australia/New Zealand market being highly penetrative, we still had installed base grew by 9% or 150 units for the year. Where in that region, now there's a 1,760, units installed. And that majority of that growth was actually experienced in Australia/New Zealand, as Japan was effectively in a state of emergency again lockdown for the majority of the year. So back to revenue for a moment. And if I split the total revenue down to capital and consumables, despite a 13% increase in new installed base, the actual capital revenue for the year was down 11% to $26.7 million. This reduction was primarily associated with a reduction in the number of units sold to GE Healthcare in the first half of the financial year, which we reported during our first half results. And from that you remember that that reduction was really just due to a decrease in the installed base growth as a result of COVID-19, particularly in Q4 of FY 2020 and Q1 of FY 2021, and then the corresponding impact that had on GEs inventory levels. So they didn't need to purchase capital when the amount going out to customers was down. But importantly, the capital revenue increased 84% in H2 compared with H1. As market conditions improved, the installed base growth recovered, and of course, then GE resumed their normal capital purchasing patterns. So that was really a one-off impacted due to inventory. And we saw a nice return to normal patterns of purchasing the second half. Of course, this impact of GE capital purchases was only felt in our North American region. For Europe and Middle East, total capital revenue for the year was up 91% to $2.7 million. And what's important to note here is as the majority of units placed in the U.K., which is our largest market in the European region, are under the managed equipment service model where no capital revenue is actually recognized, if increasing capital revenue in EMEA does reflect the growth in the markets outside of the U.K. So, again, strong indications for very positive growth momentum emerging in our European region. And, of course, in Asia-Pacific, the total capital revenue for the year was up 143% to $2.7 million. Now, if I exclude the capital revenue that was associated with upgrades, the overall capital revenue for the year in Asia-Pacific was up 36%, but of course, upgrades are an important part of our capital revenue growth moving forward. So it was good to see upgrades come through in the last financial year. From a consumables and service perspective, revenue increased 9% to $76.4 million. And here, I think it's really important to look at this on a constant currency basis as like the actual volume growth. And in constant currency, that revenue would actually have been $84 million or up 20%, which I think is important to understand. And as you all know, the first half consumable sales, they were impacted due to the effect of COVID on ultrasound procedure volumes. However, the second half saw a positive trend towards pre-COVID procedure levels with revenue for the consumables and service up 27% in H2 compare it with H1, that would be 39% in constant currency. And what is important, I guess, also is that towards the end of the financial year, all indications for that ultrasound procedure volumes were definitely approaching pre-COVID levels across most markets and details on all the regional splits with respect to those revenue numbers are provided in the release and in the investor presentation. So moving on to the second key takeaway or message, and that is there's a significant opportunity and ongoing opportunity for growth in the trophon business. And indeed the opportunity is larger than our original estimates. At the half year, we said that we were going to examine the North American market to get a better understanding of the total addressable market. And for many years we've been quoting a 40,000 units opportunity, which is certainly out of date and the ultrasound market has not stood still and indeed has grown strongly. And we did commission work in the United States to better understand the current state of ultrasound installed base in the USA. And as a result of that work, the estimated total addressable market for trophon units in North America has been revised up from 40,000 units to 60,000 units. And this takes into account the growth in the ultrasound markets over really the last eight years or so since we've been quoting that 40,000 units number. What this means, of course, is there's an opportunity for strong ongoing growth in North America. Indeed rather than being 59% penetrated if we were still quoting 40,000 units, we are only 39% penetrated, which provides excellent runway for ongoing growth. We've not done a similar exercise for Europe and Asia-Pacific at this stage. The same level of granular detail is not readily available. But we do acknowledge that the 40,000 units opportunity in each of these regions is out of date and is likely higher just like in the U.S. as ultrasounds has certainly grown in those markets as well. But getting to a specific number, to be honest is not a big priority for us at the moment, as you all know that there's still a large runway to go with -- even with the 40,000 opportunity. But we look at that at a later date. And speaking of growth in these regions, you've seen the growth being experienced in Europe, and certainly we aim to continue to invest in that market to further stimulate growth on the back all the strengthening fundamentals. We know from our North American business that trophon can be a very successful business, delivering significant contribution margin. And our aim is to replicate what we have achieved in North America in the other two regions. In Asia-Pacific, despite the challenges associated with Japan being in a state of emergency for the majority of the year, we did continue our market development work there with virtual education and training with relevant specialists, societies and of course, our distributors. And we did expand our local infrastructure over there. And we continue with our market development activities in partnership with our distributors, including GE Healthcare. We are currently finalizing -- actually we may be finalized the registration of a wholly owned foreign enterprise in China, or would be in China. And we are now preparing for regulatory submission to approve trophon2 for commercialization in that market. I think it’s probably be in FY 2023 market introduction, but there's a lot of work going on behind the scenes as we prepare for that. And, of course, growth in capital equipment is only one dimension. There's also the opportunity for growth in consumables. I mean, we did see, especially on a constant currency basis, very, very strong growth in consumables this year. And also in the investor presentation, there's a slide in there that I think is quite informative and that highlights that there was over 150 different types of procedures that use ultrasound probes across many departments that risk contact with mucus membranes, non-intact skin or sterile tissue, therefore necessitating the requirement for high level disinfection. And as education on this creates greater awareness, there's certainly the possibility that the usage of trophons will also increase driving increases in consumable usage. And, of course, another important aspect related to the significant growth opportunity for trophon is upgrades. And for obvious reasons upgrades where -- there wasn't a big focus in FY 2021, because where we did have hospital access, we were very much focused on new installed base, but now the hospital access is back, there will be more of a focus in FY 2022 on upgrades. Customers have been notified about the end of life notifications for the original trophon EPRs, which is just a normal part of the product life cycle. And there are now over six and a half thousand trophon EPRs. I believe that are seven years and older in the market. And considering the value proposition of T2, the trophon2 over the EPR, the original device together what I believe is a solid economic rationale. We'll certainly be informing customers of the upgrade opportunity over the next 12 months. And just a note here. As upgrades do kicking, so will be mix between capital and consumables, which of course, then can have an impact on gross margin depending on the volumes of upgrades we get in FY 2022. We expect the gross margin to rebalance closer to the historical levels of about 75%, 75%-plus that was experienced in the prior years. So, that's important to note. So, considering, there then the increased TAM in North America, the Europe growth kicking in as fundamentals have improved, opportunities through our expansion in Asia-Pacific, the potential for increased usage of each trophon due to a wide range of ultrasound procedures and of course, upgrades, I think that there's definitely a significant opportunity for the trophon business alone moving forward. Of course, this leads to the third and final key message I want everybody to leave with. And that is that Nanosonics, we have an exciting pipeline really of new product. And as you all know, product expansion is a core aspect of our strategic growth agenda. And in FY 2021, the company invested $17.2 million in R&D. So that's up 11% on the prior year. In June, we announced the launch of Nanosonics AuditPro, which is an infection control workflow compliance management system. And it's the result of a number of years of research and development, and really opens up a significant opportunity to market a unique solution that really integrates infection prevention decision-making track and trace and compliance into a single digital solution. And that product now is being rolled out in the United States with plans to introduce introduces into other regions over time. The AuditPro solution, it comprises of a mobile scanning device coupled with a subscription to a browser based application for users. And the first application focuses on ultrasound procedures where the new handheld scanning device is actually designed to be coupled with every ultrasound console at point of care. So with over 270,000 ultrasound units in the United States alone, you can imagine that AuditPro represents a significant new opportunity for Nanosonics. And it's important I guess one takeaway on this as important that some people were thinking about AuditPro, the ratio of AuditPro would be associated with the ratio of trophon. We're very much looking at AuditPro as a ratio to ultrasound consoles, not as a ratio to the number of trophon units that are out in the marketplace. So, over time we're not expecting significant revenue. It's like a service model, a subscription model that will generate revenue over a five-year subscription model and recognize that revenue over the five-year period. But obviously as the installed base grows with AuditPro, then the revenue can become quite significant. In addition to AuditPro, there is our new -- next new technology platform, the Nanosonics Coris platform. And this new technology platform is directed at solving what is probably the most important and significant problem in instrument reprocessing today and that's the cleaning of flexible endoscopes. Indeed, more healthcare associated outbreaks have been linked to contaminated endoscopes than any other medical device. And it's a highly, highly complex problem to solve that has existed for many years. So, a bit of detail around this if I may. First of all, reusable flexible endoscopes, and there's a range, all types of flexible endoscopes, they are highly sophisticated medical devices that enable advanced diagnostic and therapeutic interventions across a range of conditions. And these were usable endoscopes. They incorporate advanced technologies that give physicians really a sophisticated level of control in carrying out very complex and minimally invasive procedures and the ability to navigate challenging anatomical situations to deliver the highest level of patient care. And as I mentioned, there are many types of flexible endoscopes, including colonoscopes and gastroscopes, endoscopes [ph], bronchoscopes, et cetera. And from a reprocessing or a decontamination perspective, the cleaning stage of the reprocessing or decontamination process, it's a critical step and has significant implications for the outcomes of the subsequent high-level disinfection stage of the process. Indeed, the father of decontamination Aaron Spaulding, a famous quote from him is, you can clean without disinfecting, but you cannot disinfect without cleaning. And so, people talk a lot about moving towards sterilization, but even still with very effective cleaning and that's -- won't make as much of a difference. So -- but there are lots of challenges associated with manual cleaning combined with reports of persistent contamination from biofilm, which is really a very difficult contaminant to remove despite that routine cleaning. And this does represent a significant unmet need, that's well-recognized by regulators and customers. Now addressing this problem, which has existed for many years, it's a very, very complex issue. You're dealing with trying to automate what today has anywhere between 50 and 200 manual cleaning sets, you're dealing with sophisticated endoscope design and architecture that has multiple interconnected channels and complex ports. You're dealing with channels with diameters that can be less than a millimeter. And, of course, you're dealing with very complex and difficult soils to remove such as biofilm. So, as you can imagine, it is a very, very complex technology development program, but the Nanosonics team, they focused on the significant technical challenges for a number of years now with the aim of developing a novel automation technology designed to really revolutionize the cleaning process of flexible endoscopes and our new Nanosonics Coris platform technology like trophon, it will comprise both capital equipment and consumables. And in testing today, this new automated platform has demonstrated the ability to deliver significant superiority in cleaning efficacy over the requirements of the current standards, including those most -- there are some new recent standards that are even stricter and we can -- significant superiority even over those. In addition, testing demonstrates superior efficacy over manual cleaning against these difficult biofilm contamination, including in the smallest channels of an endoscope. So, down to less than a millimeter in diameter. So, a big technical challenge to overcome, and the R&D team has done an absolutely amazing job there. So, the potential to address this, of course, represents a significant opportunity for the company. There are over 60 million flexible endoscope procedures being conducted across the United States and the largest five markets in Europe alone every year. And that number is growing at about 6% per annum. And we're very pleased with our progress in the product development. There's still some more development work to do, which would be followed by external clinical assessments to support the regulatory submission. We continue to engage with the FDA to determine the necessary requirements to support a successful regulatory submission. But all of that is going well. And the timing for initial commercial launch previously indicated that is being revised and will be determined in due course dependent on, of course, those technical regulatory and operational milestones being met. And at the moment, we're currently targeting the first commercial launch in calendar 2023. And there are some impacts of COVID at the moment with lockdowns here in Australia, but we're doing our best to try and manage those. And we'll keep the market informed as a material, new information becomes available. But needless to say, it's a very exciting development and we remain highly confident in bringing what we believe can be a transformational product to market that does address the most significant unmet need in instrument reprocessing today. And indeed, we believe like trophon can become a new standard-of-care. So all around some very, very exciting things ahead for the business from a product portfolio perspective. In terms of outlook for 2022, first of all, we do have to acknowledge that there is still uncertainty in the marketplace, especially with the Delta variant to all of COVID. However, assuming that positive market recovery trends do continue and we're seeing that with vaccinations increasing around the world, et cetera, we do anticipate a return to double-digit growth. And I think you saw what our second half number was of $60 million. And so, we're expecting double-digit growth in total revenue in FY 2022, and that will be driven by ongoing increase in the installed base globally, increased usage of consumables across all regions as ultrasound procedures returned to pre-COVID levels. In addition, of course, it's anticipated, we will see new capital revenue coming in from upgrades, from trophon EPR to trophon2 during FY 2022 as well. I did mention earlier on -- just on -- depending on the upgrades and capital and the growth now in capital in the second half or in this year, from new IB and upgrades that the mix between capital revenue consumables will likely change and that will result in the gross profit margin, more aligns to waffle, it was in FY 2020, but remain -- our estimates are remaining above 75%. So, with the exciting opportunity -- growth opportunities outlined for the trophon franchise, as well as opportunities in the broader infection prevention markets, we are going to maintaining our commitment to continue to invest in the long-term strategic growth agenda, with an emphasis of course, on continuing investments growth in our regional operations and R&D. The operating expenses in FY 2021 in the fourth quarter were $20.3 million as the business returns to its intended investment run rate. As you know, we originally at the beginning of the year were guiding towards $75 million to $78 million, of course, with impacts of COVID, et cetera, that had come down. But in the fourth quarter, we got back to that intended run rate of $20.3 million. So that annualized alone is about $82 million. And, of course we expect some growth on top of that. So, we are expecting our investment in the ongoing growth of the business to approximate $90 million for the year. So, with that overview, I'm happy to hand over for any questions.

Operator: Thank you. [Operator Instructions] Your first question comes from Josh Kannourakis with Barrenjoey. Please go ahead.

Josh Kannourakis: Hi, Michael and McGregor. Can you hear me okay?

Michael Kavanagh: Yes. Good morning, Josh.

Josh Kannourakis: Good morning. Well done on the results. Firstly, just the question about the core trophon business and with regard to your outlook. Can we talk a little bit about what you're seeing in terms of trends the start of the year in terms of access into hospitals and just how that's been tracking in terms of your workforce and sales funnel?

Michael Kavanagh: Yeah. Look, a good question. It's obviously something we're monitoring very, very closely. In the U.S., what we're seeing is access to hospitals has certainly improved a lot as vaccinations have increased. There's pockets in North America, in the Southern states like Florida and Texas, where the Delta strain and the hospitals are under a bit of strain where access is more limited. But we feel are getting in there. Our service people are getting in. Our clinical applications people are getting in. And even in those Southern states at the moment, we're still seeing the ultrasound procedural levels back towards pre-COVID levels. So, we're not seeing those big drops that we had had seen regionally. But ultimately, I think what's happening as there as -- vaccines are rolling out, there's also an acknowledgement that there are many other healthcare issues over and above COVID that have to be addressed. And so, the hospitals are, I believe, better equipped. I mean, this time last year was all around getting access to PPE and ventilators. They are alone better equipped to manage it at the moment. So, with that in mind, our access has certainly improved a lot. And it's similar sort of story in Europe. Our German fieldforce are out there now. U.K. fieldforce are out there. Yes, there are new guidelines with respect to visiting hospitals, but these guys are able to get into the hospitals now.

Josh Kannourakis: Got it. No, that's great. And just in terms of upgrades and you mentioned you do expect some of those -- that's not happening into FY 2022 and some good granularity there. Can you just talk a little bit through the implementation of the EPR end of life strategy and also how AuditPro could potentially play into accelerating that upgrade cycle?

Michael Kavanagh: Yeah. So normal part of product life cycle, when you are always going to at some stage obsolete products and when you do go through an obsolescent strategy, you notify customers with respect to an end of life notification. We did notify customers quite a period -- some period time ago about the end of manufacturing, and then more recently notifying them with respect to end of life. And now what end of life means is not that we're no longer going to support customers, who have EPRs. But there could be limitations for older devices in terms of being able to service devices because of obsolete parts and things. And that is very, very -- that's a normal process medical device companies follow, so customers have been being notified. So -- and I think then when we look at the upgrades, the EPR or that the T2 over EPR is certainly some very strong value proposition there and economically as well. I think it makes sense to upgrade, because remember many of these EPRs are under service contracts. Then -- when they get a new T2, that's warranted for the first year. So, it's almost like they've got a discount to the value of one year service contract from the T2 already. To your point on AuditPro, I think AuditPro can -- even though it's a discreet product in of itself, but its first application is in ultrasound. The connectivity AuditPro does not connect with the EPR and -- but it does with the T2. So, it can certainly be a driver for upgrades as well when the teams are out or talking to existing customers about AuditPro. But not just a driver for the upgrades, I would say the other aspect that AuditPro could potentially impact over time is that this product -- it has built in, in product in that handheld, is it almost ensures that as part of the clinical workflow that the customer is taking on board necessary infection prevention requirements. So -- and it educates them and helps them understand what they need to be doing with the probe and whether or not it requires high-level disinfection, et cetera. So, I think it can drive -- continue to drive that education and, of course, with over 150 different types of procedures, ultrasound procedures that require high-level disinfection, there's a possibility that AuditPro could actually drive increased consumable usage as well as upgrades over time.

Josh Kannourakis: Great. And extremely quick one in the essence of time on the new product, can we assume that because you've released or discussed it now that the major technical challenges are overcome? I know you've mentioned there's a couple of additional product enhancements to come, but are the major technical issues that you've dealt with? Can we assume they're over done?

Michael Kavanagh: The big thing here, we -- it is a very -- in one sense, it sounds easy to cleaning of flexible endoscopes, but when you look at the architecture of endoscopes and it's a purposeful architecture that enables the physician to have extreme control and be able to navigate internally into very, very small areas, that complex architecture is actually required. But you're dealing with endoscopes that have many different channels and those channels have different diameters and there's bifurcations in there and connectors and over nine different ports and all of these other things. And so, you can imagine the process -- and that's why the current cleaning process can have anywhere from 50 to 200 different steps. So, you can imagine trying to automate that and all our testing today now consistently demonstrating that we are achieving significant superiority over the required standards today. And very, very importantly, the ability to very, very effectively clean those very small lumens, which are considered to be the most difficult aspect of the cleaning and potentially one of the biggest contributors to decontamination and our ability to be able to get rid of biofilm in those channels is -- has proven to be very, very successful. So, we're feeling very, very comfortable. Yes, there's some more work to do and not in a product. You guys remember a product like this, then got to be introduced into manufacturing. There's many test systems that have to be developed, et cetera. So, there's whole suite of elements associated with the development over and above just the product itself, but we feel very comfortable with the product that we have, and that's indeed it can be transformational when launched.

Josh Kannourakis: Great. Well done guys.

Michael Kavanagh: Thank you.

Operator: Thank you. Your next question comes from Martyn Jacobs with Canaccord Genuity. Please go ahead.

Martyn Jacobs: Morning guys. Congratulations on a strong result. I thought I'd just start with, just asking what percentage of sales are represented by GE now, if you can share that with us.

Michael Kavanagh: That I don't have it off the top of my head. I think it's partly in the order of about 55%, 60% and you'll find that in the annual report under the significant customers. What I will say, when thinking about that is, remember the consumables that we now effectively sell the consumables close to the ASP of what we sell directly to customers, but GE, they continue to provide consumables to their customers. So, in one sense, you almost have to discount that percentage by the volume of consumables, because if they were not selling those consumables, we would be selling those consumables to those customers. But ultimately today, including consumables, it would be in the order of about 60%.

Martyn Jacobs: Right. Thank you. And on the OpEx, your shadow -- shadowing quite a big jumping in the cost there. And I was just wondering if you can split that out between SG&A and R&D firstly? And secondly, you've notified a 9% increase in staff and can just talk to sort of where that's being attributed?

Michael Kavanagh: Yeah. That's a good question. As I say, originally for FY 2021, even with the COVID we were looking to invest upwards of $75 million, $78 million. Obviously, we came in underneath that, but importantly in the fourth quarter, we were able to get back on track as markets began to open up and with our investment strategy and exited the four quarter on a run rate of about $20.5 million. So annualize that would be around $82 million straight away. Now the -- going into this year, we are looking to continue to invest out in the regions. It's more investment going out into the U.S. There's more investment going into the European region. We're doing investments as we're expanding our Asia-Pacific infrastructure. Yes, there is more going -- going to go into R&D as well this year over last year. The other thing I'll flag is, we will very likely move to a new premises. We're close to signing a new lease on a new premises, that is a larger premises that would support the next phase of the growth. So, giving us a lot more capacity from a laboratory perspective and an office perspective as well. So that looks about coming in from an accounting perspective in FY 2022 as well.

Martyn Jacobs: Okay. And on the app side to the other markets, that's good to see you have adjusted that, but you also noted that pre-COVID you new units where they had sort of 2,700 to 3000, that's what you want to get back to. But in the past you have talked about 3,000 as a sort of a, I guess, a baseline that you could go in year-in, year-out. So, is there a subtle softening in your expectations going forward? Or is that just being casually robust?

Michael Kavanagh: No, I think we'd like to think -- I think I've always said there's not many pieces of medical technology getting out there with about annually 3,000 new units going in and then generating a new revenue from it. And we'd like to think in North America that we'll be able to get back to that run rate of 3,000, and then we start seeing an accelerated growth in Europe. So really what the 60,000 shows is there still a good run rate for ongoing growth, as opposed to we'll get now automatically a shift in growth from 3,000 to 3,500 or 4,000 units.

Martyn Jacobs: Okay. And just finally for me, in terms of the endoscope product, I'm so pleased to say that you're acknowledging that the problem of biofilm as [indiscernible] is the factor in infections. And I was just wondering, if someone had developed a biofilm disrupting agent and you could coat it on endoscopes, et cetera, would that have an impact on your potential? And have you thought about that technology?

Michael Kavanagh: I'm sure many people are thinking about those types of technology biofilm. We could go into hours of lectures on biofilm and the intricacies of biofilm, but coating products to minimize biofilm formation, I think, nobody's been able to crack that and it's a big, big area. At the moment, I think, Martyn, we feel very, very comfortable in the opportunity and the technology that we have going and feel very comfortable that it will become a new standard-of-care.

Martyn Jacobs: Okay. Thanks very much, guys.

Michael Kavanagh: Thank you.

Operator: Thank you. Your next question comes from Chris Cooper with Goldman Sachs. Please go ahead.

Chris Cooper: Hi. Morning. Thanks very much. Michael, if you don't mind, just first on the revenue guidance for double-digit, I mean, I don’t know whether you can help steer us a little bit here, but clearly the second half, there's a recovery that that's played out as for shadow, but for the year as a whole, I think it's fair to say that it's still a little bit below where you'd normally expect to be. So, a double-digit revenue growth wouldn't necessarily be a big surprise to people. Could you help to just narrow that slightly? I mean, clearly, it's a very broad range and consensus I believe is currently something in the high twenties. Is that something you'd feel comfortable with at this stage?

Michael Kavanagh: Yeah. Look, we -- Chris, we've traditionally not given any guidance with respect to revenue. And I think a lot of companies actually at the moment, not giving much guidance with respect to revenue, with the uncertainties that are out there. What we'd like to think is that, I mean, everybody's seeing what our second half revenue has been. And you would like to think that that's the run rate going into FY 2022. And as long as the conditions continue to improve, based on what I've covered this morning with respect to the opportunities that are out there for trophon, we would like to think that that run rate is certainly achievable, which gives some indication of what the first digit is on that double-digit growth, but really with the uncertainty factor, I can't give any more granular information than that.

Chris Cooper: Okay. So just to clarify that comment, you had approximate doubling of the exit rate in fiscal 2021, wouldn't be a fast starting point when we're thinking about 2022.

Michael Kavanagh: Yeah.

Chris Cooper: Okay. Thank you. And look, on the relationship with GE, get the public sort of smaller questions then there. So, up to 60% of revenue now. It's a fairly big increase in the amount of revenue generated through that relationship. Is that now the new normal, or does that begin to fall back down again as the rest of the customer base continues to recover through fiscal 2022? And the reason I ask is it does appear as though there's been a material sort of pricing impact negatives as we've seen those GE orders come back to the second half.

Michael Kavanagh: Yeah. The orders came back in the second half. But again, I want people to -- GE are and continue to be a very important partner for Nanosonics. And we've got a close working relationship with all our colleagues with GE. But I don't want people to get fixated on this 60% associated with GE. Remember a lot of that is associated with consumables. And as you know, the contract with GE a number of years ago changed where effectively we were taking the consumables back, but GE decided that they would continue to provide the consumables to their customers. So they can offer the holistic solution and it'd be easier from a customer experience perspective, et cetera. But what we -- we sell the consumables to GE at close to the price of what we would sell them to the customer. So, in one sense, you got to discount the consumable volume when you look at that 60% being associated with GE. But without a doubt, as our direct business continues to grow, but more importantly, how we look at things moving forward in particularly in North America internally, we talk about our demand generation strategy that we've got a fieldforce that are out there that are generating a lot of demand that can either be filled through us to rate, can either be filled -- if we notice that it is a customer that's probably predominantly using GE equipment, we'll make sure that that customer is aware that all of us have the choice, but we make sure that the customer's aware that they can get the equipment through GE because they may be able to bundle this into a contract they already have with GE et cetera. So, we're more focused on ensuring that the knock it installed base grows, as opposed to whether it grows directly or indirectly, because ultimately the consumables comes -- flows through to Nanosonics.

Chris Cooper: Okay. And is the plan at this stage for GE to help with the commercialization, of course?

Michael Kavanagh: They -- we made no statements around the commercialization model that we're going to go forward with the Coris technology. But as you can imagine, GE don't have anything to do with endoscopy.

Chris Cooper: Okay. And very final question, just on OpEx quickly. The $90 million that you've got into for fiscal 2022, it sounds as though from your comments earlier that maybe we should be assuming this to be sort of a new, sort of base run rate with perhaps a little bit of growth year-over-year from 2022. Would that be reasonable?

Michael Kavanagh: Yeah. I think so. Because when you look at it, Chris, the opportunities for growth in the business and infection prevention alone, are really great. So, at this stage, we're still going to continue to invest for growth. Obviously, when you got markets like North America now that are well-established and whilst we haven't broken it down out here for the markets, we're delivering excellent contribution margin our of North America in the trophon business and demonstrating excellent operating leverage in North America as well, and that's what we want. We believe we can get to that in the other markets as well. But a lot of those other markets are highly underpenetrated. We still believe we are -- we're not going to stop with AuditPro and Nanosonics Coris where we -- our growth is underpinned by continuing to invest in R&D and bring more and more new infection prevention products to market over time as well. So without a doubt, I would say, yes, it is a new baseline and there will be growth year-on-year on that baseline.

Chris Cooper: Got it. Thanks very much.

Operator: Thank you. Your next question comes from Lyanne Harrison with Bank of America. Please go ahead.

Lyanne Harrison: Hello, Michael. Hello, McGregor. And congratulations on a good second half recovery. I'm going to start with the total addressable market for the trophon. And we had an estimate of about 50,000 units and the 60,000 units, obviously 20% higher than our estimate. Can you give us some color on the assumptions you use to -- or the assumptions that were used in the study to arrive at that number?

Michael Kavanagh: Yeah. The foundation was looking at the total number of ultrasounds that are out in the marketplace and in North America in the order of greater than 270,000 ultrasounds out in the marketplace. Then, we cut it out in a number of ways looking at, by type of ultrasound is a console, is a compact, if it’s an inhaled, et cetera. And then we looked at ratios of trophons to the different types of ultrasound and those ratios were based on our experience in hospitals and other segments of the markets. And all of that came to a number that probably conservatively is in the order of about 60,000 units.

Lyanne Harrison: Okay. Thank you very much. And then, if I think about -- obviously the new Coris product, with the work that you've done to date on looking at the market there, can you give us a sense of how large do you think that the market demand might be for the Coris?

Michael Kavanagh: So, in the announcements, we did give a bit of a flavor as to the number of endoscopy procedures, up over $60 million or so annually. And that's just the U.S. and Europe top five. And if you include other parts of the world Japan, et cetera, obviously there'll be a lot higher. It will be a capital and consumable model. So very, very similar to trophon where we expect to similar sorts of margins, et cetera, on consumables, et cetera, that we're looking to generate potentially. So, I think the overall opportunity is very significant. The other thing that's probably worth mentioning is unlike trophon where you've got a lot of markets now that are still in the early phase, all in terms of adopting necessary guidelines or high-level disinfection, certainly in the majority of markets globally for endoscopy, the reprocessing of endoscopes are mandated and of course, the cleaning stage. So, there's elements like that that could have a positive impact for us in terms of stage and race of adoption internationally as well.

Lyanne Harrison: Okay. And once we -- obviously, you mentioned the capital and consumables model, just so that we could probably get a sense of estimating the market size. Is the capital likely to be priced higher or lower than the trophon2?

Michael Kavanagh: Really today, we're not going into any details on personalization.

Lyanne Harrison: Okay.

Michael Kavanagh: In the time we've come out with more details around all of that, that sort of information, which I know, it's one step to now announce where the technology is that leads to your next questions, which are all very, very valid questions. And -- but in the interest, I guess in the fullness of time where we've come out with a lot more information about it.

Lyanne Harrison: Okay. Absolutely. I understand that. And then on the consumables for the Coris, are they likely to use same with similar consumables to the trophon?

Michael Kavanagh: No. One thing I will emphasize. This is a totally, totally new product platform, new capital, new consumable.

Lyanne Harrison: Okay. Final question I have is on the trophon, in terms of the installed or the new installed base, based on our calculations, the average ASP jumps up significantly in second half 2021. Can you give us some color on what might be the reasons for that?

Michael Kavanagh: I'm not sure what your calculations would be based on the capital, but I don't think it was being significant increases in the capital ASPs in the second half. It was primarily driven by volume.

Lyanne Harrison: Okay. Is there any mix in terms of more trophon2 versus the EPR?

Michael Kavanagh: A 100% of all EPR -- all trophons that we are selling now and have been over the last year are all trophon2.

Lyanne Harrison: Okay. Thank you very much.

Michael Kavanagh: I'll take one more question just in the interest of time, and I'm sure I'll be talking to many people who are on this call in more detail over the coming days.

Operator: Thank you. Your final question is from John Deakin-Bell with Citi. Please go ahead.

John Deakin-Bell: Thank you, Michael. Just to clarify on the Coris product, I know you -- appreciate you give us a bit more detail. Can you just tell us the way the patent position is currently for this product?

Michael Kavanagh: John, we expect -- we've been filing a lot of patents in lot of areas and we fully expect that we will -- strong patent protection like we have for trophon for the system when it's launched.

John Deakin-Bell: So, they're not granted at this point?

Michael Kavanagh: Some patents we have granted, others are going through the process.

John Deakin-Bell: Okay. Thank you. And just finally, I'm just intrigued, really you're talking about the patents are going through the process. You haven't started the clinical trials. You told me about not launching the product for a couple of years. Why have you decided today to talk more about it?

Michael Kavanagh: I think there has been -- obviously, there's been a lot of questions around this new product. I think it's just timely that we inform the market as to the -- one of the key areas we are focused on in our R&D spend. And there's been a lot of speculation out there. And by virtue of the fact that we've told the market today all what the product is, even it's brand name, that's registered, people should feel comfortable in the fact that we believe we can bring a transformational product to market.

John Deakin-Bell: Great. Thank you. And just finally comparison with the -- the R&D spending actually doing the clinical trials for this, is that going to be a kind of a material one-off step up or is that you can cover that within the current percent of sales that you are spending.

Michael Kavanagh: Yeah. We will be able to cover it. Yeah.

John Deakin-Bell: Great. Okay. Thanks very much.

Michael Kavanagh: Thank you very much. All right. I think …

Operator: Thank you. There are no …

Michael Kavanagh: With that, I'd like to thank everybody again for joining the call this morning. Hopefully, you now have a better understanding of the results that have come out and understand the importance of what was achieved in the second half of the year with that very, very strong growth. The fact that we've got excellent ongoing opportunity for growth, which is probably even bigger than for trophon originally anticipated, and an exciting new product pipeline. So, with that, I'll leave you all and thank you for your participation and definitely I'll be speaking to many of you over the coming days. Thanks very much.

Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.