Nanosonics Limited

Hello, and welcome, everyone, to the Nanosonics Full Year Results FY '25 Investor Briefing. My name is Catherine Strong, and I've joined the Nanosonics team here as Head of Investor Relations.

[Operator Instructions] There will be a presentation of the FY '25 results from Michael Kavanagh, Chief Executive Officer and President; and Jason Burriss, Chief Financial Officer. During the presentation, the management team will speak to a selection of the slides that we lodged earlier this morning with the ASX.

The webinar will show the relevant slide on the screen. However, if you join by conference call only, may we recommend that you follow the webinar in addition.

[Operator Instructions] I would now like to hand over the call to Michael Kavanagh. Please go ahead, Michael.

Thanks very much, Catherine, and a very good morning, everybody, and thank you all for joining the call. Well, by now, you will have seen the overall results for FY '25, which includes, I believe, a very good set of financial and operational outcomes for the year.

But before we get into the details, there are a few key takeaways I'd like to call out. The first is -- the 17% growth in revenue that we achieved this year, it truly does highlight the strength and scalability of our trophon business model, where a large and growing critical mass of installed base that we've now established is driving accelerated growth in recurring revenue through our customer value expansion strategies.

This, of course, also supported solid bottom line growth and operating leverage for the year. The second is we do see multiple growth drivers ahead for trophon, and I'll cover some of these off a bit later.

And as demonstrated in the trophon-only financials, that you can see the results of -- in the presentations, the trophon business is highly profitable, it's generating very good cash flow. And together with our existing strong cash balance, that certainly enables us to invest in our next growth horizon.

Third, and importantly, we did achieve a number of key strategic milestones across innovation, operations and digitalization during the year, and each of these milestones play important roles in our next phase growth, and I'll cover some of those milestones off shortly as well. And finally, there were many important milestones for CORIS achieved during the year.

And the next steps for our commercialization plans, they are now very well defined and indeed underway. So looking at the outcomes in a bit more detail, starting with some of the financial highlights, and Jason will shortly expand on these.

Revenue for the year grew 17% to $198.6 million. And this was very much at the top end of the upgraded guidance that we announced at the half year.

Our installed base grew 6%, where the cumulative installed base has now reached 37,000 trophon units and this large and growing critical mass of installed base devices did fueled 20% growth in our recurring revenue from consumables and service to $146.1 million for the year. Total unit sales were 3,870 units with 2,210 of those as new installed base and 1,660 upgrades.

And together, they drove a 9% growth in capital revenue to $52.5 million. Gross profit margin has improved to 78.2% and measured growth across our operating expenses, which were up 10% for the year, delivered many of the important milestones for our future growth.

But importantly, we did see improved operating leverage with OpEx as a percentage of revenue decreasing and all of this translated into strong profit growth with our profit before tax up 72% to $22.3 million. As mentioned, there were many important milestones achieved during the year and all of these being foundational for our next phase of growth.

On the innovation front, we secured FDA clearance for CORIS. We completed our next-generation trophon technology, enabling us to recently launch trophon3 and trophon2 plus.

We also expanded our patent portfolio as we continue to work on our product road maps and portfolio expansion. Operationally, we've made significant progress.

The CORIS supply chain has been established, and we have set up manufacturing here in Sydney for the CORIS equipment production. We also expanded our Indianapolis facility in the U.S.A.

to produce consumables for both trophon and CORIS and received the necessary regulatory approvals and registrations for this site. And we expect these production lines to go live later this year.

In Indianapolis, we also expanded the servicing capability at that facility to support the growth that we are seeing in our service business. And also in digitalization, this year, there was a lot of achievements where we successfully implemented a new ERP system, and that will support the business moving forward, as well as being an enabler for a number of our productivity initiatives.

And importantly, we also established our cloud infrastructure to support broader customer connectivity and future SaaS-type revenue. The recent launches of trophon3 and trophon2 plus include cloud-based traceability features, all of which enhance value for our customers.

And aligned with our overall digital strategy, we further strengthened our cybersecurity posture with ISO 27001 recertification to a higher standard. And we do have plans in place in advance for further enhancements and international accreditations.

And so these important milestones, along with many other operational achievements have really laid important foundations for our next growth horizon. Before I move on, while it's not covered on the actual slide, I'd also like to mention some of our sustainability achievements during the year.

And historically, electricity usage has been the primary driver of our Scope 2 emissions. A key component of our carbon reduction strategy has been to source 100% renewable energy for use in both our Australian and U.S.

business operations. And in FY '25, we delivered on this commitment.

And as a result, about 56% or 270 tonnes of our Scope 2 emissions have been abated. And further, our Scope 1 emissions also reduced by around 17% during the year.

So we expect to see these reduce even further in FY '26, as we experienced a full year benefit. And of course, we will continue to explore further areas to reduce our overall footprint, which is not large overall.

So on recurring revenue growth, which was a standout for the year and growing 20% on the back of a 6% growth in cumulative installed base. In addition to the benefits for the 28 million patients protected annually from the risk-off cross contamination, this large and growing installed base is driving scalable recurring revenue growth with an opportunity to continue to add further value for our customers.

Breaking this recurring revenue down, there are a number of product categories included and importantly, we saw strong growth in each of those categories. First, we have revenue from core consumables and spare parts.

Those consumables are those that are used in the disinfection itself. And this was up 18%, and that was primarily driven by volume growth to $101.7 million.

There was a little bit of price included in there, but it was primarily driven by volume growth. Likewise, revenue from our ecosystem consumables and those consumables include products like wipes and clean covers, that was actually up 28% to $15.1 million.

And our service business continued to deliver strong growth, again, up 21% for the year to $29.4 million. So altogether, delivering $146.1 million in recurring revenue.

Importantly, each element of this revenue has really good runway for continued growth. We also expect -- just a point on this recurring revenue, we do expect to add another important component to this moving forward.

And with the launch of trophon3 and trophon2 plus, we've enabled connectivity with customers' DICOM imaging systems, that provides full digital traceability linked to patient records. And DICOM is the global standard for medical imaging data, and this integration positions us well for future SaaS-based type revenue.

So looking ahead, we definitely see our digital revenue as an important element of our customer value expansion, which, of course, will drive our recurring revenue growth. So overall, we're very pleased, not just with the overall growth financially, but with the quality of that growth and the opportunities that it unlocks, which I'll speak to shorter.

But before that, I'll hand over to Jason to walk through the financials in a bit more detail. Jason?

Thanks, Michael, and good morning, everybody. Before taking you through the financials, I'd like to spend a moment to call out some of the key financial messages that demonstrate how Nanosonics is driving value creation.

Firstly, we've created a trusted brand in automated high-level disinfection with over 37,000 trophons currently installed. This extensive installed base powers our high-margin recurring revenue, showing the strength of our business model.

Our disciplined capital allocation has driven operating leverage improvements and EBIT growth in the '25 financial year, reflecting our commitment to financial prudence and strategic investments for growth. This approach has resulted in strong cash generation and higher returns on capital in the trophon-only business, giving us flexibility to invest in future growth opportunities.

As we continue to grow our trophon business and start to commercialize CORIS, we're well positioned to capture new market opportunities and deliver sustained value to our shareholders. Looking at our P&L, it shows significant improvement year-on-year.

We've been able to couple strong revenue growth with measured increases in operating expenses. As Michael already mentioned, total revenue grew 17%, reaching $198.6 million.

I'm pleased to report that we have achieved revenue growth across all regions. North America growing 17%, EMEA, 22% and APAC 4%.

Margin also improved, and I'll come back to that shortly. Our operating expenses increased by 10% to $138.7 million.

With operating expenses, we reported 6% growth in R&D investment, and it's worth noting that R&D decreased as a percentage of our revenue from 19% to 17% in FY '25, a trend that we expect to continue. I'll also just call out the 19% growth in admin, which includes investments into the new ERP system.

As Michael mentioned, this has now gone live, so we expect costs relating to the ERP to fall in FY '26 as we bed this down. With revenue growing faster than operating expenses and an improving margin, we're able to achieve 95% growth in EBIT on the prior year, with EBIT reaching $17.8 million in FY '25.

Our net finance income increased by 16%, reflecting higher interest earned on our growing cash balance. As a result, our profit before tax has grown to $22.3 million, a 72% increase on the prior year.

Now let's go back to gross margin. Our gross profit margin improved 0.3% to 78.2%, supported by the strength of our recurring revenue.

This would have been around 78.5% had it not been for the tariffs, and let me make a few comments here. In FY '25, we experienced a tariff impact of $0.5 million in the fourth quarter.

This could have been higher but was partially mitigated through inventory levels already held in the U.S. In financial year '26, the impact of the current tariff rates on the cost of goods is expected to be approximately $4 million.

This is expected to result in a gross margin percentage of between 75% to 77% in FY '26, which is below the FY '25 levels. Through a range of initiatives, including price increases, we expect to mitigate the majority of these tariffs at an EBIT and profit before tax level.

In addition to the pricing actions, we'll also look at sourcing more goods from U.S.-based suppliers and consider our timings for further OpEx investments. While these mitigation plans will protect profit before tax, pricing actions alone will not maintain the gross margin percentage at FY '25 levels.

Without these tariffs, our GM for FY '26 would be expected to come in at similar levels to FY '25. Moving to OpEx.

In FY '25, our operating expenses as a percentage of revenue decreased with an OpEx increase of 10% to $138.7 million. This growth was strategically distributed with the largest share going to investment in our core revenue-generating markets to drive ongoing growth, and 27% being invested in infrastructure, in capability for today and the future.

We continue to invest in R&D to drive our product expansion strategy. Approximately 2/3 or $22.3 million of R&D investment was focused on the endoscope reprocessing innovation program.

While $12.5 million was invested in the ultrasound reprocessing innovation program. As already mentioned, R&D as a percentage of revenue dropped from 19% to 17%, and as I said before, we expect this to continue to decrease in '26.

By strategically allocating our resources, we're ensuring that we continue to drive growth, innovation and market expansion, positioning ourselves for long-term success. One last thing on OpEx.

Due to government rezoning of our existing premises in Macquarie Park, we're unable to extend our lease beyond 2027 for our manufacturing and research lab site. Fortunately, we've been able to secure a site nearby on a long-term lease that allows us to combine our HQ, manufacturing, research labs into 1 site.

We will begin to fit that site out in calendar year '26 in preparation for a move in 2027 when our existing leases end. This will also mean for accounting purposes.

We incur leasing costs on the new property in FY '26 and capital expenditure associated with the fit-out in '26 and '27. Looking at cash.

We had a good year on cash. Our cash flow has grown due to EBIT growth, supported by improved accounts receivable collections, lower inventory holdings and continued growth in service contracts paid in advance by our customers.

This has resulted in a robust cash flow and cash and cash equivalents of $161.6 million, providing a solid foundation for strategic investments in the future. Looking forward to '26, while still maintaining positive cash flow, we expect it to be lower than '25, due to increasing inventory associated with CORIS commercialization and the costs associated with the fit out of the new property I mentioned earlier.

With no debt, we may obtain full flexibility to allocate capital for innovation, market expansion and product development. This positions us well to create long-term shareholder value and drive future growth.

Now lastly, before I hand back to Michael, let's just take a look at the trophon-only business. Here, we show the strength and profitability which excludes our investments into CORIS.

In fiscal year '25, our trophon-only business continued to demonstrate significant strength and scalability. We've already touched on revenue and gross profit at the group level, so I won't repeat.

Operating expenses of $108 million for the trophon-only business grew slower than revenue, driven by disciplined investments in selling, general and admin expenses as well as research and development. Our EBIT for the trophon-only business rose 33% to $48.4 million, demonstrating positive growth in operating leverage.

EBIT was 24% of sales in FY '25. Overall, our trophon-only business continues to generate significant cash flow, which funds our broader organizational long-term growth strategies.

I'll now hand back to Michael, who will talk you through our growth strategies for the trophon business, provide an update on CORIS and take you through the guidance for '26.

Thanks very much, Jason. As Jason demonstrated the stand-alone trophon business, it's certainly growing, it's profitable, it's generating good cash flow.

But importantly, we see 5 key drivers are underpinning sustained growth for this franchise that are outlined on the slide. First of all, you have capital growth, and we expect continued growth in both new installed base and upgrades, especially on the back of the launch of our latest generation trophon3.

With new installed base, in North America, we estimate there's a further -- approximately 27,000 unit opportunity, and that's based on the number of ultrasounds that are in use across that market, and of course, the growth of ultrasound as the clinical modality. And we estimate this remaining opportunity to be split roughly 2/3 in the hospital systems and 1/3 in private practices.

And interestingly, this split actually mirrors our current sales mix. In our European region, despite a challenging environment, we do still have strong conviction in the overall long-term opportunity there.

Overall revenue grew 22% in FY '25. However, we would have liked to see more new IB come through during the year.

With the launch of trophon3, we certainly do have expectations to see stronger new installed base in FY '26. In APAC, progress in Japan, it is slow, but there are some encouraging signs coming through.

So further studies were conducted and published demonstrating pro contamination, but also some studies demonstrating the effectiveness of trophon. And the Japanese Society of Sonographers, they have now included a recommendation in their guidance for HLD, actually calling out trophon, but we continue to try and establish guidelines across a broader group of societies and are engaged very much with a lot of the key opinion leaders up there to do so.

And also, in FY '26, we do aim to launch trophon3 in Japan. From an upgrade perspective, with approximately 10,000 now first generation trophon EPR units out there, the launch of trophon3 presents a significant upgrade opportunity where customers can effectively skip a generation and go straight from the first generation to the third-generation trophon3, which offers numerous benefits to them.

The second driver still related to capital and actually more a new type of upgrade. It's got to do a capital software upgrades.

And this new source of revenue will come from the launch of the trophon2 plus software upgrade. And this software upgrade for trophon2 users will actually deliver the key features of trophon3 for their existing trophon2 machines.

That includes a faster cycle time, which is greater than 40% faster to their current device, as well as all the new connectivity features built into the trophon3. And with approximately 20,000 trophon2 devices, actually more in the market, this represents a great opportunity over time.

Initially, I will say our focus will be on the EPR capital upgrades. But during the year, we expect to see more of these software upgrades coming through.

The third driver, of course, is consumables growth, and that's through core consumables and ecosystem consumables. And by core, I mean the consumables associated with the actual disinfection itself.

So growth here is driven by overall ultrasound procedural volume growth, which we did see in the hospital systems this year, as well as the educational efforts from our clinical applications teams to educate existing customers and trophon users on all the different types of ultrasound procedures that actually require high-level disinfection. So between both of those, we do expect to see ongoing consumables growth.

Also new installed base growth would be a driver there. Then there's the ecosystem consumables growth, and this is made up of the consumables offerings used in the broader reprocessing process.

And as I mentioned earlier, that includes items such as cleaning and drying wipes, clean probe covers, which get used after the probe is disaffected, for example. And this year, we saw a 28% growth in ecosystem consumables to $15 million and believe there's still a great runway to continue to grow this element through greater awareness, through bundling efforts and through new product additions also.

Then the fourth driver is our service business, which in '25 grew 21% to $29.4 million. So service has become a significant and growing part of our business.

And again, there is a great opportunity for further upside through ongoing new installed base growth but also significant upside as we convert legacy GE service contracts on those older EPR machines to NAN through the upgrades to T3 that only Nanosonics sells. And then finally, the fifth will be driven on the back of the launch of T3 and trophon2 plus, where we've -- as I mentioned, enabled the integration with DICOM imaging systems, that provides full digital traceability linked to patient records.

And this sets the stage for growing subscription base or SaaS-based revenue. So in summary, the trophon business is really supported by multiple diverse growth drivers, each important contributors to strong and sustained growth overall.

Moving on from trophon and on to CORIS. Well, first of all, there were many important milestones achieved in the '25 financial year, and there is a clear pathway and plan now in place for broader commercialization.

One of the most important achievements was securing the FDA de novo clearance, and that was a critical regulatory milestone that now enables us to pursue 510(k) submissions for expanded scope indications as well as international approvals. And what I mean by those expanded scope indications, there are many, many different types of scopes, there's colonoscopes, gastroscopes, bronchoscopes, cystoscopes, et cetera.

And the initial de novo clearance is associated with colonoscopes. So what we aim to do and CORIS is designed for this is to submit a series of 510(k) to give us broad coverage across all flexible endoscope types, which would come in time.

Operationally, we've built the foundation for scale. We've established the device manufacturing and supply chain and set up a dedicated consumables production site in the U.S.

as well. And to build market awareness, we've published data and presented the key conferences, showcasing CORIS' superior efficacy outcomes.

But we've also launched regional clinical simulation and education labs to engage and train customers. Looking ahead, the steps are now well defined.

Our plans are now well underway for the submission of the first 510(k) to the FDA for the first of the expanded scope indications. And we are progressing towards regulatory certification also in Europe and Australia.

And throughout this financial year '26, we will carry out, as I've mentioned before, a controlled market release of CORIS. It will first start in Europe and Australia, followed by the U.S.A.

upon approval of the first 510(k) that we get for the expanded scope indications. And as many of you will appreciate, when you're bringing effectively a new-to-world technology that we believe can certainly transform endoscope reprocessing, then a controlled market release is an important process, and it involves a strategically limited launch into select user environments for full commercialization.

And what this does is it enables real-world feedback and helps identify and resolve any unexpected issues prior to our broad commercialization. So there's a lot to be achieved during FY '26.

However, by taking these measured steps, we are ensuring that CORIS is certainly set up for long-term success. We all expect and we believe that there is a significant growth opportunity with CORIS.

There's over $16 million flexible endoscope procedures performed annually. And that's just across the top 7 key markets alone.

So CORIS does represent a substantial growth opportunity for the organization. Similar, I guess, to the trophon business, our business model for CORIS is certainly designed to leverage multiple revenue streams to ensure a robust and scalable approach.

But importantly, while the overall capital unit opportunity maybe a bit lower than trophon, and that's because they're all centralized in the endoscope reprocessing suite, whereas in trophon, they're actually there in the clinical setting point of care. But because they are centralized, the recurring revenue per device through consumables is anticipated to be far greater than trophon, and that's due to the number of cycles going through the machine daily, and that's driven by the fact that all endoscopes are required to be reprocessed.

But also the price per cycle will also be higher noting that the price today of manual cleaning is anywhere between USD 11 and USD 37. So really a significant opportunity, especially from a consumables perspective.

So finally, on to our guidance for this financial year. As mentioned in the ASX release, we believe we are well positioned to continue to benefit from several trends in health care, in particular, infection prevention, such as the trend towards automation, the requirements for traceability and the growth in digitalization.

As well, of course, that will be driven by the opportunities of our newly launched trophon3 and trophon2 plus. We are, like every company, I guess, taking a prudent approach to the macroeconomic uncertainties and recognizing the change in global trade environment.

So on that backdrop, as we look ahead to FY '26, we anticipate continued revenue growth with total revenue to be in the range of $215 million to $223 million, and that represents an 8% to 12% growth. And that growth includes ongoing capital revenue growth, driven by the recent launches, but also continued recurring revenue growth from our customer value expansion strategies.

I should say that minimal revenue, as I've said before, is expected in FY '26 for CORIS from the controlled market release. So most of this revenue growth is generally is definitely associated with trophon.

As Jason explained, our gross margin is expected to be between 75% and 77%, taking into consideration the impacts of tariffs which, as he mentioned, is approximately going to be about $4 million at the cost of goods line. Without the impact of tariffs, we would have expected gross margin actually to be -- continue to be similar to FY '25 above 78%.

But we do have various mitigation strategies in place, however, to offset the majority of this impact on the profit before tax line. So these strategies, including cost sharing initiatives, so there will be price increases.

And so -- but we have to make sure there are reasonable price adjustments over time. But also work that we're doing on various sourcing strategies within the U.S., we look to try and mitigate the impacts of tariffs as much as we possibly can.

From an operating expenses, they are anticipated, again, to grow lower than revenue, with growth in OpEx expected to between 6% to 9% for the year. So in summary, I guess, FY '25 was a year of many achievements financially and operationally, and we're confident in our ability to deliver another year of strong performance in FY '26.

So with that, I'll now hand back to the operator and to start off the Q&A. Thank you.

Michael, I'm just going to start with the guidance, please, just to really a clarification more than anything else. So the revenue guidance you've given there, that I imagine anticipate some of those price increases that you're thinking as part as mitigation strategy against the tariffs so that when we look at -- when you calculate through the guys through the various lines and end up with an EBIT number, that EBIT number will still capture that price increase if that makes sense?

Yes. The price -- the top line revenue guidance provided is inclusive of any price adjustments that we do make during the year.

Okay. And then when I look at the -- I guess, the swing factor between the $8 million sort of variation between the bottom end and the top end of the guidance, would I be right in thinking that the bottom end would be effectively a flattish kind of capital sort of result in '26, and then the top end maybe looking for a little bit more activity?

Exactly correct. Now obviously, we've given ranges.

We believe that we -- with the launch of trophon3 and trophon2 plus, there's great opportunity to continue to grow unit volumes. It also takes a little bit into consideration, Shane.

In case there are any structural changes, which were not necessarily anticipating in the U.S. just in case hospitals come under increased budgetary pressures, which again, we're not necessarily facing at the moment.

But if there were any structural changes to move towards rentals or the likes, well, then whilst we still get the unit, we wouldn't get all the revenue upfront. But the bottom line, how you're thinking about it is exactly right.

The bottom end of the guidance, it would be associated with flat capital growth.

Just a couple of quick questions for me. Firstly, just on guidance as well.

Can we just run through -- just on the OpEx side, can you give us maybe a little bit of extra context just around how we should be thinking about depreciation into next year? And also just a little bit more maybe around some of the rental costs and other potential one-offs that are sort of coming through '26?

Sure, Josh. I'll take that one.

So we're expecting higher depreciation levels close to $2 million higher than FY '25. And that's due to the fit-out of the CORIS manufacturing line in preparation for the go-live, obviously.

And it's also some depreciation associated with our U.S. manufacturing setup of the Sonics and CORIS consumable.

So around $2 million in additional depreciation in '26. In terms of the new property, we'll gain access to that property in probably April '26, and at which point we will have to incur some -- from accounting purposes, some costs on the lease.

That will be in the range of 600,000 or 700,000 for additional leasing costs in the '26 year. We'll also incur some CapEx associated with fitting out that property over the '26 and '27 year.

I'd suggest that, that will be in the range of $10 million to $12 million across the 2 years. So $10 million to $12 million in total.

And that will obviously then depreciate over the term of the lease, which is 10 years. So yes, a couple of new items.

Got it. And just overall, Jason, in terms of CapEx, how should we be looking about the broader sort of business CapEx profile across '26?

Yes. So in '25, we spent close to $9 million, and I expect in '26, it will be around $10 million.

And half of that will be due to the fit-out of the new building. And then the other $4 million or $5 million is kind of back to a normal sort of run rate of CapEx in the business.

And yes, I'd expect it to be about that.

Great. Michael, just a quick question for you around CORIS.

Obviously, we talked about the higher cycles per machine, within relative to trophon as well, it looks like the cycles there have also been increasing. Can you give us a bit of a feel for what you're seeing in terms of how the daily cycle across the portfolio trending both for trophon and what that means for sort of CORIS cycles as well?

Yes. I think it's -- on trophon, the cycles on average across 37,000 obviously, we're seeing a bit of improvement, and that's really driven more by procedural volumes increasing in ultrasound in general.

It's hard to compare trophon versus CORIS because 2 totally different things, of course. But the way to think about it is in ultrasound, not every ultrasound procedure requires high-level disinfection.

So where a trophon sits in a clinical setting, they may do 15 or more procedures, ultrasound procedures in a day, but only 3 or 4 of them require high-level disinfection. Whereas in endoscopy, every 1 of them do.

So when -- where CORIS is actually placed in an endoscopy reprocessing suite, every endoscope that comes in requires to be reprocessed. So you could have a threefold plus number of cycles going through a CORIS device than you will a trophon device.

And of course, whilst we've not disclosed the market yet, the price per cycle of consumables, the lower end cost of doing this cleaning today manually is in the order of $10. So we believe there is significant opportunity there for that consumable revenue coming through with CORIS.

Got it. That's helpful.

And then final 1 for me, just back to some of the upgrades, especially around the capital software upgrades. How should we think about what the potential uplift is there for revenue across upgrading the existing sort of trophon2 from a software perspective?

Yes. As I mentioned, first of all, we're going to be -- the software that's got to be loaded onto the machine.

And so they can connect their devices and we can try and download the software, but it will require some field engineers to support the upgrade initially. We're going to be very focused initially on the EPR upgrades, the pure capital upgrades from EPR to T3.

And so we're not looking at it or driving it as a highlight, certainly not in the first half, but we anticipate that we'll see growth in the second half. Now for some customers for -- that we just sold T2 to very late in the last financial year, obviously, we've gone in and upgraded those as part of their purchase.

And I can tell you that the feedback from those customers with respect to the upgrade is very, very positive.

Kind of following on that software angle, as we think about the annual, I guess, annuity stream per device, is there a SaaS component as well associated with the DICOM compatibility piece in addition to the cost of the initial software upgrades?

Yes. So there'll be an initial cost for the upgrade.

And then we expect an annual subscription for the DICOM connectivity in the cloud. So that may be in the order of -- it's rounded out at about $1,000 per annum.

Okay. That's really helpful.

And then in terms of CORIS, I think minimal expectations in F '26, but what sort of color and feedback can you give us around any sort of early demand, how your conversations with hospitals have been going, and kind of timing to some of those initial sites?

Yes. Obviously, we haven't been going out taking orders yet.

But the -- what we have been doing is a lot of education. We've had a lot of people through the clinical simulation labs.

What I can say is customers are those coming through, certainly understand the need and the problems that exist with the current methodology of cleaning. And you just look and you'll see it in the investor presentation, it's -- you're seeing increases in adverse events and those increases in adverse events, most of those are associated with risk of contamination.

And that's because these channels that still remain contaminated, especially the ones that they can't brush, whereas CORIS does all of them. So they're very impressed with the technology, what it does, and the results that it delivers.

What we want to do and what we're very focused on now is getting to this controlled market release, learn from that. And I think that will give us some really good indications as to what the demand profile may start looking like in FY '27.

Great. That's helpful.

And just 1 last one. You've kind of historically had a bit of an open mind towards the potential M&A into some new product lines.

Is this still something that's on the radar?

Look, we still have a very, very open mind. And as Jason said, cash generation this year was like $32 million, nearly double what it was last year.

And so that we've resulted in a cash balance of $161 million on the balance sheet. It's sort of a good problem to have, but we want to make sure that we're putting that to the best work as possible for our shareholders.

So M&A is low -- it's out there as long as we can identify an acquisition that makes sense. And to date, we have looked at various things, but it just hasn't made sense.

What I do expect, however, is that CORIS will actually open the door to more opportunities for us to look at because the value stream, when you look at it from an endoscope being from the time it gets used to the time it's ready to be used again, what happens along that full reprocessing value stream, there are a lot of elements in there. And just like we've built an ecosystem with our trophon business, I think through M&A, there could be opportunities for us to build up a good ecosystem of products around CORIS as well.

So I think CORIS may open the door for us, but of course, we don't want the tail wagging the dog, we get CORIS out there first.

My question centers around U.S. hospital CapEx budgets and incremental tightening we've seen over the last sort of 6 to 12 months.

I want to understand of what sort of proportion of your customers may be aligned with these comments? And then secondly, if that formed part of guidance for '26?

A lot of the capital budget constraints that we saw about over 12 months ago or so, we're not seeing -- customers obviously have continuing to be very prudent with our capital spend. But based even on the results that you're seeing this year, nearly 4,000 units sold overall, we're not experiencing major sort of distractions associated with hospital capital budgets at this stage.

That's not to say they won't come. Lots of changes with new builds coming through in the U.S.

with the big beautiful bill and Medicare and Medicaid changes, et cetera. But we're not seeing at this stage changes in patient volumes going through hospitals, and we sell that with our consumables.

Now if we do -- if we are faced with hospital capital budgets, at least with the trophon business and actually with more CORIS, we're in a very strong position to be able to offer a range of models. So as I say, that may be rentals, that grew a little bit last year.

We've got other sort of products like on it through service, but we recognize the revenue on those. There might have been 200 of those or so in the last 12 months.

But we recognize the revenue. But so we do have optionalities to help our customers out if they do have capital budget constraints.

But you're right, it's something that we have to be cognizant of, and we've taken that into consideration in our guidance.

Great. And just on trophon, you provided the business EBIT margin there.

Just looking forward to the new products as they sort of come online and penetration increases. Maybe just some color around the margin potential for that business unit?

On the trophon business, again, I think we would like to see again even further leverage coming forward and EBIT margin is improving even a little bit more. But 24% is a pretty good margin at this stage.

On the CORIS business, it's going to be the exact same business model and actual fact is probably going to be more weighted towards consumables. So once we get the relevant level of market penetration with CORIS, which will take a bit of time.

But once we get that level of market penetration, we do believe that the EBIT margins on a business like CORIS could be even a little bit better.

Michael, on your R&D spend 21% or 17% of your revenue spend on R&D in FY '25. Can you give us a bit of an overview of what's internal and what's external there?

And also, it appears that a number of your projects have sort of come to a logical conclusion. So what's next for your R&D budget?

The majority is absolutely internal. And the R&D spend that you see there is, that's the statutory reporting of R&D and is inclusive of a lot of things.

So all our biosciences, clinical, all of that's including, it's not just engineering. So we say that some of the things come to a natural conclusion.

I don't think when you've got a medical device, anything concludes because you're always going to have new generations, you're always going to have software upgrades. So I think, especially as we continue to move forward with our scope, broader indications, et cetera.

So we'll be still investing in CORIS R&D moving forward for a bit of time. Yes, the balance between what goes into CORIS versus trophon versus something that's new, that may all change.

But we are -- the general statement I would make is we are committed to ongoing internal innovation and -- but we're also committed to R&D as a percentage of revenue continuing to decrease.

And in absolute terms?

I'm not going to give a figure yet, but I mean, just like it went down from 19% to 17%, it could go down again to maybe another 2 points or so next year, we'll see.

Fair enough. And just on the CORIS device.

Have you given any initial consideration to how you're going to price this relative to the $11 to $37 estimated cost of reprocessing currently. What I'm getting at there is that is there going to -- are you likely to come into any resistance from hospitals with regard to taking on an additional cost over and above the current cost of reprocessing.

Yes. I think that there's many costs obviously, there's the pure financial costs, but we have -- the simple answer is yes, we have taken into consideration.

We're looking at the whole economics of it. We've just not announced that to the market.

And that $11 to $37 just gives people an indication as to the opportunity that's out there. But there are many costs building to what hospitals absorb.

So it's not just the time cost, the user cost, it's cost of absences. There's an awful lot in it, John.

And so we think we can -- that the price point that we're going to set it at is going to be an accessible price point. And -- but we've done research to actually confirm that.

But again, some of that will come out as we bring it out to market a bit more broadly.

Well, thank you again, everybody, for joining the call. As I said, summarizing, we believe FY '25 has been a really great year for the organization, both financially, operationally and set us up to hopefully deliver on another great result for you in FY '26.

I'm sure I'll be speaking to many of you over the coming days. Again, thank you all for joining.