Nanosonics Limited

Hello, and welcome, everyone, to the Nanosonics half-year results for FY26. My name is Catherine Strong, and I'm Head of Investor Relations and Corporate Communications here at Nanosonics. As we start the webinar, all participants will be in listen-only mode, and we'll have a presentation of the results from Michael Kavanagh, Chief Executive Officer and President, and Jason Burris, Chief Financial Officer. During the presentation, the management team will speak to a selection of the slides lodged with the ASX earlier this morning, which will display via the webinar. If you've joined by conference call only, you may prefer to join by the webinar in addition. The presentation will be followed by a question and answer session. If you wish to ask a question, you'll need to press the star key followed by the number one on your telephone keypad. I would now like to hand the call over to Michael Cavanagh.

Thank you very much, Catherine, and a very good morning, everybody, and thank you all for joining us. By now, I assume many of you will have seen and had an opportunity to have a quick browse through our first half results, which I believe demonstrates another really good and positive half both financially and operationally for the organisation. There's a lot of detail in all the materials that have been submitted, and before we get into some of those details, there really are a number of key takeaway points I'd like to highlight first. The first being the company does continue to deliver disciplined growth. You'll have seen revenue increase 9% versus PCP, while operating margin expanded 27%. driven by disciplines cost growth of just 4%. Our recurring revenue from consumables and service continue to grow and all of that's underpinned, of course, by continued expansion of our installed base of the Trofon devices. And you'll have seen that upgrades now are also becoming quite meaningful to our growth. In fact, in the half, we delivered 20% total unit installation growth in the half, and that reflecting both strong new installed base placements and a record level of upgrades in North America. This performance highlights sustained customer preference for the Tropon solution, and it is worth pointing out that in the first half, the majority of the upgrades worked actually to Tropon 2. noting that our next generation platform, the TROPON3, was launched midway through the period and that many of the units in our pipeline were well progressed in the budget approval process. So they stuck with the TROPON2. While this mix together with large volume deals moderated the average selling prices in the near term, these Troll Fund 2 installations, they can certainly meaningfully continue to expand our recurring revenue opportunity base and certainly positions as well for software-led value capture over time because those Troll Fund 2s now have access to Troll Fund T2+, which effectively gives them the opportunity to upgrade with software to the Troll Fund 3 platform. Hence why many of them decided to go with their trope on to based on where they were at in the budget approval process. The chorus commercialization, that's progressing as planned with key milestones during the half being met. And you will have seen our announcement on Friday about the commencement of the controlled market release in the UK, which, of course, marks a really important milestone and, of course, more to follow in the not too distant future. And finally, we reaffirm our guidance for the full year. We expect continued growth in core consumables and services alongside ongoing growth in capital unit volume. So we reaffirm our guidance for the full year. So before we get into some of the details, I think as a brief reminder, and certainly for those of you who may be new to this story, the nanosonics, you know, every year, our technologies help protect millions of people globally from the risk of cross-consumination through our leadership in our ultrasound probe reprocessing through our TROFON platform. And with just over 38,000 TROFON devices installed worldwide, we now continue to see the power of a large and growing install base driving recurring revenue but also capital revenue as well as we continue now driving upgrades and continue to deliver value to our customers. And at the same time, with our innovative Endoscope cleaning device, Corvus, so now entering the phase of commercialization, We believe that we have a compelling opportunity to extend this proven reprocessing and automation expertise into the end scope reprocessing and hopefully unlock a significant new growth avenue for the business. Moving on to a quick overview of some of the financial highlights. The first half delivered very solid operating performance, generating revenue of 102 million, and that was up 9% compared to PCP, or 8% in constant currency. And this outcome reflects continued momentum across both our recurring and capital revenue streams. As we predicted and outlined at our full year results in August, gross profit margin percentage, it did moderate a bit down to 76.3% for the half, and that was driven by tariffs But also we did have some increased air freight and the product mix between capital and consumables as we're seeing that capital and particularly upgrades beginning to kick in. But importantly, those impacts on the gross margin were anticipated and managed within our broader financial framework. And in doing so, we maintained a disciplined approach to cost management and operating expenses increased by just 4% to 69.5 million. And that's also important that we continue to invest to support our ongoing growth strategy across R&D and our key growth priorities for the business. This operating leverage, it translates into a 27% expansion in operating margins for the business and with operating profit reaching 8.5 million. EBIT on a consolidated basis was 8.4 million, and that represents a 3% decline on a reported basis. However, on a constant currency basis, EBIT actually increased 15%, and that does demonstrate the strong underlying performance of the business. The constant currency view, of course, takes into consideration the impact of foreign currency movements in the first half, where there was a net loss of 0.7 million versus a gain of 1.3 million in the prior corresponding period. So there was a $2 million swing in the realized net foreign FX movements. Similarly, profit before tax, that was 8.4 million, which was an increase of 30%, actually, at constant current. So I think overall, these results, they do highlight the strength and the resilience of our overall business model with revenue growth and disciplined cost management translating into meaningful earnings for the half. But it's not just about the financial performance. The first half also saw strong operating progress across innovation or operations and digitalization with each initiative reinforcing the foundations for sustained growth into the future. The slide that you'll see just shows a selection of some of the achievements in the half. And from an innovation perspective, as you all know, we advanced the Trofon platform with the launch of the next generation Trofon 3 and the Trofon 2 software upgrade halfway through the period. And that's helping and will continue to help capital sales growth volume moving forward. We also achieved important milestones with Chorus, securing our regulatory registrations across Australia, Europe, and the UK, and making important steps towards the phased commercial role of the product. In addition, we submitted our first 510K application for expanded scope indications. And again, that further strengthens the long-term growth pathway for chorus. And that 510K is currently under review by the FDA. Operationally, a couple of important achievements as well. In the first half, we secured and signed for a new headquarters site. And that move is planned for around April 2027. And this new headquarters, which also includes an expanded manufacturing and technical facility, that will significantly strengthen our global operating backbone, really, and position us to scale efficiently as the business continues to grow. And importantly, in the half as well, we also appointed new leadership talent to lead key parts of the business through our next phase of growth. That includes a new regional president for North America, Bill Hayden, as well as a new chief marketing officer and head of Asia Pacific, Kimberly Hill. And finally, we made meaningful progress also from a digital perspective, so successfully implementing and launching the new ERP system and going live with our cloud-based traceability solutions. And these cloud-based solutions, initiatives, they really enhance visibility, efficiency, and customer engagement while creating a strong digital foundation to support future growth. So overall, I think that the progress we made in the first half reflects the business that's executing well. We're investing with discipline and also continuing to build capabilities. to deliver ongoing scalable possible growth over the long term. But I'll hand over now to Jason to go through some of those financials in a little bit more detail. Jason.

Thanks, Michael, and good morning, everyone. On this slide, you can see the continued strength of our core business model. We ended the half with 38,080 devices in the global installed base, up 6% on the prior corresponding period, reflecting sustained momentum in new installed base devices. That expanding footprint is fundamental to how we grow the business and, importantly, how we protect patients. Today, that installed base supports the protection of approximately 29 million patients each year. This scale is translating directly into recurring revenue growth. Recurring revenue increased 9% on PCP, driven by solid performance across consumables and service. Poor consumables grew in line with the installed base, ecosystem consumables continued to expand, and service and repairs grew strongly at 24%, reflecting deeper customer engagement and the maturity of the fleet. Spare parts, as you can see, declined 23% on PCP, largely due to customer inventory dynamics and lower replacement requirements as more customers upgrade to newer generation systems. Moving on to the installations, this highlights the strength of our installation activity in the half and the quality of the demand we are seeing across our customer base. Total installations increased 20% on the prior period to 2,070 devices, reflecting continued momentum in new placements and, importantly, a record level of upgrade activity in North America. That upgrade cycle is a key driver of our long-term value creation. It refreshes the installed base, extends customer relationships and supports recurring revenue through consumables, service and our new connectivity offerings. As Michael mentioned during the half, the majority of these upgrades were to Trophon 2 devices. Remembering that Trophon 3 was launched midway through the period and customer budget approvals for Trophon 2 upgrades were already well progressed. Capital revenue growth was 9% on the previous period to $26.5 million and a half. This included several large-scale upgrade agreements, and the capital revenue growth reflects volume-based pricing, which saw a slightly lower average selling price for Trofon. Importantly, these Trofon 2 upgrades are expected to underpin software-led value capture over time with the Trofon 2 Plus software offering. Turning to the P&L, we continue to demonstrate strong operating leverage with operating margin growing faster than revenue, reflecting the ongoing discipline in how we manage and scale the business. As Michael already mentioned, total revenue grew 9%, reaching 102.2 million for the half, with growth in both recurring and capital revenue. Gross profit margin was 76.3%. This, as expected, is down 2.2 points on the prior year, reflecting the impacts of tariffs in the U.S., and some headwinds on air freight and product mix impacts. At the same time, we maintain tight operating expense discipline, with OPEX growing just 4%, well below revenue growth, while continuing to invest in our priority areas, including R&D. As major development programs mature, R&D has stepped down as a percentage of revenue, demonstrating increasing efficiency while preserving our commitment to innovation. EBIT was $8.4 million, down 3%. The decline in reporting EBIT reflects FX movements with a net FX loss this half versus again last year. On a constant currency basis EBIT improved 15%. I'll just take a moment to expand a little on that last point. In H126 EBIT was impacted by an FX loss of $0.7 million. This relates to the revaluation of non-Australian dollar asset balances, mainly US dollar asset balances as of 31 December 25. The loss was driven by strengthening Aussie dollar versus US dollar to 0.67 or approximately 2%, the majority of which is unrealised FX losses. Profit before tax was 10.6 million, down 3%, but again, up at constant currency plus 13%. Improving operating leverage. On this slide, we're showing the way in which we're driving operating margin expansion through gross margin and cost control. Gross profit margin grew by 6% to $78 million. At the same time, we maintained tight operating expense discipline with OPEX growth held to 4%, well below revenue growth. while continuing to invest in our priority growth initiatives. This combination delivered meaningful operating margin expansion, with operating margin increasing 27% to $8.5 million and a half, demonstrating our ability to scale the business, manage cost pressures, and continue to expand margins through disciplined execution. We continue to separate out the Trofon-only business, highlighting its strength and scalability. The Trofond-only business delivered operating margin of $25.6 million, representing 20% growth on the prior period. This business also delivered 9% EBIT growth. Importantly, operating margin as a percentage of sales expanded to 25%, up from 22.9%. This demonstrates the operating leverage inherent in the Trofond business model, with high margin recurring revenue continuing to scale efficiently as the installed base grows. The Trofond business also continues to generate significant cash, providing funding capacity for working capital, ongoing investment in Corus, and our broader long-term growth strategy while maintaining strong financial flexibility. And with that, just turning briefly to cash and the balance sheet. During the past, cash flow was a modest outflow of about $1.4 million, which reflects our planned investment in inventory as we ramp up for Corus. continued investment in the Corus investment system and the commencement of our share buyback. It also reflected the timing of receivables, which we've seen already improve in January. We've executed around $4 million of our buyback and expect to resume following the blackout period in the coming days. Importantly, we remain debt-free with a strong cash balance of $159.8 million, providing flexibility to fund growth initiatives, support Corus commercialisation and and continue disciplined capital management. I'll now hand back to Michael. We'll talk briefly about our growth drivers for the Trofon business, provide an update on Chorus, and take you through our reaffirmed financial guidance for 2016.