Nanosonics Limited

Hello and welcome everyone to the Nanosonics FY26 four-year results investor briefing. My name is Catherine Strong and I'm Head of Investor Relations at Nanosonics. Today's presentation will be led by Michael Kavanagh, Chief Executive Officer and President, and Jason Baris, Chief Financial Officer. Management will speak to a selection of slides that were lodged earlier this morning with the ASX. The briefing will be followed by a question and answer session. If you wish to ask a question, please press star followed by one on your telephone keypad when prompted by the operator. I would now like to hand the call over to Michael Kavner. Please go ahead, Mike.

Thank you very much, Catherine, and good morning, everybody, and thank you all for joining us today. But by now, many of you will have seen the FY26 results. And there's a lot of information contained in the materials that were lodged this morning. But before we get into some of that detail, there are a number of key takeaway messages I would like to highlight. The first, I think, is on a constant currency basis, which, of course, provides a clear review of the business's performance, the FY26 results demonstrate a solid outcome. with constant currency revenue up 6% for the year and EBIT up 21% and that's supported by I would think we will have seen disciplined cost control whilst of course we continue to invest in our future growth. The second point is the Tropon Only business. It delivered its strongest placement performance in three years with over 4,200 units placed during the year and that involved expanding the cumulative installed base to more than 39,000 devices out there today, and also achieving record upgrade activity in North America. And also we successfully launched our next generation technologies, the Tropon 3 and the Tropon T2 Plus. Importantly, the Tropon-only business eBit for the year on a reported basis delivered $50.6 million in EBIT. Our inconstant currency was up 16% to $56.5 million. And that continues to demonstrate the strong profitability, cash generation, and operating leverage that we are getting from the Tropon business. The third, and importantly, is Chorus continues to plan with key regulatory approvals achieved. control market relief activity advance across our launch markets. And you'll be pleased to know that the commercial launch is now planned for this half in FY27. And I would say with that, with the upcoming launch of Chorus, the company is now certainly entering what we consider a defining period of new growth as we now move from a single platform to becoming a multi-platform infection prevention company. And we definitely enter FY27 from a position of strength with Trofond continuing to generate strong profits and cash. We've got a debt-free balance sheet and the flexibility to invest in Chorus whilst of course you would have seen this morning the announcement that we're returning further capital to shareholders with a 40 million buyback. So turning then to some of the details, well, reported revenue was just under 204 million, 203.9 million, and that was up 3% on PCP. However, at constant currency, revenue was 211.5 million, and that represented 6% growth. Of note, probably a point to call out here was in Q3 of the year, We did experience a bit of softness in consumables and that happened to coincide with the severe weather events that took place in the northeast of the United States that many of you would have seen the reports on. It was all over the news globally at the time. We saw that result in lower traffic to the hospitals. and we actually also saw that in terms of our shipments to that whole region, our shipments of consumables were down. But importantly, it's not structural that the consumable volumes did come back up in Q4. Also in that third quarter, we did expect a bit more Tropon-3 versus Tropon-2. You remember in the first half, the balance was towards Tropon-2, which is a lower price than Tropon-3. And whilst the Tropon-3 did grow in the third quarter, there was still a decent percentage of Tropon-2, which moderated the ASP a bit. But again, importantly, in Q4, the Tropon-3 became the dominant device, and we're seeing that going into this year as well. So ASP did come up. So that did impact a little bit. So it was more some transitionary impacts that we experienced during COVID. Q3 rather than anything structural. The gross profit margin for the year was 76.9, and the 1.3 point moderation from FY25, that reflected the product mix because we had those record capital unit placements, and the capital unit gross margin is lower than consumables. but also we had the currency movements. But on a constant currency basis, the gross margin is still a very healthy 77.6%. Operating expenses for the year, very well controlled without compromising our growth investments. And they just increased 2% on a reported basis and 4% at constant currency basis. So together all of those delivered a reported EBIT of $16 million for the year, or $21.6 million if you look at it on constant currency, which was up 21% on prior year, so operationally a good performance. It is worth calling out, I think, the strength of the Trophon-only business, and it is a continuing feature of the Nanosonics results. The TrollFund franchise, and Jason will cover this a little bit later, it continues to generate strong profitability and cash flow. And the reported EBIT for the year for the TrollFund only business was just under $51 million or just under $57 million in constant currency, which was up 16% on prior corresponding period. So in short, the TrollFund definitely remains a highly profitable engine. that gives us the flexibility to fund chorus, maintain a debt-free balance sheet, and continue investing for the long term. FY26 was also a year of important operational delivery across the whole business. I've mentioned some of the highlights already, but it's worth touching on a couple of them on the overall progress. So across the Trophon franchise, we launched Trophon 3 and Trophon 2 Plus. That was launched halfway through the first half, and we saw adoption of these new innovations increase in the second half, and particularly in the fourth quarter. The overall global cumulative installed base, that grew 6% to 39,213 units. And importantly, that represents the protection of approximately 31 million patients on an annual basis from the risk of cross-contamination. Upgrades, they continue to perform very well, up 20% for the year. And importantly, upgrades were up 32% in North America. And there are still over 8,000 older first-generation Tropon EPR devices remaining in North America to upgrade, so still a significant opportunity moving forward. For Chorus, we made important regulatory and commercial progress during the year, including clearances across the UK, Europe, Australia, and the first FDA 510K clearance for the first round of expanded scope indications. And that second 510K is currently in with the FDA and undergoing the review process. And as mentioned earlier, we move into commercial launch this first half. We also then to support a lot of this, we continue to strengthen our operations throughout the year. And in addition to establishing a dedicated chorus device manufacturing line in Australia, we did expand our US Indianapolis facility and have now started the manufacturing and distribution of Trofons core consumables from our local manufacturing facility in Indianapolis. and the Corus Quantum consumable line that's now in place also in Indianapolis and ready to go. I should also mention that in Q3 this year, we will be moving our corporate headquarters, manufacturing and laboratories to a new facility quite close to where we already are in Macquarie Park. And that's all to support our next phase of growth. and during this year, FY26, we did have that site registered. All the regulatory approvals for manufacturing were achieved. All the capital works now are currently underway, readying for that Q3 move. So quickly, just briefly back to the Troll Fund business. As I mentioned, the total Troll Fund unit placements were 4,230 units. So that's up 9% on the prior year. And that does represent the strongest annual placements that we've delivered in three years. And of the total placements, the cumulative installed base increased 6% to 39,230 devices, and there were 2,230 new installed base units added during the year. Mentioned already, the upgrade, the record year, 2,000 units, but the majority of those, in fact, 1,980 of them in North America, and that was up 32%, and we expect ongoing growth over there. So, overall, a very strong year for total unit volumes. Before I hand over to Jason to go into some of the financials in a bit more detail, I do think it's worth noting that with the imminent commercial launch now of Corus, We believe that nanosonics is now entering an exciting new phase. With Chorus, we have the opportunity to apply the proven commercial foundations we've built through Trofon. That includes our customer relationships, our sales and service capability, regulatory clinical expertise that we've developed, our manufacturing capability, and of course, the proven recurring revenue models. to a second highly significant infection prevention opportunity. So while the Chorus is a new platform, I believe we are launching it from a position of strength, and we certainly do believe it has the potential to become our second transformational growth platform, an important driver for long-term value for nanosonics. But more on this a little bit later. So I'll now hand over to Jason to take you through some of more of the details around the financials.

Jason. Thanks, Michael. As you said, I'll take you through the more details of the FY26 results. For Nanosonics, FY26 was a year of solid earnings growth at constant currency and a disciplined operating expense performance. EBIT grew 21% at constant currency, supported by revenue growth and disciplined operating expense control. We also continued to see operational leverage in the trophon-only business. At the same time, we invested in Corus, which we believe will become a second growth engine for our business. And we also returned $20 million to shareholders through the buyback, with a further buyback announced today of up to $40 million. Turning to the P&L. Our revenue was $203.9 million, up 3% on a reported basis. and 6% on a constant currency basis to $211.5 million. Gross profit margin was 76.9%, moderating by 1.3 points. This reflected product mix and the impact of the stronger Australian dollar against the US dollar. At constant currency, gross profit margin was 77.6%, which is only 0.6 points lower than last year, and as Michael said earlier, is primarily associated with increased capital unit sales. which is obviously a positive thing for the long term benefit of the business. We recovered $2.5 million in US tariffs paid under the International Emergency Economic Powers Act up to February 2026. These are included in our FY26 financials. Our residual FY26 tariffs, i.e. the ones that affected the P&L, were $0.6 million. making them comparable to FY25 when we paid $0.5 million. Operating expenses were $141.4 million, up 2% on a reported basis and at 4% at constant currency, reflecting discipline cost management. And of course, within the OPEX, profond costs were $106.8 million, down 1%. While the investment went into chorus, which increased the OPEX spend by around 13% to $34.6 million as we continued to prepare for launch. The OPEX of course included R&D which continued to ease as a percentage of sales from 17% in FY25 to 16% in FY26 as the new Tropon technology arrived in the market. EBIT was $16 million on a reported basis or $21.6 million in constant currency. a 21% increase in constant currency terms. Looking specifically at capital revenue, we report growth of 4% to $54.7 million, or 8% in constant currency terms. The result was primarily driven by higher volumes, with North America remaining the key growth driver and delivering record placements, including record upgrades. Pleasingly, average selling price strengthened through the second half of the year, as Trofon 3 became a larger proportion of sales. We also saw Trofon T2 Plus software upgrades contributing more strongly in Q4 and we expect this momentum to continue into FY27. Moving to annuity revenue. On this slide we share the growth in annuity revenue. To refresh you, annuity revenue is recurring revenue less spare parts. which has become a suitable metric for nanosonics because it provides a clearer view of the underlying quality, resilience and growth of the recurring revenue base. Annuity revenue grew 4% on a reported basis to $141.8 million or 8% growth at constant currency. Poor consumables, which are the tropon disinfectant and chemical indicators used in every cycle, were up 4% at constant currency. Ecosystem revenue grew 6% at constant currency, and the ecosystem products include the wider range of Trofon workflow products, including probe covers, cleaning wipes and other consumables. Service revenue grew 19% at constant currency, growing strongly as more customers adopt the service offerings associated with both Trofon 2 and Trofon 3. Service includes preventative maintenance, support contracts along with our pay-as-you-go customers. Their parts moderated, as expected, as customers upgraded to newer Trofon systems and the record result of upgrades in North America. Looking at our regional performance, North America had record total placements and upgrades in FY26. We placed a record 3,880 devices this year, up 13%. The growth driver was upgrades, with 1,980 units, up 32% on the prior year, while new installed base continued to grow, adding 1,900 units. Upgrades will continue to represent a significant opportunity for nanosonics in North America. As Michael said earlier on, there are approximately 8,000 original EPR devices remaining for potential conversion. The new installed base additions lift our cumulative installed base in North America to 34,210 devices, up 6%. And of course, Every device is a multi-year stream of consumables, ecosystem and service revenue, so a larger base directly expands the annuity foundation. Reported revenue for North America was $186.4 million, up 3% or 8% of constant currency, showing the underlying demand remains strong in that region. Reported annuity revenue reached $126.8 million, up 4%, or 9% at constant currency. With annuity revenue within, core consumables grew 5%, the service business growing 19%. Both of these are constant currency numbers. Reported capital revenue was $52.3 million, up 6%, or 10% at constant currency, driven by the record placement activity we've just discussed, and as already mentioned, the improved capital pricing in the second half as Trofon 3 became a larger proportion of sales, and increasing the uptake of Trofon T2 Plus upgrades in the fourth quarter. Spare parts, which are not part of annuity revenue, were $7.3 million, down 21% or 19% of constant currency, and we expect that to continue to moderate as customers upgrade to newer Trofon systems. Overall, North America continued to be a strong performing region for us. In EMEA and APAC, we continued to grow the cumulative install base. Turning to EMEA, our cumulative install base grew 8% on the prior years of 2,630 units with the addition of 200 new units, consistent on last year. In this region, the majority of the original TROFON EPR fleet has already been upgraded. Reported annuity revenue rose 7%. while total revenue grew 1% to $12.3 million, driven by a moderation in capital revenue. Capital revenue was softer because we saw a greater proportion of managed equipment service model versus capital purchase model in the UK compared to last year. As a reminder, units purchased under the MES model have no upfront capital revenue, so the capital value is built into a higher price for the consumables. Turning to APAC, New installed base devices grew by 130 units, up 44% on the prior year with a good contribution coming from Japan. This increased the cumulative installed base to 2,390 units, reflecting 6% growth. Total units placed of 150 included 20 upgrade devices in a region where the majority of EPR units have already been upgraded. Reported revenue in APAC was $5.1 million, down 14% on the prior year. Annuity revenue was $4.2 million, also down 14%, while capital revenue was $0.9 million, down 18%. The capital softness was driven by a placement mix, particularly in Japan, where the majority of units were placed under a rental model. Annuity revenue also softened, however we believe our next generation Trofon offering is compelling. and further strong momentum in device sales will help support annuity revenue going forward. Nanosonics remains in a strong financial position. We ended FY26 with $155.2 million in cash and cash equivalents. Business cash flow, which excludes the funds spent on the share buyback, was $13.6 million, reflecting strong cash generation from Profile, while at the same time funding Corus commercialisation, an increase in inventory to support Trofon growth, and the Corus launch. We also completed a $20 million share buyback in FY26 to return capital to our shareholders. And as Michael mentioned, we announced a further buyback of up to $40 million in fiscal year 27. This, we believe, is an attractive and efficient way to return capital to shareholders while preserving their capacity to invest for long-term growth. Before I hand back to Michael, I think it's important to highlight the strength of the Trofon-only business, central to our growth strategy due to its earnings power and strong cash generation. The Trofon-only business EBIT of $50.6 million was up 5% or $56.5 million in constant currency terms, up 16%. The strong financial profile of the Trofon business is what enabled us to invest in Chorus, continue innovation and maintain the balance sheet flexibility that we have. This covers the financials. Michael, I'll hand back to you to talk more about Trofon and Chorus and our guidance for fiscal year 27. Thanks very much Jason.