Thank you for standing by, and welcome to the Nanosonics Limited 2022 half 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. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. Your speakers today are Michael Kavanagh, Managing Director and CEO, and McGregor Grant, CFO and Company Secretary. I would now like to hand the conference over to Mr. Kavanagh. Please go ahead.
Thank you very much, and a very good morning, everybody, and thank you all for joining the call this morning. I'm joined here by McGregor Grant, our CFO. Well, earlier this month, as part of the announcement on the revised sales model in North America, we did provide our revenue number for the first half being AUD 60.6 million, which was up 41% on prior corresponding period. In today's half year results announcement and the corresponding investor presentation, we provide more granular details regarding the performance over the first half. There is a lot of information provided, especially in the investor presentation, that I encourage you to have a look at. However, if I distill it down, there are really three key takeaway messages, I believe, from the first half results.
The first is despite the disruption in the markets associated with the Delta variant and most recently the Omicron variant that saw record high COVID case numbers, the business still maintained the positive momentum that we had achieved in the second half of the last financial year. That we were very pleased with that result. The second insight, I think, is that the COVID impacts themselves, they certainly varied in timing and severity across the different markets. Indeed there wasn't a predictable universal response to the situation. However, in general, what we saw and experienced was the market conditions improving between the first quarter, where the Delta variant was the predominant variant, and then the second quarter, which saw the emergence of the Omicron variant, even though there were spikes in case numbers associated with Omicron.
We saw an improving situation across the quarters. There did seem to be an acceptance that while Omicron was more transmissible, it was clinically less severe, and it also coincided of course, with vaccination numbers that were a lot higher than indeed booster vaccination rolling out. That's perhaps why we did start seeing some good recoveries between the first and the second quarter as well. Importantly, those improvements that we saw between the two quarters, they have continued into the start of the second half, where the market seems to be moving to a more endemic management versus pandemic management system with restrictions definitely easing significantly. Of course, we do have to remain cognizant of the general pressures that high caseloads of COVID have on hospital systems and on staff shortages within hospitals as well.
Hopefully we see that continue to improve. The third message really is that our forward-looking growth agenda, it has not changed. We continue to invest in the growth opportunities for the trophon franchise globally, which we believe is significant, as well as our product expansion plans, in particular, AuditPro, which was recently launched in North America, as well, of course, our next product platform, our CORIS product platform for endoscopy reprocessing, where development activities continue to progress well. I'll provide a bit more detail on each of these and then hand over for questions. Combining the first two messages together, I guess. The global installed base, it increased by 1,410 units to what is now 28,160 units globally.
That represented an increase of 12% over the last 12 months and 5% in the last six months. While the number of new installed base units in the half was down by approximately 200 units or so over the last half, this was mainly attributed to the first quarter installations, which I've mentioned. That was the quarter most impacted due to the Delta variant. There was a recovery in the second quarter. We saw a new installed base grow 14% quarter-on-quarter. As I mentioned, that positive growth between the quarters has continued so far into the second half.
Looking at that, the overall installed base by region in North America, the installed base there in the half increased by 1,200 units, where there's now 24,680 units in the market. That represents a 12% increase in the last twelve months and 5% in the last six months. That North American installed base, it now represents approximately just over 40% of the estimated total addressable market of 60,000 units. So that's about over 24,500 units spread across 5,000 facilities. It certainly is establishing itself, if not considered the standard of care and continuing to grow quite nicely over there.
In the Europe and Middle East region, the installed base increased 140 units in the half, where there's now 1,650 units. That in total installed base has grown 25% now in the last twelve months and just under 10% in the last six months. The first quarter in particular was significantly impacted, where lockdowns and hospital restrictions were in place in the majority of the key markets. Interestingly, we did see quite a significant recovery in the second quarter as those market restrictions eased. Almost 80% actually of the total new installed base in the first half was achieved in the second quarter.
Again, like in America, we are seeing continued progress, positive progress in terms of installed base in Europe as we're now into the second half. In Asia Pacific, the installed base grew 70 units in the half to where there's now 1,830 units in the region, where the total installed base has now grown 10% in the last 12 months and 4% in the last six months. I guess we were all living through the restrictions as we all faced over the six months in the first half here in Australia and New Zealand. We also had a good uptake of upgrades in North America in the first half, and where, as you know, there is a significant opportunity exists for upgrades.
There's now approximately 7,000 units of the older trophon EPR that have reached seven years of age, so they're certainly a high target for upgrades. In total, just under 400 upgrades were sold, which was up over 100, about 125% or so on the last half. Certainly the upgrade opportunity and upgrade sales are beginning to generate some momentum behind them. Moving on to revenue. Total revenue for the half, as you know, was AUD 60.6 million. That was up 41% on PCP, and we were able to maintain that revenue level the same as the last half, despite the adverse conditions with COVID. It was just slightly up on the last half.
Breaking the AUD 60.6 million in total revenue down, capital revenue for the half was AUD 19 million, and that was up over just over 100% on prior corresponding periods and 10% compared with the prior half. That capital revenue, of course, includes revenue associated with new installed base as well as upgrade sales. Total revenue for consumables and service for the half was AUD 41.6 million, and that was up 23% on the prior corresponding period, but slightly down 3% compared with the prior half. That 3% reduction, it does reflect obviously some disruption on ultrasound procedure volumes associated with the increasing infection rates from the Delta and Omicron variants.
Also this time around, we saw the impact of the Delta variant and Omicron variants impacting hospital staff availability, which I think has been in the commentary for most organizations. This was experienced in particular in North America. Looking at North America itself, the total revenue for the half was AUD 54.4 million. That was up 47% on PCP and just up 4% compared to the prior half. Capital revenue for the half in North America was AUD 17.4 million, and that was up just over 140% on PCP and up 20% or 23% compared with the prior half.
Again, that increase in capital revenue includes the ongoing increase in new installed base and the growth in the sale of upgrades, which demonstrates the importance and the opportunity that exists for upgrades which are now gaining momentum. Revenue associated with consumables and service for the half was AUD 37.0 million, which was up 25% on PCP, but as mentioned, it was 3% down on the prior half for the reasons I've already mentioned. In Europe and Middle East, the total revenue for the half was just under AUD 3.5 million. That was down 6% on PCP. That reduction was primarily associated with a reduction in capital revenue, as consumables was actually up slightly.
That reduction in capital revenue was due to the impact, again, of the restrictions associated with, in particular, the Delta variant, and hit mostly in the first quarter. Despite the Omicron variant coming in the second quarter, the restrictions did ease, and that the new installed base numbers recovered significantly in the second quarter, and almost 80% of the first half's new installed base was actually recorded in the second quarter. As mentioned, again, we're seeing good momentum continuing in Europe as we're now into the second half. Consumables and service revenue was AUD 2.6 million for the half, and that was up 24% on prior corresponding period, and just up under 10% compared with the prior half.
Where it doesn't seem that the ultrasound procedure volumes they don't seem to have been significantly impacted throughout the half, despite the actual restrictions that existed in the market. In Asia Pacific, the total revenue for the half was AUD 2.8 million. That was up 8% from prior corresponding periods, but it was actually down 32% with the prior half. Now, to explain that, the primary driver of the revenue being down in Asia Pacific was the one-off sale of the 200 trophon 2 upgrade units that took place in the last half. If we exclude upgrades, capital revenue in H1 of FY 2022 was actually flat compared to the prior half, which wasn't too bad considering again the restrictions everybody on the call would have experienced here in Australia in particular.
Revenue from consumables and service was AUD 2 million, which was up 5% on the prior corresponding period and just down about 5% as well compared with the prior half, again, associated with the restrictions and the impact of those on the ultrasound procedures. Overall, it remains pretty flat compared to last half when you exclude the upgrades. The third message was really our, a forward-looking growth agenda. It certainly continues, and we continue to invest in the growth opportunities for trophon franchise globally, which we believe are quite significant, as well as, of course, as our product expansion plans. In the first half, our operating expenditure was AUD 42.7 million, which was up 29% versus prior corresponding periods, and 13% on last half. As you will all be aware, the
When you look at the OpEx in the last half of last year, and particularly the last quarter, OpEx then was just over AUD 20 million. We were on the run rate that we exited the last half on. Included in that AUD 42.7 million was AUD 10.7 million in R&D, and that was up just over 40% versus PCP and 11% versus prior half. As you're aware, the company we announced the launch of AuditPro in the last half, which is a new infection prevention digital product platform that's used for traceability, reporting, and compliance. That was launched at the APIC conference at the end of June in 2021, with subsequent customer introductions to the product commencing around the September timeframe.
The first sales of that product have commenced, with the interest for the product and the pipeline for sales actually continuing to grow quite strongly. There are a number of new stakeholders in the sales process for AuditPro, and particularly IT departments, being a digital solution within the hospital, which all require customer security reviews. When hospitals are looking to order, we have to do some detailed customer security reviews.
While we have the necessary security measures in place from a data protection perspective, to streamline the process of responding to all the individual requests, we are now also working towards ISO 27001 accreditation, which is the internationally accepted standard for the management of information security, which will streamline the turnaround of the customer security assessment requests, as well as set the organization up for future developments in the data space of infection prevention, of course.
Progress certainly does continue in our activities associated with the company's new endoscope reprocessing product platform, the Nanosonics CORIS, and our continued performance with that technology continues to demonstrate the product exceeding all the standards for cleaning outcomes, including the most difficult soils and importantly, across all the complex channels of an endoscope. That product is progressing quite nicely.
We will continue our investments for growth in the second half across R&D, as well as the broader operations in the business, where the overall OpEx expected now for the year to be approximately AUD 93 million or so, including and that does include the extra investments we are making as a result of the revised sales model in North America. A few comments on some of the other key financial metrics. Gross margin for the half was 77%, which was a good outcome. The profit before tax was AUD 3.3 million for the half. That was up from AUD 0.2 million in the prior corresponding period. At the end of December, the company had AUD 92 million in cash and cash equivalents, and the company has no debt.
A few other quick updates then I'll hand over for any questions. First of all, new corporate headquarters, which we are moving to and preparing to move to a new headquarters in the Macquarie Park precinct in Sydney. This will take place in the fourth quarter of this year, and all the preparations for this move are all progressing well. The move itself is into two adjacent buildings, one that will accommodate our headquarters offices and administrative functions, and the other our R&D and manufacturing facility. What this move will result in is a significant expansion of our R&D capability with the establishment of new state-of-the-art laboratories in microbiology, chemistry, and engineering. It's actually going to deliver a threefold increase in capacity for ongoing research and development.
A significant expansion of the manufacturing capacity is also underway to support the growing global demand for trophon, and of course, the company's expanding product portfolio plans. We're very pleased that the growth of the organization has been recognized by the New South Wales government, and the move and expansion of our facility is being supported by a government grant through the New South Wales Government Jobs Plus program, which is facilitated by Investment New South Wales. A brief update on the transition to the revised sales model in North America that we announced two weeks ago. As a reminder, Nanosonics and GE, we have revised the current North American sales model, and that's effective now from February through to the end of the current distribution agreement with GE that ends in June this year.
Discussions are underway for a new reseller agreement that would come into effect from July 1, 2022, and be based on this new revised sales model. Under this revised sales model, what GE are doing now, they will consume all their inventory and transition to what's called a pass-through sales model for its ongoing sales of trophon. The revised sales model will see Nanosonics then manage all inventory. We'll ship, install, and train the new GE trophon customers, which will then become Nanosonics customers for the ongoing provision of all consumables. GE will also. They have currently commenced the transition of all existing GE trophon customers to Nanosonics for the ongoing provision of consumables.
What this means is from FY 2023, in addition to 100% of the sales of consumables to be made by Nanosonics direct operations, an increase in the proportion of new installed base and upgrades is expected to be made through the direct channel. Over time, this is expected to result in a corresponding increase in revenue and margin for the company. The transition plans are now well underway and progressing well. Nanosonics, we already have an extensive sales capability with 21 sales territories already established across the United States. Over 50 salespeople and clinical people across those territories, and we will add some new salespeople and clinical headcount into a number of those territories. Recruitment is already underway for those, and offers made in many cases, to those roles.
We feel confident of having the necessary sales infrastructure in place and in full. The company, we also have a very well-established and experienced logistics operation based in Indianapolis, which will ensure continuity of supply to customers. The current logistics facility in Indianapolis is over 20,000 sq ft. Increased warehouse capacity through new racking, et cetera, has already been implemented with the opportunity to expand capacity further if that is required. At this moment, we don't believe it is required. Finally, in terms of some updates to some of the guidance for the year, despite the inherent risks and uncertainties associated with COVID-19, we remain optimistic.
What seems to be a shift from pandemic to endemic management measures coming through now, that will continue to improve the market conditions and further enable increased capital and consumables growth to end customers. As announced two weeks ago, there will be a revenue impact of between AUD 13 million and AUD 16 million associated with the transition to the revised North American model. That is primarily associated with GE transitioning to a non-stocking distributor. As I mentioned, they're currently consuming inventory and then move to a pass-through. We do, however, expect installed base to continue to grow, procedural volumes to continue to improve, leading to further growth in consumable sales to customers and further growth in upgrades. We had a strong first half, and we expect to continue to see good upgrade growth again in the second half.
Albeit the sum of the anticipated growth that we will have for the second half will probably defer to FY 2023 due to the transitioning sales model in North America. We still expect to see good upgrade volumes coming through in the second half. The gross profit margin should be approximately 75%, and that takes the product mix and certain component costs and freight costs being absorbed due to ongoing supply chain challenges that the company is managing well. We're still able to manufacture and deliver in full on time to customer demand. We do have to manage, like all companies, the freight, and there are certain components where COGS have gone up, at this stage.
Operating expenses, as I mentioned, they are expected to be approximately AUD 93 million for the year, which does include the incremental costs associated with the transition to the revised sales model in North America. I'll pause there, and with that, I'll hand over for any questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Josh Kannourakis from Barrenjoey. Please go ahead.
Hi, Michael and McGregor. Thank you for taking my call. First question, just with regard to the OpEx outlook, could you give us a little bit of a feeling for the medium-term outlook for OpEx and just maybe some extra context around, within those numbers, how it's sort of broken up between maybe the core business and some new products and the transition costs as well?
Okay, Josh. Yeah, thanks. So the AUD 93 million or so or the first half OpEx, about AUD 10 million of that's R&D. If you annualize that, you've got the sort of proportion of OpEx split between R&D and OpEx and non-R&D OpEx. The significant proportion of our cost is related to headcount. You know, at least two-thirds of that. While we've seen a significant growth in OpEx between FY 2021 and FY 2022, which is really associated with growth and investment in our sales capability in Europe. So of course now some further expansion in North America together with investment into supporting developing the markets in China and Japan and so on. We're seeing a significant growth for FY 2022.
I don't expect that we will see the same level of growth into FY 2023, because we've made a significant investment during this period. I think the growth will be more modest than what we've seen in the, you know, what we've been seeing this year. And as I said, the majority of that increase is in, you know, in the front end of the business, within the regions. There is some, of course, some incremental cost in the back end as well.
Got it. Just on that, McGregor, in terms of, I guess, you know, CORIS and some of the new product initiatives around AuditPro, you know, is there any extra context you can give us a-around that in terms of whether or not the cost base is right sized, you know, to facilitate those products in market and how we should be thinking about, you know, the timing of potential other costs coming in relation to products like CORIS?
Yeah, I think, you know, when we get to bring CORIS to the market. Obviously, there'll be incremental marketing costs that will go with introducing and launch costs that will go with introducing a product to market, at that point in time. The channel model or how we go to market hasn't been disclosed at this stage. But you can imagine, you know, you've seen what we do around the world globally with trophon. So it's presumably may not be too dissimilar of having a hybrid model between direct and potentially distributor partners in different parts of the world. So there will be, you know, an incremental but not a wholesale, let's replicate what we're doing with trophon now for the introduction of a new product.
Fantastic. Thanks. Just final question for me, just around the cash flow. I imagine some of the increase in inventories and the like was related potentially to, you know, GE and stocking, you know, coming up for this half. Could you give a little bit more context and just how, I guess, you're thinking about into the second half, sort of cash flows into the second half in like light of the change in the revised GE agreement?
Yeah. Thanks, Josh. First of all, you would have seen, if you've seen the balance sheets, inventory holdings has increased somewhat since June, and that has been a deliberate decision on our part to carry more inventory, particularly in the field, as a contingency for the sort of interruptions in freight and so on. In terms of the inventory that we have in the supply chain to support the transition from GE to the direct team, we don't see a significant impact of that because the expectation is that the sales of new installed base and upgrades will continue to grow, and we'll need to carry inventory for that.
We may carry a little bit more ourselves, but I don't think it'll be hugely significant given that we are carrying quite a bit more inventory already in the field. I think that's probably, you know, how that one's going to play out. You asked a question about cash flow as well. I'll just touch on that. Clearly that growth in inventory has had an impact on cash flow. The other impact on cash flow in the half has been a bit of the CapEx that we've been spending on the fit out of the new headquarters.
Okay, great. Thanks, guys. I'll give someone else a go.
Thank you. Your next question comes from Joshua Ting from Bank of America Securities. Please go ahead.
Good morning, Michael and MacGregor, and thanks for taking my questions. I was hoping you could just speak a little about the new agreement and with Nanosonics taking over the customer relationship. If you could give us a little bit of color on how the strategy might change in relation to upgrades and how bringing that in-house to Nanosonics might be able to look to increase the upgrade rates.
Yeah. Look, thanks for the question. The majority of the upgrade opportunity that exists in North America are actually associated with existing GE trophon customers. The reason for that is we only went direct in North America about five-six years ago. So what's happening is, you know, one of the benefits of GE transitioning all the existing GE customers across Nanosonics for the ongoing provision of consumables is we'll be setting up the accounts, we'll be servicing those accounts, and we'll certainly be able to go in and drive the upgrades cycle and hopefully rate of adoption of upgrades amongst the customer group. What comes then for the company with that, obviously, is an improvement in margin as there won't be a distributor margin associated.
I mean, GE can still sell upgrades, but we just imagine that the focus won't be on that. It'll be more on new installed base associated with the sale of ultrasound. We expect to see the lion's share of upgrades coming through the Nanosonics direct channel.
Okay, great. Could you maybe just following on from that, give a bit of an idea of what the average age of the devices that have been upgraded so far is? I know you sort of referenced that seven-year mark. Is that the age that you are seeing in the last half?
Yeah.
It would be older?
No, probably around that, and some actually a few younger and some a bit older, but it probably does average around at that seven years. What's happening and why it's important for us to, you know, and having the direct access to all the GE customers is that quite a decent percentage. All of the new US sales that are being made now are into hospitals, are going deep into all the different departments within existing hospitals where trophon may be in one or two departments, but they've got four or five departments that should have trophon. We'll be going in and going deep within those accounts.
Of course, when we're selling deep into those accounts with trophon2, we go through all the other departments that have the old trophon EPRs to look to upgrade those. If they're at five years plus, you know, they would be considered for upgrade. On average, I believe at the moment it is probably around that seven years.
Great. Thanks. That's all from me.
Thank you.
Thank you. Your next question comes from Bosco Fang from Goldman Sachs. Please go ahead.
Hi, Michael and McGregor. Can you hear me?
Yes.
Hi, Michael and McGregor. Can you hear me? Am I coming through okay?
Yes, we can hear you. Yep, we can hear you.
Perfect. Awesome. Thanks for taking my questions. Can I just ask three today? The first one is, you previously guided to no disruption in consumables as a result of the revised sales model with GE in the U.S. Are you still maintaining that guidance today considering the contract negotiations that might have taken place in the last two weeks or so?
Yeah. What's really important here is that both GE. When we say no disruption in consumables, that's no disruption in sales of consumables to end customers. Both companies need to ensure continuity of supply so that they can continue their clinical practice and their high level disinfection requirements. Both companies are diligently working together to ensure that that does happen. We don't foresee any disruption in the ability to be able to supply either through us or through GE. It's a transition process. It's not like it just all switches overnight. GE have inventory of consumables, probably enough consumables to keep them going through a period of this half. Indeed, if the full transition isn't complete, after they've consumed those, they may need to purchase more if everything has been transitioned.
The general principle is really from a customer experience perspective to make sure both companies ensure the continuity of supply. We're confident with that.
Can I just follow up on that? In terms of the stock that GE is currently holding, can you give us a sense of how much stock they currently have, which is yet to be sold? 'Cause on the previous call, you expressed a lot of confidence with destocking with GE won't impact FY 2023 sales, given the revision in the sales model. Do you still hold that view today, particularly given how strong capital sales has been over the period with GE, again, accounting for 53% of that?
Yeah, no. What I said in the last call when we announced the revised is there is an impact, that there's a, you know, AUD 13 million-AUD 16 million impact, that will come through in this half. That is really associated with that destocking and where they're consuming their inventory of consumables, but then not replenishing. Normally they'd just be continually replenishing their inventory, keeping their safety stock at a high, at the proper levels. There is going to be an impact on revenue, to be clear, associated with that destocking.
Got it. No impact, no carryover impact into 2023. Is that right?
Correct. From 2023, one thing that's gonna be quite good about this is the revenue that is recognized then will be almost one-to-one equivalent to the revenue, the sales that are to end customers. There won't be that sort of inventory impacts that have always been there in the past.
Thank you. Your next question comes from John Copley from E&P. Please go ahead.
Hi, Michael, and hi, McGregor. Thanks for taking the questions. First off, I just wanted to follow on from the last set and just to round off my understanding on one of the key issues here. Are we to understand then that from FY 2023, Nanosonics will be able to meet all of the demand previously serviced by GE? Is that the upshot of what has been discussed today?
Correct.
A few weeks ago.
All the customer demand, yes.
Right. Excellent. Thank you for clarifying that. The other question was still on the GE side of things. You said over time. Then we'll see an uplift in the install base. In other words, growth in revenue, growth in the install base, and also an increase in margin. Is that expectation impacted, and how is it impacted by whether or not a pass-through sale agreement can be struck with GE?
It's not overly impacted as to whether or not pass-through sales, whether it goes through GE or not. Our intention by increasing the sales infrastructure that we have is we'll be able to return to that pre-COVID 28 to 3,000 new installed base number per annum. We're comfortable and confident that, based on the market demand and the infrastructure that we have in place, we'll be able to achieve that. Just to go back to your first point with respect to the increase in revenue. Because where that's coming from is because more of the capital units now, both for a new installed base as well as for upgrade, are expected to come through the Nanosonics direct channel, well, then we'd get the corresponding margin improvement on that as well.
Because GE won't be selling it and we'll be selling it at a higher ASP than what we had been selling it to GE at.
Okay. Are you able to quantify any of that margin benefit?
On an upgrade, you can imagine it could be somewhere in the order of AUD 1,500-AUD 2,000 and similarly on a new installed base. There's probably, you know, almost a AUD 2,000 uplift per unit, whether it's new IP or upgrades that would be coming towards them.
Okay. Sorry, perhaps I should have just clarified. What about in terms of gross margin in percentage terms?
The gross margin percentage will increase as a result of the increase in price. With gross margins, we've always talked about the capital sales being a gross margin of around about the sort of mid-60s%. That will most likely increase to something slightly over 70%.
Okay. Thank you. The final one from me, just on your OpEx and gross margin guidance. Probably a two-part question here. In terms of gross margin, you're guiding now to 75% for the year. Previously, I think that was greater than 75%. Can you just confirm whether I'm correct there in that thinking? And whether that implies then a gross margin second half, you know, obviously under 75%. Is that the expectation? The other side to that is on the OpEx front, the previous guidance was AUD 90 million. Then it was stated two weeks ago that there was an additional AUD 1 million expected. That brought us to AUD 90 million. But now this has increased again to AUD 93 million.
Can you just let us know where that additional AUD 2 million has come from and whether it will be one-off or we should capitalize that going forward? Thank you.
Yeah, sure. Just in the OpEx question. Yeah, a couple of things there. FX is having a bit of an impact on our OpEx numbers. It's working against us. We had previously guided around the sort of AUD 90 million-AUD 91 million. You know, when you take into account the extra AUD 1 million we've talked about, and the fact, the effect of FX in that, there really isn't anything else that's increasing on OpEx. The first part of your question, just remind me again, Tom.
Gross margin.
Gross margin. Oh, yes. Yeah, we did talk about it being over 75%. We weren't talking about it being, you know, 78%. We were talking, you know, just over 75%. 75% is where the number will land on a full year basis. The impact of margin, the things that are impacting margin will be in the second half. It's to do with the reduced sales we talked about. It's also to do with the ongoing increased costs around freight and our production volumes will be slightly impacted, and so we'll see slightly different recovery outcomes and component costs have increased a little bit as well. The combination of all of those factors are having us at around about 75% for the full year.
Thank you.
Thank you. Your next question comes from Josh Kannourakis from Barrenjoey. Please go ahead.
Hey, guys. Sorry. Just wanted to have a quick follow-up just with regard to the GE arrangement. In terms of the customers, one, I guess one key concern from people has been around you getting access to the individual customers. In terms of looking at the upgrades, if the service agreements are there in place and there's a number of these units for the past seven years, will you then take over some of the service arrangements? Does that point of communication, I guess, enable you guys to sort of force or at least bring forward some of those upgrades in the market?
No, I think the service continues currently. It will continue with GE, so they'll continue to provide service. We'll still be able to provide the necessary service parts to see out those contracts. As is customary, what generally happens is as units age, and then as they come up towards the end of a service contract, well, then that's when there's really a big opportunity to upgrade. Obviously, when we're directly talking to these customers, we'll understand where they are if they do have a service contract, where they are in that cycle of that service contract. Then we can be able to push the upgrades at that stage.
Got it. Just a bit point of clarification, in terms of the unit pricing that you mentioned, the uplift on the $0.5-$2,000, that's US dollars, I think, isn't it? Not AUD.
Correct. Yeah.
Perfect. Just wanted to clarify that. Thanks, guys.
Thank you.
Thank you. Your next question comes from John Hester from Bell Potter. Please go ahead.
Yeah, good morning. Thank you. Michael, just a quick update, if you would please, on Japan. You normally talk about that extensively. Where is that market development at?
Yeah, John, we're, you know, continuing to work with the various societies. Unfortunately, the last six months, Japan has been in a state of emergency, so most things have been in lockdown. Pretty much every conference I was scheduled after has been canceled. We have still been able to continue to engage with key opinion leaders. There are some guidelines that are coming out now where high level disinfection is beginning to be mentioned. We're very much looking forward to the markets opening up now in Japan and being able to get in there a lot more actively than we've been able to over the last six months. We have built up our infrastructure up there as well in the last six months.
We have put on some new headcounts, to give us the reach both in sales and in clinical, because education is critical up there. We're still confident in the opportunity in that market.
Okay. Just moving on, just talking about AuditPro. You sort of mentioned it briefly earlier in the call, and you said that, you know, various IT departments are getting involved and customer security assessment requests have been forthcoming. Can you just elaborate on those comments a bit? How many clients are you talking to about AuditPro at the moment? I'm just sort of trying to get a sense of whether we should be sort of building in a revenue expectation for FY 2023 here?
Yeah. Look, we'd like to see revenue certainly coming in in FY 2023. For us, the pipeline is, you know, for the product is certainly in the hundreds. Every day there are talk.
Ladies and gentlemen, this is the conference operator. We have temporarily lost our speakers. Please hold, and we will get them back on the line. Thank you. We now have the speakers back on the line. Your question is from John Hester from Bell Potter. Please go ahead.
Hi, John. Are you still there?
Thank you. Your next question is from Mathieu Chevrier from Citi. Please go ahead.
Good morning, Michael. Good morning, McGregor. Thank you for taking my question. Just had a quick one with regards to upgrades. Have you encountered customers who've decided not to upgrade or to no longer use trophon for any reason?
It's not about no longer using trophon. Some of the ones that we talk about upgrades, it's more about not a situation of not wanting to upgrade, it's about getting into the budget cycle. You know, we're confident that we can ultimately continue to grow the upgrade pool. It's just a matter of those customers ensuring that they've got the necessary funds built into their budget.
Yeah. Understood. Just while we're on that topic, what are you seeing from competitors? Are you seeing anything new? I mean, it's already been a few years now that this product has been launched, as you said, and it's, you know, going through an upgrade cycle now. Have you seen new competitors come along or anything to?
No, the competitive landscape really hasn't changed for many, many years across the different markets. There, there's no new products per se that exist that have not existed for many years. That environment really hasn't changed.
Okay. Thanks for that. Just finally, in terms of AuditPro, I guess John was trying to ask that question earlier. Perhaps what proportion of upgrade sales do you expect will include AuditPro? Is that something you're trying to tag along the upgrades? In terms of, you know, dollars, what could it look like relative to consumer-
Yeah. We're not directly linking AuditPro with the upgrades. It's sort of a standalone product in and of itself that certainly you require trophon, too. You know, when we're talking to customers about AuditPro and they once they understand the benefits of it, if they are using EPR, well, then obviously we've got to talk about upgrades to those customers. But at the moment, we're not really, you know, joining both of those products together. The overall opportunity for AuditPro, however, it should be.
It's almost, you should look at it like it's an ultrasound product rather than it's a trophon product, in that the AuditPro is designed to capture the data associated with every ultrasound procedure, and capture the information as to whether or not that probe requires to be low-level disinfected, high-level disinfected, sterilized, et cetera. In one sense, it should exist beside every ultrasound console as opposed to thinking about it being beside every trophon. It's really more an ultrasound product. That's how we're thinking about this. Therefore, over time, when you think of the volume of ultrasound consoles that are out in the marketplace, the ultimate opportunity for a product like AuditPro is actually quite large.
Yeah. In terms of the competitive landscape for that specific product, what does it look like?
There are quite a number of different track and trace type systems that exist out in the marketplace for instrument decontamination. Not that many, nothing really relevant in the ultrasound space and nothing really that has a built-in compliance and education component associated with it as well. Because what AuditPro does is, as I've mentioned before on previous calls and in previous presentations, there are over about 150 different ultrasound procedures that confer semi-critical status on a probe. What that means is if semi-critical status is conferred on a probe, well then it should be high-level disinfected.
What AuditPro does is in one sense ensures that infection prevention requirements are a forethought rather than an afterthought, in that the customer actually has to choose when knowing the procedures they're about to carry out, they have to choose whether that procedure is critical, semi-critical or non-critical. Then depending on what's chosen, if it's semi-critical or critical and they choose that, well, then it automatically links in the cloud to an associated trophon cycle. All that data then is centralized and which enables the customers to actually analyze and look at the data in real time from a compliance perspective.
Thank you. That's all I have.
Thank you. Your next question comes from Ngaire Groves, private investor. Please go ahead.
Oh, good morning. It's Ngaire Groves here. I'm a shareholder. Just a question about you said you were moving to Macquarie Park Precinct and you're doing R&D expansion in the areas of microbiology, chemistry, engineering. Just wondering if you could talk a little bit more about that, what you're actually gonna be researching.
You know, when the organization started, it was over in a number of small units in Alexandria, and then just over five years ago, we outgrew that and moved over here to where we are today in Lane Cove, which is in the old Coloplast Global Headquarters. Five years later, we've outgrown that from an expansion perspective and have now taken two buildings over in the Macquarie Precinct on Waterloo Road and Talavera Road. The expansion that we're doing is not just from a headcount, but in terms of the capacity with our laboratory size across microbiology and chemistry and all the engineering laboratories. We're going about a threefold increase in the actual capacity for in those laboratories, which then enables us to continue to expand our R&D efforts over time.
Can you hear me?
Yep, yep.
Okay. I was just wondering what you were going to be researching in microbiology, chemistry, engineering.
Again, they're interrelated disciplines. The, you know, the areas that we've discussed in the past that are our primary areas of focus are around instrument cleaning, instrument decontamination, storage solutions, environmental decontamination, and there's a whole data and traceability components as well of infection prevention.
It's all related to, you know, trophon-type stuff, would you say?
Not necessarily. Trophon in one sense in that it's an instrument decontamination unit, but like CORIS is a totally new technology platform and that's not related to Trophon at all. It may leverage some of the research, it may leverage some of the fundamental IP that we have in some of our existing technologies, or it might be around generating new IP.
Okay. Thanks.
Thank you very much.
Okay. I think we're on the hour, so, I think we'll call it there. I thank you all again very much for attending the call and, we'll continue to hopefully continue to grow internationally with, both trophon as well as expanding our portfolio. Thank you all very much.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.