Thank you for standing by, and welcome to the Nanosonics Limited 2024 full year results 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. I would now like to hand the conference over to Mr. Michael Kavanagh, Managing Director and CEO. Please go ahead.
Thank you very much, and a very good morning, everybody, and thank you all for joining this morning. I understand how busy everybody is this time of the year. I'm joined today by Jason Burriss, our CFO, who you will hear from shortly to take you through the details of the financial results for the year. But before that, I think while the impact of the hospital capital budget restrictions on our capital sales in the first half are well understood, a central theme for the full year results, I think, is the turnaround in performance in the second half over the first half.
We saw our second half revenue of AUD 90.4 million, up 14% on the first half, and of course, then that was, part was driven by our total capital unit sales were actually up 24% in the second half over the first, with capital revenue up 20%. So while the hospital budget constraints, they remain, the requirements for infection prevention has not changed, and together with the underlying positive fundamentals for infection prevention and importantly, a growing pipeline, we're pretty confident that the return to a growth profile that you saw in the second half, will continue into, this current financial year, as indicated in our business outlook, where we're targeting revenue growth to be in the range of 8%-12%.
This growth will come from ongoing growth in capital units, together with growth in our high-margin recurring revenue, and I'll come back to details of our outlook a bit later. As usual, we have provided a lot of granular detail, especially in the investor presentation, which you can find online. However, there are a number of key important takeaways or insights I'd like to draw out from all the detail, and the first one really is that the growth opportunity for trophon remains significant across all regions, and there are really two aspects to this.
First of all, we've successfully positioned trophon as a standard of care in several major markets already, and although the adoption fundamentals vary by region based on where they are today in terms of their guidelines, we do anticipate that the global demand for automated high-level disinfection of ultrasound transducers will actually grow. In that context, trophon does stand out as the most advanced and proven solution available to meet this need. The second aspect to this growth opportunity is in North America, which is our largest market, and trophon has reached a significant milestone by reaching 50% penetration of the estimated 60,000-unit TAM.
We certainly have strategies in place to access the remaining 50%, and that'll come through ongoing penetration into the many relevant departments in each hospital that use ultrasound, of which there are many, as well as accessing the private physician office market through a number of specialized channel partners that we have established. The second takeaway, I would say, is that beyond our investments in the longer growth agenda for the business, the trophon business alone is highly profitable. And the trophon business itself, excluding the non-trophon costs, delivered profit before tax of AUD 40.4 million in FY 2024, or 24% of sales. And you'll find a P&L of the trophon-only business in the investor presentation.
As I mentioned, that this P&L excludes all investments outside of trophon, such as CORIS and non-trophon R&D, but it does include some one-offs, such as our investments in the new ERP system, where we did invest approximately AUD 1 million in the last 12 months. So those costs, albeit one-off, are allocated to the trophon business. Looking ahead, we do expect further positive leverage, operating leverage, coming through in that trophon-only business. Of course, Nanosonics is not just about trophon. We, it is about infection prevention and instrument reprocessing. CORIS , representing our next transformational technology, it does represent a significant opportunity, and we are confident in our ability to establish a new standard of care in the important cleaning phase of endoscope reprocessing, because the...
really because of the criticality of the problem that CORIS is designed to solve. And I wanted to recognize that the key milestone reached at the end of April with the filing of the FDA De Novo regulatory submission for CORIS. And then final takeaway, I guess, is that the company does generate strong free cash flow and has AUD 130 million in cash and cash equivalents to support ongoing investments in our long-term growth agenda. And we will continue to invest in R&D, although at a lower percentage of revenue moving forward. But as part of our product expansion strategy, we do remain open to opportunities with industry partners and potential acquisitions as part of our product expansion strategy. Of course, that would align with our goal of transforming medical device reprocessing.
So moving on to some of the details in the results, and then I'll hand over to Jason. But first of all, on installed base, you will have seen that the global installed base increased by 2,300 units in the year. So, and that's an increase of 7% in the last 12 months, where there's now just under 35,000 trophon units in operation around the world. And importantly, that equates to about 27 million patients being protected against the risk of cross-contamination on an annual basis with the trophon technology.
In North America, the total install base grew by 2,000 units, so that was up 7%, whereas I mentioned, we're at about 50% of the TAM, so there's just over 30,000, 400-odd units, in operation in North America. But importantly, there's over 270,000 ultrasound devices in operation in the United States alone. And so the growth opportunity still remains significant for trophon. And in terms of how we see the opportunity, it can roughly be split two-thirds in the hospital market. This is the remaining 30,000, two-thirds in the hospital market and a third in the private physician market. And we have strategies, in place to access the opportunity in both segments.
For the hospital market, where our direct team are focused, there are approximately 5,700 hospitals that use ultrasound in the United States, and trophon is now operating in at least one department of those in a significant percentage of these hospitals, but in addition to accessing the hospitals that have not yet adopted automation as in trophon, there's also significant opportunity to access the many departments within hospitals that use ultrasound, but have not yet adopted trophon. And in many cases, that's due to lack of awareness. And today, approximately 60%-65% of our new installed base sales are into existing hospitals. In other words, going deep into all those departments within hospitals that use ultrasound, and there are many departments. And about 20% of our sales today, on average, would be into new hospitals.
But the other important segment is the private physician market, making up about a third or about 10,000-unit opportunity. And we have partnered with a number of channel partners who specialize in this segment, supported by our direct team. And today, approximately 15% of our new IB sales are into this segment, and we expect that our penetration into that segment of the market will continue to grow. In our European operation, or the EMEA operation, the total installed base for the year grew 11% in the last 12 months. So that's now. There's 2,230-odd units in operation in the region, and new installed base for the year was up 16%. As in North America, the new IB growth was stronger in the second half over the first.
It was actually up 75% in the second half over the first half. And we do continue to invest in our growth plans for the regions, and we certainly believe that the fundamentals will continue to strengthen over there. In France, Nanosonics, we've recently established a partnership with Ecolab, who are a very large global infection prevention company, as our distributor for the market in France. And this new collaboration has led to trophon being successfully listed in an independent disinfection device category on the UGAP Public Hospital Tender, which is the largest public hospital tender in France. And that's important because in the past, when we were distributing through GE Healthcare, trophon was considered an accessory to ultrasounds.
So being listed as an independent category now with Ecolab on UGAP opens the market more up for us in the French market. And we've also signed distribution agreements with Ecolab, where they're interested based on their infrastructures in Turkey and some of the markets in the Middle East. In the U.K. and Ireland, we've actually taken our partnership with Ecolab a little bit further, in that we're now taking on the distribution through our direct infrastructure of one of their products called the Soluscope TEE, or that is a disinfection solution for the cardiac ultrasound or transesophageal echocardiography ultrasounds. So that then diversifies our product offerings to encompass all ultrasound modalities now to include cardiology.
This expansion not only strengthens our position in those markets as a leader for overall ultrasound reprocessing, but it also enhances our ability to meet the diverse needs, obviously, of our customers. In the Asia-Pacific region, the installed base increased 6%, or 120 units, so there's now 2,170 units in operation. This growth continues. It's primarily in the ANZ region, and certainly, that increase in new IB consolidates our market leading position in Australia and New Zealand. We do continue to invest in our expansion plans in the Asia-Pacific region, with primary focus on Japan, while progressing our regulatory strategy in China. In Japan, progress is being made on the development now of national-based guidelines.
A multicenter study during the year, examining the degree of contamination of ultrasound probes in emergency departments, was conducted across a number of major teaching hospitals, and over 75% of the probes tested in those emergency departments were found to be contaminated. So this new study, together with the one that we had conducted in the OB/GYN setting, which demonstrated over 90% were contaminated, further supports the awareness of the risks. I recently, in July, attended the Japanese Society of Infection Prevention, and during a symposium on the topic of the risk of cross-contamination from ultrasound, where the results from both these studies were actually presented, a survey was conducted among the approximately 400 infection prevention participants in the symposium.
And the results of that survey indicated that over 90% of participants now recognize the risk of cross-contamination associated with ultrasound transducers, and over 80% agreeing that the Spaulding classification, which is a classification used in markets like the United States and Australia and the U.K., et cetera, for high-level disinfection, should be implemented. So we're certainly making great progress now in levels of awareness and acceptance of the risk, and then this translates into our work, towards the development of, national-based guidelines from these societies. Moving quickly, onto upgrades, and point is that upgrades represent a significant opportunity for both customers as well as the company, and in particularly in North America, where the absolute majority of the older EPR, trophon EPR devices, are still in use.
In fact, it's about nine thousand device opportunity in the market for upgrade devices that are aged over seven years or above. And for customers, the latest trophon2 brings significant benefits in terms of usability, traceability, and digitization, along, of course, with the proven efficacy of the technology. But for the company, in addition to capital revenue, there's also significant incremental service revenue opportunity. And the reason why this is incremental is purely since going direct. All upgrades are now sold through our North American direct operation, whereas in the past, these older EPR units were originally sold by GE Healthcare, where they also sold the service contracts. So there's a great opportunity, not just in capital revenue increase, but also in increases in our recurring annuity revenue from service contracts.
Approximately between 50%-60% of units do take out a service contract, in many cases, multi-year service contracts, which you will see on our balance sheet and is a big driver to our cash flow indeed. In the last year, there were just over 1,500 upgrades sold globally. Sales of upgrades in the first half were particularly impacted due to hospital budget constraints, where the customers extended the use of their older devices. This resulted in only 620 units being sold in the first half.
But just in the significant turnaround was experienced in the second half, with upgrade unit sales up 44%, but very specifically in North America, where the majority of the opportunity is, the upgrade sales in the second half were up 71% to 820 units, which is the largest half to date in upgrade sales in North America. And in both, it is worth acknowledging that in both APAC and EMEA, the upgrade opportunity is actually a lot less now, one, due to the lower installed base of those aged devices, but also the success that we've had in the last number of years in upgrading those older devices. So really, the primary opportunity for upgrades moving forward is in North America, and we've got the strategies in place to continue to drive that growth.
Moving quickly over onto R&D, during the year, we invested just under AUD 33 million in R&D, and that was up 11% for the year, and in addition to our endoscopy processing program with CORIS, the R&D organization also progressed a number of important projects in our ultrasound reprocessing and connectivity product roadmaps to future offerings and leadership in this sector. On the CORIS front, it did reach a critical milestone at the end of April, as people are aware, with the FDA de novo regulatory submission being filed, and that does represent a very significant step towards, I believe, addressing one of the most critical unmet needs today in instrument reprocessing, and that is the cleaning of flexible endoscopes.
We recently received a round of questions from the FDA, and we're currently now working through to answer these questions with the FDA. While we go through the regulatory approval process, however, we do continue to advance our clinical and awareness program with CORIS, where the product and the data with CORIS has now been presented at numerous international clinical conferences. As recently announced, you would have seen a new study, demonstrates how the CORIS technology significantly outperforms manual cleaning, especially in biofilm removal in endoscopes, and that was published, as I say, recently, the Journal of Hospital Infection. We certainly believe CORIS represents a significant opportunity for the business, as well as customers and patients. There are over 60 million flexible endoscope procedures conducted per annum.
That's just across the major Western markets, and this number is projected to grow at approximately 6% per annum, and contaminated endoscopes are a known potential source of infection. Adverse events continue to grow, as evidenced by the FDA MAUDE database that comes out on a quarterly basis. There's over 8,500 adverse events just in the last quarter, and we believe CORIS can play an important part in addressing current problems, certainly by bringing a new level of efficacy in cleaning outcomes in all channels of endoscopes, which is a critical step for effective disinfection. Before I hand over to Jason, I'd also just like to announce the appointment of our new CTO, Derek Minihane, who will commence with the organization on the 23rd of September.
Derek's a highly experienced global executive with over a 30-year career, spanning healthcare, semiconductors, and professional services. He's held various leadership roles at Cochlear for almost fourteen years, where he led global teams in the R&D organization there that delivered multiple generations of sound processors, connected health initiatives, and as well as leading some of the longer-term research projects, as well as collaborations with industry and clinical partners. Prior to Cochlear, Derek worked in various leadership roles for companies in Silicon Valley, and most recently, he's been a partner at Deloitte, focusing on helping clients commercialize their IP and technology. So we look forward to Derek joining on the 23rd of September. So I'll now hand over to Jason to give a brief overview of some of the key financials.
Thanks, Michael, and good morning, everyone. Firstly, to revenue. So as Michael mentioned, the business' revenue profile for fiscal year 2024 had two distinct halves. In the first half, revenue was negatively impacted by lower capital unit sales, as discussed, due to hospital budget constraints. However, the second half saw a significant turnaround, with a 14% growth in revenue compared to the first half, which got us to overall positive growth for the year. Specifically, the second half revenue of AUD 90.4 million was up 14% over the first half, resulting in overall revenue for the year of AUD 170 million, up 2%.
Capital revenue for the year, AUD 48.2 million, was down AUD 6 million or 11% due to lower total capital unit sales, with a total of 3,850 units sold versus the prior year of around 4,400. Again, the second half saw significant improvements, with 2,330 units sold in the second half, compared to 1,720 units in the first. This was a 610 unit increase or 24% growth, half to over the first half. So you know, this resulted in second half capital revenue of AUD 26.3 million, a 20% increase over the first half. Pricing, importantly for our capital units, remained steady on the previous year.
You'll remember from our call in the first half that we, the company introduced several bridge to budget sales offerings in North America. The majority of units sold during the second half were actually, you know, through the traditional capital purchase models. We'll continue to offer these sales options in 2025 to support our customers, but we continue to expect that the majority of sales will remain under the traditional capital purchase model. To consumables and service. A good result, up 9% for the year to AUD 121.8 million, versus the prior corresponding period, and up 11% in the second half versus the first.
This was driven by a combination of higher installed base, which grew 7% for the year, as well as growth in ultrasound procedures in the second half of fiscal year 2024, and continued growth in service contracts. Again, pricing remained relatively stable for consumables during the year. Switching to the regions. Total revenue in North America was AUD 154.2 million, up 3%, with consumables and service revenue up 8%, but with capital revenue down 8%, for the reasons already discussed. Again, the second half improved significantly, with total revenue of AUD 81.9 million, up 13% over the first half, and capital revenue up 21%, and consumables and service revenue up 10%.
In the EMEA region, just like North America, the market environment remains challenging, both on costs and staffing pressures in hospitals, but I'm pleased to say that total revenue was up 24% to AUD 10.1 million. As you're aware, the U.K. is our largest market in the EMEA region, and the majority of the units placed in the U.K. are under the managed equipment service model. In this model, no capital revenue is recognized for placements, which is offset by higher consumables pricing. Despite new installed base increasing 16% for the year in the region, overall capital revenue was down 7%, as a significant percentage of these new units were under the MES offering. However, consumables and service revenue was up 33%.
In the Asia-Pac region, which we primarily operate as a distributor, particularly in ANZ, the installed base increased by 6% to 2,170 units, adding 120 new units during the year. As Michael mentioned earlier, upgrades were down 41% in the year, falling from 220 units in fiscal year 2023 to 130 units in fiscal year 2024. This is really around the high penetration of the older devices already being upgraded. Consumables and service revenue was up 2% in the year to AUD 4.3 million, and the decrease in capital revenue led to an overall revenue drop of 23%, bringing it down to AUD 5.9 million. Moving now to gross profit margin.
So margin for the year was 77.9%, down 0.8 points, versus the prior corresponding period. Important to note, in the second half, margin was 76.3%, versus the first half of 79.7%. And as you'll remember, we flagged that we were going to do a one-off slowdown, in manufacturing in the second half of fiscal year 2024, to lower the working capital that we have in our inventory levels. We were successful in doing that, which was a large driver of cash flows in the second half, and importantly, we returned the inventory to the desired levels.
So we now expect to return to higher levels of manufacturing in fiscal year 2025, which will result in improvements in the gross margin and head back towards the levels we experienced in 2024 . Michael will spread... Sorry, he will share in a minute our guidance specifically around our margin for 2025. Operating expenses for the year were AUD 125.6 million, up 10% on the prior corresponding period, consistent with our outlook that we shared at the first half, where we indicated a lowering in the operating expense growth from the original 17%-22% guidance which we issued earlier in the year. Breaking our operating expenses down, 38% goes towards sales growth in established markets that generate the majority of our revenue today.
6% of our OpEx goes into investments in developing new markets for future growth. 26% of our OpEx goes into R&D, covering both endoscope reprocessing and ultrasound reprocessing. As Michael mentioned, the organization will continue to invest in R&D, however, we do expect that R&D, as a percentage of revenue, will start to reduce. And finally, 30% of our investments go into our infrastructure across our operations, manufacturing, and our digital capabilities. As previously mentioned, the organization is implementing a new ERP system, and AUD 1 million was invested in this in fiscal year 2024, and that project is expected to complete in fiscal year 2025. Our expectations are that operating expenses will grow slower in fiscal year 2025 than they did in fiscal year 2024. Onto operating profit and cash.
Profit before tax for the year was AUD 13 million, down AUD 8.6 million from fiscal year 2023. This decrease takes into account the impact of hospital capital budget constraints on overall capital sales, in particular, in the first half, as well, of course, as our ongoing investments in a long-term strategic growth agenda. Free cash flow for the year was AUD 20.4 million. This was driven by an increase in service contracts, with many customers paying upfront for multi-year service, as well as reducing our inventory that I talked about earlier on. This, of course, we did without impacting our customer delivery times. Cash and cash equivalents were AUD 129.6 million at 30 June 2024, and the company has no debt. Just before I hand back to Michael, I'd, I'd like to just touch on the trophon-only business.
You know, the trophon business alone continues to generate strong profitability and high returns. For fiscal year 2024, the profit before tax was AUD 40.4 million, which is approximately 24% of sales. OpEx in the trophon business includes investments in emerging markets that are currently not contributing significantly to revenue today, but have the potential to do so in the future. Additionally, the company continues investments in R&D on its ultrasound reprocessing technology roadmap. Importantly, looking ahead, we expect revenue in the trophon business to grow faster than OpEx in fiscal year 2025. With that, I'll hand back to Michael.
Thanks, Jason. Finally, our outlook for the FY 2025. First of all, I do have to recognize that the challenges associated with the impacts of inflation on hospital budgets remain. However, on the back of a strong second half in FY 2024, together with a growing pipeline for FY 2025, we're targeting from a total revenue perspective, growth of between 8% and 12%. And that growth is expected to come from a growing capital revenue with increased unit volumes, both in new installed base as well as the upgrades. And then, of course, the increasing recurring revenue aligned with the growth in installed base and upgrade sales, so both on consumables and service.
For our gross margin, as Jason pointed out, the second half gross margin was down to 76.3%, and that was really primarily associated with the one-off slowdown in manufacturing. But with the expectations now in terms of our capital unit growth into the second half, and we are expecting higher production volumes, our expected gross margin for FY 2025 is between 77%-79%. And then our operating expenses, again, as Jason mentioned, we expect the operating expenses to grow lower than what they were in FY 2024. And so those operating expenses are projected to grow between 6%-10%.
And that includes ongoing investment in the CORIS readiness of commercialization and other R&D, as well as the one-off expenses associated with the introduction of the new ERP system, where there are further expenses to be incurred this year, but we expect to conclude that program this year. And then for the trophon-only business, we're expecting positive operating leverage and increases in operating margin as well in FY 2025. So with that, I will now hand over for any questions. Thank you.
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 Lyanne Harrison from Bank of America. Please go ahead.
Yep. Good morning, Michael and Jason. Can I start with hospital budgets? Obviously, you got very good unit sales in the second half. Can you comment on what you're seeing there in terms of hospital budgets and whether or not those have eased?
Thanks, Lyanne, and good morning. I spent four weeks in the U.S. in July and went to many cities, visited many hospitals. You know, some are feeling it more than others. It wasn't a major topic of discussion when I was there, but I think we still have to be cautious that some of these constraints still do exist. But what we... I certainly came away feeling very confident in the team and the strategies that the team have put in place for FY 2025 in North America. But also, after visiting a lot of hospitals, I felt pretty confident in being able to provide the guidance that we did this morning. But, I can't really comment, you know, on a national basis.
The constraints are there, seem to have eased a little bit, but we feel pretty comfortable just based on the requirements for infection prevention, our current pipeline, et cetera, that we should be able to grow the capital that we've projected.
Okay, and can we say, you know, where we are in the pipeline currently versus six months ago? Has that pipeline grown for both new units as well as upgrades?
Yeah, the pipeline, you know, we look at it on a monthly basis, and it, it's tracking well in accordance with our, you know, projections to be able to feed the unit sales requirements.
Mm-hmm.
You know, some months you could have great sales, which leave your pipeline a bit lower than the next month. You know, so it moves on month-to-month basis, but we're pretty confident in terms of our pipeline growth and identification of opportunities.
Okay. And, can you confirm, have you had any, I guess, opportunities that were lost from the pipeline?
I mean, in North America, I would say, not really, certainly not a competition, in North America. You know, if we've got something in the pipeline that's really aged-
Yeah.
Our policy really will be to take it off the pipeline and start again. But in terms of losing pipeline, no, not really.
Okay. And sorry, one more question on pipeline, and then I'll leave it there. But, the time of converting some of these sales opportunities-
Yeah.
Obviously, when we spoke the last time, it was taking a little bit longer because of those hospital budgetary constraints. Is that time to convert, improving or reducing?
One of the big drivers for the performance in the second half as well was the timeline to convert-
Mm-hmm
... improved for both new installed base as well as upgrades. And what we're seeing is, you know, we're maintaining those timelines to convert now into the start of this year. So they're certainly not getting worse, and we'd like to think as we, you know, progress through the year, it could, you know, improve further. But at the moment, the benefits in those timelines that we got in the second half, they're carrying forward into this year so far.
Okay, fabulous. I'll leave it there. Thank you.
Thanks, Lyanne.
Thank you. Your next question comes from Josh Kannourakis from Barrenjoey. Please go ahead.
Hi, Michael and Jason, can you hear me okay?
Yep.
Great. Thank you. First question, just around a bit more detail around guidance to FY 2025. Can you give us a bit more context around how we should be perhaps thinking about the momentum in installed base? Maybe if you could, Michael, across sort of North America and, but also globally, I guess in context of your previous comments on, you know, similar activity in the second half.
Yeah. I think we—I mean, we certainly expect the installed base to grow more than what we saw in the FY 2024. From a North America perspective, you know, I think if you look over the last couple of years or so, we were somewhere between... Well, this last year, 22,000, and the prior year might have been 23,000. Sorry, I don't have it in front of me. You know, I think it'll be in the low 2,000s in North America, but we'd like to see that offset by growth in the other regions.
I think our goal is to, you know, get to, you know, closer to sort of a three thousand new installs over the coming years, where the other regions are contributing more, and but obviously North America continuing to contribute around that two thousand mark moving forward.
Great. That's very helpful. Thank you. And then also, thanks for some of the extra granularity just around the trophon-only business. I guess when we look at that, and you're expecting, you know, continual improvement in margins and the revenue growth you've obviously given, I think if you back that out, you know, you can sort of work out what broadly is getting spent, you know, across CORIS, you know, in 2024.
Keen to know how we should be thinking about, I guess, the mix of those in terms of if there's any sort of broad brush you can give us in terms of the OpEx growth across both, you know, the Nanosonics business versus the, you know, CORIS business, and any sort of growth to the upside or downside that we should be thinking about in terms of timing, of course, or things that could impact that.
Yeah, I think. I mean, you can look at the numbers and, you know, the P&L from the trophon-only business and looked at, you know, non-trophon OpEx was in the last 12 months, was in the order of about AUD 27 million or so. And a vast percentage of that would certainly have been associated with CORIS. Not just only in R&D, but in the readiness from commercialization with manufacturing and all of those sort of things. We will, you know, as you can imagine, anticipate the further investments in CORIS moving forward, especially on the commercialization side.
On the overall OpEx growth in the trophon business, probably in the order of about you know 5%-7% growth in that in FY 2025, so expectations for operating leverage. So overall for the business what we would like to think is that the revenue profile overall and will grow faster than the total OpEx and that includes the OpEx associated with CORIS which obviously is not gonna contribute to revenue in FY 2025.
Okay, that's great. And then, and then just a final one. Obviously, a growing cash balance, and, you know, you're clearly earning interest income from that. You did talk a little bit more around M&A and, and a focus there. Can you maybe just give us a little bit of an update on how you're sort of thinking about that, more broadly, the frameworks you're sort of looking at in terms of assessing opportunities and whether or not that's, you know, more or less of a feature coming into this year and next?
Yeah. Well, we, you know, it, it is going to become more of a feature or at least a bit of focus for the business, as we look to continue to, you know, expand our product portfolio. We have hired a dedicated resource based out of Europe, because a lot of the things we see actually are European-based as potentials. So we've put a dedicated resource. That doesn't mean we'll identify something, you know, shortly, but at least we got somebody dedicated looking at this part of the business. And when it comes to the areas that we're focusing on, it is very much in, you know, the areas of instrument reprocessing.
We think that, you know, moving forward, the opportunities, especially after we've launched CORIS, could be a lot greater in that area for us as well. Because if you take the end-to-end process of reprocessing an endoscope, there are many, many different steps and many consumables and products used along that continuum of reprocessing. And so I can imagine, you know, on the endoscopy side of things, that there could be, you know, well, certainly would be more opportunities over and above the ultrasound sort of things. But we are very much open to looking outside of ultrasound reprocessing and endoscope reprocessing, but still in the overall instrument reprocessing space, that's where our knowledge base is.
Great. Thanks, Michael. Nice work.
Thanks, Josh.
Thank you. Your next question comes from David Low from JP Morgan. Please go ahead.
Thanks very much for taking my questions. Can we just start with the FDA's questions on the CORIS device? I mean, was that expected? Is there anything to read into the fact that you've had questions from them, any implications-
Oh, got it.
-on timetable?
No, no, no, no, no. I don't think there will-
No.
There won't be ever a submission to the FDA that doesn't have questions. Yeah.
Sure. So the questions that you've received are not out of the ordinary and won't affect the timetable in any means?
No, you know, we were saying De Novo can take up to 12 months. So the types of questions, obviously, you know, you've got many different reviewers, many different parts of the application. You know, they can all come back with questions and which are far-ranging from many different aspects across the technology. But nothing necessarily out of the ordinary or our own expectations of what we could have anticipated.
Okay, perfect. Look, the other question I had was just the consumable sales were much stronger in the second half, and I heard the commentary about U.K. and the MES. But just looking at the U.S. alone, it was up strongly. Just wondering if there's an explanation for that strong run rate. I'm gonna presume it's rates of ultrasound in the,
Yeah.
in the health systems. But will it continue, I guess? Is it a good base for forecasting, please?
Yeah. We did see some tailwinds there on ultrasound procedural volumes. I think, you know, the half year when we came out in February, we said we were experiencing that. But we do, you know, we've now seen that continue. I think ultrasound procedural volumes. I think we could probably, we would like to think that we can't influence the growth there, obviously, in ultrasound procedural volumes, but we probably think that they're at a space now where they'll continue. It'll be really correlated with new install base growth, but also correlated with upgrades and service, because service, you know, can be quite, is becoming quite significant.
So with the service, approximately 50%-60% of units that we sell will take out a service contract. Now, we only start recognizing. The machine comes with a one-year warranty, and then we only start recognizing revenue on the service after a year. And even though, you know, some customers will buy multi-year service contracts, but we only recognize it, you know, the amount that they will have spent in that year. But you'll see that actually in the balance sheet on contract liabilities. And actually, the fact that, you know, it was an insignificant contributor to our overall cash flow as well. The contract liabilities associated with service contracts.
Perfect. Thank you for that. Last one I've got, just, I mean, you've mentioned a minute ago about hoping to push new unit sales up to the three thousand level per annum, and.
Glob- globally.
Globally, yeah. So that, therein lies the question. I think the U.S., we understand, it's probably moving towards being mature. Are you seeing a regulatory push that could drive a significant uplift in sales in other regions?
Look, not overnight, but we're pretty confident. So, you know, I mentioned the commentary on Japan, and it'll still take a bit of time. I feel a bit more confident now moving forward with some further growth in Europe this year, both in the U.K. and on the back of what we're doing with Ecolab. So, you know, the 3,000 won't come this year, but over the coming, you know, two to three years, I would certainly like to think that we're getting to those sort of run rates.
Okay, great. Thank you very much for that. That's all the questions I have.
Thanks, David. And we've got time for one more question, if that's okay.
Thank you. Your final question comes from Craig Wong-Pan from RBC. Please go ahead.
Great. Thanks for taking my questions. Just on North America, the service revenues are quite, quite strong in the second half, by my calculation, AUD 11.5 million. Just wondered, is that second half number a base level amount that we could assume going forward in North America?
... Yes, and then we'd like to think, we'd get growth on top of that, especially as upgrades come through. And, so yes, we expect that the service revenue for the business will continue to grow quite strongly.
But there's no kind of seasonality in that where, you know, that might drop in the first half?
No, no. Because when you look at service revenue, and again, if you look at the revenue and then also have a look at the contract liabilities in the balance sheet, you know, a lot of the contracts where that'll come into the P&L as revenue in FY 2025, many of them are already in place.
Okay, and then just on CORIS, with those questions, has that caused any delay in the timing for when you think it could be approved?
No, we're still sticking to the, you know, within the sort of 12 months for initial FDA approval, and so we're working diligently, you know, through answering those questions for the FDA, which is just the normal process of these regulatory submissions.
And then on Japan and China, you made some sort of positive comments about some progress made there. If you were to have a guess, I mean, when do you think there could be a good kind of revenue numbers printed in any of those markets coming through?
To be honest, I've been around a little bit too long now with Japan market, not just here in Nanosonics, but in previous employment as well, and I'd hate to give a guess and set an expectation, but we're certainly, you know... I think good progress has been made, and we'd like to think that you know, Japan, the Japan market will start adopting, you know, guidelines and requirements aligned to a lot of the more advanced company countries around the world.
Okay. And then just my last question on the ERP expenditure for 2026, how much are you planning to spend there?
For 2025?
For 2025, I mean.
Yeah. It'll be a little bit more than in 2024, but then that'll be it.
Okay, great. Thank you.
Great. Thank you all. Okay, with that, thank you all for joining this morning, and I'm sure both Jason and I will be speaking to many of you over the coming weeks. Thank you again. Bye-bye.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.