Thank you for standing by, welcome to the Nanosonics Limited 2023 half year results. 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 questions via the phones, you will need to press the star key followed by 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 our call. I understand that today is quite a busy day out in the market. I'm joined here by McGregor Grant, our CFO. This morning you will all have seen, we released all the details around our half year results for this financial year, which really confirmed the numbers in the trading update that we provided on the 19th of January, including, of course, the upgrade of our guidance for the full year. Overall, I think, we're very pleased with the performance of the business in the first half, with significant progress, as you will have seen, both financially and operationally.
Importantly also, when you break down the half into the two quarters, we saw good growth momentum emerging between the first and second quarter. As usual, we have provided a lot of granular detail, especially in the investor presentation, breaking everything down by region, by quarter, our total units, revenue, down into capital/c onsumables, et cetera. Pretty much most of the information is in there. For me, there are really, I think, three key takeaway messages that I'd like to leave. The first takeaway is that the transition to a largely direct operation in North America is now effectively complete. It has been successful, and the anticipated benefits from that change are certainly coming to fruition. This was especially evident in the second quarter as the transition was finalized from a customer onboarding perspective.
Of course, the expansion of our local infrastructure was completed and became fully operational. Indeed, on the back of that, we saw good overall growth momentum between the first and second half, not just in North America, but across the business. The second takeaway is as total revenue is growing, where it was up 35% in the first half, to AUD 81.6 million. Together with improved gross profit margins, we are getting more operating leverage in our underlying trophon business. Indeed, in our business in North America, it's generating between 55% and 60% operating profit before headquarter costs are allocated. There is of course, significant opportunity for ongoing growth.
While we intend to continue to invest to realize those opportunities, we do also expect to see ongoing growth in our operating leverage for our underlying business moving forward. The third takeaway message for me really is we remain very excited about the opportunity with our next transformational product, CORIS. More details about the product can be found in the investor presentation, including images of the product for the first time, as well as details of the excellent efficacy results it's achieving. This product truly does address one of the most significant issues in instrument reprocessing today, which of course, it centers around endoscope cleaning, where we believe there is a significant unmet need and the fundamentals for adoption are strong because there already exists guidelines and requirements in all major markets around the cleaning and reprocessing of these endoscopes.
During the half, a number of planned activities with CORIS were delayed a bit, primarily because of some supply issues with a number of custom components that are specifically designed for CORIS. This was mainly out of some of the suppliers we have in China, on certain components, where there were COVID-related lockdowns, of course, in the half, and then that was followed by the Chinese New Year. This did push some of our activities behind a bit. That being said, assuming that the supply chain risks can be managed, which they currently are, we continue to target, as we've said before, progressive market introductions aligned with regulatory approvals. Our aim is the first market introduction will likely be in Australia and/or Europe towards the end of the calendar year. They're really the three key takeaways.
I'll touch on some of the other highlights for the first half and then hand over for questions. As always, first of all, the installed base. Globally, the installed base reached now 31,120 units out there at the end of December. That's up 4% in the last six months and 11% in the last 12 months. In North America, there were 1,110 new installed base units placed in the first half. As mentioned earlier, when you break down the half, we saw good growth momentum emerging between the first and the second quarter. This was certainly the case in North America, where just over 60% of the new IB were actually placed in the second quarter as the transition to the largely direct sales model completed.
That's 680 units in Q2, which on an annualized basis is getting the run rate approaching the 2,800-3,000 new IB units per annum that we are targeting as we enter FY24. Our direct team, they continue to collaborate with all the OEMs, and some of those new IB units were referred by, or sold through, some of the ultrasound OEMs. The majority of the demand, however, and the sales for the new IB units, is and continues to be generated by our expanded direct team. In Europe, just as other companies have reported, the market environment there does remain challenging and really associated with still some COVID-related hospital staff issues, NHS pressures in the U.K. and general inflationary pressures.
A total of 80 new IB units were placed in the half, which was down on PCP. Like the U.S., the Q2 was a lot stronger, with actually 75% of the new units placed in Q2. We do expect growth momentum to continue now into H2. We're already seeing that into Q3, and we remain optimistic about the overall growth opportunity in Europe, whilst of course remaining somewhat cautious under the current market environment. Q3 so far is looking good. In Asia Pacific, the installed base, it grew 4% in the half with 80 units placed. That's growing the total IB to just under 2,000 units in Asia Pacific. The majority of these new IB were placed in ANZ. There were some units in Japan.
In Japan, our efforts continue through our medical affairs program, engaging with opinion leaders and societies as we work together on developing new standards and guidelines for high-level disinfection. In China, the local authority's testing of trophon2 is nearing completion. Actually, I've just learned it has been completed with the product passing all tests that are required. Net plans now in place to pull together the submission for regulatory approval. On upgrades, as you know, there is a significant opportunity for upgrades, and we're now seeing good growth, especially on the back of the transition in North America, where we now manage all the customers. In total, there were 800 upgrades in the half, which was up 100% on prior corresponding period.
Like the new IB, we also saw good growth momentum in Q2 over Q1, with 68, which is 70% of the upgrades actually placed in Q2. Details by region on all the IB and upgrades can be found in the investor presentation. When you combine our new installed base and upgrades, there was an overall increase of 14% in total units placed in the half versus prior corresponding period. Overall, a good result for our Capital equipment volumes. On the revenue side, overall revenue was up 35% to AUD 81.6 million or 27% in constant currency. Breaking that down, the Capital revenue, that was just under AUD 26 million, and that was up 36% versus PCP. The Consumables and Service revenue, just under AUD 56 million, was up 34% versus PCP.
The key contributors to revenue growth when we look at it is obviously growth in total units placed, that's both new installed base and upgrades. As already mentioned, total units placed were up 14%. There was increased consumable volumes as the new installed base continues to grow but also as ultrasound procedures return now to pre-COVID-19 levels. There was certainly favorable pricing on both Capital and Consumables, especially in North America, with the shift from distributor pricing to customer pricing as a result of the transition to the largely direct sales model over there. We also did see increased service revenue and of course, as there is now a critical mass of units out in the marketplace, the service can become more prominent and the opportunity is great.
Service revenue was actually up 50%, just over 50% to just under AUD 9 million in the first half. Of course, there was favorable impact of foreign exchange associated primarily with the relatively stronger USD. Proportionally, I guess of the 35% growth that we did see, approximately 7% was due to the favorable impact of foreign exchange, with the remainder associated with volume and price, and each having actually quite a similar impact between volume and price. By region, in North America, the total revenue was up 36%. That's just over AUD 74 million. That did include growth in Capital revenue of 35%. Where you had just over AUD 23 million in Capital revenue and of course, growth in Consumables revenue, which was up 37% to just under AUD 51 million.
In our European region, the total revenue was up 6% in the half to just under AUD 4 million, Capital revenue was up 13% to just under AUD 1 million, Consumables and service revenue up 4% to just under AUD 3 million. Likewise, in Asia- Pacific, the total revenue was up quite strongly, actually up 31% to just under AUD 4 million. This was mainly driven by increased Capital revenue, which was up 78% versus PCP to AUD 1.6 million, where we had a very good half. We're now seeing more upgrades coming through over last year and of course, continued new IB growth. With that, the Consumables also continues to grow, which is up 10% in the half to AUD 2.2 million.
On the gross profit margin for the business, for the half, was just in under 79%, so 78.9%. That was up from just over 76% in the PCP. This strong result was driven by the favorable Capital and Consumables pricing in North America, the increased proportion of Consumables, resulting in strong sales growth in the first half, which was associated really with increases in procedural volumes and the installed base, and of course, the favorable impact of foreign exchange. Those above factors, the Capital, the Consumables, and the FX, they were partially offset by higher freight costs, but still delivering a strong gross profit margin result.
As mentioned in the updated guidance, we are expecting the gross profit margin to be between 77% and 79% for the full year, and that will depend on the mix between Capital and Consumables. We are anticipating that we will see more capital in the mix in the second half, especially as upgrades and of course, continued growth in new installed base comes through. On the operating expenses, for the half, they totals AUD 54.5 million. That's up 28% on PCP or up 14% compared to the prior half. The primary drivers for increase in operating expenses include, of course, the increased costs in our North American infrastructure, supporting the transition.
In the half, we did add probably another four or five extra headcount than we had anticipated, albeit it was in our Indianapolis facility in customer service, just helping manage the volumes of transactions and calls that we were doing, customer service and logistics. Of course, we did have foreign exchange and unfavorable impact of foreign exchange on all our U.S. dollar-denominated expenses. We did continue, shall continue our investments in R&D. Of course, our three primary areas of ultrasound reprocessing, endoscope reprocessing, and our traceability and compliance solutions. Of course, moving to the new headquarters and new manufacturing and R&D facilities come at an increased cost as well. Overall, you would have seen good operating leverage, despite the fact that the operating expenses did increase.
When you actually break our operating expenses down, it is important to stress that of the total OpEx, 44%-45% is actually associated with all the activities and market development and growth out in the region. It's associated with revenue generating. 25% is associated with product innovation, so future revenue generating. Of course, about 30% associated with the back office infrastructure, manufacturing, et cetera, to support the regions. Taking all of that together, then, we had an operating profit before income tax for the half of AUD 11.4 million, and that was up from AUD 3.3 million in the prior corresponding period. We had positive free cash flow for the half, just over AUD 6 million.
At the end of December, the company had cash and cash equivalents of just under AUD 100 million, so AUD 99.3 million at the end of December. As you know, we don't have any debt. At this stage, in terms of that cash, we continue to investigate M&A opportunities as well as potential distribution partnership opportunities. This cash balance does provide a strong foundation for this, should those opportunities arise. A quick comment on inventory, because you will see in the accounts that inventory was actually up AUD 2 million versus prior corresponding periods to a total of AUD 24.6 million. The main drivers of this increase are, one, continuing to mitigate supply chain risks to ensure continuity of customer supply. I think we've managed that very well since the emergence of COVID.
Supply chain has not gone away yet, it certainly is improving, but we continue to mitigate through our inventory holdings. Of course, going direct in North America means we are increasing some of our inventory in North America as well under the new sales model. The other important component of it is freight and our mode of freight. Here we are very much managing freight costs by transporting the majority by sea freight. If we were to do so by air freight, it would cost about 2.5x sea freight. It's more costly. In addition, on the sea freight, the time actually for sea freight is taking approximately one month longer than it used to pre-COVID.
That means we need more units in transit to make sure that we have that continuity of supply out in the regions. Our primary goal is to ensure continuity of supply. As you can imagine, with the size of our inventory, this is something that is under active management within the company. A few comments because obviously over the last six months or so, you know, a key focus and many of the questions I get are around the North American transition and how it's going, is it being successful? A few comments on that. What I can say now is that this transition is now effectively complete. All of the GE customers have been transitioned, accounts set up, pricing agreements in place, and we're now shipping product to all customers from our facility in Indianapolis.
We do have a small number of sub-distributors. The majority going through our facility in Indianapolis. The full team is now in place and operational. As I mentioned, we did add a few extra headcount over what we initially anticipated, probably about 4 or 5 over what we initially anticipated. They were mainly in the supply and customer service roles to manage the increased volumes. We have established well over 50 new enterprise agreements with IDNs, or integrated delivery networks, since we started the transition, and we're now dealing one way or another with the majority of the IDNs in North America. We continue to work with the ultrasound OEMs, including GE, and we have also signed a number of distributors that GE worked on when they were distributing to sell trophon.
However, as I mentioned earlier, most of demand is certainly driven through the efforts of our direct teams, and most of our re- sales are through the direct team. In the second half, we will be expanding our service infrastructure, and model in the United States to include field service operations, and the costs of this are included in the updated OpEx guidance. With many existing customers coming off of service contracts and moving to trophon2 with upgrades, which are provided by Nanosonics, we see service as a very good opportunity moving forward, not just from a revenue perspective, and as I mentioned, our service revenue is up 51% or 50% in the half.
Not just from a revenue perspective, but importantly, making sure we're always very close to the customer so we can continue to provide excellent customer service. Finally, a few comments on CORIS, and just reiterate what I've already said, and the investor presentation does cover some of the details around CORIS, including for the first time images of the product, which for some of you, it may remind you of a trophon unit, but I can assure you they are totally different technologies. We're just sort of keeping it in the design family. The CORIS technology, of course, does aim to address the limitations of current manual cleaning with a novel mode of action using a proprietary, environmentally friendly cleaning agent that coupled with an advanced delivery mechanism.
It brings a high level of automation to the cleaning process, and our efficacy results to date demonstrate it certainly has the ability to set new benchmarks in cleaning efficacy. As you can imagine, there's a lot of activity happening across the organization, a lot of excitement across the organization as we ready for market introduction. We were impacted by some supply issues and a number of unique CORIS components, as I mentioned, especially out of China. We are continuing to manage those slippages on some of those activities. You know, some of the key milestones for this half includes, of course, the in-use clinical study, together with a range of other studies that we will be doing. We do continue to engage with the FDA through their Safer Technologies Program.
I mentioned that on our last call, and that is proving to be beneficial for us, having access to that group in the FDA. The De Novo regulatory submission to the FDA is, we continue to expect that this year. Of course, this is a global product, and outside of FDA, we expect regulatory registrations in a number of markets to commence. Assuming the supply chain risks are managed and we do continue, as we said before, to target our progressive market introductions aligned with those regulatory approvals, with the first likely to be in Australia and/or maybe a market or two in Europe towards the end of the calendar year. That remains the same.
On the business outlook, we did provide updated guidance on the 19th of January, and that has remained the same. We now expect total revenue growth of between 36% and 41%. That was previously 20%-25%. Those adjusted targets for FY 2023 assume a U.S. dollar rate of $0.70. The gross profit margin, we expect to be between 77% and 79%. That was previously 75%-76%. Obviously, we beat that in the first half, and that will be determined by the actual mix between Capital and Consumables. Of course, operating expenses, we've increased the guidance there to grow between 22% and 27% as we continue to invest.
Of course, 2 percentage points of those operating expenses are associated with some headwinds on FX with our U.S. denominations expenses. As always, all this guidance, as in the announcement, is subject to the ongoing uncertainties out in the market, where there is variability, of course, in market conditions, you know, COVID-related or broader economic or geopolitical uncertainty related. With that, I will hand over for any questions. Thank you very much.
Thank you. If you wish to ask a question via the phones, you will need to press the star key followed by the number one on your telephone keypad. Your first question comes from the line of David Low from JP Morgan. Please go ahead.
Michael, if I could get you to talk a little bit about the assumptions that you've made in the guidance for the rest of the year. I mean, I see the comment on gross margins will come off a little bit because Capital will be a bigger proportion. Are you assuming in terms of the installed base growth, that you will be back at the run rate that you've talked about, 2,800+? Perhaps also if you could touch on upgrades in the same.
Thanks, Dave. We do expect to exit the year in North America back at that run rate. If you look at the quarter two numbers we got in installed base in North America, we, you know, annualize that, and it's getting close to 2,800. It was, like, 2,700 and something. We are expecting installed base to get back to those levels. We're also expecting, you know, continued growth in upgrades in North America. Just a reminder why we expect the upgrade growth is, A, there's a significant opportunity in the number of units that are out there that are 7+ years of age . Of course, the majority of those units were with us GE customers that have now been transferred over to Nanosonics.
Nanosonics has access to all these customers for us now to drive the upgrade strategy. In addition to that, the other assumptions are that we will have a stronger second half in Europe. We certainly expect that. We'll continue to have a good half in Asia-Pacific, probably similar to what we had in the first half in Asia-Pacific. Overall, with that guidance, I think they're the primary drivers. Obviously, we'll continue to benefit from the pricing that we've now achieved in the first half with the transition that will just flow through onto the second half.
Great. Thank you very much for that. If we could move on to the CORIS device. I mean, you talked about the clinical trials. Can I get you to talk a little bit about what's required there? In the same breath, if you could touch on the regulatory approval process, how long that's likely to take in these initial markets?
Yeah. The clinical trial, being a De Novo application, some people think that it's a huge clinical trial with major endpoints that are patient related to show decreases in infection rates. That's not the case. The clinical trial is an in-use clinical trial that has to demonstrate the cleaning efficacy over the current mechanisms of cleaning efficacy. There's no patient endpoints. It's just a statistical sample size that's required to demonstrate the cleaning efficacy. There are other trials that are not in-use trials that we will also be doing. Further trials, for example, on biofilm. You'll see in the presentation some comments from a key opinion leader by the name of Michelle Alfa out of Canada.
Michele is probably recognized as the world's leading authority in biofilm in endoscopy and the problems of biofilm in endoscopy, and has actually generated published extensively on it, but also generated various models of growing biofilm in, particularly in these small channels. We'll be doing some work with Michele, showing, you know, further data on biofilm in addition to the data we already have that she's very impressed with. So there's a number of studies that we will be doing like that's over and above the in-use clinical study that's required for the submissions. The other studies are as much to back up all the claims with respect to the superiority of the product. Some of those will be done in-house, some of those will be done in clinic.
On the regulatory side, the De Novo, being a De Novo, because there is no predicate, De Novos generally take longer than 510(k)s. The benefit of, without guarantee, I should say, but the benefit of participating in the STeP program, and one of the things that you do with the STeP program is a lot of liaison with the FDA to ensure that all the material that you're providing in the De Novo application is almost full and complete. By the time it's going through the review process, then you hopefully have a smoother path through the review process. They don't give guarantees on that, but that's the intention. A De Novo could take, it could take six, nine , 12 months. It's uncertain. If you, if you thought about nine months, that wouldn't be a bad idea.
The other regulatory jurisdictions are less onerous. We would still require that in these clinical data, but the degree of documentation that we require is a little bit less onerous. One way or another, we'll have all the documentation for the De Novo, and that will be leveraged in the other jurisdictions where the process of getting that review is a lot faster. Great. Thanks very much.
Thank you. Your next question comes from Lyanne Harrison from Bank of America. Please go ahead.
Hi. Good morning, Michael. Good morning, McGregor. Can we start with, you know, what you saw in that first quarter? Obviously the, the new installations was lower and understandably because of, you know, higher COVID volumes or we had a COVID wave through that period across, I guess, all geographies. What confidence do you have now with, I guess, hospital systems and hospital protocol that, you know, that Nanosonics, you know, can manage through that alongside hospitals so that we don't have that sort of impact because we're still likely to get, you know, COVID interrupt, you know, operations going forward?
Yeah, that's a great question, Lyanne. I think there certainly continues to be uncertainty. In the first quarter, it wasn't, especially in the United States, it wasn't just COVID-related impacts. We were still in the throes of the transition. A lot of the sales force actually, in some cases were, I don't want to use the word distracted, but they were helping out the transition of existing customers, which then reduced a bit of their time in terms of driving the new sales. As we moved into the second quarter and that transition was done, well, then they were back 100% focused on the core jobs. We saw that then coming through in the second quarter in the United States. You know, based on the numbers—
Remember, those salespeople are doing both upgrades and new install base. On a total units, you know, from a productivity perspective, they're actually doing quite well. Obviously we want both, getting the balance between both is really important, and that's something our regional president in North America is continuously and our head of sales continuously looking at. The numbers as we're going into this third quarter, and we're a few weeks into the third quarter, give us a degree of confidence. Europe has a little bit more uncertainty. I think that many companies have reported that. You know, in the U.K., I spent two weeks over there visiting many centers and actually experienced myself firsthand meetings being canceled, you know, in the morning of a meeting because people were off because of COVID.
I happened to be there at the time of the, all the strikes that were happening, et cetera. There's a lot of upheaval within the NHS. That being said, you know, when I was in the hospitals, the employees are doing a stellar job in managing through. There certainly are disruptions. Now, again, we saw in the second quarter in Europe, the numbers coming through, and as we're moving into the third quarter, we're feeling quite decent about that as well. Decent, you know, we're feeling good about it, but at the same time, I'm remaining cautious about it, just based on the environment over there. We certainly feel confident in the ability that the second half will be stronger than the first half in Europe.
Okay. Thank you. If I could move on to upgrades.
Mm-hmm.
by my calculation, about 5% of the installed base was replaced in the last 12 months. in terms of driving that, I guess, upgrade percentage higher—
Yeah.
You know, what needs to be done? Is it about, you know, just sales force spending more time, you know, or is it convincing, you know, customers that, you know, the replacement is required? You know, what's, I guess, the biggest driver to get that, you know, from 5% upwards towards 10%?
Yeah. I mean, the upgrade opportunity, really you look at the cohort that is 7 years of age plus rather than the total installed base. We're probably close to about 10% of the let's call it the target segment for upgrades, 'cause there's probably about 9,000 units over there. Well, actually in fact probably a bit more because it was 800 in this last half, but we had done more in the last year as well. What you described is just about spending time. It's just about being in front of the customers, demonstrating, getting it into the budget cycle and people seeing the benefits.
For those age units as a, in addition to the value proposition of the feature set of the device, there's an economic argument as well, because, you know, if they're on a service contract, well, then it's almost like the cost of that service contract is discounted immediately because it comes with a 12-month guarantee, warranty. You know, it really is about getting on front of these customers and spending the time. In doing that, our new IB, a large percentage of our new IB is coming from what we talk about going deep within hospitals. Going into departments in hospitals that don't have trophon, where there are other departments in the same hospital that do have trophon.
Whilst we're in doing that, at the same time, those sales force are visiting, depending on the age of those devices, those departments that already have trophons and where there is an opportunity for upgrades, you know, we try and couple that with new IB as well. There have been many, many cases where, the sales that have been made, you know, it has been new IB and upgrades coming from the same center. It's just people in front of the people.
Okay. Thank you. One last question from me is, on Consumables. With devices, you spoke about quarter-on-quarter growth. Can you shed some color on what you're seeing on Consumables, you know, through first and second quarter and what you're seeing to date in third quarter?
I think the run rate that we're seeing with Consumables now, 'cause a lot of the growth in Consumables, there's volume growth that have brought us back to pre-COVID levels, essentially in the United States. Then there's obviously, there's some pricing benefits that are coming through on Consumables. I think the growth in Consumables moving forward now, because those prices are baked in, the growth in Consumables now will be almost directly correlated with the growth in new installed base moving forward. Certainly as we're out there and our clinical applications force are out there with customers and educating, there may be in some departments, not all departments, an opportunity through education that the utility of existing units out there could improve.
I would say that the primary driver on consumables growth moving forward will be associated with new IB.
Okay. Thank you very much.
Thank you, Lyanne.
Thank you. Your next question comes from the line of Josh Kannourakis from Barrenjoey. Please go ahead.
Hi, Michael and McGregor, thanks for taking my call. A few questions from me. Firstly, just on the pricing benefits, apologies if I missed this earlier on. Should we be recognizing that the full pricing benefit was witnessed in the first half, or is there any incremental sort of uplift that comes through if those benefits are, you know, effectively annualized?
Yeah, look, I think the full pricing benefit now, Josh is probably recognized in the first half. We've, you know, I mentioned that, you know, as part of the transition, we, you know, entered into pretty much greater than 50 or so enterprise agreements and pricing agreement. We've done all the pricing agreements with existing customers, et cetera. I think that the full pricing benefits are associated with what you're seeing in the first half.
Perfect. Just on guidance as well. The AUD 0.70 cross rate against currency assumptions, you might have mentioned this as well, is that just for the sort of second half or is that for the, you know, maybe just to give the context on from what time you're expecting that currency versus what's already been achieved in year-to-date?
Year-to-date, the average rate has been about AUD 0.68 and a bit. We've seen the AUD strengthen slightly. We assume AUD 0.70, AUD 0.70 for the whole of the second half.
Okay, that's perfect. Thanks, McGregor. Just while we're on guidance on the cost base, is it possible within this year's sort of OpEx guidance to look at, you know, what sort of component of that is related to CORIS or non-trophon products? Maybe just while we're on that question, just can give us a little bit of a feel for how we should be thinking about, you know, cost base into the 2024 as well.
Yeah. I mean, the CORIS, the big costs associated with CORIS is on the R&D. I think in R&D, we had about AUD 13.5 million in the first half on R&D. Of that, I don't know the exact figure, but I imagine close to 70% of it would have been associated with CORIS. Now, there's a lot of activities that are captured under R&D, clinical parts of regulatory, parts of new product introduction in manufacturing, test systems, setups, et cetera. It's not just the scientific aspects of R&D. There's a lot captured in that. You will see, you know, R&D as a percentage of revenue has come down. I think last year it might have been about 18.5%. This half, it's currently running at about 16.5% or so.
Our expectation is R&D as a % of revenue will start coming down. We will continue to invest in R&D, but it may be on different things. It may be on, you know, getting on to trophon 3, trophon 4, second generations of CORIS, expanded indications, potentially other new innovations. I think the general, the general thematic, just moving forward is certainly with the underlying business on the trophon business, we're expecting to see operating leverage continue to improve. It has improved this half, and we're continuing to see it improve, moving forward.
Perfect. Just final one, you know, obviously great to see a photo and a bit more context around the CORIS. You mentioned that De Novo. Is the hope for that to get it submitted in this half of the financial year, or I'm not sure if you mentioned?
There's too many variables associated with that to give a definitive answer that we'll be held accountable for. Certainly this calendar year, whether it falls into this half or just a bit after this half to be determined.
Okay, great. Thanks very much, guys. Appreciate it.
I just, I do want to be clear. This is a global product. It's designed to be a global product. The U.S. will not be the first market we launch into. Obviously it's a very important market, but it won't be the first market we launch into. The market introductions will be phased in according with the regulatory approval. The milestone of getting the FDA in is one, the timeline associated with the De Novo as well needs to go through. You know, I think we're certainly tracking the way we want to be tracking at the moment.
Sorry to sneak another one in. Did you mention, Michael, on the call just around how you think about timing and say, potential global distributors or other partners that you may work with and when we hear a bit more info about that?
Oh, you'll hear about that when you hear about it. No, I hadn't said anything more on the call.
Yeah. Okay. Thanks.
No problem. Thank you. Cheers.
Thank you. The next question comes from the line of Mathieu Chevrier from Citi. Please go ahead.
Good morning, Michael, McGregor. Thanks for taking my question. My first question was on upgrades that you've been doing so far. What's been the average age of the devices that you've been upgrading? How does that compare to your initial expectations around the lifecycle of the device?
Yeah, the, I mean, the average age probably is around eight years or so because there's a distribution of devices. If you take the devices that are seven years of age and beyond, there's a distribution by age. You know, we got some devices out there that are 10 years old. I guess one sense that stands to the quality of the device. The average age is probably around eight years, I would imagine. It's sort of pretty much in line with what our expectations are.
Understood. In terms of the installed devices, have you seen instances where you haven't upgraded the device and the customers have decided to make do with another solution?
I can't point to any specific instances, but in markets where there is competition and if we don't get to those customers in time, I anticipate that we could lose some. Our expectation is that by and large, the absolute majority, high majority of our current installed base will remain installed base for Nanosonics.
Yeah. in cases where that hasn't been the case, is it just a function of functionality or pricing? Is there anything you can point to specifically?
No, because to be honest, I've not crossed any major details of where. It's certainly not a common occurrence that's been brought to my attention, so I can't really proffer an opinion. I mean, j ust as we may lose one or two in certain markets, you know, I am aware where some of the competition had units installed or are using manual processes are switching over to Nanosonics as well. By and large— I've said this before on competition. I think competition is really important in this market. Why? Because there's a great opportunity for increased awareness and understanding by of the category. Our job then is to ensure that as that awareness increases, that Nanosonics continues to remain the dominant player, and that's exactly what we're working on.
Understood. Just one on hospital budgets in the U.S. I mean, clearly, we've seen, you know, across different industries, job cuts, budget constraints. What have you been hearing from your teams on the ground so far this year?
Yeah, we obviously read and hear all the commentary on hospital budgets and losses, being experienced within hospitals and increased costs with agency resources that they have as they're losing full-time resources, et cetera. I won't say we're immune to it. The hospitals still have to comply with all the requirements for decontamination. It's not that we're highly capital-intensive from a budget perspective. So far, whilst we're aware of it, and some of the budgeting may have delayed some of the timing, we've not experienced the impact of budgets to the degree that others may be experiencing at the moment. That's not to say that it's not coming, but so far, we're cognizant of it, managing it, some delays in uptake, not cancellations.
We still have to go through the budgeting process. So far, I think especially what we saw between Q1 and Q2 in that sort of growth where it's not currently a major impediment to our growth.
Great. Just finally on— I know you're not giving guidance for FY 2024 today, but how should we think about operating costs, given all of the things that, you know, you're planning to do, hopefully by the end of the calendar year and just thoughts on staffing levels going forward?
Yeah. I mean, in terms of the operating costs for this year, effectively, you should be thinking about it in the context of the guidance that has been provided. Moving forward, for the underlying trophon business, as I said earlier, we're expecting to see growth in operating leverage because the growth in revenue should certainly outstrip any growth in the investments that we need to make. Obviously, then we will be launching, you know, CORIS and other things into the market, which will come with a cost.
Probably in the future, McGregor, it might be useful that we, you know, just help the market understand between the differentials between the underlying business. For example, in America, we have one slide in there. I think we show that at the full year. You know, if you just take the Americans and the operating margin over there is between 55% and 60%, and that's before we allocate any of our headquarter costs. The trophon business is looking pretty solid, any other costs that we'll be making will certainly be associated with things that we believe will drive long-term value.
Great. Thanks very much for your help.
Thanks, Mathieu. I think we've got time for one more question and, then we'll move on.
Thank you. Your next question comes from the line of Elyse Shapiro from Canaccord. Please go ahead.
Thank you for taking the question. From a gross margin improvements, what extent of those was driven by price rises and volume growth versus FX?
Probably a similar sort of percentages of what we said, Elyse, with the overall revenue. You know, if you look at the overall revenue, growth of 35%, we're saying about 7% of that was associated with FX. Pull that out, and then, in terms of pricing and volume, it was, you know, almost equivalent. That same sort of ratio, flows down into the gross margin. McGregor, I mean—
Is that right?
Yeah.
Just on that.
Okay.
Yeah, go on. Sorry, Elyse. Go on.
All good. Then just quickly on, you know, on the split between price rises and consumables, can you give a bit more color there? Then an understanding of customers', willingness to pay for them on a going-forward basis, especially on, yeah, on the Consumables side.
As I say, you know, the split between volume and pricing was almost similar. In terms of the pricing, there's two aspects to that pricing. One was the increase in price that we got where because of the switch from GE to us now selling direct to customers. We're no longer doing a selling at a distributor price, we're just selling everything at the customer price. There was a small amount of price improvements associated with the negotiations we had with the customers in terms of setting up all those agreements. In terms of pricing moving forward, we think that, you know, the prices we've now been able to get through in the first half, we expect those to be quite similar in the second half.
Not expecting further price increases because we've now effectively set price agreements in with all those customers. We've got enterprise agreements with that includes pricing with a lot of the IDNs, et cetera. Those prices are pretty much set in there. The only thing, Elyse, that, you know, on pricing is obviously when you do both deals, you know, if somebody wants 50 trophon upgrades, well, then they get discounts on those sort of things. We're very happy to accommodate those sort of price reductions.
Great. Thank you.
Great. Thanks very much, Elyse. Well, thank you all very much for attending this morning. No doubt over the coming days, I may be speaking to many of you again. Again, we believe a very solid result for the first half, we look forward to continuing to perform throughout the second half and beyond. Thanks, everybody.
Thank you.