Release Date: February 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nanosonics Ltd (ASX:NAN, Financial) reported a global revenue of $79.6 million for the half-year, indicating a strong financial performance despite market challenges.
- The company saw a 4% increase in consumables and service revenue, highlighting the resilience of its recurring revenue streams.
- The global installed base grew by 1,100 units to 33,550 units, demonstrating continued market penetration and adoption.
- Nanosonics Ltd (ASX:NAN) has a strong balance sheet with $118.3 million in cash and no debt, providing financial stability and flexibility.
- The company is making significant progress with its new CORIS technology, which is expected to set new standards in infection prevention for flexible endoscopes.
Negative Points
- Nanosonics Ltd (ASX:NAN) experienced a 2% decline in global revenue compared to the prior corresponding period, primarily due to lower-than-expected capital sales.
- The company faced significant challenges with hospital capital budget constraints, particularly in North America, impacting sales and revenue.
- Upgrade volumes were down 23% on the prior corresponding period, with only 620 units sold in the first half.
- Operating expenses increased by 12% compared to the prior corresponding period, putting pressure on profitability.
- The gross profit margin is expected to decrease in the second half due to a higher proportion of capital sales and potential short-term impacts from new customer offerings.
Q & A Highlights
Q: You mentioned that some hospital capital budget constraints will continue into the second half of financial '25. Do you have any thoughts as to whether that might be more prolonged and might impact your first half of '25?
A: My expectation is that it could go into FY '25. We'll have to wait and see. We're introducing new sales models to provide customers with greater financial flexibility, which we hope will enable earlier adoption of our technology.
Q: At what point in the first half of '24 was the new payment model introduced, and did you see any meaningful change in customer patterns?
A: The new payment models were introduced as a result of the first half results, particularly the December results. So, it is really an H2 introduction.
Q: Is the delay in capital budget constraints a timing issue, or do you see any hospitals falling out of the pipeline?
A: The pipeline continues to grow, which gives us confidence that the underlying requirement is there. We just need to deal with the speed by which they can get the budgets through the capital budgeting process.
Q: How much longer is the timeframe for converting the pipeline to sales now versus before COVID?
A: In some cases, it could have extended by 60 to 90 days, depending on the size of the order. We will be tracking the time to close during the half to see if there is a contraction.
Q: Are capital budget constraints limited to the United States, or are you seeing this outside the U.S. as well?
A: It's universal. The hospital sector is under stress not just financially but also with staffing issues in some markets. It's more pronounced in the U.S. due to the size of the market.
Q: Can you give more context around the second half guidance in terms of upgrades versus new installed base?
A: We expect both upgrades and new installed base to increase. The deployment of capital will determine the growth in each segment.
Q: How are you thinking about the decision process for offering new models to customers across upgrades or new installed base?
A: The principles will apply to both. For upgrades, bringing adoption forward means earlier consumables usage and service revenue. The models we are looking at are applicable to both upgrades and new installed base.
Q: How should we think about the phasing of costs for CORIS as you move from development to commercialization over the next 12 to 18 months?
A: There will be an initial cost increase associated with the launch, including CapEx for inventory and launch costs. We expect to see a return on these investments in FY '26.
Q: Should we think of the U.S. market as one where the up-front capital model remains dominant, with some short-term concessions?
A: Yes, it's more likely to be intermediate than long-term. The U.S. market has traditionally preferred up-front capital purchases, and we expect it to return to that model when conditions improve.
Q: What was the FX impact in the first half, and what are you expecting going forward?
A: In the first half, the FX benefit was around $1.6 million on the revenue line. For the second half, we expect the FX rate to be around $0.67, similar to the first half.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
