Nanosonics Limited (NAN.AX) Earnings Call Transcript & Summary

I think we're good to get going. We're good, Computershare. Thank you. Appreciate that. Good morning, ladies and gentlemen. My name is Steve Sargent, and I'm the Non-Executive Chairman of Nanosonics Limited. I would like to extend a warm welcome to our shareholders today here at the company's headquarters in Macquarie Park in Sydney and also to those shareholders joining us online. It's my privilege to Chair this 19th Annual General Meeting of the company. I would also like to acknowledge the traditional owners of the various lands on which we're meeting today, and pay our respects to all Aboriginal elders, past and present, and acknowledge today's Aboriginal communities who are the custodians of these lands. With me in the room here today, I'm joined by the Nanosonics' Board of Directors, our Company Secretary and representatives of the company's auditor, Ernst & Young. I've been advised by the Company Secretary that we have a quorum for this meeting, and I, therefore, declare the meeting open. The number of valid proxies received by 11:00 a.m. on Monday, the 3rd of November, was 330 proxies, representing over 221 million shares or 72.79% of the company's approximately 304 million shares on issue. In accordance with the Corporations Act, the minutes of this meeting will record for each resolution, the total number of proxies exercisable by all proxies validly appointed, the directions in which the proxy forms and the results of the polling. I would like to take the opportunity to introduce the Board and the company secretary and the company's auditors. So up the front here, we have our Managing Director and CEO, Michael Kavanagh, then to Michael's left, we have our nonexecutive directors, Tracey Batten; Larry Marshall, Lisa McIntyre, Marie McLeod (sic) [ Marie McDonald ] , Gerard Dalbosco and our Company Secretary down the front is Matt Carbines. As required by the Corporations Act, the company's auditor, Ernst & Young, is also in attendance today represented by Ms. Vida Virgo who's sitting down the front here. Vida oversaw the Nanosonics' engagement on behalf of Ernst & Young pertaining to the audit of the full year '25 accounts. The Board, Company Secretary and the company's auditor are available to respond to any of your questions you may have during the meeting. Also President of members of the management team, who Michael will introduce during his address. Today's meeting will commence with my Chairman's address. Then Michael will then deliver his address. This will be followed by the formal business of the meeting. As this AGM is being conducted in person and online, I will now provide some basic housekeeping instructions on how to ask questions and how each group of shareholders should vote. For those shareholders joining online, shareholders can ask questions, which may be written or verbal, online attendees can submit questions at any time, to ask a question in writing, select the Q&A icon, type your question into the text box. Once you have finished typing, hit the send button. Please note that while you can submit questions from now on, I will not address them until the relevant time during the meeting. Please also note that your questions may be moderated or amalgamated if we receive multiple questions on the same topic. There is further information contained on the meeting platform under the Q&A tab for shareholders that wish to ask questions verbally. For those shareholders in the room joining us here today, please raise your blue voting card if you wish to ask a question. One of our staff will provide you with a microphone for you to use when asking the question. You will -- we will set aside time after each resolution and before we vote to ask any questions that pertain to that resolution. In accordance with our usual practice, in addition to having an opportunity to ask questions on the resolutions, we will also invite general questions after the formal business is closed. So we'll get through the formal business. And then what we typically do is have a more lengthy open mic conversation about the business. To avoid these questions, and we do that so we don't mix all the questions up between the resolutions. For those shareholders joining online, while there will be time for voting after I have introduced each resolution, you may submit your votes at any time until I declare the poll closed. There will also be some time to complete your voting after we have addressed any questions that are raised in relation to the resolutions. If you are eligible to vote, once voting opens, press the vote icon and all resolutions will be activated with voting options. To cast your vote, simply elect one of the options. There is no need to hit a submit or anti button as the vote will automatically be recorded. You will receive a vote confirmation notification on your screen. You can change your vote up until the time I declare voting is closed. For those shareholders joining in person after I call for a vote on each resolution, all persons entitled to vote will be given a moment to complete their voting card before I move on to the next resolution. Voting will be conducted on each resolution by poll. For this purpose, I now declare the poll open. Now it's my pleasure to deliver my Chairman's address. It's a privilege to reflect on a year of meaningful progress and growing global impact. As Chairman, I'm proud to share that our flagship trophon technology now protects over 28 million patients annually across the globe. A powerful demonstration of our commitment to innovation reliability and clinical excellence in infection prevention. There are now over 37,000 trophon installed base units worldwide, serving as a strong testament to the trust our customers place in us and the dedication of our team in infection prevention. This trust is further strengthened by successful release of trophon3, our next-generation technology, setting new benchmarks in ultrasound probe disinfection by providing the highest level of cleaning outcomes in the industry 40% faster. We're also excited about the upcoming phased commercialization of CORIS, our transformational endoscope cleaning technology. CORIS represents a major leap forward in infection prevention practices in endoscopy, converting a manual cleaning process to an automated traceable process. It's designed not only to elevate standards of care but also to support clinics, staff and the environment through a smarter, automated solution. You can see CORIS device outside after the meeting. None of this would have been possible without the dedication of our global team now over 470 strong, who are united by a shared mission to improve the safety of patients, clinics and their staff and the environment by transforming infection prevention. I want to extend my thanks to each member of the Nanosonics team for their passion, innovation and unwavering commitment throughout the year. As we look to the future, it's clear that the health care landscape is evolving rapidly and Nanosonics is well positioned to lead through this change. Health care technologies advancing and clinical applications in ultrasound and endoscopy are expanding. At the same time, health care-acquired infections remain a persistent and serious challenge impacting patient outcomes and placing pressure on health care systems globally. In this environment, the automation of manual processes represents a powerful opportunity. By enhancing efficacy, reducing human error and streamlining workflows, automation allows clinical staff to focus more on delivering high-quality patient care. Likewise, the growing importance of digitization and traceability is reshaping health care operations, driven by the need to meet regulatory standards, support audit readiness and ensure patient safety. Hospitals are also navigating a complex operating environment, facing work shortages, inflationary pressures and tighter budgets and evolving payment models. These challenges demand smarter, more efficient solutions. In Nanosonics, we're responding to these forces with a clear focus on patient care, safety and innovation. Our commitment is to support health care providers as they adapt and involve, ensure they are equipped with the tools and technologies needed to meet the demands of modern health care. As we reflect on our performance and look ahead, I want to highlight how Nanosonics continues to deliver meaningful value for both our customers and our shareholders. We are proud to be recognized as a trusted leader in automated high-level disinfection from medical device reprocessing. Our large and global installed base is not only a testament of our leadership in infection prevention, but it's also a foundation of our high-margin recurring revenue growth model. we've maintained a disciplined approach to capital allocation, which is driving operating leverage and EBIT growth today. At the same time, our strong cash generation and high return on capital from the trophon business are enabling us to invest in the future through product innovation, market expansion and the commercialization of CORIS. We are confident that these investments will unlock our next horizon of growth. reinforcing our position as a leader in infection prevention and supporting long-term value creation. In addition, we believe Nanosonics itself is a great investment opportunity. reflecting more closely on the financial strength of our business. We are pleased to announce today Nanosonics will be launching an on-market share buyback program of up to $20 million in financial year 2026. As you would expect, capital management forms part of every budget cycle at Nanosonics and our announcement today is in line with our considered approach, which includes Board and management analysis of our operating cash flows, planning tolerances and maintenance and growth CapEx requirements. With no debt, a history of predictable cash flows and a cash balance of $161.6 million at the end of June, we are in a strong position financially to implement this buyback while continuing to invest in our continued growth. This initiative reflects our disciplined approach to capital allocation and our confidence of the company's financial strength and future growth. As we grow the business, we are mindful of our responsibility to ensure we do so sustainably wherever possible. In full year '25, we achieved major milestone converting the Australian and U.S. operations to 100% renewable energy, reducing our Scope 1 and Scope 2 emissions by 56%. Looking ahead, our targets reflect our commitment to continuous improvement. We aim to further reduce our emissions in other markets and prevent Scope 3 emissions by relocating consumables manufacturing closer to our customers. We're also focused on safety, targeting below industry safety incident rates and delivering on our inclusion and belonging objectives. At Nanosonics, we are committed to maintaining the highest standards of governance. Our Board is composed of individuals with diverse experience across health care, science, law, commercialization and finance, each bringing independent judgment and strategic insight. This year, we continued our process of thoughtful renewal. We welcome Gerard Dalbosco to the Board whose financial acumen and governance experience will further strengthen our capabilities. He joined as a nonexecutive director in January earlier this year and was appointed to the role of Chair of Audit and Risk Committee. We also thank Lisa McIntyre for her nearly 6 years of service as she steps down from the Board at the end of this AGM. Lisa has been an absolutely tremendous contributor to this company and we'll miss her. We believe that a well-balanced independent Board is essential to guiding the company through its next phase of growth while ensuring accountability and alignment with shareholders' interest. I would like to thank all Board members for their contribution and their ongoing commitment. Before handing over to Michael to provide an operational and financial update to shareholders, let me thank you, our shareholders, for continued support and belief in Nanosonics. We delivered strong financial and operating results, advanced our sustainability goals and continue to invest in future growth. These achievements reflect the dedication and people and is a real strength of the company today. As we look ahead, we remain focused on creating long-term value through continued growth and patient impact. We're excited about what's next and very proud of what our team has achieved and we remain confident in our future. There's absolutely no doubt in my mind that the world is a better place with Nanosonics in it. Thank you very much. I'm now going to invite Michael to say a few words

Thanks very much, Steve, and a very good morning, everybody. It's great to see you all here, and in particular, some regular faces, Michael, wonderful to see you again this year. And special call out as well to Maurie Stang, who has joined us this morning who -- for those of you who don't know, is the founder of Nanosonics and Maurie welcome, great you could make it. And of course, everybody that has joined online. Steve did mention the executive here, I'm not going to embarrass everybody by asking them to stand up and introduce themselves. But the executive here. They're be the ones that are wearing ties and looking really good. So first time they've worn a tie since last year's AGM, but -- myself included. But please do avail of their presence at the end of proceedings to catch up with them and ask any questions as they're a fantastic team and really driving the growth of this business. So FY '25, it truly was a great year of progress for Nanosonics. We delivered, I think everybody can agree very strong financial results and importantly, achieved some very important operational milestones as well for the business that truly does set us up for the ongoing success for the business. But before we dive into the actual numbers. I want to reflect a little bit on something that is just as important, and that's the mission of this company. And if we were to measure our performance against the mission of the company, what would that scorecard look like? I think that's always important to reflect on as well because the mission is not just something you post on a wall or it's something we should all live by, truly here at Nanosonics, it is the foundation of everything we do at the company. It's not just words on a page, as I say. It's the reason we innovate. It's the reason we invest, the reason we succeed. And indeed, many, if not the majority of people who joined the Nanosonics team are attracted to the business because of the mission. And I imagine that many of you shareholders are also attractive to the business because of the mission of the business. And so what would our scorecard actually look like? Well, the mission itself is constructed very, very purposefully, into 3 dimensions, the why, the how, the what. The why we exist, how we make a difference and what we deliver. So if you take the why we exist, as it says here, the statement on our mission statement is to improve the safety of patients, clinics, their staff in the environment. So what does our scorecard look like there? Well, with 37,000 trophons in operation globally, that equates to about 28 million patients being protected from the risk of cross-contamination on an annual basis, and that number grows on a daily basis. From a clinics and clinicians perspective, clinics, we reduced the risk of HAIs, which can have major impacts in clinics. And for clinicians who have to do reprocessing compared to the old antiquated methodologies they used to use. Well, they've now got an extremely safe product with trophon. It's enclosed that can be there used at point of care. And then from the environment perspective, we take that very, very seriously. And so the environmental output from trophon is just oxygen and water. So the scorecard on the why is not looking too bad. And we are looking with CORIS to be able to deliver very, very similar outcomes to support our why as a business. On the how, and that how is by transforming the way infection prevention practices are understood and conducted. Well, we have transformed the traditional mechanisms of reusable medical device reprocessing by bringing automation through Trophon through clinical studies, education and clinical engagement, we've actually helped establish guidelines in a number of countries, and that's leading to more ultrasound procedures now requiring high-level disinfection, and that leads to more patients being protected. And we've done this with trophon and the intention, again, is that we're going to do that again with CORIS. And the what, we do is by introducing innovative technologies that deliver improved standard of care. Well, we've delivered trophon. And if you look in the U.S., here in Australia, some of the Europe markets, it's become the new standard of care. So that truly is innovation that is adding a lot of value. And our goal is definitely to achieve the same for CORIS. So I think our scorecard when we look at the mission is not looking too bad. Numbers, of course, do matter. And in FY '25, it was a year of very, very strong financial performance for the business. So total revenue reached $198.6 million. So that's up 17%, and that was driven by the capital revenue growth of 9%, to $52.5 million for the year. That was with 3,870 trophon units sold. And of course, recurring revenue growth of 20% for the year to $146.1 million. And this recurring revenue, I think it truly does reflect the strength [ all of ] our consumables and service business, which, of course, is powered by a large and expanding installed base. And together, that helped drive our cash reserves higher, of course. Profitability, it grew 72% to $22.3 million in the year. And that's why we continue to invest in R&D and operational capabilities and that included the expansion of our talent, our new U.S. consumables, manufacturing that we're setting up over in Indianapolis, enhanced digital infrastructure that we're building within the business, and of course, the new ERP system that has just gone live and all of that to support scale. But if you actually step back and take away some of the investments we're making in the future, especially on the [ KAR ] side and just look at the trophon business itself and the strength of the trophon business, that core trophon business alone delivered $52.8 million in profit. That was up 31% in the year. And that demonstrates the growth potential, the ongoing growth potential on this business, and we truly do remain confident especially with the recent introductions of the latest generation trophon3, the trophon T2 plus that we'll be able to continue to drive that growth in our ultrasound processing. But a little bit about that later on. Cash flow for the year, again, very strong, $32 million, and we now have predictable cash flows coming through in the business on an annual basis. And with $161.6 million in cash at the end of June and no debt, our balance sheet definitely is in excellent shape. And as announced earlier, to ASX and has Steve just mentioned in his address, we are initiating an on-market share buyback of up to $20 million. for this year. And that is a new element, I guess, this year for our disciplined capital management. And I think this buyback, it reflects 3 things, really. It's -- one, the robust financial position that the company is in. Second, consistent cash flow generation that we have coming in on an annual basis. But most importantly, our confidence in our long-term growth outlook or the business. But importantly, with the cash reserves we have even post this buyback of $20 million, it is important just to remember that we retained the full flexibility to continue investing in innovation, in operational expansion and initiatives to deliver sustainable value for all of us as shareholders. And that includes continued growth in our trophon business, of course, the controlled market release and then the broader commercialization of CORIS ongoing investment in R&D and any potential bolt-on acquisitions as part of our product expansion strategy that we may identify. So in addition to the strong financial outcomes for the year, we also achieved a lot of important operational milestones during FY '25. And all of these milestones are truly a foundational for our next phase of growth as a business. From an innovation perspective, we secured the FDA de novo clearance for CORIS. We've developed and recently launched the third generation of our trophon technology, but also a software upgrade or trophon T2 plus that can bring many of the benefits of that trophon3 to the over 20,000 or so trophon2 devices that are out there. in the marketplace. And with our R&D efforts, we've also expanded our patent portfolio with 7 new patent families over the last 12 months, most of those associated with CORIS, as you can imagine. On the operations front, we've established a CORIS supply chain, manufacturing setup for the capital equipment here in Sydney, we're establishing and got regulatory approval for manufacturing of consumables. So that will both be for trophon and for CORIS in United States in Indianapolis. We've expanded our service infrastructure as a business, and that's important because service actually is 1 of the fastest-growing parts of our business, and continues to do so. And very recently, we also signed a 10-year lease for a new HQ and manufacturing and laboratories facilities. And that move is anticipated around April 2027, not too far from here. It's on Thomas Holt Drive, about 300 meters walk from the train station. So still staying within the same precinct, but 1 key benefit of the move is that we'll have manufacturing labs and the headquarter functions all under 1 roof, whereas today, manufacturing is about 400 meters away from this building. We're also investing in our overall digital and connectivity strategy. And that's a really important aspect of our growth moving forward. And digitalization, in general, is important for us in health care and connectivity and traceability and infection prevention is growing definitely in importance. We recently cut over to a new ERP system which we've been working towards for a number of years now. And importantly, we have established a cloud infrastructure for connectivity and traceability with trophon3 and trophon2 plus. So that delivers and that cloud capability, that connectivity certainly delivers new capabilities and value for our customers. On the digital front, we also continue to strengthen, I guess all companies have to our security -- cybersecurity posture with recertification to the higher ISO 27001 requirements. So these achievements, I think, together with many more throughout the year, do certainly position us for the next phase of growth for the business. As we do enter that next phase of growth, it is important reflect not just only on the immediate, the short-term objectives, but to step back a little bit and think about the broader ambition as a company. And we all know the health care landscape is undergoing a lot of transformation and that's driven by rapid medical innovations, evolving patient expectations, as you can imagine, increasing global demand for safer, more sustainable care. And at Nanosonics, our aim here is not to merely adapt to these changes, but our goal is really to actively participate in those changes, especially as they pertain to the future of infection prevention. And our long-term strategy is very much guided at the moment by our aspiration to truly redefine how reusable medical devices are reprocessed. And in doing that set new standards of care that improve patient safety and health care outcomes. And this aspiration, the core areas, of course, span ultrasound reprocessing. So that is our trophon franchise, but we're on a third generation and it doesn't stop there. You can expect a 4, 5, et cetera, with trophon. So we do continue to innovate and lead and importantly, setting the benchmarks for safety, efficacy efficiency and sustainability. Trophon certainly sets the benchmarks there. For endoscope reprocessing, this is a category that does require transformation, and to improve patient safety. You've all seen the data. We've presented it numerous times, and we believe the CORIS innovation, just like trophon has done can transform that area and set new benchmarks. But we're also interested is not just stopping with ultrasound reprocessing and endoscope reprocessing we are looking from a product expansion perspective to expand into adjacent category -- and so we are committed to research and development and perhaps we may look at some bolt-on acquisitions if we can identify and execute on something that is attractive for us, customers and shareholders. Delivering -- in addition to product innovation, of course, is delivering customer value through new recurring revenue streams. And those recurring revenue streams, they'll only work if they really do focus on meeting customer needs. And that actually is a core component of our ongoing growth strategy. And this involves expansion of our consumables offerings as well as our service offerings. And in addition, offering the digital of services through subscription-based solutions, which trophon3 and trophon2 plus have enabled that can provide ongoing clinical and operational value that is expected in time to become a pretty significant part of our product offerings and revenue mix. And another key aspect when we talk about digitalization is building an intelligent ecosystem, the connect is intelligent ecosystem. And our goal is to create these connected ecosystem that really seamlessly integrates into hospital workflows. And this online delivers real-time data access for hospitals, traceability and compliance purposes, but the potential for real-time device monitoring that can deliver data-driven insights for different stakeholders, including ourselves. And that can range from predictive analytics that can really reshape how we think about service and delivering service to analytics for the customer that can improve clinical decision-making. What has been built in trophon3 can actually enable that? And by virtue of the fact we've built our cloud infrastructure, we're in a position to be able to act on that moving forward. So the aim of this digital transformation journey is to unlock new efficiencies really elevate standards of care and position Nanosonics, I guess, as a leader in intelligent infection prevention, not just infection prevention. International expansion, that's also a key component of our future growth plan. While continuing to invest in Europe and Japan, and I think Katsumi Maruyama, our Head of Japan is -- he may not be in the room, but he's certainly in the building. He may be -- you might see them at the end, a lot of really great things happening in Japan. But we do see CORIS as a potential catalyst for broader global expansion. Why? Well, the standards and the requirements for endoscopy reprocessing are well-established internationally. And we believe that CORIS is well positioned to actually meet or even exceed the expectations of some of those standards over time. So we do see that, that could be a catalyst for our geographical expansion. Of course, none of this is possible without a strong organizational foundation. And we are definitely investing in organizational excellence, from talent development and leadership capability to evolving our operating models, decision-making frameworks, and we continue to strengthen the culture within the organization really 1 that embraces innovation, agility and accountability. And we further aim to empower our teams now with tools, data and mindset to drive smarter, faster and more informed decisions as we move forward. And really, all of these investments that we're making, though they do ensure that Nanosonics it remains resilient as a company, but also really responsive and ready to lead a dynamic and what is a global health care dynamically changing global health care environment. In the more immediate term, just a few comments on trophon because there are many growth drivers to the trophon business. And to strengthen our market leadership in ultrasound reprocessing. We recently did launch the next-generation technology. That's the trophon3. And trophon3, it truly does embody our commitment, I think, to continuing to deliver the gold standard in efficacy while adding important new customer benefits. And that includes with trophon3, a significantly faster cycle time over 40% faster. But importantly, as I mentioned earlier, those broader digital integration capabilities and integration direct-to-patient files, which is important. In addition, we also launched trophon2 plus, and that's a software upgrade for existing trophon2 customers. And that software upgrade can bring the majority of the new feature set to the trophon2 device. And that's great because our goal is to get as many of these devices connected as possible over the coming years. And installations of these are now happening, and I'm pleased to say that customer feedback has been very, very positive. So we do see sustained and strong growth opportunity in our trophon business, and that is driven in our strategies around that trophon driven business are driven by 5 core growth strategies. The first very much focused on capital growth, and we do expect continued expansion of our installed base. and growth in our upgrades, especially with the new generation being introduced. And we've got over 10,000 of the original APR devices out there, and they can now skip a generation and go straight to a trophon 3, and there's a lot happening there to get those customers converted across. Software upgrades, that's really the trophon T2 plus, and I think that will become quite a meaningful part of the business. Our focus at the moment is getting the capital upgrades as opposed to the software upgrades as to where we're directing our efforts. But I think in time that those software upgrades will become quite meaningful for all the existing Profit players. Consumables growth, and that's just not in the core consumables for the disinfection but our ecosystem. So the products that we bring for our customers to cover the whole value chain that they have to go through from a reprocessing perspective. Service expansion. And as I mentioned earlier, service is 1 of the fastest-growing parts of our business. And so we see that continuing to grow. And that will be driven by the ongoing growth of new installed base, but also as upgrades come through. because many of those old generation devices, if you remember, were originally placed by GE Healthcare. Now we're selling the upgrades and in selling that upgrade we capture the service contracts as well. So we're expecting strong growth in our service. And as I mentioned earlier, with the connectivity and digital capabilities in these new devices, we certainly do believe that, that will become a driver of revenue growth moving forward as well. So a lot of opportunity. Moving very quickly on to CORIS and, last year was a really important year for CORIS and marked by a number of really important major milestones. And -- but importantly, the establishment of a clear pathway now towards broader commercialization, which we talked about in August. And those key achievements in FY '25, of course, we had the FDA de novo clearance. That's a big, big achievement for the business. And that opens the door for the 510(k) submissions. We have the operational foundations to scale up this business be it manufacturing here, what we're doing in Indianapolis. And during the year, we did an awful lot of market awareness coming from the clinical studies that we have developed in the business. So looking ahead, I am pleased to say that the first 510(k) has been submitted to the FDA. Fortunately, that first 510(k) got into the FDA a couple of days in advance of the government shutdown in the United States. But people there, they're still working. And so that is going through the process. So that's great news, the first 510(k) for expanded indications has been submitted. And now that, that is just submitted, that paves the way for our European and ANZ certifications. And on approval in Europe and ANZ, we will commence what we've referred to in the past is that controlled market release, and followed in the -- by the U.S., we do the controlled market release on approval of the 510(k). And this measure, this controlled market release, that is a very measured approach. And what it does is it ensures real-world feedback and then optimizes readiness for a broader commercialization. So these steps that we are making with CORIS are very deliberate and they are very strategic, but it's all very much focused to set us up for the long-term success with the product. And with over 60 million flexible endoscope procedures annually, and that's just across the top 7 markets, CORIS does represent a substantial growth opportunity over time, so we want to get this right. Our CORIS model, just as a reminder, it does mirror trophon's multi-revenue stream approach, but even with the potential for greater recurring revenue potential. And while we expect capital volumes may be lower -- and that's due to the fact that CORIS the endoscopy processing is done centralized. Our expectation is that the revenue per device will be a lot higher because there a lot more cycles going through each device at a higher price point as well. So we do believe that CORIS is very much positioned to transform endoscope reprocessing globally over time. And FY '26 will certainly be a year of ongoing disciplined execution but also exciting progress, I believe, toward broader commercialization in '27. So in closing, I do want to extend my sincere thanks to the incredible Nanosonics team. The achievements that we did achieve in '25, which we've outlined today, our results truly all of the passion, the expertise, the commitment of every person here in the company. And I think together, our team, your team, your company has built a very strong foundation that's not only strong but very much positioned for significant growth moving forward. Our guidance for FY '26, that remains unchanged. We gave good guidance at the August result. That guidance remains unchanged. As we outlined in August, we continue to take a disciplined approach in navigating the macroeconomic uncertainties, including evolving global trade and tariff dynamics, we're managing that. The timing of the trophon3 launch, which was mid Q3 or mid to first quarter, I should say, that did result in fewer units going through manufacturing overall in that first quarter, which then led to the requirement for more airfreight in the first couple of months. And so from a -- that's a result of really a transitionary impact on gross margin, still within guidance, but we expect improvements of that to come through as we get close more towards later H1 and definitely into H2. And these factors are all fully reflected in our annual outlook, and we certainly remain very confident in delivering our projections for the year. So in closing, an exciting, I believe, future lies ahead. Nanosonics continues to lead in infection prevention, expand into new markets, deliver sustainable value for patients clinicians and you, our shareholders. And I'd like to thank just like all the team here at Nanosonics. I do want to take the opportunity to thank you all, our shareholders, for your ongoing support, for your trust and belief in what this great company can achieve. Thank you very much.

Thank you very much, Michael. Another really strong year the team has executed on. I will now move to the formal business of the meeting. The notice of this meeting was circulated to shareholders, and copies are available at the registration desk and on the Nanosonics' website. I propose that the notice be taken as read. I will now outline the procedure for this part of the meeting. Prior to calls for a vote on each resolution, the resolution and proxy votes will be shown on the screen, and I will invite questions or comments that are specific to each resolution at the time they are read. As mentioned, voting on each resolution will be by poll. The shareholders who are online, you may either cast your vote at the time of the resolution is read or complete voting on all resolutions after I have read all the resolutions, and we have concluded answering questions on these resolutions. I'll then provide a warning that the poll will be about to close. For those shareholders in the room, I have the following specific instructions. Please use your blue voting cards, after I call for a vote on each resolution all persons entitled to vote will be given a moment to complete their voting card before I move on to the next resolution. On the reverse of that blue voting card is your voting paper and instructions. For proxy holders, you need to mark a box beside the motion to indicate how you wish to cast your open votes for any votes you are entitled to cast. The shareholders, you need to mark a box beside the motion to indicate how you wish to cast your vote. Once we have completed all the resolutions, a representative from Computershare will then come around and collect your completed voting cards. If you require any assistance during this process, please raise your hand, and the Computershare team will come and assist you. As Chairman, I've been given a number of undirected proxies, and I will vote these in favor of each resolution in the poll. The persons entitled to vote on the poll are all shareholders, representatives and attorneys to shareholders. And for those in the room, proxy holders who have the blue voting cards. For those shareholders joining online, questions may be submitted at any time whilst the resolutions are being read using the functionality that I've previously described. Questions will be considered and answered for each resolution when the resolution has been read. However, there will also be a pause at the end to ensure all shareholders are afforded an opportunity to ask any questions. I will now turn to the first item of ordinary business. And that is to receive and consider the company's reports for the end of year June -- 30 June 2025. No formal vote is required on this item of business. I would now like to pause for a few moments to invite any questions for shareholders on this item. We are open to answer any questions on the financials. We've also got Vida Virgo and her team. We've got a question here. We've got a microphone.

Peter Brett, I'm a shareholder. Your research and research and upgrading trophon, et cetera. Is the research amount capitalized or expensed?

No, we expense all. Good question. Any other questions coming online, great. Thanks. The first resolution is the reelection of myself. And as it relates to me, I've asked Marie McDonald to come up and take the election. Thanks, Marie.

Resolution 1 concerns the election of a director, Mr. Steve Sargent. Steve was first appointed to the Board in 2016. He was Lead Independent Director and Deputy Chairman; and to his appointment as Chairman of the Board in July of 2022. This resolution seeks shareholder approval of his reappointment. Steve's reelection is unanimously supported by the Board. I would like to invite Steve to say a few words in respect to Resolution 1.

That's funny. Thanks very much. I appreciate it. So folks, I'm seeking your support for reelection as an independent nonexecutive Director of Nanosonics. As Marie mentioned, I joined the Nanosonics Board in July 2016 and was appointed Chairman in July 2022. I also Chair the Nomination Committee, and I attend all meetings of the Board's committees. Having now served for 9 years, I'm seeking to continue for another term to help guide the company through this next phase of growth. In addition to my role at Nanosonics, I also serve on the Board of Ramsay Health Care and also in its European subsidiary, Ramsey General De Sante, which is listed on the Euronext. The experience I bring to Nanosonics has been developed over more than 46 years across multiple industries and geographies. I spent 22 years with General Electric, leading businesses across the United States, Europe, Asia and Australia and New Zealand, spanning health care, energy and financial services. Prior to that, I had senior roles within Westpac both in Australia and in the United States. As a director, my focus is on providing strong operational and people leadership grounded in a deep understanding of how to drive performance in complex globally dispersed organizations. I am passionate about ensuring our people remain engaged, aligned and inspired by an Nanosonics purpose and the important role we play in infection prevention. I also bring extensive experience in the medical device sector, including new product development, global supply chain management, along with a deep understanding of the international markets and their relevance to Nanosonics' strategy. Finally, my work across several public company boards has reinforced my commitment to good governance, disciplined risk oversight and a culture of accountability. Principles I apply actively to my role here. Nanosonics is an important phase of its evolution. I am confident and excited about its future, and I'm committed to guiding it on this journey. Thank you for the opportunity to address you today. With your support, I would be honored to continue working with my fellow directors and the management team to deliver sustainable value for our shareholders, customers, clinicians, patients and employees. Thank you very much.

I can certainly attest that Steve brings all those skills and experiences and more to our Board. So thank you, Steve. The resolution and the proxies received for Resolution 1, as shown on the screen. Shareholders are invited to vote on the resolution at any time before the formal business closes. I think that I can say congratulations, Steve. Well done, and I'll turn the lectern back to you.

Thanks, thank you. We'll move on to the next resolution. Resolution 2 concerns the election of a director, Gerard Dalbosco. Gerard was first appointed to the Board earlier this year in January 2025, and this resolution seeks shareholder approval of his appointment. Gerard's election is unanimously supported by the Board. I would now like to invite Gerard Dalbosco to say a few words in respect of his reelection. Thanks, Gerard.

Thanks, Steve, and good morning, everyone. Today, I'm seeking your support for election as an independent Non-Executive Director of Nanosonics. As Steve said, I joined the Nanosonics Board in January this year and have since served on the Audit and Risk Committee, which I now Chair and the People, Culture Safety and Remuneration Committee. My professional background spans more than 4 decades across professional services and governance roles. I retired from EY in 2020 and after a career, which saw me hold a number of senior leadership roles, including Oceania Managing Partner and CEO; Asia Pacific joint Deputy CEO and managing partner transaction advisory services across Oceania. In these roles, I led large teams across multiple regions and advise clients on mergers and acquisitions, financial due diligence and strategic growth. Beyond my corporate career, I have extensive governance experience. I currently serve as a Nonexecutive Director at Medibank Private Limited and Chair Melbourne Archdiocese Catholic Schools, which operates 300 schools in Victoria. I also Chair the Gillespie Family Council, who are the owners and founders of the Bakers Delight business. Previous governance roles include roles at Mercy Health and aged care. Barry Street Victoria and the committee for Melbourne. What I bring to Nanosonics is an independence of thought, a deep understanding of risk and governance and a commitment to ensuring robust oversight of financial integrity and strategic decision-making. Independence to me means asking the hard questions, challenging assumptions and ensuring that every decision serves the long-term interest of shareholders, customers and the communities we impact. As Steve indicated, Nanosonics is at an exciting stage of growth with opportunities to expand globally and continue innovating in infection prevention. My experience in financial strategy and governance will help support the company as it navigates these opportunities while maintaining strong risk management and compliance frameworks. It's been a great privilege to contribute to the Board since my appointment in January, and I look forward to continuing to work alongside my fellow directors and our talented management team to deliver sustainable value and transformative health care outcomes. Thank you for considering my election. I very much appreciate your support. Thank you.

Thanks very much, Gerard. And Gerard has been a tremendous addition to the Board. Do we have any questions? We do.

This question comes from Mr. Stephen Mayne, and the question reads, thanks for disclosing the proxy position early. Why was there a 5% protest vote against Gerard on the proxies? Did 1 of the proxy advisers recommend against? And if so, what was the issue?

That's a great question. So one of the proxy advisers is -- was ISS. They raised a concern in their voting recommendations for both myself being on the Board for 9 years and questioned whether I am still independent. And the second issue they raised where they actually -- they still said they should vote for me. But the other 1 was with regard to Gerard. Gerard, as he explained, had an extensive career with Ernst & Young. Ernst & Young have been our auditors for 6 years, 7 years a long time now. and Gerard worked at EY in Melbourne, had absolutely nothing to do with Nanosonics, may not have even known if Nanosonics existed, right, had no involvement in the audit chain. But however, ISS have this, quite frankly, ludicrous policy of if you've got some involvement here, you can't be independent. And so that was it. Once we explained a couple of folks, Matt, Catherine Strong, our IR person. We used the -- got the help of an outside firm. So we spoke to a lot of investors to give that context, and 94.77% said, I know we're on vote. So that's the answer to that question. Anything else? Thank you. For Resolution 3, the remuneration report is required to be considered for the adoption in accordance with the Corporations Act. The remuneration report forms part of the director's support and appears on Pages 42 to 65 and in the annual report. The vote on this resolution is advisory only and nonbinding. The resolution gives the members the opportunity to ask questions or make comments concerning the remuneration report to the meeting. The Chairman of the meeting are the directors are the key management personnel or any of their closely related parties will not be included in the votes on this resolution. Where in my capacity as Chairman, and I am holding undirected proxies and the appointer has authorized the Chair to vote undirected proxies on this resolution, I will be voting in favor of. The resolution and the proxies received on resolution 3 are shown on the screen. Are there any questions on the remuneration report, any communications on the remuneration report internally here, so I invite shareholders to vote on this resolution before the end of business, the formal business closes. We'll move on to the next resolution, resolution 4. This resolution contains the issue of 59,233 service rights to the Chief Executive Officer and President, Michael Kavanagh, under the short-term incentive for 2025. The resolution of the proxies received for resolution 4 are shown on the screen. Shareholders are invited to vote on this resolution anytime before the formal business closes. Are there any questions internally, nothing here in the house, but we do have a question online, Matt.

We do have a question online on -- so this is coming from Mr. Bhavesh Shah and Mrs. Hashini Shah, and it relates to the STI, which is the subject of this resolution. And the question is as follows, why switch to the STI metric from PBT to EBITDA now? And what guardrails ensure this doesn't encourage acquisition for the sake of boosting EBIT.

Okay. So that's not -- looking back, that's looking forward, I think correct. Right. And it's EBIT -- it's EBIT, it's not EBITDA, right? In terms of the financial metrics we look at each year, we really look at the strategy of the company, how the team is performing and make sure that are we aligning the team to help us achieve the strategy. And we -- as the company evolves, we're gaining more net income as in the past, we're really heavily focused on R&D and which we continue to do forward. But as the company is mature, we've been able to generate earnings. And we just got to make sure that we tweak those metrics to make sure the team is incentivized and rewarded for continued ongoing performance in quite a volatile environment. What prevents the team from doing, I don't know what the word was, harebrained acquisitions. One, I've got enormous trust in the team. But number two, the Board at the head of this room here. It's got an awful lot of experience, and we -- Michael can't buy a company for $1 without the approval of Board. So that would be the control factor for their question. So I invite shareholders to vote on that resolution. We'll now move to the Resolution 5. Resolution 5 concerns the issue of 405,184 performance rights to the Chief Executive Officer and President, Michael Kavanagh, under the 2025 long-term incentive. There are a number of refinements in the LTI framework going forward, and they're outlined in our notice of meeting, but also in our remuneration report. The resolution of the proxies received for resolution 5, are shown on the screen. Do we have any questions in the room? No questions in the room. We've got 1 online.

So another question from Mr. Bhavesh Shah and Mr. Hashini Shah, relates to the LTI. With LTI back to company-wide EPS CAGR, what 3-year EPS CAGR range or incentives calibrated to? And what portion of that depends on CORIS milestones.

Got it. So the CAGR range is identified in the -- or the CAGR target is identified in the notice of meeting. It's clearly identified there. how we get to that target is that we -- a couple of times a year, we sort of look at our annual budgeting cycle, but also we budget out to 3 years, and in some cases, out to 10 years to understand the ongoing performance of the company. And we look at what that 3-year target could be and then appropriately set the EPS, the earnings per share target based on that.

The second part of the question about CORIS, and what proportion of that depends on the CORIS [indiscernible]

There will be CORIS revenue 3 years out, for sure. Right. So shareholders are invited to vote on the resolution at any time before the formal business closes. Our last resolution as Resolution 6, and this considers the reapproval of the Nanosonics global employee share plan, under which securities may be issued for the upcoming 3-year period before it must be renewed again. It's -- and our share plan for employees that is renewed every 3 years. there are any questions internally, doesn't look like it and nothing online. So I encourage you to vote. I'll pause here for a moment or 2 to provide shareholders with a further opportunity to ask any questions in respect of any of the 6 resolutions, nothing has come up online. And as a reminder, to send a question, we can go to sir.

Okay. My name is [ Innis Oprata], and I'm a shareholder, and the question I have is, I understand that the trophon product will progress beyond [indiscernible] . So we will have trophon4, trophon5, whatever. On the other side, we have CORIS. It's not clear to me what is the relationship between the two, is CORIS a long-term replacement for trophon or as a complementary.

No problem at all. That will take that question -- I will answer your question. That's more for the general business once we finish the voting. No problem at all. We welcome the question. The way to think about it trophon and the ecosystem of service and products and consumables is primarily the cleaning of ultrasound probes. So you think of an ultrasound when you go in and get a skin, it's purely for ultrasound probes. CORIS is purely for flexible endoscopes, think colonoscope, I think endoscope, think bronchoscope, all the various scopes that doctors use to look inside your body. Two very different platforms, very different markets. They both have different characteristics. So a similar model where we sell a capital item and then have a lot of consumables in an ongoing service relationship. If there are no further questions, we can go to the general business section. And we keep the voting open. Don't we, Matt?

I think we can close the meeting.

You want to close. Okay. So -- so we'll close the meeting now, but then we can go straight to and so folks can get their votes in. And then we can go to more general questions. So if you can get your vote [Voting]

Yes. General question. Well, actually, I've got 3 little basic questions. The first 1 is when, let's say you're an American hospital, a large hospital, and you want to buy 2 trophons, which is even better. I presume they're all made here in Australia. So they're constructed here and shipped over. The Australian government will be very proud of you. They want more industry in this country. The second question. Yes. You have -- take the trophon for example, using hydrogen peroxide, when you sell a trophon to a hospital, do they do -- must they use the hydrogen peroxide that you produce? That's very reassuring because otherwise, they could use any hydrogen peroxide of any brand.

Yes.

Thanks. And the third 1 is about servicing. So if it's necessary to service a trophon, let's say, that's been there for a while, it presumes done digitally.

Okay. Great. So there are 3 great -- 1 comment, 2 questions. Your first comment, when you go outside and look at the trophon out there, you'll see on the front door, we've got a boxing Kangaroo on the front proudly made in Australia. In fact, some of the trade shows, the team in the U.S. attend in 1 of them, they actually had a wallaby, didn't they? They actually had a live wallaby attended this trade show. I'll let you take 2 and 3, Michael.

Great to see you again. The second question with respect to hydrogen peroxide, yes, it has to use our product and -- it has to be our product. We've got a number of patents on it that protect us legally. The other part to take into consideration is what's approved from the regulator is the system, it's a peroxide and the machine together. So to get the actual peroxide just approved for use in the device, but we're certainly not going to help anybody do that. The third protection, I would say, is we've continued and have done years and years of probe compatibility work with all the OEMs. So we're now probably close to 1,300, 1,400 probes that are compatible with the device. That's with our peroxide. And -- so if anybody was to come in and try to put their espresso pod in our machine, so to speak. Well, the reality of it is it would invalidate all of that warranty and the work that's provided. And then service. On the service side, I mentioned earlier about connectivity, and where you're going is exciting because the idea of having service and done digitally is ideally, that's the ultimate goal. There's always been mechanical top times when there is a mechanical problem or there will have to be a physical service. Today, at the moment is, we do have what's called an annual PM or preventative maintenance service. And then it's a break fix, if something breaks down. But it's a very, very reliable machine. There's somehow there that have been in operation for many, many years, which is a testimony, I think, to design, but also the service that the team provides.

Thank you. So if I can -- we'll go to more questions if I can, just clear that the polls closed now. Thanks, and we'll now invite more general questions.

We've got a question over the back here. Thank you.

Peter Middleton, a shareholder. My question is, has the Board given consideration to the subject of declaring a dividend. And if the answer to that question is no, is there an anticipation of when that might be a matter the Board considered, if I could give a slight background to why I'm asking that question. I bought 80,000 Nanosonics shares 17 years ago. So I have no complaints about my capital growth I think it's about 2,500%. When we created a self-managed super fund that were transferred into the fund. And I get a reminder, at least twice a year from my financial adviser that I should be further selling down my Nanosonics holding. Given the trillions in the pot of self-managed super funds. I think if a dividend became a component there would be a lot more funds like mine who would consider and decide to invest in Nanosonics?

Yes. Thank you. So to explain the process the management team and the Board go through, at least twice a year, often more, we look at our capital management, right? And so we look at are we investing enough in ongoing research and development in the accelerated launch of how do we get core [indiscernible] operating faster. How do we continue to build out our global network. So invest into the company. We firmly believe that's the number 1 best return for shareholders and to the -- you're a testament to that in terms of the return the team has been able to generate for you. In terms -- once we look through all the capital needed for the business, we then consider do we do a dividend or do we do a stock buyback? And where Nanosonics is right now, we actually don't have a large franking credit base. So if we were to issue dividends, you would not be able to get franking credits to any material degree. That will change over time as our earnings continue to grow, but that's where it is right now. As a result of that, we believe it makes more sense that we instigate a buyback program. We've still got enormous confidence in this company and its growth prospects, we can comfortably fund everything we need to for our future growth, and we still have enough cash that we believe you deserve to get some of your money back. Hence, we've started that -- we announced the start of that buyback program today. That's been set for this year for full year '26, and then we'll assess that over time. But the real answer to your question is why haven't we done dividends, our franking credit balance isn't that high just yet. It will over time. Any other general questions, we have one here.

Ken Barry, a shareholder. My question is about geographic expansion. I know that Japan has been an area of focus for a long time. it seems to have been a slow process to penetrate that market. I know you alluded to the gentlemen in the building. I just wonder what -- is there a step change that's happening because I don't see that the increase in the numbers is evident from the annual report that was on.

Look, a great question. And Japan, we have a fair amount of conviction around the opportunity in Japan. It's traditionally the second or third largest individual market in the world for medical devices essentially. Interestingly as well, it's got the largest number of ultrasound procedures conducted per capita in the world. But as we've explained before, they don't have the guidelines and requirements to actually high level disinfect ultrasound [indiscernible] yes. Now it's interesting because the guidelines and requirements to do endoscopes are there. The guidelines and requirements to do TEE ultrasound, that's ultrasound that goes down into your esophagus for cardiac imaging, that's required. The guidelines for nasal pharyngeal scopes are going back into your throat from an ENT perspective, they require. So our goal is to get those guidelines in place. That progress has been made. The first thing you have to do is generate a lot of local data, and we've now amassed a number of studies that, a, identify that Japan is no different when it comes to the degree of contamination on these ultrasound transducers. We've now generated data to show that in hospitals, even current practice of just wiping even without the whole wide makes no difference. We've generated data to show trophon on definitely works up there. And we're now working with a number of advisory boards. One of them actually just presented data in Vienna last week on a study that they conducted in emergency care in Japan. So we're making progress in getting those foundations in place than working with opinion leaders from multi societies to try and start the whole process of getting guidelines. The ultrasound is The Sonographer Society. They have now established a guideline and put it in. But on the pecking order of importance and influence, that we need some of the stronger societies. So we are making progress. It is slow and somebody often said to me in business in Japan, you go slow to go fast. And some say it's like the 3x factor. It can take 3x as long cost you 3x as much but the return you can get can be 3x as big when you do actually succeed. So we're committed to it. We're continuing. Obviously, we've been judicious about our investment there. But we -- over the coming years, I can't give you a time line. but we do believe that, that market will change first in the future.

Okay. And if you see Katsumi outside, I encourage you to give him a bit of a giddy-up. A couple of questions there.

Thank you very much. I have the question and a suggestion. Question is to do with CORIS. I've been reading back this infecting for a long time. And not a person so this is off the top my head, but is impacting any scopes has just been given up on by so many companies, big ones. And I totally congratulate a little [indiscernible] and for taking on and then solving it. My question is though is, not sure what we -- but due to the build up lack of patience with [indiscernible] there were single-use endoscopes generated. I can understand how that happened. Now there once they are used, they are [indiscernible] way. That to me sounds like enormous problems so far, the environment to start with. But in America, we are so strong, that doesn't matter anymore. There's no environment. My question is will that be getting over the barrier of the single use will that be a problem for CORIS.

Yes. Great question, Michael. And you're right. The whole reason single-use endoscopes were developed was because all the challenges associated with we reprocessing and disinfecting endoscope. That's the whole reason you look at any of the websites of the bigger companies like [ AMBU ] is probably the biggest 1 on reusable endoscopes. It is all about infection prevention. That's the value proposition. So the -- in America, you mentioned the environment, but there's 2 other issues with the reusable -- -- and by the way, I believe they still have a place in the market. But the other would use your environment, but there's 3 Es is the environment, I totally agree with you. But the second E is the economics. So you're using some -- these are not $15. They're $1,500, $2,000 or more. So the economics of throwing away that sort of money and you just take colonoscopes and about 30 million [indiscernible] procedures done in North America alone. Economically, it doesn't make sense to convert over. An actual fact, I think the we're trying to look at -- can they get to semi reusable status, in other words, just use it about 5x before. By the way, if they did, you still need a CORIS. So there's the economics. The other part is the ergonomics. I give you 3 Es. and that is for the surgeons, and the use of those devices. And the -- I mean the endoscopes, by and large, are very sophisticated pieces of equipment, and it's all about dexterity, it's all about the maneuverability. It's all about the image quality that you get from the reusable endoscopes. So we don't see that reusable or a barrier to adoption, we're not being complacent by it, but we don't see that, that will be a barrier to adoption. But as I mentioned, I do think that they do have a place for centers that do very low volumes of centers where there's an emergency requirement that scope is not ready. They do have a place. So I'm not listing at all on the reusables, but I don't see it as a barrier for us.

Okay. Thank you very much. As we come to this AGM quite well. One thing I would be very strongly in every 1 of them is listening to executive giving the talks, but rooms of the previous year. The care attention was given to health care workers in hospitals. The lowest level of people -- and yet, when something goes wrong, the blame go back exactly to this person year. Now I notice in the AGM that the executive of this company, we're worried about that, that fact. I'm working me done about, hence, toughen success Well, I imagine [indiscernible] or I'm using trophon, I don't have to worry about 1 of that a -- the hospital will not pursued, but this -- this will be a correct thing. Now in the alliance of that, I'd like to make the following suggestions, and that comes out at an appropriate time, you're moving to a new building, manufacturing and administration all in 1 place. I'd like to guess the following. A ticker tape, digital ticket tape, we put somewhat over the main entrance to the building saying in like 15,000 people would be guaranteed safety today because of the work we do. That's each person coming to work in the [indiscernible] that I don't have to have, you all know how negative our environment is, people just look for average we raised by and their average if they can't find average. So lowers have to be in [indiscernible] In particular, people are working, and so we all need every buildup we can get on the new building.

Michael, thank you very much for that comment. And that's why I started my address today with the mission.

[indiscernible] .

Very true, and we are all proud of that, and I think we do wake up in the morning. And as I said, at 28 million on an annual basis grows every day. So I think the whole idea of having a digital clock as the numbers go up, it's a great idea.

We've got another question from Maurie Stang, our founder, Maurie you got a question.

Thanks a lot. I'll be brief. The entire instrument reprocessing world is fraught with problems, technology issues, environmental issues, safety issues and so on. So beyond the traceability, are we seeing the use of AI as a competitive advantage to help our customers solve more problems than just the data coming out of our machines. I think it's a huge opportunity. Do you want to take that one Michael?

Yes. I think, Maurie, the whole area of AI, it's a very, very broad area. And we're certainly looking at it internally in the organization to drive operational efficiencies. I use it very regularly myself. But I think with AI, the 1 thing, as you're using it within a business -- well, the people that use it really have to see themselves as context engineers. When you're prompting these things to try and find information, it's the context that you have to provide AI to make sure that you get a useful answer back. Other areas I mentioned, and this will be relevant to customers as well, is on our service side, and the ability when we are connected to we do predictive analytics and all of those other things for machines, we're actually getting to work on that now. Specifically, what you're talking about, I think, is more on the clinical side. and predictability even from outbreaks and things like that.