Nanosonics Limited (NAN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Nanosonics full year results conference call. [Operator Instructions] I would now like to hand the conference over to Mr. Michael Kavanagh, CEO, President and Managing Director. Please go ahead.

Thank you very much, and a very good morning, everybody, and thank you all for dialing in this morning. I'm joined here in Sydney by McGregor Grant, our CFO. Well, by now, most will have seen our full year results, which were released earlier this morning, which I believe reflect what's been another great year of significant progress for the company, delivering strong results, especially taking the pandemic into consideration, but also importantly, results that demonstrate the underlying strong fundamentals for the business. This is particularly evident when you look at the outcomes and momentum achieved in the first 3 quarters of the year before the main implications, of course, of the COVID-19 pandemic were felt primarily in the fourth quarter. As such, when reviewing the overall results for FY '20, I think it's important to look at how the business was performing in the first 3 quarters and the fourth quarter separately. Therefore, in the results announcement that you may have seen and the corresponding investor presentation, you will find a fair amount of granular details to enable you to assess those 2 periods. And as I go through the results this morning, I will provide a review of the year covering the performance across those 2 periods. So starting with total revenue. For the full year, revenue was up 19% to $100.1 million and -- so I've to say, up 19% on prior corresponding period. Breaking that down regionally, the full year revenue in North America was $90.2 million, which was up 18% on prior corresponding period. Moving across to Europe and Middle East, the revenue there grew 37% for the year to $5.2 million, and in Asia Pacific, it was up 17% to $4.7 million. So overall, across all 3 regions, performing very well. But if you do break it down into the 2 phases, so looking at the Q1 to Q3 phase and then Q4, what you actually see is that in the first 3 quarters of the year, there was very strong underlying growth momentum. And the total revenue for the business was actually up 26% on prior corresponding period versus the 19% for the full year. Again, breaking that down by region, in North America, revenue there was up 25% in the first 3 quarters as trophon continued to perform very well and certainly establishing itself as standard of care. And very pleasingly, in Europe, even though off a relatively low base, we started to see the benefits of our infrastructure investments with revenue up 43% in the first 3 quarters versus the prior corresponding period. And in Asia Pacific, the first 3 quarter revenue was up 27%, again a very good result. But of course, then in Q4, the main impacts of the COVID-19 pandemic were experienced. And those impacts were primarily sales force lockdowns and very limited hospital access, coupled with a reduction for a period of time in certain health care procedures. But despite these lockdowns, revenue did not go backwards in the fourth quarter and was just slightly ahead of pcp, actually up 1% to $25.3 million. So in the context of the pandemic, not a bad result in the fourth quarter either. And breaking that down by region, for North America, and again, this is for the fourth quarter, the revenue was essentially flat in that quarter versus prior corresponding periods and revenue there was $23.2 million. In Europe and Middle East, it was up actually 20% on prior corresponding period in the fourth quarter, albeit off a low base to $1.2 million. And in Asia Pacific, it was slightly down just on 10% on pcp to just under $1 million in that fourth quarter. So looking at this total revenue broken down by consumables and capital. First of all, with consumables, well, as you can appreciate, having an annuity stream of revenue through consumables is a very good thing in this environment. And for the full year, our consumables and service business performed very well with revenue up 36% to $70.1 million. Again, breaking this consumables and service revenue down to those 2 periods, so the Q1 to Q3 period versus Q4. In the first 3 quarters of the year, the consumables and service revenue was actually up 39% on pcp. And that growth really reflects the ongoing growth in installed base as well as the benefit of the increased pricing of consumables to GE as has been mentioned before. In the fourth quarter, despite a reduction in the number of ultrasound procedures as a result of the pandemic, consumables and service revenue still grew 29% compared with the prior corresponding period. Some of that's driven by volume, but primarily driven by the increased price to GE. While we did see a reduction in consumable sales to end customers, especially in the mid-April to end of May period, we have been monitoring this very closely. And in June, global sales of consumables to end customers trended back to approximately 80% of the Q1 to Q3 levels. But more importantly, as we enter into FY '21, pleasingly, external data suggests the volume of ultrasound procedures continues to recover in the health care settings and sales of consumables to date in FY '21 to end customers is consistent with this. So we are seeing the sales of consumables continuing to increase. Moving on to capital. Despite the increase in installed base, which I'll get on to shortly, full year capital revenue was actually down 9% on the prior corresponding period to $30 million. But this is primarily due to 2 reasons. The first reason, which is the main reason, which we flagged in the half year result, is associated with a reduction in capital sales to GE Healthcare, our largest North American distributor partner. Now to understand this, you actually have to wind the clock back a little bit to the second half of FY '18. And in April of that year, in FY '18, some of you may remember that we received earlier-than-anticipated FDA approval for trophon2. However, the trophon2 had not entered full-scale manufacturing and was actually not launched until early in the H1 of FY '19. So as we expected in the last quarter of FY '18, GE Healthcare actually ran down their inventory of trophon in anticipation of trophon2 coming. So they stopped -- effectively stopped buying trophon EPRs in anticipation of the trophon2 coming. And if you actually go back to our overall FY '18 results, you'll see the implications of that reflected there. Then in FY '19, they rebuilt their trophon inventory. So hence, the FY '19 trophon requirements were greater than normal because they had to rebuild inventory as well as fulfill orders. Consequently, their requirements in FY '20 were less as they had already built that inventory. And this was also mentioned, of course, in our half year results. But one thing I would point that I think is important to make in that is the reduction in capital sales to GE during the year should not be interpreted as a slowdown in sales to end users by GE Healthcare. And they did continue to deliver excellent new installed base growth numbers, especially during the first 3 quarters of FY '20 as well. And of course, the second reason on the capital revenue are the implications of the pandemic, which also obviously impacted capital sales to end customers in the fourth quarter because of the various measures implemented within the hospital systems to try and curb the spread of the virus in the hospitals, but also as well as implications and measures that Nanosonics has taken with respect to the sales force. So that capital is a good segue into the actual installed base performance for the year. And for the full year, the global installed base was up 13% to 23,720 units. In North America, the total IB grew 13% to 20,990 units, where it is clearly establishing itself as standard of care. And we're now seeing more and more units going deep within hospitals, so -- and spreading across all the relevant departments within hospitals, which is very pleasing and reflecting of the strategies that we are putting in there. In Europe and the Middle East, the IB grew 27% for the year to 1,120 units. And in Asia Pacific, it grew 9% for the year to just over 1,600 units. Again, like capital and consumables, really a tale of 2 periods. And in the first 3 quarters, as you will know, we had guided the market to a pre-pandemic to expect similar numbers in the United States as we had achieved in FY '19 to close to 3,000 units. And the growth in the installed base in North America was certainly in line with those expectations. And with a strong pipeline, we certainly had line of sight to achieve our target numbers for the year prior to the pandemic implications of Q4. But in Europe also, during that same period, in the first 3 quarters, the number of new units installed over there was up 37%, which was very pleasing and actually up 56% in Asia Pacific compared with prior corresponding period. So that really did demonstrate great growth momentum and the strengthening of the underlying fundamentals for the business. But in Q4, because of the restrictions, while we continue to grow IB, the actual number of units installed globally in that quarter was down about 45%, 46% compared to the prior corresponding period. And that reflects more a delay and an extension of the time for people to purchase rather than a cancellation. We still believe that the -- those opportunities that we had intended to fulfill are still very much live. So considering the circumstances overall, really a very good result across the year from an installed base perspective as well. More generally, it was positive during the year. We saw the publication of a number of new guidelines internationally, reinforcing the importance of high-level disinfection for all semi-critical probes. And indeed, a number of these international societies reinforce the importance of this, especially as the COVID-19 pandemic hit. And an actual fact in Japan, which is one of the markets, as you know, we're working on, the Japanese Society of Ultrasound in Medicine actually published an English version of the world federation in ultrasound in medicine guidelines supporting high-level disinfection. We still don't have the specific Japanese guidelines, where that certainly bodes well moving forward in Japan when that market opens up again. So these guidelines in general and their expansion internationally certainly continue to underpin the ongoing opportunity for trophon, both within and outside of the North American market. And I should mention that, like all companies, Nanosonics, we did put a lot of measures in place when the pandemic emerged, really with the safety and well-being of our employees prioritized, and that result is in lockdowns for many people, in particular, our sales force and implementing new working-from-home arrangements for our office-based staff as well as increasing our capabilities for digital customer engagement where possible. Importantly, in that time, we also took a lot of measures to ensure continuity of supply for our customers. And indeed, our focus shifted to offering support, where possible, to those on the front line, where we know ultrasound was being used as a diagnostic for COVID-19 because of the respiratory problems and scanning of the lungs. And we do know that in some hospitals, trophons were moved to emergency care from departments that had temporarily closed. And in addition to that, we provided approximately 80 to 100 trophons on loan as well to customers to support their efforts. And those units that I mentioned there that we provided, they're not included in our official installed base numbers reported this morning because they may be returned, but some, and we believe many, may actually convert into a sale or rental moving forward, as trophon should be in emergency care while ultrasound is used anyway. And I am aware of number that already have converted into full-time installed base. Just looking at some of the other financials for the business. As part of our long-term growth agenda, we continued increasing our investments with operating expenses up 28% to $63.2 million. That was a bit under what we had guided the market to, as there were some savings in the fourth quarter due to the lockdowns, et cetera. But that $63.2 million also included $15.6 million in R&D, which was up 37% on the prior corresponding period. In addition to the internal R&D efforts, we also established a new business development function together with a new investment subsidiary that is dedicated to identifying and assessing local and international opportunities to accelerate the growth of our infection prevention portfolio and establishing this as a separate group. What it does is it provides all the necessary focus for a dedicated group for pipeline development through opportunities for M&A, licensing, et cetera. And considering that planned accelerating investment in our growth agenda, of course, as well as the impact of COVID-19 on the Q4 revenue, our operating profit before tax was $12.4 million for the year compared with $16.8 million in the prior corresponding period. Our free cash flow, you'll have seen was very positive. It was up significantly for the year to $20.9 million, and that was compared with $2.6 million in the prior corresponding period. Now this was driven primarily by increased receipts from customers, but importantly, as we reported last year as well, the payment terms with GE changed during the year and that resulted in a delay in receipts that year and then receipts in FY '20 do reflect a catch-up from last year as well, of course, as the effect of higher sales, but also lower inventory holdings here in Sydney. As a result of that increased free cash flow, the cash and cash equivalents were also up almost $20 million or $19.6 million to $91.8 million. And that continues to provide a strong foundation for ongoing investments in growth. And I think in this current environment, it's also worth noting that the company has negligible days. A couple of comments on R&D and outlook, and then I'll hand over for questions. And as I mentioned, our investment in R&D increased 37% to $15.6 million in FY '20. And that investment spans a number of areas and important milestones were met throughout the year across a number of projects. The main focus, of course, during the year was on our lead new platform technology. And in this project, we are collaborating internationally with experts in the field. And through these collaborations, we have identified a number of positive enhancements for the technology that we plan to implement. And when implemented, we believe can deliver even superior outcomes to those originally anticipated. So that is something that we're working on at the moment. And in terms of time lines for this new product, the inclusion of these new enhancements, coupled with the inevitable uncertainties associated with COVID-19 on certain project milestones, means that commercialization of the new technology. It's no longer expected in FY '21, but we will -- will likely be in FY '22. In addition to this lead new platform, I mentioned we are working across a number of projects, and we also do expect to release a solution for further digital traceability and reporting which we believe will become even more important now for customers, and this product is also in advanced development. And as mentioned earlier, we've also established a dedicated business development group and subsidiary that is very much focused. So not impaired by our day-to-day running of our normal internal R&D, but a very focused group on assessing -- looking for and assessing local and international opportunities for strategic acquisitions or product licensing opportunities or potentially even participating in some early-stage new technology developments. So there is certainly a big focus within the business on achieving our product expansion goals. So moving to the outlook for FY '21. And I think it's important to stay upfront that while we continue to be faced with the current issues associated with the pandemic, we do continue to be very optimistic about the future as the long-term fundamentals for the underlying business remains strong as demonstrated again in FY '20. And one could argue that the fundamentals really being an infection prevention company could even be strengthened moving forward. However, with the inherent uncertainties and continued ongoing risks associated with the pandemic in mind, it really is not possible to provide specific guidance in respect to FY '21. What we can say is that, whilst our installed base does continue to grow, it's likely that in the first half of the year, the installed base growth and trough on capital sales in general will be impacted by the limited hospital access currently being experienced, in particularly in North America, and this has been the experience to date in FY '21. And taking that capital and those restrictions into consideration, I think it's also important to understand that this will also likely have a flow-on effect to the capital equipment requirements of our main North American distributor partner, GE Healthcare. As such, it's anticipated that sales of trophon to GE Healthcare may also be reduced, in particularly in the first half due to the -- really due to the impact of reduced capital sales to customers in Q4 by GE also and the effect that would have had on their ending FY '20 inventory, and of course, coupled with the ongoing impact of hospital access restrictions. We are hopeful that those restrictions will continue to ease a bit. But certainly, at the moment, we are still faced as most companies are with a lot of restrictions in access to their hospitals. On the consumables front, in June, our global sales of consumables to end customers, they trended back positively to approximately 80% of the Q1 to Q3 levels. And external data that we monitor now that we get, particularly from the U.S., looking at procedural volumes, it does indicate that ultrasound procedures do continue to recover. And sales of consumables to date in FY '21 to end customers is certainly consistent with that, which is a positive trend. There are, of course, risks that if there are any other further lockdowns or measures taken that could have similar impacts to what we saw in Q4, where ultrasound procedures could decrease if there are lockdowns in certain departments, we're hoping not, but we have to be cognizant that, that risk still remains. But at the moment, we're not seeing that. Finally, the COVID-19 pandemic, it certainly has reinforced the importance of infection prevention and certainly given increased prominence to this important topic, not just amongst the medical community but in -- across all communities. And we consider that this can only be positive for the longer-term fundamentals of the business. And as such, we maintain our commitment to continue to invest in our long-term strategic growth agenda, and we expect total operating expenses for the year to be in the range of $75 million to $78 million with those increased investments being made across all dimensions of the business, but in particularly across R&D and regional infrastructure as we continue to grow and expand internationally, but also associated with our operational capability to support the organization globally. So with that, I will now hand over to -- for any questions. Thank you.

[Operator Instructions] Your first question comes from Lyanne Harrison, Bank of Australia -- sorry, Bank of America.

One largely on the capital revenue side on Nanosonics business, given that this has been the hardest hit by coronavirus. In terms of looking ahead towards 2021, can you comment on, I guess, the level of engagement your sales team is currently having with the hospitals? And in particular, in the United States, the coronavirus cases have increased. Has engagement reduced because of this? Or has it started to open up as the hospitals are now more prepared with processes in place?

Thanks for your question. It's a very good question. I guess it's a similar question that everybody will have as to what's our experience out in the field at the moment. And in North America, it is quite geographically dependent. We are seeing some reps getting out there. From a service perspective, we're okay and -- both in America and around the world and that we can have access to the hospitals, but we still are seeing quite a lot of restrictions in gaining access to the hospitals. We're doing a lot of digital engagement. A lot of -- some of our clinical applications, people are getting in but in a restricted manner. And the hospitals are putting in certain measures that can range from the reps having to have had a COVID test within 7 days of visiting the hospital. Other hospitals putting restrictions that if a rep has visited another hospital in the same day, they cannot enter that hospital. But it is quite geographically dependent. So some we're seeing an easing. Others, we're still seeing quite strict access. Consequently, what we're seeing so far in FY '21 is installed base is continuing, and we certainly are selling new units into hospitals, but the level of installed base is probably still down about 40% on what we ordinarily would expect.

Sorry. So you're saying, it's down 40% for what you're seeing for July and year-to-date August?

No. More so to what we were seeing in the Q1 to Q3 period.

Okay. Okay. And just to follow-on, just to confirm that. So you're saying in terms of the level of engagement, it's probably not materially different from the level of engagement you saw through the fourth quarter of financial year '20. Is that correct?

Correct. And we participate in a number of industry body surveys as well. And the experience that we are having is really no different to any other medical device company. I think you will see -- you should see the same across the board. But we're hopeful -- although hope is not a strategy, we're hopeful to start seeing those restrictions ease. Encouragingly, we certainly have no customers going, saying, look, we have to cancel our interest in trophon. It's more -- we're viewing this more as the time line to adoption is a bit extended.

Okay. And then if I want to think about, I guess, how long your sales cycle is to better understand if engagement levels pick up when that might come through to revenue, can you give us a sense of what that might be? So for example, if a trophon is delivered in April 2020, on average, when did the sales team first engage on that -- on the particular sale?

It could be anywhere from 3 to 6 months.

3 to 6 months. Okay.

You need to understand that there's a lot of stakeholders involved here as well. It's not -- we don't just engage with 1 person that's associated with the sale. You're dealing with the infection preventionists within the hospital, you're dealing with the various heads of the departments, you're dealing with the end users in those individual departments, and ultimately, then you're dealing with procurement. Now we'll say procurement themselves, there are some delays on certain things with procurement because they are extremely and understandably busy in ensuring that they've got all the necessary supplies of all the frontline requirements associated with PPE, associated with environmental decontamination, et cetera. So it is quite a complex situation that's out there in the marketplace at the moment.

Okay. But if I think about its engagement -- sales staff engagement, it's fairly soft through quarter 1. That's likely to mean that the capital revenue will be soft through quarter 2 and possibly quarter 3 as well?

Well, we certainly -- as we indicated, I think the first half, and particularly with all the uncertainties, that we certainly believe that the capital will be soft in the first half. Consumables, fortunately, at least at the moment, trending very, very positively, should not be as soft in the first half.

Okay. And on this side, with coronavirus, I guess, the world's more concerned about infection risk. Have you had any increased inquiries on the trophon since coronavirus has made its way, particularly through the United States?

The -- that's a question I certainly ask our regional presidents and the reps. And the feedback is, certainly, the relevance now, all high-level disinfection is much higher in people's minds than what they previously have been. So when things start reverting towards more normal access, et cetera, we can only see this as a positive.

Okay. One final question before I give the opportunity to other people. Are you seeing any -- obviously, with -- new sales is more difficult during this period in terms of acquiring new hospital customers, but are you seeing any replacement of the initial trophons as hospitals go through the replacement cycle? Has that started to pick up?

No. It certainly hasn't been the focus. And at the moment, it's very much a focus on getting trophons into new sites. And as I mentioned, part of our focus in the fourth quarter was -- we believe we've got a social responsibility here to try and help where we possibly can, and we did reach out where possible and where we could gain access to provide trophons free of charge to the frontline. And we did have an uptake, as I mentioned, of about 80 to 100 units in that, which shows the utility in ICU. And we're hopeful that many of those will be converted into new installed base, but those numbers are not included in the official installed base numbers that you will have seen this morning.

Your next question comes from Shane Storey from Wilsons.

The first is, I'd like to assess consumables utilization in a little bit more detail, please. You've sort of indicated 20% down in the fourth quarter versus the rest of the year. But then it does seem that there's a bit of an improved outlook there, say, in contrast to the capital picture. I guess my question is, have you been able to observe any sort of trends in surface probe disinfection given some supportive guideline changes in recent times and using lung ultrasound during the pandemic?

Yes. Thanks, Shane. Without a doubt, I would say a large percentage of the new capital sales we make today are primarily being used in procedures that use surface probes. And again -- just for the benefit of everybody, you've got intracavity probes and you've got surface probes. And -- but what's required is that all semi-critical probes are high-level disinfectors. So an intracavity is obviously a semi-critical probe because it's inserted into the body. But what confers semi-critical status on a surface probe is the type of procedure that it's used for. So any procedure where that probe could come into contact with bodily fluids, mucous membranes, broken skin, et cetera, well, that confers semi-critical status on it. So we are seeing more and more trophons going into a broader number of departments within hospitals that -- where primarily they would be using surface probes. So that's one point. The second point is on what we're experiencing so far on the consumable side of things. The dip that we had in consumables in the fourth quarter was primarily from around mid-April towards the end of May. And a lot of that was associated with the hospitals and elective procedures and other procedures and various departments even within the hospitals shutting down for a period of time. But as we saw those now reopening, so the hospitals may be reopening from a health care perspective, but still have very restricted access for reps. Then we started seeing the consumables run rate come start rising up again, as I said, to about 80% of the pre-COVID levels. And indeed, in July, we're seeing it rising a bit higher than that, again, as procedural levels go back or start to continue to increase. And we do get reports in -- on procedure volumes out of United States every 2 weeks, and that certainly is trending quite positively. So the impact really on consumables, we don't expect to be as great in the first half, with the caveat, of course, that we -- there is uncertainty with respect to what can happen with COVID-19 and further shutdowns in second waves. And if that -- if those things do eventuate and manifest themselves like they did in the fourth quarter with various departments being shut down or certain elective procedures being reduced, well, then we will likely see a reduction again with that, but we're hopeful that it's not going to eventuate. So we -- consumables side so far is looking positive. But the capital, unfortunately, is primarily due to restricted access.

Let's go on from that. I mean, finally, for me, do you think there's a chance that U.S. hospital systems could move towards OpEx models of bringing new equipment into their facilities rather than CapEx? I've been reading a fair bit of that sort of commentary from capital equipment providers to hospitals in the U.S. marketplace over the second quarter earnings season in the U.S. So I'm just interested in your views on that, please.

Yes. Look, that's a great question, Shane. And I think it's one of the reasons why installed base is such an important measure that we report because as you know, we do have a mix of sales models that range from CapEx through to rentals, through to leasing, through to MES, et cetera. And it is quite possible that the mix could change, especially if there are capital constraints on -- in -- within the hospital systems. But we're ready for that. We've got those models in place. The reps have those models in place. And if it does eventuate, our primary goal is to continue to increase the installed base. And even if it do -- does turn to rental or leasing or MES -- growth in MES, ultimately, the return is still very positive.

Your next question comes from Martyn Jacobs from Nanosonics.

It's actually Martyn, Canaccord. Just a couple of questions from me. I was just wondering what the split is in terms of consumables between nonelective and elective procedures. And subsequently, which departments were shutting down during the relevant period?

Good question, Martyn. I really don't -- we don't have that granularity of information looking at it by procedure. When I say shutting down, I mean, some of them, like general imaging, for example, the general radiology, they may have been reduced quite significantly. Certainly, for maternal-fetal medicine, things like that, it's not elective. You're pregnant or you're not, and if scans were required, well, then scans were provided. But unfortunately, I don't have that degree of granularity to talk about elective versus nonelective. But overall, I would say that what the fourth quarter did indicate for us is that in a worst-case situation, if those things sort of happened again, well, then that consumable revenue for that sort of period of time, in our case, was about 6 weeks, could go down 40%, 50%. But we would like to think that any of that would be transitionary in nature, which has been our experience today.

Cool. The other question I had related to the new product. I'm just wondering, with your commentary on Slide 20 of the deck, are you aware of any technical developments in that particular product market that might be challenging to what you've got in mind, and that's maybe a reason for the delay?

I'm not going to speculate with any further information than what has been provided this morning on the new products, but we remain highly confident in what we're doing and what this product is going to deliver.

Your next question comes from Josh Kannourakis from UBS.

Can you hear me okay?

Yes, Josh.

Apologies if I'm asking some of the questions, I only got to the call late. I had a couple of issues. But just firstly, just around the upgrade cycle. Can we talk a little bit -- obviously, it's probably not a focus near term. Can we talk about timing of that? And just whether or not -- how you sort of view the noneconomic sort of period for clients to be holding their products where we're at in the cycle in terms of the aging of the installed base?

Certainly, Josh. I mean we still stand by and believe that there's a significant opportunity for upgrades in the business. But the focus at the moment, especially when we've got such restricted access, is the hospitals, is to make sure whatever access we do have, it's very much focused on new installed base. And that's very much going to transition the GE Healthcare as well in North America. So I'm not expecting much in the way of new upgrades -- revenue from upgrades in the -- certainly in the first half. As the access to hospitals improves, well, then I think a lot of the key benefits associated with trophon2, particularly as they pertain to traceability, which now more than ever is really important, I think those benefits of trophon2 will start resonating quite well with the market or upgrades, I believe.

Got it. Yes. Got it. And that was actually my next question, just around some of the new product development and mentioning around the traceability and reporting side of things. Just interested to get a bit more context around that, whether that is specifically to ultrasound or stretches out sort of broader than that?

Yes. It started moving us into more -- in the Internet of Things and -- where this particular product will start its life in the ultrasound area. But we believe that the technology, as we're developing it, could have broader applications outside of ultrasound medical equipment.

Got it. And just a final bit, I think I just got on to the back end of the question before. But in terms of the upgrade side of things, obviously, as you mentioned, you're going to focus all your attention on new unit sales. But will there be potentially a 2-tiered sales model, whereby for upgrades, you can reduce the friction by maybe moving to the OpEx model? Are you exploring that optionality?

Yes. I think, at the moment, what I would say, in all of our sales in general, we've got a broad range of flexible models to suit customer requirements and the current market dynamics. So if there are capital constraints, well, then we've got models to help customers deal with that because we -- as I say, there is the traditional capital purchase. We've got rental, we've got leasing, we've got MES, et cetera. But each one of them, no matter which one you choose over the long term, still provides a very positive outcome for the business.

Got it. And just a final one, just around your comments on GE Healthcare. And again, apologies if I missed this earlier. But in terms of when we're looking at the forward-looking first half '21 for capital sales, is the fourth quarter run rate a reasonable sort of expectation of the run rate you think will be maintained? Or was the commentary suggesting some sort of potential incremental negatives on top of that with regard to GE?

It's really difficult to predict because it will be totally dependent on their access to hospitals through their trophon team as well as through their ultrasound team and their installed base growth. Because remember, like Nanosonics and our direct operations that was impacted in the fourth quarter in terms of new installed base growth, so was GE. Therefore, they would have -- their ending inventory for the year would have been higher than anticipated. So certainly, in the first couple of months of the first half, we see they've got enough inventory to cover their capital new installed base requirements before they start coming back again for more.

Got it. And just a final one on that. In terms of, I guess, the sales pipeline and inquiry levels, do you think does it take a little bit of time to, I guess, warm that up again after you have maybe lost some of that access for a period?

Yes.

How are you sort of viewing that? I'm just interested in your views around that.

Yes, this is where the sort of digital engagement and other services we provide. We've been doing a lot of educational events and continued medical education type events for customers. Because remember, a lot of customers for the CME-type points, they were quite reliant, in many cases, on attending conferences and the likes and all those conferences are canceled. So we've got a number of programs, engaging with customers that way for education. We do have some of our clinical applications people in doing site assessments, but not to the degree it was pre-COVID. So pipeline growth certainly is impacted, but we did -- we are entering the year with a strong pipeline anyway. But your primary pipeline activities do require sales force to be out there, and it will be no different to -- any other company will be -- have the exact thing, is it will take a little bit of time for that pipeline to start getting back to normal levels. But importantly, we did have a strong pipeline going into the year.

Your next question comes from John Deakin-Bell from Citigroup.

Thank you, John. And I'd just like to say that this will, unfortunately, have to be the last question for this morning. But I'm sure we'll be engaging with all participants on the conference call in the coming week.

I'll be very brief. 2 quick questions. One, just on the OpEx, you've called out $75 million to $78 million, which is about 17% increase. The Aussie dollar has strengthened at least 7% kind of on average during the course of the year. Is -- are most of those increased costs in Australia? Or are they in the U.S.? And kind of are you getting the underlying growth is not quite as much as the headline, if you know any?

Yes. No, I do. And I mean, there is a range that's in there. And a lot of it will be Australia based as well, and particularly mostly on R&D, but also some of our infrastructure requirements here in Australia associated with supporting the business globally. But we do expect to continue to expand our operations in Europe as well as some extra in the U.S. as well.

Okay. And secondly, you commented about the new product to some degree. I went back 2 years to the FY '18 presentation. At that time, you said you're targeting one or more new prevention solutions by the end of FY '20, and now we're -- it's obviously elongated. I just wonder if you could give us a feel for the key reasons for the delay, and then just to give us a sense of where in that process has caused what essentially couple of years delay in this new product?

Well, I think if you go back, John -- you said that you've gone back to FY '18 and then, of course, it's what we said in FY '19 as well, and we were talking about sometime in FY '21. And now with the implications of COVID and -- but also positively some enhancements that we've identified through our international collaborations. It's now looking more like FY '22. And a lot of those things were -- any R&D type program, which you would be very aware of has inherent -- they're inherently complicated, and some things take a little bit more time than what you may originally anticipate. But we're -- ultimately, we're feeling quite confident in the direction that we're going with, with this new product.

There are no further questions at this -- or that concludes our question-and-answer session at this time. I will now hand back to Mr. Kavanagh for closing remarks.

So again, thank you all again for joining us this morning. And we look forward -- we will probably be meeting with many of you over the coming week or so as well. And we look forward to talking further then. Thanks a lot, everybody. Bye-bye.