Nanosonics Limited (NAN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Nanosonics Limited 2022 Full Year Results and Investor Call. [Operator Instructions] I would now like to hand the conference over to Mr. Michael Kavanagh, Managing Director and CEO. Please go ahead.

Thank you very much, Ashley, and a very good morning, and thank you all for joining the call. I'm joined by McGregor Grant, our CFO here at our new corporate headquarters at Macquarie Park in Sydney. Well, this morning, you will have seen the release of our FY '22 full year financial results and operational review which outlined a year of significant progress, both financially and operationally as the business continues to invest in and execute on our growth agenda. There is a lot of information covered across all the materials released, so you've got the ASX release, the investor presentation, the annual report and sustainability report. So there's a lot of material to digest. But if I was to summarize down into sort of 3 key messages or 3 key takeaways they would be. The first really is that, importantly, our growth momentum has returned to pre-COVID levels, especially in the second half of the year, and that bodes very well for our ongoing growth expectations. And this growth was across revenue, new installed base, upgrades and consumables. The second key message or takeaway is that during the year, and particularly in the second half, the company increased our capability and capacity to support ongoing growth through the successful change to a largely direct sales model in North America. We did continue to invest in our European and Asia Pacific infrastructure as part of our geographical expansion plans. And of course, relocating to a new headquarters and manufacturing and R&D facility there in Macquarie Park, which gives us the capacity to develop, deliver and support a broader product portfolio that we're planning to release internationally. And finally, the third takeaway centers around our R&D. So in addition to the ongoing establishment or trophon as standard-of-care, we certainly advanced our R&D program, in particular, our new CORIS technology for endoscopy reprocessing. And it was very pleasing to have the CORIS technology accepted by the FDA into their Safer Technologies Program or STeP program, which I believe, is a recognition by the FDA. The CORIS technology could reasonably be expected to significantly improve the safety of patients over current available treatments, which is one of the criteria to qualify for this new program. But a bit more on that later. So if I take each one of those top line messages and go into a little bit of detail. First, across the growth momentum, from a total revenue perspective, revenue for the year was $120.3 million that was up 17% on FY '21. And while this result was previously announced in July, it can now be looked at in the context of gross margin and OpEx for the year, both of which also came in favorably. Gross margin for the year was 76.4% ahead of our February 2022 guidance, and this was mainly due to favorable pricing outcomes that we achieved in North America. Operating expenses for the year were $90.5 million, and these were below the anticipated $93 million discussed in February. And some of that savings was associated with a management of our operating expenses, but timing related to hiring of a number of headcount. So overall, a good result, especially taking into consideration the foreshadowed one-off revenue impact in the second half that was associated with the transition to a large direct sales model in North America that back in February, as you will remember, we estimated to be somewhere in the range of $13 million to $16 million. So in that context, an excellent results. And just as a reminder, that $13 million to $16 million, that impact, that was primarily associated with the fact that GE Healthcare in North America would run down their capital and consumable inventory as they transitioned to a non-stocking capital reseller as they transferred all their existing trophon customers to Nanosonics for ongoing provision of consumables which they have now. So breaking that revenue down, as we do traditionally into capital and consumables. Total capital revenue for the year was $37.7 million. That was up 41% on the prior corresponding period. And this increase over PCP really reflects the growth in installed base as well as upgrades, but also the recovery from what was a significant reduction in capital sales to GE in the first half of FY '21. Of course, that was related to the negative impacts of COVID-19 on new installed base growth at that point in time. So overall, for capital revenue a good results. From a consumables and services revenue that was $82.6 million for the year. That was up 8% on prior corresponding period. And the consumables and service revenue now represents approximately 70% of total revenue for the year. And of course, the attractive -- that's really highlights the attractive annuity revenue nature of the business. And what we did see on the consumables side is that as the COVID-19 restrictions eased during the year, again, especially in the second half, where hospital conditions improved, we did see ultrasound procedure volumes returning to near pre-COVID levels. If I break the revenue results down by region briefly. Well, in North America, the total revenue for the year was $106.9 million, so that was up 20% on prior corresponding period. Capital revenue in North America was $33.6 million. So that was up 58% on the prior corresponding period. And that was, again, associated with growth in IB upgrades, but also reflects what I just mentioned earlier with respect to the impact that COVID had on sales to GE of capital in the first half of FY '21. So -- but, overall, a good result for capital in North America. It is worth noting as you're going through the results, and there's a lot of detail for everybody in the investor presentation there, while the installed base and upgrade units sold in the second half of the year increased, indeed the strongest half we've had in over 6 halves, capital revenue in the second half of $16.3 million was down 6% compared with the first half. And that is primarily due to the transition to the revised North American sales model and GE Healthcare destocking and becoming a non-stocking capital reseller. So it's primarily associated with that. But very importantly, the installed base and upgrades did continue to grow very strongly in the second half. The consumables and service revenue in North America was $73.3 million, again, up 8% on the prior corresponding period. In the second half, the consumables and service revenue was $36.3 million. So again, down 2% compared with the first half, but again, purely a reflection of the impact of GE Healthcare destocking as opposed to anything else out in the market. Moving across the pond in the Europe and Middle East region, total revenue for the year was $7.5 million, so that was up 4% on the last year, with improvements in the second half or compared to the first half where revenue in the second half was $4.1 million. That was up 21% compared with the first half. For capital revenue, again, when assessing capital revenue in EMEA, it's important to take into consideration that the majority of units that we placed in the U.K., which is our largest market in the region, they are under the managed equipment service model where no capital revenue is recognized. So overall, for the region, capital revenue, taking those into consideration, was $2.1 million, which was down on the prior corresponding period. But again, a lot of that due to the sales mix with the U.K. book. But there are other elements, of course, in the European region, and that has to be taken into consideration. There were delayed easing of COVID-19 related market restrictions compared to what we saw in North America, coupled with other factors, including the impact of sanctions on Russia, where we had been actively selling through distribution in Russia for a number of years. So a number of the sales that we had forecasted, especially in the second half of the year in Russia, did not go ahead. Consumables and service revenue in EMEA, however, was $5.4 million. So that was up 20% compared with the last year, and that reflects the ongoing growth in installed base as well as the ultrasound procedures volumes returning to near pre-COVID levels, again, with the second half stronger than the first half. In Asia Pacific, you remember that in the second half of FY '21, we had a large upgrade order of 200 units with I-MED Radiology, which is the largest customer here in Australia. Now such an order was not replicated in FY '22, and as a result of this, despite ongoing growth in new installed base, total revenue for the year of $5.9 million, just under $6 million, was down approximately 10% - 12% compared with the prior corresponding period. We did see the second half stronger than the first, because as we all know here in Australia, and certain states in Australia, there were restrictions throughout the year. But the second half was stronger with the -- up -- the overall revenue up at 3% versus the first half at $3 million. Our consumables and service revenue of $4 million, it was actually the same as the prior year, but most of that actually relates to timing of shipments to distributors. And actual sales of consumables to end customers actually did increase in FY '22 compared with FY '21. Moving on to the installed base. The global installed base increased 12% to 29,850 units at the end of June. That's an increase of 3,100 units for the year. And as of today, the installed base is now over 30,000 units, which is a great milestone. Importantly, the installed base increased just under 1,700 units in the second half, so that was up 20% with the first half. And that second half installed base growth was the highest in over 6 halves because of the impacts of COVID. But again, giving very positive indications we're back to pre-COVID growth momentum levels. Regionally, in North America, during the year, we reached a milestone of 25,000 units installed across over 5,000 institutions, really consolidating trophon's position as standard-of-care. And by the end of the financial year, there were 26,130 units installed in North America. So that's an increase of 11% or 2,650 new units installed for the year in North America. We did see hospital access continue to improve throughout the year, and the installed base increased by just under 1,500 units or 1,450 units in the second half and that was up 21% compared with H1, again, giving confidence of getting back to the run rate that we were getting in North America pre-COVID and we anticipate for the coming year. The North American installed base now represents approximately 45% of the estimated total addressable market of 60,000 units. But of course, the overall ultrasound market itself continues to grow with new ultrasound innovations coming into the market such as wireless handheld probes being released. And our R&D team have developed an accessory to enable wireless probes to be decontaminated in trophon with the first of such accessories due to launch sometime in the second quarter of this year. So plenty of opportunity for ongoing growth, certainly in North America. In the Europe and Middle East region, the total installed base increased by 21% to 1,820 units. So that was up 310 units for the year. And as I already mentioned, delays were experienced in the easing of COVID-19 related market restrictions over there, as well as the impact of staff shortages when the Omicron versions hit of COVID, in particular, in the first half. In the second half, market conditions did improve and new installed base across that region of 170 units was up over 20% over the first half. During the year, we did continue our investments in the EMEA region, in particular, our direct markets in the U.K. and Germany, and now with market restrictions in hospital access markedly improved, our expectations are backing FY '23 will see the first full year since 2020 where the investments in this region can now be fully leveraged. In Asia Pacific, the installed base increased 140 units for the year with the total installed base increase in 8% to 1,900 units. In Japan, we expanded our local team and medical affairs activities as we continue to work with local authorities on establishment of local guidelines. Progress is being made in this area. It was pleasing to see that the JSUM or the Japanese society for ultrasound in medicine, publishing on their site a Japanese translation of the World Federation guidelines, which support high-level disinfection. This is not an official guideline on JSUM, but a good indication they're going in the right direction. Our other geographical expansion activities for Asia Pacific did also progress, where in China the registration of our Wholly Owned Foreign Enterprise or WOFE, that was completed. And after significant delays, as everybody knows, in Shanghai, there were lockdowns due to COVID-19, the required local testing of the trophon device and consumables by the relevant state authorities, that has now commenced as part of our product registration plans. Moving over to upgrades briefly. As you know, upgrades represent a significant opportunity, and there are currently approximately 9,000 EPR -- the original trophon EPR devices that are 7 years old or older. And FY '22 has really been the first year we have put a focus on upgrades considering the impact of COVID over the last 2 years, where we focused our efforts on new installed base with the limited hospital access in those periods. And pleasingly, there were 1,000 upgrade units were sold in the year, that's up 135% compared with FY '21. And again, we saw a good growth momentum in the second half with upgraded unit sales up 50% over the first half. And this growth in the second half was not really anticipated as we were going through the GE transition. In H2 the majority of the upgrade opportunity in North America is with GE, of course, or I should say, GE customers. But what was very pleasing, however, was the upgrade sales in the fourth quarter of the year, which represented nearly 65% of the total upgrade sales in the second half. Also, sales in Nanosonics' direct team were responsible for nearly 90% of those sales. And this result really demonstrates the opportunity for Nanosonics to further drive the upgrade strategy now that we have direct access to all trophon customers. So really quite a pleasing result on upgrades. The second method I mentioned was related to our ongoing investments and our expanded capability and capacity that we've developed over the year. And there still remains very significant opportunities for growth in what is a multibillion-dollar global infection prevention market. And we do have a very purposeful strategy to continue to invest for our growth. Aligned with this, operating expenses for the year were $90.5 million, so that is up 28% on last year, but below the anticipated $93 million that was anticipated when we discussed it in February. When thinking of the investment, I think it's important to appreciate that very attractive returns from these investments are expected over time, especially with annuity consumable business models, which of course, trophon is, as you know, and CORIS is intended to be. And if you look at our North American business it gives a very good indication being an established, more mature market for us. And in that market, we're achieving operating margins have been in the range of 55% to 60%, so very attractive returns can be achieved. We're very confident in the directions that we're taking from an investment perspective. To give you a bit of a flavor of our OpEx breakdown, and you will find some details of this in the investor presentation. But importantly, the majority of our OpEx is focused on future growth activities. During FY '22, 43% of the OpEx was actually associated with market development activities across the regions. And increase in these costs also included the additional investments we made in the second half really in Q4 of approximately just under $1 million -- $800,000 to expand the company's North American operations. 25% of the total operating expenses were associated with the company's innovation program across the new Nanosonics' CORIS technology as well as ongoing programs across our other platforms in ultrasound reprocessing and cloud solutions. And then 32% of our total operating expenses related to the company's infrastructure, including manufacturing and other headquarter support costs. And as you know, the company did move to new corporate headquarters, manufacturing and R&D facilities to support the ongoing growth, and we did incur additional costs of approximately $1.5 million as a result of this relocation. Then another significant elements of our capability advances was a successful transition to a largely direct model in North America. And the transition to this new model has now been successfully implemented. The expanded North American teams in place, including the hiring of a number of members of the former GE high-level disinfection team, shipping volumes through the Nanosonics logistics facility in Indianapolis are up well over 100% in the last 3 months with no disruption in supply to customers and sufficient capacity in place to support expected future growth. And the team has also executed numerous new enterprise agreements with strategic accounts, integrated delivery networks with many more due to be completed in the coming months. We've also established the necessary partnerships to enable selling to U.S. Federal and Government accounts, where GE previously represented 80% of our sales to those accounts. So really our North American direct team is now well positioned to manage the overall growth strategy associated with new installed base, upgrade adoption and consumables usage. And the business performance in Q4, in particular, saw many of these benefits start to come to fruition. In that quarter alone, the Nanosonics direct team was responsible for 91% of the new installed base together with just under 90% of upgrade sales, so doing a great job. And of course, resulting in deeper customer relationships now that we will have with the majority of North American hospitals and corresponding infrastructure expansion that we have put into North America also supports our planned product expansion beyond trophon. And then finally, the third message related to our R&D program and advances in the CORIS development. In the last year, we invested $22.3 million in R&D, which is up 30% compared with FY '21, and many of you will understand that this is still a relatively small amount in the context of medical device development, especially when you're looking at capital equipment, coupled with chemistry and software developments all combined. But through the investments the company made this year, which are all expensed, the company -- we have expanded our capacity and capabilities with programs across our various platform groups being the ultrasound reprocessing, endoscopy processing and data through cloud solutions as well as chemistry and our bioscience activities. And while there are a number of R&D programs underway, the central near-term program is associated with our new CORIS platform, which as previously discussed, aims to deliver a solution to one of the biggest unmet needs in instrument reprocessing, and that is reprocessing failures of flexible endoscopes due to current limitations of manual cleaning, which ultimately then results in an increased risk of cross-contamination. Now in the investor presentation, there are quite a few details about CORIS, but I'll highlight just a few here this morning. First of all, the CORIS technology recently was accepted into the FDA Safer Technologies Program or STeP program. Now this is a relatively new program introduced by the FDA, and products are only accepted into this program if they're reasonably expected to significantly improve the safety for patients over currently available treatments. And based on the data that we provided and information we provided to the FDA all about CORIS, we then were very pleased that it was accepted into the STeP program. And the ultimate goal of STeP is to provide patients and health care providers with timely access to these medical devices by expediting their development assessment and review, whilst, of course, preserving statutory standards for approval. We see this as a great acknowledgment that the CORIS technology could indeed be transformational. And whilst the regulatory approval process with the FDA will be a de novo approval as expected because there is no predicates for this new technology, having been accepted into the STeP program should help facilitate a much smoother approval process through that de novo process. The investor presentation also gives some indication as to the types of results the CORIS technology is designed to deliver. In particular, biofilm removal from small channels in endoscopes, which is a significant hurdle today. Essentially, current manual cleaning is totally ineffective in biofilm removal, whereas CORIS is highly effective. And you'd see some slides in there demonstrating that in the investor presentation. But we also show that the CORIS technology can far surpass the current cleaning benchmarks recognized by regulators, where it removes difficult soils to an order of magnitude better than industry recognized cleaning benchmarks, including new alert levels that are defined by ISO standards. So it really does deliver significant improvements over what is achievable today. And finally, the potential market opportunity for CORIS is significant. Strong fundamentals and standards already exist around the world for endoscope reprocessing. There are over 60 million procedures conducted annually, and that's growing at about 6% per annum, and that's across the U.S., the main European markets and Australia, so not including China, Japan, et cetera. And there are studies that have been published that demonstrate that the current costs associated with the cleaning set alone of a flexible endoscope can be anywhere between $11 and $37 and CORIS aims to automate a significant proportion of that current manual cleaning. So the opportunity is large. And as previously communicated, the company -- we continue to target progressive market introductions aligned with regulatory approvals with the first introduction targeted for calendar 2023. And first release is likely to be in Australia and/or Europe, considering the de novo application process. But it is great. We've got the STeP program acceptance, which should help facilitate through the de novo approval process with the FDA as well. So a few final comments, then I'll hand over for questions. Briefly, it's worth noting on working capital that during the year, the company increased its inventory holding to $22.6 million. And this increase was driven by the need to carry more safety stock in response to increased supply chain risks caused by the COVID-19 pandemic. And of course, the company has transitioned to a largely direct sales model in North America as well. And importantly, however, as a result of our current pandemic inventory policy -- holding policy, there were no supply disruptions to customers. We expect to maintain inventory at a similar level to our FY '23, and that really reflects the ongoing complexities with the global supply chain and the move to the direct model in North America. But once the supply chain risks reduce, however, then we can reassess our holding requirements, which can likely be reduced. From a profit perspective, profit before tax for the year was $1.6 million and that reflects the increased investments that people are aware, we were making in the growth agenda as well as, of course, the foreshadowed impact in H2 on revenue in North America associated with the move to a largely direct sales model. So finally, from a business outlook perspective, you would see we are targeting good ongoing gross revenue in FY '23 with expectations of growth between 20% and 25%. Our gross margin expectations are between 75% to 76%. But the ultimate gross margin will reflect, one, an increase in the proportion of capital revenue that we expect resulting from growth in sales of both new installed base around the world, but also now upgrade units. The other impact is freight costs, which currently remained high, but they've improved and of course, our gross margin will benefit. And of course, we do have to take into consideration the potential impact of inflation and supply constraints in general on component costs. We do plan to continue our investments for growth. However, our operating expenses will grow less than the revenue growth with operating expenses expected to grow approximately between 15% and 18%. And again, the majority of that increase is expected to be weighted towards our ongoing market development as well as ongoing product innovation. It is important, I guess, to state that whilst we have entered FY '23 quite optimistic, naturally, all this guidance is subject to ongoing uncertainty in relation to variability in market access conditions should COVID-19 related measures change in relevant markets, and of course, the broader economic and geopolitical uncertainty that's out there at the moment. So with that, I will now pause and hand over for any questions.

[Operator Instructions] Your first question comes from Lyanne Harrison with Bank of America.

If I could start with the GE Healthcare arrangement. I think it's great that the Nano team sold 91% of new units in the most recent quarter. But I was under the impression from earlier announcements made around February at the time the rebuy seller arrangement was announced that GE would still play a more active role in selling the trophon. Can you talk to that a little bit in terms of what might have changed? Obviously, we understand that arrangements extended to financially -- or to June '23? And what happens after that?

Thanks for the question. GE has extended the contracts with Nanosonics now as a capital reseller for a further 12 months and have ongoing access to the capital equipment. Even prior to this change to the largely direct model, I think I have spoken in the past that our direct team were already generating probably upwards of 70% of the GE demand for installed base anyway, because we were much larger group out there. But the actual sales ended up being transacted through GE. Moving forward, what our expectations are, and quite frankly, our desire is that, we continue to partner with GE Healthcare where our expanded team now will provide support where necessary, to their ultrasound sales team. So if their ultrasound sales team needs access to trophon to bundle with a sale of trophon -- of one of their ultrasounds, R&D, if they're in just talking with their existing ultrasound installed base and they require an infection prevention solution, well, then they will call in our team to provide the support that they need to get from the HLD team with GE. And when we go in and do that support, what we expect is that the transaction will -- even though it may have been generated by GE, the transaction will very likely still go through Nanosonics. And the reason for that is that, A, Nanosonics will be responsible for the shipping of the device to the customer, the installation of the device to the customer and the ongoing sales of consumables to the customer. So it's very likely that the transaction will go through GE. But GE still has the option to -- go through Nanosonics, I should say. But GE still very much have the option to have access to the capital and to be able to do the transaction directly.

Can I just follow up on that? So if the transaction goes to Nanosonics, what incentives then is there for GE to support the sales of a trophon when they're making that ultrasound sale?

It all comes down to what their customer requirements are. There's no financial -- real financial incentive unless they transact themselves and we'll sell to GE at a price where they could make the margin, but -- even though we'll be shipping it, et cetera. But the ultimate driver will be their customer requirements. If the customer requires an infection prevention solution, then we'll be the company for them to call on.

Okay. And if I could move then on to consumables. So I'm trying to estimate what the consumables revenue exit growth rate was towards the end of financial year '22. And so, understand that it was lower because of GE running down the inventory. But can you give us a sense of what that might have been without that, I guess, that GE blip?

It's hard -- I mean, year-on-year, there's growth, obviously, the revenue that we get is -- was impacted the cost of all the transition, as you rightly point out, where they didn't do any restocking. But in terms of units going to markets I think to end users, there was definitely growth year-on-year and even in the second half. I think moving forward, what you'll see now in consumables revenue, in particularly in North America, would be a much -- it will be much more tightly correlated with the actual market demand. So you won't have those complications associated with the inventory that you've been trying to navigate over the last number of years. But definitely, I don't have the exact growth figure at the top of my head, but it's certainly probably in the order of 7% to 10%.

Your next question comes from Chris Cooper with Goldman Sachs.

Just on the gross margin, Michael, if you don't mind. So when you announced the new arrangement, you obviously indicated the gross margins are expected to go up from the end of fiscal '22. You did also say you achieved better pricing outcomes this year than you expected, but you're now guiding to a further contraction in gross margin in '23. Can I just understand the moving parts there and whether the expectation is that you get back to that sort of 77%, 78%, 79% level that you had been foreshadowing earlier in the year?

I don't think I was ever foreshadowing us getting up to 79% early in the year, but the ultimate goal over time, Chris, is that we will get back to gross margins like that. The big driver is -- would be on capital mix. And as we're going to be selling more upgrades, and because the margin on the capital equipment is lower than the consumables, as well as selling more installed base, well then that would have some impact on the mix. The other big impact, though, is still freight. And I think like all companies, we're still being impacted on freight costs. So that's why we're sort of guiding to that between 75% to 76%. But once -- if freight can be normalized, I think we'll -- we certainly would benefit from that.

Okay. On CORIS, first of all, can you just confirm the product design stage has finished here? The wording I found was a little unclear on the materials in the deck. But also just on your expectations for U.S. approval. I guess it sounds like this could be some way out now that de novo has been confirmed. How are you thinking about the design of that trial? It sounds like you have been in discussions with the FDA. You provided them with some data. What endpoints do you think is going to be needed and what is your best guess for U.S. launch at this point?

Yes. I'm not going to try and put a specific date on the U.S. launch. It certainly will be de novo. We'd like to think by virtue of the fact we've been accepted into the STeP program that -- it's almost like a concierge program where -- and normally with de novos you got stops and starts as they're asking questions. Whereas, with the STeP -- being part of the STeP program that can help facilitate a much smoother process through the de novo. In terms of clinical trials, we've not done the external clinical trials yet that are going to be required for the de novo, but they're in plan for the calendar year. And the -- so -- but our expectations are, because it is de novo it can take a little bit longer than a 510(k). And remember, it's a de novo because there's not predicate. And being not predicates means in one sense that this is a totally new technology where we will now set the benchmark. So it likely will be in Australia and/or Europe that may be first and then -- but we wait and see based on the timing of the submission to the FDA with the de novo and how smooth that process goes.

Okay. So just to clarify that, so the product has been finished. It's no longer in design phase and the clinical trials you said are in plan for the calendar year, that's 2022 or 2023 calendar year?

I mean, you'd understand in finishing a product to have it ready to go market there are many dimensions to it. So there's still some optimization that we're doing in part of the design to make sure from a manufacturability and serviceability perspective there's elements associated with the manufacturing setup, there's all the tech systems that have to be designed and implemented in for manufacturing. There's the procurement and supply chain, which is all -- maybe this is not trophon funded, these all new components. So there's still dimensions that have to be still completed. That's why we're still saying calendar '23 there's still work to be done. But in terms of a product that we're comfortable to deliver the outcomes that it's designed to deliver. Yes, we have that. And I look forward to spending a bit of time to bringing you through some of the data that's in the investor presentation, which is quite impressive.

Got it. And so those optimization procedures will be completed and you'll be moving into clinical trials, you said in calendar year 2022?

No, in the calendar year, between '22 and '23. I'm not going to go into absolute details on the specifics. So I think the best thing to do is just to -- as we said in the past, we're still targeting calendar year '23. That's still the goal.

Okay. And just a very final question. You've guided to a sort of $13 million to $16 million revenue hit in the second half of '22. Can I just confirm it's not a perfect science, but is that broadly where you think it came in? And by extension, do you think that GE still have any inventory left as of 1st of July?

Yes. No, GE don't have any inventory left and probably under the $13 million to $16 million, probably on the lower end of that, so it would be favorable.

Your next question comes from David Low with JPM.

Maybe if we could just stay on that topic. I mean, admittedly, I've used a bigger destocking impact. But I mean when I run the calculations, if we strip that destocking effect out of FY '22, the revenue guidance for FY '23 looks relatively light on, particularly given the momentum that we see in the installed base and frankly, the opportunity in upgrade sales. Just sort of wondering whether there's anything else that I'm not thinking about there.

No, I think the 20% to 25% growth is pretty stellar. I mean, what we're looking at -- remember, what we're trying to do is to get back in North America to the 2,800 to 3,000 new IB per annum over there. And based on the second half, we sort of should be back to that run rate. Based on the upgrades, we should obviously have growth in upgrades again in the United States. And obviously, we're anticipating good growth in Europe as well as long as the markets remain -- the market conditions remain favorable. So I think if you look at 20% to 25%, it's not insignificant. Remember, a lot of the consumables make up also 70% of the growth. So a lot of the consumables revenue that would come through from that will come through over the period -- the full period of the 12 months, you won't get the 12-month effect of that growth in the installed base from day 1. So all up, when we did all our modeling, we thought somewhere between 20%, 25% growth is a decent growth rate.

No, no, I don't disagree 20%, 25% is a good growth rate. Maybe my logic is flawed. But what I did is that, as a starting point, there's $13 million of destocking revenue in FY '21 -- sorry, '22. So if we add that back, it implies only a 10-ish percent growth rate. Maybe I'm not thinking through it logically.

Let me catch up -- little bit later.

Yes, I will move.

David, when we catch up. Yes.

Yes. Perfect. Just one other question then on the CORIS device. I mean you've talked about the cost of cleaning today at $11 to $37. I'm sure you're not going to want to give us full detail. But am I right in assuming that the cost with the CORIS device, all going to plan, would be comfortably below that level or below the lower end of that range?