Nanosonics Ltd
ASX:NAN
Earnings Call Analysis
Q4-2023 Analysis
Nanosonics Ltd
In the past year, the company witnessed a substantial increase in both revenue and profits, with revenue soaring by 38% to a notable $166 million. The profits before tax witnessed an even more impressive jump, escalating to $21.6 million from the preceding year's $1.6 million. This remarkable growth can be partly associated with the first full year under the revised North American sales model.
The core trophon business stands as a cornerstone of the company's profitability, disregarding the investments earmarked for future growth and development. This segment delivered a striking profit before tax of approximately $44 million, up a resounding 175% from the prior year. The company's dedication to investment in research, development, and market expansion remains unwavering.
The global installed base for the company's primary product, the trophon device, increased by 9% with over 32,000 units in operation. The North American market achieved close to 50% penetration of the Total Addressable Market, highlighting substantial room for growth. Despite setbacks from hospital budgetary pressures, a strong pipeline for new installations indicates optimism for the next fiscal year.
Revenue growth was impressive, with a 38% increase to $166 million, or 30% in constant currency terms. The spike in revenue is attributed to growth in total capital units sold, higher consumable volumes, and more favorable pricing, particularly due to the direct sales model in North America. Additionally, North America witnessed a remarkable 41% increase in total revenue to $150.4 million.
Gross profit margins were robust at 78.7%, thanks to favorable pricing and foreign exchange movements, despite higher freight costs. A conservative adjustment for the coming year has been announced, with expected gross profit margins between 75% and 77%, reflecting forecasted changes in product mix and anticipated cost of goods sold.
Operational expenses saw a 26% increase associated with the shift to direct sales in the US and ongoing strategic endeavors. Leveraging these investments, OpEx as a percentage of revenue is anticipated to decrease even further, improving from 75.2% in the prior fiscal year to 68.5% in the current year.
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Thank you for standing by. And welcome to the Nanosonics Limited 2023 Full Year Results Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session [Operator Instructions].
I would now like to hand the conference over to Mr. Michael Kavanagh, CEO and President. Please go ahead.
Thank you very much. And a very good morning, everybody, and thank you all for joining the call. I am joined here at our corporate headquarters at Macquarie Park with, McGregor Grant, our CFO. Well, this morning's full year results announcement, I think, demonstrates another year of significant achievement for the business. The trophon business continue to grow, delivering strong sales growth and profitability. And importantly, our ongoing investment in the expanded drivers of future growth through geographical expansion, research and development, et cetera, that also continued with the company successfully executing several key strategic priorities throughout the year. The last financial year, of course, was our first full year under the revised North American sales model where despite some difficult market conditions, the team in North America delivered very strong financial results with the anticipated key benefits of operating under a largely direct sales model certainly now coming to fruition. Overall, the company posted a 38% increase in revenue to $166 million and an increase in profits before tax to $21.6 million compared with the $1.6 million in the prior corresponding period. And you'll notice in the ASX announcement, I've tried to address a question that I often get, and that's about the underlying profitability of the core trophon business alone, taking out the investments we're making in the expanded drivers of future growth, in particular, through project expansion. And you'll see in the announcement this year the pro forma P&L of the underlying trophon business is included. And when you look at it, excluding operating costs associated with R&D and commercialization expenses associated with new products development like CORIS, but including R&D associated with trophon product roadmap, cloud solutions, as well as investments in trophon geographical expansion into markets that are not significantly contributing to revenue today, then the on underlying trophon business certainly gives excellent profitability, in the last year, generating approximately $44 million in profit before tax, which was up 175% on the prior year. And you'll see in that pro forma as well, for the trophon business, also it demonstrates good operating leverage year on year. So a highly profitable and growing underlying trophon business. I do emphasize, however, our commitment to ongoing investments in the expanded drivers of growth for the company, and the company is well positioned to do this. And as usual, we have provided a lot of granular detail in the ASX release and the investor presentation, both of which can be found online. And I'll just go through some of the key elements, then open up for questions.
First of all from a trophon unit perspective, the global installed base grew 9% in the year where there are now 32,450 trophon devices in operation around the world, at least that was at the end of June. The pipeline for new installed base, it continued to grow in North America where we are currently penetrated to approximately 47%, just under 50% of the TAM. So there is still good runway to go in North America. In Europe, where the market conditions have been particularly challenging throughout the year, we did see some improvements in performance in the second half over the first half. However, due to a range of adverse market conditions, and particularly those associated with hospital budgetary pressures, which were more pronounced in the second half and particularly in North America, the new installed base overall, it did fall short of our internal expectations for the year where there was 2,600 units installed. Our expectation, however, is that much of the pipeline generated during FY23 and deferred the cost of capital budget constraints will now come through in FY24, which is forecasted in our forward-looking projections. The softer new installed base, however, was offset with very strong upgrade growth, which was up over 80% with over 1800 units sold. And we do expect upgrades to continue to grow strongly in FY24. And upgrades, of course, are not just a source of new capital revenue, they also represent continuity of consumables revenue and new annuity revenue opportunity through service contracts. And this is particularly true in North America where upgrades are primarily sold through our direct operation and the associated service contract opportunity will also be sold through our direct operation. So we should start seeing that coming through in the coming years. Taking both new installed base and upgrades together from a total unit sold perspective, 4,410 units were sold in the year and that was up 8% versus the [product] corresponding period.
Moving on to revenue. Total revenue for the year was up 38% to $166 million are up 30% in constant currency. And this strong growth in revenue was attributable to growth in total capital units, so new IB and upgrades, increased consumable volumes associated with growth in the new installed base but also improved ultrasound procedure volumes. There was favorable pricing associated with both capital and consumables associated with the transition to the largely direct North American sales model. So moving forward, that's our new baseline pricing now. So we won't get the benefit of large price increases like we saw in the last 12 months, but we get the benefit of those larger prices that we did achieved this year and moving forward. And of course, we saw increased service revenue, and of course, as I've mentioned, it was 30% up in constant currency. So there was favorable foreign exchange associated with the stronger USD during the year. Capital revenue of $54.2 million was up 44% and consumables and service revenue of $111.8 million was up 35% versus the corresponding period.
When I look at the -- looking at the revenue regionally, in North America, total revenue was up 41% to $150.4 million. This included growth in capital revenue of 46% to $48.9 million and growth in consumables and service revenue of 38% to $101.4 million. In the European region, total revenue was up 8% to $8.1 million. And as you know, in the UK, which is our largest markets in the European region, many of the capital transactions there are under the managed equipment service model where customers do not pay for the capital but pay a higher price for the consumables, and we retain ownership of that capital and depreciate it over time. Then taking this into consideration, while total trophon units actually were up 18% in the EMEA region, overall capital revenue was actually down 10% to $1.9 million. Consumables and service revenue, however, in that region did grow 15% in the year to $6.2 million. In Asia Pacific, total revenue was up 27% to $7.5 million. The capital revenue for the year was $3.3 million, so that was up 74% on PCP and that reflects the strong growth in upgrades, as well as the ongoing growth in new installed base. Revenue associated with consumables and service for the year in the APAC region was $4.2 million, up 5% on PCP.
From a gross profit perspective, the gross profit margin for the year was a strong gross profit margin of 78.7% and that was compared with 76.4% on PCP. And this increased margin was primarily driven by favorable capital and consumables pricing in North America together with favorable foreign exchange. The benefits were partially offset by higher freight costs associated with increased shipping volumes under the new largely direct sales model in North America. But overall, a solid result. You will note in the guidance for FY24 we are guiding gross profit margin to be between 75% and 77%. And this moderation is very much driven by forecast mix between capital, consumables and service where we are forecasting strong growth in total units coming from both new installed base and upgrades, as well as growth in service, both of which are at the lower gross margin to consumables. There is also an element of COGS increase in FY24 as large percentage of the units forecast to be sold in FY24 were either manufactured in FY23 or will be manufactured from components in our inventory that we had in FY23. And the increased cost is really just due to the increases in component costs incurred in FY22 and FY23 as we built our safety stock as part of supply chain risk mitigation. We do expect to reduce our inventory holding this year, however, and consume the higher COGS units with the forward looking cost of goods potentially improve once the high component cost inventory is consumed.
From an OpEx perspective, global operating expenses for the year were $114 million, so that was up 26% versus PCP. As a percentage of revenue, operating expenses reduced from 75.2% in FY22 to 68.5% in FY23, so some operating leverage coming through. And when we break these expenses down that can be broadly broken down into investments in three particular categories. The first being on market development where the majority goes and that comprises approximately 46% of our total operating expenses. And these investments are associated with continuing to drive ongoing growth in mature markets like the USA [Technical Difficulty] UK where the majority of our current revenues derived, as well as investing in expanding our geographical expense presence in emerging trophon markets, such as Japan, China and a number of European markets. An increase in our cost base in the US was a -- and that was associated with the move to the largely direct business over there was a significant component of overall OpEx growth. But moving forward, we now expect to see goods operating leverage coming through from that. Of course, last year, just being the first year of the full direct operation. And of course there were some headwinds with the US based costs associated with the stronger US dollar.
The second area is research and development and that that represents approximately 26% of the operating expenses. And in FY23, company investors approximately $29 million, so in R&D. And these expenses support ongoing R&D in the trophon franchise, as well as new product categories like our CORIS technology platform and endoscopy reprocessing as cloud solutions and traceability as well as research activities in the broader infection prevention areas. And the third area is our investments that we make or the expenses associated with our core operations headquarters and the support that we provide and that represented approximately 28% of our OpEx this year, which was down from 32% last year. And these are really associated with the development of scalable manufacturing capacity to support ongoing growth and demand, as well as setting up the manufacturing operations for new product introductions, which were well underway. They also include all costs, of course, associated with our corporate functions and our first full year in the new global headquarters, which of course provides capacity to support the ongoing growth of the business.
From a profit before tax, for the year, it was delivered at $21.6 million compared with $1.6 million in the prior year. And our free cash flow for the year was just under $20 million compared with net outflows of about $200,000 in the last year. And resulting from that our cash and cash equivalence did increase where there's now $112 million -- so we’re $112 million at the 30th of June, which continues to provide a strong foundation for continued investment for growth but importantly, as well for potential M&A opportunities. Which I know we've been talking a bit for a while and we are active in that area, but today we've not identified a particularly suitable target, but it is something that we are actively looking at. Of course, the company has no debt and continues to regularly review its capital management strategy at the Board level. Before leaving the financials, just again quickly back to the trophon core business P&L. And as mentioned earlier, a pro forma P&L of the underlying tropon business has been prepared. It's not an auditor’s -- external auditors P&L, but I think the numbers in there are quite accurate. And that gives a very good insight into the profitability of the core trophon business, which alone generated approximately $44 million in profit before tax, and that was up 170 odd percent on prior year. And year-on-year when you look at that pro forma as well, you will see improvements in operating leverage in the trophon business where OpEx reduced from 63.5% of revenue in FY22, down to 55% in FY23. So a highly profitable business with great opportunity for ongoing growth.
On the product expansion beyond trophon, this is certainly an important driver for expanded growth for the business and all our activities in R&D. And our next transformational product CORIS did progress against key milestones during the year. The product itself was recently presented at the largest US infection prevention conference in June with a lot of interest generated and further scientific presentations and publications on CORIS are planned during the remainder of this calendar year and beyond. And as notified previously, the CORIS technology was accepted into the FDA Safer Technologies Program or STEP program. And a key benefit of CORIS being in this program is the opportunity for more timely interactive communication with the FDA about key aspects of their requirements for the de novo submission since CORIS is considered a new class of product with no predications. And the ultimate goal by the FDA of accepting products into this STEP program is to try and lead to a smoother and more timely review process once the de novo submission is made as their aim is to get saved for technologies or technologies that they believe have the opportunity to have much better patient outcomes and their objective is to get them to market as quickly as possible, without bypassing, of course, any of the strict safety and efficacy regulatory requirements.
Very recent consultation with the FDA through this program identified that certain testing that we had originally actually scheduled to be conducted in Australia is now required to be completed in the USA. And this testing that's required it just takes some time. It's not necessarily particularly onerous testing, it's more human factors testing rather than clinical trials per se. However, what it does necessitate is we have to set up a clinical simulation laboratory in the US then bring certain types of potential end users to that laboratory to do human factors testing. And so that will take a little bit of time. We have set up -- already set up a clinical simulation laboratory here in Sydney and have actually already done some human factors testing with CORIS as well that has provided insights into the user interface, but the FDA now requires to do that in the United States. We are now taking the necessary preparatory steps to set this up and conduct the testing. In parallel, while that's happening, the more clinical trials planned that are okay to be done in Australia will go ahead as previously planned and the preparation for commencing that work is going well with the actual site preparation underway at the hospital. So these new requirements for testing in the US, however, will impact the FDA de novo submission date, which will likely move into the third quarter.
And of course, it's prudent have this testing completed before we commence in other markets. And given the FDA submission is a key priority, there will then be knock on impacts on the timing for commercialization plans for the other markets, which we'll have a clearer picture on once we have the -- the de novo submission is made. None of this of course takes away from the fact that CORIS represents a very significant opportunity for the organization. I know a number of analysts and fund managers have been doing their research. I've read a number of reports all identifying the significant opportunity that does exist, because it's a product that is designed to address what is considered to be one of the biggest unmet needs in instrument reprocessing today. And we're very confident in its ability to set a totally new benchmark in cleaning and efficacy as demonstrated through the efficacy data that we recently presented at APIC. So more news on this, on CORIS, of course, when we submit the FDA de novo submission.
Moving on to business outlook. So the company overall is very well positioned to continue to grow the trophon business to introduce the CORIS technology as well as invest in our longer term growth agenda. For FY24, the company is targeting a total revenue, again, strong growth this year of 15% to 20% and that is driven by growing capital revenue with increases in both installed base and upgrade volumes over FY23. We believe that we -- a lot of the pipeline that was generated during FY23, some of those delays will move into FY24 and we can convert those. So there is strong growth in capital revenue. Of course, we do expect increasing consumables revenue then aligned with the growth in the new installed base. And we also expect increased service revenue coming from the existing installed base as well as growth in upgrades that I noted earlier. And we are for the year assuming the ability to maintaining the current pricing levels on capital and consumables noting that we were able through the transition to the direct business be able to get favorable pricing improvements during FY23. As mentioned earlier, we do expect a moderation in gross margin to between 75% and 77%, and that's primarily driven by the change in sales mix compared with FY23, where with an increase in the proportion of capital revenue resulting from growth in sales of both new installed base and upgrades, and also an increase in service revenue, both of which have a lower gross margin than consumables. But both, obviously, very, very important. And as mentioned, there is the increased trophon product COGS, which we believe is just throughout this year as we use of the higher cost inventory due to the temporary increase in component costs associated with units that we have manufactured during FY23, and we'll be manufacturing from the raw materials that we have in our inventory that we have to buy at higher prices from a supply chain mitigation perspective.
Operating expenses, on a consolidated basis, are to grow between 17% and 22%. And this increase, I know, does include all the investments in CORIS, R&D, regulatory, clinical and manufacturing and commercialization readiness, where we expect to see further leverage over -- in FY24 over FY23. Also I should note that included in these expenses is the implementation of a new ERP system with the majority of the one-off costs associated with this implementation to be incurred in FY24. So for the -- that's on 17% to 22% is on the consolidated total business perspective, including the investments in future growth. On a trophon only business, we expect to see further leverage in the profitability of that business again in FY24 where the OpEx in the core trophon business is more aligned with the revenue growth probably around the lower range of the revenue growth at about 15%. Of course, as with any outlook statement, there are of course a number of market uncertainties and it remains to be seen whether hospital budgetary pressures will impact the timing of trophon purchases. But so far this year the company is performing well to our internal forecasts. Before I open up for questions, as announced a number of months ago, McGregor Grant, our CFO, will be leaving the organization at the end of this month after 12 years with the organization. And I personally would like to acknowledge the tremendous impact McGregor has had on the growth of the organization over the last 12 years, which has seen to [Technical Difficulty] grow from a very small startup to a successful international company with a customer solution that is becoming standard of care in many markets around the world and soon to bring new transformational innovations to market as well. So McGregor, I'm sure I'm speaking on behalf of all the investors in Nanosonics in expressing my gratitude for all the tremendous contributions you have made to the company.
So with that, I will open for any questions.
[Operator Instructions] Your first question comes from David Lowe from J.P. Morgan.
Michael, if I could just start with the hospital CapEx budget. Could I get you to talk a little bit more as to what you saw in the period, how it was spread between the US and other markets and I guess why you're comfortable that that's not going to be much of a headwind in FY24, please?
It was -- the conditions in Europe that we had in the first half of the year that I think most companies had experienced didn't necessarily improved that greatly in the second half. And that was not just CapEx, that was also some staff shortages, et cetera, that were still happening through the NHS over there. We did see growth half on half in Europe in the second half, both on capital and consumables. Where we saw the CapEx budgets was more in the United States. And it was more -- it became more prevalent in the second half and there is some industry research out there on hospital sentiment, on CapEx that we did see. But what is interesting andn what we’re finding now is about 50% of the hospitals were saying that they thought that the CapEx budgets would remain constrain but at least 50% were also saying that they believe the CapEx budgets for FY24 or for their second half of the year will improve. So that gives us a degree of comfort in terms of our ability to grow in accordance with the projections that we have given. So it was primarily, we were seeing it in the US, David.
And perhaps on for McGregor, I mean, the guidance is consistent with what we have seen in the past. But obviously, FX is a bit of a -- it's going to change the bottom line numbers [maybe] materially. Can you give us some sense as to what those guidance metrics would look like at spot rates, please?
Well, the impact -- clearly, as you said, we forecast using $0.70, which at the moment feels a bit high. I mean, we use that number based on a range of forecasts that various institutions have provided us. But if the exchange rate stays at the current level and knowing that significant proportion of our revenue is in US dollars, we know that for every cent it's about $1 million. So there is potential -- [sudden] potential upside. But it does -- it's a little unclear as of course at this stage as to which way the the dollar will go and it seems to be forecast in both directions. But if it moves significantly, it could have material impacts on our results either way.
So just to be clear, so for each cent -- so $0.04 difference at the moment, we are adding $1 million to profit after tax?
The revenue is the -- revenue I was quoting it. But basically [Technical Difficulty] we can disclose enough about our US -- all our North American revenue is nominated in US dollars, so you can [Indiscernible] of that.
The revenue is pretty straightforward. If we went through the gross margins and, I mean, the operating cost line, perhaps if you could just make a quick comment on…
On the gross margin, cost of goods is predominantly in Australian dollars, there is a little bit of USD in there. And then other OpEx, approximately about a third of our total cost base is in US dollars.
One-third or two-thirds?
One-third.
One-third. Great, I will finish there. Thanks very much.
Your next question comes from Chris Cooper from Goldman Sachs.
Just on the new installed base growth, Michael, 2,600 that -- as you point out in the slides, that sort of contracted 16% and I know that's a bit below the sort of 3,000 run rate that you target. I just wanted to confirm that you are still planning on that 3,000 per annum increase in new installed base going forward?
Globally, yes. And there was that contraction and it was, as I said, on the call, it certainly was below our own internal forecasts. What gives us a bit of comfort in the growth, Chris, is the pipeline did continue to grow. It wasn't that people said, no, we're not interested in trophon. It was more a deferral. So we would certainly expect to see good growth coming through in FY24 across all regions, actually, across all regions.
And gross margin, maybe McGregor. So we're talking about sort of down a couple of 100 bps here, maybe 300 bps at the low end of the range. I know you've spoken to mix and some inventory effects in there. And clearly FX is having an impact as well. The mix commentary I don't believe is particularly new, I mean, you're guiding to capital growing above consumables again but the inventory is. So I just wanted to confirm once we're through that elevated cost of inventory, should the ’25 -- fiscal ‘25 gross margin jump back up to kind of where we were sort of in the ‘23 period?
In relation to the sort of cost of goods or other things remaining equal, we do expect to see an improvement in the cost or reduction of the actual cost of the unit, in particular, trophon. But of course, the overall -- the net gross margin will be a function of the mix between capital and consumer sales. But we are -- in terms of the [selling] terms of the cost there, as we work through that higher cost component inventory that we had to acquire, we do expect to see an improvement..
And last one for me just on CORIS. So Michael, the rationale for the pro forma P&L, I don't think I've seen that done before. And I just wanted to confirm some timing. So to set up a new simulation lab in the US, your anticipation is that it'll take a few months. The plan is then to complete that testing by early ‘24 and you could submit the regulatory filing immediately after that. Is that a correct understanding?
Yes.
And the plan is still to launch CORIS in Europe or Australia prior to the US launch?
Yes.
And any sort of updated indication of when that may be? It sounds like if you expect to complete the testing in Q1 of calendar [Multiple Speakers] [shortly] after…
Yes, I think, it's sort of prudent for us to wait to see the outcomes of the testing, because some of that testing may identify that we want to change something on the human factors. I can't imagine anything drastic to be changed. Certainly, nothing that would change things from an efficacy or capability of the product. So once we know, what that is, well then, we'll be in a much better position to give more concrete timing around the other markets. Of course, I mean, the US is the largest single market and we're not looking to have four or five different variants of the product out there per market. So a lot of what we do for Europe and the other markets will be dictated to the requirements for the US. But at this stage -- and I do want to stress that the human factors, it's not clinical trials but it's a really important part of FDA requirements now human factors. But we did anticipate we were able going to be able to do it here in Australia and have set up a clinical simulation lab here. But for whatever reason they said that we have to do it in North America. So that'll mean getting that lab established, that would mean then bringing people in from around the country in North America into that lab to do the testing, then get all the reports done and we should be in a position to submit.
And then launching in other markets outside of the US at some point in 2024?
At some point in -- well, in calendar ‘24, yes. At some point in calendar ‘24.
[Operator Instructions] Your next question comes from Craig Wong-Pan from RBC.
Just with growing pipeline of sales and that's partly due to the budget pressures that you've seen. I was wondering if those -- if that growing pipeline of sales is coming more from existing customers, so greater kind of penetration with existing customers or is it coming from brand new customers?
It’s a mix of both, but a growing percentage and over 50% of it is associated with existing, I would call it, existing hospitals as opposed to existing users. And what I mean by that, we sort of internally we talk about the strategy in terms of going wide and going deep, going wide is getting into all hospitals but going deep is getting into all relevant departments within a hospital. So what we are seeing is -- and even in the numbers over the last 12 months is more and more hospitals adopting trophon as their standard of care throughout the hospitals, throughout numerous departments within the hospital and we expect that to continue to grow. And certainly a lot of the pipeline is sort of weighted that way.
And one of your competitors, Tristel launched a high level disinfection wipe in the US. I was wondering if that had any impact on the rate of consumables you're seeing per device?
No, they haven't actually -- they announced the FDA approval, they don't actually -- I don't think they have it commercially available for a number of months yet. We don't see that impacting our area greatly. It's a -- personally it's great that there's more competition over there, because all it can do is increase the level of awareness within the markets as to all the different types of procedures that require high level disinfection. But without a doubt, the predominant and preferred method for doing disinfection these days is very much automated rather than manual, like the Tristel system.
And then my last question, just the upgrade sales that you saw in EMEA and Asia-Pac were quite strong. So you know, really good numbers in the second half. I was wondering if there's anything that kind of caused those strong upgrade numbers in those two regions?
No, it's just the sales -- it's the same salespeople that are doing new install base and upgrades. And as they're in existing accounts looking to go deep, they're also going to existing users within those accounts who have aged devices and looking to upgrade. And I think it's a great testimony to the value proposition of the trophon 2, including in markets where there is competition that customers are deciding to maintain trophon as their standard of care.
Your next question comes from Josh Kannourakis from Barrenjoey.
Just a couple of quick clarifications. So just in terms of the underlying growth for the base trophon business sort of 15% to 20%. When you mentioned the installed base growth, so within that how does the sort of bookends of that growth fit between, let's say, a 3,000 unit installed base? And how should we sort of -- maybe just give us a little bit more context on how we should be thinking about the range of outcomes into next year?
Well, we certainly expect to see strong growth in both installed base and upgrades and then potentially even an acceleration in upgrade uptake during the year. But we expect to see a turnaround in the installed base in North America and driving back towards that 2,800 per annum units that we were getting in the past, may not get there fully this year but certainly offset by even stronger growth in upgrades. And then we expect to see pretty strong growth in installed base in Europe. Asia-Pac, there will be some growth in installed base. But we are already quite well penetrated in our primary markets in Asia-Pac. Japan coming online a little bit. Certainly, the fundamentals are beginning to improve. There is a lot of work done this year. Just very recently, there was an advisory group of infection preventionists have established what's called a medical bundle, which is a best practice guideline and in this particular area, best practice guideline in OB/GYN for the decontamination of transducers. So things are progressing in Japan. But overall where we will see the primary growth in installed base will be coming from the United States and EMEA.
And then just with regard to, you mentioned a little bit of extra granularity around the cost base for the base trophon business. So still expecting good operating leverage. I think you mentioned sort of circa 15% growth. Just wanted to confirm that's the case.
Yes, that is the case. We expect to get even further operating leverage. So OpEx as a percentage of revenue to even improve further again, in FY24.
And then final one just on the cost side, the ERPs that you sort of mentioned, it sounds like largely a one off. Could you give us any context of sort of dollar value whether it's 1, 2, 3, like just the materiality of that investment in the year?
Yes, it's close to $2 million.
Perfect, that's great. Thanks guys.
And by the way, that $2 million is attributed to the -- in the trophon business. So we are, as opposed to trying to spread it across all aspects, but that would be part of that 15% growth in the trophon or core business OpEx. So again, some of the things that are in there are one off, which highlights again the leverage that we are getting and the profitability of that business.
Thank you. Your next question comes from John Hester from Bell Potter.
Michael, just a quick question on competitors. What about this [LumaCare] Group, have you ever heard of them and what are you seeing of them in the market?
Yes, it's another UV system, John. Rather than a mercury vapor based UV emitting device, it's based on UV LEDs. So it's still UV. It’s got approval here in Australia, it's got it in the UK. I don't -- we've been in both those markets, we've been competing against UV for many, many years and our impression is that we will continue to be the dominant player.
So are you sort of seeing them in tenders for new work in Australia or in hospitals at all?
If they have volumes out there, they wouldn't be that big, certainly, not notable that I'm aware of. I'm sure like all competitions, I'm sure they'll get certain units that are out there. I'm sure they have some units out there. But you know even in a highly penetrated markets like we have, we're continuing to grow the new installed base and not only continuing to grow the new installed base where you would've seen in Asia-Pac here in Australia where that [LumaCare] device has had TGA approval that we still grew upgrade strongly where customers have a choice between trophon and the competition and they're choosing trophon. So as I said, it is another device that is still a UV device -- it’s like the [Germitec] device out of Europe,it's just a different source of UV.
I had some other questions on the operating margin [Technical Difficulty] for the core business, but I think you've done that in [depth], so I won't go there. So nothing else from me.
There are no further questions at this time. I'll now hand the conference back to Mr. Kavanagh for closing remarks.
Well, again, thank you all for joining the call this morning. And we look forward to a continued strong growth, again, just delivering a strong growth again in FY24. I'm sure we'll see many of you over the coming days. Thanks a lot everybody.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.