Operator:

Hello, and welcome to the Q4 Fiscal Year 2024 ResMed Earnings Conference Call. My name is Kevin, and I'll be your operator for today's call. [Operator Instructions] Please note this conference call is being recorded. I'll now turn the call over to Amy Wakeham, Chief Investor Relations Officer. Please go ahead, Amy.

Michael Farrell:

Thanks Amy, and thank you to our shareholders for joining us as we announce results from our full fiscal year 2024 and review our fourth quarter results in more detail. Our global ResMed team executed incredibly well in our fourth quarter, producing another strong period of growth and execution across our business. With solid performance across all regions and all segments of our business and strong double-digit bottom-line growth. Ongoing new patient demand for our market leading flow generators remained robust in the quarter, even against a very tough year-over-year comparable. Media interest in sleep apnea and all the various therapies seems to be helping patients find their way to screening, diagnosis and therapy. And especially the lowest cost, most efficacious therapy with the best outcomes, which is positive airway pressure therapy. In terms of our masks and accessories, business physicians, respiratory therapists and patients are choosing ResMed masks when they start therapy and as they continue through resupply, resulting in very strong double-digit growth in our masks and accessories business. Our residential care software business delivered double-digit growth in revenue and in net operating profit. Our laser focus on operating leverage has delivered another quarter of strong, profitable growth and we're well positioned to continue on this trajectory as we launch into fiscal year 2025. Over 2.4 billion people worldwide suffer from sleep apnea, insomnia or respiratory insufficiency due to chronic obstructive pulmonary disease or neuromuscular disease. As the market leader in respiratory medicine and residential care globally, here at ResMed, we're uniquely positioned to drive increased market penetration through demand generation to accelerate growth. These chronic conditions in sleep health and breathing health form a global health epidemic that ResMed is well positioned to address. We believe that healthcare should be delivered in the lowest cost, lowest acuity and highest comfort location possible, in the optimal case, that's right, in a person's own home. ResMed is the clear leader in sleep apnea, a market of over 1 billion people globally. Our end markets remain significantly underpenetrated. We're leading the industry in digital health solutions, with approximately 19 billion nights of medical data in the cloud and 26 million 100% cloud connectable medical devices sold into over 140 countries worldwide. We've leveraged these de-identified data to show that our therapy solutions lower costs, improve outcomes and bend the curve of chronic disease progression. Significant opportunities remain in digital health, and we plan to be right there at the cutting edge of innovation. The latest advances in wearables from the consumer technology industry and the latest medicines from big pharmaceutical companies will bring more and more new patients into the healthcare system. We have many opportunities to add value, expanding interoperability, lowering costs and improving patient outcomes. Billions of people can benefit from our products and solutions, and we're focused on expanding our reach and growing the market to help people get on their pathway to better sleep, better breathing and better care at home. Sales of our flow generator devices, including the category leading AirSense 11 platform, grew 6% year-over-year globally. We're supporting the global market and every patient who needs a device has access to our market leading 100% cloud connectable platforms, the AirSense 10 and the AirSense 11. We continue increasing the availability and production of our AirSense 11 and our AirCurve11 platforms worldwide as we secure regulatory clearances and launch these market leading technologies country by country. Our masks and accessories business grew 15% year-over-year, expanding in a competitive category globally. Our latest mask innovation, the AirFit F40, introduced last quarter, is doing extremely well in the markets that it has launched in. New patients are selecting the F40 for its comfort, fit and ease of use. It is the smallest profile oronasal mask on the market from ResMed. Patients are voting with their wallets, and respiratory therapists are voting with their setup protocols, and physicians are voting with their prescriptions. We look forward to ongoing success in the US and across global markets as we increase availability and introduce the F40 into more and more countries throughout fiscal year 2025. ResMed's clinical and commercial teams continue to partner with physicians and providers to drive resupply programs directly with their patients, and we're successfully establishing subscription programs in our cash pay countries to help consumers find their path to therapy with resupply directly. Masks and accessory resupply programs are a very important part of our offering as we serve the ongoing therapy needs of patients globally, research shows that resupply programs can both improve patient adherence and improve long-term clinical outcomes. In the US our resupply programs are powered by our digital health ecosystem, including AirView for physicians, myAir for patients and Brightree for home medical equipment providers. We will continue to develop, launch and scale these technologies and programs to help people take control of their own health, regularly refreshing their ongoing therapy needs. As the global leader in significantly underpenetrated markets, our most important opportunity is to expand and grow the market through awareness, diagnosis and seamless pathways to treatment. We aspire to be the digital health concierge for each person as they pursue their personal journey to better sleep, better breathing and better residential care. We are ramping up our demand generation initiatives to raise awareness and create pathways for patients to help them find access to care for their sleep health and their breathing health. We're serving traditional healthcare channels as well as investing in cost effective, social media driven, demand generation campaigns to help consumers who are concerned about their sleep and breathing, find ways their own personal way into appropriate screening, diagnosis, treatment and management pathways. Our physician and provider-based software ecosystem called AirView now contains over 28 million patient records. Adoption of our consumer patient engagement app, which is called myAir, where people choose to participate in their personalized sleep health journey, remains incredibly active and now includes over 8.3 million users. These digital health ecosystems are growing every quarter, showing the engagement of physicians as well as patients in accessing their own data to measure progress along their personal health journey. As we look to the future, I've discussed two global megatrends that I believe will further support ongoing growth for ResMed. Awareness of sleep health issues driven by consumer technology companies, specifically, sleep tracking wearables like the Samsung Galaxy Watch, which has a De Novo FDA clearance to screen for moderate to severe sleep apnea. And we expect similar capabilities from other wearable players in consumer tech such as the Apple Watch, Google's Fitbit, the Oura Ring, WHOOP and Garmin. In terms of the second megatrend behind future patient growth, we are seeing increased volumes of patients entering the healthcare system driven by the efforts of big pharmaceutical companies as they increase awareness of the treatments for diabetes and obesity medicines and they continue their research into the impacts of these medicines on sleep apnea. Together, we believe these two mega trends in consumer tech and big pharma will increase patient awareness and be a significant tailwind for long term growth here at ResMed, our goal is to educate people as they move from what we call sleep wellness tracking on a wearable to what we would call sleep health tracking, where they are seeking the help, advice and care of a health professional in the field of sleep medicine. This connection pathway from consumer awareness of sleep health and breathing health issues into a true healthcare pathway is what we are calling the digital health concierge opportunity. Our plan is to be there for that person as they go through the process of screening, diagnosis, treatment and ongoing management of their sleep health and their breathing health for life. Big Pharma is squarely focused on GLP-1 medications. For many people dealing with their obesity and diabetes issues, their healthcare goals are focused on losing weight while improving their diet, cardiovascular exercise and their sleep routines, something that Bill Dement called the triumvirate of health. We believe that increased utilization of GLP-1s to treat obesity will bring many new people into the healthcare funnel, activating them to see their primary care physicians as they strive to achieve and maintain weight loss. We believe this will open them up to treating other chronic diseases that they may suffer from, including increased awareness of sleep apnea, ultimately driving new patients into diagnosis and treatment pathways that they may not have previously considered or been treated for. So, it's not just driving more patients into our channel, but we believe it's also driving more motivated patients. The emphasis on GLP-1 medications and increased focus by Big Pharma has put a spotlight on sleep apnea like never before. We believe that the growth in weight loss drugs will be a net positive for our business and the data support that thesis. ResMed has added to the biggest study in the field and our data which is using real world evidence of the impact of GLP-1s through a de-identified patient analysis leveraging third party claims data. We now have an expanded cohort of over 811,000 de-identified subjects in our analysis. This analysis demonstrates that GLP-1s are having a positive impact on patients both seeking and adhering to positive airway pressure therapy. The latest numbers are an improvement from what we have presented previously. For patients prescribed a GLP-1 medication, the latest data show a 10.7 absolute percentage points higher propensity to start PAP therapy over those without a GLP-1 prescription. These data show that patients with this drug prescription are more motivated to start their CPAP, APAP or bilevel therapy. In terms of longer-term impacts on PAP therapy, we have seen that the resupply rate at T equals 12 months is 310 basis points, so 3.1 absolute percentage points higher for the patients who have a GLP-1 prescription and further at T equals 24 months, the resupply rate is 530 basis points, or 5.3 absolute percentage points higher for PAP therapy resupply for patients who have a GLP-1 prescription. These data show that the new pharmaceutical class is a clear tailwind for our business, bringing more patients into the healthcare system. And more than that, we believe it is bringing highly motivated patients into the healthcare system. We've included this updated analysis in our quarterly earnings PowerPoint deck and I encourage you to review the data there in further detail. ResMed is the clear world leader in sleep health, breathing health and healthcare delivered at home. Frankly, it's our obligation and it's our brand promise. It's the ResMed brand promise to ensure that sleep concerned consumers find their path to the highest efficacy, lowest cost and most comfortable therapy that's out there and it's best for them. Our peer reviewed and published evidence demonstrates that we can achieve over 87% to PAP technology, 87% adherence to PAP technology in the first 90 days by combining our market leading device platforms with digital health solutions, myAir and AirView. Of course, that means that 13% of patients in that scenario still need alternatives and ResMed wants to be there to help those patients too. So, we are investing in alternative therapies to help patients who can't adhere to PAP therapy to find their pathway to second line therapies. And that includes dental devices where ResMed provides Narval, the market leading 3D printed dental device for treatment of sleep apnea with dental treatment in western and northern Europe. In addition, we have investments in third-line therapies, including pharmaceutical options with our investment in ApneaMed and hyperglossal nerve stimulation technology with our investment in NIC SOA. So, let's step back and talk about broadly our digital health technology investments. Leveraging an extraordinary ecosystem of almost 19 billion nights of de-identified medical data, we are developing and continue to expand our portfolio of artificial intelligence driven capabilities, as well as customer facing AI products that we're launching into the market from our ecosystem. We continue to roll out and expand the AI products in AirView such as compliance coach in the United States and our new smart coaching pilot which is expanding into a few new countries as we go through our current quarter, which is Q1 of fiscal year 2025 and beyond. We are also progressing with our generative AI capabilities to help patients along their health journey. A project that was initially piloted within our Asia Pacific region, our generative AI sleep concierge that we call Dawn and yes, that is a reference to the sun rising at dawn after a great night of sleep. Dawn was recently expanded from Asia Pac into our US market. We'll continue to share the progress on this front of GenAI and simple ML and generic AI as well, as this tech is further developed and scaled across our business. It's going to enhance the user experience and drive consumer awareness and what we're focused on is outcomes, not the tech, but what it can do for a patient, a physician, a provider. In our residential care software as a service business, we had another strong quarter with year-over-year growth of 10%, supported by strength in our home medical equipment provider business through our Brightree brand, as well as very strong growth in our home nursing and nursing home business with our MEDIFOX DAN brand. We've made very good progress in the business segment throughout fiscal 2024 and we plan to maintain high single-digit growth to low double-digit growth throughout each quarter in fiscal year 2025. But really importantly, we're driving operating leverage and we're going to have very strong double-digit net operating profit growth from our residential care software business sector in 2025. Our residential care software business is integral to the broader ResMed growth portfolio with ongoing synergistic growth opportunities across our businesses. We are accelerating growth across our residential care software business intrinsically, but we're also helping to support the core business through mask and accessory resupply growth. We continue to drive operating leverage by managing across our businesses with capabilities managed such as cloud compute, cybersecurity, interoperability, privacy and research and development velocity across our software platforms and with our core sleep, health and breathing health businesses. We are transforming respiratory medicine and residential care software at scale. We are leading the industry in developing, applying and adopting digital health technology across the 140 plus countries that we serve. We continue to scale and drive efficiencies in our operations. We're focused on driving top line revenue growth, but with strong cost discipline and increasing efficiencies to accelerate profitability at the bottom line. We made excellent progress on that this quarter. The global team delivered growth in non-GAAP operating income of 30%. The global team also delivered growth in non-GAAP net income of 30%. I'm more than incredibly proud of our global team and their performance. We provide differentiated products and solutions for customers worldwide, driving long term sustainable value for our shareholders. We lead the industry in digital health technology with the smallest, quietest, most comfortable, most connected and most intelligent technologies. During the last 12 months, we have improved over 178 million lives by delivering a medical device directly to a patient, or a complete mask directly to a patient, or a digital health software solution that provides personal care. We've helped each person sleep better, breathe better and live higher quality lives with best-in-class healthcare delivered right where they live. In closing, I want to express my sincere gratitude to 10,000 plus ResMedians for their perseverance, hard work and dedication today and every day across 140 countries. Thank you, team. With that, I'll hand the call over to our CFO Brett, who's in Sydney this morning for his remarks, and then we'll open up to Q&A with the global team here in San Diego and Sydney. Over to you Brett.

Amy Wakeham:

Great. Thank you, Brett, and thanks, everyone. Kevin, I'd like to turn the call back over to you to review the Q&A instructions and run that portion of the call.

Lyanne Harrison:

Yeah, good morning, Mick, Brett and Amy. Can I start with devices that came in a little bit lower than what I had expected? And can you give us some color? In terms of that 6% increase in device revenues? How much of that do you think is driven by November price increases? How much is the AX 11 mixed benefit? And how much of that is volume? And then on volume, are you seeing any change in that new start pipeline coming through?

Operator:

Thank you. Our next question today is coming from Steve Wheen from Jarden. Your line is out live.

Michael Farrell:

So, thanks for the question, Steve. I'll hand that over to Brett to cover some issues around GM and really good accretion of our gross margin year-on-year and sequentially, Brett, over to you.

Operator:

Thank you. Our next question is coming from Brett Fishbin from KeyBanc Capital Markets. Your line is now live.

Michael Farrell:

So Brett, back to you, gross margin.

Brett Fishbin:

Specifically, just asking about some of the commentary for FY '25 relative to FY '24.

Operator:

Thank you. Our next question is coming from Mike Matson from Needham & Company. Your line is now live.

Michael Farrell:

Yes. Thanks for the question, Mike. And yes, our -- I guess I'll call them our #4 competitor right now, right, because they've dropped down to fourth in new patient share globally. That competitor is back in many markets in Europe Asia and Rest of World, we grew in the quarter, 8% in Europe, Asia, rest of the world on a comp of 15%. So, if you see which I do, the market growing in mid-single digits. ResMed is taking share in Europe, Asia, rest of the world relative to our competition. So, competitors from Europe like the one you named, but there's other ones that have higher share and competitors from Asia who have higher shares than them. And so, I think that competitor as they come back are having to earn their way back. We've got to try to repair their brand, try to repair their approach that they're going to have a safe and efficacious product, and they're competing with the Tier 2, Tier 3 players and working their way in. They had a call last week, and they sound like they're growing from a very low base to something better, and that's good on them. I love competition. ResMed is the market leader. We have the smallest, quietest, the most comfortable devices, but more important than that, they're the most connected and the most intelligent and it's all about the ecosystem of AirView and myAir and getting those data to the cloud and getting to doctors, getting to physicians. So yes, that competitor is back in a number of markets. And as we said last quarter, the quarter before, we were beating them from 2010 to 2019, 2020 before they had the recall, and we're going to beat them as they come back and we've shown that this quarter, and we'll continue to show it going forward.

Operator:

Thank you. Next question is coming from Dan Hurren from MST Marquee, your line is now live.

Michael Farrell:

Look, it's a good question because we talk about mask growth being high single digits. And then obviously, in this quarter. We performed right there in Europe, Asia, rest of the world at 9%, right there in that high single digits. Then in U.S., Canada, Latin America, we performed at 17% growth. On a pretty good comp actually of 19% from the year before. So double digit on double digit. Look, you're not going to grow double digits in masks forever when the market is growing at high single digits, and you are the clear market leader. But you can drive demand generation and you can drive better resupply programs. And I said in the prep remarks, we've done a lot of investment in Brightree, Snap Technologies and all of the digital health technology that we have to support home medical equipment providers here in the U.S. market. And then globally, we've really set up some great subscription programs where people, frankly, I think, have been underserved in Europe, Asia and rest of world with the ability to get fresh equipment if they love their device and they love their mask, why isn't it super simple to just click on an app see the price and get a drop ship delivery of a device to your place in a cash pay market where those same people are doing the same and have done with Amazon and all the other WeChat in China, Amazon, the U.S., et cetera, et cetera, globally. Everyone has seen this in the consumer field. And so I think health care needs to catch up and be more consumer focused and in those cash pay markets. We've set up some great subscription programs. And in the more regulated provider-based markets like the U.S. and Europe, we're really partnering with our providers like never before. So that's how we saw the outperformance. That's how we saw the extra demand generation. That's how we saw the extra resupply. Our goal is to meet or beat market growth every quarter that we go ahead. The team did it really well this quarter, and I have confidence that we'll be able to do it going forward. Thanks for the question about masks. It's a really important part of our business.

David Bailey:

Morning. Thanks to -- thanks Mick and Brett. Just thinking about longer-term new patient growth. You sort of mentioned that the awareness piece could potentially increase on the back of some of the GLP-1 studies and data. Just on the diagnosis side of things. Are there any constraints in your view to more new patients coming through. And I suppose I'm getting to -- the question is, when do you think you might see an inflection from or an increase in that sort of mid-single-digit growth to something a little bit higher?

Operator:

Thank you. Next question today is coming from Gretel Janu from E&P. Your line is now live.

Michael Farrell:

Yes. Good question, Gretel. Over to you, Brett. And it feels like this is the after call with modeling. But over to you, Brett.

Operator:

Thank you. Next question is from Suraj Kalia from Oppenheimer. Your line is now live.

Michael Farrell:

Can hear you loud and clear, Suraj.

Michael Farrell:

Great. Well, I'll take the first question around pricing impact. And then Brett, you'll take the sneaky second question there around -- sneaky, I mean, by getting it in upfront, Suraj, not the question itself, on inventory levels, particularly with masking accessories. And we saw the total inventory come down, but I think it's specifically Brett on masks and accessories. So firstly, on pricing impact, look, Suraj, you and all the sell side, you guys do your investigations and you look and talk to our customers, particularly in the U.S. and ask about pricing. You know that as a company, you've followed us over the last few fiscal years, we did see cost of components go up with inflation with shipping costs that have gone -- we've had increased cost of goods sold that ResMed has had to deal with, and we've shared some of that, not all of it. We've shared some of that with our customers with some increase in pricing. Often associated directly with innovation, right? The AirSense 11 was higher priced than the AirSense 10, but it's small, it's quiter. It's more comfortable. It's more connected. It has 2-way comps. It has over-the-year upgrades. It has all these advances. And so, it has a high price point. Similarly, with new mask inventions, the F40 is out there. It's a great mask. We don't need a price discount on something that is that much better than the competition. It's the smallest full-face mask, the smallest oral nasal mask in the history, a 35-year history of ResMed. So that -- those will be at price premiums. And so don't break out the exact breakdown on devices or masks of pricing or volume. But I can tell you, the vast majority of our growth was all on volumes. It's all about getting more of the one billion-plus patients with a sleep apnea, the half billion patients with insomnia and half billion with COPD into the system, so they can get better fleet and better breathing. So we focus primarily on that screening diagnosis treatment, get the volume in, and then ASP is a component in that where we have increased costs. Look, frankly, I hope inflation comes down and costs come down, and we can share some savings with our customers because they have a tough time with reimbursement often not going up. At least the U.S. Medicare went up at the start of this year, in line with an inflation adjustment, but not all insurance companies around the world do that. And so, our job is to get more patients in to make sure the channel is profitable so that we can have more money to invest in getting awareness out to all the patients who need our help. That's my answer to the first half. Brett, over to you to talk about inventory and masks and accessories, particularly.

Operator:

Thank you. Your next question is coming from Margaret Andrew from William Blair. Your line is now live.

Michael Farrell:

Yes, Margaret, it's a great set of questions. And it really is one question, right? It's really about that demand generation and how we can as a company best leverage what is, frankly, once in a generation in the pharmaceutical cycle. And I think maybe once in a generation on the wearable cycle from consumer tech of a bolus of patients over the coming one, three, five, 10 years. So, look, yes, we want -- we aspire to be this digital health concierge and digital health concierge specifically for sleeping and breathing. Look, I mean, obviously, when we're providing technology, if we're providing a service that is a service that's out there in the health care field, we're going to be charging for it. But in the context of helping people find access to information, ResMed has the world's leading database with 19 billion nights of medical data in the cloud. We have more knowledge than anyone on the planet. I wouldn't call it a data lake, but I'd call it a data well, it's a bunch of deep, deep information about the field of sleep and breathing and about patients how they get to sleep, how they breath all night, and how they wake up and have mask leak and/or apneas and/or issues. And so with that, we want to bring that information and bring it to the world. For instance, we don't charge patients for myAir. Patients get access because we believe they paid their insurance. They -- in markets that are cash pay, they paid for that product with their own cash. So I believe they have the right to access their own data on their myAir app. So if they sign up, there's 8.3 million patients, they get myAir for free. So in a similar context, I would want patients to be able to find access to a pathway on a sort of freemium basis. If there's advanced analytics and advanced information we're doing that does. AI isn't free, a lot of engineers to write it and a lot of energy consumed in the algorithms as they run. We probably will charge for some of those advanced information similar to what we do with AirView with our providers and physicians. So sleep health concierge, there will be freemium basis and will be out there. There probably will be some pay -- for the really advanced folks. But the primary goal is to help the billion people find their path to treatment. Now to your specific questions about quantifying how many patients in the channel, how many extra have we got from consumer tech, from big pharma versus from standard referrals. We do have some analytics and measurement on that. They're internal and they're not for sort of public consumption. If I say them here on the call, they become public for them. But I can tell you we are productively paranoid about analyzing this channel. The flow of patients in where they come from and how they come from, what we can do to drive more patients in from each element of that. how we can get an ROI of either direct consumer advertising or social media-driven advertising and really track the return on that. So watch this space, a lot of investment from ResMed. It is our brand promise to help people get better sleep, better breathing and better care at home. And we're the world leader. It's our duty to do so. So I do believe, to answer the sort of third part of your question, bringing the funnel together, it is all about that. We achieved incredible growth, double-digit growth, as you said, across the business, north of 6% in devices, north of 15% in masks and incredible growth in our respiratory care -- sorry, residential care services and software at 10%. So really proud of the team. Our goal to keep doing it and keep doing it quarter in, quarter out, and the team is on it. So thanks for your question, Margaret.

Anthony Petrone:

Thanks, Mike. Congrats on the quarter here, let me just stay on the theme high level. If you think about the debate on GLP-1, on the one hand, we still have a low diagnostic rate just for sleep apnea overall. I think it stands at 20% or so based on the last Wisconsin sleep study. So when you think about Lilly coming in here, potentially doing DTC. Where do you think the diagnostic rate can go, so that would be a huge tailwind. And then on the flip side, you think about the continuum. We have dental devices CPAP therapy, auto, CPAP, of course, in their sleep metrics on AirView, et cetera. And then we also have hypoglossal nerve stimulation. When we add in the GLP-1, how do you think the decision-making process will shake out over time? Thanks again.

Operator:

Thank you. And the next question is coming from Saul Hadassin from Barrenjoey. Your line is now live.

Michael Farrell:

Yes, Saul, thanks for the question. And look, we're looking at the real-world evidence every single way that we can. And yes, certainly, the SURMOUNT-OSA data had a pretty extraordinary trial, right, where they had the patients with the sleep coach, a nutrition coach, an exercise coach, they were calling them and interacting with them every day. So even people in the placebo arm had incredible reductions in weight and some really big reductions in HI in the placebo one, where they got no pharmaceutical medication, whatsoever, either saline or nothing. And so look, I think that under that circumstance, there's roughly 600 patients, plus or minus. They have some extraordinary results. But even in all those circumstances, they still weren't as good as dental devices and certainly nowhere near the 95% reduction in HI that any doctor would want with positive airway pressure therapy. But look, look, it certainly was larger than many people thought in the HR reduction. So, I think it's great. I think it means that those two companies that are investing in this are going to go through, getting the indication for use, and then they're going to be out there doing DTC advertising, which in the U.S, you can do a late-night television, and they'll be out there. They'll find some catchy tune and it'll will be out there driving patients into the funnel, and I think it will be good for all of us in the therapeutic side. We're definitely looking at the churn rates and CPAP quitters, APAP quitters, bilevel quitters and really looking in detail at it. I can tell you, in aggregate, we've seen no change on the data. And as you know, the latest generation GLP-1s, some of them have been out there one year, three years, four years plus these latest gen, and we're not seeing any increase in that. We're looking at it real-world data, and we're analyzing left, right and center, but we're not seeing an increase in quitters rates. If anything, we're seeing more motivated patients come in and holding on more. The combination therapy, which is what the primary investigators in this talk about, which is CPAP plus drug therapy as in I'm managing my weight and my suffocation are really there. And the vast majority of patients have incredible residual apnea at levels that would be treated by any primary care physician in the planet even under the very controlled circumstances of this trial, let alone what's going to actually happen in the real world. So we're watching it. We have a really strong focus on it. We've got 811,000 patients in our study. and we'll continue to publish data on it. And as we get more and more, we'll go even more to publish an American Thoracic Society, European Respiratory Society and get in the Blue Journal and all the big journals to have this down there in the clinical literature as well as the subjects that we're looking at in our analysis. Thanks for the question, Saul.

Michael Farrell:

Yes. Thanks, Kevin, and thank you to all of our stakeholders for joining us on this call. The opportunities in front of us, as you heard from all these questions, huge and largely untapped. It's an incredible runway. We see more and more people coming into the health system, and this will benefit us as we help them sleep better, breathe better and live better lives in 140 countries. Thank you to all the ResMedians, who listen to this call around the world. Many of you are also shareholders. So thank you for what you do today and every day. With that, I'll hand the call back to you, Amy.

Operator:

Thank you. You may now disconnect your lines, and have a wonderful day. We thank you for your participation today.

Operator:

Hello. And welcome to the Q3 Fiscal Year 2024 ResMed Earnings Conference Call. My name is Kevin, and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session. Please note that this conference call is being recorded. I’ll now turn the call over to Amy Wakeham, Chief Investor Relations Officer. Amy, you may begin.

Mick Farrell:

Thanks, Amy, and thank you to all of our shareholders for joining us today. Our third quarter fiscal year 2024 results reflect another strong period of execution across our entire business, resulting in solid topline growth and strong double-digit bottomline growth. Our results were driven by ongoing new patient demand for our devices across global markets, high single-digit growth in our Software-as-a-Service business and double-digit global growth in our Masks and Accessories business. This is exceptional performance given that we are annualizing a very strong quarter of growth in the prior year. The recent launch of our ResMed 2030 operating model and our steady focus on driving increased operating leverage are delivering excellent bottomline results and keeping us on a clear trajectory of ongoing profitable growth. Over 2 billion people worldwide suffer from sleep apnea, what I call sleep suffocation, insomnia or respiratory insufficiency due to chronic obstructive pulmonary disease or neuromuscular disease. These chronic conditions form a healthcare epidemic that ResMed is uniquely positioned to address. We believe that healthcare should be delivered at the lowest cost, lowest acuity and highest comfort location possible. In the optimal case, that’s in a person’s own home. We are the global strategic leader in providing therapies for this epidemic, as well as market-leading enterprise software for Residential Care, including home medical equipment, home nursing and beyond. ResMed is the global leader in digital health solutions with over 18 billion nights of medical data in the cloud and over 24.5 million 100% cloud-connectable medical devices that have been sold into over 140 countries worldwide. We are the clear leader in sleep apnea, a market of over 1 billion people globally. Our end markets remain significantly underpenetrated. We believe the latest advances in big consumer tech and Big Pharma can potentially bring incredible numbers of new patients into the healthcare system where ResMed is uniquely positioned to provide ongoing care at home. We have a myriad of opportunities to add value, to reduce friction, to improve interoperability, to lower costs and to improve patient outcomes. We’re the global strategic leader with software supporting hundreds of millions of people as they take control of their healthcare journey and navigate the complex healthcare world beyond the hospital system. Many more people can benefit from our products and solutions and we’re laser-focused on growing the market to help people get on the therapy they need and on a pathway to better sleep, better health and better long-term care. Sales of our devices, including the category-leading AirSense platforms, grew 5% year-over-year globally. Excluding the one-time COVID-related ventilator sales in the third quarter of last year, global devices grew about 300 basis points higher than that, so right around 8% global devices growth. We are maintaining supply of two of the two market-leading 100% cloud-connectable platforms, the AirSense 10 and the AirSense 11. We’re working to increase the global availability of the AirSense 11 platform by securing market-by-market regulatory clearances. We are following a similar path with our recently launched AirCurve 11 Bilevel and non-invasive ventilator platform as we continue its launch in the U.S. and beyond in the period ahead. Our commercial teams are successfully demonstrating the clinical and economic benefits of the ResMed Mask portfolio. Our Masks and Accessories business achieved 10% growth year-over-year, expanding at or above the market in a competitive category globally. During the quarter, we introduced our latest mask innovation into the U.S. market called the AirFit F40. The F40 features a proprietary new technology that we call AdaptiSeal. It is a silicone cushion designed to create and maintain a better facial seal even when the person is moving frequently during sleep. It leverages a fully flexible frame technology to cope with such frequent nocturnal movement. Physicians, respiratory therapists and patients love the F40 for its comfort, its fit and its ease of use. It is the smallest full-face mask on the market from ResMed. Patients are voting with their wallets and respiratory therapists and physicians are voting with their recommendations and their prescriptions. We look forward to ongoing success in the U.S. and to swiftly bring the F40 to other global markets very soon. Mask and Accessory ReSupply programs are an important element of our offering, as we serve the ongoing therapy needs of patients globally. ResMed’s clinical and commercial teams continue to partner with physicians and providers to drive ReSupply programs directly for their patients. In our cash pay markets, we’ve established a number of subscription programs that have been adopted by consumers. Research shows that ReSupply programs lead to better patient adherence and better long-term clinical outcomes for the patient and their caregivers. In the U.S., our ReSupply programs are powered by our digital health ecosystem, including AirView for physicians, myAir for patients and Brightree for home medical equipment providers. We will continue to develop, launch and scale these technologies, as well as direct subscription programs to help people take control of their own health. Regularly refreshing ongoing therapy needs including masks, tubing, humidifiers and other accessories. Let’s now turn to a discussion of our top three global strategic priorities here at ResMed. Number one is to grow and differentiate our core sleep health and breathing health business. Number two is to design, develop and deliver market-leading medtech and digital health solutions that can be scaled in 140 plus countries worldwide. Number three is to create and leverage the world’s best software solutions for Residential Care. As a global market leader in these significantly underpenetrated markets, our most significant opportunity is actually to expand and grow the market itself through awareness, diagnosis and pathways to treatment. We aspire to be the digital health concierge for each person as they pursue their personal journey to better sleep, better breathing and better care where they live. We are ramping up our demand generation initiatives to do just that. The ResMed 2030 operating model changes that we made recently position us for success as a product-led, customer-centric, brand-enhanced leader in health tech. We’re raising awareness and creating pathways for patients to find access to care for their sleep health and their breathing health across the globe. We are leveraging traditional market channels and investing in cost-effective, social media-driven demand generation campaigns. The goal is to help consumers concerned about their sleep and breathing find their way into appropriate screening, diagnostic, treatment and management pathways. As we continue on our journey to create this digital health concierge for individuals, we are tracking progress with hard metrics. We are looking at new patient starts in our physician and provider-based ecosystem, including AirView, which now contains more than 27 million patient records. We’re also tracking new starts in myAir, our consumer patient engagement app, where people choose to participate in their personalized healthcare journey to better sleep and better breathing. myAir now includes a population of 7.8 million users. We will drive more and more of the over 1 billion people worldwide who need our help for their sleep suffocation into the health care system. We believe two global megatrends will further support our ongoing growth. Awareness driven by consumer tech, specifically sleep tracking wearables like the Samsung Galaxy Watch which has a de novo FDA clearance to screen for sleep apnea. We expect similar capabilities from other wearables from Big Tech including the Apple Watch and Google’s Fitbit. In addition, we believe that the population of patients, the other megatrend, the population of patients coming from Big Pharma as they focus on obesity and related impacts on health, including sleep health, will bring an incredible volume of patients into the healthcare system and the patients will have clinically significant sleep apnea that is best addressed by our therapies post these other therapies. We love this attention from big consumer tech on the field of sleep wellness tracking and we believe that many of these wearable technologies will help consumers find out if they have issues with breathing during sleep or maintaining high quality sleep. This could be one of the biggest waves of people taking control of their own pathway for discovering they have sleep issues like sleep apnea or insomnia or both, a new disease state that has been called by the physicians COMISA. Ultimately, we believe that this will lead to increased patient awareness and sustainable long-term growth for ResMed. Our goal is to educate people as they move from sleep wellness tracking with these wearables to what I call sleep health tracking and from consumer awareness to a true healthcare pathway for screening, diagnosis, treatment and ultimately ongoing management of their sleep health and breathing health. We believe that here at ResMed we are uniquely positioned to help. Big Pharma is squarely focused on GLP-1 medications right now. For many people dealing with their obesity, their healthcare goals are focused on losing weight while improving their diet, exercise and their sleep routines. We believe that increased utilization of GLP-1s to treat obesity will bring many new people into the healthcare funnel, activating them to see their primary care physicians as they strive for weight loss and other medical health. We believe this will open these patients up to knowledge of their other chronic diseases from their primary care physicians, including awareness of chronic diseases such as sleep apnea, ultimately driving new patients into diagnosis and treatment pathways that may not have previously been considered or been treated for those patients. So we believe this will drive not just more patients into our channel, but also more motivated patients into our channel. ResMed has been tracking the impact of GLP-1s through a de-identified patient analysis using an overlap of our data and third-party claims data. With another quarter of data analyzed, we are now up to an incredible N equals 660,000 subjects in our analysis. The bottomline is that the data show that GLP-1s are having a positive impact on patients seeking and adhering to positive airway pressure therapy. The latest numbers are an improvement from what we presented previously. For patients prescribed a GLP-1 medication, the latest data show a 10.5% higher propensity to start positive airway pressure therapy over those not taking the drug. As we follow these patients longitudinally, the ReSupply rate at T equals 12 months is 310 basis points higher. That’s 3.1 absolute basis percentage points higher for patients who have a GLP-1 prescription. And then at T equals 24 months, the ReSupply rate is 500 basis points. So 5.0 absolute percentage points higher for patients who have a GLP-1 prescription. These data show clearly that these new GLP-1 pharmaceutical class is actually a tailwind for our ResMed business, bringing more patients and more motivated patients into the healthcare system. We’ve included the full analysis of these data in our investor deck and I encourage you to review the data there. It’s very positive information and very thorough and detailed work by our healthcare economics and outcomes research, as well as our digital health analytics teams here at ResMed. Existing clinical studies show many factors impact sleep apnea epidemiology, including craniofacial anatomy, age of the subject, gender and weight. With over 1 billion people on the planet with sleep apnea right now, 80% plus of them are undiagnosed in our biggest market, the United States and over 90% of patients are undiagnosed globally. There remains an incredible opportunity to help people sleep and breathe better through positive airway pressure therapy, the universally recognized gold standard for treating sleep apnea. We look forward to more patients entering the healthcare system for care and more motivated patients who can get on our therapy faster and stay on it longer. In terms of best-in-class treatments for sleep apnea, achieving that goal of good sleep and good breathing, we have peer-reviewed and published evidence demonstrating that we can achieve over 87% of patients’ adherent to our positive airway pressure technology by combining our market-leading device platforms, our market-leading masks, with our digital health solutions. Even with this best-in-class global tech, just over 10% of patients still need alternative therapies, and we have a very high volume of patients coming through these days. We’re investing in alternative therapies and we’re working to help patients who just can’t adhere to positive airway pressure therapy despite the latest technology to find their path to second-line therapies, such as dental devices, where ResMed has the market-leading 3D printed dental device on the planet for sleep apnea in Western Europe and Northern Europe. That’s called Narval. In addition, we have investments in third-line therapies, including pharmaceutical options. We’re an investor in Apnimed, and we’re also an investor in hypoglossal nerve-stimulation technology through our investment in a company called Nyxoah. ResMed is about sleep health, it’s about breathing health and it’s about delivering the best care right where you live. We make sure the person finds the path to the highest efficacy, lowest cost, most comfortable therapy that’s best for them. Let’s pivot now to talk about our digital health technology investments, leveraging our 18 billion nights of de-identified medical data in the cloud and our 24.5 100% cloud-connectable devices that are out there in our ecosystem across 140 countries. We are investing in a portfolio of artificial intelligence-driven capabilities, as well as customer-facing AI products in our ecosystem. We continue to roll out these products in our AirView ecosystem, such as Compliance Coach, that I talked about last quarter, that’s rolling out in the United States. We’re also progressing well with our generative AI capabilities to help patients along their journey, really people before they’re patients and then they become people seeking sleep health and breathing health solutions, and then on their journey they become patients. And we’re rolling out that gen AI capability in the Asia-Pac region for now and we’ll look to scale that as we move forward. We’ll continue to share progress on this front, as this revolutionary tech is developed and scaled across our business and many of medtech and health tech peers are doing the same and our ecosystem will move forward. Our Respiratory Health business continues to be supported by sustained activity across our non-invasive ventilator platforms and our life-support ventilator platforms. We continue to invest in clinical and economic trials for high-flow therapy that we call HFT to treat chronic obstructive pulmonary disease at home at a cost-effective rate. This is a long-term opportunity focused on generating evidence, developing pathways and driving new reimbursement options. We are focused on driving adoption of these technologies for treatment at home. The prevalence of respiratory insufficiency due to COPD, as well as neuromuscular diseases, continues to increase, and we have low-cost, high-efficacy and high-tech treatments in HFT and beyond to address this healthcare epidemic. Turning to our Software-as-a-Service business in the field of Residential Care, we have another strong quarter with year-over-year growth of 8%. We plan to maintain high single-digit growth in the remainder of fiscal year 2024 and we plan to accelerate to double-digit growth for our Residential Care Software-as-a-Service business on an organic basis throughout fiscal year 2025. We are seeing ongoing customer-facing synergies between our Brightree offering in the U.S. and our core home medical equipment channel and its ReSupply capabilities. We are driving good growth across both our Residential Care SaaS and our core sleep health and breathing health businesses while serving many hundreds of thousands of patients. Our Residential Care SaaS business is integral to ResMed’s growth portfolio and we’re excited to have created a global business that will achieve double-digit growth on an organic basis throughout fiscal year 2025. We continue to drive OpEx leverage by managing our capabilities for cloud compute, cybersecurity, interoperability, privacy and R&D across our go-to-market brands that include Brightree, MatrixCare, and MEDIFOX DAN. And those synergies go not just across the SaaS businesses, but also directly into our core sleep health and breathing health business. And beyond this infrastructure leverage, our Residential Care SaaS business drives platform development synergies and customer engagement facilities and capabilities that are synergies as well, and these highly complement the market-leading medtech and software solutions capability that’s there right in our core sleep health and breathing health business ecosystem, including products like AirView and myAir and beyond. We are transforming Respiratory Medicine and Residential Care at scale. We are leading the industry in developing, applying and adopting digital health technology across our markets. We continue to scale and drive efficiencies in our operations. We’re focused on driving topline revenue growth, focused cost discipline and increased efficiencies to accelerate profitability all the way to the bottomline, and we made very good progress on that this quarter. The team delivered non-GAAP operating income up 23% and non-GAAP net income up 27%. We have created differentiated products and solutions for customers worldwide, driving long-term sustainable value for our shareholders. We lead the industry in digital health technology with the smallest, quietest, most comfortable, most connected, and most intelligent medtech solutions. During the last 12 months, we have improved over 174 million lives by delivering a medical device directly to a patient, a complete mask system to a patient or a digital health software solution that provides personal care for a patient right where they live. We’ve helped each person sleep better, breathe better and live higher quality lives with best-in-class healthcare. In closing, I want to express my sincere gratitude to the more than 10,000 ResMedians for their perseverance, hard work and dedication today and every day. Thank you. With that, I’ll hand over the call to Brett in Sydney for his remarks and then we’ll open up to Q&A with the entire team between Sydney and San Diego. Over to you, Brett.

Amy Wakeham:

Great. Thank you, Brett. Thanks Mick. Kevin, let’s go ahead and turn the call back over to you to provide the instructions and then run the Q&A portion of the call.

Dan Hurren:

Thanks very much and good morning. Look, I just wanted to ask about that gross margin predictably. That recovery is pretty sharp whereas I think you had perhaps talked to a more modest gross margin recovery in the second half. So I just wanted to ask how sustainable that recovery is into fourth quarter and into 2025?

Operator:

Please stand by. We appear to be having technical difficulties. Please stand by.

Operator:

Please proceed.

Operator:

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Operator:

We can now. Please proceed. We did lose your audio briefly. We do apologies. Please proceed.

Brett Sandercock:

Yes. Thanks, Mick. I’m not sure where that landed, but, yeah, in terms of gross margin, it is hard to predict given the movements in, we have product mix, geographic mix, timing of cost improvements, FX, freight costs. So it’s all into the mix that we had pretty strong improvement through freight expense, through manufacturing efficiencies and so on coming through and that helped a lot. Stable component costs also means that’s no longer a headwind there. So I think that’s all reflected in the gross margin improvement. And as Mick said, in the short-term, there is some Red Sea freight cost impacts that will come through in Q4 but our goal remains to improve gross margin over the course of FY 2025.

Laura Sutcliffe:

Hello. Thanks for taking my question. Just sticking with gross margin, could you possibly give us an indication of how much of that 240-basis-point improvement in core gross margin was freighting and how much was manufacturing? Thanks.

Brett Sandercock:

Sure. Yeah. Thanks, Mick. Yeah. I mean, that -- of that year-on-year, the 240 basis points, the biggest contributors were the freight cost reduction and also the manufacturing cost improvements were the biggest drivers there. We saw some benefit or some favorable product mix playing out there and a little bit in terms of ASP increases, but by far the most significant two, which were significantly contributed in their own right, were the freight expense reduction and the manufacturing cost improvements.

Brett Sandercock:

I would say -- I wouldn’t get drawn into specifics of each of the components, but I would say, both of those are material in their own right of contributing to that 240 basis points.

Craig Wong-Pan:

Thank you. I just wanted to touch on the rest of world markets to see whether you’re seeing much impact from business there and if any benefit was coming through from the backlog of activity with home care companies?

Operator:

Thank you. Next question is coming from David Bailey from Macquarie. Your line is now live.

Mick Farrell:

Yeah. Two great components to the same question there, David. In terms of new patient starts, as you saw in U.S., Canada, Latin America, we achieved pretty strong growth of 7% of devices in the quarter and that was on a comp, this time last year of 49%. So what I’d say is, and this is what we say, is that the market is sort of, if ResMed doesn’t do enough around demand gen, the market will grow at mid-single digits on devices and high-single digits on masks. Obviously, we beat that this quarter with our device growth in the U.S, Canada, Latin America at 7%. So new patient starts are strong. There is some repat there, but it’s a minority, and I can tell you that new patient flow into our channel has been steady. And we said this last quarter that we’re starting to get back to that steady flow of patients. We’ve sort of gone through the perturbations of the COVID dip, the COVID rebound, the supply chain dip, the supply chain rebound, and now we’re at steady state. So seeing really good flow of patients into the U.S. As I said on the prepared remarks, we are seeing these patients who come in on the GLP-1s and it’s only N equals 660,000 patients that we’re looking at, but that’s quite a big cohort. And as we look at those patients, their propensity to start being 10.5% above people without a prescription for that drug, I actually think we’re seeing a really good flow that I think will be a long-term, I think, there’s a long period of time, the S-curve of penetration of these GLP-1s, and I think, that’s going to be a long cohort of patients coming into the channel. So really good on new patient starts. And in terms of ReSupply, yeah, look, we’ve got really good capabilities in the U.S., particularly with Brightree and Snap technologies and Brightree ReSupply, and our subscription models and our cash pay markets around the world. But there’s a lot more runway left. There’s many patients who aren’t yet on a subscription program and cash pay markets, and there’s many patients who aren’t yet on appropriate resupply in our large and developed markets. So I would say new patient flow in is very solid. ReSupply, whether it’s REPAP or reestablishing masks and accessories, is good, but a lot of runway left, a lot of runway left on both in terms of demand gen and resupply.

Anthony Petrone:

Thanks, everyone, and congrats on a strong quarter here. Maybe, Mick, just staying on the GLP-1 topic, maybe just the House views on the SURMOUNT-OSA headline readout and as we look to the ADA meeting in June there, anything that you’re really paying attention to and honing in on when we get the final data readout, are there specific secondary endpoints or sub-analyses that we should be focused in on? Thanks.

Operator:

Thank you. Next question today is coming from Suraj Kalia from Oppenheimer. Your line is now live.

Mick Farrell:

Yes, I can, Suraj. Hopefully your phone and our phone are good throughout this question and answer.

Mick Farrell:

Yeah. Thanks for the question, Suraj. I’ll have a go first and I’ll hand over to Brett for detail. But as I look at it from my perspective, there are a number of factors that were positives to have such a great gross margin number this quarter. The first one was that we had excellent work by our global supply chain teams to work on getting our cost of goods sold down, not just direct COGS but OCOGS as well. And so we worked through some of that high inventory -- high cost inventory stock moved through the system, and some of the reengineering work and revalidation and verification work we’ve done has been able to bring new product to market. We have a good flow between the AirSense 10 and AirSense 11 platforms. But look, if you look at the growth from like 12 months ago and some of the issues, I mean, we had -- as I said earlier, we had 49% growth in our U.S., Canada, Latin America flow generators a year ago. That has a very big impact on margin as it’s, lower margin than our masks business and other businesses, certainly in our ventilation and software around the world. This quarter, we’re sort of back to a steady state where ResMed’s growing well. We’re growing at mid-to-high single digits in parts of our business and double digits in the masks and accessory side. And I think we’re just back to our core execution, something that ResMed’s done in our 35-year history is have operating excellence and operational excellence as a core competency. We were able to, after all those perturbations of COVID, supply chain, cost of inventory, we’re able to get back to what we do really well. So that’s what I’d say are the main factors for us achieving such great gross margin in the quarter. Brett, do you want to provide any further detail?

Operator:

Thank you. Next question is coming from Margaret Kaczor-Andrew from William Blair. Your line is now live.

Mick Farrell:

Well, yeah. Thanks, Margaret. It’s a great question on how we’re going to learn from our many years of experience of getting patients in the funnel and taking it to the next level and scaling globally. As you know, we’ve had sort of direct to consumer campaigns in our cash paid countries, Australia, New Zealand, Singapore and others around the world. One of the big changes we made in our 2030 operating model was to establish a Global Chief Product Officer, Global Chief Revenue Officer, but also a Global Chief Marketing Officer. And I think bringing that marketing function to be across the whole of the sleep health and breathing health business, and really across our whole ResMed business, is going to allow us to bring. Yeah, as you said, we did experiments in that joint venture where, by the way, we own all the intellectual property and capability of that joint venture, the assets and capability that we learned over those last many years in that JV. We’ve now taken that on board and we’ve said, okay, let’s not just do that in one metropolitan statistical area in the United States or within one country like Australia or another country like Singapore or Korea. Let’s look at ways we can scale that globally. So without signaling directly and exactly how, where, and when we’re going to do it, I can tell you we’ve got a global team looking at this, Margaret, and as we go throughout fiscal year 2025, we’re going to talk about, as they go public, this is the campaign. One thing that is different from what we did before is that I believe in what gets measured gets done and every single campaign we’re going to do is going to have hardcore metrics of sponsorship here, driven here and influence it there, this social media impact there. We’ll look at the ROI, and before it scales, we’re going to analyze that portfolio of primarily social media but other media-driven demand gen, and yes, it will be local, but it’ll also be national, and there’ll be global. The platforms will be global, the cultural impacts will be national, and then the impact will be local, and we’ll be measuring that direct ROI of that marketing spend. As you saw in the quarter, we were very efficient on SG&A this quarter. We will go back to our steady state on that, not growing at revenue, well below, but getting up to better growth and those investments will go in areas like this, in demand gen on SG&A, and of course, our core R&D growth will go back into AI and generative AI. I can tell you some of our work on generative AI in Asia-Pacific, helping a patient in that digital health concierge through the channel will be a big part of our demand gen as well, so a combination between R&D and SG&A there, but great question, Margaret, and we’ll update you as we move through fiscal year 2025 and beyond on our demand gen initiatives.

Gretel Janu:

Thanks. Good morning. I just want to go back to the gross margin and more just thinking about the gross margin trajectory into FY 2025, so how should we think about the quantum of improvement likely to be achieved into FY 2025, and where’s that additional step up going to come from now that you’ve kind of normalized a lot of the headwinds that we’ve seen in the last 12 months? Thanks.

Brett Sandercock:

Yeah. Thanks, Mick. Yeah. Gretel, I mean, there is -- yeah, there’s been quite a good increase year-on-year and freight and some manufacturing efficiencies, cost improvements there, obviously played a big part. We’re also not so much facing the headwinds of these component cost increases that we saw sort of six months to 12 months ago as well. But if you look forward, and it’s always hard to predict, as I mentioned earlier, there’s a lot that plays out on the gross margin, product mix, the timing of the cost improvements or the continuous improvement programs that we’re now running, and we’ve had an opportunity to do that. We’re really, really focused on supply and getting devices into the market. So now as that stabilizes, then that gives us an opportunity to work on cost improvement programs. So we’re focusing on that. So the goal, without being specific on targets, but certainly our goal is to improve gross margin over the course of FY 2025. And we’ve got, probably need to do that on a number of fronts, which is more around a continuous improvement or gradual improvement program now, I think, as we work through FY 2025.

Brett Fishbin:

Hey, guys. Thanks so much for taking the questions. Really appreciate some of the updates that you guys have provided on the data front. And I think what stood out to me a lot with the last couple of updates was the 10% plus type of increase that you’re seeing in PAP initiation rates for the GLP users. And then especially considering this isn’t really even reflecting some of the likely marketing activity from pharma. So curious, some of the factors that you think might be driving this correlation and then maybe looking ahead where this number could potentially go once we’re actually seeing patients that are prescribed with under an OSA indication and diagnosed with OSA?

Operator:

Thank you. Next question is coming from Mike Matson from Needham & Company. Your line is now live.

Mick Farrell:

Yeah. Thanks for the question, Mike. And the competitor you mentioned is leaving the U.S. market for life support ventilation. They will still, at this point, I think, claim to be coming back with CPAP, APAP and Bilevel. So that Bilevels are non-invasive ventilation. They reach an area of non-invasive ventilation. So we expect them back in that market. Look, I think there are opportunities in ventilation. Obviously, we saw through the COVID crisis, there was a very large volume of ventilators sold into the world in 2020, 2021, 2022. We talked about even just in 2023, we’re lapping a quarter where there were large sales a year ago into China of ventilators. And so I think, if you like, the supply of ventilators into the market is quite high. So there’s no huge sort of immediate opportunity by our competitor leaving life support ventilation in the U.S. But we are there to take care of our customers wherever they are, whatever country they’re in and whatever needs they have. For us, the more material growth is really around driving our CPAP, our APAP and our Bilevels with AirSense 11 and AirCurve 11. And the AirCurve 11, in terms of your question, non-invasive ventilation, has AirCurve S, AirCurve ST and AirCurve FTI. And at the highest level, it has an AirCurve ASV, which is the highest level of adaptive server ventilation. All these together form types of non-invasive ventilation to treat patients with COPD or neuromuscular disease that leads to respiratory insufficiency. And ResMed has the best platform in the planet to treat them. We think it’s a huge opportunity. Many hundreds of millions of patients worldwide have COPD, neuromuscular disease and respiratory insufficiency and ResMed is there for them now and will be for them there in the future. It’s a long-term growth opportunity. It’s not a short-term pop. It’s a long-term growth opportunity for us to take care of these patients and help them sleep better, breathe better and our AirCurve platform is going to be fantastic to do that.

Lyanne Harrison:

Good morning, all. I might come back to the real-world data, Mick. Obviously, some good resupply improvements there, 300 basis points and 500 basis points. But is there anything you can share on the data or the trend for lower severity OSA patients, sort of the mild to moderate categories? And then also, secondly, on the data, whether we do this or a separate data set, what trend are you seeing in the percentage of patients who have ceased CPAP therapy as a result of weight loss drugs? Yeah. So it’s a good question, Lyanne, and there are sort of multiple parts to it. I’ll address it at a high level, which is to say, yeah, look, the real-world data is excellent. It’s the largest data set out there with 660,000 patients that have been prescribed a GLP-1 and are on positive airway pressure therapy and we’re really laser-focused on tracking that cohort very carefully. We can and will look to, in the future, slice and dice it by AHI, 5 to 15, 15 to 30, 30 plus. We’ll look to slice and dice it by age, by gender, by geography and others. A lot of that will be for our internal work so that we can best drive social media marketing and know which patients to go after. For instance, the public information out there is that women are using GLP-1s more than men, and they’re more adherent to the GLP-1s than men are. The rate that people quit the GLP-1 therapy is a lot higher in men than women. And so we’re tracking a lot of that information publicly and we will, over time, release it. We haven’t seen at all a correlation or information around people quitting PAP therapy because of a GLP-1. It just doesn’t compute in the data we’ve got. It’s the other way that it’s a huge tailwind for people coming in. Look, when we see -- as we say, we get 87% adherence. We’re very proud of that. For the 13% that don’t get there, we look at all the reasons why. Is it claustrophobia? Is it insomnia, where they have a psychological condition where they can’t fall asleep and then they blame it on the CPAP mask when it’s really a fact of a need to have treatment or their insomnia, as well as or in parallel to or even before their OSA. So we’re looking at all types of reasons for that. But, look, we’ll continue to update you and the rest of the world as we do the slice and dice by HI, by age, by gender, to find the best way to help patients find the best path to therapy. But right now, we’re seeing a huge trend of more patients coming in, more motivated patients, and our challenge is to keep up with that and make sure that we can scale and help them get on that great digital health journey.

Steve Wheen:

Yeah. Thanks very much. I just had a question around the AirSense 11 and its availability and the pathway to it being kind of the platform that you 100% rely upon. If you could just give us an update as to how that looks for the remainder of this year and perhaps into 2025?

Operator:

Thank you. Next question is coming from Saul Hadassin from Barrenjoey Capital. Your line is now live.

Brett Sandercock:

Yeah. Hi, Saul. I think, yeah, we had -- I mean, the team’s been working hard on that for a while now, so you’re starting to see the results there in the balance sheet and in the inventory, which is great. We’re getting pretty close to our targets on inventory, so I’d say it’s -- there could be modest reductions, there could be modest gains there. It’s more around making sure we’re balancing supply and demand now. So I’d say it’s pretty close to targets on kind of where we’re at now for the inventory.

Operator:

Thank you. Our final question today is coming from Matthew Taylor from Jefferies. Your line is now live.

Mick Farrell:

Yeah. Thanks for the question, Mike. And no, look, what we’re seeing in the markets where that competitor’s returned is that they’re pricing for value and they’re trying to compete on value. And primarily as they come back from sort of zero percent share with new patients as they start in the market, they’re competing with the sort of Tier 2 and Tier 3 players, so a local player in Europe or a local player in Asia, and they’re not touching our share as the global market leader and global technology leader in this space. And the work that we’ve been able to do these number of years that they were out of each market is to really entrench ourselves because we’ve got the lowest cost, the highest efficacy, the best technology, and physicians love our digital data, patients love the engagement with myAir and the whole ecosystem creates that value. So we really have seen, you know, as they come in, they’re pricing for value and competing with Tier 2, Tier 3 players in those markets. As to when they’ll re-enter from zero percent new patient share into the U.S. market, I don’t know. You can do your own analysis on consent decrees. This one’s a very severe one. It has a lot of inspectors, sort of five times the normal number of inspectors. I think five versus one and a lot of constraints on that. I look forward to great competition. We’ve got good competition from the players there now. When they come back, they’ll have to compete with them first and us after that. But, no, look, we were winning and taking share from that competitor in 2019 all the way from 2010 to 2019. We’ll continue to do that and beat them whenever they come back to market. Thanks for the question.

Mick Farrell:

Great. Well, thanks, Kevin, and thanks to all of our stakeholders for joining this call, especially our shareholders. The opportunity in front of ResMed is huge and largely untapped. It’s an incredible runway. We see more and more people coming into the healthcare system. This will benefit us as we help them sleep better, breathe better, and to live better and healthier and happier lives in over 140 countries. Thank you to 10,000 ResMedians, many of whom listened to this call and are also shareholders, for all that you do today and every day. With that, I’ll hand the call back to Amy and we can close it out.

Operator:

Thank you. This concludes ResMed’s third quarter fiscal year 2024 earnings live webcast. You may now disconnect.

Operator:

Hello, and welcome to the ResMed Second Quarter Fiscal Year 2024 Earnings Conference Call and Webcast. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Chief Investor Relations Officer, Amy Wakeham. Please go ahead, Amy.

Michael Farrell:

Thanks, Amy, and thank you to all of our shareholders for joining us today. Our second quarter fiscal year 2024 results reflect strong execution across our entire business, driving double-digit top and bottom line growth. These results are a testament to the incredible efforts of the global ResMed team. Our results were driven by double-digit global growth in both devices and our Software-as-a-Service business together with high single-digit global growth in our masks and accessories business, holding our leading market share amongst high comps from the same quarter a year ago. In terms of bottom line leverage, our reorganization efforts and efficiency efforts in the quarter have set us on a clear trajectory of profitable growth. Taking a step back, all 10,000 ResMedians are energized about the opportunities in front of us. There are over 2 billion people worldwide suffering from sleep apnea, chronic obstructive pulmonary disease, respiratory insufficiency due to neuromuscular disease or insomnia. These chronic conditions form a healthcare epidemic in which ResMed is uniquely positioned to help. We believe that healthcare should be delivered in the lowest cost, lowest security and highest comfort location possible. Very often, that is a patient's own home. Our end markets remain underpenetrated with many opportunities to add value, reduce friction, lower costs and improve patient outcomes. We support hundreds of millions of people as they take control of their healthcare journey and navigate the complex healthcare world outside the hospital system. ResMed is the global leader in digital health solutions with over 17 billion nights of medical data in the cloud and over 23.5 million 100% cloud connectable medical devices sold into over 140 countries worldwide. We are the clear market leader in sleep apnea, a huge and growing market with over 1 billion people impacted globally. Our category-leading flow generator platforms grew 11% year-over-year. We have achieved and are maintaining supply of our two 100% connectable AirSense platforms, with unconstrained supply of the AirSense 10 platform globally. Every quarter, we continue to gain regulatory approvals to launch and to increase delivery volumes of the best-in-class AirSense 11 platform on our pathway to support more and more patients worldwide. Our commercial teams are successfully demonstrating the clinical and economic benefits of the ResMed mask portfolio. During the quarter, our masks and accessories business grew 9% year-over-year in a highly competitive market, maintaining good market share with all players in the field in this category globally. We are excited to have achieved regulatory and reimbursement approval for our latest and greatest mask innovation and we look forward to bringing this technology to market soon. I have personally worn this new mask and our test data show, not just n equals one from the CEO, that it is highly favored by physicians, respiratory therapists and especially the most important customer, our patients. In terms of maintaining our momentum of mask and accessory growth, our clinical and commercial teams continue to partner with physicians and providers to drive resupply programs directly with their patients. Peer-reviewed and published clinical evidence shows that using resupply programs leads to better patient adherence and to better patient outcomes. This is proving out in the real-world customer by customer. We continue to see strong growth in the U.S. mask and accessories business, where resupply programs are powered by our digital health ecosystem, including AirView for physicians, Brightree for home care medical equipment providers and myAir for patients. Outside the U.S., we are focused on developing, launching and scaling our direct outreach and subscription programs, to help consumers take control of their own health and engage directly in refreshing their own mask, their own tubing, their own humidifier and other accessories. The importance of respiratory health and respiratory hygiene in the eyes of consumers has seen a permanent uptick since four years ago when the COVID-19 epidemic started. We are supporting our customers with digital solutions and services to meet their needs and to ensure they have clean and fresh equipment to best treat their sleep suffocation and improve their health. Before I review updates on our key strategic priorities, I'd like to discuss recent actions we have taken to accelerate profitable growth across ResMed and to power our long-term success. Last quarter, I discussed the steps we've taken to ensure that we can refocus and drive even more profitable growth. We stopped some projects that were not working out and we increased investment in areas that will be pivotal to our long-term success, including our digital health technology investments as well as focused device platform and mask technology development. We have introduced a new operating model centered on making ResMed even more product-led, even more customer-centric and even more brand enhanced. We will measure the success of this new 2030 operating model by an increase in the velocity of new product innovation as well as enhanced value in the ResMed brand while accelerating profitable growth. As the founder of ResMed states, innovation is not just invention of a great new technology is when a customer loves it, adopts it and chooses to pay for it. We have an incredible legacy and an exciting product pipeline to bring to market. Let's now turn to a discussion of our three key strategic priorities. Number one is to grow and differentiate our core sleep health and breathing health business. Number two is to design and develop and deliver market-leading med tech and digital health solutions that can be scaled in 140 countries plus worldwide. Number three is to create and leverage the world's best software solutions for care delivered outside the hospital and preferably in the home. In terms of addressing strategic priority, number one, as the world's clear leader in the field of sleep apnea and breathing health, we are laser-focused in 2024 on ramping up our demand generation initiatives. We are raising awareness and creating pathways for patients to find access to care for sleep suffocation across specific global markets. We are leveraging traditional healthcare channels and investing in cost-effective social media-driven demand generation campaigns to help consumers who are concerned about their own sleep and breathing to find their way into screening, diagnostic, treatment and management pathways. Our goal is to provide a digital healthcare concierge service to help guide people on that journey. We are tracking new patient starts in our physician and provider-based ecosystem, which now contains more than 26 million patient records as well as the new user starts in myAir, which is a patient app where patients choose to participate in their own personalized healthcare journey to better sleep and better breathing. Our goal is to cost effectively drive more and more of the over 1 billion people worldwide who need our help into the channel. There are two megatrends that can have an influence on increasing that patient flow, one from big consumer tech and one from Big Pharma. Let me talk briefly about each of these megatrends. Many of the big consumer tech companies are increasing their focus on the area of sleep wellness. Apple has sleep wellness tracking built into its latest-generation Apple Watch and has plans to enhance that capability with further sleep quality assessment. Google's Fitbit division has sleep wellness tracking built into its platform. WHOOP is doing the same. Samsung have not only built sleep wellness tracking into its latest operating platform, but is helping to define sleep personas to help consumers better understand a 30% of their lives they spend in the state of sleep. We love this attention on the field of sleep wellness and many of these technologies will help each person find out if they have issues with sleep architecture, issues with breathing during sleep, or issues maintaining high quality sleep. This could be one of the biggest waves of people taking control of their own pathway for discovering they have sleep apnea or they have insomnia, well, maybe they have both, a state that is called COMISA for co-morbid insomnia and sleep apnea. Ultimately, this will lead to increasing patient growth for ResMed overall. And our goal is to best educate the person as they move from sleep wellness tracking to sleep health tracking and from consumer awareness into a true healthcare pathway for screening, diagnosis, treatment and ongoing management of their chronic condition. ResMed plans to be there with the person through that entire journey. In terms of the impact of megatrends from Big Pharma, the current focus is squarely on GLP-1 medications. Let me take some time to address what we are seeing in the market with patients on latest-generation GLP-1 therapies and positive airway pressure therapy. We are tracking a cohort of over 0.5 million patients with prescriptions for both GLP-1 medications and positive airway pressure therapy. These data are included in our investor deck, so you can review them there on our website, but I'll briefly summarize what we have observed. Around six months ago, there was a thought among some in the market that patients on GLP-1 medications would be less likely to start positive airway pressure therapy. We stated at the time and still do, that this was not likely the case as important risk factors such as craniofacial geometry, gender, age and the basic physics and anatomy of the upper airway would remain unchanged despite this new pharmaceutical therapy option. Still, the theory remained. So now we have real-world data and real-world evidence at scale. Our analysis of over 529,000 patients with GLP-1 prescriptions shows that not only is there not a reduction in the propensity to start positive airway pressure therapy, it is the exact opposite. For patients who have been prescribed a GLP-1, there is an increase of 10% of the absolute percentage of patients that commence positive airway pressure therapy. So as an example, if you take a baseline of 75% of patients that commence PAP therapy after their prescription on average in a certain group, that would become 85% of those same patients who were on a GLP-1 that would commence positive airway pressure therapy. And by the way, the vast, vast majority of these GLP-1s are the latest generation medications. Another hypothesis about six months ago was that patients on GLP-1 therapy and PAP therapy would quit their PAP therapy, their CPAP or their APAP at a higher rate than the general population over time. The real world data, again, with a cohort of over 0.5 million patients shows the exact opposite. At T equals 12 months after therapy commencement on PAP, the delta from general PAP population to a PAP plus GLP-1 prescribed population shows an increase in the resupply rate of 300 basis points. So again, as an example, if the general population resupply rate at 12 months was, say, 70%, it would then become 73% for the population that was prescribed to both PAP and GLP-1 therapy. This delta actually increases over time going further with the delta from the general PAP population receiving resupply at 12 months being 500 basis points higher for a population prescribed both PAP and GLP-1s. Here at ResMed, we believe in treating the whole person, including a combination of what Professor Bill Dement, one of the founders of the field of sleep medicine, may he rest in peace, called the Triumvirate of Health. That triumvirate is one, regular cardiovascular exercise; two, balanced diet and nutrition; and three, good sleep and breathing. We believe that addressing all three aspects results in the best patient outcomes. In terms of best-in-class treatment for sleep apnea, achieving that goal of good sleep and good breathing, we have peer-reviewed and published research demonstrating that we can achieve over 87% of patients adherent to our PAP technology by combining our market-leading device platforms with digital health solutions, including AirView for physicians and myAir for patients. Even with this best-in-class global technology, we still have more than 10% of patients that need alternatives. We just can't get them adherent those 10%. We are investing in these alternative therapies and we are working to help patients who do not adhere to positive airway pressure to find their path to second-tier therapies, such as dental devices where ResMed has invested and scaled the market-leading 3D printed dental device for sleep apnea in Europe called Narval. In addition, we have investments in other third-tier therapies, including pharmaceutical agents with our Apnimed investment as well as hypoglossal nerve stimulation technology with our Nyxoah investment. ResMed stands for respiratory medicine, not CPAP company, and we want to take care of the patient. We obviously start with the lowest cost, highest efficacy therapies, including CPAP, APAP and bilevel therapies. And we then work through the alternatives to help the person sleep better and breathe better. The bottom line is this, a huge number of people need our sleep apnea treatment solutions today and for the next decade, two decades, three decades and beyond. We want every patient to find a path to good breathing and good sleep. Let's pivot for a moment to talk about our digital health technology investments, leveraging the 17 billion nights of de-identified medical data and the 23.5 million 100% cloud connectable devices in our ecosystem. We are investing in several artificial intelligence-driven data products and capabilities in that ecosystem that we call Air Solutions. We are continuing to roll out, one publicly we are talking about, which is called Compliance Coach to customers in the U.S. market in a controlled market launch. Compliance Coach is a solution that helps home medical equipment providers to prioritize both digital and personal outreach to improve patient compliance and drive better patient outcomes at a lower cost. Compliance Coach models and predict the likelihood that a particular patient will or will not adhere to therapy based on algorithms built on billions of data points. The AI product then identifies for the HME provider, the key patients who may struggle to meet compliance requirements and takes a step further to drive digital and/or human actions to maximize the probability of adherence across the group. Customers using the product in its initial launch are excited and are starting to see very positive results across their business and for their patients. One final update on AI technology for this quarter. We recently launched an in-market trial of a ResMed developed generative AI product that serves as a digital concierge to help a group of people that we call sleep-concerned consumers, to best navigate as they search for their sleep-related information and they ask questions about their sleep wellness and potential treatment options. This generative AI tool helps the person identify, engage and enroll on their personal journey to better sleep and better breathing. We are currently beta test marking this product in Asia Pacific, and we will look to scale globally over time. Our goal is to develop and scale this digital sleep concierge so that all those seeking better sleep and better breathing can find their personal pathway for the best outcome, the best treatment and the best long-term care. Our Respiratory Health business continues to be supported by sustained activity across our non-invasive ventilator platforms as well as our life support ventilator platforms. We continue to invest in clinical and economic trials for high flow therapy that we call HFT to even more cost effectively treat COPD in the home. As we develop these next-generation therapies, we will generate strong clinical evidence and economic outcomes that will support broader adoption of these innovations for treating respiratory conditions at home. The prevalence of respiratory insufficiency due to COPD as well as neuromuscular disease continues to increase, and we offer low-cost, high-quality treatments to help address this healthcare epidemic. Turning to our Residential Care Software-as-a-Service business. We had another great quarter with year-over-year growth of 24%. Organic growth of our SaaS business was solid across our Brightree and our MatrixCare brands with another full quarter contribution from our MEDIFOX DAN brand in Germany. Ongoing customer-facing synergies between our Brightree offering in the U.S. and our home medical equipment resupply revenue remains very strong, driving good growth across both our SaaS business and our core sleep health business. We expect to have sustainable organic growth across our portfolio of SaaS solutions in home medical equipment, home health, home nursing and beyond to be in the high-single digits as we continue through this fiscal year and to achieve stable double-digit organic growth through fiscal year 2025 and beyond. We continue to drive operating expense leverage through management of our capabilities for cloud compute, our capabilities for cybersecurity, interoperability and technology development and we plan to accelerate net operating profit growth across our SaaS portfolio and across the entire ResMed business. Our residential care SaaS business remains an integral part of ResMed's growth strategy. This business complements the market-leading software and the market-leading device solutions that we have in our sleep health and breathing health business, and we are well positioned as the leading global strategic provider of SaaS solutions for residential care. We are transforming respiratory medicine and residential care at scale. We are leading the industry in developing, applying and adopting digital health technology across our markets. We continue to scale and drive efficiencies in our operations. We are focused on driving topline revenue growth, focused cost discipline and increased efficiencies to accelerate profitability. We have created differentiated products and solutions for customers worldwide, driving long-term sustainable value for our shareholders. We lead the industry in digital health technology with the smallest, quietest, most comfortable, most connected and most intelligent solutions, and we don't plan to stop innovating anytime soon. We invest around 7% of our revenues straight back into market-leading research and development. ResMed's mission remains crystal clear to improve 250 million lives through better residential healthcare in 2025. This patient-centric mission motivates me and ResMedians every day. During the last 12 months, we have improved over 170 million lives by delivering a medical device directly to a patient or a complete mask system to a patient or a digital health software solution that provides personal care for a patient. We've helped each person to sleep better, to breathe better or to live higher-quality lives with best-in-class healthcare delivered right where they live. I'm very excited about the opportunities in front of us and the pipeline we have ahead. In closing, I want to express my sincere gratitude to the more than 10,000 ResMedians for their perseverance, their hard work and dedication today and every day. Thank you. With that, I'll hand the call over to Brett in Sydney for his remarks, and then we'll open up to Q&A for Brett and me and the team. Over to you, Brett.

Amy Wakeham:

Great. Thank you, Brett, and thank you, Mick. Let's go ahead and turn to the Q&A portion of our call. Kevin, I'd like to turn it over to you to provide the instructions and then run this part of the call.

Margaret Andrew:

Great. Thank you very much. Good afternoon. Good morning to everyone on the call. I wanted to maybe follow-up on your comments on GLP-1, even more so than the quarter. And I look at that 10% greater likelihood of folks starting CPAP when you're on a GLP, it seems like it could have a pretty meaningful impact for growth. And again, looking at it to say, if you're going from 75 patient new starts in a given period to 85, that's a 13% bigger market every year. So I guess conceptually, is that something that you agree with? Would it have a greater or less benefit impact if that trend continues? And I guess any comments on a real impact is over the next three years as GLP adoption grows? Thanks.

Operator:

Thank you. Next question is coming from Anthony Petrone from Mizuho Group. Your line is now live.

Michael Farrell:

Yes. Thanks for the question, Anthony. And it's a really pertinent one. Certainly, we're watching this SURMOUNT-OSA trial. It's a pretty small trial. It's less than 500 patients, 500, 600 patients, I believe. So it's not sort of the order of the real world event, real-world data that we have, like 500,000 patients we're talking about there. But I think it will be very interesting to see the presumption is given it's the same biochemical compound as in other trials used for diabetes treatment and weight loss that it will have somewhere in the order of 10%, 20%, maybe even 30% weight loss reduction in this cohort. So that's a metric that's sort of well-known from prior studies. The best evidence from the primary investigator on this Professor Atul Malhotra from University of California, San Diego. His assessment is that, that should lead to pretty significant AHI reductions in the treatment cohort versus placebo, maybe in the order of to maybe 65% AHI reductions in the cohort of these quite high BMI and quite high AHI patients. If you listen to a great podcast between Professor Malhotra and Dr. Carlos Nunez, our Chief Medical Officer, which are available on our website. When you've got to spare 45 minutes, but there are some cliff notes that I think are worth sharing here in this investor call is that Professor Malhotra was asked what's the best therapy to treat sleep apnea. Is it, a, weight loss? Or is it b, CPAP. And he said, "Well, that's a false dichotomy, this question, it's a false competition. It's a plus b. It has been for decades and will be for decades in the future. And as a PI on that study, he says, look, we have a new pharmaceutical agent that's going to help with treatment a. And of course, that will be used in combination with treatment B. So the PI on the study is saying that he thinks the combination treatment of a weight loss medication similar to prior work and bariatric surgery that had much higher weight loss numbers or diet and exercise that had all the variance that we've seen over decades of different methodologies there. But this one does seem to be a good agent for treatment a. And then will need to be combined with treatment b to fully treat the sleep suffocation that the patients will have. So don't trust me, the CEO of the company that makes the therapeutic, trust the primary investigator that's saying, combination treatment has worked for decades and will work for decades. I would expect that to be the outcome the trial. And in terms of working with Big Pharma on this, I think they're very focused on other areas like obesity and diabetes, but as much as we can get their attention to talk about sleep and sleep health and to do their D2P advertising to talk about the importance of sleep and sleep health. I think combined with the Apples and the Samsungs and the Googles of the world talking about it, it will be a huge positive for of us in the sleep apnea treatment industry. Thanks for the question, Anthony.

Michael Matson:

Yes. Thanks for taking my question. I guess I'll just ask one on Philips. So I think they've talked about relaunching their flow generators in some of the OUS markets, just curious what you're seeing there? Have you seen that happening? And have they been able to recapture share anywhere?

Operator:

Thank you. Your next question is coming from Suraj Kalia from Oppenheimer. Your line is now live.

Michael Farrell:

Got you loud and clear, Suraj.

Michael Farrell:

Well, thanks, Suraj. I could spend the rest of the time answering that call around the 2030 operating model. I'll just briefly talk about it and then talk specifically about Compliance Coach. Our 2030 operating model, yes, it's the three tenets, right? The three tenets product-led, customer-centric brand enhanced. ResMed has always been product led, but now we have a Global Chief Product Officer, whose sole role is to curate that product portfolio with an amazing team of hundreds of engineers and marketers to bring the great innovation to market. So we'll measure the success on that on product velocity, how quickly do we bring innovation to market, time to market, time to success. Customer-centric. We've always been customer-centric. But we have always done the best of analyzing the Net Promoter Scores of patients, Net Promoter Scores of physicians, home care providers. Physician payer providers and so on. So really understanding the marketing metrics around that, having our first Chief Marketing Officer sit at the top table and really be laser-focused on those NPS scores and driving them up and really valuing the multibillion-dollar ResMed brand and enhancing that over time. And the third part around focusing on profitable growth and driving that leverage with our first Chief Revenue Officer, it's really around that profitable growth. And if the title was used broadly, I would call it the Chief Profitable Growth Officer rather than Chief Revenue Officer, but really, it's around keeping that discipline on the great growth we've had on the topline, but ensuring we get that leverage through OpEx R&D and particularly on SG&A in the new world to do things differently with tech. And that segues into the second part of your question, Compliance Coach. Yes, look, this is a great AI tool. By the way, it's not generative AI Compliance Coach. The other one that we launched in Asia Pacific, the digital concierge is generative AI and has that extra capability. Compliance Coach is [garden-variety], what would have been called machine learning is now artificial intelligence, it's a great algorithm, and it's out there. The measure of that one, success on that one, Suraj, is does it lower the cost to serve at that HME or with the same labor force of respiratory therapists and pulmonary doctors can they serve more patients. So lower cost, higher efficiency, and really, the key metric is what's the adherence rate at day 90, day 365, year two, year three, in that patient cohort that's gone through Compliance Coach. Is it statistically and significantly higher than what that customer was getting before? If they're a best-in-class ResMed customer getting 87% adherence at day 90, does it go up to 90, does it go up to 92. And by the way, those customers are very sophisticated in understanding what that means for their business, what it means for them showing the payers that they reduce costs in hospital care and that they improve outcomes for the patient and how they feel and of course, how they improve their own revenue and hours through replenishment supplies. Anyway, that's my – the briefest answer I could do to that great question. Thanks, Suraj.

Steven Wheen:

Yes. Good morning. Just a question for Brett. Brett, I was just wondering if we could look into the gross margin a little bit further and trying to understand, are we seeing in – across that quarter, the full benefit of the price that you've taken? Or is that some annualization effect as some customers perhaps roll off contracts and whether or not from a rate perspective, could you just kind of reiterate what your expectations are there, what you're seeing with regard to the pricing following the conflict?

Steven Wheen:

Yes. Just what you were sort of intimating, if you could just repeat that commentary, what you're seeing in the market and how you actually are trying to anticipate or protect yourselves against that?

Operator:

Thank you. Next question is coming from Saul Hadassin from Barrenjoey Capital. Your line is now live.

Brett Sandercock:

Yes we’re largely through that. I mean, I can't – I don't think you can rule out restructures from time to time, but I think the material restructure that we did is behind us now. So going – anything going forward, I think, would be pretty minor on that. So I would say – I'd characterize that as saying, yes, we've done the big restructure, and that should clear us now for the next…

Brett Sandercock:

Yes, absolutely.

Mathieu Chevrier:

Good afternoon. Thanks for taking my question. Simple one, when do you expect to be fully transitioned the AirSense 11 platform?

Operator:

Next question today is coming from Matt Taylor from Jefferies. Your line is now live.

Michael Farrell:

Yes. Thanks for the question, Matt. And so for those of you who haven't read through the nih.gov, feel free to go. But my reading, I'm a visual learner. There's a split chart that the top half of it on the trial is a GLP-1 side and the bottom half is a placebo side. And so they have this 600-odd or less than 600 patients split between those two in a certain proportion. And then within the GLP-1 arm, they split to those on CPAP and those not on CPAP and the same within the placebo. So there ends up being four arms if you look at it. But if you go to the end of it, there's an arm that's placebo, no CPAP. So I'd just call that the placebo arm. And then there's placebo plus CPAP arm and then there's GLP alone arm and GLP plus PAP arm. So you start to get down to the subanalyses, it gets less powered. I actually – I'm reading what you are on nih.gov. So my presumption is at the highest level, they want to show that a GLP-1 is better than placebo for lowering weight and improving AHI. I think they'll achieve that primary outcome. I mean all the data show that there's 10%, 20%, 30% weight loss reduction and that should correlate to significant AI reduction. So I think they'll show that. As opposed to then the sub-studies of CPAP versus no CPAP within each of those, look, we've got 35 years of history knowing that CPAP doesn't half treat, right? I mean, the best that I've seen from weight loss reductions in bariatric surgeries and the best the GLP-1 prelim data is that it can half treat, right? Maybe 50% reduction in AHI. I'd call that half treatment. I don't think any pulmonary physician in the world would be happy with half treating an AHI with positive airway pressure. Frankly, if you're not turning the AHI to less than five, you're not truly treating the patient. And if it's higher than five, it might be residual centrals and you have to move them to a bilevel or it might be complex sleep apnea have to move them to adaptive servo-ventilation. So there's so many options between CPAP, APAP bilevel ASV that the physicians should walk through, but they wouldn't be happy unless the AHI is less than 5%. I think the probability – and don't trust me and my quote on this, Matt. Again, the primary investigator on the study, Professor Malhotra said, the idea that weight loss alone can treat sleep apnea is preposterous. That was the word he used. So you can use – and he's the PI on this study. You can use his thoughts to what he thinks between the PAP arm and the non-PAP arm. So he's sort of leaning towards what he said earlier, that best treatment for sleep apnea is not a) weight loss or b) CPAP, it's a plus b. And so that's what I expect this study to show. And we'll see the data. They will be out there in three weeks and whatever they want to release in headline and we'll continue to go. We'll continue to grow. We'll continue to drive patients into the funnel, and I think this therapeutic class will help us over the coming decade to bring more patients into the funnel.

Lyanne Harrison:

Yes. Good morning, Mike. So, Mick, Brett, and Amy. I might ask a question about your device and mask sales there. So obviously, strong device sales, your resupply programs, obviously, giving that some focus. But masks this quarter came out weaker than where we expected. Can you talk us through where the disconnect there might be?

Operator:

Thank you. Our final question today is coming from Michael Polark from Wolfe Research. Your line is now live.

Michael Farrell:

Yes. Great question, Michael. So yes, U.S., Canada and Latin America, a 10% growth in the mask in the quarter. It was actually a very strong market growth rate, high single digits, holding share there. We do see that December, particularly for U.S. markets where high deductibles and deductibles reset December 31, some good revenue there. And so we had good comp from the year before, and both solid numbers there from the comp year before this 10% U.S. Canada Latin America growth. So I think we did really well there as we closed out the quarter. In terms of any impact from the masks with magnets update on our labeling class in the U.S. by the U.S. FDA as a recall. I got to tell you, there was no product removed from the market. This was about having our plastic clips as an option, which we scaled up manufacturing and have them as an option. So when a patient is set up, if they're a very, very small minority of people who haven't implanted pacemaker or other metal device in their upper chest or craniofacial area, then those patients are offered an upgrade to the plastic clips. For everyone else, the other 95%, 99% of patients they keep the convenience of the magnet. So that if they go to the bathroom in the night, they can come back in the dark and just clip it on and not have to seek for plastic clips to click together the magnet completely goes on there. And so as we've done that labeling upgrade, and we had a competitor do this similar one about 12 months ago, the market has been very trained in knowing to ask questions about implants to ask questions about our partner's implants. And if they have that to offer the plastics clips, which are fully available on ResMed masks as an alternative to our mass with magnets. The masks with magnets are so convenient. They're doing so well and for 99% of people, they're great. For that 1%, the HMEs are very comfortable now to ask those questions. And the other 140 countries we are working through the appropriate ways to ask the questions and get people the best mask and have the best fit and drive the best adherence over time. But they had no impact on the quarterly sales whatsoever. And we don't expect an impact going forward because this was an upgrade to a labeling that was actually in line with clinical practice over the last 12 months. And it just makes sense to do that. Thanks a lot for the question, Michael.

Michael Farrell:

Thanks, Kevin, and thank you again to all of our stakeholders for joining us on this call. The opportunity in front of us is huge and largely untapped. It's an incredible runway. We see more and more people coming into the health care system, and this will benefit us as we seek to help them sleep better, breathe better and live better lives in 140 countries. Thank you to all 10,000 ResMedians. Many of you are also shareholders for what you do today and every day. With that, I'll hand the call back to Amy to close this out.

Operator:

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Operator:

Hello, and welcome to the ResMed First Quarter Fiscal Year 2024 Earnings Conference Call and Webcast [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Amy Wakeham, Chief Communications and Investor Relations Officer. Please go ahead, Amy.

Mick Farrell:

Thanks, Amy, and thank you to all of our shareholders for joining us today. Our first quarter fiscal year 2024 results reflect strong growth across our entire business with double digit top line growth. This growth was driven by double digit global growth in the masks category and double digit growth in our software as a service business. We also achieved high single digit global growth in devices even as that category annualizes very high growth in the prior year period. The flexible and agile work of our supply chain, manufacturing and distribution teams has enabled us to provide ongoing global availability of our market leading 100% cloud connectable flow generator platforms. We have unconstrained supply of our AirSense platforms enabled by excellent volumes of the AirSense 10 platform globally and fast ramping approvals, launches and delivery of the best-in-class AirSense 11 platform country by country. During the quarter, we accelerated delivery of the AirSense 11 in Japan, and we launched the AirSense 11 in Australia and New Zealand. We have plenty of runway ahead on our pathway to launch in all of the 140 countries where we sell our solutions. We are very proud to be able to support all global demand for flow generators through a combination of AirSense 10 and AirSense 11 platforms. We remain laser focused on accelerating the production and delivery of the AirSense 11 platform. We are moving swiftly on that front. Our Masks and Accessories business grew 21% year-over-year, amongst a highly competitive market with all global players on the field in this category. Our commercial teams are doing an amazing job of showing the clinical and economic benefits of the ResMed mask portfolio. Our clinical and commercial teams are also partnering with physicians and provider customers to drive resupply programs directly with patients. The peer reviewed and published clinical evidence showing that adoption of a resupply program leads to better patient outcomes is proving itself out in the real world customer by customer. We continue to see strong growth in the US mask business where provider resupply programs can scale, powered by our digital health ecosystem, including AirView for physicians and providers and myAir for patients. For patients around the world, especially in nonreimbursed markets, we are developing, launching and scaling outreach and subscription programs to help the consumer who is the ultimate customer to take control of their own health and engage directly in refreshing their mask, tubing, humidifier and other accessories. This has been a permanent uptick since COVID-19. People care about respiratory health and respiratory hygiene and they are taking action, and we are supporting them with digital solutions and services to meet their needs. Before I turn to review updates on our key strategic priorities, I'd like to spend a little time discussing actions we've taken to accelerate profitable growth across ResMed and to power our long term success. We've taken immediate steps to ensure we're prioritizing the right things to drive profitable growth and our leadership teams have carefully reviewed opportunities to improve our performance. We have stopped some projects that were not working out as well as we thought. We've increased investment in areas that we believe will be pivotal to long term success, such as our digital health tech investments as well as focused hardware and software development. Creating the smallest, the quietest, the most comfortable, the most connected and the most intelligent healthcare solutions in the market. These changes have impacted some of our teams. And this week, we have taken actions that resulted in a reduction of our global workforce by 5%. Decisions like this that impact people are never easy. However, we know that we are doing the right thing, and we're doing the right thing to accelerate our growth and to refocus on our long term mission. I feel more strongly than ever that we are well positioned with an incredibly long runway of profitable growth and value creation for all of our stakeholders as we move forward. Let's now turn to a discussion of our three key strategic priorities

Amy Wakeham:

Great. Thank you, Brett, and thank you, Mick. Kevin, let's go ahead and turn the call back over to you to remind participants about instructions for the Q&A portion of the call.

David Bailey:

Mick, I'd just like to press a bit more on some of the comments around the market to 2050. Just interested in your thoughts around GLP-1s as potentially being complementary to CPAP as opposed to being a substitution for. And maybe just giving some thoughts around the upcoming clinical trials and how that could influence that will take going forward?

Operator:

[Operator Instructions] Our next question is coming from David Low from JPMorgan.

Mick Farrell:

Yes, David, look, thanks for the question. And as you look at the epidemiology data, there's a number of splits on AHI. What we're lacking in the market is a split around symptomatology and how patients feel. And as we're looking at the data, patients with AHIs, 5 to 15, 15 to 30 and 30 plus and overlapping that with concomitant therapy, we'll be peer reviewing and publishing data at upcoming conferences in 2024 on this to show some of these nuances of deltas. But on the aggregate group, we're not seeing changes in adherence. And even in the subsets of mild to moderate, we're not seeing significant changes in adherence rates or new patients coming into the funnel. AHI is a great measure of the number of suffocation episodes per hour. Just to remind people, an AHI 14, just under 15, which is considered mild is suffocating every four minutes of sleep. So a doctor may call that mild, but to a patient who's suffocating every four minutes of sleep, in 15 -- 14 times an hour, and you're sleeping all through the not having 80, 90 suffocation episodes, they stick on the therapy and new patients coming in as well. So look, we're watching this really carefully, and we're really analyzing by AHI, by symptomatology, by craniofacial distance between the tongue and the uvula and actually size of time because there's a whole lot of factors that go into go into the prevalence of sleep apnea and obviously, the issues around hypopneas, which are far more prevalent in women and lead to worse excessive daytime sleepiness, headache and comorbidities that are not associated with weight at all. But look, we're looking through all of these data. And as we look forward over the next number of decades, there will be an impact. There's no question by these weight loss medications. But it will be on the margin and it won't be -- I mean, certainly, the market believes it's going to be dramatic given the last 90 days of our stock. And I can tell you, every bit of clinical data that we have going forward and every bit we have going retrospectively, we've got the biggest database in the world and it's 21.5 million patients. As we look at that split between mild, moderate and severe, we're not seeing changes. But look, every quarter, we'll continue to update that, and we'll do more and more splits on severity. We published this epidemiology model this quarter and we'll continue to update it and continue to provide data. I'm also making sure that we keep some of those data so we can get them into the peer reviewed and published press like the Lancet article that started the epidemiology model, and so we'll be publishing the information that we can. And then every quarter here on the -- on our investor site, but they will also be running the real sites in epidemiology models and health econ and outcomes research work and making sure that gets into the peer reviewed and published press as well.

Dan Hurren:

I was going to ask some questions about the results rather than GLP-1 drugs, if that's okay?

Dan Hurren:

Look, just a question for Brett. Could you walk us -- can you just walk us through the headwinds and tailwinds for gross margin over the balance of FY24. And maybe we're seeing some pricing increases out there in the market and product mix shifting around. Could you just perhaps walk through those factors?

Operator:

Your next question is coming from Chris Cooper from Goldman Sachs.

Mick Farrell:

And so yes, there will be ongoing longitudinal studies that will get out to the peer-reviewed press, but obviously, look, it's an urgent issue. And if you look at the market reaction the last 90 days, there's an assumption of 30%, 40% reduction in immediate TAM, right? If you look at that market cap change and it's just in congress with every piece of scientific evidence that we've looked at historically and going forward. So there's many thousands of patients on our GLP-1 plus PAP database. We also have 17,000 patients that we're tracking that have had gone through bariatric surgery and are on PAP therapy post surgery with 50%-plus weight loss reductions in that cohort. So we're tracking much stronger weight loss cohort and this sort of -- depending on which type of GLP-1, 10, 20, 30, plus percent weight loss reductions in the extreme case of the 50% weight loss reductions. And so we'll be are publishing data in the peer reviewed and clinical press across all of those cohorts as we go forward. Yes, we will choose -- as we keep putting out the epidemiology data, we will choose to put some of those data, which aren't going into the peer-reviewed press, right? So we don't those studies that we actually want to get into the clinical information that can really be out there versus just the stuff that we put together for an investor, which then would prohibit those same data going into a clinical paper. But we are finding the balance between those and we definitely hear that the market is looking for those data. I can tell you now that the data on aggregate are showing no change despite how you look which GLP-1 class, which AHI group for adherence and resupply. But I will start to find the right division between the information we can get out on the short to medium term basis and the information that needs to go in those longitudinal studies to really show the sites behind this and really balance it out. One of the best ways we're doing it every quarter is to show the incredible growth that we're getting in our devices and our masks and particularly the resupply of masks, right? There's no impact of anyone's recall, there's no impact of any drug therapy and you just look at the replenishment rate of masks, if you're not on therapy, you're not ordering masks. And we're seeing really strong resupply. The other fact to bring into this that we can publish and do publish is the number of patients in our Air Solutions ecosystem, 22.5 million patients that continues to go up. We had record numbers of new patients starting up. And in addition to that record numbers of patients themselves engaging with myAir and that's driven by AirSense 11 being far more digitally engaged and higher rates of adoption of that. But we're seeing a really strong uptake of patients and flow in and patients on adherence, but we'll continue to publish every quarter those data and the appropriate data we can from the clinical, and we'll definitely update the epidemiology model every quarter.

Craig Wong-Pan:

Just on your Americas mask growth, could you provide some more details on where that additional growth in resupply has been coming from, and how long do you think you can sustain that strong year-on-year growth in mask revenues?

Operator:

Next question is coming from Sean Laaman from Morgan Stanley.

Mick Farrell:

And as I said in the prepared remarks, stuff that impacts our people are the toughest decisions to make, and we did this week, have a change in 5% of our global workforce reduction of 5% of our global workforce and tough decisions to make. I really think that, that is -- if you think about it, that is the restructuring. There are some changes I'm looking at it in the operating model, sort and roles and responsibilities and a focus on a more product-led and brand-led company that will come over time, but they're not massive restructures. And I think what that 18% to 20% revenues that Brett talked about in SG&A is indicative of the change that we've made here and reestablished a new base and a push for, as you said, really strong profitable growth across our business. But look, the world has changed. We are already a product led organization but our brand has increased in its value across the world, and we need to document and understand that and understand how to engage people in nonreimbursed markets as consumers into the funnel. And we've already invested in a number of our D2C markets in that, and we're driving that. And in our B2B and B2B2C markets, we're also working with our healthcare partners and distributors in the channel to work out how to best get patients into the funnel. So we're sort of, if you like, we're freeing up cash to reinvest in demand gen, reinvest in getting patients into the funnel. And we think there's a billion reasons in terms of the patients that need our help to get out there and do it. And that's going to be there for decades and we've got to find better ways to do it. But to answer your question directly, yes, that restructure is done and we're now focused on moving forward.

Margarette Kaczor:

I wanted to focus on the quarter as well. You guys talked about this all time high patient flow number, which is notable. When you said the channel, I guess, were you referencing those are CPAP prescriptions or folks getting tests? And any color you can give us on how that growth profile compared to recent quarters, and anything kind of on the US device growth this quarter as well?

Operator:

Next question is coming from Steve Wheen from Jarden.

Brett Sandercock:

Yes, that's correct, that's excluded as a non-GAAP item from 56%. But if you're talking year-on-year on the gross margin, really the biggest impact coming through was component cost increases that we're still cycling through and working through inventory. So that was the biggest factor. We did see some product mix favorability there, but not enough to offset those component cost increases, for example. That was the biggest impact on the year-on-year reduction in GM.

Saul Hadassin:

Mick, you've kind of commented on sustainability of US flow gen growth. I just wanted to ask you, so the growth rate based on revenues this quarter implies about a 17% CAGR going back to 1Q fiscal '20, so the September '19 quarter. So I'm just wondering if you think you can sustain sort of the dollars of flow gen sales that you reported this quarter, or if you think sales are going to step down as we work through the rest of fiscal '24? Just wondering if you can sustain the level of sales in dollar terms?

Operator:

The next question is coming from Matthew Chevrier from Citi.

Mick Farrell:

Thanks for the question, Matthew, and welcome to covering ResMed. Yes. So look, what's going to happen is with our organic SaaS business, as you saw in the quarter, we had good high single-digit growth at 7%. And we've sort of been in that sort of 7% to 8% in our organic growth across our US franchise really MatrixCare plus Brightree. And with the MEDIFOX DAN group, we haven't sort of been breaking out organic growth within that. But it is going to be incremental to that group. But in addition to that, there's a great product pipeline at both Brightree and MatrixCare that I feel confident and some portfolio focuses on the high growth parts of their portfolio and moving out or backing up with some of the low growth areas in that portfolio of MatrixCare that gives me great confidence as I look forward over the fiscal year and beyond that we're going to turn organic growth from sort of where it is now in the high single digits to double double digit growth on a stable organic basis across that SaaS business. So Matthew, it's a combination of MEDIFOX DAN increase in the group but also some great product pipelines in the current business to be able to get us there. And the final punchline I'll put there is, in addition to that, driving that better top line growth, we're working -- we restructured as well on SG&A and some R&D in our SaaS business this week, this quarter. And that will allow us to get good leverage on the net operating profit bottom line. And I see that moving closer and closer to the ResMed group and even being a strong contributor, an even stronger contributor for us as we look to maximize our long term EPS and return on invested capital across our group. So great question, Matthew, but we're very confident we can achieve that as we go through fiscal year '24, '25 and beyond in our SaaS business.

Mick Farrell:

Well, thanks, everybody, for attending this call and for the great detailed questions. And thanks, Kevin. Yes. Look, I'll close with this. ResMed is well positioned for ongoing future success and accelerated profitable growth. We're taking actions to prioritize on the right initiatives and we're optimizing costs to fuel our long term growth. The opportunity in front of us is huge and largely untapped and it's an incredible runway. We see more and more people coming into the healthcare system every quarter and we'll benefit and help them sleep better, breathe better and live better lives in 140 countries. And we'll keep proving it to you every quarter as we go forward. Thanks to all the 10,000 ResMed-ians, many of whom are also shareholders, for all that you do today and every day. And with that, I'll hand the call back to you, Amy, to close us out.

Operator:

Thank you. You may now disconnect your lines, and have a wonderful day. We thank you for your participation today.

Operator:

Hello, and welcome to ResMed's Fourth Quarter Fiscal Year 2023 Earnings Conference Call and Webcast. [Operator Instructions]. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Amy Wakeham, Chief Communications and Investor Relations Officer. Please go ahead, Amy.

Mick Farrell:

Thanks, Amy, and thank you to all our shareholders for joining us today as we review the results of our June quarter, the last quarter of our fiscal year 2023. Our results reflect incredible growth across our entire business with double-digit growth in our devices, masks, and software businesses. Unconstrained availability of our market leading cloud connected flow generator platforms has enabled us to continue to offer access to 100% cloud connectable AirSense 10 flow generated devices in all of our major global markets and beyond. In parallel, we are ramping up and improving the availability of our best-in-class AirSense 11 platform, which will gain further geographic regulatory approvals throughout the fiscal year and steadily increasing supply also throughout the fiscal year 2024 and beyond. Although challenges within the post-COVID supply chain haven't completely been mitigated yet, we expect ongoing steady improvement in component and end product supply in the quarters ahead using a combination of AirSense 10 and AirSense 11 platforms. While we remain focused on scaling production and global availability of the AirSense 11 platform, we remain on allocation for the Air 11 platform for the next few quarters. But I want to be clear on this point. With combined availability of the unconstrained Air 10 platform, we have enough devices to meet all of the customer needs that we see in major markets and globally. With the powerful combination of the Air 10 and the Air 11 platforms, we have the two best device platforms on the market. Our strong double-digit 23% year-over-year growth in the devices category demonstrates that customers are choosing ResMed and we are delivering. Our masks and accessories business also performed at a very strong 18% growth in constant currency this quarter. Patient demand continues to drive increased adoption and utilization of our mask resupply programs, augmenting a steady cadence of new patient setups. We continue to see strong growth in both the U.S. business where provider resupply programs have augmented growth and in our markets outside the U.S. where our consumer outreach and subscription programs are also driving mass replenishment directly with those end user patients. Our teams continue to work incredibly hard to achieve these strong growth results amid a challenging industry environment where component costs and freight costs are still working their way through our inventory post this supply chain crisis. I'm proud of the work that 10,000 ResMedians have put in every week, every month, every quarter to deliver these incredible results for the business, for our customers, for our shareholders, and ultimately for our most important customer, our patients. Let's now briefly review updates on the top three strategic priorities for our company. Number one, to grow and differentiate our core sleep apnea and respiratory care business; number two, to design, develop, and deliver market leading medical devices as well as digital health solutions that can be scaled globally; and number three, to create, innovate, and grow the world's best software solutions for care delivered outside the hospital, a field that we call residential medicine. In terms of our patient facing digital health platforms, adoption continues to go very well. The feedback we hear from patients and healthcare professionals remains very positive. We are seeing strong adoption of the myAir patient app by folks using AirSense 11. In fact, it is more than double the adoption rate that we saw with our AirSense 10 platform with many, many millions of patients signing up and engaging daily on their myAir app to view their own sleep data on their own phone and to review their own therapy data. This is important as engagement with a digital health platform like myAir is directly linked to higher adherence to therapy in patients. And higher adherence to therapy is directly related to better patient outcomes, to increased resupply and to better economics for the payer and the healthcare provider with lower overall healthcare costs. Last month, we announced and closed the acquisition of Somnoware. Somnoware is a U.S.-based leader in sleep and respiratory care diagnostics software and physician management software. As part of our ongoing efforts to improve and streamline the end-to-end pathway for patients and make it easier for sleep labs and physicians and their practices to diagnose and manage patients, we're excited about this acquisition that complements our current ecosystem of software solutions, including AirView for providers and physicians and Brightree for home care providers. These ecosystem together will drive greater efficiency and better patient care by accelerating the pathway to therapy and with a better overall customer experience. We're also excited about our progress across several digital health technology initiatives to further increase the value proposition for our connected healthcare ecosystem. Over the next several quarters, we plan to introduce several artificial intelligence driven data products and capabilities on both the physician and provider facing AirView platform, as well as the patient facing myAir app. Early testing of these AI driven data products is very positive in both of these customer groups, and we will refine to the optimal digital design and then we will launch and then we will scale these products around the world. These AI driven data products provide personalized suggestions to increase therapy adherence and to ultimately improve patient outcomes as well as patient, physician, and provider experience. We will continue to invest in the world's largest digital healthcare ecosystem that we have with over 15.5 billion nights of medical data in the cloud as we continue to unlock value from those data to benefit physicians, providers, payers, and patients. We saw strong growth in our respiratory care business in the quarter through ongoing adoption of our non-invasive ventilators as well as our life support ventilator solutions. We're still in the early stages of market development with some of our newer to market technologies in this category, including home-based high-flow therapy that we call HFT for treating chronic obstructive pulmonary disease or COPD in the home. We continue to generate clinical evidence and economic outcomes to support broader adoption of these technology innovations for treating lung disease in the home. We're encouraged by the clinical results we've seen with our HFT trials so far, and we continue to remain very focused on addressing COPD as one of the top diseases globally for hospitalization and the number one cause of re-hospitalization in the U.S. geography. The prevalence of respiratory insufficiency due to COPD as well as respiratory insufficiency due to neuromuscular disease continues to increase and we are focused on having low cost, high quality solutions to address this health epidemic. Our SaaS business had another great quarter with year-over-year growth of 34%. Our SaaS business growth was supported by another full quarter contribution from our fast growing MEDIFOX DAN business, as well as solid organic growth of 8% across our Brightree and MatrixCare portfolio of SaaS businesses. We're pleased to see sustained high-single-digit growth in our SaaS business on an organic basis, driven by the ongoing strength in the HME and infusion segment, and more stability in the facility segment as patient flows have now rebounded post-COVID. I'm very impressed by the leadership of our most recent SaaS portfolio addition MEDIFOX DAN, which is on track and meeting or beating our expectations. I'll be visiting personally with the team in Hildesheim, Germany, this quarter to discuss the growth face-to-face with the digital health innovators there in Hildesheim who are changing healthcare and taking care of people in the lowest cost, lowest acuity and highest quality of life setting, which is very often the home. We believe this is the future of healthcare and that's where we're investing and that's where we're winning. Our customers continue to see the value of adopting technologies to improve and optimize business efficiencies and personalized care, and we deliver the best software solutions to help customers do just that. There is pent-up demand for technology investments in residential medicine verticals, particularly as staffing shortages continue to impact the industry, particularly in nursing, but across the clinician and provider groups. This presents opportunities for ResMed's SaaS solutions to streamline operations and create workflow efficiencies so our customers, staff can focus on providing personal care. It's up to us to deliver for our customers and drive growth. I have confidence that our SaaS business can accelerate from these high-single-digits on an organic basis to double-digit growth on an organic basis in the mid to long-term. Our SaaS business remains an integral part of ResMed's growth strategy. This business complements the market leading software and device solutions that we have in our core sleep apnea and respiratory care businesses. As an important example, our Brightree ReSupply program continues to demonstrate strong synergies between SaaS and our core business, providing resupply for patients with sleep apnea, COPD, neuromuscular disease and beyond. The output of this work can be seen in our very healthy 19% growth in mass revenues in the U.S. geography this quarter. Ultimately, this work results in better outcomes for the patient, the physician, the provider, and the payer with lower overall healthcare costs. We are well-positioned as the leading global strategic provider of SaaS solutions for residential medicine globally. We have created differentiated value for our customers as well as long-term sustainable growth for our stakeholders. Here at ResMed, we are transforming respiratory medicine and residential medicine at scale, leading the market in digital health technology across our businesses. As we continue to scale and drive efficiencies in our operations in this post-COVID world, we continue to leverage appropriate pricing and cost reductions to drive accelerated growth in our bottom line. We are focused on driving top-line revenue and maintaining tight discipline and increasing efficiencies so that we can lower costs and ultimately so that we can accelerate our impact and our bottom line profitability, delivering even further value for all of our shareholders. As we move through fiscal year 2024, I see improvements in our business margins with geography mix, with product mix, and specifically with strong bi-level and non-invasive ventilator growth with strong mass growth and with increased software solutions growth. All these business lines are margin accretive to our growth. I also see that the higher inventory costs and freight costs that we've seen through the supply chain crisis continue to work their way through our sold products and as we progress through the fiscal year, we will continue to drive the transition to AirSense 11 and we will gain regulatory approvals and we will scale production. All these factors above lead to tailwinds for the gross margin and the net margin of our business as we move through the fiscal year. I can tell you we are working furiously to drive all of the above elements with our global teams. We now have over 15.5 billion nights of medical data in the cloud, as I said earlier, and those data come from over 21.5 million 100% cloud connectable medical devices on bedside tables in 140 countries worldwide. We continue to lead the industry in digital health and we don't plan to stop anytime soon because there's so much opportunity ahead of us. 7% of our revenues go straight into R&D to power our hardware and our data innovation engines. ResMed's mission and key goal remains crystal clear. We will improve 250 million lives through better residential healthcare in 2025. This patient-centric mission drives and motivates ResMedians every day. We made excellent progress towards that inspiring goal over the last 90 days and during the trailing 12 months, we have improved over 160 million lives with the delivery of a complete device platform to a patient or a complete mask system to a patient or a digital health software solution that is helping each person to sleep better, to breathe better, and to live a high quality life with healthcare delivered right where they live. As we start fiscal year 2024 here, I'm very excited about the opportunities in front of us. We just had our SaaS ASM earlier this week, and I'll be attending the Country Market Group CMG Group for our North America team in the coming weeks. And sales meetings are happening around the world. We're on a good trajectory. We have an exciting pipeline. In closing, I want to express my sincere gratitude to the more than 10,000 ResMedians for their perseverance, their hard work and their dedication both today and every day. With that, I'll hand the call over to Brett in Sydney and then we'll move and open up for Q&A for the group. Brett, over to you.

Amy Wakeham:

Great. Thank you, Brett, and thank you, Mick. Kevin, I'd like to go ahead and turn the call back over to you to provide the instructions and run the Q&A portion of our call.

Matthew Mishan:

Hey, good afternoon, and thank you for taking the questions. Hey Mick, with the devices number sort of steady sequentially around this $600 million mark, is this where the number would kind of base out if you are supplying the majority of the market? And from here, are we looking at just saying $600 million and then add on some percentage of what the underlying fleet market is kind of growing at?

Operator:

Thank you. Our next question today is coming from Margaret Kaczor from William Blair. Your line is now live.

Mick Farrell:

Yes. Thanks, Margaret, and welcome back. Yes. I think it's difficult to predict exactly where they're at from those sort of the early emerging signs, as you say. Look, we have regional competitors in Europe that we are fighting with every day there. We have regional competitors in Asia that we're fighting with every day and regional competitors in the Americas that we're fighting with every day. When Philips comes back, they'll have to start at position number four, if you like, in new patient setups. We are -- they are back and we are competing with them in some countries in Europe, like in Spain, they never went away because they never had a phone device there. So they've been there the whole time through this recall, and we've been beating them handsomely there. And as other markets in Europe where they've started to come back, we are competing and winning and maintaining share and growing share. I think the reputation here and the time to market is going to be a very slow progress for them country by country whether or not they get a consent decree in the largest geography. And so we look at it going forward and say, look, do we have enough supply to take care of all the market demands between us and the other regional players? And we finally got there where I can say that this quarter that we're there and we can take care of it. So it's almost irrelevant to us how and when in terms of what that looks like because we're able to take care of all the market growth. So for us, it sort of takes away that uncertainty and allows us to push forward. But yes, we're competing head-to-head with them in some many countries in Asia and some countries in Europe. And it's like -- it wasn't 2019 where our smaller, quieter, more comfortable, more connected and more digital solutions are taking share and holding share. And it's an ongoing competitive game. And as I said, we're launching some of these AI driven products on top of this ecosystem. It's an exponential game when you think about digital and we're well ahead. We've had two or three years here to sprint ahead. We were ahead before that. And I think it's a long-term game won't get -- we'll keep productively paranoid, but we are improving outcomes, we're lowering costs and the physicians like the workflow efficiencies and patients like the increased adherence and payers like the fact that there's an ROI in lowering total healthcare costs.

Anthony Petrone:

Great. Thank you. Congrats on a shrunk top-line here, share gains. Maybe two part question. Mick, one would be just on the amount of resupply that's now coming in as it relates to the share gains that you've seen over the past two years, is the resupply number we're seeing now where we actually starting to see consumables come off of the new sockets that you gained. So that would be question one. And then question two, there's obviously the debate out there on GLP-1s, maybe from the perspective of ResMed, how do you see the GLP-1 phenomenon playing out in the sleep space, specifically do you expect to gain more patients from GLP-1s versus maybe certain patients that would fall out of the funnel? Thanks again.

Operator:

Thank you. [Operator Instructions]. Our next question is coming from Suraj Kalia from Oppenheimer. Your line is now live.

Mick Farrell:

Yes. Thanks for the question and you look and it's a good one. Lots of factors going on gross margin, actually, the major one that as you noticed sequentially on the 30 basis points was foreign exchange and that was on inventory as it flowed through our funnel as we sold those CPAPs, APAPs we had, FX that had impacted them, six, nine months ago, but they're flowing through inventory that we sold during the June quarter. That was the headwind of 30 basis points from Q3 to Q4. We -- look, I think there's so many moving parts, but when you add it up and you look at geography mix and the upside opportunity for us to grow our business in Europe, Asia, particularly Japan, which has some chance for acceleration over the coming years, product mix, I mentioned in the prep remarks, particularly on bi-level and our non-invasive ventilator growth. So think AirCurve ST, FTI, AirCurve ASV, these are in -- and our masks side, particularly the full face, but any of the masks, all of those are gross margin accretive to our group. And I see opportunities for strong growth in all those categories. And also our software solutions have gross margin accretive capabilities and as we go on an organic basis from single-digits to high-single-digits to low doubles there on the software SaaS side of the business, I think that's margin accretive. So I feel good about that. I also know that we are working through the sort of higher inventory costs that we had in that supply chain crisis, we had to spend more on chips, parts and pieces and those contracts and get more expensive components for the cloud connective chip and beyond. And those freight costs that we invested in and everyone's talking all the news, the freight costs are down, you should take away your surcharge. Well, no, actually the freight costs that we paid six, nine months ago are working there with through -- way through our gross margin, as you saw in the June quarter. And that'll go on for some time, but that's going to continue to go down over time and as that does go through our sole products, there's going to be some tailwinds for gross margin. And the final one and really important one is we're going to drive AirSense 11. It's the best in the world product. It's better than the second best product in the world, which is the AirSense 10. And it gives us a chance as we gain regulatory approvals and we scale that production to improve our gross margins there as well. So all those are tailwinds for the gross and net margin of the business as we move through the fiscal year. Hard to predict in that one of the main factors is, how do we accelerate in the U.S. and particularly in CPAP, APAP. I will never turn down a patient if there's demand for a patient and they want an CPAP and APAP, I'm not going to reverse engineer and we know how to do it. We could reverse engineer our gross margin up 30, 50 basis points by slowing down sales of product. We're not going to do that when a patient needs care. We're going to take care of them even if it's a slightly lower gross margin. And by the way, it is very good gross profit dollars, and we get to take that cash flow as you saw a really strong cash flow in the quarter and reinvest it in R&D. So we're working on all the above furiously and we're going to get success as we go over the next one, two, three, and four quarters.

Laura Sutcliffe:

Hello, thank you. I was just wondering if you could talk about how your position to increase your mask supply in the event that the consent decree over at the competition impacts their ability to provide those, for example, if they end up constrained at a facility level. Thanks.

Rob Douglas:

Yes. Hi, just one other minor comment on that. And we've said this before, because of the relatively low CapEx of our supply chain and the equipment that we need, we generally run with quite a lot of those capacity supply. And so our ability to rapidly increase volumes as needed is really strong.

Operator:

Thank you. Next question is coming from Sean Laaman from Morgan Stanley. Your line is now live.

Mick Farrell:

Yes, thanks for the question, Sean. Yes, a simple question, very complex answer across the 140 countries and all the dynamics. I think one thing that I'm comfortable to say though on this is that if you look over the last four quarters, our commercial teams have done an incredible job of partnering up with our customers to say, look, inflation is up, costs are up. How do we share some of the pain, if you like, of these increased costs? And we were able to increase some prices on some mask systems and components and some devices where we could, it's tough because customers often don't get much relief from the payers. They did in the Medicare side in the U.S. market where there was an inflation adjustment up of around 5% January 1. And so that was a benefit for our providers, and so we could share some of the pain there in terms of increased pricing. But we've also had some surcharges on our products in terms of freight. And although, as I said in the prep remarks, we've seen all the news media that freight costs are all down. Well, yes, okay, they are on a spot price, but 12 months ago or nine months ago, as that works through our inventory, that freight charge is still there and is still impacting our costs. And inflation, although coming down is still high. But I think our commercial teams have done a really good job of partnering up with our customers, walking them through the situation, the reality that costs are up, inflation's up, freights up, inventory costs are up. We need to work on appropriate pricing to make that happen. And we've had some appreciation in average selling price over these last 12 months. And we'll look to do over the next 12 months to do an appropriate pricing with customers on a per customer per contract basis to sort of share some of the pain of the increased cost that our industry is having. But at the same time, we're laser-focused on driving that growth. And so it's a really strong sort of price elasticity, it's a question of how do we make sure we get that balance right? But it's a competitive game. Some of our competitors are out there saying the same thing publicly, that costs are up. And so we need to move prices appropriately. And we are out there working with customers to make sure that we as an industry take care of patients in a sustainable economic way, and that that involves both quantity, price, and supply over the long-term.

Lyanne Harrison:

Yes. Good morning, Mick. Can I ask a question about outlook? So through the earlier -- early quarters you mentioned that we were going to see sequential revenue growth through 2023, and we have seen that, and that's been fabulous. But with your competitor -- key competitor out of the market, do you still expect to grow revenue sequentially into first quarter, second quarter 2024 or for however long as they remain out of the market?

Operator:

Thank you. Next question is coming from Chris Cooper from Goldman Sachs. Your line is now live.

Mick Farrell:

Yes, Chris, thanks for the question. We've really been focused on that patient and making sure no one's left behind. As I said in an earlier question, and although the AirSense 11 is better margin for us, and it's better innovation and it has a higher engagement on the myAir app, which drives engagement, adherence, mass resupply and everything. Our view is that if there's a patient available and we have the parts and pieces and the ability to make an AirSense 10 take care of that demand now while we ramp AirSense 11, we're going to do it and we're going to take care of that patient. By the way, there's some really strong upside for that patient in that the alternative is a competitor device, which would not be as small, quite, comfortable and connected. And so they'd have a much worse experience than the AirSense 10 with a competitive one. So it's better for the patient. It is slightly low margin for us, but we get that patient on therapy, and there is the better together with ResMed that it's more likely, hopefully, that they get a ResMed mask and that they use that mask for the rest of their life. And so I think there's an overlap there, if you like of altruism and the profit motive to do the right thing on a gross profit, cash flow driven environment. And we're not going to manage just to a GM line and say, well, let's not do that and make those products. And so it's less I mean, it's strategic in this way that our brand is about patient care. Our brand is about taking care of someone who's suffocating and getting them out of hospital and doing that. And if we have to do it with an AirSense 10, which is an amazing seven-year old platform, then we're going to do it. If we can do it with the brand new AirSense 11 platform, we're going to do it. And look, nothing's slowing us down. Our quality and regulatory teams are going geography by geography to get the AirSense 11 approved in each of the regulatory environments. So as soon as that is, we can start selling the products. But the ramp up on AirSense 11 is probably not as fast as it would be in a market where you had all five major competitors competing there because of that excess demand we're covering a lot of that with the AirSense 10. So that's sort of how we're thinking about it. Patient-centric, patient demand, take care of that patient now, get them on our ecosystem, and then ramp as fast as we can AirSense 11, and we're doing that. Nothing's slowing down. The accelerator is firmly pedal to the floor on AirSense 11. And so everyone we make, we sell but it will be on allocation just given the huge demand that we see in the market right now, Chris. Thanks for the question.

Dan Hurren:

Hi, good morning, and thanks very much. Mick, at the third quarter result, you seem to be very confident about gross margin. In fact, I think at the time we know that it was probably the most positive gross margin commentary we'd heard out of ResMed in recent memory. So I know you've spoken to component cost and why you don't manage the gross margin, but what else changed since the time you gave that, that commentary to the result?

Operator:

Thank you. Next question is coming from David Low from J.P. Morgan. Your line is now live.

Mick Farrell:

Yes, David, that's a good point. We didn't really see anything of material context in this quarter in terms of exacerbation of COVID that that led to hospital based or life support ventilator sales. And so we're back to I would say some steady growth that we see in our neuromuscular disease, our COPD and other sort of respiratory insufficiency parts of our business for life support vents. On the non-invasive vents and adaptive server vents and bi-levels, we're back to steady market growth and actually we saw strong double-digit growth as those post-COVID, we're starting to see the clinics open up and patient flows start to come back. Rob, any thoughts on ventilators?

Mick Farrell:

Yes.

Operator:

Thank you. Next question is coming from Steve Wheen from Jarden. Your line is now line.

Brett Sandercock:

Yes. Hi, Steve. It's Brett. The inventory actually came down a little bit sequentially, so that, that's sort of tracking down how we're expecting. We expect that inventory balance should decline over the course of FY024 as well. The receivables you're right was up a little bit, but that's really driven by the revenues. I think overall in the working capital, we're in pretty good shape. It was up a little bit this quarter. When you look at that, we -- it's really the timing around tax payments this quarter. So we paid higher tax this quarter than we would typically do each quarter. So that's that drive, if you like, a little bit of negative working capital. But again, that's just a timing element. So we're expecting pretty robust cash flow generation through each of the quarters in FY2024. And we'll continue to work hard on the working capital and bringing that down. A big driver of that will obviously be the inventory and working that down progressively over the fiscal year.

Joseph Conway:

Hi guys, this is Joseph on for Mike. Could you maybe talk about the new patient and REPAP backlog internationally? I guess the way that I understand it is it's fully worked through in the U.S. but there's still work to do internationally. I don't know if you -- if that's the case and if you could size that at all.

Operator:

Thank you. Our final question today is coming from Saul Hadassin from Barrenjoey Capital. Your line is now live.

Mick Farrell:

Yes. So it's a great question and yes, our R&D team, have obviously been incredibly focused on the re-engineering, the resupply and the redesign on our core device platforms, and we're able to do that, right? So we're able to get the supply back of Air 10s, as you saw, and Air 11s. But yet, look, I -- we had the whole board down in Sydney last quarter, and we were looking through the pipeline of devices and masks and it's incredible. It's really exciting. I don't like to get ahead of my commercial teams, and one of them is at the table with me now telling me to keep quiet. But I can tell you I'm very excited about the pipeline. There will be new innovation, new masks from ResMed as we go through this fiscal year. And as a personal user of these products, I try every new mask that comes out and this new one, which has a great project name that I'm not able to say, but it's a beautiful island that you can travel to by boats. I have tried that that mask and it's incredible and I can't wait for that to come to the market. But yes, look, we do have masks that are coming in the pipeline that are working their way through regulatory and then of course, commercial ramp up to make sure that when we deliver, it's ResMed quality, ResMed capability, first time fit, incredible adherence, and to drive through the channel. And so you'll see those come through our major markets and then globally throughout the fiscal year. So I'm excited about that pipeline. The one that I can talk about is the digital side, where we've launched an AI product and I'm really excited as those get more traction, we'll talk about how the digital products and the mass products throughout the year are going to impact and keep our incredibly strong double-digit growth that we saw this quarter.

Mick Farrell:

Yes. Thanks, Kevin. And thanks to all of our stakeholders for joining us this last hour as we talked through our results. And we'll talk to you again in 90 days. In closing, I want to thank the 10,000 ResMedians. Many of you are shareholders and listen to these calls as well, thanks for your dedication and hard work, helping people sleep better, breathe better, live better lives in 140 countries. These results are yours, incredible double-digit growth. Thanks for all that you do. I'll hand the call back to you Amy to close this out.

Operator:

Thank you. You may now disconnect. We do thank you for your participation today.

Operator:

Hello and welcome to the ResMed’s Third Quarter Fiscal Year 2023 Earnings Call and Webcast. [Operator Instructions] A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Amy Wakeham, Chief Communications and Investor Relations Officer. Please go ahead, Amy.

Mick Farrell:

Thanks Amy and thank you to our stock holders for joining us today as we review results for the March quarter. Our third quarter fiscal year 2023 financial results reflect very strong performance across our entire business. Through the hard work of our ResMed team worldwide, we’ve been able to steadily improve supply and manufacturing output to deliver for customers, and most especially for patients with now full market availability of our life saving products and Therapy Solutions. During the quarter, we were able to offer unconstrained access to cloud connected AirSense 10 flow generated devices in North America, as well as improved access to those cloud connected devices across our global markets. We continue to work through some supply chain constraints with our latest and greatest AirSense 11 platform, and we expect to steadily improve the global availability of AirSense 11 over the next several quarters. We are thrilled to have the AirSense 10 platform off allocation and fully available to customers in the U.S. and other major markets in swift succession. I would like to send a huge personal thank you to our Six Sigma Black Belt supply chain and our manufacturing teams. Partnering with our global supplier Alliance, we have been able to significantly increase production to the point that we are now able to deliver cloud connected devices to meet the needs of all of our customers in the U.S. And we are working hard to make that the case in all 140 countries that we sell into worldwide as we move forward. Last quarter, we made a commitment to meet the global demand for connected CPAP and APAP devices with a combination of AirSense 10 and AirSense 11 by the end of calendar year 2023. As I just noted, we have already achieved that goal in our largest market, and we will be well ahead of that goal across all of our global markets. Supply chain challenges aren’t completely behind us but we have passed the idea in supply and we see steady increases in supply ahead. Our amazing R&D teams and global supplier Alliance teams have designed and validated new components. They have added new suppliers and they have worked hand in hand with existing suppliers to secure the flow of parts that we need. We’re also focused on scaling our manufacturing capabilities with the world’s biggest and highest output manufacturing plant on the planet in the field of respiratory medicine. That high tech facility is now fully up and running in Tuas, Singapore. We are working country by country to secure the necessary regulatory approvals as we ramp production and delivery of the AirSense 11 platform across global markets. Given this global ramp plan, we expect to remain on allocation for the AirSense 11 platform for the next few quarters with AirSense10 covering all the difference in demand. With this combination of Air 10 and Air 11. We have the two best sleep apnea therapy platforms in the market. And we are now able to service all of our customer’s needs. Our incredible growth rates of 43% in global device revenue this quarter speaks to that market leadership position of these two platforms, customers are voting with their wallets. Our mask and accessory business also continued to its strong growth trajectory, with 15% global growth in constant currency this quarter across our masks businesses. Mask growth is supported by both new patient growth as well as enhanced resupply programs to existing to existing patients catalyzed by on-going core patient demand. We have now reached the point that new patient flow is well above the levels we saw pre-COVID. In fact, March this we just finished March 2023 was our highest quarter ever for new patient’s setups in our cloud based patient management system called AirView. Our digital health ecosystem enables and drives long-term adherence pushing towards 90% adherence for our highest performing customers. Even as we’ve now past three years since the start of COVID there continues to be sustained heightened awareness by patients of the importance of respiratory hygiene and respiratory health. This has been a major step change that has held for now 12 quarters, we consider that a permanent change at this point. In the U.S. market, customers resupply programs including Brightree ReSupply have augmented growth. In our consumer driven markets, outreach programs and subscription programs have also driven masked replenishment rates. Patients want fresh equipment because there is less leak and more comfort for them the person who was suffocating before this treatment. Physicians want fresh equipment because they have seen peer reviewed published evidence that patient resupply is directly correlated to increased patient therapy adherence. Our teams continue to work incredibly hard to achieve these double digit growth results amid a challenging industry environment. All 10,000 of us ResMedians are laser focused on continuing to live both the devices and masks for our customers globally every week, every month and every quarter. Let’s now briefly review updates on the top three strategic priorities for our company. Number one, to grow, expand the reach of and differentiate our core sleep apnea and Respiratory Care businesses. Number two, to design develop and deliver market leading devices as well as market leading digital health solutions that can be scaled globally. And number three, to create, innovate and grow the world’s best software solutions for care delivered outside the hospital. The launch of and market reaction to our AirSense 11 device platform continues to go very well. Patient feedback remains very positive, and we continue to see strong adoption of our myAir patient app. In fact, Air 11 adoption rates of myAir are more than double the adoption rate of myAir with the AirSense 10 platform. It turns out that patients love getting their own data every day on their myAir app with a daily score, daily coaching, therapy engagement through advanced analytics and patient focused algorithms. Patient utilization of a digital health platform like myAir is directly linked to adherence, which is then directly linked to better patient outcomes as seen by the physician, which ultimately drives better outcomes for the payer and the provider. Given these trends, increasing production and global availability of the AirSense 11 platform clearly remains a top priority and an obligation and we will continue to drive market penetration, leading the market, expanding the market as we scale production and achieve regulatory approvals country by country. Meanwhile, we continue to improve the software and digital health technology that drives a significant component of the value proposition for our connected devices. Over the next several quarters, we will introduce several artificial intelligence driven coaching features into the AirView system, as well as on the patient facing myAir app. These AI algorithms will provide personalized suggestions to improve the patient experience and ultimately to increase patient therapy adherence. Many of these AI driven solutions will be available on both the AirSense 10 and the AirSense 11 ecosystems. ResMed’s AirSense 11 device is the best positive airway pressure device on the planet, followed very closely by the second best device, which is the AirSense 10 platform. And together they share the same digital health technology ecosystem. We will continue to invest in the ecosystem supporting these platforms as we innovate solutions for the benefit of physicians, providers, and especially patients. The bottom line is that our digital health technology investments have a multiplier effect across both Air 10 and Air 11 ecosystems catalyzed and powered by AirView and myAir. Pivoting to our respiratory care business, we continue to drive growth and adoption of our bilevel and other non-invasive ventilator solutions around the world as well as investing in our newer to market technologies for patients including neuromuscular disease, COPD, and asthma and beyond. During the quarter we announced a pilot collaboration between our digital therapeutics team under the Propellor health brand, and the University of California Davis Health System. This partnership allows eligible UC Davis Health patients to have access to Propellor’s digital therapeutics platform, including sensors for inhaled medications, a mobile app, a web portal, as well as on-going patient support. Data from the Propeller sensors will be transmitted to the UC Davis Health Electronic Health Record system through an API to support patient enrollment and remote patient monitoring. It’s still early days for this technology. However, combined with our investments in clinical research for home based high flow therapy for the treatment of COPD in the home we see these technology innovations as important clinical additions for treating respiratory disease and an integral part of our 2025 growth strategy, as we now pivot to look beyond to ResMed 2030. Turning to our software as a service offerings for care delivered outside the hospital, our SaaS business grew strongly at 35% year-over-year in the quarter, including the contribution from our recently acquired MEDIFOX DAN team in Germany. On an organic basis, SaaS growth in the quarter achieved high single digit growth of 9% across our SaaS portfolio. We’re excited about the strong sustainable growth of our core SaaS business. And we’re very pleased to see MEDIFOX DAN contributing to our growth in its first full quarter as part of the global RedMed Group. We continue to grow with customers that deliver care outside the hospital, as they increase utilization of our software and data solutions to improve and optimize business efficiencies and patient care. Here at ResMed, we believe the future of healthcare is in lower cost, lower acuity settings, we are investing in technology that our customers need to operate and scale as patient volumes grow in these facilities and out of hospital facilities. As opposed to COVID, patient census continues to improve in our facilities verticals, we are seeing pent up demand for technology investments that continue to come to market across skilled nursing facilities, nursing homes and beyond. Our Home Medical Equipment SaaS business under the Brightree brand continues to grow at a very rapid pace and deliver sustained profitable growth. We are seeing the on-going impacts of staffing shortages across all of the outside hospital healthcare verticals that we serve. This pressure on our customers provides opportunities to drive conversations about the benefits of our software solutions to streamline and drive efficiencies across their businesses, so that they can free up staff to focus on their core purpose of serving patients and improving patient outcomes. Our SaaS business remains an important part of ResMed’s growth strategy, and it complements the market leading software and device solutions that we have in our core sleep apnea and respiratory care businesses. Our Brightree ReSupply program continues to demonstrate the synergies we can generate between our SaaS business and our core SRC business. Brightree ReSupply automates the entire process from contacting the patient, interacting with the payer on coverage, communicating directly with the patient, collecting co-pays, and managing the logistics and distribution process of product. The ultimate goal is to keep a CPAP APAP or bilevel therapy user replenished with the supplies that they need to enable a better and longer lasting therapy experience. This results in better outcomes for the patient, the physician, the provider, and the payer. We are well positioned as the leading global strategic provider of SaaS solutions for outside hospital care globally. And we have created differentiated value for our customers and long-term sustainable growth for our stakeholders. We are transforming out of hospital health care at scale, leading the market in digital health technology across our business. We now have over 14 point 5 billion nights of medical data in the cloud. And we have over 20.5 100% Cloud connectable medical devices on bedside tables in 140 countries worldwide. We are liberating data to the cloud every day and unlocking value for patients, for providers, for physicians, for payers, and entire healthcare systems. We are leading the industry and we won’t stop innovating. We’re investing 7% of our revenue in R&D. It’s worth noting that the annualized revenue pool is now well north of $4 billion. There is so much opportunity ahead of us. It’s inspiring and it’s exciting. ResMed’s mission remains crystal clear. We have a goal to improve 250 million lives through better health care in 2025. This patient centric mission drives and motivates ResMedians every day. We made excellent progress towards that inspiring goal with our growth over the last 90 days. And during the last 12 months we have improved over 156 million lives with the delivery of the device platform to a patient or a full mask system to a patient or a digital health software solution that directly impacts the patient, helping each person to sleep better, to breathe better and to live a high quality life with health care delivered right where they live. Let me close my remarks with my sincere gratitude to the more than 10,000 ResMedians working across 140 countries for their perseverance, their hard work and their dedication today, and every day. Thank you. With that, I’ll hand the call over to Brett in Sydney for his remarks and then get in the queue because we will open up for Q&A from the group. Brett, over to you

Amy Wakeham:

Great. Thank you, Brett. And thank you, Mick. Kevin, I’d like to now turn the call over to you to provide instructions and then run the Q&A portion of the call.

Lyanne Harrison:

Yes, good morning. All. Before I start, I want to say thank you to David Pendarvis. You know, we’re certainly sad to see him retire. But we know that we’re in safe hands with Amy. In terms of my question, obviously some very good device revenue there. But I want to just to talk about the you mentioned the third quarter, you had a new patient high higher than what we’ve seen pre-COVID. Can you provide some comments of how much of that new patient backlog remains? And also what sort of progress you’re making on the Repat backlog? And if you can discuss that, according to the Americas investor [Indiscernible] separately, that’d be very helpful.

Lyanne Harrison:

Sorry, can I just clarify when you said that you’re there on the backlog? Is that both for the United States and rest of the world?

Lyanne Harrison:

Okay, thank you very much Mick.

Operator:

Thank you. Next question is coming from Dan Hurren from MST Macquarie. Your line is now live.

Mick Farrell:

Yes, that’s a great question. Daniel, I’ll hand over to Rob Douglas, our President and Chief Operating Officer to cover our SG&A.

Operator:

Take your next question today. It’s coming from Matthew Silvia [Ph] from Citi. Your line is now live.

Mick Farrell:

Yes, thanks for the question, Matthew. And yes, not -- last quarter, I certainly said that we expect to see sequential growth of devices throughout the calendar year, actually here through 2023. And those are forecasts. I got to tell you, this $607.9 million of device sales in the quarter was ahead of where I thought we were at that point. That’s a big number to come up. And as Brett said, there’s about 15 million of ventilator sales to China in there, as they went through another phase of, of COVID as they reopened during the during the March quarter. So if you take that out, it’s still a big number to shoot for here in Q4. But we have the best commercial teams on the planet in respiratory medicine, sales. And you know in Q4, our fiscal year Q4 is a big time there's presence clubs in some geographies, there's fiscal incentives everywhere for people to finish their fiscal year strong. And so there’s a lot of incentives. So it’s a tough number to get there on sequential growth. Taking out those ventilators, I think we can do it, I’m confident my team, I’ll back my team. They got a little bit ahead of me here in March. And I love that I’d love them to be a little bit ahead of me in June. And so I’m confident we can do that. More important than that is that we are now taking care of every patient’s needs in our major markets. And our goal is to be there in all 140 countries. So some of it is that that revenue growth, and it’s amazing, but it’s really about patient care. And it’s about leaving no patient behind. And it was really disappointing. I think, for us as an industry, some of these quarters over the last eight quarters, that as an industry, we weren’t able to take care of every patient that got a prescription. We’re now doing that in our major markets. And we plan to absolutely fulfill that not only where we’ve already achieved it, but to get ahead of it in all the other countries as we go. So sequential growth is good, we’re going to be pushing towards trying that. But more important than that, taking care of every patient in every geography, and working as hard as we can to get to those patients and get them a well quality mask and get them on a resupply program because that’s what leads to long-term adherence, not just that one time device sale, but getting an adherent patient that 87, 90 plus percent adherence rates on not just a 90 day basis, but an on-going basis. That’s our challenge. Matthew, great question. Thank you.

Gretel Janu:

Thanks, good morning all. I’ll ask the gross margin questions. Is the mix really the key driver of the way to gross margins here? Do you have is the higher price offsetting component costs? And just as we look forward, if you’re going to continue to assume strong device sales growth, should we expect gross margins to continue to be weaker at these levels in the short term? Thanks.

Operator:

Thank you Next question is coming from Matt Taylor from Jefferies. Your line is now live.

Mick Farrell:

Yes, thanks, Matt, for your for your question. And you know that as you look at our masks and accessories business, that sort of 70% to 80% of our masks growth is replenishment, its existing patients out there who are coming back for a fresh mask, a fresh humidifier, a fresh set of tubing, heated tubing, and so on and filters. So it’s the mask and accessories is 70% 80% replenishment business. And so it’s not as directly impact. So new patient growth is incredible. We’re back to better than pre-COVID. And we’re growing from there. And that’s great to see that sort of strong rise of new patients coming in, but it doesn’t sort of directly correlate to your point it’s less a derivative and more a sort of a compounding effect over time as you know like compound interest as you build up that install base those patients are ordering if they are, ordering on a three month or six month basis, that becomes a compounding effect on the device growth today leading to a future investment in growth in masks over the coming fiscal quarters and fiscal years as you build that installed base, so there’s not a direct correlation 43% device growth doesn’t immediately correlate to mass growth. But I mean, to your point 15% global mass growth on a constant currency basis is incredible pre-COVID, we would have been very proud of a number like that. Post pandemic coming through this growth. I’m incredibly proud of the team and what they’re able to do not just in new patient setups, but in the replenishment programs. And as I said in the prepared remarks, it’s not just in the reimbursed markets where we’ve got formalized systems. In France, the U.S. Japan, we have formalized systems to go with our customers to patients to ensure they if they want it that the patient gets a mask when they need it. We’re also working in our consumer driven markets where we’re driving adherence programs, subscription programs that are fast growing in many of our geographies where it’s cash pay, or direct to consumer interaction, and they’re saying, I want a fresh mask. And so it’s true to the core demand. It’s not just a system driven one, this is a patient driven one. And that’s the part about mass growth that I think is most exciting. Final thing I’ll say on mass growth, is that I think there was some skeptics, two or three years ago, people like oh, this step up in respiratory health and hygiene step up in mask replenishment, that’s a short term trend due to COVID pandemic, with three years since the start of this, this COVID pandemic, and that has been 12 quarters of strong mass growth. So I think that’s strong mass growth is sustainable for the future. We’ve been able to execute for 12 quarters and we plan to continue to do that as we go forward.

Mick Farrell:

Thanks Matt.

Michael Polark:

Thank you for taking the question. I’ll ask another twist on the mask question. As you’ve better filled on the device side, especially in the U.S., are you -- is there a halo impact in terms of winning share incrementally on the consumables side? Is that a dynamic that’s played out recently or could play out over the next year or so as the device kind of the urgency to step into the device void abates and you refocus on other priorities?

Operator:

The next question is coming from David Low from JPMorgan. Your line is now live.

Mick Farrell:

Yes, David, thanks. I’m going to hand to Brett to go through more detail. But what I was saying is I expect double-digit basis points improvement from where we were at in the quarter. 56.1%, I see is as an idea, and I want to grow from there. I see us being able to move that up, I don’t know, 10, 20, 30, 50, 100 basis points over the coming quarters and beyond. But Brett, do you want to provide a little more detail for David, to the headwinds, the tailwinds and all the fun that goes into gross margin?

David Low:

Thank you very much.

Margaret Kaczor:

Hey everyone thanks for taking the question. I wanted to maybe follow up on some of the patient demand metrics that you guys gave early on the call. I think I heard maybe high single-digit market growth in the U.S. or Americas. And then should we add repat to that so that, that ultimately leads us to a double-digit growth rate? And then how do you think about that, I guess, once Philips does potentially reenter the marketplace for you guys on a long-term growth. Can you, I guess, continue at that double-digit top line growth rate? Thanks.

Rob Douglas:

Just one other minor point, Mick. That that new patient growth is really solid and there’s so many untreated patients. We can see a long-term future in that. But also as we build our long-term adherence programs and start driving long-term adherence, that will keep the mask growth ahead of that new patient growth and we see a long-term outlook for that to.

Andrew Paine:

Yes, Hi morning and evening everyone. Just thinking about your ability to retain market share when Philips comes back to the market, it’s pick up in the -- but assuming from the start of FY 2024, what levers do you think you can pull here to ensure that you do retain market share? Are we looking at kind of things like pricing as a factor? Or do you think there’s other things that will help you retain that share?

Operator:

Next question is coming from Matthew Mishan from KeyBanc Capital Markets. Your line is now live.

Mick Farrell:

Yes, Matt, it’s a really good question. And so the peer-reviewed published evidence out there is an 87% adherence number that’s been out there for a couple of years. If you look at the average of the market, where people maybe aren’t using as much of the digital capabilities, the patients aren’t using myAir, the doctors aren’t using AirView. General industry adherence might be on average, 60% to 70%, right, with a competitive device that’s not connected or maybe someone who’s not fully engaged with the digital ecosystem we have. As they start to get engaged, there’s actually a peer-reviewed published evidence on this, just adding just adding the doctor using AirView moves up adherence by 10%. So you go from, let’s say, an average of 65% to 75% for that customer. Just having the doctors AirView, if the patient uses myAir, you move up almost another 10%. So for that example, you might go from 75% to 85% adherence, where the doctor is using AirView and the patients using myAir. To get to those 90s, you need a really special customer that’s really engaged and really investing in tech that takes our tech and sort of adds algorithms, it adds capabilities to it. And we have a number of those sophisticated customers in Europe and the U.S., and we partner with them, and we do joint development with them. And we love that training. We learn from each other. Because together is how we deliver the care. We were a manufacturer and we’re a provider of digital health solutions, we’ve worked with providers in our biggest countries to get there. And where we don’t, in smaller consumer-driven markets, we have to pick up the ball and engage directly ourselves. But that 90% is achieved in very rare cases, but it’s -- that peer view published evidence shows that it can be done with the tech at 87%. And yes, to your point, how do we get everyone up to that 87% that 90%, that is a process of engagement of training. And that’s why I say our share is not only going to stay where it is, but have the chance to grow from that because we are the market leader in this. No one is investing like we are in cloud compute. No one is investing like we are in analytics in AI and ML and engagement with patients and physicians and providers. And we’re not doing alone. We’re doing it with the ecosystem, with the patients. We’re listening to them with the physicians and with the providers. Thanks for the question, Matt.

Saul Hadassin:

Thanks for taking my question. Mick, just a question on Primasun. I just noticed this quarter, the investment was very low, certainly less than what the guidance had been. So I’m wondering, did something change this quarter? And any update on how that project is going? Thanks.

Operator:

Thank you. Next question is coming from Suraj Kalia from Oppenheimer & Company. Your line is now live.

Mick Farrell:

Got you loud and clear, Suraj.

Mick Farrell:

Well Suraj, it’s a really good question. And we only have 5 minutes left in the call. I could spend whole 50 minutes of them. A lot of those things are actually quite proprietary as we put together these AI and ML models on how we would coach a patient, particularly you talk about a high acuity patient like that on bi-level or ventilation, non-invasive ventilation therapy. But look, yes, certainly, I look at our compliance predictors and our compliance analysis tools that can help empower an HME in the U.S. and just some of the ways in which we’re able to use AI and ML to drive prioritization of the most at risk for quitting patients. And those who are so close enough to get there. And those were definitely there and just need some sort of digital coaching. That sort of triage, if you like, which has previously been done manually is now going to an automated way. And it’s -- we’ve always had some levels of that automation, but to have an algorithm that learns as it goes and to get better and better at it -- it just serves the doctor. It serves the respiratory therapists and both of them are super pleased to see that level of efficiency, reduction of if you like, the administrative management and focus on the toughest patients but also making sure that the best patients get the digital coaching and help that they need. So it’s really we’re triaging compliance, adherence and beyond. But watch this space. We’re going to launch a bunch of new products that I’ll be able to talk to very specifically what they are and what they do over the coming quarters.

Craig Wong-Pan:

Thanks for taking my question. I just note the inventory balances continued to increase. So I was wondering when you might start to see that come down? And also, is there much kind to cloud inventory or parts in that number still?

Brett Sandercock:

Sure. Sure, Mick. Yes. I mean I’d characterize it, Craig that we stabilized that inventory this quarter and really that drove the really strong operating cash flow that you saw. But I think there’s more that we can do. And the aim is to reduce those inventory levels overall. I mean, a number of things we can do, but some of the -- someone might point out we’re seeing improvement in lead times, which will help. You’ve got I guess, getting from port to port improved a bit, so we can lower inventories. We’re continuing to increase sea freight versus air freight. So some of that manifest in inventory. But eventually, that kind of stabilizes at a ratio, we’re tuning safety stock levels now because we’ve got more predictability on what we need and when we can get supply. And then inventory, obviously, is future looking. So we’re looking to support sales. So we just got to balance all that. But all that said, I think we’re looking for inventory levels, that trajectory to gradually go down over the course of FY 2024.

Chris Cooper:

Thanks, Mick. I’m just after your latest thoughts on the diabetes and obesity drugs, please. We -- I guess we had another positive update last night. They do seem to be coming thicken fast at the moment. I guess could you just share how ResMed thinking about these? And to what extent their success may have any impact on your business, please?

Operator:

Thank you. We reached end of our question-and-answer session. I’d like to turn the floor back over to Mick for any further closing comments.

Amy Wakeham:

Great. Thank you, Mick. Thanks, Kevin, and thanks, everyone. We appreciate your interest and your time. If you do have any questions -- additional questions, please don’t hesitate to reach out directly. This does conclude our third quarter 2023 conference call. Kevin, you can now close this out.

Operator:

Hello and welcome to the ResMed Second Quarter Fiscal Year 2023 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Amy Wakeham, Vice President, Investor Relations and Corporate Communications. Amy, please go ahead.

Mick Farrell:

Thanks Amy and Kevin and thank you to all of our stakeholders for joining us today as we review results for the December quarter, our second quarter of fiscal year 2023. Our financial results reflect solid performance across our entire business, once again driven by strong sales growth in the Americas region as we were able to significantly increase both production and delivery of flow-generator devices. We're seeing ongoing high demand for our sleep and respiratory care devices worldwide and we're making steady progress, working with our suppliers to continue to increase our production to ultimately meet the needs of all customers and especially patients. Our mask sales growth was strong across the globe, reflecting a post-COVID pandemic awareness of the importance and need for respiratory hygiene and respiratory health. ReSupply programs in the US continued to drive solid, ongoing sustained market mask growth catalyzed somewhat by the end of calendar year deductible momentum in the US geography. Mask sales across Europe, Asia, and the rest of world also improved, driven by increased new patient setups as connected device supply increased. Our teams worked incredibly hard to achieve these extraordinary numbers in the face of an ongoing industry supply chain constrained market. We see the supply environment improving every week, every month, and every quarter, and our access to the specific electronic components we need has increased. We are confident in our ability to fulfill all customer demand before the end of calendar year 2023 and we expect to see steady ongoing incremental device revenue growth in the third and fourth quarters of our fiscal year 2023. Customer acceptance of our reengineered AirSense 10 Card-to-Cloud device remained strong during the second quarter, particularly in the United States geography. As we increase the volume of fully connected AirSense 10 and fully connected AirSense 11 devices over the next few quarters, we will be able to phase out the AirSense 10 Card-to-Cloud device and refocus on our strategy which is based around the growth of 100% cloud connectable devices across the globe. Outside the US, we have not seen the same adoption rates of that AirSense 10 Card-to-Cloud Device. However, there have been pockets of success in some geographies and we see a strong growth path going forward as we ramp up our fully connected AirSense 10 and our fully connected AirSense 11 products and as we achieve regulatory clearance of the latter platform market-by-market. To that point, we introduced our newest product, the AirSense 11 platform into the Japanese market during December and we look forward to continuing to support doctors and patients in Japan with our world leading 100% cloud connectable medical devices and our cloud-based software technology. Our number one priority across all of our markets will always be patients, doing our best to help those who need treatment for sleep apnea, COPD, respiratory insufficiency due to neuromuscular disease, asthma, and all those who need access to out-of-hospital health care. Our goal is to ensure that patients get the care that they need, where they need it, and when they need it. Let's now briefly review updates on ResMed's top three strategic priorities. Number one, to grow and differentiate our core sleep apnea and respiratory care businesses; number two, to design, develop and deliver market-leading medical devices as well as digital health solutions that can be scaled globally; number three, to innovate and grow the world's best software solutions for care delivered outside the hospital and especially in a patient's own home. The launch and acceptance of our AirSense 11 device platform continues to go very well. Patient feedback remains very positive and we continue to see very strong adoption of our myAir patient app. In fact, adoption rates are at more than double the adoption rate of myAir with the AirSense 10 platform at about 55% of all patients getting their data every day on their myAir app. Increasing production and delivery of the AirSense 11 platform remains a top priority for our ResMedians around the globe and we will continue to achieve better results and stronger market penetration each quarter. Earlier this month, we were able to take our AirSense 10 fully connected device off allocation in the US market. This is a very exciting development for our commercial team here in the Americas and for all of our customers. We look forward to continuing to expand the supply of fully connected AirSense 10 and fully connected AirSense 11 devices, so that supply can become unconstrained in all countries, but we will progress the throughout fiscal 2023 on this endeavor. An important aspect of our ResMed 2025 strategy is to reach hundreds of millions of patients with our respiratory care solutions, including non-invasive ventilation, and life support ventilation, as well as newer therapeutic areas such as cloud connected pharmaceutical delivery solutions and home-based high flow therapy solutions. We are continuing to drive growth and adoption of our ventilated devices around the world and we saw good uptake of both our life support and our non-life support ventilator platforms during the quarter. There is also ongoing adoption of Propeller's monitoring system. Its digital therapeutic platform is now integrated with the two leading US electronic health record systems Epic and Cerner. This digital health integration makes it easier for doctors and healthcare workers to onboard people to the Propeller platform. It's still early days for this technology, however, combined with our investments in home based high flow therapy for treatment of COPD in the home, we see this technology combination as an important clinical addition for treating lung disease and an integral part -- an important part of our 2025 growth strategy. Turning to our Software-as-a-Service offerings for outside hospital care, our SaaS fast business grew 18% year-over-year. This extraordinary growth includes sustained high single-digit organic growth of our US-based SaaS business at around 7% and is accelerated by the addition of approximately six weeks of MEDIFOX DAN revenue as we closed that acquisition and welcome that German team into the ResMed family of SaaS solutions just over midway through the December quarter. We continue to grow with outside hospital care customers as they increase their utilization of our software and data solutions to improve and optimize business efficiencies and patient care. As the post- COVID patients census continues to improve in our facilities verticals, we are seeing pent-up demand for technology investments that continue to come to the market. Our HME SaaS business under the Brightree brand continues to grow at a very rapid pace and we welcome tech solutions for our HME customers across the US market. As I just mentioned, during the quarter, we received final regulatory approval and closed our acquisition of MEDIFOX DAN, the leading provider of end-to-end software solutions for nursing homes and home health customers in Germany. We're now focused on integrating and growing this business as we accelerate SaaS innovation and SaaS growth in Germany and beyond. I've met in-person with many of the key leaders of the MEDIFOX DAN team and I can tell you, I'm excited about the cultural fit, the technology focus, the sharing and learning opportunities that they bring and we bring to our global SaaS team. This is our first investment in an outside hospital software business beyond the US market, but I can tell you, the global SaaS team is very much in sync and they have come out of the grade strongly not just in the revenue growth I just talked about, but also in the soft side, team collaboration, transparency, beyond. We look forward to updating you as we achieve key milestones in that business over the quarters and years ahead. Our team is ready to deliver. Our SaaS business is an important part of ResMed's future growth and complements the incredibly strong software and device solutions that we have in our core sleep apnea and respiratory care businesses. One great example of the synergies between our SaaS business and our core business is the success of the Brightree ReSupply program. Brightree ReSupply automates the entire process from contacting the patient, interacting with the insurance company on coverage, and interacting directly with the patient on co-pays as well as managing the logistics and distribution process. The ultimate goal is to keep a CPAP, APAP or bilevel therapy user replenished with the suppliers that they need to enable a better and longer lasting therapy experience. We have published clinical data that show that a patient on a ReSupply program has higher adherence to therapy and we also have peer reviewed published data in CHEST showing, what’s called the ALASKA study that there is a 39% reduction in mortality for patients who are adherent to CPAP versus control. These are incredible data and they lead to these synergies not just being a good revenue opportunity, but being an incredible cost-saving opportunity for the healthcare system and life-saving opportunity for the patients involved. We will continue to identify and capitalize on synergy opportunities as we move forward. We are well-positioned as the leading global strategic provider of SaaS solutions for out-of-hospital care globally, and we have created differentiated value for customers and long term sustainable growth for our stakeholders. We are transforming out-of-hospital health care at scale, leading the market in digital health technology across our business. We now have over 13.5 billion nights of medical data in the cloud and over 19 million 100% cloud connectable medical devices on bedside tables in 140 countries worldwide. We are liberating data to the cloud every day and unlocking value for patients, providers, physicians, payers, and entire health care systems and communities. We are leading the industry, but I see this as just the start of the digital health marathon. And I can tell you, we love the race. As the overlap between digital health and consumer tech industries continues, it is important to note that ResMed's Chief Medical Officer Dr. Carlos Nunez was recently named Chair of the Board of the Health Division of the Consumer Technology Association, or CTA, and the Health Division is the fastest growing division within CTA. The Health Division focuses on consumer-based technology-enabled health solutions to deliver better health outcomes for patients and reduce overall healthcare costs for the healthcare system. Their mission is fully aligned with our ResMed mission, and I'm delighted to see Carlos be recognized for his leadership and the sessions that he chaired at CES in Vegas a couple of weeks ago, show that ResMed's thought leadership and Carlos' thought leadership is helping to craft the future of digital health and bring it to consumers as we have done over the past decade. We're excited about the ways Carlos and CTA's Health Division can help continue to shape our industry for the future, lowering costs, and improving outcomes, and engaging consumers in their own health care. ResMed's mission and clear goal is to improve 250 million lives through better health care in 2025. This patient-centric mission drives and motivates ResMedians every day. We made excellent progress towards that inspiring goal over the last period. During the last 12 months, we improved over 149 million lives with delivery of a device platform to a patient, a full mask system to a patient, or a digital health software solution, helping people to sleep better, to breathe better, and to live higher quality lives with healthcare delivered right where they live, and mostly, in their own home. Before I close, I want to once again express my sincere gratitude to more than 10,000 ResMedians now for their perseverance, hard work, and dedication both today and every day. Thank you. With that I'll hand the call over to Brett in Sydney, and then we will move and open up for Q&A from the group. Brett over to you.

Amy Wakeham:

Great, thanks, Brett and thanks Mick. Kevin, I'd like to now turn the call back over to you to provide the instructions and then run the Q&A portion of our call.

Chris Cooper:

Thanks. Good morning -- good afternoon. So, good to hear the fully connected AirSense 10 is now off allocation. Can I ask what happens with the C2Cs that have effectively now I presume surplus to requirements? And are there any sort of impacts on pricing or inventory valuation we need to think about in the second half?

Operator:

Thank you. Our next question is coming from Suraj Kalia from Oppenheimer. Your line is now live.

Mick Farrell:

Got you loud and clear, Suraj.

Mick Farrell:

Suraj, it's a great question and how we measure the lives changed is a pretty simple formula includes the CPAPs, APAPs, bi-level devices. But it also includes full mask systems, which you know, the sort of linear growth, if you like of the devices and some slight exponential growth of the mask systems because of replenishment rates and repeat customers coming back. But it also includes patients' lives touched through digital health. So, whether it's a Brightree patient who gets access to their device or other HME equipment, whether it's a patient in COPD medicines that gets an app that reminds them to take their medicine on a Propeller, or a patient that has a life support ventilator that gets a digital health reminder to get replenishment. And so combining all those impacts on a life. And the way I look at it is a life is changed as much by a brand new device arriving in their house as it is by an app that helps them take a medicine that keeps them out-of-hospital. So, that's how we sort of look at lives change. Yes, 150 million calendar year 2023, you got it, right. I mean, you got the math, the mathematics there is the CAGR is 17.5% volume growth of the lives that we touch over the next three calendar years through 2025 and we're going to do that. We're going to get more and more patients on CPAPs, APAPs, bi-levels, more and more on ReSupply and masks systems, and then more and more on our digital health platforms. And we've got -- it's a lofty goal and it's a stretch goal, but we believe we can get there and change 250 million lives by 2025. Thanks Suraj. Great question.

Mathew Mishan:

Hey. Good afternoon, Mick. Just a quick question on the gross margins. Just how has the productivity of manufacturing and shipping improved over the last few months? Are you guys still working through, like high-cost inventory? How much spot buying is there? And then is sort of the decrease in gross margins -- slight decrease in gross margin, mainly on the mix of devices versus masks and accessories?

Rob Douglas:

Yes, Matt, thanks for question. There's lots of factors in that gross margin and you're asking specifically about productivity and productivity improvements. We've done a whole lot of work around volume improvements and really driving volume and all of our discussions with suppliers have been increasing volume and reliability of delivery. Our normal settings in normal world is we have a long-term outlook volume commitment and we're looking at optimization and pricing improvements and things like that. Those activities have pretty well been on hold while we've been doing these -- this sort of real scramble that drive volumes. Freights a similar situation, although we are seeing freights probably going to improve faster than some of these other costs that were in there. But totally in terms of our supply chain culture, we absolutely will be aiming to go back to our continuous improvement situation where we have a really strong volume leverage gain. We continue to drive the volumes in a systematic way and we use that to drive productivity and drive cost out of the system.

Steve Wheen:

Yes, thanks Mick. I just wanted to follow up on that gross margin question. In the previous quarter, I think it was -- Brett was talking to the efficiencies that you're achieving through doing more volume, was -- the margin benefit from that efficiency was sitting in your inventory balance and that's obviously been building and built again this quarter. I'm just interested is that still the case that when that inventory comes off the balance sheet, you should automatically start to see the efficiency gains that you've been able to achieve to-date?

Brett Sandercock:

Yes, Mick thanks. So, Steve, yes, I mean, that's -- what we're doing -- I mean -- I think Rob articulated really, at the moment, we're optimizing for delivery rather than efficiency and we got things like we're running the three platforms at the moment. So, I'm really focused on delivering devices to patients. So, that's having an impact. The big one is work through inventory or the wash-through is the freight cost. So, we're seeing some reduction in freight costs. But that's not manifested in our P&L, yet, that's one for the Q3, Q4. So, there will be some benefits that starts wash through into Q3 and Q4 that we're not seeing it that's currently still in inventory. But on the efficiency side, we're really -- we will get there, but we're optimizing on delivery for the moment. But I think as we work through the fiscal, we'll be in a much better position to drive on efficiency measures.

Operator:

Thank you. Our next question is coming from David Bailey from Macquarie. Your line is now live.

Mick Farrell:

David, that's a great question. It's actually the answer. We could take the whole rest of the Q&A session to go through it because it's what we do is trying to reach out to the 936 million people in our core market that suffocate every night with sleep apnea around the world and we're laser-focused on it. As you saw, we delivered very strongly on those new patient setups 41% growth of devices in US, Canada, Latin America and we turned to positive there in Europe, Asia, and other. And what I can tell you is we're really working through that excess patient demand. Those numbers will tell you we're working faster through that excess demand in the US and getting closer to a state you get a prescription and you'll get a device in days or weeks versus it gone up to months there at the peak of the crisis. And I think if you look across the other 140 countries we sell into, every country is different. We've got to get the regulatory approval for AirSense 11 there. We've got to work our way through, but we're going step-by-step on that journey. And so as I look at this excess patient demand, I made the comment there in my prep remarks, I think we will get to all of our customers' demand before the end of this calendar year and that tells you our confidence in increased supply and our ability to meet that need, and we're laser-focused on that humanitarian emergency of patients waiting too long for therapy and we just don't want that you suffocate. This is a case of life and death; we've got the data to show that. We want your path to therapy to be expedited. And in addition to that, the final thing I'll say is that we are looking at our patient demand generation activities that have been on hold these last 18 months. And I'm looking at our models in Australia, New Zealand, Korea, Japan, Singapore, UK, and beyond where we have these omnichannel markets availability to contact consumers or sleep concern consumers directly and get them into the funnel. And here in the US, we have direct models and also our joint venture there with Verily and Primasun that we've done some really good demand gen tests and a number of cities just waiting for me to fire the starting gun for that team. And we're getting very close to firing that starting gun. So, we have a smooth flow of -- from excess patient demand to now patient demand generation to continue our growth trajectory.

Mike Matson:

Yes, thanks for taking my questions. I guess, Mick, I think you mentioned high flow therapy in your prepared remarks. I just wanted to get an update on kind of where things stand with commercializing that? And maybe talk about the -- just the market opportunity there? Thanks.

Rob Douglas:

Yes, Mike. We're pretty excited about this. It's a long-term project though, but as Mick said, we view this as a very large potential market, very significantly larger than some of our other respiratory care markets. And we believe that we're running tests -- we're really focusing on its complementariness with home oxygen therapy that is you'll get much better outcomes if you add this in. And we're working hard on all of the market access and evidence generation programs to do that. Now, most of those programs are buying either RCTs or real-world evidence trials. So, we're sort of in limited market release at the moment in specific markets where we're making these claims. But as that evidence evolves and we generate it and take it to the -- to payers and standard setting organizations, we see this is going to be a very strong market for us, but it is a multiyear project.

Craig Wong-Pan:

Thank you. Just a question on the SaaS business. The 7% organic growth that you mentioned, I was wondering if much of that was benefiting from price increases or if the price increases you started through the quarter have a bigger benefit to come through in future periods?

Operator:

Thank you. Our next question is coming from Sean Laaman from Morgan Stanley. Your line is now live.

Mick Farrell:

Yes, Sean, I hope your Sydney morning is going well day after Australia Day. Look, the way we're looking at this is we've got 140 countries. We've got a very complex supply logistics program to get the patients minimize the time from prescription to therapy across all those markets, but it's a complex equation. The good news is we are seeing supply of those rate limited semiconductors for communications. The 3G, 4G, 5G chips are starting to see supply come back. The microprocessors, the next rate limited step are starting to increase and so we're seeing our path through this. And you saw in the quarter, we were able to deliver incredibly strongly on that, and we're off allocation for the AirSense 10 100% connected. Look, I'd love to tell you, we've got a very complex jigsaw puzzle here. I'd love to tell you it will be off allocation on AirSense 11 in all of our markets. It's just not going to happen in the short-term. But as we go through this year, we'll update you as we go off allocation and it will happen market-by-market geography-by-geography. Rob, did I miss anything there?

Mick Farrell:

Yes, and the good news is it's not our first rodeo. We've done this launch platforms in 140 countries many times before, and we're back to our sort of meat and potatoes here. This is what we do all day every day. And going off supply chain constraints over the calendar year will be fantastic for us to be able to then just go back to what we do, which is helping people sleep better, breathe better, and live better lives outside hospital care. Thanks for the question Sean.

Margaret Kaczor:

Hi, good afternoon guys. Thanks for taking the questions. Good morning to Brett. I wanted to follow-up on the growth drivers as we think about this and next year, because I'm hearing there's patient backlog, obviously, there's core market demand generation that will start to pick up. And then from our perspective, we look at RePAPs as well. So, how do you layer those together over what time period? How much growth could you handle? And then maybe specific to RePAPs, since we haven't talked that much about them on this call, where have they been in the last two years? And when should they return to be a bigger piece of the mix itself? Thanks.

Operator:

Thank you. Our next question today is coming from Matt Taylor from Jefferies. Your line is now live.

Mick Farrell:

Yes. Thanks for the question Matt. I'll start and hand to Rob for further detail because it is a really important area for us. Look, if you think about -- our competitor has been out on the market for 18 months and who knows. They've got to -- we'll find out probably later this week, they got an earnings call, maybe they'll tell us what's happened at the consent decree and give us some timing. Frankly, give the market some time it'd be good. We've run scenarios, they come back Monday February 1, July 1, we've also run scenarios that it's January 1, 2024. And actually, in all those scenarios, ResMed grows and ResMed does really well, and ResMed does a really good job of taking care of the unmet patient need. So, if they come back earlier, come back Monday, we get a 60% plus or minus attach rate of our masks. So, we get good GM contribution, great patient care in terms of the best masks in the planet going to them, and we're able to drive that. Now, they'll be starting from 0%, new patient share, they're going to able to go and fight account-by-account. And they won't be fighting against ResMed out the gate. They'll be fighting against the Tier 2, 3, and 4 players who have come in to fill that part of the equation and they're doing an okay job. And so they have to fight against the okay players. Then they have to fight against us, the market leader. But I look forward to them coming back actually in terms of the mask side of the business, it will be really good. The scenario where it's further out, it's later this calendar year or early next calendar year or beyond. We're okay with that too because we're ramping up our supply, and we're going to get closer and closer to meet all of customer demand in this. So, frankly, it's not irrelevant, but it's not a big perturbation of our long-term strategy and our long-term business. And we've got the scenarios and the little pivots that we need to have more masks or more demand gen in the different scenarios. So, I think investors and some analysts are thinking more about this -- are worried -- more worried about this than we are because we thought so much about it and have the scenarios and the playbook ready for all three of those scenarios and 2020 beyond. I look forward to this sort of people calling a binary. I see there's a mild perturbation of the Monte Carlo sim that really doesn't change in the long-term outcomes for ResMed and our patients is not changed in any of those scenarios. But Rob, any further detail for Matt here?

Operator:

Thank you. Our next question is coming from Michael Polark from Wolfe Research. Your line is now live.

Mick Farrell:

Thanks Mike and cheeky sneaking in two questions, but I'll answer both for sure. Card-to-Cloud, as those devices -- as those AirSense 10 Card-to-Cloud devices reach their either warranty period or payer allotted period at which a patient can get another device allocated to them, which is usually in the three years or five years, normally time horizon, those patients will get the opportunity to upgrade their devices from an AirSense 10 Card-to-Cloud to presumably an AirSense 11 device. And look, the first 26 years of ResMed's existence, we had, firstly, non-connected and then Card-to-Cloud pager-type technologies sort of sneaker-net. It works. It can get you there. It's not as optimal. It doesn’t get that sort of patient engagement on myAir and all the abilities that we can get to that 87% adherence, but it's darn good therapy. It's the smallest, quietest, the most comfortable therapy. And with the Card-to-Cloud, our HME -- mostly sold in the US, HME customers have done this for years and the data go to the cloud, and so the doctor doesn't see much difference because the doctor is seeing all the data in AirView on Card-to-Cloud and directly connected and so actually able to drive really good care with those patients. So, it will be a bolus of patients over that sort of 12-month period. And we've had, I would say, some pretty good success in humanitarian aid really and showing that ResMed isn't just going to stick to a strategy. It's going to say, if we need to pivot tactically to take care of patients, we'll do it and we'll take care of them long-term. But there will be a bolus of patients, I think, jumping at the front of RePAP in a couple of years who want to get the latest and greatest technology and some on consumer pay markets might go quicker. The second question around gross margin. Yes, look, MEDIFOX DAN accretive to our group gross margin. I'm not going to quantify it exactly, but that's why I said you're going to see, I think, some upside to our GM as we go through the fiscal year, including MEDIFOX DAN. It's accretive to revenue, gross margin percentage, but also NOP dollars and our EPS performance over the fiscal and beyond. Thanks for the questions Mike.

Saul Hadassin:

Good afternoon and good morning. Thanks for taking my question. Mick, just a quick one. Just the US flow generator growth rate of 41%, obviously, very strong. Just wondering if you can give us any color as to within that, how much was volume versus price and also mix?

Brett Sandercock:

Yes. Thanks Mick. I mean the only thing I'd add, Saul, is that we -- it was really the sleep devices or APAP devices are really strong as we got device availability that went straight into the market. So, that was really kind of driving that, which is obviously higher volume devices than, say, bi-levels, for example. So, that did definitely play a big part in that revenue growth.

David Low:

Thanks so much. Just a quick one. Mick you talked about being unconstrained on supply by the end of the calendar year and then I think to Sean's question, you talked about different markets and regulatory approvals. So, the question I've got is will the AirSense 11 be unconstrained more quickly in the US? And can you give us any sort of sense as to when you expect that will be the case?

Rob Douglas:

The only other thing is, David, it's been really important for us to be able to supply those two platforms. It's been a great thing for us to have sort of a double. Basically, we've got so much extra capability and capacity because we've got two platform lines designed for the market.

Dan Hurren:

Hi, good morning everyone. Thanks for taking the question. Look, it's pretty clear that a lot of the growth is now coming from products that have been reengineered and didn't really even exist in their current form a little while ago. So, -- and we've seen AirSense 10 connected as you're talking about launch with different parts and alternate supplies and so forth. But we've also seen some early regulatory approvals for an AirSense 11 with apparently different communication chipset. Is there any reason why that product couldn’t launch within the next few months as you've seen roughly the same time line between approval and launch for something like the AirSense 10 connected?

Operator:

Thank you. Next question is from Lyanne Harrison from Bank of America. Your line is now live.

Mick Farrell:

Yes, Lyanne, you're getting to some of the complexities behind that. Look, our goal is to get off the supply constraint during this calendar and we know we can get there. We won't get there if we turn on every single knob that we have for demand generation and RePAP generation around the world. And so we will be turning those dials, if you like, for demand generation and RePAP generation through our customers and directly as we get supply improving country-by-country. And so yes, I think we can get to all customer demand if we do no change faster, but our goal is to take care of not just the patients who are currently in the pipeline, but also the 80% -- 90% in many countries who are undiagnosed and untreated. And so our mission is to do that and it's aligned with altruism but also our profit motive. And the overlap of those is a really powerful tool for us to have sustainable long-term growth as we have the last 33.5 years. And so clearly, if we turn every dial to max, we wouldn't be able to get off a constraint this year. We won't turn all to max, but we will and we are starting to turn those dials and getting the programs up and running in different cities, different states, different geographies around the world as we start to get off-constraint. So, I won't go into further detail than that to say that, Lyanne, yes, you're digging in, it is more complex than just we get there. It's we get there and then we start turning on the market growth rate as the market leader, which is our sort of our duty and our obligation and we're going to do both. We're going to grow the market and grow our share and deliver for patients.

Steve Wheen:

Yes, thanks for taking my question. This question is about the diagnosis rate in the US, in particular, for OSA. There has been some frustration to the ability to diagnose patients. So, I just wonder what you're seeing from -- during the quarter from an improvement on that front with regard to diagnosis?

Operator:

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to Mick for any further or closing comments.

Amy Wakeham:

Great. Thank you, Mick and thanks everyone for joining us. We appreciate your interest and your time. And as always, if you have any additional questions or need to follow-up, please don't hesitate to reach out directly. This does conclude ResMed's second quarter 2023 conference call. Kevin, I'll turn it back to you to close things out.

Operator:

Hello, and welcome to the ResMed First Quarter Fiscal 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Amy Wakeham, Vice President, Investor Relations and Corporate Communications. Please go ahead, Amy.

Mick Farrell:

Thanks, Amy, and thank you to all of our stakeholders for joining us today as we review results for the September quarter, our first quarter of fiscal year 2023. These financial results demonstrate solid performance across our entire business, driven by strong sales growth in the Americas region as well as ongoing high demand for our sleep and respiratory care devices and mask systems worldwide. Achieving these numbers hasn't been easy given supply chain constraints, but we are powering ahead focused on the long term. Of course, we see the same macroeconomic challenges that many other industries are also facing as well as an industry-specific issue of a competitor-driven supply-demand imbalance the past 18-plus months, resulting in excess demand for our products. The good news is this. Our global ResMed team demonstrates over and over again their incredible ability to pivot and to solve problems, to support customers and to meet the needs of people around the world with market-leading therapies and software solutions. We are building on the success we achieved last quarter with our reengineered AirSense 10 Card-to-Cloud device. Customer acceptance has been strong, particularly in the United States region, and this has enabled us to substantially increase shipping volumes to support patient demand while we continue to fight through global supply chain challenges. It is interesting to note that outside the U.S., we are not seeing the same magnitude of adoption of the AirSense 10 Card-to-Cloud device as we are in the U.S. This is due to the fact that our 100% cloud connectable platforms, such as AirSense 11 and others, and our ecosystem of software solutions are so embedded into the workflows of health care systems. This is particularly evident in countries where we have partnered to develop digital health reimbursement models. Customers in countries such as France and Japan and beyond, prefer to work with the limited product flow of our 100% cloud connectable devices rather than change their workflows for Card-to-Cloud models. While this means that some patients will have longer wait times in these regions, it does show the power of our long-term digital health strategy, lowering labor costs, improving efficiency and improving patient outcomes are just too hard to switch from. Nevertheless, on a global basis, the redesign and launch of the Card-to-Cloud device have greatly improved our ability to get closer to meeting the incredible demand in the market. AirSense 10 Card-to-Cloud provided meaningful growth for the quarter. And far more importantly, it meant that patients could get access to a world-leading ResMed device to treat their sleep apnea. Clearly, launching this platform to address the spiking demand was and is the right decision. Our number one priority will always be patients, doing our best to help those who need treatment for sleep apnea, chronic obstructive pulmonary disease, respiratory insufficiency due to neuromuscular disease, obesity, hypoventilation syndrome, asthma and all those who need access to our out-of-hospital health care systems. Our goal is to ensure that patients get the care that they need, where they need it and when they need it. We continue partnering with our global supply chain to increase access to the critical components that are needed to accelerate production of our medical devices. Last month, I had the opportunity to fly to Sydney and meet many of our supplier partners in person for the first time in 3 years at our Star Supplier event in Sydney. Star is an annual celebration of our partnership with top suppliers. The event was also an opportunity to bring the ResMed story to life for our critical suppliers focusing on the life-saving importance of what we do every day. We showed our suppliers that increased component allocation for ResMed ultimately benefits patients, providers, physicians and all of our stakeholders worldwide. Supplier feedback from the Star event was overwhelmingly positive and many attendees commented how the event helped them to better understand our strong patient focus here at ResMed as well as our commitment to product quality and the patient-driven need for them to increase supply to ResMed. As a consequence of these partnerships, our suppliers are responding positively, and I can share this, we expect steady increase in ResMed's device production each quarter throughout this fiscal year and beyond. Let me now review updates on ResMed's top 3 strategic priorities

Amy Wakeham:

Great. Thanks, Brett. Kevin, I'd like to call you back on to the call and turn it over to you to provide the instructions and run the Q&A portion of the call.

Steve Wheen:

Just looking at working capital, this one for Brett. We saw the levels of inventory continue to increase. Just wondering how you're going to think about managing Card-to-Cloud inventory levels at a time or as your supply chain starts to free up a little bit more to allow you to make more AirSense 11. Just trying to work out whether there's any risk around inventory obsolescence as you try and transition back towards your latest platform?

Mick Farrell:

If I could, Steve, just to add that inventory build that we've had is really a deliberate outcome of our strategy around managing the supply constraints where we've had to really build up the materials components inventories for everything so that we could build the maximum when we break through the bottlenecks on the specific components. And then as the supply chain situation improves into the future, we'll be able to wind back from that.

Matt Mishan:

Just a follow-up on the mask growth. I think you said at one point in the call, that mask growth is still being affected by the lower patient setups. I mean with Card-to-Cloud, was that an OUS comment, a global comment or is that still an issue with the U.S. where we're still below the patient setup?

Operator:

Next question today is coming from Gretel Janu from Credit Suisse.

Mick Farrell:

Yes, Gretel, it's a great question. It's a very complex one. And we've actually established during the COVID crisis on ventilators, we established a global epidemiology model, a humanitarian-based epidemiology model where we really looked at the flow of the virus around the world and where we should allocate limited supply of ventilators for that. And I think we did a really good job in that crisis of 2020. We applied those same skills really these last 12, 15 months of having a global team looking at the 140 countries we operate in, looking on a humanitarian basis, as the needs for people who are suffocating now in our core market, suffocating with sleep apnea and other -- on the AirSense 10 platform, we do have other respiratory care and respiratory insufficiency capabilities as well and the AirSense 10 connected devices on bio levels. So we have a global model. We look at allocations based on the demand on patients and the need to get them there. It's a complex and moving dynamic equation. The latest moving apart in it is that AirSense Card-to-Cloud has been coming out the gate incredibly strongly in the June quarter. We talked about 90 days ago and here in the September quarter, and we expect that to continue. That may mean increasing some AirSense 11 allocation to places like France or Japan, where they aren't seeing the same adoption due to the changes there. So it's an ongoing dynamic thing that we look at daily, weekly, monthly in our production, shipping and delivery schedules. So it's not a simple equation. But yes, the impetus of your question was would we look to the humanitarian need and do our best to make sure that device gets to a patient fairly, and that's exactly what we're trying to do on a global basis. It's not simple. It's quite complex, but we're working at it every day. And the team is doing an incredible job, as you saw in these great growth numbers. Thanks for the question, Gretel.

Saul Hadassin:

Mick, we've seen a lot of data breaches in the last few weeks, including in the health care space. And on the basis of how much data you guys have access to, just wondering if this is caused you to have a look again about data accessibility and risks associated with potential data hacks and just what your thoughts is on -- thoughts are on the strength of protection that you have. How do you actually protect against something that is happening in the future?

Operator:

Next question is coming from Dan Hurren from MST Marquee.

Mick Farrell:

Brett, do you want to have a go on that?

Operator:

Your next question is coming from Mike Matson from Needham.

Mick Farrell:

Yes. Thanks for the question, Mike. And really, truly, the major component is getting Card-to-Cloud in those areas. If Card-to-Cloud had the same adoption in Europe, Middle East, Africa and Rest of World as it did within the U.S., Canada, we would be seeing significantly higher device growth numbers. And so that's -- it's item number one on how we can address that. And actually, in countries where there's no reimbursement models and others, we are pushing towards those Card-to-Cloud as well as increasing, as I said earlier, to Gretel's question, the flow of AirSense 11. One other thing that Brett did note in his prepared remarks was that this quarter a year ago, Europe saw very high sales of ventilators. Some of that was in the COVID space and in the response to some recalls from a competitor space around ventilators in Europe where ventilators, respiratory care is a larger portion of our European business than it is in the U.S. And so that was in the comp on the other side. So those are the 2 main factors that were there. Card-to-Cloud adoption and year-on-year with regard to our noninvasive ventilation, life support ventilation and whole respiratory care business, if you like, in Europe was just a bigger portion of the business there. But thanks for the question, Mike.

David Bailey:

Yes. But you sort of mentioned some of the constraints to set up from component shortages in a competitor recall. Just interested in your thoughts on that patient backlog. If you've got any estimates as to how many patients do you think could be waiting for a device, how long it will take to work through? And what that might mean for industry growth relative to that mid-single-digit number you sort of talked to previously.

Operator:

Next question is coming from Matt Taylor from Jeffries.

Mick Farrell:

Rob, do you want to have a go at that?

Operator:

Next question today is coming from Lyanne Harrison from Bank of America.

Mick Farrell:

Thanks, Lyanne. It's a really good question with sort of 2 elements to it. One, that's difficult for me to determine because it requires knowledge of the US government from FDA and DOJ and a consent degree with a competitor that I'm not involved in those conversations. I see what we all see publicly out there. And so how long our competitor will be out, we don't know. But we run scenarios on that, right, but they'll come back in January, they come back in July, they'll come back later than that in 2023. And as I look at that, I think about our ability and what we can do in every quarter, we're going to increase production of AirSense 10 Card-to-Cloud, AirSense 10 coms, AirSense 11 cons. And so if I track those lines up and move them up, there are scenarios where we can get to the full industry demand in calendar year 2023. A lot of things have to come together for that to happen. And there's a lot of scenarios, as Rob said, around parts and pieces coming in and on the other side. But we're doing everything we can to get closer and closer to that. So yes, we can strive towards it, and we're going to move towards it. And we want no patient left behind. We want anyone who suffocates and gets a prescription to have a short wait time no matter what country they're in to a ResMed device and we're doing everything we can to keep up with that excess demand. It will be there for the next 3, 6, 9, 12 months. But as you start to look through 2023, I think, yes, potentially the supply and demand curves could cross over for us and the other players in the industry as well. So how long -- there's a number of scenarios around that, as I discussed. Second part of your question, demand gen initiatives. Yes, we have some really exciting demand gen initiatives from our Asia, Latin America team, the work that we're doing in China and in India and Brazil. These huge population markets to look at different methods of getting to patients and ensuring that care is delivered across socioeconomic bounds and there's health equity and the delivery of our products in these high-growth markets or some really exciting things Justin Leon and his team are driving in our Asia, Latin America demand gen initiatives. And then here in the U.S. market, we've got some really exciting work in our joint venture with Verily called Primasun. I just ran into the CEO of Primasun there at the med tech conference this week in Boston. And there's some really exciting milestones that we'll be looking at throughout calendar year 2023 to drive demand gen to identify, engage and enroll patients. Actually, sleep concern consumers to a pathway to become patients. And so those will start to roll out during the year. In addition, our Western European and Northern European teams and our teams across the world have really exciting programs that, frankly, we've been experimenting and piloting on during the COVID crisis, the embracement of digital health, the embracement of respiratory health, the embracement of care delivered outside the home during the COVID crisis. And actually, during our competitive recall crisis, I think we've seen an ability for us to partner even more closely with our partners in the channel physicians and providers are willing to experiment even more. So I do expect us to turn on a number of these demand gen initiatives throughout calendar year 2023 as we start to get supply up to where demand is and then can drive core demand of the market back again through that demand gen. So great question, Lyanne, and thanks for that.

Craig Wong-Pan:

Sorry about that. The -- I think there's been some changes with some of the expectations for cost loans like R&D, I think, is now let 6% to 7% of sales versus previously 7% to 8%. And then the Primasun joint ventures, the losses have increased as well. Could you just talk about what's led to those shifts in expectations?

Mick Farrell:

Brett, I think that's a great question for you.

Craig Wong-Pan:

The Primasun joint venture has increased...

Operator:

Our next question is coming from Chris Cooper from Goldman Sachs.

Mick Farrell:

Yes. Thanks for your question, Chris. And certainly, pricing is a big topic always in our industry over these last 12 months as inflation around the world has moved from low-single digits to mid-single digits to high-single digits in almost every country we're in, that we've started to respond to that. And as shipping costs have gone up, we've started to respond to that. As you know, at the start of this calendar year, we instituted some surcharges on products in the U.S. and on Europe for those extra costs that were associated with shipping. And then we have, as appropriate, working with customers and within the health care systems increased prices on specific parts and pieces where the costs for us have gone up. And so therefore, we're sharing some of that burden of increased costs with our channel. In terms of -- while appreciating your channel check in the conversation with a customer or 2, I -- we are not seeing across the board major changes in ASPs on either the device or the mask side. It's interesting to note that with our really strong growth of masks, they're 11% in the quarter in U.S., Canada and Latin America. That's in a market where there's no recall from anybody. That's just the standard competitive market, and ResMed is out there fighting for it even with the lower flow of new patients, as we talked about earlier, due to the fact that not every patient who needs a new setup is getting it even though the vast majority of those sales are repeat sales to customers already in our installed base of amazing people being treated every day by ResMed masks. So not a huge sort of impact on pricing right now. If anything, prices are stable to slightly up on devices, and I would say stable in the mask side sort of in line with where they have been. And so no major changes there. Obviously, we watch that. It's a dynamic approach, but we don't focus on price, we focus on value. We talk about how the first time fit with ResMed is where it's at and how the adherence rates are where they are and the mask league is much lower. And customers know that and they track that. And we give them data in our view in myAir and give them all analytics to know how well our masks are doing compared to the competitors. And that's why the doctors prescribe our masks and it's why the HMEs and home care providers around the world choose our masks. So we compete on value, not price. And we look forward to increase competition and increase growth in both the device and mask side. We love a competitive market, and we tend to win in it.

Suraj Kalia:

Perfect. So Mick, you mentioned about taking most of the excess demand share. Maybe if I could ask my question a little differently, Mick. So let's say we use three buckets. Patients either remain on Phillips, patients switched to ResMed or the third bucket that patients are left to find on their own, right? Let's just assume these 3 buckets. How would the pie charts of existing patients versus new patients coming into the funnel look like? Just trying to understand at a very simplistic level, where are we in the share transfer and what is happening to these patients?

Operator:

Next question is coming from Margaret Kaczor from William Blair.

Mick Farrell:

Thanks, Maggie. Look, it's a really good question around resupply. And as you know, looking at our SaaS business through Brightree resupply and Snap resupply, we have some really good models in our SaaS business that's truly the synergy between our SaaS business and our core sleep and Respiratory Care business. And we've got the back-end synergies around cyber securities we talked to earlier, cloud ops and interoperability, but the front-end synergies there around driving resupply have been really strong and Brightree resupply and Snap resupplier are a good part of driving that resupply revenue. Yes. Look, you saw 11% growth, right, in U.S., Canada and Latin America in those resupply. And the U.S. is primarily the market for that where there are very sophisticated models and a very strong incentive for both the patient, the provider and ResMed and actually the payer with the return that they get by reduced hospitalizations to ensure that patients continue to get new masks. Those systems are not quite as evolved or implemented within Europe, Middle East, Africa and Rest of World and so -- and Asia Pac. We do have models, particularly where we're working directly with providers and/or patients to drive resupply models and those are working well. But look, there's a -- I would say there's a lot of opportunity to drive resupply in Europe, middle East, Africa and Asia Pacific. And if you look at Catherine Pucknat, and our team in Germany and what she's doing to engage with patients, you look at just in Lyon and what he's doing across Asia and Latin America to engage directly with patients and show them the path to get a fresh, clean new mask on a regular basis and become part of a subscription program for that. There's a lot of innovation to come. So look, I'm proud of the 8% growth in a tough environment with new patients coming in. I want that to get higher. And I certainly want Europe, Asia and Rest of World to go from low to mid- to high single digits again. And we will get there as that resupply and the new patient flow, both come to market. So a lot of moving pieces there, Maggie. Thanks for the question.

Mathieu Chevrier:

Just a longer-term question. How do you see home testing and the Primasun JV impacting the longer-term growth rate of the industry?

Operator:

Our final question today is coming from Steve Wheen from Jarden.

Mick Farrell:

That's a great question. I'll give some thoughts on hand to Dave Pendarvis, who's not only our Chief Administrative Officer, but also a lawyer and maybe we'll understand that. Look, you have to wait until these things come out. We haven't seen a public discussion of what the consent decree looks like. They're negotiating it now. So when that comes out, we'll look at it. What has been public is a number of responses on that 483 and really specifically talking about culture changes, management changes and a focus on quality. The reengineering and recultural training that, that type of change requires a lot of work. And I would think people will have to move from development and R&D back to what I would call quality remediation and quality systems improvement. So there will be some sort of quality debt, if you like, that would be needed to pay back if you just read through the public information on that 483. But Dave, what are your thoughts and perspective on this?

Operator:

We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Mick for any further closing comments.

Operator:

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Operator:

Hello and welcome to the Q4 Fiscal Year 2022 ResMed Earnings Conference Call. My name is Kevin, and I'll be your operator for today's call. [Operator Instructions]. Please note that this conference is being recorded. I will now turn the call over to Amy Wakeham, Vice President of Investor Relations and Corporate Communications. Amy, you may begin.

Michael Farrell:

Thanks, Amy, and thank you all for joining us today as we review the results for the fourth quarter of our fiscal year 2022 ended June 30. On today's call, I will provide a brief high-level overview of our financial results. I'll then review progress towards our ResMed 2025 strategic goals, and then discuss our actions to navigate through ongoing industry and supply chain challenges. Brett will then join the call to review our financial results in more detail. Okay. Let's jump right in. Our fourth quarter results reflect strong performance across our business with high single-digit revenue growth in both our sleep and respiratory care business segment as well as in our Software-as-a-Service business segment. Our ongoing growth reflects our global team's relentless focus to solve very complex supply chain problems and find alternate design and engineering solutions to address the incredible industry challenges that we have faced over the past year and beyond. The global supply chain environment remains very much in flux across multiple industries. We are starting to see indications that the macro environment is improving, particularly semiconductor availability. However, we're mindful that even as macro trends start to improve, we still need our supplier partners to prioritize med tech component needs over other nonlife-sustaining industries. Demand in the market remains very strong. We've been able to mitigate some of the electronic component bottlenecks with the launch of our redesigned card to cloud AirSense 10 devices introduced to the market midway through our fourth quarter. As you can imagine, clearing one bottleneck simply brings the next rate-limiting step to the forefront. Our team is actively working to clear as many bottlenecks as they can as quickly as possible. On the positive news side, the redesign, reengineering and launch of the card to cloud device greatly improved our ability to meet the incredible demand that we see in the marketplace. During the last month of the quarter, during June, we were able to allocate more products to our customers than in recent months and in recent quarters. We're not out of the woods yet, but the compass is pointing to true north and we are on top of it. Throughout this crisis of demand and supply, our established ResMed guiding principles remain the same

Amy Wakeham:

Great. Thanks, Brett, and thanks, Mick. Kevin, I'll now turn the call over to you to provide instructions and manage the Q&A portion of the call.

Craig Wong-Pan:

Mick, you mentioned at the start that you were seeing some improvement in the global supply chain. I just wanted to understand the details around what you meant by that improvement, and when that could start to see improvements to your manufacturing volumes.

Robert Douglas:

Sure. Yes, Mick. Craig, one of the sort of fundamental things of supply chain management is ongoing risk management and having sort of the ability to foresee problems and to react through all of that. And then you also manage your risk through inventories and that type of thing. We've over recent months put in place a lot of forward orders, working a lot on relationships with key suppliers. We suspect that sort of global demand on these suppliers is moderating a little bit. And then as Mick says, that means that they're sticking with their commitments at a higher level than what we have seen recently. There are always problems to overcome. And as Mick said earlier, there are other bottlenecks. Once we close one bottleneck, we have to go and work on the next. But overall, I'd say we're feeling better about the forward outlook that we have, and we've got a little more clarity. It's not perfect. There still will be challenges and undoubtedly unexpected things that we'll have to manage through, but the net of it all is that we should see our volumes continue to increase from here.

Chris Cooper:

So I noticed, Mick and Brett, no specific guidance on the recall tailwind in fiscal '23. Obviously, I understand the prudence. But I guess just given the importance of the debate, perhaps you can just share your latest thoughts on how you see that dynamic playing out this year.

Operator:

Next question is coming from Sean Laaman from Morgan Stanley.

Michael Farrell:

Thanks, Sean. Two questions. Card to cloud AirSense 10 is really new. I mean we just really launched it midway through and really in the month of June in the quarter. So it's early days on that. But we've got a lot of experience with card to cloud. I mean think about the S8 and then the S9 with its little SD chip in the back of S9. The product -- when I was running the sleep business, we launched that back in '09 and '10. And we -- so we have a lot of experience with card to cloud. And it's primarily -- the card to cloud, primarily volume has been in the U.S. And that's where we had a very strong digital health system and engagement with our HME partners in a card to cloud environment. So we don't have sort of adherence exact numbers delta between AS 10 C2C versus AS 11. I think it will be higher, the adherence on the AirSense 11 just because we're getting double the rate of myAir uptake, and that digital health engagement drives higher adherence. And I can tell you as soon as we get clearance on line of sight to those comms chips picking up supply, we'll move everybody to AirSense 11 as soon as we have it. Probably, we won't go back and retrofit the groups that are there, just because people when they get therapy, they're happy. And the data will go to the cloud, they just won't go to the cloud every day. It will go when the SD card is uploaded on day 30, 60 or 90, and when they see the home care provider and the physician. And so they're not lost patients, they're not lost data. They're still part of the ecosystem, it's just not quite as efficient as it could be. So we're going to get back to AS 11 and really ramping that as fast as possible. But given the supply demand crisis, I was amazed and thrilled that our team was able to pivot in June, get there. And we're going to be able to do that through September and December quarters here as well and beyond. But thanks for your question, Sean.

Margarate Boeye:

This is Maggie Boeye on for Margaret today. I wanted to ask one on ReSupply, just the trends you're seeing this quarter and if you're continuing to see incremental and permanent share gains within that market as well.

Operator:

Your next question is coming from Matthew Mishan from KeyBanc.

Michael Farrell:

That's a great question, Matthew. I'm going to hand that to Brett. Any color on GM there for Matthew?

Operator:

Your next question is coming from Steve Wheen from Jarden.

Michael Farrell:

Yes. Got you loud and clear, Steve.

Brett Sandercock:

Yes. Steve, it's Brett. The -- Yes, I mean you're sort of seeing some of that or you're seeing some of these freight costs definitely moderate -- some cost reductions, but certainly not manifesting our numbers at the moment. I think we'll get some of that benefit, I would say, in our second half, where we'll probably see some of that coming through. But at this stage, I'd say, look, it's not even in our margin at the moment. But we do have some potential on freight in the second half, both on rates, and I think also we'll skew a little more -- start putting a little more on sea freight as we get through the back of the year as well, and that will certainly help us on our overall freight costs. So again, just kind of that environment where you're seeing some moderation or stabilization. And then I'm seeing as we get through fiscal year '23, some opportunities could be at manufacturing, be on the freight side as well. But we're not seeing that just yet in our numbers.

David Low:

Maybe just continuing on the cost around gross margins. Can I get, perhaps you, Brett, to talk about the impact of inflation, what you're seeing on costs, and what you expect or what we should be looking out for in terms of margins and the impact there for?

Operator:

Your next question is coming from Gretel Janu from Credit Suisse.

Michael Farrell:

Yes. Thanks for the question, Gretel, and it's a really good one. For competitive reasons, I don't want to go into too much detail around it, other than to say that, that pivot of the team during the quarter was incredible. To redesign, reengineer and requalify, validate and verify a device with a new model of card to cloud and get it to market and get it in customers' hands in June was fantastic. So all credit to the team. It was material to our growth in the quarter, and it will be material to our growth up to and when we get those comms chip supply back to the levels that we need it to meet the incredible demand of the marketplace. So it was material. It was strong, not going to quantify it down to the nth level of detail here. But it provided great additional growth for us in that last quarter and will for the coming quarters. I look forward to the point where I can say we are no longer selling AirSense 10 card to cloud because that means that we've got AirSense 11 connectivity and AirSense 10 connectivity back up to where we need it with that component no longer being a bottleneck for us. But that may be 3, 6, 9, 12 months out there with this incredible demand we're seeing in the market.

Saul Hadassin:

Mick, just following up on that card to cloud commentary. Can you just confirm or give us some color as to what happens to those machines once the chip alleviation is completed and you start to get better access to comms chips? Is the intention to bring those devices back and put those chips in? Or if you buy -- if you get issued a card to cloud device, do you effectively keep that device for the next sort of 5 years and then upgrade at some point in the future?

Operator:

Next question is coming from Dan Hurren from MST Marquee.

Michael Farrell:

Yes. Dan, it's a really good question. And we have our Chief Operating Officer on the line here who's closer to the other 4 work streams. The fifth one is that reengineering for C2C and beyond. Rob, any color for Dan on all that work we're doing in the supply chain and the reengineering we're doing to -- the streams of engineering work we're doing to increase supply over the fiscal year?

Operator:

Our next question is coming from David Bailey from Macquarie.

Michael Farrell:

Yes. Thanks, David. It's a really good question. And I mean, as you saw in the quarter, 11% CC global and 13% CC in the U.S. in Q4, right, where we're only just starting to ramp up AirSense 10 card to cloud to meet that -- some of that incremental demand gap. Yes, as we talked about every quarter during fiscal '23, we plan to see incremental growth in our volume delivery across the portfolio of AirSense 10 comms, AirSense 11 card to cloud and AirSense 11 comms. And as Rob just described, all those streams that are going to mean we're going to have increased volume every quarter sequentially throughout fiscal '23. And to your question specifically, that does mean that masks and consumables attached to those new patients will add on. As you know, a very large double-digit percentage of any quarter's revenue on masks and accessories is ReSupply and recurring revenue of the installed base of patients. And so that installed base has been incredibly strong. The engagement of people post COVID in respiratory health, respiratory hygiene and making sure that a clean mask, clean humidifier, clean tubing, it's just been full front with everyone wearing masks for COVID and understanding communicable respiratory diseases like COVID makes them think about respiratory health and hygiene. So that's a permanent change we've seen over the last 12, 24 months in sort of secular demand on the installed base. And then you add to that, that sort of lower double-digit number of the new patients coming in, which is picking up as supply goes. So I know you guys have all got models on this, David. You've got a good model. You'll start to see that mask and consumable rate pick up. It won't be like a step change jumping up, but there will be a sort of second derivative change, if you like, a little bit of increase in the rate of increase for a while on masks and accessories throughout fiscal year as we get the supply of devices closer and closer to the demand that is out there for these next 12 months, way ahead of where we can get to. But it means every device we make, we sell.

Michael Matson:

I was curious if the card to cloud units are helping your gross margin at all by taking out those -- the other chipsets. I mean is that resulting in some savings that's having material impact on your margins? Or is it not really the case?

Brett Sandercock:

Sure, Mick. Yes, Mike. Yes, so the card to cloud, I mean, obviously, doesn't have the comms module in it, so there is some savings there. So it is positive for our margin, but it would really might just be around the edges. It wouldn't -- like it wouldn't be material.

Suraj Kalia:

Mick, I'll throw in a two part question, if I could, Mick. For the card to cloud, how much of this shift is tactical and how much of it is strategic? Because the market growth -- you've always referenced 5% to 8% growth for the market. Maybe if you can just parse out how the shift long term would help ResMed's overall device growth. And if I could quickly, Brett, if I take SG&A in FY '22, right, 8% to 9% year-over-year, and that approximate to about 20% to 22% of revs, my math is around $3.6 billion to $4 billion for FY '23. Is that the right way to think about it? Sorry, gentlemen, for squeezing in the second question.

Brett Sandercock:

Sure. Yes. Suraj, I mean given some broad guidance, I guess, on the SG&A as a percentage of revenue, I wouldn't get drawn into kind of strict revenue guidance. I'd just reiterate what we said before. We're expecting an increase in production volumes, and that should definitely support sequential revenue growth through FY '23.

Lyanne Harrison:

I was hoping if you could help us understand the softer device sales in rest of the world a little bit better. Obviously, understanding that you're having that cloud -- card to cloud push in the United States. But can you give us a sense of what the market's like in rest of the world, and what you're seeing from competitors other than Philips in that market?

Operator:

We reached the end of our question-and-answer session. I'd like to turn the floor back over to Mick for any further closing comments.

Amy Wakeham:

Great. Thanks, Mick, and thanks, everybody. We do appreciate your time and your interest. And if you have any additional questions, please don't hesitate to reach out directly to Investor Relations. This does conclude our fourth quarter fiscal year 2022 conference call. Kevin, I'll turn it back to you to close things out.

Operator:

Hello and welcome to the Q3 Fiscal Year 2022 ResMed Earnings Conference Call. My name is Kevin and I’ll be your operator for today’s call. At this time, all participants are in listen-only mode. Later we’ll conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Amy Wakeham, Vice President of Investor Relations and Corporate Communications. Amy, you may begin.

Mick Farrell:

Thanks, Amy and thank you to all of our shareholders for joining us today as we review results for the third quarter of our fiscal year 2022 ended March 31. Our third quarter results reflect strong performance across our business with double-digit revenue growth in our sleep and respiratory care business, and high single digit growth in our software as a service segment. Our growth is the direct result of our global team's ability to pivot and drive for results, even as we continue to manage through several external challenges that are impacting our business, including one, on-going supply chain disruptions; two, COVID restrictions in parts of the world, three, recovering post-COVID Peak patient flow, and four unprecedented demand from a competitor recall, which will keep them out of the market at least through the end of the calendar year. The global supply chain environment remains very challenging across multiple industries. I'm very proud of our team growing double-digits this quarter year-on-year with an astounding 30% growth this quarter for devices in U.S. Canada, and Latin America. Even with this incredible growth, the demand in the market was even greater. As with almost all customers in the global components industry, we remain on allocation from our suppliers, particularly for electronic components, with our number one bottleneck being semiconductor chips. This allocation impacts our ability to meet the incredible demand that we see in our marketplace. And we are forced intern to allocate ResMed products to our customers. We have established guiding principles for allocation, giving priority to the production and delivery of devices to meet the needs of the highest acuity patients first. Additionally, the on-going challenges of sea freights and air freight due to reduced availability and increased prices are impacting our ability to efficiently get components into and finished goods out of our factories worldwide. We are working closely with our global supply chain partners doing everything that we can to secure additional supply to further increase production of our devices. This work includes a combination of a number of workstreams. One, shoring up the flow of existing parts from existing suppliers, two establishing flow of existing parts from new suppliers, three validating new parts from existing suppliers, and four validating and verifying new parts from new suppliers as we review and redesign across key devices in our portfolio. In addition, we have fifth line of work. So it's five lines of work and that fifth line is reengineering designs to eliminate and or mitigate the top bottlenecks to achieve greater flow through our supply chain. The most significant example of a project in this fifth line of work is our newly released AirSense 10 Card-to-cloud device. This device eliminates the number one bottleneck of the 3G, 4G comms chip, while facilitating secure data upload to our cloud based software platform called AirView so that providers and physicians can access the data and better manage the patient. We've already begun to offer AirSense 10 Card-to-cloud devices in select markets to some customers, and we will be ramping up from there. With these five lines of work continuing in parallel, we have been able to offset some of the impact of continuing component shortages and de-commits to help us better support patients, providers and physicians. We recognize that this is a very difficult situation for all of our customers, including physicians who feel the pressure from their patients, home medical equipment providers who see this every day in their businesses, but also payers and entire healthcare systems and especially the most important customer, the patient themselves. We are partnering across the industry to be the solutions provider to these problems. We expect a significant backlog of patients diagnosed and coming through the system to be present for at least the next 12 to 18 months with incredible associated demand. We are working to address this demand with these portfolios of supply projects and beyond, and we will get through this time stronger than ever as an industry and as a company. Our number one priority will always be patients, doing our best to help those who suffer from sleep apnea, chronic obstructive pulmonary disease, asthma, and other key chronic respiratory insufficiency diseases, as well as those who benefit from our out of the hospital care software as a service solutions. Our goal is to ensure that every person gets the care that they need, where they need it, and when they need it. Let's now briefly discuss the other broad market conditions in our industry. We continue to see steady on-going recovery of patient flow and demand through the diagnostic channel across the countries that we operate in. In fact, many countries are above 100% of pre-COVID levels of patient flow. However on-going surges, variance, and government restrictions continue to impact a few countries which will remain below pre-COVID diagnostic levels. China is a case in point right now with severe shutdowns in Shanghai and beyond. But across our portfolio, our global portfolio, we're in 140 countries that we serve, I expect that these metrics will steadily improve to pre-COVID patient levels and beyond. As vaccines and boosters roll out globally, and people remain focused on their personal respiratory health and hygiene that's been a big learning through COVID. With the adoption of digital health solutions for screening, diagnosis, and remote patient setup, and remote patient monitoring, as well as established COVID cleaning protocols, sleep labs and other facilities, I expect the impact of new variants to diminish in absolute impact each and every time. Let me now update you on our top three strategic priorities. Number one, which is to grow and differentiate our core sleep apnea, chronic obstructive pulmonary disease and asthma businesses. Number two, to design, develop and deliver world leading medical devices as well as digital health solutions that can be scaled globally. And number three, to innovate and grow the world's best software solutions for care that is delivered outside the hospital where people live, and especially in the home. The U.S. launch of our next generation device platform called AirSense 11 continues to go very well. Although it is challenging to differentiate on-going positive customer sentiment and feedback from the incredibly high demand in the U.S. market and beyond. The AirSense 11 has provided much needed additional product supply as we face all time high demand for ResMed devices, and it couldn't have launched at a better time for that purpose to help us mitigate on-going component shortages. We will introduce the AirSense 11 into additional countries in the fourth quarter that we're in right now here at fiscal year 2022 and throughout fiscal 2023. In parallel, we will continue to sell our globally available market leading platform the AirSense 10, which is second in customer preference only to the AirSense 11 including the new Card-to-cloud AirSense 10 as we seek to maximize the total volume of CPAP APAP and bi-levels [ph] available for all of our customers. With our digital health technology ecosystem, we are engaging patients in their therapy in a digitally native environment like never before in the industry. We are also making it easier and more efficient for our home medical equipment and homecare provider customers to manage their patient populations using our full suite of software solutions, including myAir for patients. AirView for physicians and providers, and Brightree for HME providers. When customers use these digital health technology solutions, they have increased efficiencies, lower costs, and together with us we achieve improved outcomes for patients and their physicians. With the latest technology built into the AirSense 11 platform, we are driving higher adoption rates of the myAir app by patients higher than ever before. Right now, we are seeing more than double the myAir adoption rate as patients engage directly in their own health care. People want personal care. They want their own data on their own app on their own phone. And they liked the coaching and the personal engagement of our digital ecosystem. This means more patients are signing up onto myAir every day and fully engaging with ResMed’s software technology, helping us to now pass over 11.5 billion nights of respiratory medical data in the cloud. Ultimately these software solutions, these big data deliver a better patient experience. They deliver better efficiencies for homecare providers, and most importantly, they deliver greater long term adherence to therapy by patients. Let me spend just a couple of minutes outlining some real world evidence showing that greater therapy adherence leads to lower hospitalizations, lower mortality, and better clinical outcomes through mitigation of chronic disease. We are demonstrating better patient outcomes and lowering costs for the healthcare system at a scale not seen before in the industry. These are critical components of the ResMed 2025 strategy. The latest example is a study recently published in the landmark American Journal of Respiratory and Critical Care Medicine Journal, also known in the industry as the Blue Journal. This article demonstrates that patients with obstructive sleep apnea and chronic obstructive pulmonary disease who were adherent to CPAP therapy versus non-adherence to CPAP therapy, and it showed significant year one and year two reduction of clinical use by over 30% and reduction of inpatient hospitalizations by nearly 50%. It showed a 20% reduction in year one and year two total healthcare resource cost, which included a 25% reduction in emergency room costs and a 52% reduction in inpatient hospitalizations. These are important metrics for the whole healthcare system. Another key aspect of our long term growth strategy is driving awareness and increasing the flow of patients through the top of the sleep apnea diagnostic funnel. COVID-19 has advanced awareness, adoption and acceptance of digital health and respiratory health, including telehealth tools, and specifically home-based sleep apnea tests. Although driving demand generation is not a priority in the immediate term, given the supply shortage and incredible demand we're facing, we are maintaining our long term focus and investments in this diagnostic channel so that we are ready when conditions improve to ensure sustainable, long term pipelines of new patients coming through the channel. With 1.6 billion people worldwide suffering from sleep apnea, COPD, and asthma. It's also our duty to do this. We are innovating with partners and our customers to create even more efficient and effective approaches to sleep apnea, patient identification, screening, diagnostics, treatment, and management. We will continue to invest in technology that enable what we call an end-to-end seamless digital experience for patients. One example we recently rolled out is the next generation of our remote mask selector tool that makes mask selection and sizing easier and more effective by creating personalized mask recommendations based on a patient's health, sleep attributes and their own facial measurements. Choosing the right mask is challenging to do remotely. But getting the right mask fit is crucial to patient comfort and long term adherence. The technology MaskSelector is a web based tool that solves this problem by prompting the patient to answer a few simple questions and follow a few easy steps with their camera enabled smartphone to capture a digital facial scan. Based on the answers and the digital facial measurements, MaskSelector then provides a recommended mask and sizing. Whether a patient is then being set up at home remotely, or preparing for a face-to-face interaction with a respiratory therapist and clinical staff at a provider's office MaskSelector helps the patient quickly get to the right mask for their unique needs. Turning to a discussion of our respiratory care business, focusing on our strategy to better serve the 380 million patients with COPD worldwide, and the 330 million patients that suffer from asthma worldwide. Our goal is to reach many hundreds of millions of patients with our respiratory care solutions, including non-invasive ventilation, and life support ventilation, as well as newer therapeutic areas such as our cloud connected pharmaceutical delivery solutions from our Propeller technology, and the high flow therapy offerings, such as our product platform called Lumis HFT. Demand for our core, non-invasive ventilation and life support ventilation solutions for COPD and other respiratory insufficiency patients remain strong throughout the quarter, especially in markets outside the U.S. where providers shifted focus to supporting the most severe and highest acuity patients. This demand and the work of providers is aligned with the ResMed guiding principles of our allocation process, specifically to give the highest priority to manufacturing life support ventilation. As I speak, we are not component constrained on our life support ventilator called Astral. Let me now review our software as a service business for out of hospital care. During the quarter, our SaaS business achieved high single digit growth year-on-year across our portfolio of SaaS markets, including home medical equipment, as well as facilities based and home based care settings. Our SaaS customers recognize the need for technology solutions to solve their challenges with efficiency and scale, and our software services and solutions help them achieve both. The continued growth of home based care is providing tailwinds for our home medical equipment and our home health products. And we continue to grow with our customers as they increase their utilization of our software and data solutions to improve and optimize business efficiencies and patient care, including our landmark Brightree and SNAP ReSupply products. As businesses continue to open up, we've been able to visit customers in person, as well as to attend SaaS trade shows where interest in our Brightree, MatrixCare and Citus offerings to name a few remain very strong. We have a very solid pipeline in SaaS. The COVID-19 pandemic has been and remains challenging for some verticals in our SaaS business, particularly skilled nursing facilities, where headwinds have kept patients census rates below pre-pandemic levels. But as COVID restrictions continue to ease and our customers improve their line of sight to better conditions, we expect to see pent up demand for technology investments, which provide opportunities for us to sell more services and more solutions to existing customers, as well as to increase our new customer pipeline. As we look at our portfolio of solutions across care settings, we expect our SaaS group revenue growth to maintain high single digit growth as we exit this fiscal year, and well into the next fiscal year and beyond. As always, our goal is to meet or beat that market growth rate as we continue to innovate, and we expect to grow the market and take market share. We are the leading, strategic provider of SaaS solutions for outside hospital care. And we provide mission critical software across a broad range of very attractive vertical markets. We are well positioned and we have created differentiated value for customers and for ResMed with our SaaS businesses. I'm excited about the future of our SaaS business. It's an important part of ResMeds future growth and I see a lot of opportunities to innovate in lower cost, lower acuity settings of care. It's the future of healthcare delivery with strong organic and inorganic growth in ahead for ResMed. Our focus is on personal care that is patient centric, physician centric and provider centric. This approach combined with our unique ResMed culture means that we are positioned to continue winning in the vastly underserved medical markets of sleep apnea, chronic obstructive pulmonary disease, asthma, and beyond. We are transforming out of hospital health care at scale, leading the market in digital health technology. As I said earlier, we have over 11.5 billion nights of medical data in the cloud. And we have over 17 million cloud connectable medical devices on bedside tables in 140 countries worldwide. We are unlocking value by using de identified data to help patients directly, but also to help providers, physicians, payers, and entire healthcare systems. We have invested in the cyber security, the privacy, cloud operations, as well as data analytics, including artificial intelligence machine learning capabilities to do this at a scale unmatched by our competitors. And we are increasing our lead each and every day. Our two key software, customer facing products, AirView and myAir are now 100% managed in the cloud. So not only are our devices cloud connected and our software cloud enabled, we here at ResMed as a company, are cloud connected and cloud enabled. Infact, we are a leading digital health company globally. Our mission and goal to improve 250 million lives through better health care in 2025 drives and motivates me and ResMedians around the world every day. We made excellent progress towards that inspiring goal during the last quarter. Before I hand the call over to Brett for his remarks. I want to again express my sincere gratitude to the more than 8000 ResMedians worldwide for their perseverance their hard work and their dedication during these on-going and unprecedented times. Thank you for all that you do. With that, I will hand the call over to Brett and Sydney [ph] and then we will move to open the lines for Q&A. Over to you, Brett.

Amy Wakeham:

Great. Thanks, Brett. Kevin, I'd like to ask you to come back on the line. I'll turn the call over to you to provide instructions and to manage the Q&A portion of the call.

David Low:

Thanks very much. If I could just start with a question on the guidance from the benefit from the field free call. So it's fallen $100 million short of where you are projecting a year or so ago. Just wondering how you are now thinking about that opportunity set as we move into the new financial year?

Operator:

Thank you. Your next question is coming from Gretel Janu from Credit Suisse. Your line is now live.

Mick Farrell:

Thanks, Gretel. It's a great question. And yes, as you know that I talked about at least 12 to 18 months of a backlog, which is, in many industries you say fantastic to have a backlog, but these are patients waiting therapy and to the specific party a question Gretel, how long will any individual patient wait? It's not like a patient gets a diagnosis, and they have to wait 12 to 18 months. It depends on the geography and the environment. It might be eight days or eight weeks, depending on the geography and our flow of products. But an individual patient is not sitting out there told, Oh, you've got this life threatening disease, we'll take care of you next April. They're being told look, it's going to take for four weeks. And they're not happy with that. I mean, they've been told they suffocate maybe 100 times per night, maybe 50 times per hour, if they've got very severe sleep apnea. And they're suffocating. They want therapy, and so that that pressure is there, and the desire is there. We're watching very carefully. I mean, obviously we're involved in the substitute therapies. We sell a dental divides all across western and northern Europe with a number one provider, with novel our technology. We're not seeing this huge movement over to dental and the 100 muscle nerve stem that we're investing through in Astella [Ph]. We're not seeing a huge movement over to those substitutes. So they're being told by the doctor, it's eight days or it's eight weeks, and they're accepting that and they're sitting there in that pipeline. What I mean by the 12 to 18 month backlog is if you look at the net of the industry, this is building up because the number two player here is out. As they said earlier this week, they said at least through the end of this calendar year. I think they said that only be 90% done with their [Indiscernible] by the end of this calendar year. So that means the rest of us have to step up and ResMed is the number one player and we're stepping up the most and we're stepping up incredibly well. And I think we'll do that through it. But even when they come back online, it's not like the backlog goes away the day they come on. That's there and it's for all of us to drive. I think the share that we've gained is going to be entrenched because of the digital solutions we have and we'll go and gain from there. But the patients are there and I think it's awful that somebody might have to wait four weeks, or eight weeks. I don't want them to wait more than 4 hours to 8 hours. But right in the moment we're in this situation will be that way for a period of time given these unprecedented circumstances.

Lyanne Harrison:

And good morning all. Thank you for taking my question. Can we just talk a little bit about the device and mass dynamics in both Americas and rest of the world? Obviously, Americans had softer devices, but sorry, had Americans had stronger device growth, but much softer mass growth there. Can you I guess, share what your thoughts are around to the extent that's driven by fewer devices in the market as opposed to resupply, and then vice versa for the rest of the world.

Jim Hollingshead:

So thanks, Mick. And thanks, Lyanne it’s a great question. I think this is one of those weird circumstances for us where the numbers don't actually very clearly convey the underlying dynamics. And the reason for that is the volumes and the revenue growth we're producing in different markets is almost completely contingent on which SKUs we can produce, right. So it's a little bit, it's a little bit complicated. But we can, when we can produce devices that have sell chips that can go into certain European markets, and we have those components, then we get more growth for that period of time as we ship those products. And then sometimes those specific SKUs get constrained. And so the dynamic is actually pretty constant across all geographies, which is very, very high demand for our devices. Very, very high demand for our masks. There is a headwind on masks, because new patient starts are down because the market is under supplied. But really across all geographies there are tailwinds for masks because in the U.S., we have very resilient resupply and in other European markets, we have very really resilient resupply in markets like France and Northern Europe. And so the number the differences you've seen in the groceries is actually driven by component supply and not by demand dynamics, if that makes sense. So it continues to be really almost unlimited demand for our products across the board. With devices obviously, in the U.S., we introduced AirSense 11. That freed up a lot of capacity for us. That's why we got such outsized growth relative to the other markets in the U.S. market this quarter. And the mask growth is pretty steady across all the markets.

Saul Hadassin:

Good morning, Mick. Thanks for taking my question. Just a quick one on the guidance you've provided for the full year for the Philips share gains and that revenue contribution. The other companies obviously, what do you think is the underlying growth rate of the base business excluding that share gains? I guess, in other words, what were you expecting to grow the business by? How do you come up with that 200 to 250 million? And I guess, the question really is what do you expect of the base business to be able to grow up considering the supply constraints that are in the market at the moment? Thanks.

Brett Sandercock:

Yes, thanks, Mick. I think we got that right. We saw really what we did is we looked at our pre-recorded forecasts, and it's very much an estimate on what we think that incremental demand was. And to your question kind of what would the underlying growth be? I mean, if you backed out that incremental revenue you'd get, you'd probably get Circa 10% growth on devices. So pretty, pretty strong.

Dan Hurren:

I just wanted to ask in regards to you mentioned the Astral, the Astral was not an allocation is unlimited or sorry, is not constrained. And you just talked about how that part is traveling and competitive and the competitive market with Philips being in our market and their products.

Jim Hollingshead:

Yes, thanks, Mick. Thanks, Dan. The Astral’s performing really, really well from a competitive point of view. We've taken share with the Astral it’s very very strong device offering. We've made a number of improvements to that platform over the last couple of years. And also remember that the Astral can be connected to an attachable modem, which can then allow patients using an Astral to be monitored in the cloud. And we have we have that capability now in our AirView platform worldwide. And so we've had a lot of a lot of adoption of monitoring ventilated patients in our AirView platform, especially a very strong growth in Europe with that offering. So Astral continues to perform extremely well.

Matthew Mishan:

Good afternoon. Thank you for taking the question. Just going back to the de-commit. Did you get a sense of why your orders were from over a year ago? We're de-committed and just how do you how did the semiconductor supply chain you know get unlocked over like the next three to six months? Like what are they telling you needs to happen incrementally so that you can get a steady or supply moving forward?

Rob Douglas:

Yes, it is tough, Matt. And the way the electronics and semiconductor industry works is like any other industries, a number of players have gotten long term forecasts, which they need to have because the capital investments in order to build capacity takes a long time to develop. But I've really only got short term clarity on what the demand levels are going to be. And the actually the electronic industry has always been feast or famine for particular components. Like that this is just a worse than usual version of the usual situation. There was so much excess demand around the COVID environment. So many new dynamics, like as Mick mentioned, electric vehicles, taking up demand and consumer electronics and all that. And then the, the key suppliers have all their own inputs that have those sort of same investment issues coming. So they're also an allocation for their raw materials, as well. And then they have a number of contracts. And as Mick gets to it as if we can manage the priorities that these people have. And by the way, whenever we talked to almost anyone in any industry, we end up talking to somebody who either has sleep apnea, or their loved ones have sleep apnea, or their good friends have sleep apnea, so we can get a really strong message through as to why it should be a priority. But sometimes they've got contracts, and they need to be able to call force majeure on those contracts before they can supply us. So it's a very complex, complex project, we keep working on it. As Mick mentioned, we've got these other longer term projects that are really designing around the constraints and putting in options so that we can have what would traditionally single source components, we'd have options to multiple source components. We have many different communication modules that can operate in the, into the units now and different protocols. And we'll keep working on that. But it's not going to clear short term. And now we're going to need this great sort of agile performance from our supply team to really try and predict the areas of de-commit so that we can inform our engineering teams of what they should be designing around and get started on those key areas before they become problems. But these are tough problems to solve but we're working on it.

Operator:

Thank you. Your next question is coming from David Bailey from Macquarie. Your line is now live.

Mick Farrell:

David, it's a great, great question. And it's and it's really complex. And I'll probably hand to Rob to maybe give some of the detail on it. But those five lines of work have multiple projects within each of them. I tried to term like, new parts from new suppliers. That means our R&D team is reengineering, a new part validating, verifying, putting through all the quality tests, we're seeing in our market, how incredibly important that is, and we will not compromise on quality. And then you've got to validate and verify a new supplier and get them through. And so just one of those five lines of work is an incredible amount of work for our quality, regulatory, R&D, engineering, production and manufacturing teams. And so these aren't overnight. It's not like we're just having a cell phone here or a comms chip in a consumer device. This thing a life support then has to be working all day every day. A CPAP has to work every night and we are I think able to with all that work I mean as you saw, we got 200 million, 250 million this just this fiscal year ahead of incredible growth and our supply chain pivoted to all of that. If there hadn't been this competitive recall, we as an industry ResMed would have been absolutely able to do with every single supply chain constraint that had happened throughout this. And that's just speaks to the flex and the ability to go. We have these projects that have been going nine months, I actually think they're doing well. It's hard to say, even if I gave you on each of those five lines of work, the key milestones on it, there are probably five projects within each of those. So its sort of a 5 by 5, 25 point matrix. Rob's looking at this, Jim's looking at this on a daily basis. I get the updates every second or third day. As a CEO, I used to focus all my time just on customers talking to customers talking to health insurers and showing the benefit of our therapy, spending a lot more time with supply chain than I want to but right now, that's where the urgent need is. And for the next, 3, 6, 9, 12 months is where we're going to be focused. But at the same time, we're investing in demand gen. So that as the price starts to come back, and it will, and as a competitor comes back along, we can turn that demand gen back on securing all the share gains we've got through the digital entrenchment, and then drive for future growth. But Rob, how do you summarize all the other work we're doing for David succinctly here?

Operator:

Thank you. Our next question is coming from Mike Matson from Needham & Company. Your line is now live.

Mick Farrell:

Thanks for the question, Mike. And I'll hand to Jim to walk through some further detail on it. I can tell you look from ResMed, when we really first got into digital health in 2002, we had paging devices on experimental parts of our devices and 2005, we started to with the AirSense launch in 2006, 2007 I had some SD cards that were in those devices. And so we've sort of had this, this world of card-to-cloud at ResMed for well over a decade, 10 years, 15 years that we've had had the ability to do that type of technology. Obviously, with the AirSense 10, we changed the whole market. We did the sort of reverse Amazon play where we said 100% connectivity in the AirSense 10 through the comms chip. And then you take it seamlessly. And it's and it's taken to go there. Look, this is humanitarian emergency right now. We have a competitor out of the market, and there's not enough comms chips to go around the world. And we looked at this and said, well, look, why don't we go to where we were before, which is a great technology of Card-to-cloud. The differentiator for us is AirView that the doctors use, myAir that the patients use and the whole ecosystem of data. And so I think it's far more efficient and appropriate, then it goes straight in a secure end to end encrypted from the device there. But in this time of emergency for a period of time, who longs knows how long it will last, these AirSense 10 Card-to- clouds, a whole lot better patient getting that technology than one of the competitors out there that has some -- solution that may or may not be encrypted, who knows how it works, and the device not might not be as reliable. So the AirSense 10 is the second best device on the market, second only to the AirSense 11. So Card-to-cloud is out there. But Jim, you know, it's early days. How's it going?

Operator:

Thank you. Our next question today is coming from Margaret Kaczor from William Blair. Your line is now live.

Mick Farrell:

Thanks for your question, Maggie. I mean, the short answer is yes, absolutely. Through not just the technology, Jim was talking about the essence, Card-to-cloud but all the other projects, Rob's been talking about the 5 by 5 25 plus matrix of incredible projects that are going through are going to free up supply. And sequentially as we go through this year, we're going to get growth and growth and growth. And so, just to be clear, it was on top of, as Brett said, strong sort of 10% forecast growth, we then had, in addition to that 300 million to 350 million of incremental, that incremental was reduced to 200 to 250, as we as we said today, for this fiscal year that we're in. But that incremental growth, those patients will be there. And we will be in the back when we will get to them in fiscal 23 and more as we continue to grow throughout the fiscal year 2023. It's not like this is an overnight success. And one of the 25 projects works tomorrow. We're all perfect. It's incremental, continuous improvement, step by step improvement of an amazing ops and supply chain team, and an amazing sales and delivery team working with customers on this allocation and understanding how to bring that product to market and understanding on the marketing side to just get ready for the demand gen that's going to need to happen to get all the backlog in and new patients in as we go in, throughout fiscal year 23 and beyond. But the short answer is Maggie. Yes, we will get to that increment and more throughout the coming 12, 18 months.

Suraj Kalia:

Good afternoon everyone. Hey Mick a lot of questions have been answered. Mick, if we layer a recessionary environment on top of an inflationary environment, can you just give us some guidance in terms of new order flow-through, patient behaviour, resupply orders, especially, it almost seems inevitable that there's another complicating factor on the horizon. Thank you.

Operator:

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Mick for any further closing comments.

Amy Wakeham:

Great. Thanks, Mick. To echo and thank you, everyone. We appreciate your interest and your time. As a reminder, if you have any additional questions, please don't hesitate to reach out to our Investor Relations team directly. This does conclude our third quarter 2022 conference call. Kevin I'll turn it back to you to close things out.

Operator:

Hello and welcome to the ResMed Second Quarter Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's my pleasure to turn the call over to Amy Wakeham, Vice President-Investor Relations and Corporate Communications. Please go ahead, Amy.

Mick Farrell:

Thanks, Amy, and thank you to all of our shareholders for joining us today as we review results for the December quarter, the second quarter of our fiscal year 2022. Our second quarter results continue to demonstrate the strong performance across our business, benefiting from the ongoing extremely high demand for our sleep and respiratory care devices, as well as the steady recovery of markets from the peaks of COVID-19 impacts. We achieved double-digit growth in our business as we navigate three major externalities. On, the recovery of patient flow post the COVID maximum peaks; two, global supply chain constraints, particularly in electronic components; and three, the almost unlimited demand associated with a competitor recall that has actually extended further in terms of volumes of their devices that were impacted and the duration of their repair and replace process. The bottom line is we have at least 12 more months of this incredible demand for ResMed products. I'm very proud of 8,000 ResMedians serving patients in 140 countries worldwide. Our global teams are finding ways to deliver products and solutions to home care providers, physicians and healthcare systems, and ultimately into the hands of patients who need them most. Clearly, the global supply chain environment remains very challenging across multiple industries and we are not immune to its impact. During the quarter, despite growing double-digits year-on-year, we were not able to meet all the demand available in the market. We are being allocated components from our suppliers, particularly electronic components and even more specifically, semiconductor chips. And we are thus being forced to allocate our outbound products to our customers. We have established an allocation process with clear guiding principles that give priority to the production and delivery of devices to meet the needs of the highest acuity patients first. In addition to component supply issues, the ongoing challenges of sea freight and air freight are impacting our ability to respond as rapidly as we would like to the demand for ResMed products. Freight costs are increasing across the board on inbound components from suppliers and on outbound products to our distribution centers and for ultimate delivery to our customers. As a result of these increased costs, we implemented a surcharge on our products starting in January to share some of the burden of these increased costs with customers. Given all the increase in prices from commodities to special – specialty products across multiple industries around the world, the necessity of this surcharge has been understood and accepted by our customers. We are working closely with our global supply chain partners, doing everything that we can to gain access to additional supply of the critical components that we need to further increase production of our medical devices. We are also re-engineering designs, validating new parts, pieces, suppliers and accelerating new product launch and development to further catch up with the demand. We understand that this is a difficult situation for all of our customers, including physicians, home medical equipment providers, payers, health care systems and the most important customer, the patient. Our number one priority will always be patients, doing our best to help those who suffer from sleep apnea, COPD, asthma and other respiratory chronic diseases, as well as those who benefit from our out-of-hospital health care software solutions. To grow and differentiate our sleep and respiratory care business, we will develop, design and deliver world-leading therapy solutions that can be scaled globally. And we're going to deliver the world's leading out-of-hospital software solutions to empower each person's health care wherever they are. Our goal is to ensure that every person gets the care that they need, where they need it and when they need it. Let me step back to discuss the broad market conditions in our industry. We're seeing steady ongoing recovery of demand across the countries that we operate in. We are still seeing a divergence in the total patient flow from 85% to 100% of pre-COVID levels in most countries, and about 100% of pre-COVID levels in a few locations. These metrics will continue to steadily increase towards pre-COVID levels and beyond as vaccines and boosters roll out globally. Each new COVID variant has an impact. But with the adoption of digital health solutions for screening, diagnosis, and remote patient setup, and remote patient monitoring, as well as established and well-established processes for COVID cleaning protocols at sleep labs, we expect the impact of new variants to diminish in absolute impact each time. Our global ResMed team remains committed to working with national, state, and city governments, as well as local health care systems, hospitals, and health care providers to supply ventilators, masks, and training for acute care, and the important transition home as needed. Given the steadily decreasing severity of each impact on the hospitalizations and severe disease from COVID, the demand for ventilators is now consistent with pre-COVID levels. Let me now update you on our top three strategic priorities. Number one is to grow and differentiate our core sleep apnea, COPD, and asthma businesses. Number two is to design, develop, and deliver world leading medical devices, as well as digital health solutions that can be scaled globally. And number three is to innovate and grow the world's best software solutions for care delivered outside the hospital, and especially in the home. The US launch of our next generation device platform called AirSense 11 continues to go very well. This new platform has provided much needed additional product supply as we face all-time high demand for ResMed devices. We expect to introduce AirSense 11 platform into additional countries throughout calendar year 2022. In parallel, we will continue to sell our globally available market leading platform the AirSense 10 to maximize the total volume of CPAP, APAP and bilevels [ph] available for sale. In fact, the only product that the AirSense 10 is inferior to is the AirSense 11. As you saw in our results, with double digit growth this quarter, the ongoing adoption of both the AirSense 10 and AirSense 11 platforms remains very, very strong. With the AirSense 11 platform and our digital health technology ecosystem, we are engaging patients in their therapy digitally like never before in the industry. We are also making it easier and more efficient for our customers to manage their patient populations using our full suite of software solutions, including myAir for patients, AirView for physicians and Brightree for home medical equipment providers. When customers use these digital health technology solutions, they have increased efficiencies, lower costs and we achieve improved outcomes for patients and their physicians. We have peer reviewed published evidence showing that combining AirSense platform with myAir software and AirView software, we see over 87% adherence to positive airway pressure therapy. This was in a study with over 85,000 patients. On our latest and greatest platform, AirSense 11, we are driving even higher adoption rates of the myAir than ever before. In fact, we are seeing more than double the uptake of patients signing up to myAir and fully engaging with ResMed software technology. The net result is that this delivers a better patient experience, better efficiency for the homecare providers and more importantly greater long term adherence to therapy. We saw this demonstrated in the Alaska study in partnership with the French healthcare systems where we showed in a study with over 176 patients that those patients who adhered to CPAP therapy had a 39% relative reduction in mortality rates versus control. Demonstrating these types of better patient outcomes and lower costs for the healthcare system at a scale not seen before in the industry are critical components of the ResMed 2025 strategy. Another key aspect of our long-term growth strategy is driving awareness and increasing the flow of patients through the top of the sleep apnea diagnosis funnel. COVID-19 has advanced awareness, adoption and acceptance of respiratory health and respiratory hygiene, but also adoption acceptance of digital health and telehealth tools including home-based sleep apnea tests. Although increasing demand is not as important in the immediate short term giving the ongoing competitor recall, we have a long term focus and we're always focused on that long-term demand gen opportunity. We are innovating with partners and our customers to create an even more efficient and effective approach to sleep apnea patient identification, screening, diagnostics, treatment and management. We will continue to invest in technology that enables an end to end seamless digital experience for patients. As we mentioned in our October call, during the second quarter, we acquired Ectosense, a leading provider of cloud connected home sleep apnea testing technology worldwide. We believe Ectosense’s digital and easy to use solutions in the hands of physicians, sleep lab technicians, as well as consumers can help significantly increase both diagnostic and screening rates can help significantly increase both diagnostic and screening rights as well as general sleep apnea awareness. Let me now turn to a discussion of our respiratory care business, focusing on our strategy to better serve the 380 million patients with chronic obstructive pulmonary disease or COPD worldwide and the 330 million patients that suffer from asthma worldwide. Our goal is to reach hundreds of millions of patients with our respiratory care solutions, including noninvasive ventilation and life support ventilation, as well as newer therapeutic areas, such as cloud connected pharmaceutical delivery solutions from our Propeller technology and high flow therapy offerings, such as our product platform called Lumis HFT. Demand for our core noninvasive ventilation and life support ventilation solutions was strong throughout the quarter, especially in markets outside the US where providers shifted focus to support the most severe highest acuity patients. This demand is aligned with the guiding principles of our allocation process, namely, to give the highest priority to manufacturing life support ventilation and noninvasive ventilation devices, including by levels that meet the needs of these highest acuity patients first. Adoption of the AirView for ventilation software solution that we launched in Europe a little over a year ago remains solid, and we continue to expand this technology to regions around the world. AirView for ventilation has provided value by helping physicians and the health care systems they operate in to manage high risk patients during the COVID-19 pandemic. But it is also increasingly being used on an ongoing basis to enhance quality of care through early and proactive intervention at the first sign of respiratory medical issues to help reduce the risk of hospitalization. We see a world where We see a world where AirView ventilation is standard of care for COPD, the way that our core sleep apnea AirView platform is now standard of care for sleep apnea treatment. Let me now review our software as a service business for out-of-hospital care. During the quarter, our SaaS business showed improved sequential growth. We achieved high single digit growth year-on-year across our portfolio of SaaS markets including home medical equipment as well as facilities based and home based care settings. The continued growth of home based care is providing tailwinds for our home medical equipment as well as our home health and hospice products and we continue to grow with customers as they increase their utilization of our software and data solutions to improve and optimize business efficiencies and patient care, including Brightree and SNAP ReSupply. The COVID-19 pandemic has been and remains challenging for some of the verticals in our SaaS business, particularly skilled nursing facilities as the effects of the highly contagious Omicron variant remains a headwind for patient volumes in these settings. We will continue to watch this closely as COVID rates peak and then decline with this latest variant as has happened in many regions around the country and around the world. As COVID restrictions continue to ease and our customers improve their line of sight to better conditions, we expect to see pent-up demand for technology investments, which provides opportunities for us to sell more and more services and solutions to existing customers, as well as to increase our new customer pipeline. As we look at our portfolio of solutions across care settings, we expect our SaaS group revenue to growth to accelerate, achieving sustainable high single digit growth as we exit this fiscal year. As always, our growth, our goal is to meet or beat that market growth rate as we continue to innovate and continue to take market share from competitors. We are the leading strategic provider of SaaS solutions for out-of-hospital care and we provide mission critical software across a broad set of very attractive markets. Our latest and greatest SaaS solutions address the number one issue reported across our customer base which is staffing challenges. Our SaaS customers expect this problem to persist and they recognize the need for technology solutions to help solve their challenges with efficiency and scale and our software services and solutions help them achieve both of these outcomes. We are well-positioned and we have created differentiated value for our customers and for ResMed within our SaaS business. Looking at the broader portfolio of ResMed's businesses across sleep and respiratory care, as well as our SaaS solutions, we remain confident in our long term strategy and our pipeline of innovative solutions. Our sleep and respiratory care solutions treat the most prevalent and highest cost chronic conditions and our SaaS solutions support the care settings where people face these and other chronic conditions. With this combination, we can fundamentally transform out of hospital healthcare at a scale that no other company can match. And we have set up for sustainable growth through ongoing investments in R&D to the tune of 7% of our revenues, commercial excellence in partnerships with CVS verily and beyond, as well as future acceleration through strategic M&A as well as tuck-in M&A as we move forward. Our patient centric − physician centric and provider centric approach combined with our unique ResMed culture means that we are positioned to continue winning in the vastly underserved medical markets of sleep apnea, chronic obstructive pulmonary disease, asthma and beyond. We are transforming out-of-hospital healthcare at scale, leading the market in digital health technology with over 10.5 billion nights of medical data in the cloud and over 16 million 100% cloud connectable medical devices on bedside tables in 140 countries worldwide. We are unlocking value by using de-identified data to help patients, providers, physicians, payers, and entire health care systems. We have invested in the privacy, cloud operations and AI and ML-driven data or analytics capabilities to do this at a scale that is unmatched by competitors, and we are increasing our lead every day. Our mission to improve 250 million lives through better health care in 2025 drives and motivates ResMedians every day. We again made excellent progress toward that inspiring goal during this last quarter. Before I hand the call over to Brett for his remarks, I want to once again express my sincere gratitude to more than 8,000 residents for their perseverance, hard work, and dedication during these ongoing, unprecedented times. Thank you. With that, I'll hand the call over to Brett in Sydney, and then we will move to the group for Q&A. Brett, over to you.

Amy Wakeham:

Great. Thanks, Brett, and thanks, Mick. Kevin, let's go ahead and now turn the call over to you to provide instructions and then run the Q&A portion of the call.

Chris Cooper:

Afternoon. Good morning, thanks for taking my question. Mick, can you just remind us, please, of the specific measures you're employing to mitigate the component supplier challenges? And I guess where you're seeing more and less success.

Rob Douglas:

Maybe only also, Chris, this has sort of been going on for a year now and we knew these shortages were going to be coming. So our teams have been working on all those activities that Nick's been talking about throughout the year, starting to bear fruit. It does take time and that's why we're talking about sort of, you know, things don't fix immediately. We're talking about its continuing to be challenging for this coming quarter and starting to see improvement further out. That said, you know, it's a very dynamic situation and things do change on a weekly basis and so our teams have to be extremely agile and we've got − we're actually putting a lot of resources into it, got a really strong team of engineers and commercial relationship people with the suppliers and our product teams are all really focused on this as we work through these challenging times.

Mick Farrell:

Yeah, it's a good question, Chris. I'm actually precisely where I was in October that, you know, I think we said in October it's going to be tough in December, it's going to be tough in March and really start to open up in June and then as we go out throughout the calendar year. So, I stand by that and I stand as Brett said earlier, looking at fiscal 2022 the $300 million to $350 million of incremental product. Look at the December quarter, 16% growth year-on-year in devices amongst a global supply chain crisis, COVID-19 recovery, all the challenges that are here. That’s really strong. But we’re going to get stronger than that as we go throughout the fiscal and as we go throughout the calendar year. This seemingly infinite demand is going to be with us for the whole of this calendar year and potentially beyond that. And so we – all the projects that Rob talked about, if the starting gun went off sort of June 14, when the competitor put this recall notice in field safety, notices globally out, our team have done a pretty darn good job getting to 16% year-on-year in this crisis on the December quarter. I think it will get – as I said in October, I think it will get better in March and then December and significantly better in June and then really start to free up as we hit September and December. And with almost infinite demand, you never quite catch up to that. But we're going to get faster and faster and grow more year-on-year as we go throughout the calendar year.

Mick Farrell:

Thanks, Chris.

Dan Hurren:

Good morning, everyone. Thanks very much. Mick, you mentioned that ventilation demand is back at pre-COVID levels, but I presume you're talking about the hospital events or hospital patients. So, I was hoping you can give us some color detail on ventilation into the home healthcare market and specifically how the Astral product has performed whilst the explosion of rains [ph] over the last couple of quarters.

Jim Hollingshead:

Yeah. The only thing I would add to what Nick said is that our Astrals product is performing really well in the market. It's got very sophisticated algorithms that can treat a wide range of patients, and demand for it has been really strong. And so, in general, the Astrals have been very well accepted and some of the algorithms we've added over the last several months have driven demand upward. It's also benefiting from the for what is for us to tailwind from the Philips recall. And so, there's a bit of incremental demand for Astral in that context as well.

Operator:

Guys, your next question is coming from Sean Gorman from Morgan Stanley. Your line is now live.

Mick Farrell:

Thanks, Sean. It's a great question, and as you know, Propeller technology is for those who may not know a cloud connected pharmaceutical delivery product for both COPD and asthma, and a lot of those are in pilot stage and the partnerships with governments in Europe and private payers in the United States. And so, we are – do have some commercial models going. They're not material to the global business, but, Dave Pendarvis, do you have any data about RTM codes that we've got through reimbursement and any impacts on those for Propeller and across the business?

Mick Farrell:

Yeah.

Operator:

Thank you. Our next question today is coming from Matthew Mishan from KeyBanc. Your line is now live.

Mick Farrell:

Thanks for the question, Matt. And it's great to see US, Canada, Latin America, or the strong 9% constant currency growth on masks and Europe, Asia, rest of world at 11% year on year with a strong double-digit 10% growth. Well, one and as you said, that is up from last year. Look, I think I'll start in maybe hand to Jim for some more color. But at the broad level, COVID-19 has shown the importance of respiratory health and respiratory hygiene. And we said this in 2020 when we saw that sort of uptick of the growth of our masks and accessories business. And we just launched Snap and we have rightly resupply and a lot of people thought, well, this is the second was step up, it's just up. While people like, there were people with stockholdings and some commodity products. This is a stockholding issue. We said, no, this is sustainable. We’re talking to patients. We’re doing the net promoter score. We’re analyzing data consumers want and always wanted to more health care. They've now seen the reason for respiratory health and respiratory hygiene. We’re now two years into this and we are seeing sustained growth at the patient level demand for respiratory health, respiratory hygiene. We're adding to that the technology from SNAP, technology from Brightree but in other parts of the world with those technologies aren't there, we're partnering with our home care providers with patients directly and beyond to encourage and make that happen. But Jim, any further color on the sustainability of this, this strong margin?

Operator:

Thank you. Our next question today is coming from Craig Wong-Pan from Royal Bank of Canada. Your line is now live.

Mick Farrell:

Craig, it's a pertinent question but it's one we don't feel comfortable going into the details of. What I can tell you as an equal one personal user of this AirSense 11 platform is that the delivery is smaller, quieter, more comfortable, more connected. My wife actually asked me if it was on when I turned it on, it is that much smaller, quieter and better than our last generation already the leading platform. So, what I can tell you is it is taking off every single AirSense 11 we can make is sold that day. It comes out of the factory, it's already pre-sold and they are moving fast. And so it is increasing as a portion of our US sales. For competitive reasons we're not going to split out how quickly that S curve is coming up. But the points I made in the prep remarks are really strong. The AirSense 10 on its own is the second best product in the market after only the AirSense 11. So it is already there and every AirSense 10 we can get component for and then put through the production line get sold as well. So we’re selling both in parallel and customers are demanding both and we'll take both over any of the competition. And so we're driving those out there. We're driving great growth of both and we will do throughout all calendar year 2022 as Philips recall will last at least that long in their update just this week. And so, you know, 90 days ago it was 12 months ending in September. We were ready for that scenario. They'll come back in September and get our great mask uptake as Jim was saying earlier. We're now ready for their new scenario which is December and we're ready to expand our components and our share on the device side and driving as much as that demand as is possible. So, we're ready for all the scenarios of all the above. But yeah, we're not going for all the scenarios that will be involved. But, yeah, we’re not going to break down the exact AirSense 11 versus AirSense 10. I can tell you it’s growing extraordinarily fast. The S-curve uptake is great, and patients are loving it. So, throughout calendar year, we will introduce it to other countries around the world, and we expect the same sort of level of uptake in those other countries.

Andrew Paine:

Yeah. Thanks for taking my question. Just wanting to get a bit more clarity on your ability to reengineer parts and redesign elements in your devices. How is that going to be achieved, and does this mean you won't be as exposed to chip shortages from 4Q and onwards? And when do you think these changes will allow you to be running at full capacity and, in essence, meeting current demand?

Operator:

Thank you. Our next question today is coming from John Deakin-Bell from Citigroup. Your line is now live.

Mick Farrell:

Yeah, John it's a very complex question because as you know, we operate in 140 countries and all the different Greek letter variants of COVID flow through those 140 countries at different rates. One great thing because we have strong visibility and awareness into this as we talk to the pulmonary and critical care physicians and we watch hospitalization rates and ventilation usage rates and ICU usage rates as each variant seems to be – although more and more communicable less and less severe and the impact in terms of hospitalizations, severe need for ventilatory help and death. And so the work that we did in 2020 and 2021 establishing these digital protocols, home sleep apnea, testing protocols that pulmonary doctors who previously hadn't done telehealth visits are now doing them. Doctors who weren't embracing ApneaLink Air or some of the NOX digital diagnostics components have embraced them throughout 2020 out of necessity and then 2021 out of scale. So as we enter 2022 here, we're feeling very comfortable across those 140 countries. I gave you in prep remarks the sort of wide band, right? 85% to 100% of pre-COVID patient flow, depending on the country, the city, the location. There are some as I said in the prep remarks, there are some locations that are above 100%. And I won't go into detail -- North Rhine-Westphalia this quarter of Bavaria, Southern France, Southeast of the US this quarter, what we're seeing is as variants come down, those protocols go. We're hitting those – if you take 2019 as the base year, we're hitting those 100% triple digit rates in some locations. And so gives us a lot of confidence because we’re – the beauty of, the beauty is we're in all 140 countries. So that portfolio, I feel every 90 days, we’re seeing positive movement. Even though a particular location might go back two steps and one might go forward three steps, on aggregate, we’re seeing sort of one step forward for ResMed as we look across that portfolio every 90 days. That's why we're able to see this great, strong 16% device growth across our region. It's not only share-taking. There's some good flow of patients coming through. What worries me a little bit, John, is actually some of the backlog that might be happening in the system due to our competitor just not being in the market for 18 months, right? In aggregate, according to their call this week, it would be 18 months from June 2021 through to December 2022. That backlog of patients, we can't get them all, right? We're ramping up, as Rob said, doing everything we can to ramp up. We're not going to get them all. And so that backlog of patients, even when our competitor comes back, is going to have to flow through the system. So this is not just an effect that's over the day our competitor is back. There's going to be a number of quarters where ResMed is going to grow, take share, and deal with this flow of patients through there. So although we're pushing very strong around our long-term demand gen, we're not turning up the dials yet on driving the top of the funnel because, frankly, the top of the funnel is full and growing and will do for the next 12 months.

Gretel Janu:

Thanks. Good morning, all. More of a medium-term question, Mick. So as the industry isn't able to meet the demands of new patients at the moment, what are you doing to ensure that patients don't fall off the waiting list? And I guess do you see any risk here that the industry will see slower growth in the medium term from all the disruption over this 12-, 24-month period? Thanks.

Jim Hollingshead:

Yeah, Gretel, I guess I would, I would just add a couple of things. The first one is we're working really hard with our channel partners to understand the dynamic of patient wait lists and working really hard with physicians on that. And so, we’re – as you know we're prioritizing higher acuity patients, higher acuity conditions with our with our production. But we know that there are kind of straight OSA patients out there, they're facing longer waitlists and we're working with our customers to try to reduce those wait times and to better manage an understanding of when we can deliver product to which customers are so. So that's just sort of a general thing we're trying to do. I think the other thing that will help us to drive growth on an ongoing basis is we're working right now on programs that will allow us to capture patients who may be faced a long waitlist. And I don't want to go to great detail on that but our marketing teams in our main countries are working on those programs right now. And as we have more supply, we feel pretty confident we'll be able to run programs that will be able to reengage patients that maybe have, they're tired of waiting or something like that. So we think we'll be able to capture a big, big part of that backlog, which there is a backlog and we think there'll be an even bigger backlog, which I – if there is a backlog and we think there'll be an even bigger backlog as that goes forward. And the last thing I would add is, we're pretty active in developing new channels. And so, those are those are new and growing areas for us. But if you think about something like CVS Health hubs, there's a new channel that that continues to grow, CVS continues to invest there. That's a new way for patients to be reminded that they were diagnosed with OSA or to be reminded that they might need resupply. And CBS is just one example where we're working in new channels. We're doing that not just in the US, but in multiple markets around the world. So we're going to expand the ability to reach of different channels for patients to get treated. And we'll be – we're accelerating those now. We'll be accelerating those programs even more as production comes up to higher volumes and we're able to treat more patients.

Saul Hadassin:

Good morning and good afternoon. Thanks for taking my question. Just maybe one for Rob. Rob, just on the discussion around semiconductors and the shortages, can you talk to us about the line of sight you get as it relates to the inflow of those chips and then the manufacturability? In other words, is it still taking circa three months to process devices? And so, are you in a position now to know what your volume on flow generators is looking like into fourth quarter because you have these chips either sitting with you now or they're due to come in over the next few weeks? Thanks.

Operator:

Thank you. Our next question today is coming from Lyanne Harrison from Bank of America. Your line is now live.

Mick Farrell:

Yeah. Thanks, Lyanne. It's a good question. And traditionally we don't talk much about price at all. But one thing I will say is that we announced it in our prep remarks – my prep remarks here today that we have a surcharge now on all ResMed devices. There are such as with exactly with the last question from Sol [ph] where Rob was showing that increased air freight and sea freight costs of 5X or 10X what they were, air freight was always a significant factor of above sea freight and it's got more expensive too and so all of that has meant that we had to provide that surcharge to our patients. So we haven't done a price increase as some of our competitors have to the customers but we have put a − we have put a surcharge on devices starting in January. Our customers have accepted it. I mean, you know, the people running these companies go to a supermarket and see the price of milk or the price of whatever commodities that they're purchasing in their daily lives going up in price. And so a surcharge from us given the nature of this has made sense to them. And so, you know, your question was what's the levels of price discounting? There is no product discounting right now. In fact, we're taking away some of the early pay and some of the other factors that were there that were non price related but the impact is sort of cash flow there because it's very important in an environment like this to make sure that the costs are shared in a fair and equal way through the supply chain and we're doing that through a surcharge. But as I see it, you know, the mix side, the second part of your question. We're following our guiding principle on allocation here. If we have limited chips and parts and pieces, we will make an Astral before [ph] before an echo of STA and ST and ASP and so on down to an APAP and CPAP. And so the mix, you know, can lead to some sort of ASP mix increases on that but any individual like-for-like product we’re keeping the prices where they are because we're in a steady, reimbursed environment, our customers we have relationships going back decades. We want them for decades for the future and we really value those relationships. And so we're really focused on this sort of temporary surcharges is going to be associated with those increased costs we have and any impact on ASP is really around mix towards those higher acuity products.

Steve Wheen:

Yeah. Thanks very much. I've got a somewhat related question for Brett just with regards to the gross margin. So I was just wondering if you could help us sort of break into that number a little bit particularly from the point of view of the next few quarters. So I'm trying to put into context the surcharge as to what sort of effect that will have. And then there's obviously other drivers which all look quite positive like FX mix, maybe the [indiscernible] pricing. So if you could sort of maybe comment on any of that. And then lastly, maybe a headwind, is there any pricing pressure coming from the semiconductors suppliers to you guys ? So yeah, if you could help me unpackage that gross margin that would be great.