Welcome to the Q4 2015 ResMed Incorporated Earnings Conference Call. My name is Kelly, and I will 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 is being recorded. I'll now turn the call over to Agnes Lee, Senior Director of Investor Relations. Agnes, you may begin.

Thank you, Kelly, and thank you for attending ResMed's live webcast. Joining me on the call today, are Mick Farrell, our CEO; and Brett Sandercock, our CFO. Other members of the management team will also be available during the Q&A portion of the call. If you have not had a chance to review the earnings release, it can be found on our website at investors.resmed.com. I want to remind our listeners now that our discussion today may include forward-looking statements including, but not limited to statements about future expectations, plans and prospects for the company, corporate strategy and performance. We believe these statements are based on reasonable assumptions, but actual results may differ materially from those indicated. Important factors which could cause actual results to differ materially from those in the forward-looking statements are detailed in filings made by ResMed with the SEC. I will now hand the call over to Mick Farrell.

Thanks, Agnes, and thank you to our shareholders who are joining us on today's investor call as we provide an overview of our Q4 and our full fiscal year 2015 results. I'm pleased to report that we finished our fiscal year with robust performance in both our core sleep apnea business and our respiratory care business as well as a return to solid growth for our mask products. In my remarks I'll discuss our top and bottom line results, regional highlights from our global business, and an update regarding our long-term strategy. I'll also provide high level summaries of two recent acquisitions, first CareTouch, a healthcare informatics acquisition that we announced just a few weeks ago; and second, an investment that we made and announced just earlier today, a few minutes ago, it went over the wire with Curative Medical. Finally I'll turn the call over to Brett, our CFO, to walk you through our financial results in greater detail, and then we'll get to Q&A. As you saw in our press release, our global team achieved double-digit revenue growth up 17% on a constant currency basis during the quarter. This is our best performance in over four years, and quite an achievement on the robust foundation of the $1.7 billion global business. Our team performed incredibly well. In our Americas region we achieved double-digit revenue growth, and in our combined European and Asia Pac region we achieved solid mid-single-digit growth on a constant currency basis. These global results were fueled by the success of our new product and solutions launches in both our sleep and respiratory care businesses. Looking at the bottom line, our diluted EPS was $0.68 on a non-GAAP basis. Our global team produced excellent top line growth this quarter, and we have been balancing our investments…

All right. Thanks, Mick. As Mick has noted, revenue for the June quarter was $453.1 million, an increase of 9% over the prior-year quarter, and in constant currency terms, revenue increased by 17%. Movements in exchange rates, predominantly a weak euro relative to the U.S. dollar, negatively impacted revenue by approximately $32.5 million in the fourth quarter. At a geographic level, overall sales in the Americas were $273.7 million, an increase of 27% over the prior-year quarter. Sales in Europe and Asia Pacific totaled $179.4 million, a decrease of 10% over the prior-year quarter. But in constant currency terms, sales in Europe and Asia Pacific increased by 5% over the prior-year quarter. Breaking up revenue between product segments, Americas flow generator sales were $151.5 million, an increase of 53% over the prior-year quarter. Masks and other sales were $122.2 million, an increase of 6% over the prior-year quarter. For revenue in Europe and Asia Pacific, flow generator sales were $121.1 million, a decrease of 11% over the prior-year quarter, but in constant currency terms an increase of 4%. Revenue growth in Europe and Asia Pacific was lower mostly due to lower ASP sales and a tough prior year comparable for Asia Pacific, reflecting typical lumpy order cycles. Masks and other sales were $58.3 million, a decrease of 9% over the prior-year quarter, or in constant currency terms, an increase of 6%. Globally in constant currency terms, flow generator sales increased by 25% while masks and other increased by 6% over the prior-year quarter. During the quarter, we incurred a one-time charge of $5 million associated with a field safety notice expenses in the response to the result of the SERVE-HF clinical trial. Additionally, we made donations totaling $6 million, which comprised of $5 million dollar donation to the University of…

Thanks, Brett. We will now turn to Q&A, and we ask that everyone limit themselves to one question and one follow-up question. If you have additional questions after that, please get back into the queue. Kelly, we are now ready for the Q&A portion of the call.

Thank you, we will not begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Andrew Goodsall from UBS. Your line is open.

Thanks very much for taking my call. Terrific results. Could I perhaps just ask the effect or just to characterize the effect of ASP from the safety recall just with a – we saw already trend lines I guess particularly around people with a normal heart function who might have complex sleep apnea.

Thanks, Andrew, for the call. And I agree with you, it was a good quarter. With regard to SERVE-HF and the follow-up from that, the results these last months since we published the SERVE-HF results all had been presented by our Chief Medical Officer at the conferences and discussed them with regulators, the publication will be in a couple months, have been pretty much in line with the information that we put out there. And so we said that ASP accounts for around 7% of our revenues and about a quarter of that is potentially in this affected population. So we're talking about impact of less than 1.75% of our group sales. And that's sort of the trend line that we've seen approximately in that range over the last months since the data were published on the trial. Interestingly, our ASP business in narcotic-induced central sleep apnea or treatment emergent central sleep apnea has not been affected, and that's mostly in the U.S. side of the business and it's an opportunity for us to grow that what they sometimes call complex sleep apnea or treatment emergent central sleep apnea opportunity in Europe.

And with the – I know you described Europe as having some impact for ASP. Would there be any reason why Europe is perhaps a little bit more difficult post the safety notice in Europe than perhaps the U.S.?

Yeah, thanks for the follow-up, Andrew. And yes, since we had run the SERVE-HF trial predominantly in Europe, there were some sites in Asia Pac, but mostly in Europe, and had been a big focus on the heart failure component that the majority of the ASP effect has been within the European region.

Perfect. And [indiscernible] just really quick housekeeping, just the FX effect of the net income level from Brett?

Yeah, on the FX impact on EPS this quarter, it was pretty significant. It was around $0.05 negative on EPS.

Terrific. Thank you very much.

Your next question comes from the line of Matt Taylor from Barclays. Your line is open. Again, your next question comes from the line of Matt Taylor. Your line is open.

Matt, I think you've either got us on mute or you're not there. Let's go to the next question, Kelly.

Your next question comes from the line of Ben Andrew from William Blair. Your line is open.

Good afternoon, everybody. Thanks for taking the questions. Maybe two areas for us; Mick, talk a little bit about the durability of the reacceleration in Masks? You had an easy comp obviously in the quarter, but you're getting rid of the price declines. Do you see Masks in the U.S., and you talked a little bit to this in your script, but do you see it getting back to the high-single-digit growth rate durably?

So good question, Andrew, and yeah it was a great turnaround from Q3 to Q4, from minus 3% to plus 5% on the Masks line. We do think that's a sustainable turnaround for a number of reasons. The AirFit portfolio, particularly the P10 and the F10, are very solid and strong masks and are being received really well by customers. That's point one. And point two is yeah, we annualized those price declines that we talked about from January to June, 2014 through January to June, 2015 so we're through that sort of hurdle. So good products, good pricing, good positioning and we think the masks will continue to do well for the year ahead.

Okay. And then on the gross margin side, Brett, maybe give us some insights into the relative magnitude of currency, mix, geography, things like that? So whether for Q4 or maybe for 2016 so we can be a little more granular in how we think about that? Thanks.

Yeah, Ben. If you look at Q4 year-on-year, and as you know a bunch of drivers on that margin, but if you look at that, the single biggest impact for us was FX. And to put that into perspective, I think it was around sort of that 150 basis point mark. So that was the biggest impact, but each of the others were meaningful in terms of geographic mix, product mix and ASP decline I think all played a part in that. That kind of gives you sort of a relative sense of what was driving the gross margin there.

And then the guidance again for 2016, is it presumably product mix is a bigger impact? Or is it some of the other things start to go the other way? Is that fair?

Yeah, I think that – yeah. I mean the mix, with the flow generator growth in the U.S., what you're seeing there is quite extraordinary. So it does swing your product mix and your geographic mix somewhat. So they sort of become a little more volatile, if you like. So I think if you were – I think it will run through fiscal year 2016, I think some of those will tend to moderate as kind of your cycle price introduction and so on. As you know we're working very hard on cost-out programs, and they will deliver. The timing will be uncertain but they'll deliver over the course of 2016. And then currencies, okay, that's always a bit of a wild card, but we've seen some depreciation in the Aussie dollar recently. We haven't seen the benefit of that yet, tends to lag about a quarter. Really we'll start to see some of that benefiting in Q2 as well. So I mean some of the – certainly a lot of those drivers that were working against us will certainly I think moderate over the course of 2016. But again, they're quite volatile so the kind of the gross margins guidance would be a little bit wider, I think that really accounts for some of the volatility we're seeing in some of the drivers.

Okay.

Ben, I'd just add to that, to Brett's comments which I agree with all of them, and I don't want to sound like a broken record but I'll reiterate what we're doing the next 12 months on this, we're moving from air freight to sea freight as these products ramp up. We're moving these cost-out programs in the supply chain, so that's with suppliers and our partners but also within our internal programs and manufacturing and COGS reduction. And thirdly, we're increasing the incremental growth at lower cost plants. And I think all those three elements will help move GM to the higher end of Brett's guidance rather than the low one. And then finally, our sales teams, Jim and Ann and their teams are being provided incentives to drive high gross margin growth. So growth in the AirCurve 10 range, growth in the Astral range, and growth in the AirFit range of masks all being provided incentives to the channel to make sure that we grow those high GMx products. And so all those together I think are a pretty powerful weapon.

Great. Thank you very much.

Your next question comes from the line of Anthony Petrone of Jefferies. Your line is open.

Great. Thanks. Maybe just to focus in on SERVE-HF and just cardiology, I'm wondering, Mick, maybe if you can resize the opportunity post the SERVE-HF results here, it seems there's still certainly an opportunity in the less sick patient population. I'm just wondering if there's any numbers that you can share with us around that? The follow-up to that would be is there an update on timing in getting to that patient population? And then lastly on this topic, which could be an update on CAT-HF? Thanks.

Yeah. Thanks, Anthony. So to seize the opportunity in HF globally, we're in the U.S. with more than 8 million patients and globally there are more than 20 million patients with heart failure worldwide. Obstructive sleep apnea progress in that group is north of 40%, we think central sleep apnea is around 30%. SERVE-HF was targeted at the 30%. If you look at all the key opinion leaders post SERVE-HF and their comments around both obstructive sleep apnea and central sleep apnea in general, is obstructive sleep apnea should be treated with all co-morbidities, and the SERVE-HF results have no impact on that area. I might go into some information in some publications that have come out from ATS in the American Journal for Respiratory and Critical Care Medicine, on that front if we need to, but certainly that's what the key opinion leaders are saying. That's what we've seen in practice as we look at our sales over the last sort of 60, 90 days since the SERVE-HF results have come out. So as we look forward we think there's still a significant opportunity in heart failure with the obstructive sleep apnea patients. And amongst the central sleep apnea patients, which is the 30% prevalent side, physicians are still trying to work out what to do, whether it's just CPAP or a combination of oxygen and CPAP or bi-level, and they're working through each of those modalities. And I think you'll see a lot of research in the area to go closer to HF to next steps. We are working with Chris O'Connor and the group at CAT-HF to certainly finish and follow through on the patients who are already in that trial. And Rob and I just had a teleconference with Chis O'Connor a couple of days ago, and we're planning for next steps post HF and post CAT-HF, how do we find the groups of patients who are well treated and we can really focus on health economics, keeping patients out of hospital beyond that 30-day, 90-day period with heart failure, which is such a focus, and their functional outcomes as steps that we look ahead for post CAT-HF and post SERVE-HF. And as I said in the preliminary remarks, we're in the field of play here. We'll give you an update next quarter as to where we are with our cardiovascular strategy, but we're not moving away from this area. In fact, we're likely to double down on it because as you'll see, the results from SERVE-HF come out with some pretty interesting insights as you look at the different quintiles and the different groups of patients. But I'm not going to say too much more on that because I'm going to wait for the data to be published in the period review article, and then I can start to talk about the market opportunities that have part of that. Thanks for the question, Anthony.

Thank you.

Your next question comes from the line of Steve Wheen from JPMorgan. Your line is open.

Good morning. Just a quick question on the margin again; you mentioned the various factors, Brett, that were impacting it. One of them is the ASP, the ongoing ASP declines. You're obviously seeing a rebasing of pricing in masks now that it's returned to growth, so is there, can you just sort of talk to the think pressure you're seeing across the flow generators, which I assume is where that is coming from?

Yeah, I mean, the ASP declines was year-on-year, Steve, so still cycling a little bit of that kind of second half impact, but we're basically through that now. So we do think the impacts from ASP declines will certainly moderate from where they've been. And that's kind of being factored into the guidance. As Mick said, we're seeing a relatively stable environment, I guess, on the pricing at the moment, and that's kind of across the whole product range really.

Okay. And then, some commentary that you made last quarter was that you'd be expecting to be not as reliant on air freighting. Did that not pan out as you expected just because of the sheer uptick in volume that you saw in flow generators? Are we still seeing that sort of impact on the gross margin from air freight?

Yeah, true. We haven't been able to get, basically move from air freight to sea freight quite as quickly as we would have liked. And you saw it just in the latest quarter. When you look at it, frankly the flow gen growth has been accelerating through the quarters. This quarter you saw 50% growth in the U.S., which is quite phenomenal. But the guys have really done a great job in making sure we've got the capacity there and that product is going out to market quite seamlessly. But we've been doing that with obviously more air freight than we would like. Based on the trend down it was kind of where we're looking at July that I'm quite happy with how we're trending that now. But I do think that will start to see meaningful benefit I think coming through in Q2 on the freight out program. The trajectory and the trend is absolutely there, so I'm quite confident we'll see that; likely to be Q2 impact at this stage.

Yeah. And just to be clear, that air freight cost is sitting in your gross margin, not in your SG&A line? And if you can just cover off on whether or not because of that demand in flow generators you've got any unfilled orders?

Yeah, so definitely it's in our gross margin, the freight. The – and we don't, no, we would have finished the quarter pretty much with negligible back orders.

Great. Thank you.

Your next question comes from the line of Matthew Prior from Evans & Partners. Your line is open.

All right, guys. Great results. Just two questions; first one from me is Mick, just in terms of the U.S. sales and the great flow gen result, where are we in terms of the Astral product cycle and ramp-up given that – I'm just wondering with the strong U.S. flow gen result and the uptake of Informatics if we're focused a little bit too much on the sleep side of the business? And you may be having success in ventilation in Astral in the U.S. that's somewhat covered up I guess in the focus on that number.

Well, Matthew, the U.S. flow generators numbers includes both sleep and respiratory care products, but the AirSense 10 and the AirCurve 10 are the vast majority of it. But I'll hand it over to Jim Hollingshead, our President of the Americas, to maybe give a little more color on the growth of our Astral line of respiratory care and the flow generator, the amazing growth in the line's growth for the quarter.

Yeah, we've had great flow generator growth across the entire quarter. Specifically your question on Astral, it's still early days on Astral. And so that's still ramping, but it's so far, exceeding our expectations. The device is quite a good device. It's very strong clinically and it has very high ease of use. And so we're very happy, we're very pleased with the adoption of Astral. It's ahead of expectations.

All right. Thanks. And just a second question from me. Mick, in terms of Informatics, can you talk whether the Informatics roll-out and uptake has driven any mask resupply styles increase in terms of that important metric, and whether that aided you in the fourth quarter with U.S. mask sales? And also just ask are you seeing any re-tapping on the back of Informatics' success? Thanks.

Good questions, Matt. The Healthcare Informatics core competency, the capability their view, U-Sleep and myAir has really enabled us to achieve those flow generator growth numbers. The analogy would be iTunes is such a great platform that people are buying a lot of iPhones and iPads, and so we do think that the growth of those flow generators is linked to really the changing of the basis of competition in our industry from just smaller, quieter, more comfortable to smaller, quieter, more comfortable and more connected. And that more connected element is the Informatics that liberates the data, unlocks values for patients, providers and physicians and, ultimately, hospital systems. Your question, your sort of part two of the question was is there a link to the Q4 masks number? And I'd say, no, no, just yes, right? The acquisition of Jaysec earlier this fiscal year and CareTouch that we announced just earlier this month, both will enable us to use those data to drive resupply programs and to get them out to all the HMEs and make available to all the HMEs. We think there's still a huge opportunity to contact patients and let them know how far up they are along in their mask gauging and give them an opportunity to buy. So I think as you look forward over FY 2016 and beyond, there's a huge opportunity for Informatics to drive mask sales, but it wasn't really there in Q4. And the re-tapping opportunity again, I'd say that's not in the historic, that's in the future. And we do have an opportunity to reach out to patients through the Informatics solution, to e-mail, text or IVR to patients on coaching and adherence, and that could lead to reaching out our masks and on re-tapping. So you'll hear more from us over the coming fiscal year, and we can give you an update next quarter as to the link between Informatics and driving those trialing revenues. But it's a huge opportunity for us and for our channel and for the patients.

All right. Thanks, guys.

Thanks, Matt.

Our next question comes from the line of Bruce Du from CBA. Your line is open.

Hi, guys. I just firstly was following up on the ASV question prior. You touched on sort of the impact in Europe, so I was sort of just wondering whether or not you've seen or probably expect to see the next couple of quarters any impact in terms of demand out of Asia. And I know you sort of mentioned that Japan in the past has been quite a lumpy market, but this thing could take up there?

Yeah, Bruce. Well, I'll hand it to Rob Douglas to talk about the impacts on ASV in Asia Pac. Rob, do you want to take that?

Yeah, definitely. We've talked quite a lot that the ASV's been very successful, and there have been a lot of local trials in Japan. In various patient populations, there's an incredible amount of support for the ASV in Japan. Given the different regulator environments in that, the Japanese regulators are moving at a very deliberate pace towards analyzing and understanding what this has been and what it all means, but we expect there still to be significant interest in Japan. And in the short-term Japan remains, still because of the nature of the market, we have variable demand on a quarter-to-quarter basis for Japan. So it's a little bit hard to measure that exactly at this stage.

The only thing I'd add to Rob's comments, which I agree with them, is that in Japan ASV is often used in an acute setting.

Yeah.

The SERVE-HF results were done in a chronic setting, and so the physicians there are working through the difference of application between acute and chronic care, and there are different clinical implications. And more will come out post the publication of the SERVE-HF data on that in the coming months. Thanks for the question, Bruce.

Okay. Great. And I just had one more, it was just around clarifying is it correct that the non-invasive ventilation is now out of competitive bidding, the upcoming round?

I'll hand to Dave Pendarvis to answer that.

Yup. Short answer is yes, Bruce, that the next rounds of competitive bidding will not include non-invasive ventilation. There was an initial proposal that it would, and the announcement after that, that it's not included in competitive bidding, which our customers feel good about and we feel good about.

Okay. Excellent. Thanks.

Your next question comes from the line of Matthew O'Brien from Piper Jaffray. Your line is open. Matthew O’Brien: Afternoon. Thanks for taking the question. Hoping to start with the – a follow-up to a previous question on the Informatics. Mick, just as you think about where that product line can go going forward, I think we're probably low-single-digits in terms of market share at this point, but just how that market's going to segment itself over the next several years between the real high end featured products including Informatics versus kind of your average mid-to-low feature set and then the low end as well?

Yeah, Matthew. The impact on revenue of the Informatics is really through the rest of the business. So if you think of Informatics really as an enabler or a new basis of enabling our HME providers, our patients and our physicians to get access to data. So physicians can access data in AirView, patients can access it in myAir, and then through electronic data interchange we're able to put the data into Epic or Cerner systems for hospitals and even payer providers so they can leverage that data. So the monetary, you're talking about what percentage of the revenue, the monetary feedback directly from payments for the Informatics Solutions is de minimis and it's not material. But the enabling of the sales, such as the 53% growth in flow generators in the quarter in the Americas, was really fueled and catalyzed and powered by those Healthcare Informatics solutions. So we do have internal calculations of the value of Informatics to justify our ongoing investment in that space, but it's a really long-term play about showing the value of home care, of taking sick patients out of hospital, putting them in a home and saving money for broken healthcare systems that's there. Matthew O’Brien: Sorry, Mick, I think I wasn't real clear on the question. It wasn't a function of what kind of revenue can you get from the Informatics. It was more of a function of if you don't offer Informatics on your CPAP system, are you just not going to be able to participate in the segment of the market, and will that segment of the market be 25%, 30% of all CPAPs being sold in a few years.

That's a good question. Thanks for the clarification, Matthew. Look, I think that it'll first be 100% of the market that you require data because what's happening is what we're doing is if you look at the data that's in our investor deck there, the published data that we put out there on the product called U-Sleep, where we showed a 59% reduction in the labor costs for the HME upon using U-Sleep and an increase in adherence from 73% to 83%. You start to run the economics for our customer, and it's going to become just an essential basis of competition to play. But I want to make it clear that Informatics is not Informatics. It's not just saying, well I can get my data to the cloud. It's doing it fast, securely, enabling systems to move quickly, and I do think there's a partnership element of connecting directly into the Epic or Cerner system or into our HME-provider systems on the electronic front. And it's a global play. It goes beyond just the first four ways, really just been in the U.S. in the Americas region, but we are now moving our Informatics capabilities into France, Germany, Japan, and it's really something that is going to go global. So I think it quickly goes from where it is now to 100% over the coming quarters and fiscal year. Matthew O’Brien: Okay. And then as the follow-up, the Curative transaction that you just announced. I know that you didn't want to provide too much in the way of details, but could you just give us a sense for how quickly that business is growing and the profitability profile versus overall resonating?

So we're not going to get into specific details on it because it's not material to our global business. It's on the order of 1% of our group revenues. It's growing faster than our group, and we're very excited about the opportunity. It takes us to a leadership position within the China market and sleep and respiratory medicine. And Jason Sun, the founder and CEO, is a great gentlemen, an individual, a very smart leader and entrepreneur who's created a very strong team around him in Suzhou. And we're really excited to be partnering with Curative to help grow and help the Chinese population get access to great care across the customer segments from Curative and ResMed. Matthew O’Brien: Got it. Thank you.

Your next question comes from the line of Matt Taylor from Barclays. Your line is open.

Hi. Apologies for before, guys. Thanks for taking the question. I guess I wanted to ask one about masks. In the beginning of your prepared comments, you said that you were excited about mask growth next year, you expected robust growth. And I was wondering if you could just help us qualitatively understand what's driving that? If it's pull-through or launches or both, or just continued strength of the product?

Yeah, Matt, I'm excited about the mask growth. People close to the business are even more excited about it. I'm going to hand it over to Jim Hollingshead, our President of the Americas, to talk about it.

Yeah. Thanks, Matt. We've talked over the last two or three quarters about how we changed our pricing strategy and now that that's been grandfathered I think the biggest move that happened this quarter is a lot of those pricing moves that we made in mask in the second half of the prior year of neg ramp [ph] following through. So we've seen pricing stabilize. The AirFit range of masks continues to compete very, very strongly, I would say especially in pillows and full face. The nasal market has always been the most competitive category of masks and continues to be quite competitive. But our volumes are up and our pricing is stabilizing. We have a very strong position and we feel confident we can maintain growth.

Thanks for that. And just a follow-up on flow gens, just given how strong the Americas growth has been, once you start comping those big numbers, how much more can you grow over those 53%, 42% growth numbers that you had in the back half?

Yeah, Matt, if you look at our global sleep and respiratory market, we believe it's growing in the sort of mid-single digits. So you can't grow double-digits forever, but our goal is to not just meet but we want to beat market growth in every geography we're in every financial period we're there. So we're searching for excellence. The team has produced excellence, and we're going to continue to do what we can to outperform market growth.

Great. Thank you.

Your next question comes from the line of Ian Abbott from Goldman Sachs. Your line is open.

Oh, yes. Good afternoon. I was just wondering on the informatics where you're at in the roll-out of that to DMEs in the U.S.? Do you think you've pretty much reached all of them with your latest informatics, or do you still get some way to go there?

Jim?

It's a great question, Ian. Thanks. The – where we've seen everybody with the initial offering, right? So the uptake of the initial offering has been very, very strong. And I think that that's a huge contributor to the flow gen growth. We're taking share in flow gen and I think we're taking share in flow gen. And a large part of the devices is great the device, both the AirSense and AirCurve devices are fantastic devices, just an aside [ph] , but the Informatics side of that with anybody comms and the Software-as-a-Service platform is clearly starting to get uptake because it creates a lot of value for our customers. And what they're seeing is both they can increase compliance and therefore increase revenue, but they also take out a lot of labor-intensive processes with it and troubleshooting and patient management some. So broadly it's getting adopted. We will add to the platform. So you see things like the Jaysec acquisition and the CareTouch acquisition. As we build on the platform our customers will get even more growth. And so as we build the platform we hope to drive even more adoption, which should maintain an even grow share in the flow gen space, make our customers' businesses more productive, more profitable, and improve the health of the market for both us and for our customers.

So would mastery [ph] be on some version of it already? I mean I know you're saying you're rolling out more, but do you feel like you're fairly well there already?

I think there's a lot of growth to come. I mean I think that the platform will grow and so we'll have more feature sets and more opportunities for growth as the platform grows, but we've had very broad adoption of the product set across the whole market of HMEs, right. It's not restricted to a customer set. We're getting broad adoption across all of our customers. We're getting growing adoption across our customers. And we will continue to drive that as we add more features to the platform.

And Ian, I'd add that beyond the U.S. geography which sort of has been the first early adopter here if you like of the Healthcare Informatics solutions, and that study I referenced was based in the U.S., we're seeing the same thing as we take this offering to France, to Germany, to Japan, across Northern Europe and we will be taking this globally to all of the 100 countries that we provide products in. And the value that's provided in this is universal. I mean we take waste and inefficiency out of the delivery system. We provide data real-time, we call it the HALO, Hour After Last Off. You literally can put your mask down at 6:30 a.m., by 7:30 a.m. your data are in the cloud and they're available for you on your smartphone on myAir. There available for the doctor at your 7:30 appointment. And they've available to the portfolio manager who's looking at a population of chronic disease, of COPD, sleep apnea or heart failure or hypertension patients. And so the value of that has such a low runway that Jim saying it's available to every customer in the U.S. is 100% true, but has it fully unlocked all its value in the U.S.? No way. And has it gone to every country around the world that we do business in? And have we been able to show that value fully yet? No way. There's a whole lot of runway left on that.

Okay. Thank you. And my other question was about SERVE-HF; it's now a couple of months since you actually came out with the trial, initial trial data. How would you characterize the response from the sleep doctors from that, and the cardiologists? How would you sort of in general characterize the response, and what sort of things are they looking for going forward?

So on this one, I won't characterize a response. I'll read out the response from the American Journal of Respiratory and Critical Care Medicine, which is the journal of the American Thoracic Society. Let's read two paragraphs out. This is four authors from University of British Colombia, Johns Hopkins, Brown and others. The title of the paragraph is What Should we do with Patients Being Treated with ASV for Other Indications? And I'll just quote this. "It is important to note that survey chest study only included patients with heart fail, with reduced ejection fraction and predominantly central events, and the findings should not be extrapolated beyond the study population. Patients who have been given ASV for other indications, such as narcotic injuries, central sleep apnea, heart failure, preserved ejection fraction or complex sleep apnea, can likely continue ASV safely as we see no compelling reason to withdraw, especially if there is a beneficial impact on their symptoms." And they go on further to say, "We believe that newly diagnosed patients with obstructive sleep apnea should be treated on CPAP as a first-line treatment of obstructive sleep apnea if clinically indicated as there is no compelling reason to believe that CPAP is harmful in any way with heart fail, with reduced ejection fraction patients." So they're just two quotes directly from publication in mid-July from APS. What we've seen out in the market is exactly that. The sleep physicians and the cardiologists are working together to look for patient groups where they can double-down on treatment with, I would say, bi-level, oxygen and ASV, and they're looking for areas where there might a safety signal, but as we delve further and further into the SERVE-HF data, our chief medical officer said at a session at APSS that when you get ejection fraction above 30%, the safety signal goes away. So these data are going to get out there. There's going to be public, and there's going to be a lot of follow on, but the dust has sort of settled on these last two months, and it's sort of what we predicted, as I said earlier, in the numbers, and as adjusted earlier, they're from the peer-reviewed press that we're starting to see articles concerning that and certainly in the numbers we're seeing in sales and the channel. We're seeing that we're all moving forward, and a great thing about this is that we've done some great scientific research. We have the data on Kern-Loin [ph] showing a 60% reduction in mortality in severe COPD, and we had a safety signal in heart failure. But our reputation at ResMed in our clinical community only goes up by these large, randomized controlled trials that we publish in the peer-reviewed press and will continue to do that.

Great. Thank you.

Your next question comes from the line of David Low from Deutsche Bank. Your line is open.

Thanks very much. I think most of the questions have been asked, but just a couple of ones. Competitive bidding, which is a national roll-out next calendar year, what are your expectations or the implications of that?

Dave?

So it's still a little bit up in the air, but the announcement is that you've got a January 1 phase-in that goes sort of half and half with existing rights and half with the national averages, or national averages plus 110% depending upon whether you're in an MSA or not. And then July 1 going forward would be the new rights set on either the national or local averages. But we obviously support our customers. We think our customers ought to be getting fair value for the services that they are providing. And I know there is still dialogue that is going on. So it remains to be seen whether or not this goes forward on the date as scheduled but regardless we think that this competitive bidding that's been in round one and in round two is a known quantity. So from a disruption standpoint there should be less, there's a little bit easier to plan for. And also because there's no reduction in the number of providers while on the one hand you'd say for our customers it's not quite as fair because they're just taking the price cuts without getting the volume up. On the other hand, there's less disruption in terms of who's going to be in the market as a customer. So we'll wait and see when it comes out and how it progresses. But we feel reasonably confident about how the market is going to develop between here and there.

Okay, thanks. And just switching to the acquisition that's been announced today, Curative. Am I right in understanding that effectively you'll have two product ranges in China? And is that a strategy that you'd expect to take to other markets?

Sir Rob Douglas will answer this.

Yeah, thanks, David. So we think the Curative brand is actually quite strong in China. It's one of the major players there. And the interesting thing behind the acquisition rational, there's a very strong correlation in culture and values in those brands values. And also as we think about China in terms of segmentation in the market where there are people who want to buy our stuff, expensive stuff and people who want good stuff, local. And so we – and our distribution channels are actually quite complementary through that. So specifically in China we see that multi-brand strategy working well and we talk with our teams, we will have coordinated strategies, but we'll be very independent entities. And we think that's a very efficient way to run an integration plan. As we look at other markets they'll be done on a market-by-market basis as to what makes sense in those as we move across the world.

So is security offer cheaper presumably then a ResMed or a Respironics offer?

You know what? I don't think we'd go there. It's more a question of functioning, good functioning, good value products, our target into the right segments. And really these products have all been designed in China for the China market. So they really got the right picture fit for those patients that have targeted that.

Okay. Great. Well, thanks very much.

Thanks, David.

Your next question comes from the line of Joanne Wuensch from BMO Securities. Your line is open.

Hi. Good afternoon and thanks for taking my questions. I have a very specific one and a very big picture one. First one specific, what's really interesting to me is that year-over-year your gross margins declined by 450 basis points, but operating margins are only down 90 basis points which means you're managing the rest of your expenses. How do I think about the FX impact that rolls through the other expenses that helped you capture that only 90 basis point hit?

Brett, do you want to have the first go at that and maybe Rob add some color?

Yeah. I mean Joanne, you're right, I mean we do take more of a holistic approach to it and sort of the products and for example the flow gen growth's been great on top line, been some pressure on the gross margin but we also managed the operating expenses as well. So at an operating profit level, and you can look at it on a non-GAAP basis, operating profits grew 5% notwithstanding a bunch of FX headwinds and distractions from SERVE-HF and so on. So this thing kind of demonstrates pretty resilient, pretty robust business I think. And so we try to manage it across the board, not just kind of one particular segment. So but the currency, so I mean certainly it helps us if you like the currencies through the SG&A and R&D, helps us a bit on the gross margin. I think if you step back, take a longer term, I think we're still very committed to getting operating leverage at kind of that SG&A or operating profit level, so I think, think of it in that context, that we do want to get operating leverage there. To the extent we get that, that's certainly going to drop to the bottom line and help our earnings per share.

That's helpful. So it implies that, that is the right way to think about this holistically, that there's a lot of pieces running through this and that there's room over time...

Exactly.

Okay.

Exactly.

Thank you. Now for the big picture question, most of my medtech companies at this stage are consolidating. We're running a lot of merger models on a regular basis. You guys have done an amazing job since the spin-out from Baxter, you're making tuck-in acquisitions like we saw today in China. How do you think about playing the new world order where more product is better product?

Well, Joanne, you know we play in a different space to companies like the big ones you're talking about like Medtronic, Covidien, Label [ph] . You're selling products to hospitals and large GPOs [ph] . Our job, and at some of the lines with the Western European healthcare systems and where the U.S. healthcare system has now gone with Accountable Care organizations, that the goal now is to keep patients out of hospital and in the home. And within the homecare medical device space we have a very strong position, and certainly within the respiratory medical and COPD side we're the market leader in driving those channels. So I would say our opportunity is to continue to drive value to show that taking patients out of hospital and putting them into the home is the right thing. And our job is to run faster and do better and to make sure that we continue to grow. We will continue to look at M&A, as we announced on this call two acquisitions, and our goal is organic growth and leveraging our current business, driving the operating leverage that you mentioned in the first part of your question, but also looking strategically at how we can add value to the marketplace, and I think taking patients out of the hospital, managing them in the home, getting the data to the cloud so you can quantify the benefit of that is kind of a unique value proposition, if you like, to the medical device market. Yeah, we have competition, and we continue to compete against our fellow competitors in the homecare space and the respiratory space. I think we do it better and I think we'll continue to lead and innovate and look at appropriate M&A to keep ourselves at the front of the pack.

Thank you.

Thanks, Joanne.

And we are now at the one hour mark. I will turn the call back over to Mick Farrell for closing remarks.

Thanks, Kelly. In closing, I want to thank the more than 4,000 ResMed team from around the world for their continued commitment to changing millions of lives with every breath. We've had an incredible year launching game-changing products and services and we've reached $1.7 billion in annual revenues, but we remain laser focused on our long-term aspiration of changing 20 million lives by 2020. Thanks for your time today.

Thank you again for joining us. If there's any additional questions, please feel free to contact me. The webcast replay will be available on our website at investors.resmed.com. Kelly, you may now close the call.