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.

Hey thank you Kevin. Hello everyone and welcome to ResMed’s third quarter fiscal year 2023 earnings conference call. This call is being webcast live and a replay will be available on the investor relations section of our corporate website later today along with the copy of the earnings press release and the presentation both of which are available now. On the call today are Chief Executive Officer, Mick Farrell and Chief Financial Officer, Brett Sandercock. Following our prepared remarks, Mick and Brett will be joined by Rob Douglas, President and Chief Operating Officer and David Pendarvis, Chief Administrative Officer and Global General Counsel for our Q&A session. During today’s call we will discuss several non-GAAP measures. For a reconciliation of the non-GAAP measures, please see the supporting schedules in today’s earnings release. Our discussion today will include forward-looking statements, including but not limited to expectations about our future financial and operating performance. We believe these statements are based on reasonable assumptions, however our actual results could differ. Please review our SEC filings for a complete discussion of the risk factors that could cause our actual results to differ materially from any forward-looking statements made today. I’d like to now turn the call over to Mick.

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…

Great. Thanks, Mick. In my remarks today, I’ll provide an overview of our results for the third quarter of fiscal year 2023. Unless noted all comparisons out of the prior year quarter. We had strong financial performance in Q3. Group revenue for the March quarter was $1.12 billion an increase of 29%. In constant currency terms, revenue increased by 31%. Revenue growth reflected improved availability of sleep devices to support the strong underlying demand for these products, as well as solid growth across our broader product portfolio. Year-on-year movements in foreign currencies in particular, weaker euro negatively impacted revenue by approximately $20 million in the March quarter. We record an incremental revenue of approximately $15 million from COVID related demand in the March quarter. However, looking forward we expect negligible revenue from COVID related demand. Looking at geographic revenue distribution and excluding revenue from our software as a service business, sales in U.S. Canada and Latin America increased by 32%. Sales in Europe, Asia and other markets increased by 28% in constant currency terms. Globally in constant currency terms, device sales increased by 43%, while masks and other sales increased by 15%. Breaking it down by regional areas, device sales in U.S. Canada and Latin America increased by 48% as we benefited from strong demand and improving availability of our connected devices. Masks and other sales increased by 14%, reflecting solid resupply and growth in new patients setups. In Europe, Asia and other markets device sales increased by 36% in constant currency terms, again reflecting strong demand and improving availability of connected devices. Masked and other sales increased by 15% in constant currency terms, reflecting increased patient setups. Software as a service revenue increased by 35% in the March quarter, reflecting the contribution from our MEDIFOX DAN acquisition, and continued…

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.

Certainly. [Operator Instructions] Our first question is coming from Lyanne Harrison from Bank of America. Your line is now live.

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.

Well, thanks for the question, Lyanne and a tribute to Dave for his 20 plus years, 22 years of I think it was this is his 83rd investor call 83. So amazing tribute to Dave and we are in very safe hands with Amy on investor relations front. To your question. Look, yes, incredible growth, 43% growth in device revenue this quarter to an all-time high. You know, many, many factors that have gone into that primarily that we were able to deliver on our promise to get unconstrained on AirSense 10 a 100% connected devices, we’ve got those end market. And so I think, we were able to take care of all of the demand of customers in the U.S. market period, end of story. We said we’d be there by the end of this calendar year. But we’re they’re already here right now. And as I said in the prep remarks, we’re going to be scaling the AirSense 11, steadily and strongly as that new platform, the latest and greatest comes to market and we move forward. In terms of backlog of those sort of new patients I think we’re there in the U.S. But in terms of REPAPING, I think there’s a lot more to do, and we’re going to partner, across the U.S. with all of our 1000s of home medical equipment companies to start to work through that REPAP program. But I think that’s going to happen over time. We just got to the point where we’re completely unconstrained on AirSense 10 in this quarter. I think it’s fantastic. I want to get unconstrained on AirSense 11. That’s going to take a number of huge numbers of quarters. And then of course, that’s just one country. We’re in 140 countries worldwide, we’re going to go get regulatory and all them and then get those products to market. And so it’s going to be an on-going process over the coming quarters and years to continue there. I’m not going to say that we’re going to see this sort of exceptional 43% growth, on an on-going basis, the market growth is closer to the mid to high single digits in this space. But we’re seeing that market growth come back. We’re seeing the new patients come back. We are through that that pandemic side and we’re getting new patient flow, we see it in our home sleep testing data, we’re looking at all the stuff coming throughout [Indiscernible]. We’re seeing it in the number of patients are being set up, in AirView, all time high. But we’re looking at that every week, every month and every quarter, and it’s steadily improving. And it’s not just the U.S. It’s, it’s in Western Europe, Northern Europe. And it’s and it’s certainly coming through Asia, very strong growth in China over the last number of quarters as we’ve come through the COVID crisis there as well. So that’s my summary there, Lyanne. Great question.

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?

Yes. So we’re through, we’re through the backlog in the U.S. And we’re going to be progressively working our way through the other 139 countries that, it’s it’s not, it’s a complex system, where when you get regulatory approvals let’s say, for the AirSense 11, you’ve got to go region, by region, you can do you know, European Union, but then you have to go country by country for many of these approaches for Brazil, for China for India, and it takes time to get them there to get unconstrained with the two platform approach that we’ve been able to take in the U.S., Canada and a number of other countries. But look, we’ll give you updates over the coming quarters. Lyanne as we get unconstrained country by country, you’ll you will report it to you. And our goal is to be unconstrained everywhere tomorrow. It’s just not logistically possible to be able to do that. So we’re going slowly and steadily to that, but I’m just happy to be, nine months ahead of when we were saying we’re going to deliver an unconstrained at least in some of our top markets here, and we’ll keep you updated as we go forward.

Okay, thank you very much Mick.

Thanks, Lyanne.

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

Good morning. Thanks for the question. Someone else asked the gross margin question. But I’d like to ask about the SG&A. And just the fact that it’s remained relatively constant as a percentage rip scent of revenue during the course of the record, which to say a bit counterintuitive, when you consider the fact that the product had been shortages, etcetera, and suddenly was selling themselves. So I just wonder if we could talk about the key elements of that SG&A and the mid-to-long term trajectory there as volumes continue to improve?

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.

Yes, Dan. So you know how we operate, no matter what’s going on, we’re fiscally disciplined. We’re always keeping an eye on the future and where we’re going and what’s happening as we build, we build in expenses. We absolutely talked about the fact that we weren’t doing face to face marketing, and a lot of travel and those types of things earlier in the pandemic. And as that started to come back, we’ve had to manage carefully how that’s been an extra load on our SG&A. But it’s really, really a factor of careful management. Everyone’s aware of the issue of employee costs, and those things which is which are moving in the time of inflation. And we continue to manage that carefully. And we’re extremely prudent about what we add in on and how we go. And so we really don’t want to get ahead of ourselves and end up like some of these other companies that have found them way over provisioned in there -- and they go-to-market operations and had to make corrections. So we’re, we’re in good shape, and we’ve got a solid plan. And, we should be able to stick very carefully with our bets our forecast on our SG&A.

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

Good morning. Thanks very much for taking my question. Good afternoon. To those in California. You obviously had a very strong devices growth in the quarter. I was just wondering whether you still believe that you can sequentially grow every quarter in fiscal year 2023 in devices? And then how should we think about FY 2024 and the returns potential return of Philips to the market and whether there’s been any update there?

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.

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

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.

Yes, thanks for the for the question, Gretel. And as you said, and as Brett said in his prep remarks, we had some we had some headwinds on gross margin, which were geography mix, where, it was more in low margin countries, U.S., Canada, and in product mix, we saw more CPAP and APAP growth than we did by level or life support or even other non-invasive ventilators. And so, those headwinds are going to start to subside, but I, I am actually I think Gretel that, as I look forward, I see gross margin expansion in double digit basis points ahead for the coming quarters and throughout the fiscal year and the calendar year. I’m bullish on gross margin expansion because I see geography mix and product mix, headwinds subsiding. I’m bullish on gross margin, as I see ventilator growth, opportunities start to come back and I see mass growth and replenishment growth, new patient growth start to come on masks. And I’m bullish on gross margin as we go forward because I see inventory costs starting to we’re going to start to cut into that and bring them down versus the run up we had with our competitor being out of market. And I also I’m bullish on gross margin, because I see us being able to get better freight costs as we go forward. And as you said, we have been offsetting some of that gross margin headwinds with ASP holding steady in our core business, increasing ASPs in our SaaS businesses. And we’ve had some freight surcharges and others with customers, as we start to see our costs come down, we’ll take away some of those surcharges and so on and so we’ll balance that out. But net net, I see us being able to expand our gross margin and grow as we look forward throughout, not just the fiscal year 2023, but the calendar year here in 2023.

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

Alright, thanks. So sorry, I was on mute. I just wanted to ask about how much we should expect the mask trend to start following the device trends as you become more encumbered. I thought maybe there would be a little bit more mass growth this quarter, not taking away from a good result. But maybe you can talk about that as a derivative.

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.

Thank you Mick. Very helpful.

Thanks Matt.

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

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?

Yes. Look, Mike, there’s certainly a relationship and when our commercial teams there are working with the best platform, the AirSense 11 and the best second best platform, the AirSense 10, both of which are better than our competitors, they’re also obviously offering the best masks, the best mask portfolio out there, and we have a leading share in that in all 140 countries as well. So there’s definitely a synergy effect in that it’s the same people, talking to the same physicians, the same providers, the same health care systems. And so we’re there. In addition, there’s some sort of clinical technical needs. I mean we design our products to work better together. Our masks on our devices have far more accurate mask leak detection. They have far more accurate detection of pressure and control of an APAP device or a bi-level device, and particularly if it’s used on an overlap patients say, who has obstructive sleep apnea and COPD, you need that IPAP and APAP, the press control to be right on. When you use our buy level with our mask that’s going to be far more accurate and the physicians know that and they will script towards that for those patients. And then for the respiratory therapist doing a setup, they know our products are designed better together. Our teams have shown in the clinical and technical data of how they’re designed. And so there is a strong positive synergy effect. So yes, I do think there’s a correlation with terminal. You can think the sort of simple commercial. I mean, they’re selling it, but then you look at it from the physician’s perspective on clinical and then the therapist perspective on fit and comfort and leak. So I think all that goes together to show there some good synergy between our device growth and mask growth over time.

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

Thanks very much. Mick, can I go back to gross margins. I mean if I heard you correctly, you said you expect gross margins to expand in the double digits in the future. Can you do a little bit on what sort of time frame? And are we talking gross margin percentage? Are we talking gross profits? Just trying to understand what you’re expecting on that front, please?

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?

Yes, sure. Sure, Mick. Yes, David, it’s -- I mean we wouldn’t -- we’re not going to try and quantify, but when we look at it, we do expect margin expansion over the coming quarters. So if you look at some of the key ones that have hurt us year-on-year or it’s around -- it’s product mix, obviously, with a massive increase in sleep devices. We had to deal with component cost increases coming through year-on-year, but that looks to be stabilizing there. So that’s -- there’s 2 big headwinds that we expect will moderate. And then we’re working on manufacturing, logistics, freight costs, we’re looking at efficiencies. So we’re focused back on that now. And that -- again, these should improve over the coming quarters as well. Then on top of that, with the AirSense 11 platform, that does contribute positively to gross margin as well. Now that one will take time as we roll that out. But if you kind of put in the -- I guess, you look at the sort of the headwinds are moderating, we should get a few tailwinds in manufacturing and logistics. And that kind of gives us the confidence we think we can get that expansion from here on in.

Thank you very much.

Your next question today is coming from Malgorzata Kaczor from William Blair. Your line is now live.

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.

Yes. Thanks for the question, Malgorzata. I think there’s so much that goes into it. But yes, look, we -- we’re on the other side of this pandemic, right? Not only just the pandemics becoming endemic in the way that the world is opening up and we’re driving forward. But in our industry, we’re now seeing that strong growth of patients that we’re really starting to pick up. And yes, it’s mid- to high single digits growth on the patients starting to come through the funnel now, and that’s really strong. How long that’s sustainable and how we can drive it? That’s -- it’s going to be up to us as the market leader. We have the market lead here, and we’re going to drive awareness programs. We’re going to drive demand generation programs. We’re going to partner with I just got an update from a team here in the U.S. market, looking at a project to bring patients into the funnel and to drive patients into the funnel and as the market leader, that’s really our job, so not just accept market growth, but to drive market growth. So this is going to be an active thing that we’re going to be looking at as we move forward. And it’s very exciting for us to do that. I’m not going to quantify it out. I mean given where we’re at, I know you have your models, everyone on the sell side and buy side has their models. But I would say to that, whatever your models are, think about an active leader engaging in digital awareness, marketing awareness and driving and curating patients through the channel. And we’ve learned a lot through the COVID crisis about digital health, about engaging with patients in home testing in remote setup and virtual pathways that have really been necessary at the peak of the pandemic and now become a catalyst for future demand generation. So I don’t know, Rob or Lucie, if you have any extra thoughts on that?

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.

Next question is coming from Andrew Paine from CLS. Your line is now live

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?

Yes. Thanks for the question, Andrew. And yes, certainly, look, we look at all competition. We’ve got competitors based in Western Europe and in Asia that we’ve been competing with very strongly for the last few decades and certainly the last 2 years. And 1 competitor who’s been out of the market for new patient setups for 2 years and who knows how much longer, they’ll have to come in that third competitor that will have to come in and start fighting to become the number 2 share player from a 0% new patient setup share. And -- we look forward to that. We were beating that particular competitor in 2019 before they had their recalls. So I know we’ll be able to beat them when they come back in. And so no, our goal is to see 0 share. Our goal is to actually maintain and grow share as the market leader, that gets more and more difficult to take more and more share. But that’s our goal. We have the smallest, quietest, most comfortable and most cloud-connected devices. But more important than that, we’ve created a digital ecosystem that engages patients with myAir, doctors with our view, health care systems by APIs that link into Epic or Cerner in the U.S. and health care systems around the world in U.K. and NHS, Northern Europe into government and Western Europe into government-run health care systems. And we’re engaging with patients in our consumer-driven markets incredibly well. So our goal is to maintain and grow that share. But more important than that, to grow the market. As the market leader, that’s sort of our obligation. There are now with the latest epidemiology rising up around 1 billion people with obstructive sleep apnea that needs to be treated worldwide. And if…

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

Yes, hi Mick, you mentioned at one point that you’re getting 90% adherence on some of your best customers. I’m just curious like where that is versus kind of baseline? And how you can move that forward with like the rest of your customer base?

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.

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

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.

Yes. So it’s a great question because let’s just talk to our whole sort of demand generation and engagement approach. I mean, as you know, Primasun is a joint venture with Verily in the U.S. market, looking to digitally engaged -- well digitally identify, engage and enroll patients in a sort of digital health pathway from sleep concern consumer all the way through to diagnosed patient on treatment and management. We have activities through our core U.S. and North America marketing team. And obviously, in the other 139 countries we operate in, we’re looking at other digital ways to engage the 1 billion people who need our help. So look, we’re looking at investments. We’re at a pilot phase of some trials, and we’re getting ready to scale some approach with Primasun, with U.S. programs and many of the others were operating in all parts of the world. And so as we start to roll those out, now that we’re at the point where we’ve got full capability to supply, as we said in the prep remarks and throughout the call, with AirSense 10 and AirSense 11 is a combination, we can really turn to start to turn the dial up on these demand generation initiatives with undiagnosed sleep apnea patients. And I’m excited to start doing that. So those investments might pick up a little over the coming quarters, but they’ll have a huge return in bringing patients into the funnel. So watch this space.

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

Good afternoon, Mick, can you hear me all right?

Got you loud and clear, Suraj.

Perfect. So first, let me just express my thanks to David. David, wish you have a great retirement. It’s been a pleasure dealing with you all these years. So Mick, a lot of questions have been asked. You comment about AI caught my attention. So Mick think about it this way. Suraj comes in, he’s gone through the CPAP titration, the sleep lab. Certain parameters have been set at a buy level variable, whatever. How would -- what parameters specifically would your AI/ML-based algos telepatient? And the reason I ask is specifically trying to understand how will you use this to improve compliance? Thank you.

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.

Thank you. Next question is coming from Craig Wong-Pan from RBC. Your line is now live.

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?

Yes, Craig, thanks for the question. It did move up just a little bit in the quarter. I actually have got a very strong target for Andrew Price, President of our operations and the whole manufacturing team to get that number down because we’re through the peak of this, and we’ve got full supply, let’s get that number down. But Brett, do you want to speak to some of the details of how we’re going to turn that inventory number down significantly over the coming quarters and fiscal year?

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.

Thank you. Our final question today is coming from Chris Cooper from Goldman Sachs. Your line is now live.

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?

Yes. Thanks, Chris. Yes. No, it’s a huge market and actually quite exciting. We’ve always wanted to have interactions. We actually -- when I first joined the company 23 years ago, we were working with bariatric surgeons and looking at patients that would go through bariatric surgery and maybe from 450 pounds down to 200 pounds. And our challenge in those days when it was mostly a CPAP market was -- how do we make sure they get on APAC because their needs -- their AHI might go from 50 when they were at 450 pounds to 30, when they were 250 pounds, but that’s 30 is still severe sleep apnea. So we had to have an APAC algorithm could adjust with them. These days, the market is 80% APAP so you don’t need to make sure that a patient on a, let’s say, a weight loss drug or so on the seasonal weight loss and their AHI needs go down from very, very severely sleep apnea to just severe or moderate to severe. We have the algorithms and the capabilities within the devices with our audit set algorithm to adjust automatically. And we’ll also have all the digital health data. so that the pulmonary doctor can partner up with the primary care or bariatric-type doctor that’s working on -- and presumably be PCP is working the obesity drugs, and they can monitor the patient to see how much better they’re getting, maybe more inherent more participation in their fitness and exercise for the overall health. So for us, actually, and you know we’re invested in one of the sleep apnea drugs. It’s not a weight loss drug that actually goes to the core of trying to treat sleep apnea, which is called Apnemed [Ph]. We’re going to partner with…

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.

Well, thanks, Kevin, and thank you again to all of our stakeholders for joining us on the call. I’d once again like to take the opportunity to thank the 10,000 ResMedians. Many of you are also shareholders. So thank you for what you do and for investing in our company as well. Thank you for your dedication and hard work, helping people sleep better, breathe better and live better lives in 140 countries. You delivered these numbers that we just reported. Thank you for all that you do. I’ll hand the call back to Amy, and then we’ll close out.

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.

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.