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.

Great. Thank you, Kevin. Hello everyone. Welcome to ResMed's fourth quarter fiscal year 2024 earnings call. We are live webcasting this call and the replay will be available on the Investor Relations section of our corporate website later today. Our earnings press release and presentation are both available online now. During today's call, we will discuss several non-GAAP measures that we believe provide useful information for investors. This information is not intended to be considered in isolation or as a substitute for the GAAP financial information. We encourage you to review the supporting schedules in today's earnings press release to reconcile the non-GAAP measures with the GAAP reported numbers. In addition, our discussion today will include forward-looking statements, including, but not limited to, expectations about our future financial and operating performance. We make these statements based on our 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'll now turn the call over to our Chairman and CEO, Mick 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…

Great, thanks Mick. In my remarks today, I will provide an overview of our results for the fourth quarter of fiscal year 2024. Unless noted, all comparisons over the prior year quarter and in constant currency terms were applicable. We had strong financial performance in Q4 ,group revenue for the June quarter was $1.22 billion, a 9% headline increase and 10% in constant currency terms. Revenue growth reflects positive and consistent contributions across our product and resupply portfolio. Year-over-year movements in foreign currencies had a minimal impact on revenue during the June quarter. Looking at our geographic revenue distribution and excluding revenue from our software as a service business, sales in US, Canada and Latin America increased by 10%. Sales in Europe, Asia and other regions increased by 8%. Globally, device sales increased by 6%, while masks and other sales increased by 15%. Breaking it down by regional areas device sales in the US, Canada and Latin America increased by 5%, supported by solid ongoing new patient diagnosis. Masks and other sales increased by 17%, reflecting growth in both resupply and new patient setups. In Europe, Asia and other regions, device sales increased by 8% on a constant currency basis and masks and other sales increased by 9% on a constant currency basis. Software as a service revenue increased by 10% in the June quarter, underpinned by growth from MEDIFOX DAN and continued strong performance from our HME vertical. During the rest of my commentary today, I will be referring to non-GAAP numbers. We have provided a full reconciliation of the non-GAAP to GAAP numbers in our fourth quarter earnings press release. Gross margin increased by 330 basis points to 59.1% in the June quarter. The year-over-year increase was driven by reductions in freight expense, manufacturing and component cost improvements,…

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.

Certainly with that be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Lyanne Harrison from Bank of America. Your line is now live.

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?

Well, thanks for your question, Lyanne. That lets me talk through our really strong growth I believe in our devices business. Just to refresh in Q4 fiscal year '23 just 12 short months ago we were talking about US device growth of 30% and Europe, Asia, rest of world growth of 15%. So incredible double-digit comps that we're building these numbers off and we saw really good growth in the US of 5% growth in our US, Canada, Latin America and we saw 8% growth in Europe, Asia, rest of the world. We're in full competition with all the players out there and as you said, 6% constant currency globally. Look, you know, the market is growing in that mid-single digits and we are holding share or gaining share. But really now as the global market leader, our primary focus is on demand generation. Where are their capacities in the field for screening, diagnosis, treatment and management? That we can drive appropriate demand generation not to overflow the channel, but to make sure that any spare capacity in screening, diagnosis and treatment and management can come through. So, I was very impressed by those numbers. I think they're right in line with market and slightly ahead in Europe, Asia and rest of world. And I think the team did incredibly well. And we're doing it through patient flow, which is very strong. And yes, there are some ASP changes in there. They're kind of small. Our costs have gone up, and we did have some adjustments to pricing over the last 12 months. But the primary generator here is the flow of patients, which, as I said in the prep remarks, we're seeing really good flow of patients. And our job as the global market leader is to continue to have that grow and grow even faster as we go throughout the fiscal years ahead. Thanks for your question.

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

Yeah thanks. I just had a question with regards to the gross margin. The -- are you going to quantify the freight-related expectations that you would have for the next quarter. And are you being able to introduce rate levies again given the spike in sea freight charges at the moment?

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.

Yes. Thanks, Mick. Yes, Steve, we're seeing -- I mean, we're seeing pressure on freight cost, particularly around the rates, the quite significant increases. I think everyone's seen those. So that is obviously, will continue to be a headwind for us, but we think notwithstanding that, we should be in that 59% to 60% range on gross margin. There's a lot of factors, as you know, play into that. But the freight will be a headwind. In terms of -- really, I guess it depends how whether it's sort of permanent or transitory and see how the market goes in terms of freight that obviously, those costs we're bearing at the moment. So, what we do going forward, I think, is something we'll think about as the year goes on.

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

Hey guys, how are you doing? Thank you so much for taking the questions. Wanted to ask a quick follow-up on the gross margin question just now. Just thinking about some of the year-over-year trend, it looks like 2024 is finishing at about 57.7%, and you're guiding to 59% to 60%. So maybe if you could just walk through some of the positive incremental drivers relative to how we're exiting the second half year? And you already touched on the freight as a partial offset? Thank you.

So Brett, back to you, gross margin.

Yes, sure. The -- you -- to clarify, you talking into the future gross margins?

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

Yes, going forward. So going forward, I guess there's some factors at play out on the gross margin. Some of these big positive. We talked about freight, which will be a headwind. But if you -- if we look forward, we have cost optimization initiatives that we're getting back to now, whereas previously, we were really just trying to meet demand and catching up. But now we're getting back to running a more regular cost optimization programs. So, we'll do that. We're building the pipeline of those initiatives, that will be around manufacturing improvements and efficiencies. It will be around the procurement initiatives than what we do there. And also, we'll get -- with the volumes we have now, we'll also get scale benefits coming through. So, they're kind of the areas, I guess, we look at in terms of cost optimization in supply chain. Other factors the continued transition to the AS 11 platform will be supportive of gross margin into FY '25. We think product mix will likely be favorable through the course of FY '25, that will be supportive. And I guess the last one is just around new product introductions as you introduce new products that helps with less discounting and you're able to price that according to the features and the value of those products. So, there are some of the factors, I think that will play out in FY '25.

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

Yeah, thanks. So, I guess, first, I just want to ask about Philips. Have you seen them reentering any of the international markets in any meaningful way with devices specifically?

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.

Okay, got it. Thanks.

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

Good morning. Thanks very much. I wanted to ask about that mask growth and the impact of the new products. And specifically, does that strong growth are reflective of an element of initial stocking? Or is that level of growth representative of what the new products can sustain?

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.

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

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?

Yes, David, it's a really good question, and it's sort of the 3.5 decade question for ResMed, right, which is how do you get people screen diagnosed and treated for a disease, whether they're unconscious when they suffer from it in sleep apnea, being asleep while you have the suffocation. So, education, awareness and better protocols to get patients into the funnel screening diagnosis, treatment and management has been our decades long mission. And look, we did very well, I think, going through COVID and on the other side to apply increases in home sleep apnea testing increases in remote patient monitoring and technology that we've used to help. And so, I do think the big pharma GLP-1 trend is bringing more and more patients in and they're very motivated patients. You saw our latest update on our real-world evidence, 111,000 patients seeing 10.7 absolute percentage points, high propensity to start CPAP. These are very motivated patients over the average patient. And I think that's a big trend. You didn't mention in your question, but I will, David, consumer tech, the wearables. I mean, Samsung dropping the mic there on the other consumer tech companies to say, we've got a de novo clearance to screen for monitor severe sleep apnea from a watch, from the Samsung Galaxy Watch. And I know the Apple Watch has an oximeter on it, and they can do the same. We know Google's Fitbit team have been doing sleep architecture for years. And they will start to recognize many patients with this. So, the real question is not will there be a flow of patients from consumer tech and big pharma. That's going to happen. The real question is, can ResMed really pick up and fight and be the world leader in a digital sleep…

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

Thanks. Good morning. Just back on the gross margin and the guidance of 59% to 60% for FY '25, how should we think about the cadence of that throughout the first half and second half weaker first half, stronger second half given freight or relatively consistent throughout each quarter? Thanks.

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

Great. Thanks, Mick. Thanks, Gretel. Yes, I mean, we're at 59.1%, I guess, exit there. I think we've got a 59% to 60% and I think it's probably likely kind of be that gradual improvement as we work through FY '25, I think it's kind of our best estimate at this stage.

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

Mick, can you hear me all right?

Can hear you loud and clear, Suraj.

Perfect. Congrats on a nice quarter. So, Mick, if I could, I'd love to push you on one of the earlier questions about pricing impact in the quarter. If you could strip out at least give us directionally a little bit additional color, that would be great. Mick and also, if I'll throw my follow-up question also together in terms of inventory levels, how should we think about inventory levels on masks, accessories across the pond. Is there anything out of the normal? Or how would you characterize it? Thank you for taking my questions.

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.

Yes. Thanks, Mick. Yes, on inventory, we've brought the inventory levels down over the last 12 months or so. I think down to reasonably appropriate levels where we are seeing at the moment. And then inventory likely to grow more in line with revenue as we go forward. So, we feel we are in reasonable shape there. In terms of masks can accessories around that, we don't think of that too much differently. There's nothing particularly specific about it. We manage those inventory levels as we do with devices and components and so on. So, nothing particularly to call out there other than I think we've got -- we're more comfortable with inventory levels that we're at now, and we will work, for example, 12 months ago. So, I think we're in pretty good shape on inventory.

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

Hey, good afternoon, good morning, folks. Thanks for taking the question. And I'm going to apologize because it's a series of three questions, but I'm going to say pick and choose whatever you want to answer. I promise they're all connected. And it's really -- Mike, you talked about wanting to be a sleep concierge service in one of your earlier question answers. And so, the question is, one, First, is the sleep concierge service something that you will give away as a service? I assume you will, but maybe there's some ability to monetize that. And then two, how many patients do you think that those digital technologies that you referenced, how many patients could they bring into the market over what time period? Is it millions already what's your success rate in getting those patients connected to you and ultimately, on a CPAP today versus what they're -- where they're getting lost. And third, again, I apologize for the multiquestion here. But ultimately, this all kind of brings this idea of the funnel together and you guys delivered double-digit growth this quarter, I guess, is that one way to continue that as a trend and whether you want to give it numerically or not. But how do you get that over time on a longer-term basis? Thank you.

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,…

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

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.

Yes. Thanks for your question, Anthony. It's a broad one. It allows me to talk about diagnostics rates, but also the different sort of, as you said, continuum of care of the therapies for obstructive sleep apnea or sleep apnea in general. So yes, the Wisconsin Cohort, The Sleep Heart Health Study is a fantastic multi-decade study and really Terry Young and her colleagues have done incredibly well to have such a broad study across the field. It does talk about the United States having diagnostic rates in that 15% to 20% rate. But it is a U.S.-based study in the Sleep Heart Health Study. It's out of Wisconsin, it's U.S. based. It doesn't talk about Europe. And in Western Europe, the diagnostic rate is well south of 10% across Europe. And in Asia Pacific, MEA and rest of world and Latin America, we're less than 5% penetrated into this. And if you just look at the macro of it, right, we've got -- and we brag about it. We're so proud of having 28 million patients in our ecosystem. That's out of one billion patients worldwide. So that's 2.8% of patients in our ecosystem. And we're the world leader. We're the world leader in digital health, not just for respiratory medicine, but across the board with 19 billion nights of data. So globally, this is a single-digit penetration market. And so, I welcome firstly, patients need treatment. I welcome all alternative therapies. We're investing in all alternative therapies. We invest in CPAP, APAP, bilevel, obviously, world leader in that. We're investing in dental therapy. We're the world leader in naval 3D printed devices for Western Europe and Northern Europe, #1 in three different dental devices in those regions. And we're investing in pharma with our at need investment and…

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

Yeah, good morning, Mick, Brett and Amy. Mick, can I just get you to give some commentary around the SURMOUNT-OSA write-up in the New England Journal and particularly some of those secondary endpoints as it relates to the reduction in AHI in that no disease effectively of mild disease. You mentioned the data as it relates to resupply. I was wondering if you have any data that looks at or tracks people who are giving a script for GLP-1 and CPAPs as to how many people have actually been able to come off CPAP at the end of either 12 months or 24 months? Thanks.

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…

Thank you. That's all the time we have for questions. I'd like to turn the floor back over to Mick for any further closing comments.

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.

Great. Thank you, Mick. Thanks, everyone, for listening and your questions. We do appreciate your interest and your time. If you have any additional questions, please don't hesitate to reach out directly. This concludes ResMed's Fourth Quarter 2024 Conference Call. Kevin, you may now close out the call.

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