Hello, and welcome to the Q4 Fiscal Year 2025 ResMed Earnings Conference Call. My name is Kevin, and I'll be your operator for today's call. [Operator Instructions] Also, please note this conference call is being recorded. [Operator Instructions] Let me hand the call over to Salli Schwartz, ResMed's Chief Investor Relations Officer. Salli, please go ahead.

Thanks, Kevin. I want to welcome our listeners to ResMed's Fourth Quarter Fiscal Year 2025 Earnings Call. We are live webcasting this call from Sydney, 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 GAAP financial information. We encourage you to review the supporting schedules in today's earnings press release to reconcile these 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 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 Mick.

Thank you, Salli, and good morning from a wintery cold and rainy Sydney, Australia. Good afternoon to those in the U.S., and good evening to those in Europe and beyond and welcome to ResMed's Fourth Quarter Fiscal 2025 Earnings Call. I'm pleased to report that ResMed delivered another very strong quarter, closing out fiscal year 2025 with excellent results. In our fourth quarter, we achieved 10% year-over-year reported revenue growth and 230 basis points of year-over-year gross margin expansion. We continued our disciplined approach to investments in both research and development as well as SG&A, and we delivered another quarter of very strong free cash flow. In addition to the world -- to being the world's leading sleep health and medical devices company, ResMed continues to build a global digital health ecosystem, encompassing sleep health, breathing health and health care delivery in the home. We continue to see robust demand for our products and are now serving more than 154 million lives through our hardware and software platforms as well as our technology solutions. We are well on our way to achieving our ResMed 2030 goal of improving over 500 million people's lives by 2030. I want to take this opportunity to thank the more than 10,000 ResMedians serving patients and customers in more than 140 countries worldwide for all that they do to serve those customers today and every day. Last quarter, I spoke to 3 key themes: first, that ResMed generates robust free cash flow and has a very strong balance sheet. Second, we're committed to operational excellence as well as driving ongoing operating leverage. And third, that ResMed is a compelling investment opportunity. We have a strong sturdy ship that can go through the waves and especially amidst the global macro uncertainty that we're seeing around tariffs…

Great. Thanks, Mick. In my remarks today, I will provide an overview of our results for the fourth quarter of fiscal year 2025, unless noted, all comparisons are to the prior year quarter and in constant currency terms, where applicable. We had strong financial performance in Q4. Group revenue for the June quarter was $1.35 billion, a 10% headline increase and 9% in constant currency terms. Revenue growth reflected positive contributions across our product and ReSupply portfolio. Year-over-year, movements in foreign currencies positively impacted revenue by approximately $15 million during the June quarter. Looking at our geographic revenue distribution and excluding revenue from our residential care software business, sales in U.S., Canada and Latin America increased by 9%. Sales in Europe, Asia and other regions also increased by 9% on a constant currency basis. Globally, on a constant currency basis, device sales increased by 8%, while masks and other sales increased by 11%. Breaking it down by regional areas, device sales in the U.S., Canada and Latin America increased by 7%. Mask and other sales increased by 12%, reflecting continued growth in ReSupply and new patient setups as well as incremental revenue from 2 months of owning VirtuOx. In Europe, Asia and other regions, device sales increased by 10% on a constant currency basis, and masks and other sales increased by 7% on a constant currency basis. Residential care software revenue increased by 9% on a constant currency basis in the June quarter, underpinned by robust performance from our MEDIFOX DAN and HME verticals. We will continue to report Residential Care Software as a separate segment in our financial results. During the rest of my prepared remarks 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…

Thank you, Brett. We'll now begin the question-and-answer session. I'll hand the call over to our operator, Kevin, to provide instructions for that session.

[Operator Instructions] Our first question today is coming from Craig Wong-Pan from RBC.

Just wanted to understand the Rest of World devices growth, kind of really good growth there. I just wanted to understand the dynamics you're seeing. And if there's any kind of large tender that contributed to that Rest-of-World devices revenues?

Yes. Thanks for the question. And yes, look, very good growth in our Europe, Asia and Rest of World devices, at 10%. Yes, multiple factors can come into that. We have some markets where there are buyers that move ahead or behind, like in Japan, where it's more of a fleet approach. We have some areas in the world where we have tenders that may come in and out. But roughly, what we think is market growth for Europe, Asia and Rest of World for devices in the mid-single digits, so clearly, there's some fluctuations there. We're not saying that there's demand generation activities have had that 300%, 400%, 500% improvement right. We're just starting our approach there. It's more in the tens of basis points of improvement that we're seeing from these early experiments. And so no change to actual market growth, but some pretty strong growth from ResMed in the quarter there. But we think going forward, it's sort of more in the mid- single digits for devices in Europe, Asia, rest of the world, actually the same for our devices in the U.S. Any other color, Brett, you want to provide on a country-by-country basis for Europe, Asia, rest of world?

I mean international markets, we had a good quarter, and there's good growth in Europe, some improved, albeit growth in China as well, actually. So some really strong results through numerous markets, and that's really contributed to that strong device performance.

Next question is coming from Dan Hurren from MST Maraquee.

Yes. Definitely. MST Marquee. Yes, look, thanks, everyone. Look, really good. Looking at gross margin and even better guidance. Brett, can you just talk through the elements of that gross margin guidance? And maybe touch on the FX, which is probably going to get against you a little bit coming into '26.

Yes, sure, Dan. The -- yes, I mean really pleased with the gross margin and really the team works really hard on gross margin improvement initiatives. And really seeing that manifest in the gross margin. Clearly, we had some benefit from foreign currency, particularly the euro during the quarter. So if you look at that sequentially, basically almost half that sequential improvement was FX. But that means that just over half was actually gains we made through efficiencies. Now some of the large components around that were component cost improvements that we've been making. We've been making those progressively and they're starting to come through. We've got -- freight was also contributed because we've -- in terms of the sea freight to airfreight ratio now, that is actually back to pre COVID levels. So the logistics team has done a great job on that. And that -- you're seeing that come through in the gross margin expansion as well. And then we continue with things like the AS 10 to AS 11 platform transition and so on, which has been ongoing, but is also a little bit of a tailwind for us. there probably the major impacts on that gross margin expansion for this year, both year-on-year and sequential actually.

And I'll just pile on there. I think the I had a one-on-one with our Chief Supply Chain Officer, just hitting his 1-year anniversary with ResMed. I think we've gone from ResMed having a good approach, sort of almost an arts type approach to a science-based approach and a lot of learning over this last year. And I -- Brett ran our operations for over 6 months, and that strength between our financial teams and our supply chain teams is stronger than it's ever been. And so that gives us the confidence with that guidance to say actually, not only did we do really well in gross margin expansion in 2025. But as we look forward to '26, '27, '28 probably not at those levels because they're extraordinary in recovery from a supply chain crisis but we will be able to have sort of an ongoing pipeline of innovation that we can set up and tune up and turn on as we go towards our 2030 goal. And so it's not one and done. There was some good reset and some catch-up. But actually, there's some sustainable improvements that allows us to give that guidance of $61 million to $63 million that you saw there, Dan. Thanks for the question.

Next question is coming from Davin Thillainathan from Goldman Sachs.

I guess just wanted to discuss VirtuOx. Thank you for the disclosures on the materiality of revenues. But I guess it's more interested -- I'm more interested to understand the road map for this business towards your acquisition. What are the areas of investment that ResMed will be making over the next 12 months? And also are the leading indicators that we can look at to assess those returns, please?

Yes, all really good questions. Look, we're really excited about VirtuOx, but VirtuOx isn't an acquisition on its own. You've got to think about it as a portfolio. So we've -- if you look over the last 12, 18 months, you look at Ectosense and what we're doing with NightOwl, that fingertip-sized wearable home sleep apnea test that's now FDA-cleared and available, albeit our U.S. sales meeting, American sales meeting, annual sales meeting ASM in a couple of weeks in San Diego and that will be fully launched to our teams and education and driving it out. And I remember a decade a bit ago launching the ApneaLink Air which we thought was the smallest and most capable device and you had some cloud connectivity. This is taking it to the next level and sending out a challenge to say look, ResMed, we're the #1 in therapeutics in 140 countries. We don't need to be the #1 in diagnostics in 140 countries. But if there isn't -- if there are companies or there is an ecosystem of people driving home sleep apnea testing, smooth software and scalable home sleep apnea testing than ResMed is the global leader in this space has to step in. So we're doing that with that wearable home sleep apnea test from NightOwl. Then you add on Somnoware and Subath, the CEO of that, is now Head of our Innovation and Growth Group. So we kept some great talent and moved in the business, but we kept that greater operating opportunity. And as you look at our AirView software and our new software, watch this space as we start to bring those types of things together to create seamless and frictionless flow of patients through the funnel. Then to your question, VirtuOx, that fits in at…

Next question today is coming from Saul Hadassin from Barrenjoey.

Mick and Brett, just a question on U.S. mask growth. Once again, low double digits seems to be ahead of what you described market growth at is high single digits on the last quarter. So just wondering if you can go into a bit of detail as to how much you think that is share gains versus just stronger growth in ReSupply overall at an industry level?

Yes. Thanks, Saul. It's a really good question, and you nailed all the elements of it, right, I do think, as we look at that AirTouch N30i. I don't know if you've seen the physical product. Brett, Salli and I are doing the roadshow through Sydney, Melbourne and Singapore. So for those investors that we see, I'm going to bring a sample of that [ for ] you because -- that type of idea of bringing fabric to the part, that is pure patient interface. We call that whole thing of patient interface, but the part that touches your nose going from silicon rubber, which is the last 35 years of everyone in the space, including ResMed, the market leader, to now having fabric there. I think that innovation is not only incredibly technically difficult to do at scale and manufacturing levels that we do in multi-cavity tools and the high-pressure temperature, liquid silicon rubber but it's so impactful for the patient and it's so comfortable for the patient. And the patient then loves that and wants to have it in our cash markets. And then in our RT driven markets where home medical equipment respiratory therapists do set up. They see how comfortable it is, many of them are patients as well and recommend it. So I think there is some share gains from the AirTouch N30i and the F40, which is in our full face category or oronasal mask category those are doing really well. But look, it's a competitive space. There are competitors out there. So I think there's some element of that competitive share taking. But I think there's other elements. As you said, it's ReSupply and frequency around ReSupply and contact around ReSupply and getting better at Brightree, getting better at ResMed ReSupply, getting better at contacting consumers through myAir and beyond so watch this space, I think you'll start to see us enhance our ReSupply approach. And yes, I think the market growth rate is high single digits. We were ahead of it for the quarter...

Generally it's too low.

Sorry? Saul, you're still on. I don't think -- our SG&A investments are great, Saul. But Anyway, I'll finish up with the masks and so on growth in U.S., Canada, Latin America, very solid in the quarter and expect us to continue to drive those ReSupply programs, in partnership with our HMEs, in partnership with our myAir platforms. And I mean, if you look at Europe, Asia, Rest of the World, I think we can do better at ReSupply in some of those markets where we're leveraging our own technologies like myAir and beyond. So mixed bag on that front, but we're very happy with the performance in the U.S., Canada and Latin America.

Next question is coming from Anthony Petrone from Mizuho Group.

Congrats on another strong quarter. I have 2 quick ones, I'll just throw them out. The first one, Mick, competitive bidding, the proposal is calling for maybe just a consolidation of the number of contract suppliers out there. That just seems like pretty good draconian proposal. Maybe just walk through that a little bit. If that does kind of stick in the final rule, like how rapidly do you think consolidation occurs in the DME space. And then on the second question is a broader strategy question. Mick, you've sort of commented in the past that ResMed today is a one-stop shop for sleep apnea but certainly wants to continue to expand across the spectrum. So maybe talk a little bit about oral drugs. There was a favorable outcome there from Apnimed Phase III study and just the latest thinking on hypoglossal nerve stimulation.

Thanks, Anthony, and thanks for the multipart question. I'm still writing it down. And your line -- it will remain live through the question so we can have a bit of a conversation just as a heads up. Yes. So competitive bidding, I'll start with that part. Look, this isn't our first rodeo. I think this was announced when I was running marketing in 2005 and took over CEO in 2013 in the midst of round 2 -- 1 to 2A, 2B to C3. And our last round, round of 4 where we saw an uptick from our HME customers are actually bidding up against the proposal such that CMS just said, okay, let's go back to where it was and add inflation adjustments for these last 4 years. And so we're watching it very closely. Yes, look, the guidelines aren't clear yet, and they haven't defined everything. And so we're in a comment period. We're going to talk and we work with AA Homecare and AdvaMed and give our feedback to Washington. I was there in Washington just last month. In CMS, with Dr. Oz and team. And was also over at HHS with the folks in our RFK Junior's office there. And so they're listening. This administration is listening and taking feedback from industry. And so we're going to give that feedback and just make sure we protect patient care, protect HME's rights to be able to freely access and really to make sure beneficiaries of U.S. Medicare have a chance to get access to great therapies like ResMed has. So it's all about the patient. We'll be advocating for that. Yes, with regard to consolidation, we've seen a lot of consolidation in the last 10 years of competitive bidding going through, but it's not really driven by…

Next question today is coming from David Bailey from Morgan Stanley.

You sort of touched it on the last question there, Mick, but just post the Zepbound label, interested in your observations around new patients coming into the system and then maybe any feedback you can provide around the physicians prescribing patterns post that label, if they are starting to prescribe GLP-1s in conjunction with CPAP. Any observations on those 2 would be appreciated.

Yes. Thanks, David, and very good question. I mean it allows me to talk to a bit broader on that sort of demand generation part of it, and we're watching very closely. We updated our numbers and so you'll see that in the book later. But it's really -- it's sort of well north of 10% increased rate. I think it's now 11% increased rate of a patient with a GLP-1 prescription starting CPAP, APAP or bilevel versus those who don't have the code that they have had a prescription for GLP-1. So that's strong and just getting a little stronger of that, I'm a motivated patient, I've come in for this new pharmaceutical capability which has the cardiovascular promise, the diabetes promise, the half treating of sleep apnea promise in this, I don't know, I'll call it the Kim Kardashian or Botox effect, right, this aesthetic effect. And so they come into the primary care position wanting that the GP wanting that. But then when the PCP when the GP sees, they have apnea, they're writing a prescription for CPAP, like it's happening because in the U.S., there's -- you'll get sued if you don't give gold standard therapy if you don't offer the standard of care but also there's the hypocratic oath and they know that this is completely reversible, very cost effective and 100% effective if used as directed. And so that's why we're seeing that. I think that 11% start rate. And you look at 1 year and 2 year end, those are unchanged. They're north of 3% higher ReSupply rate for GLP-1 prescribed patient versus control for 1 year and then north of 5% higher ReSupply rate at 2 years, and those numbers are steady. So you can see those in the numbers we've got…

Our next question today is coming from Brett Fishbin from KeyBanc Capital Markets.

Just wanted to circle back on the gross margin question from earlier. I thought the answer on 4 key drivers was very clear. I just wanted to follow up more on the FY '26 guidance, 61% to 63% represents 200 bps year-over-year at the midpoint and 300 bps at the high end, so a pretty significant there. And I was hoping you could talk through maybe the primary drivers supporting that level of expected improvement, how much do you think is coming from the FX movement this quarter? And then any considerations around seasonality or phasing that we should be thinking about?

Yes. Sure. Brett will take that.

So, yes, I mean, we've got that -- the guidance there is 61%, 61%, we're kind of at lower end. And then we wouldn't progressively improve that. So I think that through, it might start at that lower end, right? And we'll look to exit the fiscal year a higher rate than what we started. So that's how we're kind of thinking about it. And then what if we -- kind of what are the drivers going to be through FY '26. There's probably a lot of talked about continuing the theme but it's really that pipeline of cost optimization initiatives. So -- it will be around procurement initiatives. There'll be around manufacturing improvements in terms of how we balance that, cycle times, all that plays out. There will be scale benefits. We want to keep going with our logistics efficiencies as well. We've made a lot of inroads obviously, on that over the last 12 months. So we think we can -- there will be some there that we have still to get, I think, on logistics efficiencies, and we'll keep working on that. The transition of AS10 to AS11 platform will continue to play out. Obviously, a lot of that has played out, but that's still play out through FY '26. We're probably likely -- we probably have a natural kind of product mix tailwind, probably favorable, you think going into FY '26. And then new product introductions always give you an opportunity as well through that. So they're kind of -- there's no one silver bullet on this. It's really about really strong execution to drive that on multiple fronts. And that's how you have to tackle it.

Next question today is coming from Matt Taylor from Jefferies.

I did want to go back, Mick, because you had so much experience with competitive bidding last time. Maybe you could just summarize in your words, the impact that it did have on your business and maybe more importantly, didn't have. I know there was a lot of concerns covering it back then and then ultimately, it wasn't that bad. And could you draw any lines from that situation to what may happen now?

Yes, Matt, it's really good. And I know we've only got 3 minutes left here. So I'll do my best to summarize the last 15 years or so of this. And yes, you know when I took over CEO 13 years ago. 12, 13 years ago, we're in the heat of it. And I've been running the Americas before that, and we were in the heat of it. And so a lot of learning. I'll do my best to say. I think when this sort of started around 1 round 2, Medicare reimbursement was very significantly above private payout reimbursement. And so you really couldn't argue the justification of not doing the program because government was paying a lot more than private payers. As I look at it now, Medicare and private payers are very much in sync, the private payers, there's lots of them, and there's 50 states and the it's like a 250 data point matrix with 5 payers in 50 states, but they mark-to-market on a very regular basis, annually or even quarterly in some and they're there, and the government is right in line with them. And as you saw in the last round that round 4 in 2021, and we've got a very mature HME provider population who looked at their costs and looked at the capabilities and bid appropriately, and it was slightly above the rates that were previously there. And so then the private went back to what I call just CPI or inflation-based adjustment with some efficiency measures these last 4 years. I think as I look at the rules and I look at all the stuff that we've seen so far, it looks pretty similar to that last round. There's some justifications of different percentiles and different averages and some questions…

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

Great. Well, look, thank you for joining us on our earnings call today. On behalf of the more than 10,000 ResMedians operating in 140 countries worldwide. I'm very pleased that we're able to deliver another very strong year of performance and to build value for all of you, our shareholders. We look forward to speaking to you -- many of you over the coming weeks, and we'll see all of you in 90 days. Salli?

Thank you, Mick, and I'll echo Mick, thank you to everyone for listening. We appreciate your time and interest. If you have any additional questions, please don't hesitate to reach out directly. Kevin, you may now close the call.

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