ResMed Inc.

Welcome to the Q4 Fiscal Year 2019 ResMed Earnings Conference Call. My name is Rob, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Amy Wakeham, Vice President of Investor Relations and Corporate Communications. Amy, you may begin.

Great. Thank you, Rob. Good afternoon and good morning, everyone. Thanks for joining us, and welcome to ResMed's fourth quarter fiscal year 2019 earnings call. This call is being webcast live in the replay along with a copy of the earnings press release, and our updated investor presentation will be available on the investor relations section of our corporate website. Joining me on the call today to discuss our quarterly results are CEO Mick Farrell and CFO Brett Sandercock. Other members of management will be available during the Q&A portion of the call. During our call, we will discuss several non-GAAP measures. For reconciliation of the non-GAAP measures, please review the notes to today's earnings test release. As a reminder, our discussion today may include forward-looking statements, including, but not limited to, expectations about ResMed's future performance. We believe these statements are based on reasonable assumptions. However, our actual results may differ. you're encouraged to review our SEC filings for discussion of the risk factors that could cause our actual results to differ materially from any forward-looking statements. With that, I'd like to now turn the call over to Mick.

Thanks, Amy, and thank you to all of our shareholders for joining us today as we review results for the fourth quarter of fiscal year 2019 for ResMed. On today's call, I will discuss our long-term strategy. I'll review top-level financial results some business highlights from the quarter and a few key milestones. Then I'll hand the call over to Brett, who will walk you through our financial results in further detail. Reflecting back on fiscal year 2019, we have a lot to be proud of here at ResMed. The business is performing well. We passed $2.6 billion in revenue and grew at double digits in the top line and the bottom line. We are exiting the year with momentum and I feel strongly that we are well-positioned heading into fiscal year 2020 and beyond. ResMed is the world's leading technology-driven healthcare company. We have more than 10 million 100% cloud-connectable medical devices in the market around the world, and our AirView cloud ecosystem monitors more than 11 million patient accounts, while our out-of-hospital software systems are helping to manage 90 million more. So that is over 100 million lives that we improved with ResMed products, services and solutions in the last 12 months. We have over 4.5 billion nights of medical sleep and respiratory care data, which continues to grow exponentially. And we are turning these data into actionable insights that will inform future innovation in products and software solutions to further benefit our customers. Our relentless focus on innovation continues to set us apart from our competition, demonstrated by the success of our latest software releases and our latest sleep apnea mask systems that we've just launched. We have ambitions and strong ambitions to grow. We're going to grow our business at volume, at double digits, and we're going to improve 250 million lives in 2025. We'll do that by helping people live happier, healthier, and higher quality lives outside the hospital. We remain laser focused on growth in our core business of sleep apnea as well as in our adjacent businesses of COPD, asthma and other chronic conditions. We've expanded our focus to include out of hospital software solutions that help customers create efficiencies, take costs out of the system and improve the quality of care across home medical equipment providers, home health and hospice services as well as skilled nursing facilities and beyond. In short, we believe the future of healthcare is outside the hospital. That's where ResMed competes and that's where we win. Let's briefly now review our top-level financial results. I mentioned earlier that we ended the fiscal year on a strong note and it is thanks to our 7,500-person global team and their hard work to drive these great results. We achieved another quarter of double-digit revenue growth, up 15% in constant currency. We produced constant currency growth in both domestic and international sales, as well as in our software as a service business, which is growing organically, as well as through contributions from our recent acquisitions. We continue to deliver operating leverage through the business with non-GAAP operating profit growth of 18% year over year, and non-GAAP diluted earnings per share of 95 cents. Let me now turn to a discussion of highlights across our sleep apnea and respiratory care businesses. In the devices category across these two businesses, we delivered a good quarter with year-over-year constant currency growth of 8% globally, supported by 11% growth in the United States, Canada and Latin America geographies. We had 1% constant currency growth of devices in combined Europe, Asia and the rest of the world. We continue to cycle through strong year-over-year comparisons in France and Japan as a result of digital health-related fleet upgrades that we've previously discussed and we will continue to do so for a number of quarters. Underlying patient growth remains healthy around the globe. ResMed is well positioned to continue to benefit from strong fundamental market dynamics including an ageing population, as well as increased awareness and attention from governments, payers, providers and physicians to better manage chronic disease. The masks and accessories growth of our business was very strong during Q4. We were up 15% in constant currency globally. In the US, Canada and Latin America geographies, masks and accessories grew at 16%. And in Europe, Asia, and the rest of world geographies, we grew at 12% in constant currency terms in masks and accessories. We are taking share around the world with our latest patient interface innovations. We make the smallest, quietest, and most comfortable masks in the market. Results this quarter show the benefits of this innovation as customers vote for ResMed with their wallets. Our flagship masks, the AirFit F20 in the full face category and the AirFit N20 in the nasal category continue their success across global markets. Our three most recent mask launches, the F30, the N30i and the P30i have taken off at an incredible pace. These market share gains are complemented by higher rates of adherence driven by our digital solutions. and increasing adoption of mask resupply programs through the market. We have expanded our mask portfolio to offer even more options for physicians and home care providers and for the specific needs of the ultimate customer, the person who suffocates every night with sleep apnea. We remain focused on driving innovation to meet underserved customer needs. And while these new masks have a lot of runway ahead, we also have an exciting product pipeline for the future. We are the industry leader in digital health technology. We now support well over 11 million patients with AirView, our cloud-based platform for managing sleep apnea and COPD patients, and more than 10 million 100% cloud-connectable ResMed devices have been sold into the market. Over the past 12 months, we have improved the lives of 15 million people by delivering sleep apnea and COPD treatment devices and full mask systems. Our industry-changing AirSense 10 device platform and the AirSolutions cloud-based software ecosystem are still seeing strong adoption. Our device market share continues to grow as patients and healthcare providers choose ResNet and physicians prescribe ResNet. Our digital health technology solutions have been proven to improve both business and patient outcomes. We're the market leader and we will never stop innovating in this field. We believe that digital health technology combined with the medical equipment used to treat patients can add substantial value and improve both clinical outcomes and the patient experience. Digital end-to-end solutions, connectivity, making information available to patients on their own smartphones through apps like MyAir and Propeller, as well as supporting patients through their chronic disease progression, can altogether make a significant difference in both health outcomes and quality of life of patients. Through digital health technology we are driving engagement with patients so they can enjoy the benefits of the best therapy available and so that costs of chronic disease can be better managed by their physicians and other healthcare providers. The success of our connected health devices is producing an incredible data engine. We now have over 4.5 billion nights of medical sleep apnea and COPD data in the cloud. Using advanced analytics, we are turning these clinical data into actionable insights. We are lowering labor costs for our home care provider customers, and we are taking waste out of the system through our focus on developing solutions to get the right healthcare product or service for the right patient at the right time. At the American Thoracic Society and at the Sleep Medicine Conference during the quarter, we presented over 40 clinical studies from our digital health databases. We are advancing the field of sleep medicine with doctors Nunez, Benjafield and Armistead and their physician colleagues from around the world. Just over one year ago, we announced a joint venture with the Alphabet subsidiary Verily to study the health and financial impacts of untreated sleep apnea. Based on research outcomes from this JV, we will develop software solutions to help identify, engage, and better manage people with sleep apnea. The JV has been set up and is running since November of last year, and the combined ResMed Verily team is making good progress to analyze data, to code software, and to launch pilot studies into the market. This investment, which can be seen as a sophisticated, tech-driven research and development project, is a great long-term bet. Over time, we know this work will drive incremental growth in our core sleep apnea business, while allowing ResMed to participate in a broader ecosystem covering sleep apnea, cardiovascular disease, diabetes and other major chronic diseases. Everything we do supports our ambition to help the more than 936 million people worldwide who suffocate every night with sleep apnea and the nearly 400 million people worldwide who suffer from chronic obstructive pulmonary disease or COPD. In January we closed on the acquisition of Propeller Health This is a significant addition to our vision of longitudinal solutions in respiratory care. Propeller's digital health solution helps people and their doctors better manage COPD and asthma healthcare. Propeller rounds out ResMed's portfolio to now treat COPD patients through all stages of their disease. As a reminder, Propeller's advanced digital health platform leverages small sensors that are attached to the inhalers for these medicines. These sensors then pair with an easy-to-use cloud-based mobile app that automatically tracks COPD medication use and provides personalized feedback and insights to the individual, much like MyAir and our other sleep apnea patient engagement systems, just not at the same scale yet. The Propeller team is making really good progress as they work with partners to reach commercial scale. We're very encouraged about where we are at with the team. There are a few things that I can point to that give you an idea of how Propeller solutions are being recognised and adopted by their partners. In May, the Cleveland Clinic published research showcasing that the use of Propeller's digital medicine platform for COPD patients reduced the Cleveland Clinic's COPD-related healthcare utilisation and hospitalisations across their clinic. In the year before the study, patients averaged 3.4 visits per patient per year. Following the use of Propeller's technology, the rate decreased to 2.2 visits per patient per year, with the majority of patients indicating that the sensor was convenient and very easy to use. That 35% reduction in clinic visits is an incredible cost savings and productivity opportunity for hospital systems and payers. Earlier this week, Walgreens announced that Propeller has been added to the pharmacy's health platform called FindCare, expanding the ability to get Propeller into the hands of people struggling to manage their chronic disease through Walgreens. Propeller's clinically validated solutions have demonstrated amazing outcomes, including pilot studies showing a 58% improvement in medication adherence, a 48% increase in symptom-free days, as well as a 53% reduction in emergency room visits. These are impressive results, and we can't wait to scale them. The evolution that we have made in our respiratory care business has set ResMed up to become the global leader in digital health for COPD, from Stage 1 and 2 COPD with Propeller to Stage 3 and Stage 4 COPD with portable oxygen and non-invasive solutions. We will continue to help physicians, providers, payers and patients as they manage COPD, this important, progressive and chronic disease, keeping people out of the hospital happy and healthy in their homes. Let's now turn to a discussion of our software as a service business for the out of hospital healthcare settings that we operate in. Our SAS portfolio continues its growth trajectory with revenue up 111% year on year on a reported basis this quarter. On an organic pro forma basis, comparing results in Q4 to the results of these businesses before recent acquisitions, Brighttree grew in the high single-digit range and MatrixCare grew low double digits. We are pleased with the momentum and progress the teams have made as we integrate and optimise across the portfolio for growth. Our competitive advantages and leading SAS positions in home medical equipment, skilled nursing facilities, home health, hospice and other out-of-hospital care markets support ongoing portfolio growth. On a pro forma basis, we are growing this portfolio at high single digits across the blended SAS portfolio. And we have a clear pathway to drive sustainable double digit growth in our SAS portfolio as we further integrate these businesses. I'd like to call out a few highlights from the quarter. Our Bright Tree Home Health and Hospice Electronic Medical Record Solution was awarded the 2019 MedTech Breakthrough Award for best overall healthcare administration software. Additionally, our latest KLAS or CLAS scores for home health and hospice have gone up again. CLAS looks at many aspects of customer satisfaction which provides a holistic measure of performance. So the trend and these latest data further validate our leading position and high quality offering in the marketplace. As you may recall, MatrixCare has received the best-in-class for long-term care software three years in a row. We have now organised all of our home health and hospice solutions from both Healthcare First and Bright Tree under MatrixCare management. This will allow customers who operate across care settings to enjoy the scalability and seamless transfer they want, but it also helps patients and ageing seniors to navigate more easily across these healthcare settings. Additionally, we launched Matrix Care One, which is a single platform for care management across out-of-hospital healthcare settings. Having this single platform enables centralised management of care settings, consistency between functions, user management and navigation, and a single view of the individual, resulting in streamlined care transitions for our customers. Also during the quarter, Brighttree launched a new pharmacy suite for home infusion therapy providers and HME pharmacies. We've also expanded our Brighttree resupply solution into three new categories, incontinence, diabetics and enteral, to enable HMEs to create efficiencies and optimise patient support. In summary, for the SAS business, we have a vision to transform and significantly improve out-of-hospital healthcare. ResMed is the strategic player best positioned to lead this transformation. We are connecting capabilities across Bright Tree and MatrixCare platforms and care settings to help our customers be more efficient so they can better serve an ageing population, helping them stay out of hospital and in a lower-cost, higher-quality care setting of their choice. And the best place is almost always their own home. Before I turn the call over to Brett, let me close with this. We had a great fiscal year 2019. Full year revenue was up 15% in constant currency and we translated that into 18% operating profit growth. We are well positioned to continue to drive top and bottom line growth in fiscal year 2020 and beyond. We published the prevalence data study showing the 936 million people worldwide with sleep apnea in the top tier clinical journal Lancet. Our connected health strategy continues to support growth across global markets and the continued traction of our diversified mask and device portfolio, along with an expanding pipeline of new products and enhanced digital health solutions for sleep apnea, COPD and out-of-hospital medical software markets. We have confidence in our ongoing momentum. Finally, we've positioned ResMed for the long term as an innovative global leader in digital health. Our triple aim is to slow chronic disease progression, to reduce overall healthcare system costs and to improve outcomes and quality of life for the ultimate customer, the patient. With that, I'll turn the call over to Brett for his remarks and then we'll open the lines up for Q&A. Brett, over to you and Sydney.