ResMed Inc.

Welcome to the Q2 fiscal year 2021 ResMed earnings conference call. My name is Chantal and I'll 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. We'll now turn the call over to Amy Winkum, Vice President in Best Relations and Corporate Communications. Amy, you may begin.

Great. Thank you, Chantal. Good morning and good afternoon, everyone. Welcome to ResMed's second quarter fiscal year 2021 earnings conference call. Thanks for joining us. This call is being webcast live, and 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 later today. With me on the call today are our CEO, McFarrell, and CFO, Brett Sandercock. and several other members of management will be available during the Q&A following our prepared remarks. During today's call, we will discuss some non-GAAP measures. For a reconciliation of the non-GAAP measures, please review the notes to today's earnings press release and our earnings presentation. 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 are encouraged to review our SEC filings for a discussion of the risk factors that could cause our actual results to differ materially from any forward-looking statements made today. With that, I'd now like to turn the call over to Mick.

Thanks, Amy, and thank you to all of our shareholders for joining us on today's call. On this, our first call for calendar year 2021, we are happy to see the steady growth of production, distribution and availability of vaccines around the world. Clearly, we all want to see faster production and wider distribution so that people can be safe from COVID-19 and free to open up their communities and free to get back to their lives. We continue our work here at ResMed to support frontline respiratory therapists and pulmonary physicians, critical care physicians, as well as providers, patients, and resmedians around the 140 plus countries that we operate in. In our core markets, the patient diagnosis trends in sleep apnea, COPD, and asthma are steadily increasing, modestly improving on the trends we saw in the September 2020 quarter. We're seeing this improvement of patient flow even as second and third waves come through northern winter hemisphere nations because physicians and providers are adopting digital health, which enables patient engagement even when people cannot or do not want to meet live and in person. In my remarks today, I will provide a high-level overview of our December Q2 FY21 business results and then hand the call over to Brett for further detail on the financials. I will also review progress towards our ResMed 2025 strategic goals, including execution highlights against our quarterly and annual operating priorities. Today we have published and reported solid high single digit growth in top line revenue and strong double digit growth in both net operating profit as well as earnings per share. These results once again speak to our ResMed team's ability to work innovatively and deliver results even when facing lower patient activity and little to no incremental benefit from ventilator sales. During the second quarter of fiscal year 2021, we generated over $170 million of cash, allowing us to return over $57 million in dividends to shareholders. We have also grown research and development investments in digital health technology, as well as hardware, software, and clinical research. We forecast increasing digital health demand from patients, from physicians, from providers, and from healthcare systems as they embrace remote patient monitoring and they adopt data-driven population health management systems. We have an exciting pipeline of innovative solutions that will generate both medium and long-term value for our customers with an industry-leading IP portfolio, including over 6,000 patents and designs. Our digital health ecosystem is an important competitive advantage for ResMed that offers integrated care to drive superior clinical outcomes, to drive better patient experiences, and to drive lower healthcare system costs. We now have over 8 billion nights of respiratory medical data in our cloud-based air solutions platform. We have sold over 13.5 million 100% cloud connectable medical devices into the market from ResMed. And we have over 15 million patients enrolled in our AirView solutions in the cloud. With these data liberated to the cloud, we can unlock value for all of our customer groups. We can unlock value for patients through MyAir. We can unlock value for physicians through AirView. And we can unlock value for IBMs, payer providers, as well as private and government insurers for data-driven population health management. That's the future of healthcare. The goals we share with all of our customers are these three. One, to improve patient outcomes, patient quality of life, patient chronic disease outcomes. Two, to lower overall healthcare system costs. And three, to bend the curve of chronic disease progression. To be clear, the spectrum of chronic diseases that we look at here at ResMed are, of course, including our core focus areas of sleep apnea, COPD, and asthma, but it also includes biological systems interaction with cardiovascular disease, with cancer, with type 2 diabetes, with neuromuscular disease, Alzheimer's and beyond. During our last earnings call, I discussed how COVID has continued to accelerate the rapid adoption of digital health technology around the world. We are seeing the recognition of the value of remote patient screening, virtual diagnoses, remote patient management and the rapid evolution of digital reimbursement models in many of the nations that we serve patients. As an example of just one of these, Germany, during the quarter, approved reimbursement for mandibular repositioning devices, including our digital 3D printed dental sleep apnea product called Narval. This is the first time Germany has approved such a product type to treat sleep apnea. In addition, several German states are looking at and experimenting with digital health reimbursement models. These are exciting developments and we expect this will benefit our German business over time. We have also seen other national governments, including France, Japan and the United States, where they've adopted models and taken action to accelerate digital health adoption. Remote health care is of incredible importance during this COVID-19 pandemic, but digital health is also valuable well beyond the impact of COVID because it provides better availability of health care, It provides excellent quality care for patients, and it provides significantly lower costs for healthcare systems worldwide. These trends are key to ResMed's 2025 strategy. We believe the accelerated adoption of digital health solutions represents a significant and permanent shift of the adoption curve for ResMed's market-leading digital health solutions. Let me now briefly update you on our top three strategic priorities. These three priorities are, one, to grow and differentiate our core sleep apnea, COPD and asthma businesses. Two, to design, develop and deliver world leading medical devices as well as globally scalable digital health solutions. And three, to innovate and grow the world's best software solutions for care delivered outside the hospital, and especially in the home. In our core market of sleep apnea, we continue to see sequential improvement in new patient diagnosis trends, as well as very strong resupply activity, both of which have supported another quarter of solid revenue growth that you can see in the numbers we just released. We're seeing 70 to 90% of the pre-COVID patient flow coming through our biggest market in the United States. And to take an example of a European country in Germany, we're already back to 85 to 90 plus percent in some states of Germany of pre-COVID patient flow. Even in countries like China, in our large Asia region, where we saw the sharpest declines at the start of this crisis with very severe lockdowns in Asia and particularly in China, We're now back to already seeing around 70 plus percent, 70 to 75% of pre-COVID patient flow coming through the mainly hospital clinics in our China market. Obviously, the recovery rates of new patients starting sleep apnea therapy may be impacted by the typical seasonality we see in our largest market here in the United States in the March quarter, as a result of insurance deductibles resetting at the start of the calendar year. This is as per normal. This seasonal impact affects devices more than it affects mask systems, given the relative price points of the two categories and the fact that the vast majority of mask revenue is returning customers on resupply programs. The resiliency of our mask and accessory resupply has been strong throughout the COVID-19 pandemic, and we see it as remaining strong through the recovery and strong in a post-COVID peak world. We continue to produce clinical research showing that diagnosing and treating sleep apnea saves money and improves quality of life for patients. This quarter, we are now showing data that treating sleep apnea is actually a life and death decision. The latest data from the European Respiratory Journal, which published during the quarter, results from a 30-year study. The high-level summary of these results were that treating sleep apnea increases patient quality of life and extends quantity of life. It also showed the converse side in that not treating sleep apnea leads to a significantly higher incidence of heart attack, type 2 diabetes, and ischemic heart disease, leading to significantly higher healthcare costs, treating those diseases, and ultimately leading to earlier death. Let me now turn from sleep apnea to a discussion of our respiratory care business, focusing on our strategy to better serve COPD and asthma patients worldwide. Our goal is to reach more patients in our core respiratory care markets, including non-invasive ventilation, as well as life support ventilation, as well as newer areas, including pharmaceutical drug delivery and high flow therapy. We make the smallest, quietest and most comfortable devices on the market and they are all 100% cloud connectable. We continue to see rapid adoption of the AirView for ventilation software solution that we launched in Europe in the midst of the peak of the COVID-19 crisis there about nine months ago. We accelerated the time to market to meet the needs of physicians and patients during the COVID peak and it's proved to be very useful during the peak and beyond the peak. The value being provided through this platform has helped healthcare systems in the markets they're operating in. In short, we are making digital health part of the standard of care for respiratory care, not just in Europe, but worldwide. During the quarter, we decided to exit the portable oxygen market and shut down our concentrator business in that category. We entered the POC market in 2016 as a way to engage with stage 2 and stage 3 COPD patients. Since then, in these last five years, we have acquired Propeller, giving us access to COPD patients even earlier in their COPD disease progression, including stage 1 and stage 2 COPD patients. Additionally, and especially during COVID, we've seen more rapid adoption of high flow therapy that can support some COPD patients. And of course, we have our core non-invasive ventilation and life support ventilation solutions for more severe COPD patients in markets globally already. In short, we don't need POCs to help in our end to end digital health pathway for COPD. Additionally, given no positive changes to POC reimbursement in the latest round from the US government and the economics of our customer acquisition cost versus lifetime value, the POC market itself is not as attractive as it was five years ago. The bottom line is this. We have pharmaceutical drug delivery management through Propeller to support COPD patients in Stage 1 and Stage 2 COPD. We have the emergence of high-flow therapy for Stage 2 and Stage 3 COPD. And we have growing use of non-invasive ventilation and life support ventilation to support patients in Stage 3 and Stage 4 COPD. So in summary, we are very well positioned to help patients, physicians, providers and payers with an end-to-end digital health management pathway for COPD. Let me now review our software as a service business. During the quarter, our SaaS business grew in the mid-single digits year on year, driven by continued strong uptake of our Brighttree HME resupply solutions. The impact of COVID on surgical procedures and other in hospital and out of hospital visits has impacted discharge rates that particularly affect the census at skilled nursing facilities and hospice. On the other hand, the flow of patients in home medical equipment and home health has been recovering well, even stronger. So as we look across our portfolio of out of hospital care settings, including home medical equipment, skilled nursing facilities, home health and hospice, life plan communities, private duty home care and senior living, we expect that the weighted average market growth rate of these verticals will be in the low to mid single digit range for fiscal 2021. We expect this weighted average market growth rate portfolio to return to mid-single digits and then to high single digits as hospital discharge and ambulatory surgery centre discharge rates return. Our offerings are very well received in each of the verticals that we serve. So we will not just accept these market growth rates, we will look to meet and beat that group market growth rate as we did this quarter. getting a return from our significant investments in R&D within Bright Tree and Matrix Care, and through expansion of our partnerships with hospital-based electronic health record providers. Brighttree continues to innovate to drive resupply growth. Of particular note, the integration and scaling of the SNAP technology is going very well. This has allowed our home medical equipment customers to expand their resupply programs and support more patients with better engagement at a time during the COVID pandemic when they desperately need new innovation, both the providers and the patients. MatrixCare has also introduced new technology. We introduced new voice-to-text technology at the point of care, which helps address caregiver shortages, which are ripe during COVID, by enabling better and more efficient workflows for the customer, while also delivering a better experience for the ultimate customer, who's the patient. Our expanded relationship with Cerner is progressing very well. We are now Cerner's preferred solution across home health and hospice, as well as home medical equipment and their pharmacy and infusion businesses. Our increasingly important relationship with Cerner is leading to better interoperability for providers, our mutual customers, and an improved experience for patients. We anticipate opportunities to deepen and expand this collaboration to sleep apnea and COPD disease management with these partners over time. Clearly, 2020 was an unprecedented year for companies across every industry, and there was much suffering around the world. However, we see some blessings during all that suffering. Importantly, we here at ResMed, we were able to be there during the emergency. We were able to pivot our whole team and our whole business to provide over 150,000 ventilators during the peak needs of the pandemic and get them to where they needed based upon a humanitarian epidemiology model. Additionally, COVID has highlighted the importance of respiratory health. COVID generally kills people through arts, through acute respiratory distress syndrome. And it's awful, but that has raised the awareness of respiratory hygiene, respiratory health, and the field of respiratory medicine. The crisis also showed us the importance of digital health. and has accelerated the awareness and adoption of technologies that can be used for remote patient screening, for remote patient diagnosis, remote patient setup, as well as remote patient monitoring and management. We have seen this crisis drive the importance of healthcare delivered outside the hospital, and that's where ResMed competes for more than 90% of our business, and it's where we add value to customers and where we win. We have seen an ability to bring digital technology that we've been inventing and developing for over a decade, digital screening, digital diagnostics, digital therapeutics and digital health management of patients. With over 1.5 billion people worldwide suffering from sleep apnea, COPD and asthma combined, we see incredible opportunities for greater and greater adoption of these scalable technologies. We are poised to continue relentless innovation and development, as well as to provide the global scale that's needed to drive this technology to the 140 countries that we operate in and beyond. Before I hand the call over to Brett for his remarks and then we get to the Q&A, I want to once again express my sincere, genuine gratitude to the more than 7,500 ResMedians whose perseverance, hard work and dedication during the incredibly challenging circumstances of 2020 allowed our partners in healthcare to save the lives of many hundreds of thousands of people around the world with emergency needs for ventilation, literally giving the gift of breath and the gift of life to many during COVID. I also thank you for the rapid pivot back to our core markets and our core purpose of helping people with sleep apnea, COPD, asthma, and all those who need world-class care delivered well away from the hospital and preferably in their own home. Thank you. With that, I will hand the call over to Brett in Sydney, and then we'll move to Q&A. Brett.