ResMed Inc.

Hello and welcome to the ResMed first quarter fiscal 2022 earnings conference call and webcast. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. We ask that you please ask one question then return to the queue during the Q&A session. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Amy Wakeham, Vice President, Investor Relations and Corporate Communications for ResMed. Please go ahead, Amy.

Great. Thank you, Kevin. Hello, everyone, and welcome to ResMed's first quarter fiscal year 2022 earnings call. We thank you for joining us. This call is being webcast live, and the replay will be available on the Investor Relations section of our corporate website later today, along with a copy of the earnings press release and presentation, which are both available now. With me on the call today are ResMed's Chief Executive Officer, Mick Farrell, and Chief Financial Officer, Brett Sandercock. During the Q&A portion of our call, Mick and Brett will be joined by Rob Douglas, our President and Chief Operating Officer, Jim Hollingshead, the President of our Sleep and Respiratory Care business, and David Pendarvis, Chief Administrative Officer and Global General Counsel. During today's call, we will discuss some non-GAAP measures. For a reconciliation of the non-GAAP measures, please review the notes in today's earnings press release or the appendix of the earnings presentation. And 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'll turn the call over to Mick.

Thanks, Amy, and thank you to all of our stakeholders for joining us today as we review results for the September quarter, our first quarter of fiscal year 2022. Our first quarter results demonstrate strong performance across our business. buoyed by extremely high demand for our sleep and respiratory care devices, as well as continuing recovery of many markets from COVID-19. We achieved double digit growth at both the top and bottom line metrics of our business. I want to be clear that achieving these results has not been easy this quarter. We are dealing with an unprecedented, what I would call perfect storm of elements, including the COVID recovery, but also including a competitor recall that's tenfold higher than any in the industry to date, and supply chain constraints that are impacting not only our industry, but multiple industries worldwide. I'm incredibly proud of ResMedians across our global teams, many of whom are working 24-7 to get our products and solutions into the hands of patients who need them most. Despite these extraordinary efforts, we know that we have not been able to meet all of the demand. As the market leader, our competitor that is in the number two market share position announced a recall mid-June that has created unprecedented dislocations in the market. In effect, we are facing the challenge of providing the volume for our own number one market share position and also trying to meet as much of their number two market share position as possible around the world. Given the supply chain crisis, our suppliers have been allocating components to us on the inbound side. We have, in turn, been forced to allocate our products on the outbound side to our customers. We have been clear on the guiding principles for that allocation of our products, namely that we are giving priority for production and delivery of our devices to meet the needs of the highest acuity patients first. The allocation conversations that I have with our customers are the same ones that I am having with my suppliers and their suppliers and so on up the supply chain. As an example, during the quarter, I was on a Zoom call with one of our suppliers, suppliers, suppliers, suppliers, suppliers, suppliers. And I'm not kidding. We achieved our goal with that manufacturer and we received increased allocation from that manufacturer. But then we faced the challenge and are still facing it. of working with the five customers of theirs all the way down that chain to get to us to ensure that the agreed upon increased allocation of that component actually gets to ResMed, gets manufactured into ResMed products, and then sent to ResMed customers and ultimately to patients. That's just one example of a high degree of difficulty dive for our supply chain team. The supply chain analyses and negotiations are ongoing, and the situation is very fluid, changing day by day, week by week, and month by month. We have an incredible Six Sigma black belt laden team of supply chain specialists working on these issues 24-7. In short, supply bottlenecks continue to restrict our access to critical electronic components, especially semiconductor chips, that ultimately limit our net production output. In addition to component supply issues, the ongoing challenges of sea freight and air freight from manufacturing facilities to distribution warehouses and ultimately to customers are increasing our costs and further impacting our ability to respond as rapidly as we want to the huge demand for ResMed products. The combination of component shortages and transportation bottlenecks makes providing steady and smooth flow of products to the market very difficult. We are working incredibly closely with our global supply chain partners, doing everything we can to gain access to additional supply of the critical components that we need to further increase production of our medical devices. We will continue to coordinate with all stakeholders as the situation develops. We understand that this is a difficult situation for all of our customer groups, including physicians, home medical equipment providers, payers and the most important customer, the patients. Our number one priority will always be patients, doing our best to help those who need treatment for sleep apnea, for COPD, for asthma, and for other chronic respiratory diseases, as well as critical out of hospital care. Our goal is to ensure that patients get the therapy that they need, where they need it, and when they need it. Let's now discuss the overall market conditions in our industry. We are seeing a steady ongoing recovery of demand in the countries that we operate in. They remain at various stages of the post-COVID peak recovery process in terms of new patient flow. We are still seeing a divergence in total patient flow and sleep lab capacity from 75 to 95% of pre-COVID levels in some countries up to 100% plus of pre-COVID levels in others. These metrics will continue to ebb and flow as vaccines and boosters roll out globally. and as new variants of the coronavirus arise and cause temporary perturbations. Our global ResMed team remains committed to working with national, state and city governments, as well as local health systems, hospitals and healthcare providers to supply the ventilators, the masks and the training for acute care and the transition home for affected patients. Let me now update you on our three strategic priorities as we pivot back to grow our core business. These three 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 digital health solutions that can be scaled globally. And three, to innovate and grow the world's best software solutions for care delivered outside the hospital and especially in the home. In August, we launched our next generation device platform that we call AirSense 11 into the United States market. In short, that launch has been very successful. We will be introducing the AirSense 11 into additional countries very soon. Our market leading R&D team accelerated the launch of this amazing innovation, first by expanding the control product launch to additional customers, and then accelerating to an earlier full product launch date to bring this product to market faster. Globally, we continue to sell our market-leading legacy platform, the AirSense 10, to maximize the total volume of CPAP, APAP, and buy levels available for customers. Clearly, the ongoing adoption of both the AirSense 10 and the AirSense 11 platforms remains very, very strong. It's still early into the AirSense 11 launch, but initial customer feedback combined with the detailed responses to our control product launch tells me that the AirSense 11 is another success for ResMed. Physician, provider, and patient feedback are all very positive. I was able to attend the California Sleep Society meeting in person, actually, during the quarter, and I was able to observe firsthand the responses to the latest innovations on the AirSense 11. such as personal therapy assistant, care check-in, and the incredible rate of uptake of the patient-centric app called MyAir, which has been upgraded for AirSense 11. And the uptake on that is almost double what it was for the MyAir app than the AirSense 10. What's clear to me is that this platform, the AirSense 11, benefits not only patients and their bed partners. In addition, the device and software combination benefits physicians, It benefits providers and it benefits payers as well as entire healthcare systems with more data, more insights, and better outcomes. As a two-way digital health comms platform with many technical features that represent significant therapeutic advances, AirSense 11 is not only easy to set up and use, it also offers a very rich patient-centric experience. All AirSense 11 devices are 100% cloud connectable with upgraded digital health technology that is able to increase patient adherence, to improve clinical outcomes, and to deliver proven cost reductions within healthcare providers and physicians' own health systems. We are engaging with patients in their therapy digitally like never before in the industry. This is a critical part of the ResMed 2025 strategy as presented at our investor day, which we held virtually during this last quarter. Another key aspect of our long-term growth is linked to the awareness and the increasing flow of sleep apnea patients. With 936 million sleep apnea sufferers worldwide, this work is critical to our mission. COVID-19 has advanced awareness, adoption, and acceptance of digital health and remote care, including home-based sleep apnea tests. We want to support seamless and cost-effective approaches to sleep diagnostics. We want to scale technology that in our consumer markets enables an easy-to-use device experience and technology that in our reimbursed markets can be a low-cost, clinically reliable screening tool for sleep apnea. In this vein, on October 1st, we closed a transaction to acquire EctoSense, a leader in cloud-connected home sleep apnea testing technology from Belgium. We believe EctoSense's digital and easy-to-use solutions in the hands of both physicians and sleep lab technicians, as well as consumers, can help significantly increase sleep apnea diagnosis rates, as well as general sleep awareness. EctoSense will operate within our sleep and respiratory care business unit, and we're excited to bring this innovative technology to more global markets as we move forward. Let me now turn to a discussion of our respiratory care business, focusing on our strategy to better serve the 380 million COPD patients and the 330 million asthma patients worldwide. Our long-term goal is to reach hundreds of millions of patients with our respiratory care solutions including non-invasive ventilation and life support ventilation, as well as newer therapeutic areas, such as cloud-connected pharmaceutical delivery solutions and high-flow therapy offerings. Demand for our core non-invasive ventilation and life support ventilation solutions for COPD and beyond was strong throughout the quarter, especially in markets outside the United States, where physicians and providers shifted focus to support the most severe, highest acuity patients. This demand is aligned with our strategy to ensure priority for manufacturing and delivery of the devices that meets the needs of those patients, specifically those that need life support ventilation or non-invasive ventilation, including bi-level support first. We are balancing the growth in the respiratory care demand with the supply of ventilators that made it to market throughout the coronavirus pandemic. as well as customers as they balance their inventory with ongoing acute and chronic ventilation patient needs. We continue to see rapid adoption of the AirView for ventilation software solution that we launched in Europe a little over a year ago, and we continue to expand this technology to regions around the world. The value being provided through AirView for ventilation has been very helpful to physicians, not only during COVID, but it is increasingly valuable on an ongoing basis for them and the healthcare systems that they operate in. In the not too distant future, I can see Airview becoming standard of care for patients on home-based ventilation protocols in many healthcare systems. Let me now review our software as a service business for out-of-hospital care. During the quarter, our SaaS business grew in the mid-single digits year on year across our portfolio of markets, including home medical equipment, as well as facility-based and home-based care settings. The continued growth of home-based care is providing tailwinds for our home medical equipment and our home health products, and we continue to grow with customers as they utilise our software and data solutions, including Brighttree and Snap Resupply, to improve and optimise business efficiencies and patient care. The COVID-19 pandemic has been challenging for some verticals in our SAS business, particularly skilled nursing facilities. However, we are seeing positive trends as census rates of patients improve across SNFs and other facility-based care settings. We will continue to watch this closely as COVID cases ebb and flow at slower and slower rates around the country. We expect there to be pent-up demand for technology investments in these SAS verticals. which provides opportunities for us to increase our new customer pipeline as COVID restrictions continue to ease. As we look at our portfolio of software solutions, we expect SaaS revenue to accelerate, increasing from mid single digit growth to high single digit growth by the back end of this fiscal year. As always, our goal is to meet or beat these market growth rates as we continue to innovate and take market share. We are the leading strategic provider of SAS solutions for out-of-hospital care, and we provide mission-critical software across a broad set of very attractive markets. We are uniquely positioned, and we have created differentiated value for ResMed with our SAS portfolio. We are set up for sustainable growth through ongoing innovation investments, commercial excellence partnerships, and future acceleration through strategic M&A, as well as selective tuck-in M&A opportunities. Looking at the portfolio of ResMed's business across sleep and respiratory care as well as our SAS solutions, we remain confident in our long-term strategy and our pipeline of innovative solutions. Our patient-centric, physician-centric, and provider-centric approach combined with our unique ResMed culture means that we are well-positioned to continue winning in the vastly underserved respiratory medical markets of sleep apnea, COPD, asthma, and other chronic diseases. We are transforming out-of-hospital care at scale. We are leading the market in digital health technology. With over 10 billion nights now, 10 billion nights of medical data in the cloud and over 15.5 million 100% cloud-connectable medical devices on bedside tables in 140 countries worldwide, we are unlocking value from these data to help patients, providers, physicians, payers, and entire healthcare systems. Our mission and goal to improve 250 million lives through better healthcare in 2025 drives and motivates me and ResMedians every day. We again made excellent progress toward that goal this quarter. Before I hand the call over to Brett for his remarks, I want to once again express my sincere gratitude and thanks to the more than 8,000 ResMedians for their perseverance, hard work and dedication during these ongoing and unprecedented times. You, our ResMed team, have helped save the lives of many hundreds of thousands of people around the world with COVID-19, with those emergency needs these last 18 months. And you are now, and you have now, already pivoted back to provide ongoing support for all of our customers during some of the most challenging industry dynamics that we've seen in the industry. Thank you. With that, I'll hand the call over to Brett in Sydney, and then we'll open the call up for Q&A. Brett?