ResMed Inc.

Hello, and welcome to the ResMed second quarter fiscal year 2023 earnings call. At this time, all participants are in a listen-only mode. 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 Lacombe, Vice President, Investor Relations and Corporate Communications. Amy, please go ahead.

Great. Thank you, Kevin. Hi, everyone. Happy New Year, and welcome to ResMed's second quarter fiscal year 2023 earnings call. Thanks 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 the presentation, both of which are available now. Joining me on the call today are Chief Executive Officer and Chairman Mick Farrell, and Chief Financial Officer Brett Sandercock. Mick will provide a brief high-level overview of our financial results, review our progress towards ResMed's 2025 strategic goals, and discuss our progress as we continue to navigate the ongoing macro industry and supply chain challenges. Brett will then review our financial results in more detail, and we'll then move into the Q&A portion of our call. During the Q&A session, Mick and Brett will be joined by Rob Douglas, President and Chief Operating Officer, and David Pendarvis, Chief Administrative Officer and Global General Counsel. During today's call, we will discuss several non-GAAP measures. For a reconciliation of the non-GAAP measures, please review the supporting schedules in today's earnings press release. And as a reminder, our discussion today will include forward-looking statements, including but not limited to expectations about our future operating and financial performance. We do believe these statements are based on reasonable assumptions. However, our actual results may differ. Please review our SEC filings for complete discussion of the risk factors that could affect our actual results to differ materially from any forward-looking statements made today. I'd like to now turn the call over to Mick.

Thanks Amy and Kevin, and thank you to all of our stakeholders for joining us today as we review results for the December quarter, our second quarter of fiscal year 2023. Our financial results reflect solid performance across our entire business, once again driven by strong sales growth in the Americas region, as we were able to significantly increase both production and delivery of flow generator devices. We're seeing ongoing high demand for our sleep and respiratory care devices worldwide, and we're making steady progress, working with our suppliers to continue to increase our production to ultimately meet the needs of all customers and especially patients. Our mask sales growth was strong across the globe, reflecting a post-COVID pandemic awareness of the importance and need for respiratory hygiene and respiratory health. Resupply programs in the U.S. continue to drive solid, ongoing, sustained market mask growth, catalyzed somewhat by the end of calendar year deductible momentum in the U.S. geography. Mask sales across Europe, Asia, and the rest of the world also improved, driven by increased new patient setups as connected device supply increased. Our teams worked incredibly hard to achieve these extraordinary numbers in the face of an ongoing industry supply chain constraint market. We see the supply environment improving every week, every month, and every quarter, and our access to the specific electronic components we need has increased. We are confident in our ability to fulfill all customer demand before the end of calendar year 2023. and we expect to see steady ongoing incremental device revenue growth in the third and fourth quarters of our fiscal year 2023. Customer acceptance of our re-engineered AirSense 10 card to cloud device remains strong during the second quarter, particularly in the United States geography. As we increase the volume of fully connected AirSense 10 and fully connected AirSense 11 devices over the next few quarters, we will be able to phase out the AirSense 10 card to cloud device and refocus on our strategy, which is based around the growth of 100% cloud connectable devices across the globe. Outside the US, we have not seen the same adoption rates of that AirSense 10 card to cloud device. However, there have been pockets of success in some geographies, and we see a strong growth path going forward as we ramp up our fully connected AirSense 10 and our fully connected AirSense 11 products, and as we achieve regulatory clearance of the latter platform, market by market. To that point, we introduced our newest product, the AirSense 11 platform, into the Japanese market during December, and we look forward to continuing to support doctors and patients in Japan with our world-leading 100% cloud-connectable medical devices and our cloud-based software technology. Our number one priority across all of our markets will always be patients, doing our best to help those who need treatment for sleep apnea, COPD, respiratory insufficiency due to neuromuscular disease, asthma, and all those who need access to out-of-hospital healthcare. Our goal is to ensure that patients get the care that they need, where they need it, and when they need it. Let's now briefly review updates on ResMed's top three strategic priorities. Number one, to grow and differentiate our core sleep apnea and respiratory care businesses. Number two, to design, develop and deliver market-leading medical devices as well as digital health solutions that can be scaled globally. Number three, to innovate and grow the world's best software solutions for care delivered outside the hospital and especially in a patient's own home. The launch and acceptance of our AirSense 11 device platform continues to go very well. Patient feedback remains very positive, and we continue to see strong adoption of our MyAir patient app. In fact, adoption rates are at more than double the adoption rate of MyAir with the AirSense 10 platform, at about 55% of all patients getting their data every day on their MyAir app. Increasing production and delivery of the AirSense 11 platform remains a top priority for our ResMedians around the globe, and we will continue to achieve better results and stronger market penetration each quarter. Earlier this month, we were able to take our AirSense 10 fully connected device off allocation in the US market. This is a very exciting development for our commercial team here in the Americas and for all of our customers. We look forward to continuing to expand the supply of fully connected AirSense 10 and fully connected AirSense 11 devices so that supply can become unconstrained in all countries. But we will progress throughout fiscal 23 on this endeavor. An important aspect of our ResMed 2025 strategy 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 home-based high-flow therapy solutions. We are continuing to drive growth and adoption of our ventilator devices around the world, and we saw good uptake of both our life support and our non-life support ventilator platforms during the quarter. There is also ongoing adoption of Propeller's monitoring systems. Its digital therapeutic platform is now integrated with the two leading US electronic health record systems, Epic and Cerner. This digital health integration makes it easier for doctors and healthcare workers to onboard people to the Propeller platform. It's still early days for this technology. However, combined with our investments in home-based high-flow therapy for treatment of COPD in the home, We see this technology combination as an important clinical addition for treating lung disease and an integral part, an important part of our 2025 growth strategy. Turning to our software as a service offerings for outside hospital care, our SAS business grew 18% year over year. This extraordinary growth includes sustained high single digit organic growth of our US-based SAS business at around 7%. and is accelerated by the addition of approximately six weeks of Medifox DARN revenue. As we close that acquisition and welcome that German team into the ResMed family of SaaS solutions just over midway through the December quarter. We continue to grow with outside hospital care customers as they increase their utilization of our software and data solutions to improve and optimize business efficiencies and patient care. As the post-COVID patient census continues to improve in our facilities verticals, we are seeing pent-up demand for technology investments that continue to come to the market. Our HME SaaS business under the Bright Tree brand continues to grow at a very rapid pace, and we welcome tech solutions for our HME customers across the US market. As I just mentioned, during the quarter, we received final regulatory approval and closed our acquisition of Medifox Dahn, the leading provider of end-to-end software solutions for nursing homes and home health customers in Germany. We're now focused on integrating and growing this business as we accelerate SaaS innovation and SaaS growth in Germany and beyond. I've met in person with many of the key leaders of the Medifox Dahn team, and I can tell you I'm excited about the cultural fit, the technology focus, the sharing and learning opportunities that they bring and we bring to our global SaaS team. This is our first investment in an outside hospital software business beyond the US market, but I can tell you the global SaaS team is very much in sync and they have come out of the greats strongly, not just in the revenue growth I just talked about, but also in the soft side, team collaboration, transparency and beyond. We look forward to updating you as we achieve key milestones in that business over the quarters and years ahead. Our team is ready to deliver. Our SAS business is an important part of ResMed's future growth and complements the incredibly strong software and device solutions that we have in our core sleep apnea and respiratory care businesses. One great example of the synergies between our SAS business and our core business is the success of the Bright Tree Resupply Program. Bright Tree Resupply automates the entire process from contacting the patient, interacting with the insurance company on coverage, and interacting directly with the patient and co-pays, as well as managing the logistics and distribution process. The ultimate goal is to keep a CPAP, APAP, or bi-level therapy user replenished with the supplies that they need to enable a better and longer-lasting therapy experience. We have published clinical data that show that a patient on a resupply program has higher adherence to therapy. And we also have peer-reviewed published data in CHEST showing, it's called the Alaska study, that there is a 39% reduction in mortality for patients who are adherent to CPAP versus control. These are incredible data and they lead to these synergies not just being a good revenue opportunity but being an incredible cost-saving opportunity for the healthcare system and life-saving opportunity for the patients involved. We will continue to identify and capitalize on Synergy opportunities as we move forward. We are well positioned as the leading global strategic provider of SaaS solutions for out-of-hospital care globally, and we have created differentiated value for customers and long-term sustainable growth for our stakeholders. We are transforming out-of-hospital healthcare at scale, leading the market in digital health technology across our business. We now have over 13.5 billion nights of medical data in the cloud and over 19 million, 100% cloud connectable medical devices on bedside tables in 140 countries worldwide. We are liberating data to the cloud every day and unlocking value for patients, providers, physicians, payers, and entire healthcare systems and communities. We are leading the industry. But I see this as just the start of the digital health marathon. And I can tell you, we love the race. As the overlap between digital health and consumer tech industries continues, it is important to note that ResMed's Chief Medical Officer, Dr. Carlos Nunez, was recently named Chair of the Board of the Health Division of the Consumer Technology Association, or CTA. And the Health Division is the fastest growing division within CTA. The Health Division focuses on consumer-based, technology-enabled health solutions to deliver better health outcomes for patients and reduce overall health care costs for the health care system. Their mission is fully aligned with our ResMed mission. And I'm delighted to see Carlos be recognized for his leadership. And the sessions that he chaired at CES in Vegas a couple of weeks ago showed that ResMed's thought leadership and Carlos' thought leadership is helping to craft the future of digital health and bring it to consumers. as we have done over the past decade. We're excited about the ways Carlos and CTA's Health Division can help continue to shape our industry for the future, lowering costs and improving outcomes and engaging consumers in their own healthcare. ResMed's mission and clear goal is to improve 250 million lives through better healthcare in 2025. This patient-centric mission drives and motivates ResMedians every day. We made excellent progress towards that inspiring goal over the last period. During the last 12 months, we improved over 149 million lives with delivery of a device platform to a patient, a full mask system to a patient, or a digital health software solution, helping people to sleep better, to breathe better, and to live higher quality lives with healthcare delivered right where they live, and mostly in their own home. Before I close, I want to once again express my sincere gratitude to more than 10,000 ResMedians now for their perseverance, hard work, and dedication, both today and every day. Thank you. With that, I'll hand the call over to Brett in Sydney, and then we will move and open up for Q&A from the group. Brett, over to you.