ResMed Inc.

Greetings, and welcome to the ResMed second quarter fiscal year 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star 1 on your telephone keypad, and we ask that you please ask one question and one follow-up to return to the queue. If anyone should require operator assistance, please press star 0. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Sally Schwartz, Chief Investor Relations Officer.

Please go ahead. Thanks, Kevin. I want to welcome our listeners to ResMed's second quarter fiscal year 2026 earnings call. We are live webcasting this call, 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 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 Sally and good morning, good afternoon and good evening to all of our shareholders and welcome to all to ResMed's second quarter fiscal year 2026 earnings call. We delivered another strong quarter with 11% headline revenue growth or 9% growth on a constant currency basis. We drove operating leverage leading to margin expansion sequentially and year on year. and we achieved gap EPS growth of 16%, strong double digit bottom line growth. I'm very proud of our global team of 10,000 plus ResMedians who continue to innovate and evolve the digital sleep health pathway to expand access to our life changing technology across over 140 countries worldwide. Our team drove high single digit growth in global devices revenue. and double digit growth in global masks, accessories and other revenue. Last quarter I expressed confidence that we would re-accelerate our Europe, Asia and rest of world masks, accessories and other category to high single digit growth in this second quarter. The team from EMEA and APAC has delivered and we achieved 8% growth on a constant currency basis across Europe, Asia and rest of world. driven by continued strategic expansion of our mask portfolio including our new fabric masks, a focus on improved mask resupply through education, awareness and execution as well as targeted initiatives and focus in some of our direct to consumer markets around the world and I'll spend a little time on that later. So well done to our EMEA and APAC teams. Last quarter I also talked about our portfolio management work that we're doing in ResMed's residential care software or RCS business. We are making strong progress with that work and I remain confident that we will be back to sustainable high single digit growth and double digit operating profit growth in fiscal year 2027. For this March and the June quarters we expect to continue our portfolio management process and maintain mid single digit growth across our RCS business as we go through that portfolio management. This software business, this RCS business remains a key synergistic enabler of our sleep health and breathing health business particularly through Bright Tree in the Americas and through Medifox Darm in Germany and it remains a core part of our long term growth strategy. During the quarter, we also continued to drive operating leverage. Our global supply chain team delivered 310 basis points of year-over-year gross margin expansion. Incredible result. These results, along with our disciplined approach to business investments in both R&D and SG&A, translated to another quarter of strong mid-teens earnings per share growth. A huge thank you to the entire ResMed global team for their ongoing commitment to serving patients across 140 countries worldwide. ResMed continues to build the world's leading digital health ecosystem encompassing sleep health, breathing health and healthcare technology that's delivered in the home. Over the recent quarters I've been highlighting three key themes. One, that ResMed is an operating excellence machine and an innovation machine. Two, that ResMed is a compelling investment opportunity especially amidst global macro uncertainty. And three, that ResMed has an excellent free cash flow and a very strong balance sheet and they both position us well to invest in the business as well as to return capital to our shareholders. So let me cover these three themes briefly in these prep remarks. On the topic of operational excellence, I've shared with you ResMed's pipeline of margin improvement drivers. These efforts helped deliver 310 basis points of year-over-year gross margin expansion in the second quarter and 30 basis points of sequential gross margin expansion. We will continue to execute on these opportunities over the remainder of fiscal year 2026 and beyond. As I shared at a recent healthcare conference earlier this month, I have challenged our supply chain team to deliver double digit basis points improvement in gross margin every year through 2030. I've also highlighted the evolution of our global manufacturing footprint. We're making very good progress on our newest US distribution centre in Indiana. We recently signed a lease and started construction in that state and we are on track to be up and running during calendar year 2027. Once this facility comes online, ResMed will be able to ship to around 90% of our US customers in less than two business days. This is in addition to our recently announced expansion of our Calabasas, California plant which doubles our US manufacturing capacity. Ultimately ResMed will be able to deliver the only made in America CPAP, APAP, bi-level and mask systems. ResMed remains an innovation machine. Our R&D investments in the next generation of market leading masks, cloud connected medical and digital healthcare software position us to keep delivering the world's smallest, quietest, most comfortable, most connected and most intelligent therapy solutions for sleep apnea and expansions into insomnia, respiratory insufficiency and beyond. We recently launched the F30i Comfort as well as the F30i Clear range of masks. These are the first compact full face fabric masks available from ResMed and they're in select key markets now and we'll continue to roll them out around the world as we get regulatory approvals. Patient and provider feedback on these new fabric masks has been incredibly positive. It's still early days into the launch but we expect strong adoption of these masks over time. These latest variants expand ResMed's AirTouch portfolio of fabric based mask offerings which not only deliver advanced comfort, mobility and interchangeability for patients but they also change the basis of competition for masks and for ResMed. Artificial intelligence is another vector for our product innovation. At ResMed we view AI as a resource that will amplify and personalize care. Last quarter I talked about our limited beta launch of ComfortMatch. an AI-enabled comfort setting recommender within the MyAir software platform. This is ResMed's first FDA-cleared, AI-enabled medical device. Comfort Match is intended to help people become more confident and more comfortable with CPAP, APAP, and bi-level therapy. What I expect to see is having an AI algorithm that is effectively a sleep coach to help you start therapy that can really help you improve not just short-term adherence, but also long-term adherence as you get used to therapy. There are a bunch of comfort settings on these devices and many people do not adjust them. With help from AI, we think this technology will unlock decades worth of comfort features that have been underutilized by consumers and patients alike. Moving on to ResMed's SG&A initiatives and investments, we remain focused on demand generation, demand capture and demand curation. as critical components to our long-term growth. We continue to drive selected targeted direct-to-consumer campaigns to build sleep apnea awareness as well as to drive ResMed brand awareness globally and to drive patients into the funnel. This past quarter we supported various holiday-related campaigns. We focused on 11-11 or Singles Day in China. and we also had some promotions around Christmas holidays and Black Friday within the US markets. I can tell you we've successfully encouraged consumers to give the gift of great sleep and we highlighted our portable travel Air Mini device which is lightweight and compact size as perfect for travel and we had good success in the December quarter. We also are driving awareness in the clinical community. Earlier this year, we expanded our offering of continuing medical education, or CME, programs that review sleep medicine guidelines, including the benefits of gold standards CPAP, APAP, and biliberal therapy. It's the frontline treatment for any patient diagnosed with sleep apnea, and we're educating PCPs around the U.S. on this fact. To date, these CME programs have been completed nearly 60,000 times. That's a 50% increase from our first quarter 2026 earnings call numbers that we shared with more than 35,000 unique clinicians completing the CME training. That demonstrates that actually many of these healthcare providers have taken multiple courses, so not just sleep 101 but sleep 201, sleep 301. Surveys at the end of these courses now show 77% of these providers intend to change their clinical practices related to sleep apnea and sleep health and breathing health based on what they learned. On the clinical research front, we continue to stay abreast of important studies that highlight evidence of sleep health and how it impacts the body and the brain and overall health. One important area of analysis is the link between sleep apnea and sleep health and brain health. A recent study published in JAMA Neurology looks at a cohort of more than 11 million US veterans. where researchers found that obstructive sleep apnea, or OSA, was associated with a higher incidence of Parkinson's disease over time. The authors of the study also found that early treatment of OSA with CPAP may reduce the risk of developing Parkinson's disease in the first place. The study's findings aligned with prior evidence linking OSA with cognitive disease, gait instability and fall risk. Growing evidence also now shows that OSA may meaningfully alter dementia risk. Adherence to CPAP appears to counteract several of the biological pathways that lead disrupted sleep to neurodegeneration. Large cohort studies have shown that untreated moderate to severe OSA increases the likelihood of developing dementia by 30 to 45%. While patients who remain adherent to positive airway pressure therapy experience substantially lower risks and rates of Alzheimer's disease and cognitive decline over time. Mechanistic studies reinforce this signal. CPAP use has been shown to partially restore glymphatic clearance as well as the brain's oversight waste removal system that becomes impaired during OSA and this reduces a key Alzheimer biomarker. Even short-term CPAP adherence around five hours a night can improve memory, attention and executive function in older adults with mild cognitive impairment, suggesting that consistent early intervention with CPAP may help stabilise cognitive trajectories. Watch this space for more on this front between sleep health and brain health. It's increasingly clear that treating OSA, getting on, staying on, CPAP, APAP and bi-level has implications to brain health as well as cardiovascular health, diabetes health and beyond. In fact, it is literally a matter of life and death. Research published last year in the Lancet Respiratory Medicine Journal found that CPAP therapy significantly reduces the risk of overall death for people with obstructive sleep apnea. More specifically, this study showed that CPAP therapy lowers the overall chance of dying by 37% and the chance of heart-related or cardiovascular-related death is reduced by 55%. The study, which analyzed data from more than 1 million sleep apnea patients worldwide, underscores the importance of consistent CPAP therapy for improving survival outcomes in OSA patients. This therapy saves lives but also improves quality of life. We're also excited to announce that our medical affairs team has launched the ResMed Science of Sleep Apnea Advisory Group, bringing together leading external physicians in various specialties from around the world to provide strategic clinical and scientific guidance to our innovation efforts. Watch this space for results of their work. Before I move on, I'd like to spend a minute on our latest real world evidence that we shared during a recent healthcare conference. As you know, we've been tracking claims data now reflecting more than 1.95 million patients. What we've consistently seen is patients who have scripts for both a latest generation GLP-1 or GLP-1 and CPAP prescriptions are 10% to 11% more likely to start their CPAP therapy than patients who only have a script for CPAP. These patients that have a combined script, they are also 3% more likely to have a resupply event at one year, meaning they're buying a new mask, a new accessory of some type, a hose, filter and beyond. But that doubles and we see more than 6% likelihood to have a resupply event at three years. This is the first time we had three year data to share and we shared that. It's encouraging to see that the motivation of these patients lasts and even accelerates over time. Ultimately what we're finding is patients on a GLP-1 get on CPAP more and stay on CPAP therapy longer. Even as we've continued our investments in both R&D and SG&A, ResMed again delivered strong operating profit growth in the first quarter. Indeed, ResMed remains a compelling investment opportunity amidst global macro uncertainty. That's my second key message. I'll spend a couple of minutes on it and then get to Brett and we'll get to the Q&A. We continue to closely monitor the global trade environment and the evolving regulatory landscape. As you saw in December, CPAP, APAP and bi-level products are not included in CMS's upcoming competitive bidding programs. That's the first time in 15 years that's happened and we're very happy that that result we think will be great for not just US citizens and Medicare recipients but also for our HME partners and the overall sleep health and breathing health industry. Also because ResMed's products are used to treat patients with chronic respiratory disabilities such as obstructive sleep apnea and respiratory insufficiency, they've been subject to global tariff relief for decades. This relief has continued. in the context of prior Section 232 investigations and we expect it to remain true no matter what the result of those types of investigations are for medical supplies announced in the late September investigation that's currently underway. So the so-called no aerobics protocol we see in play. We are fortunate to be able to remain fully focused therefore on executing on our 2030 strategy including the delivering value to all of our constituents. ResMed remains a very strong free cash flow generation machine. We have an incredibly robust balance sheet and that provides us with significant flexibility to both invest in our business and return capital to shareholders. This is my final key message here. We'll continue to selectively invest in our digital sleep health concierge capabilities including screening tools, clinical tools, seamless workflows and cloud connected pathways. We'll be looking to expand and speed up the diagnostic funnel to keep up with new patient flow and even accelerate it over time from our own ResMed demand generation efforts. The greater awareness of sleep apnea generated by big pharma medications as well as the consumer wearables from big tech are capable of driving growth of patients into our funnel if ResMed does the work of curating and helping those patients find a pathway. As I said at JP Morgan earlier this month, I'm predicting that at least one, two or three of these wearable companies will follow Apple Watch and Samsung Galaxy Watch to develop and launch sleep apnea detection capabilities that have passed through the FDA workflow. Watch this based on that. With both Big Tech and Big Pharma bringing people into the funnel and primary care education from rest and driving like never before, we need to be prepared to address this ongoing and growing awareness of sleep apnea as well as other sleep health and breathing health disorders. I spoke a few minutes ago about our CME courses. I also talked about some of our ongoing product innovations such as our newer fabric masks. You've seen our prior acquisition of companies like Virtuox and the Nidal product from a company called Ectosense, as well as Somnaware, which is the software for pulmonary and sleep medicine physicians. Ultimately, through this M&A and organic developments, we're expanding the ecosystem to help people quickly and swiftly move from sleep apnea awareness through testing all the way to being diagnosed and treated and adherent on our therapy for life. With investing going back into our business is our absolute first priority for capital allocation. We invest over 6% to 7% of our revenues in R&D and 19% to 20% in SG&A but we're also returning capital to shareholders through dividends and we've been increasing those and we've added an increase to our share repurchases. During the second quarter we returned another $263 million. to our shareholders through our quarterly dividend and our $175 million in share repurchases. I noted at JP Morgan earlier this month that we are increasing our share repurchases to more than $600 million for fiscal year 2026. We picked up the pace of our share repurchases in the second quarter and will continue to deploy meaningful capital through our share repurchase program. Quarter after quarter, ResMed has and will continue to demonstrate an ability to consistently deliver both financially and operationally. We've established a leading market position globally in under-penetrated markets and we still have a very long runway of growth ahead. We're in mile one of the marathon. This underpins our confidence in our ability to deliver for consumers, for patients, for physicians, for providers, for payers and for our communities that we serve and of course to all of you listening here, our shareholders. With that, Brett, I'll hand over to you to go into a deeper dive on our financials and then we'll open up the floor for your questions. Brett, over to you. I've dropped off the call. Okay, Brett, why don't you speak through Teams and then we can get you live here. Just speak through Teams there, Brett. Brett Sandercock, I'm in a ResMed call. I'm about to speak.