ResMed Inc.

Welcome to the Q1 fiscal year 2027 ResMed earnings conference call. My name is Shamali and I will be your operator for today's call. At this time, all participants are in listen-only mode. Also, please note this conference call is being recorded. Later, we will conduct a question and answer session. Let me hand over the call to Sallilyn Schwartz, ResMed's Chief Investment Relations Officer.

Thanks, Shamali. I want to welcome our listeners to ResMed's first quarter fiscal year 2027 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 is available online now. As with last quarter, we will be displaying our earnings presentation during our prepared remarks, and then we will post the slides to our IR website after the conclusion of our remarks. 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. 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 a complete discussion of the risk factors that could cause our actual results to differ materially from any forward-looking statements made today. And with that, I'll now turn the call over to Mick.

Great, thanks Sally and welcome to all. We're all together here in Sydney, Australia and all fired up at 7.30 in the morning. During the first quarter of our fiscal year 2027, we delivered another strong set of results. 7% revenue growth on a core constant currency basis on the top line, 50 basis points of year-over-year gross margin expansion and 14% growth on the bottom line in non-gap earnings per share. We also returned more than US$1 billion to our shareholders during the quarter through both our quarterly dividend and our share repurchase, funded with the MatrixCare business divestiture proceeds and cash on hand. ResMed's fiscal year 2027 is off to an excellent start. I'd like to take this opportunity to thank the global ResMed team for their unwavering dedication to our patients, our providers and physicians. We're building the world's leading digital health ecosystem, encompassing sleep health, breathing health, and healthcare technology delivered in the home. As we move throughout our fiscal year 2027, we're focused on three key areas. One, on our continued innovation and operational excellence to support ResMed's ongoing growth and transformation work. Two, on active portfolio management across our business lines, and three, on leveraging our significant free cash flow to both reinvest in our business and return capital to shareholders. ResMed is committed to innovation excellence across the sleep health ecosystem. This means ongoing innovation in our products and bringing together devices, masks, digital tools, and provider support to create a more connected therapy experience and to help people stay engaged with their therapy over time. Last quarter I talked about the launch of the Aircurve 11 ST and STA platforms into the US market. The ST and the STA are bi-level device platforms for patients who need more pressure support or have more complicated breathing disorders including central sleep apnea, complex sleep apnea and COPD plus OSA which is known clinically as overlap syndrome. The AIRcurve 11 is built on our market-leading AIR11 platform that has CPAPs, APAPs and now these advanced bi-levels, allowing us to leverage a shared technology and digital health ecosystem across a broader range of patient populations. This helps simplify workflows for providers while creating a more consistent experience for patients. We've also launched just this week a third fabric mask into the market. We call it the AirTouch F for Fred 40 in the US. AirTouch F40 brings ResMed's proprietary comfy soft fabric cushion to a minimalist design that is intended to adapt to a person's facial contours dynamically as they move throughout the night. In a ResMed study, 91% of patients rated the Airtouch F40 as comfortable or very comfortable at initial fitting. This technology can help patients get adherent with less provider effort and can drive patient and provider preference for ResMed products. On our most recently launched fabric masks, we have now shown 6% increase in therapy adherence for the fabric masks versus their silicone mask equivalent. This is market leading technology and we continue to bring these products to market. Watch this space. On the software side, we recently launched a refresh of our MyAir patient app. We're now well over 13 million downloads of our MyAir app and we'll talk about that later. But in addition to the enhanced user interface on MyAir and the optional dark mode, new features include an updated MyAir score, a nightly timeline of events, and therapy control to adjust comfort settings from the app giving each user a more personalized experience. MyAir now also includes a service that we call equipment care and it's launched in a number of geographies and it makes it easier for patients to request resupply by showing a visual countdown for each mask or other device accessory. It can send timed reminders when masks and accessories are eligible for replacement, helping encourage action by patients and increasing convenience for the patient and making it easier for the provider. Watch this space as we increase availability of this type of service for consumers who want to access better resupply. Also on the MyAir app, our generative AI-powered digital sleep coach that we call Dawn has now seen more than 2.1 million inquiries from patients already on therapy. That's up over 40% just from last quarter. This demonstrates that patients are very curious about their CPAP therapy and they want to learn more. Dawn helps patients find support wherever and whenever they need it, significantly reducing customer service inquiries to ResMed, but also reducing customer service inquiries to ResMed's HME partners and channel partners. Delighting patients and saving costs for HMEs is a double win for ResMed through this innovative GenAI tech. We will continue to evolve MyAir based on consumer and provider feedback. Our aim is to bring clearer therapy insights to bring more intuitive support and to bring increasingly personalized experience to engage patients throughout their therapy journey. Together with Airview, ResMed's remote monitoring platform for healthcare providers, MyAir has been shown to meaningfully improve therapy compliance from 70% up to 87% just by adding MyAir for the patient. One further update regarding our FDA-cleared, AI-enabled digital medical device that we call Smart Comfort. We launched this just earlier this calendar year. Smart Comfort was built on millions and millions of nights of ResMed sleep data to recommend personalized adjustments to comfort settings like temperature, humidity, and it's applied on new AirSense 11 users. We predicted in previous quarters that increased comfort could lead to increased adherence. And it turns out that prediction has come true. Early real-world data shows a 4.3% increase in 30-day compliance versus the device's default settings. SmartComfort has been selected as a special mention in Time Magazine's Best Inventions of 2026. But more important than that, it's evolving our products to deliver increasingly personalized therapy to patients, and it's a winning use case for AI. ResMed's digital health ecosystem is second to none, providing sustainable value for patients, for physicians, for providers, even for payers and beyond. On the operational excellence side, we were able to execute some of our planned supply chain initiatives more quickly than we predicted. We were able to re-phase some of our planned expansion initiatives, particularly in Indianapolis, Indiana, allowing us to exceed our own expectations for gross margin for the quarter. The transformational pipeline of initiatives, what I call our productivity pipeline for our supply chain team, they built it and it remains robust and multi-year, underpinning our ongoing confidence that we can deliver double-digit basis points improvements in gross margin every year, every fiscal year through 2030. I'm also proud to share that we've produced our first Made in America CPAP device and Essence11 has come off the line at our Atlanta, Georgia facility. Having this capability for U.S. manufacturing gives ResMed additional flexibility to optimize operations as needed across our global manufacturing footprint. We also continue progress on our new Indiana, Indianapolis-based distribution center, which once it's fully operational will enable faster delivery to our North American customers. ResMed has a significant and growing U.S. manufacturing presence and we continue to invest in expanding our capability to serve our highest volume market. With regard to our government advocacy work, I can tell you that we are actively engaged with the U.S. government as well as industry partners to support policies that strengthen domestic U.S. manufacturing and global supply chain resilience while protecting patient access to our life-saving therapy in the U.S. and around 144 countries worldwide. Alongside these developments in the US, we are expanding our Asia manufacturing capabilities, including at our largest manufacturing facility in Singapore and our facilities in Malaysia that are joined to the Singapore operation. Together with our Sydney, Australia, Calabasas, California, Atlanta, Georgia, and our newly established Indianapolis, Indiana facilities, our global operations footprint positions us extremely well to serve our growing customer base and patients around the world. Over the past quarters, I've highlighted our initiatives to increase awareness of sleep apnea and the impact that chronic poor sleep has both on the individuals and healthcare system, but also on their partners and families and workmates. As you know, we've been excited to see growing appreciation of the importance of sleep health driven by consumer wearables, including Samsung Galaxy Ring that just this week, I think actually overnight, got FDA clearance for sleep apnea detection from their Samsung Galaxy Ring, but also from Big Pharma and the GOP-1s, the investment that particularly Lilly is making, but also Novo and driving patients into primary care. Earlier this month, we announced a collaboration with smart mattress sensor maker Eight Sleep. Their Eight Sleep pod users in both the US and Australia markets will be able to securely connect their MyAir Sleep Insights to the Eight Sleep app, giving them a more complete picture of their sleep health. Here in Australia, Eight Sleep users whose sleep data shows trends such as heavy snoring may be guided to ResMed's sleep health resources, including sleep assessments and the pathway to diagnosis and therapy and beyond. This consumer sleep wellness collaboration adds to our partnership with smart ring maker Aura, that I discussed during ResMed's last earnings call. We've continued to see strong traffic to ResMed's website from Aura app users. As of September 30, approximately 28,000 Aura users, more than double what we had seen at the end of July, have come to ResMed.com from a customized tile within Aura's own app. Many thousands of those users have taken the ResMed sleep assessment right there on ResMed.com. Approximately 72% of those assessed identified themselves as previously undiagnosed for OSA, highlighting the potential to turn sleep insights into action and helping more people get evaluated and ultimately treated for their sleep apnea. Another sleep pathway enabler are these new medicines, well not so new, maybe 10, 15 years in the market, but newly ramping up GLP-1s. As we've discussed before, patients on GLP-1s both initiate CPAP therapy more and stay on CPAP therapy longer, and they buy more stuff. As an update to our analysis that's built from a claims database of tens of millions of patients, our specifically analyzed cohort now includes more than 3.3 million de-identified patients. We are still seeing that patients who have scripts for both CPAP and GLP-1s are more than 11% more likely to start on CPAP therapy than patients who have a script for CPAP alone. They are also more than 3% more likely to have a resupply event at one year and more than 7% more likely to have a resupply event at three years. The CPAP plus GLP-1 and the CPAP-only cohorts are measured on the same basis, i.e., patients who stop CPAP remain in the base population for both groups. Sleep apnea risk factors include age, gender, craniofacial geometry, as well as weight. OSA very often needs to be treated even after very significant weight loss, as we've seen in the clinical literature, the real world data that we show, and in the numbers if you look at our incredible mass growth over time. ResMed continues to selectively invest in marketing that expands our awareness, reduces barriers to diagnosis and treatment, and help small people understand the life-changing impact of better sleep, better breathing. You may have seen some of our campaigns underway. I'll highlight just three of them quickly here on our call. Number one, Our so-called CPAP Baddies campaign is helping normalize CPAP therapy through authentic community-driven conversations, making treatment more approachable and encouraging more people to start and stay on therapy. It's really creating a CPAP community of people who are proud of changing their lives. Number two, our In Bed With interview series features sleep doctors, sleep physicians, and other sleep wellness thought leaders. to help more people recognize symptoms of sleep apnea, to seek care, and ultimately to improve long-term clinical outcomes as well as quality of life outcomes. And thirdly, and finally, our athletic partnerships, most recently with a NASCAR driver, Tyler Reddick, enable us to reach new audiences with powerful real-world stories that demonstrate how effective sleep therapy can improve energy, performance, and personal and family life. It's interesting, the most watched episode featuring Tyler Reddick, who's a world-class professional driver, was not about his improvement in sports performance and winning the Daytona 500 in the first three NASCAR races of the season, creating new sports records for that sport. The most watched podcast and viral social media was about his wife, Alexa, sharing that ResMed CPAP treatment made him a better husband, a better father, and a better friend. The words from patient one back here in Australia in 1989, Eddie Merck, who said this therapy saved my marriage, saved my job, saved my life come to mind. It's great to have that story retold from many perspectives and from a young race car driver here right in 2026. Okay, together these sort of consumer engagement initiatives are helping ResMed interact with more people, driving greater awareness and adoption. And ultimately they fulfill our mission of improving lives through better sleep and better breathing, longer life, which is longevity, lifespan, but more importantly, healthspan, which is living longer with a good quality of life. Greater awareness in the clinical community is another key element to ensuring consumers have ready access to information and pathways to diagnosis and therapy. Our continuing medical education or CME programs include sleep medicine physician society approved guidelines, Obviously that includes the benefits of CPAP, APAP and bi-level therapy as the clinical gold standard, the frontline treatment for any patient diagnosed with sleep apnea. Our sleep apnea education courses have now been completed by approximately 108,000 times by more than 63,000 unique clinicians. We've been tracking the number of referrals for home sleep apnea tests and prescriptions for positive airway pressure both before and after training. It's great to see that post-training, these clinicians are not only saying they intend to change their clinical practices, they are actually changing them and it's impacting patient flow. Okay, our second priority is active portfolio management. On September 1st, we closed on the divestiture of our MatrixCare business. We continue to expect this move to accelerate the growth and profitability of our core residential care or RCS business. For fiscal year 2027, we are still planning for our RCS business to deliver high single-digit revenue growth with operating leverage reflecting both improved mix and execution focus. We're off to a solid start with high single-digit growth powered by our Bright Tree and Medifox Darn product lines. We're also making good early progress integrating our NIDRA or Restless Legs Syndrome therapy that we acquired with a company that was called Noctrix from the Stanford's Biodesign Incubator. NIDRA's commercial footprint is expanding rapidly, albeit from a small base. We're keenly focused on increasing commercial coverage for NIDRA and supporting expanded access to this novel, non-invasive, sleep physician prescribed, DME channel delivered, VA channel delivered to patients therapy. Prioritizing patient care is also central to our ongoing Astral Field Safety Corrective Action. We're responsibly supporting patients, including patient-centric and quality-focused completion of the ongoing action. We also recognize that home care provider customers need to be able to plan for future ventilation needs. That commitment is why we recently announced that we will no longer sell the Astral device. We're focusing all available components to service astral devices for existing patients with prioritization based on the highest clinical acuity and guided by clinical judgment. We're going to execute the best recall in the history of life support ventilation. We took $42 million reserve and I've seen the latest data and it's very good. We're executing very well in that field safety notice. We intend to keep allocating capital towards our high growth, high return opportunities. This allows us to accelerate the expansion of our digital health ecosystem to support continued innovation at scale and to drive strong progress towards successful execution of our 2030 strategy.