Resmed Inc (RMD) — Q4 2019 Earnings Call Transcript

Great. Thank you, Rob. Good afternoon and good morning, everyone. Thanks for joining us, and welcome to ResMed's fourth quarter fiscal year 2019 earnings call. 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. Joining me on the call today to discuss our quarterly results are CEO, Mick Farrell; and CFO, Brett Sandercock. Other members of management will be available during the Q&A portion of the call. During our call, we will discuss several non-GAAP measures. For a reconciliation of the non-GAAP measures, please review the notes to today's earnings press release. 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. With that, I'd like to now turn the call over to Mick.

Thanks, Amy, and thank you to all of our shareholders for joining us today as we review results for the fourth quarter of fiscal year 2019 for ResMed. On today's call, I will discuss our long-term strategy. I’ll review top level financial results, some business highlights from the quarter, and a few key milestones. Then, I'll hand the call over to Brett, who will walk you through our financial results in further detail. Reflecting back on fiscal year 2019, we have a lot to be proud of here at ResMed. The business is performing well; we surpassed $2.6 billion in revenue and grew at double digits in both the top line and the bottom line. We are exiting the year with momentum, and I feel strongly that we are well-positioned heading into fiscal year 2020 and beyond. ResMed is the world’s leading technology-driven healthcare company. We have more than 10 million 100% cloud connectable medical devices in the market around the world, and our AirView cloud ecosystem monitors more than 11 million patient accounts, while our out-of-hospital software systems are helping to manage 19 million more. So, that is over 100 million lives that we have improved with ResMed products, services, and solutions in the last 12 months. We have over 4.5 billion nights of medical sleep and respiratory care data, which continues to grow exponentially. And we are turning this data into actionable insights that will inform future innovation in products and software solutions to further benefit our customers. Our relentless focus on innovation continues to set us apart from our competition, demonstrated by the success of our latest software releases and our latest sleep apnea mask systems that we’ve just launched. We have strong ambitions to grow. We’re growing our business volume at double digits; we’re going to improve 250 million lives by 2025. We will do that by helping people live happier, healthier, and high-quality lives outside the hospital. We remain laser-focused on growth in our core business of sleep apnea, as well as in our adjacent businesses of COPD, asthma, and other chronic conditions. We’ve extended our focus to include out-of-hospital software solutions that help customers create efficiencies, reduce costs, and improve the quality of care across home medical equipment providers, home health, hospice services, as well as skilled nursing facilities and beyond. In short, we believe the future of healthcare is outside the hospital; that’s where ResMed competes and that’s where we win. Let’s briefly now review our top level financial results. I mentioned earlier that we ended the fiscal year on a strong note, and it is thanks to our 7,500-person global team and their hard work to drive these great results. We achieved another quarter of double-digit revenue growth, up 15% in constant currency. We produced constant currency growth in both domestic and international sales, as well as in our software-as-a-service business, which is growing organically as well as through contributions from our recent acquisitions. We continued to deliver operating leverage through the business with non-GAAP operating profit growth of 18% year-over-year and non-GAAP diluted earnings per share of $0.95. Let me now turn to a discussion of highlights across our sleep apnea and respiratory care businesses. In the devices category across these two businesses, we delivered a good quarter with year-over-year constant currency growth of 8% globally, supported by 11% growth in the United States, Canada, and Latin America. We had 1% constant currency growth of devices in combined Europe, Asia, and rest of the world. We continue to cycle through strong year-over-year comparisons in France and Japan as a result of digital health related fleet upgrades that we’ve previously discussed, and we will continue to do so for a number of quarters. Underlying patient growth remains healthy around the globe. ResMed is well-positioned to continue to benefit from strong fundamental market dynamics, including an aging population, as well as increased awareness and attention from governments, payers, providers, and physicians to better manage chronic disease. The masks and accessories growth of our business was very strong during Q4. We were up 15% in constant currency globally. In the U.S., Canada, and Latin America geographies, masks and accessories grew at 16%. In Europe, Asia, and the rest of the world, we grew at 12% in constant currency terms in masks and accessories. We are taking share around the world with our latest patient interface innovations. We make the smallest, quietest, and most comfortable masks in the market. Results this quarter show the benefits of this innovation as customers vote for ResMed with their wallets. Our flagship masks, the AirFit F20 in the full face category and the AirFit N20 in the nasal category, continue their success across global markets. Our three most recent mask launches, the F30, the N30i, and the P30i have taken off at an incredible pace. These market share gains are complemented by higher rates of adherence, driven by our digital solutions and increasing adoption of mask resupply programs through the market. We have extended our mask portfolio to offer even more options for physicians and homecare providers, and for the specific needs of the ultimate customer, the person who suffers every night with sleep apnea. We remain focused on driving innovation to meet underserved customer needs. And while these new masks have a lot of runway ahead, we also have an exciting product pipeline for the future. We are the industry leader in digital health technology. We now support well over 11 million patients with AirView, our cloud-based platform for managing sleep apnea and COPD patients. And more than 10 million 100% cloud connectable ResMed devices have been installed in the market. Over the past 12 months, we have improved the lives of 15 million people by delivering sleep apnea and COPD treatment devices and full mask systems. Our industry-changing AirSense 10 device platform and the Air Solutions cloud-based software ecosystem are still seeing strong adoption. Our device market share continues to grow as patients and healthcare providers choose ResMed and physicians prescribe ResMed. Our digital health technology solutions have been proven to improve both business and patient outcomes. We’re the market leader, and we will never stop innovating in this field. We believe that digital health technology combined with the medical equipment used to treat patients can add substantial value and improve both critical outcomes and the patient experience. Digital end-to-end solutions, connectivity, making information available to patients on their own smartphones through apps like myAir and Propeller, as well as supporting patients through their chronic disease progression, can altogether make a significant difference in both health outcomes and the quality of life of patients. Through digital health technology, we are driving engagement with patients so they can enjoy the benefits of the best therapy available, and the cost of chronic disease can be better managed by their physicians and other healthcare providers. The success of our connected health devices is producing an incredible data engine. We now have over 4.5 billion nights of medical sleep apnea and COPD data in the cloud. Using advanced analytics, we are turning this clinical data into actionable insights. We are lowering labor costs for our homecare provider customers and we are taking waste out of the system through our focus on developing solutions to get the right healthcare product or service to the right patient at the right time. At the American Thoracic Society and at the Sleep Medicine Conference during the quarter, we presented over 40 clinical studies from our digital health databases. We are advancing the field of sleep medicine with doctors Nunez, Benjafield, and Armitstead, and their physician colleagues from around the world. Just over one year ago, we announced a joint venture with the Alphabet subsidiary, Verily, to study the health and financial impacts of untreated sleep apnea. Based on research outcomes from this JV, we will develop software solutions to help identify, engage, and better manage people with sleep apnea. The JV has been established and running since November of last year, and the combined ResMed-Verily team is making good progress to analyze data, code software, and launch pilot studies into the market. This investment, which can be seen as a sophisticated, tech-driven research and development project, is a great long-term bet. Over time, we know this work will drive incremental growth in our core sleep apnea business, while allowing ResMed to participate in a broader ecosystem, covering sleep apnea, cardiovascular disease, diabetes, and other major chronic diseases. Everything we do supports our ambition to help more than 936 million people worldwide who suffocate every night with sleep apnea, and nearly 400 million people worldwide who suffer from chronic obstructive pulmonary disease or COPD. In January, we closed on the acquisition of Propeller Health. This is a significant addition to our vision of longitudinal solutions in respiratory care. Propeller’s digital health solution helps people and their doctors better manage COPD and asthma healthcare. Propeller rounds out ResMed’s portfolio to now treat COPD patients through all stages of their disease. As a reminder, Propeller’s advanced digital health platform leverages small sensors that are attached to inhalers of these medicines. These sensors then pair with an easy-to-use cloud-based mobile app that automatically tracks COPD medication use and provides personalized feedback and insights to the individual, much like myAir and our other sleep apnea patient engagement systems, just not at the same scale yet. The Propeller team is making really good progress, as they work with partners to reach commercial scale. We’re very encouraged about where we are at with the team. There are a few things that I can point to that give you an idea of how Propeller solutions have been recognized and adopted by their partners. In May, the Cleveland Clinic published research showcasing that the use of Propeller’s digital medicine platform for COPD patients reduced the Cleveland Clinic’s COPD-related healthcare utilization and hospitalizations across their clinic. The year before the study, patients averaged 3.4 visits per patient per year; following the use of Propeller’s technology, the rate decreased to 2.2 visits per patient per year, with the majority of patients indicating that the sensor was convenient and very easy to use. That 35% reduction in clinic visits is an incredible cost savings and productivity opportunity for hospital systems and payers. Earlier this week, Walgreens announced that Propeller has been added to the pharmacy’s health platform called, Find Care, expanding the ability to get Propeller into the hands of people struggling to manage their chronic disease through Walgreens. Propeller’s clinically validated solutions have demonstrated amazing outcomes, including trial studies showing a 58% improvement in medication adherence, a 48% increase in symptom-free days, as well as a 53% reduction in emergency room visits. These are impressive results, and we can’t wait to scale. The evolution that we have made in the respiratory care business has set ResMed up to become the global leader in digital health for COPD, from stage 1 and 2 COPD with Propeller to stage 3 and stage 4 COPD, with portable oxygen and noninvasive solutions. We will continue to help physicians, providers, payers, and patients as they manage this important, progressive, and chronic disease, keeping people out of the hospital, happy, and healthy in their homes. Let’s now turn to a discussion of our software-as-a-service business for the out-of-hospital healthcare settings that we operate in. Our SaaS portfolio continues its growth trajectory, with revenue up 111% year-on-year on a reported basis this quarter. On an organic pro forma basis, comparing results in Q4 to the results of these businesses before recent acquisitions, Brightree grew in the high single-digit range, and MatrixCare grew low double digits. We are pleased with the momentum and progress the teams have made as we integrate and optimize across the portfolio for growth. Our competitive advantages and leading SaaS positions in home medical equipment, skilled nursing facilities, home health, hospice, and other out-of-hospital care markets support ongoing portfolio growth. On a pro forma basis, we are growing this portfolio at high single digits across the blend of SaaS portfolios. We have a clear pathway to drive sustainable double-digit growth in our SaaS portfolio as we further integrate these businesses. I'd like to call out a few highlights from the quarter. Our Brightree home health and hospice electronic medical record solution was awarded the 2019 MedTech Breakthrough Award for best overall healthcare administration software. Additionally, our latest KLAS scores for home health and hospice have gone up again. KLAS looks at many aspects of customer satisfaction, which provides a holistic measure of performance. So, the trend in these latest data further validates our leading position in high-quality offerings in the marketplace. As you may recall, MatrixCare has received the best-in-class award for long-term care software three years in a row. We have organized all of our home health and hospice solutions from both Healthcarefirst and Brightree under MatrixCare management. This will allow customers who operate across care settings to enjoy the scalability and seamless transfer they want, but it also helps patients and aging seniors to navigate more easily across these healthcare settings. Additionally, we launched MatrixCare I, which is a single platform for care management across out-of-hospital healthcare settings. Having a single platform enables centralized management of care settings, consistency between functions, user management, and navigation, and a single view of the individual, resulting in streamlined care transitions for our customers. Also, during the quarter, Brightree launched a new pharmacy suite for home infusion therapy providers and HME pharmacies. We've also expanded our Brightree ReSupply solutions into three new categories: incontinence, diabetics, and enteral, to enable HMEs to create efficiencies and optimize patient support. In summary, for the SaaS business, we have a vision to transform and significantly improve out-of-hospital healthcare. ResMed is the strategic player best positioned to lead this transformation. We are connecting capabilities across Brightree and MatrixCare platforms in care settings to help our customers be more efficient so they can better serve an aging population, helping them stay out of the hospital and in a lower-cost, higher-quality care setting of their choice, and the best place is almost always their own home. Before I turn the call over to Brett, let me close with this. We had a great fiscal year 2019. Full year revenue was up 15% in constant currency, and we translated that into 18% operating profit growth. We are all well-positioned to continue to drive top and bottom line growth in fiscal year 2020 and beyond. We published the prevalence data study showing the 936 million people worldwide with sleep apnea in the top-tier clinical journal, Lancet. Our connected health strategy continues to support growth across global markets and the continued traction of our diversified mask and device portfolio, along with an expanding pipeline of new products and enhanced digital health solutions for sleep apnea, COPD, and out-of-hospital medical software markets. We have confidence in our ongoing momentum. Finally, we’ve positioned ResMed for the long-term as an innovative global leader in digital health. Our triple aim is to slow chronic disease progression, reduce overall healthcare system costs, and improve outcomes and quality of life for the ultimate customer, the patient. With that, I’ll turn the call over to Brett for his remarks. And then, we’ll open the lines up for Q&A.

Great. Thanks, Mick. In my remarks today, I will provide an overview of our results for the fourth quarter of fiscal year 2019. As Mick noted, we had a strong quarter. Group revenues for the June quarter were $705 million, an increase of 13% over the prior year quarter or in constant currency terms, revenue increased by 15%. Excluding revenue from acquisitions, group revenue increased by 8% on a constant currency basis. Taking a closer look at our geographic distribution and excluding revenue from our software-as-a-service business, our sales in U.S. and Canada and Latin American countries were $386 million, an increase of 11% over the prior year quarter. Sales in Europe, Asia, and other markets totaled $234 million, a decrease of 1% over the prior year quarter. However, in constant currency terms, sales in combined Europe, Asia, and other markets increased by 4% over the prior year quarter. Breaking out revenue between product segments, U.S., Canada, and Latin America device sales were $203 million, an increase of 7% over the prior year quarter. Masks and other sales were $183 million, an increase of 16% over the prior year quarter. For revenue in Europe, Asia, and other markets, device sales were $156 million, a decrease of 4% over the prior year quarter, but in constant currency terms a 1% increase. Mask and other sales in Europe, Asia, and other markets was $79 million, an increase of 6% over the prior year quarter or in constant currency terms, a 12% increase. Globally, in constant currency terms, device sales increased by 4%, while masks and other sales increased by 15% over the prior year quarter. Software-as-a-service revenue for the fourth quarter was $85 million, an increase of 111% over the prior year quarter. During the rest of my commentary today, I will be referring to non-GAAP numbers. The non-GAAP measures adjust for the impact of amortization of acquired intangibles, purchase accounting fair value adjustment to MatrixCare deferred revenue, restructuring expenses, litigation and settlement expenses, tax-related expenses associated with the U.S. tax reform, and any payment on a minority interest investment. The prior comparable excludes amortization of acquired intangibles, restructuring expenses, and expenses associated with U.S. tax reform. And replacing that, we provided a full reconciliation of the non-GAAP to GAAP numbers in our fourth quarter earnings press release. Our gross margin for the June quarter was 59.3% compared with 58.1% during the same quarter in the prior year and 59.3% in Q3 FY19. Compared to the prior year, our gross margin increased by 120 basis points, predominantly attributable to manufacturing and procurement efficiencies, and the MatrixCare acquisition, partially offset by typical declines in average selling prices. Assuming current exchange rates and likely trends in product and geographic mix, we expect gross margin for fiscal year 2020 to be broadly consistent with our Q4 FY19 gross margin. Moving on to operating expenses. Our SG&A expenses for the fourth quarter were $171.6 million, an increase of 9% over the prior year quarter. In constant currency terms, SG&A expenses increased by 14%. Excluding acquisitions, SG&A expenses increased by 3% on a constant currency basis. SG&A expenses as a percentage of revenue improved to 24.3% compared to the 25.1% that we reported in the prior year quarter. Looking forward, subject to currency movements and taking into account our recent acquisitions, we expect SG&A as a percentage of revenue to be in the range of 23% to 25% during fiscal year 2020. Consistent with trends in prior year, Q1 FY20 will be at the higher end of the range, while the second half of the year will trend toward the lower end of the range. R&D expenses for the quarter were $51.1 million, an increase of 29% over the prior year quarter; on a constant currency basis, an increase of 32%. Excluding acquisitions, R&D expenses increased by 6%, reflecting incremental investments across our R&D portfolio. R&D expenses as a percentage of revenue were 7.3% compared to 6.4% in the prior year. Looking forward, subject to currency movements and taking into account our recent acquisitions, we expect R&D expenses as a percentage of revenue to be in the range of 7% to 8% for fiscal year 2020. Amortization of acquired intangibles was $23.4 million for the quarter, an increase of 102% over the prior year quarter, reflecting the impact from our recent acquisition. Stock-based compensation expense for the quarter was $14.2 million. Non-GAAP operating profit for the quarter was $196.2 million, an increase of 18% over the prior year quarter, while non-GAAP net income for the quarter was $137.6 million, an increase of 1% over the prior year quarter. Non-GAAP diluted earnings per share for the quarter were $0.95, consistent with the prior year quarter, while GAAP diluted earnings per share for the quarter was $0.48. On a GAAP basis, our effective tax rate for the June quarter was 28.2%, while on a non-GAAP basis, our effective tax rate for the quarter was 21.8%. Looking forward, we estimate our effective tax rate for fiscal year 2020 will be in a range of 21% to 23%. During the quarter, we recognized restructuring expenses of $9.4 million, predominantly associated with the workforce planning review in our respiratory care business, closure of our R&D facilities in Germany, and costs associated with ongoing integration programs in the SaaS portfolio. Additionally, during the quarter, we recognized a write-down of $5 million associated with a minority equity investment. Finally, in relation to legal settlements, we have tentatively agreed with the government to resolve the U.S. Department of Justice investigation for a payment of $39.5 million. We expect to also incur legal and administrative costs that typically accompany such a resolution. As a result, we have recognized a reserve of $41.2 million in our fourth quarter results in connection with this tentative agreement. While we believe a voluntary resolution is likely, there can be no assurance as to whether or when the parties will finalize a negotiated settlement. Cash flow from operations for the fourth quarter was $141.8 million, reflecting strong underlying earnings. Capital expenditure for the quarter was $22.2 million. Depreciation and amortization for the June quarter totaled $42.8 million. During the quarter, we paid dividends of $53.1 million. Our joint venture with Verily continued operations during the quarter, and we've recorded equity losses of $6.5 million in our income statement in the June quarter associated with the joint venture. We expect to record approximately $7 million of equity losses each quarter in fiscal year 2020, associated with the joint venture operations. Our Board of Directors today declared a quarterly dividend of $0.39 per share, representing an increase of 5% from our previously declared dividend. At June 30, we had $1.3 billion in gross debt and $1.1 billion in net debt. Our balance sheet remains strong with modest debt levels. On July 10, we closed on our U.S. private placement offering with $500 million in debt, consisting of $250 million in seven-year senior unsecured notes at a 3.24% coupon and $250 million in senior unsecured notes at a 3.45% coupon. Net proceeds from the offering were $498 million, which we used to reduce our current borrowings under the unsecured revolving credit facility. The transaction significantly lengthens our debt maturity profile and provides improved visibility on our long-term debt funding costs. Finally, to recap, our top-line revenue was strong this quarter with growth across all major categories. Gross margin was solid and our operating costs remained well-controlled, even as we observed the impact of acquisitions. As a result, we continued to drive operating leverage with Q4 non-GAAP operating profit up 18% year-on-year. We are focused on driving operating results, integrating SaaS acquisitions, and ensuring we continue to invest in our strategic, long-term opportunities. And with that, I will hand the call back to Amy.

Great. Thank you, Brett. We will now go ahead and turn to the Q&A portion of the call. Before we start, I would like to remind everyone to please limit yourself to one question. If you do have additional questions or a follow-up, please feel free to return to the call queue.

Hi Mick and hi Brett. Thank you so much for taking my questions. It’s in relation to the SaaS business. Can you shed some light on how the growth was achieved, whether it’s new users, new modules, and increase in revenue per user? And also, when you might expect Brightree to get to double-digit growth?

Yes, Lyanne, thanks for the question. As we stated during the quarter and during the prepared remarks, we had strong growth across the SaaS portfolio, high single-digit growth from Brightree and low double-digit growth from MatrixCare, with a blend of the two in the very high single digits. Your question of where the revenue comes from, it’s a combination of the above. We’ve had new users that come into the system, both Brightree and MatrixCare; there is churn out, but we have net new users that come in. We have also launched some recent new modules including apps directly for patients in Brightree. And then, we also have price increases that apply to some elements of that portfolio. So, it’s a combination of all three that have driven that strong growth. As we said, we think that as we continue to integrate across the different out-of-hospital healthcare settings, we have the opportunity to increase the value we give the customers and therefore increase the revenue to a sustainable double-digit growth across that portfolio. So, we’re not giving a specific timeline exactly where that’s going. But now that it’s been called out on our 10-Qs and 10Ks, we’ll be going through very detailed data on a 90-day basis as to where that growth is coming from. However, I can tell you, having just had a steering committee review with both the Brightree management team and with the MatrixCare management team just this week that we have a really good portfolio of new solutions and services, and new lines of business including entering into the infusion business from Brightree, into enteral care, diabetics, and beyond. So, there’s a very good portfolio ahead.

Good morning, Mick. Mick, can you provide us with a bit more sense from your perspective about the mask growth in the U.S.? It certainly looks like it accelerated versus the average over the last five years. Can you provide some insights into this?

Yes. Thanks for the question, John. That allows us to talk about what we’ve been doing to help our customers on masks and adherence. As you noted, our U.S., Canada, and Latin America growth in the quarter was very strong, at 16% constant currency in that geography. But I’ll note it was also 12% in constant currency in Europe, Asia, and the rest of the world, leading to a global number of 15% constant currency growth across the business. It’s driven primarily by market share gains, those strong double-digit growth. We say the market is growing in mid to high single digits. So, at 15% growth, we’re clearly taking share. Secondly, what we’re driving is increased adherence. As I highlighted in the prepared remarks on digital health technology, we’re driving up to 87% adherence on patients who set up on a ResMed device using myAir and all the Air Solutions capabilities. So, nine out of ten people are staying on therapy, which drives a stronger tail of the number of patients who will adhere to therapy and therefore will need masks as they get dirty and decay over time. So, that’s a big part of it. In summary, it’s market share gain, increased adherence, and getting new patients into the funnel. We’re doing a better job of identifying, engaging, and enrolling patients around the world, not only by publishing the prevalence data that we just did but also by using big data to partner with healthcare providers, governments, and payers to illustrate the ROI in diagnosing and treating sleep apnea patients.

Resupply seems to be a strong driver of growth in the U.S. masks and accessories. Do you see any risks from a payer’s or reimbursement perspective regarding the sustainability of this product growth?

So, the key element in this is really Health Economics and Outcomes Research, or HEOR. One thing we’re doing with the 4.5 billion nights of medical data we now have on sleep apnea and COPD patients is partnering up with healthcare systems. You saw our data with Kaiser Permanente Group in California, which published the 87% adherence data. We don’t share all the partnerships that don’t get published and what we’re doing. We have discussed our latest work with Walgreens and with Cleveland Clinic on some of our digital health applications. The bottom line is, if you keep a patient on therapy for sleep apnea and you’re investing a couple of hundred dollars per year per patient on masks, you are saving far more than that in reducing emergency room visits and additional costs related to cardiovascular care and diabetes arising from untreated obstructive sleep apnea. We have decades of clinical data supporting this. We now have true economic data that we can share with customers, whether that customer is a payer, provider system, or otherwise. Therefore, I see resupply not as a risk, but as an opportunity to demonstrate the return on investment for those in the system.

Could you remind me of the settlement figure, and does this change the way you've got to run that resupply business going forward?

Steve, I'll hand that question to Rob Douglas.

Steve, the conduct that was subject to investigation has been laid out in our 10-Qs over time, so if you refer back, that will provide the detail regarding those various categories. How we made our resupply programs available on a trial basis was one element. There were issues regarding marketing programs, financing, and making some apnea links available. All four of those aspects are involved in this resolution. It is a tentative resolution. We’re comfortable taking the reserve now because we think it’s probable that that resolution will be finalized. Our best estimate now would be by the end of the calendar year. We're fairly confident in the numbers. The $39.5 million that Brett referenced is a confident estimate of the ultimate exposure for payments to the government. As for the remainder, the fees and expenses are more of an estimate, but there’s high confidence that the reserve should be sufficient to cover all associated expenses. Importantly, in this resolution, we will not be required to admit any wrongdoing. We believe that we handled ourselves appropriately. However, like many situations, these matters are resolved on a consensual basis to get them behind us. We feel this is the best resolution for our customers, patients, the company, and our shareholders. Going forward, we do not expect significant changes to the way we conduct our business. We will continue to focus on making our resupply systems available for customers so patients can obtain the necessary supplies and consumables in the future.

Mick, on the frontend commentary, you referenced your goal of double-digit volume growth over the next several years. I'd like to explore that a bit, particularly in relation to the drivers of that growth in sleep, COPD, and SaaS. Can you share insights on the planned pace of product launches as we have seen and how the law of large numbers might influence you?

Yes. Thanks for the question, Margaret. As you know, I discussed this in the prepared remarks—exciting as the $2.6 billion in revenue is, probably even more exciting to our team is the 100 million lives we touched, 15 million through products and now over 90 million through our services and solutions in the SaaS part of the business. Our goal is to grow that combined portfolio double digits in volume through 2025 to improve 250 million lives. That’s our five-year growth plan. While we have not publicly broken out how the various elements of sleep apnea, respiratory care primarily focused on COPD but also asthma via Propeller, and the out-of-hospital software side will grow, I can say that the core market of sleep apnea is expanding in the mid to high single digits, as observed this quarter and last quarter. We do not just accept that market growth; we actively drive it by acquiring market share and bringing new patients into our service offering. In respiratory care, we are revolutionizing the sector with the acquisition of Propeller. It will only take one of the three to five non-public pharma pilot trials we’re conducting for that business to significantly grow from its current rate. We have an exciting set of partnerships with large pharma that we will share at the appropriate time. The third part of our business, the combination of Brightree and MatrixCare, as I said, has a clear pathway to increase growth from high single digits to double-digit rates and maintain that long term. The trends show that more individuals want to be cared for outside of the hospital, and we have the finest software systems to facilitate that. Each of those portfolios will drive numerous factors of growth in the next five years, and we are confident of achieving double-digit volume growth across that portfolio.

On SG&A, you've managed to continue lowering the SG&A to sales ratio. Where do you see that going, how long can you keep lowering it, and where are the gains coming from?

Yes. Thanks, Gretel. I'll direct that to Rob Douglas.

Thanks, Gretel. The good thing in a growing business is that driving engineering leverage into the systems and processes becomes more achievable with a focus. Our sales processes and systems need ongoing investment. We can’t guarantee that this leverage will keep up forever, but with strong volume growth, we’ll continue to enhance efficiency. We experienced excellent leverage in our organic business and as we incorporated new businesses that may not have previously employed that leverage thinking, it has created significant opportunities for building that leverage through process management and continuous improvement programs. We still have ample room to drive that leverage forward.

Mick, could you give us a sense of the contribution of non-invasive ventilators to device revenue for the group?

Yes. Thanks, David. We don’t break it out to that level of granularity. In general, if you look at the growth of respiratory care in ventilation versus sleep apnea, the device growth is a little slower in respiratory care. However, we do not accept the notion that our non-invasive ventilators will underperform our sleep apnea devices. This last quarter, we had robust growth in our ventilators due to a successful software upgrade—not a cloud offer, but an embedded software within the Astral ventilator, which was very well received by customers in Europe and the U.S. This led to considerable market share gains. We don’t yet break down the specifics, but I look forward to when Propeller achieves sufficient success that we must categorize our respiratory care division similarly to our SaaS division, allowing me to provide more insights into this aspect of our business.

Regarding France and Japan, are there expectations that they will normalize after the device upgrades? If so, what will that mean for growth when these two countries stabilize on the device side?

Yes. Thanks for the question, Anthony. That allows me to discuss that digital health upgrade in France and Japan, where we witnessed impressive rapid growth as these countries moved into digital health. The normalization of activity will take place as we start to pass the strong year-over-year comparisons we have behind us. By the end of this fiscal year, we expect normalization in France and Japan, which will positively influence our overall portfolio across Europe, Asia, and the rest of the world. As we launch more digital health solutions into additional countries, we hope to report similarly to the S-curve of innovation we’ve seen in Finland and Switzerland. No specific announcements have been made regarding timelines for other countries beyond those two at this moment. However, we are optimistic that the normalization will take place before the end of this fiscal year.

Could you elaborate on the rationale for expanding Brightree into the three chosen areas? Also, will this be an ongoing strategy for Brightree to broaden its horizons, particularly into other healthcare areas?

Yes. Thanks for the question, Chris. Brightree is a cloud-based enterprise resource planning and systems platform service tailored for home medical equipment. Brightree has serviced patients in conditions like incontinence and diabetes for some time. We are not expanding Brightree’s reach to new markets—we're enhancing the services we offer. With the growth in the infusion business, this does attract providers with that as part of the service. We’re not only focusing on sleep apnea and COPD growth; we’re innovating comprehensively to help our HME clients. This strategy will certainly continue as we look for more ways to assist home medical equipment supplies in their journey toward digitization. We expect to launch numerous new modules and gain adoption across multiple channels.

Regarding the partnership with Walgreens, could you share how many more patients you hope to reach through this collaboration, and what significance these pharmacy partnerships hold for Propeller's future strategy?

Thanks for the question, Matt. As mentioned in the prepared remarks, the partnership with Walgreens is still in the pilot phase. While we cannot disclose exact numbers of patients or pharmacies currently involved, we know that the data we gather through these pilots will provide valuable insights upon completion. Our previous data from the Cleveland Clinic shows that there is notable potential for significant savings through reduced clinic visits and emergency room engagements—a substantial benefit for large hospital systems and payers. Once we complete our pilots successfully, I'll be able to discuss results more freely. For now, it’s vital to have this collaboration with Walgreens as a new channel for engagement in managing COPD and asthma, showing that we can broaden our outreach beyond traditional healthcare provider avenues.

What are your thoughts on the competitive bidding process going forward, particularly with the ‘21 bids now open? How do you plan to position yourself in this landscape?

We have a sophisticated market access team that is focusing on this process. David, do you want to summarize?

Sure. The bidding window is open for 90 days. Our primary focus is educating the industry about the new bidding rules and how to model the effect of lead item pricing on your overall product portfolio. We’re also working to ensure our customer base is well-prepared for the bidding process. We’re supporting the overall process but we remain in a supportive role.

Brett, I have several questions regarding restructuring charges. We have seen these appear in the past year. How do you view restructuring as a recurring element? And what differentiates a restructuring charge from regular SG&A and R&D costs?

Thanks, Dave. Restructuring charges will occur from time to time, but I do not see them becoming regular occurrences. The restructuring typically occurs for strategic reasons; for example, we are reviewing planning in our respiratory care business to determine the capabilities needed for our digital health focus. Additionally, we closed our smaller R&D facility in Germany as we found larger hubs in Singapore and the U.S. to be more effective in delivering innovation. Lastly, continuous integration efforts in the SaaS portfolio justify some restructuring as needed. These occurrences are inevitable but not routine.

Mick, could you provide insights on the rate of Brightree users acquiring other Brightree users during the quarter?

Thanks for the question, Sean. The U.S. home medical equipment channel contains many thousands of providers, and Brightree commands a substantial market share amongst them. There has been, of course, M&A activity. So, yes, some Brightree customers have acquired other Brightree users, which can be revenue-neutral, given our charge model of per user on a set timeframe. However, changes in revenue may depend on the decisions made by each party regarding module use after consolidations. This is an expected aspect of the business, and we are well-prepared to manage developments within the context of our overall growth strategy. We experienced solid single-digit growth this quarter, demonstrating our teams' efforts in this space. Thanks, Rob. And before we close the call, I want to thank our dedicated 7,500 strong team here at ResMed for their continued dedication, focus, and commitment to our growth strategy and all the operating excellence initiatives. You folks are the core of what we do, and your efforts have enabled us to deliver these great results that we just shared with our shareholders. We’re focused as a team on our future pipeline and all the products and software solutions we have to improve outcomes and benefits for all of our stakeholders, that includes patients, physicians, payers, providers, governments, and of course our shareholders. Thanks all for your time today, and we look forward to talking to you again at the end of the first quarter for fiscal 2020.

Thank you all again for joining us today. If you do have any additional questions, you can always reach out to Investor Relations or me directly. As previously mentioned, all the documents and the transcript will be available on our website later today. Operator, Rob, you can close the call.