Resmed Inc (RMD) — Q1 2025 Earnings Call Transcript

Great. Thank you, Kevin. Hi, everyone, and welcome to ResMed's first quarter fiscal year 2025 earnings call. As Kevin said, 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 helpful information for investors. This information is not intended to be considered in isolation or as a substitute for the reported 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 a 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 ResMed's Chairman and CEO, Mick Farrell.

Thanks, Amy, and welcome to all of our shareholders for joining us today as we review ResMed's first quarter results for fiscal year 2025. I'm pleased to report another strong quarter of growth across all of our business segments. We've seen solid revenue growth, improved gross margins, and disciplined investments in both SG&A and R&D, resulting in very strong profit performance. The results we are presenting today reflect the hard work of the 10,000-plus ResMedians operating in over 140 countries worldwide. And the dedication they bring to improving the lives of patients, physicians, providers, and all of our customers every day. Before delving into the details of our financial and strategic initiatives, I want to emphasize that the results we are presenting here today are not just financial in nature. They represent an improvement in health outcomes for many tens of millions of people worldwide. Our mission here at ResMed is to create life-changing healthcare technologies that people love, through cloud-connectable medical devices, masks and accessories, digital health platforms, as well as ongoing investments in the latest technology, including ML and AI and GenAI. We are committed to helping hundreds of millions of people so that they can breathe better, sleep better, and live longer and higher-quality lives. Living the lives that they can to their fullest potential. Now turning to a high-level review of the financials. I'm proud to report that we delivered another strong quarter. Revenue grew by 11%, reflecting strong demand for sleep health and breathing health medical devices, our masks and accessories, as well as our residential care software offerings. We achieved double-digit revenue growth across all product and geographic categories this quarter. Masks and accessories growth was augmented by new patient activations as well as ongoing ReSupply. Our global device sales were driven by strong market performance from both the AirSense 10 and the AirSense 11 platforms. Our focus on operating excellence programs helped us drive operating leverage during the quarter. We achieved 27% growth in our operating profit and we further achieved 34% growth in earnings per share. We're committed to driving increased efficiencies, managing our operating expenses prudently, and investing in areas that power long-term sustainable growth. By balancing strategic investments with cost discipline, we're driving ongoing and sustainable profitable growth here at ResMed. Device sales remain strong, growing by a double-digit percentage year-over-year and we continue to maintain market leadership with our two AirSense platforms. We're supporting the global market and every patient or provider who needs a device has access to our market-leading 100% cloud-connectable platforms, the AirSense 10 and the AirSense 11. We are increasing the availability of our AirSense 11 platform worldwide with regulatory approvals expanding country-by-country. We will see ongoing momentum. Our masks and accessories business had another strong quarter, delivering 11% year-over-year growth. The AirFit F40, ResMed's smallest oronasal mask ever, continues to perform well in the U.S. market and we're expanding the F40's availability across additional global markets. The F40 has a proprietary adaptive feel technology, combined with its lightweight and compact design, it has been incredibly well-received. The F40 is praised for its fit, its comfort, and its adaptability, especially for patients who move frequently during sleep. At our Investor Day on September 30th, we announced the upcoming launch of our latest mask innovation, the AirTouch N30i. Today, I can announce that this amazing new technology will be launched into select markets next week. The AirTouch N30i is ResMed's first mask with a fabric-wrapped frame and a fabric-based patient interface with a soft breathable fabric system for optimal comfort. The way I see it, we sleep with fabric-covered pillows and fabric sheets like cotton. Why can't we have CPAP mask technology that feels just as good? We believe this mask technology will set a new standard for CPAP, APAP, and bilevel patient interface therapy and will help more people love their therapy, including how they feel in the morning and all day, all because they can achieve longer and higher-quality sleep. This technology has been years in the making and we are very proud to be able to deliver it to customers starting next week. ReSupply programs remain a critical element of our strategy to drive adherence, improve patient outcomes, and enhance long-term clinical results. Our digital health ecosystem empowers ReSupply through three market-leading platforms, including myAir for patients, AirView for physicians and providers, as well as Brightree for home medical equipment or HME providers. Published research shows that patients enrolled in ReSupply programs have higher therapy adherence rates in the first year and over the long term. As we expand these types of ReSupply programs globally, we expect to see continued positive impacts on patient outcomes as well as reduced overall healthcare system costs. We're proud of the progress we've made and we're excited about the opportunities in front of us. Let's now talk about two significant macro trends that we've reviewed over recent quarters, namely consumer wearables and a new class of pharmaceutical medicines called GLP-1s. We believe that both of these macro trends will have a significant impact on our business as tailwinds. Let me start with a discussion of GLP-1 medications, with a focus on the latest generation of these medicines that are targeted specifically to treat diabetes and now obesity and beyond. We've designed a real-world data analysis with now n equals 989,000 subjects, who received both a prescription for a GLP-1 medication and a prescription for positive airway pressure therapy. The results from this analysis are clear. People prescribed a GLP-1 and PAP therapy have 10.8 absolute percentage points more likelihood or propensity to commence positive airway pressure therapy, 10.8 absolute percentage points higher. Moreover, once on therapy, people with a GLP-1 prescription and a PAP prescription appear to be even more committed to long-term therapy adherence. Our analysis shows that after 12 months, the ReSupply rate for patients with GLP-1s and PAP prescriptions is 3.2 absolute percentage points higher. At 24 months, this expands even further and the ReSupply rate difference increases to 5.3 absolute percentage points higher for patients on both a GLP-1 and a PAP prescription. This suggests that patients who start GLP-1 therapy are also motivated to start and adhere to their sleep apnea treatment. As these therapies continue to expand in use, we believe that it will be a clear tailwind for our business. Next, let's turn to the consumer wearables macro trend. In July, Samsung began selling its latest generation Galaxy Watch, which now includes detection of moderate-to-severe sleep apnea. Samsung achieved de novo FDA clearance for this capability. Just last month, Apple introduced its latest generation Apple Watches with its own version of possible sleep apnea detection using actigraphy technology tracked over multiple weeks as its detection method. It's incredible to have two world-leading consumer technology companies recognize the importance of tracking sleep health and identifying sleep apnea. In addition to these technologies from Apple and Samsung, other wearables like Google's Fitbit, Garmin, Oura, Whoop, and beyond are focusing on sleep health tracking. We see this investment by consumer wearable companies as an incredible once-in-a-generation opportunity for sleep health and breathing health awareness, and particularly for sleep apnea awareness. We believe that these technologies will help drive more patients to seek out information regarding their sleep health and breathing health. ResMed's obligation is to help these sleep health and breathing health consumers find their own pathway to appropriate diagnosis and treatment for sleep apnea, where ResMed leads the world with the most clinically effective, the most non-invasive, the most proven, and the most cost-effective solutions for care. Our strong competitive position here at ResMed is underpinned by continuous innovation, our commitment to patient care, and our digital health ecosystem. We've made significant investments in our product offerings, including the expansion of the availability of cloud-connectable devices, the integration of artificial intelligence into our latest and greatest digital offerings, and the scaling of our digital health tools, such as our patient management system called AirView and our consumer engagement application called myAir, which now has over 8.8 million users globally. Additionally, we recently announced the ability to integrate our own wearable home sleep apnea test system called NightOwl with our myAir platform. This will enable a more streamlined diagnosis process and provide improved consumer engagement on their path to therapy. Let's now turn to our long-term vision for growth, what we call our ResMed 2030 strategy. As we outlined during our recent Investor Day just over three weeks ago at the New York Stock Exchange, this strategy is centered on three key pillars: one, growing and differentiating our core sleep health and breathing health business; two, expanding into near and adjacent areas; and three, leveraging our leadership in digital health to drive better outcomes for patients, physicians, providers, and payers. Let me cover some high-level thoughts on each of these three pillars, and then I'll hand the call over to Brett, and after that, we'll go into our Q&A session. So one, sleep health and breathing health. Here at ResMed, we are laser-focused on maintaining and expanding our global leadership in sleep health and breathing health. Our goal is to bring the best products to market, products that are the smallest, the quietest, the most comfortable, the most connected, and the most intelligent. The term CPAP has traditionally stood for continuous positive airway pressure. Taking some artistic license, I would propose that it now stands for computerized positive airway pressure. And the smarts go beyond the devices themselves. By liberating the data to the cloud, here at ResMed, we can engage with patients, with physicians, providers, and whole healthcare systems like never before. We now have approximately 20 billion nights of sleep health and breathing health data in the cloud, and we have more than 27 million 100% cloud-connectable devices that we have provided in over 140 countries worldwide. This allows us to partner with patients, physicians, providers, and beyond with unparalleled insights, ultimately leading to better product and better software offerings that help patients and their caregivers achieve better health outcomes, lower costs for the overall healthcare system, and better management of chronic diseases. Second, health technology at home. ResMed is the global leader in digital health solutions for care delivered right where people live and often that's right in their own home. We are introducing the basic power of machine learning and artificial intelligence as well as more advanced generative AI to revolutionize healthcare delivery. Through platforms like myAir and AirView, as well as our broad residential care software offerings, including go-to-market product brands like Brightree, MatrixCare, or MEDIFOX DAN, we are making healthcare more accessible, more efficient, and more patient-centered. We're also developing AI-driven solutions to further personalize healthcare and improve therapy adherence. Let me briefly update on two in-market products in this AI-driven space. Our compliance coach digital offering is helping home medical equipment providers identify the most at-risk patients for adherence issues and is making a significant impact to help deliver timely interventions to improve therapy outcomes for patients as well as their physicians and their providers. Our latest generative AI-driven consumer product that we call Dawn is helping more people get access to the information they need and to answer questions they have about their own personal sleep health, breathing health, and beyond. After just a few months of Dawn being launched into our U.S. market, we've seen 25% of visitors initiate a session with Dawn. This has led to an extraordinary 40% reduction in the volume of direct-to-live human contact center queries, allowing tech to do what tech does best and our people to connect with customers how they connect best as humans. The bottom line is these technologies represent higher quality, better outcomes, and lower costs for the healthcare system and we are just getting started. Three, expanding into adjacencies. We are investing in adjacent areas, including insomnia, chronic obstructive pulmonary disease or COPD, and other respiratory insufficiency fields, including neuromuscular disease and beyond. With an aging population and an increasing incidence of chronic diseases, these areas represent significant growth opportunities. We continue to expand our cognitive behavior therapy for insomnia or CBTi offerings with a product called Somnoware, while also looking at other novel technologies in the market for the 860 million people worldwide who suffer from insomnia, the inability to get to sleep and stay asleep. We're also building on our leadership in non-invasive ventilation for COPD patients to help develop new pathways for high-flow therapy in the home. The 480 million people who suffer from COPD urgently need better therapy and we are working on it. We also believe there is a significant opportunity for ResMed to capitalize on the growing trend of people worldwide seeking better sleep health regardless of whether they have clinically significant sleep apnea. And we're excited to explore what this means for ResMed as we build on our leadership in sleep apnea to extend more broadly into global sleep health, breathing health, and in fact, all health technology that's delivered in the home. As we look ahead, we are more energized than ever by the opportunities in front of us. The global demand for sleep health and breathing health solutions is growing. And our mission to help people sleep better, breathe better, and live higher-quality lives to their fullest potential continues to drive everything we do. We have updated our goal aligned with our 2030 strategy, and we now plan to empower over 500 million people to reach their fullest potential in 2030 with sleep health, breathing health, and health tech at home. With our strong financial foundation, our innovative product pipeline, and our expanding digital health ecosystem, we are best positioned to achieve that goal. ResMed is at the forefront of a rapidly evolving healthcare technology landscape. We're leading with improving patient outcomes, applying new technology, and creating value for all of our stakeholders. Thank you to the 10,000-plus ResMedians whose hard work and dedication make our mission possible and thank you to you, our shareholders for your continued trust and support. With that, I'll hand the call over to Brett in Sydney for a deeper dive into our financials and then we'll open the floor up for questions. Brett, over to you.

Great. Thanks, Mick. In my remarks today, I will provide an overview of our results for the first quarter of fiscal year 2025. Unless noted, all comparisons are to the prior year quarter and in constant currency terms were applicable. We had a strong financial performance in Q1. Group revenue for the September quarter was $1.22 billion, an increase of 11% on both a headline and constant currency basis. Revenue growth reflects positive and consistent contributions across our product and ReSupply portfolio. Year-over-year movements in foreign currencies positively impacted revenue by approximately $4 million during the September quarter. Looking at our geographic revenue distribution and excluding revenue from our Residential Care Software business, sales in U.S., Canada, and Latin America countries increased by 11%. Sales in Europe, Asia, and other regions increased by 10%. Globally, device sales increased by 10%, while masks and other sales increased by 11%. Breaking it down by regional areas, device sales in the U.S., Canada, and Latin America increased by 11%, supported by solid ongoing new patient demand. Masks and other sales increased by 10%, reflecting growth in both ReSupply and new patient setups. In Europe, Asia, and other regions, device sales increased by 9% on a constant-currency basis, while masks and other sales increased by 11%. Residential Care Software revenue increased by 12% in the September quarter, underpinned by growth from MEDIFOX DAN and continued strong performance from our HME software vertical. During the rest of my commentary today, I will be referring to non-GAAP numbers. We have provided a full reconciliation of the non-GAAP to GAAP numbers in our first quarter earnings press release. Gross margin increased by 320 basis points to 59.2% in the September quarter. The increase was primarily driven by manufacturing efficiencies and component cost improvements and an increase in average selling prices. Sequentially, gross margin was broadly consistent with last quarter. We continue to monitor potential headwinds that could arise from the Middle East conflict and congestion in Asian ports. We expect increased air and sea freight costs will continue to impact our gross margin throughout fiscal year 2025. However, we have made good progress expanding gross margin over the last 12 months and we are focused on driving initiatives to further improve our gross margin. Looking forward, we continue to expect gross margin will be in the range of 59% to 60% in fiscal year 2025. Moving on to operating expenses. SG&A expenses for the first quarter increased by 7%. The increase was predominantly attributable to increases in employee-related costs. SG&A expenses as a percentage of revenue improved to 19.5% compared to 20.2% in the prior year period. Looking forward and subject to currency movements, we expect SG&A expenses as a percentage of revenue to be in the range of 18% to 20% for fiscal year 2025. R&D expenses for the quarter increased by 4% on a constant currency basis. R&D expenses as a percentage of revenue was 6.5% compared to 6.9% in the prior year period. Looking forward and subject to currency movements, we expect R&D expenses as a percentage of revenue to be in the range of 6% to 7% for fiscal year 2025. Operating profit for the quarter increased by 27%, underpinned by revenue growth and gross margin expansion. Our net interest expense for the quarter was $1.7 million. Given our low debt levels, we expect net interest expense to be less than $1 million in the second quarter. Additionally, we will likely generate net interest income in the second half of fiscal year 2025. Our effective tax rate for the September quarter was 19.2%. We estimate our effective tax rate for fiscal year 2025 will be in the range of 19% to 21%. Our net income for the September quarter increased by 35% and non-GAAP diluted earnings per share increased by 34%. Cash flow from operations for the quarter was $326 million, reflecting solid underlying earnings. Capital expenditure for the quarter was $18 million. Depreciation and amortization for the quarter totaled $45 million. We ended the first quarter with a cash balance of $426 million. During the quarter, we reduced our debt by $30 million. We have now repaid our variable debt and our term debt remains at attractive interest rates relative to the current market. On September 30, we had $677 million in gross debt and $251 million in net debt, and we have approximately $1.5 billion available for drawdown under our revolver facility. We continue to maintain a solid liquidity position. Today, our Board of Directors declared a quarterly dividend of $0.53 per share. During the quarter, we purchased 222,000 shares under our previously authorized share buyback program for consideration of $50 million. We plan to purchase shares to the value of approximately $75 million per quarter through the remainder of fiscal year 2025. This will more than offset any dilution from the vesting of equity to employees during the year. Going forward, we plan to continue to reinvest in growth through R&D, deploy further capital for tuck-in acquisitions, and continue our share buyback program. And with that, I will hand the call back to Amy.

Great. Thank you, Brett. Kevin, I'd like to go ahead and turn the call over to you to provide the instructions again and run the Q&A portion of the call. Thank you.

Hello. Thank you for taking my question. Just a quick one. Do you have any sense of pre-orders for your new mask? I know it's not available yet, but any sense of what demand looks like for that product?

Yes. Thanks for the question, Laura. You know it's de minimis at this point in terms of not material to the global financials. And so we don't release information like that. But what I can tell you is that we have shown this technology to our commercial teams in our big markets where it's going to launch next week. And there's incredible excitement. The marketing team have put together some fantastic programs. The sales team are ready to take it to customers. But most importantly here is the product engineering teams and the product management teams. This has been over a decade in development, it's really hard to take fabric and custom apply it onto Liquid Silicon Rubber and do that at scale. The scale that ResMed needs to launch a mask like this to the global market. So I'm really excited about this technology. As a personal user of these types of devices, the idea of moving from a rubber type or a plastic type product to fabric is incredible. I truly think this is a game changer, but very early days, and nothing material to report at this point other than the great technology and the excitement of the commercial team. Thanks for the question, Laura.

Thanks.

Craig, if you are there you might be on mute.

Yes. Sorry about that. Thanks for taking my question. I just wanted to touch on the rest of world devices growth. 9% growth is good growth there. I was wondering if there was much benefit coming through from AirSense 11 sales given that they are higher priced. Or if not, could you just explain some of the kind of growth drivers there for rest of world devices?

Yes. As you know, that encompasses Europe, Asia-Pac, and the rest of the world. The 9% growth reflects a lot of factors and is certainly impressive. We believe we are either maintaining or gaining market share in the approximately 140 countries included in this broad category. It's a highly competitive environment with all players active in these markets, and we appreciate the global competition as well as our unique, compact, and comfortable devices. There is a clear impact from the transition from AirSense 10 to AirSense 11 in regions where it's available, which comes with a higher price and lower cost of goods sold. This provides some advantages. However, the overwhelming majority of our growth stems from increased volume and our ability to drive demand generation, capture, and conversion in global markets. I’m extremely proud of Andrew Huxter and his team in Europe, as well as Tony Lou and his team in Asia-Pac; they have been performing exceptionally well in their new roles over the past year, which is great to see. Thank you for your question, Craig.

Hi guys, it's Jimmy on for Margaret. Thanks for taking the question and congrats on a great quarter here. Mick, I wanted to maybe touch on devices here, and it's great to see double-digit growth worldwide. As you've digested the drivers of the strength this quarter and maybe determine what you attribute the strength to. Are you seeing any pull-through from Samsung or the spotlight that GLPs are putting on OSA? And maybe just talk to some of the confidence that might be giving you as you look at how ResMed is trying to make an impact in growing the market longer term?

Yes, Jimmy. Thanks for the question. It's a good one. It allows us to talk to those macro trends and also sort of the micro, what happened these last 90 days. Firstly on the micro, look, U.S., Canada, Latin America device growth was exceptional at 11%. Just want to be clear, that's on a comp of 2% from this time a year ago. So in Q1 2024, we had 2% growth in U.S., Canada, Latin America. So very good growth at 11%, but it's on a relatively low comp. So won't take over credit for that. But what I will say is that we're definitely holding share and taking share in those markets and it's great to have the AirSense 10 and AirSense 11. So we can have the number one rated device in the world, which is the AirSense 11, and the number two rated device in the market, which is the AirSense 10 available for sale there. So I think that has a combination of it. To the specific part of your question around Samsung with their de novo clearance earlier in the year and then Apple with their most recent launch of their latest watch with sleep apnea detection, I think it's very early days in those new technologies. They've just been rolled out. I think there's a long runway to go as they get them out there. In a long runway, if you think about the analog being Apple Watch launching an EKG capability, what, 5, 5.5 years ago, and it's really now just starting to get good flow-through cardiology. I think it will go faster than that, but it won't be sort of in this one or two quarters since Samsung and just a quarter or less since Apple launched theirs and so really early days there. Look, I do think the GLP-1 trend of getting patients into primary care is helping and we're tracking 989,000 patients now with combo prescriptions for GLP-1s and those PAP and those are having some tailwind effects. So all of these macro trends are positive. What I can tell you is, I think it's just getting awareness out there. All this talks to the importance of sleep health, breathing health, and that people are thinking about it. Big consumer tech companies, big pharmas are thinking about it and people in general are and they're coming into the healthcare system and they're getting those prescriptions. So really excited about 11% growth in U.S., Canada, Latin America on a 2% comp, really excited about Europe, Asia, and rest of world growth of 9% and global growth of 10% constant currency in our devices category. And look, I'll give credit to the team. I think the team has done a great job commercially and a great job with our partners in home care providers, physicians getting prescriptions, and helping to expand the diagnostic funnel. Again, early days, we're excited about the flow and really, really proud to report these numbers.

Thanks very much. Mick, perhaps a similar topic. Mask sales for the last year or so have been double-digit. I'm looking particularly at the North American market. Just wondering if you could talk about the drivers there. I mean, what comes to mind is master patient is increasing, adherence is increasing and perhaps ResMed's market share is increasing. Can I get a touch on what you think the drivers are and maybe talk a little bit about what to expect in the future, please?

Yes, David, it's a good question. You helped me answer it with three of the areas where that growth is coming from. Yes, I mean, look, masks and accessories growth in U.S., Canada, Latin America was at 10%, really solid. That was on an extraordinary comp of 23% from Q1 '24 a year ago. And so as you said, solid ongoing double-digits on double-digits growth there. And look, it is a combination of new patients. We're seeing new patient flow to be pretty solid into the system. It's a combination of that plus ReSupply. We are expanding Brightree ReSupply. We're expanding Snap to every Brightree customer that wants it. We actually said three weeks ago at our Investor Day at the New York Stock Exchange, we're going to launch Snap Technologies even to non-Brightree customers. We're going to make it operable with whatever ERP-type management system you're using for your HME. We've got a really good share with Brightree, but if you're not using Brightree, we don't have to convert to Brightree, although we want to put you on Snap. And so that's a new advance there on ReSupply. So runway left there. Yes, I think the masks per patient per year is going up, but there is still a lot of room. I think there's a lot of people. I mean, I talk to them anecdotally, but if you go out and do your channel checks and research, not everybody knows that reimbursement will pay for two, three, or even four mask systems per year and some people are still getting one mask system per year or less. And so there's a lot of room to improve. Some people are on those programs and they love it and they get on the subscription ones. I love it because it's an overlap of altruism with the profit motive. The only reason someone is going to buy a new mask is if they're getting good care and pay that co-pay and go through the sign-off that they have to do. So really good growth there of 10% in U.S., Canada, and Latin America. But I'm also really proud of Europe, Asia, and rest of world, where we don't have all those systems like Brightree and Snap Technologies and all the sort of sophistication that we have with our U.S. HME channel partners. And we have to do it sort of through different methodologies and subscription models and/or direct engagement through home care providers or direct engagement to the consumers, the patients themselves. And so global growth of 11% really solid. Look, we still see the market growth as mid-single digits on devices and high-single digits on masks. But what you saw is this quarter, ResMed doesn't accept market growth, we drive it. And the third part you said around share, yes, look, this isn't the carbonated beverages industry in Coke versus Pepsi or McDonald's versus KFC. This is really around expanding the pie. And so, yes, we've done very well in share, have extraordinary good share in AirSense 10, AirSense 11, and our new masks, the F40, great share there in full phase and I think we'll continue to take some points. But for me, it's less about that, I want to do that. Every day, we fight for share of devices and masks. But more and more, it's about 1 billion people suffocating worldwide. And we're really happy to say we've sold 28 million 100% cloud-connectable medical devices. That's 2.8% of the potential. Throw in the rest of the market, we're less than 5% into this global market. And so our biggest opportunity is getting more patients into the funnel. I'm loving that big tech from the consumer side and big pharma are going to bring more patients in and that's ResMed's job to help those people find the pathway through, as I said in the prep remarks. That's how we'll be able to sustain the sort of as we said in our Investor Day, high-single-digit growth for ResMed and then better growth than that in terms of our profit and better growth in that in our free cash flow and earnings per share. Thanks for the question, David.

Good morning. Good afternoon, Mick and Brett. Can you hear me?

Hear you loud and clear, Saul.

Thank you, Mick. I have a question for Brett. It seems that working capital was a bit of a challenge this quarter regarding your operating cash flow, particularly due to some inventory buildup. Could you explain if this is related to seasonality, the inventory buildup tied to new product launches, or any other issues concerning the cost of the inventory reflected on the balance sheet? Thank you.

Yes. Thanks, Saul. Yes, a little bit of increase in our inventory, if you looked at it sequentially on the working capital. What we've done is we're really in the process of rebalancing on sea freight, air freight and particularly trying to mitigate some of those increased freight costs and freight rates. So we've increased some stock in transit, which is on the sea, which is increasing our inventory levels in the short term. There may be a little more of an increase in Q2, but then we think it will be pretty stable after that. It's just a process of balancing that. So part of what we're trying to do to mitigate some of those freight costs.

Thank you.

Hi. Thanks. Congratulations on the quarter, and thanks again for all the feedback at the Analyst Day. Maybe a quick one, Mick, on pricing, Mick or Brett. Last year, you put in some price increases, both devices and ReSupply and I think we're approaching the anniversary of a few of those price actions last year. So maybe just a little bit on the pricing strategy going forward. Is that going to be a part of the steady diet? And if I could sneak one in there as well, just U.S. DME purchasing patterns, are they holding more inventory and buying more in bulk just because of the supply situation out there? Thanks again, and congratulations.

Thank you, Anthony. I’ll address both of your questions, and Brett can jump in as well. Regarding our pricing strategy, we experienced significant impacts during the supply-chain crisis, especially concerning the availability and cost of electrical components and semiconductors. We faced notable price increases from our suppliers. As Brett mentioned earlier, the rise in air and sea freight costs over the past several quarters has heavily affected our inventory. We absorbed some of these costs, and you may recall that we took substantial hits a few quarters back, but we're managing through this situation. In working with our customers, we shared some of the impacts of these price increases, and we accepted part of the burden at ResMed as the market has seen. Prices for everyday items like bread and milk have risen, and interestingly, not all retailers have lowered their prices even as costs have started to come down. In the healthcare sector, where reimbursement is controlled by governments and private payers, we collaborate closely with our channels to navigate these challenges. Thankfully, we're starting to see things stabilize, and we’re improving our air and sea freight management while addressing high-cost components. We're vigilant about potential disruptions, such as issues in the Red Sea or Panama Canal, and we're monitoring these risks carefully. Shane Azzi, our new Chief Supply Chain Officer, is actively engaged in this matter, and we've got effective communication between our finance and supply chain teams. Regarding pricing, you might see some increases in components where costs remain high, like tubing and humidifiers, but overall, I believe we will have a relatively stable pricing environment. As for U.S. HME purchasing patterns, we haven't noted any significant market-wide changes. Some customers in Japan tend to make large bulk purchases and manage their inventory this way, particularly for CPAPs and ventilators. However, in the U.S., even among our larger clients, there’s a mutual understanding to avoid excess inventory. This isn't about just-in-time inventory like in the chemicals or mining industries; this is healthcare, and missing a product can severely impact patient care. We strive to ensure availability, and while we keep some levels of inventory, we’re focusing on enhancing supply chain efficiency for everyone involved. Therefore, there hasn’t been a major shift in U.S. HME purchasing patterns, and we aim to operate as smoothly as possible to avoid leaving any patient behind.

Good morning. Thanks very much. Look, we've noticed that the term tuck. Sorry, can you hear me?

Yes. Got you loud and clear, Dan.

Thanks. Thanks, Mick. Look, we've noticed that this term tuck-in acquisition has become very common in your commentary. And in the presentation, you pointed out the $1.5 billion in debt capacity. So I was hoping you could talk just to the M&A priorities and the scale of the M&A priorities, I guess, and how you think about capital management as the free cash really starts to ramp up over the next 12 months as that debt is retired.

Okay, Dan. Well, I'll take the first part of that question about tuck-in M&A and I'll hand it to Brett to talk about capital management more broadly as our CFO and he sleeps and breathes that. In terms of tuck-in acquisitions, obviously, I'm not going to go into details of our radar and what we're looking at, and conversations we're having. But what I will talk about is what we've done in terms of successful tuck-in acquisitions. So if you look at what we did sort of around three, four years ago with Snap Technologies, that was a tuck-in acquisition. It was de minimis in terms of the number. I don't think we even published the number. It was relatively small in terms of our annual cash flow. But what it did was it gave us the ability to engage with HMEs and engage with their customers, the patients in ways that we hadn't ever before and brought new technology. So it improved both Brightree's sort of Residential Care Software as a service business, but it also improved our core sleep health and breathing health business by making sure people when they wanted a new mask could easily and capably get approval, co-pays made, all the Is dotted and Ts crossed for the healthcare system and then get the product needed that they could get. So we are absolutely out there on the lookout for acquisitions like Snap. Another tuck-in acquisition I'll talk about is called Somnoware. Somnoware is software for pulmonary and sleep medicine physician practices across the respiratory sections, so sleep apnea, COPD, and beyond, all sort of sleep health and breathing health. Again, de minimis in that we didn't release the total number, we didn't need to, but we got amazing capabilities with that acquisition. A team of engineers here in the U.S. and in India and actually a great entrepreneur in Subath, who joined our team. I first met him at a SLEEP meeting maybe 15 years ago. And he said, I think at that time, you're going to need us, you're going to buy our technology. And he was right. It was a decade and a half later, but that was a great tuck-in acquisition and Subath has the office right next door to me and he's looking at our incubation and growth and looking at tuck-in acquisitions that are just like the company that he had. So he's out there at conferences like Health and CES along with Carlos Nunez and the rest of our team to look out what those tuck-ins might be. But Somnoware allows us to engage with pulmonary doctors earlier and earlier on this sort of end-to-end digital sleep health concierge process that ResMed wants to be. We're getting earlier and earlier in that with our Somnoware acquisition. The final one I'll talk about, I could talk all day on it, but our final one for this is a tuck-in M&A that we did of a technology from a company called Ectosense and the technology is called NightOwl. And I actually just talked in the prep remarks about how we've just integrated NightOwl with myAir, the myAir platform, the patient consumer app, and NightOwl. NightOwl is a home sleep apnea test that is basically a wearable. I mean, it's the size of a band-aid with a sensor that goes on your finger. And with that connected to your smartphone, we can get very high sensitivity and specificity. Sensitivity and specificity are well higher than you get from some of these other wearables I talked about from consumer tech companies because we're doing different things. They're both FDA, 510 cleared devices, but ours is designed to be a diagnostic, a home sleep apnea test that can be a diagnostic, and a prescription written from a pulmonary physician. Great tuck-in acquisition. Again, we didn't release the number, it was relatively small and that's why it's a tuck-in. But that technology is scaled by ResMed in 140 countries and we're just ready to relaunch it here in the U.S. market. I think the timing couldn't be better because if Samsung and Apple get these people thinking, oh, possible sleep apnea from my phone or maybe I've got this moderate sleep apnea infection, where do I go? Well, guess what? They go to a primary care physician or they go to a sleep physician and then we need digital scalable models for them. So a product like NightOwl helps with that. And we're creating not just in our own diagnostics, but a portfolio of capabilities with other diagnostics companies and service providers in the U.S. and beyond because that digital sleep health concierge is an obligation for ResMed. People are going to come with problems of sleep health and breathing health. We don't want them waiting in a do-loop. We want them taken care of. So they are the sort of three examples of tuck-in acquisitions and more to come on that. Brett, in terms of capital allocation, any thoughts to share with Dan on a broader level?

Yes, thank you, Mick. Dan, regarding the tuck-in acquisitions we have, Mick provided some excellent examples that we believe will significantly enhance our value over time, and we are actively exploring more of these acquisitions. The potential size for a tuck-in could range broadly from $100 million to $200 million, possibly extending up to $500 million based on our current balance sheet and size. It ultimately depends on the strategic, financial, and cultural aspects of the acquisitions, as well as the capabilities they can bring to ResMed and how we can utilize them. We carefully consider all factors before proceeding with an acquisition. Over the past two or three years, we've made some strong acquisitions and there are still more opportunities available as the market evolves. We are open to anything within that financial range. Additionally, as I mentioned earlier regarding capital management, we plan to increase our stock buyback each quarter moving forward, which will continue to be a strategic option for us. So, to summarize, our focus is on three main areas: investment in R&D, exploring tuck-in acquisitions, and managing capital effectively.

Yes. Thanks for taking my question. I guess, I just wanted to ask one. So with the new - on masks with the new N30i with that fabric over the straps, is that a technology that you can apply to other masks in your portfolio? And then is that something that you're able to get a price premium for?

Yes, that's a great question, Mike, and thank you for joining us at our Investor Day. You had the chance to touch and see the AirTouch N30i product, which is named for its unique AirTouch fabric. This fabric utilizes advanced technology that we have been developing for a decade to ensure we can produce a high-quality ResMed mask at scale. To answer your question about applying this technology to other masks, absolutely. This innovation is a game changer and alters the competitive landscape for patient interfaces, moving from traditional plastic and rubber materials typically used in hospitals to ones that are more comfortable for home use. People are accustomed to sleeping on cotton or silk fabric sheets and using cotton-covered pillows; thus, it makes sense to extend that comfort to their care devices. We aim to ensure that the pneumatic stent is safe, effective, and durable. However, to answer your query, yes, this technology does come at a higher cost. It is more challenging to implement the robotics and scalable systems necessary for production, even with ResMed's extensive manufacturing capabilities in respiratory medicine and sleep health. Therefore, there will be a slight price increase for these products. Nevertheless, we expect that the first-time fit rates will improve, return rates will decline, and adherence rates will rise. Our goal with all our technology is to lower overall healthcare costs while improving adherence, which in turn reduces the risks of serious health issues, as demonstrated in the Alaska study showing better outcomes for patients who consistently use CPAP. We believe these advancements will provide significant returns on investment for patients, physicians, and providers as we introduce them to the market. The AirTouch N30i will be released soon and will carry a price premium due to its higher manufacturing costs. We will explore applying this technology to other masks in the future, but for now, we are focused on the initial launch, which has generated considerable interest and enthusiasm from our commercial team and customers who received a preview.

Hi, guys. Thanks so much for taking the questions. Just wanted to follow up a little bit on the macro tailwind around the wearable tech platforms. You've talked about it a bunch at the Investor Day and then again on today's call. I was just curious if you could maybe touch on a few potential strategies that the company could be looking at that would best position ResMed to capture potential increases in new patient demand driven by the adoption of these technologies. Thank you so much for taking the question.

Yes, that's a great question, Brett. It's a complex topic that could take all the remaining time we have on the call and then some. As we mentioned in the four-hour overview during our Investor Day three weeks ago, we're engaged in numerous initiatives. The main areas are demand generation, demand capture, and demand conversion. If major tech and pharmaceutical companies are working on some of the demand generation, like directing patients to primary care providers and our specialist sleep physicians, then our task at ResMed is to build on that momentum. This means developing products like Dawn, our generative AI interaction format, which can engage with patients to assist them with sleep health questions—such as how to improve sleep, stay hydrated, exercise more, reduce alcohol and caffeine intake, and manage eating habits. These broader sleep health inquiries can be addressed by a bot, which allows for more in-depth conversations than human operators typically have time for, and also tackles the stigma associated with healthcare, as people might feel embarrassed to ask certain questions. This aligns with the success of companies like Hims & Hers and various digital platforms. ResMed aims to become a digital sleep health concierge. The situation is intricate; it involves more than just DAN, Somnoware, myAir, or AirView alone. It's about integrating these components to create a smooth, seamless experience for individuals seeking care, whether for themselves or for their bed partners. Our focus is on these macro trends, which we believe will drive individuals to seek our services. ResMed's role is to excel in demand capture and demand conversion. We have numerous experiments underway in around 140 countries, and we will keep you updated. It won't be a simple solution or a one-time fix; instead, we expect to have multiple attempts across different regions, technologies, and healthcare systems because every individual has unique needs. The one billion people with sleep apnea, as well as the 2.3 billion who struggle with sleep apnea, insomnia, COPD, or respiratory insufficiency, require tailored pathways to achieve better sleep, health, and technology at home. Our goal at ResMed is to address this need through a mix of technologies. As we successfully launch these initiatives and experiments, we will inform you about them. I want to emphasize that this endeavor isn't solely about brand awareness; it’s also focused on delivering return on investment. We need to show that our experiments are successful, that those who see the ResMed brand engage with it, and subsequently find a way to improve their sleep and breathing health. With our market share and capabilities, we are ideally positioned globally to achieve this. If we did nothing, we would still maintain a decent market share. However, our responsibility is to take action, to increase patient engagement, and to guide them toward the best care options available. Thank you for your question, Brett, and I apologize for condensing the response into a four-minute answer, but we have time for a couple more questions.

Hi, Mick, Brett, hope you're well. So my congrats…

Thanks very much, Suraj.

Congratulations on a great quarter. Mick, I want to build on Anthony's question. Your current growth is a perfect combination of increasing shipments of ReSupply masks and patient price increases. I believe Brett mentioned something about having some inventory available to meet patient needs in a timely manner. As we look ahead, how would you say ResMed is positioned to handle a potentially more price-sensitive market if Philips comes back? Thank you for addressing my questions and congratulations again.

Yes. Thanks for the question, Suraj. Look, as you said, there are some really interesting overlays between our more masks and the technology we're bringing to market, our pricing strategies, and our inventory management strategies. With regard to the competitor you mentioned, look, as I said, we just announced pretty good growth in Europe, Asia, rest-of-world, right, 9% growth in devices, 11% growth in masks and accessories. That competitor is available in almost all of the 140 countries we're in, and they've been there for many, many, many quarters. And so love them. I love to compete with them. I love to beat them. I do the same with all the other competitors. I love the players from Europe and Asia. Competition is a fantastic thing for ResMed. We love it. It keeps us on our toes. And we were beating that particular competitor all the way from 2001 through to 2021 as they had the recall in the U.S. in devices, which is the only area, right? So we've been ongoing competition with them in masks the whole time and they've been out for a couple of years, two to three years now in devices. Look, I look forward to them coming back here. They'll have to fight for that number two, number three position against some other players with importing product from China and Europe that they've sort of taken that number two, number three position. And I think they've got to set up new manufacturing and get new sales team and I look forward to them coming back. We will be beating them before their recall and we will beat them after. But look, I don't spend that much time or my time looking back at the competition from Europe or Asia or that particular player from Europe. I look more forward and I think about these macro trends and what we can do to take care because this isn't just a share game. What we've got is a sustainable competitive advantage in a digital health ecosystem that patients engaging with myAir, doctors engaging with AirView and more importantly, consumers, persons who just suffocate coming in, they don't know where they want to go. We want to help them find that pathway and be objective about it and then they will choose the smallest, quietest, most comfortable, most connected, and most intelligent therapies. That's how ResMed competes and that's how ResMed wins.

Good morning all and congratulations on a very strong quarter. Can you comment a little bit on the production of AirSense 11? You mentioned you're increasing and you're targeting it to come off allocation at the end of this calendar year. Is that still on track? And then also, can you comment on the mix of AS11 to AS10 devices that you're selling in the United States? And do you have a sense that there might be a rePAP backlog waiting for the AirSense 11 still?

Thanks, Lyanne. There’s a lot to unpack in your question, and we're nearly on schedule. We may have one more question. As you mentioned, production of the AirSense 11 is running at full capacity. Our Singapore plant, the largest manufacturing facility for respiratory medical care in the world, is operating at peak output. I'm excited to see both AirSense 11s and AirSense 10s coming off the production line in Sydney and being distributed through Atlanta and our distribution centers in Asia and Europe. To address your specific inquiry, the AirSense 11 is performing well, and the strong market presence of both the AirSense 11 and AirSense 10 in various regions supports this. For instance, over 50% of the products sold in the U.S. are AirSense 11s. Regarding your final question about consumers who have been on therapy for five years and are waiting for the AirSense 11 to become available, it’s possible that some are in a bit of a backlog. However, those who really want it are likely looking at online retailers or other options to secure an AirSense 11. I believe there is always some backlog for these new products. Additionally, the rePAP opportunity remains significant, and we need to focus more on it. Our customers also need to prioritize it. We have become quite adept at the ongoing resupply of masks, tubing, and accessories, but we should enhance our efforts in rePAP regularly. The team is actively working on various initiatives to ensure that as we ramp up AirSense 11 production, everyone at that five-year mark can access the latest, most advanced therapy that the AirSense 11 offers. We are committed to this goal, and I believe there is substantial growth potential and momentum remaining for the AirSense 11.

Question, look just going back to the rest of world devices and just thinking about the AE sales, just be good to get some views on competition that you're seeing in the region, in particular, if you're seeing a declining presence from Philips in some of these markets, which would open you up to taking larger market share?

Yes, Thanks for the question, Andrew. And yes, look, we're competing with another particular European player, probably a little bit more than the one you mentioned, but we're competing with both of them very well as you saw with Europe, Asia, rest of world device growth at 9%. We don't break that out and say exactly what component of that is Europe versus Asia-Pac versus rest of world and we did have very good growth in our Japan markets and China markets and other parts of Asia-Pac. But Europe is doing very well. As I said, I'm really proud of the team there. We've really brought together our pan-European management team over these last 12 months under our Global Chief Revenue Officer, Mike Fliss, and our regional leader there in Andrew Huxter. And I think that combination of communication and partnership across our team has allowed us to provide customers even more seamless and better service, better marketing, better sales, better delivery of products. And we've not always been the best in that final mile of delivery, that final kilometer of delivery that we need to have in Europe and we're getting better and better at it. So I think it's a combination of the products, AirSense 11, the communication through our commercial teams, and the supply chain and logistics that we're really partnering up with customers that have allowed us to achieve that. The competitive environment is what it always was, but as you see in those numbers, ResMed is doing well, competing hard and winning accounts, winning tenders, and winning share. But more importantly than that, we're partnering up to ensure a good flow of patients into the funnel. That's ResMed's primary goal, more patients into the funnel, help them get best-in-class care. Thank you for the questions, team. I'll now hand the call over to Kevin.

Yes. Look, I got the prepared remarks here, I'm not going to say all that. Thanks to 10,000 ResMedians, 140 countries, you guys are doing amazing things. Thank you to all our shareholders for the support. Incredible quarter. Let's power up and let's do it again for another 90 days. And with that, Amy, I'll hand over to you to close out the call.

Awesome. Thank you, Mick. Thank you everyone for listening, for your questions, and we do appreciate your interest. If you have follow-up questions or need anything else, please don't hesitate to reach out to us directly. This does conclude our first quarter 2025 conference call. Kevin, you may now close the call.