Resmed Inc (RMD) — Q4 2025 Earnings Call Transcript

Thanks, Kevin. I want to welcome our listeners to ResMed's Fourth Quarter Fiscal Year 2025 Earnings Call. We are live webcasting this call from Sydney, and the replay will be available on the Investor Relations section of our corporate website later today. Our earnings press release and presentation are both available online now. During today's call, we will discuss several non-GAAP measures that we believe provide useful information for investors. This information is not intended to be considered in isolation or as a substitute for GAAP financial information. We encourage you to review the supporting schedules in today's earnings press release to reconcile these non-GAAP measures with the GAAP reported numbers. In addition, our discussion today will include forward-looking statements, including, but not limited to, expectations about our future financial and operating performance. We make these statements based on reasonable assumptions. However, our actual results could differ. Please review our SEC filings for 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 Mick.

Thank you, Salli, and good morning from a cold and rainy Sydney, Australia. Good afternoon to those in the U.S., and good evening to those in Europe and beyond. Welcome to ResMed's Fourth Quarter Fiscal 2025 Earnings Call. I'm pleased to report that ResMed delivered another strong quarter, closing out fiscal year 2025 with excellent results. In our fourth quarter, we achieved 10% year-over-year reported revenue growth and 230 basis points of year-over-year gross margin expansion. We maintained our disciplined approach to investments in both research and development and SG&A, and we delivered another quarter of strong free cash flow. As the world’s leading sleep health and medical devices company, ResMed continues to build a global digital health ecosystem focused on sleep health, breathing health, and healthcare delivery at home. We see robust demand for our products and are now serving over 154 million lives through our hardware, software, and technology solutions. We are on track to meet our ResMed 2030 goal of improving the lives of over 500 million people by 2030. I want to thank the more than 10,000 ResMedians serving patients and customers in over 140 countries for everything they do every day. Last quarter, I highlighted three key themes: first, ResMed generates strong free cash flow and has a solid balance sheet; second, we are focused on operational excellence and driving ongoing operating leverage; and third, ResMed represents a compelling investment opportunity. We are well-equipped to navigate global uncertainties, and these themes remain relevant as we discuss our fourth quarter results. Let’s dive into the first theme. Our fiscal year 2025 free cash flow was $1.7 billion, giving ResMed significant flexibility to invest in our business and return capital to our shareholders. In terms of inorganic growth, we focus on tuck-in size acquisitions to accelerate our ResMed 2030 strategy. Recent examples include Somnoware for sleep and pulmonary physicians, Ectosense with its wearable home sleep apnea test, NightOwl, and our acquisition of VirtuOx last quarter. These companies streamline the sleep care process. VirtuOx will operate independently, aiding patients with faster diagnosis and keeping them on track for treatment. In the U.S. healthcare system, HME providers are vital partners in ensuring patients receive effective therapy. Sleep labs and home sleep apnea testing play a crucial role in this infrastructure. We will continue to invest selectively in capabilities like digital sleep health services, clinical tools, and cloud-connected care pathways. We aim to broaden our diagnostic funnel to accommodate new patients from three sources: our demand generation efforts, growing awareness of sleep apnea driven by GLP-1 medication promotions, and the rise of consumer wearables capable of monitoring sleep health. ResMed is dedicated to addressing the needs of over 2.3 billion people worldwide struggling with sleep apnea, insomnia, or respiratory conditions requiring home care. We also returned significant capital to shareholders in fiscal year 2025 through dividends and share repurchases amounting to over $610 million. I’m pleased to announce that our Board has authorized an increase in the quarterly dividend for fiscal year 2026 and an increase in our share repurchase activity. Brett will elaborate on these details shortly. Our strong free cash flow allows us to invest in R&D and SG&A expenses while pursuing share buybacks and raising our dividend while still having funds available for strategic acquisitions. My second key message focuses on our commitment to operational excellence. ResMed has a solid track record of driving gross margin expansion and has opportunities for further operating leverage. In the fourth quarter, we achieved 230 basis points year-over-year gross margin expansion. We’ll continue executing on these opportunities throughout fiscal year 2026, and I’ll keep you updated on our progress each quarter. We’re nearing the opening of our new manufacturing facility in Calabasas, California, which will double our manufacturing capacity in the U.S. and enable us to scale up production of U.S.-made products in the coming years. During the fourth quarter, we posted strong net operating profit growth, even with ongoing investments in R&D and SG&A. These investments in innovative R&D and demand generation are vital for ResMed's long-term growth. We focus on developing market-leading masks, cloud-connected devices, and digital sleep health platforms, while also increasing our investments in AI and GenAI technology. We’re rolling out our AirSense 11 platform in more countries and will soon introduce our latest patient interface technologies like the AirTouch N30i and the AirFit F40. Our roadmap for incorporating AI into our digital products includes the recent integration of our digital assistant, Dawn, into the myAir app for 24/7 personalized support. We plan a wider rollout for Dawn throughout fiscal year 2026. Additionally, our smart coaching feature in the myAir app uses machine learning to enhance personalized therapy outcomes, while our ReSupply attrition predictor helps HME partners manage patients’ therapy adherence. As we gather more data, our trained AI technologies are poised to transform into proactive, personalized healthcare companions. ResMed is uniquely positioned to leverage our substantial respiratory medical data and three decades of expertise in sleep science for personalized insights and treatments that integrate seamlessly with wearable and health data. In our business processes, AI is streamlining R&D, reducing development time, and improving efficiency. For example, we’ve utilized AI to develop a human-shaped variance model for virtual fitting studies, which replaces in-person studies with digitized models that can represent thousands of individuals. This approach allows us to achieve more with fewer resources as we broaden AI applications across the business. Our SG&A investments continue to yield strong returns. Earlier this year, we launched a comprehensive brand evolution strategy and targeted marketing campaigns aimed at raising sleep health awareness. The results have been promising, with effective campaigns across key markets. We also ran a U.S.-based omnichannel campaign focusing on CPAP therapy perception, targeting both consumers and healthcare providers. On the education front, we expanded our continuing medical education programs for physicians on the benefits of CPAP therapy, garnering increased participation. Encouragingly, 75% of CME course graduates intend to change clinical practices related to sleep health based on what they learned. ResMed was recently named the official partner of The Qatar Airways British & Irish Lions Tour to boost brand awareness about quality sleep as a vital aspect of health. We will track relevant metrics to assess the ROI of these campaigns and target additional initiatives in fiscal year 2026 based on performance metrics. We’re integrating our residential care software business into the broader ResMed organization as part of our ResMed 2030 operating model evolution. Bobby Ghoshal, our Chief Commercial Officer for our RCS business, is leaving ResMed to pursue an opportunity outside the company. We thank him for his 13 years of dedicated service. Our capable residential care software leaders will now report to Mike Fliss, our Global Chief Revenue Officer. In closing, ResMed consistently delivers both financially and operationally amidst global uncertainties. We provide products and solutions that customers trust and choose over competitors. We are vigilant about the changing global trade environment and the regulatory landscape. Our products are used to treat chronic respiratory disabilities, which have long been subject to global tariff relief, allowing us to focus on helping the millions who need our care. Regarding CMS's plans to resume the competitive bidding program, details are yet to be announced. ResMed has a history of constructive engagement with U.S. government policymakers and will continue advocating for patient access to care and fair reimbursement for HME providers. ResMed is resilient, having navigated the COVID crisis and supply chain challenges. Our robust global supply chain positions us well, and we have sustained strong growth with a solid balance sheet. With a leading market position across 140 countries, we are confident in our ability to serve our customers, patients, providers, payers, and shareholders. As we enter fiscal year 2026, we remain focused on executing our 2030 strategy, investing in innovation, and delivering exceptional results. Now, I’ll turn the call over to Brett for a closer look at our financials before we open the floor for questions.

Great. Thanks, Mick. In my remarks today, I will provide an overview of our results for the fourth quarter of fiscal year 2025, unless noted, all comparisons are to the prior year quarter and in constant currency terms, where applicable. We had strong financial performance in Q4. Group revenue for the June quarter was $1.35 billion, a 10% headline increase and 9% in constant currency terms. Revenue growth reflected positive contributions across our product and ReSupply portfolio. Year-over-year, movements in foreign currencies positively impacted revenue by approximately $15 million during the June quarter. Looking at our geographic revenue distribution and excluding revenue from our residential care software business, sales in the U.S., Canada, and Latin America increased by 9%. Sales in Europe, Asia, and other regions also increased by 9% on a constant currency basis. Globally, on a constant currency basis, device sales increased by 8%, 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 7%. Mask and other sales increased by 12%, reflecting continued growth in ReSupply and new patient setups as well as incremental revenue from two months of owning VirtuOx. In Europe, Asia, and other regions, device sales increased by 10% on a constant currency basis, and masks and other sales increased by 7% on a constant currency basis. Residential care software revenue increased by 9% on a constant currency basis in the June quarter, underpinned by robust performance from our MEDIFOX DAN and HME verticals. We will continue to report Residential Care Software as a separate segment in our financial results. During the rest of my prepared remarks today, I will be referring to non-GAAP numbers. We have provided a full reconciliation of the non-GAAP to GAAP numbers in our fourth quarter earnings press release. Gross margin of 61.4% in the June quarter increased by 230 basis points year-over-year and by 150 basis points sequentially. These increases were primarily driven by procurement, manufacturing, and logistics efficiencies as well as favorable foreign currency movements. Indeed, currency movements accounted for almost half the sequential improvement in gross margin. Changes in average selling prices had a minimal impact on our gross margin, both on a year-over-year and sequential basis. We've made considerable progress on our gross margin expansion objectives and continue to work diligently on our gross margin initiatives pipeline. We remain focused on making sustained long-term gross margin improvements. Looking forward and subject to currency movements, we expect gross margin will be in the range of 61% to 63% in fiscal year 2026. Moving on to operating expenses. SG&A expenses for the fourth quarter increased by 9% on a headline basis and by 8% on a constant currency basis. The increase was primarily due to increases in employee-related expenses and increases in marketing expenses, including investments associated with our recent global brand launch, along with targeted demand generation activities. SG&A expenses as a percentage of revenue improved to 19.7% compared to 19.8% 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 19% to 20% in fiscal year 2026. R&D expenses for the quarter increased by 7%, both on a headline and constant currency basis. The increase was predominantly attributable to increases in employee-related expenses. R&D expenses as a percentage of revenue was 6.4% compared to 6.6% in the prior year period. Looking forward and subject to currency movements, we expect R&D expenses as a percentage of revenue will be in the range of 6% to 7% in fiscal year 2026. Operating profit for the quarter increased by 19%, underpinned by revenue growth and gross margin expansion. Our operating margin improved to 35% of revenue compared to 33% in the prior year period. Our net interest income for the quarter was $6 million. Our effective tax rate for the June quarter was 21.9% compared to 18.7% in the prior year quarter. The increase in our effective tax rate was due to a low comparable prior period tax rate and current year changes in our global mix of earnings. Our effective tax rate for the full year was 19.9% compared to 20% for the prior fiscal year. We estimate our effective tax rate for fiscal year 2026 will be in the range of 21% to 23%, with the uptick primarily due to the impact of tax legislation taking effect for certain jurisdictions beginning in fiscal year 2026. Our GAAP effective tax rate for the June quarter was 17.1% as we recorded a one-time tax benefit of $21 million relating to the cessation of certain business activities. We have turned this tax benefit into a non-GAAP item in our fourth quarter financial results. Our net income for the June quarter increased by 22%, and non-GAAP diluted earnings per share increased by 23%. Movements in foreign exchange rates had a positive impact on earnings per share of approximately $0.05 in Q4 FY '25. Cash flow from operations for the quarter was $539 million, reflecting strong operating results and disciplined working capital management. Capital expenditure for the quarter was $31 million, and depreciation and amortization for the quarter totaled $64 million. We ended the fourth quarter with a cash balance of $1.2 billion. At June 30, we had $668 million in gross debt and $541 million in net cash. We also have approximately $1.5 billion available for drawdown under our revolver facility. We continue to maintain a solid liquidity position, strong balance sheet, and generate robust operating cash flows. We are well positioned to weather the ongoing global uncertainty and geopolitical challenges. As Mick mentioned, we completed the acquisition of VirtuOx during the quarter for consideration of $140 million. VirtuOx has an annual revenue run rate of approximately $45 million. We have included VirtuOx in our financial results from the 1st of May. Overall, the results are not material to the group and were neutral to non-GAAP earnings per share for the June quarter. Today, our Board of Directors declared a quarterly dividend of $0.60 per share, representing an increase of 13% over our previous quarterly dividend and reflecting the Board's confidence in our operating performance. During the quarter, we purchased approximately 419,000 shares under our previously authorized share buyback program for consideration of $100 million. We plan to further increase our ongoing share buyback program and purchase shares to the value of approximately $150 million per quarter, commencing in Q1 of fiscal year 2026. At the current share price, this would result in approximately 1.5% of our outstanding shares being repurchased during fiscal year 2026. Going forward, we will continue to invest 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 Salli.

Thank you, Brett. We'll now begin the question-and-answer session. I'll hand the call over to our operator, Kevin, to provide instructions for that session.

Just wanted to understand the Rest of World devices growth, kind of really good growth there. I just wanted to understand the dynamics you're seeing. And if there's any kind of large tender that contributed to that Rest-of-World devices revenues?

Yes. Thanks for the question. And yes, look, very good growth in our Europe, Asia, and Rest of World devices, at 10%. Yes, multiple factors can come into that. We have some markets where there are buyers that move ahead or behind, like in Japan, where it's more of a fleet approach. We have some areas in the world where we have tenders that come in and out. But roughly, what we think is market growth for Europe, Asia, and Rest of World for devices in the mid-single digits, so clearly, there's some fluctuations there. We're not saying that there's demand generation activities that have had that 300%, 400%, 500% improvement. We're just starting our approach there. It's more in the tens of basis points of improvement that we're seeing from these early experiments. And so no change to actual market growth, but some pretty strong growth from ResMed in the quarter there. But we think going forward, it's sort of more in the mid-single digits for devices in Europe, Asia, rest of the world, actually the same for our devices in the U.S. Any other color, Brett, you want to provide on a country-by-country basis for Europe, Asia, rest of world?

I mean international markets, we had a good quarter, and there's good growth in Europe, some improved, albeit growth in China as well, actually. So some really strong results through numerous markets, and that's really contributed to that strong device performance.

Yes. Definitely. MST Marquee. Yes, look, thanks, everyone. Look, really good. Looking at gross margin and even better guidance. Brett, can you just talk through the elements of that gross margin guidance? And maybe touch on the FX, which is probably going to get against you a little bit coming into '26.

Yes, I’m really pleased with the gross margin, and the team has worked hard on initiatives to improve it. We’re seeing those efforts reflected in the gross margin. We received some benefits from foreign currency, particularly the euro, during the quarter. If we analyze the sequentially improvement, nearly half of it was due to foreign exchange, while just over half came from efficiencies we achieved. A significant part of this improvement was due to progressive reductions in component costs that we’ve been implementing. Additionally, we’ve made progress in the sea freight to air freight ratio, which has returned to pre-COVID levels, thanks to our logistics team’s efforts. This improvement is also contributing to the expansion of gross margin. Furthermore, the ongoing transition from the AS 10 to AS 11 platform has also provided a bit of a boost. These are the main factors driving the gross margin expansion for this year, both compared to last year and on a sequential basis.

And I'll just pile on there. I think I had a one-on-one with our Chief Supply Chain Officer, just hitting his one-year anniversary with ResMed. I think we've gone from ResMed having a good approach, sort of almost an arts-type approach to a science-based approach and a lot of learning over this last year. And Brett ran our operations for over 6 months, and that strength between our financial teams and our supply chain teams is stronger than it's ever been. And so that gives us the confidence with that guidance to say actually, not only did we do really well in gross margin expansion in 2025, but as we look forward to '26, '27, '28, probably not at those levels because they're extraordinary in recovery from a supply chain crisis, but we will be able to have sort of an ongoing pipeline of innovation that we can set up and tune up and turn on as we go towards our 2030 goal. And so it's not one and done. There was some good reset and some catch-up. But actually, there are some sustainable improvements that allow us to give that guidance of $61 million to $63 million that you saw there, Dan. Thanks for the question.

I wanted to discuss VirtuOx. Thank you for the insights on the significance of the revenues. I'm more keen to understand the business roadmap leading up to your acquisition. What investments will ResMed be making in the next 12 months? Additionally, are there any indicators we can monitor to evaluate those returns?

Yes, those are all excellent questions. We are really enthusiastic about VirtuOx, but it's important to view it as part of a larger portfolio. Over the past 12 to 18 months, we've made significant strides with Ectosense and NightOwl, which has developed a small wearable home sleep apnea test that has received FDA clearance and is now available. We plan to fully launch this at our upcoming annual sales meeting in San Diego. Looking back, I remember when we first introduced the ApneaLink Air, which was thought to be the smallest and most advanced device at the time. Now, we're taking it to the next level and challenging companies like ResMed, which is the leader in therapeutics across 140 countries. We don't aim to be the top in diagnostics in all those markets, but if there are entities driving home sleep apnea testing, we as the global leader must engage. That's what we're doing with the NightOwl test. Moreover, we have Somnoware, and Subath, its CEO, is now leading our Innovation and Growth Group. This move allows us to retain great talent while maximizing operational opportunities. We're also integrating our AirView software with our new software to create a more seamless patient flow. Regarding VirtuOx, it plays a vital role in expanding our home sleep apnea testing capabilities. Our sleep labs are exceptional partners, but they are currently at capacity, and hospitals are slowly returning post-COVID without expanding their in-lab testing. To reduce the waitlists that spiked during the pandemic, we are focusing on home sleep apnea testing, acquiring VirtuOx, a top provider, to demonstrate scalability. We will invest in marketing and capabilities there. Our VirtuOx and core sleep health teams operate separately, yet we will seek cooperative opportunities where demand is high for home sleep apnea testing. It's crucial to clarify that we are not expecting an immediate surge in patients using home sleep apnea testing. However, I believe that companies like VirtuOx will perform better under strategic ownership compared to private ownership, and we are currently the only strategic investor in this sector, which I believe is the right approach. To our HME partners, we convey that this will lead to more patients for them. To our sleep lab partners, we offer another resource for patients on lengthy waitlists who have a high likelihood of obstructive sleep apnea. This allows them to focus on complex cases in their labs while freeing up capacity for others. Ultimately, VirtuOx represents a long-term strategy for us, and there’s no quick win for this quarter. As Brett mentioned, its impact on our global results was not significant, but we wanted to provide insight into its revenue size. Our goal is to scale this operation, and I hope competitors do the same. It’s vital that we improve vital diagnostics across all 50 states where we operate VirtuOx, and ideally implement similar models across the 140 countries we serve. I took some time to elaborate on this because it’s a complex topic. We will continue to update you quarterly on VirtuOx, Ectosense, Somnoware, and our overall strategy to alleviate bottlenecks, helping more of the 1 billion people suffering from sleep apnea worldwide to find treatment. As we progress, we’ll also address issues like insomnia and respiratory inefficiencies in our efforts to enhance these pipelines.

Mick and Brett, just a question on U.S. mask growth. Once again, low double digits seems to be ahead of what you described market growth at is high single digits on the last quarter. So just wondering if you can go into a bit of detail as to how much you think that is share gains versus just stronger growth in ReSupply overall at an industry level?

Yes. Thanks, Saul. It's a really good question, and you nailed all the elements of it. I do think, as we look at that AirTouch N30i. I don't know if you've seen the physical product. Brett, Salli and I are doing the roadshow through Sydney, Melbourne, and Singapore. So for those investors that we see, I'm going to bring a sample of that for you because that type of idea of bringing fabric to the part, that is pure patient interface. We call that whole thing of patient interface, but the part that touches your nose is going from silicon rubber, which is the last 35 years of everyone in the space, including ResMed, the market leader, to now having fabric there. I think that innovation is not only incredibly technically difficult to do at scale and manufacturing levels that we do in multi-cavity tools and the high-pressure temperature, liquid silicon rubber, but it's so impactful for the patient and it's so comfortable for the patient. And the patient then loves that and wants to have it in our cash markets. And then in our RT-driven markets where home medical equipment respiratory therapists do set up, they see how comfortable it is, many of them are patients as well and recommend it. So I think there is some share gains from the AirTouch N30i and the F40, which is in our full face category or oronasal mask category; those are doing really well. But look, it's a competitive space. There are competitors out there. So I think there's some elements of that competitive share taking. But I think there's other elements. As you said, it's ReSupply and frequency around ReSupply and contact around ReSupply and getting better at Brightree, getting better at ResMed ReSupply, getting better at contacting consumers through myAir and beyond. So watch this space; I think you'll start to see us enhance our ReSupply approach. And yes, I think the market growth rate is high single digits. We were ahead of it for the quarter.

Generally it's too low.

I'm sorry? Saul, you're still on. I think our SG&A investments are strong, Saul. To wrap up, we've seen solid growth in the U.S., Canada, and Latin America this quarter, and we expect to keep advancing those ReSupply programs in collaboration with our HMEs and myAir platforms. In terms of Europe, Asia, and the Rest of the World, I believe there's potential for improvement in ReSupply in some of those markets as we utilize our own technologies like myAir and others. It's a mixed situation overall, but we're pleased with our performance in the U.S., Canada, and Latin America.

Congrats on another strong quarter. I have two quick ones, I'll just throw them out. The first one, Mick, competitive bidding, the proposal is calling for maybe just a consolidation of the number of contract suppliers out there. That just seems like a pretty draconian proposal. Maybe just walk through that a little bit. If that does kind of stick in the final rule, like how rapidly do you think consolidation occurs in the DME space? And then on the second question is a broader strategy question. Mick, you've sort of commented in the past that ResMed today is a one-stop shop for sleep apnea but certainly wants to continue to expand across the spectrum. So maybe talk a little bit about oral drugs. There was a favorable outcome there from Apnimed Phase III study and just the latest thinking on hypoglossal nerve stimulation.

Thank you, Anthony, for your multipart question. I'm in the process of writing it down. Your line will stay open during the question for a bit of conversation. To start with competitive bidding, this isn't our first experience. I believe this was announced while I was in marketing in 2005 and I took over as CEO in 2013 during the second round of bidding. In the past four rounds, we observed an increase in bids from our HME customers, which led CMS to revert to previous pricing levels while adding inflation adjustments for the last four years. We're monitoring this situation closely. The guidelines are still unclear, and definitions haven’t been finalized, so we're currently in a comment period. We'll be collaborating with AA Homecare and AdvaMed to provide our feedback to Washington. I was in Washington last month with CMS, Dr. Oz, and his team, as well as at HHS with team members from RFK Junior's office. They are listening to industry feedback. We aim to ensure patient care is protected, as well as HME's rights to access, while also ensuring that U.S. Medicare beneficiaries can access high-quality therapies like those provided by ResMed. Our advocacy is centered on patient care. Regarding consolidation, we have seen significant consolidation over the last decade within competitive bidding, but this trend isn’t solely driven by it; it's largely influenced by efficiencies and capabilities. ResMed’s role is to support all our customers—whether they are small, medium, or large providers. With technology like Brightree, even smaller regional companies can operate as efficiently as large national firms. We want to nurture the entire ecosystem since local care can sometimes be just as effective, if not better. I believe we've seen some substantial investments in infrastructure from our HME providers and mature approaches to this issue, so I’m optimistic about navigating this competitive bidding landscape. Reviewing the rules, they largely align with previous rounds, though we do have suggestions for improvements that we will bring to Washington. On the topic of a one-stop shop for sleep apnea, ResMed is focused on respiratory and residential medicine, not just CPAP solutions. We have over a decade of experience in not only CPAP, APAP, and bilevel devices but also in providing mandibular repositioning devices. If CPAP, APAP, and bilevel represent the gold standard, I'd say dental MRDs take the silver medal. ResMed is the leading provider of 3D printed dental devices in Western and Northern Europe, and we participate wherever there is a viable economic model for consumers to access dental care. For third-tier therapy—which might be necessary if CPAP, APAP, bilevel, or dental solutions are not tolerated—there are options like GLP-1s in pharmaceuticals. I believe these medications may overshadow Apnimed since they not only partially address apnea but also contribute to diabetes and cardiovascular improvements, hence they are likely to be a preferred choice for third-tier options. We’ll keep an eye on this area, and we are engaged there as well. The idea of a one-stop shop for me involves maintaining a connection with patients who experience apnea. If they are using CPAP, APAP, or bilevel, we have a close relationship. If they switch to dental or third-tier therapies, I still want to retain that connection because those treatments may not be lifelong. Even an implant might not always be feasible due to side effects. I aim to keep the relationship alive to offer them a return to the gold standard. As Professor Jean-Louis Pépin from Grenoble University in France puts it, 'the best alternative to failing positive airway pressure therapy is positive airway pressure therapy again.' I want to ensure we maintain that relationship. I believe I also addressed your third question regarding Apnimed in my previous comments. Thank you for your questions, Anthony, and I look forward to our next conversation.

You sort of touched on the last question there, Mick, but just post the Zepbound label, interested in your observations around new patients coming into the system and then maybe any feedback you can provide around the physicians prescribing patterns post that label, if they are starting to prescribe GLP-1s in conjunction with CPAP. Any observations on those two would be appreciated.

Thank you, David, for the excellent question. I’d like to expand on the demand generation aspect. We've updated our figures, which you will see in the upcoming report. The data indicates an increase of over 10% in patients with a GLP-1 prescription who are beginning CPAP, APAP, or bilevel therapy. Specifically, we're seeing an 11% increase compared to those without a GLP-1 prescription. This trend is becoming even stronger as motivated patients seek out the latest pharmaceutical options that promise cardiovascular benefits, diabetes management, and solutions for sleep apnea. Patients are approaching primary care physicians with these desires, and when GPs identify sleep apnea, they are writing CPAP prescriptions—this is happening consistently because there are significant legal and ethical obligations to offer the standard of care. The 11% starting rate is significant, and one- and two-year re-supply rates for GLP-1 prescribed patients show a steady increase as well—over 3% higher for one year and more than 5% higher for two years compared to controls. These figures are part of the data we're reporting this quarter. We won't solely depend on the marketing from Lilly regarding Zepbound; we have our own demand generation strategies. We plan to implement consumer-directed approaches, especially in our omnichannel markets, and in healthcare-driven markets like the U.S., France, and Germany. This will involve multiple strategies as patients continue to seek treatment. In my earlier remarks, I mentioned the importance of continuous medical education for primary care physicians—this is crucial to ensure they understand the full range of sleep apnea therapies, including gold, silver, and bronze standard treatments. We're targeting high-volume GLP-1 prescribers and educating them on effective therapies such as CPAP, APAP, and bilevel devices, as well as facilitating home sleep apnea testing pathways. Although it’s still early in the demand generation phase, we're beginning to see positive results in specific markets, with more anticipated in the future. Thank you for your question, David.

Just wanted to circle back on the gross margin question from earlier. I thought the answer on four key drivers was very clear. I just wanted to follow up more on the FY '26 guidance, 61% to 63% represents 200 bps year-over-year at the midpoint and 300 bps at the high end, so a pretty significant there. And I was hoping you could talk through maybe the primary drivers supporting that level of expected improvement, how much do you think is coming from the FX movement this quarter? And then any considerations around seasonality or phasing that we should be thinking about?

Yes, sure. Brett will take that.

We expect our guidance to be around 61%, which is at the lower end, and we aim to improve progressively from there. Initially, we might start at this lower figure but plan to finish the fiscal year at a higher rate. Our focus for FY '26 will be on continuing our cost optimization efforts. This includes procurement initiatives and improving manufacturing processes, such as balancing cycle times and capitalizing on scale benefits. We're also committed to enhancing our logistics efficiencies, where we've made significant progress over the past year, although there's still work to be done. The transition from the AS10 to the AS11 platform will continue through FY '26, and we anticipate a favorable natural product mix as we head into the fiscal year. Additionally, new product introductions will provide further opportunities. There isn't a single solution here; it's about strong execution on multiple fronts to drive improvement.

I did want to go back, Mick, because you had so much experience with competitive bidding last time. Maybe you could just summarize in your words, the impact that it did have on your business and maybe more importantly, didn't have. I know there was a lot of concerns covering it back then and then ultimately, it wasn't that bad. And could you draw any lines from that situation to what may happen now?

Yes, Matt, it's really good to discuss this. I’ll summarize the last 15 years as best as I can in the few minutes we have left. When I became CEO about 13 years ago, we were in the midst of significant changes, and having previously managed the Americas, I was already experiencing the challenges associated with that. Initially, Medicare reimbursement rates were much higher than those from private payers, which made it hard to argue against the program. Currently, Medicare and private payers are closely aligned, with various private payers operating across 50 states and adjusting rates frequently, either annually or quarterly. In the last bidding round in 2021, we saw a mature group of HME providers analyze their costs and capabilities and bid slightly above the previous rates. Since then, private payer rates have stabilized based on inflation and efficiency measures. Looking at the current rules and proposals, they seem similar to the last round, although there are some nuances we’ll need to address. Overall, it doesn’t appear to be significantly different, and the rates are relatively consistent between Medicare and private payers. I don't anticipate it becoming a nonissue, but we aim to closely support our HME customers through this process, leveraging our industry associations. Since ResMed doesn’t submit bids directly, we're not directly involved in the program, but I find the situation to be quite manageable. In the past, we navigated dramatic changes well and even experienced growth. This recent situation represents a much lesser change, and I believe both we and our customers will manage. Most importantly, Medicare beneficiaries, who contribute to the funding for Medicare and Medicaid programs, will continue to have access to care. ResMed remains committed to advocating for access, especially in rural areas, and will keep fighting for our patients. Thank you for your excellent question, Matt.

Thank you for joining us on our earnings call today. On behalf of the more than 10,000 ResMedians operating in 140 countries worldwide, I'm very pleased that we were able to deliver another strong year of performance and build value for our shareholders. We look forward to speaking with many of you in the coming weeks, and we'll see all of you in 90 days. Salli?

Thank you, Mick, and I'll echo Mick, thank you to everyone for listening. We appreciate your time and interest. If you have any additional questions, please don't hesitate to reach out directly. Kevin, you may now close the call.