Resmed Inc (RMD) — Q1 2026 Earnings Call Transcript

Thanks, Kevin. I want to welcome our listeners to ResMed's First Quarter Fiscal Year 2026 Earnings Call. We are live webcasting this call, and the replay will be available on the Investor Relations section of our corporate website later today. Our earnings press release and presentation are both available online now. During today's call, we will discuss several non-GAAP measures that we believe provide useful information for investors. This information is not intended to be considered in isolation or as a substitute for GAAP financial information. We encourage you to review the supporting schedules in today's earnings press release to reconcile these non-GAAP measures with the GAAP reported numbers. In addition, our discussion today will include forward-looking statements, including, but not limited to, expectations about our future financial and operating performance. We make these statements based on reasonable assumptions. However, our actual results could differ. Please review our SEC filings for 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, good afternoon and good evening to everyone in various time zones, and welcome to ResMed's First Quarter Fiscal Year 2026 Earnings Call. I'm very proud of our global team of 10,000-plus ResMedians, who have delivered a strong quarter with 9% reported revenue growth or 8% on a constant currency basis, with multiple areas of high performance. Across the U.S., Canada, and Latin America, our team drove high single-digit growth in devices at 8%, and the same team also delivered double-digit growth in the masks and other category with 12% growth. For Europe, Asia, and the Rest of the World, devices saw high single-digit growth at 7% on a constant currency basis. These businesses collectively comprise over 75% of our quarterly revenue. In Europe, Asia, and the Rest of the World in the masks and other category, we had mid-single-digit growth at 4% on a constant currency basis, following a strong comparison from Q1 last year, where we grew at 11% in constant currency in this category and region. I'm confident that we will accelerate to high single-digit growth in this category, starting in the current quarter. We are focused on continued strategic expansion of our mask portfolio with new product innovation, which I'll talk about in a couple of minutes. We're also focused on driving mask resupply through education, awareness, and execution. Increased mask resupply benefits patients, home care providers, payers, and health care systems. And yes, it also benefits ResMed. This increased focus on mask and accessory resupply is fully aligned with our ongoing investments to accelerate growth in our direct-to-consumer markets around the world, including China, India, Korea, Australia, and New Zealand. As I noted above, I'm confident these efforts will accelerate our Europe, Asia, and Rest of the World masks and other category solidly and sustainably back to high single-digit growth. ResMed's residential care software or RCS business delivered mid-single-digit growth with 6% reported and 5% constant currency growth. We saw strong performance from our MEDIFOX platform and our core Brightree platforms with good growth in the MatrixCare home health business, yet a challenging growth environment for the skilled nursing facilities segment. Now that we have integrated our RCS business into our global revenue team, we will drive portfolio management with increased investment in the high-growth higher-margin parts of that RCS portfolio while reducing exposure to the lower growth, lower-margin areas like the services businesses. We're confident that we will execute successfully on our portfolio management work and reaccelerate growth in our RCS platforms, moving from mid-single-digit growth here at the start of fiscal year 2026, accelerating to mid- to high single-digit growth in the back half of fiscal year 2026 and achieving sustainable high single-digit growth with double-digit operating profit growth in 12 months from now. RCS is a key synergistic enabler of our core sleep and breathing health business through demand generation and especially through resupply programs. In this way, our RCS business forms a core part of our long-term growth strategy. During the quarter, we also continued to execute well on our ongoing work, driving operating leverage. Our global supply chain team delivered 280 basis points of year-over-year gross margin expansion. These results, along with our disciplined approach to business investments in both R&D and SG&A translated to another quarter of strong double-digit earnings per share growth. I'd like to take this opportunity to thank not just our supply chain team, but the entire ResMed global team for their ongoing commitment to serving patients in more than 140 countries worldwide. ResMed continues to build the world's largest digital health ecosystem, encompassing sleep health, breathing health, and healthcare technology delivered right in the home. Over the recent quarters, I've highlighted three key themes for these earnings calls: one, that ResMed is committed to operating excellence and driving operating leverage while simultaneously delivering new products to the market. We are an innovation machine and an operational excellence machine. Two, ResMed is a compelling investment opportunity with huge addressable and growing markets and strong executable growth especially amidst global macro uncertainty. And three, ResMed's excellent free cash flow and strong balance sheet position us to both invest in the business and simultaneously return capital to our shareholders. Our first-quarter results are another demonstration of these important business elements, and I'll talk briefly about each of these three themes. On the first theme of operating leverage, I shared with you last quarter that ResMed has a pipeline of opportunities. One key area of focus has been optimization of our freight expense. Another area of focus has been our multi-year productivity programs that include improved planning systems and large-scale automation. These efforts, among others, helped deliver the 280 basis points of year-over-year gross margin expansion that we saw in this first quarter. We will continue to execute on these opportunities over the remainder of fiscal year 2026 and beyond. We'll update you here every quarter as we continue to deliver great results. I've also previously highlighted the evolution of our global manufacturing footprint. In addition to our recently announced expansion of our Calabasas, California facility, which doubles our U.S. manufacturing capacity, we are pleased to announce that with our strong ongoing growth in the United States, we're investing to establish a third facility, a third distribution center. This new facility in Indianapolis, Indiana, the heartland of the Midwest, will expand our distribution capacity. It will improve product velocity of delivery and enhance our overall network resilience by positioning inventory closer to our customers. We expect the Indianapolis facility to be operational in 2027. Once this facility comes online, ResMed will be able to ship to around 90% of our customers within two days. These efforts will also increase the capacity for our Made in America product to build on what we already do right here in the U.S. On the topic of ResMed as an innovation machine, our R&D investments in the next generation of market-leading masks, cloud-connected device platforms, and digital health software position us well to keep delivering the world's smallest, quietest, most comfortable, most cloud-connected, and most intelligent therapy solutions for sleep apnea, insomnia, respiratory insufficiency, and beyond. Just this week, we rolled out two world firsts for ResMed. These are the first two full face fabric masks available on the market. This brand-new AirTouch F30i mask platform is innovative. We are launching two masks variants right out of the gate. First, the F30i comfort, which is a premium price mask with a fabric-wrapped frame as well as an incredibly comfortable fabric-based oronasal patient interface. This amazing new product was launched earlier this week in Australia and will be launched into additional markets in the near future. Second, just yesterday here in the U.S. market, we launched the F30i Clear, which is a traditional silicon frame mask, but it still has that innovative, incredibly comfortable fabric oronasal patient interface. This variant will be launched into our B2B channels and our home care provider customers as we continue to launch to additional markets beyond the U.S. These products expand ResMed's AirTouch portfolio of fabric-based mask offerings, delivering advanced comfort, mobility, and interchangeability for patients. They're designed to help more people start, stay, and be on therapy for CPAP therapy for life. We're also excited to continue executing against our roadmap for incorporating machine learning, artificial intelligence, and generative AI technology into our digital health products. Last quarter, I talked about how we integrated our personal sleep health digital assistant, which we call Dawn, into our myAir platform in the Australian market. Dawn allows ResMed to provide personalized 24/7 support to our users, giving them an intuitive, empowering way to get help right at the moment they need it, right on their own time. Based on that success, during the first quarter of fiscal year 2026, we launched Dawn on the myAir platform right here in the U.S. market. Ultimately, Dawn strengthens the role of myAir as the central hub for therapy support for patients. This connectivity leads to increased long-term adherence, better patient outcomes, lower total cost of care for payers, and better resupply volumes for providers and for ResMed. Watch this space as we build and scale this amazing AI-based technology globally. We also recently launched in a limited beta program in Australia a new feature that we call Comfort Match. Comfort Match is an AI-enabled comfort setting technology that sits on the myAir platform. Comfort Match is intended to help people become more confident, more comfortable, and more adherent to therapy. By engaging with patient settings such as humidification levels, air temperatures, heated tubing options, and beyond, we will help patients define their optimal sleep health and breathing health environment faster, more easily, and more efficiently, right from the start of their therapy journey. Through setup, the Comfort Match technology receives information about a person's profile and through advanced machine learning suggests a personalized combination of comfort settings with the goal of maximizing adherence. We will measure the success of this technology in consumer engagement, improved patient perceived comfort, as well as hard clinical outcomes such as patient adherence. Based on early trials, we are very excited that this technology will deliver for patients, for physicians, for providers, and for payers and beyond. At ResMed, we view AI as a technology resource that will amplify and personalize care by identifying patients, surfacing insights, and enabling personalized interventions. We are creating AI-based technologies that will help caregivers spend more time focusing on people rather than paperwork. For our patients, our AI technology translates health data into clear guidance, support, and encouragement, empowering them to take an active role in their own therapy. As a result, we believe that our AI tech investments will provide returns through accelerated access to care through improved patient outcomes, while also making care more personal, more proactive, and ultimately more effective. Moving on to ResMed's SG&A investments. We remain focused on demand generation, demand capture, and demand curation as critical components to our long-term growth. Earlier this year, we expanded our offering of continuing medical education or CME programs to educate and reinforce with physicians the benefits of CPAP, APAP, and bilevel therapy as the clinical gold standard frontline treatment for any patient diagnosed with sleep apnea in accordance with Sleep Medicine guidelines. We have continued to see incredible uptake from primary care physicians. To date, the CME programs have been completed nearly 40,000 times by over 22,000 unique PCPs, demonstrating that healthcare providers have taken multiple courses. Surveys at the end of these courses have consistently shown that 75% of providers intend to change their clinical practices related to improving sleep and breathing health based on what they learned. We will continue to drive select and targeted direct-to-consumer awareness campaigns to build sleep apnea awareness and ResMed brand awareness globally. The ultimate goal is to help undiagnosed patients to find their optimal path to treatment. With over 2.3 billion people worldwide who need our solutions for sleep apnea, insomnia, or respiratory insufficiency, it is our clear obligation to help them know the world's leading brand in the field, which is ResMed. Immediately after that, though, our role is to be what I call a digital sleep health concierge to help that person find a path to screening, to diagnosis, and ultimately, to therapy for life. On the sleep medicine clinical research front, you will see ResMed continue to invest in important studies that highlight new evidence in sleep health. In late August, we announced the publication of a landmark study in the Lancet Respiratory Medicine Journal projecting a significant rise in obstructive sleep apnea (OSA) prevalence in the U.S. over the coming three decades due to a variety of factors, including an aging population and increased chronic disease awareness. The study estimates that by 2050, OSA will affect nearly 77 million U.S. adults, representing a relative increase of nearly 35% from 2020, ultimately impacting nearly half of all adults aged 30 to 69. These epidemiology data include all of the estimated impacts of new drug classes, including GLP-1s. The bottom line from this epidemiology research is that the prevalence of sleep apnea will continue to increase. So our work is ongoing to help the many millions here in the U.S. and the billions worldwide who need us. Last month, ResMed announced the launch of the Sleep Institute, a global clinical insights initiative, which is partnering with clinicians, researchers, policymakers, and health system leaders to deliver objective, non-commercial evidence-based insights that help inform care innovation, support policy decisions, and elevate sleep as a global health priority. The Sleep Institute debuted at the World Sleep Congress in Singapore with an expert-led symposium examining barriers in diagnostic pathways for OSA and new scalable solutions to help improve access and outcomes. Even as we have continued our investments in both R&D and SG&A, ResMed again delivered strong net operating profit growth in the first quarter. Indeed, ResMed remains a compelling investment opportunity amidst global macro uncertainty. We continue to closely monitor the global trade environment and the evolving regulatory landscape. As I noted last quarter, because our products are used to treat patients with chronic respiratory disabilities, they have been subject to global tariff relief for decades, and we have reconfirmed that with U.S. authorities earlier this year. It's important to note that this relief has continued in the context of other Section 232 investigations, and we expect it to remain true for the investigation of medical supplies announced in late September. ResMed was one of the many organizations across Medtech that submitted formal public comments regarding this investigation to the U.S. Department of Commerce. There were over 800 official comments made from our industry, which we see as a good show of strength from our colleagues in the field. Our submission at ResMed focused on our significant and expanding, in fact, doubling of our U.S. manufacturing, our broad domestic hardware and software R&D teams, and our global headquarters located right here in San Diego, California, as well as our expansion not just of our U.S. manufacturing but also our many U.S. jobs in research, development, and commercial operations here in the U.S. As the incoming Chairman of the industry group called AdvaMed from January 1, I will be on the front lines of our med tech industry's response to this 232 investigation. Out of 14 industries that have been investigated by the department, I see our industry as actually quite analogous in potential outcomes to that of the aircraft industry. The aircraft industry saw very favorable outcomes after their investigation. We are confident that ongoing tariff relief should still apply for ResMed and for our many patients with important disabilities who need access to care. Let me also briefly comment on the competitive bidding program that CMS has stated that it plans to resume in late August. ResMed submitted comments on the proposed methodology that will apply to our home medical equipment or HME customers. We remain committed to advocating for policies that protect patient access to care and for policies that promote fair and sustainable reimbursement for HMEs. At this point, like everyone else in the industry, we are awaiting further information, including intended timing for the program, product categories that will be included or not included in bidding methodology details. ResMed will continue to support our HME customers and the millions of U.S. Medicare beneficiaries who rely on us for access to market-leading, high-quality sleep and respiratory care at home. We are fortunate to be able to remain fully focused on executing our 2030 strategy, including delivering value to all of our constituents. ResMed's strong free cash flow and our robust balance sheet provide us with significant flexibility to both invest in our business and return capital to shareholders. You will see us continue to selectively invest in our digital Sleep Health Concierge capabilities, including screening protocols, clinical tools, seamless workflows, and cloud connected care pathways. We'll be looking to expand the diagnostic funnel to keep up with the new patient flow that will come from ResMed's own demand generation efforts as well as the greater awareness of sleep apnea generated by the promotion of GLP-1 medications that can be used to partially treat or, as I say, half-treat OSA, and the accelerating momentum in consumer wearables capable of not just monitoring sleep health but also detecting sleep apnea. ResMed's ability to integrate with multiple other wearable ecosystems and the growth in patients using ResMed products has driven the number of API calls per second up more than 40% year-over-year in this quarter. The first quarter of fiscal year 2026 was the first time that we had more than 3 billion total API calls in a single quarter. The bottom line is that interoperability works and digital health works. People want to combine health data for lower costs, better outcomes, and to manage chronic diseases and disorders that they have and that we treat. ResMed also returned significant capital to shareholders through a combination of dividends and share repurchases. As you're aware, last quarter, ResMed's Board of Directors authorized another increase in the quarterly dividend for fiscal year 2026. We also increased our targeted share repurchase activity for this fiscal year. And during the first quarter, we returned over $238 million to our shareholders. Before I turn the call over to Brett, I would like to take this time to thank the ResMed Board Director who has just recently announced his retirement, Rich Sulpizio, for his amazing years of contribution to ResMed. We announced that Rich will not stand for reelection at our upcoming annual meeting of shareholders, which will be on November 19, 2025. He will retire after that meeting. Rich has been a long-time mentor to me and to many executives in the technology and healthcare industries, including at Qualcomm, CI Technologies, and of course, right here at ResMed. Rich has always brought candor, energy, and a people-first mindset to every boardroom conversation. We'll continue to do that in his legacy. I'd also like to formally welcome Nicole Mowad-Nassar to ResMed's Board of Directors. Nicole was elected to our Board on August 15 and has been appointed to the Compensation and Leadership Development Committee. Nicole is President of the Global Allergan Aesthetics business, and she's a Senior Vice President at AbbVie. She brings three decades of pharmaceutical industry experience, a sharp commercial lens, a deep commitment to patient access, and a strong orientation towards digital health as well as consumer and patient engagement. Nicole is a great addition to the ResMed board. One final note on the Board, I'd like to congratulate Chris DelOrefice on his recent appointment as Chief Financial Officer of Ulta Beauty in the consumer cosmetics retail industry. We are fortunate to have both Chris and Nicole bring their experience with consumer-driven aesthetics products and retail products to our Board discussions. Quarter after quarter, ResMed has demonstrated its ability to consistently deliver both financially and operationally. We've established a leading market position globally in an underpenetrated market that still has a very long runway for growth. This underpins our confidence in our ability to deliver for consumers, patients, physicians, providers, payers, our communities, and of course, for you, our shareholders. With that, I'll hand over to Brett to go through a deeper dive into our financials, and then we'll open the floor for questions.

Great. Thanks, Mick. In my remarks today, I will provide an overview of our results for the first quarter of fiscal year 2026. Unless noted, all comparisons are to the prior year quarter and in constant currency terms, where applicable. We had strong financial performance in Q1. Group revenue for the September quarter was $1.34 billion, a 9% headline increase and 8% 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 $16 million during the September 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 10%. Sales in Europe, Asia, and other regions increased by 6% on a constant currency basis. Globally, on a constant currency basis, device sales increased by 7%, while masks and other sales increased by 10%. Breaking it down by regional areas, device sales in the U.S., Canada, and Latin America increased by 8%. Masks and other sales increased by 12%, reflecting continued growth in resupply, new patient setups, and incremental revenue from our recent VirtuOx acquisition, which we acquired in Q4 FY '25. In Europe, Asia, and other regions, device sales increased by 7% on a constant currency basis, and masks and other sales increased by 4% on a constant currency basis, impacted by a strong prior year comparable. Residential care software revenue increased by 5% on a constant currency basis in the September quarter, led by robust performance from our MEDIFOX DAN business, partially offset by weaker performance in our senior living and long-term care software business. As Mick mentioned, we are reviewing our investment priorities within RCS and are working on initiatives to drive improved growth in the RCS portfolio. 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 was 62% in the September quarter and increased by 280 basis points year-over-year and by 60 basis points sequentially. The increases were primarily driven by component cost improvements and manufacturing and logistics efficiencies. Changes in average selling prices had a minimal impact on our gross margin, both on a year-over-year and on a sequential basis. Our supply chain team continues to make progress on our pipeline of gross margin expansion initiatives, and we remain focused on making sustained long-term gross margin improvements. Looking forward and subject to currency movements, we still expect gross margin to be in the range of 61% to 63% for fiscal year 2026. Moving on to operating expenses. SG&A expenses for the first quarter increased by 8% on a headline basis and by 7% on a constant currency basis. The increase was primarily attributable to additional expenses associated with our VirtuOx acquisition and growth in employee costs as well as ongoing marketing and technology investments. SG&A expenses as a percentage of revenue improved to 19.4% compared to 19.5% in the prior year period. Looking forward and subject to currency movements, we still expect SG&A expenses as a percentage of revenue to be in the range of 19% to 20% for fiscal year 2026. R&D expenses for the quarter increased by 10% on both a headline and constant currency basis. The increase was primarily attributable to increases in employee-related expenses. R&D expenses as a percentage of revenue were 6.5%, consistent with the prior year period. Looking forward and subject to currency movements, we still expect R&D expenses as a percentage of revenue to be in the range of 6% to 7% for fiscal year 2026. During the quarter, we recorded a restructuring-related charge of $16 million, following a company-wide workforce planning review to better align our capabilities with our 2030 strategic priorities. Restructuring costs were comprised of employee severance and other onetime termination benefits. The restructuring charge has been treated as a non-GAAP item in our first quarter financial results. Operating profit for the quarter increased by 19%, underpinned by revenue growth and gross margin expansion. Our operating margin improved to 36.1% of revenue compared to 33.2% in the prior year period. Our net interest income for the quarter was $9 million. During the quarter, we recognized unrealized losses of $6 million associated with our minority investment portfolio. This negatively impacted our Q1 earnings per share by $0.04. Our effective tax rate for the September quarter was 22.3% compared to 19.2% in the prior year quarter. As we noted in our last quarter call, the increase in our effective tax rate was primarily due to the impact of global minimum tax legislation introduced in certain jurisdictions that became effective from July 1, 2025. We still estimate our effective tax rate for fiscal year 2026 will be in the range of 21% to 23%. Our net income for the September quarter increased by 15% and non-GAAP diluted earnings per share increased by 16%. Movements in foreign exchange rates had a positive impact on earnings per share of approximately $0.02 in Q1 FY '26. The cash flow from operations for the quarter was $457 million, reflecting strong operating results and disciplined working capital management. Capital expenditure for the quarter was $43 million, and depreciation and amortization for the quarter totaled $48 million. We ended the first quarter with a cash balance of $1.4 billion. At September 30, we had $669 million in gross debt and $715 million in net cash, and we 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. Today, our Board of Directors declared a quarterly dividend of $0.60 per share. During the quarter, we purchased approximately 523,000 shares under our previously authorized share buyback program for a consideration of $150 million. We plan to continue to purchase shares to the value of approximately $150 million per quarter during the remainder of 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 dividend and share buyback program. And with that, I will hand the call back to our operator, Kevin, to provide instructions for our Q&A session.

Yes. Mick and team, I appreciate the time. Can we just touch on your new mask that you have launched in Australia and in the U.S.? Could you just highlight the unique attributes of this product? And also, if I understand this right, it is in the full face category and builds on the nasal launch towards the back end of calendar year '24. So if you could just help explain just the importance of that full face category and tie that into your ambitions to accelerate growth in March, especially in ex-U.S. regions?

Yes. That's a great question, David. And so yes, it's the AirTouch F30i and really incredible, I would say, fabric-based technology that, as you know, in Singapore, we've had a fabrics engineering team working for a while. We had recently launched our AirTouch N30i a couple of quarters ago and had really good success with that nasal mask with fabric touching the face. So we had this in development. We accelerated it up. And you're right, this is a full-face mask. So it's high price, high margin. It's about roughly 30% to 40% of people breathe through both their nose and their mouth while they sleep, so they need an oronasal mask. And for those people, over one third of people, the AirTouch F30i is coming to market. We've got two variants of it, one which I'll call sort of the premium one, which would be more, as you said, in the sort of direct-to-consumer cash pay markets. I think China, Australia, New Zealand, India, Korea, Singapore, etc. And that's called the F30i comfort. That has fabric not only in the part touching the face, but all over the headgear as well. Every part touching your body is like the sheets that you sleep in. The other variant is called the F30i clear. That is for markets that are B2B markets, our home care provider markets, where we have a more economical version, but it still has the advanced technology where the part touching the face has this new fabric or nasal patient interface. We've seen great success with the N30i over the last couple of quarters. I think we're going to do the same in the full-face category here. We're changing the basis of competition in masks away from liquid silicone rubber to fabrics. We're going to sell both, but I think this is going to be a very exciting product for us and it will help us not only have high single-digit growth in the Europe/Asia Rest of World category, which we're going to be back to this quarter, but I am more excited about what it can do for patients around the world who want more comfort and more care, and these masks do that. Thanks for the question, David.

I think you spoke at the end of the prepared remarks to potential tuck-in acquisitions. I think historically, you've said there will be focus on refining the patient funnel and improving retention within the funnel. I assume that because there's more for you to gain here. So could you just talk to how much work there is to do, how leaky is the funnel right now and perhaps allude to how that fits into the ResMed 2030 strategy?

Yes. Thanks for the question, Laura. Look, it's a good one. As you saw, we have done a couple of tuck-in acquisitions in this area of the patient funnel, helping with access to very easily usable home sleep apnea testing tools like our Ectosense acquisition and the NightOwl product. That is now being launched to our U.S. sales force. We did that at the sales meeting a couple of months ago. In addition to that, we acquired a home sleep apnea testing services company called VirtuOx. Their team is made up of hardcore, dedicated entrepreneurs who now have access to the ResMed capabilities. I got the quarterly update from the team; their numbers are doing really well. We're doing really well in terms of getting NightOwl, getting other home sleep apnea tests to patients and bringing them through the funnel. So that really strong 8% growth we saw in U.S. devices. I do think that beating out that mid-single-digit growth, which we claim is the market growth, without that, some of these tuck-in acquisitions have helped with that. In addition, we had the tuck-in of the Somnoware acquisition, which is software for pulmonary and sleep medicine practices. So we're helping provide efficiency and seamless flows so that the pulmonary doctors and PCPs have better interactions with each other. Yes, I'm not going to specify exactly what we are looking for in the future, but I can tell you more technologies and capabilities to help with that seamless, frictionless flow from sleep concern consumer to screening, diagnosis, treatment, and setup. As you said, there is churn in the channel. There is leakage in that funnel. Our goal is not only to bring more patients into the funnel at the top through demand generation, capture, and curation, like our CME programs, but also to minimize the loss of people as they go through there. And how do you do that? You interact better. You provide seamless and easier alternatives to go through the system. So I think having Dawn, our generative AI product, as a digital sleep health concierge, improving access to that capability, along with the interoperability—a noteworthy 3 billion calls, API calls into and out of our AirView system—indicates that people want to know about their sleep health and their breathing health. We're going to combine it with all those other data around chronic disease. I really do think the investments from big pharma will be a big factor in bringing patients into that funnel. Our question, then, becomes how many of those 22,000 PCPs trained are actively prescribing CPAP as frontline therapy to every patient that comes through. They say they're going to do that close to the education, but what happens in practice? Have we connected them to a VirtuOx? Have we connected them to other home sleep apnea testing services? It doesn't all have to come from us. We want that patient well taken care of and brought through the funnel. So yes, very good work by the team in U.S., Canada, Latin America in the quarter. We're going to continue to execute on that. Thanks for the question, Laura.

Mick, you touched on this made in America strategy and the Indianapolis distribution center expansion. I'm wondering if you can talk to your plans as it relates to actually manufacturing in the U.S. I know you spoke about this last quarter at Calabasas. But just to be clear, how do you see product manufacturing evolving in the U.S. regarding developing all products, CPAPs, masks, not just the motors? If you could touch on that, that would be great.

Great question, Saul. I won't go into the detailed plans we have to expand in Calabasas, Moreno Valley, Indianapolis, and Atlanta. But across our footprint here in the U.S., we've got a really broad manufacturing and distribution capacity that is world-class. Shane Azzi and his supply chain team are looking at inbound supply, manufactured distribution, aiming to get 90% of customers delivered within two business days—a goal far above the top tier for Medtech. We do see certain policies coming from Washington. As the incoming Chairman of AdvaMed, I am well aware of what is in store. Customers like the VA and others look to the U.S. government. It seems prudent for ResMed to have our Made in America motors, masks, and to also build capabilities for Made in America devices. We're setting up lines for that and will be flexible to our U.S.-based customers' and global customers' needs. The majority of our global volume does come from the U.S.—over 50% to 60%. So bringing more manufacturing here is key. We learned this during COVID; having manufacturing close to demand is critical amid geopolitical uncertainty. We're committed to long-term strategies, not merely reacting to government shifts, but focusing on what’s best for us in 2030 and 2035, and what intersects with any new rules that may come. That’s why we're doubling our U.S. manufacturing capacity and broadening from just motors to masks and potentially devices as well. Watch this space.

I might ask about U.S. devices. Obviously, very strong growth there in comping a strong previous quarter as well. Can you talk about the demand initiatives you have in place? How do you measure which ones are really delivering in terms of generating that demand? You mentioned mid-single-digit growth for the device market, but what we are seeing this quarter is high single digits. Can we expect high single digits going forward, given all those demand initiatives that you have in place?

Yes, Lyanne, it's a good question. Many analysts here have closely followed our work on demand generation, capture, and curation. You know it's not a simple algorithm. It's not a straightforward customer acquisition cost to lifetime value equation that you might see in retail or online-only companies where those are simple formulas. In health care, we've become sophisticated. We look at targeted social media and digital media-driven demand generation campaigns. We examine age groups and geographic demographics that may respond, with the capacity for screening, diagnosis, and prescriptions. Yes, we outperformed what the market growth would have been without good execution in Q1, as you noted, with an 8% growth in our U.S., Canada, and Latin America devices on a reasonable comparative basis. I'm not here to raise our guidance and say we're suddenly going to consistently hit high single-digit growth in devices in the U.S., but I think we can systematically improve 25, 50, or even 100 basis points from what the growth will be. Looking for sustainable market demand improvement is a good strategy. High-profile advertising from $400 billion to $500 billion pharma companies can be a tailwind, bringing patients into the funnel. Our question is how many of the 22,000 trained PCPs are writing CPAP prescriptions as the gold standard. They say they will per education, but what happens in practice? Have we connected them to VirtuOx or other testing services? We want our patients well taken care of and moved through the funnel. The U.S., Canada, and Latin America team did well this quarter, and we will continue to execute.

Just a question for Brett in response to the global minimum tax jurisdiction and the impact on your tax rate. I believe from previous calls, you've indicated there's other benefits likely to arise through R&D credits or offsets. Could you help us understand what the compensating factors may be for that lift in the tax rate out of Singapore?

Yes, sure, Steve. We now have an agreement under refundable investment credit or ROIC with the Singapore government, which is now effective into this quarter. So we are getting some offsets that would go through COGS, SG&A, and R&D. That offsets it to some extent, but not completely. We do get some benefit that's coming through, and I think that will build over time across FY '26 into FY '27. But it doesn't offset the tax impact entirely.

Yes, Mick, just the commentary around PCP awareness rising prevalence in the U.S. in relation to OSA. First part is, where do you think the penetration of the U.S. market is at the moment? And then secondly, in terms of RePAP as an opportunity for growth, how do you see that at the moment and going forward?

Yes, David, it's a good question because it looks at both parts—the RePAP, which is a growing part of our devices side, and the new patient flow that we spend a lot of our time in the devices category. PCP awareness is key. I want all 40,000 targeted PCPs who are GLP-1 providers and who have access to home sleep apnea testing protocols. We're working to educate them. Yes, the rising prevalence from the data shared in the Lancet shows that we understand there is an aging population, greater chronic disease awareness, and people are becoming more informed thanks to pharma ads. The penetration of the U.S. market is currently around 15% to 20%. The European market is around 10% to 15%, and Asia Pacific is below 5%. These market shares aren't increasing as quickly as I'd like. We know growth rates need to accelerate while managing penetration. Both awareness and growth are beneficial. But yes, currently, roughly 15% to 20% penetration is what we see in the U.S. Thank you for your questions. The challenge is in getting that PCP awareness and routing consumers correctly into the funnel, but we're making strides.

Nice overall quarter for Sleep & Respiratory, but I think the one area to perhaps nitpick was just the mid-single-digit growth trend in SaaS, which is lower than your typical levels. I hope you can unpack what incremental headwinds you saw in those couple of end markets. And then just share the assumptions underlying your expectations of returning to mid- to high single-digit growth in the near term and high single-digit growth by next year?

Great. It's a good question. The Software as a Service aspect of our RCS business is incredibly strong; that's where we're really focused. Our core MEDIFOX, Brightree, and MatrixCare home health—all SaaS businesses that offer higher growth rates and higher margins. What you observed in the quarter is that we are shifting away from lower-margin areas, like implementation services and IT support, that we need as part of onboarding new customers but don’t need to expand. We can use third parties for these services. The portfolio management process is underway, where we will invest more in SaaS platforms and less in the lower-margin services. This contributed to a few hundred basis points shift in metrics from Q4 to Q1. As I said in the prepared remarks, our plan and execution are solid. We've rolled this business into our global revenue stream. Our Chief Revenue Officer and the leaders of MEDIFOX, MatrixCare, and Brightree are examining every element of portfolio management to ensure we are investing wisely for the long term. Given that our core business is performing well, this is the right time for this kind of portfolio management forward. Strong performance in our SaaS-based businesses and synergistic impacts have positioned us for growth.

This is Joseph on for Mike. I appreciate you taking our questions. I guess maybe a quick one on NightOwl. Obviously, it's early days of the launch, but I was wondering if you could give any more color around metrics and how it's converting fleet patients and lowering that significant fleet patient backlog that you guys have called out? Much appreciated.

Yes. Thanks for the question, Joseph. We don't really split out the specific NightOwl numbers, but I can tell you compared to where we expected growth from VirtuOx, which runs NightOwl, the growth has been strong. The team is performing well in driving patients through the funnel. You noticed the 8% growth in devices in U.S., Canada, and Latin America. Is there more room for growth? Yes, and the significant pharma and big tech advertising will be a tailwind driving patients into our funnel. It’s important to ensure we provide NightOwl to all primary care physicians. We want them served well so they don’t have to manage diagnostics alone. This helps with managing systems and getting studies back to those physicians who can then prescribe for their patients, continuing care for life. It's a complex equation. Growth in VirtuOx and NightOwl is beneficial for our core business, which has performed strongly in the U.S. and also in the Europe/Asia Rest of World, where devices grew 7% this quarter, predominantly driven by our base business. No patient left behind—we will enter the $2.3 billion space and provide access to care as our priority.

Sorry, it's actually Dan Hurren. Thanks for your prior comments around competitive bidding. However, I’m unsure you articulated your perspective on the potential range of outcomes. Your commentary remains confident as ever, so could you narrow down your thoughts on competitive bidding outcomes?

Yes, thanks for the question, Dan. This is our 15th year, probably our 60th quarter, observing the competitive bidding landscape. The HME customers are savvy. They understand their costs and how to bid. No matter what the scenarios are, in the last bidding round we saw in 2021, they did a great job bidding aptly. They recognized that ResMed supports them. This situation’s complexity includes understanding rising costs since 2021. HME players will bid appropriately, and the outcomes should fairly reflect their efforts given their considerations. We believe they are well-prepared for the bids they submit. It is essential to focus on the healthcare cost savings associated with sleep apnea treatments. Medtech provides considerable ROI for the U.S. government, and that's the advocacy we're leading. Well, look, thank you for joining us for the earnings call today. Our fiscal year 2026 is off to a great start with strong 9% headline and 8% constant currency growth. On behalf of more than 10,000 ResMedians serving people in 140 countries worldwide, I'm pleased that we could deliver another strong quarter of performance for our shareholders. We look forward to speaking with many of you over the coming weeks and to all of you here in 90 days. I'll hand back to Salli.

Great. Thank you, Mick. I'll echo Mick's sentiments. Thank you to everyone for listening, and 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.