Q1 2020 Earnings Call
John and answer session. Please note that this conference is being recorded.
I will now turn the call over to Amy Wakeham, Vice President Investor Relations and corporate Communications, Amy you may begin.
Great. Thank you Chris Good afternoon, and good morning, everyone. Thanks for joining us and welcome to Rasmus first quarter fiscal year 2020 earnings call.
This call is being webcast lives and the replay along with a copy of the earnings press release, and our updated investor presentation will be available on the Investor Relations section of our corporate website later today.
Joining me on the call today to discuss our quarterly result, our CEO , Mick Farrell and CFO , Brett Sandercock. Other members of management will be available during the Q and a portion of the call.
During our call we will discuss several non-GAAP measures for a reconciliation of the non-GAAP measures. Please review the notes to today's earnings release.
As a reminder, our discussion today may include forward looking statements, including but not limited to expectations about our future performance.
We believe these statements are based on reasonable assumptions. However, our actual results may differ you are encouraged to review our SEC filings for a discussion of the risk factors that could cause our actual results to differ materially from any forward looking statements made today.
With that I'd now like to turn the call over to Mick.
Thanks, Amy and thank you to all of our shareholders for joining US today as we review the results for Resmed first quarter of fiscal year 2020 .
On today's call I will discuss our long term strategy I'll, then review top level financial results some business highlights from the quarter and a few key milestones then I'll hand, the call over to Brett who will walk you through our financials in further detail.
We have started fiscal year 2020, right, where we left off with 29 team our team achieved another quarter of balanced growth across the portfolio driven by continued strong performance in the mass category.
We are taking share with recent new product introductions, and our solutions are enabling increased therapy adherence as well as expansion of resupply programs to those who need it.
Our dedicated team of more than 7500, Resmed Indians around the world have again delivered strong results.
As the world's leading software driven medical device company, we continue to use technology to advance our leadership position.
We have sold more than 10 million, 100% cloud Connectable medical devices into the market and our Airview cloud based ecosystem manages more than 11 million patient accounts.
In the last 12 months, we changed over 15 million lives by providing a person with the resmed device or a complete mosques system to help them brief better and live better lives.
In addition, our Brightree and matrix care branded out of hospital software systems are helping to manage 93 million more Paypal.
So during the last 12 months, we improved more than 108 million lives with Resmed products services and software solutions.
We are well on our way to the ambitious goal to improve 250 million lives in 2025.
Our connected solutions are providing us with valuable access to de identified therapy data that we are using to derive actionable insights to benefit patients physicians and providers as well as to inform future innovation in products and software.
These datasets are growing exponentially and we now have.
5 billion not of medical sleep and respiratory care data in the cloud.
Our relentless focus on product and software innovation continues to set us apart from our competition.
We remain laser focused on growth in our core market of sleep apnea as well as in our adjacent respiratory medical markets of chronic obstructive pulmonary disease as well as asthma.
Our expanded focus to now growth outside the hospital software solutions allows us to help customers create efficiencies to take cost out of the healthcare system and to improve the quality of care across home medical equipment.
Hell hospice skilled nursing facilities life planned communities and beyond.
We believe the future of health care is outside the hospital Thats, where resmed competes today, that's where we are winning today and Thats, where we will continue to win in the future as we provide market leading value to customers.
Let's now briefly review our top level financial results for the quarter.
We achieved another quarter of double digit revenue growth.
Up 17% in constant currency across the portfolio.
This growth was well balanced across domestic us and global product sales as well as balanced across our software as a service businesses.
We continued to deliver operating leverage in the quarter, leading to a non-GAAP operating profit growth of 22% year over year and non-GAAP diluted earnings per share of 93 cents.
Turning to a brief discussion of our sleep apnea and respiratory care businesses in the devices category. We delivered a good quarter, we achieved year over year constant currency device growth of 6% globally.
To border by very strong, 8% device growth in the United States, Canada, and Latin America geographies.
We achieved 4% constant currency growth of devices in combined Europe Asia and rest of world.
We achieved excellent device growth in the UK, Switzerland and across our Nordics countries.
As discussed over the last few quarters, we experienced a continued headwinds during the quarter for device growth in France. As a result of digital health related fleet upgrades, we expect that headwind ease by the end of this fiscal year, and then return to market device growth in France.
It is great to see a steady flow of our digital health solutions into different European countries and to see positive constant currency device growth across the continent. This quarter.
The growth in the masks and accessories category of our business was incredibly strong during the quarter, we were up 19% in constant currency globally.
This is well ahead of market growth rates, indicating we gained significant market share during the quarter.
The reason that we continued to take share around the world is that we make the smallest the quietest and the most comfortable masks available in the market.
Our flagship masks the Airfit F 20.
And the fit in 20 continue their growth across global markets.
The success of these flagship masks was augmented during the quarter by good uptake of our recent mask launches to.
To recap those launches we have now launched four new masks during the last 12 months.
The F 30, the end 30 API.
And the P 30.
And just this week actually on Monday, our newest innovation was launched the in 30.
We have the right mosques for every patient every time and the end 30 ads innovative dimensions to this portfolio in 30 is a world first shoe down nasal cradle see Pap mosque in a new product sub category that we're calling the minimalist.
Category.
The in 30 is our smallest our lightest mosque ever and our quietest nasal masks ever.
I personally think this new end 30 is another winner from our Amazing research and development engineers.
Watch this space as it gets into the hands of our market, leading marketing and sales teams.
Now mass portfolio overall is positioned to offer world leading options for physicians to prescribe for homecare providers to fit in the first time set up and most especially for the needs of the ultimate customer the person who Suffocates every night with sleep apnea.
We remain focused on driving innovation to meet or underserved customer needs. The bottom line is that our new masks have a lot of runway ahead.
Unfortunately that let me talk about Resmeds future product pipeline, so I want.
Our success comes as healthcare providers physicians and patients around the world continued to vote with their wallets and choose resmed products not just for the innovative design and high quality of our devices and masks, but also for the sustainable value proposition of the digital health solutions that we offer.
Our digital end to end solutions combined with available, 100% cloud connectivity as well as information provided to patients on their own smart from smartphones through apps like my ear and apps like propeller.
Our all leading to significant improvements in lowering cost in improving health outcomes and improving quality of life for patients around the world.
Through digital health technology, we are driving patient engagement. So that people can enjoy the benefits of the best therapy available in parallel we are also ensuring that the cost of chronic disease can be better managed by physicians healthcare providers payers and governments.
There's still a long way to go.
Our research that was just published by the Lancet respiratory Medicine Journal in July shows that there are over 936 million sleep apnea suffers worldwide, while only around 20 million also being traded today.
We keep forging ahead investing in our own research and development to drive further innovation and advancement as well as by working with partners.
On the partnership from our joint venture with Virally is working on software solutions to help identify and engage and better manage more people with sleep apnea.
It is very early days on in this this JV, but our philosophy is that the more person knows about how much dice suffocate every night and the consequences of that certification on their own personal healthcare outcomes. The more likely design will seek solutions.
Over time, we know this partnership will drive incremental growth in our core sleep apnea business, while allowing resmed to participate in a broader chronic disease management ecosystem covering not just sleep apnea, but also cardiovascular disease diabetes, CRT D and beyond.
These chronic disease management platforms will include clinical care as well as wellness improvements in nutrition in cardiovascular exercise and in mental health.
Let's now turn to our second vector of growth here at Resmed, our business in respiratory care.
There are nearly 400 million people worldwide suffering from chronic obstructive pulmonary disease or CRP date.
We don't believe they are well served by healthcare systems today, we see the opportunity to better manage CRPD through the use of technology with digital end to end solutions that can help patients as they progress with this chronic disease, including how patients that communicated to us.
How patients are encouraged in the medical care and how patients a looked after as individual person.
We are advancing our respiratory care strategy in multiple ways earlier. This summer we introduced a number of enhancements to add view, our cloud based patient management platform, we are making management of ventilation patients much simpler and much more useful for home medical equipment providers fun.
Visions and HMH can now will deep into therapy data to see key performance indicators, such as pulse right Inspur treat time maximum airflow and even a patients rapid shallow breathing index or our S. The ROI.
All these data and now viable within our digital health care ecosystem with the easy to use Airview platform.
Our goal is to help create a frictionless experience when managing CRPD patients with residents solutions.
Our team at propeller also continues to grow their business as we move from pilot trials to commercial partnerships with leading respiratory pharmaceutical companies.
The team was recently at the European Respiratory Society annual Congress in Madrid.
It was great to see propeller represented at multiple pharma boots, including lob demonstrations of propel solutions for physicians propeller was also featured in several scientific presentations during ers, including the public announcement of a new large CRPD outcomes trial that sponsored by Novartis.
The trial will compare propeller plus CRP day standard of care to CRPD standard of care alone.
The trial has already begun enrolling patients during this quarter.
As we outlined when we acquired propel in January the digital health opportunity with respiratory medicine adherence will take time to build into critical mass.
This quarter, we passed a significant milestone with more than 100000 people enrolled into the propeller ecosystem.
Let's be clear we're still in the early days of market development here. The analogy is that we announced just licensing our shoes for the digital health Ultra marathon in both CRPD and in asthma.
So there's lots of to Ryan ahead.
The evolution that we have made in our respiratory care business has set resmed up to become the global leader in digital health for CRP day from stage, one and stage to see I pay day with propellers pharmaceutical adherence solutions to stage, three and stage foresee everyday with portable oxygen concentrators as well.
So as our cloud connected noninvasive ventilation solutions.
Let's now turn to our third vector of growth our software as a service business.
We continue to integrate and optimize the SaaS portfolios for long term growth.
Our competitive advantage derives from our leadership position in SaaS solutions for home medical equipment for skilled nursing facilities, the home health Hospice life planned communities and homecare services.
Resmed is the best strategic plan competing in these verticals and we have the expertise running global digital health systems at scale to be able to succeed in the future.
Our SaaS portfolio continues its growth trajectory this quarter with revenue up 83% year on year during the quarter.
Clearly growth in this first quarter was accelerated leveraging our matrix care acquisition in November of 2018.
We will lap that acquisition acquisition during this current second quarter.
We estimate that the underlying market growth of the blended portfolio of seven out of hospital sat SaaS verticals that we serve is in the high single digits.
Leaving out the matrix care acquisition, we grew right in line with the market in Q1.
We have set up an execution plan to continue to innovate and to continue to launch market, leading upgrades combined with new capabilities that will allow us to gain market share in assets verticals and participate in the fastest growing loans. So that we can the market growth we plan to exit fiscal 2020 with solid.
Double digit growth in our SaaS business segment.
One example of the progress that we're making in our SaaS portfolio is the recent announcement of our collaboration with Sirona.
As a new preferred provider for home health and hospice software.
This agreement validates resmed as an industry, leading provider of digital health solutions for out of hospital health care.
Our matrix Cam managed offerings for home health Hospice customers includes the best of breed capabilities from both the matrix care technology and from the Brightree technology.
This agreement ensures our home health and hospice solution is available to all of Southerners large customer base. The net result is growth opportunities for both cerner and matrix care sales teams.
In fact at the recent sirna healthcare conference.
A major healthcare system with a very large home health business was introduced to the residents solution and our quickly moving towards a contract with our matrix care team.
It is clearly early days as the ink draws on the center contract, but the bottom line is we are excited to drive growth from this partnership and to leverage interoperability to provide value for all of our customers.
In summary for the SaaS business, we have the vision to transform and significantly improve out of hospital health care, we're helping people stay out of the hospital and in that case setting of their choice with lower costs and a high quality of life for the person.
The best place that people often shoes is almost always there on Hong.
Aging in place is a trend that is growing not just in the us but globally and we plan to enable and leverage that positive change, we think thats an important part of the future of health care.
Before I turn the call ever Brett Let me close with this we have had a great start to the new fiscal year, and we are well positioned to grow throughout fiscal year 2020, and beyond we position resmon for the long term as the global leader in digital health driving both topline and bottom line growth as well as executing on our strategy.
We are focused on our triple aim to slow chronic disease progression to reduce overall healthcare system costs and to improve outcomes and quality of loss for the ultimate customer the person, who simply simply wants to sleep, well, the bridwell and deliver better life well away from that hospital.
With that I'll turn the call over to Britain Sydney for his remarks, and then we'll open up for Q Anite Brett over to you in Sydney.
Great. Thanks Mick.
More remarks today I will provide an overview of our results for the first quarter fiscal year 2020 .
This week noted we had a strong quarter group revenue for the September quarter was 691 million and increased 16% over the prior year quarter.
In constant currency terms revenue increased by 17%.
Excluding revenue from acquisitions group revenue increased by 11% on a constant currency basis.
Taking a closer look at our geographic distribution and excluding revenue from SL further service business.
Our thousand US, Canada, and Latin American countries were $370 million, an increase of 30% over the prior year quarter.
Thousand Europe Asia, and other markets totaled 224 million, an increase of 4% over the prior year quarter.
However in constant currency terms thousand combined Europe Asia, and other markets increased by 80% over the prior year quarter.
Breaking out revenue between product segments.
US, Canada, and Latin America device sales were 197 million, an increase of 8% over the prior year quarter.
Masks and other sales were 193 million, an increase of 19% over the prior year quarter.
For revenue in Europe are you in other markets. You've lost sales were 152 million, which is consistent with prior quarter, but in constant currency turns a 4% increase.
Masks and other sales in Europe , Asia, and other markets with 72 million an increase of 15% over the prior year quarter. We're in constant currency terms by 19% increase.
Globally in constant currency terms device sales increased by 6% well masks and other sales increased by 19% over the prior year quarter.
Software as a service revenue for the first quarter was 87 million and increased 3% over the prior year quarter.
During the rest of my commentary today I'll be referring to non-GAAP numbers. The non-GAAP measures adjusted the impact of amortization of acquired intangible asset purchase accounting fair value adjustment to matrix Kate deferred revenue.
It's probably comparable excludes amortization of acquired intangibles.
We have provided a full reconciliation of the non-GAAP to GAAP numbers in our first quarter earnings press release.
Our gross margin for the September quarter was 59.5% compared to 58.3% in the same quarter last year and 59.3 weeks ending Q4 it for non Tony.
Compared to the prior year gross margin increased by 120 basis points.
This was predominantly attributable to manufacturing and procurement efficiencies the matrix care acquisition and favorable product mix.
Moving on the operating expenses.
Christian I expenses for the first quarter were 167 million an increase of 14% over the prior year quarter in constant currency terms, it's gene I expenses increased by 16%.
Excluding acquisitions SGN I expenses increased by 6% on a constant currency basis.
It's gena expenses as a percentage of revenue increased 24.6% compared to 25% that we reported in the prior year quarter.
Looking forward is subject to currency movements and taking into account recent acquisitions.
We expect this year and I as I decided to revenues to be in the range of 23% to 24% for the remaining three quarters of fiscal year 2020 .
R&D expenses for the quarter were 48 million, an increase of 24% over the prior year quarter on a constant currency basis, an increase of 27%.
Excluding acquisitions R&D expenses increased by 3% on a constant currency basis.
R&D expenses as a percentage of revenue was 7.1 existing compared to 6.6% in the prior year.
Looking forward subject currency movements, we expect R&D expenses as a percentage of revenue being the range of seven to eight sustain for the balance of this creates rates 20.
And so as I should have acquired intangibles was 18.5 means for the quarter, an increase of 44% over prior year quarter, reflecting the impact from our recent acquisitions.
Stock based compensation expense for the quarter was 13.3 million.
non-GAAP operating profit for the quarter was 191 million an increase of 22% over the prior year quarter.
While non-GAAP net income for the quarter was 135 million an increase of 16% over the prior year core.
non-GAAP diluted earnings per share for the quarter were 93 cents, an increase of 15% over the prior year quarter.
While GAAP diluted earnings per share for the quarter, where IP 30 cents.
On a GAAP basis, our effective tax rate for the September quarter was 20.2%.
While on a non-GAAP basis, our effective tax rate for the quarter was 20.6%.
Looking forward, we estimate our effective tax rate for the full fiscal year 2020 will be in the range of 19% to 21%.
Cash flow from operations for the first quarter with 162 million, reflecting robust underlying earnings.
Capital expenditures for the quarter was 22.7 million.
Depreciation and amortization for the September quarter totaled 38 million.
During the quarter, we paid dividends of 56.1 million.
We recorded equity losses of 6.8 million in our income statement in the September quarter associated with that barely joint venture.
We expect to record approximately 7 million of equity losses, each quarter in fiscal year 2020 associated with the joint venture operations.
Our board of directors declared a quarterly dividend of 39 cents per share.
During the quarter, we repaid 49 million about outstanding debt.
At September 30, we had 1.2 billion in gross bit and 1 billion in it.
Balance sheet remains strong with modest debt levels.
Finally to recast topline revenue was strong this quarter with growth across all major categories.
Gross margin expanded and our operating costs remained well controlled.
As a result, we're continuing to drive operating leverage with Q1, non-GAAP operating profit up 22% year on year.
We are focused on driving operating results integrating assess acquisitions and ensuring we continue to existing strategic long term opportunities.
And with that I'll hand, the pullback timing.
Great. Thanks, Brad will now going to turn the call over to the cdna portion I'd like to remind everyone to please limit yourself to one question. If you have additional questions. Please feel free to return the call keel, Chris We're now ready for epic Una question, if I recall.
Thank you we will now begin the question and answer session. Do you have question. Please press Star and then one on your Touchtone phone if you wish dream roof from the Q. Please press the pound sign or the housekeeping if you're using a speaker phone you may need to pick up the headset first before pressing the numbers.
We do actually you please limit yourself to one question.
Once again, if you have a question that is star and then one on your touched on from.
Our first question comes from a good old Gen with credit Suisse. Your line is open.
Thanks. Good morning, So just firstly just on the U.S. device current continues to be very strong just wondering.
Basic pricing patient shops in the quarter give us some detail on that.
Yes, thanks for the question Gretel.
So we don't actually.
Have full visibility a than to the to the number right we sell to in the us to home medical equipment companies that day in sale.
Two patients that are renewing and if I give you will or two new patients. We don't have full visibility into that building you know it is interesting with a reasonably sized patient pool in the United States.
It would be a good.
Double digit percentage also of those that will be replenishment devices.
But the 8% growth I think is really ahead of market. We think the market growth is in the sort of mid single digits and so to be at 8% growth in the U.S shows that we were taking some share.
Due to the value of air solutions, and view and my air and all that sort of digital health solutions that again.
Thank you.
Thanks, Greg.
Your next question is from Steve Winwood doesn't see your line is open.
Yeah, Hi, guys.
Just a question is also on the devices they seems to be certainly amongst the day may land.
Bit of a rush on.
See I pay day codes and the sitting up of patients with ventilated.
Just wondering if youre seeing any benefit from that particularly around amongst your astral.
You will be into light around that range in particular the Astro.
Steve Thanks for the question, we actually saw really solid growth in the course slate business.
As a sizeable chunk of that 8% growth in the us.
Astro tends to be more of apply a ventilation in general tends to be more player in Europe .
And so some of that sort of 4% constant currency growth in Europe , Asia, and rest of global being driven by the asked on some sort of much smaller element of the 8% us growth but.
One thing that we've been really strong with them.
Demi customers is to make sure that the right device goes on the right patients at the right time and when you look at CRPD. There are lots of solutions from our echoes S., our actions STC as well as so noninvasive ventilation as well as.
Even now Stella product in noninvasive ventilation, all the way through to our Astro product, which is really a life support ventilator and should be used in very severe CRP day and in life support needs and so yes. It really wasn't a huge contributor in the US this quarter, probably slightly more significant in Europe that.
It's really good solid balance growth if you like from our sleep apnea side with some some additions from respiratory care as Howard position.
Right, Thanks very much.
Thanks, Dave.
Your next question comes from Margaret concerned with William Blair. Your line is open.
Hey, good afternoon and.
Good afternoon must be good morning for further spot.
Thanks for taking my question.
Just kind of big picture and some people are focused on I'm going to my sleep apnea gross but in all you guys ended up delivering 11% in AG topline growth, excluding acquisitions am and that's above market that in almost every category and even as you are saying a headwind in France, So I guess looking out.
Yeah, whether it's this year or the next couple of years, but prohibits you guys at from continuing that double digit top line growth rate and what could drive at higher or lower from today's level. Thanks.
Thanks for the question Margaret certainly we did have a very good quarter here in Q1 and as you said we grew.
The 11%.
Constant currency globally in our sleep and respiratory care combined businesses. If you think about the global growth and we have enough data now to know the growth really isn't that mid to high single digits devices growing mid single digits and masks growing in the high single digits clearly we did take care.
In Q1 and.
A lot of that is driven by.
The digital health technology on the flood generator side to have the some of the share taking on the device side and then the new product introductions that are detailed in the prepared remarks for new masks. In addition to two strong flagship masks. There. So NPR has been an incredible can.
Attributed to US just if you think through the year ahead, even during this quarter that we're currently in the second quarter, we're going to lap one of those four product launches on the mask side and we'll continue to lap those during during the quarter. So look I'm always very excited about our innovation the smallest the caught us the most comfortable.
The most connected and I think that innovation drives, but you can outgrow the market forever right. You've got to then focus on getting more patients into the final which is our whole identifying gauge and enroll people in so.
I think with fantastic Q1, but as we look through the fiscal year, we think we can meet or beat market growth.
But you know completed every single time.
Great. Thank you.
Thanks Margaret Your next question is from David low with JP Morgan Your line is open.
Thanks very much.
During the period or we had we saw from your competitor Philips that they had issues with their connected care business. They talked about tariffs etcetera, just wondering sort of market landscape in the you asked whether you sort of disruption from that do you think some of that you might that rates been my a beneficiary of the issues that they were working through.
Yes, I'll hand that good questions I'll hand that too to run Douglas Lcs.
Sure David just generally on the tariffs issue just to reiterate as we've said before the White hall supply chains configured.
We're not really affected.
By the specific tariffs.
We export very little into China from from the U.S. and very little from China to the U.S., our supply chain is more southeast Asian.
Like us.
And we've got a great team in China doing local products for China, So that's pretty solid Abbvie solutions.
On the other hand.
Mostly by the way developed by teams all around the world, but really.
Really a strong product offering continues to deliver superior value.
To our customers and we think we Diana Diane will fought competition with those products and believe that we've got a better proposition to offer so we from our perspective, we didn't see any particular competitive issues.
That would sort of.
Changing the normal competitive dynamics, we do have to sell and execute well.
And our teams have been doing that.
Great. Thanks very much.
Thanks, David.
Our next question is from Andrew Good song with MST Macquarie. Your line is open.
Yes.
Thanks, very much guys.
Just just thinking border competitive bidding and.
Yes.
The baby during August like next summer, we got a same sway the clearing costs flat I'm just wondering whether there's any preliminary comments you've got into your thoughts there or any drilling reach actions, you're taking I guess to preparing for competitive bidding and with that involves new product launches or anything.
Just yesterday November youre sort of doing beverage reactions.
Yeah. Thanks for the question, Andrew I'll hand that to David Pendarvis.
Thanks, Andrew the obviously, we spent a lot of time, along with others in the industry trying to educate.
The market participants are they would be able to bid effectively and bid smartly given the new rules. We remain encouraged with the changes that were put in place principally that clearing price is what's going to drive reimbursement as opposed to the median price under the old regime and some of the other change that remain.
Including requiring bonds to bid in particular areas, we're hoping that that together with the education that the industry did will lead to smart bids and that will lead to a fair more realistic reimbursement, we obviously didnt participate in the bidding process and haven't had direct conversations with customers that what they bid. So it's all conjecture at this point as to.
Where the ultimate reimbursement will land, but no matter, where it is whether it's a private pay reimbursement change or Medicare U.S. change or something elsewhere in the world. We're continuing working with our customers to help them be more efficient health and take advantage of the opportunities that present themselves and to enable them to better serve patients under whatever the reimbursements.
Schemes, our civil definitely continue to do that and watch where the U.S. Medicare landscape evolves, but at the moment, that's still a year and a bit away. So we'll just keep going we're doing obviously focused on it when the time comes.
Thank you.
Yes.
Your next question.
Next question is from the in Harrison with Bank of America Merrill Lynch. Your line is open.
Good morning, gentlemen, thank you for taking my question is.
So this Moscow rice outside is outside of America and I just wanted to understand you've had one of your competitors launch a new food faceless outside of America.
Have you seen any difference in two full face small sales outside the U.S. This is within the U.S. and how are you positioning yourself and add that to dance.
Dan approval and launch within the last.
Yes, so thanks for the question Leann and.
You know we have multiple competitors in 120 countries, we sell into and we expect.
You product introduction from our competitors on or on a regular basis, yes. As you noted during the quarter, we had 19% constant currency growth in U.S., Canada Latin America. We also had 19% constant currency growth of masks in Europe , Asia, and rest of world, where some of those masks.
A new launches have already been imply during the quarter. So I think we've you know I know we've got the most robust sleep apnea mass portfolio on the planet versus our competitors in all 120 countries that we participate in but there's not there's no arrogance or hubris here out our team of R&D engineers furiously working not I don't.
Early on.
Technology to to address underserved needs, but just thinking differently about how to really achieve that ultimate goal, which is sort of.
The silence see Pappan invisible mask and if you look at the end 30 that we just launched this minimalist category mask, it's about as close to an invisible mask as you can get a small it is quite is comfortable so look I love innovation coming to the market from our competitors and from us because it keeps us all honest but.
During the quarter, we performed very well versus all the NPR from our competitors with our own NPR and I expect us to be able to do that into the future and.
Competition is just a healthy part of of making sure that tens of millions of people get the Brady night.
Thank you.
Your next question comes from John Tecan, though with Citi. Your line is open.
Well good morning. Thanks, a question for Brett just to deconstruct that gross margin expansion a little bit I think previously you've given us the feel for what was from the from the matrix care.
But.
Can you just maybe elaborate a bit more in terms of.
Strong monstrous Hall imagine that we'll have impacted and also whether things are moving on pricing environment in the U.S., which is helping as well.
Yes, hi, John spread I'm going to think it's all those things, it's probably the talking longer it is relatively spin on it at the moment, so impacts that are pretty pretty modest.
In terms of acquisitions that contributed around 50 basis points. So you think about that still really strong.
Lets call it organic expansion the margin, which is really good.
That's really around the manufacturing and procurement efficiencies and then clearly some product mix benefit now as you saw the outperformance in the mascot. So a combination of all those factors that I think late Tonight expansion.
Okay. Thanks.
Your next question comes from David Bailey with Macquarie. Your line is open.
Good morning, guys, I'm, just stimulation to us masks and accessories, you talked to a adherence to re supply as as Cage. Robert described just wondering if you could comment on your views as to those factors between dramas in price over the next two to three years.
Yes, good question, David I'll hand that to Rob Yep. Thanks, David Yep, Yeah. The resupply programs has definitely supported.
The vast portfolio and we've talked many times, you've got to understand the sort of the feedback as this if you could get patients onto a good math the more likely to stand treatment they'll do better and then they'll need a mask and so we continue to see that dynamic happening.
Our software solutions that support the resupply programs and enable our economy customers to manage heights resupply programs more efficiently and ensure that the patients has the treatment that I need when they need it.
Also supporting it. These are long term programs, we've been running resupply programs for many years now that our teams who can continue to refine and focuses.
As Nick said earlier, though these markets are competitive we do have competitors.
Buying it we have competition in resupply programs as well as in masking. It really gets down to we've got a really strong team executing broadly across the across all parts of the portfolio on this that we'll continue to make sure that were providing the best solutions for patients and providers delivering the best outcomes. So.
I think it's really a steady as she cause.
Progress with we'd love, we really like these resupply programs and that providing us a very solid steady business.
Thanks very much.
Thanks next question is from Sean with Morgan Stanley . Your line is open.
Good morning, everybody Com, Nick I Wonder, if we get a little bit more granularity on the Novartis study you mentioned in your preliminary comments and perhaps some timelines that would be really useful.
Yes. Thanks for the question, Sean I Wasnt at Ers, but I'll hand over to Dave and obviously can give us some more detail on the Novartis clinical trial at terrific shiny we mentioned in her opening remarks. It's it goes by name of Magnifying course with trials. These days you have to have a good acronym in that stands for maximizing adherence and gaining new.
Information for your Seo PD and.
The trial the trial is going to be it's obviously sponsored by Novartis and what it's doing is taking patients within clinics and then within those clinics randomizing patients to either standard clinical practice or are using propeller.
And then there'll be a comparison in the endpoint is the time to failure of treatment and then failure treatment as defined in various ways such as needing additional medication, having some some particularly acute exacerbation winding up in hospital those kinds of things.
And it'll it'll look and see whether or not adding the adherence.
Benefits of propeller lengthens, the time that patient stay and that good control state its.
Beginning recruiting now and I believe it's supposed to run through the end of 2021. So it will take quite a while before it meets at the end of that time period, but the important thing is a lot of the data. That's been out now has been done in that the asthma setting obviously, that's an important area, we want to take care of those patients, but the CRPD strategy is very important too.
Just because of the way it connects with our overall respiratory care strategy, so having someone like novartis sponsor a steady I'm looking at propeller benefits to assume PD patient population. We think is a real important milestone and we'll look for good benefits to come out of that study in the future, but it will be a few years.
Fantastic Thanks, Dave Thanks, Nick.
Thank you Sean.
Your next question comes from Anthony Petrone with Jefferies. Your line is open.
Oh, Thank you great I'm, just gonna have a follow up right to the Novartis question is somewhat NIM make you mentioned a couple of weeks ago Hum.
Indications of interest from Astrazenecas Glaxo and.
And Novartis on propeller health just wondering if you have an update there and anything you can share potentially on how that would be priced on a per user per month basis.
Thanks.
Yes, thanks for the question Anthony.
You know pharma companies there are many respiratory.
Pharmaceutical farm applies in the field and the names you mentioned all have have drugs in the market. One thing about pharma companies is a very competitive with each other and they didn't want information shared too much publicly certainly on our investor deck, we put the names of those where we have published clinical data with them. We are working with and the reason were bringing.
Nevada.
Now.
Prepped remarks here is that that's a public clinical trial one of the interesting things. That's happening here is there's a lot of trials that are public that are happening out there that obviously, we cannot talk about.
As we look forward the the important thing if you think about milestones Anthony to sort of to look at on this sort of digital health.
Option play if you like that we have announced strategy with the propeller solution is when when somebody goes from these pilot trials to a commercial trial and when they would allow us to talk about that publicly and so if and when that happens. That's the milestone I think that's most important material element to our shareholders.
As I said in the prepped remarks, we got in early with propel and this is a long road I think I use the analogy that it's an ultra marathon. This is beyond just 26.2 miles. This is a huge journey CRPD number two caused the hospitalization and rehospitalization. The number three calls a desk is has.
Such good runway for us in the future, but there's nothing material in the quarter and so we just given the update we hit a 100000 patients. We think that's fantastic right validation to have Nevada stop this public study, it's going to take a couple of years as Dave said that I would expect that before those couple of years, we'll have some other milestones all going to some commercial trials that we can talk of.
Right.
In upcoming upcoming conference calls, but right them on this quarter Anthony the there's nothing to report other than really good early data.
Thank you.
Your next question comes from Saul Hadassin with you, but yes. Your line is open.
Thanks, Good morning.
Make good morning, good afternoon, making great I was talking about the SaaS business, making the topic with soon.
I may suggest that said, a affectively, leaving that post acute space to providers like yourself.
I'm interested to know the how much work needs to be done to allow it to you architectures to talk to each other so if you haven't electronic medical record for example in the in the acute space.
I'll start by saying what has to be done.
Tens of yours, SAS business to allow them to systems to talk to each other when when do you expect to say day, the ability of the benefits of that.
To come through.
Yes. Thanks for the question. So it allows us to talk to the area of interoperability, which is incredibly important for for US here at raise mid week, we have.
100, Ipi calls per second from integrated into our air solutions.
Because system. So every second 100 interactions with another H. I am whether it's you know an individual person on the my app checking their therapy or a physician at Massachusetts pioneer looking as 20000 patients to do some.
Management by exception protocol and so the Sirona.
Contract or deal is that they sooner I looking for raise med and really truly threw out a matrix care manage team to take care of home health and hospice customers for them. So they have customers that have hospital systems, but for the out of hospital part where it goes to home health and hospice they want resmed to be their partner.
Take care of those and we think it's a really exciting.
Opportunity for the matrix care sales team and for the sirna sales team to partner up and have that moved forward. Then it was it was really interesting at the center conference to have our matrix care and Brightree teams, there and all the technology available from the iPad App and all the capabilities that we have a home health hospice and to get some really good leads.
It's not going to be material in the next 90 guys for us this under contract, but the reason we're talking about is that idea of interoperability.
With with the epic with old scripts.
With all the players in in hospital Health care, we think it's going to be really important to that resumes. The best person that can provide that handshake that ipi from someone in acute care to what they call post acute care, but what we call out of hospital health care, and we think that partnerships going to be going to be really strong. So.
Well give you updates as as a quarter's progress not just to the sirna home health Hospice partnership it to other partnerships with hospital systems hospital providers and the job providers. We think it's a good milestone to show that I you know one of the top three leaders along with epic and Allscripts. There in hospital HR has chosen ready.
And then as their home health hospice.
I can't provide it with our matrix can manage solution and were really excited about that.
Thanks.
Your next question is from Thomas Kim with Goldman Sachs. Your line is open.
Hi, there so Chris Kuplent upon on the apologies if I missed it.
But I can hear much commentary on may be pushed more custom concentrates just wondering in your prepared remarks could you give us an update there. Please.
Yes, Thanks for the question, Chris I'll hand that to Rob Thanks, Nick Yes Thomas.
We as you recall, we'll launch might be a very early this year and we sort of thing in.
Really still in a learning mode. It's a great product, we actually learning a lot about the performance of the product and we've talked about and continue to validate the issue of the balance of the performance specifications.
And how the product works and tell but we're in good shape. There. What we're also learning consider these challenging through particularly through the U.S. reimbursement model.
How to get the right patients on the right treatment and how to get that property founded on what we've had been calling experiments in looking at ways to optimize and develop that.
Really we're learning a lot of that whatever sort of future future pathways to knock that would be and how to how can we make it this suitable for high to me customers to support patients and also what are the future needs of products.
The down the track and learn fading learnings into our future roadmap.
So with that.
All going on to the learning prices is quite successful.
We're still not a major market share player with the product.
And that's unlikely to change into the future short term future.
With the body productively count.
Investing in it and the why we're heading.
Your next question is from Mike Mattson with Needham and company. Your line is open.
Hi, Thanks for taking my question I guess I just wanted to ask about their site I guess, a bill and Congress HR 20 cents on day one.
To kind of extend the rural relief from the bidding program.
I think is set to expire in 2020, so just curious to get your thoughts on on that and what that means is that we're not to be successful. Thanks.
I'll hand that question to type in Dallas Yep. Thanks, Mike, Yes, Theres a lot of efforts are underway in the U.S. Congress right now to try to provide.
Relief, particularly the one you mentioned, which is to try to extend the relief that was given that was that sort of 50 50 blend between prior reimbursement and the new system reimbursement into those rural areas.
We certainly support that legislation, we think it's important that our customers who are operating particularly in extended areas, where they've got to drive many miles to patients homes.
Need to have reimbursement that reflects the the operating cost that they've got.
And we would certainly hope that the champions that are there in Congress will carry today now I was your question implies Theres a lot going on the U.S. Congress. These days, it's it's very difficult to predict whether something like that will will ultimately pass or whether CMS could respond on their own and provide that kind of relief if it doesn't think.
As I said before when talking about competitive bidding, we'll obviously work with our customers to do what we can to support them. We think the remote capabilities of our devices are ideal for providing care in a remote setting you can do things like changed some of the settings on a C. Pat you can certainly interrogate the C. Pat for information about the the quality of that they are.
It has been provided all without having to drive to someone Tom. So we think that those systems and helping customers whether they're in rural areas are not to deploy them. It's probably the best thing we can do to to help in that kind of setting.
But I will continue to support that legislation and other efforts with CMS to try to make sure that the Medicare policies and reimbursement is favorable that can be for the ultimate benefit of Medicare beneficiaries.
Great. Thank you.
Your next question is from machine story with Wilson Your line is open.
Good morning, Thanks for taking my question, that's maybe a bit tangential, but it relates to the CMS reimbursement changes that his skilled nursing provided some months.
Sort of weighing up that as an incremental opportunities metrics.
Do you have an estimate of the proportion of providers that have yet to adult good solutions them.
Interested to know just how much growth there is scope sort of towards vital for metrics there in this market.
Yes, Shane Thanks for the question. It's a good one you know there are changes.
Reimbursement not just the night you may as we just talked about that also in skilled nursing facilities and within home health and hospice. These provide excellent opportunities for software as a service providers to if your head of the Gyn as matrix care was for the skilled nursing facilities changes and as we are for the home health hospice changes to be.
They are able to support customers through that change and.
Even grow share because you've got the best solution that deals with those changes well.
One thing I can size the USIO, there and matrix care stay Pacheco has formed great relationships with the customers and he has a great sales team that knows the skilled nursing facility teams really well and we've not only help them through.
These changes in this quarter, but also set them up for success that our systems are operating well under the new reimbursement approach within the those verticals. So.
You know that's a really when you roll that altogether, it's part of sort of that 2020 execution plan I talked about earlier that we we see a good part even if the blended rate of growth across these seven out of hospital healthcare verticals is in those high single digits. We think there areas, where we can get better gross and net and we plan to exit 2020 with.
High double digit growth trajectory in the segment of Hsas and part of that is going to be doing just what your question asked about which is.
Every part of the vertical whether its skilled nursing facilities, whether it's out you play in home health hospice the hunting license with Sirona. In addition to our ability to grow share through.
Having solutions that are ahead of the curve on reimbursement changes, they're all opportunities to be able to two to grow faster on yet form longer partnerships with our customers.
Thanks, Mick I appreciate it.
Your next question is from Steve Winwood happens your line is open.
Hi, sorry, just wanted to come back to raise a on the gross margin.
Typically get a bit of a range for that.
Audits.
You are able to do that again this quarter.
Yes, she will stay on its a lot of moving parts, but I would think it'd be broadly consistent with where with Q1.
Thank you.
Thanks, Dave.
And your next question is from Anthony Petrone with Jefferies. Your line is open.
Just a quick follow ups.
On masks I know you mentioned Mick launches I'm, just wondering you know how much stocking potentially there wasn't a quarter.
And then just on on lead item is there any good Dave you mentioned you know we spoke couple days ago, but is there any indication on how this is you know kind of coming in post.
The notification period, thanks again.
Yeah, So Anthony I will take the first part.
Potty question on masks and Dave will take the second part yeah, clearly we had excellent.
New product introduction has last 12 months.
But our you know your question is around to people do stocking orders, our al U.S. distribution, and frankly I global distribution.
Partners are getting very intelligent about inventory management not just those you use brightree and have raised meds brightree inventory management system, which will actually manage it for them.
But many of them getting really.
Appropriate on that knowing when a new mass comes watching how they are our teaser setting it up and seeing the patient flow and making sure. They don't get too ahead of the coal behind the curve you don't want a patient in the fitting room that once the in 30, and it's not there but on the other handy doesnt want to excess inventory because I have inventory carrying costs as everyone knows.
As of now our us distributors are actually quite sophisticated on this so I.
Lastly, when some you need launch a brand new mass people do need to make sure. They got that mask on the shelf, but given the proportion of existing resupply patients, which is a very large portion particular view as distributors patient flow.
We don't think that was material impact from from.
From stocking now we don't have full insight into our our customers that aren't using brightree or other inventory management solutions, but we think it's a pretty steady approach and we've done you product introductions.
2030 years, we've been in business and I don't we haven't seen that a significant right before and I don't think we saw any significant right of that during the last quarter, Dave. The second part of question for you sure. Yeah. Thanks, Anthony I mentioned, a little bit earlier that resmed add along with other industry participants put a lot of energy and resources behind trying.
To educate.
The market participants, who we're gonna be bidding about various factors, including lead item pricing and we developed a calculator that was that was put out there are some staff that were just discussed in the Medtrade meeting just early this week in Atlanta that there were over 17000 downloads of that calculator and that's just simply the one that.
Is available to.
The participants here CMS had their own calculated that folks no doubt downloaded from the competition is that I've had apart my understanding is that most jamie's have a pretty good understanding of lead item pricing and how it works and hopefully they've avail themselves of the tools to be able to model out scenarios.
Based on their own business on their own.
Volume of products in different categories. So that they can bid intelligently and in a way that's going to ultimately derive a fair and reasonable reimbursement so.
You know I'm confident that we got that message out that it was received obviously, we don't know how people bid and we'll work with customers as best we can to try to implement things when when the day comes but we're confident that we did we could to try to educate.
Thanks again.
We are now at the one hour Mark So I will turn the call back over to make barrel.
Thanks, Chris and thanks, again to all shareholders for joining us on the call. This quarter I'd also like to thank the 7500 resmed audience. Many of whom are also shareholders for their dedication and hard work, helping people break that asleep and live better lives outside the hospital in 120 countries worldwide.
Hi, Thanks for all that you do today and every day I will talk again with all of our shareholders in approximately 90 dice Tortue well then.
Great. Thank you all again for joining US today do you have any additional questions. Please don't hesitate to recapture investor relations or to me directly as previously mentioned all documents, including the transcript and replay of today's call will be available on our website. Later today, Chris you may now close the call.
Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.