Q4 2020 Resmed Inc Earnings Call
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Welcome to the Q4 fiscal year Twentytwenty resonate earnings Conference call. My name is Sheryl and I will be your operator I'm. All participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded I will now turn the call over to Amy with them.
Vice President of Investor Relations and corporate Communications, Amy you may begin.
Great. Thank you Sheryl good afternoon, and good morning, everyone welcome to Resmeds fourth quarter fiscal year 2020 earnings call. Thanks for joining us the call is being webcast live and the replay along with a copy of the earnings press release, and our updated investor presentation will be available on the Investor Relations section.
Of our corporate website later today.
Joining me on the call today to discuss our quarterly results, 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 today's call, we will discuss some non-GAAP measures for a reconciliation of the non-GAAP measures. Please review the notes to today's earnings press release and earnings presentation.
As a reminder, our discussion today may include forward looking statements, including but not limited to expectations about resmeds future performance.
We believe these statements are based on reasonable assumptions. However, our actual results may differ you are encouraged to review our FCC 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 like to go ahead, and now turn the call.
Thanks, Amy and thank you to all the stakeholders for joining us today.
During this global pandemic caused by a novel Koranda virus and covered 19 the disease state that leads to my hope that you your family annual friends remain sites and unhealthy during these times.
Why back in early January I read Smid employee I was mehdian in who value province, and helps set up ventilators to provide the gift a breadth to many thousands of people it turned out in that city, while their immune systems for against the first global cases of covered 19 that resmed. So when we Uh huh.
Since that time seven months ago, our global team has provided vardalos bottle support gladly take combat this client of ours, not just across China, but across Asia, then across Europe across North America and now we're just starting to preparing to actually were in the midst of continuing that battle in Latin America.
In sub Saharan Africa, and parts of the Middle East and Asia, That's still have that what we call. The peak impact ahead of them in terms of hospitalizations and ventilator needs.
So I noted in our coal 90 days ago, our Q3 coal that we wouldn't do more to support the global community in local health care systems Weve systems across the 140 countries that we serve during Q4. During this June quarter, we produced around 100000 invasive and noninvasive ventilators, including.
By level positive pressure than light has got that brings our cumulative title to over 150000 ventilators that we produced since the beginning of calendar year 2020.
So we've delivered a pull out production and in fact.
If you take the period from January one two Jay to June 34, 2020 that is a three point fivex increase over the period for 2019, So three point fivex.
Our flagship in light of which is the Astral life support ventilator.
We've reached a peak of over five times, a weekly production rate during the period and we're still running at full capacity for the Astral to ensure that raise made is there for what we call preservation of life as the client of ours continues to move around the globe.
I'm, particularly proud of the role that our supply chain, our manufacturing and distribution and our tech services teams applied during this current of ours crisis, making sure that resmed the device and the complete ventilation system was there at the bedside when someone they didn't help breathing as their immune system flights against kind of at 19.
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So looking forward, we have built a sophisticated set of analytic capabilities, including and epidemiology patient model that has helped US model the impacts of both the headwinds and Tailwinds that are part of this cause that 19 crisis and we have detailed scenarios of the impacts by city by region by country and.
Resmed business line.
Tool that analysis I'm happy to say that we're confident in our resident ability to execute across the full range of potential scenarios for all of our customers and for all of our global businesses.
The tailwinds for ventilation in the March quarter, and the June quarter from both with enlighten devices and the ventilation mass systems are starting to recede and while we are still working on current and future contracts with hospitals as well as city and National Health authorities for these ventilators the volumes will be significantly lower.
In the September quarter for these ventilators at the same time the headwinds we experienced especially in the June quarter for our sleep apnea and CRPD patient flow and patient diagnoses are also receding. So people are starting to return for their primary care physician visits they are starting to return for this special.
Physician visits and we see the system today growing from its night here during the last period as we now see city by city and country by country. The markets are coming back online.
So over the portfolio of 140 countries that we serve we expect a gradual sequential quarter to quarter U shaped recovery of patient flow to primary care physicians sleep physicians as well as pulmonary physicians that are trading CRP day and asthma throughout fiscal year 2021.
We expect the expansion of home sleep apnea testing to continue as it did during the crisis. We think it will continue post the crisis and we also expect a steady sort of sequential increase in sleep lab activity and visits to the pulmonary specialists, both in person and through Tele health, which has been expanding rapidly and because it.
Additionally, some very early research into the postcode clinical world shows that select patients who have recovered from cone covered 19 may have lung damage and some of the may require long term ventilator support. This is an additional area for focus for us, but I have to sites very early days in that area.
My prepared remarks today I'll provide some insights into our Q4 and our full fiscal year 2020 business performance also recap our long term strategy, our Resmed 2025 strategy and some execution highlights against some of our key operating priorities as part of that strategy.
Finally, I'll discuss how we are advancing and learning in a post covered peak world, including how this pandemic has accelerated three important trends one the importance of respiratory medicine.
To the importance of digital health.
And three the importance of outside hospital health care.
These are three key elements of our Resmed 2025 strategies that were in play well before the global pandemic, but these are three trends that have accelerated during this pandemic and we think the momentum will continue in a post cotwo.
So to our business performance, we delivered strong revenue and earnings growth for the 4020, we had eurone.
Yes.
Our annual 15% topline revenue growth to $3 billion in annual revenue for Resmon, our results reflect strong growth and positive momentum and our market, leading digital health software solutions.
We have grown our global market footprint, finding new patients in the midst of global pandemic and we have driven growth with recurring revenue from our installed base of sleep apnea patients.
While our French financial results in March and June have benefited from high demand costs, our underlying core.
Well business of sleep apnea CRP day in asthma remains strong and well positioned for long term growth 2020, we generated Uh huh.
I had 100 and to $802 million of cash returned $225 million.
Those of cash dividends to you as shareholders, while also investing in our future with a double digit increase in R&D.
Including clinical research both.
Digital and in person as well as design and digital innovation across our sleep apnea, CRP day asthma, and our software as a service businesses.
We have a full pipeline of innovative solutions that will generate both medium with an industry, leading intellectual property portfolio of over 6000 patents and designs.
Importantly, we have also seen signal.
Different growth in our digital health ecosystem, we now have over 6.5 billion nights of sleep and respiratory medical data in we have grown connectivity to our digital health ecosystem by over 26%. This fiscal year and we now have over $12 million one.
Hundred percent cloud Connectable medical devices in the market and we have around 14 million patients enrolled in the air view software solution.
Our digital health ecosystem is a competitive advantage for resin made that offers innovative solutions as well as integrated care to drive superior outcomes lower healthcare system costs.
Our acquisition and continued investment in development of the propel a plan celebrant for Resmon.
Our recently announced commercial partnership with Novartis, which I will describe in more detail later during the call is a great example of this progress with propel.
During the last 12 months, we have improved.
Proved 16 million lives by providing a person with a device will complete masks system to help them break.
Importantly, the ability to help these patients on their individual journey to better sleep better breathing is powered by the over 6.5 billion not of medical data in our ecosystem. These data for a significant competitive advantage as they enable us to perform sophisticated analytics and drive.
Actionable insights to benefit all of our customer groups, including the pipe improving workflows to physicians for providers for payers and for full healthcare systems.
Fundamentally we believe the future of healthcare delivery is outside the hospital, that's where resmed completes today and that's where we win today.
Globally, there are 936 million people with sleep apnea, there are over 380 million people, who suffer from CRPD and there are over 340 million people living with asthma.
They all need our help and they all want that help at Hong definitely not in a hospital.
Our SaaS business is 100% focused on out of hospital care leveraging the global trend for seniors to age in place. We think this trend will accelerate in a post coated world Resmed can provide seamless care for our portfolio of out of hospital care settings, including home medical equipment skilled nursing facilities senior lives.
Lifeline communities home health hospice as well as homecare services.
Covered 19 has accelerated the rapid adoption of digital health technologies, the recognition of the value of remote monitoring virtual diagnosis and the evolution of global reimbursement models in the field of digital health. This acceleration of digital health adoption represents a significant medium to long term tailwind for our business.
These three trends the increased importance of respiratory medicine, the increased importance of digital health and the increased importance of out of hospital health care will help resmed achieved our goal to improve 250 million lives by 2025.
So into our operating priorities, we have three operating priorities that guide our daily focus here Resmed number one is to grow and differentiate our call sleep apnea, CRP day, and asthma businesses across global markets with over 1.6 billion people across these three chronic disease.
Steve solutions to these underpenetrated Mark.
Cuts is actually a number one priority.
And number two priority is to design develop and deliver world, leading medical devices as well as digital health technology solutions to better engage physicians providers and payers as well as patients. So that we can improve clinical outcomes. So we can reduce costs and we can enhance the patient experience.
And number three.
Priority is to innovate and grow the world's best seamless software solutions for care that is delivered outside the hospital.
We think resmed is uniquely positioned to live to deliver on these three priorities. So all valuation in each of these priorities and then we'll hand over to Brett and got a Q and I.
In our core market of sleep apnea, we launched.
What we call the Resmed, our us geography, the resonate masks select is a digital health technology to Mike remote patient.
Mosques selection and sizing both easier and more effective helping the patient themselves received the care they need from Hong.
We think that this is the digital solution to help our home medical equipment or HMV customers in their challenge to fund the white mask for each patient when they comped physically touched them due to physical distancing during covered 19, we're providing this solution at no charge during the ground of.
Ours public health emergency conceit and benefits for both providers and patients will last will be on the pandemic.
Digital tools like this as well as capabilities, including video support for doctors and patients as well as remote mosque patient fittings have seen good application during covered non team.
Combined with our mask resupply solutions, including snap works, all coal and brought tray re supply we have delivered solid mask growth.
In terms of new patient flow the covered Lockdowns I've had a significant impact on our business. We saw double digit declines in new sleep apnea patient flow across all markets that experienced lockdowns.
Individual cities regions and countries had you opening processes fringe.
Since today in Germany, we stand at more than 85% of pre coated sleep labs capacity or.
30 up and running.
Whereas in China. The other end of the spectrum, we stand at 50% of pre co the diagnostic capacity in that geography.
Most of the other 140 countries that we sell into around the world fall somewhere between those two extremes in big countries like the US. It's a story of 50 sites with unique models again as a spectrum between these boundary conditions. The average in the United States is probably somewhere in that 70% of diagnostic capability, but some states.
We will be closer to the 60% range of some will be closer to the 75% range.
As I stated earlier, we expect a steady sequential quarter by quarter sort of use shaped recovery of the sleep apnea CRP day in asthma patient flow throughout fiscal 2021.
Clearly a highly effective vaccine or a highly efficacious treatment for carbon 19 could of course turn that you shake into a dramatic V shaped recovery. However, we're not counting on that and an event like that remains upside from what we call our expected will likely case scenario.
In terms of execution in our second key disease state of CRPD, and our ventilation solutions for CRP day, and other lung conditions, we launched our cloud based remote monitoring software coalitions in Europe, including the Astral product, the Stella ventilator and the luminous spend delighted.
Through our remotely monitor their patients.
Respiratory right as well as their blood oxygen saturation. These are two critical indicators for our respiratory patients condition, we accelerated delivery of this technology for clear and urgent needs. During the pandemic. However, this enhanced airview capability, providing insights across European ventilation patient popular.
Once will provide differentiation for resonated through the clinical value for physicians and better equity.
In terms of execution in our third K disease.
State of asthma Resmed has partnered with Novartis to co package, the propel us solution and digital platform with the new Triple.
Well action asthma medication in a brand cold and is it breeze hyler.
This novel combination has been cleared by the European Commission for launch to propel our sensor attaches to the new in higher from Novartis and its new medication, where it can collect medication usage data. The app works, both as an adherence measure that gives the patient remind us to take the medication, but also as a means of color.
Acting information about the patients medical condition to help their physician provide even better care to the patient.
This is a breakthrough innovation as it is a first time respiratory medicine has been co packaged with a digital health platform and co prescribed the benefits of this combination a tremendous for the patient it's a simple and convenient way to have a fully integrated experience to allow them to better live with their chronic disease to better live with asthma with no.
Incremental cost to the patient.
This brand new approval is a new to the world technology that will accelerate the adoption of digital health in the respiratory medicine Spice and will help us identify other innovative opportunities to combine our propel at tech with medicine delivery.
This new Novartis partnership follows our announcement in nine that the propeller sensor and an App gained five 10-K US five 10-K clearance for use with the Symbicort asthma inhaler for both asthma and CRP day patients from Astra Zeneca.
This since it is built to fit various in hires and the generic equivalents per.
Propel as cloud based system tracks medication medication usage of the Symbicort from these inhalers through a smartphone app, which patients can use to paint a clearer picture of their disease control for their clinicians.
These new partnerships with both Nevada, and Astra Zeneca, and previously announced collaborations with the Ryan as well as Boehringer ingelheim expand the potential rage of propel as technology to around 90% of inhaled medicines for both asthma and CRPD in the United States. We believe that this study for the expansion of.
Propeller plan form in the us market, but also around the world as the benefits of digital health grow and move around the world.
So before I transition to details of our software as a service business I'd like to recap briefly why the SaaS business is integral to raise meds long term strategy to provide seamless transitions between hospital care and post acute care or as we call. It here at Resmed out of hospital care, because we don't think you have to go to hospitals.
To get good care outside the hospital.
Our vision is to enable us system, where patients health data moves with them as they transition care settings, giving provided the information diners to deliver personalized care and saving the person and the K give about time and money.
We are focused on leveraging our competitive advantage as the only long term strategic player with solutions that span across these seven important out of hospital healthcare verticals home medical equipment skilled nursing facilities senior living life planned communities home health hospice as well as homecare services.
During the quarter, our software as a service business grew 7% compared to the year ago period, we are integrating and optimizing the out of hospital SaaS portfolio to support long term growth. We continue to believe that the long term weighted average growth of the SaaS verticals that we're in it.
He is in the high single digits.
The covered 19 market impact has particularly affected the skilled nursing facilities census.
So levels and that vertical that we serve we believe this impact will continue over the next several quarters moving the weighted average market growth of these verticals to the mid single digit range for our SaaS businesses for that period with return to high single digits as we start to see other analogous things such as it.
Elective surgeries and hospital discharges returned to their normal rights at which time, we believe that that markets weighted average market growth right will return to the high single digits.
Our goal here at Resmed is always to not just made but to date that market growth through delivery of superior market leading solutions.
Turning to more details of our SaaS business performance during the quarter. We've been pleased with the early impact of snap works technology, which we acquired in February.
As we discussed on our last earnings call Snap works provides patient contact mission for sleep apnea resupply.
The timing of this acquisition.
I couldn't have been better with covered 19, our economy customers have been increasingly focused on rates.
Supply and better tech to interact with patients in a no touch noncontact world. The combination of snap works as well as all coal and Brightree re supply and all of these three technologies are under our Brightree brand. They provide the strongest suite of resupply solution.
Funds available in the market period. This technology is important to our customers to their patients as well as to our internal SaaS business and our core sleep apnea business driving does patient engagement and better outcomes as well as revenue growth.
In October 2019, we announced that Resmed entered into an agreement with Cerner Corporation treatment decisions control costs and deliver seamless care across across healthcare systems.
We have now integrated our Brightree branded home health hospice platform with the sirna electronic health record or H.
This partnership is performing above our expectations for both sirna encouragement, we and we anticipate opportunities to deepen and expand this collaboration as we continue to work together.
In summary, the SaaS portfolio is performing well and remains an important driver of our digital transformation of healthcare in settings outside the hospital because with the headwinds in the near term will recede and we will continue to invest now and to make sure that Resmed has the best solutions for long term growth in market leadership.
The future of healthcare delivery is outside the hospital covered 19 has accelerated that and we here at resonate well position to capitalize on it.
Our diversified solution portfolio and capabilities are right against a compelling and expanding market opportunity in sleep apnea survey, the asthma and out of hospital SAS.
Through the first seven months of this covered non tank crisis and this calendar year, we've maintained strong growth through our effective execution, our breakthrough innovation, our recurring revenue driven by our global operating excellence.
The programs, while we look forward to moving coded 19 into the review Mehra there are beneficial trends it has accelerated.
Which are not passing Moreover, they are actually persistent and we believe impactful.
The importance of respiratory medicine, the importance of digital health and the importance of health care delivered outside the hospital those three trends just got accelerated in the hit Us died.
While these macro trends have increased tele health, an increase remote patient monitoring represent short medium and long term benefits for residents business more importantly, they represent tailwinds for significant improvements improving clinical outcomes for the patients chronic disease and enhancing levels, our patient satisfaction for that ultimate care.
Customer the person, who just wants to sleep better brief better and live with a better quality of life.
Before I hand, the call over the breadth for his remarks I want to Ics.
Yes, my personal gratitude to the 7500 resmed idioms around the world in an unprecedented fiscal year you have remained focused on creating value in our coal markets and honoring commitments to patients through 2019, you helped us pivot and produced 150000 law.
Saving ventilators to help people breeze in 140 countries worldwide without our team our current and future six success would not be possible. So thank you to all of you with that I'll hand, the call over to Brett in Sydney, and then we'll open up for Q Anite Brett over to you.
Okay.
Thanks, Mike.
The more remarks today. However, we will provide an overview of our results for the fourth quarter fiscal year Twentytwenty and some remarks on our Q1 for 21 outlook.
As Mike noted, we had a strong quarter great revenue for the June quarter was 770 million an increase of 9% over the prior year quarter in constant currency terms revenue increased by 10% compared to the prior year quarter.
Revenues for the fourth quarter were favorably impacted by significant sales of into light at peak losses, and accessories, partially offset by declines in house late business.
We estimate that the incremental net revenue benefit from Covidien onsite delighted in tax will be in the order of 20 million.
Flicking estimated incremental ventilator invited accessory revenue of 100 to offset by an estimated 105 million impact on your sleep revenue forecasts.
Taking a closer look at geographic distribution and excluding revenue from our software as a service business.
Joining us Canada, and Latin American countries were 401 media, an increase of 4% over the prior year quarter.
Sales in Europe, Asia, and other markets totaled 278 million and increased 19% over the prior year quarter, ending and an increase of 22% in constant currency terms.
By product segment US, Canada, and Latin America device sales were 206 million, an increase of 1% over the prior quarter.
Masks and other saw an increase of 7% over the crop.
By you quarter.
In Europe Asia, and other markets deep our sales totaled 206, meaning an increase of 32% over the prior year quarter.
We're in constant currency terms ice 35% increase.
Masks and other styles in Europe Asia, and other markets were 73 million decreases the same over the prior year quarter, we're in constant currency change by 6% decrease.
Globally in constant currency terms, the bus sales increased by 16% well Boston, although sales increased by 3%.
Prior quarter.
Software as a service.
Revenue for the fourth quarter was 91 million, an increase of 7% over the prior year quarter.
On a non-GAAP basis, SaaS revenue increased by 6%.
During my commentary today I will be retiring in non-GAAP numbers. The non-GAAP measures adjusted the impact of amortization of acquired intangibles, the purchase accounting fair value adjustments to Mike's Kate you create revenue restructuring expenses and litigation settlement expenses.
We have provided a full reconciliation of the non-GAAP cap numbers in that fourth quarter earnings press release.
Non-GAAP gross margin increased by 60 basis points to 59.9% in the June quarter compared to 59.3% in assigned quarter last year.
The increase is predominantly attributable to offset by increased increased costing logistics component parts in manufacturing.
These cost increases largely reflect the impact is kind of with 19 in our rapid ramp up of ventilated production.
In particular, we incurred significantly high inbound and outbound freight costs during the quarter, reflecting both higher volumes and significantly higher rights.
We are rebalancing airfreight and fee flight volumes, putting the needs and we expect to see over by that freight costs continue into Q1 slide 21.
Moving onto operating expenses Eris, Jerry and I expenses for the fourth quarter. One were 165 million decrease of Forbes same over the prior year quarter.
We're in constant currency times, it's gene I expenses were consistent with the prior year.
It's gene I expenses as a percentage of revenue improved to 21.5% compared to the 224.3% we reported in the prior year quarter.
Benefiting from cost management and reduced travel as we work through the on certain kind of at 19 environment.
Looking forward, we expect this Jane I expenses to increase in a low single digits relative to the year ago period.
R&D expenses for the quarter were 53 billion, an increase of 3% over the prior you caught up on a constant currency basis, an increase of 4%.
R&D expenses as a percentage of revenue was 6.8% compared to 7.3% in the prior year.
We continue to prioritize investments in innovation, because we believe our long term commitment to technology and product development will deliver sustained competitive advantage.
Just to continue to grow in the high.
Reflecting our commitment to innovation.
Through the economic cycles.
Total amortization of acquired intangibles is 20 million for the quarter, a decrease at 14% over the prior year quarter, reflecting historical intangible assets, becoming fully amortized during the quarter.
Stock based compensation expense for the quarter was 16 million.
Non-GAAP operating profit for the quarter was 243 million an increase of 24% in the prior year quarter, reflecting strong topline growth expansion of gross margin and we'll manage operating expenses.
On a GAAP basis, our effective tax rate for the June quarter was 16.2% glow on a non-GAAP basis, our effective tax rate for the quarter was 16 point I'd say.
Looking forward, we estimate our effective tax rates for fiscal year 2021 will be in the range of 17 at June 19%.
Non-GAAP net income for the quarter was 193 million an increase of 40% over the call you quota.
Non-GAAP diluted earnings per share for the quarter were $1.53, an increase of 40% over the prior year quarter.
Our GAAP diluted earnings per share for the quarter.
Cash flow from.
Operations for the full quarter was 330 million, reflecting robust underlying earnings and working capital management.
Capital expense depreciation and amortization for the June quarter totaled 39 million.
During the quarter, we also paid dividends of 56 million.
We recorded equity losses of 6 million in our income statement in the June quarter associated with the very early joint venture.
We expect to record equity losses of approximately $15 million for the full fiscal year Twentytwenty, one associated with a joint venture operation.
We entered the fourth quarter with a cash balance of 463 million, having generated 330 million in operating cash flow during the fourth quarter and 802 million during our fiscal year Twentytwenty.
At June 30, we had 1.2 billion in gross debt and 717 million in net kit.
At levels remain modest and at June 30, we had just under 1.1 billion available for drawdown under our existing revolver facility.
In summary, our liquidity position remains strong.
However, I also want to highlight that in these times on certainly we are maintaining a disciplined approach and we had tightly managing expenses cash flow and liquidity.
Today, our board of directors declared a quarterly dividend of 39 cents per share, reflecting the boards confidence in our strong liquidity position and operating performance.
Finally to recap on Q4 results earnings this quarter were very strong reflecting seen significant demand for ventilators underpinning revenue growth and expansion in gross margin and lower operating expenses.
Turning now to our first quarter for 21 outlook.
At a high level, we expect to see continued to advance of annualized but at a significantly lower level compared to Q4 for 20.
Additionally, we expect to see continued headwinds facility for ourselves in Q1 in response to the temporary reduction in the diagnostic only patients.
Mask and accessories has continued to demonstrate resilience over the past three months, which reflects the insulting value of the large patient installed base.
Consistent with these remarks for the first month Q1, if why 21, we recorded group revenue growth both in the low single digits.
However, like many other companies we are experiencing the pervasive uncertainty in the current environment as a result, our forecasts and possible future revenue outcomes remind dynamics.
And with that I'll hand, the call back timing.
Great. Thanks, Brett.
I'll now turn to the Q and a portion of the call I would like to remind everyone to please limit yourself to one question and if you follow ups or additional questions. Please feel free to return to the call Q Cheryl will not we're now ready to start the Q and a portion.
Thank you.
Now begin the question and answer session. If you have a question. Please press Star then one attached home phone if you wish to be removed from the Q. Please press the pound fine or the Husky. If you are using a speaker phone you may need to pick up the handset first before pressing numbers as a reminder, we ask you to please.
Limit yourself to one question. If you have another question you are welcome to hop back into the queue. Once again, if you have a question. Please press Star then one on your Touchtone phone.
First question comes from Hudson, Yes. Please go ahead your line is welcome.
Thank you good morning make good money, but I'm just a question for me maybe just some color around the rest of the world growth right just the disparity between.
Give ourselves at the very strong 35% tomorrow. The negative seeks can you just talk to installation and how that impacted there and whether there was anything else to read into that market growth right.
Yes. So thanks for the question and yet clearly now Europe and that that is Europe Asia and rest of world. So it's the whole well apart from the U.S., Canada and Latin America.
Yes, clearly incredibly strong year on year growth in the in the devices side, primarily driven on the upside by the ventilator sales and so these were we've had talked about contracts with national governments in the UK, France, Germany for full then lighter sales that were delivered during that June quarter.
And and others around Asia.
And and rest of world. So that that's been the sort of this tailwind you feel like from from kind of in 19 and the headwinds we're pretty dramatic shutdowns that you. Shortly so certainly in western Europe, and most parts of southeast Asia, and including China, which is still at 50% about slate capacity today and that severely slowed down.
First on set up of patients, but in those geographies the sort of resupply technology that I talked about in the prepared remarks like snap works. It all coal Brightree resupply does it roll us based technologies and we really haven't.
Put those technology into play in those European markets, that's an opportunity do that in the future, but they're not there and they don't have the same resiliency around those mask sales. So that's sort of its almost like a tiles tale of two markets. If you like on the devices versus mosques during that Q4 for Europe Asia and rest of world.
Alright, thank you.
Your next question is from Andrew Goodsall.
He marquee. Please go ahead your line is open.
Thanks, very much for taking my question just trying to understand the sequencing I guess across the next few quarters just.
As you sort of.
See the decline in Vincent and your regular see Pep business, returning I know you've talked to its but just any sort of metrics I know you.
Where are you thinking around production or anything like that that might give us a bit of extensive.
How that's going to sequence over the next few quarters.
Yeah. Andrew This is a question that macroeconomic around the world are working on every industry. You know when when are we going to see as these dropdowns turn to openings and every every city every country.
That we are we are operating in has different metrics on how fast the right thing and where they're opening some never closed like Sweden summer opening really like Germany, and some are going to second size shutdowns like China, and so I eat the best we can see as we model it and we've got a lot of scenarios for for the next fiscal.
Yes, but the best we can see is across that portfolio of 140 countries, we see a sequential.
Sort of U shaped recovery, where you know we started Q1 and then we build up the Q2 Q3 Q4 through the fiscal year as we start to see these reopenings happen, we're going to expect second wives and third wise and fourth wise in the sort of w.'s within a particular city or a particular state but across the country level and certainly at the hundred 40 country Port.
Foleo level, we expect that to be a U shaped recovery in our likely case throughout the fiscal year unsettled sort of turn to a well when we look at sequential growth from Q1. The Q2 and then from Q2 Q3 in Q3 to Q4 and that's how we're sort of modeling the recovery all of our sleep apnea, Fcr PD and our asthma pace.
Should flow and therefore that part of our business they will be resiliency in the mask resupply, particularly in the us geography, and some other buffers that we have around our SaaS business, but that's sort of how we're looking at it on macro basis.
Would you expect returned to normal bodies for 22 or close to normal.
Yes, let me again I, Andrew I will be a great macroeconomic working for a large multinational.
Bank to make a prediction like this and they are often wrong when they make those predictions I think it's very difficult to say when exactly the we'll be back to the pre Calvin times.
You know I did you see a presentation from a global bank economist, who talked about a 12 month at 24 month returned to normal type period.
Very difficult to know health care, we are more resilient people as opposed to going to retail to get a new automobile or a new sound system or a new home repair they are.
Going to their primary care physicians and their elective surgeries much quicker and you can look on those two metrics would which are pretty well published in the major geographies for PCP visits GP visits and for elective surgeries and hospital visits and we're starting to see those metrics pick up on a week to week basis, and so are you there.
The taught so analogs that we're watching and looking at and then all the other parts come into play obviously, there's the upside as I talked about in the prepped remarks, you know if theres, an effective vaccine or an effective.
Treatments the carbon 19, all bets are off this goes to the shape recovery in the markets as they get that vaccine or treatment, but we've got a likely expected case of you throughout the fiscal year and.
And then get back to that normal in that sort of 12 24 month time period.
Fantastic. Thank you very much.
Your next question is from Margaret cater of William Blair. Please go ahead. Your line is open.
Hi, everyone. Thanks for taking the question. This is actually Brandon on for Margaret I.
I just wanted to go back to the events really quick you had mentioned that you manufactured another 100000 does that could be used within the hospital.
Have you if you sold most of these or any of these and is this kind of a similar situation with the prior 50000 that they are maybe lined up for contracts already there could be recognizing next quarter.
I'm just part of that is just trying to understand.
Where demand is going to end up, especially since you had mentioned that Astro is still being made at full capacity, but you're expecting a steep drop off in the next quarter. Thanks.
Yeah, Brian and thanks for the question.
Yes, certainly we were very proud of the 150000, then light is that we made during the first half of the calendar year. The second half of our fiscal year. As you know that's a very small percentage of compared to the sleep apnea devices, which are more in the sort of two and half million on an annualized basis devices that we make across the C. Perhaps I papson and the.
Sleep apnea by levels, but.
Look we did obviously sell.
As we talked about and Brett talked about in his remarks, we had an extra $35 million of sales in the March quarter. Our Q3 from then lighter than I had a masks and we had an extra $125 million in ventilator and then later mask sales in the fourth quarter.
And no we're not going to predict exactly what that will be here in the September quarter, we're working on hospitals state and national.
Bidding processes, but I can tell you that the volume of bidding and the volume of processes in the sort of expected likely case of that is significantly lower here in the September quarter for that so that demand has gone down a lot.
I mean, it's ironic in some ways because the populations of the cut you know the regions that are now impact in Brazil, India, Pakistan, Malaysia, Indonesia, you add up these countries and you start to get to the billions of people I would like to see demand significantly higher because I think humanitarian wise, we're going to need more intellitest, we have the production ready and we are working.
Whether there, but we can't sell to someone who went by and so.
As as best we can say there's going to be.
A pretty significant drop off here in the September quarter on the ventilators, but at the same time that means that economies are opening up on the other side for athlete business and we start to get that sequential growth back along those lines.
Brett maybe you want to add some more color on any I mean, yes, the only thing what Ed Nick is they would be a consistent with last quarter. There is of course, there is a portion of that production that reminds eating inventory at June 30.
Certainly the case, although it makes it astro.
So we're still reducing still fairly tight and we'll do I think we'll continue to do that onto next to the wall.
Your next question comes from John D. can Bell at Citi. Please go ahead. Your line is open.
Hi, good morning, Thank you.
My question was just trying to understand the again, just the shape of the recovery and perhaps look at you with them.
Macro laws it looks like some of the European countries. It started to recover a little earlier in the US have you seen any anything that could guide you to have a human spot can add at least in Germany, and France any other countries that you have been beaten season.
Yes, John it's it's a great question and actually we are looking at.
Germany as sort of a model all not only how to have dealt with the crisis that country did a really good job of preparing early they got they've been later.
Orders in early and I had they never reached peak capacity in any of the major regions cities or hospitals and now as they recover as I said in the prepared remarks, then north of 85% of the sleep capacity.
They were behind the curve in Germany on home sleep apnea testing, but it really.
They sort of had a leap forward on that and I think that will move from was maybe five or 10% of the diagnoses in Germany pre covered I think that will move to a solid double digit number post cause it.
Germany is a great model for the recovery and it's a country right next door there in France had excellent home sleep apnea testing precaution and so I think the recovery will be quiet Swift in France as well you can almost look you asking for the analogy to the United States take those two countries as different regions within the U.S. Joe.
Many could be analogous to some of the states in the U.S. like mostly in the Midwest, where there's a lot of sleep apnea tests done in a sleep apnea lab and I think that will take.
Our longer time to get to capacity just because of all the restrictions around co. The declining the date planning and just people psychology about turning up to a sleep labs and staying overnight versus some states, maybe like California, or Massachusetts, So, Florida, where home sleep apnea testing was more prevalent those not only Uh huh.
Had less of a dip during the crisis, because they're able to move their patient flow to home sleep apnea test, we think they may recover faster in the patient volumes in those areas and so we certainly are looking at those analogs and certainly weight with sharing a learning internally here at Resmed from our Germany team the CEO, Germany, Catron put not she's a member of my global steel operations teams.
Her best practices of what they're doing there I brought to the global team and Jim Hollingshead and the team on their sleep respiratory care side, and then driving that through us market without a great commercial team we have here in the U.S. and beyond and so I'm quite confident that we're going to see a sequential quarter to quarter recovery throughout the fiscal year. You know I think we reached an idea here in Q.
For all the flow of patients globally and within our major geographies and we're going to we're going to pick those up every quarter as we go through I do think there's going to be second I will first wives impacting Latin America, and Africa, and so on and I do hope that we are able to secure some good ventilator sales into their for now because that will need them on a humanitarian crisis, but then.
I will recover a little lighter in those geographies, but you know I'm pretty comfortable of our plan a likely case scenario, but steady sequential covering Q1, Q2 Q3 Q4 throughout the fiscal year, assuming no vaccine no treatment if those happen it could be a significant one where you start talking about year on year numbers again.
This quarter on quarter numbers.
Right right Keller Thanks, Mike.
Your next question comes from David Daily of Macquarie. Please go ahead. Your line is open.
Great. Thanks, very much morning, Mic morning, Brett I'm just had a question in relation to the U.S. in particular on that commentary around sleep labs capacity I'm sort of talking to about 70% at the mine and I'm just interested in what do you think that might have got so on an average basis over the over the June quarter, and and then perhaps any commentary.
You must be I'll provide evident the phasing I'm over the quarter in that I wasn't was April the trough and then improving towards the.
Towards June I'm, just any commentary you can provide there would be on would be appreciated.
Yes, David it's a really good question and we actually have.
Some good good information around that because we have both this sort of digital end to end play on the sleep apnea market, where we have apnea link air which is cloud connected home sleep apnea testing all the way through to the obviously the solutions platform with the essence devices that are 100% cloud connectable as well so we see the activation rights.
On that weekly basis, and you picked up we have seen during the quarter sort of that night here in that sort of I you know like April.
The night time frame and that we've started to see weekly increases from that now if you see it in the public data around primary care physician visits and elective surgeries picking up and we also see it and without quantifying it because our that's sort of pretty.
Proprietary data for Resmed I can certainly say qualitatively to your question that after that night here in late April early life, we have seen week to week increases on in home sleep apnea testers.
Also in the activation really importantly, as the market leader in market share for sleep apnea devices. We are seeing activations increased from that that an idea point on a weekly basis and so yeah, you know and we haven't by geography, and you can say all the if that state did this or that city did that you can see little W. Shaw.
EPS in some of those but of the aggregate, we're seeing that sort of steady U shaped recovery, even it down to that granular level during the quarter and that's what gives us the confidence as we project forward.
Into a lot of uncertainty in good times 52 week seems like a lot of uncertainty.
That we think there will be that steady across the portfolio steady U shaped recovery.
But I think thats the most color I can provide you there David.
Thanks, Rick.
Your next question is from David low.
Please go ahead your line is open.
Thanks, very much make if I could keeping us on topic I mean, you're talking about a U shaped recovery just to be really clear and simple yet we're at the bottom up that you. So effectively the first couple of quarters, you'd expect pretty low growth not so dissimilar to what Brett talked about it into a low single digit growth you've seen in July is.
What you sign.
Yes, yes, exactly David that's exactly how I interpret the sort of classic you'd say, thank you for clarifying that.
Great. Thanks.
You can have a question as well if you like.
[laughter]. Thanks.
And then went on to I getting so much trouble, but I will take you up on that.
The decline that you saw in see Pat or in devices, you talked about a double digit decline I think mad adapt yesterday talk about a 30% dropping.
Patient set up so just wondering if I could get you draw you a little bit on sort of what level of decline UK.
Yes, so look.
That company, you mentioned as particularly U.S. focused company and so that's a pretty good analog for.
The double digit decline that happened in starts for the U.S. geography that sort of 30% so 70% before and then and then picking up from that night here as an average across.
The country. It would have been lower in some states that had tighter lockdowns and mostly lab focus and and less than that in some of the more.
Liberally in terms of opening states.
And you know, but then if when you look across 140 countries you really got to say, Okay will you ever every country treated this differently, but Germany already being up to 85% of pre covered their dip wasn't that lot of I don't think they got below 75% you know because they were able to pivot to sleep apnea testing pretty quickly and as you know.
With that lead right in that market and have great visibility, China had a very steep drop the government. There was very strict in they locked down and that went down you know very high double digits and has now got back up to 50% of pretty confident.
Towards the end of June so.
It's almost like you and we have you could model every over 140 countries by region by City, and then look at a sort of computational basis of this I, but it gives us confidence with that detail of the last 190 days of how this is gone to project for the next 360, but yes look for the us that.
Sort of.
Neither in the and the high Sixtys and and leaving only maybe an average around the 70% for for the for the quarter, but leaving it rights high than that is sort of where we're at for that geography.
Great. Thanks very much.
Your next question is from has found the Silva CEO.
Please go ahead your line is open.
Good morning, Thanks, taking my questions I'm just.
One of the its color and then let a pricing over the full Q was it yeah, how much of that if it was related pricing. Those books, you and would you expect the price you to do coming into the first quarter.
Thanks, Sean Greg question, I'll hand that Rob Douglas Tsao CLL.
So schon, we Oh, we previously told we actually had a policy is not.
Not trying to leaf prices around this.
90, because of the whole ethics around that and making sure. We were getting the then let us in the right People's hands at the right prices and so we actually kept our pricing very steady through it.
And did slow some increased logistics cost and things like that but was talking about.
We also Nigel we were selling then led us to people who needed them immediately and we're going to be using them. So we weren't Shelly you just stopped Paul So you can see we had.
A pretty moderate moderate approach to it and we think it's absolutely the right approach, obviously, the ventilators, a higher price audit compared to add a sleek devices and so they love some sort of mixed shift affecting our overall results, but we were we were very steady and our team is totally committed to making sure that we're looking after patients.
Already.
Great. Thank you.
Your next question is from credit Suisse.
Please. Please go ahead your line is open.
Thanks, Good morning, just on the gross margin I'm, just I'm wondering if you could give a bit more color on the outlook for that going forward now you'll have allows a portion of ventilators to negative mix shift and then we see increased kind of cost.
We actually expect awake <unk> gross margin in this quarter of 21.
Any color you can give on that thanks.
Brett you want to take that Britt.
Sure sure Hydro.
Yeah, I mean, he has a right and you covered a few of those moving parts in the gross margin and it's probably heightened uncertainty among its coming onto anywhere dies in paxil line Oh, we are seeing some elevated costs rolling through own than some of those I think on freight will can change for a little all over it we are actively trying to mitigate.
Bash, but I think I wouldn't get drawn in specific guidance, but I.
I think you'd have to say you'd have to side is probably not walkway that we had we'd say gross margin expansion in the short term.
Okay. Thanks very much.
Your next question is pardon.
Yeah.
Oppenheimer. Please go ahead your line is open.
Good afternoon make Brent can you have you are right.
Yes, if not you loud and clear as rush.
Perfect ceramic my.
The 125 million dollar contribution from ventilator sales in the quarter forgive me was just hopping in between calls can you give us the.
Gross.
Between North America, and rest of World in devices. When you split out went leaders. Thank you for taking my question.
So Raj that's that's a great question, but it gets into a level of detail that we don't want to share for competitive reasons, but look I can give some I can give some color around at the 100 $125 million in ventilator sales were you know to the countries that during that you know last 90 days you've seen.
Through the media and other contacts had the biggest impacts from kind of the 19. So I think publicly we've talked about a contract with the U.S. government theme or 32 million dollar public contract for 2500.
Or so.
Astral devices, and then we had some public contracts with other countries UK.
National Health Service, Germany, France, Japan, and Australia or thought some that I think we've talked about in various media areas, but just just given the nature of sort of the competitive dynamics, but then also some of the hospital systems and nations like to choose to publicize to their own Paul.
Relations those numbers at their own right I don't want to go into any further detail on that but Tom I appreciate.
The questions Raj and just know that one thing that really might off proud is that $125 million of ventilator styles side lives and there are tens of thousands of people who wouldn't have been brazing with kind of 19 that work and if their immune system was able to beat this little protein virus when it gets in the body.
They lived and we think that was a great benefit for.
For those countries and for those individual people in their families.
Your next question is from Steve Wheen Evans <unk> partners. Please go ahead. Your line is open.
Hi, Good morning, I just had one clarification and then my question. The clarification was just with regards to the one month.
Sales figure that Brett mentioned I'm being in the low single digits.
That's good indication as to how much whether that's just few asleep or whether it includes things like this and then my question really a wanted to add to this was.
With regards to competitive bidding as bina.
You got action I guess touch on July the implementation I, just wonder if you got any thoughts or likelihood of of that actually happen. Thank you.
Great great questions.
So all Brett if you addressed the first part on the clarification, then we'll have dive talk to competitive bidding.
Yes, it to clarify that that July group, that's group revenue state on that so that's a that's everything that's a being taught company.
Okay and with regard to your question on competitive bidding Steve I mean, we certainly support a delay we were very pleased to see that just earlier. This week I believe a letter went over from over 100 members of the house and Senate urging the but.
The strain in CMS to delay competitive bidding we've been working with other industry participants to try to advance that perspective, obviously theres a lot going on and we don't get feedback from them as to whether it's likely or not so we'd have to wait and see what everyone else, but we certainly would support that having said that we'll do what we can to support.
Our customers whenever competitive bidding does come out so fingers crossed on that on that.
Your next question from Anthony Petrone Jefferies. Please go ahead your line is open.
Great. Thanks, maybe just one question as it relates to core sleep between re supply in and then so I'm assuming you know the comments are mostly on on new patient starts, but maybe just a quick update on re supply and as we move into an extended first wave do you expect that sort of benefit as we saw.
Early on in the past endemic and then a quick follow up on on comp thing would just be the rural rule I know, there's a push to delay that as well or HR to 771. So just an update on where the the role in of world rates for competing sits thanks again.
Thanks, Anthony I'll have to go at the first.
Part of your question and then dive can have a go the second part in terms of the numbers I was talking about you know so the double digit declines and then coming up from those 98. During April May June and then what we expect during the year that was about a patient flow sleep apnea diagnosis, CRP day patient diagnosis and coming through the.
Channel so directly proportional to if you like first time set up of I sleep device and first time set up with a mask system. As you know Anthony you've followed us for a number of years, we've got a very resilient a group of patients who love their great sleep and love the great breathing and I are on rate supply.
Hi programs, either directly to retail in Australia, Singapore, UK or through a healthcare programs in Europe or direct I too many programs in the us and those.
We saw very good resupply rights in the March quarter, and as we just talked about so very good rate supply rights in the June quarter, we expect those strong waste water rights to continue through September December and onwards. This is I and ongoing resupply right that really will be there. Obviously first one offset ups are impact.
Did buy those numbers I was talking about in the modeling.
But resupply numbers have been not only equal to the year before but sometimes a little better and we think the some secular change there around the importance of respiratory medicine, the importance of respiratory health and people just wanting clean masks clean tubing and clean humidifiers the die their insurance from Piper on that I can pay the.
Cotai for or out of pocket for themselves and people are paying for those and so we think that sort of secular change they will be that giving us a pretty resilient resupply throughout fiscal 21 and beyond Dave do you want to have a go at the second part of the question Regazzi be sure. Thanks, Mike. Thanks for the question Anthony.
So with regard to the Bill itself 27, 71 remains introduced in the house it hasn't seen a companion legislation get introduced the Senate obviously the U.S.
Government is preoccupied with a lot of other things that are you know.
They're working on now, particularly trying to extend the aid there probably will be some Medicare relief packages down the road, but we think is an important shell of the will of Congress in sort of the sense of Congress that there ought to be relief in the rural areas. We were pleased to see that CMS as put a real forward to advance Tele medicine, and tele health reimbursement beyond the Pan.
They're making so there are certainly listening to a patients and providers and to Congress, we'd hope that they would listen to this and that CMS would be able to an x. some relief.
And it's always hazardous to predict the U.S. legislation. So we certainly continue to support it many of the same.
Current congressional.
Offices that supported 27 71 were writing letters that I mentioned earlier about delaying competitive bidding. So we think thats a strong vote and we'd certainly continue to support we can't really predict what form if any relief will ultimately be granted thanks.
Thanks again.
Your next question is from Matthew Mission of Keybanc. Please go ahead. Your line is open.
Hey, Thank you for taking the questions Hmm congratulations on moving to the to the next stages of.
Hello.
Can you give us a sense of the commercial model that you settled on and how should we think about the revenue up from here.
Okay.
Yeah, Matt it's a it's a great question and look what I will give as the jet generic revenue model of how we at propel our you know through David Vansickle Who's the CEO propeller and he is commercial team globally sort of the revenue models that they follow without giving any obviously details of any particular customer a partner so the.
General.
Revenue models for propel a number one a development feed is often the development fee that that we charge partners for the software engineers, who create the code for the App that work specifically for that customer that's a relatively minor part of the lifecycle a revenue, but its but is there and then secondly.
We charge for this answer the hardware that's provided.
H. time, that's that sort of propel a sense of that has the cloud connectivity and then collects the data locally on on usage adherence and other parameters and then thirdly.
Which is a major part is the per activated user per month, a pot of the revenue that is associated with that account. So then that's really an alignment of propel our resumes revenue with the pharmaceutical company, but also I really importantly, with the patient and their actual usage all that and most importantly for their outcomes.
That they stay out of hospital longer it reduces total system costs and so on so the sort of three parts to that revenue and all of them are in play for all of those customers.
That we talked about in the prepared remarks, and you know look it's early days this isn't yet material revenue for resonated in this quarter next quarter, but as we look over if why 21, if why 22 and certainly as we look to our long term strategy Resmed 2025 strategy I think this digital health component and this recurring revenue component of.
Medical and adherence to CRPD and the asthma medications is going to be not only material part of that business, but I really exciting one for transforming care across the industry.
Perfect. Thank you.
Your last question.
Harrison of Bank of America. Please go ahead your line is.
<unk>.
Hi, Nick and team. Thank you for taking my question.
Do you get a better understanding we supply to the gene cools off.
Can you share, but as soon as.
Coumadin, I guess I'm trying to understand if they were getting citizen sequel panic buying.
Adam the cooling <unk> and I'm wondering experiencing at unemployment rate increase in the United States.
Yes, Leann thinks it's a good question and what we re supply was actually pretty steady through the April May June rights, we didnt as in a year on year based on the cycles or where they are in the cotai cycle and so on a you know obviously there are double digit employment unemployment numbers and.
Us.
Between 10 or 15 beside present, depending on the site.
But in general we have seen pretty steady rate supply all masks and accessories, but do you want to provide any any further color for leann around the kinetics that yeah sure Mick.
So yeah, we never really saw big technique by issue or we can triangulate little but there were some other things going on with resupply programs.
<unk>.
The people off Friday, M&A in an actual more likely to find people at home.
The because our time.
Listing programs was better.
And so we did see some solid improvement there is no major so the up and down dynamic we see as just steady solid progress with patients on long term treatment.
And we've got the best masks and the best systems to take them in treatment and.
We expect that to continue through.
It was standing what else happens just given the on certainties of garden.
We are now what's the one hour mark.
Well turn the call back over.
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Thanks, Cheryl and thanks to all of our shareholders, but.
Okay, all 7500 rates.
Comedians many of whom are also shareholders for their dedication and hard work not just this quarter and this year, but.
Over the years, helping people.
Sleep, better Braise, better and live better lives outside the hospital in 140 countries worldwide. Thanks for all that you do every day, thanks, especially to our resident heroes on the front line production distribution Tech Surveil, then light isn't ventilation masks. During this global crisis, you helped over essentially through those products and I look.
For two thank you in person when this is all possible post covet and we'll talk to everyone on this call in about 90 days.
Thanks, Nick.
Thank you all again for joining us today.
Please don't hesitate to reach out to me.
Typically or to our general Investor Relations line as previously mentioned all the documents along with the transcript.
And a replay of today's call will be available on our website. Later today. Cheryl you May now go ahead and close Red Smith fourth quarter fiscal year 2020 earnings webcast you may now disconnect.
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