Q1 2021 Resmed Inc Earnings Call
[music] welcome to the Q1 fiscal year 2021, Resmed Inc. earnings Conference call My name.
Cheryl and I will be your operator for today's call at this time 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 any weight them, Vice President of Investor Relations and corporate Communications Amy.
You may begin.
Great. Thank you Sheryl.
Hello, everyone and welcome to resume its first quarter fiscal year 2021 earnings call.
Thanks for joining us as Sheryl said this webcast. This call is being webcast live and the replay along with a copy of the earnings press release and the quarterly results presentation will be available on the Investor Relations section of our corporate website later today.
On the call today to discuss our quarterly results are our CEO, Mick Farrell and CFO, Brett Sandercock. Other members of management will be available during the Q and a portion following our prepared remarks.
During today's call, we will discuss some non-GAAP measures for a reconciliation of non-GAAP measures.
Please review the notes today to today's earnings 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 SEC filings for a discussion of the risks factors that could cause our actual results to differ materially from any forward looking statements made today.
And with that I'll now turn the call over to Mick.
Thanks, Amy and thank you all for joining us today.
Since this coated with 19 pandemic began in January BRISMET has produced hundreds of thousands of Vandalised is providing the gift of breadth to people in need in 140 countries worldwide. We continue to support frontline respiratory medical professionals healthcare providers patients and our team mates resmed audience.
So they are all safe and healthy.
We also continue to provide ventilators as local state and national health care providers face.
Placing second and third waves of COVID-19 cases and associated hospitalizations.
Thankfully the magnitude all these hospitalization waves and thus the need for emergency ventilators is decreasing the time.
In our core markets the patient diagnosis trends in sleep apnea, CRPD asthma and beyond steadily increasing as well as a prescription therapy flows from those diagnoses.
[noise] growing numbers of people, who are returning to health care systems, including primary care as well as specialist care. We are seeing more healthcare systems come back on line through Tele health and in person visits over.
Overall treatment capacity as well as capacity utilization rights of those systems are both increasing.
We have seen a steady sequential what we would call U shaped recovery of patient flow to primary care physicians as well as then to specialist physicians across the 140 countries that we serve.
This is just as we forecast 90 days ago on our Q4 earnings call. We expect this same patient flow growth trend to continue throughout fiscal year 2021.
In my remarks today I'll provide a high level overview of our Q1 business results and then I'll hand over to Brett to walk us through further detail.
I will also review progress towards our Resmed 2025 strategic goals, including execution highlights against our quarterly as well as our annual operating priorities.
Today, we have reported high single digit growth in topline revenue and strong double digit growth in both net operating profit as well as earnings per share.
These results speak to our team's ability to nimbly pivot to make short term needs for emergency ventilators, while also investing for the long term growth in our core markets of sleep apnea, CRPD asthma and out of hospital medical software.
Our investments in research and development for digital Health technology have accelerated these last nine months as we see increasing demand from patients physicians providers as well as health care systems as they embrace digital health through remote patient engagement as well as population health management technique.
Launching.
During the first quarter of fiscal year 2021, we generated over $144 million of cash, allowing us to return $57 million of cash as dividends to our shareholders. At the same time, though we have increased our research and development investments at double digit rights, including investments in.
Digital health clinical research as well as hardware and software innovation across both our med Tech and our software as a service businesses.
We have a very full pipeline of innovative solutions that will generate both medium and long term value for customers with an industry, leading intellectual property portfolio, although the 6000 patents and designs.
Our digital health ecosystem is an important competitive advantage for Resmed that offers integrated care to drive superior clinical outcomes to drive better patient experiences and to drive lower total health care system costs.
We now have over 7 billion ninths of respiratory medical data in our cloud based air solutions platform. We've provided over 12.5 million, 100% cloud Connectable medical devices to customers and we have over 14 million patients enrolled in our Airview software solution.
During our last earnings call I discussed how COVID-19 has accelerated the rapid adoption of digital health technology around the world, including a recognition of the value of remote patient monitoring virtual diagnoses and the rapid evolution of digital reimbursement models, we have seen.
That much greater collaboration between the med tech industry and governments globally.
Not just in ventilators, but well beyond and encouraging example of this was just a few days ago when the us centers for Medicare and Medicaid services, or CMS announced that it will be maintaining current reimbursement rights in our product categories in January 2021.
This is great news and in part it is due to industry feedback that it was inappropriate to make unnecessary changes, particularly during an ongoing covered no entering public health emergency and really importantly that current rights were appropriate for the services being provided.
We have also seen governments in Germany, France, Japan and across the U.S adult models to facilitate digital health and remote kit that will be important not only during this pandemic, but well beyond.
This is better health care at lower costs Levering Tech the leveraging technology. These.
These trends support Resmeds 2025 strategy and we believe that the accelerated adoption of digital health solutions represents a significant medium and long term tailwind for our business.
These three trends one the increased importance of respiratory medicine to the increased importance of digital health and three the increased importance of out of hospital healthcare will all help resonate meet and beat our goal of growing volume double digits from 2020 through 2025.
And improving over 250 million lives by 2025.
Let me now highlight a few examples of innovation and execution in support of our strategic priorities.
Just a recap of our strategic priorities.
To grow and differentiate our sleep apnea, CRPD and asthma businesses be to design develop and deliver world, leading medical devices and digital health solutions and see to innovate and grow the world's best software solutions for care delivered away from the hospital.
In our core market of sleep apnea, we introduced our latest mask innovation in September it's called the air touch in 20.
This innovation is the first nasal masks with a memory foam cushion.
As a patient myself I'm happy to say that this is raise meds softest nasal mask ever.
The memory foam technology of the touch and 20 adapts to the curves and contours of the person space, creating a personalized fit that is designed to increase comfort and to make it easier for the patient to adhere to sleep apnea therapy. The.
The adherence rights for Resmed solutions are the best in the industry and it is innovation and technology like this new add touch in 20 that helps get us there.
Our mass portfolio is crafted to offer physicians market, leading options for prescribing for each patient.
To enable homecare providers to successfully fit the patient the first time every time and to satisfy the desires of the ultimate customer that's the person who's Suffocates h. not with sleep apnea.
Our focus on innovation to meet customer needs will never end, we are innovating with smaller quieter more comfortable more connected and more intelligent solutions every day, we have an exciting pipeline ahead.
Let me now turn to a discussion of our respiratory care business, focusing on our strategy to deliver better care for CRPD and asthma patients worldwide.
During the June quarter, we launched in Europe, an upgraded version of our Air view cloud based remote monitoring software specifically designed for our ventilation solutions.
This solution called Airview for ventilation provides remote monitoring capability, allowing clinicians to quickly access clinical data from resmed ventilation devices wherever they are and to allow them to more easily tree arch and prioritize both chronic needs and acute needs for ventilated patients.
This completely reimagine the platform transforms the management of ventilated patients, allowing doctors nurses and all clinicians and care providers to ascertain powerful patient insights from huge respiratory medical datasets.
Adoption of the EV you for ventilation solution has been rapid and strong.
Our team was really thrilled to deliver for our customers during the coated emergency with this solution, but the value that is being provided by the use of ventilation is ongoing for physicians and healthcare systems.
We are making digital health part of the standard of care.
During the quarter, we expanded the reach of our market, leading propeller health technology, specifically through our partnership with pharmaceutical company Novartis.
During the quarter Novartis announced the launch of two new once daily medications to treat uncontrolled asthma in Japan. These products are cold and is there and AD Tech Tirah Breeze Tyler.
In this market.
Patients using either the end is it all the breeze hyler manage their uncontrolled asthma, we'll be able to acquire a propeller technology sensor from physicians and then enroll in our propeller digital health platform.
The benefits of the platform a tremendous the offering is a simple and convenient way to better leave with sleep apnea with a fully integrated digital experience with no incremental cost to the patient.
It's great to see our Nevada partnership expanding to include now both Europe, and Japan, leveraging our world leading propeller technology.
Let me now briefly review our out of hospital software as a service business.
During the quarter, our SaaS business grew in the mid single digits year on year, driven by continued strong uptake of our HMH resupply solutions.
Because the 19 market dynamics continue to impact the patient census volumes, particularly at skilled nursing facilities and new patient admissions have remained under pressure.
We are maintaining our forecast that the SaaS market growth rate will be in the mid single digit range for the portfolio verticals that we serve for fiscal 2021.
We expect the portfolio to return to high single digit growth as hospitals and other outpatient surgery center discharge rates return to normal.
We continue to invest in research and development for our SaaS businesses. So that we continuously improve on our market leading solutions in home medical equipment skilled nursing facilities home health hospice as well as private duty homecare and lot planned communities.
As this portfolio of SaaS verticals returns to high single digit growth resumes, we will continue to be to with our R&D, resulting in leading brightree and matrix cab branded technology solutions, allowing us to better serve customers and therefore to not just made but to beat that market growth rate.
A year ago, we announced that Resmed would begin collaborating with Cerner Corporation to help clinicians make more informed treatment decisions to control costs and to deliver a seamless care across healthcare systems from the hospital to the home.
We have now integrated our matrix can branded home health and hospice platform with the electronic health record or HR system from soon.
I am excited to let you know that we've expanded our relationship with Sirona to new offerings and have now entered into a new value added resellers arrangement with sooner. This.
This establishes our brightree technology as the preferred solution for Senators home medical equipment pharmacy and home infusion customers. This development is the next step in the Resmed sooner relationship and will lead to better interim interoperability it will lead to enhanced provider capabilities.
And it will lead to an improved patient experience.
Overall this partnership is performing above expectations for both Resmed and sooner, we anticipate opportunities to deepen and expand this collaboration to involve our core markets of sleep apnea, CRPD and Askmen disease management over time statement.
In summary, the SaaS portfolio is performing well and remains an important driver of our digital transformation of healthcare in settings outside the hospital.
2020 has been an unprecedented year for companies across every industry. The fundamentals of our Resmed business. However remained strong and we've maintained growth through this crisis through breakthrough innovation through investments in recurring revenue businesses and effective execution in our operating excellence programs.
COVID-19 has accelerated digital health adoption as well as awareness of respiratory hygiene and respiratory health.
The importance of respiratory medicine, the importance of digital health and the importance of health care delivered a way from a hospital. These trends are present during kaizen, but they are here to stay.
Before I hand, the call over to Brett Phase remarks, I want to once again express my sincere thanks to more than 7500, Resmed Indians, who that is what we call ourselves around the world for their perseverance and strength hard work and dedication during unique once in a century circumstances you have allowed.
Hundreds of thousands of people around the world to get emergency ventilators and to have the gift of brands. While also keeping focus on making sure. We have the best technology and solutions now and in the future for sleep apnea, CPD asthma, and all those who dig world class care outside the hospital and preferably in their own home.
Thank you all with that I'll hand, the call now over to Brett in Sydney, and then we'll go to Q nine Brett over to you.
Great. Thanks, Nick in.
In my remarks today, I will provide an overview of our results for the first quarter of fiscal year 2021, and some remarks on our X Y 21 outlook.
As Mike noted, we had a strong quarter group revenues for the September quarter was 752 million.
An increase of 10% over the prior year quarter.
In constant currency terms revenue increased by 9% compared to the prior year quarter.
Revenues for the first quarter were favorably impacted by continued advancing analyze the bosses and accessories.
We estimate that the incremental revenue benefit from Gentlelady bosses and related accessories. The Rogers from private 19 demand was approximately $40 million in the first quarter.
Additionally, we experienced strong modest revenue growth in both domestic and international markets.
However, we did observe continuing headwinds in sleep device market.
Taking a closer look at geographic distribution and excluding revenue from our software as a service business, our thousand US, Canada, and Latin America countries were $403 million and increasing 9% over the prior year quarter. So.
Valve in Europe, Asia, and other markets totaled $257 million, an increase of 15% over the prior year quarter or an increase of 10% in constant currency terms.
By products payment.
Canada, and Latin America device sales were $197 million, an increase of 6% over the prior year quarter.
Masks and other sales were 206 million, an increase of 12% over the prior year quarter.
In Europe Asia, and other markets keep our sales totaled $176 million in increasing 16% over the prior year quarter.
We're in constant currency terms and 11% increase.
Mastering of the sales in Europe Asia, and other markets were $81 million, an increase of 12% over the prior year quarter. We're in constant currency terms, an increase of 8%.
Globally in constant currency terms device sales increased by 8%, while masks and other sales increased by 11% over the prior year quarter.
Software as a service revenue for the first quarter was $92 million, an increase of 6% over the prior year quarter.
On a non-GAAP basis, SaaS revenue increased by 4%.
During my commentary today, I will be referring to non-GAAP numbers. The non-GAAP measures adjust for the impact of amortization of acquired intangibles, the purchase accounting fair value adjustment matrix care deferred revenue and the fair value adjustment of equity investments.
We have provided a full reconciliation of the non-GAAP to GAAP numbers in our first quarter earnings press release.
Our non-GAAP gross margin improved by 30 basis points to 59.9% in the September quarter compared to 59.6% in the same quarter last year.
The increase is predominantly attributable to favorable product mix and foreign exchange rate movements, partially offset by increased cost associated with logistics and procurement costs together with typical declines in average selling prices.
The cost increase is largely reflect the impact of kogan nine sane and a rapid ramp up in a lot of production.
We saw elevated air freight costs relative to the prior year data tracking sequentially, lower, particularly as we rebalanced from air freight to safe right.
Moving onto operating expenses.
Our operating expenses for the first quarter were 159 million a decrease of 5% over the prior year quarter four in constant currency terms SG expenses decreased by 7% compared to the prior year period.
Exchange expenses as like the vintage of revenue increased to 21.1% compared to 24.6% we recorded in the prior year quarter.
In a fitting from cost management and reduced travel as we work through the uncertainty kind with 19 environment.
Looking forward, we expect SG nine expenses in Q2 to be broadly consistent with the prior year period, and then in the second half of April 21 to increase in the low single digits relative to the prior year period.
R&D expenses for the quarter were $55 million, an increase of 14% over the prior year quarter on a constant currency basis, an increase of 12 per stage.
R&D expenses as a percentage of revenue was 7.3% compared to 7.1% in the prior year.
We continue to prioritize our investments in innovation, because we believe in our long term commitment to technology and product development, we will deliver sustained competitive advantage.
Looking forward, we expect R&D expenses to continue to grow year over year in the high single digits to low double digits, reflecting our commitment to innovation through the economic cycles.
Total amortization of acquired intangibles was $20 million for the quarter and stock based compensation expense for the quarter was 16 million.
Non-GAAP operating profit for the quarter was $237 million, an increase of 24% over the prior year quarter.
Reflecting strong top line growth expansion of gross margin and well managed operating expenses.
On a GAAP basis effective tax rate for the September quarter was 17.4% while on a non-GAAP basis, our effective tax rate for the quarter was 18.5%.
Looking forward, we estimate our effective tax rate for the full fiscal year Twentytwenty, one will be in the range of 17% to 19%.
Non-GAAP net income for the quarter was 195 million an increase of 37% over the prior year quarter.
Non-GAAP diluted earnings per share for the quarter for a total of 27, an increase of 37% over the prior year quarter.
Our GAAP diluted earnings per share for the quarter were $1.22.
Cash flow from operations for the quarter was 144 million, reflecting robust underlying earnings partially offset by increases in working capital.
Capital expenditures for the quarter was 14 million depreciation and amortization for the September quarter totaled 39 million during.
During the quarter, we paid dividends of 57 million.
We recorded equity losses of $2.3 million in our income statement in the September quarter associated with a fairly joint venture.
We expect to record equity losses of approximately 3 million in Q2.
And approximately 5 million per quarter in the second half as they fly 21 associated with the joint venture operation.
We ended the first quarter with a cash balance of 421 million at September 30, We had 1.1 billion in gross debt and 635 million in net debt.
Our debt levels remained modest and at September 30, we had a further 1.2 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 of uncertainty we are maintaining a disciplined approach and we are tightly managing expenses cash flow and liquidity.
Today, our board of directors declared a quarterly dividend dividends of 39 cents per share, reflecting the board's confidence in our strong liquidity position and operating performance.
Turning now to our 421 outlook.
At a high level, we are now seeing minimal type of 19 generated demand for on ventilators and do not expect any incremental benefit in Q2 and beyond.
Additionally, we expect to see a continued year on year headwinds sleek devices in Q2 in response to a temporary reduction in the diagnosis of patients.
However at this time, we continue to forecast a sequential improvement in slate. These losses through the course of the acquired 21.
Masks and accessories have continued to demonstrate resilience and growth over the past three months, reflecting the into lighting value of the large patient in store base.
We expect to see continued year on year growth of our mass portfolio in a 421.
Of course like many other companies we continue to experience significant uncertainty in the current environment as a result, our forecasts and possible future revenue outcomes remain dynamic.
And with that I'll hand, the call back to climate.
Great. Thank you, Brad, let's 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 have additional questions you're more than welcome to rejoin the call Q Cheryl Let's go ahead and start the Q and a.
Thank you we will now begin the question and answer session. If you ask a question. Please press Star then one on you touched on it.
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Your next question comes from Chris Cooper of Goldman Sachs. Please go ahead. Your line is open.
Hi, good morning.
To clean I mean, you mentioned at the start bringing announcement from CMS, which we could you just confirm your.
Interpretation of where we stand with Compressco bidding now I mean the wording.
Seem to suggest to us that the structure of the.
Beta to current standards are working as intended is your expectation at this stage. We just move on for next three year cycle with competitive bidding or do you think I'm trying to be running ahead of that.
Thanks for the question, Chris and you.
You look yes. The one thing we know is the January one 2021, the rights will remain where they are and that.
The it was great that CMS listen to feedback from the industry and it wasn't just around covered it was really around the fact that reimbursement rates currently as they are are fit for the need and if you read through the detail of this.
The same is actually said that through the process. They found that they were going to have any savings as they put it which meant from my perspective that weve reached sort of market equilibrium in terms of where things are at now that's my interpretation, but Dave and other studies this far more detail than I do Dave you want to give some more color and thoughts around the CMS announcement. These last few days sure so Chris.
Our our view of the probable outcome here is you've got a three year run at least until January one 2024 of these current rates plus.
Inflation adjustments on January one on each of those years are those are in the competitive bid areas. In addition to that CMS has got a proposed rule out which if they finalize.
I would add a continuation of the 50 50 blended rate in rural areas. Those are both really good outcomes for our industry. They provide stability they provide rates that these folks can count on.
And they allow for the any willing provider to be able to provide in the markets now.
You can always find legislative opportunities for the administration to do different things.
To come in earlier to change things up a little bit.
So is it possible sure is unlikely we don't think so so we're going to be basing our plans on a continuation of these rates going forward with the caveat that governments can always do things that are unexpected and seven to their own control.
Is there any risk that the commercial payers begin to take things into their enhance our lease and move ahead of Medicare.
So Chris the privatized we're already ahead of CMS on this and had the same sort of on a mark to market basis doing things at their own rights before competitive bidding started back in the mid two thousands during and after and so I don't think it's a risk its a guarantee that private payers are looking for full market right.
So I think what's great about this one because it's a public versus those sort of private negotiations that happen is that weve seen a public statement of an equilibrium reached between.
The bids that came in in the fair price that is appropriate for the provision of these services in the statements. So thats something thats new.
As part of it but.
Look it's a complex where we saw a 140 countries worldwide not just one we watch CMS that we also watch the rest of the world we want to make sure that reimbursement rates are therefore out for our channel, but really importantly that we get to the 936 million people worldwide, who suffer from sleep apnea.
Got it sounds like a great outcome. Thank you.
Thanks, Chris.
Next question is from Sean Laaman from Morgan Stanley. Please go ahead. Your line is open.
Thank you and good morning, everybody I'd like to just ask about the sustainability in that that suppression in in history and high growth. It seems like a very good outcome. If you could talk us through that I know of calgon fiscal 21 bit.
Could you walk us through that that would be really useful me.
Yes, Thanks, Sean I'll start and I'll hand over to breakfast for some more detail.
Yes look excellent.
Control, obviously travel.
Costs are incredibly down we have 70, 580% of all the risk medians worldwide selling a 140 countries working from home and we've had a really smooth transition for 5000 people working from home and and feeling comfortable doing so.
And we are opening up our offices as appropriate in Europe, Asia, and the Americas as as cities states and sell and allow us to.
Look when we get to the other side of this pandemic and that's a long time potentially with the vaccine and treatments that are efficacious I do see some of those costs starting to go back up again, but they will be also.
Concomitant with opening of healthcare systems that will be associated with the opening up of those economies and so I think we've done a really good job in bringing expenses down on SGN, 97% reduction year on year for that for the quarter to $159 million for the September quarter, but if you look closely we also increased our R&D spend.
We increased by 12% constant currency, our R&D spend and Thats it.
54.5 million for the quarter annualize that that's a really good 200 plus million that were going to put into digital health technology artificial intelligence machine learning.
Improvements in small acquire more comfortable more connected and more intelligent systems that can keep people breathing out of hospital well taken care of and so we you know we are going to continue the investments in R&D and drive those through this process and we are going to take the savings on SGN I now and be ready to reinvest.
In in marketing and sales and growth and that is Gina as appropriate when that when the revenue starts to come back I hope that it will make sense, Sean it's not just a one portfolio play it's all part of a larger larger please.
No. Thank you that makes a lot of sense great results. Thank you.
Your next question.
Sure Shaun its spread.
Thats, good summary from from mix and not too much more to add to it but I mean, clearly we don't have negative SGN I every quarter and we have have caught in the back half kind of low double digits and for that low double digits mid single digits is probably what we've consistently done.
Really our Imus, who want to leverage SG and high relative to revenue growth so that that hasn't gone away, but we want to continue to do that in the medium to long term as well.
Great. Thanks, Mike Thanks, Brett.
Your next question is from Grapple Chen of Credit Suisse. Please go ahead. Your line is open.
Thanks. Good morning, So just at the last results I think you mentioned that in July you still low single digit revenue growth. It doesn't imply quite a sharp acceleration in growth in August and September but can you give us some more color on the incremental performance on a month to month basis as well as to how you performed into October.
Thanks, Thanks, Gretel, it's a great question as we sort of sort of model the kinetics of the recovery across our 140 countries and you know as we look at it and we obviously look at daily numbers, not just month to month and beyond that there is a lot of sort of noise. When you go down to a lower level of the distraction you pull back and you look at it.
Sort of that quarter on quarter trend, what we're saying is is sequential growth across the group and.
Let's look at some look at three big countries and.
I think I talked about this 90 days ago, a gradual but.
Germany is sort of I would say our leading country.
Country in terms of of how Theyre opening up their economy, we we are seeing.
590, plus percent of the pre coated patient flow and in some parts, 90% to 95% of the pre consultation flood it's through Tele health is through digital medicine. It's also through some in person visits and in lab tests and so we were really at a very high point of recovery and even with Angela Merkel.
Causing restaurants and bars here in November we do expect health systems to remain fully open during not just November that on an ongoing basis, because people need to get that primary care people need to get the respiratory care suffocating they need treatment for their sleep apnea. They have trouble raising they need help for this year, it's a day and so we're seeing that in a really good case in June.
Manny.
If you take China, another big market, we talked about last quarter sort of at the 50% of free carbon levels. This quarter, China is now already at 70% of pre coated.
Patient flow across across a very large country, but that portfolio of different cities and states is now at 70% of recovered so a significant improvement from last quarter and here in the United States. It's really a story of 50 different states and their approaches but they vary from 60% to 80%. If you think about it of the pre cousin patient flow.
The time COVID-19 has been the accelerator for that because it was the only choice during the Soviet Lockdowns and as we get to the other side. It is low cost and has equivalent sensitivity and specificity from the technology that's out there, but Jim what we're fairly <unk> have got it. Thanks.
Thanks, making thanks Margaret is a great question and that is very insightful question, we don't have perfect data on this.
But the data we do have any in both the concrete data we have from sort of looking at our own devices that are used and also anecdotal data from the market very strongly suggests that homesley testing across most of our markets has become a much higher percentage of testing.
And to your point I do think that that is sustainable I think what we're seeing is a shift in practice.
Patient certainly prefer it and I think a number of clinicians are seeing that it's an easier way for them to diagnose and there's certainly using homesick testing remote testing to serve their short term patient needs, but as it gets adopted I think we will see that practice remain very sustainable and so in a market like France. We were already has some.
Like 90% homesick testing.
We don't have perfect inside as I said, but we do think suggesting yours market is a very high percentage of tests and we think that that will that will stick in the future. The one that a color I'll add on there just to tag onto what Jim said Margaret is German where there was actually quite resist strong resistance from some sleep physicians to adopt hunt sleep apnea.
And that was skeptical of the efficacy the practicality and could they really make it work and because the shutdowns. We're very strong in Germany. During the peak of the crosses in March April and was the only way they could diagnose the Doctor then got used to it into Jim's point I think on the other side of these thoughts will move up a little bit, but Germany would move up significantly.
And the percentage of patients with homesick interesting as those doctors found that it was not only.
Had high sensitivity and specificity on the clinical level, but it also had good outcomes at lower costs.
Thanks, guys.
Your next question is from data J P. Morgan. Please go ahead your line is open.
David you may be on any of these yet.
No no I was just getting the mutasa thanks very much.
If I could just go back to ventilate as I mean, what I understood.
There was a 40 billion go up boost coming through there and that we really should expect that that's pretty much done now so that normalizes and if we adjust for that it would imply that the device sales gripe was significantly lower just wondering how you think we should think about the recovery from here.
Now we're we're device sales extreme delight is can start to grow given Alex from the recovery seems to have been through the quarter.
Yeah, David It's a really good question I'll hand breakfast in further detail on it.
After my remarks, but Luke.
We've seen we saw incredible sort of.
$30 million in the March quarter Triple digit millions of dollars June quarter, and as you noted $40 million and this September quarter of what I would call emergency ventilator styles as part of the process.
It may not go to precisely zero this quarter, but it won't be as high in the December quarter as it wasn't the September quarter and.
Hopefully as we're seeing the second and third wives the magnitude as I said in the prepared remarks is low of the second and third wise in terms of the impact on hospitalizations, and reaching that sort of peak ICU peak ventilator capacity and so on a humanitarian basis I hope we're right in that prediction that it goes very quickly down.
We are seeing sequentially from from the June quarter to the September quarter improvements in the number of patients coming through the prescriptions coming through and therefore the devices that we are selling on the sleep side, we expect that improvement to continue through the December quarter, and so as you look through the fiscal year and you think about sort of <unk>.
Modeling, how that's going to happen I think you can model a steady increase in the sleep apnea devices and the the sort of what I will call a circular uptick in mosques and accessories styles that was driven by I think respiratory hygiene and the importance of of getting a clean mosque.
Was not a one time thing for the Macho June quarter, you saw it was sustainable as we predicted that was sustainable here through the September quarter, and I think it's sustainable through the December quarter on the patient and I know how important it is and how exciting it is frankly to get that new moss to get that new cushion and to establish it up it's like a brand new costs, Mel and you get addicted to saying.
Wow respiratory health is important and that is one thing through the suffering of COVID-19, it's almost a blessing that we've seen people realized that sleep apnea, COPD and asthma respiratory health is incredibly important and keeping your device clean and keeping your mask clean is incredibly important as well as accessing data.
Digitally has been incredibly important so we think all of that will be there and that's why we talk about this strong sequential increase steady sequential increase throughout fiscal 2021.
Breath any further color.
Thanks to make them and that's good nominee.
That would be arriving obviously year on year, we saw we saw <unk>.
Declines in slightly bosses, but we saw a pretty strong sequential improvement from $2 40 Q1.
And then going forward is mixed say, we will we think we will see that sequential improvement now.
That ended up being Q2 Q3.
<unk> the equation.
Tom will kill but certainly certainly way, saying that not sequential increase wait to wait month to month, which gives us I think a lot of confidence of sleepy bosses improving throughout at 421 I think that's the that's the main thing we're looking at.
Is that not strong on which will increase and that will give us a lot of confidence.
Just on topic I don't want to ask a second question, but it'd take $40 million up devices actually make any one six.
Right the quarter, so it looks pretty close to flat.
I presume that's indicative of with pets at relative to the same time last year.
Yeah, there'll be some I mean, this constant constant currency adjustments things like that that think certainly be crenshaw with single single digit decreases.
Okay, Alright, thank you very much for that very helpful.
Your next question secondhand Harrison.
Please go ahead with your line is helpful.
Hi, good morning, all.
Following on the ninth.
Okay. This question I'm thinking about the initiatives that have been putting place as an adult with Corona virus, including Kenny Health has T testing and can you give us some indication happens.
Could that Tina has heat testing for example, outpatient more likely to be out of pocket and D think that reinvestment towards it lacks a tele health will remain.
Post Corona virus.
Liane, it's a great question and it talks to have sustainable is what we're talking about early a gemini around home. So that mean testing being adopted in general the costs for home sleep apnea testing are significantly below for the pay the employer in the ultimate prior is the person who who.
It works for that company will pays the taxes in that country. So the numbers of the costs are significantly low often an order of magnitude.
And so therefore, the co-payments if you're part of U S plan like I am we have co-payments. The copayment is proportion proportional to the cost and so therefore, an order of magnitude law. So it is lower cost and the question that physicians always had is is it.
Better care or at least as good care at lower cost and I think what we saw through COVID-19, where people who hadn't adopted hemsley that testing as well we're forced to adopted because it was the only way that could diagnose patients. They found well the sensitivity and specificity from that clinical peer reviewed article does happen in my practice in my sight in.
City and saw lower cost as good outcomes, we saw great adoption and I think that drives ongoing growth of it on a sustainable basis as Jim was talking to earlier I think countries that were X move to why why is above X and we can't predict exactly what that permanent change is going to be we just know it's going to move.
Because the momentum of economics, and good clinical care just drive it that way so.
I didn't know Jimmy if you have any further covered provider.
From your last response and homesick.
I just would completely reiterate we use it in as a reminder, if you're on the U S market, if you're a consumer and you have a health plan and you have a 20% copay.
Typical lab test is 1500 or $1800 that you're out of pocket on that and 20% of the typical mcps's reimburse to say 200 $5200 you are much lower out of pocket and so for consumers the barrier as much lower to do home sleeps us here at most consumers would prefer home sleep test.
And so that's why I think we'll see it remains sticky now to telehealth, which I think it was the second part of your question. Some of those reimbursements have been done and sort of an emergency basis.
The question is how will they persist after that after the emergency situations are declared non emergency.
There are a number of their number of reasons to think that they will I think that they've been very successful and of course the industry is lobbying very hard to put some of the things in place, both with government payers and with and with commercial payers and so.
Think that most parents have seen telehealth it'd be pretty successful in terms of driving coverage and also driving them cost of care. So.
So we can be optimistic about that and I think the whole industry is working on it yeah, and I actually been sort of public private partnership during COVID-19, as we all night to ventilate is and parted with the government to do so that we have partnered on digital health, bringing as Jim said, bringing the emergency use authorization capability for that they were actually codes that CMS had for digital health.
That were being underutilized in 2019, they brought them out early I believe in 2019 and and even in 2019 were doing some Charles with them and they were actually upset at CMS that the digital health Cudworth being utilized enough COVID-19, driving acceleration of that and I think it will allow again the same thing as homestead.
Testing applied to Tele health and all remote.
Patient care, it's better during Covid times that you would not go to that clinic, because you won't get as exposed to that hospital you. When it gets exposed. It's also better during normal times, if you could do stuff at lower cost with better outcomes and not having to go to that hospital not having to go to that clinic. If you can do it from the comfort of your own home and as Jim said, the consumer prefers level cost and at their own home and that's.
All of regiment strategies to give that healthcare way you wanted.
Thank you.
Your next question.
My phone is Keybanc and you still have your line is open.
Okay. Thank you for taking the questions.
I'll keep it simple can you just give us a sense of wind propeller help can become more meaningful to the piano.
Thanks, Matthew good.
Good question propeller health is early phase in terms of the technology. It certainly having a huge impact and getting major multi hundred billion dollars pharma companies to adopted with the brand new.
Prescribed level.
Drugs, particularly in the asthma space in Europe and Japan.
As to when it becomes a material part of residents P&L and I'm breaking it out on a quarterly basis, it's going to be awhile for that.
And.
So it won't be in here in fiscal 2021, but as we look to our 2025 strategy of these next five years I do expect that type of digital health solution is going to be a double digit part of residents delivery and I will be talking about it on a quarterly basis, not just through milestones of pharmaceutical company releases.
Lead products and brand new not generics, but.
Hi, and prescribe will products.
I think that we will see this go well beyond where it started just hearing asthma. It will go across COPD and there are literally.
Billions.
Tens of billions of dollars that could be saved and keeping COPD patients out of hospital with better adherence to their drugs. Our work has shown that we can improve adherence rates by up to 58% and low a total cost of emergency visits an emergency costs by 25%.
But it's a great question, Matthew I'm, not going to predict the exact quarter and timing, but I can tell you that over the next.
20 quarters.
We will become a significant part we will be calling it out because it works and pharmaceutical companies know how to do things at scale and when they start to see that it improves the outcomes for their patients that the doctors are happier and most importantly that the patients are happier and out of hospital lower cost better outcomes, it's going to it's going to take off very quickly exponentially.
Excellent. Thank you.
Your next question.
Of UBS. Please go ahead with your line is open.
Good morning cannot schatsky.
I think it was in your prepared remarks, but you did preview the the luminous HFC device at the Prs Conference. This quota can you talk to I guess it'd be more detail as to what you say that device city him within the portfolio the rest of it offering and and when we might expect to say that device commercialised. Thank you.
Yeah, I'll provide just a little of your mental hand to rub Douglas Cielo to provide further look what we've seen during COVID-19 is a variety of different.
Products and solutions that have been used for patients from from oxygen to high floods therapy to full.
Noninvasive ventilation and then full invasive incubated ventilation. So I think there was some good exposure to a pipeline therapy can do.
With Covid because it can.
Provide some of the particles to move around hospitals, and so on HFC did not get as as as frontline on its therapy as fully integrated ventilators, but we think it gave some good exposure and has accelerated a little bit. Yes. This is very early days with high flow therapy, but it's a technology that that we put together.
Some of our existing platforms with great intellectual property and great opportunities for growth the time, but Rob you want to provide some further detail on what we're doing with the luminous digesting.
Yeah sure. Thanks, Nick.
So yeah, we think I kept tastes clearly a valid treatment and got some very interesting use cases.
We again you don't ask strategy is at a hospital and it hasn't been strongly studied in those types of environments. So it really a small part of a long to imply to see highlight 15 months fit in with how long term strategy.
It's a trial it'll take it's time to enroll patients.
This was poetry device Charles in the home setting are are generally pretty pretty tough to do.
And.
Take a tall, so we won't be reporting out of that typically.
But it certainly.
Area for Us and we think we've got some good solution.
Thank you.
Okay next question is from Australia.
Oppenheimer. Please go ahead your line is open.
Good afternoon, everyone. Thanks for taking my questions MC one question from my side.
Yes unit is now growing at single digits.
Could you help us understand the structural dynamics that could possibly push the second back to double digit truth.
It's the price elasticity of demand.
Looking at O U S adoption or acquisitions, the key just help us frame.
This segment in particular for the next 12 24 months. Thank you.
Thanks Raj Great question. So so software as a service access division is 12% of our revenues. It's a really important part of our long term growth to apply digital health technology capability outside the hospital and in the seven vehicles are and where where market later in the top one or two each of those categories yeah.
As I noted in the prep remarks suraj.
We've seen a slowdown of the flow of patients into hospitals, and therefore out of hospitals to skilled nursing facilities in particular as well as nursing homes and others and we do expect that that sort of if you like recovery will take some time and that's why I sort of said that the market's that we serve as a weighted average portfolio growth will grow in those.
Sort of mid single digits throughout this fiscal year, we expect to make that and beat that way we can.
And then as we get too.
Beyond the sort of 12 month timeframe I do think there's opportunities for those markets to get to the high single digit growth and inorganic plays there are opportunities to get to low double digit growth across that portfolio, we never except market growth, we want to Macy's and data is one thing we are doing in that division as well as in our core sleep apnea.
COPD and asthma groups is we're investing in innovation.
We have great and the beauty of software as a service innovation is you are talking weeks.
Between sprints, and then getting an MVP out there to provide solution to customers and so we have seen some really good innovation come into play to help people deal with COVID-19 that would help them sort of through this crisis and we think that when we get back to the sort of normal flow through hospitals and isc's of patients getting discharged into the out of hospital constant.
Cute network, we will start to see the census pick up and therefore the.
The revenues pick up as the as the.
The number of patients in that setting picks up by the time.
And so yeah, we have a leading position we're going to do well in the mid single digits will do well in the high single digits. Another time as we add inorganically, we can pull shaven beyond that.
Your next question is from David Bowie.
Please go ahead in line with open.
Thanks, very much money morning, all.
Sort of touched on the the resupply.
Coming through expecting that to continuing to the second quarter. Just wondering if you could talk a little bit of bad how you will swing that opportunity over the medium to longer term do you think this further opportunities on the resupply and then within that masking centuries, as well just whether you think some of the new product launches driving increase shape arrangement that'd be great.
Thanks, David that's yeah. That's a two part question. So I'll have ago actually you know what I'm going to end the whole questions of Jim Hong said, rather than do half of it.
<unk>.
Thank you for the question David.
Think we've been obviously quite pleased with the dynamics of resupply.
Q1, we expect it to continue in queue too and actually I do think what's going on especially probably globally, but the dynamics of resupply.
A specific to the U S market worth with.
With reimbursed and we think what's going on is that a patient new clean equipment, they're more sensitized to that because of the pandemic and B R. H M. Your provider customers have realize that that's that's an avenue that for better for the patients and better for patient care, but also better for their own business. So we think that dynamic should stay.
One thing and we had a question earlier about competitive bidding one of the one of the good results at a competitive bidding being delayed for some period of time is that it won't change map reimbursement and so we think that with the competitive bidding re announcement. It maintains the economics of Resupplied to exist in the U S market, which is our biggest resupply market and that's one of the reasons, we think that the dynamics for that.
Part of the market will persist that through I think at least at the fiscal year I think that will remain robust. So we've got to change in customer behavior, a change of patient behavior, both of which tenders resupply and then stability in reimbursement and I think those are really key points on market share we have the broadest and.
Most effective portfolio of mass and accessories on the market, we can with our range of products now with our latest launch of the air touch on 20 or minus.
Is complete across a range of masks and we can provide a certain fit for every patient with the right mask every time none of our.
Editors come even close to what we offer in the market and we feel really good about our shared position in our ongoing innovation.
All right. Thanks, Jim Thanks. Thanks.
Okay.
From Andrew.
Yes. Please go ahead Caroline is open.
Thanks, very much for taking my question.
Just.
Just thinking about the quarter just wondering if you saw any demos restocking effecting quarter and also if I could just ask you to talk to.
She didn't within the next two giving you some time when would kind of it.
So the first question about restocking sick about.
<unk>.
I look good bread you wanted to take something with regard to the restocking until the about inventory levels from Q1, Q and then.
Do you want to have a go at the oxygen question of your breath first.
Yeah sure.
I mean typically unhealthy later time.
Help too much inventory, so I guess they've got.
Typically bought bought pre regularly.
I'm not sure I mean as volumes would come up and patient clouds come back obviously is always coming into the system to support the patient flow coming back and we're seeing it sequentially.
I'm not sure they have really restarting like huge Ortiz.
Talk at the patient flooded comes back.
Pretty orderly fashion.
Obviously, we're saying that through throughout.
Revenues and sequentially what's happening.
But I wouldn't say it is characterized by seeing significant restocking August I think that's a bit more steady fly seeing coming through it.
Okay.
And will match up with sort of return of patients to return devoted.
Yeah, I think so.
Holding a lot of inventory if I will typically I can get I can get inventory quite quickly from the from the manufacturers and that they'll typically operate.
Obviously that I need to enough inventory and I think that the patient file will drive their order patents.
Alright, thank you.
And it's just on Percy.
Yes, Hi, Andrew.
I'd say program sort of just continues as we have we continue to learn we still go to our products and the sort of product Florence.
Process and post that in.
We continue to learn and would sort of still making adjustments and experiments of how to get the realized patients to the right providers.
For the right treatment there so.
Fair enough to sort of a long term.
Long term thing for on that.
No particular call out on kind of it around that.
Okay.
<unk> two hours.
Thank you very much I really appreciate it thank you Greg.
Your next question is from Anthony at the time of Jeffrey. Please go ahead to your line is open.
Thanks, and maybe just a couple on.
Math questions on on dense niv's and just comments in relation to Covid cases, and niv's going forward and so when we back up the $40 million from devices and you sort of Bacon patient flows in core sleep.
Wondering again, the mass doesn't quite get there at a low single digit so I'm wondering if pricing in particular firmed up in the quarter that can kind of get you there or other respiratory was better and then again the comment on niv's going forward potential.
Potentially not being a driver just wondering why that would be considering where the case counts are going.
Thanks to Anthony look it's a complex equation and there are so many moving pieces with second and third wives as regards to the global Pandemics.
All we know about every prediction that has been made the last nine months is that wrong. So.
So we don't know precisely what the needs are going to be for the second and third wives and last quarter, we were a bit muted about what we thought would happen. This quarter and then we had $40 million worth of sales in the September quarter.
But the book, our best projections of the sort of epidemiology and sort of humanitarian mold that we put together the flow of COVID-19 around 140 countries that we traded in within the big countries, specifically in some cities and states that we're looking at we don't think we're going to reach a state where there's going to be hospitalizations like.
We had early January February in Wuhan and then.
March.
February March in in Milan, and then March April in New York, where you reached 100% capacity and literally ran out of Enlightenment ran out of I C.
<unk> beds Fulda has been light is.
Model show that the the magnitude of the second and third wives are actually reduced in cities in China that we've seen second and third wives across Singapore, where we've seen them in in some parts of Europe, where we're already seeing them and so we just being realistic that we don't expect sort of those emergency you spend a lightest to be at the sort of magnitude and you can actually see that it went from a triple.
[noise] digit millions in the June quarter down to $40 million and the September quarter, it'll be significantly reduced hearing the December quarter, nothing will necessarily be de minimis, but it might be and look out job is to focus on our call market and the coming back of that and what we're seeing is our investments and digital health. We've made these last five years and how with a market leader there have incredibly well.
Set us up for the growth and that and so I.
I think as you start to look at modeling resume looking at a year on year is going to be a very difficult and complex equation, which I am not sure you'll ever get to the right answer until even up until the numbers are in on it. What we can look at is cute cute quarter on quarter sequential sleep apnea COPD no just across those devices portfolio cross that.
Mosques portfolio from Q1 to Q2 Q2 to Q3 and Q3 to queue for we're going to see sequential increase in the slate devices, we're going to see sequential increase in the sleep and COPD mosques and accessories as we go through that quarter. So complex equation, yeah down down sort of in the single digits year on year devices, but.
Hugely complex equation with tile wins it headwinds look at Q on queue and you start to see the positive trend of what's happening as well as we're opening up and as economies awakening working out how to run digital health and home sleep apnea testing in remote COPD diagnosis of prescriptions for asthma and getting patients onto platforms like propeller like if you for ventilation.
Like.
10, and as they are solutions platform, and that's where we're investing and that's where frankly al technology will win.
Thanks again.
Your last question will come from both low J P. Morgan. Please go ahead Caroline is open.
Thought I've cancelled that one but just one last question.
The we got some reports that celebrates minutes mahsouli backorder through the quarter I'm. Just wondering if you could talk to that what might have caused how significant it was I guess I'm trying to understand whether it is demand driven or whether there was any supply. She said please.
Thanks, David Yes, yes, I believe it was demand driven.
As you said, we had really really good numbers in the quarter, but Jim do you know any details of across the sleep business without trying to go match by match right.
Most of the backwards that we faced where demand driven.
There were some logistical issues as well in the supply chain.
We've had also some domestic shipping issues little things here and there that have been an issue that is almost all demand driven.
Perfect. Thanks, very much I'll, let you finish up.
Thanks, David.
We are now at the 75 minute Mark So I will turn the call over to the next town.
Thanks, Cheryl and thanks again to all of our shareholders for joining us on this call I'd like to take the opportunity here at the end to thank the 7500, <unk>, many of whom almost all of whom are shareholders as well for their dedication hardwork, helping people sleep at a brief better and live better lives outside the hospital and 100.
40 countries. Thanks for what you do today and every day, thanks, especially to our resident heroes, who are going to al plants and production plants out distribution plans, our tech services centers and actually because you have to touch physical product nothing out to work from home. Thank you for falling all safety procedures in doing that really well for this.
Process I look forward to talking to all of our shareholders here in around 90 days.
<unk> you to cause al.
Great. Thanks, Nick Thank you all again for joining us today.
Do you have any additional questions. Please don't hesitate to reach out to Investor relations or to me directly as previously mentioned all of the documents along with the transcript and a replay of our call today will be available on our website later.
<unk> you May now go ahead and close our call.
This concludes thanks, Matt first quarter of fiscal year 2021 earnings like webcast you may market.
H.
Okay.
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