Q2 2021 Resmed Inc Earnings Call
Yes.
Moving on.
Net.
[music] efficiency.
Welcome to the Q2 fiscal year 2021 net earnings conference call My name as Sean telling us 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 reported I'll now turn the call over to Amy.
We went from Vice President Investor Relations and corporate Communications, Amy you may begin.
Great. Thank you Chantelle.
Good morning, and a good afternoon, everyone welcome to resume a second quarter fiscal year 2021 earnings conference call.
As for joining us this call is being webcast live and a 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.
With me on a call today are our CEO, Mick Farrell and CFO, Brett standard Cock and several other members of management will be available during the Q&A following our prepared remarks.
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 our earnings presentation.
As a reminder, our discussion today may include forward looking statements, including but not limited to expectations about resin its future performance.
We believe these statements are based on reasonable assumptions. However, our actual results may differ.
You are encouraged to review our SEC filings for a discussion of the risk factors that could cause our actual results to differ materially from any forward looking statements made today.
With that I'd now like to turn the call over to Mick.
Thanks, Amy and thank you to all of our shareholders for joining us on today's call on.
This is a first call for calendar year 2021, we are happy to see the steady growth of production distribution and availability of vaccines around the world.
Clearly, we all want to thank Bob for production and wider distribution. So that people can be safe from COVID-19, and for you to open up a communities and for you to get back to their lives. We continue our work here at <unk> to support frontline respiratory therapists and pulmonary physicians critical care physicians as well as providers.
Patients and was mediums around a 140 plus countries that we operate in.
You know a cool market the patient diagnosis trends in sleep apnea, COPD and asthma, a steadily increasing modestly improving on the trends we saw in the September 2020 quarter.
We're seeing this improvement a patient flow, even as second and third waves come through northern Winter Hemisphere Nations.
As physicians and providers are adopting digital health, which enables patient engagement, even when people cannot or do not want a night live and in person.
In my remarks today, I will provide a high level as a few of a December Q2, FY 'twenty one business results and then hand, the call us to Brett for further detail on the financials on.
We'll also review progress towards our resume a 2025 strategic goals, including execution highlights against a quarterly and annual operating priorities.
Today, we have published and reported solid high single digit growth in top line revenue and strong double digit growth in both net operating profit as well as earnings per share.
These results once again speak to a resume team's ability to work innovatively and delivered results, even when facing lower price and activity and little to no incremental benefit from been lighter sales.
During the second quarter of fiscal year 2021, we generated over $170 million, a cash, allowing us to a return of a $57 million in dividends to shareholders.
We have also grown research and development investments in digital health technology, as well as hardware software and clinical research.
We forecast increasing digital health demand from patients from physicians from providers and from health care systems as they embrace remote patient monitoring and they adopt data driven population health management systems.
We have an exciting pipeline of innovative solutions that will generate both medium and long term value for our customers with an industry, leading IP portfolio, including our the 6000 patents and designs.
Our digital health ecosystem is an important competitive advantage for a regimen that offers integrated care to drive superior clinical outcomes to drive better patient experiences and to drive lower healthcare system costs.
We now have over 8 billion nights of respiratory medical data in a cloud based air solutions platform. We have sold over a $13 5 million, 100% cloud connected medical devices into the market from a regimen and we have a 15 million.
<unk> enrolled in a F.
<unk> solutions in.
In the cloud.
With these data liberated for the cloud we can unlock value for all of our customer groups. We can unlock value for patients through Maya we can unlock value for physicians through as you and we can unlock value for IV Ns tier providers as well as private and government insurers for data driven popular.
<unk> Health management, that's the future of health care.
The goals, we shared with all of our customer on the three one to improve patient outcomes patient quality of life patient chronic disease outcomes, two to lower overall healthcare system costs and.
And three to bend the curve of chronic disease progression.
To be clear the spectrum of chronic diseases that we look at here at <unk> are of course, including our core focus areas of sleep apnea, COPD and asthma, but it also includes biological systems interaction with cardiovascular disease with cancer with <unk>.
A lot to diabetes with neuromuscular disease, Alzheimer's and beyond.
During our last earnings call I discussed how Covid has continued to accelerate the rapid adoption of digital health technology around the world.
We are seeing a recognition of the value of remote patient screening virtual diagnoses remote patient management and a rapid evolution of digital reimbursement models in many of the nations that we set a patients as.
As an example of just one of these Germany during the quarter approved reimbursement for Mandibular repositioning devices, including our digital three D printed dental sleep apnea product called Navajo.
This is the first time, Germany as approved such a product to treat sleep apnea.
In addition, several German states looking at and experimenting with digital health reimbursement models.
These are exciting developments and we expect this will benefit our German business over time.
We are also seeing other national governments, including France, Japan, and the United States, where they have adopted models and taken action to accelerate digital health adoption.
Remote healthcare is a incredibly important as during this COVID-19 pandemic, but digital health is also a valuable well beyond the impact of Covid because it provides a better availability of health care.
It provides excellent quality care for patients and it provides a significantly lower costs for healthcare systems worldwide. These trends are key.
To resume as 2025, a strategy, we believe the accelerated adoption of digital health solutions.
Represents a significant and permanent shift of the adoption curve for resumes market, leading digital health solutions.
Let me now briefly update you on our top three strategic priorities. These three priorities.
One to grow and differentiate our core sleep apnea, COPD and asthma businesses.
Two to design develop and deliver world, leading medical devices as well as globally scalable digital health solutions and three to innovate and grow the world's best software solutions for care delivered outside the hospital and especially in the hunt.
In a core market of sleep apnea, we continue to see sequential improvement in new patient diagnosis trends as well as a very strong re supply activity.
Both of which have supported another quarter of solid revenue growth that you can see on the numbers, we just released.
With things, 70% to 90% of the pre COVID-19 patient flow coming through our biggest market in the United States.
And to take an example of a European country in Germany, we're already back to 85 to 90 plus percent in some states of Germany, a pre COVID-19 patient flow.
Even in countries like China in a large Asia region, we sold a sharpest declines at the start of this crisis with very severe lockdowns in Asia, and particularly in China. We're now back to already seeing around 70, plus percent, 70% to 75% of pre COVID-19 patient flow coming through the mainly hospital clinics.
In our China market.
Obviously, the recovery rights, a new patient starting sleep apnea therapy may be impacted by the typical seasonality, we see now a largest market here in the United States in the March quarter as a result of insurance deductibles resetting at the start of the calendar year this as as per normal.
Seasonal impact affects devices more than at a fixed mask systems, given the relative price points are for two categories and the fact that the vast majority a mask revenue is returning customers on resupply programs.
The resiliency of our mask and accessory resupply has been strong throughout the COVID-19, pandemic and we see it as remaining strong through the recovery and strong in a post COVID-19 world.
We continue to produce clinical research showing that diagnosing and treating sleep apnea saves money and improves quality of life for patients.
This quarter, we are now showing data on the trading sleep apnea is actually a life and death decision.
The latest data from the European respiratory Journal, which published during the quarter results from a 30 year study.
The high level summary, as these results were that treating sleep apnea increases patient quality of life and extends quantity of life.
It also shows the condo side in that not trading sleep apnea leads to a significantly higher incidence of heart attack type two diabetes and ischemic heart disease.
Leading to significantly higher health care costs trading those diseases, and ultimately leading to early adapt.
Let me now turn from sleep apnea to a discussion of our respiratory care business focusing on our strategy to better serve COPD and asthma patients worldwide.
Our goal is to reach more patients in our core respiratory care markets, including noninvasive ventilation as well as life support ventilation as well as newer areas, including pharmaceutical drug delivery and high flow therapy.
We make the smallest quietest and most comfortable devices on a market and they are all 100% cloud connectivity.
We continue to see rapid adoption of the ASU for ventilation software solution that we launched in Europe in the midst of the peak of the COVID-19 costs as they are about nine months ago, we accelerated the time to market to meet the needs of physicians and patients during the Covid peak and it's true.
To be very useful during the peak would be on the peak.
The value being provided for this platform has has helped a healthcare systems in the markets they operating it.
In short we are making digital health part of the standard of care for respiratory care not just in Europe, but worldwide.
During the quarter, we decided to exit the portable oxygen market and shutdown a concentrated business in that category.
We entered the PSV market in 2016, as a way to engage with stage two and stage III COPD patients.
Since then in these last five years, we have acquired propeller, giving us access to COPD patients even earlier in the COPD disease progression, including stage, one and stage two CIP day patients. Additionally.
Additionally, and especially during Covid, we've seen more rapid adoption of high flow therapy that can support some COPD patients and of course, we have our core non invasive ventilation and life support ventilation solutions for more severe COPD patients in markets globally already in short we don't need.
So as to help in our end to end digital health pathway for CIP day.
Additionally, given no positive changes to POC reimbursement in the latest round from the US government and the economics of our customer acquisition cost versus last lifetime value.
PSC market itself is not attract not as attractive as it was five years ago.
The bottom line as this we have pharmaceutical drug delivery management through propeller to support COPD patients in stage, one and stage two CIP day, we have the emergence of high flow therapy for stage II and stage III CIC day, and we have growing use of noninvasive ventilation and lot support then licensed to support patients.
In stage III and stage for CIP day. So in summary, we a very well positioned to help patients physicians providers and payers with and into a digital health management pathway for <unk> I would pay day.
Let me now review our software as a service business.
During the quarter as SaaS business grew in the mid single digits year on year, driven by continued strong uptake of our bright tree AGM the resupply solutions.
The impact of Covid on surgical procedures and other in hospital and out of hospital visits has impacted discharge rates.
Particularly affect a census at skilled nursing facilities and hospice.
On the other hand, the flow of patients in the home medical equipment and home health has been recovering.
Well even stronger.
So as we look across our portfolio of out of hospital care settings, including home medical equipment skilled nursing facilities home health and hospice life planned communities private Judy homecare and senior living we expect that the weighted average market growth rate of these verticals will be in the low to mid.
Single digit range for fiscal 2021, we expect this weighted average market growth rate portfolio to return to mid single digits, and then to high single digits as hospital discharge and ambulatory surgery Center, a discharge rates return.
Our offerings, a very well received in each of the verticals that we serve so we will not just accept these market growth rates, we will look to meet and beat that group market growth rate as we did this quarter getting a return from a significant investments in R&D within broad tree and matrix care and through expansion of our partner.
<unk> with hospital based electronic health record provide us.
<unk> continues to innovate to drive resupply growth, particularly on the integration and scaling of the snap technology is going very well. This has allowed our home medical equipment customers to expand their resupply programs and support more patients with better engagement at a time during the Covid pen.
When they desperately need new innovation, both for providers and the patients.
Matrix has also introduced new technology, we introduced new voice to text technology at the point of care, which helps us address CAGR of us Sean.
<unk>, which which a rock during COVID-19 by enabling better and more efficient workflows for the customer while also delivering a better experience for the ultimate customer who's the patient.
Our expanded relationship with Sirona is progressing very well, we announced as soon as preferred solution across home health and hospice as well as her medical equipment and they a pharmacy and infusion businesses.
Our increasingly important relationship with sirona as leading to better interoperability for providers, our mutual customers and an improved experience for patients with.
We anticipate opportunities to deepen and expand as collaboration to sleep apnea and COPD disease management with these partners part of a ton.
Clearly 2020 was an unprecedented year for companies across every industry and there was much suffering around the world.
However, we see some blessings during all that suffering.
We hear it resonate we were able to be day during the emergency we were able to pivot.
<unk> team and a whole business to provide over 150000 ventilators during the peak needs of the pandemic and get them to where they need it based upon a humanitarian epidemiology model.
Additionally, COVID-19 has highlighted the importance of respiratory health.
Covid.
Generally kills people through us.
Through acute respiratory distress syndrome.
It's awful, but that has a rights the awareness of respiratory hygiene respiratory health and the field of respiratory medicine.
The cross US also showed us the importance of digital health and has accelerated the awareness and adoption of technologies that can be used for remote patient screening from a patient diagnosis remote patient setup as well as remote patient monitoring and management.
We have seen this cross us drive the importance of health care delivered outside the hospital and Thats, where a resume competes for more than 90% of our business and it's where we add value to customers and where.
We have seen an ability to bring digital technology that we've been inventing and developing for over a decade digital screening digital diagnostics.
Digital therapeutics and digital health management of patients.
With over one 5 billion people worldwide suffering from sleep apnea, COPD and asthma combined we see incredible opportunities for greater and greater adoption of a scalable technologies.
We are poised to continue relentless innovation and development as well as to provide the global scale that is needed to drive as technology to the 140 countries that we operating and beyond.
Before I hand, the call over to Brett <unk> remarks, and then we get to the Q&A I want to once again express my sincere genuine gratitude to the more than 7500, <unk>, who as perseverance hard work dedication during the incredibly challenging circumstances for 2020 allowed our partners in healthcare to <unk>.
<unk> the lives of many hundreds of thousands of people around the world with emergency needs for ventilation literally giving the gift a breath in the gift of life too many during COVID-19.
So thank you for the rapid pivot back to a core markets and a core purpose of helping people with sleep apnea, COPD asthma, and all those who need a world class care delivered well a way from the hospital and principally in there on time.
With that I will hand, the call over to Brett in Sydney, and then we'll move to Q&A Brett.
Alright, Thanks Nate.
My remarks today I will provide an overview of our results for the second quarter fiscal year 2021, and some remarks on FY 'twenty, one second half outlook.
Let's now that it will comparison.
A quarter.
As Nick noted, we had a strong quarter group revenue for the December quarter was 800 million and includes a 1% on the prior year quarter.
In constant currency terms revenue increased by 7%.
Consistent with FHA Ginnie Q1 earnings call, we draw a minimal incremental revenue from COVID-19 related demand in the December quarter.
Taking a closer look at geographic distribution, where we can.
Whitney Ethernet software as a service business while for housing you a candidate in Latin America countries with a 420 for that meeting.
An increase a phosphate.
Sales in Europe Asia, and other markets totaled 290 want a meeting an increase of 17% for income.
And counting times, an increase a 10%.
By product segment U S, Canada, and Latin America device sales for $205 million, an increase a 1%.
Boston, our sales with $222 million, an increase of a change.
And your advisor on other markets, we've lifestyles totaled 190 day meeting an increase of 16% when constant currency.
Increase.
Masks and other trials in Europe, Asia, and other markets when launched a $3 million increase as I think the same on constant currency zones and Chris.
Focusing on.
Globally in constant currency plan B for styles.
Sales increased by 5%, while Boston have a product increased by volume.
Software as a service revenue for a second quarter with $92 million an increase of 6%.
On a non-GAAP license SaaS revenue increased by 5%.
During my commentary today, I will be referring to non-GAAP numbers, the non-GAAP measures as absolutely impact of amortization of acquired intangibles.
Structuring expenses for the purchase accounting fair value adjustments, a nitrogen cadence for revenue.
The litigation settlement expenses, and a fair value adjustment of equity investments.
We have provided a full reconciliation of a non-GAAP to GAAP numbers in a second quarter earnings press release.
Our non-GAAP gross margin improved by 20 basis points to 59, 1% from the December quarter compared to 59, 7% on quarter last year.
The increase is predominantly attributable to manufacturing efficiencies favorable product mix changes in foreign exchange rates.
Actually offset by declines in average selling prices.
Moving on to operating expenses.
SG&A expenses for the second quarter were 169 million a decrease of 1% on constant currency SG&A expenses decreased by 3%.
SG&A expenses as a percentage of revenue improved to 21, 3% compared with a 23, 3% we reported in a prior year quarter.
Benefiting from a cost management and reduced travel as a result of COVID-19 restrictions.
Looking forward, we expect SG&A expenses in the second half of FY 'twenty, one to increase in a low single digits relative to the project period.
R&D expenses for the quarter were $54 million, an increase a 10% on a constant currency basis, an increase of 7%.
On the expenses as a percentage of revenue to six 1% compared to $6.
In the prior year.
We continue to qualify as our investments in innovation, because we believe a long term commitment to technology product and solution development will.
We believe a sustained competitive advantage.
Looking forward, we expect R&D expenses to continue to grow year over year, and a high single digits, reflecting this commitment to a device.
Total amortization of acquired intangibles with non cash gain for the quarter on stock based compensation expense for a quarter.
Volume.
Non-GAAP operating profit for the quarter was $254 million, an increase of 16%, reflecting strong top line growth expansion of gross margin as well contained operating expenses.
On a GAAP basis, our effective tax rate for the December quarter was 14, 8% while on a non-GAAP basis 50 tax rate for the quarter was 22%.
We continue to expect a effective tax rate for a full fiscal year 2021 will be in a range of 17 to launching the same.
Non-GAAP net income for the quarter was $206 million an increase of a second point the same one.
Non-GAAP diluted earnings per share for a quarter were $1 41 also a 17% increase.
A GAAP diluted earnings per share for the quarter were $1 23.
During the December quarter, we closed a portable oxygen concentrator business.
Recognize that restructuring expenses of $13 9 million associated with the closure.
Going forward the cessation of Apple pay as a business will have an immaterial impact on both revenue and earnings per share.
We do not expect to incur additional expenses in connection with activity in the future and we had adjusted for these one time expense and a non-GAAP results for the quarter.
Cash flow from operations for the quarter was $117 million, reflecting robust underlying units, partially offset by increases in working capital.
Capital expenditure for the quarter was 45 million depreciation and amortization for the December quarter, a total of 41 Lee.
During the quarter, we paid dividends of $57 million.
We recorded equity losses of $2 6 million in our income statement in the December quarter, a associated with a fairly joint venture.
We expect a record equity losses of approximately $5 million per quarter for the second half of FY 'twenty, one a slice yet with a joint venture operations.
We ended the second quarter with a cash balance of $256 million.
At December 31, we had 826 million in gross debt and $570 million.
Our debt levels are not as modest.
Timber 31, we had a third a $1 $4 billion available for drawdown under our existing revolver facility.
A board of directors did I declared a quarterly dividend of 13 on <unk> per share, reflecting the board's confidence in a strong liquidity position and operating performance.
A solid cash flow and liquidity for a broad flexibility in how we allocate capital.
We have focused on paying down debt as well as ensuring we have cash reserves to support the company through the uncertainty caused by the ongoing pandemic.
Going forward, we plan to continue to reinvest for growth throughout the day.
We will also likely deploy capital for tuck in acquisitions, such as snap, which was completed during the third quarter of fiscal year 2020.
We intend to continue returning cash to shareholders through a dividend program and we may all for regime on our share buyback program. Some time during a calendar year.
This program, having been on pools and sales.
Our acquisitions of nitrogen and propeller health in fiscal year 2000, a non client.
Turning as where FY 'twenty one outlook.
At a high level, we operating negligible price did not seeing generate a demand for a vandal items and do not expect any incremental benefit in the second half of FY 'twenty one.
As a reminder, we recorded a 35 billion in kind of a general bank a light on revenue March quarter last year.
And 125, meaning Covid you don't have to think a lot of revenue and a june quarter last year.
Boston accessories, a continued to demonstrate resilience and quite possibly a months.
Reflecting the insulating value of a large patient installed base and the success of a ready supply service offerings.
We expect to see continued year on year growth of our Marcel from second half of FY 'twenty one.
Notwithstanding continued COVID-19 challenges, we continue to expect a sequential increase in useful tysons, which should support a resort style. That's a basically the second half of FY 'twenty one.
However, we typically experienced a small seasonal sequential decline in revenue from Q2 to Q3 largely attributable to a great state a deductible for health insurance plans in a U S market.
As triangle slightly.
In FY 'twenty one.
For a closed block many other companies we continue to experience significant on certain accounts environment, including a potential disruptive impacts of ongoing restrictions imposed in many of the countries operating.
As a result, a forecast for possible future revenue outcomes remain dynamic.
And with that I'll hand, the call back to mining.
Great. Thank you Brett and thank you Mick as Sean tell let's now go ahead and turn to the Q&A question on the call.
Thank you as well now begin the question and answer session. If you have a question. Please press Star then the number one and you touched on from it.
As the pound sign a housekeeping.
A key.
If you are using a speakerphone may need to pick up a handset.
On pressing amendment as a reminder, we ask the conclusion yourself to one question.
As you have another question you are welcome to hop back into the queue once again.
If you have a question. Please press Star then the number one I mean, you touched on phone.
Your first question comes from Margaret.
Your line is open.
Hey, good afternoon, and good morning take a trend.
Thanks for taking the questions.
Maybe the first one for me as a set to hit it off you guys mentioned that there were negligible net sales this quarter. So does that imply that this as a good revenue base now for our model to grow off of for that core business and that's the reason I ask us if it does.
And that sales went from 40 million last quarter non this quarter actually it doesn't imply that the state business is doing quite well so any details would be great. Thanks guys.
Thanks for the question Margaret and.
Yeah, clearly in the December quarter, we had as we predicted sort a de minimis mineralized sales a little bit in northern Europe, perhaps but not material across the group and as Brett said in the remarks, just now from from him and I said as well we expect.
Sort of Covid related in light of sales throughout the rest of the fiscal year on beyond people have enough.
In the hospitals, which is great.
And so yes, it does start to form a good a good base. When you look at the core business of sleep apnea, COPD and asthma patient flow I mean, as we said the seasonality usually from Q2 December quarter to Q3 March quarter related to the us market on deductibles and so on but for the other 139 countries, we're in and across the portfolio to a good base to start to tick.
Get that slow and steady improvement in the patient flow and this new digital health driven world Margaret on patients go into primary care.
And tele medicine, and getting referrals for the specialists and coming through the pipeline and so we think it's better for a long term, but it is slowly and steadily coming back from from that bison and yes, as we said sort of in those numbers or the percentage flow a patience as best we can see it we.
We saw improvement from September to December. So you noted that in in tightening up a in sales over that 90 day period as well.
Thanks, guys.
Your next question comes from David Bailey of Macquarie. Your line is open.
Yes. Thanks.
Good morning, and Brett.
<unk>.
Just.
And actually what you how you seen adherence levels I have a kind of a non <unk> what are you seeing a pick up on it.
Over the last sort of calendar year and any extension on that.
Any sort of relationship that you have been able to.
To be honest from.
Between between resupply adherence level any comments there would be interesting.
Yes, its interesting as we certainly things sort of modest sort of single digit improvements in overall adherence as we look at the big data and we're actually doing a whole bunch a research on us to understand the sort of kinetics and dynamics of COVID-19 on the market I think really early state in sort of March April people.
There was a lot of things going around it maybe.
Using a CPAP would bring more virus in the room. If you have other people rooms, there was some fear and uncertainty and doubt in that early period, but I think that was all covered by.
By doctors, saying listen if you get treated for sleep apnea, it's actually preventative and improving your lungs and lower impact and.
And severity of COVID-19, and again, we look for so much clinical literature out there in terms of the general price, but through the scientific data, we're able to see people adhering those for adherence or a hearing more on sleeping more and using the devices more and David to your point they are participating more in those resupply programs. They are.
Seeing the importance of respiratory hygiene, and respiratory health and when they get a text response or an app click and a chance to say, yes, I want that new mask I want that new choosy on what that humidifier. They are clicking at a much higher rate and getting closer to frankly, what they should have always done which is keeping a respiratory hygiene at top of mind. So.
I would say modest improvements in overall adherence and more significant improvements in the probability that a person says who isn't a adherence says I want to get that mask with that Cotai I want to get that math now to get to get re supply and in cash markets same thing as well. So it's a really good question. David It is a complex equation and we're working through all the variables but.
Yes modest improvement in adherence and really good improvement in Moscow, a supply as you saw on the numbers as well as you saw in the health of a patients.
Thanks, Nick.
Your next question comes from a warm Harrison.
<unk> Your line is open.
Good morning Multibank.
A question on a turnaround the standard Cheng.
From a couple white <unk> market.
Do not seem to have them too much to get to the right to purchase a philosophy as well.
Can you give us some color on what youre hearing in relation to the pipeline.
A lot position AXT, Inc.
Okay.
The lab on at home on.
<unk>.
Thanks, Jim Hong Kong simple.
Yes, Lyanne, it's a good question and a luck David it's complex because there is a 140 countries all adopting digital health a different rights and all having different sort of national rules around.
Retail and restaurants as well as how you get.
Back to life and back to health care as well healthcare has proved pretty resilient I think because people know it as an essential industry and the data that I shared earlier around truly life and death decision of using Youll see Palo north for treating sleep apnea.
It's incredible to have those data in the hands of a physicians worldwide as they as they driving adherence to.
One thing to be doing a digital tele medicine, KOL with a patient over a zoom or a secure network as another one to say listen using this device will save you a life as well as improve your quality of life and so the numbers, a plus or minus 10% anyway.
It's why the ranges as a broad but the U S market is somewhere between 70% to 90% a pre COVID-19 patient flow as best we can measure it by at the link.
Usage by <unk> 10, sort of air solutions, Activations of new devices, and reactivation of re supply devices and it's not perfect data and it's different in all 50 states just in the country, but I'm living in here.
When California, Massachusetts, and Florida, very different areas of opening up a their whole economies on local and state regulations, but that ranges as pretty broad, but it's pretty accurate in terms of the patient flow through and Thats why I think you've seen people really participating in mask and accessory resupply programs, but a slowdown obviously a new patient starts.
And as you pointed out the kinetics of it yes from a from the September quarter, I think we've moved up sort of somewhere between five and 10% in each of the key market as I talk about U S, China and Germany as examples for Americas, Europe, and Asia. So that's 510% 500 basis point plus improvement in the quarter.
This V shape.
Back to a 100% December 2019, again, but it's a slow steady sort of new shape improvement in the flow of patients, which we think doesn't overtime flow through with all the systems and all the restrictions and depending on it.
As a portfolio of a 140 countries through two to patients getting set up and started on a lifetime of therapy on on sleep apnea COPD therapy.
And our next question comes from Paul <unk> with.
With UBS your line is on.
Good afternoon, Mick good morning, Brett.
Hey, good afternoon on as well just a quick question on rest of the world.
I also Michael ex U S sales, so a strong growth rate as far as a flow.
<unk> generators and masks just wanted to give us a bit more color.
Blake therapies are still sort of a recovering back to as you say 80, 590% in some regions just as what else drove that very strong growth spread across those two product categories and was there any.
10 to Tommy for example, in Asia Pac that might be contributing to that to a strong growth rate.
Thank you. Thanks for the question so I'll have a little bit of a go at it and then hand to Rob Douglas.
For <unk>.
A lot in here to provide more detail as I said there was some modest.
Sales of enlighten us in western and northern Europe during the quarter that will flow into the devices number.
At plus 10% a constant currency and then a masks at plus 12% constant currency again, this as Europe Asia and the whole entire rest of world. So we're talking on a 135 plus countries on so Rob do you want to have a go at summarizing that oil for sole succinctly cutoff.
Cutoff for last point, so that there wasn't any tend to tend to size of those issues in any of those markets, particularly.
But across the board.
Really interesting we still had strong performance in many many countries.
Usually the country's a very and found a stalling some a settlement on a given time.
It looked like there was a pretty good strong performance and we think the same underlying fundamentals that we've talked about particularly in the us market. We're applying a different scale from these markets and so in many smaller markets. We saw the uptake of the digital solutions being really strong and in fact that underpinning that in Ireland technology basis.
Performance for that technology.
Moving those digital requirement from each of the different countries as well and then it was just really sort of a patient demand for making sure that the scratch really good we filled a dynamics across the board.
Hone shows a resurgence.
Didn't seem to have caught the effect that you're a modest thought because I think the health systems with a limited maintenance shutdown on everything in the health system, a menu with AT&T.
On an insight into the sort of a diagnosis process as a net kept going on as Mick said before things on yet back to a fully open a normal but the whole system striving to get to him additional things like a tightening home sleep testing in some markets.
Glenn supportive as well so a truly a whole suite of solutions.
As supporting a market with a base to treat these patients get the sky.
Thank you.
And your next question comes from Matthew Kim from Keybanc. Your line is open.
Okay, great and thank you for taking the questions.
Hey, Nick as a quick one for me just what is the pushback for what is the pushback from a payer community on closing the gap with reimbursement between our home sleep testing and broad based on.
Thanks for the question Matt.
Look I think the payer community.
It varies and it would take the example of United States, where it's probably 25% government reimbursement, 75%, if you're locking us lay back but it seems like a sleep apnea sales of private pay us.
They are all very supportive of a bus in lab and homes without any a testing if you look at the country pre COVID-19 was probably about 45% Huntsville testing versus 55% inline I think thats moved up very significantly during COVID-19, obviously during the peak as the Lockdowns went very high and it will probably level out somewhere in that 50.
55%, 60% range of the diagnoses Bernie Han sleep apnea testing.
Often.
Have.
Delta I think it can vary from 200 $250 for Huntsman the a test.
700, $5800 for for and in lab tests, just relative to the cost for the obviously for the pilot they would want if it's clinically equivalent pricing and good sensitivity and specificity of the data and good patient outcomes and tight as patient satisfaction as well the pie as care about day would flow towards home sleep apnea testing with ICANN, but look on.
I'll hand over to dive into us to add any more for the color on that.
On that dynamic, yes, Matt at least in the us.
There actually are some pretty straightforward dollar investment and time requirements that go into reimbursement for a lot of payers and the fact of the matter is.
<unk> equipment as a lot more expensive to purchase a more expensive to operate and it takes more time from both a position on that facility. So that's what they're looking at more so than necessarily the incentives that that are driven by the lower cost of home sleep testing and the higher.
Reimbursement rate a PSG, we certainly support a good Phd when it's appropriate for the patient.
And Theres a lot a sleep labs that have invested a lot of capital on the vessel at a time for their staff in that and it's important that they'd be reimbursed adequately.
So they both have their place in the market, but I think it's generally those sorts of things that go into their reimbursement decisions not necessarily outcomes, they're trying to drive.
Thank you.
Your next question comes from a line and Jean Paul on MSP.
MSP. Thank you your line is open.
Thanks, very much for taking my question just a.
Looking at your margins, obviously masks growth to outpace supply generators.
As a mix effect could.
Could you just sort of talk to that mix effect, but also expand on your comments on average selling price decline.
Brett that's for you.
Thank you Sean Thanks, Mick Thanks, Andrew Yeah, I mean, we had if you looked at it year on year on 20 basis point expansion.
On a a moderate expansion sorry for me.
Moving parts that I talked about and that impacts us a pretty modest were pretty small price level.
The mix pretty much of a kind of that strong market price that's going on on the product mix.
As you looked a year.
Year on year, a little bit a.
A benefit from FX, but pretty volatile.
And mainly on ISP as a guidance.
I would characterize as non environment from a pricing perspective on net.
Reflected in net.
A pretty small movements in the gross margin year on year.
So a nice pace.
Pretty modest as you flagged it.
Yes.
On a historic context, Inc.
It's a pretty been on and go on and for us relative to historical trends.
Okay.
Perfect. Thank you.
Your next question comes from the line of Sean.
On a month of Morgan Stanley Your line is open.
Thank you and good morning, Mick I have a question on the exit of the <unk> business.
I get this right and I think a product simplistically you're at a place correctly that you think you've got those mid stage COPD patients covered already true non invasive fence and theres been a reimbursement and maybe theres been a clinical outcomes, but mix is there any sort of a change in the thinking about how the funnel model for right to get to those patients from service.
With noninvasive vents.
Propeller. Thanks, Nick.
Yes, Sean it's a great question and.
Yes, youre right and look at what propeller that acquisitions about.
24 months all of us.
So that what that allowed us to do is to get to patients much earlier in the CIP day development cycle, It's really stage, one COPD, where you have that shortens of breath climbing a a lot of stay as in you got to see the primary care Doctor and talk about it and they do the the diagnoses and find out that you do have some lung dysfunction and there's a broad.
Or a cold chronic obstructive pulmonary disease, you get put in that bucket in as many different types of.
Therapies that the Doctor can go for it but a lot of them are those pharmaceutical therapies upfront and those in highlands on not.
US as prescribed when they just given a prescription in a sign as when appeal as a prescribed for a high cholesterol or a low blood pressure as the adherence rates a very low in the general population and a 50% plus or minus and with propeller health, we're able to drive as does adherence rights up double digits on a relative basis and drive to incredible adhere.
Adherence rates that the pharma industry, just hasnt seen in respiratory medicine, and so a propel a technology is really exciting as really knew we have major global pharmaceutical companies partnering with us in major markets driving that early days, but we think that allows us to get to stage. One stage two patients in a very significant scalable why to get them on that sort of inc.
And digital health journey in COPD day, as a progress to stage two stage three they sometimes get prescriptions for high flow therapy oxygen and <unk> right and so with their with noninvasive ventilation on life support ventilation, which is really stage III stage for and in that sort of a crossover for <unk>.
From.
From the pharmaceuticals to ventilate, a but as oxygen and hot flow therapy, a used HOKA as there are these newer and more scaling and we think more related to a core business in a quarter losses, we Mike.
It allows us to treat the patients and take care of the patients and so PSC as just became.
An additional one that wasn't as wasn't as important in that into a journey and certainly didn't have the sort of margin profile or the growth profile with the changes in reimbursement to allow us to to have a sign growth opportunity that we have in non invasive ventilation on life support ventilation, so thats sort of in a nutshell.
Got it thank you Mick.
And your next question comes from <unk> <unk>.
On <unk> of credit Suisse. Your line is open.
Thanks, very much on can you talk a bit more about the future price environment in the US I know you said as demand time playback.
Of course, we did have the announcement a few key Amy managing ex.
Right.
This decline going forward in this day.
The non environment currently.
Thanks for the question, Greg I'll hand that to the president of our global sleep and respiratory care business Jim.
Jim you may be on mute.
Sorry can you hear me now.
As a terrible terrible way to enter the call. Thank you Greg for the question. Thanks Mick.
I think that what we've what we've seen this year as benign as maybe two software from price, but I'll go with benign you know we've had a pretty stable pricing environment I think in anticipation of the.
The market was anticipating a competitive bid rates and then of course competitive bid got delayed.
And and obviously the adapt health acquisition of Erik here.
Great. So even a larger customer for us are very important customer for us and we.
Enjoy a very good relationship with them I think both with that moving them with ongoing trends into the year.
Should see something that looks like a more normal pricing environment I think in the second half of this fiscal year and going forward and it'll be a little bit different by market as it always as but I would expect it to be cut back on a more normal trend.
Okay. Thanks very much.
Your next question comes from David low of Jpmorgan. Your line is open.
Thanks very much my question is just on the software business. Mick I think he commented that brought tree delivered most of the growth metrics care et cetera, I think more of a challenge from the pandemic.
To elaborate a little bit on it.
How much growth did you see through brought tree and what's driving that and I guess, most importantly can be maintained net growth in that part of a software business.
Yes, thanks for the question, David NDA, clearly bright tree.
Had a strong growth driven by.
The strength of our home medical equipment customers and their ability to pivot their businesses to mask and resupply and a great adoption of <unk> resupply sort of a core resupply software there, but also the snap technology acquisition that we closed almost exactly a year ago, we were doing due diligence a year ago and clauses.
Later on during this March quarter.
And so those two technologies are being very well adopted but look in addition to that <unk>. It's a significant double digit percentage of their revenues and R&D day delivered a whole bunch of innovation, some COVID-19 related management opportunities for their HMA customers as well as other innovative ways to grow their business and so.
That's allowed the broad tree business to support <unk> and really help them.
Survive and thrive in the early stages and later stages of COVID-19, and its a great health for the industry and I'm really proud that resonate and <unk> was able to deliver that on a matrix kiss idea. It's a tougher story because their vehicles. The day off right and were more severely affected skilled nursing facility census was down high double digits.
At the peak of the crisis and still is down year on year on the number of patients.
On a skilled nursing facility.
Operations and that impacts matrix, the K as census rates and ability to grow in addition, hospice affected similarly on the other hand on health.
It has been a growth a lot within the matrix care area and the addition of a matrix care brand as that as health care for Us <unk> and matrix care technology sold combined on the matrix brand has been growing.
Really well in the vein and his team who are they take.
As driving that has seen incredible growth in on it.
A health in hospice and I think if you look across that portfolio sort of sort of a guide that we deal with you because you can go through all the verticals in detail as that we think that weighted average market growth rate as Mick.
Low to mid single digits right now.
Dolby grew 6% in a quarter. So we're drawing a little bit ahead of market taking a little.
Some of those verticals, but as the weighted average market growth rate goes to mid single digits, we're going to look at that and then when it gets back to high single digits as the flow of patients from hospitals and ambulatory surgery centers picks up we will then say a skilled nursing facilities hospice and all the verticals.
Pick up a census rates and get us back to those sort of growth rates on beyond the time, David it's really sort of part of it related to the hull recovery of the economy that really related to the hospital.
People are calling elective surgeries and I think if you need a heart valve or a new hip it's hardly elective when the pain or the probability of a desktop going up and I think health care systems are really starting to address that and get their patients back into cash. So we should start to see those recoveries over time.
Okay. Thanks very much.
Your next question comes from Mike from that point.
We have a company your line is open.
Yes. Thanks for taking my question I guess I just wanted to ask about the decision to exit the PSV market David.
Some comments on that in the prepared remarks, but.
Wondering if you could elaborate on that a little bit I guess, what I'm wondering is with.
It's really a mark.
Market issue do you think the market is just not attractive on the margins on the products too low relative to your other products.
What's the product that you had.
On a start which is not competitive enough or were there other reasons for exiting acting with market I guess on getting out with us a product issue a market issue or both.
Okay.
Thanks for your question Michael.
I said, what I said in the prepared remarks, and a question before maybe on hand.
Jim Hollingshead for any further detail on than we have for the end to end play with.
With all that we have in.
Our core capabilities, a propeller high flow therapy, noninvasive ventilation and logical ventilation, but Jim any further detail you want a share for Michael.
Thanks, Nick and thanks, Mike.
I think it's <unk>.
For balance sheet sort of a market versus our portfolio as the way I would frame. It I think it's a little bit a boat. So if you look at the market.
We thought for a long time to POC as should be reimbursed in a better way in a differential way because they create a lot of value for patients as they allow patients to be mobile and to get out and about which is actually better for the cure, but especially in the us market reimbursement as always been upside down sort of a unfavorable to POC as versus stationary and we entered the category knowing that in.
We're innovating on it we actually for a really good about the products. We had we had been developing a product we on a market in the next generation that we were developing but then you see how reimbursement as has not changed and in fact as become less favorable.
In relative terms a category is just not that attractive or that it doesn't have the same growth that it had on our five years ago. When we entered as a category and that sort of thing and then when you take that line of business and compare it to our overall portfolio in the sleep and respiratory care business in relative terms, it's not nearly as strong a profile as the other opportunities we have to invest in innovation.
<unk> right. So we have a fantastic opportunity to continue to invest in propeller health a fantastic opportunity. It's early days, but a fantastic opportunity to invest in high flow therapy, which we think as really interesting clinical profile and it could be a great benefits for patients and then of course as we continue to grow our digital offerings, our R&D portfolio.
There's plenty of places for us to put R&D into other digital offerings and the expansion of our digital offerings as so as both a question on looking at the market and where that category has evolved since we since we've entered with that acquisition, but also just looking at a range of opportunities we have in hand.
And making a decision to invest in things that we think a forward more attractive both for a resume shareholders and also for patients.
That's helpful. Thank you.
And your next question comes from Chris Cooper of Goldman Sachs. Your line is open.
Good morning and afternoon. Thank you.
Most of my near term questions have been us.
Just given what's been mostly referenced a hardship markets. There I guess it would be remiss as being up too.
Just to ask you guys for a bit more of a comprehensive update on where you're positioned.
And what your stress to US there I mean, you guys have what you need in terms of current portfolio or.
A scenario that might make sense from a tuck in perspective, and just generally I guess your views on market growth and how you fit within the quarters as needed to hedge.
The references you made to pay it indicates clearly a power increasingly important historic index can be embarrassed respiratory markets.
Sometimes a quantification from either a that would be a request.
Thank you.
Thanks for your question, Chris and look it's a really exciting new area for us obviously with further down the road on propeller health and.
As starting to move in the stage one stage two area.
COVID-19 that.
Uses of high flow therapy for patients with low oxygen and it's always been an area that has been looked at.
We're interested in and resume 90% of our revenues are in the home, we're really interested in homecare and the idea of high flow therapy in the home. We think has a lot a future theres not a lot a reimbursement in fact virtually zero anywhere around the world. So it's a new development area, but we think given some of the clinical data that are coming out and some of the research were.
Doing well provide us around the world there is an opportunity to get patients out of the hospital and into the home with high flow therapy treatment.
As a steppingstone on on a pathway to a noninvasive ventilators and life support ventilators and in combination without without drug delivery system. So it's very early days, Chris not at all material to our business but.
Provides that sort of bridge portfolio, if you like from propel us through to the ventilation side and we think was validated as somewhat during COVID-19, and some clinical data that we are working with people with around the world says that as we look towards 2025. We think this will be a good part of a hung care portfolio, a tightened care patients with high flow therapy.
And just a very brief follow up mix.
For the home care opportunity for Randy.
Manifest in a way do you expect do you need to reimbursements become more supportive of a what do you think the.
Current arrangements with a allow that to happen.
No Chris I think we'd want to see.
Reimbursement models developed because that's how change happens right I mean, it's.
It's both the Hippocratic us and Adam Smith, if you like that are required to move some areas on health care and we've seen that in digital health, where we had amazing solutions for over a decade in the sales of liberating data for the cloud and driving a adherence and so on but it was when we started to see models in the us in France, and Japan, and now Germany, where.
Digital health started to be reimbursed because it is providing care that is a value and then reflecting that for the doctors and they provide us and reimbursing on that so.
Reimbursement as a very important part of developing the home care market for high flow therapy. So obviously, a research partnerships with payers provide us an audience will be along those lines.
Very helpful. Thank you.
And your next question comes from.
Who was Korea.
And Herman your line is open.
Good afternoon, Mick can you hear me all right.
Got you a lab and clear Suraj perfect. So Mick a couple of a subpart questions related to Covid.
<unk> seen any COVID-19 related shifts and the masks replacement cycle now these transient or relatively stickier in nature, and if I could hence COVID-19 identified any manufacturing location re optimization that would help you will get a realized incremental margin.
Gains over the next few years. Thank you for taking my questions.
Thanks, Raj I'll hand, the first question to Jim around replacement rights around masks during COVID-19 and the stickiness of that beyond and then the second part around <unk>.
Global manufacturing to Rob Douglas So Jimmy first.
Sure. Thanks, Nick Thanks, Raj Doug on masks, a replacement I think I think what we've seen all year during the pandemic as.
A couple a as we've talked about this I think on this call before we've seen a couple of dynamics for the first one as I do think patients are just more attentive to the idea that their equipment might be older I think theres, a theres a greater sensitivity on awareness on behalf of patients to a sort of have clean and disinfected breathing apparatus right. I mean, so I think thats driven a bit of.
Incremental demand and it's an open question as to how how persistent that will be but.
I would think it's going to be a bit more persistent I think you'll see patients just more attentive to cleaning their masks on their tubes and.
We plan on a regular cadence, but that's a that's speculation we certainly seen a this year I don't know how long that will continue or if it will increase and so on I think the other thing that of course as been happening as.
In the markets, where resupply as as a benefit which is largely a U S market and other markets where it is for the for.
As a provider, but in the US market I think HMA customers have been if anything more focused on on driving new supply as a part of their business to patients and so that's been a marriage, a two trends where the HMA wants to pay attention to the supplier.
As a new patient starts have been slower and the patient wants the equipment and I think that behind that in addition behind that we've had increasing adoption of automated resupply platforms, including our offerings. There. So so I think all three of those trends have led to higher re supply overall.
And I think it probably will persist for this very difficult to predict as far as all things covered on.
And through us.
To your question on the manufacturing impacts the whole issue around COVID-19 for a very challenging for supply chain and freight trains will as the world for many many companies on I think as like many companies we are carefully looking at the resilience.
Of a supply chain through there there are other issues going on around politics.
Tried.
<unk> relationships that we've got.
Some of these are going to be beneficial as you talk on path to margins in some of the headwinds and I think as we continue to scale a business, we should be able to run faster than those headwinds on at a time.
We're now at the end of the schedule a time for the call volume I'll turn the call back over to Mick barrel.
Thanks, Chantelle and thanks again to all our shareholders for joining us on today's call.
I'd like to once again take the opportunity to thank the 7500 with millions almost all of whom are shareholders for their dedication and hard work, helping people sleep better breathe better and live better lives outside the hospital as a 140 countries. Thanks for all that you do today and every day, thanks, especially to a rhythm and heroes on the front lines production distribution and Tech service.
From a service talking to customers and delivering product every day and look forward to talking with all of our stakeholders here again in 90 days. Thank you Amy.
Great. Thanks, Nick and thank you all again for joining US today, I know, we weren't able to get through all the questions in the queue. So please don't hesitate to reach out to me directly if you've got anything further and as for you.
Lee mentioned, all the documents along with a transcript and a replay of today's call will be available on our website. Later today, Sean Taylor you May now go ahead and close out on the call.
This concludes transmit second quarter of fiscal year 2021 and webcast.
Now disconnect.
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A.
Yes.
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Okay.