Q3 2021 Resmed Inc Earnings Call
Of all of our shareholders for joining us today as we review results for the March quarter, the third quarter of our fiscal year 2021.
On today's call I'll provide a high level overview of our Q3 business metrics and then I'll hand, the call over to Brett for further detail on our financial results.
I will review the progress towards resume of 2025 strategic goals, including execution highlights against our quarterly and our annual operating priorities.
A year ago today, when we discussed our March 2020 results. We were only just beginning to understand the scope of the COVID-19 pandemic.
Each of our business, particularly in the United States had not yet been significantly impacted however, the outside the us countries, including China, and Italy were already in the midst of emergency needs. We quickly mobilized out of supply chain and global operations to address and support the ventilation needs worldwide producing over 150000.
Then license, we accelerated the production and distribution of noninvasive and lots of important in light of the Moss systems to those in the <unk>.
Resulting in an incremental $35 million of COVID-19 related revenue during the March 2020 quarter.
I'm incredibly proud of how we quickly pivoted our business to meet the adding solutions around the world. So that healthcare systems, we're prepared with the resources needed to treat patients who are fighting COVID-19.
Today, one year of lighter or at various different stages of re prices in terms of getting.
To normal patient flow, we see a range of from 70% of.
Pre COVID-19 patient flow and in some countries up to 19% of pre kind of at the patient flow in other countries.
Yes.
Things are steadily rolling out in the United States, the UK and many other countries worldwide.
We still see significant impact from ongoing second third and fourth wives infection and some countries in Europe as well as in South America, and Asia, and especially right now in the country of Brazil, and Amy is working with hospitals and health care providers in those two countries and beyond for preservation of life, making sure that they have been light us masks.
And the training that they need to use the we.
We continue to support the frontline respiratory therapists and the physicians who are there on the ground as well as providers patients and <unk> throughout the of 140 plus countries that we operated.
We're pleased with the steady progress that we are seeing in getting us sleep apnea, COPD and asthma patients diagnosed excluding the $35 million of COVID-19 related ventilate of sales in the March 2020 quarter. Our team delivered positive sales growth across our core sleep apnea and respiratory care business this quarter.
On both the headline and constant currency basis.
The forecast of steady improvement trend of patient flow for sleep apnea, and COPD and asthma, continuing as we move through 2021 and into 2022.
We expect we expect this progress to excel continue.
We are encouraged to see the patients physicians and providers around the world are adopting digital health tools for remote patient screening hung based testing remote patient monitoring and ongoing patient management.
I would like to be clear that the ventilation sales that we made in 2020 will be part of our comparable for the next two quarters in the June 2020 quarter, we recognized $125 million in COVID-19 related than US then lifestyles and in September 2020 quarter, we recognized a $40 million in such revenue.
Over the coming quarters, we expect to continue to show strong positive year over year revenue growth. Excluding these onetime sales from 2020.
As we look further forward, we see a clear path to double digit revenue growth in the back half of our fiscal year 2022 across our full business powered by opening economies and our pipeline of new technology and innovation.
Our headline results were impacted this quarter by an accounting reserve, we took in connection with discussions with the Australian tax office or itr regarding the ongoing dating back to fiscal year 2009.
Brett has been leading those discussions and we will speak to the details in his remarks I will make this statement resumes.
The Thai significant taxes in countries around the world and we operate in over 140 countries, helping people sleep better breathe better and live better lives well away from the hospital, Brett and his team are working towards the final resolution of these transfer pricing discussions dining back out of the 12 years with the Ato.
So we have taken this $255 million reserve, we believe that resolving these discussions is the pragmatic thing to do for all of our stakeholders. So that we can put this behind us and focus all of our efforts on our core mission of improving lives and respiratory medicine around the world.
During the third we generated over $196 million in operating cash, allowing us to return $57 million in cash dividends to shareholders. We also increased our R&D investments in the period in digital health technology as well as R&D for hardware embedded software and clinical research.
We'll maintain.
Any financial discipline with reduced SG&A and other operating costs.
We are seeing increased demand for our digital health solutions from patients physicians providers and health care systems around the world as they embrace remote patient engagement and adopt population health management.
We are a clear leader in the cloud connected medical devices in the market and our ongoing and increasing investments in digital health innovation, we will ensure we provide superior value to patients physicians and providers.
We don't take out leading.
The market share position for granted we fight for every day through innovation.
Growth catalyst for our business, we have an exciting pipeline of innovative solutions that will generate both volume and.
<unk>, leading IP portfolio, including.
The 8000 patents and designs.
We now have the.
$8 5 billion nights of respiratory medical data in a cloud based platform called Air solutions, we have over 15 5 million patients enrolled in our cloud based <unk>.
Software solution and we also have over 105 million patients manage within our software as a service network for out of hospital health care.
These incredible data assets allow us to unlock value for all of our customers patients physicians providers as well as private and government pay US let me take a few minutes to share. Some recent clinical highlights that show how we are working with researchers to advance the field of sleep and respiratory medicine with these data.
And beyond.
During 2020 and important 30 year duration study was published in the European respiratory Joe following of our 4500 diagnosed OSA patients to better understand the long term impacts of untreated sleep apnea the <unk>.
Study showed that untreated sleep apnea leads to high incidence of myocardial infarction or heart attack high income high incidence and prevalence of type two diabetes and high incidence of ischemic heart disease.
This real world clinical analysis is showing the what we've done for the three decades sleep apnea is of public health epidemic, the simply can't be ignored.
In terms of clinical quality of life improvement from CPAP therapy therapy. The data are also clear.
In late 2019 of the Multicenter randomized controlled trial called <unk> was published in the journal Lancet respiratory medicine.
The results were the patients randomized to CPAP demonstrated clear improvement in quality of life for CPAP patients versus standard of care with symptomatic benefits, including reductions in sleepiness as well as improvements in fatigue, and importantly depression, a key part of mental health.
Ultimately these results were evident in both modeled as well as moderate and severe sleep apnea.
In terms of economic data and a dose response relationship from CPAP therapy. The data are also unequivocal in 2019 of study was published in the journal of clinical sleep medicine, showing of quantified dose response relationship from CPAP therapy. So for every additional hour of positive airway pressure US there was an.
8% decrease in hospital in patient visits and a 4% decrease in overall physician visits.
Other words trading sleep apnea with athlete that therapy, not only improves lives. It also saves money for the healthcare system by lowering total healthcare utilization costs.
During the quarter, we saw the publication of the draft technology assessment from the agency for healthcare research and quality of <unk>.
Our Q here in the us market.
Our Q sort of input and resume the fall public comments, along with comments from many physician groups sleep apnea patient advocates provider groups and beyond I'd like to repeat all the details of those public comments, but I will say this we presented peer reviewed and published data showing that CPAP therapy improves quality of <unk>.
Life reduces healthcare costs, and even reduces mortality and Sean These data prove that in partnership with our physician and provider of colleagues of the market. We are saving lives and saving money for the health care system through our medical technology, we of peer reviewed and published data showing that a reduction in incidence of heart attack a reduction in.
Hypertension as well as the reduction in the incidence of solid cell cancer tumors. All of these are logical sequela of the elimination of hypoxia that is associated with CPAP therapy and treated sleep apnea patients.
We are encouraged by technical studies completed by the National Institute of clinical effectiveness. The acronym is nice in the UK.
The last month nice.
<unk> public the of 2021 draft guidelines that recommend that CPAP therapy, along with Tele monitoring is the frontline treatment option for patients with mild OSA that would be an expansion of coverage in the UK and also an expansion of the use of digital health technology in that market.
Similarly, the ministries of health in France, Germany, and Japan have seen the value of digital health in sleep apnea therapy and have begun investing reimbursement comes in the space.
It's great to see this expansion of coverage of sleep apnea therapy of digital health around the world as governments the improvement in outcomes and reductions in total health care system costs with this technology.
While we respect the work of <unk>.
Our Q.
Along with many other academic research focused institutes and practicing physician groups believes that they bypassed a generation of data in real world evidence that needs to be taken into account along with their own select group of <unk> and the draft report.
We are optimistic that the final report when issued will reflect the preponderance of real world evidence and broader Aussie tapes, showing both the clinical and economic benefits of trading sleep apnea with positive airway pressure.
Okay. Let me now update you on our top three.
<unk> strategic priorities. These are one to grow and differentiate our core sleep apnea, COPD and asthma businesses.
To design develop and deliver worldwide Inc.
The medical devices as well as globally scalable digital health solutions and through to innovate and grow the world's best software solutions for care delivered outside the hospital and preferably in a person's home.
In our core market of sleep apnea, we continue to see sequential improvement in new patient diagnosis trends as we seek to provide solutions for the 936 million people worldwide, who suffocate every night.
The rate of new patient starting sleep apnea therapy in the U S was impacted by the typical seasonality that we see in the March quarter, primarily as a result of insurance deductibles resetting of the start of each calendar year. This seasonal impact of FX devices more than mass systems, given the incremental cost of diagnosis and the relative price points of the two categories.
We expect sequential growth in sleep and respiratory care as we move past. This typical seasonality we continue to see strong ongoing mask and accessory resupply in the us market and beyond <unk>.
New patient flow during the quarter was impacted by the recent COVID-19 related case surges in select countries in Asia and Europe.
<unk>, two large markets, France, and Germany, we see that impact the number of patients going to the clinic advice diagnosis pathways in these affected countries.
We expect to see these markets reopen along with hospitals as vaccines continue to rollout and as we see further scaling of the remote homebase diagnostic capacity.
Clearly the kinetics of opening of these economies of the right of vaccination rollout of beyond our control. However, we can control our investments in digital solutions for.
<unk> physician and provider partners, which we are doing at increasing velocity and with scalable systems and processes.
More broadly we are seeing growth in total sleep titled News sleep apnea, COPD and asthma patient flow and we expect to see this improve over time in our portfolio of 140 country markets each quarter.
<unk> our market leading share position has remained stable across both masks and devices and we're excited about our future pipeline.
We rarely talk about our future pipeline as those who followed us for a period of time, but today I would like to open up the current just a little bit on our next generation sleep apnea platform.
They have seen some recent U S regulatory filings that we made for our next generation flow generator platform called the essence 11.
Clearly there are multiple steps in the process to bring this new platform to global markets and the public regulatory filings are simply one important step, but we are making good progress.
Earlier. This month, we started a limited controlled product launch of the assets of 11 in certain parts of the United States.
We expect to move to a broader commercial launch of the platform light of this calendar year in the U S. And then the country markets worldwide in sequence after that for now I can say that as a personal user of assay Pap therapy I have firsthand knowledge that the essence of 11 device will benefit patients and the of bad part.
And our early data showed that the device and software platform combination will benefit the physicians providers payers and beyond and ultimately continue to catalyze <unk> global leadership in digital health solutions for sleep Apnea, and then also accelerate our success in digital health solutions for CSA day.
Asthma and other chronic diseases.
We make the smallest quietest modest and the most comfortable devices on the market importantly, they are all cloud connected with the latest and greatest digital health technology to increase adherence improve clinical outcomes and deliver proven cost reductions within our customers on health care systems.
Let me turn now to a discussion of our respiratory care business focusing on our strategy to better serve the 380 million COPD or chronic obstructive pulmonary disease patients and the $340 million.
Asthma patients worldwide.
Our goal is to reach more patients with our core respiratory care solutions, including both noninvasive ventilation and life support ventilation as well as the new of therapeutic areas such as cloud connected pharmaceutical drug delivery devices and high flow therapy devices.
Our risk, particularly of business benefited in the March 2020 quarter, as we sold incremental ventilate of devices and ventilation mask solutions to meet growing demand worldwide as a result of the pandemic.
During the March 2021 quarter COVID-19 related <unk> of sales were not material to the global business. However, we are seeing some demand in select countries affected by these lightest COVID-19 surges such as just this month with the surge in India and we are getting many thousands of devices to those in the demand is there in that country.
But as in Q3, we do not expect the revenue to be material to our global business, even though the broader impact, particularly with preservation and lots of these countries is clearly price lists and incredibly important to our not only our local team in India, but to all of us here at <unk> well volume.
Demand for our core non invasive ventilator and life support ventilator solutions for COPD and other risk between sufficiency are experiencing the same steady recovery and new patient flow as in sleep apnea, we are balancing the growth in patient demand the with the supply of the inline is that we made to the market throughout 2020 as customers balance of their inventory.
And the core ongoing patient needs.
We continue to see rapid adoption of the <unk> for ventilation software solution that we launched in Europe in the midst of the pandemic pandemic. This time of year ago, We announced seem that this technology has expanded to regions around the world the value being provided through the cloud based software solution has been fruitful not only during the.
COVID-19 pandemic of the peak parts of the crisis, but it's also valuable on an ongoing value basis for physicians as well as the health care systems day operating.
We are helping to ensure that digital health is now the new standard of care for respiratory care.
Let me now review our software as a service business for out of hospital care true.
During the quarter, our SaaS business grew in the mid single digits year on year across our portfolio of markets. The verticals include home medical equipment for HMA skilled nursing facilities home health hospice private duty homecare harboring fusion senior living and life plan communities are.
Our HMA customers are leveraging our advanced resupply solutions, including snap technology, and <unk> resupply for our existing portfolio of patients and they are contributing to ongoing draws as the flow of new patients in HMA continues to recover steadily period by period.
Over the past 12 months COVID-19 has had a dampening effect on elective and emergent procedures at hospitals as we all know and that has slowed the hospital discharge rates affecting patient flow and ultimately the census rights at skilled nursing facilities home health hospice and beyond as the rate of vaccinations accelerated across the us and the number of COVID-19.
<unk> cases continues to trend downward in this country, we're seeing improvements in the census rights of cross skilled nursing facilities from Hell.
Hospice and across all of post acute care settings.
In addition to the solid organic growth that we are seeing in our SaaS business. We closed an exciting acquisition just this month.
The company is called cites us health sites.
<unk> is a digital health leader specializing in patient engagement solutions for hunting fusion, the specialty pharmacy as well as the home health and hospice markets sort us enhances the patient experience and it also improves provider efficiency and reduces the workload for frontline clinicians and caregivers.
We are excited to have the side of the team as part of the <unk> family of solutions and to leverage the of digital collaboration and patient support platform in our mission to improve patients' lives outside the hospital I'm very impressed by the breadth and depth of talent at site us and their passion for patient care.
This goes from the CEO and cofounder of all the weight of the frontline, we're very excited to have them join our team and we will be better together.
As we look across our portfolio of solutions from broad trade to matrix care to now sought us, including HMA specialty pharmacy home infusion skilled nursing facilities home health Hospice senior living life plan communities and private Judy Homecare, we expect this portfolio of the SaaS portfolio of revenue growth to accelerate.
The increasing from mid single digit growth of restoring this quarter to high single digit growth as we move forward.
As always our goal is to meet or beat the sort of market average growth rates and we continue to take share across the verticals that we're in.
We also see opportunity to drive growth through further acquisitions that will augment and <unk>.
Add to our existing portfolio of solutions, our offerings of very well received in each of these verticals and we continue to see.
Leverage analytics and the technology that we have across our core business and the SaaS business to help people age in place and minimize or eliminate acute care episodes.
Looking at the broader resonate portfolio of business across sleep and respiratory care as well as our software as a service solutions, we remain confident in our long term strategy and our pipeline of innovative solutions.
Our mission to improve lives drives and motivates, whereas medians across the World every day COVID-19 has highlighted and continues to highlight the importance of respiratory health and respiratory Hi, Hi chain. It has highlighted also of the importance of digital health and remote care and it is also accelerated awareness and adoption of technology.
Of these that can be used for remote patient screening diagnosis set up as well as remote patient management and monitoring.
We've continued to invest aggressively in R&D and innovation to ensure our solutions of best in class and our of catalyst for future growth.
Without the $1 5 billion people around the world suffering from sleep apnea, COPD and asthma combined we see incredible opportunities for greater identification enrollment and engagement of people without digital health pathways. We.
We are relentlessly driving innovation and development to provide the scale needed to expand the impact of this technology across the 140 countries that we operated.
Before I hand, the call over to Brett for his remarks I want to once again express my sincere gratitude for the more than 7500 regiment of <unk>, So they perseverance and hard work and dedication. During these most unusual circumstances. The last 15 months. This team has helped sides of the lives literally of many hundreds of thousands of people around the world with ventilators.
These emergency names.
The team is now rapidly pivoted back to our core markets and our core purpose of helping people with sleep apnea, COPD and asthma and for all of those who need world class care delivered well away from the hospital and preferably in their own home.
With that I will now hand, the call over to Brett in Sydney, and then we will move to Q&A Brett other to you.
Alright, Thanks Peter.
My remarks today I will provide an overview of our results of the third quarter of fiscal year 2021, and comment on our FY 'twenty two of our outlook.
The north of <unk>, all comparisons of the avid quiet quarter.
Group revenue for the March quarter was 760, non median which is consistent with the prior year quarter, Inc.
Constant currency terms revenue increased by 3% compared to the prior year quarter.
Consistent with <unk> Q2 earnings call, we draw negligible incremental revenue from COVID-19 related demand in the March quarter, whereas the prior year Q3 revenue included an incremental benefit from kind of the non paint sales.
Of approximately $35 million.
Excluding the impact of our Q3 FY 'twenty, one revenue increased by 1% constant currency.
Taking a closer look at geographic distribution and excluding with you from our software the service business.
Sales in the U S, Canada, and Latin America countries were 403 million an increase of 2%.
Sales of yield and.
All of the market totaled 272 million, a decrease of 5% or decrease of 14% in constant glossy kind of.
Yeah.
By product segment U S, Canada, and Latin America, the vast styles were 193 million a day.
Kate the same.
Masks and other styles with $210 million, an increase of 7%.
Unit volume in other markets the boss styles plentiful, the 173 million a decrease of 11% growth constant currency terms.
The St gateways.
Last one of the sales in Europe Asia, and other markets were $99 million, an increase of 1% or philosophy of Rte.
In constant currency terms.
Globally in constant currency zone, the boss sales decreased 10%, while masks Inc.
The increase thoughtful per claim.
Excluding the impact of COVID-19 as of August style, the PA E quarter global of the loss sales decline of freight and shrink in constant currency zone.
While masked and other sales increased by 6% constant currency sales.
Software as the service revenue equal of third quarter weak market 4 million, an increase of 5% of quiet quarter.
Jane My commentary today, I will be referring to non-GAAP numbers.
We have provided a full reconciliation of the non-GAAP to GAAP income.
The fourth quarter earnings press release.
Our non-GAAP gross margin decreased by 40 basis points to 59, 6% in the March quarter compared to 60% in the same quarter last year.
The increase is predominantly attributable to the highest rate costs additional manufacturing cost of sites added to the transition to our new Singapore sought the commenced operations during the quarter and geographic mix changes.
Moving onto operating expenses SG&A expenses with third quarter were 160 million of basically to the 7% constant currency SG&A expense decreased by 11%.
The price period.
SG&A expenses as a percentage of revenue improved to 29% compared to the 22, 4% we reported in the prior year quarter.
Benefiting from cost management and reduced travel as a result of kind of advancing restrictions.
Looking forward, we expect SG&A expenses in Q4, FY 'twenty, one to increase from the low single digits relative to the prior year.
Period.
R&D expenses for the quarter were 56 million an increase of 1%.
Constant currency basis, an increase of 3%.
On the expenses as a percentage of revenue was seven 3% compared to six 7% in the pricing.
Looking forward, we expect R&D expenses in Q4 to increase year over year in the high single digits, reflecting a longtime statement in the device.
Part of amortization of acquired intangibles was <unk> for the quarter and stock based compensation expense for the quarter of $6 million.
Our non-GAAP operating profit for the quarter of 240, <unk> volume increased 2%, reflecting world can time the operating expenses.
So the March quarter, we estimated on recorded when the accounting tax rate both of the 250, <unk> meeting, which is net of credit from reduction.
For the proposed settlement thankfully processing of audits, while the us client taxation of office.
All of our ICL.
The audit Calvert taxis 2000 and launch of 3019.
As previously disclosed 2000 non to 2013, the Ipi, we see the assessment of $266 million inclusive of penalties and interest.
The 2014 2018 year audits remain open ongoing assessments of not been issue.
We have tentatively agreed on a number with the Ato.
The result, the entire matter for us.
We expect any adjustments to the reserve we've tightened this quarter with the material.
Next steps include getting to a written agreement and final board approval.
If the deal falls apart, we will wait of guidance. We continue to believe we are more likely in the months of exceeding litigation.
With the transfer pricing litigation fees complex costly and so.
So we are looking forward of putting this behind us.
As a result of recording reserve on a GAAP basis, and our effective tax rate from last quarter was 136%.
While our non-GAAP basis, which excludes the needs of our effective tax rate for the quarter was 19, 4%.
Looking forward, we estimate of underlying non-GAAP FY 'twenty, one effective tax rate will be in the range of 17 to launching.
Yeah.
Non-GAAP net income for the quarter was $190 million an increase of one at the same.
Non-GAAP diluted earnings per share for the quarter with all of 40, an increase of St.
As a result of the tax rate range of coal this quarter of GAAP net loss for the quarter was 78 million of GAAP diluted loss per share for the quarter was 54.
Cash flow from operations for the quarter was $196 million, reflecting solid underlying earnings partially offset by increases in working capital.
Capital expenditure for the quarter was $26 million.
Free cash and enterprise license from the March quarter totaled four so we paid dividends of $57 million.
We recorded equity losses of five <unk> income statement in the March quarter of pricing, we can barely chip and Jo.
And going forward, we expect the record equity losses in the range of three to 5 million per quarter associated with the fairly joint venture.
We ended the fourth quarter with the.
At March 31, we had.
Okay, and 500 play the game.
The nine months and then obviously the one we had a photo of one 5 billion available for drawdown under our existing revolver facility.
In summary, our liquidity position remains strong.
During the third quarter, we completed the acquisition of sockets Hill.
So all of the digital health latest specializing in <unk> patient engagement solutions that enable real time secure collaboration between pricing and the ODP involved in the 8-K.
We also acquired plant in Vietnam.
Assets of Tom Diehl Medical company based in Korea, which primarily retrofitted the tongue youll sleep and respiratory distribution business.
Both of these acquisitions will not be material to that growth results.
The board of directors of today declared a quarterly dividend of breaking on cents per share, reflecting the board's confidence from our strong liquidity position.
Our solid cash flow and liquidity provide us flexibility, how we allocate capital.
During the pandemic, we have focused on paying down debt.
Going forward, we plan to continue to reinvest the growth throughout.
Good day.
We will also likely continues to deploy capital for parking acquisition livestock sales.
We intend to continue to return cash to shareholders of our dividend program. We might also regime of share buyback program sometime during the calendar year.
This program has been on pool since a lot of acquisitions of nitrogen.
The health and fiscal year 2019.
Turning to handle our expectations from the outlook for Q4, FY 'twenty, one and the acquired 22 outlook.
There remains uncertainty in the short term, particularly in the timing of recovery of the pricing flow from kind of advancing the line impacts across the many countries.
Friday.
Consequently, we expect Q4 FY 'twenty one revenue.
To reflect low single digit sequential growth off of Q3, FY 'twenty one.
Okay.
As we move through FY 'twenty, two we expect to see continued increase in the knee price in flow and the returns that more normalized underlying revenue growth trends.
Additionally, we see we are seeing minimal COVID-19, generally the demand for our paper items.
We do not expect any material benefit going forward.
As a reminder, we recorded 35 million kind of of non St generated revenue of March quarter last year of 125 meeting of June quarter last year and $40 million at first quarter of FY 'twenty one.
Boston accessories have since the past 12 months, reflecting the insulating value of the large patient in full price and the success of that rate supply service offerings.
We expect to see continued year on year, Brian Levey of Moscow, and the FY 'twenty two.
Finally, Walgreens from many other companies we continue to experience significant uncertainty in the current environment.
Particularly in the license of the timing of the reopening of economies if of ex nitrogen programs rollout.
As a result of that forecast impossible for us to read.
The year outcomes in mind dynamic.
And with that I'll hand, the call back to Ivan.
Great. Thanks, Brett.
I'd like to now turn the call over to Randy of the Q&A portion of the call.
Okay.
So I mean are you there ready to run the Q&A portion of the call.
Okay.
Okay.
Excuse me this is the backup the offering.
Anthony.
Okay.
Issue on this day.
And.
We have we have a question of timing from the line of Lyanne Harrison from Bank.
Alright.
Your line is now open.
Good morning, and thank you for taking my question.
Perhaps I can start.
And next to the world of outside of that.
Kind of the United States and EMEA.
Hi.
<unk> seen from there and secondly down 18% of constant currency could you.
Smith intends and what Youre seeing in <unk>.
New devices decline and that's the kind of the impact there and then of that particularly Germany and from what.
What you're seeing in that market currently and what sort of basic operating at the percentage of normal, particularly given the increased COVID-19 cases against the country.
Yes, thanks for the question Lyanne and.
Yes, clearly as I said in the us.
The prepared remarks, the March 2020, $35 million worth of ventilators, where primarily where COVID-19 was impacting debt, which was southwest China. So proud of the Hubei Province.
And northern Italy, China, and Italy, and so clearly the.
The $35 million worth of sales in the March quarter last year were predominantly in that rest of world category.
So you can imagine that the actual decline in terms of the COVID-19 impact on year on year significantly below the 19%. So you say that you talked about much further below that and really importantly, when you look at the sort of kinetics of this and any other than what we're going to see in June we're seeing countries are opening up their adopting ditch.
Total health and they're finding ways to make it work and even in France, and Germany, where you did see lockdowns and the retail side. The health care was not as impacted and our digital health solutions, particularly around where non patient screening diagnosis.
Have been effective and so we're seeing that open up as we move forward.
Rob do you want to take the second part of the question.
The.
The Germany and France.
Yes the.
The challenging <unk>.
Of the in France really in this quarter has been the sort of the second wives, which really call the extensive lockdowns.
And per challenges in there, we had seen sort of incremental opening up.
That actually slowed down it wasn't quite as significant as before where we really saw all of the sleep labs get converted into COVID-19 boards, but we certainly saw a reduction in new patient flow.
Countries as well and Peter.
The significant issue.
In terms of actually breaking out the sort of the the device sales in the specific countries without the COVID-19 impact lyanne.
I don't think we'll be able to give that sort of granularity.
<unk>.
Really clarify that for you but under.
Underlying it.
Sleep businesses continued in ortho, you're probably aware that the ventilation businesses and you have a larger share of the north payout the.
The <unk> business and what they are in terms of the global revenue business or the water was the factoring that in terms of the relativity of what had happened with the.
With the incremental COVID-19 in light of sales in the previous period.
Thank you very much.
Thanks, Dan.
We have our next question coming from the line of Greg Channel with Credit Suisse. Your line is open.
Thanks, Good morning, just first.
On the <unk> devices.
What was the performance of underlying pretax loss of <unk> hybrid I'm, assuming there was very limited pay us the bench late sales in the price.
And then we can pass this.
Last quarter.
The <unk>.
Is that because the patients coming.
Through the sleep labs or would that potentially the market share losses can you explain what happens from a sequential performance.
This may last quarter and this quarter. Thanks.
Thanks, Chris.
Good question and if you look at just U S. Canada devices were down 2% year on year and if you think about what we're talking about because of the recovery rates being somewhere between 70% of pre COVID-19 patient flow to 90% of the pre COVID-19 patients depending on the country. If you just do that roadmap that comes out to 98%.
Of of breakout the devices, which is not quite there because of OSM replacement devices included there.
But certainly not we actually saw very steady market share some guidance in some of the mosque areas that very steady market share in the device side.
Some of our competitors are having some difficulties around supply.
As all of us with global supply chains, and other factors going on and we may have been taking some share of the device side. So what we're seeing just in the U S numbers. When you think about sequential from the December to March quarter is really all about as I said in the prepared remarks around deductibles resetting of those deductibles that impacts devices significantly more than.
<unk> and accessories, just in that quarter, we saw 7% constant currency growth in masks and accessories in the March quarter year on year, but look always is the sequential impact from December to March and so that the unmet, but now actually share very steady of may be moving up a little on the mass side very steady on the devices.
With some some modest guidance, but the year on year, 2% decline in devices is truly around the COVID-19 recovery rates and as we know the rollout in the U S has actually been pretty strong in terms of the vaccinations.
I don't think were quite at the 98%, which would mean that two percentage.
Brian could indicate but I do think that we are moving well towards the 90% range in some states and the sort of 80% range and some other sites of pre COVID-19 patient flow that every period, we look at we see improvement in both of the US. Thanks for the question growth.
Thanks very much.
Okay of our next question coming from the line of Margaret <unk> with William Blair. Your line is open.
Hey, good afternoon, thanks for taking the question.
You guys mentioned that.
The one point of the comments that you expect to returns of that doesn't double digit underlying growth in the second half of fiscal 'twenty. Two and then the were kind enough to get in a series of trees in the sense that <unk> selling of suggests that the on the handset but the.
The question is how quickly can those investments take hold and as you look at the short term will growth still remain on the bottom of that U shape that you discussed previously until you get to that second half of the fiscal year or can there be meaningful more meaningful improvement driven by some of these investments that im sorry, I know, it's the one question button that Kenny.
For example, even being further ahead on the vaccination curve actually help you guys and offset maybe some other geographies that are little weaker thanks Margaret that is.
Good question then.
And the star one.
Look clearly, we're very confident that the medium to long term.
Some of the core business is and the flow of that new technology.
There are short term debt.
Dynamics around the second and third wives and then the vaccination series on the positive side and the opening up of economies on the positive side.
We put it all together we are very confident that as we get the <unk> 11 from the control product launch to then start to roll that out of the this calendar year in the U S market debt that will be only the hardware, but also of amazing software solutions for patients physicians providers and others.
And as we think about the scaling of just the remote.
Patient digital health models from some of our partners on identification engagement and enrollment all the way through to home sleep testing and sleep setup and rolling out of those devices. We are seeing a lot of investments, it's really hard to get down to the dynamic.
The mix of how quickly things will go how quickly economies open up but here in the US which is our biggest market was certainly seeing both of those trained in a really positive manner and that.
Led me to talk about pretty bullish so the double digit growth towards the backend of our fiscal year 2022.
And so I think they're all of the dynamics going into it I don't know Jim Hong said, if you've got any further thoughts as the president of our flavor the respiratory care business about how quickly we can use that technology to drive growth towards that.
Yes, Thanks, Mike and thanks Margaret for the question.
It really just would reiterate what makes sense I think the.
When you think about growth.
When we get back the double digit growth.
The.
The numbers per against the big comps that came out of COVID-19.
So when you think about growth as a percentage and so the underlying growth.
Amex in the market in the U S specific about the U S market is pretty strong March was the best.
The months of the quarter for us in the patient growth in the U.
The us market and so we think that that trend is going to continue and we're very hopeful about how vaccine rollouts will start to open up.
Gnostics.
And of course, we have.
The new products that will come out in the calendar year. So we.
We feel very confident about the underlying core as the business continued to grow over the coming quarters.
We will be able to not just maintain share of probably take some share so.
There's obviously some uncertainty associated.
The COVID-19 as events other things, where we feel very confident of the underground underlying growth dynamic.
The COVID-19 cost debt.
That has to clear for us too.
Are you able to talk about double digit growth.
Okay. Thanks.
Thanks, Michael.
We have our next question coming from the line of Matthew mentioned with Keybanc. Your line is open.
Great.
Thanks for taking the questions.
So.
I listened to the HVA call, which is the name for.
Each of the large hospital system in the us.
Based on speed of integrating.
Into their systems at this point and you've seen like sort of not really want to follow of the hospital customers down how can you work with large hospital systems.
They migrate down into your victim of the scales from SaaS.
Yes.
Yes, Matt it's of Great question and it took us.
Two.
Within our software as a service business. Obviously, you know we have privacy, we of cyber security, but then we have interoperability and interoperability of making sure our data can through secure.
David Ipi is be able to interact with hospital care systems is an incredibly important part of the system. We call. It out of hospital hospital to get good health care, but the hospital systems post acute care and that link between post acute care in out of hospital care has to be very secure and has to be very.
Seamless if you like for the patient and from the health care system.
We're now many quarters into our son of partnership.
And what we've shown in that to a part of their ASUR.
Is that range and then is of great recipient of patients from the hospital systems into the.
At the time health and hospice and beyond now into infusion with that partnership and I think we've got us out of the track record. The resident can take care of those patients and make sure that the seamless transition from hospital to the out of hospital health care network, and so with that proven track record I look to their customers sort of Cerner epic.
All scripts their customers being being HCI and others as ICI sort of broadens the holistic care. If you like of patients from hospital to the 100 allowed us to partner with someone like resident side of it.
Of the seamless transfer of the patients with the ultimate goal is that we take cost out of the system, we take care of the patient better and we have seamless transfer from hospital to Hahn will out of hospital care and then hopefully not but if you do go back to the hospital debt that record can can move back and forwards very well, we've got a good track record of it and I actually see a lot of upside.
Hospital systems think holistically in that sort of ICR sort of accountable care organization approach and we've got a lot of experience in western Europe in patients taking care of Holistically throughout northern Europe and beyond I'm confident.
That we will do well in this evolution of sort of an acute care system or <unk> per system to a true health care system and of preventative health care system, which is where <unk> made bets 90, plus percent of our revenues and profits and really the the SaaS business is where we are the.
The only strategic with the capability to scale not just across the us but thank you.
We have our next question coming from the line of Mike Matson with Needham <unk> Company. Your line is open.
Yes, thanks for taking my question.
Wanted to ask about the Ericsson from 11.
Okay.
Is there anything more you can talk about that product and how it compares the Harrison.
And then historically when you've launched the four generic platforms that have kind of fairly sizable impact on your growth that we from the right side. So is there any reason to believe that that won't happen with us.
And then the similar question on the cost.
B.
Higher I guess, the lower cost per of manufacturing, but higher gross margin product, we got it once it ramps up obviously thanks.
Yes, Thanks, Mike Great question with the three great parts to it so the the first of all of the essence of 11 is out there. It's in control of product launch as I said in the prepared remarks, I'm personally proud of that CPL and.
Amazing benefits of the individual patient in the bed count or in terms of how quiet comfortable cloud connected and.
Our capabilities. So the features are extraordinary.
One thing.
We've opened up the most we ever have around the pipeline that is out there because of the public.
Regulatory documents out there and it's in the CPL I don't want to go through all the features and functions other than to say that it's smaller it's quanta is more comfortable and small cloud connected and it's not just the device. It's the software system that goes with it that provides the value of full and not just the patients, but the physician the provider and the health care system.
Part of it.
So the second part of your question around growth yet look I do think this will be of catalyst for growth is why I'm comfortable in the prep remarks, and the answer the granular to talk about our comfort in saying, we're going to push towards double digit growth.
So the for the back end of this of this fiscal year that we're in here.
The <unk> will be of catalyst for it I think the software of the digital health technology software around it will be a large part of that of that catalyst for growth. Obviously, we're a different business than when I was running the <unk> when we launched the us non it was.
The total revenues of the company with less than $1 billion and now of the total revenues of the $3 billion trailing 12 months and so the percentage of.
Growth in the numbers won't be as impressive as 10 years ago, but the.
The growth in terms of net revenue and profitability that we can reinvest in the business for more devices unless software. It will certainly be there. The third part of your question around cost the it clearly our goal every generation is too.
Create.
Smaller quieter more comfortable more clever devices and software systems, but also ones that have better efficiency. So at the lower cost of manufacturing low cost of our supply chain. So clearly that's the.
An important part of this platform and we expect to do that as you said as we scale that up across us. Thank you.
Thanks, Michael.
We have our next question coming from the line of David low with Jpmorgan. Your line is open.
Thanks, very much Mick.
We are all aware of the Philips had the issue with the box just wondering what your expectation.
One of them, if we can clarify whether there's any of us right now.
The issues with cleaning and then secondly of work.
The implications might be for the <unk> position in the market.
Okay.
Yes, Thanks, David.
And we clearly saw from the earnings call from our competitor some issues that they're having with product quality and I never could.
On details of that I think all of us cash multiple of about our patients and so Rob you want to talk a little bit too.
Quality stands and what we're working on as we look at the mission Shaw.
If David as Vic said, the United patient safety of that number one number one priority and we really focus on that.
We've actually paid a lot of attention to the time and device inside of the use in the continent decided yet.
You don't have this problem.
It has been reported by competitors, we are of different design using different materials.
And we have a very solid the test of aggressive testing procedures looking at this.
We have a very sophisticated compliant tracking system and across the 14 million installed base.
This issue of just not there at all for us.
We're extremely confident with that.
We do we will of safety and component.
The issue of other time training is the is an issue there and we have communicated regarding our warranty position on that.
It's an effective disinfectant.
The amount of uses the important to keep it close of the island so.
We've publicly put out information on that.
We can find that on our website, if you're interested in that.
But we will keep a close very close on this is we would retain the industry safety issue.
Thanks, Doug.
David actually the second part of your question talked about.
What would be the implications in the market I mean, clearly I don't know of Jim Hollingshead wants to talk to this but look.
We want to take share when our products of smaller quieter more comfortable and better and we've been doing that for three decades.
But clearly they might be from share implications. If a competitor has constraints around supply Jim do you want to talk a little bit to that.
Sure.
I think we're waiting to see what will happen when the competitive position.
The ability to deliver product, but we're obviously always ready willing and able to help our customers.
So whenever it is that there is potential upside for us the market share gains during the next quarter or two of that we'll certainly do our best to take advantage of it.
We have our next question coming from the line of Shanghai Aman.
With Morgan Stanley Your line is open.
Thank you and good morning, Mick good morning, everybody.
The answer this question.
<unk> I guess of one of the better term the tonality of the competitive bidding.
Many many proposed shy of any months ago I'm wondering if that's any inc.
Influence of what influenced that might've had with respect to pricing since that point in time.
Thanks, Sean.
From the it's a great question and I'll hand back to Jim has always had the talk about whether the elimination of the competitive bidding pretty much.
In terms of the delight of 'twenty 'twenty four has any implications for us for pricing with us without us customers, Jim you want to take that.
Yeah sure Thanks, Craig and thanks for the question David.
Yes, the competitive bidding being cancelled led to ongoing stability in.
In the pricing in the us market and that's what we've seen.
The stability of pricing throughout the period.
Because of the stability of reimbursement.
And we so far.
We haven't seen any.
<unk> from <unk>.
So.
It's a weird way to answer the question, but the amount of debt.
We've just seen pricing stability.
Great. Thanks also appreciate the asset.
Thanks for the question Sean.
We have our next question coming from the line of Andrew Goodwill when MST Marquee. Your line is open.
Good morning, and thank you for taking my question I, just kind of touch back on your SaaS business I know you've filled a few questions on this particularly around matrix Gabe just trying to think in practical terms how quickly we can sort of see that come back.
Thank you Sydney.
Of all the commentary in the marketplace.
The big swing on the back of the kind of it too.
Karen the hindsight, just trying to sort of something just over the next two quarters, how youre seeing the profile of that.
The recovery.
Yes, Andrew Thanks, It's a great question in there of so many.
Dynamics of hospital care and in the flow out through.
True post acute care to add to our SaaS system I think as we look forward, we sold 5% growth in the quarter across of our SaaS business, we think the weighted average market growth across those seven of our now.
Verticals that we're in with us.
So let us joining the portfolio.
The pharmacy and 100 fusion.
Yeah.
We think that sort of mid single digit growth can move towards high single digit growth as we see patients get back to the hospital and therefore get back to the discharged to skilled nursing facilities home health hospice and beyond.
And so.
It's difficult to say the exact.
Right of increase, but it's going to increase and I think our technology and what we've invested in particularly even during COVID-19. Some of the software that we put out for our skilled nursing facility customers to manage patients who may or may not be infected by COVID-19 and how they operate their businesses have been very well received so even as the case.
Rates declined the COVID-19 is still here and it is still across even the vaccination is going up still going to impact us customers I think some of those tools will help us.
The faster path to getting from that mid single digit growth to high single digits as I said in the prep remarks of this is the true resonate always we don't just want to meet market growth, we want to beat that market growth. So as I look towards our long term strategy in 2025.
The opportunity for weapons to get way back to the double digit growth in our SaaS business, but in the short to medium term I think we can move from from mid single digits to high single digits. In this part of our portfolio. We've made the investments in the LNG, who made the investments for the customers to help them deal with the the dynamics of COVID-19 and as recovery happens, we will be of partners for them.
Full growth on the other phone.
That's correct. Thank you.
Thanks, Andrew.
We have our next question coming from the line of Suraj Kalia with Oppenheimer. Your line is open.
Hi, Mick Brent can you hear us alright.
Got you loud and clear Suraj.
Perfect.
Couple of questions and I will just kind of put them together Mick.
I'm not sure I heard about the EHR to report would love to get your perspective from a calendar of messaging perspective.
Quantification of impact and the.
The second part of my question, Mick if I could.
The SaaS business there was a period of time debt. It was a tailwind to margins to topline growth.
And just kind of looking at the over the last let's say four or so quarters. It seems to be becoming a drag of the overall growth. Some of these COVID-19 issues. Notwithstanding maybe you can just kind of parse us through the structural dynamics of returning this line item too.
What you would have perceived as normalized growth. Thank you for taking my questions.
Thanks, Raj I'll hand, the first question to dive on <unk>, and then I'll take the second one on debt, yes, Thanks, Suraj and I'll give you just kind of a brief response here. If you want any more details feel free to reach out to Amy and she can bring yet the speed, but basically AHRQ of we believe us taking a very narrow.
The perspective on looking at the clinical literature looking at only randomized controlled trials done under certain very careful criteria and while traditionally that has been the the hallmark of the gold standard of trials, great Ren you've got.
Our massive amount of real world evidence and a lot of other longitudinal trials that clearly demonstrate the benefits in terms of longevity benefits in terms of clinically significant cardiovascular outcomes also quality of life outcomes that also outcomes in terms of health care utilization of lower.
Cost of all of that evidence ought to be used to.
To come to a conclusion that treating sleep apnea with CPAP therapy is not only good for patients, but good for the health care systems and good for economies as a whole. So we're hopeful that all of that evidence that we've brought in and it's not just us other society as many of the clinical societies have come out and there's a bit of a very vigorous of a.
Cross industry wide cross clinical academic.
The key opinion leaders have all come out in the same direction. So we are hopeful of that will be taken into account in the final report, which we don't know when it'll be but likely perhaps later this calendar year, we'll include that data and come to a better conclusion.
So suraj I think the other thing I would add to Dave's response, which was very thorough the is that actually there are obviously ts randomized control trials, but also are excellent that werent included so if you're just looking at us a teaser even you need to include some of those assays, which were in fact very positive and the <unk> just looked at some mutual I think Jason said, well mutual means no benefit of might look like.
There's all the other preponderance of evidence real world and they tell us that I apologize. So it was an interesting subsection of the literature that I used.
And we have lots of folks.
And academics working on that on the second part of your question the SaaS.
We can actually wasn't a strong tailwind for us in this quarter at.
5% growth versus the.
The COVID-19.
Included co part of the business and I think it turned to US we look forward and I spoke to this earlier.
In my answer.
Andrew about SaaS in the game from mid single digits to high single digits I think it can.
And then off of meeting or beating that so getting to double digit growth in the in the SaaS part of our business I do think that will become a tailwind for us.
12% of our revenue so far the SaaS.
As we get out of the COVID-19 sort of slowdown of Sensus rights in this out of hospital care because people are wanting to IGN pace people are wanting to be outside the hospital COVID-19 just increase the profitability of the people do not want to be in the hospital for any longer than 90 day too and so I think the <unk>.
Geographic and socioeconomic trends of the growing community of people wanting to IGN price and an aging.
Okay.
The population and the fact that people are seeing lower costs, lower acuity and better health care delivered outside the hospital only towards this.
The dynamics of how quickly we go from mid single digit growth the high single digit growth. We can device, but the fact is it's going to go to the Ed because people are moving from the hospital to out of hospital health care, and Thats, where were investing so us all.
I look forward to a long term strategy 2025, I am very confident that this will be of very strong tailwind to our business.
The recovery of our whole business post COVID-19 is what we're talking about here, but I will come to the end of the FY 2022 strong double digit growth across our business and I mean that across our whole business. Thanks for the question Suraj.
We have our next question coming from the line of Anthony Petrone with Jefferies. Your line is open.
Thanks, and maybe just to follow up on on the SaaS business and kind of go on between <unk> and matrix here on the break free side there was.
Some consolidation in the <unk> space.
Through 2020, I'm, just wondering if that is cycling through the numbers, there and sort of how that plays out and then sort of when we think of core sleep trends. If you could provide maybe a quick update on I know, it's a small portion of the overall business, but it sounds like there could be a reversal of an activity as folks actually get back to sleep lab.
So just just sort of an update on sleep labs. Thanks a lot.
Yes, thanks for the questions Anthony and the first part of your question around SaaS.
Yes, I mean, clearly there is consolidation of some players in the industry and that can impact.
Our contracts with us in general the SaaS us.
Per user per month like proactive at the end user per month approach and so.
The acquisitions are in HMA acquiring another HMA that doesn't currently use broad trade is actually upside for us because usually the acquiring entity has all the efficiencies of scale and capability because of using broad trend and I put that into the acquired accountants, and therefore actually increased the number of users and the <unk>.
Use of per month revenue from resume can be upside on that if it's a bright tree user of acquiring and other bright for us. The well then there can be some reduction they might get some efficiencies and reductions of the number of shares but ultimately if that's the smart customer is going to continue to growth and so then that over time as they grow we will increase our revenue as part of that so a lot of dynamics around.
The M&A inhibiting in general in the long run for US it's about us betting on the winning an efficient <unk> helps us do that because the people who adopt broad tree on the win as they have the lowest cost and the best outcomes for their patients to the second part of your question around <unk>.
Sleep labs.
Oh look I look from the capacity here in the us.
Yes.
The reduction that happened during COVID-19 of the lab scale of the digital health solutions in their home sleep testing capabilities. So as they come back in the open up the inland facilities I think that will absolutely have a rebound of the capacity in the inland, but they wont lose what they gained in Huntsville testing us ARISTOTLE said when the movie.
Volume is stretched by new idea it never turns to its original size. So they're not kind of forget about these great digital health solutions that help the Huntsville testing. So yes, we will get the capacity back of the slate that but I also think the sky available opportunity for those of the sleep diagnostics provider to.
To provide low cost customer friendly diagnostic portfolio and hopefully we will improve the rate of diagnosing the 936 million people worldwide. While we're just looking at the US the 70 million people in this country that have more of a severe obstructive sleep apnea that need to be taken care of.
Thanks for the question, Anthony and I'll hand back to you I need to close out the call.
Thanks, Mick did you want to give your closing remarks.
Sure, Yes, I know of nine minutes over so I would make us great. Thanks again to all of our shareholders for joining us on the call.
Like the thanks once again, the 7500 resume the Ns many of you our shareholders. Thank you for your hard work dedication, helping people sleep better breathe better around 140 countries worldwide. Thank you for the many thousands of enlighten us youre getting right now throughout team in India. So that we can take care of people in the another emergency.
I look forward to talking to you and to all of our shareholders here again.
Non dose thanks.
Yes.
Great. Thanks, Nick and thank you all again for joining US today, we appreciate your interest and your time.
Have any additional questions. Please don't hesitate to reach out directly. This does conclude our call. Celine you may now close out the call.
This concludes the Rod Smith of third quarter of fiscal year 2021 earnings live webcast you may now disconnect.
Okay.
Yes.
Yes.
Yes.
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