Q4 2021 Resmed Inc Earnings Call

[music].

Welcome to the fourth quarter of fiscal year 2021 resume earnings conference call My name as Robyn I'll be your operator for today's call.

At this time all participants are in a listen only mode. Later, we'll conduct a question and answer session. Please note that this conference is being recorded.

I'll now turn the call over to Amy Wakeham, Vice President of Investor Relations and corporate Communications, Amy you may begin.

Great. Thank you, Robert and Hi, everyone welcome to resume its fourth quarter fiscal year 2021 earnings conference call.

Thanks for joining us as Rob said this call is being webcast live and the replay will be available on the Investor Relations section of our corporate website later today, along with a copy of the earnings press release and presentation.

On a call today are CEO, Mick Farrell and CFO, Brett Brett standard Cock other members of management will join us during the Q&A section.

During today's call, we will discuss some non-GAAP measures for a reconciliation of these non-GAAP measures. Please review the notes in today's earnings press release or the appendix a of the earnings presentation.

And as a reminder, our discussion today may include forward looking statements, including but not limited to expectations about residents future performance.

We believe these statements are based on a reasonable assumptions. However, actual results may differ you are encouraged to review <unk> SEC filings for a discussion of the risk factors that could cause actual results to differ materially from any forward looking statements made today.

Before I turn the call over to Mick I would like to highlight resumes upcoming virtual Investor day on September 8th, which we announced in our earnings press release today.

More details and information, including an agenda and how to register will be available on our Investor Relations website, approximately 2 weeks before the event.

Okay Mick over to you.

Thanks, Amy and thank you to all of our shareholders for joining US today as we review results for our June quarter, the fourth quarter of our fiscal year 2021.

On today's call I'll provide a high level overview of our financial results as well as reviewed progress towards raise mid 2025 strategic goals.

I will discuss execution highlights against our top 3 strategic priorities and our urgent and ongoing actions to address current industry supply chain issues and opportunities I'll, then hand, the call over to Brett for further detail on our financial results let.

Let me start with the situation that as generated many stakeholder questions in the last month and a half.

During the quarter demand for resumes sleep and respiratory care devices surged dramatically after a competitors' recall announcement, putting additional pressure on an already challenging environment for our industry's supply chain.

Global supply chain limitations, including a shortage of electronic components as well as ongoing fright constraints and costs are impacting our ability to respond to the unprecedented increase in demand for <unk> products.

<unk> teams across automotive consumer product and communications technology industries have confirmed on their recent earnings calls that they are struggling with the same issues.

Some major producers have suggested the chip and electronic component shortages could extend 12 or even 18 months.

We are working incredibly closely with our global supply chain partners to ensure access to additional supply of the critical components that we need to further increase production of our medical devices.

During this June quarter, the demand Spike was so high that we've been forced to allocate products due to the unprecedented demand and these real world supply chain capacity constraints.

In doing so our guiding principles a very simple.

We are focused on the highest acuity patient needs first it's very similar to our approach to ventilate a allocation during the peaks of the Covid crisis. These last 18 months.

We will continue to coordinate with all of our stakeholders as the situation develops and we begin to open up these supply constraints. We understand this as a frustrating situation for all of our customer groups, including physicians home medical equipment providers payers and most importantly, the ultimate customer the patient.

It is a unique time in our industry.

With a steady recovery of patient flow after COVID-19 peaks in various countries with these global supply chain constraints and with an unforeseen competitor recall all occurring simultaneously.

I want to be clear that through it all our priority will always be patients doing our best to help those who need treatment for sleep apnea, chronic obstructive pulmonary disease and other respiratory diseases. Our goal is to ensure that patients get a therapy that they need and when they need it.

Let me be very clear about a couple of things 1 resumes sleep apnea and respiratory care devices are safe to use they are the best in the market. They are the smallest the quietest the most comfortable and the most connected therapies and.

And positive airway pressure therapy remains the gold standard for the treatment of sleep apnea.

And to resume we will not be able to fill the entire supply gap that has been created by this situation caused by a competitor just 7 weeks ago.

They were the number 2 player to our number 1 leading market position in almost all of a 140 countries that we compete in worldwide. We are doing everything that we can to partner further and further up our supply chain in order to increase our access to the supply of the Pos the pieces and the components that we need.

Need to manufacture at scale.

We expect to be in a somewhat supply chain constrained environment throughout fiscal year 2022.

This news from a competitor was only relates to the market on June 14th. So we are in the first 7.5 weeks of a response. However, we have already partnered with our global supply chain team, both internal and external and although we expect the current quarter ended December 2021 quarter will be the most supply constrained.

We do see room for expansion of supply ahead, we expect that the flow of regiment products will accelerate significantly during the March 2022, and the June 2022 quarters.

We are focused on partnering with physicians providers and distributors to ensure that our devices get to newly diagnosed patients and.

And while that human impact as the most important I know our investors and our analysts need to model the future financial impact of this accelerated growth on our regiment financials based upon our lightest supply chain information and analysis, we see a path to 300 million to 350 million.

In additional revenue in fiscal 2022 over and above our previously planned revenue growth for fiscal 2022.

Importantly, we see a clear opportunity to increase our long term sustainable market share as patients physicians and providers experienced a resume a market leading device and integrated cloud based software solutions.

Our experience over the last 7 plus years since we launched our online platform called Air solutions at scale.

Is that when providers adopt and embrace our suite of digital health solutions that can lower their own labor costs by over 50%. They can drive their own patient adherence rates up to over 87% and beyond.

After doing that they don't want to go back to an inferior solution.

And yes during a.

The knee distant future, we will be starting the full product launch of a brand new next generation platform called <unk> 11.

Let me now turn to overall market conditions in our industry as.

As we discussed last quarter. The countries. We operate in are at various stages of the post COVID-19 recovery process in terms of sleep apnea and COPD patient flow.

We are seeing continued improvement in patient flow country by country.

But there is a wide variance in that total patient flow from 75% a pre COVID-19 levels in some countries around the world to 95, or even a 100% a pre COVID-19 levels in other countries.

<unk> as a steadily rolling out country by country and at the same time, new variance, including the Delta variant continue to cause disruption in some geographies.

Our team remains committed to working with hospitals and health care providers to provide the ventilators masks and training that they need for acute care, we will continue to support frontline respiratory therapists and physicians as well as providers patients and a raise mehdian team throughout the 140 plus countries that we operating.

A few things that have become really clear during this pandemic is that every country in the world has 1 increased its adoption of digital health solutions to increase its focus on respiratory hygiene and respiratory health and 3 increased its investments in healthcare treatment outside the hospital.

And particularly in the home.

These are all catalysts for <unk> long term growth.

We are pleased with a steady progress that we are seeing in diagnosing new sleep apnea, COPD and asthma patients during the fourth quarter. Our sales team delivered very strong revenue growth across our core sleep apnea and respiratory care business. This incredible double digit growth was despite the headwind from lapping.

$125 million of incremental Covid related ventilate, a sales in the June 2020 quarter.

And with some tailwind from our competitors' recall right at the end of the quarter.

While I am proud of the team for the as 10% constant currency revenue growth in the quarter I'm also very proud of their achievement over the fiscal year with over 6% growth in revenue throughout fiscal year 2021 to over $3.2 billion in total annual revenue.

And with leverage producing out of a 12% growth in our non-GAAP operating profit.

And all the while fighting for recovery patient flow and battling COVID-19 impacts quite a performance from our team of 8000 <unk>, helping people in a 140 countries.

We expect to see steady improvement in patient flow for sleep apnea and respiratory care therapy as we move throughout our fiscal year 2022, we are encouraged to see patients physicians and providers adopting digital health tools for remote patient screening behind based testing for patient monitoring and for all.

Ongoing population health management as the leader in digital health for the treatment of sleep apnea, COPD and asthma as well as other chronic respiratory conditions, we are well positioned to drive this growth with our health care delivery partners.

During the quarter, we generated over $227 million of operating cash flow, allowing us to return $57 million in cash dividends to shareholders. These last 90 days.

Today, we announced an 8% increase in our quarterly dividend for shareholders to 42 cents per share.

We are pleased to return cash to you as shareholders, reflecting our confidence in resumes resilient business and our ongoing cash flow.

We also increased our R&D investments in digital health technology during the quarter as well as our research and development for mosques for devices for embedded device software and for global clinical research all the while maintaining fiscal discipline with SG&A and Keith.

Other operating costs in line.

We are reinvesting for long term growth.

We lead the field of remote patient engagement and population health management with over a 15 million cloud connected medical devices in the market.

Our increasing investments in digital health innovation will ensure that we provide superior value to patients to physicians and to providers to be their partner of choice.

We don't take a leading market share position for granted we have to earn it every day with every product every solution and every service and every customer interaction.

Customers vote with their wallets and right now by a voting for us and we plan to keep earning their support.

Our digital health technologies are a growth catalyst for our business. We have an exciting pipeline of innovative solutions that will generate both medium and long term value with an industry, leading intellectual property portfolio, including over 8200 patents and designs.

We now have a 9 billion nights of respiratory medical data in a cloud based platform called Air solutions, we have a $16.5 million patients enrolled in a cloud based <unk> software.

Solution for physicians and we've recently upgraded our patient engagement to cold Maya.

This app is now a cloud native and service in the cloud.

This new Maya 2 point a release supports our next generation platform called <unk> 11.

The essence 11 platform comes to the market with new capabilities with improved data delivery with scalable architecture and with support for a full cycle teams and what that all means is that we have the opportunity for accelerated innovation in our ecosystem.

We have over a 110 million patients managed within our software as a service network for out of hospital care.

These incredible data assets allow us to unlock value for all of our customer groups for patients for physicians for providers as well as for private and government payers and the community communities the dice.

Let me now update you on our top 3 strategic priorities. These are 1 to grow and differentiate our core sleep apnea, COPD and asthma businesses too.

<unk> to design develop and deliver world, leading medical devices as well as digital health solutions that can be scaled globally and 3 to innovate and grow the world's best software solutions for care delivered outside the hospital and especially in the hunt.

Last quarter, we previewed our nexgen platform called <unk> 11, responding to the current industry situation a market, leading research and development team accelerated the launch of the assets 11 first by expanding the control product launch to additional customers. Just this last month and second by.

Moving to an earlier a full product launch date, we now expect to launch in the United States before the end of this current quarter and then to other countries gradually over time.

This essence 11 device launch will be a device launch like no other in the history of regimen.

Previously, we carefully timed new product platform launches to minimize the selling overlap of device platforms.

We are in a unique situation today, our market, leading <unk> 10 continues to be very strongly adopted and we believe that it is better than any other device currently on the market in.

In short it makes sense to continue to sell the assets 10 at scale, particularly as this will help maximize the overall CPAP AIPAC and buy a level volume available for our customers for <unk> given the unprecedented demand for new patients to receive resume devices in the market right now.

The bottom line is that we're going to be selling both the <unk> 10, and <unk> 11 in parallel for quite some time as we meet these extraordinary market demand over the coming fiscal year.

And as we continue to expand the availability of assets 11 to new markets and new geographies around the <unk> world.

We are very excited to bring the essence 11 to market and Im understating. The results when I say that the response to our control product launch has been very positive as since 11 benefits patients and bed partners and the device and software platform combination will also benefit physicians providers payers.

And overall health care systems.

As I said earlier, we make the smallest the quietest and the smartest in the most comfortable devices on the market, but they are also the most connected and the most clever devices.

All essence 11 devices, a 100% cloud connected <unk> with upgraded digital health technology to increase patient engagement and inherence to improve clinical outcomes and to deliver a proven cost reductions within our customers' own healthcare systems engaging patients directly in their own digital.

Therapy like never before in the industry.

Let me now turn to a discussion of our respiratory care business focusing on our strategy to better serve the 380 million chronic obstructive pulmonary disease patients and a $330 million asthma patients worldwide.

Our goal is to reach these many hundreds of millions of potential patients with our respiratory care solutions, including noninvasive ventilation and life support ventilation as well as new a therapeutic areas such as cloud connected pharmaceutical drug delivery solutions and high flow therapy offerings.

We announced that our respiratory care business benefited this time last year in the June 2020 quarter, as we sold incremental ventilation devices and mask solutions to meet the growing demand for Covid.

On an acute scale to the tune of $125 million in sales.

During the current June 2021 quarter, we had modest COVID-19 related ventilate a sales they were not material to our overall results that were under $20 million in sales just under.

As the Delta variant of this Corona virus surges in various markets and regions, we will still be there to support governments and health care systems and the patients' devices in their acute need, but we do not expect the resulting revenue from COVID-19 to be material to a global business of course, the broad a humanitarian impact is a measurable with preservation of Lee.

Life throughout ventilation solutions, a top priority in all of these countries.

As supply chain focus is for Astral life support ventilator than stellar our noninvasive ventilator, and then our Loomis and air curve platforms to ensure that we can help patients who need our support the most.

Demand for our core noninvasive ventilation and life support ventilation solutions for COPD are experiencing the same steady recovery in new patient flow as we see in our sleep apnea business.

We are balancing the growth in demand with the supply ventilators that made it to market throughout the last 18 months as customers balance their inventory with ongoing acute and chronic ventilation patient needs.

We continue to see rapid adoption of the average for ventilation software solution that we launched in Europe. This time a year ago. We are now expanding this technology to regions around the world the.

The value being provided through <unk> for ventilation has been helpful to physicians not only during the Covid crisis, but it is also increasingly valuable as an ongoing clinical tool for them and for the health care systems that they operate in.

In summary, we are helping to ensure that digital health is the new standard of care for respiratory care.

Let me now review our software as a service business for out of hospital health care.

During the quarter as SaaS business grew in mid single digits year on year.

Across our portfolio of markets, including home medical equipment skilled nursing facilities home health hospice private duty homecare home infusion and lock time communities.

The continued growth of home based care as providing tayo wins for our <unk> and home health products, and we continue to grow with customers as they utilize and optimize our resupply solutions to improve patient care.

The COVID-19 pandemic has been challenging for some verticals in our SaaS business, particularly skilled nursing facilities or sniffs.

We are seeing positive trends as census rates improve across sniffs and other care settings. We are watching this very closely as COVID-19 peaks, a decay as varying rights around the country. We expect there to be pent up demand for our software purchasing that provides opportunities for us to increase our pipeline as covenant restrictions continue.

As a state by state.

Our leading position as the software provider of choice to the HMA market enabled us to help customers manage through the pandemic and to maintain a healthy business.

Our broad tree branded software solutions are allowing <unk> to work through current challenges within our industry, including the need for increased patient support the need for management of product shortages in some categories as well as ongoing growth in the resupply a much needed home medical equipment.

As we look across our portfolio of solutions, we expect our SaaS revenue growth to gradually accelerate increasing from its current mid single digit growth to high single digit growth by the back end of this fiscal year as always our goal is to meet or beat these market growth rates as we continue to innovate.

Take market share from competitors.

Additionally, we see opportunities on our radar screen to drive growth through further SaaS acquisitions to augment our existing organic growth. We have a good history of thorough due diligence ensuring that resonate as the best owner of the assets and of course that we can bring additional value for our customers with a new offering.

And of course additional value for all of our shareholders in summary, as SaaS offerings are well received in each of the verticals that we serve and we see an increasing opportunity to leverage analytics to minimize acute care episodes for residents patients and clients and a provider network and ultimately to allow people to age in place.

A why from a hospital and preferably in their own homes.

Looking at the portfolio, a <unk> businesses across both sleep and respiratory care as well as our SaaS solutions, we remain very confident in our long term strategy and a pipeline of innovative products and solutions.

Our mission and specific goal to improve 250 million lives through better health care in 2025 drives and motivates <unk> every day.

The light shining on the importance of respiratory health and hygiene is broader than it ever was due to this pandemic Covid has also highlighted the importance of digital health, it's accelerating awareness and adoption of technologies that can be used for remote patient screening diagnosis set up as well as patient monitoring and management.

We continue to invest aggressively in R&D to ensure a resume solutions remain market, leading and provide a catalyst for long term growth.

With over $1.5 billion people around the world suffering from sleep apnea, COPD and asthma, we see incredible opportunities for greater identification enrollment and engagement of people within our digital health ecosystem.

We are relentlessly driving innovation and development to provide the scale needed to expand the impact of this technology across all of the 140 countries that we operate in.

Before I hand, the call over to Brett for his remarks, I want to again express my sincere gratitude to the more than 8000 <unk> for their perseverance hard work and dedication during the most unusual almost perfect storm of circumstances, you have helped save the lives of many hundreds of thousands of people around the world with emergent.

<unk> needs for ventilation. These last 18 months as we suffered through Covid and now you have a rough a wrap.

A rapidly pivoted the company back to provide ongoing support for our customers and patients during very challenging industry dynamics and supply chain constraints with unprecedented demand.

Thank you.

That I'll hand, the call over to Brett in Sydney, and then we will go to Q&A with the whole team Brett over to you.

Thanks, Nick.

In my remarks today, I will provide an overview of our results for the fourth quarter a fiscal year 2021.

Unless noted all comparisons out of the prior year quarter.

Group revenue for the June quarter was $876 million, an increase of 14% over the prior year quarter in constant currency terms revenue increased by 10% compared to the prior year quarter.

Revenue growth reflected increased demand for a sleep. These losses in mass, which was in turn driven bought by a sleep patient flow recovering from the COVID-19 impacted reduced levels in the prior year quarter.

And by increased demand in response to the recent put up a recall by 1 of our competitors.

The increased year over year demand for a sleep solutions. During Q4 was partially offset by a significant decline in COVID-19 related demand for a financial items and related accessories.

In the June quarter, we estimate the incremental revenue from COVID-19 related demand primarily in India was approximately $20 million a decline of $105 million compared to the prior year quarter.

Excluding the impact of COVID-19 related revenue in both a June 'twenty, 1 and June 20 quarters of global revenue increased by 29% on a constant currency basis.

Going forward, we expect minimal revenue from COVID-19 related demand.

As a reminder, in Q1 FY 'twenty, 1 we had COVID-19 related incremental revenue of approximately $40 million.

Okay.

As I mentioned before during the June quarter, 1 of a competitive announced a product or a call on certain sleep and respiratory devices, which in turn has resulted in significantly increased demand for ILD losses.

We estimate that we generated incremental loss revenue of approximately $60 million to $70 million in the June quarter, Gol competitors, where a coal.

Taking a closer look at a geographic distribution and excluding revenue from a software as a service business.

Sales in U S, Canada, and Latin America countries were $472 million, an increase of 18%.

Sales in Europe, Asia, and other markets totaled $308 million.

An increase of 11% or an increase of 2% in constant currency terms.

By product segment U S, Canada, and Latin America, <unk> sales were $268 million, an increase of 30%.

<unk> and other sales with $204 million, an increase of 5%.

In Europe Asia, and other markets <unk> sales total $210 million, an increase of 2% while in constant currency terms a decrease of 6%.

Masks and all of a sales in Europe Asia, and other markets with non <unk> million, an increase of 36% in constant currency terms, a 24% increase.

Yes.

Globally in constant currency terms, the glass sales increased by 12%, while masks and other sales increased by 10%.

Excluding the impact of COVID-19 related sales in both the current quarter in a prior year quarter Global <unk> sales increased by 46% in constant currency terms, while masks and other sales increased by 16% in constant currency terms.

Software as a service revenue for the fourth quarter was $96 million, an increase of 5% of a prior year quarter.

Looking forward a fiscal year 'twenty 2 we expect several factors will drive demand, including the general recovery of the global Sweet market from COVID-19 impacts.

The launch of a next generation <unk> platform and.

And share gains during a competitors where a coal.

However, while we are working hard to increase capacity, we will not be able to meet all we expect a demand resulting from a products from our competitors, where a coal primarily because of supply constraints for electronic components.

And we expect these constraints to be more limiting in the first half of FY 'twenty 2 as in the second half.

As Mick mentioned, we believe component supply constraints as by Spain will currently as an incremental loss revenue attributable to a competitors were equal.

So somewhere between $300.350 million during the fiscal year 'twenty 2.

Doing a lot of the 19 commentary today I will be referring to non-GAAP numbers, we have provided a full reconciliation.

After a non-GAAP to GAAP numbers in a fourth quarter earnings press release.

A non-GAAP gross margin decreased by 260 basis points to 57, 3% in a june quarter compared to 59, 9% in the same quarter last year.

The decrease is predominantly attributable to a negative product mix impact.

As typically a proportional increase in sales of a lower margin slightly losses.

ISP declines and unfavorable foreign currency movements.

We also continued to experience elevated and significant freight costs.

Moving onto operating expenses.

SG&A expenses for the fourth quarter were $181 million.

Compensation expense with a quarter was 17 million.

A non-GAAP operating profit for the quarter was $260 million, an increase of 70 per cent underpinned by a strong revenue growth.

As a reported last quarter, we estimated and recorded an accounting taxes as of 255 knee and during the previous quarter.

Which was net of credits and deductions for a proposed settlement a transferred a crossing all that's probably a sty in taxation office or I T. A.

During the quarter, we progressed as settlement discussions with the I T O and Henry Fonda, a text me as a estimate.

As a result, we have determined the record as a as 249 million.

We'll fix me in a lot of other than the previous call a estimate and accordingly, we have recorded this as a reduction have GAAP tax expense in a gene quarter.

Next steps involved concluding a written agreement with the I T O and a tiny final approval as from each side, which we hope to achieve this quarter.

On a gap basis, how effective tax write for a June quoted was 18.4%.

While a a non-GAAP basis are effective tax rate for the quarter was 21.5 per cent.

A non-GAAP effective tax rates for FY 21, with 18.7 per cent.

Looking forward, we estimate a effective tax rates for fiscal year 22 will be in the range of 19 to 20 per cent.

Non-GAAP net income for the quarter was 190.190, I immediately increase a 3%.

Continue to reinvest for growth through R&D.

We will also likely continue to deploy.

Capital for tuck in acquisitions, such as site as health.

And with that I will hand, the call back to Miami.

Great. Thanks, Brett.

Rob Let's go ahead and start the Q&A portion of the call I will turn it over to you to provide instructions and get going.

Thank you Amy will now begin the question and answer session.

If you'd like to ask a question. Please press star 1 from your telephone keypad and a confirmation tone will indicate your line is as a question queue.

You May press star 2 if you'd like to move your questions from the Q4.

Her assistance are you using speaker equipment may be necessary to pick up a handset before pressing the star keys.

As a reminder, we ask you please limit yourself to 1 question.

If you're a another question Youre welcome to hop back in the queue.

Your first question comes from John Deakin Bell with Citigroup. Please proceed with your question.

Oh, thanks very much.

Christian was just a rounding the likely mix going forward, you've talked about a 300 to 350 <unk> impact from.

As the weak cold.

There's a lot of quite a big difference in the growth rates in the U S. This as rest of the world in a quarter. So does losses can you just give us a feel for firstly why there was such a a difference in a in the U S versus the rest of the world for the quarter and then going forward you think.

That mix might look in a fall of 'twenty 2.

Yeah. Thanks for the question John and.

Yeah look it's really exciting to be able to provide a $300 million to $350 million in incremental revenue for our shareholders, but devices for a much needed patients out there over the coming fiscal year, and we actually we hope to get better than that as we look for more parts and pieces and components that.

Thats our current forecast.

Just breaking down the device numbers for the quarter in a really strong <unk> numbers for the U S at plus 30%.

It was off a comp if you remember this time a year ago with sleep devices were way down and ventilate as we're picking up in the U S. I think it was around plus 1% the confidence our huge turnaround there a plus 30% in this last quarter.

And then in EMEA Asia and rest of World. This time last year, we had plus 35% growth because we had really strong vent a lighter sales, particularly to some Asia Pacific.

Regions in their COVID-19 crises, and so that comp a plus 35% was being annualized and we saw a -6% for EMEA Asia and rest of world. So its a combination John of multiple factors of Covid. So both sides sort of regions U S. Canada Latin America at plus 30 versus EMEA Asia and rest of world lapping a plus.

Got it.

At their at a -6 so as we project forward. The 300, a $350 million I think thats, probably the most guidance we've ever given around an opportunity like this I'm not going to split that by regional by type or by area, but I can tell you its supply chain constrained not demand constrained and everyone and all of a 140 <unk>.

<unk> once resume products and everyone. We Mike we sell and we are doing everything we can to drive more and more elements in our supply chain wherever that bottleneck is in supply whatever that part of a pieces I personally as a CEO I'm, calling up that supplier and talking to the CEO and saying look this component.

Supply 3 months out 6 months out 9 months out and so a lot of the additional flow a parts and pieces is back end loaded in the fiscal year. So much less supply chain constrained in the March quarter and the June quarter of this of this fiscal year 22, we're in and it's going to be tougher here, we're already in the September quarter.

And with a hand to mouth.

But look we're not stockpiling, we're not putting.

An inventory, we a pushing stuff through a.

Plants that plants aren't at full capacity. So we have capacity, it's really a round components in pots and places that have the bottlenecks and so if you think about that color. It sort of gives you a guidance to know that Q3, and Q4 will be a lot less constrained in Q1, and Q2 Q2 should be slightly better than Q1 and Q3 should be.

Significantly better than Q2, and Q4 should be significantly better than the Q2 and Q1 as well.

Honestly take a very much.

Your next question comes from David Bailey with Macquarie. Please proceed with your question.

Yeah, a morning make morning Brett.

John you as a sign 1 day I mean, that's.

Additional data on 3 under a tree 50.

Is that the bosses are in late or as that be an opportunity as you say it currently.

Cheering consumables as well as ventilator any incremental a bit late a cells coming through.

Yeah as David that's a good clarification instead of a 300 to 350 million is incremental devices, including the Astral Stella's a curves loomis as well as assets Tan and as since 11. So a total physical product devices. It does not include any potential upside in mosques that.

You can get while selling gripes flow.

Generate a capabilities and so it's a doesn't include incremental sales with us.

It's focused on the device side, but both ventilation and sleep apnea devices are included in that number.

Okay, and then just a quick follow up if I can just on the.

On a new passion coming in to the system and she observations over the last 12 months and what sort of a proportion. So we think about a new patients that have a resident of our schools to have rhythmic batching resume consumables is there a a sort of a rough number you have to provide to try and saying what that could look up.

Yeah, I see where you're going with the question, it's sort of trying to get to the understanding of how much incremental moss share we might get when they're on a a resume device a look a as you know it as an open system and there is no requirement that arrhythmic device has a resume mosque. They are designed by the same engine is in the same building out there in Sydney in the manufacturing advanced manufacturer.

Side across the road. So they designed to work together very well and they are better together. So there is a better uptake of a resume mosques with resume devices and certainly.

Going through a channel with as a sales person who's who's providing both of them and so there's some some opportunities on bus the sort of clinical and technical side as well as the commercial and execution side for some incremental drive I went quantify that for you, but I do think there is some some upside.

That's great. Thank you.

Thanks, David.

Your next question comes from Sean Climate with Morgan Stanley. Please proceed with your question.

Thank you and good morning may contain Mick my question relates to the commonality between components of the various devices.

Is that is there a lot a commonality between 10 and as to 11 platform. So therefore, the challenges with the same with respect to sourcing and does the 3 X increase to a capacity from a competitor a compound the show a change the pizza for Ya. Thanks Mick.

Yeah Shaun.

Very good questions and very much related yes. There is some overlap of some of the parts in places between the assets 10 in the essence 11 platform. It's 7 years, new in the market and so there's a lot a upgraded.

Electronic mechanical plastic and digital health technology in the device and so there's a lot of a new components as well.

And yes, there is demand from from a competitor out there trying to cover.

Cover the a recall amount as well as.

Catch up with the patients that need urgent replacements.

We're not seeing as much of the latter the we have a supply chain that has some overlaps with some of our competitors, but actually very individually designed and as we work through the supply chains, the whole medical device industry as a very small percentage point of of a supply is titled capacity, which is great for us in that we're not fighting for a limited shave as as a competitive we're really fighting for.

Share versus a large consumer phone company or automobile company and the suppliers lock medical devices, because firstly, we're relatively recession resistant we done suddenly stopped outside during a recession as some people do on consumer purchases and automotive and we're usually a high margin for them. So.

And more sustainable growth in terms of what we're doing for our platforms.

<unk> has been in the market for 7 years and so these a long term sustainable for them. So our arguments a very good with a supply chain and that's why in the last 7 weeks, we've been able to identify that extra a $300 million to $350 million an opportunity, but there is some commonality between now devices.

And we will make those tradeoffs and that's why we will provide both assets 10, and essence, 11th but the essence 11 as a hugely forward for the industry and alcohol will be country by country to roll that out, but yes for the next 612 months, there's going to be a lot of selling both a fantastic a sense 10, and the amazing essence 11 in parallel in countries around.

The world.

Great column Mick appreciate it thank you.

Thanks, Sean.

Our next question as from the line of Margaret Ksr with Lamb Blair. Please proceed with your question.

Hey, this is Maggie on from Margaret today, I wanted to ask a lot a bit more on the assumption as a 300.150 million so and that assumption are you attending net new patient or is that going to be flapping. Your competitors existing patient and then is there a potential here for more than your current revenue.

A assumptions that incremental supply can be located in debt earlier than you are.

<unk>, a happy patient as 1 who's buying masks, because they need them on a replenishment basis. So I won't quantify it for you, but I do think there's a magnificent opportunity for us to get our technology in front of a whole new range of customers on the other hand, we're supply constrained right now so we're focused on our existing customers and taking care of them and making.

Sure that we can get the new patients set up for them, but Jim any other color you think on sort of changed.

Changes to the market conditions and longer term implications.

Thanks, Mac and thanks, Matthew for your question I would say on long term.

As we were preparing to launch a sense 11, our plan was to take market share and to take take device share with the offering because near a central have an offering both the device and the software we think as by far the best offering on a market.

We're introducing a launch a number of innovations and the platform because of its connectivity allows us to introduce even more software innovations post launch on an ongoing basis and so as Mick said in his opening comments, we feel very confident that were there a sense tenant are central 11, we have the 2 best sleep therapy devices on a market. So so that was our <unk>.

All along and I think that our competitors' recall as simply creates a window of opportunity for us as Mick as same to familiarize more customers more patients.

With the innovations and to streamline workflows for providers and to provide.

Continually improving patient experience on therapy, which drives up adherence.

Improved outcomes for patients and all of our stakeholders and then winners with that so we felt very confident as we were launching and I think the circumstances give us even more of an opportunity.

Yeah.

Great. Thanks, so much.

Thank you.

Our next question is from the line of Andrew Paine with CLSA. Please proceed with your question.

Hi, Thanks for taking my call.

Just looking at the supply chain issues in particular as semiconductors.

What worked.

Q as in traits sleep Suffocation, then so just getting me that opportunity firstly, it's very interesting familiar as a new dynamic and we're getting really good response from from the supply as day also or on a difficult supply chain conditions and often asked me to go with them further up the supply chain to talk to someone else and it's a game of sort of bottleneck.

Debottlenecking if you lock in the global supply chain, we have a very advanced engineering team, but a looking all day every day in a global supply lines internally led by a Linda LIBOR and her team and Andrew price and his team and they are pulling million and doing much more of themselves in a all day every day to drive that so it's an ongoing opportunity for us it as a supply chain.

Opportunity that unique Judah COVID-19 impacts on fries cost impacts on fries availability, but also.

The growth that we see a head due to this unique situation, Rob any any more color to talk about their own out the supply chain for Andrew as question.

Yeah, a few other sectors, Nick 1 as you know after falling off because of last year when the rapidly event scintillation.

Usually for that rant, if you've got a put in a longer term commitment. So we did have actually a lot a commitment from the ventilator devices going forward a net will be helpful for us.

As Nick said, we can always make a bed a case in a cyclical.

Consumer product and in fact, 1 as a key sectors around that not a need we say declawed, but also said these supplies, we could give them very long to a full cost that we usually hit a do really well. So we have to get along to a full cost a united I liked I liked that and I can plan that in the forecast as stable as unusual to have this sort.

A sudden increments that we've had as a result, a recent industry events and so it was putting that in and pulling stuff forward, but also a given out.

<unk> just a number of patients who have got a trait in where we are in the market without a night, some really solid long term commitments with a surprise as well and so that really really helps a new we'll see a commitment a horizon actually had got a quite a lot longer than what traditional it's day and then the other affect a neat mentioned <unk>.

We also as we got a really strong designed to and with a sort of a cute bottlenecks..1 particular components. We can forward design around as but does design changes do take time and I've gotta be property validated a tested and very rigorous testing on these products. So we can't just rapidly switched to a to a new component, but we.

Can plan for months out that will be out to add an additional sources of components. So uhm as you can imagine this as this is sort of full court press for a supply chain in engineering times and they they got a flat out on this.

That's great. Thank you very much.

Your next question comes from a line of Chris Cooper with Goldman Sachs. Please proceed with your questions.

Thanks to <unk> can I, just talked about the cost of a sort of location from him because he won't be given the the competition for chips anything that you've been referring to treat a cold I mean, it would be reasonable proceedings at the the the cost side with a free to 350, it's just gonna be elevated calls as what with a let me see if you're off with a.

And if that day is the case are you going to need to try and upset some of that pressure with cross.

Chris is a good question I'll I'll hand to Brett to talk a little bit around the costs and and how were taken care of that as in Robert if he wants to Sean in as well look this as an unprecedented time you know before a competitive made this announcement 7 weeks ago there was.

Already constraints in the market around some of the components and certainly because as you know nobody traveling really internationally can consume a travel as down so much an old a fright in the back of those consume a jets was gone uhm a cost to a higher and you look at you know we talked about this 90 days ago on out lost earnings call and you saw it in the Cogs.

A numbers for this June quarter, and that's gonna be with us for a while I mean these these costs ongoing a Y uhm it as more costly to get Fries, then it was because as much less planes available and and it is you know with a <unk> components. Although we have very long term contracts prices are being impacted by that at this time.

Time, we're in a you know in an environment, where we have customers with you know contracts with pay as and you know it was a as a consumer side of a business day might be some opportunity to to work you know with the supply trying to think about how to you know get some of those costs through the channel, but certainly in the reimburse out of the market. It's.

It's a balance and you've got a think really long term about on the other side of this crisis, how <unk> and a customer's going to engage in how long to a interactions and so it's a complex equation and but Brett do you want to talk a little bit to what we're doing to negotiate to achieve.

The best prices that we can get and and to manage out a gross margin there in in the Cogs, there and and maybe Jim talk to have where we're working with a customers on on long term long term pricing, so I'd, Brett and then Jim.

Yeah, Thanks to make I mean, we're too Chris me too I mean, obviously and.

Robert mentioned that kind of a we have some of these longer term commitments the other day.

Contractually so so that that helps us day, if you're looking at a industry a lot I think for for electronic components.

I see you as a <unk> precious day.

So I think I have a a a call to a you would expect so I I think so many places a on those components day.

<unk>, we can get a get that to some extent with somebody as longer term a contractual arrangements. So that that either push a point you said a lot on a cost side.

And in Fright definitely as Mick mentioned that reminds pre elevated in a for a number of reasons and just really even getting slots and so on that's a a fry it that's that's a evening too.

And can time as now for us a Friday evening, so that that I think will okay 10, you some <unk> probably shouldn't you see.

But that you think I think a fry, it's gonna be a pug I think that will resolve itself out a a time, but I, but I think for the either the course of as <unk> I think that's got a <unk> remind us as a cost pressure for us.

I, if I just pick up on a on the price topic.

Very quickly.

I think make a <unk> a coveted uhm broadly quite well, but I. If you. If you think a our industry has historically been a price down industry, alright, and that's because reimbursements come down and prices come down because we as a manufacturers have been able to drive down below materials, and you know and and move the industry in that direction, while preserving margins.

Our customer is still a very constrained on their ability to pass on any price increases a day face because for the most part there there and <unk> you know either have government reimbursement or are they have some sort of contracted reimbursement with a commercial per.

And those reimbursements have remained static or come down overtime. So as we think about what we might be able to do past price forward, we have to be very thoughtful about how we how we accomplish that and if we could do it and then a couple that with the fact that we are also in contract with most of our customers and so we might be in a 10 year contract with a government pair or many of our larger cussed.

Tomorrow as we've we have contracts a run for 12 months that have a a a new a cycle and that sort of thing. So I think that we've done very a very good job, a being disciplined and pricing and maintaining price stability and will be very very thoughtful as we think about any kind of a price changes that we that we do every time, but I think the circumstances are quite unique and we really want a preserve uhm.

A long standing relationships with our our customers who are really our partners in the channel.

Yeah.

Thank you.

Thanks Lyanne.

Next question comes from David low with J P. Morgan. Please proceed with your question.

Thanks, Thank you and thanks for taking my question just wanted to make on mask resupply, we had wide or I had worried debt with the recall that we might see a lot a patient stopped using that device, particularly given that wed see a raj and that would have a flow on a thank to everyone's resupply programs.

You can see the numbers today and mass sales growth, obviously as not matching up with device sales growth finding the internet not as a lot of factors in that but I'm. Just wondering if you could talk to that risk and what your expectations are on that front. Please.

Yeah David.

There were certainly some confusion after the June 14 announcement, but I think many of the regulatory authorities and many of the clinician groups came out pretty quickly to say lets talk to a doctor and work out a rich pathway between now and when you get that replacement device from that competitor and also for new patients the doctors and so.

All of us in the industry, a very focused on the size and effective therapies from <unk> and other players in the market and so I think that messaging was actually pretty quickly put out there by those physician societies and relevant health authorities after somewhat confusing announcements right on that June 14 from a competitor I know long term theres been a.

Some.

Some impacts that a quite beneficial in patients, making that tradeoff and certainly for US. Yes, you saw a plus 5% growth in masks in the quarter for the U S. You saw a plus 24% growth in Europe over a.

Kind of a comp there, but very very solid growth in a mask business.

As you said Theres a bunch of factors David.

This time last year, we had all the ventilation mask sales for Covid in the U S which was a.

That we were like a headwind and the other headwind. We had was the annualized <unk> of the snap acquisition, which we did just before Covid. We caused a just in that sort of February through June period.

<unk>.

And then there's some balancing a inventory and cash flow due to the competitive recall all going on at once and so a lot a competing dynamics, but as you saw it as a resilient business when people getting great sleep apnea therapy day, feeling better sleeping well and waking up refreshed and they want a get a new mask every 3 or 6 months and and they're doing it.

Increasing rights due to Covid that step change has remained and we're confident as we look through the fiscal year that we're going to see mid single digit up to high single digit growth in a mass business and it's all about us engaging with us as patients getting new patients on board as we talked about some incremental revenue opportunities there on the devices may be somewhat mosques and.

And then we get back to where we were before right and we go back to engaging patients ensuring a stay on therapy and they have really quick and easy access to reach a apply if they want it and when they want it and when it's coming a lot of insurance and co pays and everything.

Alright, thanks very much.

Next question comes from Matthew <unk> with Keybanc. Please proceed with your question Alright.

Alright, good afternoon, guys and thank you for taking the questions.

Hey, Rick just a switch it up.

Or at least for at least 1 question.

Are there any meaningful milestones for a propeller or viral or the Beverly JV.

2022 that you could debt, we'd like to call out and as the loss as a lower loss.

On a JV because if that generate income revenue.

Thanks, Matthew and it's great to have a question in a sort of looking out beyond the next 12 months given the dynamics I am not surprised by that I'll take the first part on a joint venture with Verily in hand.

To Jim to talk a little bit more about verily and also.

About propeller another great development opportunities, we have across a portfolio in sleep and respiratory care.

Yes, firstly, the joint venture with Verily as it's a it's.

It's 9 now as premises and so we've got the branding out there and we have Jonathan <unk> fantastic.

<unk> as it comes to US from Edwards Life Sciences, and other large med tech companies that he has been a part of and really exciting to have a new CEO there he's a strong leader in.

The ability to identify engage and enroll a what.

Sleep concerned consumers into a digital pathway and a treatment pathway for sleep apnea is incredible and some really good experiments happening in certain metropolitan statistical areas areas with that that technology and so a great to have a new leader and Youll, Virginia. The milestones are really around those MSI as in the success, we're having a before we will scale.

And obviously given the current industry dynamics, we don't need to drive demand right now we have unprecedented almost unlimited demand, but we're doing a lots of pilots and lots of testing and I can see as we get towards our 2023 and we annualize all of this and we're moving towards that 2025 strategy that premise some joint venture will create incredible opportunities to identify and engage.

<unk> enrolled the 936 million people worldwide, who suffocate and want to find a P.

Pathway to treatment for their sleep apnea.

Jim any other thoughts about pre maisano propeller are any of you a great developments you have got on the horizon in SSA.

Say just any specific to propeller.

We remain very excited about propeller as a part of our portfolio.

And like a lot of a number of things over the last 18 months the headwinds from propeller were largely driven by their customer base focusing on COVID-19. So a big part of propeller as businesses working with with payers and with health systems to drive adoption of their digital solutions.

And there was just there was just distraction in there and their customer basins for many months, obviously, so we're starting to see some more traction in those conversations as.

It starts to decline in the market and start to stabilize and we've taken the opportunity during that span to do to continue to develop our capabilities and propeller and I would say just a couple of highlights I would say we've added quite a lot of muscle to the commercial side of that business by adding talent into the business.

And we've also been working hard behind the scenes to build out in a cloud architecture and make sure that propeller as cloud architecture as as paired up really nicely, a matching and kind of aligned with regiments overall cloud architecture for our other digital offerings and all of that kind of investment as just going to accelerate.

Propeller as traction in the market as we continue to accelerate digital offerings across our entire portfolio. So we're very excited about it I think that material revenues out of propeller are a couple of years away in all likelihood, but as we get more milestones and do things like sign contracts, we'll keep everybody apprised.

Thank you.

We're now approaching a 75 minute mark so I'll turn the call back over to Mick Farrell.

Yes, Thanks, Rob and thanks to all of you for sticking around a little long clearly some unique circumstances in this perfect storm.

Thanks, again to all of our shareholders for joining us on the call today I'd like to once again take the opportunity to thank 8000, <unk> as many of whom are also shareholders for their dedication and hard work, helping people breathe better sleep better and live better lives outside the hospital in a 140 countries worldwide. Thanks for all that you do today and every day and thanks, especially to.

Our resume heroes on the front lines. During this global Covid crosses including patient care provided support in hospitals production global supply chain management distribution and Tech service. Once again, thank you and I'd like to thank all of you as shareholders for joining us here and we will see you in 90 days. Thank you very much.

Great. Thanks, Nick and thank you again for joining US today, we do appreciate your interest and your time. If you have any additional questions. Please don't hesitate to reach out directly. This does conclude our call. Rob you may now close it up.

This concludes <unk> fourth quarter fiscal year 2021 earnings live webcast you may now disconnect.

Okay.