Q1 2022 Resmed Inc Earnings Call
Hello, and welcome to the rest of that first quarter fiscal 2022 earnings conference call and webcast. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. We ask you. Please ask one question and then return to the queue. During the Q&A session. If anyone should require operator assistance. Please press star zero.
So on your telephone keypad as a reminder, this conference is being recorded its now my pleasure to turn the call over to Amy Wakeham, Vice President Investor Relations and corporate Communications for resonated. Please go ahead Amy.
Great. Thank you, Kevin Hello, everyone and welcome to resume its first quarter fiscal year 2022 earnings call. We thank you for joining US. 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, which are both available.
Now.
With me on the call today are resumes Chief Executive Officer, mixed barrel and Chief Financial Officer, Brett Sandra Cock.
During the Q&A portion of our call, making Brett will be joined by Rob Douglas, Our President and Chief operating Officer, Jim Hollingshead, the president of our sleep and respiratory care business and David Pendarvis, Chief administrative officer, and Global General Counsel.
During today's call, we will discuss some non-GAAP measures for a reconciliation of the non-GAAP measures. Please review the notes in today's earnings press release or the appendix of the earnings presentation.
And as a reminder, our discussion today may include forward looking statements, including but not limited to expectations about <unk> future performance.
We believe these statements are based on reasonable assumptions. However, actual results may differ you are encouraged to review our SEC filings for a discussion of the risk factors that could cause our actual results to differ materially from any forward looking statements made today with that I'll turn the call over to Nick.
Thanks, Amy and thank you to all of our stakeholders for joining US today as we review results for the September quarter, our first quarter of fiscal year 2022.
Our first quarter results demonstrate strong performance across our business buoyed by extremely high demand for our sleep and respiratory care devices as well as continuing recovery of many markets from COVID-19.
We achieved double digit growth at both the top and bottom line metrics of our business.
To be clear that achieving these results has not been easy this quarter, we are dealing with an unprecedented what I would call perfect storm of elements, including the Covid recovery, but also including a competitive recall that.
Recall, that's 10 fold higher than any in the industry to date and supply chain constraints that are impacting not only our industry, but multiple industries worldwide.
I'm incredibly proud of Brazilians across our global teams many of whom are working 24, seven to get our products and solutions into the hands of patients who need them. Most despite these extraordinary efforts. We know that we have not been able to meet all of the demand.
As the market leader a competitor that is in the number two market share position announced a recall mid June that has created unprecedented dislocations in the market in effect, we are facing the challenge of providing the volume for our own number one market share position and also trying to meet as much of their none.
<unk> two market share position as possible around the world.
Given the supply chain crisis, our suppliers have been allocating components to us on the inbound side, we have in turn been forced to allocate our products on the outbound side to our customers. We have been clear on the guiding principles for that allocation of our products, namely that we are giving.
I already for production and delivery of our devices to meet the needs of the highest acuity patients first.
The allocation conversations that I have with our customers are the same ones that I'm, having with my suppliers and their suppliers and so on up the supply chain.
As an example during the quarter I was on a zoom call. We've won with one of our suppliers' suppliers suppliers suppliers suppliers suppliers and I'm not kidding.
We achieved our goal with that with that manufacturer and we received increased allocation from that manufacturer, but then we face the challenge that is still facing out of working with the five customers at this all the way down that chain to get to us to ensure that the agreed upon increased allocation of that component actually gets to regimen gets manufactured into.
Your resume products and then sent to resume customers and ultimately to patients. That's just one example of a high degree of difficulty dog for our supply chain team.
The supply chain analyses and negotiations are ongoing and the situation is very fluid changing day by day week by week and month by month, we have an incredible six Sigma black belt lighter than team of supply chain specialists working on these issues 24 seven.
In short supply bottlenecks continue to restrict our access to critical electronic components, especially semiconductor chips that ultimately limit our net production output.
In addition to component supply issues, the ongoing challenges of sea freight and air freight for manufacturing facilities to distribution warehouses houses and ultimately to customers are increasing our costs and further impacting our ability to respond as rapidly as we want to the huge demand for <unk> products.
The combination of component shortages in transportation bottlenecks makes providing steady and smooth flow of products to the market very difficult.
We are working incredibly closely with our global supply chain partners doing everything we can to gain access to additional supply of the critical components that we need to further increase production of our medical devices. We will continue to coordinate with all stakeholders as the situation develops we understand that this is a difficult situation for all of our cost.
The groups, including physicians home medical equipment providers, Payors and the most important customer the patient.
Our number one priority will always be patients doing our best to help those who need treatment for sleep apnea for COPD for asthma and for other chronic respiratory diseases as well as critical out of hospital care.
Our goal is to ensure that patients get the therapy that they need where they need it and when they need it.
Let's now discuss the overall market conditions in our industry, we are seeing a steady ongoing recovery of demand in the countries that we operate in they reminded at various stages of the post Covid peak recovery process in terms of new patient, Florida.
We are still seeing a divergence in total patient flow and sleep lab capacity from 75% to 95% of pre COVID-19 levels in some countries up to a 100% plus of pre COVID-19 levels in others.
These metrics will continue to ebb and flow as vaccines and boosters rollout globally and as new variance of the coronavirus arise and caused temporary perturbations.
Our global resumes team remains committed to working with National State and city governments as well as local health.
Systems hospitals, and health care providers to supply the ventilators, the masks and the training for acute care and the transition home for affected patients.
Let me now update you on our three strategic priorities as we pivot back to grow our core business. These three one to grow and differentiate our core sleep apnea, COPD and asthma businesses.
Two to design develop and deliver a world leading medical devices as well as digital health solutions that can be scaled globally and three to innovate and grow the world's best software solutions for care delivered outside the hospital and especially in the hunt.
In August we launched our next generation device platform that we call essence 11 into the United States market in short that launch has been very successful we will be introducing the essence 11 into additional countries very soon.
Our market, leading R&D team accelerated the launch of this amazing innovation first by expanding the controlled product launch two additional customers and then accelerating to an earlier a full product launch launched diet to bring this product to market faster.
Globally, we continue to sell our market leading legacy platform. The <unk> 10 to maximize the total volume of CPAP APAC and buyer levels available for customers clearly the ongoing adoption of both the <unk> 10, and <unk> 11 platforms remains very very strong.
Long.
It's still early into the essence 11 launch, but initial customer feedback combined with the detailed responses to our control product launch tells me that the essence 11 is another success for resume.
Physician provider and patient feedback are all very positive I was able to attend the California's sleep society meeting in person actually during the quarter and I was able to observe firsthand the responses to the latest innovations on ESN 11, such as personal therapy assistant can check in.
And the incredible right of uptake of the patient centric app called Maya, which has been upgraded for a since 11 and the uptake on that is almost double what it was for the Maya app than the <unk> 10.
What's clear to me is that this platform the essence 11 benefits not only patients and a bed partners. In addition to the device and software combination benefits physicians it benefits providers and it benefits pious as well as entire healthcare systems with more data more insights and better outcomes.
As to why digital health Com's platform with many technical features that represent significant therapeutic advances <unk> 11 is not only AZ to set up and use. It also offers a very rich patient centric experience.
<unk> essence, 11 devices are 100% cloud connected <unk> with upgraded digital health technology that is able to increase patient adherence to improve clinical outcomes and to deliver proven cost reductions within health care providers and physicians on health systems.
We are engaging with patients in their therapy.
Digitally like never before in the industry. This is a critical part of the regimen in 2025 strategy as presented at our Investor Day, which we held virtually during this last quarter.
Another key aspect of our long term growth.
Is linked to the awareness and the increasing flow of sleep apnea patients with 936 million sleep apnea sufferers worldwide. This work is critical to our mission.
COVID-19 has advanced awareness adoption and acceptance of digital health and remote care, including hung based sleep apnea tests, we want to support seamless and cost effective approaches to sleep diagnostics, we want to scale technology that in our consumer markets enables and easy to use device.
<unk> and technology that in our reimbursed markets can be a low cost clinically reliable screening tool for sleep apnea.
In this vein on October one we closed the transaction to acquire <unk> a leader in cloud connected home sleep apnea testing technology from Belgium.
We believe <unk> census, digital and easy to use solutions in the hands of both physicians and sleep lab technicians as well as consumers can help significantly increase sleep apnea diagnosis rights as well as general sleep awareness.
<unk> will operate within our sleep and respiratory care business unit and we're excited to bring this innovative technology to more global markets as we move forward.
Let me now turn to a discussion of our respiratory care business focusing on our strategy to better serve the 380 million COPD patients in the $330 million asthma patients worldwide.
Our long term goal is to reach hundreds of millions of patients without respiratory care solutions, including noninvasive ventilation and life support ventilation as well as new therapeutic areas, such as cloud connected pharmaceutical delivery solutions and high flow therapy offerings.
Demand for our core noninvasive ventilation and life support ventilation solutions for COPD and beyond was strong throughout the quarter, especially in markets outside the United States with physicians and providers shifted focus to support the most severe highest acuity patients. This demand is aligned with our strategy.
To ensure priority for manufacturing and delivery of the devices that meets the needs of those patients specifically does that need life support ventilation or noninvasive ventilation, including bi level support first.
We are balancing the growth in the respiratory care demand with the supply ventilators that made it to market throughout the coronavirus pandemic as well as customers as they balance their inventory with ongoing acute and chronic ventilation patient needs.
We continue to see rapid adoption of the <unk> for ventilation software solution that we launched in Europe, a little over a year ago, and we continue to expand this technology to regions around the world.
The value the value being provided through Avenue for ventilation has been very helpful to physicians not only during COVID-19, but it is increasingly valuable on an ongoing basis for them in the health care systems that they operated in the not too distant future I can see <unk>, becoming standard of care for patients on <unk> ventilation protocols in many.
Health care systems.
Let me now review our software as a service business for out of hospital care.
During the quarter, our SaaS business grew in the mid single digits year on year across our portfolio of markets, including home medical equipment as well as facility based and home based care settings.
The continued growth of home based care is providing titled wins for our home medical equipment, and our home health products and we continue to grow with customers as they utilize our software and data solutions, including bright tree and snap resupply to improve and optimize business efficiencies and patient.
Okay.
The COVID-19 pandemic has been challenging for some verticals in our SaaS business, particularly skilled nursing facilities. However, we are seeing positive trends as census rights of patients improve across snips and other facility based care settings. We will continue to watch this closely as COVID-19 cases, ebb and flow it slower.
Slower rights around the country, we expect there to be pent up demand for technology investments in the SaaS verticals, which provides opportunities for us to increase our new customer pipeline as COVID-19 restrictions continue to ease.
As we look at our portfolio of software solutions, we expect SaaS revenue to accelerate increasing from 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 and take market share.
We are the leading strategic provider of SaaS solutions for out of hospital care and we provide mission critical software across a broad set of very attractive markets. We are uniquely positioned and we have created a differentiated value for resonate with our SaaS portfolio we.
We have set up for sustainable growth through ongoing innovation investments commercial excellence partnerships and future acceleration through strategic M&A as well as selective tuck in M&A opportunities.
Looking at the portfolio of resumes business across sleep and respiratory care as well as our SaaS solutions, we remain confident in our long term strategy and our pipeline of innovative solutions.
Patient centric physician centric and provider centric approach combined with our unique resume culture means that we are well positioned to continue winning in the vast vast really underserve respiratory medical markets of sleep apnea, COPD asthma and other chronic diseases, we are transforming out of hospital.
At scale, we are leading the market in digital health technology with over 10 billion nights now 10 billion nights of medical data in the cloud and over $58 5 million, 100% cloud connected medical devices on bedside tables, and 140 countries worldwide. We are unlocking.
From these data to help patients providers physicians, payors and entire health care systems.
Our mission and goal to improve 250 million lives through better health care in 2025 drives and motivates me and <unk> every day, we again made excellent progress toward that goal this quarter.
Before I hand, the call over to Brett for his remarks I want to once again express my sincere gratitude and thanks to the more than 8000 raise millions for their perseverance hard work and dedication. During these ongoing in unprecedented times you already made team and help save the lives of many hundreds of thousands of people around the world with COVID-19 with does emergency.
These last 18 months and you are now and you have now already pivoted back to provide ongoing support for all of our customers. During some of the most challenging industry dynamics that we've seen in the industry.
With that I'll hand, the call over to Brett in Sydney, and then we'll open the call up for Q&A Brett.
Great. Thanks, Nick.
In my remarks today I'll provide an overview of our results for the first quarter fiscal year 2022.
As noted all comparisons out of the prior year quarter.
Revenue for the September quarter was $904 million, an increase of 20% in constant currency terms revenue increased by 19%.
Revenue growth reflected increased demand for our sleep and respiratory care losses, driven by both fleet pricing play recovering from the COVID-19 impacted reduced levels experienced in the prior year quarter and by increased demand in response to the recent product recall one of our competitors.
In the September quarter, we estimate the incremental revenue from COVID-19 related demand was approximately $4 million compared to 40 million estimated incremental revenue from COVID-19 related demand in the prior year quarter.
Excluding the impact of COVID-19 related revenue in September 21 in September 20 quarters, a global revenue increased by 25% on a constant currency basis.
Looking forward, we expect negligible revenue from Covid, not saying related demand.
In relation to the impact of the competitive recall, we estimate that we generated incremental be vos revenue in the range of 80 to 90 million in the September quarter.
Taking a look at geographic revenue distribution and excluding revenue from our software as a service business.
In U S, Canada, and Latin America countries were $491 million, an increase of 22%.
Sales in Europe, Asia, and other markets totaled $358 million, an increase of 23% or an increase of 21% in constant currency terms.
By product segment U S, Canada, and Latin American he bought styles with $276 million an increase of 40%.
Masks and other sales with $215 million, an increase of 5%.
In Europe Asia, and other markets Degloss, south totaled $219 million, an increase of 24% in constant currency terms, a 22% increase.
Masks and other sales in Europe, Asia, and other markets were $97 million an increase of 21%.
Or in constant currency terms, an 18% increase.
Globally in constant currency terms, a vast sales increased by 31%, while masks and other sales increased by 8%.
Excluding the impact of COVID-19 annualized sales in both the current quarter in the prior year quarter Global <unk> sales increased by 44% in constant currency terms, while masks and other sales increased by 10% in constant currency terms.
Okay.
Software as a service revenue for the September quarter was $98 million, an increase of 6% over the prior year quarter.
For the balance of fiscal year 'twenty, two we expect several factors will drive demand, including the general recovery of the global slate market from COVID-19 impacts the ongoing launch of our next generation AT&T 11 platform into additional markets and geographies and share guidance during our competitors' recall.
However, as reported last quarter, while we are working hard to increase manufacturing output, we will not be able to matrix.
We expected demand, resulting from a competitor's very cool, primarily because of significant and ongoing supply constraints for electronic components.
As discussed earlier, we're operating in a very dynamic supply chain environment.
Based on the latest information available we continue to expect component supply constraints will limit the incremental the vos revenue, resulting from competitors, where he coal so somewhere between $300 million and $350 million for fiscal year 2022.
This includes the Degloss revenue, we were able to generate in Q1.
In particular, we now do not see any improvement in our component supply position on July 4th quarter of FY 'twenty two.
During my commentary today I will.
I'll be referring to non-GAAP numbers, we have provided a full reconciliation of the non-GAAP to GAAP numbers in our first quarter earnings press release.
Our non-GAAP gross margin decreased by 270 basis points to 57, 2% in the September quarter compared to 59, 9% in the same quarter last year.
The decrease is predominantly attributable to higher manufacturing and freight costs, ISP declines and unfavorable currency movements, which have been partially offset by positive product mix, particularly in relation to strong growth of our higher acuity devices.
Moving onto operating expenses SG&A expenses for the fourth quarter were $177 million, an increase of 11% in constant currency terms SG&A expenses increased by 10% compared to the prior year period.
The increase is predominantly attributable to an increase in employee related expenses.
SG&A expenses as a percentage of revenue improved to 19, 5% compared to the 21, 1% we reported in the prior year quarter.
Looking forward and subject to currency movements, we expect SG&A as a percentage of revenue to be in the range of 20% to 22% for the balance of fiscal year 'twenty two.
R&D expenses for the quarter was $60 million, an increase of 10% on a constant currency basis, an increase of 9%.
R&D expenses as a percentage of revenue was six 6% compared to seven 3% in the prior year quarter.
We continue to make significant investments in innovation, because we believe our long term commitment to technology product and solutions development will deliver sustained competitive advantage.
Looking forward and subject to currency movements, we expect R&D expenses as a percentage of revenue to be in the vicinity of 7% for the balance of fiscal year 'twenty two.
Total amortization of acquired intangibles was $19 million for the quarter and stock based compensation expense for the quarter was $17 million.
Non-GAAP operating profit for the quarter was $281 million, an increase of 18% underpinned by strong revenue growth.
During the quarter, we finalized the date of settlement with the Australian taxation office or ICI covering transfer pricing audits for the years 2009 through 2018 and wholesale grid on transfer pricing principles for the future.
In anticipation of the settlement, we had previously estimated and recorded an accounting tax reserve of 249 million net of credits and deductions in our FY 'twenty one financial results.
In relation to the conclusion of the settlement in the current quarter. We recorded an additional GAAP tax expense of $4 million associated with lower tax credits, which were driven by foreign currency movements.
On a GAAP basis, our tax rate for the September quarter was 21, 3%, while on a non-GAAP basis, our effective tax rate for the quarter was 20%.
Looking forward, we estimate our non-GAAP effective tax rate for the fiscal year 'twenty two will be in the range of 19% to 20%.
Non-GAAP net income for the quarter was $222 million an increase of 20%.
Non-GAAP diluted earnings per share for the quarter were 51, an increase of 19%.
Our GAAP net income for the quarter was $204 million and our GAAP diluted earnings per share for the quarter was $1 39.
We had negative cash flow from operations for the quarter of 66 million due to the payment of 295 million to these giant taxation office associated with the settlement.
After adjusting for this payment our operating cash flow for the quarter was $219 million, reflecting robust underlying earnings partially offset by increases in working capital.
Capital expenditure for the quarter was 27 million depreciation and amortization for the September quarter totaled.
During the quarter, we paid dividends of $61 2 million.
We recorded equity losses of $1 4 million in our income statement in September quarter associated with the premise on joint venture with Verily, we expect to record equity losses of approximately 2 million per quarter through the balance of fiscal year 'twenty two associated with the joint venture operation.
We ended the first quarter with a cash balance of 276 million at September 30, we had 806 million in gross debt and $530 million in net debt.
Our debt levels remained modest at September 30, we had almost $1 $5 billion available for drawdown under our existing revolver facility in.
In summary, our liquidity position remains strong.
Our board of directors today declared a quarterly dividend of <unk> 42 per share, reflecting the board's confidence in our operating performance.
Our solid cash flow and low leverage provides flexibility in how we allocate capital.
Going forward, we plan to continue to invest for growth through R&D.
We will also likely continue to.
To deploy capital for tuck in acquisitions, such as <unk> health and <unk> an acquisition, we made on October one.
And with that I will hand, the call back timing.
Great. Thanks, Brad and thanks, Nick or Kevin I would like to now turn the call back over to you to provide instructions and then ran the Q&A portion of the call.
Thank you, we'll now be conducting a question and answer session. As a reminder, in the interest of time. We ask you. Please ask one question and return to the queue, if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment may be necessary to pick up your handset before pressing star one and as a reminder, please ask one question then return to the queue. Our first question today is coming from Matthew <unk> from Keybanc. Your line is now live.
Good afternoon, and I hope everyone's doing well.
Hey make the first question is just how do you ensure that your devices are going to do patient fits.
Versus the replacement device for Philips.
Thanks Matthew.
It's easy in markets, where we are fully vertically integrated like Germany, South Korea.
And other markets worldwide, Australia, New Zealand, and others, and we're able to work directly.
With those patients and the doctors to make that happen. It is more difficult in other markets like France, and the U S, where we've worked through through providers, but it's been pretty clear from our competitor the di.
I want people to go and register the devices negative focus they said 12 months on just replacing those devices and frankly, that's their ethical and legal duty to go do that and so they are laser focused on that and so our work is to make sure. We see the demand from patients directly in those vertically integrated markets.
And through distributors and.
We're pretty confident that the vast vast vast majority of our devices go to new patients. There may be some going to replacement patients who are going online or going through certain aspects too.
Get around will go faster than the Philips process, but certainly the vast majority are going to new patients. The challenge for US is that the demand is being the number one player and also covering as much of the demand of the number two players as possible. We've reached the capacity of those critical components coming in the front end and so we're not even able to meet all of that new patient <unk>.
<unk> with due to those supply chain constraints.
Thank you. Our next question today is coming from Chris Cooper from Goldman Sachs. Your line is now live.
Thanks for taking my question.
No I Wouldnt set the guidance of 315 for.
I recall, you were not able to quantify.
Mosques and robot comes due so I was just hoping for an update today.
But you are seeing in fact and the associated benefit on your box sales due to the significant increase in CPAP, some you've seen in the quarter.
Yeah. Thanks, Chris It's a great question and as you know we don't provide detailed guidance when we sort of went further than we ever did because of the wide variety of sell side.
Estimates of what the incremental revenue could be and we gave that last quarter get that 300 to 350 million devices rough guidance drivers. There's no perfect cause we're predicting 12 months out in a very uncertain environment and as Brett just reiterated we are sticking with that knowing that we actually had $80 million to $90 million. During this quarter that comes out of that right and so then we've got the <unk>.
To go fight for those components and beyond to deliver that over the next nine months.
In the mask side, it's a very complicated story and there's a number of moving factors and we can get into this and I can hand to Jim Hollingshead, who runs our sleep and respiratory care can give further detail.
On this question North as a follow up question on it but what I can say on math says, we're not going to give public guidance around but there is a number of moving factors you saw our mask growth during the quarter was globally at 8% and in the U S market was around 5%.
The headwinds we have is that while our number two competitor is not serving as many new patients as they should and were not able to take all of that demand. There are less new patients being set up and resume no matter what the device was <unk> had a very good.
Well about 50% uptake right all of those new mosques on new devices, no matter, who was the manufacturer and so thats a headwind for our business. If there's a new patient that's not getting any therapy and then the tail winds would be which is which are not as high in volume, but the tailwind would be that when it is arrhythmia device. There is a high probability because they're designed to work together and they are working better.
Together and the Doctor, who loves out devices, often lifestyle mosques and signed with a sleep technicians in the sleep therapist in the respiratory therapist, they often like the brands across the across the technology spectrum and residents to later and that we do get a very good uptake on that to this.
Some upgrade on the adherence rate to our resident device, but it is the headwind of even with the competitive devices. There's no device out there, there's less miles south happening and thus you have the sort of 5% growth.
In the U S mosques Huawei limited on the ability as an industry to take care of that upfront demand I think thats about as much color as I can go into it without.
Quantifying it for you, but I can tell you. It's it's a complex moving equation for us to model and at our customer devices in a country level. So I can understand the difficulty for us.
For folks on the sell side as well.
Okay.
Thank you. Our next question is coming from David low from Jpmorgan. Your line is now live.
Thanks, very much Nick if I could just get you to touch on the guidance. The 300 to 350 million I mean, given where <unk> come through this quarter could we just talk a little bit about how you expect it to be phased through the rest of the year given the supply side constraints.
Yes, Thanks, David and as I said in the prep remarks.
There is a perfect storm hitting eating the industry and so there's so many dynamics impacting us that.
I'm on a call. This afternoon working on on this shifting my attention, which usually focuses purely on on customers and governments.
And making sure the demand is there for this amazing industry that we serve in sleep apnea, COPD and asthma and I'm spending a lot more time with supplies so with that.
Our best reading of the of the future flow of components is that.
You look at it and as Brett said in the prepared remarks that we actually had reasonably good flow some through inventory and working through that in the quarter of $80 million to $90 million in the first quarter, it's going to be very difficult here in the December quarter with component shortages and very difficult in the March quarter with component shortages.
I do think the components as we are getting some some increased signals and actually doing some great engineering to to work around different supplies into designing new components I feel much more confident about the June quarter 2022, So our Q4 fiscal year 2022.
And so that's sort of qualitative guidance too we're not modeling it out we've got the 300 to 315, you could subtract off the 80 to $90 and model it but if I was looking at it it would be tougher in December and tougher in March right now and then freeing up in the June quarter and September quarter, even more so as some of our new designs and new components.
Get to roll in and we get that flow going but look it's changing day by day week by week I'm looking forward to my call. This afternoon to potentially impact that but if even if I get agreement with someone to die. It takes quite a while as I explained that with that example of the five levels deep in the supply chain to get that to flow through from a foundry to chip manufacturer to alpha.
Actually to a product to then our warehouse to then be able to sell it to a customer.
I know thats not specific quantitative guidance, David but it's probably the best I can give you in terms of color for fiscal year 2022, and the hope we have in Q4 and Q1 'twenty three as we as we start to see those components really start to free up.
Thank you. Our next question today is coming from Suraj Kalia from Oppenheimer. Your line is now live.
Hi, Matt Hope, everyone is safe and healthy.
Hey mix, specifically on the Philips recall, if I could.
Could you walk us through the dynamics in the U S versus O U S.
Stickier the share gains and then lesser math is wrong.
It always comes across like there is some sort of mix and match on the masks.
Versus the devices.
Just give us some additional color and really what we are trying to understand is okay. You get $3 5400, whatever million dollars incremental how sticky are these.
And how do you plan for this thank you for taking my question.
Thanks for the question Suraj and since I've answered the first three I'll just I'll just correct. Our guidance was 300 to 350 not $3 50 to 400, what you just said, but $303 50 for the fiscal year, but Jim Hollingshead, Yes, you run this business you want to give as much as you can on the <unk> sure. Thanks Raj for the question.
I think it's a very good question and I'm, just going to back up to what we're trying to do in the business independent of the filter recall and then talk about the context of the filter recall with the launch of air since 11. Our aim is to put in place a product that once again significantly improves the patient experience and significantly improves workflows and lowest <unk>.
For providers.
And also puts us in a position midterm long term to improve outcomes. So are <unk> 11 is a device that we put on market anticipating long term share gain and we have internal goals for that number and we don't talk about that number publicly but but our plan was to take share with that device.
We're launching that device now into a situation where the number two player in the market is out of the market for new patients and so obviously, we're going to take us quite a lot of share as we can put that product into the market and we have the two best products on the market and ericsson's tenant here. Since 11. So your question is how sticky will that share be.
Our goal is to make it quite sticky, but obviously.
We have.
Good competitors in this market and we don't anticipate landing at a 100% share.
When their recall clears, but we want to have a number that's higher than what it was before we launched there since 11, and we're pretty confident we can do that and just to cap on that answer is probably already too long, but the cap on that I will say that we've managed to take a few points of mass share during the recall as well in our aim would be to keep some of that here as well. So I think we will emerge from this stronger.
Then when we entered it and our offerings are clearly the best offerings in the market.
Thank you. Our next question today is coming from Gretel <unk> from Credit Suisse. Your line is now live.
Thanks, Good morning, everyone just on U S mass I, just wanted to touch a little bit more on that given that it did disappoint slightly versus expectations. So has there been any change to the supply dynamics in the U S market in the quarter.
Thanks, Gretel I'll have a go and maybe Jim can join in as well, but I can tell you. The resupply is actually very strong.
We have brought tree re supply. We also have snap technology that has been incorporated into our <unk> platform that has driven incredible resupply. If you remember that really was going strong throughout 2020. So we have some incredibly high comps when you look at the percentage growth rate of mosques from this quarter a year ago, even despite COVID-19 hitting this time a year ago.
Our mask re supply and maybe because of that somewhat with HMH focusing on al a mask resupply was through the roof. This time, a year ago and even with those comps we're still achieving some some very good Reits and re supply as I said that there are headwinds and when we're not taking care of all new patients and resume gets well over 50% of all masked some new patients no matter whose devices.
In the global market, that's a headwind that we're dealing with while this wellness recall continues but the tail winds of resupply are actually will incorporate until those figures and I think if you look outside the U S market and look at Europe Asia and the <unk>.
140 countries, we operate in you saw pretty strong 18% double digit growth in mosques in those areas and global growth of around 8%.
Which is which is very strong given given the headwinds of new patient setups, but Jim any any further color on the U S will be honored.
I would just say.
Probably end up repeating some of the key points, but we had a very large comp.
And there is a tailwind created by Covid, which is patients who have talked about this before over the last three or four quarters, but patients are more focused on having clean masks. I mean, COVID-19 has created a mentality of I want a new mask I wanted fresh mask for patients and then our HMA customers in the U S have been focused on on driving resupply into their installed base of patients.
And I actually think that within the context of the filter recall.
<unk> revenue out of the installed base of patients has once again become quite an important emphasis for our <unk> customers and then there are the headwinds the headwinds of the whole market is not being serviced in new patient starts are down.
And because we had slower new patient starts during the span of Covid overall, because labs reopen there's a little bit of headwind on resupply because the installed base didn't grow during that period. The way we might have anticipated. So so it balances out the dynamic inside of the installed base is quite good. So the installed base of patients continued to be resupplied at a very healthy rate.
Thank you. Our next question today is coming from Craig Wong Pan from RBC. Your line is now live.
Just the question for me was on the different regions, which are trending below pre COVID-19 levels, and which ones are above it could you just give any color, which different markets are in which category. Thanks.
Thanks for the question, Craig I'll hand that to Rob Douglas, our President and Chief operating Officer.
Craig.
The issue.
Really has had all of our markets performing very strongly to the actual recall impacts of global so, we're saying that really excess demand.
Just with different dynamics as Mick said before you saw that very strong into masks on all of it actually couldnt call out any particular regional hanging it wasn't doing really well and there are specific countries and sometimes its local when there's a lockdown there might be a shortage of diagnosis capacity and youll see that <unk> really run through that and manage around that.
As I said just to recap the strong performance was across all countries.
Yeah, and I'll add on maybe just a little bit of color there Craig I mean, it's hard to say because you said.
What regions and as Rob said, we can't say what regions and even if you adopt a more specific question what countries, where it would be difficult to say that because in the U S. There are 50 sites with all different regulations and some of them are 100% plus capacity and summer at 75 within the state level, and then city is going up and down and China is not just there it's different regions there as well.
So if there are ebbs and flows on a daily weekly monthly, but what we can say is on aggregate it is getting better and better and its nice to see some cities. Some states some countries at 100% plus that they're getting through it they're finding ways to to embrace digital health honestly that we are testing and remote setup. So that we're able to get the flow of patients coming through than the <unk>.
We have right now is that we don't have the competitors as patients with prescriptions come through to meet all of that demand, which is the which is the real critical right limited right now as well. Thanks for your question Craig.
Thank you. Our next question today is coming from David Bailey from Macquarie. Your line is now live.
Thanks, very much good morning, Brett.
Brett.
As part of the re coal resident is going to be getting more exposure through the patient referral network.
I'm just wondering if you've had any feedback or observations from physician. They are naive patients amer license arithmetic product offering.
Wondering if there's any.
You have the license from that group.
But my abused redness resume lets break line before.
Yes, David it's a good question I think.
Everyone had exposure to regimen product with a market leader everyone knew the brand name everyone had tried it and.
We get a large.
<unk> all of the prescriptions and actually the share in the 140 countries. We operate in but as you said there were some doctors who liked a particular aspect of our technical aspect or.
And emotional aspect really of our workflow aspect of some of our competitors.
Device or software systems and to your question. They are getting if you like forced exposure because it's the only one available for new patients to raise meds amazing innovation on the device the software the systems and the flow and if I had some form of prejudice. So.
Device from the 19th that they tried or something and had been stuck with a brand that now trying a new brand and I do think to Jim's point earlier that some of that brand new share of somebody who was in another brands Componentry area says Wow. This is actually is right. My prejudice was wrong I think we will get a lot of that share that will maintain forever and.
I think certainly the exposure of patients to the brands and to understand that has increased the net promoter score for resident amongst patients is rising and the knowledge about the brands for better for worse for this off recall as theyre getting to know what devices. They have and that awareness is actually good for the whole industry, because I think physicians and providers and technicians of all.
As always been aware of the brands and had prescription biases and others that we absolutely influence throughout really strong commercial clinical sales teams.
And now we're getting that brand name to new customers as well. So I mean, the short answer. Your question is yes, we've got exposure to new consumers, new physicians, new providers, and we think a lot of that will be sticky because of the value. We provide the brand as the brand, but it when it represents 50% lower labor costs, we are setting up a patient when it represents.
Three less clicks to get a report when it reflects an API that can link into your ethically as sooner or your National Health Trust CIS.
System really efficiently it becomes really part of your day to day workflow and Thats the type of share that we think.
As part of the resume brand and we will maintain our strong growth for a long period to come through this through this period.
Okay.
Thank you. Our next question today is coming from Margaret Kaczor from William Blair. Your line is now live.
Hey, guys. This is Maggie on for Margaret I wanted to ask one on gross margins today, and I would say that the gross margins for the quarter came in a little bit better than expected, although still contracting.
Can you talk about some of the dynamics within that and how you are leveraging the increase in cost.
The supply constraint and the freight issue today.
Today, and how you are looking at each aircraft margins and specifically in the upcoming quarter.
Yeah, Brett I'll hand that question to you.
Yeah. Thanks, Nik ply Maggie the gross margin is pretty consistent with where we were at Q4 and then the big impact Westfield things on freight cost being really significant that would bring that as a big headwind for us.
So that's seen it.
Some FX impacts I think <unk> had to deal with which is a headwind this quarter as well.
We did have a little bit of benefit on product mix with higher acuity boss. So I think as the bi levels astral stellar as ifad losses.
Bye.
With a favorable product mix this quarter.
On the gross margin side.
That was a little bit of a tailwind for us.
But having said all that there are still challenges to questions all right still pressures that will come through in component costs and so on as well.
So we need to we need to take on that.
But product mix has been quite good for us and that has helped.
Yeah. So overall pretty pleased with how the gross margin ended up for the quarter.
Thank you. Our next question today is coming from Sean <unk> from Morgan Stanley. Your line is now live.
Thank you good morning, Mitch good morning team great set of numbers.
I know you typically don't give sort of much discussion around what you've observed on price in the quarter all on product mix, but that said you've talked to the supply constraints yet.
You've delivered the device numbers that you have.
How would you.
Could you help hasina characterize what you've observed on the price volume mix somehow in the quarter. Thanks me.
Yes. Thanks for the question, Sean you're right, we don't provide details around pricing, but look clearly. This is these are unprecedented times costs as you saw and even just in Britain last answer there around gross margin is going up freight costs.
See Friday.
There are over 100 ships just.
Two hours North of me here on the on the <unk> stock outside long beach that cant get through so the sea freight inventory sitting there.
It's coming through a higher cost than it's ever been.
Right.
We have literally chartered planes to fly from Singapore to ally in Singapore to Atlanta to get our products to market with this demand and so those sorts of things increased costs dramatically and we have to do that theyre actually consumer planes, but no consumers in them and literally just resume devices, taking up the season and overhead and so.
That has impacted our costs. One thing we are doing is with the <unk> 11, we are launching that with a price premium is excellent innovation.
Is not just the best and resume for ideas. It's the best in the market I think ever as a platform and so that deserves a price premium and so we will be extracting that and we have been working with customers on eliminating some certain.
Discounts and rebates and other things that we had used in the past because those don't apply now and so we're eliminating some of those costs and look this is a customer by customer.
Region by region discussion that happens on a daily basis with our commercial team, but clearly we cannot take all of the costs that are being given to us and we.
We are working with essence, 11 launch and with appropriate removal of all the other elements and pricing conditions with customers on a customer by customer basis to address this all the time, but our goal at Liza Liza focus goal is to make sure. We take care of every patient that comes through the channel and I think Thats. What you saw during this last quarter.
Thank you. Our next question today is coming from Anthony Petrone from Jefferies. Your line is now live.
Hey, guys. This is Frank on for Anthony.
Two questions from our side number one.
What's the reception to Philips recent U S clearance of the replacement.
The rebatement firm among <unk> and then a follow up.
We're hearing a lot on a U S hospital staffing shortages.
Is there a potential tailwind for matrix care or what are some of the dynamics. There looking looking ahead for the rest of the year.
Thanks for the questions Frank.
Look I actually have no idea what customers are thinking of.
The replacement plan versus the replacement devices for our competitor that's their job to take care of that if I was a patient I'd want to replacement device I would want to replace bonds. That's what I'd say, but I have no idea on that it's very very.
Lack of strong communications, not saying publicly on that and I can tell you is in equals one.
Nothing to add to that.
But on the U S Hospital front I do think as I said in my prepared remarks that we are seeing facilities based.
SaaS census rights at skilled nursing facilities are starting to pick up the numbers of patients in beds is picking up and we actually think as you said that there is a pent up demand for technology to help with that but Rob do you have any further color on matrix care and the <unk> home health hospice, absolutely, it's actually underpinning of asset strategy.
It's been a long term issue that getting the right staff and keeping them.
Dealing with the cost of training them and getting staff, who are providing really good patient experience has been a big challenge for all of these care providers not just hospitals.
And so we believe that our technology solutions actually make life better for the staff make it easier for them to do the job easy to get trained and more likely to stay on the job.
And also more efficient.
Staffing challenges actually.
Another driver of our strategy just like as Jim mentioned earlier that the concerns about cleanliness and respiratory health of a driver of our core sleep strategy. These staffing shortages and challenges to drive our strategy long term.
Long term that will be a tailwind for the business.
Many short term factors going on there.
Nick said earlier, we're seeing good good.
<unk> improved performance, despite challenging times, particularly for skilled nursing facilities.
Across SaaS businesses.
Thank you. Our next question today is coming from Steve Wheen from Chardan. Your line is now live.
Thanks.
Afternoon.
Just wanted to ask.
You mentioned, it's quite difficult to differentiate what styles of devices.
For lighting going into.
The Philips opportunity. This is the organic growth of your.
Business, but if I strip out the $90 million.
Out of your device revenues this quarter, and then strip out the 40 million of sales in the <unk>.
ACP.
You're getting.
In excess of 20% growth is that how you characterize what's going on with the new patient starts.
Steve Thanks.
For the question and good morning to you there in Australia.
<unk>.
You're not wrong that we would have very strong double digit growth.
And that actually makes sense and has traditionally happened when we launched a new product like the <unk> 11, as our first platform launching in eight years and as I said in my prep remarks, I'm blown away by things like the personal care system <unk>.
<unk>, the CAD checking and personal services watching the sleep technicians and sleep doctors live at that California's sleep society engage not just with the presentation from marketing things, but then sitting down with the clinical teams and walking through this device I think it is a device that deserve to take double digit growth and take a lot of share and so I think your calculations there.
Spot on in terms of this is a double digit growth time to resume in the device space irrespective of this competitor recall irrespective of.
The comps that we had around covenant Vince and.
Taiwan's events in the headwinds of a sleep apnea patient is coming in a year ago that we're seeing really strong growth of the sleep Spice and as Jim said earlier, our goal is to entrench people in these amazing workflows that have lower costs and better outcomes and drive therapeutics.
And why isn't it the same before the path that I'd highlight is this huge tiger of patients signing on to market and having a personal relationship with their therapy through the smartphone with Maya is at unprecedented levels I'm talking double the uptake of <unk>. That's one of the highlights but I think it's been missed throughout this state.
For the question and the opportunity to highlight that.
Thank you. Our next question today is coming from John Deakin Bell from Citigroup. Your line is now live.
Thank you I was just hoping to get a little more color on what you think.
Sleep testing capacities in the market and are we back to pre pandemic levels.
And give us a little more color on on new patients.
We think that the trend is over the last couple of quarters.
Great question, Jon I'll hand that to Jim Hollingshead.
Thanks, John.
As we said in prepared remarks testing capacity is.
Mostly back to normal I would say in the U S market were mostly back to normal.
And theres actually probably some upside built into that because a number of sleep labs increase.
Increasingly during the Covid crisis home sleep testing was more readily adopted by sleep labs, and maybe would not have taken it on before and so probably you still probably got slightly fewer people going into labs, but a much broader use of home sleep testing and I think in general you can say in the U S testing capacity is back to normal maybe a little bit up although the shape of it looks a little bit different.
And then.
The reason that it's really it varies quite a lot by what's happened with the Delta variant whats happen with health care systems, but in general I would say new patient starts and say Europe are coming back to pre COVID-19 normal some countries are a little bit different and in some cases, you still got health systems are a little bit backed up right, so, especially in hospital based systems.
The diagnosis may be back up but the actual capacity to set patient up on therapy may be now a bit of the bottleneck. So there's pent up demand and things like that but.
But I would say in general we're almost back to normal and I would add to that one of the reasons, we decided to move forward with the acquisition of <unk>, we really want to make it much easier for patients to understand whether or not they have a sleep initiatives. So in some markets like the central be used as a screener.
And in some markets excellent echo centers already used as a diagnostic tool, but the patient experience with that technology is really really simple really easy to do and so we're working with that acquisition to open up the funnel even further.
Okay.
Thank you. Our next question today is coming from Lyanne Harrison from Bank of America. Your line is now live.
Good morning, and thank you for taking my question I, just wanted to talk about inventory levels.
Both at.
Wholesale distributor so on your balance sheet at the higher inventory levels compared to last quarter.
Can you talk about what that might mean for device sales coming into second quarter.
Then also.
You can look at.
Different regions you're operating in.
From our perspective, we are seeing greater bottleneck at setup in the United States spanning Europe.
Do you have a sense of.
Inventory levels.
We could distribute it.
Between the United States and Europe.
So that's a great question Liana in quite detail I'll hand, the first part of the question about resin inventory and what's been happening with the buildup there to Brett and then I'll hand, the second part about the inventory at the HMA as HCP.
Distributors as they call them in Europe between the U S and Europe to Jim Hollingshead, So Brett over to you first and engine.
Yes, Thanks, Mike Hi, Harley.
The inventory that a lot of that build reflects the components of enrollment tools part of that inventory and we're really it's really in response I think to the elongation of supply chains, and the bottlenecks and congestion we're seeing.
We are working to support production for any upside in electronic components.
There's a lot of components that are ready to go once we get electronic components that we've been pretty deliberate on that we're.
We're looking to increase.
These talks as well really start to deal with a supply disruption.
And the other big one we're saying is it just with the increased safe right.
Tom it's sort of blowing out the two after four weeks.
That's kind of more inventory that we're carrying and I think probably a lot of companies will see that as well.
Logistics delays I think are causing a lot more what I call stocking transit coming through as well.
The combination of those factors were also running for example, the jewel I have 10 11.
11 platforms, and that's really there to support demand into the market. So we're doing that as well, which market a little more unusual than what we would typically do so it's a combination of those factors is really driving up our inventory levels.
Well it'll be at a low.
Inventory days have been reasonable.
Reasonable.
So that's really trying to support.
Overall production when we can get those components and I think as it is.
But the crux of the thesis there.
Thank you. Our next question today is coming out.
Oh, I'm, sorry, Jim Jim is going to answer Kevin I'll, just I'll just add to landscape.
I'll just add to the second half of lands question, which is I think it's very safe to say that our customers and distributors have very little inventory there running right now I think with unusually low inventory levels and so.
When you take the number two manufacturer out of the market and you underserved market.
It creates a very very difficult situations. So we're reporting what we think is obviously a strong quarter, but we're working frantically to lift our manufacturing supply and deliver product to market and as an industry. The manufacturers in this industry are under serving demand and so it's put our customers in a very difficult situation.
And they're frustrated and we understand that they're frustrated and we're doing the very best we can to build product as fast as we can and deliberate as fast as we can because we know that that the market is under supplied and it's putting our customers under a great deal of pressure.
Thank you. Our next question today is coming from Saul Dawson for Darren Julien Your line is now live.
Thanks, very much guys and apologies it dawns bit correctly EBIT make just a quick question on SaaS you mentioned.
Growth increasing to the upper single digit by the end of fiscal.
2000, and today can you just talked about the drivers of that.
Increase what the key drivers of that that uplift are likely to be it gives you that confidence.
Thanks, I'll start and hand to Rob maybe for some further details.
We have <unk>, our new president of the SaaS Division and I can tell you he's hitting the ground running these last five weeks. He has been in there and certainly we're seeing some great opportunities for accelerating growth I think look the externalities that I talked about in the prep remarks that we covered earlier that skilled nursing facility census is coming back so demands coming back.
And we see the bulk of the pipeline book, starting to build up and in the SaaS business Thats, great because when the pipeline builds up you get the conversions and then that turns into revenue. So we get pretty good visibility, even 369 months out to seeing sort of an acceleration of growth. So I feel pretty confident with that census rates and others that sniff. The census rates are going up and.
We are going to see with matrix case really good good products some growth in the matrix Gabe business to start accelerating there. In addition brought train and snap, although they're annualizing some of the acquisitions of snap, we're seeing really good adoption of those re supply and some really new innovative tools that the <unk> R&D team are bringing to market and Bobby was previously.
CLO the Ns as a good knowledge of that I think that will accelerate throughout the rest of the fiscal year, but rather 78 verticals. There what other elements do have reasons to believe we can accelerate I think you've covered many of the mic, but also there's a real execution focus on the team and we're really confident that they are driving execution make mentioned the innovation that are strongly innovation mentality.
<unk> in that team and we've got great new offerings, and great new ideas coming to market as well as yes.
Yes really streamlining.
Okay.
A lot of the total of execution on the sales front and having the sales team to build upon.
Lines.
Increasingly doing face to face visits and.
And getting these deployments underway as things ease up so we've got a lot of confidence in that business.
Yes.
Thank you. Our next question today is coming from Dan <unk> from MST Marquee. Your line is now live.
Good morning, everyone. Thank you very much.
At the fourth quarter, you guided to this $303 50.
At that time, you were quite explicit that we should not expect.
And now today, you're suggesting uplift comes in the first quarter and fourth quarter and you delivered almost.
Our loss in the first quarter.
And on top of that Brent has just said he could be small material inventory build so can you explain what has what's changed from thing and why Wouldnt mechanics of this drop off in second third quarter will be.
Yeah.
Yeah. Thanks, Dan So look at it is a complex and moving dynamic but.
The rate limiting step here is electronic components, specifically semiconductor chips from a particular manufacturing and the supply chain.
I know the names and the people and I'm talking to them to try and get this supply. The trouble is that there are multiple other industries and.
Demand for semiconductor chips that are through the roof and obviously everyone on this call for as many other industries. You've heard this we are not alone in medical device industry automotive industry consumer communications industry.
Even consumer products are often cloud connected now and have these limitations so look.
Things haven't gone better. These last 90 days in terms of supply they've got very very difficult in our visibility as I look at the June quarter, I feel very confident in the semiconductor chips coming through but in December and March.
It's hand to mouth of these devices and chartering planes and working with Redesigns to make sure the semiconductor chips, some hygiene and so our best reading of the dynamics, even though we feel on aggregate that $303 50, which is which is a pretty broad range.
In itself.
And has been plus or minus on the top on the bottom end of it.
That we feel stronger on that on that June quarter, with the supply that we see coming through whereas whereas it's not a strong I'm closer to the December one now and I know, it's going to be tough and March as well, but look things can change on a day by day week by week month by month and what we're doing is we're being as open as we ever have around supply chain was up and as we haven't had in transparent about sort of the <unk>.
Our ability if you lock of the flow of these components that come in I can tell you, though we get one more chip it goes into one more device and goes to one patient and that's the truth. There was no stockpiling of this inventory. It goes all the way straight through to production and we have an incredibly efficient plant in Singapore and.
And also in Sydney and also manufacturing in Atlanta, Georgia, and we are not constrained on our internal capacity as soon as that part comes in that right limiting bottleneck pop it goes onto a product gets to a customer and thats. What we are focused on and I'm, giving as much color as I can qualitatively around that.
Thank you we've reached end of our question and answer session I'd like to turn the floor back over to Mr. Farrell for any further closing comments.
Well, thanks, Kevin and thanks, again to all of our shareholders for staying on an extra five to seven minutes here and joining us on this call I'd also like to thank once again, the 8000 <unk> many of whom are also shareholders and listen to this call for their dedication hard work, helping people breathe better sleep better and live better lives outside the hospital in 140 countries. Thanks for what you do.
Today and everyday thanks, especially to our resume heroes on the front lines during this crisis.
Patient care technical service sales teams working with customers every day, but I'd like to add a special call out to our amazing teams on the front lines of supply chain management production distribution. All of you are heroes every chip you get is a patient's lives change. So I look forward to talking with you all again all of our stakeholders here in 90 day.
Thank you I'll turn the call back to I need to close out.
Great. Thanks, Nick and thanks, everyone. We appreciate your interest and your time, if you have any additional questions. Please don't hesitate to reach out directly. This does conclude our first quarter 2022 comp Kevin you May now close this out.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.