Q2 2025 Resmed Inc Earnings Call

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Matt: Welcome to the Q2 Fiscal Year 2025 ResMed Earnings Conference Call. My name is Matt and 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 call is being recorded. I'd like to turn the call over to Mike Ott, Senior Manager, Investor Relations. Thank you. You may begin.

Speaker Change: I am pleased to share that resume delivered another strong quarter of global topline and bottom line growth, we achieved excellent year over year performance. In Q2, we had solid revenue growth improved gross margins combined with disciplined investments in both R&D and SG&A, resulting in very strong operating pool.

Matt: And net profit performance.

Matt: These results reflect the hard work of 10000, plus spreads millions and our dedication to improving the lives of patients improving the workflow with homecare providers physicians payors and the communities that we serve in over 140 countries worldwide.

The foundation of our continued positive performance lies in our clear market, leading value proposition, including the sustainable competitive advantage that we have established with our best in class hardware and software products as well as our digital health ecosystem.

Matt: Through cloud connected medical devices masks and accessories as well as digital platforms and ongoing investments in technology, including specifically M. L. I N. Generative high are we are committed to helping hundreds of millions of people. So that they can sleep better breathe better and live longer and higher quality lives.

Let me start with a high level review of our financials.

Matt: I'm proud to report that we delivered global revenue growth of 10%, reflecting positive and consistent contributions across our combined sleep health breathing health and residential care software portfolio.

Matt: Global device sales were driven by strong market performance across our U S as well as Europe Asia and rest of world markets, reflecting the continuing demand for our essence 10 and their sense of 11 platforms.

Matt: <unk> sales remained strong growing double digits year over year, we increased the global availability of our air since 11 platform this quarter launching in India during Q2.

Matt: We will have additional country launches of air since 11 planned throughout calendar year 2025.

Matt: We make the market, leading sleep health platform with Esn's 11, I want to make it clear that there is still strong global demand for the second best device platform in the market and that is the <unk> 10 range.

Matt: Our masks and accessories business also had another strong quarter delivering double digit global growth in that category as well.

Matt: Ongoing rollout of bright trade resupply and snap technology have helped in our U S market and we expect to maintain that momentum as we launched snap technology that can work on all HMA management platforms throughout calendar year 2025.

Matt: We achieved 230 basis points of margin expansion in non-GAAP gross margin year over year to 59, 2%, reflecting our ongoing focus on improving operating efficiencies.

Matt: With disciplined investments in R&D and SG&A, we achieved a 29% increase in non-GAAP earnings per share.

Speaker Change: Our new head of supply chain Shine as I and his team are committed to driving increased supply and increased manufacturing efficiencies by investing in technology and infrastructure to power long term cost improvements by balancing this cost discipline with strategic investments in new product introductions, we will.

Speaker Change: Continue to drive sustainable and profitable growth for regimen.

Speaker Change: We have published peer reviewed studies, showing categorically that resupply programs drive patient adherence to improve patient outcomes and they also lower long term costs for the health care system and.

Speaker Change: In the U S. Our digital health ecosystem, including bus have you for Pi is broad tree for home medical equipment players as well as for patients. The my App. They continue together to power. These resupply programs we.

Speaker Change: We are actively investing in appropriate modified versions of the successful U S re supply programs into our global markets.

Speaker Change: Each of the 140 countries that we operate in have different regulatory reimbursement economic as well as cultural norms, it's our opportunity to leverage <unk> knowledge of each of those markets and to optimize the best way for a person to regularly receive fresh supply for their life changing and life saving.

Speaker Change: Sure.

Resume is an innovation machine, our ongoing investments of 6% to 7% of revenues into R&D is a key growth driver and a key part of our long term success with trailing 12 months revenue of around $5 billion, that's $300 million to $350 million that we invest annually into R&D, creating this.

Speaker Change: The quietest the most comfortable the most connected in the most intelligent devices mosques and software solutions.

Speaker Change: During the quarter, we launched the air touch N 30 odd to select markets. The airtouch in 30 <unk> is a world first from Ray Smith with its unique fabric based patient interface. My philosophy is this we sleep on cotton sheets, we have fabric covers for the pillars that we sleep on.

Speaker Change: Why can't we have sleep apnea therapy that is just as comfortable as that.

Speaker Change: Early feedback from respiratory therapists from physicians and from patients directly is that the comfort and fit of the airtouch and 30 is outstanding this new technology could permanently change the basis of competition in mask innovation. It's one thing to create a prototype of the mask.

Speaker Change: It's another thing to have manufacturer ability at scale with top quality top comfort excellent sale and great long term patient outcomes.

Speaker Change: This space for a new to world fabric based air touch technology launched first here on the a touch in 30 odd platform.

Speaker Change: During the quarter, we announced another collaboration.

Speaker Change: With the Apple vision protein with the launch of what we call the control head strep.

Speaker Change: This is a premium accessory for the Apple vision.

Speaker Change: Resume as all of you as shareholders now as the world leader in providing facial interfaces in the field of sleep health and breathing health and healthcare technology at home.

Speaker Change: This is great to see that now a top consumer Tech company like Apple has chosen to partner with <unk> on an interface that we make that delivers a superb balance softness and support the extended wear time that users of the Apple vision.

Speaker Change: Right.

Speaker Change: The Apple vision private accessory is crafted with a blend of resumes exclusive ultra premium materials and designed to be gentle on the skin.

Speaker Change: This project shows that resumes expertise is applicable outside of pure play in medical technology and its part of this convergence of Med Tech and consumer Tech and the learning that will provide for both the medical and consumer fields is an important part of this opportunity watch this space.

Speaker Change: [noise] resumes had a very strong presence at the consumer electronics show or CES in Las Vegas at the start of 2025, just a couple of weeks ago.

Speaker Change: We provided a digital sleep lounge that often people a place to go to relax and to learn about the importance of sleep health of breathing health and care delivered at home.

Speaker Change: Cross CES display, but there were many consumer tech companies showing their latest and greatest sleep wellness and sleep monitoring solutions from Apple to Samsung to Google's Fitbit Ora rain garment whoop and beyond we are very excited to have.

Sleep help become main stream interestingly resume products were on display in the massive Samsung booth.

Speaker Change: Amazon was touting their new Galaxy watch it sleep apnea detection capability and illustrating the link between their galaxy watch ecosystem and resume its market leading products for the treatment of sleep apnea.

Speaker Change: I'll talk more about sleep apnea detectors, and this convergence of med Tech and consumer Tech a little lighter.

Speaker Change: But now let me provide a brief update on <unk> once the new class of pharmaceuticals that are focused on white loss diabetes and metabolic control cardiovascular outcomes and now also sleep apnea I'll then come back to consumer Wearables that can detect sleep apnea.

Speaker Change: So light during our Q2 on December 20th Eli Lilly gained FDA approval for the use of Ziff bound GOP, one in patients with obesity and moderate to severe sleep apnea with a reduced calorie diet and physical exercise. It's interesting to note that this amount our site trial.

Speaker Change: Excluded patients with diabetes.

Speaker Change: In the lead up to its launch to consumers Eli Lilly's early educational documents that are available to the medical community on the Eli Lilly website includes a patient god for the treatment of obstructive sleep apnea or rsi.

Speaker Change: It was encouraging to see that Lilly followed the American Academy of sleep medicine or.

Speaker Change: I I S. M guidelines that explicitly state that positive airway pressure devices are the frontline and gold standard for trading sleep apnea and that these pap devices CPAP iPad pilots have the highest efficacy when used as directed.

Speaker Change: Just the guidelines their own faq's on the Lilly website informed of physicians and patients that CPAP devices are now smaller and quieter and lets see that masks have been refined to increase comfort we agree.

Speaker Change: We welcome the opportunity to educate potential patients on the benefit of all therapy options for the treatment of obstructive sleep apnea, starting with the gold standard frontline CPAP Ipass by level, then considering the next most efficacious dental devices and finally looking at pharmaceutical or even surged.

Speaker Change: <unk> options.

Speaker Change: On January 14th 2025, the I S. M issued a quick reference guide to provide us considering the use of new drugs for the treatment of OSI.

Speaker Change: S. M continues to emphasize the use of positive airway pressure is the frontline treatment and suggests that white loss drugs may be useful as an adjunct or combination therapy.

Speaker Change: Our experience with bariatric surgery patients. These last two plus decades and now with these latest generation GOP ones. These last five plus years is that when someone loses weight that doesn't change.

Speaker Change: That doesn't change the agenda that doesn't change most importantly in this context the craniofacial anatomy.

Speaker Change: These are key risk factors for sleep apnea.

Speaker Change: We are looking forward to addressing the educational gap on the prevalence and treatment of obstructive sleep apnea with continuing medical education or <unk> programs that we are aiming specifically at primary care physicians, especially targeting those who are high volume currently high volume G. L. P. One prescribers.

Speaker Change: They will be the frontline for the patients that pharmaceutical companies will attract as they ramp up their own consumer advertising throughout calendar year 2025 and beyond.

Speaker Change: We are now tracking one 2 million patients who have had a prescription for the latest generation <unk> medicines and who also have a prescription for positive airway pressure therapy the.

Speaker Change: The data are clear in this real world analysis and that is that these people are very motivated in fact, they are more than 10% more likely to stop pap therapy that motivation versus a garden variety pack patient room nights. One year. Later, we continue continue to see north of 3% higher.

Speaker Change: Adherence, but actually buying masks and accessories than the curves separate with a greater than 5% increased propensity for resupply at two years. Please.

Speaker Change: These data have now being steady with the same trend plus or minus a couple of tens of basis points as we have grown our analysis from a year ago with 300000, plus patients to now tracking over 1.2 million patients. One thing is clear the real world evidence shows that the combination of a GOP one.

Speaker Change: <unk> and a pet prescription is powerful for patients with obstructive sleep apnea, they start out therapy, more and adhere more to Pap therapy over the long term and we know that adhering to Pap therapy over the long term saves healthcare costs improves patient quality of life outcomes and lowest price.

Speaker Change: <unk> mortality.

Speaker Change: We believe the GOP ones are helping activate a whole new population of patients into the health care system that weren't coming in before and resume is well positioned to support them.

Speaker Change: Okay next let's briefly return to the consumer Wearables megatrend.

Speaker Change: The velocity of change in the way the World operates in consumer Tech and in Health Tech is amazing and resume is right in the next to solve that in fact, we are driving adoption of basic ml and AI broadly into our software offerings across the board and we are pioneering generative II with our commercially available product door.

Speaker Change: Yeah.

Speaker Change: Which I see is just the start of what I call the sleep health concierge platform.

Speaker Change: More to come on that later.

Speaker Change: But the bottom line as consumers are more focused than ever on tracking their personal health their personal wellness and personal well being the <unk>.

Speaker Change: Samsung Galaxy watch was the first to get de Novo FDA clearance for detecting our site early in 2024, and Apple announced sleep apnea infection from the main stage as they launched the latest generation of Apple Watch in September 2024.

Speaker Change: The data tracked by those two leading wearables will provide the opportunity for their millions not hundreds of millions of users to potentially detect sleep apnea. This.

Speaker Change: This is not a one quarter step change, but a chance for gradual and steady long term demand generation for sleep apnea patients that benefits resume.

Speaker Change: Of course, the information goes both ways patients can get their my schools from the resume my app, but they can also get them from their Apple watch they can get their <unk> scores on the Samsung Galaxy Watch we know that this type of gamification of health care can help drive adherence.

Speaker Change: We expect more and more people are going to want access real time to sleep data as the interest in improving slate continues to grow as I said earlier, it's not just these two leading tech players and Apple Samsung, but it's also google's fitbit or as written.

Speaker Change: Survives gammon devices and beyond we expect that they will all continue to expand their sleep architecture and sleep assessment capabilities and my personal bet is that more than a few of these other wearable players will add sleep apnea detection in 2025.

Speaker Change: We see this investment by consumer Wearables companies and pharmaceutical companies and sleep health as a once in a generation opportunity for sleep apnea awareness. We believe that these technologies will help drive more potential patients to seek out information regarding their sleep health and their breathing health resonates obligation is to.

Speaker Change: Help sleep health concern consumers to find their own pathway to appropriate diagnosis and treatment for sleep apnea, where resumes leads the world with the most clinically effective the least invasive the most proven and the most cost effective solutions on the planet.

Speaker Change: We don't believe that these two mega trends will drive a simple one and done or one time step change in patient flow rather we believe that this will be an increase from baseline patient flow that starts over 135 quarters as these technologies rollout, but has durability over 135 years.

Speaker Change: Years and beyond.

Speaker Change: We are creating the infrastructure for demand generation demand capture and demand conversion to help these people find the care that they need.

Speaker Change: This space.

Speaker Change: So turning now to our long term vision that we outlined at our Investor day at the New York Stock Exchange last September our resume 2030 strategy is crystal clear it's focused on three.

Speaker Change: Key pillars number one growing and differentiating our core sleep health and breathing health business to expanding into adjacent areas, including respiratory insufficiency, such as COPD, including insomnia, including Nissan and beyond and three leveraging our leadership in digital health.

Speaker Change: To drive better outcomes for patients for providers and for payers.

Speaker Change: So a key component of pillar number one is driving the value of the <unk> brand.

Speaker Change: That decision that moment of truth, when a physician writes a script for resident when a respiratory therapist recommends a resume mask solution when a health care provider chooses a resume digital health solution.

Speaker Change: We're a consumer anywhere in the 140 countries, where we sell our products and services establishes a personal relationship with the resume brand all of these moments added together that is the equity that is built into the resume brand. We will continue to build our resume brand awareness and evolve our brand.

Speaker Change: To be more future focused and closer to the customer.

Speaker Change: I want to make it clear that our marketing tech team will ensure that there is our ROI return on investment for every single demand generation every single demand capture and every single demand conversion project as we move more and more people into the diagnosis and treatment.

Speaker Change: With over 1 billion people suffocating with sleep apnea worldwide, we have a lot of runway ahead in our core market.

Speaker Change: Great that we have a couple of mega trends on our side to help.

Speaker Change: The global demand for sleep health and breathing health solutions is growing and our mission to help people sleep better breathe better and live high quality lives to the fullest potential.

Genius to drive everything that we do but when you combine those opportunities from our core sleep apnea market with pillar number two that is expanding into new adjacencies. The future couldnt be broader we will continue to invest in our cloud connected noninvasive ventilators for respiratory insufficiency, including COPD and neuromuscular disease will continue.

Speaker Change: Expanding our digital health and Med Tech solutions for insomnia patients I believe we're just at the start of that journey of that awful disease that we need to trade the inability to get to sleep stay asleep and wake up with refreshing sleep and beyond and for the generation of people who want to age in place to receive health care at the best play.

Speaker Change: This lowest cost lowest acuity and highest quality of life, which is their home we have a market leading software solutions like broad tree and many Fox and we are best positioned to lower costs improve efficiencies and improve long term outcomes.

Speaker Change: We create life changing health care technologies that people love in the last 12 months, we provided over 147 million people with a product such as a CPAP and iPad bi level noninvasive ventilator, a mask a cushion a humidifier other accessories or a digital health solution such as Maya <unk>.

Speaker Change: Some nowhere broad tree, many fox and beyond our ambitious goal is to empower that impact and to empower 500 million people to reach their full potential in 2030 with sleep health breathing health and healthcare technology provided to the right where they live with a strong financial foundation, our innovative product pipeline.

Speaker Change: And our expanded digital health ecosystem, we are well positioned to meet and beat our goals.

Speaker Change: Thank you to all the $10000 medians for your hard work and dedication to making our mission possible and thank you to our shareholders for your continued trust and support of our global resume team with that I'll hand, the call over to Brett in Sydney for a deeper dive into our financials and then we'll open up the floor to questions Brett over to you.

Brett: Alright, Thanks, Mike.

Brett: My remarks today I'll provide an overview of our results for the second quarter of fiscal year 2025.

Brett: Unless noted all comparisons out of the prior year quarter in constant currency terms where applicable.

We had strong financial performance in Q2 group revenue for the December quarter was $1 2 billion, an increase of 10% on both a headline and constant currency basis.

Brett: Revenue growth reflects positive even consistent contributions across our product and re supply portfolio.

Brett: Year over year movements in foreign currencies negatively impacted revenue by approximately $2 million during the December quarter.

Brett: Additionally, we expect that year over year movements in foreign currencies will also negatively impact our Q3 revenue somewhere in the range of $15 million to $20 million.

Brett: Looking at our geographic revenue distribution and excluding revenue from our residential care software business.

Brett: Sales in U S, Canada, and Latin America countries increased by 12% sales in Europe Asia and other regions increased by 8%.

Brett: Globally on a constant currency basis device sales increased by 11%, while masks and other sales also increased by 11%.

Brett: Breaking it down by regional areas give ourselves in the U S, Canada, and Latin America increased by 12% supported by solid ongoing new patient diagnosis.

Brett: Masks and other south also increased by 12% reflecting growth in both re supply and new patient setups.

Brett: In Europe Asia, and other regions, if our sales increased by 9% on a constant currency basis.

Brett: <unk> and other sales increased by 7% on a constant currency basis.

Brett: Residential care software revenue increased by 8% in the December quarter underpinned by strong performance from MD focused on software vertical.

Brett: During the rest of my commentary today, I will be referring to non-GAAP numbers. We have provided a full reconciliation of the non-GAAP to GAAP numbers in our second quarter earnings press release.

Brett: Gross margin increased by 230 basis points to 59, 2% in the December quarter.

Brett: Year over year.

Brett: The increase was mainly driven by manufacturing and logistics efficiencies and component cost improvements.

Brett: Sequential gross margin was consistent with last quarter. Despite the impact from an unfavorable currency headwind of approximately 30 basis points during the quarter.

Brett: Yeah.

Brett: We continue to make good progress on our gross margin expansion initiatives and we are focused on driving further improvement in our gross margin.

Brett: Looking forward, we expect gross margin will be in the range of 59% to 60% in the second half of fiscal year 2025.

Brett: Moving onto operating expenses SG&A expenses for the second quarter increased by 9% on both a headline and constant currency basis.

Brett: The increase was predominantly attributable to increases in employee related costs and to a lesser extent increases in marketing and travel expenses.

Brett: SG&A expenses as a percentage of revenue improved to 18, 8% compared to 19, 1% in the prior year period.

Brett: Looking forward and subject to currency movements, we expect SG&A expenses as a percentage of revenue to be in the range of 18% to 20% for the second half of fiscal year 2025.

Brett: R&D expenses for the quarter increased by 10% on both a headline and constant currency basis.

Brett: The increase was predominantly attributable to increases in employee related expenses.

Brett: R&D expenses as a percentage of revenue was six 3% compared to the six 4% in the prior year period.

Brett: Looking forward and subject to currency movements, we expect R&D expenses as a percentage of revenue to be in the range of 6% to 7% for the second half of fiscal year 2025.

Brett: Operating profit for the quarter increased by 19% underpinned by revenue growth and gross margin expansion.

Brett: Our interest expense for the quarter was $1 million given our lower debt levels, we expect to generate net interest income in the second half of fiscal year 2025.

Brett: Our effective tax rate for the December quarter was 18% compared to 27% in the prior year quarter.

Brett: The decrease in our effective tax rate was primarily due to higher tax benefits associated with employee equity compensation this quarter.

Brett: We estimate our effective tax rate for fiscal year 2025 will be in the range of 19% to 21%.

Brett: Our net income for the December quarter increased by 29% and non-GAAP diluted earnings per share also increased by 29%.

Brett: Cash flow from operations for the quarter was $309 million, reflecting strong operating results, partially offset by higher working capital.

Brett: Capital expenditure for the quarter was $21 million depreciation and amortization for the quarter totaled $46 million.

Brett: We ended the second quarter with a cash balance of $522 million.

Brett: On December 31, we had 673, meaning gross debt and $151 million and net debt.

Brett: We have approximately $1 5 billion available for drawdown under our revolver facility.

Brett: We continue to maintain a solid liquidity position.

Brett: Our board of directors declared a quarterly dividend dividend of <unk> 53 per share.

Brett: During the quarter, we purchased approximately 307000 shares under our previously authorized share buyback program for consideration of $75 million. We plan to continue to purchase shares to the value of approximately $75 million per quarter in fiscal year 2025.

Brett: This will more than offset any dilution from the vesting of equity to employees during the year.

Brett: Going forward, we plan to continue to reinvest and grow through R&D deploy further capital for tuck in acquisitions and continue our share buyback program.

Mike Ott: And with that I'll hand, the call back to Mike.

Thanks, Brett Matt I'll now turn the call over to you to provide instructions and run the Q&A portion of the call. Thank you.

Mike Ott: Thank you well now be conducting a question and answer session.

Speaker Change: You're going to ask a question. Please press star one on your telephone keypad <unk>.

Mike Ott: A confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press star two to remove yourself from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star one.

Speaker Change: One moment, please pool for questions.

Speaker Change: Okay.

Dan: First question is from Dan <unk> from MST. Please go ahead.

Speaker Change: Good morning can you hear me.

Speaker Change: Yes, loud and clear dense.

Speaker Change: Hello.

Speaker Change: Yes, loud and clear Dan.

Speaker Change: I'm sorry, Dan we can hear your line is currently not Gareth.

Speaker Change: Oh, I'm, sorry, yes, sorry, my apologies.

Speaker Change: Greetings.

Speaker Change: Question for Britain regards to currency one of the recent speaking events.

Tom It's Mike about that negative impact.

Speaker Change: Okay. Thanks.

Speaker Change: Now despite the Chi.

Speaker Change: Top line can you just talk us through any other FX impact down the P&L OSB as I'd say the strength of the U S dollar.

Speaker Change: Yeah, Hi, Dan, Yes, I mean, you called out, particularly sequentially that 30 basis points impact for us.

Speaker Change: If you look down the P&L and net impact was negative <unk> <unk>.

Speaker Change: Our EPS for this quarter.

Speaker Change: Sorry. My question was looking forward on the spot rates, you can kind of minor importance.

Speaker Change: Got it got it yes.

If we look at it you think about it we sort of tight.

Speaker Change: If you like revenue kind of straightaway in the quarter.

Speaker Change: There is typically a better quarters lag, where we see some benefit from a weaker Singapore dollar and Aussie dollar for example.

Speaker Change: So that that sort of helps us going into Q3, but we still have some of that euro weakness coming through so my expectation on gross margin will be relatively neutral.

Speaker Change: On our gross margin.

Speaker Change: Get in slide Yes, slide benefit if you look on a headline basis through R&D and SG&A.

Speaker Change: That's great. Thank you very much okay, all right. Thanks, Dan.

Speaker Change: Our next question is from Devin Ryan from.

Speaker Change: Goldman Sachs. Please go ahead.

Speaker Change: Oh, hi, making team.

Speaker Change: Thank you for the presentation.

Speaker Change: Just a question on the device as part of your business clearly really strong use devices growth double digit profile could.

Speaker Change: Could you give us some sense there on your thinking about the GOP one impact there I know there were some comments.

Speaker Change: On your opening remarks about the patient flow potentially stepping up from GOP ones.

Speaker Change: Do you feel that's starting.

Speaker Change: Flow through in the numbers now or do you feel like it's perhaps a bit.

Speaker Change: Backend weighted considering the lely label expansion there so thank you.

Speaker Change: Yes. Thanks, it's a good question and there is multiple impacts of those two mega trends I talked about the GOP ones and the consumer tech companies and their awareness driving in sleep apnea, both of them drive together to drive patients to think about sleep health and breathing health and specifically about sleep suffocation will sleep.

Speaker Change: Afternoon.

Speaker Change: And so yes, it looks incredibly strong performance as you noted plus 12% devices year on year for the quarter in the U S plus 9% and Europe Asia rest of World.

Speaker Change: And just a great great growth.

Speaker Change: I don't think Theres, a huge material impact from specifically, the new Zip bound indication and Eli Lilly. They just got their indication in December and typically pharmaceutical companies white six plus months before they really stopped their direct to consumer advertising and so what we're seeing now is a lot of clinical education continuing.

Speaker Change: Medical education, CMA programs from resume and for Lilly and others to primary care physicians and that's what I expect but that education alone I think we will start to drive some demand gen into the funnel. It is going to be up to resume to really partner with us primary care physicians to ensure demand capture conversion and curation.

Speaker Change: Into the sleep apnea diagnosis treatment and management funnel inside.

Speaker Change: Sort of pathway. If you like is in its early phases. I think we are in the very early stages of that as I said in the prep remarks, I think the impact will start to happen over the coming 135 quarters, where we'll start to get those models working but it will have a durable impact of the coming sort of 135 years and beyond so this isn't sort of as I said earlier, it's not a one off.

Speaker Change: Dan it's not a single step change, it's a gradual improvement in that patient flows. So I think we are in the very early innings of the flow of extra patients from <unk> and from consumer Tech. Thanks for the questions.

Lyanne Harrison: Our next question is from Lyanne Harrison Bank of America. Please go ahead.

Lyanne Harrison: Yeah, good morning, and congratulations on very strong devices growth both in the United States and rest of the world.

Speaker Change: Can you point out if there's any I guess bulk purchases of one offs that might have occurred this quarter.

Lyanne Harrison: If there was any.

Speaker Change: And Dms stocking ahead of potential tariffs.

Lyanne Harrison: Yes.

Lyanne Harrison: For the question Lyanne.

Mike Ott: The short answer is no. We haven't had any of that sort of one time stocking. We did talk last quarter in Q1 about Japan, where we launched the essential evidence. So Q1, there was some stocking in Japan, because that is a sort of fleet management business of our main distributors there, but now in Q2 none of that.

Mike Ott: We do not believe the regimen will have any impact to us on any tariffs when you're here and I sit on the board of advocates on carefully involved with with Washington D C and Brussels in Beijing from from that group, but we had a Trump ready group and we're looking at the tariffs and as we see them even if there are blanket.

Mike Ott: Chris on China, there'll be no impact on resume we manufacture in Sydney, Singapore, Atlanta, and beyond and so none of those will be included in my impact one of our competitors from China as they import two two to.

Mike Ott: To the U S through Florida.

Mike Ott: So if there was a blanket impacts on China, it could have a negative impact on them.

Mike Ott: And if it wasn't blanket sort of USDA U S. MCA, So Mexico, Canada change from the Trump administration, which could happen and it has been threatened.

Speaker Change: That could impact our competitive from New Zealand, who does a lot of mask manufacturing in the maquiladora is there on the border on the Mexican side of the border. So both of those could have a negative impact on our competitors, we're not banking on it and in fact at <unk> I will advocate for a carve out for Med Tech <unk> food industries, I think they should be carved out even though it would hurt our competitors.

Speaker Change: I think I'll take the high road and say, what's right for the community there, but let's see.

Speaker Change: We get to see what happens over the coming weeks and months there, but it resume we're really focus for any of these outcomes and we saw a pretty steady flow of patients into the funnel and that resulted in the strong strong device growth our challenge as I said earlier in the prep remarks, Leann is to ensure that we sort of contained to continue that momentum and do our best.

Speaker Change: To capture these patients who are being identified from the Wearables will coming into the health care system because of the awareness of the new pharmaceutical class that can partially trait will can trade in combination therapy with CPAP and so we'll be watching that and putting into place a lot of programs to see what we can do to maintain great momentum that we've had.

Speaker Change: Thanks for the question.

Mike Ott: Alright, Thanks, Mike.

Speaker Change: The next question is from Laura Sutcliffe from UBS. Please go ahead.

Laura Sutcliffe: Hello, Thank you for taking my question.

Could you talk to your ability to scale things like home sleep testing and remote setup and anything else. You think can help with getting all these potential new patients who might be coming your way.

Laura Sutcliffe: Onto therapy.

Laura Sutcliffe: Because one thing we have is that sleep physicians in the U S.

Laura Sutcliffe: Struggling maybe to see all of the patients that they possibly could be so.

Laura Sutcliffe: Just wondering how you can help create some space to get that done.

Laura Sutcliffe: Yes, Laura it's actually it's a great question and as you noted in your question. There is a limit to sort of the physical space that you can have in the infrastructure required for in lab sleep labs and many of them are at capacity as you have seen just the awareness of sleep health and breathing health people are thinking of it.

Laura Sutcliffe: And asking questions and going to see their primary care physicians getting referrals, we want to make sure that that sleep lab capacity remains at full usage, but is focused on the more sick and most severe patients so patients who might have central sleep apnea, they need to be in a sleep lab because then.

Laura Sutcliffe: Can diagnose their inability to breeze, which is with an open airway, which is central sleep apnea and get a prescription for something like adaptive servo ventilation one of our high end therapies that can help ventilate the patient with an open airway.

Laura Sutcliffe: So with overlap syndrome, if patients have COPD they need to be in one of those labs, because they are probably going to put them on a bi level of noninvasive ventilation therapy to ventilate the patient and.

Laura Sutcliffe: So the obstruction if they have overlap syndrome, and if they have concomitant insomnia as I talked about in the remarks that is now called Cammisa the physician may use.

Laura Sutcliffe: <unk> for the obstructive sleep apnea and right now most of the options are only pharmaceutical options for the insomnia pop, but watch this space for the future there to your point in your question you said scaling the home sleep testing part that's the part that can flex and Thats. The part that can flex quickly with this new demand and even large teaching her.

<unk> like right here in California down the straight Theres, a large teaching hospital that has very large.

Laura Sutcliffe: <unk> lab setup, but they also have an infrastructure of home sleep apnea testing equipment and.

Laura Sutcliffe: <unk>.

Laura Sutcliffe: Got the ability to scale the number of tests that can happen for those who are at high risk for general garden variety obstructive sleep apnea those patients should.

Laura Sutcliffe: Should be primarily.

Laura Sutcliffe: Our funnel to home sleep apnea testing and so as we get this new flow of patients resumes challenge is to do this demand capture curation and conversion and to partner with the sleep labs and the Huntsville interesting companies and many of them are one and the same so that they can flex to keep this new demand and to make sure a patient doesn't white.

<unk> for a test, but whites dies and no longer than weeks and so we saw during COVID-19 a great flicks around home sleep apnea testing when labs, which has caused in hospitals, one allowing patients for outpatient and so we know that it can work with we've created the infrastructure without kneeling air we've launched a product called the night al which is a very small.

Laura Sutcliffe: Fingertip sized home sleep apnea testing, our product and we have partners out there using that we're open to all of the other diagnostics from Nox medical we partner with them in Europe, and so our goal will be to make sure that every time patients come into primary care physicians and get that prescription and that desire for <unk> tests that a sleep physician as a.

Viable to serve whether it's in lab for the more complicated patients and for Huntsville apnea testing for the triage of the vast majority of patients that have obstructive sleep apnea alone. So we're ready we're partnering with the channel and as I said over the coming one to three five quarters, where rollout infrastructure. The 135 years, we'll start to see the benefit of the scaling of the patients.

Laura Sutcliffe: It's a great question about infrastructure. Thank you Laura.

Speaker Change: The next question is from Craig Wong Pan from RBC. Please go ahead.

Speaker Change: Alright, thank you.

Speaker Change: SaaS revenue growth slowed a bit from the first quarter could you share what the growth rates were for the different businesses within SaaS and are you still expecting double digit growth for that business.

Craig: Yes, thanks for the question, Craig and yet our residential care software business includes many Fox, Brian <unk> and matrix kept brands in and beyond situs medical and others, we don't break out.

Speaker Change: Annually or even on a call.

Speaker Change: Italy basis, our the breakdown of what flowed there I can give you some some some trends though.

Speaker Change: As Brent said in his prepared remarks, our many Fox team are doing very well our German.

Speaker Change: Home nursing and nursing home software business is growing very strongly. So it's ahead of ahead of that group growth of 8%.

Speaker Change: <unk> is doing very well sort of in line in that high single digits.

And some of the sort of skilled nursing facilities and senior living facilities, plus COVID-19 have never really picked up the rate of growth that they had before and so we're looking as we look at those businesses. We look at it as a portfolio management approach and we are investing more and more in the growth parts of the business, obviously huge synergies back to our core business.

Speaker Change: <unk>.

Speaker Change: Ridesharing resupply snap technology, and so we're investing a lot in <unk> and snap and as I said in my remarks scaling snap for all which will increase our <unk>.

Speaker Change: <unk> as a service residential care software.

Speaker Change: Core growth, but also will help us maintain momentum in our mask growth in the core market as well. So we're seeing good growth there and then some of the lower growth areas, we'll probably invest less in those areas and so that sort of portfolio management I think we guided to high single digit growth.

Speaker Change: Our residential care software business I have guided to double digit growth in net operating profit and we are achieving that within our residential care software business and so that's where we're really looking at.

Speaker Change: Meeting or beating that market growth of high single digits, and then making sure that we get leverage through SG&A and R&D to strong net operating profit growth in the double digits there, but it's a good question and it's something we look at very carefully and portfolio management across residential care software I'm working very closely with the resident care software teams the latest with broad.

Speaker Change: Ladies of maybe Fox and latest matrix K brands to make sure that we're investing in the right areas and where there's the most potential to low costs improve outcomes and the most synergies with our core resident business. Thanks for the question Craig.

Speaker Change: Next question is from Mike Matson from Needham <unk> Company. Please go ahead.

Mike Matson: Yes, thanks for taking my questions.

Mike Matson: I guess, one last one on the device growth I mean, it was double digits.

Mike Matson: Do you think that's representative of the growth in patients.

Mike Matson: Or are you getting some kind of how you're seeing benefit up there on top of that and then or.

Mike Matson: Or is there something maybe happening with Repap, where that's starting to pick up.

Mike Matson: Yeah, Mike Thanks for the question and it's a good one yet.

Speaker Change: What we say is that the market growth rate is mid single digit for devices globally and mid single digit devices growth in the U S. Just just standard market growth and high single digit growth for the mosques and <unk>.

Speaker Change: Our job you followed us for a long time, Mike is to not just accept market growth, but to meet or beat it through demand generation through as you said re supply on the MA side recap on the device side I can tell you our our customers and our partners in the channel as well as globally.

Speaker Change: Distributors in some of our consumer businesses in Europe, and Asia are really focused on those new patients, but also on patients who have devices that are five or more years old.

Speaker Change: The warranties are usually only around three years and so anytime after three years. Some people want once it's out of warranty Dubai, but most insurance companies, including Medicare here in the U S will provide a new device. After five years most of the private payers as well and so I think that repap opportunity is still out there.

And it's something that we've got an opportunity to drive that look.

Speaker Change: It's an ongoing battle, it's an ongoing game to make sure that we can get the demand generation demand curation, the demand capture and really that demand conversion to make sure a person.

Speaker Change: <unk>.

Speaker Change: From that referral to the sleep specialist base. They have a positive diagnosis for a rapid path to setup and we've been working a long time on that digital health platform Cobot helped us improve that we could do some of these more digitally more remotely and we partner with our physicians to do that and we've had some success as you saw with really good growth in this.

Speaker Change: Quarter, but look as we look at it.

Speaker Change: The default is mid single digit growth in devices high single digit growth in masks and high single digit growth in software. Our goal is to meet or beat that every quarter and we did meet or beat that in every part we had a beat and the devices, but it's not a given and we don't take it for granted and we know that we have to work hard on all of the above.

Speaker Change: And Jen capture curation Repap conversion and re supply on the mask side to keep that momentum. Thanks for the question Mike.

Speaker Change: Yes.

Speaker Change: Our next question is from Anthony Petrone from Mizuho Group. Please go ahead.

Thanks, Mike and Al just revisit back to GOP, one, but actually pivot to reimbursement.

Speaker Change: Our reimbursement coverage Lilly secure Medicare coverage for <unk> bound we havent seen commercial payers come in so maybe just your views Mick.

Speaker Change: How reimbursement in the United States will settle out.

Speaker Change: Now that will have <unk> covered side by side would see Pat do you think eventually as commercial payers come in that <unk>.

Speaker Change: I'll have to actually step through C path to get to a <unk> one.

Speaker Change: Thanks again.

Speaker Change: Yeah. Thanks for the question Anthony and look you in the other great sell side analysts you had noted the pharmaceutical side better than I do.

Speaker Change: Global expert on Med tech and particularly respiratory med tech.

Speaker Change: You all better.

Speaker Change: On your own research and your team to know what's going to happen with.

Speaker Change: If Lilly got ZIP bound with CMS, what are their chances of United Humana, Cigna and beyond but look in.

Speaker Change: In general in our space the private payers do follow Medicare at least to some extent, but not a given this is a new class of medicines. That's not just focused on sleep apnea is really focused on that sort of broad evasive reply.

Speaker Change: Cardiovascular diabetes metabolic syndrome, and obstructive sleep apnea is probably the third tier there. So we're not we're not unrealistic to know that this indication for us is not the only thing that really is focused on and it's probably not their number one priority, but I think having spent tens of millions on this amount OSI trial, and having positive data that sort of size that.

Speaker Change: On average.

<unk> treatment, 50% treatment of IHI, they've got a good incentive to start advertising, we're going to watch very carefully as they get that reimbursement for.

Speaker Change: ZIP bound for different indications is it for obesity or is it for.

Speaker Change: Or is it for diabetes, but as they start to get those I thought I'm pretty certain that we will start to see that sort of direct to consumer advertising. What we have seen already is that they are investing and continuing medical education Theres CME programs are out there they posted on their website a lot of information and the heartening part for US Anthony is that they have.

Speaker Change: Following the American Academy of Sleep Medicine guidelines, they're following the gold standard guidelines and that really does as you cite it says frontline you have to use the most efficacious least invasive most proven therapy first and so you have to use CPAP iPad by level and then as their own data showed like lilly's data and surmount OSI showed in that had to do.

Speaker Change: <unk>, one <unk> patients from one CPAP patients the CPAP patient trial, those patients did better they had better outcomes and so it's not just in the medical science from the American Academy St Medicine, It's from <unk> own clinical data that shows the combination therapy is better. So I think that will start to see them do that advertising at some point following their indication for use approval.

Speaker Change: I don't know if its six months or 12 months every pharmaceutical company makes a different decision on every drug, but I look forward to them getting.

Speaker Change: Approval.

Speaker Change: Getting the coverage as broadly as they can and starting to advertise and doing the right things, saying, we can want to treat the whole person you want to trade the core sleep apnea and you want to trade the white and that combination therapy. We think is the future of obstructive sleep apnea treatment. We saw it in their data we see it in our data the $1 2 million patients with following the combination prescription of <unk>.

Speaker Change: <unk> one prescription in a pet prescription leads to pretty good outcomes high start rates and high propensity to adhere to therapy and for US we see that in the purchase of masks and accessories, and we know that leads to lower costs and better outcomes and lower mortality.

Speaker Change: The patient so yes, Anthony early days as I said, but we're quite excited about that.

Speaker Change: Haven't got any questions yet about it but I'm actually slightly more excited about the consumer tech trends because that's already out there you've got tens of millions of people hundreds of millions of people with these watches these wearables and that those algorithms are FDA cleared and I can detect sleep apnea and we will start to see those patients come through and it's our challenge to help those people find a digital path.

Speaker Change: Why into the into the health care system. Thanks for the question Anthony.

Speaker Change: <unk>.

Speaker Change: Next question is from Mathieu Chevrier from Citi. Please go ahead.

Mathieu Chevrier: Yes, Thanks for taking my question good afternoon, good morning.

Speaker Change: Just to jump back on that.

Mathieu Chevrier: Previous question do you think there's more research.

Speaker Change: The benefits of CPAP.

Speaker Change: And perhaps more education, it's clearly pharma companies has been quite aggressive.

Speaker Change: Broadening the potential indications for <unk>. Thank you.

Speaker Change: Yes, it's a great question.

Speaker Change: If you look at the nearly 21 billion nuts of respiratory medical data that resume it has in the cloud the more than 30 million patients that are part of the <unk> ecosystem. The $9 3 million patients that have downloaded the <unk> app, we've got a treasure trove of information and we have absolutely it's old.

Speaker Change: The identified it's private.

Speaker Change: Cyber secure and we really focus on really looking as you said on that research.

Speaker Change: We have peer reviewed published data showing a 39% reduction in mortality for patients with CPAP adherent versus not.

Speaker Change: Alaska study, we have a lot of data that we've shown improvements in cardiovascular outcomes reductions in blood pressure improvements in <unk> C for metabolic control and beyond but to your point I think given the awareness that's going to be driven by the pharmaceutical companies coming in here, we have to drive more and more of that so I've challenged our chief.

Speaker Change: Medical Officer, Carlos Nunez, and his team to increase the velocity and the qualities velocity speed plus direction. So not just the speed of clinical research to market from a real world data, but the direction that it is more focused on outcomes really showing and we peer reviewed published this that.

There's a dose response relationship between the use of CPAP every night and the lowering of healthcare are all cause health care cost outcomes. So for every hour of sleep using Youll CPAP you have a 7% reduction in total health care costs for that patient all the way up to seven hours of sleep, so up to 50% reduction in <unk>.

Speaker Change: <unk> costs, and so the more and more resume can not only get those data, but get those data and put them into the inner mountain health care system, putting them into the Kaiser health care system. These great payer providers, <unk> and beyond and actually.

Speaker Change: The mortality data was done with the French government on a social security database. The Alaska study the more we can do that in western and Northern Europe, where you've got government run insurance programs that really do focus on long term outcomes because the government is the payer for the loss of these of the citizens and so we're going to have more and more data watch. This space. We are the market leader.

Speaker Change: In digital health and and.

Speaker Change: I would say publication of real World data and real world evidence in the field of Med Tech and Youre going to see more and more from us and it will only be increased and the momentum with big pharma starting to invest with things like surmount OSI Cheyenne combination therapies better than single therapy as well so more grist for the mill. Thanks for the question.

Speaker Change: Our next question is from David low from Jpmorgan. Please go ahead.

David Low: Thanks very much.

Speaker Change: I'm wondering if we could come back to the question that was asked earlier about the market growth versus <unk> growth I mean, clearly with regiments dominant in Davos.

David Low: <unk> is the market.

David Low: You can talk a little bit as to what you think the drive is modest in this quarter that.

That drove that growth rate above 10% versus your estimates of market.

David Low: Some of the variables.

To understand the price and mix and whether that really was a contributor.

David Low: And do you have a sense as to where the repack.

David Low: To become a meaningful contributor at this stage please.

David Low: Yes, Thanks, David and as you know you've followed us for a long time too that there's lots of aspects that go into just a quarterly snapshot.

David Low: Clearly.

David Low: We have a very strong position, we have very strong competition, we have a very strong position in the U S in Europe and in Asia, but we do have competition. So we are able to take share and we are able to disproportionately partner with.

David Low: <unk> homecare providers and distributors and beyond where they are able to do better at growing share. So we partner and provide technologies like broad tree and air view that helps identify patients for resupply and that helped us get really talked about much but our U S mask growth was 12% in the quarter, which is really.

David Low: Strong too and so those are proprietary resupply in snap technology of really strong but on the device side look.

David Low: A couple of hundred basis points ahead of market how much of that was some of that demand. Gen work, how much of that was high deductible health plans and what we can do with patience there.

David Low: The December quarter, how much was repap.

David Low: We have the splits around those we know the levers that we can turn and we're going to what our job is to really I think in these mega trends is to work at how do we sustainably incredibly to an earlier question about infrastructure make sure that the new patients coming in are held in a do loop in terms of the time from referral to.

David Low: Sleep specialists to getting that diagnostic and then getting to therapy and that sort of process optimization. I think is a way that we can maintain that type of momentum, but there are many other aspects and when I.

David Low: And I said this earlier, but I think we are in the very very early stages of seeing any flow from these other big Mega trends, but we have to be ready to capture those patients as well. So it's kind of a complex set of portfolio management approach to demand Gen capturing conversion.

David Low: Whether its existing installed base with resupply and repacked and new patients and that balance for both devices and masks I think we're getting down to a pretty good science on it we did very well this quarter and we will keep on focusing for 2025 on on the long term investments were going to need to make in infrastructure and capabilities to to capture convert and ensure.

David Low: A really good experience for the person as they go from sleep concerned consumer to them to a happy patient on therapy for life.

Next question is from breakfast <unk> from Keybanc capital markets. Please go ahead.

Speaker Change: Hey, guys. Thank you for squeezing me in just a question for Brett on the gross margin guidance for <unk> are you still expecting a sequential increase given relatively flat performance in <unk> versus <unk>.

Speaker Change: Or should we be thinking about one H is more of a reasonable level for QE and just as a follow up there what would be the biggest swing factors that you think could drive progress closer to the high end of the commentary, which would be closer to 60%. Thank you very much.

Speaker Change: Yes.

Speaker Change: Thanks, Brett.

Speaker Change: That we sort of guided that 50%, 60% sort of low end there we certainly got.

Speaker Change: Initially as implied to want to continue to improve the gross margin. So certainly that that's out <unk>.

Speaker Change: As we work through the second half of FY 'twenty five.

Speaker Change: We think it will be in that range of 59% to 60%.

Speaker Change: There's a lot of optimization initiative initiatives, we're working on three key areas manufacturing procurement initiatives just scale benefits as well.

Speaker Change: The progressive transition to the ICD 11 platform as oil plays out.

Speaker Change: Some of the swing factors on there'll be things like product mix, as well and kind of have favorable or unfavorable that is.

Speaker Change: Fright, which has stabilized.

Speaker Change: Do we see some benefits in the second half, that's probably still a watch and wait.

Speaker Change: And as we roll out new products as well that tends to help so.

Speaker Change: There's a bunch of factors that play out on that can impact the timing of when when these benefits come through.

Speaker Change: Our priority is to have a good healthy pipeline and then we can deliver that pretty consistently and that should support our gross margin.

Speaker Change: Kind of like a medium term view, if you like rather than quarter by quarter.

Thank you. This concludes the question and answer session I would like to turn the floor back to management for closing comments.

Speaker Change: Great.

Speaker Change: Thanks, Matt and thank you to all our shareholders for joining us on this call and thank you, especially to the 10000 <unk> <unk> operating in 140 countries. Many of you are also shareholders. Thanks for what you do today and every day.

Speaker Change: Youre working with patients physicians payers providers and health care communities to change the world and you build value for stakeholders, especially the shareholders who are listening to us today. So thank you for what you did these last 90 days, we'll talk to you all again in about 90 days and that concludes the call I'll hand over to Mike to close us out great. Thank you, Mike and thank you everyone for.

Speaker Change: Listening we appreciate your time and interest if you have any additional questions. Please don't hesitate to reach out directly. This concludes <unk> second quarter 2025 Conference call you May now close the call.

Speaker Change: Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you again for your participation.

Speaker Change: Okay.

Speaker Change: Hmm.

Speaker Change: Hum.

Speaker Change: Hum.