The operator welcomes listeners to the ResMed Second Quarter Fiscal Year 2024 Earnings Conference Call and Webcast. The call will include a question-and-answer session and is being recorded. The Chief Investor Relations Officer, Amy Wakeham, introduces the call and reminds listeners that non-GAAP measures will be discussed. The CEO, Mick Farrell, highlights the company's strong second quarter results and attributes them to the hard work of the global ResMed team.

ResMed's strong results were driven by growth in both devices and Software-as-a-Service business, as well as maintaining a leading market share in masks and accessories. The company is focused on providing healthcare solutions for chronic conditions and believes that healthcare should be delivered in the home. With a large market opportunity and a global presence, ResMed is the leader in digital health solutions and sleep apnea treatment. The company's flow generator platforms saw a significant increase in sales and they have achieved a steady supply of their AirSense platforms worldwide.

In the third quarter, ResMed gained regulatory approvals for their AirSense 11 platform and saw a 9% growth in their masks and accessories business. They have also received approval for a new mask innovation and are working to bring it to market. The company's clinical and commercial teams are partnering with physicians and providers to drive resupply programs, which have been shown to improve patient adherence and outcomes. In the U.S., these programs are powered by ResMed's digital health ecosystem, while outside the U.S., the company is focused on developing direct outreach and subscription programs for consumers to manage their own health.

The COVID-19 pandemic has increased the importance of respiratory health and hygiene among consumers, leading ResMed to focus on providing digital solutions and services for clean and fresh equipment. The company has taken steps to accelerate profitable growth, including stopping unproductive projects and investing in digital health technology and product development. Their new operating model aims to increase product innovation, enhance the ResMed brand, and drive profitable growth. The company's three key strategic priorities are to grow and differentiate their core sleep and breathing health business, develop and deliver market-leading medical and digital solutions globally, and create software solutions for at-home care.

In 2024, the company's main focus is on increasing demand for sleep apnea and breathing health services through various initiatives. This includes using traditional healthcare channels and social media campaigns to raise awareness and guide patients towards treatment. The company is also tracking new patient starts and user starts in their app, myAir. Two megatrends, one from big consumer tech and one from Big Pharma, are expected to contribute to the increase in patient flow. Many big consumer tech companies are now focusing on sleep wellness, with features such as sleep tracking and quality assessment built into their devices. Samsung is also working on defining sleep personas to help consumers better understand their sleep patterns.

ResMed is excited about the focus on sleep wellness and the potential for new technologies to help people with sleep issues. This could lead to increased patient growth for the company as they aim to educate and support individuals on their journey to better sleep health. In terms of megatrends in the market, there has been a focus on GLP-1 medications, but ResMed has observed that patients on these medications are still likely to start positive airway pressure therapy. Real-world data and evidence support this.

The analysis of over 529,000 patients with GLP-1 prescriptions shows that there is an increase in the percentage of patients who start positive airway pressure therapy. Contrary to previous hypotheses, patients on GLP-1 therapy and PAP therapy do not quit their PAP therapy at a higher rate than the general population. In fact, there is an increase in the resupply rate for patients prescribed both PAP and GLP-1 therapy. This supports the belief at ResMed that treating the whole person, including regular exercise, balanced diet, and good sleep and breathing, is important for overall health.

ResMed believes that addressing all aspects of sleep apnea treatment leads to the best patient outcomes. They have achieved high adherence rates with their PAP technology and are investing in alternative therapies for the 10% of patients who do not respond well to PAP. These include dental devices, pharmaceutical agents, and hypoglossal nerve stimulation technology. ResMed is committed to providing solutions for all patients with sleep apnea and is leveraging their vast amount of medical data and cloud-connected devices to improve digital health technology.

ResMed is investing in artificial intelligence-driven data products and capabilities in their Air Solutions ecosystem. One of their products, Compliance Coach, helps home medical equipment providers improve patient compliance and outcomes through predictive algorithms. They have also launched a trial for a generative AI product that serves as a digital concierge for sleep-concerned consumers, helping them find the best treatment options. ResMed's goal is to scale this product globally to help people achieve better sleep and breathing.

ResMed's Respiratory Health business is seeing sustained activity and investments in clinical trials for high flow therapy to treat COPD at home. The company's Residential Care Software-as-a-Service business also had a strong quarter with year-over-year growth and ongoing synergies with their home medical equipment resupply revenue. ResMed expects sustainable organic growth in their SaaS solutions and plans to drive operating expense leverage and accelerate net operating profit growth. The residential care SaaS business is a key part of ResMed's growth strategy.

ResMed is a leading global provider of software solutions for residential care and is transforming respiratory medicine and residential care through digital health technology. The company is focused on driving revenue growth, cost discipline, and efficiency to increase profitability. They invest a significant portion of their revenue into research and development and have a mission to improve 250 million lives by 2025. In the last 12 months, they have already improved over 170 million lives through their medical devices, masks, and digital health software. The company is grateful for their dedicated employees and is excited about future opportunities.

In the paragraph, Brett Sandercock provides an overview of the financial performance of the company in the second quarter of fiscal year 2024. He mentions a 12% increase in revenue, with growth in both device and mask sales. He breaks down the revenue by geographic regions and notes a 24% increase in Software-as-a-Service revenue, driven by an acquisition and strong performance in the HME vertical. Excluding the acquisition, SaaS revenue still grew by 10%.

In the December quarter, MEDIFOX DAN contributed $28 million in revenue, in line with expectations. Non-GAAP gross margin increased by 10 basis points, driven by lower freight costs and higher selling prices. Operating expenses increased by 4%, mainly due to employee-related costs. SG&A expenses as a percentage of revenue improved to 19.1%. The company is monitoring potential headwinds in the Middle East conflict and expects SG&A expenses to be in the range of 18% to 20% for the second half of fiscal year 2024.

The company saw a 5% reduction in its workforce due to restructuring activities, resulting in a 6% increase in R&D expenses. Operating profit increased by 20%, with net interest expense of $14 million and an expected range of $10-12 million in the second half of fiscal year 2024. The effective tax rate for the quarter was 20.7%, and the company expects it to be between 19-21% for fiscal year 2024. Net income and non-GAAP diluted earnings per share both increased by 13%. The company recorded $64.2 million in restructuring charges, including employee severance, intangible asset impairments, and other asset impairments. The restructuring charge has been treated as a non-GAAP item in the company's Q2 financial results.

The company recorded a provision of $6.4 million for expected costs related to a safety notification for their Masks with magnets product. This was treated as a non-GAAP item in the Q2 financial results. Cash flow from operations was $273 million, with $23 million spent on capital expenditures and $45 million on depreciation and amortization. The company ended the quarter with $210 million in cash, $1.2 billion in gross debt, and $1 billion in net debt. They reduced their debt by $130 million during the quarter and had $955 million available under their revolver facility. The company declared a quarterly dividend of $0.48 per share and resumed their share buyback program, purchasing 335,000 shares for $50 million. They plan to continue purchasing $50 million per quarter in the second half of fiscal year 2024 and will reinvest in growth through R&D, pay down debt, and make tuck-in acquisitions. The call was then turned over to the Q&A portion.

Margaret Andrew asks a question about the potential impact of GLP-1 adoption on growth for the company. Michael Farrell responds by stating that there is a correlation between GLP-1 use and a higher likelihood of starting PAP therapy. He believes that this trend will lead to greater growth in the future and mentions that full adoption of GLP-1s could result in a significant increase in the patient pool. However, he acknowledges that this may not be a realistic expectation and expects to see a faster rollout of GLP-1s in the healthcare system.

The speaker discusses the increasing interest in GLP-1s and the SURMOUNT-OSA study conducted by Eli Lilly. They mention that the primary endpoint of the study may not be the most important and that collaboration with Lilly to use CPAP with GLP-1s could be beneficial.

Michael Farrell discusses the SURMOUNT-OSA trial, which is studying the effects of a new pharmaceutical agent on patients with sleep apnea. The trial is small, but it is expected to lead to significant weight loss and AHI reductions in the treatment cohort. Professor Atul Malhotra, the primary investigator, believes that the best treatment for sleep apnea is a combination of weight loss and CPAP therapy, and the new pharmaceutical agent will be used in conjunction with CPAP.

The primary investigator of the study believes that a combination treatment of a weight loss medication and bariatric surgery or diet and exercise will effectively treat sleep apnea. The CEO of the company that makes the therapeutic also believes in the potential of this combination treatment. The company is working with Big Pharma to raise awareness about sleep health. In terms of competition, Philips has relaunched their flow generators in some international markets and is in full competition with other global players.

The goal of ResMed, a leading medical device company, is to fight for market share in countries where they have been absent for a year or more. They face competition from regional players, but their advanced technology and focus on growing the market have allowed them to consistently win and take share. They are also anticipating the return of their main competitor, Philips, to the US market, and are confident in their ability to compete with them. ResMed believes their success is due to their small, quiet, comfortable, connected, and intelligent solutions.

The speaker discusses the company's 2030 operating model, which focuses on three tenets: product-led, customer-centric, and brand-enhanced. They mention the importance of measuring success in terms of product velocity and customer satisfaction. They also mention a new Global Chief Product Officer who will oversee product innovation. The speaker briefly touches on the role of Compliance Coach, a reactive AI model, in this operating model.

The company is focused on improving marketing metrics, with a Chief Marketing Officer leading the effort to increase NPS scores and enhance the ResMed brand. They also have a Chief Revenue Officer focused on driving profitable growth and leveraging expenses through technological advancements. The Compliance Coach, an AI tool, aims to lower costs and improve efficiency in serving patients while increasing adherence rates over time. The success of the tool will be measured by its impact on adherence rates compared to previous methods.

The customers of the company are knowledgeable about how the company's products and services can benefit their businesses. The company has implemented price increases and is seeing some impact on gross margins, although some of these increases will take time to fully roll through. The company is also facing challenges with freight disruptions, but is taking measures to mitigate their impact.

The company has seen an impact on shipping due to the closure of the Red Sea and is experiencing longer lead times and increased freight rates. They are looking at alternative routes and multimodal distribution to mitigate the impact, but there may be some headwinds in the fourth quarter. The restructuring charges and costs for the Mask recall are largely done, but there may be minor restructures in the future.

The speaker is answering a question about the transition to the AirSense 11 platform. They explain that the process is complex and varies by country due to regulatory requirements and language customization. The platform has already been launched in major countries such as the U.S. and Europe, and is starting to ramp up in Japan. However, there are still over 100 countries where it has not yet been launched and the company is working to get regulatory approval in each of them.

The regulatory and quality team, led by Dawn Haake, is working closely with regulatory authorities in various countries to ramp up supply of the AirSense 11 platform. The company's global leadership and responsibility to maintain their second best platform, AirSense 10, for a little longer, is causing delays in providing the AirSense 11 in all countries. The company is focused on driving regulatory and scaling manufacturing for AirSense 11, which is a better technology and has a premium pricing. The next question is about the SURMOUNT study, specifically comparing the two arms of GLP-1 versus CPAP plus GLP-1.

Michael Farrell is discussing his thoughts on the results of a study on the effectiveness of GLP-1 in treating sleep apnea. He believes that the study will show that GLP-1 is better than a placebo in reducing weight and improving AHI. However, he is skeptical about the sub-studies comparing CPAP to no CPAP, as there is a long history of CPAP only providing partial treatment for sleep apnea. He believes that true treatment involves reducing the AHI to less than five.

The speaker discusses the growth of device and mask sales for the company, highlighting the strong performance of both in the quarter. However, they note that mask sales were weaker than expected and invite questions about the disconnect. They also mention the success of their resupply programs in driving sales. Overall, they are pleased with the growth of both the devices and masks businesses.

The company is doing well with the launch of AirSense 11 in various regions, and is beating market growth in the U.S. and Canada. However, in Europe, Asia, and Rest of World, there was a 500 basis point decrease in share compared to the previous quarter, but this is due to some shipping and tender issues. The company must continue to drive demand and leverage the Big Pharma trend to maintain growth in devices and masks globally.

The speaker discusses the company's focus on leveraging the big tech trend and improving demand generation in order to drive growth. The final question from Michael Polark asks about the 2% increase in the U.S. market for masks, and whether the Magnet field safety notice impacted the company's ability to capture mass demand. The speaker responds by stating that the U.S., Canada, and Latin America saw a 10% growth in mask sales, with a strong market growth rate and good revenue from high deductibles resetting in December. The speaker also clarifies that the FDA recall did not result in any product being removed from the market, but rather involved scaling up manufacturing for plastic clips as an option.

The speaker discusses the recent upgrade to the labeling of their medical devices and how it has had no impact on sales. They also mention the convenience of their masks with magnets and how they are still the preferred option for the majority of patients. They assure stakeholders that this upgrade will not affect future sales and express their excitement for the potential growth in the market.

The speaker expresses gratitude to 10,000 ResMedians for their contributions in helping people around the world improve their health. They also thank shareholders for their support and invite any further questions. The call is then handed back to Amy to conclude the second quarter 2024 conference call.

This summary was generated with AI and may contain some inaccuracies.