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Text: Sorry for that, we were having a few audio issues.
So we've redialed back in.
Joining me on the call today to discuss our quarterly results are CEO, Mick Farrell and CFO, Brett Sandercock.
Other members of management will be available during the Q&A portion of the call.
During our call, we will discuss several non-GAAP measures.
We believe these statements are based on reasonable assumptions.
However, our actual results may differ.
I'll then review top level financial results, some business highlights from the quarter, and a few key milestones.
Then I'll hand the call over to Brett, who will walk you through our financials in further detail.
Our team achieved another quarter of strong revenue growth across the portfolio driven by superb performance in the mask category particularly in the U.S. market with good performance across the 140 countries where we provide our solutions.
We continue to take market share with our software solutions that enable increased therapy adherence with resupply programs providing support to those who need it and with our innovative new products.
Customers are voting with their wallets and they are voting for ResMed.
As the world's leading software-driven medical device company, we are using digital health technology to transform the industry.
We have sold nearly 11 million 100% cloud connectable medical devices into the market and Air Solutions, our cloud-based ecosystem manages more than 12 million patients.
In the last 12 months, we have changed over 15 million lives by providing a person with a ResMed device or complete ResMed mask system to help them breathe better and live better lives.
In addition, our Brightree and MatrixCare software systems are helping to manage 19 [Phonetic] million more people outside the hospital.
Digital health technology is an integrator across everything that ResMed does.
AirView, myAir, Propeller and a portfolio of other digital health solutions allow us to better engage with our customers and partners, including patients, physicians, providers, payers and complete healthcare systems.
We are investing in advanced analytics and expanding our capabilities in machine learning and machine intelligence so that we can grow this digital health ecosystem at double digits on a volume basis.
We now have over 5.5 billion nights of respiratory medical data in the cloud and we are analyzing these data to derive actionable insights for the benefit of patients, physicians, providers and healthcare systems.
Our relentless focus on product and software innovation continues to set us apart from our competition.
We have massive opportunities ahead in sleep apnea, in COPD as well as in outside the hospital software to help patients live better quality lives, to help patients and healthcare systems save money and to help achieve better management of chronic disease.
We believe that the future of healthcare is outside the hospital.
That's where ResMed's competes today and that's where we are winning today.
We have the right elements in place to achieve our strategy and to drive financial success as we provide market leading value to customers.
Let's now briefly review our top level financial results.
We achieved another quarter of double digit revenue growth.
We were up 14% in constant currency across our portfolio.
This growth continues to be well balanced across our domestic U.S. as well as our global product sales as well as from our software as a service businesses.
We continue to deliver operating leverage with non-GAAP operating profit growth of 21% year-over-year and non-GAAP diluted earnings per share of $1.21.
I'd like to focus now on our core sleep apnea and respiratory care businesses.
In the devices category, we delivered a good quarter with year-over-year constant currency device growth of 8% globally supported by strong 9% device growth in the United States, Canada and Latin America geographies, as well as by improving, Europe, Asia and rest of world growth, which was at 6% constant currency in the device category.
We continue to face headwinds for device growth in France as a result of the 2018 and 2019 digital health-related fleet upgrades.
We expect that the headwinds will begin to abate in the upcoming European summer and we will start to return to market growth for devices in France during fiscal year 2021.
Underlying patient growth remains healthy around the globe and we continue to benefit from strong market dynamics with over 900 million people worldwide suffering from undiagnosed and untreated sleep apnea.
Growth in the masks and accessories category of our business was incredibly strong during the quarter.
We were up 16% constant currency globally in this category, well ahead of market growth rates, indicating that we gained significant market share with our latest patient interface innovations.
Removing the impact of some software within this category, we are still growing our global mask franchise in the mid teens.
Our flagship masks, the AirFit F20 and the AirFit N20 continue their growth across global markets.
The success of these masks was augmented by continued good uptake of our more recent masks launches.
We have launched a steady rhythm of mask innovation over the past 15 months.
We have just lapsed the successful launch of the F30 in the December quarter and we will lap the launch of the N30 the N30i and the P30i during the coming 12 months.
The F30i was launched just over a week ago combining the needs for patients in the freedom and the minimalist mask segments.
With our portfolio of solutions, we are ensuring that we have the right mask for every patient, every time.
We are innovating and expanding our mask portfolio to offer comprehensive options for physicians and home care providers and for the specific needs of the ultimate customer and that's the person who suffocates every night with sleep apnea.
We remain focused on driving innovation to meet underserved customer needs.
We are creating future products that are smaller, quieter, more comfortable, and more customized to each persons needs.
Through digital health technologies such as the myAir app, we are driving patient engagement with our therapy so that people can enjoy the benefits of better breathing and better sleep.
We have well over 2 million patients using myAir and leveraging its insights and personalized feedback through coaching algorithms.
In parallel, we are also ensuring that the cost of sleep apnea as a chronic disease can be better managed by physicians, providers, payers, and healthcare systems.
Our digital end-to-end solutions combined with available 100% cloud connectivity as well as information provided to patients on their own smartphones are all leading to significant improvements in cost, improvements in healthcare outcomes, and improvements in quality of life.
We believe cloud-based software combined with world-leading medical devices can add value and improve both clinical outcomes as well as the patient experience.
On the partnership front, our joint venture with Verily is creating software solutions to help identify and engage and enroll people with sleep apnea on a journey to better sleep and better breathing.
We have commenced pilots in a handful of U.S. cities to improve awareness, identification, and engagement with the importance of good sleep and breathing to overall health.
Our philosophy is this, the more a person knows about how much they suffocate every night and the consequences of that suffocation on their overall health outcomes, the more likely they will seek solutions.
At its simplest level, this partnership will drive incremental growth in our core sleep apnea business.
Over the longer-term and on a deeper level, this partnership will also allow ResMed to participate in a broad chronic disease management platform covering sleep apnea, cardiovascular disease, diabetes, mental health and beyond.
I'd like to now focus on our business in respiratory care.
There are nearly 400 million people suffering from chronic obstructive pulmonary disease or COPD worldwide.
We don't believe these people are well served by global healthcare systems today and many COPD patients are frequent visitors to hospital emergency rooms with admissions and frequent readmissions.
We have a vision to better manage COPD patients through the use of technology with digital end-to-end solutions, technology such as our Propeller platform helps how patients are communicated to, it helps how they are encouraged in their medical care and it helps how folks are looked after as an individual person.
We believe that technology combined with world-leading medical equipment can add substantial value to improve both clinical outcomes and the patient experience.
We plan to offer a portfolio of solutions through all stages of COPD progression.
We will be there with stage 1 and stage 2 COPD patients as they commence inhaled pharmaceutical therapy managed by the Propeller platform.
We will be there with stage 2 and stage 3 COPD patients as they add portable oxygen therapy to their care.
We will also be there with stage 3 and stage 4 COPD patients as they commence non-invasive ventilation therapy and ultimately life support ventilation therapy.
We will manage the person on one end-to-end digital health COPD platform, helping the patients, helping their caregivers and loved ones as well as helping their physicians and providers so that they have the right information at the right time, lowering costs and improving outcomes.
Our team at Propeller continues to progress their business as we move along the path from pilot trials to commercial partnerships with both pharmaceutical partners and healthcare systems.
The digital health opportunity with inhaled respiratory medicine adherence will take time to build and we are making good progress.
In December, Propeller was included as the only chronic respiratory disease solution in Express Scripts' first formulary for digital health solutions.
In November, access for Propeller users was expanded to pharmacy services from CVS, from Walmart, from Kroger, and from Rite Aid.
This was accessed directly from the Propeller app via the My Pharmacy feature within that smartphone application.
We will update you on the milestones for Propeller with partners in both pharma as well as healthcare systems as we move forward throughout 2020.
Finally, I'd like to focus on our software as a service business.
We continue to integrate and optimize the out of hospital SaaS portfolio for long-term growth.
We are focused on leveraging our competitive advantage as the only strategic player competing with leading software solutions focused on home medical equipment providers, skilled nursing facilities as well as home health and hospice providers.
Our SaaS portfolio revenue grew 37% year-on-year this last quarter, benefiting from the MatrixCare acquisition that we lapped during November.
We estimate that the weighted average market growth rate of these sectors we compete in is in the high-single digits.
Excluding the timing benefit of the MatrixCare acquisition and on a pro forma basis, our SaaS portfolio grew in line with market in Q2.
Our plan is to beat that market growth rate over the medium to long-term.
As we reached the fourth anniversary of our Brightree acquisition here in 2020, we are achieving strong [Technical Issues] in our home medical equipment or HME sector with our Brightree team in Atlanta.
We just passed the one-year anniversary with our MatrixCare acquisition in the quarter and we are increasing our investments in our MatrixCare team up there in Minneapolis.
This investment is focused on new module introduction for our MatrixCare platform so that we can ensure that we are able to grow and share in our skilled nursing facility as well as home health and hospice sectors as we move forward.
We are doing the hard work to make MatrixCare as successful as Brightree is in the ResMed portfolio and we have all the elements in place to do that.
It took around 24 months to see strong sustainable returns from our investments in R&D and our management team at Brightree.
We think we can meet or beat that timeline for strong and sustainable returns from our MatrixCare investments that we are currently making.
Last quarter, we announced a collaboration with Cerner as their new preferred partner for home health and hospice software for Cerner's customers.
It is early days in that partnership and things are going very well.
We've started to migrate existing home health and hospice customers to our MatrixCare solution.
Our sales team is actively engaged with Cerner's sales team with customers learning of the benefits of our MatrixCare home health and hospice software.
We are excited to drive growth from this partnership.
The rich interoperability between our two solutions will provide value for both Cerner and ResMed customers as well as their patients and residents.
I would like to take a moment to announce an exciting technology tuck-in acquisition that we are just in process of completing.
Just this week, Brightree signed an agreement to acquire a company called SnapWorx.
SnapWorx is a privately held software company that provides patient contact management and workflow optimization for sleep apnea resupply.
The combination of Brightree's technology and live call services with this new SnapWorx technology creates the largest resupply base in the industry with end-to-end workflow automation.
For our HME customers, the combination of these two technologies Brightree and SnapWorx will increase patient adherence and increase operational efficiency.
We expect the transaction to close very shortly.
The acquisition of SnapWorx is expected to be neutral to our non-GAAP ResMed earnings per share initially.
However, we expect this acquisition will be accretive to non-GAAP earnings per share during fiscal year 2021.
In summary, we have the vision to transform and significantly improve software solutions across outside the hospital healthcare sectors.
We see a future [Technical Issues] of hospital care.
The continued success of our mask and device portfolio along with a solid pipeline of new products and new digital health solutions covering sleep apnea, COPD, and out of hospital software gives us confidence in continued growth as we move through the year.
We have positioned ResMed for the long-term as the global leader in digital health driving top line and bottom line growth as we execute toward our 2025 strategy.
We are focused on our triple aim.
First, to slow chronic disease progression; second, to reduce overall healthcare system costs; and third, to improve quality of life for the ultimate customer, the patient.
With that, I'll hand the call over to Brett in Sydney for his remarks and then we'll go to Q&A.
In my remarks today, I'll provide an overview of our results for the second quarter of fiscal year 2020.
As Mick noted, we had a strong quarter.
Group revenue for the December quarter was $736 million, an increase of 13% over the prior year quarter.
In constant currency terms, revenue increased by 14%.
Excluding revenue from acquisitions, group revenue increased by 11% on a constant currency basis.
Taking a closer look at our geographic distribution and excluding revenue from our software as a service business, our sales in U.S., Canada and Latin America countries were $408 million, an increase of 14% over the prior year quarter.
Sales in Europe, Asia and other markets totaled $242 million, an increase of 5% over the prior year quarter.
However, in constant currency terms, sales in combined Europe, Asia and other markets increased by 8% over the prior year quarter.
Breaking out revenue between product segments, U.S., Canada and Latin America, device sales were $204 million, an increase of 9% over the prior year quarter.
Masks and other sales were $204 million, an increase of 19% over the prior year quarter.
Revenue in Europe, Asia and other markets device sales were $162 million, an increase of 4% over the prior year quarter or in constant currency terms, an increase of 6%.
Masks and other sales in Europe, Asia and other markets were $79 million, an increase of 8% over the prior year quarter or in constant currency terms, an increase of 11%.
Globally, in constant currency terms, device sales increased by 8% while masks and other sales increased by 16% over the prior year quarter.
Software as a service revenue for the second quarter was $87 million, an increase of 37% over the prior year quarter.
During the rest of my commentary today, I'll be referring to non-GAAP numbers.
The non-GAAP measures adjust for the impact of amortization of acquired intangibles, purchase accounting fair value adjustment to MatrixCare deferred revenue, litigation settlement expenses, and acquisition-related expenses.
Note that this quarter for GAAP reporting purposes, we are now reflecting the portion of amortization of acquired intangibles attributable to develop technology in our cost of sales rather than being allocated to operating expenses.
We've made this change to align with SEC disclosure guidance.
This will mean we'll disclose both GAAP and non-GAAP gross profit measures going forward.
Going forward, I will reference this non-GAAP metric as I believe it is the best measure of our underlying gross margin.
Our non-GAAP gross margin improved to 59.7% in the December quarter compared to 59.1% in the same quarter of last year.
Compared to the prior year, our non-GAAP gross margin increased by 60 basis points.
This was predominantly attributable to favorable product mix and manufacturing efficiencies, partially offset by typical declines in average selling prices.
Moving on to operating expenses, our SG&A expenses for the second quarter were $171 million, an increase of 6% over the prior year quarter.
In constant currency terms.
SG&A expenses increased by 8%.
Excluding acquisitions, SG&A expenses increased by 2% on a constant currency basis.
SG&A expenses as a percentage of revenue improved to 23.3% compared to 24.8% that we reported in the prior year quarter.
Looking forward, subject to currency movements and taking into account recent acquisitions, we expect SG&A as a percentage of revenue to be in the range of 23% to 25% for the remaining two quarters of fiscal year 2020.
R&D expenses for the quarter were $50 million, an increase of 16% over the prior year quarter or on a constant currency basis, an increase of 18%.
Excluding acquisitions, R&D expenses increased by 4% on a constant currency basis.
R&D expenses as a percentage of revenue was 6.8% compared to 6.6% in the prior year.
Looking forward, subject to currency movements, we expect R&D expenses as a percentage of revenue to be in the range of 7% to 8% for the balance of fiscal year 2020.
Total amortization of acquired intangibles was $20.6 million for the quarter, an increase of 30% over the prior year quarter reflecting the impact from our recent acquisitions.
Stock-based compensation expense for the quarter was $14.1 million.
Our non-GAAP operating profit for the quarter was $218.5 million, an increase of 21% over the prior year quarter while non-GAAP net income for the quarter was $176.3 million, an increase of 22% over the prior year quarter.
On a GAAP basis, our effective tax rate for the December quarter was 10.2% while on a non-GAAP basis, our effective tax rate for the quarter was 11.6%.
Our tax rate was favorably impacted by a tax benefit of $20.3 million associated with the vesting of employee share-based compensation, in particular, the tax deduction associated with the vesting of executive performance stock units in November.
Excluding the impact from this benefit, our GAAP effective tax rate would have been 21.6% and our non-GAAP effective tax rate would have been 21.8% [Phonetic].
Looking forward, we estimate our effective tax rate for the second half of fiscal year 2020 will be in the range of 19% to 21%.
Non-GAAP diluted earnings per share for the quarter were $1.21, an increase of 21% over the prior year quarter while GAAP diluted earnings per share for the quarter were $1.10.
Now diluted earnings per share were also favorably impacted by the tax benefit that I've just discussed.
Excluding the impact of this gain, our non-GAAP earnings per share would have been $1.07.
Cash flow from operations for the second quarter was $69.9 million reflecting robust underlying earnings, partially offset by the timing of tax payments with $111 million in tax paid in our second quarter.
Additionally, we made the payment for our settlement to the U.S. Department of Justice of $40.6 million this quarter.
Capital expenditure for the quarter was $25.1 million.
Depreciation and amortization for the December quarter totaled $45.5 million.
During the quarter, we paid dividends of $56.1 million.
We recorded equity losses of $6.9 million in our income statement in the December quarter associated with the Verily joint venture.
We expect to record approximately $6 million of equity losses each quarter for the balance of fiscal year 2020 associated with the joint venture operations.
Our Board of Directors today declared a quarterly dividend of $0.39 per share.
At December 31, we have $1.3 billion in gross debt and $1.1 billion in net debt.
Our total assets were $4.4 billion and our balance sheet remains strong with modest debt levels.
Finally, to recap, our top line revenue was strong this quarter with growth across all major categories.
Gross margin expanded and our operating costs remained well controlled.
As a result, we are continuing to drive operating leverage with Q2 non-GAAP operating profit up 21% year-on-year.
We are focused on driving operating results integrating our SaaS acquisitions and ensuring we continue to invest in our strategic long-term opportunities.
And with that, I'll hand the call back to Amy.
We will now turn to the Q&A portion of the call.
I would like to remind everyone to limit yourself to one question and if you have additional questions, please feel free to return to the call queue.
Christine, we are now ready for the Q&A portion of the call.

user
compname reports q2 non-gaap earnings per share $1.21.
q2 non-gaap earnings per share $1.21.
q2 gaap earnings per share $1.10.
agreed in january to acquire snapworx.

assistant