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Text: 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 today's call, we will discuss some non-GAAP measures.
We believe these statements are based on reasonable assumptions.
However, our actual results may differ.
During this global pandemic, caused by a novel coronavirus and COVID-19, the disease state it leads to, I hope that you, your family and your friends remain safe and healthy during these times.
Way back in early January, a ResMed employee, a ResMedian in Hubei province, China, put on a hazmat suit and helped set up ventilators to provide the gift of breath to many thousands of people that turned out in that city, while their immune systems fought against the first global cases of COVID-19 that ResMed saw in Wuhan.
Since that time, seven months ago, our global team has provided vital support globally to combat this coronavirus, not just across China, but across Asia, then across Europe, across North America.
And now we are just starting to -- preparing to -- actually, we're in the midst of continuing that battle in Latin America in, sub-Sahara and Africa and parts of the Middle East and Asia that still have that, what we call, the peak impact ahead of them in terms of hospitalizations and ventilator needs.
So I noted in our call 90 days ago, our Q3 call, that we would do more to support the global community and local healthcare systems with ventilators and ventilation mask systems across the 140 countries that we serve.
During Q4, during this June quarter, we produced around 100,000 invasive and noninvasive ventilators, including bilevel positive pressure ventilators.
That brings our cumulative total to over 150,000 ventilators that we produced since the beginning of calendar year 2020.
So we've delivered on our promise to triple our production.
And in fact, if you take the period from January 1 to June 30, for 2020, that is a 3.5 times increase over the period for 2019, so 3.5 times.
For our flagship ventilator, which is the Astral life support ventilator, we reached a peak of over five times our weekly production rate during the period.
And we're still running at full capacity for the Astral to ensure that ResMed is there for, what we call, preservation of life as the coronavirus continues to move around the globe.
I'm particularly proud of the role that our supply chain, our manufacturing, our distribution and our tech services teams have played during this coronavirus crisis, making sure that ResMed device and a complete ventilation system was there at the bedside when someone needed help breathing as their immune system fights against COVID-19.
So, looking forward, we have built a sophisticated set of analytic capabilities, including an epidemiology patient model that has helped us model the impacts of both the headwinds and the tailwinds that are part of this COVID-19 crisis, and we have detailed scenarios of the impacts by city, by region, by country and by ResMed business line.
Through all that analysis, I'm happy to say that we're confident in our ResMed ability to execute across the full range of potential scenarios for all of our customers and for all of our global businesses.
The tailwinds for ventilation in the March quarter and the June quarter from both the ventilator devices and the ventilation mask systems are starting to recede.
And while we are still working on current and future contracts with hospitals, as well as city and national health authorities for these ventilators, the volumes will be significantly lower in the September quarter for these ventilators.
At the same time, the headwinds we experienced, especially in the June quarter, for our sleep apnea and COPD patient flow and patient diagnosis are also receding.
So, people are starting to return for their primary care physician visits.
They're starting to return for their specialist physician visits.
And we see the system today growing from its nadir during the last period as we now see city by city and country by country, the markets are coming back online.
So over the portfolio of 140 countries that we serve, we expect a gradual, sequential, quarter to quarter, U-shaped recovery of patient flow to primary care physicians, sleep physicians, as well as pulmonary physicians that are treating COPD and asthma throughout fiscal year 2021.
We expect the expansion of home sleep apnea testing to continue.
As it did during the crisis, we think it will continue post the crisis.
And we also expect a steady sort of sequential increase in sleep lab activity and visits to the pulmonary specialists both in person and through telehealth, which has been expanding rapidly under COVID.
Additionally, some very early research into the post-COVID clinical world shows that select patients who have recovered from COVID-19 may have lung damage, and some of them may require long-term ventilator support.
This is an additional area for focus for us, but I have to say, it's very early days in that area.
I'll also recap our long-term strategy, our ResMed 2025 strategy and some execution highlights against some of our key operating priorities as part of that strategy.
Finally, I'll discuss how we are advancing and learning in a post-COVID peak world, including how this pandemic has accelerated three important trends: One, the importance of respiratory medicine.
Two, the importance of digital health.
And three, the importance of outside-hospital healthcare.
These are three key elements of our ResMed 2025 strategy that were in play well before the global pandemic.
But these are theee trends that have accelerated during this pandemic, and we think the momentum will continue in a post-COVID world.
So, to our business performance.
We delivered strong revenue and earnings growth for the fourth quarter and for the full fiscal-year 2020.
We had year on year annual 15% top line revenue growth to $3 billion in annual revenue for ResMed.
Our results reflect strong growth and positive momentum across our innovative medtech portfolio and our market-leading digital health software solutions.
We have grown our global market footprint, finding new patients in the midst of a global pandemic, and we have driven growth with recurring revenue from our installed base of sleep apnea patients.
While our financial results in March and June have benefited from high demand for ventilation devices and lower operating costs, our underlying core business of sleep apnea, COPD and asthma remains strong and well positioned for long-term growth.
During fiscal year 2020, we generated $802 million of cash that allowed us to return $225 million of cash dividends to you, our shareholders, while also investing in our future with a double-digit increase in R&D, including clinical research, both digital and in person, as well as design and digital innovation across our sleep apnea, COPD, asthma and our software as a service businesses.
We have a full pipeline of innovative solutions that will generate both medium- and long-term growth opportunities, with an industry-leading intellectual property portfolio of over 6,000 patents and designs.
Importantly, we have also seen significant growth in our digital health ecosystem.
We now have over 6.5 billion nights of sleep and respiratory medical data in the air solutions platform.
We have grown connectivity to our digital health ecosystem by over 26% this fiscal year, and we now have over 12 million 100% cloud-connectable medical devices in the market.
And we have around 14 million patients enrolled in the AirView software solution.
Our digital health ecosystem is a competitive advantage for ResMed that offers innovative solutions, as well as integrated care to drive superior outcomes, better patient experiences and lower healthcare system costs.
Our acquisition and continued investment and development of the propeller platform has been a digital health accelerant for ResMed.
Our recently announced commercial partnership with Novartis, which I will describe in more detail later during the call, is a great example of this progress with propeller.
During the last 12 months, we have improved 16 million lives by providing a person with a device or complete mask system to help them breathe.
Importantly, the ability to help these patients on their individual journey to better sleep and better breathing is powered by the over 6.5 billion nights of medical data in our ecosystem.
These data form a significant competitive advantage as they enable us to perform sophisticated analytics and drive actionable insights to benefit all of our customer groups, including the patients most importantly, but also improving workflows for physicians, for providers, for payers and for full healthcare systems.
Fundamentally, we believe the future of healthcare delivery is outside the hospital.
That's where ResMed competes today, and that's where we win today.
Globally, there are 936 million people with sleep apnea.
There are over 380 million people who suffer from COPD, and there are over 340 million people living with asthma.
They all need our help, and they all want that help at home, definitely not in a hospital.
Our SaaS business is 100% focused on out-of-hospital care, leveraging the global trend for seniors to age in place.
We think this trend will accelerate in a post COVID world.
ResMed can provide seamless care for our portfolio of out-of-hospital care settings, including home medical equipment, skilled nursing facilities, senior living, life plan communities, home health, hospice, as well as home care services.
COVID-19 has accelerated the rapid adoption of digital health technologies, the recognition of the value of remote monitoring, virtual diagnosis and the evolution of global reimbursement models in the field of digital health.
This acceleration of digital health adoption represents a significant medium to long-term tailwind for our business.
These three trends, the increased importance of respiratory medicine, the increased importance of digital health and the increased importance of out-of-hospital healthcare will help ResMed achieve our goal to improve 250 million lives by 2025.
So on to our operating priorities.
We have three operating priorities that guide our daily focus here at ResMed.
1 is to grow and differentiate our core sleep apnea, COPD and asthma businesses across global markets.
With over 1.6 billion people across these three chronic disease states, we know that delivering our innovative solutions to these underpenetrated markets is our clear No.
2 priority is to design, develop and deliver world-leading medical devices, as well as digital health technology solutions to better engage physicians, providers and payers, as well as patients so that we can improve clinical outcomes so we can reduce costs, and we can enhance the patient experience.
3 priority is to innovate and grow the world's best seamless software solutions for care that is delivered outside the hospital.
We think ResMed is uniquely positioned to deliver on these three priorities.
So, I'll quickly walk through some examples of innovation in each of these priorities, and then we'll hand over to Brett and go to Q&A.
In our core market of sleep apnea, we launched, what we call, the ResMed MaskSelector into our US geography.
The ResMed MaskSelector is a digital health technology to make remote patient mask selection and sizing both easier and more effective, helping the patient themselves receive the care they need from home.
We think that this is the digital solution to help our home medical equipment or HME customers in their challenge to find the right mask for each patient when they can't physically touch them due to physical distancing during COVID-19.
We are providing this solution at no charge during the coronavirus public health emergency.
However, we think this technology's efficiency and benefits for both providers and patients will last well beyond the pandemic.
Digital tools like this, as well as capabilities, including video support for doctors and their patients, as well as remote mask patient fittings, have seen good application during COVID-19.
Combined with our mask resupply solutions, including SnapWorx, AeroCare and Brightree resupply, we have delivered solid mask growth.
In terms of new patient flow, the COVID lockdowns have had a significant impact on our business.
We saw double-digit declines in new sleep apnea patient flow across all markets that experienced lockdowns.
Individual cities, regions and countries had unique approaches to any lockdown and reopening processes.
For instance, today, in Germany, we stand at more than 85% of pre-COVID sleep lab capacity already up and running.
Whereas in China, at the other end of the spectrum, we stand at 50% of pre-COVID diagnostic capacity in that geography.
Most of the other 140 countries that we sell into around the world fall somewhere between those two extremes.
In big countries like the US, it's a story of 50 states with unique models, again, as a spectrum between these boundary conditions.
The average in the United States is probably somewhere in that 70% of diagnostic capability but some states will be closer to the 60% range, and some will be closer to the 75% range.
As I stated earlier, we expect a steady, sequential, quarter-by-quarter, sort of U-shaped recovery of the sleep apnea, COPD and asthma patient flow throughout fiscal 2021.
Clearly, a highly effective vaccine or a highly efficacious treatment for COVID-19 could, of course, turn that U-shape into a dramatic V-shaped recovery.
However, we are not counting on that.
And an event like that remains upside from what we call our expected or likely case scenario.
In terms of execution in our second key disease state of COPD and our ventilation solutions for COPD and other lung conditions, we launched our cloud-based remote monitoring software called AirView for our ventilator solutions in Europe, including the Astral product, the Stellar ventilator and the Lumis ventilator.
Through AirView, clinicians and care providers can now remotely monitor their patient's respiratory rate, as well as their blood oxygen saturation.
These are two critical indicators for a respiratory patient's condition.
We accelerated the delivery of this technology for clear and urgent needs during the pandemic.
However, this enhanced AirView capability, providing insights across European ventilation patient populations will provide differentiation for ResMed through the clinical value for physicians and better outcome for patients in perpetuity.
In terms of execution in our third key disease state of asthma, ResMed has partnered with Novartis to co-package the propeller solution and digital platform with the new triple-action asthma medication in a brand called Enerzair Breezhaler.
This novel combination has been cleared by the European Commission for launch.
The propeller sensor attaches to the new inhaler from Novartis and its new medication where it can collect medication usage data.
The app works both as an adherence measure that gives the patient reminders to take their medication, but also as a means of collecting information about the patient's medical condition to help their physician provide even better care to the patient.
This is a breakthrough innovation as it is the first time a respiratory medicine has been co-packaged with a digital health platform and co-prescribed.
The benefits of this combination are tremendous for the patient.
It's a simple and convenient way to have a fully integrated experience to allow them to better live with their chronic disease, to better live with asthma with no incremental cost to the patient.
This brand-new approval is a new-to-the-world technology that will accelerate the adoption of digital health in the respiratory medicine space and will help us identify other innovative opportunities to combine our propeller tech with medicine delivery.
This new Novartis partnership follows our announcement in May that the propeller sensor and an app gained 510(k) US 510(k) clearance for use with the SYMBICORT inhaler for both asthma and COPD patients from AstraZeneca.
This sensor is built to fit various inhalers and their generic equivalents.
Propeller's cloud-based system tracks medication usage of the SYMBICORT from these inhalers through a smartphone app, which patients can use to paint a clearer picture of their disease control for their clinicians.
These new partnerships with both Novartis and AstraZeneca and previously announced collaborations with Orion, as well as Boehringer Ingelheim expand the potential reach of propeller's technology to around 90% of inhaled medicines for both asthma and COPD in the United States.
We believe that this represents a significant upside opportunity for the expansion of the propeller platform in the US market, but also around the world as the benefits of digital health grow and move around the world.
So before I transition to details of our software-as-a-service business, I'd like to recap briefly why the SaaS business is integral to ResMed's long-term strategy to provide seamless transitions between hospital care and post-acute care or as we call it here at ResMed, out-of-hospital care because we don't think you have to go to hospital to get good care outside the hospital.
Our vision is to enable a system where a patient's health data moves with them as they transition care settings, giving providers the information they need to deliver personalized care and saving the person and the caregiver, both time and money.
We are focused on leveraging our competitive advantage as the only long-term strategic player with solutions that span across these seven important out-of-hospital healthcare verticals, home medical equipment, skilled nursing facilities, senior living, life plan communities, home health, hospice, as well as home care services.
During the quarter, our software-as-a-service business grew 7% compared to the year ago period.
We are integrating and optimizing the out-of-hospital SaaS portfolio to support long-term growth.
We continue to believe that the long-term weighted average growth of these SaaS verticals that we're in is in the high-single digits.
The COVID-19 market impact has particularly affected the skilled nursing facility census levels in that vertical that we serve.
We believe this impact will continue over the next several quarters, moving the weighted average market growth of these verticals to the mid-single-digit range for our SaaS businesses for that period with a return to high single digits as we start to see other analogous things, such as elective surgeries and hospital discharges return to their normal rates, at which time, we believe that market's weighted average market growth rate will return to the high single digits.
Our goal here at ResMed is always to not just meet but to beat that market growth through delivery of superior market-leading solutions.
Turning to more details of our SaaS business performance during the quarter.
We've been pleased with the early impact of SnapWorx technology, which we acquired in February.
As we discussed on our last earnings call, SnapWorx provides patient contact management and workflow optimization for sleep apnea resupply for our HME customers.
The timing of this acquisition couldn't have been better.
With COVID-19, our HME customers have been increasingly focused on resupply and better tech to interact with patients in a no-touch, noncontact world.
The combination of SnapWorx, as well as AeroCare and Brightree resupply, and all of these three technologies are under our Brightree brand, they provide the strongest suite of resupply solutions available in the market, period.
This technology is important to our customers, to their patients, as well as to our internal SaaS business and our core sleep apnea business, driving both patient engagement and better outcomes, as well as revenue growth.
In October 2019, we announced that ResMed entered into an agreement with Cerner Corporation to help clinicians make more informed treatment decisions, control costs and deliver seamless care across healthcare systems.
We have now integrated our Brightree-branded home health and hospice platform with the Cerner Electronic Health Record or EHR.
This partnership is performing above our expectations for both Cerner and for ResMed, and we anticipate opportunities to deepen and expand this collaboration as we continue to work together.
In summary, the SaaS portfolio is performing well and remains an important driver of our digital transformation of healthcare in settings outside the hospital.
The COVID headwinds in the near term will recede, and we will continue to invest now and in the future in research and development to make sure that ResMed has the best solutions for long-term growth and market leadership.
The future of healthcare delivery is outside the hospital.
COVID-19 has accelerated that, and we here at ResMed are well-positioned to capitalize on it.
Our diversified solution portfolio and capabilities are arrayed against a compelling and expanding market opportunity in sleep apnea, COPD, asthma and out-of-hospital SaaS.
Through the first seven months of this COVID-19 crisis and this calendar year, we have maintained strong growth through our effective execution, our breakthrough innovation, our recurring revenue businesses, as well as margin expansion driven by our global operating excellence programs.
While we look forward to moving COVID-19 into the rear view mirror, there are beneficial trends it has accelerated, which are not passing.
Moreover, they're actually persistent and, we believe, impactful.
The importance of respiratory medicine, the importance of digital health and the importance of healthcare delivered outside the hospital, those three trends just got accelerated, and they're here to stay.
While these macro trends of increased telehealth and increased remote patient monitoring represent short, medium- and long-term benefits for ResMed's business, more importantly, they represent tailwinds for significant improvement on the most critical patient metrics, improving clinical outcomes for the patient's chronic disease and enhancing levels of patient satisfaction for that ultimate customer, the person who just wants to sleep better, breathe better and live with a better quality of life.
So before I hand the call over to Brett for his remarks, I want to express my personal gratitude to the 7,500 ResMedians around the world.
In an unprecedented fiscal year, you have remained focused on creating value in our core markets and honoring commitments to patients through COVID-19.
You helped us pivot and produce 150,000 life-saving ventilators to help people breathe in 140 countries worldwide.
Without our team, our current and future success would not be possible.
With that, I'll hand the call over to Brett in Sydney, and then we'll open up for Q&A.
Brett, over to you.
In my remarks today, I will provide an overview of our results for the fourth-quarter fiscal year 2020 and some remarks on our Q1 FY '21 outlook.
As Mick noted, we had a strong quarter.
Group revenue for the June quarter was $770 million, an increase of 9% over the prior-year quarter.
In constant currency terms, revenue increased by 10% compared to the prior-year quarter.
Revenues for the fourth quarter were favorably impacted by significant sales of ventilator devices and accessories, partially offset by declines in our sleep business.
We estimate that the incremental net revenue benefit from COVID-19 related impacts was in the order of 20 million, reflecting estimated incremental ventilator and related accessory revenue of 125 million, partially offset by an estimated 105 million impact on our sleep revenue relative to our pre-COVID forecasts.
Taking a closer look at our geographic distribution and excluding revenue from our software-as-a-service business, our sales in US, Canada and Latin America countries were $401 million, an increase of 4% over the prior-year quarter.
Sales in Europe, Asia and other markets totaled 278 million, an increase of 19% over the prior-year quarter and an increase of 22% in constant currency terms.
By product segment, US, Canada and Latin America device sales were $206 million, an increase of 1% over the prior-year quarter.
Masks and other sales were 195 million, an increase of 7% over the prior-year quarter.
In Europe, Asia and other markets, device sales totaled $206 million, an increase of 32% over the prior-year quarter or in constant currency terms, a 35% increase.
Masks and other sales in Europe, Asia and other markets were 73 million, a decrease of 8% over the prior-year quarter, while in constant currency terms, a 6% decrease.
Globally, in constant currency terms, device sales increased by 16%, while masks and other sales increased by 3% over the prior-year quarter.
Software-as-a-service revenue for the fourth quarter was 91 million, an increase of 7% over the prior-year quarter.
On a non-GAAP basis, SaaS revenue increased by 6%.
During my commentary today, I will be referring to non-GAAP numbers.
The non-GAAP measures adjust for the impact of amortization of acquired intangibles, the purchase accounting fair value adjustment to MatrixCare deferred revenue, restructuring expenses and litigation settlement expenses.
Our non-GAAP gross margin improved by 60 basis points to 59.9% in the June quarter compared to 59.3% in the same quarter last year.
The increase is predominantly attributable to favorable product mix, partially offset by increased cost in logistics, component parts and manufacturing.
These cost increases largely reflect the impact of COVID-19 and our rapid ramp-up of ventilator production.
In particular, we incurred significantly higher inbound and outbound airfreight costs during the quarter reflecting both higher volumes and significantly higher rates.
We are rebalancing airfreight and sea freight volumes.
But in the near term, we expect to see elevated freight costs continuing into Q1 FY '21.
Moving on to operating expenses.
Our SG&A expenses for the fourth quarter were 165 million, a decrease of 4% over the prior-year quarter.
Or in constant currency terms, SG&A expenses were consistent with the prior year.
SG&A expenses as a percentage of revenue improved to 21.5% compared to 24.3% we reported in the prior-year quarter, benefiting from cost management and reduced travel as we work through the uncertain COVID-19 environment.
Looking forward, we expect SG&A expenses to increase in the low single digits relative to the year ago period.
R&D expenses for the quarter were $53 million, an increase of 3% over the prior-year quarter or on a constant currency basis, an increase of 4%.
R&D expenses as a percentage of revenue were 6.8% compared to 7.3% in the prior year.
We continue to prioritize investments in innovation because we believe our long-term commitment to technology and product development will deliver a sustained competitive advantage.
Looking forward, we expect R&D expenses to continue to grow in the high single digits to low double digits, reflecting our commitment to innovation through the economic cycles.
Total amortization of acquired intangibles was 20 million for the quarter, a decrease of 14% over the prior-year quarter, reflecting historical intangible assets becoming fully amortized during the quarter.
Stock-based compensation expense for the quarter was 16 million.
Non-GAAP operating profit for the quarter was 243 million, an increase of 24% over the prior year quarter, reflecting strong top line growth, expansion of gross margin and well-managed operating expenses.
On a GAAP basis, our effective tax rate for the June quarter was 16.2%, while on a non-GAAP basis, our effective tax rate for the quarter was 16.8%.
Looking forward, we estimate our effective tax rate for fiscal year 2021 will be in the range of 17 to 19%.
Non-GAAP net income for the quarter was $193 million, an increase of 40% over the prior year quarter.
Non-GAAP diluted earnings per share for the quarter were $1.33, an increase of 40% over the prior year quarter.
Our GAAP diluted earnings per share for the quarter were $1.22.
Cash flow from operations for the fourth quarter was 330 million, reflecting robust underlying earnings and working capital management.
Capital expenditure for the quarter was 18 million.
Depreciation and amortization for the June quarter totaled 39 million.
During the quarter, we also paid dividends of 56 million.
We recorded equity losses of 6 million in our income statement in the June quarter associated with the Verily joint venture.
We expect to record equity losses of approximately 15 million for the full fiscal year 2021 associated with the joint venture operation.
We ended the fourth quarter with a cash balance of 463 million, having generated 330 million in operating cash flow during the fourth quarter and 802 million during our fiscal year 2020.
At June 30, we had $1.2 billion in gross debt and 717 million in net debt.
Our debt levels remained modest.
And at June 30, we had just under 1.1 billion available for drawdown under our existing revolver facility.
In summary, our liquidity position remains strong.
However, I also want to highlight that in these times of uncertainty, we are maintaining a disciplined approach and we are tightly managing expenses, cash flow and liquidity.
Today, our board of directors declared a quarterly dividend of $0.39 per share, reflecting the Board's confidence in our strong liquidity position and operating performance.
Finally, to recap on Q4 results, our earnings this quarter were very strong, reflecting significant demand for ventilators underpinning revenue growth and expansion in our gross margin and lower operating expenses.
Turning now to our first-quarter FY '21 outlook.
At a high level, we expect to see continued demand for ventilators, but at a significantly lower level compared to Q4 FY '20.
Additionally, we expect to see a continued headwind for sleep device sales in Q1 in response to the temporary reduction in the diagnosis of new patients.
Mask and accessories have continued to demonstrate resilience over the past three months, which reflects the insulating value of the large patient installed base.
Consistent with these remarks, for the first month of Q1 FY '21, we recorded group revenue growth in the low single digits.
However, like many other companies, we are experiencing pervasive uncertainty in the current environment.
And as a result, our forecast and possible future revenue outcomes remain dynamic.
And with that, I will hand the call back to Amy.
We'll now turn to the Q&A portion of the call.
[Operator instructions] Sheryl, we'll now -- we are now ready to start the Q&A portion.

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q4 non-gaap earnings per share $1.33.
q4 gaap earnings per share $1.22.
qtrly revenue increased 9% to $770.3 million; up 10% on a constant currency basis.

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